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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ________
Commission file number 1-5064
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JOSTENS, INC.
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(Exact name of registrant as specified in its charter)
Minnesota 41-0343440
- ----------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5501 Norman Center Drive, Minneapolis, Minnesota 55437
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(Address of principal executive offices) (Zip Code)
612-830-3300
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(Registrant's telephone number including area code)
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(Former name, address and fiscal year, if changed since last report)
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 for the past 90 days. Yes X No
--- ----
The number of shares outstanding of the registrant's only class of common stock
on September 30, 1995 was 38,563,247.
1
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JOSTENS, INC.
INDEX
Part I. Financial Information
- ------------------------------
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of September 30, 1995 and 1994
and June 30, 1995
Condensed Consolidated Statements of Income for the Three Months Ended
September 30, 1995 and 1994
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 1995 and 1994
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
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Item 6. Exhibits and Reports on Form 8-K
Signatures
- ----------
2
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<TABLE>
<CAPTION>
JOSTENS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
September 30, June 30,
----------------------------- ---------
1995 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $ 2,356 $ 19,449 $ 173,489
Accounts receivable 103,547 132,659 124,392
Inventories:
Finished products 24,315 25,326 17,079
Work-in-process 39,085 38,478 26,928
Materials and supplies 35,438 40,548 27,387
--------- --------- ---------
98,838 104,352 71,394
Deferred income taxes 17,845 39,985 17,845
Prepaid expenses 3,245 6,571 2,869
Other receivables 24,709 22,556 12,399
--------- --------- ---------
250,540 325,572 402,368
OTHER ASSETS
Intangibles 30,558 46,907 30,915
Note receivable 18,969 -- 18,969
Deferred income taxes 15,590 -- 15,590
Software development costs -- 25,428 --
Other 25,707 16,662 12,301
--------- --------- ---------
90,824 88,997 77,775
PROPERTY AND EQUIPMENT 188,794 210,827 184,556
Accumulated depreciation (120,873) (138,046) (116,731)
--------- --------- ---------
67,921 72,781 67,825
--------- --------- ---------
$ 409,285 $ 487,350 $ 547,968
========= ========= =========
CURRENT LIABILITIES:
Notes payable $ 125,001 $ -- $ --
Accounts payable 18,694 25,017 17,624
Salary, wages, and commissions 17,797 29,976 52,544
Customer deposits 22,826 21,938 36,367
Other liabilities 34,395 57,865 54,180
Income taxes 12,864 2,829 35,372
--------- --------- ---------
231,577 137,625 196,087
LONG-TERM DEBT 53,890 54,259 53,899
DEFERRED INCOME TAXES -- 5,943 --
OTHER NON-CURRENT LIABILITIES 18,966 30,716 27,369
SHAREHOLDERS' INVESTMENT:
Preferred shares, $1.00 par value:
Authorized 4,000 shares, none issued -- -- --
Common shares, $.33 1/3 par value:
Authorized 100,000 shares
Issued - 38,563, 45,490 and
45,482 shares, respectively 12,854 15,163 15,160
Capital surplus 38 153,007 154,410
Retained earnings 95,880 94,171 105,213
Foreign currency translation (3,920) (3,534) (4,170)
--------- --------- ---------
104,852 258,807 270,613
--------- --------- ---------
$ 409,285 $ 487,350 $ 547,968
========= ========= =========
</TABLE>
3
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<TABLE>
<CAPTION>
JOSTENS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share data)
Three Months Ended
September 30,
-----------------------------
1995 1994
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<S> <C> <C>
NET SALES $97,754 $98,023
Cost of products sold 45,800 44,888
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51,954 53,135
Selling and administrative expenses 47,892 47,375
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OPERATING INCOME 4,062 5,760
Net interest expense (income) (198) 250
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4,260 5,510
Income taxes 1,747 1,921
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INCOME FROM CONTINUING OPERATIONS 2,513 3,589
DISCONTINUED OPERATIONS:
Loss from operations, net of tax -- (1,639)
Cumulative effect of changes in accounting
principle, net of tax -- (634)
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NET INCOME $ 2,513 $ 1,316
======= =======
EARNINGS PER COMMON SHARE:
Continuing operations $ 0.06 $ 0.08
Loss from discontinued operations -- (0.04)
Cumulative effect of changes in
accounting principle -- (0.01)
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NET INCOME $ 0.06 $ 0.03
======= =======
Average shares outstanding 43,760 45,488
======= =======
Dividends declared per common share $ 0.22 $ --
======= =======
</TABLE>
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<TABLE>
<CAPTION>
JOSTENS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
September 30,
-----------------------------
1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,513 $ 1,316
Depreciation and amortization 4,395 7,162
Changes in assets and liabilities (121,302) (87,340)
--------- --------
(114,394) (78,862)
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INVESTING ACTIVITIES
Capital expenditures (4,124) (2,405)
Software development costs -- (1,438)
Minority investments -- 4,322
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(4,124) 479
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FINANCING ACTIVITIES
Short-term borrowing 125,001 --
Cash dividends (10,025) (10,001)
Share Repurchase (168,389) --
Other 818 6
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(52,595) (9,995)
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DECREASE IN CASH AND SHORT-TERM INVESTMENTS $(171,113) $(88,378)
========= ========
</TABLE>
5
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JOSTENS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
Because of the seasonal nature of the Company's business, the results of
operations for the three months ended September 30, 1995, are not necessarily
indicative of the results for the entire year ending June 30, 1996.
