SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KA1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 29, 1996
HERFF JONES, INC.
- --------------------------------------------------------------------------------
(Exact Name of registrant as specified in its charter)
INDIANA 33-96680 35-1637714
- --------------------------------------------------------------------------------
(State or Commission File Number (IRS Employer
other Jurisdiction) Identification No.)
4501 West 62nd Street, Indianapolis, Indiana 46268
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(317) 297-3740
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On April 29, 1996 Herff Jones, Inc. closed the agreement to purchase
certain assets of the Delmar Companies Divisions ("Delmar") of Continental
Graphics Corporation. The assets acquired consist of the following:
Notes & Accounts Receivable
Inventories
Property, Plant & Equipment
Prepaid Expenses
The purchase price was determined based upon 85% of the net book value
of notes and accounts receivable, 100% of the net book value of inventories,
property, plant & equipment, and prepaid expenses, plus a premium of $3.257
million.
The total purchase price was originally estimated at $20 million and is
currently estimated to approximate $16 million in cash plus the assumption of
certain operating liabilities. The purchase will be funded from Herff Jones'
existing revolving credit facility.
Delmar operates a yearbook printing plant and a school photography
processing facility at a single site in Charlotte, North Carolina. Herff Jones
intends to continue to use the assets purchased to manufacture and sell
yearbooks and process school photography products.
Page No.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
The Delmar Companies
Report of Independent Public Accountants 1
Combined Statement of Operations -
For the Year Ended October 27, 1995 2
Combined Balance Sheet -
As of October 27, 1995 3
Combined Statement of Equity -
For the Year Ended October 27, 1995 4
Combined Statement of Cash Flows -
For the Year Ended October 27, 1995 5
Notes to Combined Financial Statements 6-14
Condensed Combined Statement of Operations -
For the Two Months Ended December 24, 1995 and
December 25, 1994 15
Condensed Combined Balance Sheet -
As of December 24, 1995 16
Condensed Combined Statement of Cash Flows -
For the Two Months Ended December 24, 1995 and
December 25, 1994 17
Notes to Condensed Combined Financial Statements 18
(b) Pro Forma Financial Information
<PAGE>
Herff Jones, Inc.
Introduction to Pro Forma Unaudited Condensed
Consolidated Financial Statements 19
Condensed Consolidated Pro Forma
Statement of Operations -
For the Six months Ended December 30, 1995 20
Condensed Consolidated Pro Forma
Statement of Operations -
For the Year Ended June 24, 1995 21
Condensed Consolidated Pro Forma Balance Sheet -
As of December 30, 1995 22
Notes to Pro Forma Unaudited Condensed
Consolidated Financial Statements 23-24
(c) Exhibits
Exhibit 2.1 Asset Purchase Agreement, dated as of March 28,
1996, between Herff Jones, Inc. and Continental Graphics
Corporation. (Previously filed with original report on Form
8-K.)
Exhibit 2.2 Amendment No. 1 to Asset Purchase Agreement.
(Previously filed with original report on Form 8-K.)
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, hereunto duly authorized.
HERFF JONES, INC.
July 17, 1996 By: /s/ Lawrence F. Fehr
--------------------------------------------
Lawrence F. Fehr
Vice President and Chief Financial Officer
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Continental Graphics Corporation:
We have audited the accompanying combined balance sheet of DELMAR COMPANIES,
(divisions of Continental Graphics Corporation, a Delaware Corporation, "CGC")
as of October 27, 1995, and the related combined statements of operations,
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Delmar Companies as of
October 27, 1995, and the results of their combined operations and cash flows
for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 28, 1996
1
<PAGE>
DELMAR COMPANIES
DIVISIONS OF CONTINENTAL GRAPHICS CORPORATION
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 27, 1995
(In thousands)
NET SALES $33,494
COST OF SALES 27,639
-------
Gross profit 5,855
Selling and administrative expenses 6,407
-------
Loss from operations (552)
-------
INTEREST INCOME, NET 60
-------
NET LOSS $ (492)
======
The accompanying notes are an integral part of this statement.
2
<PAGE>
DELMAR COMPANIES
DIVISIONS OF CONTINENTAL GRAPHICS CORPORATION
COMBINED BALANCE SHEET - OCTOBER 27, 1995
(In thousands)
ASSETS
CURRENT ASSETS:
Cash $ 4,775
Receivables, net 5,154
Inventories, net 4,193
Prepaid expenses and other 198
-------
Total current assets 14,320
PROPERTY, PLANT AND EQUIPMENT, net 10,572
EXCESS OF COST OVER NET ASSETS OF BUSINESS ACQUIRED, net 6,446
INTANGIBLES, net 4,496
OTHER ASSETS 555
-------
Total assets $36,389
=======
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current portion of long term debt $ 13
Checks outstanding 1,028
Accounts payable 6,217
Accrued liabilities 2,824
-------
Total current liabilities 10,082
LONG TERM DEBT 98
COMMITMENTS AND CONTINGECIES
EQUITY:
Paid in capital 30,894
Retained deficit (4,685)
-------
Total equity 26,209
-------
Total liabilities and equity $36,389
=======
The accompanying notes are an integral part of this balance sheet.
