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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 COMMISSION FILE NUMBER 333-45235
[GRAPHIC OMITTED]
PERRY-JUDD'S INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 51-0365965
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
575 WEST MADISON STREET, WATERLOO, WISCONSIN 53594
(Address of principal executive offices) (Zip Code)
920-478-3551
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements in the past 90 days. YES[X] No [ ]
<PAGE>
PERRY-JUDD'S INCORPORATED
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997...........................................3
Condensed Consolidated Statements of Operations for the
Three and Six Months ended June 30, 1998 and June 30, 1997....................4
Condensed Consolidated Statements of Minority Interests,
Preferred Stock and Stockholders' Equity as of
June 30, 1998 and December 31, 1997...........................................5
Condensed Consolidated Statements of Cash Flows for the
Six Months ended June 30, 1998 and June 30, 1997..............................6
Notes to Condensed Consolidated Financial Statements........................7 - 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................9 - 10
PART II. OTHER INFORMATION..............................................................11
</TABLE>
2
<PAGE>
PERRY-JUDD'S INCORPORATED
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
(Unaudited) (Note)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ....................... $ 416 $ 3,779
Accounts receivable - net of allowance for
doubtful accounts of $796 and $1,266,
respectively .................................. 43,781 44,282
Inventories ..................................... 21,156 18,474
Deferred income taxes ........................... 539 1,039
Other current assets ............................ 2,928 1,818
--------- --------
Total current assets ............... 68,820 69,392
Property, plant and equipment, at cost .......... 147,091 136,630
Accumulated depreciation and amortization ....... (20,446) (14,822)
--------- --------
Property, plant and equipment - net ........... 126,645 121,808
Goodwill - net .................................. 27,664 28,597
Other assets - net .............................. 12,621 13,557
--------- --------
TOTAL ASSETS ............................................. $ 235,750 $233,354
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses ........... $ 34,574 $ 34,417
Borrowings under revolving credit facility ...... 5,026 --
Current maturities of long-term debt ............ 3,081 2,085
--------- --------
Total current liabilities .......... 42,681 36,502
Long-term debt .................................. 141,144 143,186
Deferred income taxes ........................... 10,851 11,645
Other long-term liabilities ..................... 8,923 8,712
--------- --------
Total liabilities .................. 203,599 200,045
--------- --------
MINORITY INTERESTS: Redeemable Preferred Stock
Series A, B and D with stated redemption value
of $100 per share, aggregate liquidation value of
$7,625 and $7,138 at June 30, 1998 and
December 31, 1997, respectively ................. 7,016 6,935
--------- --------
STOCKHOLDERS' EQUITY:
Preferred stock - par value $0.001 per share,
775,000 shares authorized, 102,926 and 95,620
shares issued and outstanding, respectively ... 10,293 9,562
Common stock - par value $0.001 per share,
1,000,000 shares authorized, 860,010
shares issued and outstanding, respectively ... 1 1
Additional paid-in capital ...................... 21,500 21,500
Accumulated deficit ............................. (6,659) (4,689)
--------- --------
Total stockholders' equity ......... 25,135 26,374
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............... $ 235,750 $ 233,354
--------- --------
--------- --------
</TABLE>
Note: Derived from audited financial statements. See notes to condensed
consolidated financial statements.
