<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended: Commission file number:
March 31, 1994 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)
<PAGE>
JOSTENS, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of March 31, 1994 and 1993
and June 30, 1993
Condensed Consolidated Statements of Income for the Three Months
Ended
March 31, 1994 and 1993 and the Nine Months Ended
March 31, 1994 and 1993
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended
March 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
<PAGE>
<TABLE>
JOSTENS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
March 31, June 30,
1994 1993 1993
(Restated) (Restated)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 45,658 $ 3,157 $ 13,564
Accounts receivable 115,326 177,350 192,388
Inventories:
Finished products 36,536 32,014 41,773
Work-in-process 83,769 103,922 46,580
Materials and supplies 40,568 50,879 42,833
160,873 186,815 131,186
Deferred income taxes 23,449 6,356 23,449
Prepaid expenses 10,139 16,316 13,900
355,445 389,994 374,487
OTHER ASSETS
Intangibles 44,447 54,078 47,005
Software development costs 57,820 50,658 49,524
Other 27,536 27,421 26,012
129,803 132,157 122,541
PROPERTY AND EQUIPMENT 209,923 220,011 218,891
Accumulated depreciation (134,762) (132,130) (130,003)
75,161 87,881 88,888
$560,409 $610,032 $585,916
CURRENT LIABILITIES
Notes payable $ - $ 50,818 $ -
Accounts payable 22,525 20,798 54,230
Salaries, wages and commissions 9,272 (4,897) 37,223
Customer deposits 94,745 89,876 34,621
Other liabilities 41,968 16,720 63,582
Income taxes 2,176 (2,447) (3,643)
170,686 170,868 186,013
LONG-TERM DEBT 54,377 54,965 54,843
DEFERRED INCOME TAXES 10,661 5,903 10,661
OTHER NON-CURRENT LIABILITIES 20,240 18,113 18,681
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 - 45,451, 45,400
and 45,425 shares, respectively 15,150 15,133 15,142
Capital surplus 152,987 151,182 152,312
Retained earnings 139,101 195,134 151,013
Foreign currency translation (2,793) (1,266) (2,749)
304,445 360,183 315,718
$560,409 $610,032 $585,916
</TABLE>
<PAGE>
<TABLE>
JOSTENS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1994 1993 1994 1993
(Restated) (Restated)
<S> <C> <C> <C> <C>
NET SALES $158,726 $164,632 $505,432 $509,873
Cost of products sold 82,965 76,516 263,640 256,684
Selling and administrative expenses 90,291 79,107 241,124 220,424
173,256 155,623 504,764 477,108
INCOME(LOSS) FROM OPERATIONS (14,530) 9,009 668 32,765
Interest expense 989 1,659 4,176 5,306
INCOME(LOSS) FROM CONTINUING OPERATIONS (15,519) 7,350 (3,508) 27,459
BEFORE TAXES, DISCONTINUED OPERATIONS
AND CHANGE IN ACCOUNTING PRINCIPLE
Income taxes (6,272) 2,939 (1,421) 11,064
INCOME(LOSS) FROM CONTINUING OPERATIONS
BEFORE DISCONTINUED OPERATIONS AND
CHANGE IN ACCOUNTING PRINCIPLE (9,247) 4,411 (2,087) 16,395
DISCONTINUED OPERATIONS:
Income(Loss) from discontinued
operations, net of tax - 145 (810) (277)
Gain on sale of discontinued
operations, net of tax 10,987 - 10,987 -
Cumulative effect of change in
accounting principle, net of tax - - - (4,150)
NET INCOME $ 1,740 $ 4,556 $ 8,090 $ 11,968
EARNINGS(LOSS) PER COMMON SHARE
Before discontinued operations and $ (.20) $ .10 $ (.04) $ .36
change in accounting principle
Income(Loss) from discontinued operations - - (.02) (.01)
Gain on sale of discontinued operations .24 - .24 -
Cumulative effect of change in - - - (.09)
accounting principle
Net Income $ .04 $ .10 $ .18 $ .26
Average Shares Outstanding 45,450 45,364 45,446 45,297
Dividends Declared Per Common Share $ .22 $ .22 $ .66 $ .66
</TABLE>
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
March 31,
1994 1993
(Restated)
OPERATING ACTIVITIES
Net income $ 8,090 $ 11,968
Depreciation and amortization 28,100 24,089
Changes in assets and liabilities, net 5,553 (68,407)
of effects from sale of discontinued
operations
Gain on sale of discontinued operations (10,987) -
30,756 (32,350)
INVESTING ACTIVITIES
Capital expenditures (8,625) (14,946)
Software development costs (14,976) (18,918)
Net proceeds from sale of discontinued 44,724 -
operations
21,123 (33,864)
FINANCING ACTIVITIES
Short-term borrowing - 50,818
Reduction in long-term debt (466) (23,973)
Cash Dividends (20,002) (20,811)
