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 29, 1997
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 of (I.R.S. Employer
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 9, 1997:
Class
Common Stock, without par value 9,612,563
<PAGE>
INDEX
Part I. - Financial Information Page No.
--------
Condensed Consolidated Statement of Operations -
Third Quarter and Nine Months Ended March 29, 1997
and March 30, 1996 3
Condensed Consolidated Balance Sheet -
As of March 29, 1997, June 29, 1996 and March 30, 1996 4
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended March 29, 1997 and March 30, 1996 5
Notes to Condensed Consolidated Financial Statements 6 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 13
Part II. - Other Information 14
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
Part I - Financial Information
Herff Jones, Inc.
Condensed Consolidated Statement of Operations
(Amounts in thousands of dollars, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
------------------- -----------------
March 29, 1997 March 30, 1996 March 29, 1997 March 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Sales $ 58,264 $ 50,239 $ 173,208 $ 150,057
Cost of sales (excludes
ESOP compensation) 28,559 22,614 92,632 76,590
Selling, general and
administrative expenses
(excludes ESOP
compensation) 26,785 23,172 70,820 63,157
ESOP compensation
Current year service 4,123 3,603 11,844 9,529
Prior year service -- -- -- 4,033
Restructuring charge -- 2,145 -- 2,145
----------- ----------- ----------- -----------
Income (loss) from
operations (1,203) (1,295) (2,088) (5,397)
Interest income 2 7 10 622
Interest expense 4,937 4,746 15,049 13,594
----------- ----------- ----------- -----------
Income (loss) before
income taxes and
extraordinary item (6,138) (6,034) (17,127) (18,369)
Income taxes 2,179 2,299 6,080 6,999
----------- ----------- ----------- -----------
Net income (loss)
before
extraordinary item (3,959) (3,735) (11,047) (11,370)
Extraordinary item:
Prepayment fee on
the senior ESOP
notes retirement,
less applicable tax
benefit of $3,621 -- -- -- (5,884)
----------- ----------- ----------- -----------
Net income (loss) $ (3,959) $ (3,735) $ (11,047) $ (17,254)
========= ========= ========= =========
Income (loss) per
common share $ (1.84) $ (2.34) $ (5.50) $ (11.87)
========= ========= ========= =========
Weighted average number
of common shares
outstanding 2,150,353 1,596,619 2,008,348 1,452,569
========= ========= ========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
Herff Jones, Inc.
Condensed Consolidated Balance Sheet
As of March 29, 1997, June 29, 1996, and March 30, 1996
(Amounts in thousands of dollars)
Unaudited Unaudited
March 29, 1997 June 29, 1996 March 30, 1996
-------------- ------------- --------------
Assets:
Current Assets
Cash and cash equivalents $ 1,740 $ 8,680 $ 982
Accounts receivable 52,172 54,066 42,134
Inventories 55,635 36,941 50,132
Prepaid expense 8,650 2,651 7,403
Deferred income taxes 5,321 5,321 2,412
--------- --------- ---------
Total Current Assets 123,518 107,659 103,063
Non-Current Assets
Property, plant, and
equipment 91,600 87,741 75,266
Accumulated depreciation (43,117) (38,700) (37,060)
--------- --------- ---------
Net Property, Plant,
and Equipment 48,483 49,041 38,206
Deferred financing cost,
net and other assets 4,882 5,603 6,331
--------- --------- ---------
Total Non-Current
Assets 53,365 54,644 44,537
Total Assets $ 176,883 $ 162,303 $ 147,600
========= ========= =========
Liabilities and Shareholders' Equity
Current Liabilities
Trade accounts payable $ 7,352 $ 7,541 $ 4,520
Salaries and wages payable 5,635 4,068 3,791
Interest payable 1,819 5,157 1,446
Customer deposits 50,119 19,856 45,307
Commissions payable 10,394 14,857 7,704
Income taxes accrued (6,428) 3,200 (10,825)
Other accrued liabilities 10,391 9,749 10,999
Current portion of
long term debt 37,279 22,315 32,905
--------- --------- ---------
Total Current
Liabilities 116,561 86,743 95,847
Non-Current Liabilities
Other 2,149 2,247 1,569
Long term debt 157,629 173,574 173,100
Deferred income taxes 304 81 (402)
--------- --------- ---------
Total Non-Current
Liabilities 160,082 175,902 174,267
Total Liabilities 276,643 262,645 270,114
Shareholders' Equity (Deficit)
Common stock 5,724 5,728 5,737
Retained earnings 107,931 119,525 101,219
Deferred compensation (210,568) (222,953) (227,067)
Foreign currency translation -- 11 13
Excess of cost over market
(shares committed to be
released) (2,847) (2,653) (2,416)
--------- --------- ---------
Total Shareholders' Equity (Deficit) (99,760) (100,342) (122,514)
Total Liabilities and
Shareholders' Equity (Deficit) $ 176,883 $ 162,303 $ 147,600
========= ========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
Herff Jones, Inc.
