UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1 to
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended : Commission File No.:
June 30, 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
incorporation or organization) Identification No.)
5501 Norman Center Drive, Minneapolis, Minnesota 55437
(Address of principal executive offices) (Zip Code)
(612) 830-3300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Shares, $.33 1/3 par value New York Stock Exchange, Inc.
Common Share Purchase Rights New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements: The following financial
statements of the Company appearing on the indicated
pages of the Annual Report to Shareholders for the year
ended June 30, 1994, are incorporated herein by
reference.
Pages in
Annual Report
Consolidated Balance Sheets -
June 30, 1994 and 1993 24 and 25
Statements of Consolidated Operations
for the Years Ended June 30,
1994, 1993, and 1992 23
Statements of Consolidated Changes
in Shareholders' Investment
for the Years Ended June 30,
1994, 1993, and 1992 27
Statements of Consolidated Cash
Flows for the Years Ended June 30,
1994, 1993, and 1992 26
Notes to Consolidated Financial
Statements 28 through 40
2. Financial Statement Schedules
Page in
10-K
Schedule I - Marketable Securities -
Other Investments S-1
Schedule VIII - Valuation and
Qualifying Accounts S-2
Additional
schedules are omitted as they are not required, are
not applicable, or the information is shown in the
financial statements or notes thereto. Certain
columns have been omitted because the information
is not applicable.
Separate
parent company financial statements have been
omitted since the parent is primarily an operating
company and all subsidiaries included in the
consolidated financial statements are wholly owned.
All other schedules for which provision is made in
the applicable accounting regulations of the
Securities and Exchange Commission have been
omitted as not required or not applicable or the
information required to be shown thereon is
included in the financial statements and related
notes.
3. Executive Agreements
The following agreements are exhibits to this Annual
Report on Form 10-K:
Agreement with H. William Lurton.
Separation agreement with Fred D. Bjork.
(b) Reports on Form 8-K: A report on Form 8-K, dated April 28,
1994 was filed during the fourth quarter of the
year ended June 30, 1994. The report was a
voluntary filing under Item 5 of Form 8-K,
describing the Company's restatement of past
financials. No financial statements were required
to be filed with the report.
(c) Exhibits
3. a. Articles ofIncorporation and Bylaws (Incorporated
by reference to Exhibit 3(a), contained in the
Annual Report on Form 10-K for the year ended June 30,
1993).
4. a. Rights Agreement dated August 9, 1988 between the
Company and Norwest Bank Minnesota, N.A. (incorporated
by reference to the company's Form 8-A dated August 17,
1988, File No. 1-5064).
b. Form of Indenture, dated as of May 1, 1991, between
Jostens, Inc. and Norwest Bank Minnesota, N.A., as
Trustee (incorporated by reference to Exhibit 4.1
contained in the Company's Form S-3, File No. 33-40233).
10. a. Company's 1980 Stock Option Plan (incorporated by
reference to the Company's Registration Statement on
Form S-8, File No. 2-69666).
b. Company's 1984 Stock Option Plan (incorporated by
reference to the Company's Registration Statement on
Form S-8, File No. 2-95076).
c. Company's 1987 Stock Option Plan (incorporated by
reference to the Company's Registration Statement on
Form S-8, File No. 33-19308).
d. Company's 1992 Stock Incentive Plan (incorporated by
reference to Exhibit 10(d) contained in the Annual
Report on Form 10-K for the year ended June 30, 1992).
e. Jostens Learning Corporation 1986 Supplemental Stock
Option Plan (incorporated by reference to the Company's
Registration Statement on Form S-8, File No. 33-30396).
f. Jostens Learning Corporation 1984 Incentive Stock
Option Plan (incorporated by reference to the Company's
Registration Statement on Form S-8, File No. 33-30397).
g. Jostens Learning Corporation 1989 Stock Option Plan,
as amended (incorporated by reference to Exhibit 10(g)
contained in the Annual Report on Form 10-K for the year
ended June 30, 1992).
h. The Company's 1981 Performance Award Plan (incorporated
by reference to the Company's Form 8 dated May 2, 1991).
i. Form of Contract entered into with respect to Executive
Supplemental Retirement Plan (incorporated by reference
to the Company's Form 8 dated May 2, 1991).
j. Written description of the Company's Retired Director
Consulting Plan (incorporated by reference to the
Company's Form 8 dated May 2, 1991).
k. Agreement with H. William Lurton (Exhibit I filed
herewith).
l. Separation agreement with Fred D. Bjork (Exhibit II
filed herewith).
11. Computation of earnings per share.
13. Annual Report to Shareholders for the year ended June
30, 1994.
21. List of Company's subsidiaries.
23. Consent of Independent Auditors.
27. Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized.
JOSTENS, INC.
Date: January 5, 1995
\s\Robert C. Buhrmaster
Robert C. Buhrmaster
President and Chief Executive Officer
\s\Trudy A. Rautio
Trudy A. Rautio
Senior Vice President - Finance
JOSTENS, INC. AND SUBSIDIARIES
EXHIBIT 1--AGREEMENT WITH H. WILLIAM LURTON
November 1, 1993
Mr. H. William Lurton
Jostens, Inc.
5501 Norman Center Drive
Minneapolis, MN 55437
Dear Bill:
This letter will set forth the terms and conditions under which
you will provide services to Jostens, Inc. following your
ceasing to be a fulltime employee of Jostens. You will
continue as an employee and receive your current salary,
benefits and perquisites through December 31, 1993. Commencing
January 1, 1994 you will begin receiving the pension and other
retirement benefits for which you are eligible. In accordance
with the plans under which they were issued, all outstanding
stock options held by you will continue to vest through January
1, 1997 and remain exercisable in accordance with their terms.
In addition, all employee benefits and perquisites which you
now receive will continue in accordance with the respective
plans through September 18, 1994.
From January 1, 1994 on a month-to-month basis through
September 18, 1994 you will agree to advise and assist Jostens
by consulting with the Board of Directors and senior managers
of Jostens as they may
reasonably request. As compensation for such consulting
services, Jostens shall pay you at the rate of $10,000 per
month to be paid on the 1st of each month. You will receive no
additional compensation for the services you perform for
Jostens as a member of the Board of Directors until September
18, 1994. Jostens will reimburse you for reasonable expenses
incurred by you pursuant to your duties under this agreement.
Jostens will make available to you reasonable office space and
secretarial services at a location other than at its executive
offices through September 18, 1994. If such office space and
secretarial services cannot be provided at a Jostens site other
than Norman Center, then Jostens will reimburse you for such
reasonable expenses actually incurred by you.
As of January 1, 1994 you shall be retained by Jostens as an
independent consultant and shall be responsible for all
required contributions and/or taxes under federal or state laws
with respect to the payments made by Jostens to you under this
agreement. You agree that in consideration for the payments
you will receive under this agreement, you shall not during its
terms or for three years thereafter undertake any work for an
entity which competes directly or indirectly with Jostens in
any of the businesses in which it currently operates or which
you are aware that it might operate during this period.
Please acknowledge your acceptance below.
Sincerely,
/s/ Robert P. Jensen
Robert P. Jensen
AGREED AND ACCEPTED:
/s/ H. William Lurton
H. William Lurton
Dated: 11/1/93
JOSTENS, INC. AND SUBSIDIARIES
EXHIBIT 2--AGREEMENT WITH FRED D. BJORK
March 31, 1994
BUSINESS RESTRICTED
PERSONAL AND CONFIDENTIAL
Mr. Fred D. Bjork
5855 Long Brake Trail
Edina, MN 55439
RE: Separation Agreement
Dear Fred:
This letter when signed by you confirms the mutual Separation
Agreement ("Agreement") we have reached regarding your
termination of employment with and retirement from Jostens, Inc.
("Jostens").
The terms of the Agreement are as follows:
1. You will resign effective as of April 1, 1994 as
the Executive Vice President of Jostens. We
understand that you intend to remain as a member
of the Board of Directors of Jostens. Your current
term expires in October, 1994.
2. From April 1, 1994 through May 31, 1994, you
will continue your employment with Jostens as a
consultant by making yourself available on an as-
needed basis to the company as from time to time
reasonably requested by me. This understanding is
based upon your dedicated, loyal and enthusiastic
commitment to fulfilling the responsibilities
assigned to you which we feel would be appropriate
during this period. During this period you will
receive all of your current benefits, perquisites
and base salary.
3. You will continue to be eligible for your full
potential bonus under your existing Executive Annual
Bonus Plan for the full fiscal year 1994 (if any is
earned). You will not be eligible for any annual bonus
plans beyond FY'94.
4. Commencing June 1, 1994, you will receive
separation payments based on your current base
salary at an annual rate of $297,330 but payable
semi-monthly over the next seven (7) month period.
5. All of your regular executive perquisites and
employee benefits, except for the short and
long-term disability and travel accident insurance
coverage which you are currently receiving, will
continue in the same manner as that of a full-time,
active employee through December 31, 1994. This
includes the following employee benefits and years
of service credit as if you were still a full-
time active employee of Jostens: health and
dental coverage, life insurance, continued
eligibility and participation in the Jostens, Inc.
Pension Plan "D", Jostens Supplemental Pension
Program, Jostens Savings/Profit Sharing Retirement
Plan and the Executive Supplemental Retirement
Agreement on the same terms and conditions as
apply to other top executive senior officers of
Jostens. You and your dependents will be
eligible for retiree medical benefits on the same
terms and conditions as apply to other top
executive senior officers of Jostens.
6. At the present time you have in effect two separate
Long-Term Perfor mance Award Agreements with Jostens,
making you eligible for possible award payments
relating to FY 1994 and FY 1995, respectively. You
will be eligible to receive payment (if any) pursuant
to the terms of each of these agreements on a pro rata
basis, based upon the time you are a fulltime employee
of Jostens which for this purpose terminates on
December 31, 1994.
7. Effective April 1, 1994, you will convert to
the Company's current executive car allowance
program. You will be eligible to receive
fourteen (14) months of this allowance benefit
payable over the nine month period ending in December,
1994.
8. For purposes of your Executive Supplemental
Retirement Agreement, Jostens' Pension Plan "D",
Jostens' Supplemental Pension Program, Jostens
Savings/Profit Sharing Retirement Plan, and
Jostens-provided life, health and dental coverages,
we will consider your retirement date from Jostens
to be effective as of December 31, 1994. Any
benefits under this item 8 (or under item 5) which
cannot be paid under the terms of the applicable
plan shall instead be paid directly by Jostens.
Attached hereto as Exhibit A is a schedule setting
out the agreed upon retirement benefit amount
calculated under the plans designated thereon.
9. To assist you in obtaining possible alternative
employment, Jostens will pay you up to Twelve
Thousand Dollars ($12,000) for employment
assistance services. This payment will be made
directly to you to pay to organizations
providing re-employment assistance, outplacement
services, search firms, employment agencies or
firms which might be providing services for you in
seeking other employment.
10. You will be eligible to continue your financial
planning benefit on the same basis as it has
been provided to you in the past through December
31, 1994.
11. Until April 1, 1994, you will continue to
be considered an executive officer of Jostens
for federal securities rules reporting purposes
and, therefore, you will continue to be subject to
the same reporting requirements as you have been
obligated to follow in the past.
12. For purposes of your vesting and exercise
rights for the stock option grants you have
been awarded in Jostens stock, you will be
considered a full-time active employee of Jostens
through December 31, 1994, which date will be
considered your effective retirement date.
13. In consideration for what Jostens has agreed to
provide you as identified above, you agree:
a. That you will not, subsequent to your employment with
Jostens, divulge, furnish, or make accessible to anyone any
confidential proprietary information of Jostens or any of
its subsidiary or affiliated companies.
b. That you will not solicit or entice current Jostens employees or sales
representatives to accept employment with you or any new employer with
whom you may become associated.
c. That, until June 1, 1996, you will not directly or indirectly,
become employed by, act as an agent for, or establish your own
business in competition with any products or services of Jostens or
any of its subsidiaries. Should you breach this paragraph, Jostens
shall be entitled to terminate any unpaid monies that may be due you
under item 4 of this Agreement and shall have the right to recover any
payments made to you under item 4 of this Agreement during
such breach. The only other competition restrictions that will apply
to you are the provisions of Section 11 of the Executive Supplemental
Retirement Agreement, which shall apply only to payments under that
agreement.
d. You agree to release and forever discharge Jostens, its officers,
directors, agents and employees from and to waive all causes of
action, damages, liability and claims of whatever nature relating to
or arising out of your employment with Jostens and the cessation
of that employment including, but not limited to, claims under
federal, state, or local discrimination laws, and the Age
Discrimination in Employment Act, provided however, that
nothing herein shall release or discharge Jostens or you from
obligations under this Agreement or which arise after the date you
sign this Agreement.
e. To return all company property not otherwise provided for
herein, including keys, credit cards, and cash advances before May 31,
1994.
14. You will use your best efforts to defend your
interests and Jostens in any pending litigation,
including, but not limited to Ross Larson v. Jostens, Inc., et al.,
and will cooperate with Jostens and its attorneys to that end.
At Jostens' request, you also will cooperate with
Jostens in any future claims or lawsuits involving
Jostens where you have knowledge of the underlying
facts. Jostens agrees to indemnify and hold you
harmless from any and all claims or actions brought
against you based upon your service as an officer or
employee of Jostens, to the full extent permitted
by and in the manner permissible under Minnesota law.
Specifically, Jostens will continue to defend and
indemnify you in the matter of Ross Larson v. Jostens, et al.
15. Jostens will require any successor (whether
direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all
of the business and/or assets of Jostens to expressly
assume and agree to perform this Agreement in the
same manner and to the same extent that Jostens
would be required to perform if no such succession had
taken place.
This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amounts
would still be payable hereunder as if you had continued to
live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the
terms of this Agreement to your wife or, if there
be no such wife, to your estate.
16. This Agreement contains the entire agreement
and understanding of the parties and no
representations have been made or relied upon by
either party other than those that are expressly set forth
herein. This Agreement may not be altered, modified or
amended unless done in writing and signed by you and
an officer of Jostens.
You acknowledge that you have been given up to twenty-
one (21) days to consider this Agreement and have
been advised and have had the opportunity to consult
legal counsel of your own choosing concerning this
Agreement and that you have entered into it of your
own free will and without compulsion.
