<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1996.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------------- -----------------
Commission File No. 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
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of voting stock held by nonaffiliates of the
Registrant on September 4, 1996, was $727,570,963. The number of shares
outstanding of Registrant's only class of common stock on September 4, 1996, was
38,546,806.
1
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Document Form 10-K
- ------------------------------------------- --------------------------
Annual Report to Shareholders for Parts II and IV
The Year Ended June 30, 1996.
Proxy Statement for Annual Meeting of Parts I and III
Shareholders to be held October 24, 1996
2
<PAGE>
PART I
Item 1. BUSINESS
--------
(a) The Company is a Minnesota corporation, incorporated in 1906. The
Company provides products and services that help people celebrate
achievement, reward performance, recognize service and commemorate
experiences throughout their lives. Products and services include:
yearbooks, class rings, graduation products, student photography
packages, customized business performance and service awards, sports
awards and customized affinity products.
In September 1995, the Company repurchased 7,011,108 shares of its
common stock, the maximum number of shares allowable for purchase, for
$169.3 million through a Modified Dutch Auction tender offer. The
repurchase was funded from the Company's cash and short-term
investment balance, as well as short-term borrowings.
In June 1995, Jostens sold its Jostens Learning Corp. (JLC) curriculum
software subsidiary to a group led by Bain Capital, Inc. for $50
million in cash, a $36 million note maturing in eight years and a
separate $4 million note convertible into 19 percent of the equity of
Jostens Learning, subject to dilution in certain events. The
transaction gain of $11.1 million ($5.8 million after tax) was
deferred in accordance with the Securities and Exchange Commission
Staff Accounting Bulletin No. 81, Gain Recognition on the Sale of a
Business or Operating Assets to a Highly Leveraged Entity. In the
second quarter of fiscal 1996, the deferred gain increased as a result
of the sale of Wicat Systems ($5.3 million) and some accrual
settlements ($800,000). Wicat Systems was the small, computer-based
aviation training subsidiary of JLC which was sold to Wicat
Acquisition Corp., a private investment group, for $1.5 million in
cash plus a promissory note for approximately $150,000. The adjusted
$17.2 million gain ($9.7 million after tax) and interest on the notes
receivable, will be deferred until cash flows from the operating
activities of JLC are sufficient to fund debt service, dividend or any
other covenant requirements.
In the fourth quarter of fiscal 1994, the Company recorded an $8.5
million restructuring charge ($5.1 million after tax, or 12 cents per
share) related to continuing operations, covering headcount reductions
in the general and administrative functions. Jostens also recorded a
restructuring charge of $60.9 million ($40.2 million after tax, or 88
cents per share) related to JLC, which has been reclassified as part
of discontinued operations. The restructuring charge relating to JLC
included $39.1 million to focus its product development, $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 reductions.
In the third quarter of fiscal 1994, the U.S. Photography business
closed leased facilities in Clinton, Mississippi, and Lake Forest,
California, and transferred production in fiscal 1995 to owned
facilities in Webster, New York, and Winnipeg, Manitoba. In the third
quarter of fiscal 1995, the U.S. Photography business also closed its
Jackson, Mississippi facility, transferring production to Webster, New
York, and Winnipeg, Manitoba.
3
<PAGE>
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 then estimated net realizable value.
There have been no material changes during fiscal 1996 in the mode in
which the Company has conducted its business.
(b) The Company's operations are classified into two business segments:
school-based recognition products and services (School Products) and
longevity and performance recognition products and services for
businesses (Recognition). Business segment financial information is in
the financial statement footnote "Business Segment Information" on
pages 35 and 36 of the 1996 Annual Report to Shareholders.
(c) The Company's two business segments sell their products in elementary
schools, high schools, colleges and businesses in the 50 United States
and some foreign countries through a sales force of approximately
1,125 independent representatives. In fiscal 1995, the Company had a
discontinued operation (JLC) which produced educational software for
students in kindergarten through grade 12. The JLC discontinued
operation included its Wicat subsidiary which was subsequently sold in
fiscal 1996. In fiscal 1994, the Company had a discontinued operation
(Sportswear), which manufactured and marketed decorated sportswear to
retail outlets and schools.
4
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SCHOOL PRODUCTS SEGMENT
- -----------------------
School Products recognizes individual and group achievement and affiliation
primarily in the academic market. School Products comprises five businesses:
Printing & Publishing, Jewelry, Graduation Products, U.S. Photography and
Jostens Canada. The School Products segment's sales of $595 million in 1996
included these five lines of business and $8.8 million in other sales.
Printing & Publishing: Jostens manufactures and sells student-created yearbooks
in elementary schools, junior high schools, high schools and colleges.
Independent sales representatives work closely with each school's yearbook staff
(both students and a faculty adviser), assisting with the planning, editing,
layout and printing scheduling until the book is completed. Jostens sales
representatives work with the faculty advisers to renew yearbook contracts each
year. This business also provides commercial printing of annual reports,
brochures, and promotional books and materials. Printing & Publishing
contributed approximately 37% of sales volume of this segment in fiscal 1996,
36% in 1995 and 35% in 1994.
Jewelry: Jostens manufactures and sells rings representing a graduating class
primarily to high school and college students. This product contributed
approximately 28% of the sales volume of this segment in fiscal 1996 and 27% in
1995 and 1994. Most schools have only one supplier to its students each year.
Rings may be sold through bookstores, other campus stores, retail jewelry stores
as well as within the school through temporary order-taking booths. Jostens,
through its independent sales representatives, manages the entire process of
interacting with the student through ring design, promotion, ordering and
presentation to relieve school officials of any administrative burden connected
with students purchasing this symbol of achievement.
Graduation Products: Jostens manufactures and sells graduation announcements,
diplomas and caps and gowns to students and administrators in high schools and
colleges. This product group contributed approximately 23%, 24% and 23% of sales
to this segment in fiscal years 1996, 1995 and 1994, respectively. Jostens
independent sales representatives make calls on schools and sales are taken
through temporary order-taking booths.
Photography: Jostens U.S. Photography provides student pictures and senior
portraits to elementary, junior high and high school students through its sales
force and dealer network, which arrange the sittings/shootings at individual
schools or in their own studios. This business contributed approximately 4% of
sales to this segment in fiscal 1996 and 1995 and 5% in fiscal 1994. Jostens
processes the photos at its plants in the U.S. and Canada.
Jostens Canada: Jostens is the leader in school photography, yearbooks and class
rings in Canada. Approximately 60% of fiscal 1996 sales volume was attributable
to school photography. This product group contributed approximately 7% of sales
to this segment in fiscal 1996 and 1995 and 8% in fiscal 1994.
MARKETS: School Products serves elementary schools, middle schools, high
schools, colleges, alumni associations and other organizations in the United
States and Canada through approximately 1,025 independent sales representatives.
Jostens also maintains an international sales force covering about 50
countries servicing primarily American schools and military installations.
5
<PAGE>
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, alumni
products, individual and group school pictures, group photographs for youth
camps and organizations, and senior graduation portraits.
SALES FORCE: The School Products segment markets its products primarily through
independent sales representatives. Approximately 450 persons are dedicated to
selling class rings and graduation products, 325 to yearbooks and 250 to
photography.
During 1996, the company was approached by a group of sales representatives
seeking changes in their agreements with Jostens. All of the company's sales
representatives have similar contractual arrangements, and the company does not
anticipate substantial changes to that relationship with the majority of sales
representatives.
For some of the about 50 representatives who serve the college market, the
company anticipates a change in the contract status. These representatives'
contracts call for a transition commission to be paid after the representative
leaves the business. Historically, these transition payments have been paid by
the new sales representative who assumed responsibility for the accounts of the
outgoing representative, with Jostens acting as the collection agent. Although
the nature of the potential changes to the contractual relationship with the
representatives serving the college market is unknown, any change to the current
arrangement may result in the company being required to account in the future
for these contingent payments as a liability. In the absence of substantial
contractual changes, the company does not anticipate any change in the
accounting for the contracts with its other independent sales representatives.
SEASONALITY: This product segment experiences a strong seasonality concurrent
with the school year with 40-50% of full-year sales occurring in the fourth
quarter. The business generally requires short-term financing during the course
of the fiscal year.
COMPETITION: The business of the School Products segment is highly competitive,
primarily in the pricing, product development and marketing areas.
In the class ring business, the Company has two primary national competitors:
Town & Country (Balfour) and Herff Jones, both with distribution methods similar
to the Company's. The class ring business is also served through retail jewelry
stores, dominated by two companies: Commitment Jewelry Company with two lines
(ArtCarved and R. Johns) and Town & Country with one line (Gold Lance).
In the Graduation Products business, several national and numerous local and
regional competitors offer products similar to those of the Company.
Printing & Publishing competition is primarily made up of two national firms
(Herff Jones and Taylor Publishing) and one smaller regional firm (Walsworth
Publishing). All compete on price, print quality, product offerings and service.
Technological offerings in the way of computer based curricula are becoming
a more significant market advantage.
In the Photography area, the Company competes with Lifetouch, Olan Mills and
Herff-Jones, and a variety of regional and locally owned and operated
photographers that process product in small batches in the U.S. In Canada, the
Company competes with Lifetouch and a variety of regional and locally owned and
operated photographers.
The Company's strategy for competing with these companies is based on its
service and quality.
6
<PAGE>
RECOGNITION SEGMENT
- -------------------
The Recognition segment helps companies promote and recognize achievement in
people's careers. It designs, communicates and administers programs to help
customers improve performance and employee service. 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.
This business manufactures and markets a wide variety of products sold primarily
to corporations and businesses in the United States and Canada. The products
manufactured by Recognition include customized and personalized jewelry, rings,
watches and engraved certificates. In addition, this business also remarkets
items manufactured by others for incorporation into programs sold to Recognition
customers. These products include items supplied by Lenox, Hartmann, Waterman,
Kirk Stieff and Oneida.
MARKETS: Recognition serves customers from small and mid-size companies to
global corporations, professional and amateur sports teams and special interest
associations.
PRODUCTS: Recognition offers a wide assortment of products and services tailored
to the needs of the organization it is serving. For global companies, Jostens
customizes programs to meet specific customer needs.
Standardized 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 offering such products as Lenox[TM] luggage for the
service award marketplace.
SALES FORCE: Recognition sells its products through approximately 100
independent sales representatives who develop programs incorporating Recognition
products.
COMPETITION: The business of the Recognition segment is highly competitive with
a very fragmented and diverse set of competitors. The Recognition business
competes primarily with O.C. Tanner and the Robbins Company on a national basis
as well as several regional recognition companies. Recognition focuses on
service and product offerings in competing with these companies.
7
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JOSTENS, INC.--INFORMATION REGARDING ALL BUSINESSES
-----------------------------------------------------
BACKORDERS: Because of the nature of the Company's business, generally all
orders are filled within a few months from the time of placement. However,
the School Products Segment obtains student yearbook contracts in one
fiscal year for a significant portion of the yearbooks to be delivered in
the next fiscal year. Often the prices of the yearbooks are not established
at the time of the order because the content of the books may not have been
finalized. Subject to the foregoing qualifications, the Company estimates
that as of June 30, 1996, the backlog of orders related to continuing
operations was approximately $210 million compared with $231 million a year
earlier, primarily related to student yearbooks. The Company expects most
of the backlog orders to be confirmed and filled within the current fiscal
year.
ENVIRONMENTAL: The Company does not believe that compliance with federal,
state, and local provisions protecting the environment will have a material
affect upon its capital expenditures, earnings, or competitive position.
RAW MATERIALS: All of the raw materials used by the Company are available
from several sources. Gold is an important raw material and accounted for
approximately 9%, 10%, and 9%, respectively, of the Company's cost of
products sold in the fiscal years ended June 30, 1996, 1995 and 1994.
INTELLECTUAL PROPERTY: The Company has no patents, licenses, franchises or
concessions that are material to the Company as a whole, but does have a
number of proprietary trade secrets, trademarks and copyrights that it
considers important. In addition, licenses are an important part of certain
aspects of the Company's businesses; however, the loss of any license would
not have a material affect on the Company's operations.
SIGNIFICANT CUSTOMERS: No material part of any business of the Company
depends upon a single customer or very few customers.
FEDERAL GOVERNMENT CONTRACTS: No material portion of the Company's
business is subject to renegotiation of profits or the termination of
contracts or subcontracts at the election of the United States Government.
EMPLOYEES: At June 30, 1996, the total number of employees of the Company
was approximately 6,100 (not including independent sales representatives).
Because of seasonal fluctuations and the nature of the business, the number
of employees tends to vary.
(d) The Company's foreign sales are derived primarily from operations in Canada
and the United Kingdom. The accounts and operations of the Company's
foreign businesses are not material. Local taxation, import duties,
fluctuation in currency exchange rates and restrictions on exportation of
currencies are among risks attendant to foreign operations, but these risks
are not considered material with respect to the Company's business. The
profit margin on foreign sales is approximately the same as the profit
margin on domestic sales.
8
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Item 2. PROPERTIES
----------
The principal plants, which are owned by the Company unless
otherwise noted, are as follows:
<TABLE>
<CAPTION>
Approximate
Area in
Location Principal Products Square Feet
- -------- ------------------ -----------
<S> <C> <C>
Attleboro, Massachusetts Class Rings 52,000
Denton, Texas Class Rings 57,000
Laurens, South Carolina Caps and Gowns 98,000
Porterville, California Graduation Products 92,000
Red Wing, Minnesota Graduation Products 132,000
Shelbyville, Tennessee Graduation Products 87,000
Burnsville, Minnesota * Scholastic Support 44,000
Edina, Minnesota * Scholastic Support 22,000
Owatonna, Minnesota ** Scholastic Support 154,000
Owatonna, Minnesota * Scholastic Support 24,000
Memphis, Tennessee Recognition Awards 67,000
Princeton, Illinois Recognition Awards 65,000
Sherbrooke, Quebec Recognition Awards 15,000
Clarksville, Tennessee Yearbooks 105,000
State College, Pennsylvania Yearbooks 66,000
Topeka, Kansas Yearbooks 236,000
Visalia, California Yearbooks 96,000
Winston-Salem, North Carolina Yearbooks/Commercial Printing 132,000
Webster, New York Photography Products 60,000
Webster, New York * Photography Products 10,000
Winnipeg, Manitoba Photography and Yearbooks 69,000
Winnipeg, Manitoba * Class Rings 11,000
</TABLE>
Executive offices are located in a general offices building owned by the
Company, which has approximately 116,000 square feet and is located in a
Minneapolis, MN suburb. A portion of this facility has been financed through
the issuance of revenue bonds.
9
<PAGE>
Item 2. PROPERTIES (continued)
----------
* Represents leased properties with the following expiration dates. The
Company expects to renew those leases expiring in fiscal 1997 with the exception
of Clinton and the Winnipeg Ring Plant.
<TABLE>
<CAPTION>
<S> <C>
Edina 1997
Webster 1997
Toronto 2000
Winnipeg
Ring Plant 1997 (Announced closing in July 1996)
Extension of
Photo Plant 1999
General
Offices 1998
Burnsville 1997
Owatonna 2001
</TABLE>
** Several locations.
Item 3. LEGAL PROCEEDINGS
-----------------
No material legal proceedings involving the Company or any
subsidiary as a defendant are pending or threatened.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
10
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Item 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information under the caption "Election of Directors"
contained on pages 2 through 7 of the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on October 24,
1996, as filed with the Securities and Exchange Commission is
hereby incorporated herein by reference. Executive officers of
the Registrant are as follows:
<TABLE>
<CAPTION>
Years of
Service With
Name the Company Age Title and Business Experience
- ---- ------------ --- -----------------------------
<S> <C> <C> <C>
Robert C. Buhrmaster 4 49 President and Chief Executive Officer
Mr. Buhrmaster joined the Company in December
1992 as Executive Vice President and Chief
Staff Officer. He was named President and
Chief Operating Officer in June 1993 and was
named to his current position in March 1994.