3
<PAGE>
DELMAR COMPANIES
DIVISIONS OF CONTINENTAL GRAPHICS CORPORATION
COMBINED STATEMENT OF EQUITY
FOR THE YEAR ENDED OCTOBER 27, 1995
(In thousands)
Paid in Retained
Capital Deficit Total
-------- --------- -------
BALANCE, October 28, 1994 $29,545 $(4,193) $25,352
Net loss - (492) (492)
Capital contribution from CGC 1,349 - 1,349
------- ------- -------
BALANCE, October 27, 1995 $30,894 $(4,685) $26,209
======= ======= =======
The accompanying notes are an integral part of this statement.
4
<PAGE>
DELMAR COMPANIES
DIVISIONS OF CONTINENTAL GRAPHICS CORPORATION
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 27, 1995
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (492)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 2,173
Amortization of goodwill and intangibles 587
Allocation of general and administrative
expenses from CGC 746
Changes in assets and liabilities:
Increase in receivables, net (775)
Decrease in inventories, net 367
Increase in prepaid expenses and other (144)
Decrease in other assets 186
Decrease in accounts payable (823)
Decrease in checks outstanding (106)
Increase in accrued liabilities 568
-------
Net cash provided by operating activities 2,287
-------
CASH FLOWS FROM INVESTING ACTIVITIES--Purchases of property,
plant and equipment (1,252)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt (112)
Cash contribution from parent 736
-------
Net cash provided by financing activities 624
-------
NET INCREASE IN CASH 1,659
CASH, beginning of year 3,116
-------
CASH, end of year $ 4,775
=======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--Cash paid
during the year for interest $ 7
The accompanying notes are an integral part of this statement.
5
<PAGE>
DELMAR COMPANIES
DIVISIONS OF CONTINENTAL GRAPHICS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF OCTOBER 27, 1995
(all dollar amounts in thousands)
1. Formation and History
Delmar Printing Company and Delmar Studios (the "Companies" or the "Company"),
are divisions of Continental Graphics Corporation, a Delaware corporation
("CGC"). The Companies produce school yearbooks in their printing plant ("Delmar
Printing") and student photographs in their portrait processing plant ("Delmar
Studio"). Delmar Studio was established in 1946, and Delmar Printing was
established in 1950. The Companies were acquired by CGC in 1986.
Continental Graphics Holdings, Inc. ("CGH") was incorporated on June 13, 1988
for the sole purpose of acquiring CGC. CGH acquired CGC on November 2, 1988.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Combined Financial Statements include the accounts of
the Companies. All significant intercompany accounts and transactions
have been eliminated. These Combined Financial Statements do not
include the effect of income taxes to the Companies (see Note 13) which
is recorded at CGC.
The Companies' combined financial statements have been prepared on the
assumption that the Companies will continue as a going concern. As
described in Note 16, CGC sold the assets of the Companies on March 28,
1996. In connection with this sale, the buyer may have to reflect
certain purchase accounting adjustments. The Companies' combined
financial statements do not give effect to any such adjustments.
Fiscal Year
The Companies' fiscal year ends on the last Friday of October. The
fiscal year includes operations for a 52-week period in fiscal year
1995, which ended October 27, 1995.
Revenue Recognition
Revenues are generally recognized when jobs are completed and shipped
to customers.
6
<PAGE>
Cash Management
CGC provides and receives cash flow to and from the Companies as part
of CGC's centralized cash management system. The depository accounts of
the Companies are swept on a daily basis into a CGC-controlled
concentration account. Disbursements of the Companies are funded
through the CGC-controlled concentration account.
Receivables
Substantially all of the Delmar Printing trade accounts receivable are
due from primary and secondary schools, colleges, universities and
commercial book publishers located throughout the United States. Delmar
Printing generally requires deposits from customers prior to shipment.
Delmar Studio trade accounts receivables are due from independent
representatives located throughout the United States. Delmar Studio
requires payment prior to shipment for approximately 50 percent of its
sales. For the remainder of its sales, Delmar Studio generally does not
require any collateral prior to shipment.
Notes receivable are due from territory representatives who act as
independent agents for the Companies. Notes receivable are generally
secured by collateral which is equal to or in excess of their carrying
value.
