================================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 30, 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 33-96680
HERFF JONES, INC.
(Exact Name of registrant as specified in its charter)
INDIANA 35-1637714
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
4501 West 62nd Street, Indianapolis, Indiana 46268
(Address of principal executive offices) (Zip Code)
(317) 297-3740
(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 for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares outstanding of the issuer's Common Stock as of May 14, 1996:
Class Common Stock,
without par value
9,636,923
1
<PAGE>
INDEX
Part I. - Financial Information Page No.
--------
Condensed Consolidated Statements of Operations -
Third Quarter Ended and Nine Months Ended March 30, 1996
and March 25, 1995 3
Condensed Consolidated Balance Sheets -
As of March 30, 1996, June 24, 1995 and March 25, 1995 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended March 30, 1996 and March 25, 1995 5
Notes to Condensed Consolidated Financial Statements 6 - 10
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 16
Part II. - Other Information 17
2
2
<PAGE>
Part I - Financial Information
Herff Jones, Inc.
Condensed Consolidated
Statements of Operations
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
Third Quarter Nine Months
Ended Ended
------------------------------------------- -------------------------------------
Restated Restated
March 30, 1996 March 25, 1995 March 30, 1996 March 25, 1995
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Net sales .................... $ 50,239 $ 46,360 $ 150,057 $ 145,129
Cost of sales
(excludes ESOP compensation) . 22,614 22,613 76,590 75,610
Selling, general, and
administrative expenses ...... 23,172 22,616 63,157 61,387
(excludes ESOP compensation)
ESOP compensation
Current year service ......... 3,603 1,234 9,529 4,013
Prior year service ........... -- -- 4,033 --
Restructuring charge ......... 2,145 -- 2,145 --
----------- ----------- ----------- -----------
Income (loss) from operations (1,295) (103) (5,397) 4,119
Interest expense ............. 4,746 1,502 13,594 4,637
Interest income .............. (7) (525) (622) (1,491)
----------- ----------- ----------- -----------
Income (loss) before income
taxes, extraordinary
item, and cumulative effect
of change in
accounting principle ......... (6,034) (1,080) (18,369) 973
Income taxes ................. 2,299 386 6,999 (347)
----------- ----------- ----------- -----------
Net income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle .................... (3,735) (694) (11,370) 626
Extraordinary item:
Prepayment fee on the senior
ESOP notes retirement,
less applicable tax
benefit of $3,621 ............ -- -- (5,884) --
Change in accounting for
ESOP compensation,
less applicable tax
benefit of $3,464 ............ -- -- -- (6,240)
----------- ----------- ----------- -----------
Net income (loss) ............ $ (3,735) $ (694) $ (17,254) $ (5,614)
=========== =========== =========== ===========
Income (loss) per common share $ (2.34) $ (0.56) $ (11.87) $ (4.54)
=========== =========== =========== ===========
Weighted average number of
common shares
outstanding, pro-forma
for periods prior to
August 22, 1995 .............. 1,596,619 1,236,494 1,452,569 1,236,494
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
3
<PAGE>
Herff Jones, Inc.
Condensed Consolidated
Balance Sheet
As of March 30, 1996, June 24, 1995, and March 25, 1995
(Amounts in thousands of dollars)
(Unaudited) (Unaudited)
Restated Restated
March 30, June 24, March 25,
1996 1995 1995
--------- ---------- ---------
Assets:
Current Assets
Cash and cash
equivalents ............. $ 982 $ 74,538 $ 43,168
Marketable .............. -- 6,219 12,089
securities, at cost
Accounts receivable ..... 42,134 52,108 38,622
Inventories ............. 50,132 33,320 51,944
Prepaid expense ......... 8,364 1,496 5,947
Deferred
income taxes ............ 2,412 2,411 1,165
--------- --------- ---------
Total ................... 104,024 170,092 152,935
Current Assets
Non-Current Assets
Property, plant, and
equipment ............... 75,266 72,734 71,124
Accumulated
depreciation ............ (37,060) (34,151) (31,913)
--------- --------- ---------
Net Property, Plant,
and Equipment ........... 38,206 38,583 39,211
Other assets ............ 5,370 965 703
--------- --------- ---------
Total Non-Current
Assets .................. 43,576 39,548 39,914
Total Assets ............ $ 147,600 $ 209,640 $ 192,849
========= ========= =========
Liabilities and
Shareholders' Equity:
Current Liabilities
Trade accounts
payable ................. $ 5,477 $ 4,405 $ 6,540
Salaries and wages
payable ................. 3,791 3,839 4,419
Customer deposits........ 45,307 14,886 39,626
Commissions payable ..... 6,747 14,682 5,689
Income taxes accrued .... (10,825) 10,428 (1,948)
Senior bank
facility (revolver) ..... 22,905 -- --
Current portion
of long term debt........ 10,000 4,809 4,809
Othe accrued
Liabilities.............. 12,445 12,141 11535
------ ------ -----
Total Current
Liabilities ............. 95,847 65,190 70,670
Non-Current
Liabilities
Deferred income ......... (402) (403) (220)
taxes
Long term debt .......... 173,100 72,617 72,617
Other ................... 1,569 1,618 1,373
------- ------- -------
Total Non-Current
Liabilities ............. 174,267 73,832 73,770
Total Liabilities ....... 270,114 139,022 144,440
Shareholders' Equity
(Deficit)
Common stock ............ 5,737 5,745 5,751
Retained earnings ....... 102,705 121,234 100,514
Deferred ................ (227,067) (56,367) (57,850)
compensation
Excess of cost
over market (shares
committed to be released) (3,902)
Translation
adjustment .............. 13 6 (6)
------- ------- -------
Total Shareholders'
Equity (Deficit) ........ (122,514) 70,618 48,409
Total Liabilities
and Shareholders'
Equity(Deficit) ......... $ 147,600 $ 209,640 $ 192,849
========= ========= =========
See accompanying notes to unaudited condensed consolidated financial
statements.
4
4
<PAGE>
Herff Jones, Inc.