Other 683 4,727
(19,785) 10,761
INCREASE(DECREASE) IN CASH AND
SHORT TERM INVESTMENTS $ 32,094 $ (55,453)
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RESTATEMENT
The financial statements for the last five fiscal years have been restated
because 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 June 30, 1993 by $2.4 million, and reduced net income for the
three and nine months ended March 31, 1993 by $.9 million ($.02 per share)
and $.1 million (no impact on earnings per share), respectively from
amounts previously reported. Amounts reflected in the restated June 30,
1993 balance sheet include (1) establishment of reserves for vacation pay,
sales returns and allowances, and a supplemental executive retirement plan
aggregating $20.7 million pre-tax ($12.7 million after-tax), (2) reduction
of the fiscal 1993 restructuring charge by $5.0 million to reinstate
goodwill that was incorrectly deemed to be impaired, (3) increasing capital
surplus by $2.4 million ($1.5 million after-tax) for stock appreciation
rights canceled in prior years, previously classified as a liability (4)
increasing capital surplus by $10.7 million for tax benefits from prior
years' disqualifying disposition of stock options, previously recorded as a
tax liability (including $7.5 million which had been reclassified in fiscal
1993 from tax liability to reserves for overdrafts, receivables and
inventories) and (5) recording $2.7 million additional tax benefits from
operating loss carryforwards. 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" below.
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 annual financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals, the
restatement, and increases for estimated allowances for receivables,
inventories and overdrafts - see MD&A for further discussion) 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, 1994, are not necessarily indicative of the
results for the entire year ending June 30, 1994.
The Company elected early adoption of SFAS No. 106 "Employers' Accounting
for Postretirement Benefits Other Than Pensions" in June 1993. This change
was effective as of the beginning of the 1993 fiscal year and comparative
amounts have been restated accordingly.
<PAGE>
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KA for
the year ended June 30, 1993. Such Form 10-KA does not, as of May 23,
1994, include the restated financial statements because this information
has not yet been filed with the Securities and Exchange Commission. A Form
8-K containing the Company's restated earnings for the last five fiscal
years was filed on May 16, 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 MD&A for further
discussion)
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
Cash dividends declared for the nine months ended March 31, 1994 and 1993
do not include the third quarter dividend of $.22 declared in April 1994
and 1993.
SUBSEQUENT EVENT
In April 1994, the Board of Directors approved restructuring plans for
Jostens Learning Corporation and for the Company's general and
administrative staffs which are expected to be reflected in the fourth
quarter of fiscal 1994. The after-tax cost of the Jostens Learning
Corporation plan is expected to range from $45-50 million. The Company
expects to incur an additional $5 million, after-tax, to cover
approximately 150 headcount reductions in the general and administrative
areas as a result of simplifying organization structure, reducing layers of
management and expanding the span of management control. See MD&A for
further discussion.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESTATEMENT
After the Company's fiscal 1993 restructuring, the Company began a process
of centralizing and standardizing business practices, and management
reviewed the Company's accounting policies and procedures (a) to ensure
that they appropriately reflected the way the Company was conducting its
business in the wake of the fiscal 1993 restructuring and, (b) to determine
whether previously identified audit differences, which were immaterial
individually and in the aggregate in prior periods, had become more
significant given the changes in the equity of the Company as a result of
the restructuring.
