SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED DECEMBER 31,1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
Commission file number 1-5064
JOSTENS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0343440
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5501 Norman Center Drive, Minneapolis, Minnesota 55437
(Address of principal executive offices) (Zip Code)
612-830-3300
(Registrant's telephone number including area code)
(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The number of shares outstanding of the registrant's only class
of common stock on December 31, 1994 was 45,490,275.
JOSTENS, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of December 31, 1994 and
1993 and June 30, 1994
Condensed Consolidated Statements of Income for the Three Months
Ended December 31, 1994 and 1993 and the Six Months
Ended December 31, 1994 and 1993
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended December 31, 1994 and 1993
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
JOSTENS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
December 31, June 30,
1994 1993 1994
(Restated)
CURRENT ASSETS
Cash and short-term
investments $ 57,275 $ 11,916 $107,827
Accounts receivable 131,039 156,515 149,206
Inventories:
Finished products 31,264 41,767 28,026
Work-in-process 46,252 71,096 23,879
Materials and supplies 37,332 50,879 30,733
114,848 163,742 82,638
Deferred income taxes 39,985 23,449 39,985
Prepaid expenses 6,464 11,784 6,123
Other receivables 22,376 29,289 10,338
371,987 396,695 396,117
OTHER ASSETS
Intangibles 46,289 46,438 47,737
Software development costs 25,266 55,755 29,356
Other 17,067 28,104 20,850
88,622 130,297 97,943
PROPERTY AND EQUIPMENT 213,965 222,470 207,641
Accumulated depreciation (142,405) (139,144) (131,870)
71,560 83,326 75,771
$532,169 $610,318 $569,831
CURRENT LIABILITIES
Notes payable $ - $ 34,977 $ -
Accounts payable 20,687 23,293 33,192
Salaries, wages and
commissions 35,711 39,614 68,394
Customer deposits 55,323 54,188 36,080
Other liabilities 60,623 64,704 71,065
Income taxes 9,640 (3,086) 14,663
181,984 213,690 223,394
LONG-TERM DEBT 54,105 54,465 54,267
DEFERRED INCOME TAXES 5,943 10,661 5,943
OTHER NON-CURRENT LIABILITIES 30,738 18,994 29,646
SHAREHOLDERS' INVESTMENT
Preferred shares, $1.00 par
value:
Authorized 4,000 shares,
none issued - - -
Common shares, $.33 1/3 par
value:
Authorized 100,000 shares
Issued - 45,490, 45,449
and 45,482 shares,
respectively 15,163 15,150 15,160
Capital surplus 153,294 152,801 152,996
Retained earnings 95,878 147,359 92,855
Foreign currency translation (4,936) (2,802) (4,430)
259,399 312,508 256,581
$532,169 $610,318 $569,831
JOSTENS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
1994 1993 1994 1993
(Restated) (Restated)
NET SALES $189,890 $197,968 $321,447 $346,706
Cost of products sold 93,537 101,368 159,633 180,675
96,353 96,600 161,814 166,031
Selling and administrative
expenses 75,638 85,206 137,516 150,833
OPERATING INCOME 20,715 11,394 24,298 15,198
Net interest expense 703 1,822 953 3,187
20,012 9,572 23,345 12,011
Income taxes 8,305 3,863 9,688 4,851
INCOME FROM CONTINUING
OPERATIONS 11,707 5,709 13,657 7,160
DISCONTINUED OPERATIONS:
Loss from operations, net of
tax - (1,837) - (810)
Cumulative effect of change
in accounting principle, net
of tax _ _ (634) _
NET INCOME $ 11,707 $ 3,872 $ 13,023 $ 6,350
EARNINGS (LOSS) PER COMMON
SHARE:
Continuing operations $ .26 $ .13 $ .30 $ .16
Loss from discontinued
operations - (.04) - (.02)
Cumulative effect of change
in accounting principle - - (.01) -
Net income $ .26 $ .09 $ .29 $ .14
Average shares outstanding 45,490 45,448 45,490 45,443
Dividends declared per
common share $ .22 $ .22 $ .22 $ .22
JOSTENS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
December 31,
1994 1993
(Restated)
OPERATING ACTIVITIES
Net income $ 13,023 $ 6,350
Depreciation and amortization 15,196 19,258
Changes in assets and liabilities (53,402) (26,361)
(25,183) (753)
INVESTING ACTIVITIES
Capital expenditures (6,310) (5,844)
Software development costs (3,519) (9,829)
Minority investments 4,322 (321)
(5,507) (15,994)
FINANCING ACTIVITIES
