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 28, 1998
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 Identification Number)
Incorporation or Organization)
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 No X *
* Effective January 30, 1998, registrant is no longer subject to such filing
requirements.
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 7, 1998:
Class
Common Stock, without par value 9,527,645
<PAGE>
Preliminary Note:
Effective January 30, 1998, the registrant is no longer subject to
reporting requirements under the Securities Exchange Act of 1934, as
amended. Pursuant to the terms governing its outstanding debt securities,
registrant is filing Part I only of this report on Form 10-Q.
INDEX
Part I. - Financial Information Page No.
--------
Condensed Consolidated Statement of Operations -
Third Quarter and Nine Months Ended March 28, 1998
and March 29, 1997 3
Condensed Consolidated Balance Sheet -
As of March 28, 1998, June 28, 1997 and March 29, 1997 4
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended March 28, 1998 and March 29, 1997 5
Notes to Condensed Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 12
<PAGE>
Part I - Financial Information
Item 1. FINANCIAL STATEMENTS
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 28, 1998 March 29, 1997 March 28, 1998 March 29, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 64,114 $ 58,264 $ 188,752 $ 173,208
Cost of sales (excludes ESOP compensation) 29,013 28,559 94,672 92,632
Selling, general, and administrative expenses
(excludes ESOP compensation) 31,245 26,785 80,960 70,820
ESOP compensation 5,125 4,123 14,682 11,844
----------- ----------- ----------- -----------
Income (loss) from operations (1,269) (1,203) (1,562) (2,088)
Interest income 7 2 59 10
Interest expense 4,492 4,937 13,583 15,049
----------- ----------- ----------- -----------
Income (loss) before income taxes and
extraordinary item (5,754) (6,138) (15,086) (17,127)
Income taxes 2,097 2,179 5,497 6,080
----------- ----------- ----------- -----------
Net income (loss) before extraordinary item (3,657) (3,959) (9,589) (11,047)
Extraordinary loss on early extinguishment of
debt, net of taxes (743) -- (743) --
----------- ----------- ----------- -----------
Net income (loss) $ (4,400) $ (3,959) $ (10,332) $ (11,047)
=========== =========== =========== ===========
Earnings per common share:
Income (loss) before extraordinary item $ (1.35) $ (1.84) $ (3.79) $ (5.50)
Extraordinary item (0.28) -- (0.28) --
----------- ----------- ----------- -----------
Net income (loss) $ (1.63) $ (1.84) $ (4.07) $ (5.50)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding 2,700,878 2,150,353 2,535,606 2,008,348
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
Herff Jones, Inc.
Condensed Consolidated Balance Sheet
As of March 28, 1998, June 28, 1997, and March 29, 1997
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
March 28, 1998 June 28, 1997 March 29, 1997
-------------- ------------- --------------
Assets:
Current Assets
<S> <C> <C> <C>
Cash and cash equivalents $ 3,617 $ 5,843 $ 1,740
Accounts receivable 58,625 55,709 52,172
Inventories 58,484 37,963 55,635
Prepaid expense 8,378 1,816 8,650
Deferred income taxes 9,106 9,106 5,321
--------- --------- ---------
Total Current Assets 138,210 110,437 123,518
Non-Current Assets
Property, plant, and equipment 101,740 94,378 91,600
Accumulated depreciation (51,059) (45,364) (43,117)
--------- --------- ---------
Net Property, Plant, and Equipment 50,681 49,014 48,483
Deferred financing cost, net and other assets 3,925 4,590 4,882
--------- --------- ---------
Total Non-Current Assets 54,606 53,604 53,365
Total Assets $ 192,816 $ 164,041 $ 176,883
========= ========= =========
Liabilities and Shareholders' Equity:
Current Liabilities
Trade accounts payable $ 7,186 $ 5,856 $ 7,352
Salaries and wages payable 5,687 5,048 5,635
Interest payable 1,712 5,082 1,819
Customer deposits 53,369 19,508 50,119
Commissions payable 12,685 16,864 10,394
Income taxes accrued (5,036) 9,547 (6,428)
Other accrued liabilities 8,675 9,613 10,391
Current portion of long term debt 38,309 10,377 37,279
--------- --------- ---------
Total Current Liabilities 122,587 81,895 116,561
Non-Current Liabilities
Other 4,679 2,239 2,149
Long term debt 137,639 154,979 157,629
Deferred income taxes 442 443 304
--------- --------- ---------
Total Non-Current Liabilities 142,760 157,661 160,082
Total Liabilities 265,347 239,556 276,643
Shareholders' Equity (Deficit)
Common stock 5,691 5,703 5,724
Retained earnings 117,034 128,122 107,931
Deferred compensation (194,055) (206,440) (210,568)
Foreign currency translation (29) 2 --