During the first three quarters of fiscal 1994, the Company conducted this
review and consulted with Ernst & Young, its independent auditors, during
its deliberations. The review concluded in the third quarter. The Company
determined that the impact on equity of the 1993 restructuring and the
contemplated 1994 restructuring, as well as the changes in business
practices, (combined with the Company's desire to conform its basic
policies to generally accepted accounting principles regardless of the
immateriality of these previously identified differences) necessitated the
restatement described below.
The financial statements for the last five fiscal years have been restated
because 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 June 30, 1993 by $2.4 million, and reduced net income for the
three and nine months ended March 31, 1993 by $.9 million ($.02 per share)
and $.1 million (no impact on earnings per share), respectively from
amounts previously reported. Amounts reflected in the restated June 30,
1993 balance sheet include (1) establishment of reserves for vacation pay,
sales returns and allowances, and a supplemental executive retirement plan
aggregating $20.7 million pre-tax ($12.7 million after-tax), (2) reduction
of the fiscal 1993 restructuring charge by $5.0 million to reinstate
goodwill that was incorrectly deemed to be impaired, (3) increasing capital
surplus by $2.4 million ($1.5 million after-tax) for stock appreciation
rights canceled in prior years, previously classified as a liability (4)
increasing capital surplus by $10.7 million for tax benefits from prior
years' disqualifying disposition of stock options, previously recorded as a
tax liability (including $7.5 million which had been reclassified in fiscal
1993 from tax liability to reserves for overdrafts, receivables and
inventories) and (5) recording $2.7 million additional tax benefits from
operating loss carryforwards. 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" below.
<PAGE>
FINANCIAL CONDITION
Net working capital was $184.8 and $219.1 million at March 31, 1994 and
1993, respectively. Accounts receivable are lower than last year due to
less sales, improved collections, the sale of Sportswear ($16.8 million)
and write-offs that occurred during the fiscal 1993 restructuring ($11.1
million). Inventories have decreased year over year, due to the sale of
Sportswear ($26.7 million). The amount of salaries, wages and commissions
payable is higher at March 31, 1994 than last year due to a decrease in
salesperson overdrafts by $16.8 million since March 31, 1993. The decrease
of $16.8 million is due to the 1993 restructuring write-offs and reduction
in sales workforce. The note payable listed at March 31, 1993 was paid in
the fourth quarter of fiscal 1993. Current year changes since June 30,
1993 in other components of net working capital, such as accounts payable
and customer deposits, are due to the seasonality of the business.
The year over year changes in intangibles and other liabilities since
March 31, 1993 are due primarily to the restructuring charges recorded in
the fourth quarter of fiscal 1993.
Capital expenditures through March 31, 1994 are $8.6 million, approximately
$6.3 million less than the comparable period in fiscal 1993. The Company
anticipates a continuation of that trend. The only major capital project
slated for approval in the current fiscal year is a business systems
upgrade involving new hardware and software platforms for both field and
headquarters. Estimates for that project are not yet finalized, and
spending would occur over a multiple year period.
The restructuring accrual for fiscal 1993 has decreased by approximately
$24.4 million from year-end to March 31, 1994, due to the third quarter
disposition of the Sportswear business and due to payments totalling $7.8
million made in the first three quarters of fiscal 1994. The remaining
restructuring accrual at March 31, 1994, approximates $15.5 million. The
Company expects the remaining $15.5 million of accruals attributable to the
fiscal 1993 restructuring charge to fall in subsequent periods as follows:
fiscal 1994, $3.6 million in the fourth quarter; fiscal 1995, $9.4 million;
fiscal 1996, $1.5 million; fiscal 1997, $1.0 million. Two photography
plants that were part of the 1993 restructuring are being closed in April
and June, 1994. Cash outlay for the plant closings is expected to be
approximately $3.2 million in fiscal 1994 with additional payments of
approximately $7.8 million in declining amounts through fiscal 1997. While
the specific effects of the fiscal 1993 restructuring are difficult to
quantify, annual operating costs are expected to be reduced by $5-8 million
once fully implemented and is expected to not materially impact liquidity
or cash flow.