You have the right to rescind that portion
of this waiver and release which deals with
charges or claims brought pursuant to the Minnesota Human
Rights Act or the Age Discrimination in
Employment Act within fifteen (15) days from
the date you sign this Agreement. To be effective,
this recision must be in writing and hand delivered
or mailed to Jostens, Inc. to the attention of
Orville E. Fisher, Jr. within the 15 day period. If
mailed, the recision must be post marked within the 15
day period, and be properly addressed to Jostens,
Inc., 5501 Norman Center Drive, Minneapolis, Minnesota
55437, Attention: Orville E. Fisher, Jr. and sent by certified
return receipt requested. Recision of the
release will result in cessation of all
payments and benefits provided by Jostens pursuant hereto.
If this Agreement and the conditions contained herein
are agreeable to you, please sign and return this
letter to me within twenty-one (21) days or as soon
as possible, thereby noting your knowing and voluntary
agreement.
Sincerely,
/s/ Robert C. Burhmaster
Robert C. Buhrmaster
RCB/jo
Attachment
AGREED AND APPROVED:
/s/ Fred D. Bjork Dated: 4/19/94
Fred D. Bjork
JOSTENS, INC. AND SUBSIDIARIES
EXHIBIT 11--COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Data)
Year Ended June 30,
1994 1993 1992
Net Income (Loss) $(16,169) $(12,672) $59,169
Primary:
Average shares outstanding 45,455 45,328 44,918
Net effect of dilutive
stock options--based on
the treasury stock method
using average market price N/A N/A 651
45,455 45,328 45,569
Per Share Amount:
Net Income (Loss) $ (.36) $ (.28) $1.30
Per Share Amount as reported
based on average shares
outstanding:
Net Income (Loss) $ (.36) $ (.28) $1.32
JOSTENS, INC. AND SUBSIDIARIES
EXHIBIT 11--COMPUTATION OF EARNINGS PER SHARE (continued)
(In Thousands, Except Per Share Data)
Year Ended June 30,
1994 1993 1992
Fully diluted:
Average shares out-
standing 45,455 45,328 44,918
Net effect of dilutive
stock options--based
on the treasury stock
method using the year-
end market price if higher
than average market price N/A N/A 651
45,455 45,328 45,569
Per Share Amount:
Net Income (Loss) $ (.36) $ (.28) $1.30
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
Jostens Annual Report 1994
Thinking, focusing, considering, progressing, believing, creating,
energizing, achieving, implementing, learning, providing, repositioning,
evolving, recognizing, directing, analyzing, resuming, restoring, anticipating,
strategizing, understanding, teaching, constructing,
working, operating, training, helping, leading, changing.
Financial Highlights
Statement of Operations (Dollars in millions, except per-share data)
Years ended June 30
1994 1993
(Restated)
Net Sales $827.3 $836.4
Restructuring Charges (69.4) (50.6)
Loss from Continuing Operations (26.3) (.6)
Change in Accounting Principle, Net of Taxes - (4.2)
Net Loss (16.2) (12.7)
Balance Sheet Data
Working Capital $172.7 $185.3
Current Ratio 1.8 1.9
Total Assets 569.8 613.5
Long-Term Debt 54.3 54.8
Shareholders' Investment 256.6 315.7
Common Share Data
Loss Per Share $ (.36) $ (.28)
Cash Dividends .88 .88
Book Value 5.64 6.95
Stock Price High 20 7/8 31 1/4
Low 15 1/8 16 1/2
Jostens provides products and services to help people achieve, and to measure
and recognize their achievements, throughout their lives. Products and services
include: yearbooks, class rings, graduation products, student photography
packages, technology-based educational software, customized business
performance and service awards, sports awards and customized affinity products.
The company, founded in 1897, is based in Minneapolis and has facilities
throughout the United States and Canada. Customers are served by more than
8,000 employees and 1,200 independent sales representatives.
Letter to Shareholders 2
Foundation for Growth 4
School Products 6
Recognition 9
Jostens Learning 10
Jostens at a Glance 12
Management's Discussion & Analysis 14
Report of Management 22
Report of Independent Auditors 22
Statement of Operations 23
Balance Sheet 24
Cash-Flow Statement 26
Statement of Shareholders'
Investment 27
Notes to Financial Statements 28
Quarterly Financial Data 41
Five-Year Financial Summary 43
Board of Directors 44
Corporate Management 44
Shareholder Information 45
Facilities 45
Jostens, a leading provider of performance awards and services for the youth,
education, sports and corporate recognition markets, is dedicated to promoting
and recognizing achievement throughout a lifetime.
To Our Investors:
Fiscal 1994 was a year of rapid change and transition for Jostens. Action on
several strategic fronts helped set the foundation for a return to a period of
sustainable, profitable growth. However, the substantial progress we made
preparing for the future was not reflected in the company's fiscal 1994
financial performance. In the year ended June 30, Jostens reported a net loss
of $16.2 million, or 36 cents per share. The loss included several items that
reduced after-tax earnings by $45.2 million, or $1 per share. Among those items
were restructuring charges to address critical issues at Jostens Learning, our
curriculum software subsidiary, and to remove management layers from our
corporate organization.
Despite our 1994 financial performance, we are encouraged by the signifi cant
steps we took throughout the year to identify and resolve the problems that led
to the company's poor results over the last two years. Those steps, which are
discussed in more detail on following pages, enabled us to enter fiscal
1995 with our major issues confined to one business, Jostens Learning. The rest
of the company is performing well, and we believe Jostens is turning the
corner.
Business Review. The company's most significant problem in fiscal 1994 was
Jostens Learning, which continued to underperform expectations in sales and
profitability. However, management has worked aggressively to identify the
issues and determine a solution. In March, we completed an in-depth analysis of
Jostens Learning and the educational technology marketplace. From that review,
management developed a restructuring plan. Implementation of the plan began as
the fiscal year closed. In essence, we will pare the Jostens Learning
organization and refocus it on the kindergarten through grade 12 curriculum
software market with products that meet various customer demands. This
repositioning will be completed over the next few years.
The more traditional businesses of Jostens performed well in fiscal 1994. The
Recognition segment had strong improvements in sales and profitability. The
business landed several new large accounts and increased sales to current
customers. Profitability also improved in the School Products segment. In
Jewelry, we introduced four new ring designs, and Graduation Products moved
forward with steps to improve efficiency through technology. In Printing &
Publishing, cycle-time improvements enabled Jostens to deliver yearbooks on
time, even as severe weather led our competitors to miss delivery deadlines. We
built on that success by winning hundreds of new accounts for 1995. The U.S.
Photography business consolidated its manufacturing facilities and brought
forward a plan for a profitable future. In Canada sales and profits were stable
despite a difficult economy, but declined when translated into U.S. dollars.
Portfolio Moves. We divested a number of businesses that no longer fit our core
expertise and strategic focus on school and corporate markets. The largest
transaction was the January sale of our Sportswear business to Fruit of the
Loom for $46.7 million. In early fiscal 1995 we completed the sale of two
business interests that no longer fit Jostens Learning's strategy. Our
portfolio will include only businesses that fall within our core expertise and
that can provide both growth and superior returns. We will manage our portfolio
to those measurements.
Cultural Change. Fiscal 1994 marked the beginning of major cultural changes at
Jostens, changes that reflect the fierce competitiveness required to succeed in
business today. As an organization, we're working to become more agile and
dynamic, to make decisions based on hard research, to better understand the
needs and tastes of our consumers, and to seize opportunities to improve and
expand.
We are also reengineering our business processes by streamlining the
organization, eliminating tasks that don't add value and utilizing technology
to help make us more efficient and effective. Leading all of these changes is a
new management team built in the last two years. In fiscal 1994, Robert P.
Jensen was elected to succeed H. William Lurton as chairman of Jostens.
Following a national candidate search, the board in March promoted Robert C.
Buhrmaster to president and CEO. We have added senior executives in areas
critical to fueling growth and shareholder value - such as information systems,
marketing and quality and we installed new leadership in several business
units. Although the team has been together a relatively short time, it is
driving the improvements needed to position Jostens for the future. Responding
to new leadership, the people of Jostens embraced change and performed
admirably in 1994, and we thank them.
In early fiscal 1995 we welcomed a new member to the Board of Directors. Mannie
L. Jackson is senior vice president-corporate marketing and administration for
Honeywell Inc. and chairman and CEO of Harlem Globetrotters International.
The Future. Jostens will continue changing in 1995, as initiatives begun in
1994 take hold. The Jostens Learning repositioning will move forward. We will
carry reengineering through our work processes in corporate functions and
businesses. And, as we complete the repair of our foundation, we will devote
more attention and resources to developing new products that appeal to our
customers' changing tastes.
Jostens enters fiscal 1995 in much better shape than a year ago. Our businesses
are leaders in their markets.The traditional businesses are functioning well,
and we are implementing a plan to return Jostens Learning to profitability. In
1994, our company stepped up to tough but necessary decisions to prepare
Jostens for the future. We believe shareholders will see some tangible results
of those efforts in fiscal 1995.
/s/Robert C. Buhrmaster
President and Chief Executive Officer
/s/Robert P. Jensen
Chairman of the Board
FOUNDATION FOR GROWTH
Fiscal 1994 was a rebuilding year for Jostens. The company undertook a series
of actions to repair its foundation in order to support renewed sales and
earnings growth in the future. Management's approach is to: (1) fix problem
areas, (2) restructure businesses to capture efficiencies and create
competitiveness and (3) rejuvenate each area through new products and new
market or business opportunities. The fix phase is nearing completion and many
areas are well along with the restructuring phase, while the rejuvenation
challenge is primarily ahead. Fiscal 1994 financial results reflect the cost of
implementing seven major initiatives to restore the company's foundation. While
many were painful in the short term, each initiative represents a key building
block needed to support sustainable, profitable growth in the future.
Jostens Learning Repositioning. The company's most pressing issue in 1994 was
Jostens Learning, which provides curriculum software to schools. Declines at
Jostens Learning have been primarily responsible for the overall profitability
declines at Jostens in the last two years. Following a comprehensive review of
Jostens Learning and the education marketplace, management created a
repositioning plan for the business. With this plan, detailed later in this
report, the company anticipates Jostens Learning will return to profitability
in fiscal 1996.
Sportswear Sale. In January, Jostens completed the sale of its Sportswear
business to Fruit of the Loom. Sportswear products, once sold through college
bookstores, were increasingly moving to market through retail outlets. The move
off campus meant Sportswear no longer fit the company's strategic focus on
schools and corporations.
U.S. Photography Restructuring. Jostens implemented a plan to restructure the
U.S. Photography business, reduce costs and provide sound footing for a
profitable future. In March, photo processing facilities were consolidated to
improve efficiency. The business plans to improve market position and
competitiveness by developing new products and employing digital imaging
technology, some of which was tested with customers in fiscal 1994. As a result
of the restructuring, U.S. Photography improved its performance dramatically in
1994 and is well positioned for a return to profitability in 1995.
Process Reengineering. The company began reengineering its business pro cesses
in fiscal 1994. The objectives are to improve service, increase efficiency,
improve quality, shorten cycle times and reduce costs. Initial reengineering
efforts identified savings opportunities of between $8 million and $10 million
in overhead functions alone - nearly halfway toward the company's target of
cutting overhead expenses by $20 million to $25 million in the next three
years. Reengineering is also under way in manufacturing areas.
Organization Streamlining. The School Products Group (SPG) structure was
eliminated and former SPG overhead functions - such as finance, human resources
and information systems - were combined with corporate functions. The
integration, completed in July 1994, cut three layers from the organization and
increased by 50 percent the average number of people reporting to each manager.
It also eliminated about 150 positions.
Accounting Revisions. The company thoroughly reviewed its accounting policies
and practices in 1994 and made revisions in a number of areas to ensure a
realistic but conservative approach, based on changing business conditions, to
accounting policies and practices across all units of the organization.
New Management Team. In fiscal 1994, the Board of Directors elected Robert P.
Jensen, an outside director, to chairman and elected Robert C. Buhrmaster
president and chief executive officer. Buhrmaster, who joined Jostens in late
1992 as chief staff officer and was promoted to president and chief operating
officer in June 1993, has led the creation of a new leadership team. The new
team is a blend of executives new to Jostens and those with years of experience
with the company.
New appointments during the year were: Charles W. Schmid, senior vice president
and chief marketing officer; G. Nichols Simonds, vice president and chief
information officer; Greg S. Lea, vice president-total quality management; R.
Rick Prather, president of the Recognition segment; Trudy A. Rautio, vice
president and controller; and Stanley E. Sanderson Jr., president and chief
executive officer of the Jostens Learning segment. The new team is making the
structural, process and cultural changes required to generate and support
renewed growth.
The Future. The future will bring additional management focus on growth
opportunities in areas of Jostens' core expertise - helping people achieve, and
recognizing and rewarding their achievements in schools and businesses.
Management believes the company's businesses have significant top- and bottom
line growth potential that can be realized through a combination of factors:
utilizing technology to be more competitive; relying on fact-based market
research; gaining a better understanding of customer tastes, wants and
requirements; and generating new products that excite the marketplace.
Fundamental Strengths. Underlying management's actions are the company's
fundamental strengths, which provide a solid base for the future.
Financial: Jostens remains financially strong. Debt-to-total capitalization at
year end was a healthy 18 percent - virtually unchanged over the last several
years. In 1994, two major credit rating agencies,
Moody's and Standard & Poor's, reaffirmed their A2 and A+ ratings of Jostens'
long-term debt. In addition, Jostens generated strong cash flow and
significantly improved working capital management last year.
Market leadership: Jostens is first or second in market share in virtually all
its businesses - and in several cases has a 40 percent or greater share of the
market. Management sees opportunities to further strengthen share and to use
that market strength to introduce new products and pursue new markets.
Jostens name: The Jostens name is widely recognized in schools and corporations
throughout the United States and Canada as a symbol of quality, service and
value.
Sales force: A network of about 1,300 sales representatives enables Jostens to
become a partner with customers and decision makers - whether they are business
executives, students, parents or school administrators. These relationships
provide opportunities for Jostens to understand specific
customer needs and create customized, value-added solutions, products and
services.
Custom manufacturing: The company specializes in crafting programs, prod ucts
and services to meet the needs of each customer, adding value above and beyond
the product alone.
Commitment to education: In addition to
education-oriented products, the company offers the Jostens Renaissance program
to engage administrators, teachers, students and the business community in a
process of promoting and recognizing academic achievement. More than 4,500
schools in the United States use Jostens Renaissance methods, which have
resulted in better test scores, higher attendance and fewer disciplinary
problems. The company also provides grants and other programs to support
education.
The transition of Jostens will continue in 1995. As the company's businesses
move from the fix and restructure phases to rejuvenation, specific growth
strategies are being developed. All areas of the company will benefit from
actions taken in fiscal 1994 and will be supported by a restored foundation
based on fundamental strengths.