Short-term borrowing - 34,977
Cash dividends (20,001) (19,997)
Other 139 119
(19,862) 15,099
DECREASE IN CASH AND SHORT-TERM
INVESTMENTS $ (50,552) $ (1,648)
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RESTATEMENT
As previously announced, and as previously reflected and fully
explained in the 1994 annual report, the financial statements
for the three and six months ended December 31, 1993 have been
restated as the Company has revised the accounting treatment of
several items to more fully conform its accounting policies and
practices to generally accepted accounting principles. The
restatement increased shareholders' investment at December 31,
1993, by $3.9 million, and increased net income for the six
months ended December 31, 1993, by $1.5 million ($.03 per
share) from amounts previously reported. There was no material
effect on net income and no effect on earnings per share for
the three months ended December 31, 1993.
The Company had not previously made these accounting
adjustments because they were immaterial individually and in
the aggregate to the Company's financial position and results
of operations in the previous years to which they relate.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-
01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included.
Because of the seasonal nature of the Company's business, the
results of operations for the six months ended December 31,
1994, are not necessarily indicative of the results for the
entire year ending June 30, 1995.
Certain fiscal 1994 balances have been reclassified to conform
to the fiscal 1995 presentation.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's
annual report on Form 10-K and 10-K/A for the year ended June
30, 1994.
DISCONTINUED OPERATIONS
In January 1994, the Company sold its Sportswear business which
has been recorded as a discontinued operation, and the
historical financial statements have been reclassified
accordingly. (See Management Discussion and Analysis for
further discussion).
CHANGE IN ACCOUNTING PRINCIPLE
The Company was required to and did adopt SFAS 112, Employers'
Accounting for Post-Employment Benefits, in the first quarter
of fiscal 1995. The charge to earnings was $1.1 million ($.6
million after tax, $.01 per share), representing the cumulative
amount of liability to be recorded under SFAS 112 as of the
beginning of fiscal 1995.
EARNINGS PER COMMON SHARE
Earnings per common share have been computed by dividing net
income by the average number of common shares outstanding. The
impact of any additional shares issuable upon exercise of
dilutive stock options is not material.
DIVIDENDS
The cash dividends declared for the six months ended December
31, 1994 and 1993 do not include the second quarter dividend of
$.22 declared in January 1995 and 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Net working capital was $190.0 and $172.7 million at December
31, 1994, and June 30, 1994, respectively. The seasonality of
the Company's business normally requires interim financing of
operations and inventories and these cash requirements have
typically been met through the issuance of short-term
commercial paper. However, due to the sale of the Sportswear
business and improved cash flow from operations during fiscal
1994, the Company ended the fiscal year with cash and short-
term investments of $107.8 million. These funds, along with the
proceeds from Jostens Learning's sale of its Adult business and
equity interest in Optical Data Corporation which occurred in
the first quarter of fiscal 1995 ($7.5 and $4.2 million,
respectively), were used to finance the Company's operations
during the first two quarters of fiscal 1995.
Accounts receivable are down $18.2 million from June 30, 1994,
primarily due to seasonality of collections from the printing
business. Accounts receivable are down $25.5 million from
December 31, 1993, primarily due to the sale of Sportswear
($14.5 million at December 31, 1993) in the third quarter of
fiscal 1994 and the changes in estimates taken in the third
quarter of fiscal 1994 ($7.7 million) as described in the
annual report.
