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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 MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
--------- --------
333-45235
COMMISSION FILE NUMBER
[GRAPHIC OMITTED]
PERRY JUDD'S HOLDINGS, INC.
(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 [ ]
As of May 15, 2000 there were 860,010 shares of Registrant's Common Stock
outstanding, par value $.001 per share. There is no established public trading
market for the Registrant's Common Stock.
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PERRY JUDD'S HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
INDEX
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Page
PART I. FINANCIAL INFORMATION
<S> <C>
Condensed Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999.................................................................................3
Condensed Consolidated Statements of Operations for the
Three Months ended March 31, 2000 and March 31, 1999.................................................................4
Condensed Consolidated Statements of Minority Interests,
Preferred Stock and Stockholders' Equity as of
March 31, 2000 and December 31, 1999.................................................................................5
Condensed Consolidated Statements of Cash Flows for the
Three Months ended March 31, 2000 and March 31, 1999.................................................................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
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2
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PERRY JUDD'S HOLDINGS, INC.
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -----------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
ASSETS 2000 1999
(Unaudited) (Note)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents.............................................. $ 7,278 $ 3,932
Accounts receivable - net of allowance for
doubtful accounts of $1,021 and $1,020,
respectively......................................................... 49,665 66,774
Inventories .......................................................... 19,407 18,806
Deferred income taxes.................................................. 773 823
Other current assets................................................... 1,859 1,867
------------- -------------
Total current assets...................................... 78,982 92,202
Property, plant and equipment, at cost................................. 132,540 130,432
Accumulated depreciation and amortization.............................. (30,916) (27,562)
-------------- --------------
Property, plant and equipment - net.................................. 101,624 102,870
Goodwill - net......................................................... 31,091 31,321
Other assets - net..................................................... 7,325 7,858
------------- -------------
TOTAL ASSETS.................................................................... $ 219,022 $ 234,251
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.................................. $ 32,920 $ 45,694
Current maturities of long-term debt................................... 6,079 6,083
Redeemable preferred stock............................................. 9,613 9,340
------------- -------------
Total current liabilities................................. 48,612 61,117
Long-term debt......................................................... 127,300 128,818
Deferred income taxes.................................................. 14,937 14,820
Other long-term liabilities............................................ 10,080 10,125
------------- -------------
Total liabilities......................................... 200,929 214,880
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock - par value $0.001 per share,
775,000 shares authorized, 133,180 and 128,366
shares issued and outstanding, respectively.......................... 13,318 12,837
Common stock - par value $0.001 per share,
1,000,000 shares authorized, 860,010
shares issued and outstanding........................................ 1 1
Additional paid-in capital............................................. 21,500 21,500
Accumulated deficit.................................................... (16,726) (14,967)
-------------- --------------
Total stockholders' equity................................ 18,093 19,371
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................................... $ 219,022 $ 234,251
============= =============
</TABLE>
Note: Derived from audited financial statements. See notes to condensed
consolidated financial statements. Certain amounts have been reclassified
to conform with the current presentation.
3
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PERRY JUDD'S HOLDINGS, INC.