School Products
Jostens' School Products businesses - Printing & Publishing, U.S. Photography,
Jostens Canada, Jewelry and Graduation Products - are leaders in providing
products and services to schools throughout the United States and Canada. The
1994 performance of School Products, which represents 66 percent of the
corporation's sales, reflects its strength; Jostens is the marketshare leader
in virtually all School Products businesses. School Products segment sales of
$546.2 million in 1994 included the five lines of business and $10.4 million in
other sales.
Future top- and bottom-line growth in School Products is tied to a combination
of improved efficiency and new product and market opportunities. In the
efficiency area, the company is investing in technology and remaking business
processes. For example, in fiscal 1995, bar-code scanning technology will be
used to process product orders for graduation caps, gowns and announcements.
Later in the year, class ring order scanning will begin. The new system will
help improve customer service by cutting processing time and improving order
accuracy. In the product development area, 1995 will be a year of identifying
opportunities for new products and markets that appeal to the tastes of today's
young adults and that fit Jostens' expertise in manufacturing
and craftsmanship. The company anticipates that opportunities identified in
1995 will result in products for sale in 1996 and beyond.
Printing & Publishing. Printing & Publishing, which produces high school and
college yearbooks and provides commercial printing services, improved its
manufacturing efficiency and utilization in 1994 by focusing particular types
of printing jobs in specific plants, a realignment that contributed to
profitability improvement. Improvements in cycle times enabled the business to
deliver spring yearbooks on time, despite inclement weather that caused
problems for competitors. Then, based on market research and a targeted program
with the sales force, Printing & Publishing won from competitors the accounts
of more than 500 schools for fiscal 1995.
Fiscal 1994 sales were $191.7 million, up 1 percent from 1993. Printing &
Publishing is pursuing growth opportunities in high schools, middle schools and
elementary schools with products and services that meet the particular needs of
each group. In 1994, the new Memory ExpressTM yearbook was successfully test-
marketed in elementary schools and will be expanded in 1995. A new product is
scheduled for introduction to the middle school market late in fiscal 1995, and
growth in the high school market will be based on market research to better
identify changing customer needs. Printing & Publishing is also approaching
publishers to establish a presence in book printing, a market segment that will
further utilize printing capacity.
U.S. Photography. A repositioning program implemented in 1994 substantially
improved operational capabilities and profitability in the U.S. Photography
business. Developed under the leadership of the Jostens Canada team, the
repositioning included a consolidation of photo processing facilities to
improve plant utilization and better serve the North America photo processing
market. It also included a planned reduction in sales through realignment of
the dealer base. The consolidation will result in improvements in customer
response, quality and cycle times, as well as substantial cost improvements.
Fiscal 1994 sales of $27.7 million were 9 percent less than 1993, reflecting a
planned sales decline related to the repositioning program. U.S. Photography's
focus in 1995 is to continue the improvements begun in 1994, test new digital
imaging products and return the business to profitability.
Jostens Canada. Jostens Canada - the undisputed leader in school photography,
yearbooks and class rings - successfully tested new products, including some
based on digital-imaging technology, in a limited number of schools in 1994. In
addition to the traditional film method, all Jostens photo plants now have the
capability to capture, store and manipulate images in electronic form. This
capability enables processing plants to improve cycle times and develop such
products as an electronic student identification system that allows schools to
electronically record student photos and records.
A new line of class rings introduced in Canada in 1994 took advantage of a new,
exclusive computerized engraving system that enables new design styles. The
Expressions line, which was tested in Canada's Atlantic region, outsold other
more traditional styles by 10 percent. In addition, a new sports ring program,
also utilizing computerized engraving technology, is generating volume growth.
Successes included the selection of Jostens Canada to provide rings for the
Canadian Football League champion Edmonton Eskimos. Jostens Canada is using
other technology-based offerings, such as the YeartechTM desktop publishing
program, to attract new accounts and renew higher percentages of existing
accounts. Fiscal 1994 sales declined 10 percent to $42.3 million. Canada
performed solidly in 1994 in Canadian dollars, but a weak exchange rate
translated into a decrease in U.S. dollars.
Jewelry. In the Jewelry business, which provides rings and accessories for high
schools and colleges, sales were $149.1 million in 1994, up 4
percent from 1993. The number of ring designs was pared to 80 from 200 last
year, simplifying customer decisions, and the business introduced four new
ring designs - which accounted for nearly 10 percent of ring sales. In
operations, Jewelry established a team-based environment to improve
productivity and flatten its manufacturing organization.
In fiscal 1995, Jewelry expects to test with consumer panels several ideas for
new products and product extensions. The business will also continue building
a database of market research to provide the basis for new product
development. Jewelry will carry forward efforts to improve service and reduce
costs by centralizing customer service and introducing an automated system
enabling customers and sales representatives to determine the status of their
orders and accounts instantly.
Graduation Products. Graduation Products - which provides caps, gowns,
announcements and diplomas for high school and college students - had sales of
$125 million in 1994, up 7 percent from 1993. The business benefited from a
number of new programs, including the introduction of family nights to display
products for students and parents, combining various products and quantities
into package offerings, and introducing a rush-order program that allows
students to purchase graduation necessities at the last minute. Also introduced
in 1994 was Senior SalutesTM, weeklong events to provide college students with
one-stop information on caps and gowns, graduation announcements, class rings,
diploma plaques, alumni association membership, career counseling, hotel
information for families and the graduation ceremony itself. Senior Salutes
will be expanded to more schools in 1995. In 1995, Graduation Products will
automate its order-entry process, which will improve accuracy and reduce
processing time.
Recognition
The Recognition segment in 1994 took advantage of the growing need for
companies to recognize employee and business achievements amid turbulent times
for North American businesses. As a result, sales and profits in creased at
double-digit rates for Recognition, which provides service and performance
awards to companies and specialized products to professional and amateur sports
teams.During the year, Recognition began providing service under a multi-year
contract with AT&T. The business also signed
several new accounts, including PaineWebber, Avon, Miles and PPG. Sales to
current customers increased as well in 1994.Improved results reflect success at
improving operating efficiencies. Over the last three years, Recognition
operations have reduced standard manufacturing schedules by more than 50
percent. The business also cut the number of organizational levels to five from
nine and significantly increased the number of people reporting to each
supervisor.
The business is also employing technology to improve customer service. In
fiscal 1994, Jostens became the first service awards company to use interactive
voice response (IVR) systems to handle the employee service award selection
process. IVR enables a person scheduled to receive a service award to obtain
information and select the appropriate gift through a toll-free phone call. The
IVR system automatically instructs the caller how to select a gift, then
follows up with a fax message to the recipient confirming the selection and
delivery date. To ensure the event is formally recognized when the award is
delivered, the employee's supervisor is also notified at the time of ordering.
The use of IVR is being expanded in 1995, providing Jostens a competitive
advantage.
To capitalize on the growing need of companies to emphasize - and meaningfully
reward - measurable performance improvement, the Recognition segment is
broadening its market of opportunity. Through customized programs, Jostens
helps organizations use the concept of recognition as a management tool to
drive change, motivate people, and measure and reward accomplishments.
Jostens Learning
At Jostens Learning, the company's wholly owned educational software
subsidiary, management took steps in 1994 to identify and begin resolving the
issues leading to Jostens Learning's recent performance. A comprehensive study
of Jostens Learning and the entire educational technology marketplace concluded
that Jostens Learning should focus on its strength _ providing educational
software for children in kindergarten through grade 12. From that review,
management developed and began implementing a plan to reposition the business.
Under the plan, Jostens Learning will offer a complete line of products to meet
the various needs of different customers and refocus on providing K-12
educational software that runs on industry-standard hardware. Jostens Learning,
which currently offers more than 7,000 hours of curriculum instruction in
language arts and mathematics, is implementing a product-line approach to
pursue opportunities in five market areas:
Integrated Learning Systems. Fully integrated learning systems (ILS)
essentially provide computerized learning stations either throughout a school
or in a learning lab classroom. Individual learning stations are linked over a
network to a management system that extends the ability of teachers to instruct
each student and accurately monitor and assess student progress. Jostens
Learning remains a leader in the ILS market segment, with a market share of
about 50 percent.
In 1995, Jostens Learning plans to introduce Learning FirstTM-New Edition, a
revitalized release of its major ILS product, Learning First. Learning First
New Edition will include curriculum updates, as well as major enhancements in
graphics, sound, color and animation. The business is also developing a new
monitoring and assessment system for teachers. Sales of Learning First-New
Edition began in early fiscal 1995, with initial product deliveries scheduled
for late in the year.
Modular Products. This market segment, also referred to as mini-ILS prod ucts,
comprises schools and districts that require more focused solutions or that
can't afford the up-front investment in a full ILS. Modular products range from
free-standing products to smaller networks of learning stations. The modular
products market, although smaller than the ILS market in terms of dollars of
sales, is the fastest growing segment of the educational software marketplace.
Many school districts are moving to site-based funding, which means schools
must carefully manage their share of the district's investment dollars. By
investing in Jostens Learning's modular products, schools can over time build
fully integrated learning systems. In 1994, Jostens Learning expanded its
modular offerings with Action MathTM, a multi-media offering used in teacher-
led classroom discussions of math concepts. Jostens Learning also offers
TeachNetTM, a triad of language learning products.
Stand-Alone Products. Jostens Learning will target opportunities to build a
bridge from school to home with home-use products that complement classroom
curriculum. In fiscal 1995, Jostens Learning will test some concepts and
develop plans to profitably participate in this growing market.
Teacher Training. A new teacher training program, Training PLUS, is being
introduced to help teachers help students get the maximum benefit of Jostens
Learning curriculum. Training PLUS, which offers a core program package as well
as additional training and in-service options, is designed as a cost effective
and time-efficient approach to staff development.
Enhancements & Renewals. This market area is concerned with keeping the
installed base of Jostens Learning customers current by updating and expanding
products and by providing continuing training and support. Currently, more than
4 million students use Jostens Learning products in 10,000 schools across the
United States.
Jostens at a Glance
School Products - Business. Jostens recognizes individual and group achievement
and affiliation in the academic market. School Products com prises five
businesses: Printing & Publishing, Jewelry, Graduation Prod ucts, U.S.
Photography and Jostens Canada, which is the market leader in school
photography, yearbooks and class rings for Canadian schools. In the United
States, Jostens is the industry leader in yearbooks, class rings and graduation
products and is among the leaders in school photography.
Markets. School Products serves elementary schools, middle schools, high
schools, colleges and alumni associations in the United States and Canada
through 1,100 independent sales representatives. Jostens also maintains an
international sales force in about 50 countries for American schools and
military installations.
Products. School Products include elementary through college yearbooks,
commercial printing, desktop publishing curriculum kits, class rings,
graduation caps and gowns, graduation announcements and accessories, diplomas,
trophies, plaques and other awards, individual and group school pictures, group
photographs for youth camps and organizations, and senior graduation portraits.
Operating Highlights. Printing & Publishing won more than 500 new accounts for
1995. Jewelry successfully introduced four new ring designs and landed the U.S.
Military Academy, U.S. Naval Academy and Virginia Tech class ring accounts.
U.S. Photography improved performance by consolidating its North American photo
operations from six to four facilities. Jostens Canada successfully tested new
products using digital imaging technology.
Recognition - Business. Jostens helps companies promote and recognize
achievement in people's careers. It designs, communicates and administers
programs to help customers improve performance. Jostens provides products and
services that reflect achievements in service, sales, quality, productivity,
attendance, safety and retirements. It also produces awards for championship
team accomplishments and affinity products for associations.
Markets. Recognition serves customers from mid-size companies to global
corporations, professional and amateur sports teams and special interest
associations, through an independent sales force of about 100.
Products. Recognition offers a wide assortment of products and services
tailored to the needs of the organization it is serving. For global companies
like AT&T, PaineWebber and Georgia Pacific, Jostens customizes programs to meet
specific customer needs. Generic programs, such as New Generation and
Reflections, provide small- and mid-size companies the same product and service
features without complex customization. Recognition enjoys exclusive product
and personalization distributor arrangements with such companies as LenoxTM
china and HartmannTM luggage for the service award marketplace.
Operating Highlights. Recognition had record sales, topping $100 million for
the first time; significantly reduced cycle time; and sourced and implemented a
new personalization process called Opticrest that allows corporate symbolism to
be integrated into awards.
Jostens Learning - Business. Jostens Learning helps teachers teach and children
learn with educational software for kindergarten through grade 12. As the
nation's largest provider of curriculum software, Jostens Learning currently
serves more than 4 million students in 10,000 schools nationwide. Computerized
lessons use color, animation and sound to engage students in individualized,
self-paced learning on industry-standard microcomputers.
Markets. Jostens Learning focuses on the K-12 market with an employee sales
force of about 100. Market segments target integrated learning systems, modular
products, stand-alone products and staff development services.
Products. Jostens Learning offers more than 7,000 hours of software-based
curriculum in reading, mathematics, language arts, science programs and early
childhood instruction, as well as programs for at-risk learning and home
learning. Customers may purchase programs to meet specific instructional needs,
add products in a modular approach or choose to implement a comprehensive
schoolwide solution. Products include Learning First-New Edition, ActionMath
K-3 and Training PLUS.
Operating Highlights. Jostens Learning introduced Training PLUS, a customized
staff development program that helps schools meet new federal requirements for
comprehensive teacher development. The introduction of Learning First-New
Edition, ActionMath and a single new management system represent the next
generation of interactive curriculum from Jostens Learning.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction
This discussion summarizes the significant factors affecting the consoli dated
operating results, financial condition and liquidity/cash flow of Jostens Inc.
during the three years ended June 30, 1994.
A number of items had an impact on the company's earnings, including: (1)
restructurings recorded in the fourth quarters of fiscal 1993 and 1994; (2)
discontinued operations; (3) changes in certain accounting estimates in the
fourth quarter of fiscal 1993 and the third quarter of fiscal 1994; and (4)
restatement of past financial statements. Each is detailed below, following
discussion of Results of Operations, Financial Position, Capital Expenditures
and Product Development, and Dividends.
Results of Operations
Overall. For fiscal 1994, net sales from continuing operations decreased 1
percent to $827.3 million, compared with $836.4 million in fiscal 1993. Sales
in 1993 declined 3 percent from 1992 sales of $858.5 million. The company's
lower sales and earnings in fiscal 1994 resulted from a substantial shortfall
in Jostens Learning revenue. Sales price increases averaged approximately 3
percent in 1994, 2 percent in 1993 and 3 percent in 1992. Gross margins for the
company in fiscal 1994 were 48.5 percent, down from 49.2 percent in 1993 and
50.2 percent in fiscal 1992. This reflects lower margins reported in 1994 by
Jostens Learning. The traditional business segments, School Products and
Recognition, improved margins through strong cost management. Lower margins
also reflect the impact of an inventory change in estimate of $3.2 million in
fiscal 1994 (see Changes in Estimates).