3
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PERRY-JUDD'S INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
(DOLLARS IN THOUSANDS)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
NET SALES........................................................ $69,859 $ 31,799 $ 146,805 $ 65,576
OPERATING EXPENSES:
Costs of Production......................................... 54,244 25,417 115,791 53,323
Selling, general and administrative......................... 8,612 3,623 16,381 7,011
Depreciation................................................ 3,045 1,615 6,123 3,230
Amortization of intangibles................................. 574 100 980 200
------------- ----------- ----------- -----------
66,475 30,755 139,275 63,764
------------- ----------- ----------- -----------
INCOME FROM OPERATIONS........................................... 3,384 1,044 7,530 1,812
------------- ----------- ----------- -----------
OTHER (INCOME) EXPENSES:
Interest expense............................................ 3,837 1,485 7,701 2,916
Amortization of deferred financing costs.................... 189 150 586 300
Interest income............................................. (52) (10) (142) (20)
Loss (gain) on sale of assets............................... (58) -- (99) --
Other, net.................................................. 94 39 202 95
------------- ----------- ----------- -----------
4,010 1,664 8,248 3,291
------------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES......................................... (626) (620) (718) (1,479)
BENEFIT FOR INCOME TAXES......................................... (108) (241) (1) (580)
-------------- ------------ ------------ ------------
LOSS BEFORE DIVIDENDS ON
REDEEMABLE PREFERRED STOCK.................................. (518) (379) (717) (899)
DIVIDENDS ON REDEEMABLE
PREFERRED STOCK............................................. 262 255 522 509
------------- ----------- ----------- -----------
NET LOSS......................................................... $ (780) $ (634) $ (1,239) $ (1,408)
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
4
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PERRY-JUDD'S INCORPORATED
CONSOLIDATED STATEMENTS OF MINORITY INTERESTS, PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
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<TABLE>
<CAPTION>
Minority Interests Preferred Stock Common Stock
-------------------- ------------------- --------------------
Carrying Carrying Carrying Accumulated
Shares Value Shares Value Shares Value Deficit
------ ----- ------ ----- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997 .. 69,348 $6,935 95,620 $ 9,562 860,010 $21,501 $(4,689)
Net loss ........... -- -- -- -- -- -- (1,239)
Stock dividends .... 813 81 7,306 731 -- -- (731)
------ ------ ------- ------- ------- ------- -------
June 30, 1998 ...... 70,161 $7,016 102,926 $10,293 860,010 $21,501 $(6,659)
------ ------ ------- ------- ------- ------- -------
------ ------ ------- ------- ------- ------- -------
</TABLE>
See notes to condensed consolidated financial statements.
5
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PERRY-JUDD'S INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
(DOLLARS IN THOUSANDS)
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<TABLE>
<CAPTION>
SIX MONTHS
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ................................................................. $ (1,239) $(1,408)
Adjustments to reconcile net
loss to net cash flows
provided by operating activities:
Depreciation and amortization ............................................. 7,689 3,730
Deferred income tax provision ............................................. (294) --
Loss (gain) on sale of fixed assets ....................................... (99) --
Changes in operating assets and liabilities:
Accounts receivable - net ............................................. 501 1,309
Inventories ........................................................... (2,682) (334)
Accounts payable and accrued expenses ................................. 422 (1,808)
Other assets and liabilities - net .................................... (460) (555)
-------- -------
Net cash provided by operating activities ........................ 3,838 934
-------- -------
INVESTING ACTIVITIES -
Additions to property, plant and equipment - net .......................... (10,978) (704)
-------- -------
FINANCING ACTIVITIES -
Financing costs incurred .................................................. (204) --
Increase in revolving debt ................................................ 5,026 354
Debt repayments ........................................................... (1,045) (2,763)
-------- -------
3,777 (2,409)
-------- -------
DECREASE IN CASH AND CASH EQUIVALENTS .......................................... (3,363) (2,179)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................. 3,779 2,183
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....................................... $ 416 $ 4
-------- -------
-------- -------
</TABLE>
See notes to condensed consolidated financial statements.
6
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PERRY-JUDD'S INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
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1. BASIS OF PRESENTATION
The accompanying condensed consolidated interim financial statements have
been prepared by Perry-Judd's Incorporated (along with its subsidiaries,
the "Company") pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect normal and recurring adjustments, which
are, in the opinion of the Company, considered necessary for a fair
presentation. As permitted by these regulations, these statements do not
include all information required by generally accepted accounting
principles to be included in an annual set of financial statements,
however, the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's latest audited financial statements.
