<PAGE>
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 MARCH 31,1996
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
JOSTENS, INC.
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
612-830-3300
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(Registrant's telephone number including area code)
- --------------------------------------------------------------------------------
(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 April 27, 1996 was 38,652,421.
1
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JOSTENS, INC.
INDEX
Part I. Financial Information
- -------------------------------
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of March 31, 1996 and 1995
and June 30, 1995
Condensed Consolidated Statements of Income for the Three and Nine
Months Ended March 31, 1996 and 1995
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 1996 and 1995.
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
Signatures
- ----------
2
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JOSTENS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per-share data)
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
------------------------------- -----------
1996 1995 1995
---------- ---------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $ 3,569 $ 65,906 $ 173,469
Accounts receivable 132,396 150,722 124,392
Inventories:
Finished products 27,308 28,786 17,079
Work-in-process 80,184 76,453 26,928
Materials and supplies 34,744 36,389 27,387
---------- ---------- -----------
142,236 141,628 71,394
Deferred income taxes 17,845 39,985 17,845
Prepaid expenses 2,879 5,432 2,869
Other receivables 26,290 23,855 12,399
---------- ---------- -----------
325,215 427,528 402,368
OTHER ASSETS:
Intangibles 29,746 45,826 30,915
Note receivable 12,925 - 18,969
Deferred income taxes 15,590 - 15,590
Software development costs - 26,139 -
Other 13,078 15,206 12,301
---------- ---------- -----------
71,339 87,171 77,775
PROPERTY AND EQUIPMENT 192,850 218,245 184,556
Accumulated depreciation (124,461) (147,421) (116,731)
---------- ---------- -----------
68,389 70,824 67,825
---------- ---------- -----------
$ 464,943 $ 585,523 $ 547,968
========== ========== ===========
CURRENT LIABILITIES:
Notes payable $ 85,889 $ - $ -
Accounts payable 14,203 20,842 17,624
Salary, wages, and commissions 40,383 47,282 52,544
Customer deposits 102,546 97,764 36,367
Other liabilities 24,034 53,802 54,180
Income taxes 18,279 16,917 35,372
---------- ---------- -----------
285,334 236,607 196,087
LONG-TERM DEBT 53,732 54,097 53,899
DEFERRED INCOME TAXES - 5,943 -
OTHER NON-CURRENT LIABILITIES 16,800 30,646 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 - 38,593, 45,490
and 45,482 shares, respectively 12,883 15,210 15,160
Capital surplus 1,554 153,478 154,410
Retained earnings 97,638 94,384 105,213
Foreign currency translation (2,998) (4,842) (4,170)
---------- ---------- -----------
109,077 258,230 270,613
---------- ---------- -----------
$ 464,943 $ 585,523 $ 547,968
========== ========== ===========
</TABLE>
See notes to condensed consolidated financial statements
3
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JOSTENS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per-share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------- --------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 141,863 $ 139,038 $ 405,396 $ 394,684
Cost of products sold 60,516 61,113 180,283 178,949
---------- ---------- ---------- ----------
81,347 77,925 225,113 215,735
Selling and administrative expenses 67,303 62,611 184,041 173,070
---------- ---------- ---------- ----------
Operating Income 14,044 15,314 41,072 42,665
Net interest expense (income) 2,564 (465) 5,040 488
---------- ---------- ---------- ----------
11,480 15,779 36,032 42,177
Income taxes 4,707 6,342 14,773 16,784
---------- ---------- ---------- ----------
Income from Continuing Operations 6,773 9,437 21,259 25,393
Discontinued Operations:
Loss from operations, net of tax - (926) - (3,225)
Cumulative effect of change in
accounting principle, net of tax - - - (634)
---------- ---------- ---------- ----------
Net Income $ 6,773 $ 8,511 $ 21,259 $ 21,534
========== ========== ========== ==========
Earnings per common share:
Continuing operations $ 0.18 $ 0.21 $ 0.52 $ 0.56
Loss from discontinued operations - (0.03) - (0.08)
Cumulative effect of change in
accounting principle - - - (0.01)
---------- ---------- ---------- ----------
Net Income $ 0.18 $ 0.18 $ 0.52 $ 0.47
========== ========== ========== ==========
Average shares outstanding 38,632 45,493 40,673 45,493
========== ========== ========== ==========
Dividends declared per common share $ 0.22 $ 0.22 $ 0.66 $ 0.44
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 21,259 $ 21,534
Depreciation and amortization 13,215 22,992
Changes in assets and liabilities (84,047) (43,797)
--------- ---------
(49,573) 729
--------- ---------
INVESTING ACTIVITIES
Capital expenditures (13,019) (10,591)
Software development costs - (6,737)
Minority investments - 4,322
--------- ---------
(13,019) (13,006)
--------- ---------
FINANCING ACTIVITIES
Short-term borrowing 85,889 -
Cash dividends (27,013) (30,006)
Share Repurchase (168,389) -
Other 2,205 362
--------- --------
(107,308) (29,644)
--------- --------
Decrease in cash and short-term investments $(169,900) $(41,921)
========= ========
See notes to condensed consolidated financial statements
</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 nine months ended March 31, 1996, 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 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 and nine months ended March 31,
1995, have been reclassified accordingly. (See Management's Discussion and
Analysis for further discussion).