Condensed Consolidated Statement of Cash Flows
(Amounts in thousands of dollars)
(Unaudited)
Nine Months Ended
----------------------------------
March 29, 1997 March 30, 1997
-------------- --------------
Cash flows from operating activities:
Net loss $ (11,047) $ (17,254)
Adjustments to reconcile net income
to net cash (used) provided by
operating activities:
Depreciation and amortization 5,153 4,000
Amortization and write off
of financing cost 721 774
ESOP compensation (before
dividend exclusion 12,085 13,676
Tax benefit of ESOP shares
(cost over market) 106 1,486
Other (11) 7
(Gain) loss on disposal of
property, plant and equipment,
net Increase (decrease) in cash
generated by changes in assets
and liabilities (2) (302)
Accounts receivable 1,894 9,974
Inventories (18,694) (16,812)
Prepaid expenses (5,999) (5,907)
Trade accounts payable (189) 115
Salaries and wages 1,567 (48)
Interest payable (3,338) 285
Customer deposits 30,263 30,421
Commissions payable (4,463) (6,978)
Income taxes payable (9,628) (21,253)
Deferred income taxes 223 --
Other accrued liabilities 544 (30)
Other assets -- (286)
--------- ---------
Total adjustments 10,232 9,122
--------- ---------
Net cash used by operating activities $ (815) $ (8,132)
Cash flows from investing activities:
Proceeds from disposal of property,
plant and equipment 24 488
Capital expenditures (4,617) (3,809)
Sale of marketable securities -- 6,219
--------- ---------
Net cash (used) provided by investing
activities $ (4,593) $ 2,898
Cash flows from financing activities:
Purchase of shares by the ESOP trust -- (188,278)
Redemption of common shares (4) (8)
Premium on stock redemption (166) (74)
Dividends declared (381) (2,687)
Increase (decrease) in revolver, net 12,083 (13,741)
Recapitalization financing cost -- (5,854)
Payment of long term debt (7,107) (4,500)
Advance term payment (5,957) --
New borrowings -- 216,646
Prepayment of senior ESOP notes -- (69,826)
--------- ---------
Net cash used in financing activities $ (1,532) $ (68,322)
Cash and cash equivalents:
Net increase (decrease) (6,940) (73,556)
Beginning of period 8,680 74,538
--------- ---------
End of period $ 1,740 $ 982
========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
Part I - Financial Information
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended March 29, 1997
(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 the Company's
financial position as of March 29, 1997, and the results of its operations
for the three and nine month periods ended March 29, 1997, and March 30,
1996, and cash flows for the nine month periods ended March 29, 1997, and
March 30, 1996. These unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
The significant accounting policies followed by the Company are set forth in
Note (3) of the Company's consolidated financial statements for the year
ended June 29, 1996, which have been included in the Company's Form 10-K
which was filed on September 24, 1996. Statement of Financial Accounting
Standards No. 121 "Accounting for Impairment of Long Lived Assets and Long
Lived Assets to be Disposed of" was adopted by the Company on June 30, 1996
with no material impact on results of operations. The Company has restated
certain prior year items to conform to the current year presentation.