The Companies perform ongoing credit evaluations of their customers'
financial conditions and establish an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers,
historical trends and other information.
Inventories
Inventories are stated at the lower of cost or market. Cost, determined
by the first-in, first-out (FIFO) method, includes direct materials,
direct labor and applicable manufacturing overhead expenses.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Additions,
improvements and renewals that materially increase production capacity
or extend the useful life of an asset are capitalized. Expenditures for
normal maintenance and repairs are charged to expense as incurred. The
Companies' total maintenance and repairs cost for the year ended
October 27, 1995 was approximately $785.
When properties are retired or disposed of, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or
loss is included in income.
7
<PAGE>
Depreciation on buildings and improvements, machinery, equipment,
furniture and fixtures is primarily computed by using the straight-line
method over their useful lives.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived assets and for Long-Lived Assets to be
Disposed Of." The Statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
The Statement must be adopted by the Companies no later than the fiscal
year ending October 1997. The Companies do not expect implementation of
this statement to have a material effect on their financial position or
their results of operations.
Excess of Cost Over Net Assets of Businesses Acquired
As of November 2, 1988, CGH acquired CGC, which owned the Companies, in
a transaction which was accounted for as a purchase. The assets and
liabilities of the Companies as of November 2, 1988 were recorded based
on their estimated fair values. The purchase price exceeded the book
value of the net assets of the Companies. The excess was first
allocated to identifiable intangibles and the rest was reflected as
excess of cost over net assets of businesses acquired (see Note 7).
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions
that affect the reported amounts of certain assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of certain revenues and
expenses during the reporting period.
3. Receivables
Receivables, net consist of the following as of October 27, 1995
Trade Accounts Receivable (see Note 2) $ 5,574
Notes Receivable - Current Portion
(See Notes 2 and 5) 895
Other Accounts Receivable 366
Allowance for Doubtful Accounts (1,681)
-------
$ 5,154
=======
8
<PAGE>
Included in Notes Receivable is $297 which represents the maximum amount that
could be credited to certain Delmar Studio representatives, as a territory
development credit in lieu of cash, in the event that specified revenue targets
are achieved by the representatives over the next four years.
Notes Receivable consist of approximately 26 separate notes with the Companies'
representatives. These notes have fixed interest rates which vary from 6 to 10
percent and maturity dates from June 1996 to June 2003. The historical carrying
value of these notes receivable approximate their fair market value at October
27, 1995.
4. Inventories
Inventories, net consist of the following as of October 27, 1995:
Gross
Value
-----
Raw Materials $1,681
Work-In-Progress 1,564
Finished Goods 674
Marketing Materials 640
------
$4,559
Less : Reserves (366)
------
$4,193
======
In general, the Companies provide inventory reserves for the excess quantities
on hand over prior two years usage. For marketing materials, the Companies
expect a longer life cycle and generally reserve the excess on hand over four
years usage.
5. Other Assets
Other assets as of October 27, 1995 consist of the following:
Notes Receivable-Long-term portion (see Note 3) $525
Other 30
----
$555
====
9
<PAGE>
6. Property, Plant and Equipment
Property, plant and equipment consist of the following as of October 27, 1995:
Useful
Lives
---------------
Land $ 2,930 -
Buildings and Improvements 5,622 20-30 years
Machinery and Equipment 13,803 3.5-7.5 years
Furniture and Fixtures 149 10 years
--------
22,504
Less: Accumulated Depreciation (11,932)
--------
$ 10,572
========
7. Excess of Cost Over Net Assets of Businesses Acquired and Intangibles
Excess of cost over net assets of businesses acquired and the related
amortization is as follows:
Excess of cost over net
assets of businesses acquired $7,811
Accumulated amortization (1,365)
------
Balance at October 27, 1995 $6,446
======
Excess of cost over net assets of businesses acquired in the accompanying
combined balance sheet is being amortized on a straight-line basis over a
forty-year period. Management periodically evaluates the useful life of excess
of cost over net assets of businesses acquired and makes appropriate adjustments
as necessary. Amortization expense was $195 for the year ended October 27, 1995.
10
<PAGE>
Intangible assets and the related amortization are comprised of the following:
Intangible
Assets, Net
-----------------------------
Assembled workforce $1,500
Distribution agreements 6,338
------
$7,838
Accumulated amortization (3,342)
------
Balance at October 27, 1995 $4,496
======
Assembled workforce is amortized to cost of sales based on the turnover of the
workforce in place at the acquisition. The distribution agreements are amortized
to selling and administrative expenses on a straight-line basis over periods
ranging from 2.5 to 40 years. Amortization expense was $392 for the year ended
October 27, 1995.