Effective December 16, 1997, the Company acquired all of the outstanding
capital stock of Judd's Incorporated ("Judd's") for approximately $101.5
million less outstanding indebtedness of Judd's. The acquisition was
accounted for under the purchase method of accounting and accordingly the
results of operations are included in the accompanying financial statements
since the acquisition date. The preliminary allocation of the purchase
price is based upon the estimated fair value of the assets acquired and
liabilities assumed as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired.............................. $ 108,394
Goodwill................................................... 28,073
Fair value of liabilities assumed.......................... (72,483)
Amounts paid to creditors and preferred shareholders....... 37,484
----------
Cash paid for net assets acquired.......................... $ 101,468
----------
----------
</TABLE>
2. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
Work-in-process............................................... $ 7,057 $ 6,137
Raw materials and production supplies......................... 14,099 12,337
------------ -------------
Total......................................................... $ 21,156 $ 18,474
------------ -------------
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</TABLE>
3. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components in the financial statements. The
Company adopted this statement in the first quarter of 1998. The adoption
of SFAS No. 130 did not have a material effect on the Company's
consolidated financial statements.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits", which standardizes the disclosure for pensions and other
postretirement benefits. The Company will adopt this statement for the
fiscal year ended 1998. The Company is currently evaluating the impact SFAS
No. 132 may have on additional disclosure, if any, to its consolidated
financial statements.
7
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PERRY-JUDD'S INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
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4. CONTINGENCIES
In connection with the acquisition of Perry Printing, the Company issued
50,000 and 65,000 shares of Series A and B redeemable stock, respectively,
to the former owner of Perry Printing. During 1996, the Company made two
indemnity claims against the former owner of Perry Printing principally
involving breaches of warranties and representations made on certain assets
under its Asset Purchase Agreement. Redemption features of the Series A
redeemable preferred stock provided the Company with the option to offset
such claims as immediate redemption of the Series A redeemable preferred
stock up to the maximum redemption value of $5 million. Accordingly, the
carrying value of the Series A redeemable preferred stock was reduced to
$-0- in the financial statements at December 31, 1996. The former owner of
Perry Printing has objected to these claims for indemnification and
management anticipates the claims may result in litigation but believes the
Company's position on the claims will be upheld.
Additionally, the Company has asserted a claim against the former owner of
Perry Printing for an approximate $1.8 million employee benefit obligation
incurred prior to April 28, 1995, which is now an obligation of the Company
to its employees covered by collective bargaining agreements. This amount
has been reflected as an increase to both assets and liabilities pending
resolution with the former owner of Perry Printing. Management believes
that its position will be upheld.
8
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PERRY-JUDD'S INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 VERSUS SIX MONTHS ENDED JUNE 30, 1997.
Net sales increased $81.2 million or 123.9% to $146.8 million for the six
months ended June 30, 1998 from $65.6 million for the six months ended June 30,
1997. The increase resulted from Judd's sales included for the first six months
of 1998 and substantially higher volume of production units from new and
existing customers. Paper costs were 27% of net sales for the six months ended
June 30, 1998 versus 25% for the six months ended June 30, 1997.
Costs of production increased $62.5 million or 117.1% to $115.8 million for
the six months ended June 30, 1998 from $53.3 million for the six months ended
June 30, 1997, principally from Judd's production included for the first six
months of 1998 and overall increased volume of production. Costs of production
as a percent of net sales were 78.9% for the six months ended June 30, 1998 as
compared to 81.3% experienced in the six months ended June 30, 1997, principally
as a result of the benefits from higher production volume and improved operating
efficiencies gained from capital investments.
Selling, general and administrative expenses increased $9.4 million or
133.6% to $16.4 million for the six months ended June 30, 1998 compared to $7.0
million for the six months ended June 30, 1997. Selling, general and
administrative expenses increased as a percent of net sales at 11.1% in the 1998
period compared to 10.7% in the 1997 period. All of the $9.4 million increase
related to adding the Judd's operation for the first six months of 1998.