Selling and administrative expenses were $360.3 million in 1994, $351.6 million
in 1993 and $323.6 million in 1992. These expenses, as a percentage of sales,
were 43.5 percent, 42 percent and 37.7 percent, respectively. The 1994 increase
is primarily due to changes in accounting estimates of $7.7 million for
receivables and $6 million for overdrafts (see Changes in Estimates), and a
shortfall in sales at Jostens Learning. The benefits of the restructuring at
Jostens Learning and at corporate are expected to occur in fiscal 1995.
During fiscal 1994, the company sold several small parcels of land for a $1.1
million gain, and approximately broke even on disposal of its plaque facility.
Interest expense and income in fiscal 1994 compared with fiscal 1993 reflects
lower average debt levels due to the proceeds from the sale of Sportswear and
improved cash flow from operations. Interest expense and income in 1993 were
favorably affected by a reduction in outstanding debt, cash received from the
Wicat acquisition and lower short-term borrowing rates, compared with the
previous year.
Net loss for fiscal 1994 was $16.2 million, compared with a loss of $12.7
million in 1993 and net income of $59.2 million in 1992. Included in the 1994
and 1993 net losses are after-tax restructuring charges of $45.3 million and
$33.6 million, respectively; a fiscal 1993 after-tax charge of $4.2 million
associated with the early adoption of Statement of Financial Accounting
Standards (SFAS) No. 106 for postretirement benefits; a net after-tax gain of
$10.2 million from discontinued operations in 1994; and losses of $8 million
and $1.2 million from discontinued operations in 1993 and 1992, respectively.
The 1994 loss per share was 36 cents, compared with a loss per share of 28
cents in 1993 and earnings per share of $1.32 in 1992. Earnings per share from
continuing operations prior to the change in accounting principle, discontinued
operations and restructuring charges were 42 cents in fiscal 1994, compared
with 73 cents in 1993 and $1.34 in 1992.
School Products Segment. Overall School Products sales increased 1 percent to
$546.2 million from $540.7 in fiscal 1993. Fiscal 1993 sales declined 1 percent
from fiscal 1992. The Printing & Publishing, Jewelry and Graduation Products
businesses within this segment all posted sales gains in fiscal 1994. Dollar
sales of high school class rings increased, although the number of units sold
was essentially stable compared with fiscal 1993. College class ring units sold
declined from fiscal 1993. The Graduation Products sales increase stemmed from
increases in the buy rates among students as well as an increase in the average
amount purchased by each student. Both the Jostens Canada and U.S. Photography
businesses within this segment reported sales declines. In Jostens Canada the
unit volume was essentially flat, while
currency exchange rate fluctuations accounted for most of the decline. The
decline in U.S. Photography sales reflected a planned realignment of the dealer
base to focus on more profitable business and more closely match the
manufacturing capabilities of this business.
School Products showed operating profit improvements in fiscal 1994 due to a
combination of cost improvements and modest price increases. Overall School
Products operating profit was $73.5 million in fiscal 1994, up 83.8 percent
from $40 million in fiscal 1993, which included restructuring costs of $36.5
million. Fiscal 1993 operating profit decreased 52.9 percent from 1992.
Printing & Publishing reduced costs by improving its manufacturing efficiency
through realigning particular printing jobs in specific plants. Jewelry
improved materials and inventory management, as well as reduced the number of
ring designs. This business also changed its manufacturing organization to a
team-based environment, flattening the organization and improving productivity.
U.S. Photography took major steps to maximize plant capacity utilization and
effectiveness by closing leased facilities in Clinton, Miss., and Lake Forest,
Calif., and transferring production to owned facilities in Webster, N.Y.,
Jackson, Miss., and Winnipeg, Manitoba, effective in fiscal 1995.
The School Products segment incurred $36.5 million of restructuring charges in
fiscal 1993 (see Restructurings, Fiscal 1993). The School Products segment also
increased its reserves in inventory, accounts
receivable and overdrafts by $16.4 million in fiscal 1994 and $7.5 million in
fiscal 1993 (see Changes in Estimates).
Jostens Learning Segment. For the year, Jostens Learning sales were $177.5
million, a decrease of 12 percent from the fiscal 1993 level of $201.6 million.
Fiscal 1993 sales declined 8 percent from 1992. The decline in sales of
software, hardware and service in fiscal 1994 stemmed from increased
competition for school technology funds.
Jostens Learning posted an operating loss of $84.2 million in fiscal 1994,
compared with an operating loss of $15.3 million in 1993 and operating profit
of $23.4 million in 1992. The 1994 results stemmed from the $60.9 million
restructuring charge as well as sales declines in software and service areas,
and a shift in product sales from software to hardware, which has lower margins
than software. As part of this restructuring, it is estimated the
discontinuation of product lines will decrease future annual revenues by $55
million to $70 million. Revenue from the discontinued product lines was $68
million in 1994 and $76 million in 1993. Jostens Learning also incurred $10.4
million in restructuring charges in fiscal 1993 (see Restructurings, Fiscal
1994 and Fiscal 1993).
Recognition Segment. Recognition sales were up 10 percent from fiscal 1993 to
$103.7 million. Fiscal 1993 sales declined 1 percent from 1992. Several new
accounts were added in fiscal 1994, including AT&T, and sales to current
customers also increased.
Recognition operating profit increased 10.5 percent to $9.5 million in fiscal
1994. Fiscal 1993 operating profit of $8.6 million was a 13.3 percent increase
from fiscal 1992. Improvements in fiscal 1994 came from reducing costs as well
as improving efficiency. The segment also realigned its sales force and reduced
the number of organizational levels from nine to five.
FINANCIAL POSITION
Net working capital was $172.7 million at June 30, 1994, reflecting a current
ratio of 1.8 to 1. Cash and short-term investments were
$107.8 million, up from $13.6 million the previous year, due to the sale of the
Sportswear business and improved cash flow from operations.
Accounts receivable decreased to $149.2 million from $201.2 million in 1993,
due to the sale of the Sportswear business, lower sales at Jostens Learning,
improved collections and change in estimate charges of $7.7 million (see
Changes in Estimates).
Inventories decreased to $82.6 million in 1994 from $131.2 million in 1993, due
to the sale of the Sportswear business, restructuring write-offs at Jostens
Learning, reduced computer hardware inventory levels at Jostens Learning and
change in estimate charges of $3.2 million (see Changes in Estimates).
Prepaid expenses decreased to $6.1 million in 1994 from $10.7 million in 1993,
due to reduced royalties and commissions at Jostens Learning.
Other receivables decreased to $10.3 million in 1994 from $21.5 million in 1993
as a result of a reduction in the number of sales representatives under
contract, change in estimate charges of $6 million taken in the third quarter
of fiscal 1994 (see Changes in Estimates), and restructuring write-offs. The
reduction is also due to a tax receivable of $3.7 million included in the
fiscal 1993 balance. Fiscal 1994 current taxes are in a liability position.
Intangibles increased to $47.7 million in 1994 from $47 million in 1993. The
increase was primarily due to the establishment of intangible assets
related to additional minimum pension liability requirements of $5.5 million,
offset by amortization of $2.3 million and write-offs of $3.2 million.
Net software development costs decreased to $29.4 million in 1994 from $52.7
million in 1993. The decrease was due to amortization of $15.5 million, write
offs of $1.9 million due to the company's
application of a net realizable value analysis and $25.3 million in writeoffs
due to the restructuring, offset in part by the addition of $19.4 million of
continuing software development costs.
Net property and equipment decreased to $75.8 million in 1994 from $88.9 million
in 1993, primarily due to the sales of the Sportswear busi ness, the plaque
facility and several parcels of land.
Accounts payable decreased to $33.2 million in 1994 from $54.2 million in 1993,
due to reduced hardware purchases at Jostens Learning and the sale of the
Sportswear business.
Salaries, wages and commissions increased to $68.4 million in 1994 from $62.6
million in fiscal 1993, primarily due to fiscal 1994 restructuring reserves in
excess of fiscal 1993 restructuring reserves.
Accrued pension costs increased to $19.3 million in 1994 from $8.9 million in
1993, due to a lower than expected return on pension plan assets and a reduction
in the discount rate to reflect current prevailing interest rates.
Generally, the company's cash requirements have been met with internally
generated funds and through short-term borrowings. The seasonality of the
businesses requires the interim financing of inventories and receivables. These
short-term borrowings averaged $28.6 million in fiscal 1994 and reached a high
of $87 million during the year. This compares with average short-term borrowings
of $42.6 million and $38 million in fiscal 1993 and 1992, respectively, with
highs of $83.3 million for fiscal 1993 and $93.9 million for fiscal 1992. The
average interest rate paid on these borrowings was approximately 3.25 percent
for fiscal 1994, compared with 4 percent for fiscal 1993 and 5.6 percent for
fiscal 1992. Seasonal financing needs for 1995 will be covered under comparable
credit arrangements.
Shareholders' investment declined 19 percent to $256.6 million, down from $315.7
million in 1993. This reduction is primarily attributable to dividends and the
fiscal 1994 restructuring charges. Book value at June 30, 1994, was $5.64 per
share versus $6.95 for the prior year.
Long-term debt, as a percentage of total capitalization, was 18 percent on
June 30, 1994.
CAPITAL EXPENDITURES AND PRODUCT DEVELOPMENT
Capital expenditures were $15.2 million in fiscal 1994, compared with $20.9
million in 1993. The School Products segment accounted for $6.2 million,
including computer system upgrades of $2.8 million and various other capital
improvement projects. Jostens Learning, Recognition and corporate expended $4
million, $1.1 million and $3.9 million, respectively. About $21 million in
capital additions are planned for fiscal 1995, including business systems
upgrades involving new hardware and software platforms for the School Products
segment.
Fiscal 1994 gross product development costs were approximately $32.3 million,
compared with $46.9 million in the prior year. Fiscal 1995 product development
costs are expected to be approximately $18 million. The decrease is due to the
refocusing of Jostens Learning products on
the K-12 marketplace and the conversion to one management system strategy. All
development costs will be internally funded.
DIVIDENDS
Cash dividends paid to shareholders in 1994 totaled $40 million.The annual
dividend was 88 cents per share in fiscal 1994 and 1993, up 5 percent from
the 84 cents paid in fiscal 1992.
RESTRUCTURINGS
Fiscal 1994
In the fourth quarter of fiscal 1994, Jostens recorded a total restructuring
charge of $69.4 million ($45.3 million after tax, $1 per share), consisting of
two components: Jostens Learning for $60.9 million and corporate for $8.5
million.
Jostens Learning: A change in management at Jostens Learning occurred in
September 1993, when John Kernan, its chairman and chief executive officer,
left the company.
In October 1993, Jostens engaged the management consulting firm of Bain &
Company, Inc. (Bain) to thoroughly analyze the markets in which
Jostens Learning competes, as well as Jostens Learning's position within those
markets. Bain periodically discussed its progress with management and the Board
of Directors, and presented the final results of its study to Jostens
management in March 1994. The Bain study recommended a substantial
restructuring of Jostens Learning to accomplish the objectives defined during
the evaluation process.
In March 1994, Jostens Learning hired Stanley Sanderson as its new chief
executive officer. Sanderson worked with Bain in developing a restructuring
plan intended to address the issues raised in the Bain study. Sanderson has set
a new direction for Jostens Learning that is consistent with the Bain study,
and he 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, which was recorded in the fourth quarter of fiscal 1994.
Under the plan, Jostens Learning will focus on the K-12 market and offer
complete integrated learning systems as well as modular and stand-alone
products. Specifically, Jostens Learning will: (1) develop educational software
that runs on industry-standard systems and discontinue investments and
development in proprietary systems; (2) sell its minority investments in
education and technology companies; (3) exit the hardware business and rely on
third-party vendors to provide hardware and services; and (4) establish a new
model for providing customer training and service.
Jostens recognized a total restructuring charge related to Jostens Learning of
$60.9 million. This charge was in the following areas: product development,
$39.1 million; exit ancillary businesses, $7.3 mil lion; exit hardware sales
and services, $4.1 million; and work-
force reduction, $10.4 million.
1. Product Development: In recent years, Jostens Learning has invested heavily
in new technologies. Jostens Learning's new strategy will return it to its
successful core: developing software curriculum with a dedication to
improving the delivery of instruction to children (K-12) through the teacher.
Future products will focus on a narrower range of product offerings and
operate from 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: Jostens Learning 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 that do not support this business strategy.
3. Exit Hardware Sales and Services: Jostens Learning has been in the hardware
sales and servicing business to provide customers with "one-stop shopping."
In order to focus its strengths on curriculum development, Jostens Learning
has decided to stop providing hardware and maintenance and to select vendors
to provide this for Jostens Learning. Jostens Learning does not expect to be
able to fully recover the costs of its hardware inventory, and a reserve has
been established for the estimated nonrecoverable amounts.
4. Work-Force Reduction: Jostens Learning is reducing complexity, as described
above, by eliminating diverse businesses, adopting a single management system
and supporting a simplified product offering. In addition, it is redesigning
the in-field service provided to customers, and reducing the amount of
product being developed, therefore, requiring less personnel. This will
result in severance and relocation costs.
The formal plan covering all areas of restructuring will result in termination
of approximately 500 employees, identified by job classification and location.
Affected employees were notified of the general terms of the plan in early July
1994. Approximately one-half of the individuals affected were notified and
terminated immediately, and all affected employees are expected to be
terminated by the end of April 1995.
The company is currently implementing the Jostens Learning restructuring plan.
With respect to product development, Jostens Learning has ceased all
development work on its proprietary InterActive Media system. In addition, it
has adopted a single management system strategy and has begun converting
customers to a single system.
Shortly after the end of fiscal 1994, Jostens Learning sold its adult division
to Centec Corp. and sold its minority investment in Optical Data Corp. to Cox
Communications. Jostens Learning's efforts to exit the hardware sales and
service business and reduce the work force are progressing.
Approximately $16.5 million ($9.9 million net of tax) of the charge to earnings
related to the Jostens Learning restructuring plan reflects cash to be
expended; the remainder represents asset write-offs and accruals for business
dispositions. Of the cash expenses, net of tax, the
company expects approximately $8.7 million to occur in fiscal 1995 and $1.2
million in fiscal 1996, all of which will be internally funded. The Jostens
Learning restructuring is expected to reduce annual revenues and operating
costs, with a net benefit of between $10 million and $15 million pre-tax after
full implementation, primarily from reductions in amortization and headcount.