Excess of cost over market
(shares committed to be
released) (1,172) (2,902) (2,847)
--------- --------- ---------
Total Shareholders' Equity (Deficit) (72,531) (75,515) (99,760)
Total Liabilities and Shareholders' Equity (Deficit) $ 192,816 $ 164,041 176,883
========= ========= =========
</TABLE>
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)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------
March 28, 1998 March 29, 1997
-------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $(10,332) $(11,047)
Adjustments to reconcile net income
(loss) to net cash (used)
provided by operating activities:
Depreciation and amortization 5,747 5,153
Amortization and write off of financing cost 665 721
ESOP compensation (before dividend exclusion) 15,105 12,085
Tax benefit of ESOP shares (market over cost)
cost over market (990) 106
Other (31) (11)
(Gain) loss on disposal of property,
plant and equipment, net (1) (2)
Increase (decrease) in cash generated
by changes in assets
and liabilities
Accounts receivable (2,916) 1,894
Inventories (20,521) (18,694)
Prepaid expenses (6,562) (5,999)
Trade accounts payable 1,330 (189)
Salaries and wages 639 1,567
Interest payable (3,370) (3,338)
Customer deposits 33,861 30,263
Commissions payable (4,179) (4,463)
Income taxes accrued (14,583) (9,628)
Deferred income taxes (1) 223
Other accrued liabilities 1,502 544
-------- --------
Total adjustments 5,695 10,232
-------- --------
Net cash (used) provided by operating activities $ (4,637) $ (815)
Cash flows from investing activities:
Proceeds from disposal of property,
plant and equipment 2 24
Capital expenditures (7,415) (4,617)
-------- --------
Net cash (used) provided by investing activities $ (7,413) $ (4,593)
Cash flows from financing activities:
Redemption of common shares (12) (4)
Premium on stock redemption (186) (166)
Dividends declared (570) (381)
Increase in revolver, net 27,269 12,083
Early extinguishment of debt (8,950) --
Payment of long term debt (7,727) (7,107)
Advance term payment -- (5,957)
-------- --------
Net cash (used) provided
by financing activities $ 9,824 $ (1,532)
Cash and cash equivalents:
Net increase (decrease) (2,226) (6,940)
Beginning of period 5,843 8,680
-------- --------
End of period $ 3,617 $ 1,740
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended March 28, 1998
(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 28, 1998, and the results of its operations
and cash flows for the three and nine month periods ended March 28, 1998.
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, insofar as they relate to Part 1 of Form 10-Q.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Form 10-K for the year ended June 28, 1997.
The Company utilizes a 52/53 week fiscal year for accounting purposes ending
on the last Saturday in June. Fiscal 1997 and fiscal 1998 each contains 52
weeks.
Because of the seasonality of the Company's business, operating results on a
quarterly 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 - Allowance for Doubtful Accounts and Returns
March 28, 1998 June 28, 1997 March 29, 1997
-------------- ------------- --------------
$4,654 $ 5,754 $3,733
Note 3 - Inventories
The components of inventory balances are summarized below:
<TABLE>
<CAPTION>
March 28, 1998 June 28, 1997 March 29, 1997
-------------- ------------- --------------
<S> <C> <C> <C>
Raw materials and supplies (includes gold) $19,467 $16,736 $18,391
Work-in-process 27,446 13,187 27,149
Finished goods 11,571 8,040 10,095
------ -------- --------
$58,484 $37,963 $55,635
======= ======= =======
</TABLE>
<PAGE>
Note 4 - Financing
<TABLE>
<CAPTION>
March 28, 1998 June 28, 1997 March 29, 1997
-------------- -------------- --------------
Long-Term Debt consists of the following:
<S> <C> <C> <C>
Senior Bank Facility (Revolver) $27,269 $ - $27,122
Senior Bank Facility (Term) 30,029 37,756 40,186
Senior Subordinated Notes 111,050 120,000 120,000
1994 Industrial Development
Revenue Bonds Due in 2019 7,600 7,600 7,600
---------- --------- --------
175,948 165,356 194,908
Less: Current Portion (38,308) (10,377) (37,279)
------------ ------------ --------
Long-Term Debt $137,640 $154,979 $157,629
======== ======== ========
</TABLE>
Note 5 - Common Stock
March 28, 1998 June 28, 1997 March 29, 1997
-------------- ------------- --------------
Common Shares
-------------
Authorized 16,500,000 16,500,000 16,500,000
Outstanding 9,562,871 9,569,304 9,612,563
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, Net Equity
------ ------ -------- ----------- ------------ ---------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 28, 1997 9,569,304 $ 5,703 $ 128,122 $ 2 ($ 206,440) ($ 2,902) ($ 75,515)