Depreciation expense increased $2.9 million or 89.6% to $6.1 million for
the six months ended June 30, 1998 from $3.2 million for the six months ended
June 30, 1997 as a result of including Judd's depreciation for the first six
months of 1998.
Income from operations increased $5.7 million to $7.5 million for the six
months ended June 30, 1998 from $1.8 million for the six months ended June 30,
1997, due to the factors discussed in the preceding paragraphs.
Interest expense increased $4.8 million to $7.7 million for the six months
ended June 30, 1998 from $2.9 million for the six months ended June 30, 1997 as
a result of an increased level of debt incurred from the Judd's acquisition on
December 16, 1997.
THREE MONTHS ENDED JUNE 30, 1998 VERSUS THREE MONTHS ENDED JUNE 30, 1997.
Net sales increased $38.1 million or 119.7% to $69.9 million for the three
months ended June 30, 1998 from $31.8 million for the three months ended June
30, 1997. The increase resulted from Judd's sales included for the second three
months of 1998 and substantially higher volume of production units from new and
existing customers. Paper costs were 25% of net sales for the three months ended
June 30, 1998 versus 23% for the three months ended June 30, 1997.
Costs of production increased $28.8 million or 113.4% to $54.2 million for
the three months ended June 30, 1998 from $25.4 million for the three months
ended June 30, 1997, principally from Judd's production included for the second
three months of 1998 and overall increased volume of production. Costs of
production as a percent of net sales were 77.6% for the three months ended June
30, 1998 as compared to 79.9% experienced in the three months ended June 30,
1997, principally as a result of the benefits from higher production volume and
improved operating efficiencies gained from capital investments.
Selling, general and administrative expenses increased $5.0 million or
137.7% to $8.6 million for the three months ended June 30, 1998 compared to $3.6
million for the three months ended June 30, 1997. Selling, general and
administrative expenses increased as a percent of net sales at 12.3% in the 1998
period compared to 11.3% in the 1997 period. All of the $5.0 million increase
related to adding the Judd's operation for the second three months of 1998.
Depreciation expense increased $1.4 million or 88.5% to $3.0 million for
the three months ended June 30, 1998 from $1.6 million for the three months
ended June 30, 1997 as a result of including Judd's depreciation for the second
three months of 1998.
Income from operations increased $2.3 million to $3.4 million for the three
months ended June 30, 1998 from $1.0 million for the three months ended June 30,
1997, due to the factors discussed in the preceding paragraphs.
Interest expense increased $2.4 million to $3.8 million for the three
months ended June 30, 1998 from $1.5 million for the three months ended June 30,
1997 as a result of an increased level of debt incurred from the Judd's
acquisition on December 16, 1997.
9
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PERRY-JUDD'S INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its capital and operating requirements
with a combination of cash flow from operations, borrowings and external
operating leases. Earnings before income taxes plus depreciation and
amortization was $7.0 million for the six months ended June 30, 1998 and $2.3
million for the six months ended June 30, 1997.
Working capital was $26.1 million and $32.9 million at June 30, 1998 and
December 31, 1997, respectively. The use of cash balances to fund capital
expenditures during the first six months of 1998 was primarily responsible for
the $6.8 million decrease in working capital at the end of the first half of
1998 versus the end of 1997.
Since the inception of operations on April 28, 1995, the company has funded
the majority of its needs for production equipment through operating leases and
borrowings under its Amended and Restated Credit Agreement dated December 16,
1997, (the "Credit Agreement"). The Credit Agreement, which provides for an
aggregate commitment of $75 million, is comprised of a $45 million revolving
credit facility based upon a borrowing base of eligible accounts receivable and
inventory amounts and a $30 million term loan facility. The five-year Credit
Agreement provides for monthly reductions in its term loan facility and
borrowings bear interest at rates that fluctuate with the prime rate and the
Eurodollar rate. As of June 30, 1998, the Company had unutilized commitments of
$35 million under its Credit Agreement.