Prior to joining Jostens, Mr. Buhrmaster had
been with Corning, Inc. for 18 years serving
in various capacities, most recently as Senior
Vice President of Strategy and Business
Development.
Charles W. Schmid 3 53 Executive Vice President and General
Manager - Scholastic and Recognition
Mr. Schmid joined the Company in April 1994
as Senior Vice President and Chief Marketing
Officer. He was appointed to his current
position in August 1995. Prior to joining the
Company he was President and Chief Operating
Officer for Carlson Companies, Inc. From 1979
through 1991, Mr. Schmid served in various
executive capacities for Philip Morris
Companies, Inc., most recently as Senior Vice
President of Marketing for its Miller Brewing
Company.
Orville E. Fisher Jr. 21 52 Senior Vice President, General Counsel and
Secretary
Mr. Fisher joined the Company in 1975 as
General Counsel, was named Vice President,
General Counsel and Assistant Secretary in
1977. He assumed his present position in
1988.
John L. Jones 5 59 Senior Vice President - International
Mr. Jones joined the Company in January, 1992
as Senior Vice President-Human Resources.
Prior to joining Jostens, he was Director of
Human Resources, Americas Operations of Xerox
Corporation, and had held various human resource
positions with Xerox since 1971.
</TABLE>
11
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Item 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
--------------------------------------------------
<TABLE>
<CAPTION>
Years of
Service With
Name the Company Age Title and Business Experience
- ---- ------------ --- -----------------------------
<S> <C> <C> <C>
Trudy A. Rautio 3 43 Senior Vice President and Chief Financial
Officer
Ms. Rautio joined the Company in June 1993 as
Vice President-Finance and Administration of
the School Products Group. She was appointed to
Corporate Vice President and Controller in
August 1993, and Senior Vice President
- Finance in October 1994. She was appointed
to her current position in August 1995. Prior
to joining Jostens, she worked for the Pillsbury
Company for 12 years; most recently as Vice
President, Finance International and Strategic
Brand Development and earlier as Vice
President, Finance for Green Giant.
Jack Thornton 18 43 Senior Vice President and General Manager -
Printing & Publishing / Photography / Jostens
Canada
Mr. Thornton has held several management
positions with Jostens since starting as a
personnel manager in 1978. He was promoted to
Operations Manager of the Printing and
Publishing Division in 1989 and Vice President
of Operations-School Products Group one year
later. He was named a Vice President for
Jostens in February 1991. He was appointed a
Senior Vice President of the School Products
Group in October 1992. He was appointed
General Manager of the Printing & Publishing
business in April 1993. He assumed his current
position in August 1995.
</TABLE>
12
<PAGE>
Item 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
--------------------------------------------------
Years of
Service With
Name the Company Age Title and Business Experience
- ---- ------------ --- -----------------------------
Greg S. Lea 3 44 Vice President and General Manager -
Colleges and Universities
Mr. Lea joined the Company in November 1993 as
Vice President - Total Quality Management. He
was named to his current position in June
1995. Prior to joining the Company, Mr. Lea
spent 19 years with International Business
Machines Corp. in various financial,
operations and quality positions, most
recently as Director of Market Driven Quality
for IBM's AS/400 Division.
Lee U. McGrath 2 40 Vice President and Treasurer
Mr. McGrath joined the Company in May 1995.
Prior to joining the Company he worked for six
years for H.B. Fuller Company in various
positions, most recently as assistant
treasurer.
13
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
------------------------
The information under the captions "Unaudited Quarterly Financial
Data", contained on page 38 and "Shareholder Information" and "Stock
Exchange Listing" contained on page 41 in the Company's annual report
to shareholders for the year ended June 30, 1996, is incorporated
herein by reference.
Item 6. SELECTED FINANCIAL DATA
-----------------------
The information under the caption "Six-Year Financial Summary"
contained on page 39 in the Company's annual report to shareholders
for the year ended June 30, 1996, is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
------------------------------------
The information under the caption "Management's Discussion and
Analysis" contained on pages 14 through 19 of the Company's annual
report to shareholders for the year ended June 30, 1996, is
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The consolidated balance sheets of Jostens, Inc. as of June 30, 1996
and 1995, and the related statements of consolidated operations,
changes in shareholders' investment and cash flows for each of the
years in the three-year period ended June 30, 1996, together with the
related notes and the report of Ernst & Young LLP, independent
auditors, all contained on pages 20 through 37 of the Company's annual
report to shareholders for the year ended June 30, 1996, are
incorporated herein by reference.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
----------------------------------------------------
None.
14
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PART III
Item 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
----------------------------------------
In addition to certain information as to executive officers of the
Company included in Part I of this Form 10-K, the information
contained on pages 2 through 7 of the Company's Proxy Statement for
the Annual Meeting of Shareholders to be held October 24, 1996, with
respect to directors and executive officers of the Company, is
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
----------------------
The information under the caption "Executive Compensation" contained
on pages 8 through 14 of the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held on October 24, 1996, as filed with
the Securities and Exchange Commission is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information under the caption "Shares Held by Directors and
Officers" on pages 6 through 7 of the Company's Proxy Statement for
the Annual Meeting of Shareholders to be held October 24, 1996, is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
None.
15
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE 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, 1996, are
incorporated herein by reference.
<TABLE>
<CAPTION>
Pages in
Annual Report
-------------
<S> <C>
Consolidated Balance Sheets -
June 30, 1996 and 1995 22 and 23
Statements of Consolidated Operations
for the Years Ended June 30,
1996, 1995, and 1994 21
Statements of Consolidated Changes
in Shareholders' Investment
for the Years Ended June 30,
1996, 1995, and 1994 25
Statements of Consolidated Cash
Flows for the Years Ended June 30,
1996, 1995, and 1994 24
Notes to Consolidated Financial
Statements 26 through 37
</TABLE>
2. Financial Statement Schedule
Page in
10-K
------------
Schedule II - Valuation and
Qualifying Accounts S-1
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.
16
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
--------------------------------------------------------------
(continued)
3. Executive Agreements
The following agreement is an exhibit to this Annual Report on
Form 10-K:
Deferred Compensation Plan
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
fourth quarter of the year ended June 30, 1996.
(c) Exhibits
2. a. Stock Purchase Agreement by and between JLC Holdings, Inc.
Software Systems Corp. and JLC Acquisitions, Inc. and
Jostens, Inc. (incorporated by reference to Exhibit 2.1
contained in the Current Report on Form 8-K filed on July
14, 1995)
3. a. Articles of Incorporation 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 1984 Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form
S-8, File No. 2-95076).
b. Company's 1987 Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form
S-8, File No. 33-19308).
c. 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).
17
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
--------------------------------------------------------------
(continued)
d. 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).
e. Written description of the Company's Retired Director
Consulting Plan (incorporated by reference to the
Company's Form 8 dated May 2, 1991).
f. Form of Performance Share Agreement entered into with
respect to the Special Equity Performance Plan
(incorporated by reference to Exhibit 10(g) contained
in the Annual Report on Form 10-K for year ended June
30, 1995).
g. Executive Supplemental Retirement Agreement with John
L. Jones (incorporated by reference to Exhibit 10(h)
contained in the Annual Report on Form 10-K for year
ended June 30, 1995).
h. Deferred Compensation Plan (filed herewith)
11. Computation of earnings per share.
13. Annual Report to Shareholders for the year ended June
30, 1996.
21. List of Company's subsidiaries.
23. Consent of Independent Auditors.
27. Financial Data Schedule.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JOSTENS, INC.
Date: September 20, 1996
By /s/ Robert C. Buhrmaster
--------------------------------------------------------
Robert C. Buhrmaster
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrants in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/ Robert C. Buhrmaster September 20, 1996
- ------------------------------------------------------------
Robert C. Buhrmaster (Principal Executive Officer)
President and Chief Executive Officer and Director
/s/ Trudy A. Rautio September 20, 1996
- ------------------------------------------------------------
Trudy A. Rautio (Principal Financial and Accounting Officer)
Senior Vice President and Chief Financial Officer
/s/ Robert P. Jensen September 20, 1996
- ------------------------------------------------------------
Robert P. Jensen
Chairman of the Board and Director
/s/ Lilyan H. Affinito September 20, 1996
- ------------------------------------------------------------
Lilyan H. Affinito
Director
/s/ William A. Andres September 20, 1996
- ------------------------------------------------------------
William A. Andres
Director
/s/ Jack W. Eugster September 20, 1996
- ------------------------------------------------------------
Jack W. Eugster
Director
/s/ Mannie L. Jackson September 20, 1996
- ------------------------------------------------------------
Mannie L. Jackson
Director
/s/ John W. Stodder September 20, 1996
- ------------------------------------------------------------
John W. Stodder
Director
/s/ Richard A. Zona September 20, 1996
- ------------------------------------------------------------
Richard A. Zona
Director
</TABLE>
19
<PAGE>
JOSTENS INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
COL A. COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------
Additions
--------------------------
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts - Deductions - End of
Description of Period Expenses Describe Describe Period
- -----------------------------------------------------------------------------------------------------------
Reserves and allowances deducted from asset accounts:
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowances for uncollectible accounts:
Year ended June 30, 1996 $ 9,049 $ 2,195 $ - $ 5,278(1) $ 5,966
Year ended June 30, 1995 $13,749 $ 3,552 $ - $ 8,252(2) $ 9,049
Year ended June 30, 1994 $ 6,869 $10,576(9) $ - $ 3,696(1) $13,749
- -----------------------------------------------------------------------------------------------------------
Allowances for sales returns:
Year ended June 30, 1996 $ 7,509 $12,951 $ - $13,942(3) $ 6,518
Year ended June 30, 1995 $ 6,719 $12,763 $ - $11,973(3) $ 7,509
Year ended June 30, 1994 $ 8,733 $10,843 $ - $12,857(3) $ 6,719
- -----------------------------------------------------------------------------------------------------------
SFAS No. 109 valuation allowance:
Year ended June 30, 1996 $ 2,117 $ 3,803(4) $ - $ - $ 5,920
Year ended June 30, 1995 $ 3,642 $ - $ - $ 1,525(5) $ 2,117
Year ended June 30, 1994 $ 3,547 $ 95 $ - $ - $ 3,642
- -----------------------------------------------------------------------------------------------------------
Overdraft reserves:
Year ended June 30, 1996 $ 6,157 $ 2,838 $ - $ 2,450(1) $ 6,545
Year ended June 30, 1995 $ 7,796 $ 1,943 $ - $ 3,582(1) $ 6,157
Year ended June 30, 1994 $ 3,243 $ 4,553(9) $ - - $ 7,796
- -----------------------------------------------------------------------------------------------------------
Reserves and allowances added to liability accounts:
- -----------------------------------------------------------------------------------------------------------
Restructuring charges:
Year ended June 30, 1996 $ 8,636 $ - $ - $ 5,936(6) $ 2,700
Year ended June 30, 1995 $39,821 $ - $ - $31,185(7) $ 8,636
Year ended June 30, 1994 $38,203 $28,668 $ - $27,050(8) $39,821
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Note (1) -- Uncollectible accounts written off - net of recoveries.
Note (2) -- Uncollectible amounts written off - net of recoveries ($5,796)
plus disposition of Jostens Learning ($2,456).
Note (3) -- Returns processed against reserve.
Note (4) -- Increased due to the increase in foreign tax credits not likely
to be utilized.
Note (5) -- Reduced for utilization of Jostens Learning NOL.
Note (6) -- Payments ($2,400), Noncash items ($400), and disposition of
Wicat ($3,136).
Note (7) -- Payments ($21,090), Noncash items ($3,523) and disposition of
Jostens Learning ($6,572).
Note (8) -- Payments ($12,050) and disposition of Sportswear business
($15,000).
Note (9) -- Includes change in estimate.
S-1
20
<PAGE>
EXHIBIT 10. h.
JOSTENS, INC.
DEFERRED COMPENSATION PLAN
As Amended Effective as of August 15, 1996
<PAGE>
JOSTENS, INC.
DEFERRED COMPENSATION PLAN
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 DESCRIPTION............................................. 1
1.1 Plan Name............................................... 1
1.2 Plan Purpose............................................ 1
1.3 Plan Type............................................... 1
1.4 Plan Background......................................... 1
ARTICLE 2 PARTICIPATION........................................... 2
2.1 Eligibility............................................. 2
2.2 Transfer Among Participating Employers.................. 2
2.3 Multiple Employment..................................... 2
2.4 Ceasing to be Eligible.................................. 2
2.5 Condition of Participation.............................. 3
2.6 Termination of Participation............................ 3
ARTICLE 3 BENEFITS................................................ 4
3.1 Participant Accounts.................................... 4
3.2 Deferral Credits........................................ 4
3.3 Earnings Credits........................................ 6
3.4 Vesting................................................. 7
3.5 Current Election by Qualified Director.................. 7
ARTICLE 4 DISTRIBUTION............................................ 8
4.1 Distribution to Participant............................. 8
4.2 Distribution to Beneficiary............................. 11
4.3 Limitations on Share Distributions...................... 12
4.4 Payment in Event of Incapacity.......................... 12
ARTICLE 5 SOURCE OF PAYMENTS; NATURE OF INTEREST.................. 13
5.1 Establishment of Trust.................................. 13
5.2 Source of Payments...................................... 13
5.3 Status of Plan.......................................... 13
5.4 Non-assignability of Benefits........................... 13
ARTICLE 6 ADOPTION, AMENDMENT, TERMINATION........................ 14
6.1 Adoption................................................ 14
6.2 Amendment............................................... 14
6.3 Termination of Participation............................ 14
6.4 Termination............................................. 15
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 7 DEFINITIONS, CONSTRUCTION AND INTERPRETATION....................................... 16
7.1 Account............................................................................ 16
7.2 Active Participant................................................................. 16
7.3 Administrator...................................................................... 16
7.4 Affiliated Organization............................................................ 16
7.5 Annual Bonus....................................................................... 16
7.6 Base Compensation.................................................................. 16
7.7 Board.............................................................................. 17
7.8 Beneficiary........................................................................ 17
7.9 Change of Control.................................................................. 17
7.10 Code............................................................................... 18
7.11 Company............................................................................ 18
7.12 Cross Reference.................................................................... 18
7.13 Effective Date..................................................................... 18
7.14 ERISA.............................................................................. 18
7.15 Exchange Act....................................................................... 18
7.16 Governing Law...................................................................... 18
7.17 Headings........................................................................... 18
7.18 Market Price....................................................................... 18
7.19 Merger Date........................................................................ 18
7.20 Number and Gender.................................................................. 18
7.21 Participant........................................................................ 18
7.22 Participating Employer............................................................. 18
7.23 Plan............................................................................... 19
7.24 Plan Year.......................................................................... 19
7.25 Plan Rules......................................................................... 19
7.26 Qualified Director................................................................. 19
7.27 Qualified Employee................................................................. 19
7.28 Shares............................................................................. 19
7.29 Termination of Employment.......................................................... 19
7.30 Trust.............................................................................. 19
7.31 Trustee............................................................................ 19
7.32 Unforeseeable Emergency............................................................ 19
ARTICLE 8 ADMINISTRATION..................................................................... 20
8.1 Administrator...................................................................... 20
8.2 Plan Rules and Regulations......................................................... 20
8.3 Administrator's Discretion......................................................... 20
8.4 Specialist's Assistance............................................................ 20
8.5 Indemnification.................................................................... 20
8.6 Benefit Claim Procedure............................................................ 20
8.7 Disputes........................................................................... 21
ARTICLE 9 MISCELLANEOUS...................................................................... 22
9.1 Withholding and Offsets............................................................ 22
9.2 Other Benefits..................................................................... 22
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
9.3 No Warranties Regarding Tax Treatment..................... 22
9.4 No Rights to Continued Service Created.................... 22
9.5 Successors................................................ 22
</TABLE>
iii
<PAGE>
JOSTENS, INC.