The company expects Jostens Learning to improve from last year, but still
operate at a loss in fiscal 1995 and return to profitability in fiscal 1996.
The company has lease commitments on facilities that will be abandoned in 1995
due to the headcount reductions at Jostens Learning.
The company estimates that the net cost of the commitment for these leases is
between $4 million and $6 million after subletting, and will be accrued for
when the facilities are vacated. The leases have lives varying from over one
year to seven years. (See note on Commitments and Contingencies.)
Corporate: In fiscal 1994, Jostens hired Deloitte & Touche to conduct a study
of the company's corporate overhead costs. Deloitte & Touche was requested to
recommend how to reengineer the corporate staff functions to improve efficiency
and effectiveness. The study, completed in the third quarter of fiscal 1994,
recommended changing the management organization. To achieve the goals
identified in the study, the company determined that approximately 150
positions needed to be eliminated. A formal plan identifying the number of
people, functions and locations was developed and approved by the Board of
Directors in the fourth quarter of 1994. Jostens initiated a work-force
reduction effort consisting of a voluntary program followed by an involuntary
reduction in force. The voluntary program concluded in the fourth quarter of
fiscal 1994, with most of the terminations taking place by June 30, 1994. The
success of the voluntary program resulted in a majority of the targeted
reductions occurring in fiscal 1994 and some involuntary terminations in the
first quarter of fiscal 1995.
Jostens recognized a restructuring charge of $8.5 million in the fourth quarter
of fiscal 1994 to account for this event. Most of the $5.1 million (net of tax)
cash outlay for this restructuring will occur in fiscal 1995 and will be funded
internally. This restructuring is expected to reduce annual operating costs by
$4 million to $6 million.
Fiscal 1993
The restructuring charge taken in 1993 for continuing operations totaled $50.6
million ($33.6 million after tax, 74 cents per share). It included $26.7
million for restructuring the U.S. Photography business, of which $7.9 million
relates to goodwill write-offs ($5.6 million relating to the Portrait World
acquisition in 1989 and $2.3 million relating to various smaller photography
intangibles), $12.8 million relates to plant shutdowns, and $6 million relates
primarily to write-offs of abandoned receivables from independent sales
representatives and dealers. The remaining $23.9 million of restructuring
charges includes $10.2 million primarily for headcount reductions and
relocation expenses; $5 million to write off certain software development costs
at Jostens Learning; and $8.7 million primarily for sales force restructuring
and policy changes, including write-offs of abandoned receivables from
terminated independent sales representatives. The accounts receivable balances,
which would have ordinarily been collectible in the absence of the changes in
the sales force, were abandoned as part of the territory consolidations and
sales force terminations included in the sales force restructuring.
The restructuring accrual for fiscal 1993 decreased by $26.5 million from June
30, 1993, to June 30, 1994, due to the third-quarter disposition of the
Sportswear business (see Discontinued Operations) and to payments totaling
$11.5 million made in fiscal 1994. Two photography plants that were part of the
1993 restructuring were closed in April and June of 1994. The remaining
restructuring accrual at June 30, 1994, is $11.6 million. The net-of-tax outlay
is estimated to be paid for with internally generated funds in subsequent
periods as follows: fiscal 1995, $4.8 million; fiscal 1996, $1.7 million;
fiscal 1997 and beyond, $500,000.
It is estimated that the 1993 restructuring reduced annual operating costs by
$3 million to $6 million.
DISCONTINUED OPERATIONS
In January 1994, Jostens sold its Sportswear business to a subsidiary of Fruit
of the Loom for $46.7 million in cash. Jostens recognized an $18.5 million gain
($11 million after tax) on the sale, primarily because the Sportswear business
had been written down by $15 million to its estimated net realizable value in
the fiscal 1993 restructuring. The
sale's future impact on continuing operations and cash flow is expected to be
immaterial.
CHANGES IN ESTIMATES
In fiscal 1993, Jostens undertook a major restructuring primarily directed at
its School Products businesses. For the first time, a significant reduction (20
percent) of its independent sales force in the Jewelry and Graduation Products
businesses, along with a major realignment of the sales territories, occurred.
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. Increasing school consolidations caused
overlaps between sales representatives, thus increasing the costs of managing
territories, and more time was required in the sales process for each school by
the sales representatives. As a result of these changes in its business
conditions, the company recorded additional provisions in the fourth quarter of
fiscal 1993 for obsolete inventory, accounts receivable and independent sales
force overdrafts of $1 million, $1 million and $5.5 million, respectively. The
revised estimates reduced pre-tax income for fiscal 1993 by $7.5 million (4.6
million after tax,10 cents per share).
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 the review, which concluded at the end
of the third quarter of fiscal 1994, Jostens increased reserves for inventories
by $3.2 million, receivables by $7.7 million and overdrafts by $6 million to
reflect amounts estimated not to be recoverable, based upon current facts and
circumstances. The revised estimates reduced pre-tax income for fiscal 1994 by
$16.9 million ($10.1 million after tax, 22 cents per share).
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 below original plan 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 re
evaluated the adequacy of its 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 reserve should be established to reflect
current business conditions. The charge to earnings in the third quarter for
this was $3.2 million.
Accounts Receivable: Similar to inventory, management has revised its estimates
for uncollectible accounts receivable based upon its intensive review. In
particular, one account for which reserves had been increased substantially in
1993 continued to deteriorate and resulted in a contract termination and a new
contract in late 1994 to facilitate cash collections on accounts receivable.
Specific reserves for the estimated uncollectability of this account receivable
were increased $3.3 million. The company also increased specific reserves for
other accounts deemed to be not fully recoverable. As a result of the review,
an additional charge of $4.4 million was recorded.
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 representa tives or those in new
territories to earn less commissions than the established draws for a period of
several 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 percent of the sales force.
Overdrafts of $3.2 million 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
representatives were examined for collectability, taking into consideration
the newly realigned territories and the sales costs experienced by sales
representatives. The company recorded in the fourth quarter of 1993 an
additional charge of $5.5 million.
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 over drafts that are estimated to be
unrecoverable as well as the establish ment of general reserves to reflect
recent experience. An additional charge of $6 million was recorded.
RESTATEMENT
After its fiscal 1993 restructuring, Jostens began centralizing and
standardizing business practices, and management reviewed the company's
accounting policies and procedures to (1) ensure that they appropriately
reflected the way the company was conducting its business in the wake of the
fiscal 1993 restructuring, and (2) to determine whether previously identified
audit differences, which were immaterial individually and in the aggregate in
prior periods, cumulatively had become more significant given the changes in
shareholders' investment.
During the first three quarters of fiscal 1994, Jostens conducted this review
and consulted with Ernst & Young, its independent auditors. The company
determined that the impact on shareholders' investment of the 1993 and 1994
restructurings, 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. (See note on Restatement.)
REPORT OF MANAGEMENT
The management of Jostens is responsible for the integrity and objectivity of
the financial information presented in this report. The financial statements
have been prepared in accordance with generally accepted accounting principles
and include certain amounts based on management's best estimates and judgment.
Management is also responsible for establishing and maintaining the company's
accounting systems and related internal controls, which are designed to provide
reasonable assurance that assets are safeguarded and transactions are properly
recorded. These systems and controls are reviewed by the internal auditors. In
addition, the company's code of conduct states that its affairs are to be
conducted under the highest ethical standards.
The independent auditors provide an independent review of the financial
statements and the fairness of the information presented therein.
The Audit Committee of the Board of Directors, comprised solely of outside
directors, meets regularly with management, the company's internal auditors and
its independent auditors to review audit activities, internal controls and
other accounting, reporting and financial matters. Both the independent
auditors and internal auditors have unrestricted access to the Audit Committee.
/s/Trudy A. Rautio
Vice President and Controller
/s/Robert C. Buhrmaster
President and Chief Executive Officer
Minneapolis, Minnesota
August 5, 1994
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of Jostens Inc.:
We have audited the accompanying consolidated balance sheets of Jostens Inc.
and subsidiaries as of June 30, 1994 and 1993, and the related consolidated
statements of operations, changes in shareholders' investment and cash flows
for each of the three years in the period ended June 30, 1994. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Jostens Inc. and
subsidiaries at June 30, 1994 and 1993, and the consolidated results of their
operations and cash flows for each of the three years in the period ended June
30, 1994, in conformity with generally accepted accounting principles.
As discussed in the notes to the financial statements, prior years' financial
statements have been restated, and in 1993 the company changed its method of
accounting for income taxes and postretirement benefits other than pensions.
Ernst & Young LLP
Minneapolis, Minnesota
August 5, 1994
STATEMENTS OF CONSOLIDATED OPERATIONS
Jostens Inc. and Subsidiaries
(Dollars in thousands, except per-share data)
Years ended June 30
1994 1993 1992
(Restated)(Restated)
NET SALES $827,338 $836,421 $858,530
Cost of products sold 426,482 424,543 427,825
400,856 411,878 430,705
Selling and administrative expenses 360,295 351,574 323,599
Restructuring charges 69,359 50,581 -
OPERATING INCOME (LOSS) (28,798) 9,723 107,106
Interest income 1,823 2,094 1,415
Interest expense (6,803) (7,746) (9,864)
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (33,778) 4,071 98,657
Income taxes (7,432) 4,623 38,319
INCOME (LOSS) FROM CONTINUING OPERATIONS (26,346) (552) 60,338
DISCONTINUED OPERATIONS:
Loss from operations, net of tax (810) (7,970) (1,169)
Gain on sale, net of tax 10,987 - -
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, NET OF TAX - (4,150) -
NET INCOME (LOSS) $(16,169)$(12,672) $ 59,169
EARNINGS (LOSS) PER COMMON SHARE
Continuing operations $ (.58)$ (.01) $ 1.34
Loss from discontinued operations (.02) (.18) (.02)
Gain on sale of discontinued operations .24 - -
Cumulative effect of change in accounting
principle - (.09) -
Net Income(Loss) $ (.36)$ (.28) $ 1.32
See notes to consolidated financial statements
CONSOLIDATED BALANCE SHEETS
Jostens Inc. and Subsidiaries
(Dollars in thousands)
June 30
1994 1993
(Restated)
ASSETS
CURRENT ASSETS
Cash and short-term investments $107,827 $ 13,564
Accounts receivable, net of allowance
of $13,749 and $6,869, respectively 149,206 201,202
Inventories
Finished products 28,026 41,773
Work-in-process 23,879 46,580
Materials and supplies 30,733 42,833
82,638 131,186
Deferred income taxes 39,985 23,449
Prepaid expenses 6,123 10,700
Other receivables 10,338 21,485
Total Current Assets 396,117 401,586
OTHER ASSETS
Intangibles 47,737 47,005
Software development costs 29,356 52,724
Other 20,850 23,247
Total Other Assets 97,943 122,976
PROPERTY AND EQUIPMENT
Land 5,277 7,032
Buildings 38,131 44,288
Machinery and equipment 164,233 167,571
207,641 218,891
Accumulated depreciation (131,870) (130,003)
Total Property and Equipment 75,771 88,888
$569,831 $613,450
See notes to consolidated financial statements
June 30
1994 1993
(Restated)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 33,192 $ 54,230
Salaries, wages and commissions 68,394 62,619
Customer deposits 36,080 34,621
Other accrued liabilities 48,749 45,541
Dividends payable 10,001 9,993
Deferred revenue 11,820 8,814
Income taxes 14,663 -
Current maturities on long-term debt 495 494
Total Current Liabilities 223,394 216,312
LONG-TERM DEBT - LESS CURRENT MATURITIES 54,267 54,843
DEFERRED INCOME TAXES 5,943 10,661
ACCRUED PENSION COSTS 19,291 8,901
OTHER NON-CURRENT LIABILITIES 10,355 7,015
COMMITMENTS AND CONTINGENCIES - -
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 1994 - 45,482; 1993 - 45,425 15,160 15,142
Capital surplus 152,996 152,312
Retained earnings 92,855 151,013
Foreign currency translation adjustment (4,430) (2,749)
Total Shareholders' Investment 256,581 315,718
$569,831 $613,450
STATEMENTS OF CONSOLIDATED CASH FLOWS
Jostens Inc. and Subsidiaries
(Dollars in thousands) Years ended June 30
1994 1993 1992
(Restated)(Restated)
OPERATING ACTIVITIES
Net income (loss) $(16,169) $(12,672) $ 59,169
Depreciation and amortization 38,927 34,896 29,300
Non-cash restructuring charges 27,333 10,624 -
Deferred income taxes (21,254) (14,427) 8,585
Gain on sale of discontinued operations (10,987) - -
Changes in assets and liabilities, net of
effects from sale of discontinued operations:
Accounts receivable 37,000 15,470 (8,099)
Inventories 26,333 (13,325) 532
Prepaid expenses 4,577 (3,562) (1,383)
Accounts payable (19,396) 5,596 18,987
Other 58,747 41,796 (9,205)
125,111 64,396 97,886
INVESTING ACTIVITIES
Capital expenditures (15,202) (20,900) (20,428)
Software development costs (19,437) (27,515) (22,145)
Minority investments (144) (1,824) (2,031)
Net proceeds from sale of
discontinued operations 43,808 - -
Sale of Broderbund investment - - 19,522
9,025 (50,239) (25,082)
FINANCING ACTIVITIES
Cash dividends (39,999) (40,798) (34,539)
Exercise of stock options 702 5,721 4,159
Reduction in long-term debt (576) (24,126) (24,444)
Issuance of medium-term notes - - 50,000
Short-term borrowing - - (35,231)
(39,873) (59,203) (40,055)
CHANGE IN CASH AND SHORT-TERM INVESTMENTS 94,263 (45,046) 32,749
CASH AND SHORT-TERM INVESTMENTS,
BEGINNING OF YEAR 13,564 58,610 25,861
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $107,827 $ 13,564 $ 58,610
See notes to consolidated financial statements
<TABLE>
STATEMENTS OF CONSOLIDATED CHANGES IN SHAREHOLDERS' INVESTMENT
Jostens Inc. and Subsidiaries
<CAPTION>
Cumulative
(Dollars in thousands, except Common Shares Capital Retained Translation
per share data) Number Amount Surplus Earnings Adjustment
<S> <C> <C> <C> <C> <C>
Balance-June 30, 1991
Previously reported 44,733 $14,911 $130,482 $186,272 $(1,170)
Effect of restatement 9,520 (6,419)
Balance-June 30, 1991 (Restated) 44,733 14,911 140,002 179,853 (1,170)
Net employee stock options
exercised 270 90 3,697
Transactions of pooled company 30 9 363
Net income 59,169
Cash dividends of $0.84 per share (34,539)
Tax benefit of stock options 2,008
Change in cumulative translation adjustment 332
Balance-June 30, 1992 (Restated) 45,033 15,010 146,070 204,483 (838)
Net employee stock options
exercised 194 65 3,217
Transactions of pooled company 198 67 2,372
Net loss (12,672)
Cash dividends of $0.88 per share (40,798)
Tax benefit of stock options 653
Change in cumulative translation adjustment (1,911)
Balance-June 30, 1993 (Restated) 45,425 15,142 152,312 151,013 (2,749)
Net employee stock options
exercised 57 18 1,203
Net loss (16,169)
Cash dividends of $0.88 per share (39,999)
Change in cumulative translation adjustment (1,681)
Restricted stock grants (519)
Adjustment in minimum pension liability (1,990)
Balance-June 30, 1994 45,482 $15,160 $152,996 $ 92,855 $(4,430)
See notes to consolidated financial statements
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Jostens Inc. and Subsidiaries
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include
the accounts of the company and its subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Cash Equivalents and Cash Flows. For purposes of reporting cash flows, cash and
short-term investments include cash on hand, time deposits and commercial paper.