8. Accrued Liabilities
Accrued liabilities consist of the following as of October 27, 1995:
Customer Deposits $1,575
Accrued Payroll, Vacation and Employee Benefits 1,082
Accrued Taxes, Other Than Income Taxes 90
Other 77
------
$2,824
======
The Companies changed their medical plan from self-insured to fully-insured in
June of 1995. At fiscal year-end 1994, approximately four months of potential
claims expense ($400) was maintained in accrued liabilities for claims which
were incurred as of the balance sheet date but expected to be paid after that
date. Charges against the reserve were for 1994 claims paid in 1995 of $154 and
claims paid after the switch to a fully-insured program of $118. The remaining
amount in the reserve of $128 was taken to income in 1995 as a reduction in cost
of sales in the accompanying Combined Statement of Operations.
9. Long Term Debt
In 1992, the Companies purchased a territory, assumed a note payable and resold
the territory. The original note was renegotiated to be repaid over 10 years at
6 percent interest. Repayments of this note are funded from note payments
received from the purchaser. Principal payments began in November 1992 and
continue through October 2002.
11
<PAGE>
10. Commitments and Contingencies
The Companies lease certain equipment under various arrangements. The leases
generally require the Companies to pay insurance, maintenance and other
operating expenses, in addition to the minimum lease payment.
Future minimum payments under long term operating leases at October 27, 1995 are
as follows:
Operating
Leases
---------
1996 $345
1997 300
1998 138
1999 47
----
$830
====
Rental expense under all short term non-cancelable operating leases amounted to
approximately $358 for fiscal year 1995.
Certain legal proceedings arising in the ordinary course of business are pending
against the Companies. In the opinion of management, the ultimate disposition of
such legal proceedings will not have a material adverse effect on the Companies'
financial position or results of operations.
11. Employee Benefits
The Companies provide a defined contribution employee savings plan (the "Plan").
The Plan is intended to be qualified under Internal Revenue Codes 401(b) and
401(k). Employer contributions to the Plan were $196 for the fiscal year ended
October 27, 1995. The Companies offer no post-employment or other retirement
benefits other than the Plan.
12. Deferred Management Stock Compensation Plan
The Companies participate in a Deferred Management Stock Compensation Plan (the
"Plan") created by CGH for the purpose of providing incentives to attract and
retain qualified persons as officers and key employees (the "Participants") of
the Companies. The Plan provided for the issuance of 5,455 shares of CGH's
Common Stock to a Trust effective April 29, 1994 (the "Grant and Measurement
Date"). The Trust will hold the shares on each Participant's behalf based upon
the terms and conditions outlined in the Trust Agreement and the Plan.
12
<PAGE>
The Plan is compensatory under APB 25, Accounting for Stock Issued to Employees.
Plan benefits vest after a Participant has been continuously employed by the
Companies for ten (10) years from April 29, 1994 or the date of employment, if
later. The Plan provides for accelerated vesting based on CGH's performance
measured by defined earnings targets (the "Targets") for fiscal years 1994
through 1998. Various other conditions may cause accelerated vesting. Targets
are determined to have been met each year by the Compensation Committee of CGH's
Board of Directors based upon the audited financial statements. If all Targets
are met, Participants will be fully vested after five (5) years, so long as they
remain continuously employed by the Companies.
The cost of the Plan is allocated to the Companies ratably based on the number
of shares vested in the fiscal year. The cost of the shares are based on their
fair market value at the grant date. In fiscal year 1995, the Companies charged
$205 to selling and administrative expenses.
13. Income Taxes
The Companies are included in CGC's consolidated U.S. federal and other income
tax returns. The effects of income taxes, including benefits from net losses and
costs from net income, have been recognized and assumed by CGC. These effects
are not recorded by the Companies as the Companies are divisions of CGC, not
separate legal entities. Accordingly, no income tax provision or related assets
or liabilities are reflected in the accompanying Combined Financial Statements
of the Companies.
14. Related Party Transactions
Transfer of Receivable to Parent
During fiscal year 1995, the Companies analyzed their allowance for
doubtful accounts related to a receivable from a former independent
sales representative of the Companies. The receivable stems from a
civil suit against the representative who embezzled funds from the
Companies. The Companies reversed $290 of the allowance for doubtful
accounts, which was recorded as a reduction in selling and
administrative expense in 1995. The Companies net receivable was
transferred to CGC in 1995 and is not included on the Companies'
balance sheet as of October 27, 1995. The net receivable of $400 was
transferred at book value and was reflected as an intercompany
receivable which is netted against contributed capital on the
Companies' books.
Transfer of Liabilities to Parent
In addition, CGC assumed a liability of $267 related to a promissory
note ($200) and sales tax ($67). The liability was transferred to CGC
at book value and reflected as an increase of contributed capital on
the Companies' books.