The Company utilizes a 52/53 week fiscal year for accounting purposes ending
on the last Saturday in June. Fiscal 1996 contained 53 weeks with the
additional week included in the first quarter ended September 30, 1995.
Fiscal 1997 will contain 52 weeks.
Because of the seasonality of the Company's business, operating results on a
quarterly or nine month basis are not necessarily indicative of operating
results for the full year. Historically, sales in the third fiscal quarter
are at the third highest level of the year, while the fourth fiscal quarter
is the highest, typically including over 40% of the year's sales.
Note 2 - Allowance for Doubtful Accounts and Returns
March 29, 1997 June 29, 1996 March 30, 1996
-------------------- ------------- --------------
$ 3,733 $ 4,883 $ 1,354
Note 3 - Inventories
The components of inventory balances are summarized below:
<TABLE>
<CAPTION>
March 29, 1997 June 29, 1996 March 30, 1996
-------------- ------------- --------------
<S> <C> <C> <C>
Raw materials and supplies (includes gold) $18,391 $16,017 $16,061
Work-in-process 27,149 13,008 24,445
Finished goods 10,095 7,916 9,626
------- ------- -------
$55,635 $36,941 $50,132
======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Note 4 - Financing
March 29, 1997 June 29, 1996 March 30, 1996
-------------- ------------- --------------
Long-Term Debt consists of the following:
<S> <C> <C> <C>
Senior Bank Facility (Revolver) $ 27,122 $15,039 $22,905
Senior Bank Facility (Term) 40,186 53,250 55,500
Senior Subordinated Notes 120,000 120,000 120,000
1994 Industrial Development
Revenue Bonds Due in 2019 7,600 7,600 7,600
---------- --------- --------
194,908 195,889 206,005
Less: Current Portion (37,279) (22,315) (32,905)
---------- --------- --------
Long-Term Debt $157,629 $173,574 $173,100
======== ======== ========
</TABLE>
Note 5 - Common Stock
March 29, 1997 June 29, 1996 March 30, 1996
-------------- ------------- --------------
Common Shares
Authorized 16,500,000 16,500,000 16,500,000
Outstanding 9,612,563 9,618,996 9,636,923
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
recapitalization occurred at June 25, 1995. The number of common shares
outstanding immediately after the recapitalization took place was 1,236,494.
This number has been used as the pro forma weighted average number of common
shares outstanding for the first one and a half months of fiscal 1996.
The actual weighted average number of common shares outstanding for the nine
months ended March 30, 1996, was 3,091,768. The actual loss per common share
for the nine months ended March 30, 1996, was ($5.58).
<PAGE>
Note 6 - Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Foreign Total
Common Stock Retained Currency Deferred Excess Cost Shareholders'
Shares Amount Earnings Translation Compensation Over Market Equity
------ ------ -------- ----------- ------------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 29, 1996 9,618,996 $5,728 $119,525 $11 ($222,953) ($2,653) ($100,342)
Tax benefit of cost over market of
ESOP shares committed to be released - - - - - 36 36
Foreign currency translation
adjustment - - - 1 - - 1
Shares committed to be released - - - - 4,129 (100) 4,029
Net loss for the quarter - - (8,344) - - - (8,344)
--------- ------ -------- --- --------- ------- ---------
Balance September 28, 1996 9,618,996 $5,728 $111,181 $12 ($218,824) ($2,717) ($104,620)
========= ====== ======== === ========= ======= =========
Tax benefit of cost over market of
ESOP shares committed to be released - - - - - 34 34
Dividends declared ($.25/shares) - - (381) - - - (381)
Foreign currency
translation adjustment - - - (4) - - (4)
Shares committed to be released - - - - 4,128 (100) 4,028
Net income for the quarter - - 1,256 - - - 1,256
--------- ------ -------- --- --------- ------- ---------
Balance December 28, 1996 9,618,996 $5,728 $112,056 $ 8 ($214,696) ($2,783) ($ 99,687)
========= ====== ======== === ========= ======= =========
Stock Purchase (6,433) (4) (166) (170)
Tax benefit of cost over market of
ESOP shares committed to be released - - - - - 36 36
Foreign currency
translation adjustment - - - (8) - - (8)
Shares committed to be released - - - - 4,128 (100) 4,028
Net income for the quarter - - (3,959) - - - (3,959)
--------- ------ -------- --- --------- ------- ---------
Balance March 29, 1997 9,612,563 $5,724 $107,931 $ - ($210,568) ($2,847) ($ 99,760)
========= ====== ======== === ========= ======= =========
</TABLE>
Excess of cost over market represents the cumulative difference between the
estimated market value of shares committed to be released and the cost of those
shares to the ESOP, net of tax effects.