Certain fiscal 1995 balances have been reclassified to conform to the fiscal
1996 presentation.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended June 30, 1995.
SHARE REPURCHASE
In September 1995, the Company repurchased 7,011,108 shares of its common stock,
the maximum number of shares available for purchase, for $24 per share, or
$168.3 million in total, through a Modified Dutch Auction tender offer. The
repurchase was funded from the Company's cash and short-term investment balance,
as well as short-term borrowings.
DISCONTINUED OPERATIONS
In June 1995, the Company sold its Jostens Learning Corp. (JLC) curriculum
software subsidiary to a group led by Bain Capital, Inc. The condensed
consolidated statements of income for the three months ended September 30, 1994
has been reclassified accordingly. (See Management Discussion and Analysis for
further discussion).
CHANGE IN ACCOUNTING PRINCIPLE
The Company adopted SFAS 112, Employers' Accounting for Post-Employment
Benefits, in the first quarter of fiscal 1995. The charge to earnings was $1.1
million ($.6 million after tax, $.01 per share), representing the cumulative
amount of liability to be recorded under SFAS 112 as of the beginning of fiscal
1995.
EARNINGS PER COMMON SHARE
Earnings per common share have been computed by dividing net income by the
average number of common shares outstanding. The impact of any additional
shares issuable upon exercise of dilutive stock options is not material.
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DIVIDENDS
Dividends declared as of September 30, 1995, relate to fourth quarter of fiscal
1995 and differ from September 30, 1994, due to the timing of the fourth quarter
declaration in fiscal 1994. The first quarter dividend, declared in October,
was $.22 for fiscal 1996 and 1995.
SUBSEQUENT EVENT
In October 1995, the Company sold its Wicat Systems business to Wicat
Acquisition Corp., a private investment group. Wicat Systems was the small,
computer-based aviation training subsidiary of JLC that was retained in the sale
of JLC, but held for sale. The Company received $1.5 million in cash plus a
promissory note for $150,000 from the sale. A gain of approximately $5.0
million is expected as a result of the transaction and will be deferred as an
adjustment to the deferred gain recorded in the fourth quarter of fiscal 1995
for the sale of JLC. The Company treated Wicat Systems as a discontinued
operation from June 1995 on, pending the sale of the business.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Net working capital was $19.0 million and $206.3 million at September 30, 1995,
and June 30, 1995, respectively. The decrease in working capital was due to
first quarter fiscal 1996 financing of operations through the issuance of $125
million of short-term notes and the repurchase of over 7 million shares of
common stock for $168.3 million. The seasonality of the Company's business
normally requires interim financing of operations and inventories and these cash
requirements have typically been met through the issuance of short-term
commercial paper. In fiscal 1995, the Company did not require short-term
borrowing due to the large cash balance at the beginning of the year from the
January 1994 sale of the Sportswear business.
Accounts receivable were down $20.8 million from June 30, 1995, due to
collections of June balances and seasonally lower sales in the first quarter of
1996 which has the smallest sales volume of the year. Accounts receivable were
down $29.1 million from September 30, 1994. The decrease was primarily due to
the sale of JLC ($37.7 million) offset by increases in the School Products
segment due to timing of billings.
Inventories have increased from June 30, 1995, due to the seasonality of the
business.
Other receivables increased from $12.3 million at June 30, 1995 to $24.7 million
at September 30, 1995, due to the Company's seasonality of sales. The balance
represents receivables from sales representatives who historically are in
overdraft positions in the first quarter due to the payment of draws, prior to
commissions being earned.
Prepaid expenses, intangibles, software development costs, and accounts payable
all have decreased from their September 30, 1994, balances. These reductions
were primarily due to the sale of JLC.
The increase in notes receivable from September 30, 1994 was due to the
recording of a $19.0 million note receivable from the sale of JLC in June 1995.
The note receivable is net of a $9.9 million discount and a deferred gain of
$11.1 million.