DEFERRED COMPENSATION PLAN
ARTICLE 1
DESCRIPTION
1.1 PLAN NAME. The name of the Plan is the "Jostens, Inc. Deferred
Compensation Plan."
1.2 PLAN PURPOSES. The purposes of the Plan are (a) to provide Active
Participants with the opportunity to defer receipt of a portion of the
Base Compensation and, in the case of Active Participants who are
Qualified Employees, the Annual Bonus, that would otherwise be payable to
them and (b) to permit Active Participants who are Qualified Directors to
elect to receive Base Compensation currently in the form of Shares.
1.3 PLAN TYPE. The Plan is an unfunded plan maintained primarily for the
purpose of providing deferred compensation for Qualified Directors and a
select group of management or highly compensated employees. It is intended
that, with respect to participation by Qualified Directors, ERISA will not
apply to the Plan and that, with respect to participation by Qualified
Employees, the Plan is exempt from the provisions of Parts 2, 3 and 4 of
Subtitle B of Title I of ERISA by operation of sections 201(2), 301(a)(3)
and 401(a)(4) thereof, respectively, and from the provisions of Title IV
of ERISA, to the extent otherwise applicable, by operation of section
4021(b)(6) thereof. The Plan is also intended to be unfunded for tax
purposes. The Plan will be construed and administered in a manner that is
consistent with and gives effect to the foregoing.
1.4 PLAN BACKGROUND. The Company adopted the Jostens, Inc. Directors' Deferred
Compensation Plan effective as of January 1, 1995. The Company adopted the
Jostens, Inc. Officers' Deferred Compensation Plan effective as of January
1, 1996. Effective as of the Merger Date, such plans were restated in the
manner set forth in the instrument entitled "Jostens, Inc. Deferred
Compensation Plan" to reflect the merger of the plans. In the case of a
Participant who was a Participant in the Jostens, Inc. Directors' Deferred
Compensation Plan prior to the Merger Date, references to the Plan for the
period prior to the Merger Date are to the Jostens, Inc. Directors'
Deferred Compensation Plan. In the case of a Participant who was a
Participant in the Jostens, Inc. Officers' Deferred Compensation Plan
prior to the Merger Date, references to the Plan for the period prior to
the Merger Date are to the Jostens, Inc. Officers' Deferred Compensation
Plan.
1
<PAGE>
ARTICLE 2
PARTICIPATION
2.1 ELIGIBILITY.
(A) Each individual who is a Qualified Employee on the first day of a Plan
Year is eligible to make deferral elections pursuant to Section 3.2(A)
and (B) with respect to the Plan Year. Each individual who is a
Qualified Director on the first day of a Plan Year is eligible to make
deferral elections pursuant to Section 3.2(A) with respect to the Plan
Year.
(B) At any time during a Plan Year, the Administrator may determine that
an individual who became a Qualified Employee or Qualified Director
after the first day of the Plan Year is eligible to make a deferral
election pursuant to Section 3.2(A), but not Section 3.2(B), with
respect to the remainder of the Plan Year.
(C) A Participant who, pursuant to Section 3.2(B)(3), has revoked an
Annual Bonus deferral election in connection with an Unforeseeable
Emergency or, pursuant to Section 4.1(D)(3), has received a
distribution due to an Unforeseeable Emergency, is not eligible to
elect additional deferrals (of Base Salary or Annual Bonus) with
respect to the remainder of the Plan Year during which the revocation
occurs or distribution is received and the immediately following Plan
Year.
(D) In conjunction with his or her initial election to participate in the
Plan, a Participant must elect, in accordance with Section 4.1(A),
whether his or her Account will be distributed following his or her
termination of employment in the form of a lump sum payment or
installments. Such election is irrevocable and applies to all benefits
distributed to the Participant pursuant to the Plan.
2.2 TRANSFER AMONG PARTICIPATING EMPLOYERS. A Qualified Employee Active
Participant who transfers employment from one Participating Employer to
another Participating Employer and who continues to be a Qualified Employee
after the transfer will, for the duration of the Plan Year during which the
transfer occurs, continue to participate in the Plan, in accordance with
the election in effect for the portion of the Plan Year before the
transfer, as a Qualified Employee of such other Participating Employer.
2.3 MULTIPLE EMPLOYMENT. A Qualified Employee Active Participant who is
simultaneously employed as a Qualified Employee with more than one
Participating Employer will participate in the Plan as a Qualified Employee
of all such Participating Employers on the basis of a single deferral
election pursuant to Section 3.2 applied separately to his or her Base
Compensation and Annual Bonus from each such Participating Employer.
2.4 CEASING TO BE ELIGIBLE. An Active Participant who, during a Plan Year, is
determined by the Administrator to have ceased to be a Qualified Employee
or Qualified Director is not eligible for further deferral credits for the
Plan Year pursuant to Section 3.2 other than such credits relating to Base
Compensation with respect to the period prior to such cessation.
2.5 CONDITION OF PARTICIPATION. Each Qualified Employee and Qualified Director,
as a condition of participation in the Plan, is bound by all the terms and
conditions of the Plan and the Plan Rules,
2
<PAGE>
including but not limited to the reserved right of the Company to amend or
terminate the Plan and the provisions of Section 8.7, and must furnish to
the Administrator such pertinent information, and must execute such
election forms and other instruments, as the Administrator or Plan Rules
may require by such dates as the Administrator or Plan Rules may establish.
2.6 TERMINATION OF PARTICIPATION. A Participant will cease to be such as of the
date on which he or she is not then eligible to make deferrals and his or
her entire Account balance has been distributed.
3
<PAGE>
ARTICLE 3
BENEFITS
3.1 PARTICIPANT ACCOUNTS. For each Participant, the Administrator will
establish and maintain a Cash Account, a Share Account or both to evidence
amounts credited with respect to the Participant pursuant to Sections 3.2
and 3.3 or credited to the corresponding account under the Jostens, Inc.
Directors' Deferred Compensation Plan immediately prior to the Merger Date.
If a Qualified Employee Participant makes deferrals with respect to Base
Compensation or Annual Bonus from more than one Participating Employer, the
Administrator will establish and maintain separate subaccounts within each
Account with respect to, and will separately account for the deferrals
attributable to, each such Participating Employer.
3.2 DEFERRAL CREDITS.
(A) Base Compensation deferrals will be made in accordance with the
following rules:
(1) An Active Participant may elect to defer a portion of his or her
Base Compensation for a Plan Year from a minimum percentage or
dollar amount to a maximum percentage or dollar amount, as
specified in Plan Rules. Any percentage so elected will
automatically apply to the Participant's Base Compensation as
adjusted from time to time.
(2) An election made pursuant to this subsection will not be
effective unless it is made on a properly completed election form
received by the Administrator by a date specified by the
Administrator which is prior to the first day of the Plan Year to
which the election relates or, in the case of an Active
Participant who is determined by the Administrator to be eligible
to participate for a Plan Year pursuant to Section 2.1(B), within
30 days after the Administrator's determination.
(3) One time during a Plan Year, a Participant may elect to increase
or decrease the rate or amount of deferrals made pursuant to this
subsection for the remainder of the Plan Year. In the case of an
Active Participant who is a Qualified Employee, the modification
will be effective as of the first day of the first payroll period
that follows by at least 30 days (or such shorter period as Plan
Rules may allow) the Administrator's receipt of a properly
completed form. In the case of an Active Participant who is a
Qualified Director, the modification will be effective with
respect to any payment of Base Compensation that (a) follows by
at least 30 days (or such shorter period as Plan Rules may allow)
the Administrator's receipt of a properly completed form and (b)
relates to services as a Qualified Director after the date on
which the Administrator receives such notice.
(4) In addition to the modification permitted pursuant to clause (3),
an Active Participant may revoke a deferral election made
pursuant to this subsection at any time. In the case of an Active
Participant who is a Qualified Employee, the revocation will be
effective as of the first day of the first payroll period that
follows by at least 30 days (or such shorter period as Plan Rules
may allow) the Administrator's receipt of a properly completed
form. In the case of an Active Participant who is a Qualified
Director, the revocation will be effective with respect to any
payment of Base Compensation that (a) follows by at least 30 days
(or such shorter period as Plan Rule may allow) the
Administrator's receipt of a properly completed form and (b)
4
<PAGE>
relates to services as a Qualified Director after the date on
which the Administrator receives such notice. Upon making a
revocation, the Active Participant will be unable to make further
deferrals of Base Compensation until the first following Plan
Year in which he or she is again determined by the Administrator
to be eligible to make deferrals.
(5) Any election, modification or revocation pursuant to this
subsection applies only to Base Compensation relating to services
performed after the effective date of the election, modification
or revocation.
(B) Annual Bonus deferrals by an Active Participant who is a Qualified
Employee will be made in accordance with the following rules:
(1) An Active Participant who is determined by the Administrator to
be eligible to participate for a Plan Year pursuant to Section
2.1(A) may elect to defer a portion of his or her Annual Bonus
for the Plan Year from a minimum percentage or dollar amount to a
maximum percentage or dollar amount, as specified in Plan Rules.
(2) An election made by a Participant pursuant to this subsection
will not be effective unless it is made on a properly completed
election form received by the Administrator by a date specified
in Plan Rules but not later than the last day of the Plan Year
immediately preceding the Plan Year in which the Annual Bonus
would have been paid to the Participant but for his or her
election.
(3) An election pursuant to this Subsection (B) relating to the
deferral of an Annual Bonus is irrevocable after the latest date
by which it must be received by the Administrator to be
effective; provided, first, that an Active Participant may revoke
a deferral election made pursuant to this subsection in
connection with an Unforeseeable Emergency in which case no
further deferrals (of Base Compensation or Annual Bonus) will be
made with respect to the Participant for the remainder of the
Plan Year in which the revocation is made and the next following
Plan Year; or, second, that if a Participant terminates
employment with all Affiliated Organizations or otherwise ceases
to be a Qualified Employee before the date as of which an Annual
Bonus deferral is credited to his or her Account, other than in
connection with a divestiture contemplated by Section 4.1(D)(2)
in which the Participant is covered in a successor plan, the
deferral election with respect to such Annual Bonus will
automatically be revoked as of the date of the Participant's
termination of employment or on which he or she ceases to be a
Qualified Employee, as the case may be.
(C) In conjunction with each deferral election made pursuant to Subsection
(A) and each deferral election made pursuant to Subsection (B) (or an
election made pursuant to the Jostens, Inc. Directors' Deferred
Compensation Plan or Jostens, Inc. Officers' Deferred Compensation
Plan prior to the Merger Date and in effect immediately prior to the
Merger Date), an Active Participant must elect, in accordance with and
subject to Plan Rules, how the deferral is to be allocated among his
or her Cash Account and Share Account. Except as provided in Section
3.3(C), such an election is irrevocable after the latest date by which
the deferral election to which it relates must be received by the
Administrator to be effective.
5
<PAGE>
(D) Deferrals of an Active Participant's Base Compensation and Annual
Bonus pursuant to this section will be credited to his or her Cash
Account or Share Account, as the case may be, as of the first day of
the month first following the date on which the Participant would
have otherwise received the Base Compensation or Annual Bonus but for
his or her deferral election pursuant to this section. Such credits
to a Participant's Cash Account will be in United States dollars in
an amount equal to the amount of the deferral allocated to the Cash
Account by the Participant. Such credits to a Participant's Share
Account will be the number of full and fractional shares determined
by dividing the United States dollar amount of the deferral allocated
by the Participant to the Share Account by the Market Price on the
date as of which the credit is made. If an Active Participant's Base
Compensation or Annual Bonus would otherwise be paid in a currency
other than United States dollars, the Administrator will convert from
such other currency into United States dollars in accordance with
Plan Rules.
3.3 EARNINGS CREDITS.
(A) Cash Account. As of the last day of each calendar month, a
Participant's Cash Account will be credited with earnings for the
month at a rate equal to the monthly equivalent of one percent plus
the annual rate shown for United States Treasury Notes with an
original maturity of not less than seven years and with a remaining
maturity closest to seven years in the "representative mid-afternoon
over-the-counter quotations supplied by the Federal Reserve Bank of
New York City, based on transactions of $1 million or more," as
reported in The Wall Street Journal. The rate to be paid during each
calendar month will be fixed for the month as of the first business
day of the month.
(B) Share Account.
(1) As of the first business day of the calendar quarter first
following the date on which dividends are paid on Shares, a
Participant's Share Account will be credited with that number of
full and fractional Shares determined by dividing the dollar
amount of the dividends that would have been payable to the
Participant if the number of Shares credited to the Share
Account on the record date for such dividend payment had then
been registered in his or her name by the Market Price on the
date as of which the credit is made.
(2) In the event of a reorganization, recapitalization, stock split,
stock dividend, combination of shares, merger, consolidation,
rights offering or any other change in the Company's corporate
structure or Shares, the Administrator will make such
adjustment, if any, as the Administrator may deem appropriate in
the number and kinds of Shares credited to Share Accounts.
(C) Allocation Changes. One time during a Plan Year, an Active
Participant who would otherwise have deferrals credited to his or her
Share Account during the Plan Year (attributable to either deferrals
of Base Compensation for the Plan Year pursuant to Section 3.2(A) or
a deferral of an Annual Bonus for the prior Plan Year pursuant to
Section 3.2(B) which has not yet been credited to his or her Share
Account pursuant to Section 3.3(B)) may elect to have all such
deferrals instead credited to his or her Cash Account. Such election
will be effective for deferrals credited during such Plan Year
pursuant to Section 3.2 as of a date that follows by at least 30 days
(or such shorter period as Plan Rules may allow) the Administrator's
receipt of a properly completed form.
6
<PAGE>
3.4 VESTING. Each Participant always has a fully vested nonforfeitable interest
in his or her Account.
3.5 CURRENT ELECTION BY QUALIFIED DIRECTOR.
(A) An Active Participant who is a Qualified Director may elect to receive
any portion of his or her Base Compensation for a Plan Year that is
not subject to a deferral election pursuant to Section 3.2(A) in the
form of Shares. The election must be made in accordance with and is
subject to Plan Rules.
(B) An election made pursuant to this section will not be effective unless
it is made on a properly completed form received by the Administrator
by a date specified by the Administrator which is prior to the first
day of the Plan Year to which the election relates.
(C) An Active Participant may revoke an election made pursuant to this
section at any time. The revocation will be effective with respect to
any payment of Base Compensation that follows by at least 30 days (or
such shorter period as Plan Rules may allow) the Administrator's
receipt of a properly completed form.
(D) If an Active Participant has elected to receive Base Compensation in
the form of Shares, Base Compensation covered by the election will be
deposited into an account established on behalf of the Active
Participant in the Company's dividend reinvestment plan. The deposit
will be made on or as soon as administratively practicable after the
first day of the calendar quarter following the calendar quarter
during which the Base Compensation would have been paid in cash but
for the Active Participant's election pursuant to this section.
