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 MARCH 31,1995
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 March 31, 1995 was 45,507,201.
JOSTENS, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of March 31, 1995 and
1994 and June 30, 1994
Condensed Consolidated Statements of Income for the Three Months
Ended March 31, 1995 and 1994 and the Nine Months
Ended March 31, 1995 and 1994
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 1995 and 1994
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)
March 31, June 30,
1995 1994 1994
CURRENT ASSETS
Cash and short-term
investments $ 65,906 $ 45,658 $107,827
Accounts receivable 150,722 131,268 149,206
Inventories:
Finished products 28,786 36,536 28,026
Work-in-process 76,453 83,769 23,879
Materials and supplies 36,389 40,568 30,733
141,628 160,873 82,638
Deferred income taxes 39,985 23,449 39,985
Prepaid expenses 5,432 10,139 6,123
Other receivables 23,855 23,791 10,338
427,528 395,178 396,117
OTHER ASSETS
Intangibles 45,826 44,447 47,737
Software development costs 26,139 57,820 29,356
Other 15,206 27,536 20,850
87,171 129,803 97,943
PROPERTY AND EQUIPMENT 218,245 209,923 207,641
Accumulated depreciation (147,421) (134,762) (131,870)
70,824 75,161 75,771
$585,523 $600,142 $569,831
CURRENT LIABILITIES
Accounts payable $ 20,842 $ 22,525 $ 33,192
Salaries, wages and
commissions 47,282 43,052 68,394
Customer deposits 97,764 94,745 36,080
Other liabilities 53,802 47,921 71,065
Income taxes 16,917 2,176 14,663
236,607 210,419 223,394
LONG-TERM DEBT 54,097 54,377 54,267
DEFERRED INCOME TAXES 5,943 10,661 5,943
OTHER NON-CURRENT LIABILITIES 30,646 20,240 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 - 45,507, 45,451
and 45,482 shares,
respectively 15,210 15,150 15,160
Capital surplus 153,478 152,987 152,996
Retained earnings 94,384 139,101 92,855
Foreign currency translation (4,842) (2,793) (4,430)
258,230 304,445 256,581
$585,523 $600,142 $569,831
JOSTENS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
NET SALES $163,120 $158,726 $484,567 $505,432
Cost of products sold 81,405 82,965 241,038 263,640
81,715 75,761 243,529 241,792
Selling and administrative
expenses 67,630 90,291 205,146 241,124
OPERATING INCOME (LOSS) 14,085 (14,530) 38,383 668
Net interest expense (income) (465) 989 488 4,176
14,550 (15,519) 37,895 (3,508)
Income taxes 6,039 (6,272) 15,727 (1,421)
INCOME (LOSS) FROM CONTINUING
OPERATIONS 8,511 (9,247) 22,168 (2,087)
DISCONTINUED OPERATIONS:
Loss from operations, net of
tax - - - (810)
Gain on sale of discontinued
operations, net of tax - 10,987 - 10,987
Cumulative effect of change
in accounting principle, net
of tax - - (634) -
NET INCOME $ 8,511 $ 1,740 $ 21,534 $ 8,090
EARNINGS (LOSS) PER COMMON
SHARE:
Continuing operations $ .18 $ (.20) $ .48 $ (.04)
Loss from discontinued
operations - - - (.02)
Gain on sale of discontinued
operations - .24 - .24
Cumulative effect of change
in accounting principle - - (.01) -
Net income $ .18 $ .04 $ .47 $ .18
Average shares outstanding 45,491 45,450 45,493 45,446
Dividends declared per common
share $ .22 $ .22 $ .44 $ .66
JOSTENS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
March 31,
1995 1994
OPERATING ACTIVITIES
Net income $ 21,534 $ 8,090
Depreciation and amortization 22,992 28,100
Changes in assets and liabilities (43,797) 15,546
Gain on sale of Sportswear - (10,987)
729 40,749
INVESTING ACTIVITIES
Capital expenditures (10,591) (8,625)
Software development costs (6,737) (14,976)
Minority investments 4,322 -
Net proceeds from sale of Sportswear - 44,724
(13,006) 21,123
FINANCING ACTIVITIES
Short-term borrowing - -
Cash dividends (30,006) (29,995)
Other 362 217
(29,644) (29,778)
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS $ (41,921) $ 32,094
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 nine months ended March 31, 1995,
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.
SFAS 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of, must be adopted
not later than fiscal 1997. The implementation of this
statement is not expected to have a material impact on the
results of operations.
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 nine months ended March 31,
1995 and 1994 do not include the third quarter dividend of $.22
declared in April 1995 and 1994. The dividends declared for
the nine months ended March 31, 1994 include the fourth quarter
dividend for fiscal 1993 which was declared in July of 1993.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Net working capital was $190.9 and $172.7 million at March 31,
1995, 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 three quarters of fiscal 1995.
Accounts receivable are up $19.5 million from March 31, 1994,
primarily due to increased sales in the later part of the third
quarter as well as more Jostens Learning customers seeking
payment terms closer to installation rather than at the time of
receipt.
Inventories have increased from June 30, 1994, due to the
seasonality of the business. The decrease of $19.2 million
from March 31, 1994 is primarily the result of reduced
inventories at Jostens Learning due to restructuring of that
business in fiscal 1994.
Other receivables have increased from $10.3 million at June 30,
1994 to $23.9 million at March 31, 1995 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 three quarters of the year due
to the payment of draws, prior to commissions being earned.
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 March
31, 1994, 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 $47.3 million at March 31, 1995.