Condensed Consolidated Statement
of Cash Flows
(Amounts in thousands of dollars)
(Unaudited)
Nine Months Ended
--------------------------------------
Restated
March 30, 1996 - March 25, 1995
-------------- ----------------
Cash flows from operating
activities:
Net loss ............................... $ (17,254) $(5,614)
Adjustments to reconcile net
loss to net cash (used) provided
by operating activities:
Depreciation and amortization .......... 4,000 3,734
ESOP compensation
(before dividend exclusion) ............ 13,676 4,572
Cumulative effect ...................... -- 9,704
of accounting change
Tax benefit of ESOP shares
(cost over market) ..................... 1,486 --
Other .................................. 7 175
(Gain) loss on disposal
of property, plant and
equipment, net ......................... (302) (483)
Increase (decrease) in cash generated by
changes in assets and liabilities:
Accounts receivable .................... 9,974 11,764
Inventories ............................ (16,812) (18,960)
Prepaid expenses ....................... (6,868) (4,002)
Trade accounts payable ................. 1,072 2,815
Salaries and wages ..................... (48) 546
Customer deposits ...................... 30,421 24,757
Commissions payable .................... (7,935) (7,429)
Income taxes payable ................... (21,253) (12,153)
Deferred income taxes .................. -- (3,462)
Other accrued liabilities .............. 255 (2,416)
Other assets ........................... (4,405) 2,702
------ ------
Total adjustments ...................... 3,268 11,864
------ ------
Net cash (used) provided by
operating activities.................... $(13,986) $ 6,250
Cash flows from investing activities:
Proceeds from disposal
of property, plant
and equipment........................... 488 1,348
Capital expenditures ................... (3,809) (5,615)
Sale of marketable securities .......... 6,219 9,293
------- -------
Net cash provided by
investing activities ................... $ 2,898 $ 5,026
Cash flows from financing
activities:
Purchase of shares by the
ESOP trust ............................. (188,278) --
Redemption of common shares ............ (8) --
Premium on ............................. (74) (92)
stock redemption
Dividends declared ..................... (2,687) (5,305)
Payments of long-term debt ............. (4,500) (4,450)
Paydown on the revolver................. (13,741)
New borrowings ......................... 216,646 --
Prepayment of
senior ESOP notes ...................... (69,826) --
-------- ---------
Net cash used in financing
activities ............................. $ (62,468) $(9,847)
Cash and cash equivalents:
Net increase ........................... (73,556) 1,429
(decrease)
Beginning of period .................... 74,538 41,739
------ ---------
End of period .......................... $ 982 $ 43,168
====== =========
See accompany ing notes to unaudited condensed consolidated financial
statements.
5
5
<PAGE>
Part I - Financial Information
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended March 30, 1996
(Amounts in thousands of dollars)
Note 1 - Adjustments
The unaudited condensed consolidated financial statements presented herein
have been prepared by the Company and contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly and on a
basis consistent with the restated consolidated financial statements for the
year ended June 24, 1995, the Company's financial position as of March 30,
1996, and the results of its operations for the three and nine month periods
ended March 30, 1996, and March 25, 1995, and cash flows for the nine month
periods ended March 30, 1996, and March 25, 1995.
The significant accounting policies followed by the Company are set forth in
Note (3) of the Company's restated consolidated financial statements for the
year ended June 24, 1995, which have been included in the Company's Form 8-K
which was filed on December 15, 1995. The Company has restated certain prior
year items to conform to the current year presentation.
During the first quarter of Fiscal 1996, the Herff Jones, Inc. Employee
Stock Ownership Plan (ESOP) purchased substantially all remaining shares
(6,724,200) of common stock held by shareholders other than the ESOP.
The Company issued Series A Notes and used the proceeds, along with
borrowings under the New Credit Agreement and internally generated cash from
operations, to fund the purchase of outstanding shares of common stock by
the ESOP and to prepay the Senior ESOP Notes. In prepaying the Senior ESOP
Notes, the Company incurred a prepayment fee of $5,884 net of the applicable
tax benefit.
The Company utilizes a 52/53 week fiscal year for accounting purposes ending
on the last Saturday in June. Fiscal 1996 will contain 53 weeks and the
additional week was included in the first quarter ended September 30, 1995.
Because of the seasonality of the Company's business, operating results on a
quarterly basis or nine months basis are not indicative of operating results
for the full year. Historically, the third fiscal quarter is the third
highest sales quarter, while the fourth fiscal quarter is the highest,
typically including over 40% of the year's sales.
Note 2 - Changes in Accounting Principles
Effective for Fiscal 1996, the Company adopted Statement of Position (SOP)
No. 93-6 ("Employers' Accounting for Employee Stock Ownership Plans"). In
accordance with the provisions of the new standard, the Company restated its
prior year financial statements to reflect adoption of SOP 93-6 as of the
beginning of Fiscal 1995. The adoption of SOP 93-6 resulted in a charge of
$6,240, net of the applicable tax benefit, for the cumulative effect of
applying the shares allocated method of calculating ESOP compensation
expense for years prior to Fiscal 1995. In addition, the application of SOP
93-6 in restating the Fiscal 1995 statements resulted in an increase to the
amount charged for ESOP compensation expense of $2,841 ($1,827 net of
taxes). The net impact of the transaction described above and the required
elimination of dividends on unallocated shares, as well as adjusting
deferred compensation for the adoption of the shares allocated method,
resulted in an increase in shareholders' equity of $7,996 as of June 24,
1995.
6
6
<PAGE>
Since there is no market for the Company's shares, the Company estimates
fair value for purposes of computing ESOP compensation expense based on
periodic valuations performed by an independent valuation firm.
Approximately 19,000 shares may be put back to the Company in Fiscal 1996 in
connection with scheduled distributions. Further, an ESOP diversification
provision provides a put option for participants who have attained the age
of 55 and have 10 years of ESOP participation (from 1990). In Fiscal year
2000, 100,000 shares are eligible to be put to the Company in accordance
with the diversification provision.
Note 3 - Allowance for Doubtful Accounts and Returns
March 30, 1996 June 24, 1995 March 25, 1995
-------------- ------------- --------------
$ 1,354 $ 3,019 $ 1,411
Note 4 - Inventories
The components of inventory balances are summarized below:
March 30, 1996 June 24, 1995 March 25, 1995
-------------- ------------- --------------
Raw materials and supplies
(includes gold) $16,061 $14,324 $17,068
Work-in-process 24,445 11,651 25,510
Finished goods 9,626 7,345 9,366
------- ------- -------
$50,132 $33,320 $51,944
======= ======= =======
Note 5 - Financing
March 30, June 24, March 25,
1996 1995 1995
---------- ---------- -----------
Long-Term Debt consists
of the following:
1989 Senior ESOP Notes $ - $69,826 $69,826
Senior Bank Facility (Revolver) 22,905 - -
Senior Bank Facility (Term) 55,500 - -
Senior Subordinated Notes 120,000 - -
1994 Industrial Development
Revenue Bonds Due in 2019 7,600 7,600 7,600
-------- ------- -------
206,005 77,426 77,426
-------- ------- -------
Less: Current Portion (32,905) (4,809) (4,809)
-------- ------- -------
Long-Term Debt $173,100 $72,617 $72,617
======== ======= =======
In connection with the ESOP Transaction, the Company entered into the New
Credit Agreement pursuant to which financial institutions have provided the
Company with a new $120,000 credit facility, which includes a $60,000 Senior
Secured Term Loan and a $60,000 Senior Secured Revolving Credit Facility.