13
<PAGE>
Selling and Administrative Expense Allocation
CGC provides certain administrative services to the Companies relating
to general management, accounting, administration of employee benefit
and insurance programs, income tax management and cash management
services. The estimated cost of these services, amounting to $541 has
been charged to the Companies and is included in selling and
administrative expenses in the accompanying combined financial
statements. The payment of this amount has been waived by CGC and has
been reflected as a credit to contributed capital.
Capital Contribution
CGC capital contribution of $1,349 consist of the following:
Cash for operations $ 736
Selling and administrative expenses 746
Transfer of receivable (400)
Transfer of liabilities 267
------
$1,349
======
Selling and administrative expenses consist of deferred management
stock compensation expense ($205) as described in Note 12 and selling
and administrative expenses ($541) as described above.
15. Subsequent Event
On March 28, 1996, CGC executed a Definitive Sale Agreement to sell the assets
of the Companies to Herff Jones Inc..
14
<PAGE>
Delmar Companies
Divisions of Continental Graphics
Corporation
Condensed Combined Statement of
Operations
(Amounts in thousands of dollars)
(Unaudited)
Two Months
Ended
----------------------------------------
December 24, 1995 December 25, 1994
----------------- -----------------
Net sales $5,708 $6,334
Cost of sales 4,442 4,974
Selling, general,
and administrative expenses 1,135 1,243
----- -----
Income from operations 131 117
Interest income 10 16
Interest expense 2 2
----- -----
Net income $ 139 $ 131
====== ======
See accompanying notes to unaudited condensed combined financial statements.
15
<PAGE>
Delmar Companies
Divisions of Continental Graphics Corporation
Condensed Combined Balance Sheet
As Of December 24, 1995
(Amounts in thousands of dollars)
(Unaudited)
Assets
Current
Assets:
Cash $1,389
Receivables, net 3,922
Inventories, net 4,218
Prepaid expenses and other 765
-------
Total Current Assets 10,294
Investments 30
Property, plant and equipment, net 10,397
Excess of cost over net assets of
business acquired, net 6,414
Intangibles, net 4,430
Other 454
-------
Total Assets $32,019
========
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long term debt $ 13
Trade accounts payable 3,693
Checks outstanding 1,146
Accrued liabilities 4,200
-------
Total Current Liabilities 9,052
Long term debt 96
Shareholders' Equity:
Paid in capital 27,417
Retained deficit (4,546)
-------
Total Shareholders' Equity 22,871
-------
Total Liabilities and Sharholders' Equity $32,019
=======
See accompanying notes to unaudited condensed combined financial statements.
16
<PAGE>
Delmar Companies
Divisions of Continental Graphics Corporation
Condensed Combined Statement of Cash Flows
(Amounts in thousands of dollars)
(Unaudited)
Two Months Ended
---------------------------------
December 24, December 25,
1995 1994
------------ ------------
Cash flows from operating activities:
Net income $139 $131
Adjustments to reconcile
net income to net cash provided
by operating activities:
Depreciation and amortization 190 360
Increase (decrease) in cash
generated by changes in
assets and liabilities:
Accounts receivable 1,232 687
Inventories (25) 44
Prepaid expenses (567) (230)
Trade accounts payable (2,524) (3,202)
Other assets 169 98
Checks outstanding 118 (20)
Accrued liabilities 1,376 2,133
------- -------
Total adjustments (31) (130)
------- -------
Net cash provided
by operating activities 108 1
------- -------
Cash flows from investing activities:
Proceeds from disposal of
property, plant and equipment - 263
Capital expenditures (15) (414)
------- -------
Net cash (used) by
investing activities (15) (151)
Cash flows from financing activities:
Payment of long term debt (2) (2)
Advances (to) from parent, net (3,477) (2,778)
------- -------
Net cash (used) by financing activities (3,479) (2,780)
Cash and cash equivalents:
Net increase (decrease) (3,386) (2,930)
Beginning of period 4,775 3,116
------- -------
End of period $1,389 $186
------- -------
See accompanying notes to unaudited condensed combined financial statements.
17
<PAGE>
Delmar Companies
Notes to Condensed Combined Financial Statements
Two Months Ended December 24, 1995
(Amounts in thousands of dollars)
Note 1
In the opinion of management, the accompanying financial statements of Delmar
Companies, Divisions of Continental Graphics Corporation contain all adjustments
necessary to present fairly the financial position as of December 24, 1995
(unaudited), the results of operations for the two months ended December 24,
1995 and December 25, 1994 (both unaudited) and the statement of cash flows for
the two months ended December 24, 1995 and December 25, 1994 (both unaudited).