Inventories have increased from June 30, 1994, due to the
seasonality of the business. The decrease of $48.9 million
from December 31, 1993 is primarily due to the sale of
Sportswear in fiscal 1994 ($22.2 million at December 31, 1993);
the changes in estimates ($3.2 million) as described in the
annual report and recorded in the third quarter of fiscal 1994;
and reduced inventories at Jostens Learning ($16.4 million) due
to restructuring of that business in fiscal 1994.
Other receivables have increased from $10.3 million at June 30,
1994 to $22.4 million at December 31, 1994 primarily due to the
Company's seasonality of sales. This account represents
receivables from sales representatives who historically are in
overdraft positions in the first half of the year due to the
payment of draws, prior to commissions being earned. The
decrease in other receivables from December 31, 1993 to
December 31, 1994 is primarily due to a change in estimate
charge ($6.0 million) as described in the annual report and
which was recorded in the third quarter of fiscal 1994.
Capitalized software development costs have decreased from June
30, 1994, primarily due to the sale of Jostens Learning's Adult
business. Software development costs have decreased from
December 31, 1993, due primarily to the restructuring charges
at Jostens Learning and the sale of the Adult business.
Salaries, wages and commissions payable decreased from $68.4
million at June 30, 1994, to $35.7 million at December 31,
1994. A major reason for the decrease is timing of commission
payments (approximately $15.9 million). Commissions accrued at
year end were paid in the first quarter while few sales were
generated in the first two quarters to replenish the balance.
The remainder of the decrease is primarily due to payment of
bonuses and severance accruals related to the restructuring.
Capital expenditures through December 31, 1994, are $6.3
million, approximately $.5 million higher than the comparable
period in fiscal 1994. Major projects in process include a
business systems upgrade involving new hardware and software
for field and headquarter locations.
Interest expense decreased by $.7 and $1.2 million
respectively, for the three and six months ended December 31,
1994 over the comparable periods of the prior fiscal year. The
decrease is due to the strong cash position at year end which
reduced the Company's need for short-term borrowing for
operational needs from $35.0 million at December 31, 1993 to
zero at December 31, 1994. In addition, due to the strong cash
position, interest income increased $.4 and $1.0 million
respectively, for the three and six months ended December 31,
1994 over the comparable periods of the prior fiscal year.
RESULTS OF OPERATIONS
Continuing Operations
Net sales for the three and six months ended December 31, 1994,
were $189.9 and $321.4 million, respectively, representing
decreases of 4% and 7% over the comparable periods of the prior
fiscal year. The Company's lower sales were due primarily to
planned reductions in the U.S. Photography and Jostens Learning
businesses relating to the restructurings that previously
occurred in both of these businesses. The planned reduction in
sales in the Photography business is due to both its move away
from lower margin business, and reduction in capacity due to
closing of two plants in fiscal 1994. Reduced sales at Jostens
Learning reflects the sale of the Adult business and progress
with exiting the hardware business as planned for in Jostens
Learning's restructuring.
In the first quarter, the Company asked Goldman Sachs, an
investment banker, to help explore possible relationships
between Jostens Learning and other companies. This review
began in the second quarter and is expected to be completed
later in the fiscal year.
Cost of products sold were $93.5 and $159.6 million,
respectively, for the three and six months ended December
31,1994. Costs, as a percent of sales, were 49.3% and 49.7%,
respectively, as compared to 51.2% and 52.1% in the same
periods last year. The improved margins are primarily
attributable to Jostens Learning's progress on exiting the
hardware business, (which has lower-margins) and lower software
amortization due to the fiscal 1994 restructuring at Jostens
Learning.
Selling and administrative expenses were $75.6 and $137.5
million, respectively, for the three and six months ended
December 31, 1994, which as a percent of sales, decreased over
the comparable periods of the prior fiscal year. The decrease
is due to cost reduction efforts of the 1994 restructuring at
Jostens Learning and corporate, as well as cost reductions
associated with the closing of photography plants that were
part of the fiscal 1993 restructuring. Jostens Learning also
recorded a loss for the six months of $1.0 million on two
facilities that were vacated as a result of the personnel
reductions. The Company estimates that an additional loss of
$.7 million will be incurred over the remainder of the fiscal
year as additional lease space is vacated and abandoned as a
result of the restructuring plan.