Other assets increased from June 30, 1995, and September 30, 1994, primarily due
to a $13.9 million receivable as of September 30, 1995 from JLC related to
payments made on behalf of JLC as part of an administrative service agreement.
JLC is reimbursing Jostens for continuing to provide certain administrative
services such as payroll and benefits processing through December 31, 1995.
Salaries, wages and commissions payable decreased from $52.5 million at June 30,
1995, to $17.8 million at September 30, 1995. The majority of the decrease was
attributable to the timing of commission payments. Commissions accrued at year
end were paid in the first quarter while fewer commissions were earned in the
first quarter to replenish the balance. Reductions from the September 30, 1994,
balance of $30.0 million were primarily related to the sale of JLC.
Income taxes payable decreased $22.5 million from June 30, 1995, due to fiscal
1995 tax payments made in the first quarter of fiscal 1996.
Other current liabilities decreased $19.8 million from June 30, 1995, due
primarily to dividends accrued in fiscal 1995 and paid in the first quarter of
fiscal 1996, as well as scheduled payments made against the accruals established
for the JLC transaction. The decrease in other current liabilities over the
previous year of $23.5 million was due to the sale of JLC and scheduled payments
made against the restructuring reserves.
8
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Other non-current liabilities decreased $8.4 million from June 30, 1995, and
$11.8 million from September 30, 1994. The decreases were primarily related to
reductions in pension liabilities due to additional funding, as well as
liabilities that have become current.
The decrease in shareholders' investment from June 30, 1995, and September 30,
1994, was primarily due to the share repurchase.
Capital expenditures through September 30, 1995, were $4.1 million,
approximately $1.7 million higher than the comparable period in fiscal 1995.
Major projects in process include a business systems upgrade involving new
hardware and software for field and headquarters locations and updating
manufacturing equipment and processes with new technology, primarily digital
imaging.
Interest expense was $.4 million higher than last year due to the need for
short-term borrowing for operational needs and funding the share repurchase in
the first quarter of fiscal 1996. The Company did not require short-term
borrowing in fiscal 1995 due to the strong cash position from fiscal 1994. In
addition, due to the sale of JLC in June 1995 the Company ended fiscal 1995 in a
strong cash position, resulting in an increase in interest income of $.8 million
at September 30, 1995, compared with September 30, 1994.
9
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RESULTS OF OPERATIONS
Continuing Operations
- ---------------------
Net sales for the three months ended September 30, 1995, were $97.8 million
compared with last year's volume of $98.0 million. The Recognition division
experienced some softness in the current quarter, primarily as a result of
smaller orders from existing accounts. The Company's school related businesses
improved sales over last year in Jewelry, Graduation Products, Yearbooks and
Photography. Although this is a positive indicator, it should be kept in
perspective as it is still early in the school year.
Cost of products sold was $45.8 million for the current quarter versus $44.9
million for the first three months of the preceding fiscal year. Costs, as a
percentage of sales, were 46.9%, compared with 45.8% in the same period last
year. Selling and administrative expenses were $47.9 million for the quarter, a
slight increase from the first quarter of fiscal year 1995. The higher costs
were due to investments in the businesses including marketing materials,
business development and pilot projects for new business.
Since a significant percentage of the Company's sales are in the school
business, and with schools not in session for most of the quarter, the first
three months have the smallest sales volume of the year. Therefore, amounts
reported for the three months ended September 30, 1995, vary significantly from
the results for the fourth quarter of the previous fiscal year. While the first
quarter typically has low volume, selling and administrative expenses are not
reduced correspondingly since they are geared toward future sales, resulting in
the lowest quarterly pre-tax margins.
Discontinued Operations - Sale of Jostens Learning Corp.: In June 1995, the
Company sold its JLC curriculum software subsidiary to a group led by Bain
Capital, Inc. for $50 million in cash; a $36 million unsecured, subordinated
note maturing in eight years with a stated interest rate of 11 percent; and a
separate $4 million note with a stated interest rate of 8.3 percent convertible
into 19 percent of the equity of Jostens Learning, subject to dilution in
certain events. The notes were recorded at fair value, using an estimated 20
percent discount rate on the $36 million note, resulting in a discount of $9.9
million. The transaction gain of $11.1 million ($5.8 million after tax) was
deferred in accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 81, Gain Recognition on the Sale of a Business or Operating Assets
to a Highly Leveraged Entity. The gain will be deferred until cash flows from
the operating activities of JLC are sufficient to fund debt service, dividend or
any other covenant requirements. As part of the transaction Jostens also agreed
to pay $13 million over two years to fund certain JLC existing liabilities.