- ----------------------------------
Stock Purchases (1,804) (9) (38) -- -- -- (47)
Tax effect of cost over market of
ESOP shares committed to be
released, net -- -- -- -- -- (330) (330)
Foreign currency translation
adjustment -- -- -- (4) -- -- (4)
Shares committed to be released -- -- -- -- 4,129 906 5,035
Net income (loss) for the quarter -- -- (7,128) -- -- -- (7,128)
---------- ---------- ---------- ------ ---------- ---------- ----------
Balance September 27, 1997 9,567,500 $ 5,694 $ 120,956 ($ 2) ($ 202,311) ($ 2,326) ($ 77,989)
- --------------------------------- ========== ========== ========== ====== ========== ========== ==========
Tax effect of cost over market of
ESOP shares committed to be
released, net -- -- -- -- -- (330) (330)
Dividends declared on allocated
shares ($.28/share) -- -- (569) -- -- -- (569)
Foreign currency translation
adjustment -- -- -- (38) -- -- (38)
Shares committed to be released -- -- -- -- 4,128 907 5,035
Net income for the quarter -- -- 1,196 -- -- -- 1,196
---------- ---------- ---------- ------ ---------- ---------- ----------
Balance December 27, 1997 9,567,500 $ 5,694 $ 121,583 ($ 40) ($ 198,183) ($ 1,749) ($ 72,695)
- --------------------------------- ========== ========== ========== ====== ========== ========== ==========
Stock Purchases (4,629) (3) -- -- -- -- (3)
Tax effect of cost over market of
ESOP shares committed to be
released, net -- -- -- -- -- (330) (330)
Foreign currency translation
adjustment -- -- -- 11 -- -- 11
Shares committed to be released -- -- -- -- 4,128 907 5,035
Net income (loss) for the quarter -- -- (4,549) -- -- -- (4,549)
---------- ---------- ---------- ------ ---------- ---------- ----------
Balance March 28, 1998 9,562,871 $ 5,691 $ 117,034 ($ 29) ($ 194,055) ($ 1,172) ($ 72,531)
- --------------------------------- ========== ========== ========== ====== ========== ========== ==========
</TABLE>
<PAGE>
During fiscal 1996 and 1997 the cost of ESOP shares committed to be released was
greater than the estimated fair value of such shares. The excess of cost over
market was recorded as a charge to a separate component of shareholders' equity,
net of the related tax effect. Beginning in fiscal 1998, the estimated fair
value of ESOP shares committed to be released exceeds cost. The excess of market
over cost will be credited to equity, net of the related tax effect, to the
extent of the previous net charges recorded. Thereafter, the excess will be
credited to retained earnings.
Note 7 - Extraordinary Item
During fiscal 1998 the Company repurchased $9.0 million of its Senior
Subordinated Notes from existing noteholders at a premium. As a result, the
Company recorded a $.7 million charge reflecting the premium cost and the write
off of previously deferred financing costs, net of the applicable tax benefit.
Item 2. 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
1997 and fiscal 1998 each contains 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. 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 28, 1998 and March 29, 1997.
General. Net sales rose 10.0% to $64.1 million in fiscal 1998 from
$58.3 million in fiscal 1997. Operating loss increased to $1.3 million in fiscal
1998 from $1.2 million in fiscal 1997. Net loss before the extraordinary item
was $3.8 million in fiscal 1998 compared to $4.0 million in 1997. Net loss
increased to $4.4 million in fiscal 1998 from $4.0 million in fiscal 1997.
Net Sales. Net sales increased $5.8 million or 10.0% to $64.1 million
in fiscal 1998 from $58.3 million in fiscal 1997. While sales increased to some
extent in all product lines, the more significant increases were in the Jewelry,
Fine Paper, and Education product lines. Increases were due to some unit growth
and modest price increases.
Cost Of Sales. Cost of sales increased $.4 million or 1.4% to $29.0
million in fiscal 1998 from $28.6 million in fiscal 1997. Cost of sales as a
percentage of sales decreased to 45.3% in fiscal 1998 from 49.0% in fiscal 1997.
The decrease was due primarily to improved operating performance in the Jewelry
and Education product lines.
Selling, General And Administrative Expenses. Selling, general and
administrative expenses increased $4.4 million or 16.4% to $31.2 million in
fiscal 1998 from $26.8 million in fiscal 1997. The increase was primarily
attributable to an increase in the Company's commission expense, resulting from
increased net sales in fiscal 1998 and increased expenses for payroll (which
includes expense for the Long-Term Incentive Plan), information technology
consulting in the Fine Paper and Cap and Gown product lines, and depreciation.