<PAGE>
HERFF JONES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Herff Jones is one of the leading manufacturers of recognition awards,
educational products and graduation-related products for the scholastic market
in the United States. Its product lines include class rings, medals and awards,
diplomas and graduation announcements (also referred to as "fine paper"),
yearbooks, caps and gowns, school photography services and multimedia education
products. The Company historically has sold approximately 80% of its products to
the high school and elementary market and approximately 20% of its products to
the college and commercial or non-scholastic market through a network of
approximately 700 primarily independent sales representatives. The Company
believes that the Herff Jones name is widely recognized in schools and
universities nationwide.
RESULTS OF OPERATIONS
The Company utilizes a 52/53 week year for accounting purposes. Fiscal
1996 contained 53 weeks and the additional week was included in the first
quarter ended September 30, 1995. Fiscal 1997 will contain 52 weeks. The
Company's business is highly seasonal. Historically, sales in the third fiscal
quarter are at the third highest level of the year, while the fourth fiscal
quarter is the highest, typically including over 40% of the year's sales.
However, because of the seasonality of the Company's business, operating results
on a quarterly or nine month basis are not necessarily indicative of operating
results for the full year.
For the third quarter ended March 29, 1997 and March 30, 1996.
General. Net sales rose 15.9% to $58.2 million in fiscal 1997 from
$50.2 million in fiscal 1996. Operating losses decreased to $1.2 million in
fiscal 1997 from $1.3 million in fiscal 1996. The net loss increased to $3.9
million in fiscal 1997 from a net loss of $3.7 million in fiscal 1996.
Net Sales. Net sales increased $8.0 million or 15.9% to $58.2 million
in fiscal 1997 from $50.2 million in fiscal 1996. Such increases were due to
sales from Delmar (Delmar was acquired as of April 29, 1996) of $1.4 million,
earlier shipments in the Fine Paper product line and modest price increases.
Cost Of Sales. Cost of sales increased $6.0 million or 26.5% to $28.6
million in fiscal 1997 from $22.6 million in fiscal 1996, primarily as a
function of increased sales and costs associated with Delmar. In addition,
expenses in fiscal 1996 were reduced due to a reduction in worker's compensation
expense. These factors resulted in an increase in cost of sales as a percentage
of sales to 49.1% in fiscal 1997 compared to 45.0% in fiscal 1996.
<PAGE>
Selling, General And Administrative Expenses. Selling, general and
administrative expense increased $3.6 million or 15.6% to $26.8 million in
fiscal 1997 from $23.2 million in fiscal 1996. The increase was attributable to
an increase in the Company's commission expense resulting from increased net
sales in fiscal 1997 coupled with increases to selling, general and
administrative expenses related to Delmar. Selling, general and administrative
expense as a percentage of sales was 46.0% in fiscal 1997, down from 46.1% in
fiscal 1996. There are no commissions associated with Delmar's photography
dealer sales, which contributed to the decline in this relationship. Further,
the fiscal 1996 restructuring program at one of the Scholastic plants has
reduced general and administrative expenses in fiscal 1997 in comparison with
the prior year.
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.
ESOP Compensation. ESOP compensation is $4.1 million in fiscal 1997
compared to $3.6 million in fiscal 1996. ESOP compensation expense increased $.5
million due to an increase in the estimated market value of the shares committed
to be released.