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------------
THREE MONTHS
2000 1999
<S> <C> <C>
NET SALES....................................................................... $ 74,716 $ 71,444
OPERATING EXPENSES:
Costs of production........................................................ 60,485 57,822
Selling, general and administrative........................................ 8,143 7,824
Depreciation............................................................... 3,379 2,732
Amortization of intangibles................................................ 467 571
------------- -------------
72,474 68,949
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INCOME FROM OPERATIONS.......................................................... 2,242 2,495
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OTHER (INCOME) EXPENSES:
Interest expense........................................................... 3,482 3,669
Amortization of deferred financing costs................................... 293 293
Interest income............................................................ (160) (442)
Loss (gain) on sale of assets.............................................. (60) (58)
Other, net................................................................. 101 91
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3,656 3,553
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LOSS BEFORE INCOME TAXES........................................................ (1,414) (1,058)
BENEFIT FOR INCOME TAXES........................................................ 408 296
------------- -------------
LOSS BEFORE DIVIDENDS ON
REDEEMABLE PREFERRED STOCK................................................. (1,006) (762)
DIVIDENDS ON REDEEMABLE
PREFERRED STOCK............................................................ 272 266
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NET LOSS........................................................................ $ (1,278) $ (1,028)
============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
4
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PERRY JUDD'S HOLDINGS, INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF MINORITY INTERESTS, PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------------
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, 1999.............. 72,598 $7,260 128,366 $12,837 860,010 $21,501 $ (14,967)
Net loss....................... -- -- -- -- -- -- (1,278)
Stock dividends................ 406 40 4,814 481 -- -- (481)
------ ------ ------- ------- ---------- ------- ---------
March 31, 2000................. 73,004 $7,300 133,180 $13,318 860,010 $21,501 $(16,726)
============ ======= ======= ======= ======= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
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PERRY JUDD'S HOLDINGS, INC.
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(DOLLARS IN THOUSANDS)
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THREE MONTHS
2000 1999
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss .................................................................. $ (1,278) $ (1,028)
Adjustments to reconcile net loss to net cash flows
provided by operating activities:
Depreciation and amortization.............................................. 4,139 3,596
Deferred income tax provision.............................................. 167 (20)
Gain on sale of fixed assets............................................... (60) (58)
Changes in operating assets and liabilities
excluding effect of business acquired:
Accounts receivable - net.............................................. 17,109 7,996
Inventories............................................................ (601) (1,291)
Accounts payable and accrued expenses.................................. (12,460) (2,291)
Other assets and liabilities - net..................................... (36) 476
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Net cash provided by operating activities......................... 6,980 7,380
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INVESTING ACTIVITIES -
Acquisition of business, net cash acquired................................. - (24,118)
Additions to property, plant and equipment - net........................... (2,112) (8,608)
-------------- --------------
Net investing activities.......................................... (2,112) (32,726)
FINANCING ACTIVITIES -
Debt repayments............................................................ (1,522) (1,020)
-------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ 3,346 (26,366)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................................. 3,932 42,444
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CASH AND CASH EQUIVALENTS, END OF PERIOD........................................ $ 7,278 $ 16,078
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
6
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PERRY JUDD'S HOLDINGS, INC.
PART I. FINANCIAL INFORMATION
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 Holdings, Inc. (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 February 1, 1999, the Company acquired all of the outstanding
capital stock of Heartland Press, Inc. ("Heartland") for approximately
$17.5 million, including acquisition costs. In addition, the Company
assumed approximately $6.6 million of Heartland's indebtedness, all of
which was paid in full upon consummation of the acquisition. 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 final
allocation of the purchase price is based upon the estimated fair value
of the assets acquired and liabilities assumed as follows (in
thousands):
Fair value of assets acquired (excluding cash).... $ 21,420
Goodwill.......................................... 8,697
Fair value of liabilities assumed................. (12,642)
Amounts paid to creditors......................... 6,643
-------------
Cash paid for net assets acquired................. $ 24,118
=============
Concurrent with the acquisition of Heartland, a one-time fee of
$750,000 was paid to a company owned beneficially by the majority
stockholders of the Company for acquisition services related to the
transaction.
2. INVENTORIES
Inventories are summarized as follows:
March 31, December 31,
2000 1999
Work-in-process........................... $ 8,369 $ 6,535
Raw materials and production supplies..... 11,038 12,271
------------ -------------
Total..................................... $ 19,407 $ 18,806
============ =============
3. MINORITY INTERESTS
REDEEMABLE PREFERRED STOCK A - At April 28, 1995, Series A redeemable
preferred stock issued in the amount of $5.0 million reflects an
original issue discount of $2.5 million which is the difference
between the net present value at the time of issuance and the April
28, 2005 redemption value. The difference was accreted by charging
operations until redemption. Each share of redeemable Series A, $0.001
par value, $100 redemption value, nonconvertible, non-voting preferred
stock entitles its holder to receive an annual cash dividend
equivalent to carrying value times 90% of the prime interest rate. At
December 31, 1995, 50,000 shares were authorized and 47,350 shares
were issued and outstanding. During 1996, the carrying value of the
Series A redeemable preferred stock was written down to $-0- to offset
certain purchase accounting adjustments and no accretion was made.