The financial statements and notes should be read in conjunction with the
financial statements and notes for the year ended October 27, 1995.
Note 2 - Inventories
December 24, 1995
-----------------
Raw Material $ 1,375
Work-in-progress 1,969
Finished Goods 1,290
Less reserves (416)
-----------
$ 4,218
Note 3 - Contingencies
Delmar Companies is a party to various legal proceedings incidental to its
business. Certain claims, suits, and complaints arising in the ordinary course
of business have been filed or are pending against Delmar. In the opinion of
management, all such matters are covered by insurance, are without merit, or
involve amounts, which if resolved unfavorably, would not have a significant
effect on the financial position or results of operations of Delmar.
Note 4 - Statement of Shareholders' Equity
PAID-IN RETAINED
CAPITAL DEFICIT TOTAL
--------- ---------- --------
Balance October 27, 1995 $30,894 $ (4,685) $26,209
Net Income 139 139
Capital Distributed to Parent (3,477) (3,477)
--------- -------- -------
Balance at December 24, 1995 $27,417 $ (4,546) $22,871
======= ======== =======
Note 5 - Subsequent Event
On April 29, 1996, Herff Jones, Inc. closed the purchase of certain assets of
Delmar Companies, Divisions of Continental Graphics Corporation. The assets
acquired consist of the following:
Notes & Accounts Receivable
Inventories
Property, Plant & Equipment
Prepaid Expenses
The purchase price was determined based upon 85% of the net book value of notes
and accounts receivable, 100% of the net book value of inventories, property,
plant & equipment, and prepaid expenses, plus a premium of $3,257. The total
purchase price was originally estimated at $20,000 and is currently estimated to
approximate $16,000 in cash plus the assumption of certain liabilities.
18
<PAGE>
HERFF JONES, INC.
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Amounts in thousands of dollars)
Introduction
On April 29, 1996 Herff Jones, Inc. closed the agreement to purchase certain
assets of the Delmar Companies Divisions ("Delmar") of Continental Graphics
Corporation. The following unaudited condensed pro forma consolidated financial
statements set forth certain pro forma financial information with respect to the
acquisition by Herff Jones, Inc. of the assets of Delmar. The assets acquired
consist of the following:
Notes and Accounts Receivable
Inventories
Property, Plant and Equipment
Prepaid Expenses
The purchase price was determined based upon 85% of the net book value of notes
and accounts receivable, 100% of the net book value of inventories, property,
plant & equipment, and prepaid expenses, plus a premium of $3,257. The total
purchase price was originally estimated at $20,000 and is currently estimated to
approximate $16,000 in cash plus the assumption of certain liabilities. The
purchase will be funded from Herff Jones' existing revolving credit facility.
The unaudited pro forma consolidated balance sheet as of December 30, 1995, has
been prepared as if the acquisition of Delmar had occurred on that date, and the
unaudited pro forma consolidated statement of income for the six months ended
December 30, 1995 and the year ended June 24, 1995, have been prepared as if the
acquisition of Delmar had occurred on June 25, 1994. The acquisition of Delmar
has been accounted for using the purchase method of accounting. The unaudited
pro forma consolidated financial statements have been prepared based on
estimates and assumptions deemed by Herff Jones, Inc. to be appropriate and do
not propose to be indicative of the financial position or results of operations
which would actually have been obtained had the acquisition occurred as
presented in such statements or which may be obtained in the future. Future
results may vary significantly due to economic factors, future activities of
Herff Jones, Inc., or other matters.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the financial statements of Delmar included elsewhere herein,
the consolidated financial statements and related notes of Herff Jones, Inc.
included in its Form 8-K filed December 15, 1995 containing restated financial
statements for the year ended June 24, 1995 and Herff Jones Inc.'s Quarterly
Report on Form 10-Q for the quarterly period ended December 30, 1995.
19
<PAGE>
Herff Jones, Inc.
Condensed Consolidated Pro Forma Statement of Operations
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Herff Jones, Inc. Delmar Companies Consolidated
----------------- ---------------- -----------------
Six Months Ended Six Months Ended Six Months Ended
December 30, 1995 December 24, 1995 Adjustments December 30, 1995
----------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Net sales $99,818 $16,432 ($2,743) (9) $113,507
Cost of sales
(excludes ESOP compensation) 53,976 12,717 (2,197) (5)(9) 64,496
Selling, general, and
administrative expenses
(excludes ESOP compensation) 39,985 2,610 (477) (6)(9) 42,118
ESOP compensation
Current year service 5,926 - - 5,926
Prior year service 4,033 - - 4,033
------- ------ ----- -------
Income (loss) from operations (4,102) 1,105 (70) (3,067)
Interest expense 8,848 5 611 (7) 9,464
Interest income 615 34 (34) (8) 615
Other income - 5 - 5
------- ------ ----- -------
Income (loss) before
income taxes and
extraordinary item (12,335) 1,139 (715) (11,911)
Income taxes 4,700 - (162) (10) 4,538
------- ------ ----- -------
Net income (loss) before
extraordinary item ($7,635) $1,139 ($877) ($7,373)
======= ====== ===== =======
Income (loss) per common
share before extraordinary item $(5.53) $ (5.34)
========= =========
Weighted average number of
common shares outstanding 1,380,544 1,380,544
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated pro forma
financial statements.