The Company has recently executed an agreement to enter a sale and
leaseback transaction for certain real property held by Judd's and its
subsidiaries, including two printing plants in Virginia and one in Baltimore,
Maryland. If consummated, this sale and leaseback would generate approximately
$16.0 million in after tax net proceeds which would be available for general
corporate purposes. The initial annual lease expense expected under the
operating lease resulting from the proposed sale and leaseback transaction would
be $2.1 million with 14.5% escalations scheduled at the start of the sixth and
eleventh and sixteenth year of the proposed 20 year term. The consummation of
the proposed sale and leaseback transaction is contingent upon satisfactory
appraisal of the properties, inspection and environmental reports and other due
diligence efforts to be completed by the potential buyer, among other
conditions, and there can be no assurance that this sale and leaseback
transaction will be consummated on the terms described above if at all.
Concentrations of credit risk with respect to accounts receivable are
limited due to the Company's diverse operations and large customer base. As of
June 30, 1998, the Company had no significant concentrations of credit risk.
The Company believes that its liquidity, capital resources and cash flows
are sufficient to fund planned capital expenditures, working capital
requirements and interest and principal payments for the foreseeable future.
The Company has evaluated the potential impact of the situation commonly
referred to as the "Year 2000 Issue". The Year 2000 Issue, which affects most
corporations, concerns the inability of information systems, primarily computer
software programs, to properly recognize and process date sensitive information
relating to the year 2000 and beyond. During the past several years, the Company
has taken actions to prepare its systems for the year 2000. As a result, the
majority of the Company's financial systems, as well as certain other
significant information systems, are currently year 2000 compliant. While the
Company will continue to evaluate its systems, it has determined, based upon the
available information, that additional costs associated with the Year 2000 Issue
will not have a material adverse effect upon its operating results or financial
condition.
SEASONALITY
Results of operations for this interim period are not necessarily
indicative of results for the full year. The Company's operations are seasonal.
Historically, approximately two-thirds of its income from operations has been
generated in the second half of the fiscal year, primarily due to the higher
number of magazine pages, new product launches and back-to-school and holiday
catalog promotions.
10
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PERRY-JUDD'S INCORPORATED
PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibits required in accordance with Item 601 of Regulation S-K
are incorporated by reference herein as filed with registrant's
Amendment 3 Form S-4 for the fiscal year ended December 31, 1997,
dated June 12, 1998.
In addition, the Company has filed herewith the following exhibits:
27.0 Financial Data Schedule for the period ended June 30,
1998 (filed in electronic form only).
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the quarterly
period ended June 30, 1998:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERRY-JUDD'S INCORPORATED
Date: August 10, 1998 /s/ Verne F. Schmidt
--------------------
Verne F. Schmidt
Senior Vice President and
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 416
<SECURITIES> 0
<RECEIVABLES> 44,577
<ALLOWANCES> (796)
<INVENTORY> 21,156
<CURRENT-ASSETS> 68,820
<PP&E> 147,091
<DEPRECIATION> (20,446)
<TOTAL-ASSETS> 235,750
<CURRENT-LIABILITIES> 42,681
<BONDS> 141,144
7,016
10,293
<COMMON> 21,501
<OTHER-SE> (6,659)
<TOTAL-LIABILITY-AND-EQUITY> 235,750
<SALES> 146,805
<TOTAL-REVENUES> 146,805
<CGS> 121,241
<TOTAL-COSTS> 139,131
<OTHER-EXPENSES> 547
<LOSS-PROVISION> 144
<INTEREST-EXPENSE> 7,701
<INCOME-PRETAX> (718)
<INCOME-TAX> (1)
<INCOME-CONTINUING> (717)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,239)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