The Term Loan and the Revolving Credit Facility have a final maturity of
September 30, 2000. Amortization of the Term Loan is in quarterly
installments which commenced December 31, 1995, and the aggregate scheduled
amortization will be $9,000 in the first year, $11,000 in the second year,
$12,000 in the third year, $13,000 in the fourth year, and $15,000 in the
fifth year.
All loans made under the Term Loan and the Revolving Credit Facility will
bear interest either at The First National Bank of Boston Alternate Base
rate (the "Base Rate") or the Eurodollar rate (as defined below), plus, in
each case, the "Applicable Margin," which initially will be 0.00% per annum
with respect to the Base Rate and 1.50% per annum with respect to the
Eurodollar rate. The Applicable Margin will rise or fall depending upon the
financial performance of the Company. The Company will pay a commitment fee
which initially will be 0.375% per annum on the unused portion of the
Revolving Credit Facility. The commitment fee will be payable quarterly in
arrears and could increase or decrease depending upon the financial
performance of the Company. The Company will pay the applicable Eurodollar
Rate Margin (as defined below) on the maximum amount available to be drawn
under each letter of credit (such fees will rise and fall depending on the
financial performance of the Company) plus, for the account of the Agent
Bank, a fee of 0.125% on the maximum amount available to be drawn under each
letter of credit upon issuance. The "Eurodollar Rate" for an interest period
is defined in the New Credit Agreement as the rate at which the Agent Bank
is offered U.S. dollar deposits in the interbank eurodollar market in which
it conducts currency and exchange operations two business days before such
interest period plus a margin ranging between 0.75% to 1.75% per annum (the
"Eurodollar Rate Margin"), adjusted annually depending on the ratio of the
Company's senior debt to certain cash flows for the preceding fiscal year.
7
7
<PAGE>
The obligations under the Term Loan and the Revolving Credit Facility
constitute Senior Debt and are secured by a blanket perfected first priority
security interest in substantially all tangible and intangible assets of the
Company, including a pledge of all of the stock of the Company's
subsidiaries. In addition, the obligations under the Term Loan and the
Revolving Credit Facility are guaranteed by each of the Company's
subsidiaries (the "Guarantors"), and the obligations of each of the
Guarantors under such guarantee are in turn secured by a perfected first
priority security interest in all assets of each of the Guarantors.
The New Credit Agreement and related documents contain customary financial
and other covenants that, among other things, limit the ability of the
Company (subject to customary and negotiated exceptions) to: (i) incur
additional liens, (ii) incur additional indebtedness, (iii) make certain
kinds of investments, (iv) prepay subordinated indebtedness, including the
Notes, (v) make distributions and dividend payments to its stockholders,
(vi) engage in affiliate transactions, (vii) make certain asset
dispositions, (viii) make significant acquisitions and (ix) participate in
certain mergers or consolidations.
Note 6 - Common Stock
March 30, June 24, March 25,
1996 1995 1995
---------- ---------- -----------
Authorized
Common Shares 16,500,000 - -
Class A - 5,000,000 5,000,000
Class B - 6,500,000 6,500,000
Class C - 5,000,000 5,000,000
---------- ---------- ----------
Total Common Stock Authorized 16,500,000 16,500,000 16,500,000
========== ========== ==========
March 30, June 24, March 25,
1996 1995 1995
---------- ---------- -----------
Outstanding
Common Shares 9,636,923 - -
Class A - 3,247,970 3,247,970
Class B - 3,478,100 3,478,100
Class C - 2,914,398 2,927,880
--------- --------- ---------
Total Common Stock Outstanding 9,636,923 9,640,468 9,653,950
========= ========= =========
8 8
<PAGE>
Note 6 - Common Stock (Con't)
Pursuant to the August 22, 1995 recapitalization plan in which the ESOP
purchased substantially all remaining shares of common stock held by
shareholders other than the ESOP, the weighted average number of common
shares outstanding was calculated on a pro forma basis assuming the ESOP
occurred at June 25, 1995. The same weighted average number of common shares
was considered outstanding on a pro forma basis for fiscal 1995 to present
comparable income (loss) per common share. The number of common shares
outstanding immediately after the recapitalization took place was 1,236,494.
This number will be used as the pro forma weighted average number of common
shares outstanding for all periods prior to fiscal 1996.
The actual weighted average number of common shares outstanding for the
third quarter ended March 30, 1996, and March 25, 1995, was 1,596,626 and
7,712,524, respectively. The actual weighted average number of common shares
outstanding for the nine months ended March 30, 1996, and March 25, 1995,
was 3,091,768 and 7,665,102, respectively. The actual income (loss) per
common share for the third quarter ended March 30, 1996 and March 25, 1995,
was ($2.34) and ($.09), respectively. The actual income (loss) per common
share for the nine months ended March 30, 1996 and March 25, 1995, was
($5.58) and ($.73), respectively.
In accordance with the provisions of SOP 93-6, for purposes of computing a
weighted average number of common shares outstanding, ESOP shares that have
been committed to be released are considered outstanding, ESOP shares that
have not been committed to be released are not considered outstanding.