The decrease is due to payment of severance accruals related to
the restructuring, payment of bonuses and timing of commission
payments as commissions payable reaches its highest balance at
year end.
Other liabilities decreased from $71.1 million at June 30, 1994
to $53.8 million at March 31, 1995. The decrease is primarily
due to dividends accrued in the June balance that were paid in
the first quarter as well as restructuring accruals that have
decreased since year end due to payments made.
Capital expenditures through March 31, 1995, are $10.6 million,
approximately $2.0 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 $1.3 million for the nine months
ended March 31, 1995 over the comparable period of the prior
fiscal year. The decrease is due to the strong cash position
at year end which eliminated the Company's need for short-term
borrowing for operational needs. In addition, interest income
increased $1.4 and $2.4 million respectively, for the three and
nine months ended March 31, 1995 over the comparable periods of
the prior fiscal year. The increase in interest income is due
to the effects of maintaining higher cash balances through the
first three quarters of fiscal 1995 and from higher short-term
interest rates.
RESULTS OF OPERATIONS
Continuing Operations
Net sales for the three months ended March 31, 1995 were $163.1
million, an increase of 3% over the prior year. Sales increases
for the quarter were driven by the company's traditional school
businesses. Net sales for the nine months ended March 31, 1995
were $484.6 million, a 4% decrease over the prior 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 by
the end of the fiscal year.
Cost of products sold were $81.4 and $241.0 million,
respectively, for the three and nine months ended March 31,
1995. Costs, as a percent of sales, were 49.9% and 49.7%,
respectively, as compared to 52.3% and 52.2% in the same
periods last year. The improved margins are primarily
attributable to the inventory change in estimate of $3.2
million as described in the annual report and recorded in the
third quarter of fiscal 1994. The margins have also been
helped by Jostens Learning's progress on exiting the hardware
business, (which has lower-margins) and lower software
amortization costs due to the fiscal 1994 restructuring at
Jostens Learning.
Selling and administrative expenses were $67.6 and $205.1
million, respectively, for the three and nine months ended
March 31, 1995. These expenses as a percent of sales, were
41.5% and 42.3%, respectively, as compared to 56.9% and 47.7%
in the same periods last year. The decrease is primarily due
to the changes in accounting estimates of $7.7 million for
receivables and $6.0 million for overdrafts as described in the
annual report and recorded in the third quarter of fiscal 1994.
Expenses were further reduced 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 future lease
commitments for the nine months of fiscal 1995 of $1.1 million
on four facilities that were vacated as a result of the
personnel reductions. The Company estimates that an additional
loss of $.8 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.
Because of the seasonality of the Company's business, income
reported for the three months ended March 31, 1995 was less
than the results for the three months ended December 31, 1994.
This seasonality historically shows an increase in income for
the three months ended June 30 of each year. The differences
in sales volume and product mix between quarters and the timing
of selling and administrative expenses during the year affect
interim pre-tax margins.
As part of the Company's continuing environmental management
program, 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: whether the Company has
been designated as 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 the best estimate
when available, and for specific sites where only a range of
liability is probable and reasonably estimable and no amount in
the range is a better estimate than another, the Company has
accrued the low end of that range. While the Company may have
right of contribution or reimbursement under insurance
policies, amounts that may be recoverable from other entities
by the company with respect to a particular site are not
considered until recoveries are deemed to be probable. No
assets for potential recoveries have been established as of
March 31, 1995.
The amount accrued during the third quarter of fiscal 1995 with
respect to potential liability is recorded as part of "other
liabilities". This amount represents approximately one percent
of that line item and accordingly is not material to the
Company's financial position.
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 March
31, 1995, the Company has identified four sites which require
further investigation. The potential liability cannot be fully
assessed as they are in the early stages of investigation. In
addition, two other sites are nearing completion and did not
require any accruals. 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 nine months ended March
31, 1994, were; net sales of zero and $52.1 million
respectively, and income tax expense of $7.5 and $7.0 million
respectively.
RESTRUCTURING UPDATE
The closing of the Jackson photography facility, which was
announced in the beginning of the third quarter and represented
the final phase of the 1993 restructuring, was completed by the
end of the third quarter. The 1993 restructuring accrual
decreased during the first three quarters of fiscal 1995 by
$3.6 million in cash payments and $.3 million due to non-cash
items. The remaining restructuring accrual at March 31 1995, is
$7.7 million. The Company expects this accrual to be reduced
by $2.0 million in non-cash items and $2.0 million in cash
payments during the remainder of fiscal 1995. The accrual will
also be reduced by expected cash payments in subsequent periods
as follows: fiscal 1996, $2.2 million; fiscal 1997 and beyond,
$1.5 million.
The 1994 restructuring accrual decreased by $13.3 million in
the first three quarters of fiscal 1995 due to $11.9 million of
cash payments and $1.4 million in non-cash items from exits of
ancillary lines of business. The remaining restructuring
accrual at March 31, 1995, is $14.9 million. The Company
expects payments relating to the remaining $14.9 million of
accruals to occur in fiscal 1995, $1.4 million, fiscal 1996,
$9.1 million, and fiscal 1997 and beyond, $4.4 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
have occurred in the third quarter. 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 has contracted with a third party to supply computer
hardware equipment to Jostens Learning customers. It also
contracted with a third party to provide hardware maintenance
and service.
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 May 10, 1995 \s\ Robert C. Buhrmaster
Robert C. Buhrmaster
President and Chief Executive Officer
\s\ Trudy A. Rautio
Trudy A. Rautio
Senior Vice President - Finance