(See Note 4).
7
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PERRY JUDD'S HOLDINGS, INC.
PART I. FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK B - Each share of Series B, $0.001 par
value, $100 redemption value, nonconvertible, non-voting preferred
stock entitles its holder to receive cash dividends of 12.5% of
carrying value and stock dividends of 2.5% of carrying value (issued
in Redeemable Preferred Stock D). At March 31, 2000 and December 31,
1999, 65,000 shares were authorized, issued and outstanding and are
mandatorily redeemable on November 1, 2000. Accrued and unpaid
dividends were approximately $2.0 million and $1.8 million at March
31, 2000 and December 31, 1999, respectively.
REDEEMABLE PREFERRED STOCK D - Each share of Series D, $0.001 par
value, $100 redemption value, nonconvertible, non-voting preferred
stock entitles its holder to receive cash dividends equivalent to 15%
of carrying value. At March 31, 2000 and December 31, 1999, 100,000
shares were authorized with 8,004 and 7,598 shares issued and
outstanding, respectively. Series D preferred shares are mandatorily
redeemable on November 1, 2000. Accrued and unpaid dividends were
approximately $0.3 million and $0.2 million at March 31, 2000 and
December 31, 1999, respectively.
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 preferred
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. 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. The former
owner of Perry Printing objected to these claims.
On November 24, 1999, the former owner of Perry Printing filed a
complaint against the Company seeking damages of approximately
$3,000,000 and the payment of certain preferred stock dividends. On
January 6, 2000, the Company answered by denying the former owner's
allegations and asserted counter claims in an aggregate amount of
approximately $7,000,000. The case is presently in discovery. The
Company intends to vigorously defend the action and strongly contends
that no amounts are due the former owner of Perry Printing and the
Company's position with respect to the two indemnity claims will be
upheld.
8
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PERRY JUDD'S HOLDINGS, INC.
PART I. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 VERSUS THREE MONTHS ENDED MARCH 31, 1999
Net sales increased $3.3 million or 4.6% to $74.7 million for the three
months ended March 31, 2000 from $71.4 million for the three months ended March
31, 1999. The increase resulted primarily from an additional month of activity
related to Heartland Press, Inc. ("Heartland") which was acquired on February 1,
1999. Paper costs were 23.9% of net sales for the three months ended March 31,
2000 and 27.4% for the three months ended March 31, 1999.
Costs of production increased $2.7 million or 4.7% to $60.5 million for
the three months ended March 31, 2000 from $57.8 million for the three months
ended March 31, 1999, principally from the acquisition of Heartland. Costs of
production as a percent of net sales were 81.0% for the three months ended March
31, 2000 as compared to 80.9% experienced in the three months ended March 31,
1999.
Selling, general and administrative expenses increased $0.3 million or
3.8% to $8.1 million for the three months ended March 31, 2000 compared to $7.8
million for the three months ended March 31, 1999. As a percent of net sales,
selling, general and administrative expenses decreased to 10.9% in the 2000
period compared to 11.0% in the 1999 period.
Depreciation expense increased $0.7 million or 25.9% to $3.4 million
for the three months ended March 31, 2000 from $2.7 million for the three months
ended March 31, 1999 as a result of the Heartland acquisition and capital
expenditures placed in service within the past twelve months.
Income from operations decreased $0.3 million to $2.2 million for the
three months ended March 31, 2000 from $2.5 million for the three months ended
March 31, 1999, due to the factors discussed in the preceding paragraphs.