9
<PAGE>
Note 7 - Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Foreign Total
---------------------- Retained Currency Deferred Excess Cost Shareholders'
Shares Amount Earnings Translation Compensation Over Market Equity
-------- ------ -------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 24, 1995 9,640,468 $5,745 $126,697 $6 ($69,826) $ -- $62,622
Fiscal 1994 shares
committed to be
released in fiscal
1995 (reclass from
accrual) -- -- 183 -- 2,967 -- 3,150
Cumulative
accounting change -- -- 694 -- 9,009 -- 9,703
Reverse previous
dividend exclusion
based on unallocated
ESOP shares ($.70/share) -- -- 1,453 -- -- -- 1,453
Reversal of tax benefit
of ESOP dividends -- -- (491) -- -- -- (491)
Reversal of ESOP
debt payment -- -- -- -- (4,450) -- (4,450)
Shares committed
to be released -- -- 163 -- 5,933 -- 6,096
Net income reduction
for the year -- -- (7,465) (7,465)
--------- ----- ------- --- -------- ------ --------
Balance June 24, 1995 -
restated 9,640,468 5,745 121,234 6 (56,367) -- 70,618
========= ===== ======= === ======= === ======
Stock Purchase (112) -- (3) -- -- -- (3)
Dividends Declared
($.35/Share) -- -- (2,687) -- -- -- (2,687)
Tax benefit of cost
over market of ESOP
shares committed to
be released -- -- 878 -- -- -- 878
ESOP share purchase -- -- -- -- (188,278) -- (188,278)
Foreign currency
translation adjustment -- -- -- 20 -- -- 20
Shares committed to
be released -- -- -- -- 9,346 (2,252) 7,094
Net income for the quarter -- -- (13,099) -- -- -- (13,099)
--------- ----- ------- --- -------- ------ --------
Balance September 30,
1995 9,640,356 $5,745 $106,323 $26 ($235,299) ($2,252) ($125,457)
========= ===== ======= === ======== ====== ========
Stock Purchase (3,433) (8) (70) -- -- -- (78)
Tax benefit of cost over
market of ESOP shares committed
to be released -- -- 377 -- -- -- 377
Foreign currency
translation adjustment -- -- -- (15) -- -- (15)
Shares committed to
be released -- -- -- -- 4,104 (1,043) 3,061
--------- ----- ------- --- -------- ------ --------
Net income for the quarter -- -- (420) -- -- -- (420)
========= ===== ======= === ======== ====== ========
10
<PAGE>
Balance December 30, 1995 9,636,923 $5,737 $106,210 $11 ($231,195) ($3,295) ($122,532)
========= ====== ======== === ========= ======= =========
Tax benefit of cost over
market of ESOP shares
committed to be released -- -- 230 -- -- -- 230
Foreign currency
translation adjustment -- -- -- 2 -- -- 2
Shares committed
to be released -- -- -- -- 4,128 (607) 3,521
Net income for the quarter -- -- (3,735) -- -- -- (3,735)
--------- ----- ------- --- -------- ------ -------
Balance March 30, 1996 9,636,923 $5,737 $102,705 $13 ($227,067) ($3,902) ($122,514)
========= ===== ======= === ======== ====== ========
</TABLE>
9
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<PAGE>
Excess of cost over market represents the cumulative difference between the
market value of shares committed to be released and the cost of those shares to
the ESOP. At the first of the calendar year, an interim estimated valuation was
performed by an independent valuation firm. The firm increased the market value
of common shares from $21.25 to $24.30. This interim estimated valuation was
used in calculating the third quarter ESOP compensation expenses.
Note 8 - Other Events
On April 29, 1996, Herff Jones, Inc. purchased certain assets of the Delmar
Companies Division ("Delmar") of Continental Graphics Corporation. Delmar
manufactures and sells yearbooks and processes school photography products
in the United States under the names of Delmar Printing and Delmar Portrait
Studios.
Delmar sales in the most recently completed fiscal year ended October 27,
1995 were $33,500. The purchase price is approximately $20,000 in cash plus
the value of certain operating liabilities to be assumed.
Note 9 - Restructuring Charge
The Company incurred a restructuring charge of $2,145 in the third quarter
of fiscal 1996 resulting from a one time voluntary early retirement program
completed in one Scholastic plant location. The program was offered to
management and supervisory employees, of whom 17 elected to participate in
the program. Approximately $207 of the restructuring charge was paid during
the third quarter and the remaining $1,938 will be paid in the first quarter
of fiscal 1997.
12 10
<PAGE>
HERFF JONES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Pursuant to a plan of recapitalization adopted by the Company's Board
of Directors in May 1995 and effective as of August 22, 1995, (a) the Company's
outstanding shares in three classes of common stock were converted to a single
class of Common Stock on a share-for-share basis, (b) the Company-sponsored ESOP
trust purchased substantially all of the shares of Common Stock so converted
held by shareholders other than the ESOP, (c) the ESOP borrowed approximately
$188.3 million from the Company (the "ESOP Loan") to fund its purchase of Common
Stock and (d) the Company used the proceeds of the offering of the Senior
Subordinated Notes ("Notes"), along with borrowings under the New Credit
Agreement and internally generated cash from operations, to fund the ESOP Loan
and to prepay the Senior ESOP Notes. In prepaying the Senior ESOP Notes, the
Company incurred a prepayment fee of $5.9 million, net of the applicable tax
benefit.
In connection with the forgoing transactions (the "ESOP Transactions"),
the Company entered into the New Credit Agreement pursuant to which a group of
financial institutions have provided the Company with a new $120.0 million
credit facility, which includes a $60.0 million senior secured term loan (the
"Term Loan") and a $60.0 million senior secured revolving credit facility (the
"Revolving Credit Facility"), which includes a letter of credit facility with a
$12.0 million sublimit. The Term Loan and the Revolving Credit Facility have a
final maturity of September 30, 2000. The Company incurred significant financing
costs, which have been deferred as other assets and will be charged to expense
over the life of the related debt instruments.
In addition, in the first quarter of fiscal 1996 the Company adopted
SOP 93-6 "Employer's Accounting for Employee Stock Ownership Plans" for both the
new shares purchased and the existing shares held by the ESOP trust. The effect
of this adoption included the adjustment of pre-Fiscal 1995 compensation expense
accounting to the shares allocated method, resulting in an adjustment of $6.2
million, net of the applicable tax benefit, for the cumulative effect of this
accounting change. Further, the Fiscal 1995 financial statements have been
restated to reflect the adoption of SOP 93-6 which primarily impacted ESOP
compensation expense, income taxes, deferred compensation and earnings per
share.
The Company utilizes a 52/53 week year for accounting purposes. Fiscal
1996 will contain 53 weeks and the additional week was included in the first
quarter ended September 30, 1995. The Company's business is highly seasonal. As
a result, the operating results on a quarterly basis or nine month basis are not
necessarily indicative of operating results for the full year.
As a result of the issuance of the Notes and the incurrence of
additional indebtedness under the New Credit Agreement to effect the ESOP
Transactions, as well as the need to finance working capital, the Company's
interest expense has increased significantly in fiscal 1996 and such higher
interest expense is expected to continue for a number of years.
11
13
<PAGE>
For the third quarter ended March 30, 1996 and March 25, 1995.
General. Net sales increased 8.4% to $50.2 million in fiscal 1996 from
$46.4 million in fiscal 1995. The operating loss increased to $1.3 million in
fiscal 1996 from $.1 million in fiscal 1995. The net loss was $3.7 million in
fiscal 1996 compared to a loss of $.7 million in fiscal 1995.