Short-term investments have an original maturity of three months or less. Total
cash payments for income taxes and interest were $8.9 million, $24.2 million,
and $33.4 million, and $5.9 million, $7.5 million, and $8.5 million
respectively, for 1994, 1993 and 1992.
SFAS No.115, Accounting for Certain Investments in Debt and Equity Securities,
must be adopted no later than fiscal 1995. The implementation of this
statement is not expected to have a material impact on the results of
operations. Marketable securities, which consist of commercial paper, are
recorded at cost that approximates market.
Inventories. Gold and certain other inventories aggregating $4.1 million at
June 30, 1994, and $2.2 million at June 30, 1993, are stated at the lower of
last-in, first-out (LIFO) cost or market, and are $13.8 million and $13.1
million lower in the respective years than such inventories deter mined under
the lower of first-in, first-out (FIFO) cost or market. All other inventories
are stated at the lower of FIFO cost or market.
Inventory Obsolescence. The company's policy is to employ a systematic
methodology that includes quarterly evaluations of inventory, based upon
business trends, to specifically identify obsolete, slow-moving and nonsalable
inventory. Inventory reserves are evaluated quarterly to ensure they
continually reflect current business environment and trends.
Intangibles. Intangibles primarily represent the excess of the purchase price
over the fair value of the net tangible assets of acquired businesses.
Intangibles are being amortized over various periods of up to 40 years. The
company recognized an intangible asset relating to additional minimum pension
liability of $5.5 million in 1994. Accumulated amortization at June 30, 1994
and 1993, was $23.2 million and $21.7 million, respectively. The carrying
value of intangible assets is assessed annually and/or when factors indicating
an impairment are present. The company employs an undiscounted cash flow
method of assessment for these assets.
Software Development Costs. Jostens Learning capitalizes software development
costs when the project reaches technological feasibility and ceases
capitalization when the product is ready for release. Research and development
costs related to software
development that has not reached technological feasibility are expensed as
incurred. Software development costs are amortized on the straight-line method
over a maximum of five years or the expected life of the product, whichever is
less. Amortization of capitalized software costs for June 30, 1994, 1993 and
1992, was $15.5 million, $10.9 million and $6 million, respectively.
Accumulated amortization at June 30, 1994 and 1993, was $35 million and $30.9
million, respectively. Research and development expense charged to operations
was $12.9 million, $17.6 million and $13.2 million in 1994, 1993 and 1992,
respectively. The company performs a net realizability evaluation of its
software products. The company recognized a $1.9 million write-off of software
in 1994 as a result of the evaluation, in addition to $25.3 million and $5
million written off in the restructurings of fiscal 1994 and 1993,
respectively. No write-offs were recognized in 1993 or 1992 due to impairment
of net realizable value.
Depreciation. Depreciation on buildings, machinery and
equipment is provided principally on the straight-line method for financial
reporting purposes over their estimated useful lives: buildings, 15 to 40
years; machinery and equipment, three to 10 years. Depreciation expense
charged to operations was $19.2 million, $20.4 million and $20.2 million in
1994, 1993 and 1992, respectively.
Income Taxes. Effective in fiscal 1993, the company adopted SFAS No.109,
Accounting for Income Taxes, by restating prior years. This statement requires
a change from the deferred method of accounting for income taxes to the asset
and liability method of accounting for income taxes. Under this approach,
deferred taxes are recognized for the estimated taxes ultimately payable or
recoverable based on enacted tax law. Changes in enacted tax rates are
reflected in the tax provision as they occur.
Revenue Recognition. Jostens Learning recognizes revenue for hardware and
software upon shipment of the product, provided that no significant vendor or
post-contractor obligations remain outstanding and collection of the resulting
receivable is deemed probable. Revenue generated from service contracts and
post-contract customer support on software is recognized ratably over the
period of the contract. The revenue recognition for instruction and user
training is part of the service contract recognized ratably over the life of
the contract. For insignificant vendor and post contract obligations remaining
at the time of shipment, the company's policy is to accrue all such
obligations. Deferred revenue comprises payments received in advance of
revenue recognized on contracts. For all other Jostens businesses, revenue is
recognized upon shipment of the product.
Sales Returns and Warranty Costs. Provisions for sales returns and warranty
costs are recorded at the time of sale based on historical information
adjusted for current trends.
Translation of Foreign Currencies. Assets and liabilities are translated at
the current exchange rate as of the balance sheet date. Translation
adjustments are recorded as a separate component of equity.
Earnings Per Common Share. Earnings per share have been computed by dividing
net income by the average number of common shares outstanding. The impact of
any additional shares issuable upon the exercise of dilutive stock options is
not material.
Postemployment Benefits. SFAS No.112, Employers' Accounting for Postemployment
Benefits, must be adopted no later than fiscal 1995. Adopting this statement
is expected to result in a $1.1 million charge to operations in the first
quarter of fiscal 1995.
Reclassification. Certain 1993 and 1992 balances have been reclassified to
conform to the 1994 presentation.
RESTRUCTURING CHARGES
Fiscal 1994
The company recorded a restructuring charge of $69.4 million ($45.3 million
after tax, $1 per share) in the fourth quarter of fiscal 1994, including
charges of $60.9 million for Jostens Learning and $8.5 million for reduced
headcount in the company's general and administrative functions.
The restructuring charge relating to Jostens Learning includes $39.1 million
to focus its product development. This involves abandoning certain capitalized
software and proprietary management systems. The remaining restructuring
charge relating to Jostens Learning includes $7.3 million to exit both direct
and indirect investments in three ancillary lines of business, $4.1 million to
exit the hardware sales and
service business, and $10.4 million for work force reduction.
Total fiscal 1994 restructuring charges included $40.7 million of asset write
offs and $28.7 million of accruals, of which $28.2 million remain at June 30,
1994. The accruals are classified as follows: $13.7 million classified in other
liabilities, including $3.7 million relating to
business dispositions, $200,000 in accounts payable and $14.3 million in
salaries, wages and commissions.
Fiscal 1993
In the fourth quarter of fiscal 1993, the company recorded a $50.6 million
($33.6 million after tax, 74 cents per share) restructuring charge for
continuing operations. The charge included $26.7 million for restructuring the
U.S. Photography business, of which $7.9 million related to goodwill write-offs
($5.6 million relating to the Portrait World acquisition in 1989 and $2.3
million in various smaller photography intangibles), $12.8 million related to
plant shutdowns and $6 million related primarily to write-offs of
abandoned receivables from independent sales representatives and dealers. The
remaining $23.9 million of restructuring charges included $10.2 million
primarily for headcount reductions and relocation expenses; $5 million for the
write-off of certain software development costs at Jostens Learning; and $8.7
million primarily for sales force restructuring and policy changes, including
write-offs of abandoned receivables from terminated independent sales
representatives. The accounts receivable balances, which would have ordinarily
been collectible in the absence of the changes in the sales force, were
abandoned as part of the territory consolidations and sales force terminations
resulting from the sales force restructuring.
Prior to reclassification, the 1993 restructuring also included $15 million to
write down the carrying value of the Sportswear business to its net realizable
value. The $15 million related to the sale of Sportswear in 1994 was
reclassified as part of a discontinued operation. (See note on Discontinued
Operations.)
The restructuring charges taken in fiscal 1993 have a remaining accrual of
$11.6 million as of June 30, 1994, relating to plant shutdown costs and long
term leases. Cash payments made on the accruals in fiscal 1994 were
approximately $11.5 million.
DISCONTINUED OPERATIONS
In January 1994, Jostens sold its Sportswear business to a subsidiary of Fruit
of the Loom for $46.7 million in cash. Jostens recognized an $18.5 million
gain ($11 million after
tax) on the sale, primarily because the Sportswear business had been written
down by $15 million to its estimated net realizable value in the fiscal 1993
restructuring. Revenues and income tax benefits related to the Sportswear
business were $52.1 million, $82.8 million and $68.5 million, and $500,000,
$4.9 million and $800,000, respectively, for 1994, 1993 and 1992. Prior-year
amounts have been reclassified to present Sportswear as a discontinued
operation.
CHANGES IN ACCOUNTING ESTIMATES
As a result of a review that concluded at the end of the third quarter of
fiscal 1994, the company increased reserves for inventories, receivables and
overdrafts from independent sales representatives to reflect amounts estimated
not to be recoverable, based upon current facts and circumstances. The revised
estimates reduced pre-tax income for fiscal 1994 by $16.9 million ($10.1
million after tax, 22 cents per share).
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. Income from continuing operations after income
taxes and net income were reduced by $600,000 (1 cent per share) and $2.8
million (6 cents per share) for the years ended June 30, 1993 and 1992,
respectively. Amounts reflected in the restated June 30, 1993, balance sheet
include: (1) establishing reserves for vacation pay, sales returns and
allowances, and a supplemental executive retirement plan aggregating $20.7
million; (2) reducing the fiscal 1993 restructuring charge by $5 million to
reinstate goodwill that was incorrectly deemed to be impaired; (3) increasing
capital surplus by $2.4 million 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 that had been
reclassified in fiscal 1993 from tax liability to reserves for overdrafts,
receivables and inventories); and (5) recording $2.7 million in 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 its financial position and results of
operations in the previous years to which they relate.
ACQUISITIONS
In August 1992, Jostens acquired Wicat Systems Inc., a provider of technology
based learning systems for the education and aviation markets. The transaction
was effected through the exchange of approximately 4.1 million common shares of
the company for all of the issued and outstanding shares of Wicat. The merger
has been accounted for as a pooling of interests; accordingly, all financial
data for periods prior to the merger have been restated to include the results
of Wicat.
Net sales, net income and earnings per share for the 1992 fiscal year
preceding the merger were as follows:
(Dollars in thousands, except per-share data)
Net Net Earnings
Sales Income Per Share
Jostens $810,758 $58,608 $1.44
Wicat 47,772 561
Combined $858,530 $59,169 $1.32
LONG-TERM DEBT AND OTHER BORROWINGS
Long-term debt consists of the following:
June 30
(Dollars in thousands) 1994 1993
Medium-term notes, due in August 1996,
plus interest at 8.02% $ 50,000 $ 50,000
6.75% revenue bonds, covering
general offices, due in January 2004 3,600 3,600
Other 1,162 1,737
54,762 55,337
Less current maturities 495 494
$ 54,267 $ 54,843
Annual maturities on long-term debt are $400,000 in 1996, $50
million in 1997, zero in 1998, zero in 1999 and $3.9 million
thereafter.
During fiscal 1994, Jostens had unsecured lines of credit with four banks
totaling $110 million, under which the company could either borrow on a short-
term basis or use the bank's credit to support the issuance of short-term
commercial paper. In addition, the company had unsecured demand facilities with
two banks totalling $55 million. Such credit arrangements are renegotiated
periodically based on the anticipated seasonal needs for short-term financing.
In compensation for its credit arrangements, the company incurred certain
commitment fees, which were not significant.
INCOME TAXES
Income (loss) from continuing operations before taxes, discontinued operations
and change in accounting principle was as follows:
(Dollars in thousands) 1994 1993 1992
(Restated)(Restated)
Domestic $(40,177) $ (4,547) $ 94,023
Foreign 6,399 8,618 4,634
$(33,778) $ 4,071 $ 98,657
The components of the provision for income taxes attributable to earnings from
continuing operations were as follows:
(Dollars in thousands) 1994 1993 1992
(Restated) (Restated)
Federal $ 10,857 $ 8,187 $ 22,081
State 3,742 1,755 4,406
Foreign 2,603 3,688 3,285
17,202 13,630 29,772
Deferred (24,634) (9,007) 8,547
$ (7,432) $ 4,623 $ 38,319
The following summarizes the differences between income taxes computed at the
U.S. statutory rate and income tax expense from continuing operations for
financial reporting purposes:
(Dollars in thousands) 1994 1993 1992
(Restated)(Restated)
Tax at U.S. statutory rate $(11,822) $ 1,384 $ 33,543
State income taxes, net of federal
income tax benefit 474 252 3,961
Nondeductible restructuring charges 1,960 1,354 -
All other, net 1,956 1,633 815
$ (7,432) $ 4,623 $ 38,319
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the deferred income tax liabilities and assets as of June 30,
1994 and 1993, were as follows:
(Dollars in thousands) 1994 1993
(Restated)
Deferred Tax Liabilities
Capitalized software development costs $ 11,596 $ 19,068
Tax over book depreciation 3,869 4,404
Other, net 5,549 11,058
Net Deferred Tax Liability 21,014 34,530
Deferred Tax Assets
Restructuring charges 18,689 16,586
Net operating loss and tax credit
carryforwards of acquired companies 10,356 12,455
Allowance for doubtful accounts 7,063 2,876
Sales representatives' overdraft reserve 3,657 2,118
Sales returns and allowances 3,401 3,362
Postretirement benefits 2,933 2,598
Pension plans 4,994 3,314
Other, net 7,605 7,556
58,698 50,865
Valuation Allowance (3,642) (3,547)
Net Deferred Tax Assets 55,056 47,318
Net Deferred Tax Asset $ (34,042) $ (12,788)
At June 30, 1994, the company has net operating loss carryforwards from
business acquisitions of $25.2 million for federal income tax purposes that
expire in the years 1998 through 2004. The company also has investment tax
credit and research and experimentation tax credit carryforwards of $1.5
million that expire in the years 1998 through 2004.