RESULTS OF OPERATIONS
Continuing Operations: Net sales for the three and nine months ended March
31, 1994, were $158.7 and $505.4 million, respectively, representing
decreases of 4% and 1% over the comparable periods of the prior fiscal year
for the third quarter. The majority of this decline in the three month
period was attributable to Jostens Learning ($2.5 million) and Jewelry
($1.8 million); primarily offset by an increase in Recognition sales from
the prior fiscal year of $1.9 million. Printing ($1.5 million),
<PAGE>
Photography ($.7 million) and Canada ($.8 million) also posted sales
declines for the three months compared to the prior fiscal year. For the
nine months ending March 31, 1994, Jostens Learning year-to-date sales
continued at approximately ten percent below last year, while year-to-date
Jewelry, Recognition and Printing sales are above the prior year's levels.
Photography and Canada each posted approximately $3 million sales decline
for the nine months ended March 31, 1994 compared to the prior fiscal year.
The Company still expects the photography business to yield close to a
break-even performance in fiscal 1994 with the performance of the remainder
of the core businesses largely in line with the results of last year.
Jostens Learning margins were down significantly due to a shift in sales
mix to more hardware sales, which carry lower margins than software
products. Jostens Learning continued the performance levels reported in
the first six months, with no improvement in trend. Although discouraging,
these results are not necessarily predictive of annual results because 35%
to 40% of Jostens Learning's sales are recorded in the fourth quarter with
a substantial portion in the final two months of the fiscal year.
Management has announced the adoption of a restructuring plan for Jostens
Learning that is designed to reposition it for sustained, profitable
growth. See "Subsequent Events" discussed below.
Cost of products sold was $83.0 and $263.6 million, respectively, for the
three and nine months ended March 31, 1994. Costs, as a percent of sales,
were 52.3% and 52.2%, respectively, as compared to 46.5% and 50.3% in the
same periods last year. The increase over last year is primarily due to
the inventory change in estimate of $3.3 million ($1.9 million after-tax)
discussed below, and an increase in customer service expenses of $1.0
million by Jostens Learning.
Selling and administrative expenses were $90.3 and $241.1 million,
respectively, for the three and nine months ended March 31, 1994. These
expenses, as a percent of sales, were 56.9% and 47.7%, respectively, as
compared to 48.1% and 43.2%, in the same periods last year. The increase
is primarily due to the changes in accounting estimates of $7.7 million
receivables and $6.0 million overdrafts ($4.6 million and $3.6 million
after-tax, respectively) described below, and $2.5 million due primarily to
increased consulting fees.
Interest expense compared to prior year is a reflection of the lower
average debt levels due to the proceeds from the sale of Sportswear and
improved cash flow from operations.
Changes in Estimates: In fiscal 1993 the Company undertook a major
restructuring primarily directed at its school products businesses. For
the first time, a significant reduction (20%) of its independent sales
force occurred along with a major realignment of the sales territories.
This restructuring marked a substantial change in business conditions; it
was no longer possible to grow by adding more sales representatives without
also redefining and realigning territories as had previously been the case,
and, as a result, it was no longer possible to manage the business in the
same manner. As a result of these changes in its business conditions, the
Company recorded additional pre-tax provisions in the fourth quarter of
fiscal 1993 for obsolete inventory, accounts receivable and independent
sales force overdrafts of $1.0 million, $1.0 million and $5.5 million,
respectively.
<PAGE>
In light of the ongoing ramifications of the fiscal 1993 restructuring, the
separate fiscal 1994 review of Jostens Learning and changes in management
and business practices, the Company conducted an intensive review of its
accounts and accounting practices. As a result of this management review
which concluded at the end of the third quarter of fiscal 1994, the Company
has increased reserves for inventories, receivables and overdrafts to
reflect amounts estimated not to be recoverable or payable, based upon
current facts and circumstances. The revised estimates reduced income for
the three months ended March 31, 1994 by $10.1 million ($.22 per share)
after tax ($16.9 million pre-tax).
The changes in estimates are described more fully below:
Inventory: The Company has historically monitored inventory and written
off obsolete inventory as identified at least annually. Business
volume growth remained relatively weak in fiscal 1994, causing a build-
up of dated and/or excessive inventories. Accordingly, the Company
conducted a business-by-business and individual product line review of
its inventory. The Company reevaluated the adequacy of its general
reserves for obsolete inventories and, employing a more systematic
methodology based on recent experience, determined that an additional
charge for specifically identified obsolete inventory should be
recorded, and a general reserve should be established to reflect
current business conditions. The after-tax amount of this charge was
$1.9 million.