7
<PAGE>
ARTICLE 4
DISTRIBUTION
4.1 DISTRIBUTION TO PARTICIPANT.
(A) FORM.
(1) CASH ACCOUNT. A Participant's Cash Account will be distributed to
the Participant in the form of a lump sum payment or quarterly
installment payments for a period not to exceed ten years, as
elected by the Participant in conjunction with his or her initial
election to participate in the Plan. Any distribution from a
Participant's Cash Account will be made in cash.
(2) SHARE ACCOUNT. A Participant's Share Account will be distributed
to the Participant in the form of a lump sum payment or annual
installment payments for a period not to exceed ten years, as
elected by the Participant in conjunction with his or her initial
election to participate in the Plan. Subject to Section 4.3, any
distribution from a Participant's Share Account will be made in
full Shares and cash in lieu of any fractional Share.
(B) TIME. Distribution to a Participant will be made or commence on or as
soon as administratively practicable after the first day of the
calendar quarter that follows by six months the date on which the
Participant terminates employment or ceases to be a member of the
Company's board of directors.
(C) AMOUNT.
(1) CASH ACCOUNT.
(a) LUMP SUM. The amount of a lump sum payment from a
Participant's Cash Account will be equal to the balance of
the Account as of the first day of the calendar month
coinciding with or immediately preceding the date on which
the payment is made.
(b) INSTALLMENTS. The amount of an installment payment from a
Participant's Cash Account will be determined by dividing
the balance of the Account as of the first day of the
calendar month coinciding with or immediately preceding the
date on which the payment is made by the total number of
remaining payments (including the current payment).
(2) SHARE ACCOUNT.
(a) LUMP SUM. A lump sum distribution from a Participant's Share
Account will consist of the number of full Shares credited
to the Account as of the first day of the calendar month
coinciding with or immediately preceding the date on which
the distribution is made plus cash in lieu of any fractional
share then credited to the Account in an amount based on the
Market Price on that date.
8
<PAGE>
(b) INSTALLMENTS. Installment distributions from a Participant's
Share Account, other than the final distribution, will
consist of the number of Shares determined by dividing the
number of full and fractional Shares credited to the Account
as of the first day of the calendar month coinciding with or
immediately preceding the date on which the distribution is
made by the total number of remaining payments (including
the current payment) and rounding the quotient to the next
higher full share. The amount of the final payment will be
determined in accordance with clause (a).
(D) SPECIAL RULES. The provisions of this subsection apply notwithstanding
Subsection (A), (B) or (C) or any election by a Participant to the
contrary.
(1) NONDEDUCTIBILITY. If the Administrator determines in good faith
that there is a reasonable likelihood that any compensation paid
to a Participant by an Affiliated Organization for a taxable year
of the Affiliated Organization would not be deductible by the
Affiliated Organization solely by reason of the limitation under
Code section 162(m), to the extent deemed necessary by the
Administrator to ensure that the entire amount of any
distribution to the Participant is deductible, the Administrator
may defer all or any portion of the distribution. Any amounts
deferred pursuant to this subsection will continue to be credited
with earnings in accordance with Section 3.3. The deferred
amounts and earnings thereon will be distributed to the
Participant, or to his or her Beneficiary in the case of the
Participant's death, at the earliest possible date, as determined
by the Administrator in good faith, on which the deductibility of
compensation paid or payable to the Participant for the taxable
year of the Affiliated Organization during which the distribution
is made will not be limited by Code section 162(m).
(2) DIVESTITURES.
(a) If some or all of the assets of a Participating Employer are
sold or otherwise disposed of to an unrelated third party,
other than in connection with a Change of Control, the
Administrator may, but is not required to, cause to be
distributed the Account of any Qualified Employee
Participant whose employment with all Affiliated
Organizations is terminated in connection with the sale or
disposition unless the acquirer adopts a successor plan
which is substantially similar to the Plan in all material
respects and expressly assumes the Participating Employer's
obligation to provide benefits to the Participant, in which
case the Participating Employer will cease to have any
obligation to provide benefits to the Participant pursuant
to the Plan as of the effective date of the assumption. Any
such distribution will be made in the form of a lump sum
payment as soon as administratively practicable after the
date of the sale or disposition. Any distribution from a
Participant's Cash Account will be made in cash and, subject
to Section 4.3, any distribution from a Participant's Share
Account will be made in full Shares and cash in lieu of any
fractional Share. The amount of the payment will be
determined in accordance with Subsection (C).
(b) If a Participating Employer ceases to be an Affiliated
Organization, unless otherwise provided in an agreement
between an Affiliated Organization and the Participating
Employer or an Affiliated Organization
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and an unrelated third-party acquirer:
(i) a Participant who is employed with the Participating
Employer or
(ii) a Participant who is not employed with the
Participating Employer but has an Account balance
attributable to service with the Participating Employer
as a Qualified Employee
will not become entitled to his or her Account balance
attributable to service with the Participating Employer as a
Qualified Employee solely as a result of the cessation and
the Participating Employer will, after the date on which it
ceases to be an Affiliated Organization, continue to be
solely responsible to provide benefits to the Participant at
least equal to the balance of the Account as of the
effective date of the cessation and as thereafter increased
by deferral credits relating to the period before the
effective date and earnings credits pursuant to Section 3.3.
(3) WITHDRAWALS DUE TO UNFORESEEABLE EMERGENCY. A distribution will
be made to a Participant from his or her Cash Account if the
Participant submits a written distribution request to the
Administrator and the Administrator determines that the
Participant has experienced an Unforeseeable Emergency. The
amount of the distribution may not exceed the lesser of (a) the
amount necessary to satisfy the emergency, as determined by the
Administrator or (b) the balance of the Cash Account as of the
date of the distribution determined in accordance with Subsection
(C). The distribution will be made in the form of a lump sum cash
payment as soon as administratively practicable after the
Administrator's determination that the Participant has
experienced an Unforeseeable Emergency.
(4) CHANGE OF CONTROL. Upon the occurrence of a Change of Control -
(a) A Participant's Cash Account will be distributed to the
Participant in a lump sum cash payment on the effective date
of the Change of Control. The amount of the payment will be
determined in accordance with Subsection (C).
(b) A Participant's Share Account will be distributed to the
Participant in a lump sum cash payment in lieu of Shares on
the effective date of the Change of Control. The amount of
the payment will be equal to the number of full and
fractional Shares then credited to the Participant's Share
Account multiplied by the greater of (i) the highest price
per Share paid for the purchase of Shares in connection with
the Change of Control or (ii) the highest Market Price paid
during the 30-day period immediately preceding the Change of
Control.
(E) REDUCTION OF ACCOUNT BALANCE. The balance of the Account from which a
distribution is made will be reduced by the amount of the distribution
as of the date of the distribution.
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4.2 DISTRIBUTION TO BENEFICIARY.
---------------------------
(A) FORM. In the event of a Participant's death, the balance of the
Participant's Account will be distributed to the Participant's
Beneficiary in a lump sum payment whether or not payments had
commenced to the Participant in the form of installments prior to his
or her death. Any distribution from a Participant's Cash Account will
be made in cash and any distribution from a Participant's Share
Account will be made in full Shares and cash in lieu of any fractional
Share.
(B) TIME. Distribution to a Beneficiary will be made as soon as
administratively practicable after the date on which the Administrator
receives notice of the Participant's death.
(C) AMOUNT. The amount of the payment will be determined in accordance
with Section 4.1(C).
(D) REDUCTION OF ACCOUNT BALANCE. The balance of the Account from which a
distribution is made will be reduced by the amount of the distribution
as of the date of the distribution.
(E) BENEFICIARY DESIGNATION.
(1) Each Participant may designate, on a form furnished by the
Administrator, one or more primary Beneficiaries or alternative
Beneficiaries to receive all or a specified part of his or her
Account after his or her death, and the Participant may change or
revoke any such designation from time to time. No such
designation, change or revocation is effective unless executed by
the Participant and received by the Administrator during the
Participant's lifetime. No designation of a Beneficiary other
than the Participant's spouse is effective unless the spouse
consents to the designation or the Administrator determines that
spousal consent cannot be obtained because the spouse cannot
reasonably be located or is legally incapable of consenting. The
consent must be in writing, must acknowledge the effect of the
election and must be witnessed by a notary public. The consent is
effective only with respect to the Beneficiary or class of
Beneficiaries so designated and only with respect to the spouse
who so consented.
(2) If a Participant -
(a) fails to designate a Beneficiary, or
(b) revokes a Beneficiary designation without naming another
Beneficiary, or
(c) designates one or more Beneficiaries none of whom survives
the Participant or exists at the time in question,
for all or any portion of his or her Account, such Account or
portion will be paid to the Participant's surviving spouse or, if
the Participant is not survived by a spouse, to the
representative of the Participant's estate.
(3) The automatic Beneficiaries specified above and, unless the
designation otherwise specifies, the Beneficiaries designated by
the Participant, become fixed as of the
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Participant's death so that, if a Beneficiary survives the
Participant but dies before the receipt of the payment due such
Beneficiary, the payment will be made to the representative of
such Beneficiary's estate. Any designation of a Beneficiary by
name that is accompanied by a description of relationship or only
by statement of relationship to the Participant is effective only
to designate the person or persons standing in such relationship
to the Participant at the Participant's death.
4.3 LIMITATIONS ON SHARE DISTRIBUTIONS. Notwithstanding any other provision of
the Plan to the contrary, neither a Participating Employer nor the Trustee
is required to issue or distribute any Shares under this Plan, and a
distributee may not sell, assign, transfer or otherwise dispose of Shares
issued or distributed pursuant to the Plan, unless (a) there is in effect
with respect to such Shares a registration statement under the Securities
Act of 1933 and any applicable state securities laws or an exemption from
such registration under the Securities Act of 1933 and applicable state
securities laws and (b) there has been obtained any other consent, approval
or permit from any other regulatory body which the Company deems necessary
or advisable. A Participating Employer or the Trustee may condition such
issuance, distribution, sale or transfer upon the receipt of any
representations or agreements from the parties involved, and the placement
of any legends on certificates representing Shares, as may be deemed
necessary or advisable by the Company in order to comply with such
securities laws or other restrictions.
4.4 PAYMENT IN EVENT OF INCAPACITY. If any individual entitled to receive any
payment under the Plan is, in the judgment of the Administrator,
physically, mentally or legally incapable of receiving or acknowledging
receipt of the payment, and no legal representative has been appointed for
the individual, the Administrator may (but is not required to) cause the
payment to be made to any one or more of the following as may be chosen by
the Administrator: the Beneficiary (in the case of the incapacity of a
Participant); the institution maintaining the individual; a custodian for
the individual under the Uniform Transfers to Minors Act of any state; or
the individual's spouse, children, parents, or other relatives by blood or
marriage. The Administrator is not required to see to the proper
application of any such payment and the payment completely discharges all
claims under the Plan against the Participating Employer, the Plan and
Trust to the extent of the payment.
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ARTICLE 5
SOURCE OF PAYMENTS; NATURE OF INTEREST
--------------------------------------
5.1 ESTABLISHMENT OF TRUST. A Participating Employer may establish a Trust, or
may be covered by a Trust established by another Participating Employer,
with an independent corporate trustee. The Trust must be a grantor trust
that conforms substantially with the model trust described in Revenue
Procedure 92-64. The Participating Employers may from time to time transfer
to the Trust cash, marketable securities or other property acceptable to
the Trustee in accordance with the terms of the Trust.
5.2 SOURCE OF PAYMENTS.
(A) Each Participating Employer will pay, from its general assets, the
portion of any benefit pursuant to Article 4 or Section 6.3 or 6.4
attributable to a Participant's Account with respect to that
Participating Employer, and all costs, charges and expenses relating
thereto.
(B) The Trustee will make distributions to Participants and Beneficiaries
from the Trust in satisfaction of a Participating Employer's
obligations under the Plan in accordance with the terms of the Trust.
The Participating Employer is responsible for paying any benefits
attributable to a Participant's Account with respect to that
Participating Employer that are not paid by the Trust.
(C) To the extent a Participating Employer other than the Company fails
for any reason to pay any benefit pursuant to the Plan when it is due
and the benefit is not paid by the Trustee from the Trust, the Company
will pay the unpaid portion of the benefit in accordance with the
terms of the Plan as if it were the Participating Employer obligated
to pay the benefit pursuant to Subsection (A).
5.3 STATUS OF PLAN. Nothing contained in the Plan or Trust is to be construed
as providing for assets to be held for the benefit of any Participant or
any other person or persons to whom benefits are to be paid pursuant to the
terms of this Plan, the Participant's or other person's only interest under
the Plan being the right to receive the benefits set forth herein. The
Trust is established only for the convenience of the Participating
Employers and the Participants, and no Participant has any interest in the
assets of the Trust prior to distribution of such assets pursuant to the
Plan. Until such time as Shares are distributed to a Participant,
Beneficiary of a deceased Participant or other person, he or she has no
rights as a shareholder with respect to any Shares credited to a Share
Account pursuant to the Plan. To the extent the Participant or any other
person acquires a right to receive benefits under this Plan or the Trust,
such right is no greater than the right of any unsecured general creditor
of the Participating Employer.
5.4 NON-ASSIGNABILITY OF BENEFITS. The benefits payable under the Plan and the
right to receive future benefits under the Plan may not be anticipated,
alienated, sold, transferred, assigned, pledged, encumbered, or subjected
to any charge or legal process.
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ARTICLE 6
ADOPTION, AMENDMENT, TERMINATION
--------------------------------
6.1 ADOPTION. With the prior approval of the Administrator, an Affiliated
Organization may adopt the Plan and become a Participating Employer by
furnishing to the Administrator a certified copy of a resolution of its
Board adopting the Plan.
6.2 AMENDMENT.
(A) The Company reserves the right to amend the Plan at any time to any
extent that it may deem advisable. To be effective, an amendment must
be stated in a written instrument approved in advance or ratified by
the Company's Board and executed in the name of the Company by its
President or a Vice President and attested by the Secretary or an
Assistant Secretary.
(B) An amendment adopted in accordance with Subsection (A) is binding on
all interested parties as of the effective date stated in the
amendment; provided, however, that no amendment will have any
retroactive effect so as to deprive any Participant, or the
Beneficiary of a deceased Participant, of any benefit to which he or
she is entitled under the terms of the Plan in effect immediately
prior to the effective date of the amendment, determined in the case
of a Participant who is employed by an Affiliated Organization, as if
he or she had terminated employment immediately prior to the effective
date of the amendment. Notwithstanding the foregoing, prior to, but
not after, a Change of Control, the Company reserves the right to
eliminate Section 4.1(D)(4) with respect to the entire Account
balances of all or any group of Participants.
(C) Any amendment that changes the method of determining the earnings
credited to Participants' Accounts pursuant to Section 3.3 is
effective with respect to the portion of the Accounts attributable to
credits made before the date on which the amendment is adopted only if
the Company's Board determines in good faith that on that date, it is
reasonably likely that, in the long run, the new method will not
result in materially lower earnings credits than the old method.
(D) The provisions of the Plan in effect at the termination of a
Participant's employment will, except as otherwise expressly provided
by a subsequent amendment, continue to apply to such Participant.