Since a significant percentage of the Company's sales are in
the school business, the first half of the fiscal year
seasonally has the smallest sales volume since school is not in
session for one-third of the time. Historically, the first
half has the smallest sales volume, while certain selling and
administrative expenses are not reduced correspondingly since
they are geared toward future sales. Thus, the Company's pre-
tax margins are lowest during the first half of the year.
As part of the Company's continuing environmental management
plan, the Company is involved in various environmental
improvement activities. As sites are identified and assessed
in this program, the Company determines potential environmental
liability. Factors considered in assessing this liability
include, among others, the following: if the Company has been
designated a potentially responsible party, the number of
other potentially responsible parties designated at the site,
the stage of the proceedings, and available environmental
technology. When the potential liability amounts are probable
and reasonably estimable, the Company accrues these expenses
and charges those amounts to income. As of December 31, 1994,
the Company has no such amounts accrued.
The Company also assesses reasonably possible environmental
liability beyond that which has been accrued. This liability
is not probable, but is more likely than remote. As of December
31, 1994, the Company has identified six sites which require
further investigation. The potential liability cannot be fully
assessed as they are in the early stages of investigation. The
amount of Company environmental liability identified that is
reasonably possible is not likely to have a material impact on
the Company's liquidity, capital resources or results of
operations.
Discontinued Operations - Sale of Sportswear Business: In
January 1994, the Company sold its Sportswear business to a
subsidiary of Fruit of the Loom for $46.7 million. The future
impact of this sale on continuing operations and cash flow has
been and is expected to be immaterial. Revenues and income
taxes included in discontinued operations related to the
Sportswear business for the three and six months ended December
31, 1993, were; net sales of $22,901 and $52,092 respectively,
and income tax benefits of $1,228 and $529 respectively.
RESTRUCTURING UPDATE
The closing of the Jackson photography facility, which was
announced in the beginning of the third quarter, will be
completed by the end of the third quarter. This begins the
final phase of the 1993 restructuring. The 1993 restructuring
accrual decreased by $2.5 million in the first half of fiscal
1995 due to payments made. The remaining restructuring accrual
at December 31 1994, is $9.1 million. The Company expects
this accrual to be reduced by $3.8 million of non-cash items
and $2.6 million of cash payments in the remainder of fiscal
1995. The accrual will also be reduced by expected cash
payments in subsequent periods as follows: fiscal 1996 $1.7
million; fiscal 1997 and beyond, $1.0 million.
The 1994 restructuring accrual decreased by $11.2 million in
the first half of fiscal 1995 due to $9.9 million of payments
and $1.3 million of non-cash decreases from exits of ancillary
lines of business. The remaining restructuring accrual at
December 31, 1994, is $17.0 million. The Company expects
payments relating to the remaining $17.0 million of accruals to
occur in fiscal 1995, $10.0 million, and fiscal 1996, $7.0
million
Among the accomplishments of Jostens Learning principally
related to the fiscal 1994 restructuring were the following:
1) It has established a new customer training model to reduce
the number of Jostens Learning employees necessary to support
teacher training. This model began to be offered for sale in
the first quarter in connection with the sale of Training PLUS,
a new and more efficient teacher training program. Deliveries
should begin later in the fiscal year. 2) It began taking
orders for the new single management system, called A+dvantage.
Deliveries of this single integrated learning operating system,
as well as customer upgrades to the single system, are expected
to begin at the end of the current school year in June 1995.
3) It signed a letter of intent with a third party vendor to
supply computer hardware equipment to Jostens Learning
customers.
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the
quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
JOSTENS, INC.
Date February 13, 1995 \s\ Robert C. Buhrmaster
Robert C. Buhrmaster
President and Chief Executive Officer
\s\ Trudy A. Rautio
Trudy A. Rautio
Senior Vice President - Finance