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 treated Wicat Systems as a discontinued
operation from June 1995 on, pending the sale of the business. (See Management's
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.
6
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EARNINGS PER COMMON SHARE
Earnings per common share have been computed by dividing net income by the
average number of common shares outstanding for the period. The impact of any
additional shares issuable upon exercise of dilutive stock options is not
material. Average shares outstanding decreased approximately 7 million shares
for the three months ended March 31, 1996, compared with the same period last
year due to the share repurchase discussed above.
DIVIDENDS
The dividends declared for the nine months ended March 31, 1995, differ from
those for the nine months ended March 31, 1996, due to the timing of the fourth-
quarter declaration in fiscal 1994. The third-quarter dividend, declared in
April, was $.22 for fiscal 1996 and 1995.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Net working capital was $39.9 million and $206.3 million at March 31, 1996, and
June 30, 1995, respectively. The decrease in working capital was primarily due
to the repurchase of over 7 million shares of common stock for $168.3 million in
the first quarter of fiscal 1996. The seasonality of the company's business
normally requires interim financing of operations and inventories, and these
cash requirements have typically been met by issuing 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 declined $18.3 million from March 31, 1995, primarily
related to the sale of JLC ($34.4 million) offset by sales increases in the
School Products segment. Accounts receivable increased $8 million from June 30,
1995, due largely to the seasonality of collections in the School Products
segment.
Inventories increased from June 30, 1995, due to the seasonality of the
business.
Other receivables represent receivables from sales representatives who
historically are in overdraft positions in the first three quarters of the year
due to the payment of draws prior to commissions being earned. Other receivables
increased from $12.4 million at June 30, 1995, to $26.3 million at March 31,
1996, due to the company's seasonality of sales.
Prepaid expenses, intangibles, software development costs, and accounts payable
all decreased from March 31, 1995. These reductions were primarily due to the
sale of JLC.
Salaries, wages and commissions payable declined from $52.5 million at June 30,
1995, to $40.4 million at March 31, 1996, due to the timing of commission
payments which fluctuate with the seasonality of the business. The $6.9 million
decrease from March 31, 1995, is primarily related to the sale of JLC.
Customer deposits increased from $36.4 million at June 30, 1995, to $102.5
million at March 31, 1996, primarily due to the seasonality of the School
Products segment, which has its largest sales volumes in the fourth quarter.
The $4.8 million increase in customer deposits from March 31, 1995, relates to
increased year-to-date sales volume coupled with a shift in sales volume to the
fourth quarter in fiscal 1996.
Income taxes payable decreased $17.1 million from June 30, 1995, due to fiscal
1995 tax payments made in the first quarter of fiscal 1996.
Other current liabilities declined $30.1 million from June 30, 1995, due to
dividends accrued in fiscal 1995 and paid in the first quarter of fiscal 1996;
scheduled payments made against the accruals established for the JLC
transaction; and reductions in reserves related to the sale of Wicat. The $29.8
million decrease in other current liabilities from March 31, 1995, was due to
the sale of JLC.
Other noncurrent liabilities decreased $10.6 million from June 30, 1995, and
$13.8 million from March 31, 1995. The decreases were primarily related to
reductions in pension liabilities due to additional funding, as well as to
liabilities that have become current.
8
<PAGE>
The decrease in shareholders' investment from June 30, 1995, and March 31, 1995,
was primarily due to the share repurchase in the first quarter of fiscal 1996.
Capital expenditures through March 31, 1996, were $13.0 million, approximately
$2.4 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.
Net interest expense increased $3.0 million and $4.6 million, respectively, for
the three and nine months ended March 31, 1996, over the comparable periods of
the prior fiscal year. The increase is due to the company returning to a more
normal level of 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.
9
<PAGE>
RESULTS OF OPERATIONS
Continuing Operations
- ---------------------
Net sales for the three and nine months ended March 31, 1996, were $141.9
million and $405.4 million, respectively, representing increases of 2.0% and
2.7% over the comparable prior-year periods. The third quarter, typically a
lower sales volume quarter, generates approximately 20% of annual sales. In
fiscal 1996, sales volumes are shifting to the fourth quarter as manufacturing
efficiencies enable the company to produce products closer to customer selected
delivery dates as well as promotional programs being executed on college
campuses.