Net Sales. Net sales increased $3.8 million or 8.4% to $50.2 million in
fiscal 1996 from $46.4 million in fiscal 1995 due primarily to sales increases
in the Scholastic and Cap and Gown product lines, partially offset by a decrease
in the Education product line. The increase was due primarily to increased
volume in the Scholastic and Cap and Gown product lines, partially offset by a
volume reduction in the Education product line, resulting from the elimination
of certain items from the product offering.
Cost Of Sales. Cost of sales in fiscal 1996 remained constant with
fiscal 1995 at $22.6 million. Cost of sales as a percentage of sales decreased
to 45.0% in fiscal 1996 from 48.8% in fiscal 1995, primarily because of lower
manufacturing costs in most product lines, which offset higher manufacturing
costs in previous quarters.
Selling, General And Administrative Expenses. Selling, general and
administrative expense increased $.6 million or 2.5% to $23.2 million in fiscal
1996 from $22.6 million in fiscal 1995. The increase was primarily attributable
to an increase in the Company's commission expense, resulting from increased net
sales in fiscal 1996. Selling, general and administrative expenses as a
percentage of sales decreased to 46.1% in fiscal 1996, from 48.8% in fiscal 1995
due to the higher sales in fiscal 1996 with only a nominal increase in expenses.
Restructuring Charge. The Company incurred a restructuring charge of
$2.1 million in the third quarter of fiscal 1996 resulting from a one time
voluntary early retirement program completed in one Scholastic plant location.
The program was offered to management and supervisory employees, of whom 17
elected to participate in the program. Approximately $.2 million of the
restructuring charge was paid during the third quarter and the remaining $1.9
million will be paid in the first quarter of fiscal 1997.
ESOP Compensation. ESOP compensation increased $2.4 million to $3.6
million in fiscal 1996 from $1.2 million in fiscal 1995 due to the ESOP
Transactions which were completed during the first quarter. The Recapitalization
described above resulted in a significant increase in the number of shares to be
allocated to employee accounts effective each December 31 from 1995 through
2009. The increase in the current quarter's expense over the prior year
quarter's expense results primarily from the increase in the number of shares
committed to be released, offset by a reduction in the market value of the
shares.
Loss from Operations. Operating losses increased $1.2 million to $1.3
million in fiscal 1996 from $.1 million in fiscal 1995. This was predominantly
due to the increase in ESOP compensation expense and the restructuring charge,
offset somewhat by the sales increase and expense control measures, all as
discussed above.
Net Interest. Net interest expense increased $3.8 million to $4.7
million in the third quarter of fiscal 1996 from $1.0 million in the
corresponding quarter of fiscal 1995, due primarily to the increased borrowings
associated with the Recapitalization completed during the first quarter.
Income Taxes. Income taxes were a benefit of $2.3 million in fiscal
1996 compared to a benefit of $.4 million in fiscal 1995, due to the increased
quarterly loss before tax in fiscal 1996.
12
14
<PAGE>
Net Loss. Net losses were $3.7 million in fiscal 1996 compared to a net
loss of $.7 million in fiscal 1995. The change was primarily attributable to the
increase in ESOP compensation expense, interest expense, and the restructuring
charge, offset somewhat by the sales increase and expense control measures and
the related tax benefits, as discussed above.
For the nine months ended March 30, 1996 and March 25, 1995.
General. Net sales rose 3.4% to $150.1 million in fiscal 1996 from
$145.1 million in fiscal 1995. Operating losses were $5.4 million in fiscal 1996
compared to operating income of $4.1 million in fiscal 1995. The net loss before
the extraordinary item was $11.4 million in fiscal 1996 compared to a net income
before the accounting change of $.6 million in fiscal 1995. The net loss after
the extraordinary item and accounting change increased to $17.3 million in
fiscal 1996 from $5.6 million in fiscal 1995.
Net Sales. Net sales increased $5.0 million or 3.4% to $150.1 million
in fiscal 1996 from $145.1 million in fiscal 1995 due primarily to sales
increases in the Scholastic, Cap & Gown and Photography product lines, partially
offset by a sales decrease in the Education product line. The increases were due
primarily to modest price increases and small unit growth, partially offset by
unit declines in the Education product line, resulting from the elimination of
certain items from the product offering.
Cost Of Sales. Cost of sales increased $1.0 million or 1.3% to $76.6
million in fiscal 1996 from $75.6 million in fiscal 1995, primarily as a
function of increased sales. Cost of sales as a percentage of sales decreased to
51.0% in fiscal 1996 from 52.1% in fiscal 1995, primarily because of lower
manufacturing costs in the Scholastic, Photography and Education product lines.
Selling, General And Administrative Expenses. Selling, general and
administrative expenses increased $1.8 million or 2.9% to $63.2 million in
fiscal 1996 from $61.4 million in fiscal 1995. The increase was attributable to
an additional week of selling, general and administrative expense spending in
fiscal 1996 as compared to fiscal 1995 and an increase in the Company's
commission expense resulting from increased net sales in fiscal 1996. Selling,
general and administrative expense as a percentage of sales decreased slightly
to 42.1% in fiscal 1996 from 42.3% in fiscal 1995.
ESOP Compensation. ESOP compensation increased $9.5 million to $13.6
million in fiscal 1996 from $4.0 million in fiscal 1995, due to the ESOP
Transactions which were completed during the first quarter. The Recapitalization
described above resulted in a significant increase in the number of shares to be
allocated to employee accounts effective each December 31 from 1995 through
2009. The shares allocated effective December 31, 1995 related to service
rendered by employees during calendar 1995. ESOP compensation expense for the
nine months ended March 30, 1996 includes $4.0 million relating to employee
service rendered in the prior fiscal year and $9.5 million relating to employee
service rendered in the current fiscal year. The increase in the current year's
expense over the prior year expense results primarily from the increase in the
number of shares committed to be released, offset by a reduction in the market
value of the shares.
Restructuring Charge. The Company incurred a restructuring charge of
$2.1 million in the third quarter of fiscal 1996 resulting from a one time
voluntary early retirement program completed in one Scholastic plant location.
The program was offered to management and supervisory employees, of whom 17
elected to participate in the program. Approximately $.2 million of the
restructuring charge was paid during the third quarter and the remaining $1.9
million will be paid in the first quarter of fiscal 1997.