20
<PAGE>
Herff Jones, Inc.
Condensed Consolidated Pro Forma Statement of Operations
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Herff Jones, Inc. Delmar Companies Consolidated
----------------- ---------------- -----------------
(Unaudited) (Unaudited)
Year Ended Year Ended Year Ended
June 24, 1995 June 25, 1995 Adjustments June 24, 1995
----------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Net sales $264,309 $35,997 ($5,486) (9) $294,820
Cost of sales
(excludes ESOP compensation) 128,282 27,714 (4,393) (4)(5)(9) 151,603
Selling, general, and administrative
expenses (excludes ESOP compensation) 92,472 7,493 (954) (6)(9) 99,011
ESOP compensation 5,556 - - 5,556
-------- ------- ------- --------
Income (loss) from operations 37,999 790 (139) 38,650
Interest expense 6,263 9 1,174 (7) 7,446
Interest income 2,034 64 (64) (8) 2,034
Other income - 5 - 5
-------- ------- ------- --------
Income (loss) before income taxes
and cumulative effect of change
in accounting principle 33,770 850 (1,377) 33,243
Income taxes (12,056) - 188 (10) (11,868)
-------- ------- ------- --------
Net income (loss) before cumulative
effect of change in
accounting principle $21,714 $ 850 ($1,189) $21,375
======== ======= ======= ========
Income (loss) per common share
before cumulative effect of
change in accounting principle $ 2.83 $ 2.78
========= =========
Weighted average number of common shares
outstanding 7,686,204 7,686,204
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated pro forma
financial statements.
21
<PAGE>
Herff Jones, Inc.
Condensed Consolidated Pro Forma Balance Sheet
(Amounts in thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Herff Jones, Inc. Delmar Companies Consolidated
December 30, 1995 December 24, 1995 Adjustments December 30, 1995
----------------- ----------------- ----------- -----------------
Assets:
Current Assets
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $2,653 $1,389 $ (1,389) (1) $2,653
Accounts receivable 32,125 3,922 - 36,047
Inventories 40,994 4,218 1,012 (2) 46,224
Prepaid expense 7,203 765 - 7,968
Deferred income taxes 2,412 - - 2,412
-------- ------- ------- --------
Total Current Assets 85,387 10,294 (377) 95,304
Non-Current Assets
Property, plant, and equipment 74,383 22,519 (10,465) (2) 86,437
Accumulated depreciation (35,942) (12,122) 12,122 (2) (35,942)
-------- ------- ------- --------
Net Property, Plant, and Equipment 38,441 10,397 1,657 50,495
Investments - 30 (30) (1) -
Excess of cost over net assets
of business acquired, - 6,414 (6,414) (1) -
Intangibles, net - 4,430 (4,430) (1)
Other assets 5,513 454 (454) (1) 5,513
-------- ------- ------- --------
Total Non-Current Assets 43,954 21,725 (9,671) 56,008
Total Assets $129,341 $32,019 $(10,048) $151,312
======== ======= ======= ========
Liabilities and Shareholders' Equity:
Current Liabilities
Trade accounts payable $2,911 $1,386 $ - $4,297
Checks outstanding - 1,146 (1,146) (1) -
Salaries and wages payable 3,289 557 - 3,846
Customer deposits 27,045 2,972 - 30,017
Commissions payable 2,616 2,307 - 4,923
Income taxes accrued (8,255) - - (8,255)
Senior bank facility (revolver) 22,557 - 13,969 (3) 36,526
Current portion of long term debt 9,500 13 - 9,513
Other accrued liabilities 14,775 671 - 15,446
-------- ------- ------- --------
Total Current Liabilities 74,438 9,052 12,823 96,313
Non-Current Liabilities
Deferred income taxes (402) - - (402)
Long term debt 175,850 96 - 175,946
Other 1,987 - - 1,987
-------- ------- ------- --------
Total Non-Current Liabilities 177,435 96 - 177,531
Total Liabilities 251,873 9,148 12,823 273,844
Shareholders' Equity (Deficit)
Common stock 5,737 - - 5,737
Paid in capital - 27,417 (27,417) (1)
Retained earnings (deficit) 106,210 (4,546) 4,546 (1) 106,210
Deferred compensation (231,195) - - (231,195)
Excess of cost over market
(shares committed to be released) (3,295) - - (3,295)
Translation adjustment 11 - - 11
-------- ------- ------- --------
Total Shareholders' Equity (Deficit) (122,532) 22,871 (22,871) (122,532)
Total Liabilities and
Shareholders' Equity (Deficit) $129,341 $32,019 $(10,048) $151,312
======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited consolidated pro forma financial statements.