BENEFIT PLANS
The company's noncontributory pension plans cover substantially all employees.
The defined benefits provided under the plans are based on years of service
and/or compensation levels. Annually, the company funds the actuarially
determined costs of these plans, including the amortization of prior service
costs over 30 years.
Service cost represents the present value of the increase in future benefits
resulting from the current year's service. The projected benefit obligation is
the present value of benefits, assuming future compensation levels, for
services rendered to date.
During 1994, the company recorded an adjustment of $8.8 million to recognize
the minimum pension liability required by the SFAS No.87, Employers'
Accounting for Pensions. The adjustment, which had no effect on 1994 income,
was offset by recording an intangible asset in the amount of $5.5 million and
a reduction in shareholders' investment of $2 million after tax, as required
by SFAS No.87.
In 1986, the company established a supplemental executive retirement plan
funded by life insurance on the plan participants. While the plan is designed
to be self-funding, based upon the life insurance proceeds purchased on behalf
of the plan participants, this plan meets the guidelines of SFAS No.87,
resulting in a liability of $8.4 million and $8 million as of June 30, 1994
and 1993, respectively.
The components of pension cost and the funded status were as follows:
(Dollars in thousands) 1994 1993 1992
Service cost $ 3,254 $ 3,209 $ 3,551
Interest on projected benefit obligation 6,925 6,083 5,797
Return on assets - actual loss (gain) 326 (6,164) (6,964)
- deferred (6,978) 93 1,273
Amortization (359) (527) (6)
Pension Cost $ 3,168 $ 2,694 $ 3,651
June 30, 1994
Plans whose Plans whose
assets exceed accrued benefits
accrued benefits exceed assets
Vested benefit obligation $ 34,743 $ 52,664
Accumulated benefit obligation 37,795 54,467
Projected benefit obligation 45,736 55,839
Fair value of plan assets 49,304 36,069
Plan assets in excess of (less than)
projected benefit obligation $ 3,568 $(19,770)
Unrecognized net (gain) loss (6,951) 7,075
Unrecognized prior service cost 8,094 5,680
Unrecognized net (asset) at transition (5,679) (2,523)
Adjustment required to recognize
minimum liability - (8,785)
Net Pension Asset (Liability) in
Consolidated Balance Sheets $ (968) $(18,323)
June 30, 1993
Plans whose Plans whose
assets exceed accrued benefits
accrued benefits exceed assets
Vested benefit obligation $ 64,710 $ 11,586
Accumulated benefit obligation 68,500 12,251
Projected benefit obligation 77,548 13,458
Fair value of plan assets 86,725 -
Plan assets in excess of (less than)
projected benefit obligation $ 9,177 $(13,458)
Unrecognized net (gain) (11,052) (397)
Unrecognized prior service cost 13,899 2,027
Unrecognized net (asset) liability
at transition (9,259) 162
Net Pension Asset (Liability) in
Consolidated Balance Sheets $ 2,765 $(11,666)
Plan assets consist primarily of corporate and U.S.government debt, real
estate and corporate equity, including $3.6 million of the company's
common stock.
The assumptions used in determining the components of pension
cost and the funded status were as follows:
1994 1993 1992
Weighted average discount rates 7.5% 8.0% 8.0%
Rates of increase in compensation 5.0% 6.0% 6.0%
Expected rate of return on assets 8.0% 8.0% 8.0%
In conjunction with the divestiture of Sportswear, accrued benefits under the
applicable defined-benefit pension plans were frozen and active participants
became fully vested. The plans' trustee will continue to maintain and invest
plan assets and will administer benefit payments. In accordance with SFAS
No.88, Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans, a loss of $700,000 was included in the gain on disposal
of Sportswear.
The company's retirement savings plan, which covers substantially all nonunion
employees, provides for a matching contribution by the company on amounts,
limited to 6 percent of compensation, contributed by employees. The company's
contribution for the years ended June 30, 1994, 1993 and 1992, was $2.4
million, $1.8 million and $1.4 million, respectively, representing 50 percent
of eligible employee contributions in 1994, 33.3 percent in 1993 and 25
percent in 1992.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Jostens provides medical insurance benefits for substantially all retirees.
Employees who retired prior to June 30, 1992, pay medical contributions at an
amount either frozen at retirement or at a fixed percentage of the plan costs
prior to age 65. Employees retiring after that date receive only a fixed
dollar contribution toward coverage prior to age 65. The fixed dollar
contribution is based on vested service at retirement and is not projected to
increase in the future.
In fiscal 1993, Jostens adopted SFAS No.106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. This statement requires the
accrual of postretirement benefit costs during the years an employee provides
services. The unfunded obligation of $6.7 million ($4.2 million after tax) was
charged against earnings, effective as of the beginning of the year. The cost
of these benefits in fiscal 1992 was $600,000, which was recognized as a
charge to income in the year the benefits were paid. The costs of these
benefits under SFAS No.106 were as follows:
(Dollars in thousands) 1994 1993
Postretirement Benefit Cost
Service cost of benefits earned $ 77 $ 92
Interest cost of benefit obligation 466 523
Amortization of unrecognized prior service cost (7) -
$ 536 $ 615
The actuarial present value of postretirement benefit
obligations and the amount reported in the consolidated balance sheets as of
June 30, 1994 and 1993, were as follows:
(Dollars in thousands) 1994 1993
Accumulated Postretirement Benefit Obligations
Retirees $5,594 $5,177
Fully eligible active participants 97 139
Other active participants 1,140 1,432
6,831 6,748
Unrecognized prior service cost 92 -
Unrecognized net gain 503 267
$7,426 $7,015
The assumptions used in determining the benefit obligation
in fiscal 1994 included a medical plan cost trend rate of 14.5 percent,
declining to 7.9 percent in the year 2000, and a weighted average discount
rate of 7.5 percent. Fiscal 1993 assumptions included a medical plan cost trend
rate of 15 percent, declining to 6 percent in the year 2002, and a weighted
average discount rate of 8 percent. A one-percentage-point increase in the
assumed health care cost trend rates for each future year increases the
accumulated postretirement benefit obligation for health care benefits by
approximately $500,000 with minimal impact on interest cost and no impact on
service cost, since benefits for future retirees are defined dollar benefits
unrelated to health care benefits.
COMMITMENTS AND CONTINGENCIES
The company's noncancelable minimum rental commitments for facilities and
equipment are $9.6 million in fiscal 1995, $7.1 million in 1996, $6.1 million in
1997, $3.1 million in 1998, $2.4 million in 1999 and $6.6 million thereafter.
Operating lease rental expenses were $11.7 million in 1994, $10.7 million in
1993 and $10 million in 1992.
Jostens has forward contracts of $25.7 million for commitments to purchase
65,000 ounces of gold that mature at various times in fiscal 1995 with prices
ranging from $368 to $402 per ounce.
Jostens is a party to litigation arising in the normal course of business.
Management regularly analyzes current information and, as necessary, provides
accruals for probable liabilities on the eventual disposition of these matters.
Management believes that the effect on the company's results of operations and
financial position, if any, for the disposition of these matters will not be
material.
STOCK OPTIONS AND RESTRICTED STOCK
Under stock option plans, Jostens has granted options to key employees to
purchase common shares of the company at 100 percent of the market price on the
dates the options are granted. The following summarizes the changes in stock
options outstanding:
Options Outstanding
(In thousands) 1994 1993 1992
Beginning of year 2,446 2,181 2,138
Granted 463 521 427
Exercised (26) (200) (339)
Canceled (483) (56) (45)
End of Year 2,400 2,446 2,181
At June 30, 1994, the exercise price on outstanding options ranged from $1.21 to
$34.19 per share, and approximately 1.1 million common shares were reserved for
future grants under the stock option plans. As of June 30, 1994, 1.4 million
options were exercisable under stock option plans.
Jostens Learning, under its stock option plan, may grant options to key
employees to purchase common shares of Jostens Learning at the fair market
value on the date the options are granted. Options to purchase up to 21.2
million shares, or approximately 15 percent of the total outstanding shares,
may be granted under the plan. Options vest at 20 percent per year commencing
one year from the date of grant. The shares acquired upon exercise of the
options may be put to or called by Jostens Learning at the then-current fair
market value, after a specified holding period. Option shares may first be
put or called in 1995. The company may elect to purchase the Jostens Learning
shares for cash or Jostens common shares. As of June 30, 1994, options for
9.7 million shares were outstanding at exercise prices ranging from $1.15 to
$3.21 per share, of which 3.2 million shares were exercisable. The fair value
of the stock at June 30, 1994, was below the lowest exercise price.
Jostens maintains a stock incentive plan, which includes the grant of restricted
stock awards. The plan was approved by shareholders Oct. 22, 1992. Shares of
restricted stock issued under the plan are subject to transfer restrictions
based on the continuous employment of the employee, other than retirement,
and/or performance criteria. Participants have voting, liquidation and other
rights with respect to shares of common stock issued to the participant as a
restricted stock award. Restricted stock awards based solely on continuous
employment of the employee granted and outstanding as of June 30, 1994,
totaled 4,500 shares.
Holders of these restricted stock awards receive dividends paid on the common
stock. Restricted stock awards based on the achievement of established goals
granted and outstanding as of June 30, 1994, totaled 30,000 shares. Holders of
these restricted stock awards do not receive dividends paid on the common stock.
SHAREHOLDER RIGHTS PLAN
In August 1988, the Board of Directors declared a distribution to shareholders
of one common share purchase right for each outstanding common share. Each right
entitles the holder to purchase one common share at an exercise price of $60.
The rights become exercisable if a person acquires 20 percent or more, or
announces a tender offer for 25 percent or more, of the company's common
shares. If a person acquires at least 25 percent of the company's outstanding
shares, each right will entitle the holder to purchase the company's common
shares having a market value of twice the exercise price of the right. If the
company is acquired in a merger or other business combination, each right
will entitle the holder to purchase common stock of the acquiring company at
a similar 50 percent discount. The rights, which expire in August 1998, may
be redeemed by the company at a price of 1 cent per right at any time prior
to the 30th day after a person has acquired at least 20 percent of the
company's outstanding shares.
BUSINESS SEGMENT INFORMATION
The company's operations are classified into three business segments: school
based recognition products and services (School Products), technology-based
educational products and services (Jostens Learning), and corporate recognition
and performance incentive products and services (Recognition).
The School Products segment manufactures and sells school-based recognition
products and services including yearbooks, class rings, graduation products and
student photography packages, as well as customized products for university
alumni.
Jostens Learning produces technology-based educational programs for kindergarten
through grade 12. The segment also develops, markets and services technology
based learning improvement solutions to end users in the aviation market.
The business consists of hardware, software and service components.
Operations within the Recognition segment include the manufacture and sale of
customized sales, service and performance awards.
Operating income(loss) from continuing operations by business segment is defined
as sales less operating costs and expenses. Income and expense not allocated to
business segments include investment income, interest expense and corporate
administrative costs.
Identifiable assets are those assets used exclusively in the operations of each
business segment and are reflected after elimination of intercompany balances.
Corporate assets are principally comprised of cash, short-term investments,
deferred income tax assets and certain property and equipment.
Financial information by reportable business segment is
included in the following summary:
(Dollars in thousands) 1994 1993 1992
(Restated)(Restated)
Net Sales
School Products $546,191 $540,691 $543,961
Jostens Learning 177,469 201,624 219,314
Recognition 103,678 94,106 95,255
Consolidated $827,338 $836,421 $858,530
Income (Loss) from
Continuing Operations
School Products $ 73,463 $ 40,042 $ 85,062
Jostens Learning (84,180) (15,263) 23,357
Recognition 9,489 8,582 7,576
Corporate items and
eliminations (27,570) (23,638) (8,889)
Consolidated (28,798) 9,723 107,106
Net interest expense (4,980) (5,652) (8,449)
Income (Loss) from Continuing
Operations Before Income
Taxes $(33,778) $ 4,071 $ 98,657
(Dollars in thousands) 1994 1993 1992
(Restated) (Restated)
Identifiable Assets
School Products $225,249 $260,927 $287,038
Jostens Learning 119,999 193,608 187,226
Recognition 47,315 48,068 49,320
Discontinued operations - 53,184 38,151
Corporate items and
eliminations 177,268 57,663 81,605
Consolidated $569,831 $613,450 $643,340
Depreciation and Amortization
School Products $ 11,700 $ 12,634 $ 12,071
Jostens Learning 24,013 17,301 12,644
Recognition 1,775 2,267 2,107
Discontinued operations - 1,479 1,253
Corporate items and
eliminations 1,439 1,215 1,225
Consolidated $ 38,927 $ 34,896 $ 29,300
Capital Expenditures
School Products $ 6,252 $ 9,769 $ 9,478
Jostens Learning 3,994 7,360 5,527
Recognition 1,054 1,550 1,582
Discontinued operations - 1,229 1,835
Corporate items and
eliminations 3,902 992 2,006
Consolidated $ 15,202 $ 20,900 $ 20,428
Corporate expenses in fiscal 1992 are reduced by gains related to the sale of
the Broderbund investment.
Jostens Learning and corporate had restructuring charges of $60.9 million and
$8.5 million in fiscal 1994 and $10.4 million and $3.7 million in fiscal 1993,
respectively. School Products also had restructuring charges of $36.5 million in
fiscal 1993.
Income from continuing operations for School Products in fiscal 1994 includes
$16.4 million of provisions for revised estimates of inventories, receivables
and overdrafts. Income from continuing operations for Recognition in fiscal
1994 includes $500,000 for revised estimates of inventories.
<TABLE>
Unaudited Quarterly Financial Data
Jostens Inc. and Subsidiaries
<CAPTION>
Fiscal 1994
(Dollars in thousands, Income(Loss) Earnings(Loss) Per Share
except per-share data) from Net Net
Net Gross Continuing Income Continuing Income Stock Price Dividends
Sales Margin Operations (Loss) Operations (Loss) High Low Per Share
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First
Previously reported $167,182 $ 72,005 $ 962 $ 962 $ .02 $ .02
Discontinued operations (29,191) (7,423) (1,027) - (.02) -
Effect of restatement 10,747 4,849 1,516 1,516 .03 .03
Restated $148,738 $ 69,431 $ 1,451 $ 2,478 $ .03 $ .05 $20 7/8 $18 0/0 $.22
Second
Previously reported $223,425 $ 99,180 $ 3,900 $ 3,900 $ .09 $ .09
Discontinued operations (22,901) (2,072) 1,837 - .04 -
Effect of restatement (2,556) (508) (28) (28) - -
Restated $197,968 $ 96,600 $ 5,709 $ 3,872 $ .13 $ .09 $20 5/8 $17 1/2 $.22
Third $158,726 $ 75,761 $ (9,247) $ 1,740 $(.20) $ .04 $20 0/0 $16 5/8 $.22
Fourth $321,906 $159,064 $(24,259) $(24,259) $(.54) $(.54) $17 1/2 $15 1/8 $.22
Total Year $827,338 $400,856 $(26,346) $(16,169) $(.58) $(.36) $20 7/8 $15 1/8 $.88
The quarterly financial data above includes the effects of the restatement that
occurred in the third quarter of 1994 and the effects of reclassifying Sportswear as a
discontinued operation.