Loss from Operations. Operating losses decreased $.1 million to $1.2
million in fiscal 1997 from $1.3 million in fiscal 1996. The decrease was
predominantly due to increases in the operating income from the Jewelry and Fine
Paper product lines and the fiscal 1996 restructuring charge, partially offset
by losses related to Delmar, all as discussed above.
Net Interest. Interest expense increased $.2 million to $4.9 million in
the third quarter of fiscal 1997 from $4.7 million in the corresponding quarter
of fiscal 1996.
Income Tax. Income taxes were a benefit of $2.2 million in fiscal 1997
compared to a benefit of $2.3 million in fiscal 1996, due to the increased
quarterly loss before tax in fiscal 1997, offset by a lower fiscal 1997
effective tax rate.
Net Loss. The third quarter net loss increased $.2 million from a loss
of $3.7 million in fiscal 1996 to $3.9 in fiscal 1997. The change was
predominantly due to increases in operating income from the Jewelry and Fine
Paper product lines and the fiscal 1996 restructuring charge, partially offset
by losses related to Delmar, all as discussed above.
For the nine months ended March 29, 1997 and March 30, 1996.
General. Net sales rose 15.4% to $173.2 million in fiscal 1997 from
$150.1 million in fiscal 1996. Operating losses were $2.1 million in fiscal 1997
compared to $5.4 million in fiscal 1996. Net losses were $11.0 million in fiscal
1997 compared to a net loss before the extraordinary item of $11.4 million in
fiscal 1996. Net losses after the extraordinary item decreased to $11.0 million
in fiscal 1997 from $17.3 million in fiscal 1996.
Net Sales. Net sales increased $23.1 million or 15.4% to $173.2 million
in fiscal 1997 from $150.1 million in fiscal 1996 due primarily to sales from
Delmar of $12.1 million (Delmar was acquired as of April 29, 1996), earlier
shipments in the Fine Paper product line and increases in the Jewelry product
line, which experienced an increase in ring units shipped of 6.6%.
<PAGE>
Cost Of Sales. Cost of sales increased $16.0 million or 20.9% to $92.6
million in fiscal 1997 from $76.6 million in fiscal 1996, primarily as a
function of increased sales and costs associated with Delmar. Cost of sales as a
percentage of sales increased to 53.5% in fiscal 1997 from 51.0% in fiscal 1996,
primarily because of higher manufacturing costs at Delmar. In addition, expenses
in fiscal 1996 were reduced due to a reduction in worker's compensation expense.
Selling, General And Administrative Expenses. Selling, general and
administrative expense increased $7.7 million or 12.2% to $70.8 million in
fiscal 1997 from $63.1 million in fiscal 1996. The increase was primarily
attributable to increases in the Company's commission expense resulting from
increased net sales in fiscal 1997, coupled with increases in selling, general
and administrative expense related to Delmar. Selling, general and
administrative expense as a percentage of sales decreased to 40.9% in fiscal
1997, from 42.0% in fiscal 1996. There are no commissions associated with
Delmar's photography dealer sales, which contributed to the decline in this
relationship. Further, the fiscal 1996 restructuring program at one of the
Scholastic plants has reduced general and administrative expenses by .9% in
fiscal 1997 in comparison with the prior year.
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.
ESOP Compensation. ESOP compensation decreased $1.8 million to $11.8
million in fiscal 1997 from $13.6 million in fiscal 1996. The August 22, 1995
recapitalization 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 fiscal 1995 and $9.5 million relating to employee service
rendered in fiscal 1996. The increase in the current year service expense over
the comparable prior year amount results primarily from an increase in the
market value of the shares committed to be released.
Loss from Operations. Operating losses were $2.1 million in fiscal 1997
compared to $5.4 million in fiscal 1996. The decrease was predominantly due to
increases in the operating income from the Jewelry and Fine Paper product lines,
coupled with a decrease in ESOP compensation expense and the fiscal 1996
restructuring charge, partially offset by losses related to Delmar, all as
discussed above.
Net Interest. Net interest expense increased $2.0 million to $15.0
million in the first nine months of fiscal 1997 from $13.0 million in the
corresponding nine months of fiscal 1996, due to a full nine months in fiscal
1997 of increased debt associated with the recapitalization.