6.3 TERMINATION OF PARTICIPATION. Notwithstanding any other provision of the
Plan to the contrary, if determined by the Administrator to be necessary to
ensure that the Plan is exempt from ERISA to the extent contemplated by
Section 1.3, or upon the Administrator's determination that a Participant's
interest in the Plan has been or is likely to be includable in the
Participant's gross income for federal income tax purposes prior to the
actual payment of benefits pursuant to the Plan, the Administrator may take
any or all of the following steps:
(a) terminate the Participant's future participation in the Plan;
(b) cause the Participant's entire interest in the Plan to be
distributed to the Participant in the form of an immediate lump
sum; and/or
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(c) transfer the benefits that would otherwise be payable pursuant to
the Plan for all or any of the Participants to a new plan that is
similar in all material respects (other than those which require
the action in question to be taken.)
6.4 TERMINATION. The Company reserves the right to terminate the Plan in its
entirety at any time. Each Participating Employer reserves the right to
cease its participation in the Plan at any time. The Plan will terminate
in its entirety or with respect to a particular Participating Employer as
of the date specified by the Company or such Participating Employer in a
written instrument by its authorized officers to the Administrator,
adopted in the manner of an amendment. Upon the termination of the Plan in
its entirety or with respect to any Participating Employer, the Company or
Participating Employer, as the case may be, will either cause (a) any
benefits to which Participants have become entitled prior to the effective
date of the termination to continue to be paid in accordance with the
provisions of Article 4 or (b) the entire interest in the Plan of any or
all Participants, or the Beneficiaries of any or all deceased
Participants, to be distributed in the form of an immediate lump sum
payment.
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ARTICLE 7
DEFINITIONS, CONSTRUCTION AND INTERPRETATION
--------------------------------------------
The definitions and rules of construction and interpretation set forth in this
article apply in construing the Plan unless the context otherwise indicates.
7.1 ACCOUNT. "Account" means the bookkeeping account or accounts maintained
with respect to a Participant pursuant to Section 3.1.
7.2 ACTIVE PARTICIPANT. "Active Participant" with respect to a Plan Year is a
Qualified Employee or Qualified Director who is eligible to make deferrals
pursuant to the Plan during the Plan Year, for the portion of the Plan Year
during which he or she remains eligible.
7.3 ADMINISTRATOR. The "Administrator" of the Plan is the Company's Benefits
Administration Committee or the person to whom administrative duties are
delegated pursuant to the provisions of Section 8.1, as the context
requires.
7.4 AFFILIATED ORGANIZATION. An "Affiliated Organization" is the Company and
any corporation that is a member of a controlled group of corporations
within the meaning of Code section 414(b) that includes the Company.
7.5 ANNUAL BONUS. "Annual Bonus" with respect to a Participant who is a
Qualified Employee for a Plan Year means the discretionary annual cash
bonus paid to the Participant by a Participating Employer during the third
calendar quarter of the following the Plan Year or that would have been so
paid but for an election made pursuant to the Plan.
7.6 BASE COMPENSATION. "Base Compensation" with respect to a Participant who is
a Qualified Employee for a Plan Year means the regular cash remuneration
for services rendered as a Qualified Employee or salary continuation
benefits paid to the Participant by a Participating Employer during the
Plan Year or that would have been so paid but for an election made pursuant
to the Plan, excluding the following:
(a) any bonus;
(b) the value of life insurance coverage included in the
Participant's wages under Code section 79;
(c) any car allowance, moving expense or mileage reimbursement;
(d) any educational assistance payment;
(e) any lump sum severance pay;
(f) any payments under any qualified or nonqualified plan of deferred
compensation;
(g) any benefit under any qualified or nonqualified stock option or
stock purchase plan; or
(h) any other element of compensation specified in Plan Rules.
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Base Compensation with respect to a Participant who is a Qualified Director
for a Plan Year means the compensation that is paid, or would be paid but
for an election made pursuant to the Plan, to the Qualified Director during
the Plan Year in cash for his or her services to the Company as an
"independent" (i.e., non-employee) director of the Company, including,
without limitation, retainer fees for service on the Company's board of
directors and committees of the board and fees for attendance at regular or
special meetings of the board and board committees, but does not include
travel expense allowances or other expense reimbursement.
7.7 BOARD. "Board" means the board of directors of the Affiliated Organization
in question. When the Plan provides for an action to be taken by the Board,
the action may be taken by any committee or individual authorized to take
such action pursuant to a proper delegation by the board of directors in
question.
7.8 BENEFICIARY. "Beneficiary" with respect to a Participant is the person
designated or otherwise determined under the provisions of Section 4.2(E)
as the distributee of benefits payable after the Participant's death. A
person designated or otherwise determined to be a Beneficiary under the
terms of the Plan has no interest in or right under the Plan until the
Participant in question has died. A Beneficiary will cease to be such on
the day on which all benefits to which he, she or it is entitled under the
Plan have been distributed.
7.9 CHANGE OF CONTROL.
-----------------
(A) A "Change of Control" means (1) the sale, lease, exchange or other
transfer of substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to, or the merger
or consolidation of the Company with, a "person" or (2) a change of
control of the Company of a nature that would be required to be
reported pursuant to Section 13 or 15(d) of the Exchange Act, whether
or not the Company is then subject to such reporting requirement,
including, without limitation, such time as (a) any person becomes,
after January 1, 1996, the "beneficial owner" (as defined in Rule 13d-
3 under the Exchange Act), directly or indirectly, of 25 percent or
more of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote at elections of
directors or (b) the "continuity directors" cease for any reason to
constitute at least a majority of the Company's board of directors.
(B) For purposes of this section, (1) "person" means any individual,
corporation, partnership, group, association or other "person," as
such term is used in section 14(d) of the Exchange Act, other than the
Company, any corporation or other form of business entity that is
directly or indirectly controlled by the Company or any benefit plan
sponsored by the Company or a corporation or other form of business
entity that is directly or indirectly controlled by the Company and
(2) "continuity director" means any individual who is a member of the
Company's board of directors on January 1, 1996, while he or she is a
member of the board, and any individual who subsequently becomes a
member of the board whose election or nomination for election by the
Company's stockholders was approved by a vote of at least a majority
of the directors who are continuity directors (either by a specific
vote or by approval of the proxy statement of the Company in which
such individual is named as a nominee for director without objection
to such nomination).
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7.10 CODE. "Code" means the Internal Revenue Code of 1986, as amended. Any
reference to a specific provision of the Code includes a reference to that
provision as it may be amended from time to time and to any successor
provision.
7.11 COMPANY. "Company" means Jostens, Inc.
7.12 CROSS REFERENCE. References within a section of the Plan to a particular
subsection refer to that subsection within the same section and references
within a section or subsection to a particular clause refer to that clause
within the same section or subsection, as the case may be.
7.13 EFFECTIVE DATE. "Effective Date" means January 1, 1996.
7.14 ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended. Any reference to a specific provision of ERISA includes a
reference to that provision as it may be amended from time to time and to
any successor provision.
7.15 EXCHANGE ACT. "Exchange Act" means the Securities Exchange Act of 1934, as
amended. Any reference to a specific provision of the Exchange Act includes
a reference to that provision as it may be amended from time to time and to
any successor provision.
7.16 GOVERNING LAW. To the extent that state law is not preempted by the
provisions of ERISA, or any other laws of the United States, all questions
pertaining to the construction, validity, effect and enforcement of the
Plan will be determined in accordance with the internal, substantive laws
of the State of Minnesota without regard to its conflict of laws rules of
the State of Minnesota or any other jurisdiction.
7.17 HEADINGS. The headings of articles and sections are included solely for
convenience of reference; if there exists any conflict between such
headings and the text of the Plan, the text will control.
7.18 MARKET PRICE. "Market Price" means the closing sale price for Shares on a
specified date or, if Shares were not then traded, on the most recent prior
date when Shares were traded, all as quoted in The Wall Street Journal
reports of New York Stock Exchange - Composite Transactions.
7.19 MERGER DATE. "Merger Date" means August 15, 1996.
7.20 NUMBER AND GENDER. Wherever appropriate, the singular may be read as the
plural, the plural may be read as the singular and one gender may be read
as the other gender.
7.21 PARTICIPANT. "Participant" is a current or former Active Participant to
whose Account amounts have been credited pursuant to Article 3 and who has
not ceased to be a Participant pursuant to Section 2.6.
7.22 PARTICIPATING EMPLOYER. "Participating Employer" is the Company and any
other Affiliated Organization that has adopted the Plan, or all of them
collectively, as the context requires. An Affiliated Organization will
cease to be a Participating Employer upon a termination of the Plan as to
its Qualified Employees and the satisfaction in full of all of its
obligations under the Plan or upon its ceasing to be an Affiliated
Organization.
7.23 PLAN. "Plan" means the Jostens, Inc. Officers' Deferred Compensation Plan,
as from time to time amended or restated.
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7.24 PLAN YEAR. "Plan Year" means the calendar year.
7.25 PLAN RULES. "Plan Rules" are rules, policies, practices or procedures
adopted by the Administrator pursuant to Section 8.2.
7.26 QUALIFIED DIRECTOR. "Qualified Director" means an individual who is a
member of the Company's board of directors and is independent (i.e., is not
an employee of the Company or any of its affiliates or subsidiaries).
7.27 QUALIFIED EMPLOYEE. "Qualified Employee" means an individual who (a) is an
executive officer of the Company elected by the Company's board of
directors or (b) was such an executive officer on the date on which he or
she ceased to perform services for all Participating Employers as an
employee if he or she (i) is receiving salary continuation benefits from a
Participating Employer and (ii) has not received such salary continuation
benefits for a period of more than two consecutive years.
7.28 SHARES. "Shares" means shares of common stock of the Company, $.33-1/3 par
value, or such other class or kind of shares or other securities as may be
applicable pursuant to Section 3.3(B)(2).
7.29 TERMINATION OF EMPLOYMENT. An individual who participates in the Plan as a
Qualified Employee will be deemed to have terminated employment for
purposes of the Plan on the later of (a) the date on which he or she has
completely severed his or her employment relationship with all Affiliated
Organizations and (b) the earlier of the date as of which (i) his or her
salary continuation benefits from a Participating Employer end and (ii) he
or she has received such salary continuation benefits for a period of two
consecutive years.
7.30 TRUST. "Trust" means any trust or trusts established by a Participating
Employer pursuant to Section 5.1.
7.31 TRUSTEE. "Trustee" means the independent corporate trustee or trustees that
at the relevant time has or have been appointed to act as Trustee of the
Trust.
7.32 UNFORESEEABLE EMERGENCY. "Unforeseeable Emergency" means an unanticipated
emergency that is caused by an event beyond the Participant's control
resulting in a severe financial hardship that cannot be satisfied through
other means. The existence of an unforeseeable emergency will be determined
by the Administrator.
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ARTICLE 8
ADMINISTRATION
--------------
8.1 ADMINISTRATOR. The general administration of the Plan and the duty to carry
out its provisions is vested in the Company's Benefits Administration
Committee. Such Committee may delegate such duty or any portion thereof to
a named person and may from time to time revoke such authority and delegate
it to another person.
8.2 PLAN RULES AND REGULATIONS. The Administrator has the discretionary power
and authority to make such Plan Rules as the Administrator determines to be
consistent with the terms, and necessary or advisable in connection with
the administration, of the Plan and to modify or rescind any such Plan
Rules.
8.3 ADMINISTRATOR'S DISCRETION. The Administrator has the discretionary power
and authority to make all determinations necessary for administration of
the Plan, except those determinations that the Plan requires others to
make, and to construe, interpret, apply and enforce the provisions of the
Plan and Plan Rules whenever necessary to carry out its intent and purpose
and to facilitate its administration, including, without limitation, the
discretionary power and authority to remedy ambiguities, inconsistencies,
omissions and erroneous benefit calculations. In the exercise of its
discretionary power and authority, the Administrator will treat all
similarly situated persons uniformly.
8.4 SPECIALIST'S ASSISTANCE. The Administrator may retain such actuarial,
accounting, legal, clerical and other services as may reasonably be
required in the administration of the Plan, and may pay reasonable
compensation for such services. All costs of administering the Plan will be
paid by the Participating Employers.
8.5 INDEMNIFICATION. The Participating Employers jointly and severally agree to
indemnify and hold harmless, to the extent permitted by law, each director,
officer, and employee of any Affiliated Organization against any and all
liabilities, losses, costs and expenses (including legal fees) of every
kind and nature that may be imposed on, incurred by, or asserted against
such person at any time by reason of such person's services in connection
with the Plan, but only if such person did not act dishonestly or in bad
faith or in willful violation of the law or regulations under which such
liability, loss, cost or expense arises. The Participating Employers have
the right, but not the obligation, to select counsel and control the
defense and settlement of any action for which a person may be entitled to
indemnification under this provision.
8.6 BENEFIT CLAIM PROCEDURE.
(A) If a request for a benefit by a Participant or Beneficiary of a
deceased Participant is denied in whole or in part, he or she
may, not later than 30 days after the denial, file with the
Administrator a written claim objecting to the denial.
(B) The Administrator, not later than 90 days after receipt of such claim,
will render a written decision to the claimant on the claim. If the
claim is denied, in whole or in part, such decision will include the
reason or reasons for the denial; a reference to the Plan provisions
on which the denial is based; a description of any additional material
or information, if any, necessary for the claimant to perfect his or
her claim; an explanation as to why such information or material is
necessary; and an explanation of the Plan's claim procedure.
20
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(C) The claimant may file with the Administrator, not later than 60
days after receiving the Administrator's written decision, a
written notice of request for review of the Administrator's
decision, and the claimant or his or her representative may
thereafter review relevant Plan documents which relate to the
claim and may submit written comments to the Administrator.
(D) Not later than 60 days after receipt of such review request, the
Administrator will render a written decision on the claim, which
decision will include the specific reasons for the decision,
including a reference to the Plan's specific provisions where
appropriate.
(E) The foregoing 90 and 60-day periods during which the
Administrator must respond to the claimant may be extended by up
to an additional 90 or 60 days, respectively, if special
circumstances beyond the Administrator's control so require and
notice of such extension is given to the claimant prior to the
expiration of such initial 90 or 60-day period, as the case may
be.
(F) A Participant or Beneficiary must exhaust the procedure described
in this section before making any claim of entitlement to
benefits pursuant to the Plan in any court or other proceeding.
8.7 DISPUTES.
(A) In the case of a dispute between a Qualified Employee Participant
or his or her Beneficiary and a Participating Employer, the
Administrator or other person relating to or arising from the
Plan, the United States District Court for the District of
Minnesota is a proper venue for any action initiated by or
against the Participating Employer, Administrator or other person
and such court will have personal jurisdiction over any
Participant or Beneficiary named in the action.
(B) Regardless of where an action relating to or arising from the
participation in the Plan by a Qualified Employee is pending, the
law as stated and applied by the United States Court of Appeals
for the Eighth Circuit or the United States District Court for
the District of Minnesota will apply to and control all actions
relating to the Plan brought against the Plan, a Participating
Employer, the Administrator or any other person or against any
such Participant or his or her Beneficiary.
(C) In the event of a Change of Control, the Participating Employers
will pay all of the legal fees and expenses reasonably incurred
by a Participant or Beneficiary of a deceased Participant to
enforce his or her rights under the Plan as in effect immediately
before such Change of Control. The Participating Employers will
pay such fees and expenses promptly after bills therefor are
submitted from time to time by attorneys representing the
claimant. However, the Participating Employers will not be
obligated to pay such fees and expenses if a court of competent
jurisdiction finds of law that the claim is not well grounded in
fact and warranted by existing law or a good faith argument for
the extension, modification or reversal of existing law and will
be entitled to full reimbursement of any amounts previously paid
pursuant to this subsection. In any such proceeding, the burden
of proof is on the Participating Employers. Notwithstanding
anything else contained in the Plan, the rights of Participants
and their Beneficiaries under this subsection survive amendment
of this subsection, as well as termination of the Plan, after a
Change of Control, regardless of whether such rights arise before
or after the date of amendment or termination.