Selling, general and administrative expense as a percentage of sales is 48.7% in
fiscal 1998, compared to 46.0% in fiscal 1997.
ESOP Compensation. ESOP compensation increased $1.0 million to $5.1
million in fiscal 1998 from $4.1 million in fiscal 1997. The ESOP compensation
expense increase resulted from an increase in the estimated market value of the
shares committed to be released.
Loss from Operations. Operating losses increased $.1 million to $1.3
million in fiscal 1998 from $1.2 million in fiscal 1997. The increase was
predominantly due to increased expenses for commissions, ESOP compensation,
payroll, and information technology consulting.
Interest Expense. Interest expense decreased $.2 million to $4.7
million in the third quarter of fiscal 1998 from $4.9 million in the
corresponding quarter of fiscal 1997 due to a reduction of average debt
outstanding.
Income Tax Benefit. The third quarter income tax benefit was $2.1
million in both fiscal 1998 and in fiscal 1997.
Income (Loss) Before Extraordinary Item. Net losses before the
extraordinary item decreased to $3.8 million in fiscal 1998 compared to $4.0
million in 1997. The decrease was primarily attributable to increased operating
performance in the Jewelry and Education product lines and reduced interest
cost, partially offset by ESOP compensation and selling, general and
administrative expenses, as discussed above.
Extraordinary Item. During the third quarter the Company repurchased
$9.0 million of its Senior Subordinated Notes from existing noteholders at a
premium. As a result, the Company recorded a $.7 million charge reflecting the
premium cost and the write off of previously deferred financing costs, net of
the applicable tax benefit.
Net Loss. The third quarter net loss increased to $4.4 million from
$4.0 million in fiscal 1997. The increase was due primarily to increases in ESOP
compensation and selling, general and administrative expenses and the
extraordinary loss on the repurchase of Senior Subordinated Notes from existing
noteholders at a premium, partially offset by increased operating performance in
the Jewelry and Education product lines and reduced interest cost, as discussed
above.
<PAGE>
For the nine months ended March 28, 1998 and March 29, 1997.
General. Net sales rose 9.0% to $188.8 million in fiscal 1998 from
$173.2 million in fiscal 1997. Operating losses were $1.6 million in fiscal 1998
compared to $2.1 million in fiscal 1997. Net losses before the extraordinary
item were $9.7 million in fiscal 1998 compared to $11.0 million in 1997. Net
losses were $10.3 million in fiscal 1998 compared to a net loss of $11.0 million
in fiscal 1997.
Net Sales. Net sales increased $15.6 million or 9.0% to $188.8 million
in fiscal 1998 from $173.2 million in fiscal 1997 due to sales increases in all
product lines, with the most significant increases in the Jewelry, Fine Paper,
Photography, and Education product lines. Increases were due to some unit growth
and modest price increases.
Cost Of Sales. Cost of sales increased $2.1 million or 2.3% to $94.7
million in fiscal 1998 from $92.6 million in fiscal 1997, primarily as a
function of increased sales. Cost of sales as a percentage of sales decreased to
50.2% in fiscal 1998 from 53.5% in fiscal 1997, primarily because of improved
operating performance in the Jewelry and Education product lines.
Selling, General And Administrative Expenses. Selling, general and
administrative expenses increased $10.2 million or 14.4% to $81.0 million in
fiscal 1998 from $70.8 million in fiscal 1997. The increase was primarily
attributable to increases in the Company's commission expense resulting from
increased net sales in fiscal 1998, coupled with increases in compensation
expense under the Long-Term Incentive Plan, information technology consulting in
the Fine Paper and Cap and Gown product lines, sales incentives, and
depreciation. Selling, general and administrative expense as a percentage of
sales increased to 42.9% in fiscal 1998, from 40.9% in fiscal 1997, primarily
due to the cost of commission expense and the Long-Term Incentive Plan.
ESOP Compensation. ESOP compensation increased $2.9 million to $14.7
million in fiscal 1998 from $11.8 million in fiscal 1997. The increase in the
current year expense over the comparable prior year amount results from an
increase in the estimated market value of the shares committed to be released.
Loss from Operations. Operating losses were $1.6 million in fiscal 1998
compared to $2.1 million in fiscal 1997. The improvement was predominantly due
to increased profitability in the Jewelry and Education product lines, partially
offset by increased ESOP compensation expense and selling, general and
administrative expenses, as described above.