Income Tax Benefit. The income tax benefit decreased to $6.1 million in
fiscal 1997 compared to $7.0 million in fiscal 1996 due to a decrease in the
loss before income taxes and the extraordinary item, coupled with a lower fiscal
1997 effective tax rate.
Extraordinary Item. 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.
<PAGE>
Net Loss. Net losses decreased $6.2 million to a loss of $11.0 million
in fiscal 1997 from a loss of $17.3 million in fiscal 1996. The decreased loss
was primarily attributable to increased profitability in the Jewelry and Fine
Paper product lines, coupled with a decrease in ESOP compensation expense, the
fiscal 1996 restructuring charge and extraordinary item. The preceding positive
changes to profitability are partially offset by seasonal losses related to
Delmar, increased interest expense due to the recapitalization debt being
outstanding for a longer period, and the virtual elimination of interest income
in the current year, all as discussed above.
FINANCIAL CONDITION AND LIQUIDITY
The Company's business is highly seasonal. Historically the first nine
months requires the use of working capital due to losses from operations, caused
by relatively low shipping of product; the absorption of fixed costs that are
incurred evenly throughout the year; the build up of inventories for the spring
shipments 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 fourth quarter of the previous fiscal year
and the receipt of customer deposits for products that ship in the spring.
Beginning in the first quarter of fiscal 1996, the August 22, 1995
recapitalization significantly changed the Company's financial condition, adding
substantial indebtedness and resulting 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 29, 1997, of $27.1
million 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 were $4.6 million and $3.8 million in the first
nine months of fiscal 1997 and 1996, respectively. The increase over the prior
year is attributable to increased expenditures for equipment in the Photography
and Yearbook product lines.
A 25(cent) per share dividend was paid during fiscal 1997, totaling
$2.4 million, which was less than the 35(cent) per share dividend paid in the
fiscal 1996. Substantially all of this dividend was paid to the ESOP trust,
which used the funds to make payments on the loan from the Company. In addition
to normal distributions, approximately 22,000 shares are expected to be put back
to the Company in fiscal 1997, to liquidate the accounts of inactive
participants with small balances as provided by the ESOP plan.
Income taxes accrued are a negative $6.4 million at March 29, 1997
compared to $3.2 million at June 29, 1996 and a negative $10.8 million at March
30, 1996. The decrease from June is the result of the payment of taxes for the
prior fiscal year, coupled with the provision for the tax benefit associated
with the seasonal losses this year. The decreased tax benefit at the end of the
third quarter compared to the prior year third quarter end is the result of the
lower pre-tax loss in this fiscal year compared to the combined pre-tax loss and
pre-tax extraordinary item in the prior fiscal year.
For the nine months ended March 29, 1997, cash and cash equivalents
declined $6.9 million to $1.7 million as compared to a decrease of $73.6 million
to $1.0 million for the nine months ended March 30, 1996. The substantially
greater decline in the first nine months of 1996 was primarily the result of
funding the ESOP trust's purchase of substantially all remaining outstanding
shares of the Company's stock in the first quarter of fiscal 1996.
Cash used in operating activities was $.8 million in the nine months
ended March 29, 1997, compared to $8.1 million in the nine months ended March
30, 1996, as described below.
<PAGE>
Net losses were $11.0 million in the nine months of fiscal 1997
compared to $17.3 million in fiscal 1996. This was primarily attributable to
increases in the Jewelry, Fine Papers and Education product lines, coupled with
a decrease in ESOP compensation expense, the fiscal 1996 restructuring charge
and extraordinary item, partially offset by increased seasonal losses related to
Delmar, increased interest expense due to the recapitalization debt being
outstanding for a longer period, and the virtual elimination of interest income
in the current year.
Accounts receivable decreased $1.9 million in the first nine months of
fiscal 1997 compared to a decline of $10.0 million in fiscal 1996. The reduction
in the decline was primarily the result of increased third quarter sales and the
timing of receipts from customers, which is expected to be comparable by year
end.