21
<PAGE>
ARTICLE 9
MISCELLANEOUS
-------------
9.1 WITHHOLDING AND OFFSETS. The Participating Employers and the Trustee retain
the right to withhold from any compensation, deferral and/or benefit
payment pursuant to the Plan, any and all income, employment, excise and
other tax as the Participating Employers or Trustee deems necessary and,
prior to a Change of Control, the Participating Employers may offset
against amounts payable to a Participant or Beneficiary under the Plan any
amounts then owing to the Participating Employers by such Participant or
Beneficiary.
9.2 OTHER BENEFITS. Neither amounts deferred nor amounts paid pursuant to the
Plan constitute salary or compensation for the purpose of computing
benefits under any other benefit plan, practice, policy or procedure of a
Participating Employer unless otherwise expressly provided thereunder.
9.3 NO WARRANTIES REGARDING TAX TREATMENT. The Participating Employers make no
warranties regarding the tax treatment to any person of any deferrals or
payments made pursuant to the Plan and each Participant will hold the
Administrator and the Participating Employers and their officers,
directors, employees, agents and advisors harmless from any liability
resulting from any tax position taken in good faith in connection with the
Plan.
9.4 NO RIGHTS TO CONTINUED SERVICE CREATED. Neither the establishment of or
participation in the Plan gives any individual the right to continued
employment or service on the Company's board of directors or limits the
right of the Participating Employer to discharge, transfer, demote, modify
terms and conditions of employment or service on the Company's board of
directors or otherwise deal with any individual without regard to the
effect which such action might have on him or her with respect to the Plan.
9.5 SUCCESSORS. Except as otherwise expressly provided in the Plan, all
obligations of the Participating Employers under the Plan are binding on
any successor to the Participating Employer whether the existence of such
successor is the result of a direct or indirect purchase, merger,
consolidation or otherwise of all or substantially all of the business
and/or assets of the Participating Employer.
22
<PAGE>
JOSTENS INC. AND SUBSIDIARIES
EXHIBIT 11 -- COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net Income (Loss) $ 51,625 $ 50,368 $(16,169)
Primary:
Average shares outstanding 40,207 45,492 45,455
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 229 97 N/A
-------- -------- --------
40,436 45,589 45,455
Per Share Amount:
Net Income (Loss) $ 1.28 $ 1.10 $ (0.36)
======== ======== ========
Per Share Amount as reported
based on average shares outstanding:
Net Income (Loss) $ 1.28 $ 1.11 $ (0.36)
======== ======== ========
Fully diluted:
Average shares outstanding 40,207 45,492 45,455
Net effect of dilutive stock options -
based on the treasury stock method
using the year-end market price
if higher than average market price 234 198 N/A
-------- -------- --------
40,441 45,690 45,455
Per Share Amount:
Net Income (Loss) $ 1.28 $ 1.10 $ (0.36)
======== ======== ========
Per Share Amount as reported
based on average shares outstanding:
Net Income (Loss) $ 1.28 $ 1.11 $ (0.36)
======== ======== ========
</TABLE>
21
<PAGE>
Exhibit 13
We continued to make
the company's transition
from a "fix it"
to a "build it" mode.
fix build
it it
JOSTENS ANNUAL REPORT 1996
--------------------------
<PAGE>
JOSTENS provides products and services
that help people celebrate achievement,
reward performance, recognize service and
commemorate experiences.
We provide these achievement and
affiliation products in partnership with
the diverse organizations people belong to
throughout their lives. As a partner, we are
committed to delivering value and quality
that exceed the needs of the people
and the organizations we serve.
Jostens is a TEAM of employees and
independent business partners. Our
aim is to be the world LEADER
in providing achievement and
affiliation products and to constantly
deliver exceptional performance.
Jostens Mission Statement
-------------------------
<PAGE>
<TABLE>
<CAPTION>
[CHART]
<S> <C> <C> <C> <C> <C>
Sales 92 93 94 95 96
Continuing Operations 639.2 634.8 649.9 665.1 695.1
[$ in millions]
Earnings per Share 92 93 94 95 96
Continuing Operations 1.00 .19 .61 1.23 1.28
[in $]
Return on Investment 92 93 94 95 96
[in %] 16.9 (3.7) (5.7) 19.1 26.3
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
Years ended June 30
(Dollars in millions, except ratio and per-share data) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Statement of operations
Net sales $ 695.1 $ 665.1
Income from continuing operations 51.6 55.9
Net income 51.6 50.4
- -----------------------------------------------------------------------------------------------------------------------------------
Balance sheet data
Working capital $ 8.9 $ 206.3
Current ratio 1.0 2.1
Total assets 384.0 548.0
Long-term debt 3.9 53.9
Shareholders' investment 121.8 270.6
- ------------------------------------------------------------------------------------------------------------------------------------
Common share data
Earnings per share from continuing operations $ 1.28 $ 1.23
Earnings per share 1.28 1.11
Cash dividends per share .88 .88
Stock price: high 25 1/8 21 5/8
low 19 1/2 15 3/4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders 2
Q&A 4
Jostens at a Glance 10
MD&A 14
Financial Statements 21
Notes to Financial Statements 26
</TABLE>
1
<PAGE>
To our investors:
[PHOTO OF ROBERT C. BUHRMASTER]
[PHOTO OF ROBERT P. JENSEN]
Fiscal 1996 was a year in which we continued to make the company's transition
from a "fix it" to a "build it" mode.
It is a challenging and difficult transition that requires us to modernize
our systems and change many deeply ingrained processes and practices. Through
the year, we made solid progress in several areas; however, we didn't do all we
set out to do in 1996, particularly in earnings performance. We generated a
slight increase in net income, although earnings from continuing operations
declined as a result of higher interest expenses, as we returned to more
normalized seasonal borrowing levels. Earnings per share, meanwhile, improved 15
percent as a result of our share repurchase last fall.
In fiscal 1996, we increased our level of investment in marketing-related
initiatives, an important step in priming our businesses for profitable growth.
We saw some results from those initiatives last year, and we expect to see more
in the year to come.
Overall, while we would have preferred to see greater earnings progress, we
are encouraged that we maintained earnings while moving forward on several
important fronts. Some highlights:
SHARE REPURCHASE We began the year with the repurchase of 7 million shares
of common stock -- 15 percent of our outstanding shares -- in a tender offer
concluded in mid-September. This was an important step in returning to
shareholders cash generated from the sale of businesses that either were
unprofitable or didn't fit with our vision for the future.
PROGRAM-DRIVEN VOLUME GROWTH We demonstrated that research-based products,
marketing programs and uniform sales processes can increase unit volume.
For example, we sold nearly 10 percent more high school class rings in
1996, stemming largely from a product repositioning program introduced across
the United States. That unit growth, combined with a 4 percent unit gain in
1995, are the first steps in reversing what was a long-term decline in ring unit
volume for the company.
In the college market, we expanded the Senior Salute(TM) graduation fair
concept to more than 225 schools. Where Senior Salutes were conducted, our sales
increased more than 20 percent on average. There was a similarly strong increase
in student commencement participation in Senior Salute schools -- an important
factor in administration support for this program.
2
<PAGE>
MARKET SHARE GAINS With record sales in our largest businesses -- Printing
& Publishing, Jewelry and Graduation Products -- we added market share at the
expense of our competitors. Printing & Publishing continued its three-year
string of increasing high school yearbook market share. Jewelry expanded its
share, while Graduation Products increased its share and sales dollars per
customer, without increasing prices.
MARKET SEGMENT PENETRATION During 1996, we continued to develop products
and programs to reach customers in elementary and junior high schools. We are
particularly pleased with the success of a new junior high ring program, the
Memory Express(TM) yearbook product for elementary students and the new
Milestone(TM) yearbook offering in junior high.
REBOUND IN RECOGNITION This business improved dramatically in 1996. After
conducting a thorough internal and market analysis, we implemented changes that
brought immediate results. Recognition's operating profit doubled in 1996
through sound cost-control and process improvement measures. For example, by
eliminating low-demand products, we were able to reduce our offering by 50
percent. With companies increasing their investment in service award programs by
about 5 percent a year, and with the development of programs in the performance
award area, we are encouraged about Recognition's future.
RECORD FOURTH QUARTER The trend for more of our business to occur in the
fourth quarter continued in 1996, and we ended the year with a record quarter in
sales volume and profitability in our current businesses. We were pleased with
our ability to handle the volume and meet customer delivery deadlines. The only
flaw was in the yearbook business, where we incurred higher-than-expected costs
to produce the books on time. Despite that hurdle, we had a terrific fourth
quarter.
That is by no means the complete list of what we accomplished in 1996. In
all areas, our energies are focused on profitably building our business for
the long-term benefit of shareholders, as well as our other stakeholders.
Building for the future requires tremendous cultural changes throughout the
organization. A great amount of change has occurred over the past three years,
and it is a credit to the people of this company to have come so far. Yet, the
work is not done. The changes we have made and will continue to make are
unsettling to some, as we modernize our processes, clarify our relationship with
the independent sales force and take steps to simplify and focus on the things
that truly add value for our consumers. But the changes we're making -- in our
systems as well as in our culture -- are necessary ingredients in our recipe for
the future.
The pages that follow contain a Q&A discussion of how senior management
sees the company's future. As we move ahead into 1997, we will continue to work
on ways to expand our current businesses, pursue new opportunities that build on
our strengths, and emphasize cost-control and internal efficiencies -- all with
a focus on creating shareholder value and continuing our one-step-at-a-time
approach.
/s/ Robert C. Buhrmaster
------------------------
Robert C. Buhrmaster
President and Chief Executive Officer
/s/ Robert P. Jensen
--------------------
Robert P. Jensen
Chairman of the Board
August 31, 1996
3
<PAGE>
[ARTWORK OF Q & A]
In the last three years, Jostens has worked methodically, one step at a
time, to address business issues and restore financial performance to historical
levels. As the shorter-term issues have been addressed, company leaders have
developed a vision of the future of Jostens.
That vision sees people selecting Jostens because we're the best at helping
them celebrate important moments and achievements throughout their lives. It's a
vision that expands on what Jostens does best -- providing products and services
that commemorate life's great experiences.
We help create memories.
The future entails building on the company's current business strengths and
viewing our customers differently -- not just as students or company
employees -- but as customers for life.
That's a big change, requiring us to develop new ways to identify and reach
customers; new ways to measure ourselves; new thinking that challenges the
status quo and inspires growth, improvement and changes of magnitude -- like
striving to double the number of customers we serve and double our annual sales
per customer; and new ways to expand our business.
The Jostens vision became clearer in 1996, and, while it's not a vision
that will become reality in a year or two, we are moving forward.
In the following pages, the company's senior leaders -- Bob Buhrmaster,
Chuck Schmid, Chip Fisher, Jack Jones, Trudy Rautio and Jack Thornton -- discuss
the opportunities, progress and outlook for Jostens.
q Where is the company in its transition from "fix it" to "build it"?
a We have successfully fixed and improved many things in the last three
years. The most obvious accomplishments were restoring profitability after a
period of decline; developing a clear direction for our company's future; and
selling businesses that either were underperformers or didn't fit with our
future direction.
Along the way, we've had plenty of effort in other areas, particularly in
upgrading systems, streamlining processes and creating a true consumer awareness
and focus.
We've put many of the major "fixes" in place, but not all of the work is
completed. In many respects, we are never really done fixing things. However, we
have progressed to the point that we can work on ways to improve earnings and
sales as we continue to create greater efficiency and simplification throughout
the company.
[PHOTO OF BOB BUHRMASTER]
4
<PAGE>
q What are your strategies for growth?
a We believe we can improve earnings and sales through efforts in the key
areas of expanded markets, targeted product lines, greater value and efficiency
and great people working together.
Expanded Markets This strategy offers opportunity on three levels:
First, we will do better in our areas of strength. In School Products, this
means reaching more high school students, parents and administrators. In
Recognition, it means continuing to build the primary business of employee
service awards, a market growing at about 5 percent a year.
Second, we will use our strengths to expand into related market segments.
For example, we are extending our high school presence with products for
students in elementary and junior high schools, and we're evaluating how to more
effectively expand the college market. In Recognition, we now offer performance
award programs for companies to recognize employees for achieving specific
business objectives.
Third, we will reach customers in other activities and at special times of
their lives. People participate in many organizations, activities and
associations - and all are opportunities for Jostens to help celebrate important
moments and achievements.
Expanded markets also means geographic expansion. About 7 percent of the
company's 1996 sales came from outside the United States - nearly all of which
was in Canada. We expect that our first steps into new international markets
will be in Latin America, where market research shows that our school products
and recognition products and services will fit local cultures and customs.
[PHOTO OF TRUDY RAUTIO]
Targeted Product Lines As we expand our markets, we'll reach customers with
research-based products and programs that target specific consumer groups. The
fiscal 1996 high school ring program, which spurred a 10 percent increase in the
number of class rings sold, is a good example of how such a program can deliver
strong unit-volume gains.
Reaching customers in new ways means, in part, that we will segment them
into smaller groups identified by their interests and associations. That plays
into our unique ability to customize products for individual customers or groups
of customers.
Greater Value and Efficiency, and Great People Working Together This
strategy reflects a continuing commitment to control costs, upgrade systems,
modernize processes and provide training and development for Jostens people.
This strategy also incorporates balancing our manufacturing requirements to
create the best value for the consumer while maintaining flexibility for the
enterprise.
q What about acquisitions?
a We do expect that a portion of our growth will come through acquisitions.
We are routinely considering acquiring companies that either add value to our
existing businesses or add competencies to support our direction for the future.
5
<PAGE>
[PHOTO OF CHUCK SCHMID]
q What are your financial objectives?
a We are measuring our performance in three areas.
Sales: As we become better able to build the top line, we anticipate
generating sales increases in the 5 to 7 percent range expanding to 10 percent
and beyond in the next few years.
Earnings: At any point, we expect to generate earnings growth in excess of
sales growth.
ROI: We anticipate maintaining return on investment of well above 20
percent.
In addition, we intend to balance an above-market dividend yield with
healthy earnings growth, providing a solid total return for our investors.
q What is your assessment of 1996 performance?
a The year was one of investing in our businesses -- programs, products and
marketing initiatives to begin generating profitable growth. We experienced some
benefit from those efforts last year, and we anticipate seeing more benefits in
fiscal 1997.
In retrospect, we could have paced our internal investments more
effectively. While we moved forward in a number of important areas, we did not
improve earnings from continuing operations, and that was disappointing.
In fiscal 1997, we will keep an eye on top-line growth, but our primary
emphasis will be on generating the earnings improvement needed to provide
meaningful shareholder value.
q Why did income from continuing operations decline in 1996?
a First, we invested additional operating funds in new programs and
initiatives. Some of those initiatives delivered benefits during the year; we
anticipate that others will bring benefits in 1997. For example, in 1996 we
developed new products for students in the millennium classes of 1999, 2000 and
2001. The first of those products debuts this fall.
The second reason operating income declined in 1996 was a higher than
planned commission rate associated with the repositioned high school ring
program. While that new program led to a nearly 10 percent increase in the
number of rings sold, the mix of products sold resulted in lower margins for the
company. We have adjusted the program for fiscal 1997 to balance the benefits to
the company and the sales force.