In October 1995, the Company sold its Wicat Systems business to Wicat
Acquisition Corp., a private investment group. Wicat Systems was the small,
computer-based aviation training subsidiary of JLC that was retained in the sale
of JLC, but held for sale. The Company received $1.5 million in cash plus a
promissory note for $150,000 from the sale. A gain of approximately $5.0
million is expected as a result of the transaction and will be deferred as an
adjustment to the deferred gain recorded in the fourth quarter of fiscal 1995
for the sale of JLC. The Company treated Wicat Systems as a discontinued
operation from June 1995 on, pending the sale of the business.
The Company had recorded restructuring charges related to JLC of $60.9 million
($40.2 million after tax, or 88 cents per share) in 1994 which has been
classified as part of discontinued operations.
JLC had net sales of $33.5 million, income tax benefit of $.5 million, and loss
from operations of $1.6 million which are included in discontinued operations as
of September 30, 1994.
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RESTRUCTURING UPDATE
The Company's restructuring accruals decreased by $1.1 million in the first
quarter of fiscal 1996 to $4.5 million at September 30, 1995 due to cash
payments of $1.0 million and noncash items of $.1 million. The restructuring
accruals are expected to be reduced by $1.0 million of noncash items for the
remainder of fiscal 1996 while the future cash outlay is estimated to be $1.8
million for the remainder of 1996 and $1.7 million in 1997 and beyond.
ENVIRONMENTAL
As part of its continuing environmental management program, the Company is
involved in various environmental improvement activities. As sites are
identified and assessed in this program, the company determines potential
environmental liability. Factors considered in assessing this liability include,
among others, the following: whether the Company has been designated as a
potentially responsible party, the number of other potentially responsible
parties designated at the site, the stage of the proceedings, and available
environmental technology. When the potential liability amounts are probable and
reasonably estimable, the Company accrues the best estimate available. For
specific sites where only a range of liability is probable and reasonably
estimable and no amount in the range is a better estimate than another, the
Company has accrued the low end of that range. While the Company may have a
right of contribution or reimbursement under insurance policies, amounts that
may be recoverable from other entities by the Company with respect to a
particular site are not considered until recoveries are deemed to be probable.
No assets for potential recoveries have been established as of September 30,
1995.
The Company also assesses reasonably possible environmental liability beyond
that which has been accrued. This liability is not probable, but is more likely
than remote. As of September 30, 1995, the Company has identified three sites
requiring further investigation. The potential liability cannot be fully
assessed since the sites are in the early stages of investigation, however, the
amount of environmental liability identified that is reasonably possible is in
the range of $.6 million to $4.6 million. The amount accrued to date with
respect to potential liability is $.6 million and is recorded as part of "other
accrued liabilities." The Company does not expect to incur liabilities at the
higher end of the range based on the limited information currently available.
In addition, three other sites nearing completion did not require any accruals
as of September 30, 1995. The Company has not been designated as a potentially
responsible party at any site.
SHARE REPURCHASE
In September 1995, the Company repurchased 7,011,108 shares of its common stock,
the maximum number of shares available for purchase, for $24 per share, or
$168.3 million in total, through a Modified Dutch Auction tender offer. The
repurchase was funded from the Company's cash and short-term investment balance,
as well as short-term borrowings.
11
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PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K: A report on Form 8-K, dated July 14, 1995 was
filed during the first quarter of the year ended June 30, 1996. The
report was filed under Item 2 and Item 7 of Form 8-K, describing the
Company's disposition of assets related to the sale of JLC and pro
forma financial information as required pursuant to Article 11 of
Regulation S-X.
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.
JOSTENS, INC.
Date November 13, 1995 \s\ Robert C. Buhrmaster
--------------------- -------------------------------------
Robert C. Buhrmaster
President and Chief Executive Officer
\s\ Trudy A. Rautio
-------------------------------------
Trudy A. Rautio
Senior Vice President and Chief Financial
Officer
12
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Jostens Inc. condensed consolidated financial statements as of and for the
period ended September 30, 1995 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> (1,184)
<SECURITIES> 3,540
<RECEIVABLES> 112,945
<ALLOWANCES> (9,398)
<INVENTORY> 98,838
<CURRENT-ASSETS> 250,540
<PP&E> 188,794
<DEPRECIATION> (120,873)
<TOTAL-ASSETS> 409,285
<CURRENT-LIABILITIES> 231,577
<BONDS> 53,890
<COMMON> 12,854
0
0
<OTHER-SE> 91,998
<TOTAL-LIABILITY-AND-EQUITY> 409,285
<SALES> 97,754
<TOTAL-REVENUES> 97,754
<CGS> 45,800
<TOTAL-COSTS> 45,800
<OTHER-EXPENSES> 47,892
<LOSS-PROVISION> 680
<INTEREST-EXPENSE> (198)
<INCOME-PRETAX> 4,260
<INCOME-TAX> 1,747
<INCOME-CONTINUING> 2,513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,513
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