Interest expense decreased $0.2 million to $3.5 million for the three
months ended March 31, 2000 from $3.7 million for the three months ended March
31, 1999 due to lower average amounts outstanding during the first quarter of
2000 compared to the first quarter of 1999.
9
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PERRY JUDD'S HOLDINGS, INC.
PART I. FINANCIAL INFORMATION
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 $2.7 million for the three months ended March 31, 2000 and $2.5
million for the three months ended March 31, 1999.
Working capital was $30.4 million and $31.1 million at March 31, 2000
and December 31, 1999, respectively.
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, (the
"Credit Agreement") which expires on December 15, 2002. The Credit Agreement is
comprised of a $45 million revolving credit facility based upon a borrowing base
of eligible accounts receivable and inventory amounts and a term loan facility
with an outstanding balance of $18.3 million at March 31, 2000. The 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 March 31, 2000, the Company had no borrowings under its
revolving credit facility.
On February 1, 1999, the Company acquired all of the issued and
outstanding capital stock of Heartland Press, Inc. ("Heartland") for
approximately $17.5 million in cash, including acquisition costs. In addition,
the Company assumed approximately $6.6 million of Heartland's indebtedness, all
of which was paid in full upon consummation of the acquisition.
Concentrations of credit risk with respect to accounts receivable are
limited due to the Company's diverse operations and large customer base. As of
March 31, 2000, 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.
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for under this item is contained in Note 4 of
the Notes to Consolidated Financial Statements in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The quarterly report on Form 10-Q includes forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. All
statements of fact, including statements of historical fact, may contain
forward-looking statements. Forward-looking statements generally can be
identified by the use of forward-looking terminology such as "may", "will",
"expect", "intend", "estimate", "anticipate", "believe", or "continue" or the
negative thereof or variations thereon or similar terminology. Such
forward-looking statements are based upon information currently available in
which the Company's management shares its knowledge and judgement about factors
that they believe may materially affect the Company's performance. The Company
makes the forward-looking statements in good faith and believes them to have a
reasonable basis. However, such statements are speculative, speak only as of the
date made and are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results could vary materially
from those anticipated, estimated or expected. Factors that might cause actual
results to differ materially from those in such forward-looking statements
include, but are not limited to, those discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations", Part I. All
subsequent written and oral statements that the Company makes are qualified in
their entirety by these Risk Factors.
Readers are urged to carefully review and consider disclosures made in
this and other reports that the Company files with the Securities and Exchange
Commission that discuss factors germane to the Company's business.
10
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PERRY JUDD'S HOLDINGS, INC.
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PART II. OTHER INFORMATION
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
Annual Report on Form 10-K for the fiscal year ended December 31,
1999, dated March 28, 2000.
In addition, the Company has filed herewith the following
exhibits:
27.0 Financial Data Schedule for the period ended March 31, 2000
(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 March 31, 2000:
None
11
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PERRY JUDD'S HOLDINGS, INC.
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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 HOLDINGS, INC.
Date: May 15, 2000 /s/ Verne F. Schmidt
------------------------------
Verne F. Schmidt
Senior Vice President and
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,278
<SECURITIES> 0
<RECEIVABLES> 50,686
<ALLOWANCES> (1,021)
<INVENTORY> 19,407
<CURRENT-ASSETS> 78,982
<PP&E> 132,540
<DEPRECIATION> (30,916)
<TOTAL-ASSETS> 219,022
<CURRENT-LIABILITIES> 48,612
<BONDS> 127,300
9,613
13,318
<COMMON> 21,501
<OTHER-SE> (16,726)
<TOTAL-LIABILITY-AND-EQUITY> 219,022
<SALES> 74,716
<TOTAL-REVENUES> 74,716
<CGS> 60,485
<TOTAL-COSTS> 72,474
<OTHER-EXPENSES> (119)
<LOSS-PROVISION> 93
<INTEREST-EXPENSE> 3,775
<INCOME-PRETAX> (1,414)
<INCOME-TAX> 408
<INCOME-CONTINUING> (1,006)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,278)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