A gain of $18.5 million ($11 million after tax) related to the sale of Sportswear was
recorded in the third quarter of fiscal 1994.
In the third quarter of fiscal 1994, $16.9 million was recorded for provisions related
to revised estimates of reserves for inventories, receivables and overdrafts.
Restructuring charges totaling $69.4 million were recorded in the fourth quarter of
1994.
</TABLE>
<TABLE>
Unaudited Quarterly Financial Data
Jostens Inc. and Subsidiaries
<CAPTION>
Fiscal 1993
(Dollars in thousands, Income(Loss) Earnings(Loss) Per Share
except per-share data) from Net Net
Net Gross Continuing Income Continuing Income Stock Price Dividends
Sales Margin Operations (Loss) Operations (Loss) High Low Per Share
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First
Previously reported $153,943 $ 70,538 $ 850 $ (3,300) $ .02 $(.07)
Discontinued operations (19,072) (4,559) (87) - - -
Effect of restatement 7,311 3,337 966 966 .02 .02
Restated $142,182 $ 69,316 $ 1,729 $ (2,334) $ .04 $(.05) $27 1/2 $23 3/4 $.22
Second
Previously reported $222,188 $ 99,899 $ 9,881 $ 9,881 $ .21 $ .21
Discontinued operations (17,998) (3,598) 509 - .01 -
Effect of restatement (1,131) (544) (135) (135) - -
Restated $203,059 $ 95,757 $ 10,255 $ 9,746 $ .22 $ .21 $31 1/4 $24 7/8 $.22
Third
Previously reported $184,964 $ 91,078 $ 5,458 $ 5,458 $ .12 $ .12
Discontinued operations (16,516) (922) (145) - - -
Effect of restatement (3,816) (2,040) (902) (902) (.02) (.02)
Restated $164,632 $ 88,116 $ 4,411 $ 4,556 $ .10 $ .10 $29 0/0 $24 1/8 $.22
Fourth
Previously reported $353,753 $163,858 $(24,136) $(24,136) $(.53) $(.53)
Discontinued operations (29,228) (8,543) 7,693 - .17 -
Effect of restatement 2,023 3,374 (504) (504) (.01) (.01)
Restated $326,548 $158,689 $(16,947) $(24,640) $(.37) $(.54) $28 3/8 $16 1/2 $.22
Total year $836,421 $411,878 $ (552) $(12,672) $(.01) $(.28) $31 1/4 $16 1/2 $.88
The quarterly financial data above includes the effects of the restatement
that occurred in the third quarter of 1994.
First quarter 1993 net income reflects the cumulative effect of adopting SFAS
No.106 of $6.7 million ($4.2 million after tax and 9 cents per share).
Restructuring charges totaling $65.6 million were recorded in the fourth
quarter of fiscal 1993. The charges include $15 million related to Sportswear and are now
classified as discontinued operations.
Certain 1993 amounts have been reclassified to conform to the 1994 presentation.
</TABLE>
<TABLE>
Five-Year Financial Summary
Jostens Inc. and Subsidiaries
(Dollars in millions, except per share data)
<CAPTION>
1994 1993 1992 1991 1990
(Restated) (Restated) (Restated) (Restated)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Net Sales $827.3 $836.4 $858.5 $841.4 $759.9
Cost of Products Sold 426.5 424.5 427.8 421.2 379.8
Net Interest Expense 5.0 5.7 8.4 10.0 9.5
Income Taxes (7.4) 4.6 38.3 37.5 32.8
Income (Loss) - Continuing Operations (26.3) (.6) 60.3 59.9 54.6
Return on Sales (3.2)% (.1)% 7.0% 7.1% 7.2%
Net Income (Loss) (16.2) (12.7) 59.2 61.6 58.5
Return on Investment (5.7)% (3.7)% 16.9% 19.6% 21.0%
Balance Sheet Data
Current Assets $396.1 $401.6 $436.3 $389.4 $338.1
Working Capital 172.7 185.3 232.2 167.7 155.3
Current Ratio 1.8 1.9 2.2 1.8 1.9
Property and Equipment 207.6 218.9 207.4 192.3 173.5
Total Assets 569.8 613.5 643.3 596.4 538.5
Long-Term Debt 54.3 54.8 55.5 31.9 53.6
Shareholders' Investment 256.6 315.7 364.7 333.6 295.3
Common Share Data
EPS (Loss) - Continuing Operations $ (.58) $ (.01) $ 1.34 $ 1.34 $ 1.25
EPS (Loss) - Net Income (.36) (.28) 1.32 1.38 1.34
Cash Dividends .88 .88 .84 .80 .72
Book Value 5.64 6.95 8.10 7.46 6.71
Common Shares 45.5 45.4 45.0 44.7 44.0
Stock Price High 20 7/8 31 1/4 37 3/8 38 5/8 30 3/8
Stock Price Low 15 1/8 16 1/2 24 1/8 23 1/2 20 7/8
The financial statements for fiscal years prior to 1994 have been restated to reflect
the effects of the third quarter 1994 restatement. Such statements also have been
reclassified to present Sportswear as a discontinued operation.
Restructuring charges totaling $69.4 million and $65.6 million were recorded in the
fourth quarters of fiscal 1994 and 1993, respectively. The 1993 restructuring charges
included $15 million related to Sportswear and are now classified as discontinued
operations.
In 1994, $16.9 million was recorded for provisions related to revised estimates of
reserves for inventories, receivables and overdrafts.
1993 net income reflects the cumulative effect of adopting SFAS No.106 of $6.7 million
($4.2 million after tax and 9 cents per share).
</TABLE>
Board of Directors
Lilyan H. Affinito* Former Vice Chair of the Board, Maxxam Group Inc.; Director,
Caterpillar Inc., Chrysler Corp., NYNEX, Tambrands Inc.,
Lillian Vernon Corp., Kmart Corp.
William A. Andres* Retired Chairman and Chief Executive Officer, Dayton
Hudson Corp.; Director, International Multifoods, Scott Paper Company, Lowe's
Companies Inc., Hannaford Bros. Co.
Fred D. Bjork Retired Executive Vice President, Jostens Inc.
Robert C. Buhrmaster President and Chief Executive Officer, Jostens Inc.;
Director, Marietta Corp.
Mannie L. Jackson** Senior Vice President-Corporate Marketing and
Administration, Honeywell Inc.; Majority Owner, Chairman and Chief Executive
Officer, Harlem Globetrotters International; Director, Ashland Oil Corp.
Robert P. Jensen** Chairman, Jostens Inc.; Former Chairman and Chief Executive
Officer, GK Technologies, Inc., Tiger International, Inc., EF Hutton LBO Inc.;
Advisory Director, Bank of New York.
John W. Stodder* Vice Chairman and Audit Committee Chairman, Jostens Inc.;
Independent Corporate Finance Consultant; Director, Tally Industries Inc.,
Stevens Graphics Corp., Trans Leasing Intl. Inc.
* Member, Audit Committee, Compensation and Stock Option Committee, and
Executive Committee
** Member, Audit Committee and Executive Committee
Corporate Management
Robert C. Buhrmaster, 47, President and Chief Executive Officer, joined Jostens
in 1992.
Orville E. Fisher Jr., 50, Corporate Senior Vice President, General Counsel and
Secretary, joined Jostens in 1975.
John L. Jones, 55, Corporate Senior Vice President-Human Resources, joined
Jostens in 1992.
Charles W. Schmid, 51, Corporate Senior Vice President and Chief Marketing
Officer, joined Jostens in 1994.
Ellis F. Bullock Jr., 49, Corporate Vice President-Community Relations, joined
Jostens in 1978.
Greg S. Lea, 42, Corporate Vice President-Total Quality Management, joined
Jostens in 1993.
R. Rick Prather, 52, President-Recognition, joined Jostens in 1969.
Robb L. Prince, 53, Corporate Vice President and Treasurer, joined Jostens in
1973.
Trudy A. Rautio, 41, Corporate Vice President and Controller, joined Jostens in
1993.
Antonio E. W. Sago, 48, Corporate Vice President and General Manager-Jostens
Canada and U.S. Photography, joined Jostens in 1985.
Stanley E. Sanderson Jr., 59, President and CEO of Jostens Learning, joined
Jostens in 1994.
G. Nichols Simonds, 55, Corporate Vice President and Chief
Information Officer, joined Jostens in 1993.
Jack Thornton, 41, Corporate Vice President and General Manager-
Printing & Publishing, joined Jostens in 1978.
Shareholder Information
Annual Meeting of Shareholders will be held at 10 a.m. Thursday,
October 27, 1994, in the Jostens auditorium, 5501 Norman Center
Drive, Minneapolis, MN. All shareholders are invited to attend.
Shareholder Inquiries. Requests for information about Jostens,
including annual and quarterly reports, Form 10-K reports and
other company financial communications, may be directed to:
Investor Relations, Jostens Inc., 5501 Norman Center Drive,
Minneapolis, MN 55437-1088. Phone: (612) 830-3398.
Dividend Reinvestment. Jostens' automatic dividend reinvestment
service is a convenient way for shareholders to increase their
investment in the company. Approximately 35 percent of Jostens'
shareholders use this service, which applies quarterly dividends
and optional cash deposits to the purchase of additional Jostens
shares. Information about this service can be obtained by writing
Jostens' Investor Relations.
Transfer Agent and Registrar. Shareholders with questions about
stockholdings, dividend checks, transfer requirements and address
changes should contact: Norwest Bank Minnesota, N.A., 161 North
Concord Exchange, P.O. Box 738, South St. Paul, MN 55075-0738.
Phone: (612) 450-4064.
Stock Exchange Listing. Jostens common stock is traded on the New
York Stock Exchange (symbol: JOS). The number of common
shareholders of record as of June 30, 1994, was approximately
9,700.
The Annual Report of Corporate Responsibility is available by
writing: The Jostens Foundation, 5501 Norman Center Drive,
Minneapolis, MN 55437-1088.
Facilities
United States Phoenix, Ariz.; Porterville, San Diego and Visalia,
Calif.; Atlanta, Ga.; Princeton and Springfield, Ill.; Topeka,
Kan.; Attleboro, Mass.; East Lansing, Mich.; Burnsville, Eden
Prairie, Minneapolis (Corporate headquarters), Owatonna (3) and
Red Wing, Minn.; Jackson, Miss.; Webster, N.Y.; Winston_Salem,
N.C.; State College, Pa.; Laurens, S.C.; Clarksville, Memphis (2)
and Shelbyville, Tenn.; Denton and Irving, Texas; Orem, Utah.
International Surrey, England; Winnipeg (2), Manitoba;
Mississauga, Ontario; and Montreal and Sherbrooke, Quebec.
This report was printed by the Jostens commercial printing
facility in WinstonSalem, N.C., on recycled (and recyclable)
paper, 50% total recovered fiber, mininum 10% post-consumer fiber.
For more information about products and services from Jostens
please contact us. Our headquarters address is 5501 Norman Center
Drive, Minneapolis, MN 55437, or you may reach us by calling (612)
830-3300.
JOSTENS, INC. AND SUBSIDIARIES
EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT
State or Other
Name Jurisdiction of
Organization
American Yearbook Company, Inc. Kansas
Hunter Publishing Company North Carolina
Jostens Canada, Ltd. Manitoba, Canada
Jostens Engraving Company Minnesota
Jostens Learning Corporation Illinois
Jostens/Massachusetts, Inc. Massachusetts
Jostens Photography, Inc. Minnesota
Jostens Publishing Group, Inc. Minnesota
S. C. Cap and Gown, Inc. South Carolina
The Jostens Foundation, Inc. Minnesota
Wayneco Enterprises, Inc. Pennsylvania
Wicat Systems, Inc. Minnesota
EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Jostens, Inc. of our report dated August 5, 1994,
included in the 1994 Annual Report to Shareholders of Jostens, Inc.
Our audits also included the financial statement schedule of
Jostens, Inc. listed in Item 14(a). These schedules are the
responsibility of the Company's management. Our responsibility is
to express an opinion based on our audits. In our opinion, the
financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in Registration
Statement Number 33-40233 and Registration Statement Number 33-
37076 on Form S-3; Registration Statement Number 33-49968 on Form
S-4; Posteffective Amendment Number 1 to Registration Statement
Number 2-69666 and Registration Statement Numbers 2-95076, 33-
19308, 33-30396, 33-30397, 33-58414 and 33-59270 on Form S-8 of
Jostens, Inc. and in the related Prospectuses of our report dated
August 5, 1994, with respect to the consolidated financial
statements incorporated herein by reference, and our report
included in the preceding paragraph with respect to the financial
statement schedules included in this Annual Report (Form 10-K) of
Jostens, Inc.
ERNST & YOUNG LLP
Minneapolis, Minnesota
September 28, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Jostens,
Inc. 6/30/94 consolidated financial statements and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000054050
<NAME> JOSTENS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> JUN-30-1994
<CASH> 8,629
<SECURITIES> 99,198
<RECEIVABLES> 162,955
<ALLOWANCES> (13,749)
<INVENTORY> 82,638
<CURRENT-ASSETS> 396,117
<PP&E> 207,641
<DEPRECIATION> (131,870)
<TOTAL-ASSETS> 569,831
<CURRENT-LIABILITIES> 223,394
<BONDS> 54,267
<COMMON> 15,160
0
0
<OTHER-SE> 241,421
<TOTAL-LIABILITY-AND-EQUITY> 569,831
<SALES> 827,338
<TOTAL-REVENUES> 827,338
<CGS> 426,482
<TOTAL-COSTS> 426,482
<OTHER-EXPENSES> 429,654
<LOSS-PROVISION> 10,576
<INTEREST-EXPENSE> 6,803
<INCOME-PRETAX> (33,778)
<INCOME-TAX> (7,432)
<INCOME-CONTINUING> (26,346)
<DISCONTINUED> 10,177
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,169)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