Accounts Receivable: Similar to inventory, management has revised its
estimates for uncollectible accounts receivable based upon its
intensive review, current conditions and assessments. In particular,
one account for which reserves had been increased substantially in
1993, continued to deteriorate and resulted in a contract termination
and a process to renegotiate a new contract in March 1994. Specific
reserves for the estimated uncollectability of these accounts
receivable were increased $2.0 million after tax. The Company also
increased specific reserves for other accounts deemed to be not fully
recoverable. As a result of the review, the total change in
estimates as of March 31, 1994 was $4.6 million after tax.
Overdrafts: The Company provides its independent sales representatives
with cash draws throughout the year which are netted against their
annual earned commissions. It is not unusual for new sales
representatives or those in new territories to earn less commissions
than the established draws for a period of approximately three years,
creating an "overdraft" situation. Such overdrafts are then reduced in
subsequent years through earned commissions.
At the end of fiscal 1993, a restructuring of the sales force occurred
which realigned territories and eliminated about 20% of the sales
force. Overdrafts of approximately $1.9 million after-tax applicable
to this group thus became uncollectible and were accordingly classified
with the fourth quarter 1993 restructuring. Also, at the end of fiscal
1993, all cash advances to continuing sales staff were examined for
collectability taking into consideration the newly realigned
territories and the sales cost increases experienced by sales
representatives. The Company recorded in the fourth quarter of 1993 an
additional charge of $3.4 million after-tax.
<PAGE>
In the third quarter of fiscal 1994, based upon the continuing
assessment of the results of the restructuring in light of the new
business environment, the Company determined that a change in estimate
was appropriate to reflect both specifically identified additional
overdrafts that are estimated to be unrecoverable as well as the
establishment of general reserves to reflect recent experience. An
additional charge of $3.6 million, after tax, was recorded in March
1994.
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 Company recognized an $18.5 million gain,
$11.0 million after-tax, on the sale, primarily because the Sportswear
business had been written down by $15.0 million, pre-tax, to its estimated
net realizable value in the fiscal 1993 restructuring. The proceeds from
the sale provided a positive effect on cash flow for the third quarter. The
future impact of this sale on continuing operations and cash flow is
expected to be immaterial. Revenues and income taxes related to the
Sportswear business are as follows:
Three Months Ended Nine Months Ended
3/31/94 3/31/93 3/31/94 3/31/93
(In Thousands)
Net Sales $ - $20,834 $52,092 $57,904
Income Taxes $7,500* $ 87 $ (529) $ (166)
* Represents tax applicable to gain on sale of Sportswear.
SUBSEQUENT EVENTS
Jostens Learning Corporation Restructuring
In September 1993, there was a change in management at Jostens Learning
Corporation ("JLC") when Mr. John Kernan, its chairman and chief executive
officer, left the Company.
In October 1993, the Company engaged the management consulting firm of Bain
& Company, Inc. ("Bain") to thoroughly analyze the markets in which Jostens
Learning Corporation ("JLC") competes, as well as JLC's position within
those markets. Bain periodically discussed its progress with management
and the board of directors and presented the final results of the Bain
Study to Jostens management in March 1994. The Bain Study recommended a
substantial restructuring of JLC to accomplish the objectives defined
during the evaluation process.
In March 1994, JLC hired Stanley Sanderson as its new Chief Executive
Officer. Mr. Sanderson worked closely with Bain in developing a
restructuring plan that is intended to address the issues raised in the
Bain Study. Mr. Sanderson has set a new direction for JLC which is
consistent with the Bain Study and reviewed this direction with the
Company's Board of Directors in April 1994. Management proposed and the
Board approved a restructuring plan for Jostens Learning, the effects of
which are expected to be recorded in the fourth quarter of fiscal 1994.