13
15
<PAGE>
Income (Loss) from Operations. The operating loss was $5.4 million in
fiscal 1996 compared to operating income of $4.1 million in fiscal 1995. The
change was predominantly due to the increase in ESOP compensation expense and
the restructuring charge, offset somewhat by the sales increase and expense
control measures, as discussed above.
Net Interest. Net interest expense increased $9.8 million to $13.0
million in the first nine months of fiscal 1996 from $3.2 million in the
corresponding nine months of fiscal 1995 due to the increased borrowings
associated with the Recapitalization completed during the first quarter.
Income Tax. Income taxes were a benefit of $7.0 million in fiscal 1996
compared to an expense of $.3 million in fiscal 1995 due to the nine month loss
before income taxes.
Extraordinary Item And Accounting Change. In fiscal 1996 the Company
incurred a prepayment fee of $5.9 million, net of the applicable tax benefit, on
the retirement of the Senior ESOP Notes. In fiscal 1995, the Company recorded
the cumulative effect of the adoption of SOP 93-6, "Employer's Accounting for
Employee Stock Ownership Plans," of $6.2 million, net of the applicable tax
benefit, as described above.
Net Loss. The net loss increased to $17.3 million from $5.6 million in
fiscal 1995. The increased loss was primarily attributable to the increase in
ESOP compensation expense, interest expense, and the restructuring charge,
offset somewhat by the sales increase and expense control measures and the
related tax benefits, as discussed above.
FINANCIAL CONDITION AND LIQUIDITY
The Company's business is highly seasonal. The first nine months of
fiscal 1996 required an increase in the use of cash for operating activities due
to higher interest costs; the absorption of fixed costs that are incurred evenly
throughout the year; the build up of inventories for the spring shipment of
graduation related products; the payment of the Company's income taxes from the
previous fiscal year; and the settlement of commission accounts with the
Company's independent sales representatives. This is partially offset by the
reduction of accounts receivable resulting from payment for products shipped
prior to graduations in the Company's fourth quarter and the receipt of customer
deposits for products that ship in the spring.
The recapitalization described above significantly changed the
Company's financial condition, adding substantial indebtedness which in turn
resulted in a deficit shareholders' equity position. The cash flow pattern and
expectations of the Company's highly seasonal business result in the
classification, at March 30, 1996, of $22.9 of the senior bank facility
(revolver) as a current liability, although payment within the next year is not
necessarily required by the terms of the Company's financing arrangements.
Capital expenditures of $3.8 million and $5.6 million in the first nine
months of fiscal 1996 and 1995, respectively, were across all product lines as
the Company continued to invest in its basic business. The higher expenditures
in 1995 were for the completion of the new facility for the manufacture of
disposable caps and gowns in Arcola, Illinois.
14
16
<PAGE>
A $.35 per share dividend was paid during fiscal 1996, totaling $3.4
million, compared to a $.70 per share dividend paid in fiscal 1995. The decrease
was the result of a $.35 per share dividend being declared in each of the first
and third quarters of fiscal 1995 whereas in fiscal 1996 a $.35 per share
dividend was declared in the first quarter, with another expected in the fourth
quarter. Approximately $1.0 million of the $3.4 million of fiscal 1996 dividends
were paid to the ESOP trust, which used those funds to make payments on the loan
from the Company.
For the nine months ended March 30, 1996, cash and cash equivalents
declined $73.6 million to $1.0 million as compared to an increase of $1.4
million to $43.2 million for the nine months ended March 25, 1995. The decline
was primarily the result of funding the ESOP trust's purchase of substantially
all remaining outstanding shares of the Company's stock.
Cash used in operating activities was $14.0 million in the first nine
months ended March 30, 1996 compared to $6.3 million cash provided in the nine
months ended March 25, 1995 as described below.
The net loss was $17.3 million in the first nine months of fiscal 1996
compared to $5.6 million in fiscal 1995. The primary causes for the increased
loss were increases in ESOP compensation expense (which is a non-cash expense),
interest expense, and the restructuring charge, partially offset by the related
tax benefits.
Other assets increased $4.4 million in the first nine months of fiscal
1996 compared to a decrease of $2.7 million in the first nine months of fiscal
1995. The primary cause of the increase was an increase in the long-term portion
of financing charges due to the recapitalization which was completed in the
first quarter.
Customer deposits increased $30.4 million in the first nine months of
fiscal 1996 compared to an increase of $24.8 million in fiscal 1995. The
increase was primarily related to an increase in customer deposits in the
Yearbook product line.
Income taxes payable decreased $21.3 million in the first nine months
of fiscal 1996 compared to a decline of $12.2 million in fiscal 1995. The
increased decline was primarily attributable to the increased pre-tax loss of
the Company in the first nine months of fiscal 1996 compared with fiscal 1995
and a higher payment of taxes related to the prior fiscal year.
Net cash provided by investing activities was $2.9 million for the nine
months ended March 30, 1996 compared to $5.0 million in the nine months ended
March 25, 1995. The primary reason for the decrease was a reduction in the sale
of marketable securities of $3.1 million.
Net cash used in financing activities was $62.5 million in the nine
months ended March 30, 1996 compared to $9.8 million in the nine months ended
March 25, 1995. The increase was attributable to the purchase of substantially
all the remaining shares of Herff Jones stock by the ESOP Trust for $188.3
million, partially offset by a net increase in borrowings of $128.6 million.
Deferred compensation at March 30, 1996 increased to $227.1 million
from $56.4 million at June 24, 1995 and $57.9 million at March 25, 1995. The
reason for the increase was the purchase by the ESOP Trust of substantially all
outstanding shares of Company stock not then owned by the ESOP Trust.
15
17
<PAGE>
As referenced in the Form 8-K filed with the SEC on May 9, 1996, the
Company has completed the acquisition of certain assets of the Delmar Companies
Division ("Delmar") of Continental Graphics Corporation. Delmar manufacturs and
sells yearbooks and processes school photography products in the United States
and had sales of $33.5 million in its most recently completed fiscal year ended
October 27, 1995.
The purchase price is approximately $20 million in cash and the assumption
of certain operating liabilities, and will be financed by a draw against the
Company's revolving credit line. The Company believes it has adequate
flexibility in the revolving credit line to meet on-going working capital
requirements.
Delmar operates a yearbook printing plant and a school photography
processing facility at a single site in Charlotte, North Carolina and the
Company intends to continue to operate the plants and thus expand its
manufacturing capacity.