Cost of products sold were $60.5 million and $180.3 million, respectively, for
the three and nine months ended March 31, 1996. Costs, as a percentage of
sales, for the three and nine months ended March 31, 1996, were 42.7% and 44.5%,
respectively, compared with 44.0% and 45.3% in the same periods last year. The
improved margins are being driven primarily by two factors. The first is the
continuation of process improvements in Jewelry manufacturing, where the new,
simplified high school ring pricing program has enabled plants to process orders
faster. The second factor is an improving cost structure in the Recognition
business. The reengineering efforts that were initiated earlier this year are
beginning to take effect through improved inventory systems, reduced product
offerings, lower administrative staffing and closer attention to profitability
by customer.
Selling and administrative expenses were $67.3 million and $184.0 million,
respectively, for the three and nine months ended March 31, 1996. Expenses, as
a percentage of sales, for the three and nine months ended March 31, 1996, were
47.4% and 45.4 %, respectively, compared with 45.0% and 43.9% in the same
periods last year. The higher costs were due to planned investments in sales
force automation, marketing initiatives designed to fuel business growth, and
an effective commission rate that was slightly higher than the prior year
periods.
While the first three quarters of the fiscal year typically have low volume due
to the school calendar, selling and administrative expenses are not reduced
correspondingly since they are geared toward future sales, resulting in lower
pre-tax margins in the first three quarters of the year.
Discontinued Operations - Sale of Jostens Learning Corporation: 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.
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 approximately $150,000 from the sale. The company treated
Wicat Systems as a discontinued operation from June 1995 on, pending the
sale of the business.
A transaction gain of $11.1 million was originally recorded at the time of the
JLC sale and deferred in accordance with accounting rules relating to the sale
of a business or operating assets to a highly leveraged entity. In the second
quarter of fiscal 1996 the deferred gain increased as a result of the sale of
Wicat ($5.3 million) and some accrual settlements ($.8 million). The adjusted
$17.2 million gain ($9.7 million after tax) will be deferred until cash flows
from the operating activities of JLC are sufficient to fund debt service,
dividend or any other covenant requirements. The deferred gain is presented in
the condensed consolidated balance sheet as an offset to notes receivable. The
notes receivable balance represents amounts owed by JLC related to the sale of
JLC net of a discount of $9.9 million and the deferred gain.
10
<PAGE>
As part of the transaction Jostens also agreed to pay $13 million over two years
to fund certain JLC existing liabilities; $7.9 million has been paid through
March 31, 1996.
JLC had net sales of $89.9 million, an income tax benefit of $1.1 million and a
loss from operations of $3.2 million as of March 31, 1995, which are included in
discontinued operations.
RESTRUCTURING UPDATE
The company's restructuring accruals decreased by $2.5 million in the first
three quarters of fiscal 1996 to $3.1 million at March 31, 1996, due to cash
payments of $2.1 million and noncash items of $.4 million. The restructuring
accruals are expected to be reduced by $.1 million of noncash items for the
remainder of fiscal 1996 and $.6 million in 1997 and beyond, while the future
cash outlay is estimated to be $.5 million for the remainder of 1996 and $1.9
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 accrues 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 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 March 31, 1996.
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 March 31, 1996, 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, two other sites nearing completion did not require any accruals as
of March 31, 1996. 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
<PAGE>
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: No reports on Form 8-K were filed during the
quarter for which this report is filed.
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 May 10, 1996 \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>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Jostens, Inc. condensed consolidated financial statements as of and for the
period ended March 31, 1996, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 3,569
<RECEIVABLES> 141,544
<ALLOWANCES> (9,148)
<INVENTORY> 142,236
<CURRENT-ASSETS> 325,215
<PP&E> 192,850
<DEPRECIATION> (124,461)
<TOTAL-ASSETS> 464,943
<CURRENT-LIABILITIES> 285,334
<BONDS> 53,732
<COMMON> 12,883
0
0
<OTHER-SE> 96,194
<TOTAL-LIABILITY-AND-EQUITY> 464,943
<SALES> 405,396
<TOTAL-REVENUES> 405,396
<CGS> 180,283
<TOTAL-COSTS> 180,283
<OTHER-EXPENSES> 184,041
<LOSS-PROVISION> 1,715
<INTEREST-EXPENSE> 5,040
<INCOME-PRETAX> 36,032
<INCOME-TAX> 14,773
<INCOME-CONTINUING> 21,259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,259
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