Under the plan, JLC will: (1) focus on the kindergarten through grade 12
market, (2) sell its minority investments in education and technology
companies, (3) develop educational software that runs on industry-standard
<PAGE>
systems and discontinue investments and development in proprietary systems,
(4) exit the hardware business and rely on third-party vendors for hardware
services, (5) establish a new model for providing customer training and
service, and (6) offer complete integrated learning systems as well as
stand-alone products.
The cost of the plan is expected to be approximately $45-50 million after
tax. Approximately two-thirds of the costs will be to narrow product
development by abandoning a proprietary approach to interactive media and
to eliminate a duplicate management system and other software, and the
remaining one-third of the expected costs will be split between: (a)
exiting investments in businesses outside of the K-12 market, (b) exiting
the hardware sales and service business, and (c) reducing the costs of
service and support.
1. Narrow Product Development: Historically, JLC has invested heavily in
new technologies. JLC's new strategy will bring it back to its successful
core: development of software curriculum with a dedication to improving the
delivery of instruction to children (K-12) through the teacher. Future
products will be built on open, non-proprietary systems. The product
development efforts will focus on a narrower range of product offerings and
operate off a single uniform management system, aiding the development
process and streamlining the support and service required after the sale.
This will result in the abandonment of certain capitalized software and a
proprietary management system.
2. Exit Ancillary Businesses: JLC will exit ancillary lines of business in
order to focus on its core business -- the K-12 delivery of instruction.
This involves selling both passive investments in other companies as well
as operations which do not support this business strategy.
3. Exit Hardware Sales and Services: JLC has been in the hardware sales and
servicing business to provide customers with "one-stop shopping." In order
to focus on operating improvements to reduce costs and improve quality, JLC
has decided to exit hardware sales and maintenance and select vendors to
provide this support to JLC. JLC does not expect to be able to fully
recover the costs of its current hardware inventory and a reserve will be
established for the estimated non-recoverable amounts.
4. Reduce Costs of Service and Support: JLC will reduce service and support
costs to reflect the actual level of anticipated sales after the
restructuring. It will do so primarily by reducing complexity as described
above (through the elimination of diverse businesses, adoption of a single
management system, and support of a simplified product offering). In
addition, it will redesign the in-field service provided to the
installation base, resulting in severance, relocation and facilities
consolidation costs in addition to those mentioned above.
Approximately $10-15 million of the after-tax cost of the JLC restructuring
plan reflects cash to be expended and the remainder represents asset write-
offs. The JLC restructuring is expected to reduce annual operating costs
by $15-20 million pre-tax after full implementation. The Company expects
JLC to perform at close to break-even in fiscal 1995 and return to
profitability in fiscal 1996.
<PAGE>
Corporate Restructuring
In fiscal 1993, the Company hired Deloitte Touche to conduct a study of the
Company's corporate overhead costs. Deloitte Touche was requested to
provide a recommendation on how to reengineer the corporate staff functions
to improve efficiencies and effectiveness. The study was completed in the
third quarter of fiscal 1994. The study recommended changing the
management organization and focused on the existing management levels in
the organization as well as the span of control of each manager. To
achieve the organizational goals identified in the study, the Company has
determined that approximately 150 positions need to be eliminated. The
Company has initiated a workforce reduction program which consists of a
voluntary program followed by an involuntary reduction in force. The
results of the voluntary portion of the program will be implemented by May
31, 1994. The number of involuntary terminations will be determined at
that time and most of the terminations will take place by June 30, 1994.
The Company expects to establish a restructuring reserve in the fourth
quarter of fiscal 1994 to account for this event and estimates that the
charge will be approximately $5.0 million after-tax. The cash outlay for
this restructuring will occur in fiscal 1995.
Management Changes
The Board elected Robert C. Buhrmaster President and Chief Executive
Officer in March 1994, to replace H. William Lurton.
Jostens Learning Corporation hired Stan Sanderson as its new Chief
Executive Officer in March 1994.
In April 1994, Fred D. Bjork retired as Executive Vice President and
President of the School Products Group.
Charles Schmid was hired in April 1994 as Senior Vice President and Chief
Marketing Officer.
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PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Not applicable
(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 23, 1994 /s/ Robert C. Buhrmaster
Robert C. Buhrmaster
President and Chief Executive Officer
(acting Principal Financial Officer)
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