Delmar's operating margins were less than the Company's margins in the most
recently completed fiscal year; however the Company believes it can in the
future improve these margins through operating improvements, and grow the
business. There is no assurance that it will be able to do so and whether it can
do so will depend on a number of important factors including its ability to
reduce Delmar's operating expenses, especially labor costs and the tolerance of
price adjustments in the market place.
Since Delmar is in the same lines of business as the Company, the
acquisition is consistent with strategy of operating in its existing product
lines and markets.
16
18
<PAGE>
PART II - OTHER INFORMATION
Item 6.
Exhibits and Reports on Form 8-K
a) Exhibit Index appears on page E-1.
b) Reports on Form 8-K
The Registrant filed a report on Form 8-K, under Item 5, during the
quarter covered by this report on March 29, 1996 relating to the acquisition of
the Delmar Companies Division of Continental Graphics Corporation.
The Registrant filed a report on Form 8-K, under Item 2 and Item 7, on
May 9, 1996 relating to the acquisition of the Delmar Companies Division of
Continental Graphics Corporation.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act as of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HERFF JONES, INC.
(Registrant)
By: / S / Lawrence F.Fehr
-------------------------
Lawrence F. Fehr
Vice President and
Chief Financial Officer
May 14, 1996
17
19
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
10.1 Amendement No. 2 to the Rhode Island Agreements. 21
27 Financial Data Schedule 24
E-1
(18)
20
SECOND AMENDMENT TO AMENDED AND
RESTATED CONSIGNMENT AGREEMENT
DATED OCTOBER 27, 1989
THIS SECOND AMENDMENT is made as of the 9th day of February, 1996,
between RHODE ISLAND HOSPITAL TRUST NATIONAL BANK, a national banking
association with its principal office at One Hospital Trust Plaza, Providence,
Rhode Island 02903 ("Bank"), and HERFF JONES, INC., an Indiana corporation with
its address at 4719 West 62nd Street, Indianapolis, Indiana 46268 ("Buyer").
W I T N E S S E T H T H A T:
WHEREAS, Bank and Buyer are parties to a certain Amended and Restated
Consignment Agreement dated October 27, 1989 (hereinafter, as amended by a
certain Amendment dated June 21, 1991, called the "Consignment Agreement"),
relating to the consignment by Bank to Buyer of Precious Metal (as defined
therein); and
WHEREAS, Bank and Buyer desire to further amend and modify the
Consignment Agreement in certain respects;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. The definitions of "Consigned Precious Metal", "Consignment Limit",
"Delivery", "Duly Authorized Officer", "Fair Market Value", "Financial
Statements", "Notices", "Principal Office", "Purchase Price" and "Redeliver or
Redelivery" in Section 1 of the Consignment Agreement are hereby amended to read
as follows:
"`Consigned Precious Metal' shall mean Precious Metal which
Bank has consigned to Buyer (including, without limitation, Precious
Metal in transit to or from Buyer) pursuant to the terms of this
Agreement for which payment has not been received or which has not been
Redelivered to Bank.
`Consignment Limit' shall mean the lesser of (a) 21,500 troy
ounces of fine gold or (b) Consigned Precious Metal with a Fair Market
Value (or unpaid Purchase Price in the case of Consigned Precious Metal
for which the Purchase Price has been agreed but payment has not been
received by Bank) equal to $9,000,000.
`Deliver' or `Delivery' shall mean either (i) actual shipment
of Precious Metal or (ii) Bank's crediting Precious Metal to the
account of Buyer with Bank or one or more third parties when no
physical movement thereof is contemplated by the parties.
`Duly Authorized Officer' shall mean the president of Buyer or
Bank, the chief financial officer or treasurer of Buyer or such other
officer or employee of either party who is listed on Exhibit A hereto.
`Fair Market Value' on any day shall mean (1) as used in the
definition of Daily Consignment Fee, the Second London Gold Fixing for
that day (if such Fixing does not occur on such day, the Fixing for the
immediately preceding day for which it is available) and (2) as used in
Section 2 of this Agreement, Bank's spot market price from time to
time.
`Financial Statements' shall mean the balance sheet, income
statement, statement of cash flows and retained earnings statement of
Buyer for the year or other period then ended, together with supporting
schedules, audited by independent certified public accountants approved
by Bank (except that, in the case of monthly or quarterly statements,
such statements may be unaudited) and prepared in accordance with GAAP.
`Notice' or `Notices' shall mean all requests, demands and
other communications, in writing (including telegraphic and facsimile
transmissions confirmed by telephone communication to a Duly Authorized
Officer), sent by registered or certified mail, return receipt
requested, overnight delivery service, telegraph, facsimile
transmission or hand-delivery to the other party at that party's
Principal Office.
21
<PAGE>
`Principal Office' shall mean:
For Bank:
Rhode Island Hospital Trust National Bank
One Hospital Trust Plaza
Providence, Rhode Island 02903-2449
Attention: Precious Metals Department
Fax Number: 401-278-7329
For Buyer:
Herff Jones, Inc.
4625 West 62nd Street
Indianapolis, Indiana 46268
Attention: Scholastic Division Controller
Fax Number: 317-329-3309
`Purchase Price' shall mean a price to which both parties'
Duly Authorized Officers agree and shall be stated in dollars per troy
ounce of Precious Metal content.
`Redeliver' or `Redelivery' shall mean that Buyer (i) delivers
to Bank's Principal Office, at Buyer's sole risk and expense, Precious
Metal of a fineness equal to the fineness specified for that Precious
Metal and of a type and quality and in a form acceptable to Bank or
(ii) credits Precious Metal to the account of Bank with one or more
third parties approved in writing by Bank when no physical movement
thereof is contemplated by the parties."
2. Section 1 of the Consignment Agreement is hereby amended by adding
definitions of "business day", "Default" and "GAAP" to read as follows:
"`Business day' shall mean any day other than a Saturday,
Sunday or state or federal holiday on which Bank is not open for
business.
`Default' shall mean an event, condition or default which with
the giving of notice, the passage of time or both would be an Event of
Default.
`GAAP' shall mean generally accepted accounting principles in
the United States of America, as promulgated or adopted by the
Financial Accounting Standards Board and in effect from time to time,
consistently applied with past financial statements of Buyer and with
Precious Metal inventory being valued on a last-in, first-out basis."
3. Section 2 of the Consignment Agreement is hereby amended to read as
follows:
"2. Amount of Consignment.