The third reason for decline in operating income was higher than expected
costs in the yearbook business. In the fourth quarter the business incurred
additional overtime and manufacturing costs in order to produce and deliver a
record amount of product on
[PHOTO OF CHIP FISHER]
6
<PAGE>
time -- a critical factor in retaining accounts. Through one of the 1996
investment programs, sales force automation, we will have better tools in 1997
to more closely track each yearbook account and better anticipate production
requirements.
q What's going on with the independent sales force?
a Over the years, the independent sales channel has worked to the mutual
benefit of the company and the sales force. Today, independent sales
representatives continue to work well as the primary distribution channel for
most of our products. We currently utilize about 1,000 independent sales
representatives, who specialize in various product lines, such as
Jewelry/Graduation Products, Printing & Publishing (yearbooks), Photography and
Recognition.
However, just as we are asking people within the company to absorb and
embrace changes to improve our business, so too are we asking the sales
organization to change.
For example, in the last three years, much of the yearbook market share
we've gained has been a direct consequence of working with the sales force in
new ways to uncover dissatisfied competitor accounts and focus our energies on
those most likely to switch to Jostens.
In the high school Jewelry and Graduation Products area, we are continuing
to change the way we as a company approach the marketplace -- in ways that have
made the business more successful in the last two years. In that time, we have
worked with the sales force to demonstrate that research-based products,
delivered through uniform sales processes, can and do attract more customers and
drive unit volume higher.
For the high school Jewelry and Graduation Products sales representatives,
this approach represents a cultural shift from past practice. But it's an
approach that works and that we will expand upon.
Although a group of representatives who sell Jewelry and Graduation
Products has requested changes in their agreements and arrangements with the
company, the fact is that the current relationship works well. Consequently, we
do not anticipate a substantial change in the contractual arrangement between
Jostens and most of the sales force.
[PHOTO OF JACK JONES]
The year was one of investing in our businesses - programs, products and
marketing initiatives to begin generating profitable growth. We experienced some
benefit from those efforts last year, and we anticipate seeing more benefits in
fiscal 1997.
7
<PAGE>
In 1996 and early fiscal 1997, we took steps to clarify the roles of
management and the sales organization, setting a clear expectation of how we
will conduct business in the future. Not everyone will like this cultural
change, and as we evolve from entrepreneurial territory selling to more
organized consumer marketing programs, we expect that some Jewelry and
Graduation Products sales representatives will choose to not remain with
Jostens, and that we will have some territory transitions.
q What is the direction in the college market?
a Although Jostens has historically looked at the college market as an
extension of the high school market, they are quite different. It's more
difficult to reach college students directly, and in college much of our
business goes through campus bookstores. With 52 sales representatives serving
the college market, coverage is a challenge, and the percentage of college
students buying our products is much lower than in high school.
Those business realities tell us that, while the college market presents a
very good opportunity, we need to think more creatively about how we go to
market. We are currently evaluating options for the structure of our sales
force, and we may change the status of the college sales representatives in the
future.
q What has been done on the international front?
a Over the last 18 months, we've developed a business strategy and identified
the best opportunities for taking our school and recognition product lines into
non-English speaking markets. In the last year, we conducted deeper levels of
market research with local
[PHOTO OF JACK THORNTON]
business organizations in a handful of countries. As fiscal 1996 closed, we were
negotiating formal business relationships in two Latin American countries.
q What is the millennium opportunity?
a Research indicates that, as the new millennium approaches, year-dated
materials will become more important to consumers. And since most of our school-
related business involves preserving memories with year-dated products, the
millennium offers us a natural and unique opportunity that, we believe, could
enable us to increase student buy rates by up to 10 percent over the next five
years.
For Jostens, the millennium opportunity is already beginning; fiscal 1997
is the first of a five-year window. This fall we will introduce 12 new class
ring designs created especially for the class of 1999 -- students who are
sophomores in the fall of 1996.
As these students move through their high school careers, we will have an
opportunity to reach them with traditional yearbook and graduation products --
as well as some newly created offerings.
That same opportunity also exists in the college market.
We help create
8
<PAGE>
q What are you doing to further reduce costs?
a We have reduced annual expenses by about $11 million over the last two
years as a result of organizational streamlining and initial process
reengineering. With that "low-hanging fruit" already harvested, we are engaging
in more fundamental process reengineering in conjunction with systems upgrades
targeted to improve our administrative cost structure.
Cost-control efforts are under way in operations, as well. In Recognition,
for example, we cut $2 million in costs in fiscal 1996 by reducing inventory and
eliminating slow-moving products -- all steps that were invisible to the
consumer.
In fiscal 1997, we plan to implement a new, companywide cost accounting
system enabling us to track in greater detail our business performance and
profitability by product line.
In the area of manufacturing capacity and distribution, we are conducting a
comprehensive review of our requirements for both today and the future. We
expect the review to lead to additional outsourcing, as well as to some plant
consolidations over the next two years.
The first step in this area was taken at fiscal year-end, when we closed
our jewelry plant in Winnipeg and transferred volume to other facilities. That
move is expected to result in an annualized savings of about a half-million
dollars.
q What are the benefits of linking Photography and Yearbook?
a Digital technology is providing an incentive to more closely link
photographic images and the printed page. This is to our advantage, since we are
able to forge greater ties between our market-leading yearbook business and the
photography business, providing us a competitive tool unique to the companies in
our industry.
Based on a successful test in fiscal 1996, we are expanding efforts to
jointly sell yearbook and photo services to school accounts -- and then to
provide photo services through company-owned centers at selected cities in the
United States. The pilot generated about $1 million in new photo sales in 1996,
and we anticipate additional sales in 1997.
Not only are the pilots building new photo business, we can use the images
to deliver additional services. For example, in 1996 we introduced
PanelExpress(R), a process by which we automatically flow the student photos
onto yearbook class pages. This removes a tedious step from the yearbook staff
and presents an opportunity for us to reduce costs and minimize mistaken
identities.
In another project, we are testing a new, quick-production photo memory
book at cheerleader camps. The concept is to produce photos and memory books
that are printed and ready to take home when cheerleaders leave camp. Early
results suggest good customer acceptance of the product, which can be adapted to
other markets.
[PHOTO]
memories.
9
<PAGE>
School Products Segment
Summary: The businesses in this segment provide products and services
primarily to students, parents and schools in the United States and Canada.
Customers are served principally through a network of about 900 independent
sales representatives and associates. In addition, the company markets products
through direct mail and retail establishments.
Jostens' School Products businesses provide value-added services through
Jostens Renaissance(R), a program that brings together teachers, administrators,
students, parents and the local business community in recognizing and rewarding
academic achievement. Schools with Renaissance programs have reported
improvements in attendance and grade point averages and reductions in
disciplinary problems.
92 544.0
93 540.7
94 546.2
95 565.0
96 594.9
School Products Sales
[$ in millions]
92 85.1
93 40.0
94 73.5
95 107.1
96 107.6
School Products Operating Profit
[$ in millions]
Printing & Publishing
[PHOTO]
Products: Yearbooks, memory books and desktop publishing kits for students
in high schools, colleges, junior high and elementary schools throughout the
United States; commercial printing services.
Update: High school yearbook market share increased in 1996 for the third
straight year, as a result of winning new accounts through the effective use of
lead generation techniques. Based on a market survey, Jostens is now the
preferred yearbook provider, delivering the strongest value and performance.
Effective in early fiscal 1997, all 235 independent sales representatives
in this business are utilizing Sales Force Automation (SFA), a remote link to
the company's internal data base. SFA enables reps to more effectively monitor
customer accounts and keep yearbook staffs on track. A record number of yearbook
pages were printed in the fourth quarter of fiscal 1996, and, even with record
volume, deliveries were on time. However, some additional expenses were incurred
and some schools printed fewer pages than originally planned. Those one-time
events both relate to schools submitting pages later than expected. With SFA now
used by the entire yearbook sales force, the company can better help yearbook
staffs meet page deadlines throughout the school year.
92 186.5
93 189.1
94 191.7
95 203.1
96 217.2
Printing & Publishing Sales
[$ in millions]
Jostens
[PHOTO]
10
<PAGE>
Jewelry
Products: Class rings, school rings and athletic rings for students in
junior high, high school and college.
Update: Overall ring unit volume increased about 12 percent in fiscal 1996.
The increase was led by a nearly 10 percent increase in the number of high
school class rings sold. That growth was driven by the national introduction of
a repositioned ring program, which makes it simpler and easier for customers to
compare, select and order a class ring. Unit volume also improved through a new,
streamlined championship ring program for high schools, a new junior high ring
program and continued expansion of the Studio 1(R) retail ring line.
In fiscal 1997, Jostens is introducing 12 ring designs created especially
for students in the high school class of 1999. This is the initial offering
directed to the millennium classes of 1999, 2000 and 2001 -- a five-year
opportunity for Jostens that begins with high school class rings and eventually
involves yearbooks, graduation products and products offered to college
students.
92 148.1
93 144.0
94 149.1
95 154.5
96 166.4
Jewelry Sales
[$ in millions]
[PHOTO]
[PHOTO]
Graduation Products
Products: Announcements and related products, caps and gowns, diplomas and
accessories for students in high school and college.
Update: Senior Salute, a program in which Jostens works with college
administrations to conduct "graduation fairs" for students, was expanded to more
than 225 schools in 1996. The results were strong, with sales in Senior Salute
schools increasing an average of more than 20 percent. Senior Salute is another
example of how research-based programs delivered through a standardized sales
process can lead to volume growth. In high school, sales dollars per customer
improved, and the business benefited from enrollment increases as well as from
new accounts.
92 109.0
93 117.2
94 125.0
95 133.0
96 138.5
Graduation Products Sales
[$ in millions]
11
at a Glance
<PAGE>
Photography Sales
[$ in millions]
<TABLE>
<CAPTION>
<S> <C>
92 35.0
93 30.6
94 27.7
95 24.2
96 23.4
</TABLE>
Canada Sales
[$ in millions]
<TABLE>
<CAPTION>
<S> <C>
92 47.0
93 46.8
94 42.3
95 41.7
96 40.6
</TABLE>
PHOTOGRAPHY
Products: Class and individual school pictures to students in elementary,
junior high and high school; high school senior portrait photography;
photography for proms and other special events; and other photo-based products
such as student ID cards.
Update: Photography is forging a closer link with Printing & Publishing
through the use of digital technology. With PanelExpress, Jostens can take
student photographs used to create photo packages, and flow the images onto
yearbook panel pages -- eliminating a tedious step for the yearbook staff.
Joint selling of yearbook and photo accounts generated $1 million in photo
volume in 1996 and is expected to deliver about $2 million in 1997.
Profitability in Photography, which returned to the black in 1995,
solidified in 1996 through cost control and more efficient manufacturing
utilization between processing plants in Canada and the United States.
JOSTENS CANADA
Products: Photography, yearbooks and class rings to students and schools
throughout Canada.
Update: Canada was brought under the same leadership organization with
Photography and Printing & Publishing. A new leadership team for the business is
being created, with an emphasis on more fully developing the Canadian market. In
a cost-improvement step, the company closed its jewelry manufacturing facility
in Winnipeg in early fiscal 1997 and shifted the volume to other facilities. The
annual savings from the consolidation is expected to be about $500,000, starting
in 1997.
[PHOTO]
Jostens
12
<PAGE>
Recognition Segment
- -------------------
Summary: This single-business segment provides products and services that
help companies recognize and reward employee service longevity and achievement
of performance objectives. Customers are served through about 100 independent
sales representatives.
Update: Following a decline in profitability in 1995, Recognition rebounded
with a doubling of operating profit in 1996.
During the year, new management in the business conducted an internal
review and external market analysis. Based on that work, the business focused on
reducing costs and improving efficiencies. For example, the Memphis Distribution
Center was realigned around customer accounts rather than product lines to serve
customers more effectively. The business also eliminated slow-moving products --
resulting in a 50 percent reduction in product without reducing sales. Overall,
in 1996, costs were reduced by about $2 million.
This business is focused on two major market segments: service awards and
performance awards. Spending on service awards by U.S. companies is increasing
at about 5 percent a year -- providing a natural opportunity for Jostens to
expand its market position.
Recognition is also developing programs and services in the performance
market -- helping companies create programs to provide incentives and
recognition for employees who meet specific objectives -- such as safety
improvements and productivity gains.
92 95.3
93 94.1
94 103.7
95 100.1
96 100.2
Recognition Sales
[$ in millions]
92 7.6
93 8.6
94 9.5
94 4.7
96 9.5
Recognition Operating Profit
[$ in millions]
[PHOTO HERE]
[PHOTO HERE]
[PHOTO HERE]
at a Glance
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
This discussion summarizes significant factors that affected the
consolidated operating results, financial condition and liquidity of Jostens
Inc. in the three years ended June 30, 1996. Material in this section reflects
the October 1995 sale of the Wicat Systems business, the June 1995 sale of the
company's Jostens Learning Corporation (JLC) subsidiary and the January 1994
sale of the Sportswear business, all of which are treated as discontinued
operations in the statements of consolidated operations presented in this
report.
RESULTS OF OPERATIONS
Overall Jostens' sales from continuing operations increased 5 percent in
fiscal 1996, to $695.1 million from $665.1 million in fiscal 1995. Sales in 1995
increased 2 percent from $649.9 million in 1994. The 1996 sales increase was
driven by gains in the company's three largest business lines -- Printing &
Publishing, Jewelry and Graduation Products. There were no, or minimal, price
increases in 1996 and 1995, reflecting a continued effort to minimize price
increases. Gross margins in 1996 were 52.2 percent, compared with 52.8 percent
in 1995 and up from 51.7 percent in fiscal 1994. The margin decline in 1996
resulted from higher than expected manufacturing costs incurred to handle record
page volume and meet yearbook delivery commitments as sales volumes shifted to
the fourth quarter. Selling and administrative expenses increased to $268.1
million in 1996 from $256.8 million in 1995 and decreased from $274.1 million in
1994. The 1996 increase in selling and administrative expenses was primarily due
to planned investments in the businesses, including marketing materials,
business development and pilot projects for new business, as well as increased
commission rates for class rings and graduation products. As a percentage of
sales, these expenses remained consistent at 38.6 percent in 1996 and 1995,
compared with 42.2 percent in 1994. The percentage decrease from 1994 to 1995
was due primarily to cost improvements realized through the company's
reengineering efforts.
In September 1995, the company repurchased 7 million shares of its common
stock for $169.3 million through a Modified Dutch Auction tender offer. The
repurchase was funded from the company's cash and short-term investment balance,
as well as short-term borrowings. The result was an increase in interest expense
of $4 million from 1995 and $2.6 million from 1994. In addition, interest income
decreased $2.6 million from 1995 as the company maintained lower cash balances
following the share repurchase. Interest income in 1995 increased $2.9 million
over 1994 because the company maintained higher cash balances.
Net income for 1996 was $51.6 million, compared with $50.4 million in 1995
and a loss of $16.2 million in 1994. Included in the 1994 income from continuing
operations was an after-tax restructuring charge of $5.1 million. In addition,
net income in 1995 included an after-tax charge of $600,000 associated with the
adoption of Statement of Financial Accounting Standard (SFAS) No. 112,
Employer's Accounting for Postemployment Benefits, and a net after-tax loss on
discontinued operations of $4.9 million, compared with net after-tax losses on
discontinued operations of $44.1 million in 1994.