Inventories increased $18.7 million in the first nine months of fiscal
1997 compared to an increase of $16.8 million in fiscal 1996. The larger
increase was attributable to increased inventory related to the Delmar activity.
Customer deposits decreased $30.3 million in the first nine months of
fiscal 1997 compared to a decline of $30.4 million in fiscal 1996. The 1997
decline was attributable to increased Fine Paper product line sales in the first
nine months of fiscal 1997, mostly offset by increases in customer deposits in
the Delmar product lines.
Income taxes accrued decreased $9.6 million in the first nine months of
fiscal 1997 compared to a decline of $21.3 million in fiscal 1996. The decline
was primarily attributable to the decreased pre-tax loss of the Company in the
first nine months of fiscal 1997 compared to the combined pre-tax loss and
pre-tax extraordinary item in fiscal 1996. Additionally, the payment of the
previous year tax liability in fiscal 1997 was lower than the payment made in
fiscal 1996 related to the 1995 tax liability.
Net cash used by investing activities was $4.6 million for the nine
months ended March 29, 1997 compared to $2.9 million provided in the nine months
ended March 30, 1996. The primary reason for the decrease was the sale of $6.2
million of marketable securities in fiscal 1996.
Net cash used in financing activities was $1.5 million in the nine
months ended March 29, 1997 compared to $68.3 million used in the nine months
ended March 30, 1996. The decrease was attributable to the fiscal 1996 purchase
of substantially all the remaining shares of Herff Jones stock by the ESOP trust
for $188.3 million, partially offset by the related net increase in borrowings
of $128.6 million. In addition, there were higher seasonal borrowings under the
revolver in fiscal 1997 of $12.1 million, partially offset by payments on
long-term debt of $13.1 million.
Deferred Compensation at March 29, 1997 decreased to $210.6 million
from $223.0 million at June 29, 1996 and $227.1 million at March 30, 1996. The
decrease is the result of recording ESOP shares committed to be released.
<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;
No reports on Form 8-K were filed during the quarter for which the report is
filed.
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 9, 1997
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
10.1 Amendement No. 3 to the Rhode Island
Hospital Trust Consignment Agreement. 17-18
27 Financial Data Schedule 19
E-1
THIRD AMENDMENT TO AMENDED AND
RESTATED CONSIGNMENT AGREEMENT
DATED OCTOBER 27, 1989
THIS THIRD AMENDMENT is made as of the 3rd day of March, 1997, 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 and a Second Amendment dated as of
February 9, 1996, 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 "Consignment Limit" in Section 1 of the
Consignment Agreement is hereby amended to read as follows
"Consignment Limit' shall mean the least of (a) 21,500 troy
ounces of fine gold, (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 or (c) ninety-five percent (95%)
of Buyer's entire inventory of Precious Metal.".
2. 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 Third Amendment.
3. 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 Albert L. Brown
Title Senior Vice President
HERFF JONES, INC.
By Lawrence F. Fehr
Title Vice President-Finance &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED MARCH
29, 1997 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-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> MAR-29-1997
<EXCHANGE-RATE> 1,000
<CASH> 1,740
<SECURITIES> 0
<RECEIVABLES> 52,172
<ALLOWANCES> 3,733
<INVENTORY> 55,635
<CURRENT-ASSETS> 123,518
<PP&E> 91,600
<DEPRECIATION> 43,117
<TOTAL-ASSETS> 176,883
<CURRENT-LIABILITIES> 116,561
<BONDS> 157,629
<COMMON> 5,724
0
0
<OTHER-SE> (105,484)
<TOTAL-LIABILITY-AND-EQUITY> 176,883
<SALES> 173,208
<TOTAL-REVENUES> 173,208
<CGS> 92,632
<TOTAL-COSTS> 92,632
<OTHER-EXPENSES> 82,664
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,039
<INCOME-PRETAX> (17,127)
<INCOME-TAX> 6,080
<INCOME-CONTINUING> (11,047)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,047)
<EPS-PRIMARY> (5.50)
<EPS-DILUTED> (5.50)
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