22
<PAGE>
Herff Jones, Inc.
Notes to Pro Forma Unaudited Condensed Consolidated
Financial Statements
(Amounts in thousands of dollars)
Note 1 -- Pro Forma Adjustments
On April 29, 1996 Herff Jones, Inc. closed the agreement to purchase certain
assets of the Delmar Companies Divisions ("Delmar") of Continental Graphics
Corporation. The unaudited condensed pro forma consolidated financial statements
set forth certain pro forma financial information with respect to the
acquisition by Herff Jones, Inc. of the assets of Delmar. The assets acquired
consist of the following:
Notes and Accounts Receivable
Inventories
Property, Plant and Equipment
Prepaid Expenses
The purchase price was determined based upon 85% of the net book value of notes
and accounts receivable, 100% of the net book value of inventories, property,
plant & equipment, and prepaid expenses, plus a premium of $3,257. The total
purchase price was originally estimated at $20,000 and is currently estimated to
approximate $16,000 in cash plus the assumption of certain liabilities. The
purchase will be funded from Herff Jones' existing revolving credit facility.
The unaudited pro forma consolidated balance sheet as of December 30, 1995, has
been prepared as if the acquisition of Delmar had occurred on that date, and the
unaudited pro forma consolidated statement of income for the six months ended
December 30, 1995 and the year ended June 24, 1995, have been prepared as if the
acquisition of Delmar had occurred on June 25, 1994. The acquisition of Delmar
has been accounted for using the purchase method of accounting. The unaudited
pro forma consolidated financial statements have been prepared based on
estimates and assumptions deemed by Herff Jones, Inc. to be appropriate and do
not propose to be indicative of the financial position or results of operations
which would actually have been obtained had the acquisition occurred as
presented in such statements or which may be obtained in the future. Future
results may vary significantly due to economic factors, future activities of
Herff Jones, Inc., or other matters.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the financial statements of Delmar included elsewhere herein,
the consolidated financial statements and related notes of Herff Jones, Inc.
included in its Form 8-K filed December 15, 1995 containing restated financial
statements for the year ended June 24, 1995 and Herff Jones Inc.'s Quarterly
Report on Form 10-Q for the quarterly period ended December 30, 1995.
Note 2 -- Pro Forma Adjustments
The accompanying unaudited pro forma combined balance sheet reflects the
following adjustments:
(1) To adjust for Delmar assets and liabilities excluded from the transaction.
(2) To adjust the net assets acquired and liabilities assumed to fair value and
eliminate accumulated depreciation.
(3) To record borrowings used to finance the acquisition of Delmar's assets.
The accompanying unaudited pro forma combined statements of operations reflect
the following adjustments:
(4) Cost of goods sold has not been adjusted for the increase ($490) in the
fair market value of the beginning inventory balance, a non-recurring item
which will impact results of operations.
(5) To adjust depreciation and amortization to reflect the acquisition of
Delmar. Cost of goods sold has been increased $83 for the six months ended
December 30, 1995 and $166 for the year ended June 24, 1995.
23
<PAGE>
(6) To adjust for general and administrative consolidation as a result of
eliminating duplicate positions. Selling, general, and administrative
expense has been reduced $125 for the six months ended December 30, 1995
and $250 for the year ended June 24, 1995.
(7) To adjust interest expense for the incremental revolving credit borrowings.
The pro forma credit borrowing is based on the pro forma balance sheet
senior bank facility increase. The six months ended December 30, 1995
borrowing rate is based on an average rate of 8.75%. The year ended June
24, 1995 borrowing note is based on an average rate of 8.4%.
(8) To adjust for interest income associated with Delmar assets excluded from
the transaction.
(9) To adjust net sales, cost of sales, selling, general, and administrative
expenses for sales losses and related expense reductions resulting from
discontinuance of certain Delmar product lines and the expected loss of
Delmar sales representatives.
(10) To adjust the provision for income taxes for the change in pre-tax income
resulting from the inclusion of the historical results of Delmar and
adjustments 5 through 9 using Herff Jones' effective tax rate of 38.1% for
the six months ended December 30, 1995 and 35.7% for the year ended June
24, 1995.
24