Net Interest. Net interest expense decreased $1.3 million to $13.7
million in the first nine months of fiscal 1998 from $15.0 million in the
corresponding nine months of fiscal 1997, due to a reduction in the average debt
outstanding.
Income Tax Benefit. The income tax benefit decreased to $5.6 million in
fiscal 1998 compared to $6.1 million in fiscal 1997 due to a decrease in the
loss for the nine month period.
Income (Loss) Before Extraordinary Item. Net losses before the
extraordinary item were $9.7 million in fiscal 1998 compared to $11.0 million in
1997. The decreased loss was primarily attributable to increased profitability
in the Jewelry and Education product lines, coupled with a decrease in interest
expense, offset somewhat by increased ESOP compensation expense and higher
selling, general and administrative expenses.
Extraordinary Item. During the third quarter the Company repurchased
some of its Senior Subordinated Notes from existing noteholders at a premium. As
a result, the Company recorded a $.7 million charge reflecting the premium cost
and the write off of previously deferred financing costs, net of the applicable
tax benefit.
Net Income (Loss). Net losses decreased $.7 million to a loss of $10.3
million in fiscal 1998 from a loss of $11.0 in fiscal 1997. The decreased loss
was primarily attributable to increased profitability in the Jewelry and
Education product lines, coupled with a decrease in interest expense, offset
somewhat by increased ESOP compensation expense, higher selling, general and
administrative expenses, and the repurchase of Senior Subordinated Notes at a
premium, 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.
The cash flow pattern and expectations of the Company's highly seasonal
business result in the classification, at March 28, 1998, of $27.3 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 $7.4 million and $4.6 million in the first
nine months of fiscal 1998 and 1997, respectively. The increase over the prior
year is attributable to increased expenditures for equipment in the Jewelry,
Fine Paper, and Yearbook product lines, mostly related to information technology
items.
Income taxes accrued are a negative $5.0 million at March 28, 1998
compared to $9.5 million at June 28, 1997 and a negative $6.4 million at March
29, 1997. 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 due to the effect
of estimated dividends on allocated ESOP shares.
For the nine months ended March 28, 1998, cash and cash equivalents
declined $2.2 million to $3.6 million as compared to a decrease of $6.9 million
to $1.7 million for the nine months ended March 29, 1997.
Cash used by operating activities was $4.6 million in the nine months
ended March 28, 1998, compared to $.8 million in the nine months ended March 29,
1997, as described below.
Net losses were $10.3 million in the nine months of fiscal 1998
compared to $11.0 million in fiscal 1997. This was primarily attributable to
increases in the Jewelry and Education product lines, coupled with a decrease in
interest expense, partially offset by an increase in ESOP compensation expense,
higher selling, general and administrative expenses, and the repurchase of
Senior Subordinated Notes at a premium.
Accounts Receivable increased $2.9 million in the first nine months of
fiscal 1998 compared to a decline of $1.9 million in fiscal 1997. The change was
primarily the result of increased sales in the first nine months of fiscal 1998
compared with fiscal 1997.
Customer deposits increased $33.9 million in the first nine months of
fiscal 1998 compared to an increase of $30.3 million in fiscal 1997. The larger
increase was attributable to increases in deposits for spring sales in the
Yearbook and Fine Paper product lines.
Income taxes accrued decreased $14.6 million in the first nine months
of fiscal 1998 compared to a decrease of $9.6 million in fiscal 1997. The
increase in the decline was primarily attributable to a higher payment of taxes
related to the prior fiscal year.
Net cash used by investing activities was $7.4 million for the nine
months ended March 28, 1998 compared to $4.6 million in the nine months ended
March 29, 1997. The increase over prior year is attributable to higher 1998
capital expenditures in the Scholastic and Yearbook product lines.
Net cash provided by financing activities was $9.8 million in the nine
months ended March 28, 1998 compared to $1.5 million used in the nine months
ended March 29, 1997. The Company's financing arrangements in fiscal 1997
required an additional, "advanced" payment on the term loan of $6.0 in the first
half of fiscal 1997. Subsequently a 1997 amendment to those financing
arrangements eliminated the requirement for advanced payments; therefore, there
was not a corresponding advanced payment made during the nine months ended March
28, 1998. Additionally, the Company repurchased $9.0 million of its outstanding
Senior Subordinated Notes and paid an additional $6.3 million income taxes
during the fiscal 1998 period, which is reflected in the increase in the
revolving credit line.
Deferred Compensation at March 28, 1998 decreased to $194.1 million
from $206.4 million at June 28, 1997 and $210.6 million at March 29, 1997. The
decrease is the result of recording ESOP shares committed to be released.
<PAGE>
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 8, 1998