Provided (i) no notice of election to terminate this Agreement
(as provided in Section 14 hereof) has been given by either party and
(ii) no Default or Event of Default has occurred, Bank will Deliver
from time to time to Buyer upon its request (each such request
constituting a certification by Buyer that no Default or Event of
Default has occurred) Precious Metal under the terms and conditions of
this Agreement; in no event will Bank be obligated to Deliver Precious
Metal if a Default or Event of Default has occurred or if the amount of
troy ounces or aggregate Fair Market Value of Precious Metal requested
when added to the amount or aggregate Fair Market Value of Consigned
Precious Metal exceeds Buyer's Consignment Limit.
22
<PAGE>
If at any time or for any reason the number of troy ounces or
Fair Market Value (or unpaid Purchase Price in the case of Consigned
Precious Metal for which the Purchase Price has been agreed but payment
has not been received by Bank) of all Consigned Precious Metal at any
time exceeds Buyer's Consignment Limit, Buyer shall, within one (1)
business day after Notice from Bank, Redeliver to Bank, or purchase and
pay for, Precious Metal of a quantity, or with a Fair Market Value,
sufficient to eliminate such excess. Any failure by Buyer to comply
with the provisions of the preceding sentence shall constitute an Event
of Default under Section 13(b) of this Agreement.
Bank shall provide Buyer with a monthly statement of the
quantity of Consigned Precious Metal (in whatever form) held by Buyer.
If Buyer does not agree with the information reported in the statement,
Buyer shall give Notice of such disagreement to Bank within fifteen
(15) days of the date of receipt of such statement. If Buyer fails to
give such Notice to Bank within the fifteen (15) day period, Buyer
shall be deemed to have affirmed the accuracy of the information
reported in the statement and to have waived any claim Buyer may have
by reason of a dispute as to such statement. Upon and after the
occurrence of an Event of Default, Buyer shall endeavor to provide to
Bank on a weekly basis written confirmation, in form acceptable to
Bank, of the quantity of all Consigned Precious Metal.
Buyer shall give Bank at least one (1) full business day's
Notice of its requirements for Precious Metal. Bank shall not be liable
to Buyer if Bank fails to Deliver the Precious Metal by reason of an
Act of God or other catastrophe, force majeure, lack of supply, delay
in transportation, war or other hostilities, strike, lockout, epidemic,
acts of government or other public authority, requirements of any
regulatory board, agency or authority, unavoidable casualties or any
other causes beyond Bank's control. BANK MAKES NO WARRANTY OF
MERCHANTABILITY IN RESPECT TO PRECIOUS METAL CONSIGNED OR SOLD UNDER
THIS AGREEMENT NOR OF FITNESS FOR ANY PARTICULAR PURPOSE NOR ANY OTHER
WARRANTIES, EXPRESS OR IMPLIED, except that Bank does warrant to Buyer
that all Precious Metal will be of the fineness stated in Section 1 for
that Precious Metal."
4. Section 3 of the Consignment Agreement is hereby amended to read as
follows:
"3. Delivery of Precious Metal.
All Deliveries of Precious Metal by Bank will be made to Buyer
at Buyer's Principal Office or other locations approved by a Duly
Authorized Officer of Bank, such Deliveries to be on terms and
conditions satisfactory to Bank. At the time of Delivery, Bank shall
provide Buyer with particulars of the total quantity of the Precious
Metal being Delivered to Buyer and any agreed upon premiums or costs
related to such Delivery. A Duly Authorized Officer of Buyer receiving
any Delivery shall give a receipt to Bank for the same in a form
satisfactory to Bank. All shipping expenses (including insurance) shall
be borne by Buyer, and any such expenses paid or incurred by Bank shall
be reimbursed by Buyer immediately in the same manner as payments under
Section 5 hereof."
5. The second sentence of Section 6 of the Consignment Agreement is
hereby deleted.
6. Subsection 13(b) of the Consignment Agreement is hereby amended to
read as follows:
"(b) Buyer fails to make punctual payment or perform any
obligation required by the provisions of Section 2, 5, 6 or 14 of this
Agreement;"
7. Exhibit A attached hereto is hereby added to and made a part of the
Consignment Agreement as Exhibit A thereto.
8. Buyer and Bank each agree that, except as expressly provided herein,
the terms and provisions of the Consignment Agreement remain unchanged and the
Consignment Agreement remains in full force and effect in accordance with its
terms. The term "Agreement" as used in the Consignment Agreement and all
references to the Consignment Agreement in any other documents or agreements
between any of the parties hereto which relate to Buyer shall refer, from and
after the date hereof, to the Consignment Agreement as amended and supplemented
by this Second Amendment.
9. Buyer hereby ratifies and reaffirms that (i) the representations and
warranties contained in the Consignment Agreement, as amended by the terms
hereof, are true and correct as of the date hereof, except that references to
financial statements shall refer to the latest financial statements furnished
pursuant to the Consignment Agreement and (ii) no Event of Default (as defined
in the Consignment Agreement) nor any event which with notice or the lapse of
time, or both, would constitute an Event of Default exists as of the date
hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
instrument to be executed in several counterparts, each of which shall be deemed
to be an original as of the day and year first above written.
RHODE ISLAND HOSPITAL TRUST NATIONAL BANK
By /s/ Denis Hamboyan
Title Senior Vice President
HERFF JONES, INC.
By /s/ Lawrence F. Fehr
Title
EXHIBIT A - Incumbency Certificate; Secretary's Certificate
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001000371
<NAME> Herff Jones, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Jun-29-1996
<PERIOD-START> Jun-25-1995
<PERIOD-END> Mar-30-1996
<EXCHANGE-RATE> 1.000
<CASH> 982
<SECURITIES> 0
<RECEIVABLES> 42,134
<ALLOWANCES> 1,354
<INVENTORY> 50,132
<CURRENT-ASSETS> 104,024
<PP&E> 75,266
<DEPRECIATION> 37,060
<TOTAL-ASSETS> 147,600
<CURRENT-LIABILITIES> 95,847
<BONDS> 173,100
<COMMON> 5,737
0
0
<OTHER-SE> (128,251)
<TOTAL-LIABILITY-AND-EQUITY> 147,600
<SALES> 150,057
<TOTAL-REVENUES> 150,057
<CGS> 76,590
<TOTAL-COSTS> 76,590
<OTHER-EXPENSES> 78,864
<LOSS-PROVISION> 273
<INTEREST-EXPENSE> 13,594
<INCOME-PRETAX> (18,369)
<INCOME-TAX> 6,999
<INCOME-CONTINUING> (11,370)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,844)
<CHANGES> 0
<NET-INCOME> (17,254)
<EPS-PRIMARY> (11.87)
<EPS-DILUTED> (11.87)
</TABLE>