14
<PAGE>
Earnings per share were $1.28 in 1996, compared with $1.11 in 1995 and a
loss per share of 36 cents in 1994. Earnings per share from continuing
operations prior to the change in accounting principle, discontinued operations
and restructuring charges were $1.28 in 1996, $1.23 in 1995 and 73 cents in
1994.
School Products Segment Sales in this segment increased 5.3 percent to
$594.9 million in fiscal 1996, compared with $565 million in 1995 and $546.2
million in 1994. Record sales were recorded in the Printing & Publishing ($217.2
million), Jewelry ($166.4 million) and Graduation Products ($138.5 million)
businesses.
Printing & Publishing produced a record number of yearbook pages in 1996,
reflecting success at retaining current accounts and winning new accounts. This
business has also successfully positioned itself as the preferred yearbook
supplier in the industry, based on customer surveys.
In Jewelry, nearly 10 percent more high school rings were sold in 1996 than
1995, and the number of rings sold overall increased nearly 12 percent in 1996.
Much of the unit gain resulted from newly repositioned ring programs, including
a high school program introduced nationwide in 1996. This was the second
straight year of unit-volume improvement after a 12-year decline.
In Graduation Products, sales growth was driven by an increase in the
number of customers who purchased products and by an increase in the average
sales dollars per customer.
The Photography business solidified its return to profitability in 1996.
Sales were $23.4 million, a 3 percent decline from 1995, due to the loss of a
large wholesale dealer and about 50 school accounts. However, initial efforts to
build closer ties between Photography and Printing & Publishing resulted in
about $1 million in new photography sales in 1996.
Jostens Canada sales were $40.6 million, compared with $41.7 million in
1995. The decline resulted from fewer graduation portrait orders and from a
slightly lower percentage of students buying school photo packages. Currency
exchange rate fluctuations partially offset the sales decline. In July 1996, the
company closed its ring manufacturing plant in Winnipeg, Manitoba, and shifted
production to facilities in Attleboro, Massachusetts, and Denton, Texas.
The School Products segment 1996 operating profit was $107.6 million,
essentially flat with 1995 levels, despite record sales volumes in its main
business lines. Increased selling and administrative expenses offset sales
increases as the company invested in marketing materials, business development
and pilot projects for new business, as well as increased commission rates for
class rings and graduation products. Operating profit in 1996 was also impacted
by lower gross margins associated with sales volumes shifting to the fourth
quarter.
Fiscal 1995 operating profit increased 45.7 percent to $107.1 million from
$73.5 million in 1994, which included changes in estimates of $16.4 million
related to inventory, accounts receivable and overdraft reserves.
Recognition Segment Sales were $100.2 million, compared with $100.1
million in 1995 and a record 1994 level of $103.7 million.
Operating profit increased 102 percent to $9.5 million in 1996, compared
with $4.7 million in 1995 and $9.5 million in 1994. The 1996 operating profit
increase reflected successful efforts to simplify work processes, reduce costs
and lower the costs associated with carrying inventories. Additionally, 1995
operating profit was affected by charges to establish an environmental reserve
and abandon a unique computer system.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operating activities, short-term borrowings and, in
1995 and 1994, net proceeds from the sale of discontinued operations, have been
Jostens' principal sources of liquidity. Cash generated from these activities
has been used primarily for dividends, capital expenditures and the $169.3
million share repurchase in the first quarter of fiscal 1996.
Operating activities provided cash of $28.9 million in 1996, compared with
$80.9 million in 1995 and $125.1 million in 1994. The decrease in cash from
operating activities in 1996 was primarily attributable to payments of
restructuring liabilities and retained liabilities related to discontinued
operations ($21.5 million) and pension liability ($8 million), along with
increases in the levels of accounts receivable ($10.4 million) and inventory
($8.2 million) balances. The accounts receivable increase was driven by sales
volumes shifting to the fourth quarter as manufacturing efficiencies enabled the
company to produce products closer to customer-selected delivery dates. The
increase in inventory was primarily related to additional raw materials in the
cap and gown business in anticipation of a new product offering in 1997.
The decrease in cash provided from operating activities in 1995 over 1994
was due primarily to decreases in deferred revenues associated with the
disposition of JLC ($14.8 million), pension liability ($5.5 million),
restructuring reserves established in prior years ($6.4 million) and accounts
receivable ($1.3 million), and increases in inventories ($2.4 million). In
addition, 1994 operating cash flows benefited from significant reductions in
both accounts receivable ($37 million) and inventories ($26.3 million).
While operating cash flows were sufficient to fund capital expenditures and
cash dividends in 1995 and 1994, the company returned in 1996 to its typical
need for seasonal short-term borrowings. Because most of the company's sales
volume occurs in the second and fourth quarters of each year, Jostens usually
requires interim financing of inventories and receivables. Effective December
20, 1995, the company terminated its unsecured lines of credit and replaced them
with a $150 million, five-year bank credit agreement. Credit available under
this bank credit agreement is reduced by commercial paper outstanding. At June
30, 1996, $122.4 million was available under the bank credit agreement as a
result of $27.6 million in outstanding borrowings. In addition, the company had
available unsecured demand facilities with three banks totaling $80 million.
These demand facilities are renegotiated periodically based on the anticipated
seasonal needs for short-term financing.
Average short-term borrowing was $68.4 million in 1996, zero in 1995 and
$28.6 million in 1994, with highs of $127 million in 1996 and $87 million in
1994. In 1995, the company's strong cash position, which resulted primarily
from the net proceeds from the sale of discontinued operations, eliminated the
need for short-term borrowing. As planned, short-term financing resumed in 1996
as the company returned $169.3 million to shareholders through the September
1995 share repurchase. Long-term debt, including current maturities, as a
percentage of total capitalization was 26.5 percent and 16.7 percent at
June 30, 1996 and 1995, respectively.
16
<PAGE>
The company also had $50 million of medium-term notes due in August 1996.
These notes were repaid in August 1996 with proceeds drawn from the company's
$150 million bank credit facility.
Management believes that cash generated from operating activities, together
with credit available under the bank credit agreement and demand facilities,
will be sufficient to fund planned capital expenditures, repayment of the
medium-term notes, dividends and seasonal build-ups of inventories and accounts
receivable in fiscal 1997.
CAPITAL EXPENDITURES
AND PRODUCT DEVELOPMENT
The company invested $15.4 million in capital expenditures in 1996,
compared with $19.1 million in 1995. The largest investments were made in the
School Products segment to upgrade presses and other yearbook printing
equipment, to improve photo processing and field camera equipment, and to
enhance certain management information and communication systems. Corporate and
Recognition expended $2 million and $500,000, respectively. About $18 million in
capital projects is planned for 1997, including additional investments to
upgrade certain printing and photography technology and replace School Products,
Recognition and corporate management information systems. The projects are
expected to be funded internally.
DIVIDENDS
The company paid $35.5 million in cash dividends to shareholders in fiscal
1996. The annual dividend was 88 cents per share in 1996, 1995 and 1994.
COMMITMENTS AND CONTINGENCIES
Environmental As part of its continuing environmental management program,
Jostens is involved in various environmental improvement activities. As sites
are identified and assessed in this program, the company determines potential
environmental liability. Factors considered in assessing this liability include,
among others, the following: whether the company has been designated as a
potentially responsible party, the number of other potentially responsible
parties designated at the site, the stage of the proceedings, and available
environmental technology. When the potential liability amounts are probable and
reasonably estimable, Jostens accrues the best estimate available. For specific
sites where only a range of liability is probable and reasonably estimable and
no amount in the range is a better estimate than another, the company would
accrue the low end of that range. While Jostens may have a right of contribution
or reimbursement under insurance policies, amounts that may be recoverable from
other entities by the company with respect to a particular site are not
considered until recoveries are deemed to be probable. No assets for potential
recoveries have been established as of June 30, 1996.
Jostens also assesses reasonably possible environmental liability beyond
that which has been accrued. This liability is not probable, but is more likely
than remote. As of June 30, 1996, the company identified four sites requiring
further investigation. The potential liability cannot be fully assessed, since
the sites are still in various stages of investigation. In addition, two other
sites nearing completion did not require any accruals as of June 30, 1996. The
amount of environmental liability
17
<PAGE>
identified that is reasonably possible is in the range of $600,000 to $4.6
million. As of June 30, 1996, the company has not been designated as a
potentially responsible party at any site. As of June 30, 1996, the amount
accrued with respect to potential liability is $600,000 and is recorded as part
of "other accrued liabilities". The company does not expect to incur liabilities
at the higher end of the range, based on the limited information currently
available.
Sales Force During 1996, the company was approached by a group of sales
representatives seeking changes in their agreements with Jostens. All of the
company's sales representatives have similar contractual arrangements, and the
company does not anticipate substantial changes to that relationship with the
majority of sales representatives.
For some of the about 50 representatives who serve the college market, the
company anticipates a change in the contract status. These representatives'
contracts call for a transition commission to be paid after the representative
leaves the business. Historically, these transition payments have been paid by
the new sales representative who assumed responsibility for the accounts of the
outgoing representative, with Jostens acting as the collection agent. Although
the nature of the potential changes to the contractual relationship with the
representatives serving the college market is unknown, any change to the current
arrangement may result in the company being required to account in the future
for these contingent payments as a liability.
DISCONTINUED OPERATIONS
The statements of consolidated operations are presented to reflect the
company's JLC, Wicat Systems and Sportswear businesses as discontinued
operations.
In June 1995, Jostens sold its JLC curriculum software subsidiary to a
group led by Bain Capital, Inc. for $50 million in cash; a $36 million
unsecured, subordinated note maturing in eight years with a stated interest rate
of 11 percent; and a separate $4 million note with a stated interest rate of 8.3
percent convertible into 19 percent of the equity of Jostens Learning, subject
to dilution in certain events. The notes were recorded at fair value, using an
estimated 20 percent discount rate on the $36 million note, resulting in a
discount of $9.9 million.
In October 1995, the company sold its Wicat Systems business to Wicat
Acquisition Corp., a private investment group. Wicat Systems was the small,
computer-based aviation training subsidiary of JLC that was retained in the sale
of JLC, but held for sale. The company received $1.5 million in cash plus a
promissory note for approximately $150,000 from the sale. The company treated
Wicat Systems as a discontinued operation in June 1995, pending the sale of the
business.
A transaction gain of $11.1 million ($5.8 million after tax) was originally
recorded at the time of the JLC sale and deferred in accordance with Securities
and Exchange Commission Staff Accounting Bulletin No. 81, Gain Recognition on
the Sale of a Business or Operating Assets to a Highly Leveraged Entity. In the
second quarter of fiscal 1996, the deferred gain increased as a result of the
sale of Wicat ($5.3 million) and some accrual settlements ($800,000). The
adjusted $17.2 million gain ($9.7 million after tax) and interest on the notes
receivable will be
18
<PAGE>
deferred until cash flows from the operating activities of JLC are sufficient to
fund debt service, dividend or any other covenant requirements. The deferred
gain is presented in the condensed consolidated balance sheets as an offset to
notes receivable. The notes receivable balance represents amounts owed by JLC
related to the sale of JLC, net of a $9.9 million discount and the deferred
gain.
JLC operations are tracking close to their revised plan and Jostens has
been informed that JLC is currently attempting to raise additional capital for
ongoing cash requirements which may result in a restructuring of holdings. Given
Jostens' current carrying value of its investment in JLC, the company does not
believe at this time that the carrying value is impaired.
As part of the original sale, Jostens also agreed to pay $13 million over
two years to fund certain JLC existing liabilities; $9 million has been paid
through June 30, 1996. The remaining $4 million has been accrued as part of
other accrued liabilities and is expected to be paid in 1997.
In 1994, Jostens also recorded a restructuring charge of $60.9 million
($40.2 million after tax, or 88 cents per share) related to JLC, which has been
reclassified as part of discontinued operations. The restructuring charge
relating to JLC included $39.1 million to focus its product development, $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 reductions.
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 in 1993 to its then estimated net
realizable value.
RESTRUCTURINGS
The company recorded an $8.5 million restructuring charge ($5.1 million
after tax, or 12 cents per share) related to continuing operations in the fourth
quarter of 1994, covering headcount reductions in the general and administrative
functions. The company also recorded a $40.2 million ($25.3 million after tax,
or 56 cents per share) charge to continuing operations in 1993 to restructure
the Photography business, reduce headcount and write off abandoned receivables.
In 1995, restructuring reserves decreased by $13.4 million to $5.5 million at
June 30, 1995, due to payments of $11.1 million and noncash items of $2.3
million. In 1996, restructuring reserves decreased by $2.8 million to $2.7
million at June 30, 1996, due to payments of $2.4 million and noncash items of
$400,000.
CHANGES IN ACCOUNTING ESTIMATES
As a result of certain changes in business conditions, the company
conducted a review that concluded at the end of the third quarter of fiscal
1994. That review led the company to increase 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 1994 by $16.9
million ($10.1 million after tax, or 22 cents per share).
FISCAL YEAR
Jostens currently operates under a fiscal year that ends June 30. Due to
the strong seasonality of its businesses, the company believes that a calendar
fiscal year would enable better internal management and planning, and is seeking
the necessary approvals to make this change effective January 1, 1997.
19
<PAGE>
REPORTS 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
Trudy A. Rautio, Senior Vice President and
Chief Financial Officer
/s/Robert C. Buhrmaster
Robert C. Buhrmaster, President and
Chief Executive Officer
Minneapolis, Minnesota, July 31, 1996
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, 1996
and 1995, 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, 1996. 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, 1996 and 1995, and the consolidated results of
their operations and cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
As discussed in the notes to the financial statements, the company changed
its method of accounting for post-employment benefits in 1995.
/s/Ernst & Young LLP
Ernst & Young LLP
Minneapolis, Minnesota, July 31, 1996
20
<PAGE>
STATEMENT OF CONSOLIDATED OPERATIONS 1996
Jostens Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended June 30
(Dollars in thousands, except per-share data) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $695,149 $665,099 $649,869
Cost of products sold 332,212 313,659 313,755
- ------------------------------------------------------------------------------------------------------------------------------------
362,937 351,440 336,114
Selling and administrative expenses 268,135 256,822 274,140
Restructuring charges --- --- 8,500
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 94,802 94,618 53,474
Interest income 2,080 4,727 1,823
Interest expense (9,403) (5,452) (6,803)
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 87,479 93,893 48,494
Income taxes 35,854 38,027 20,540
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 51,625 55,866 27,954
Discontinued operations:
Loss from operations, net of tax --- (4,864) (55,110)
Gain on sale, net of tax --- --- 10,987
Cumulative effect of changes in accounting principle, net of tax --- (634) ---
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 51,625 $ 50,368 $(16,169)
====================================================================================================================================
Earnings (loss) per common share
Continuing operations $ 1.28 $ 1.23 $ .61
Loss from discontinued operations --- (.11) (1.21)
Gain on sale of discontinued operations --- --- .24
Cumulative effect of changes in accounting principle --- (.01) ---
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1.28 $ 1.11 $ (.36)
====================================================================================================================================
Weighted average number of shares outstanding 40,207 45,494 45,455
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements
21
<PAGE>
CONSOLIDATED BALANCE SHEETS 1996
Jostens Inc. and Subsidiaries
<TABLE>
<CAPTION>
June 30
(Dollars in thousands, except per-share data) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and short-term investments $ 13,307 $ 173,469
Accounts receivable, net of allowance of $5,966 and $9,049, respectively 130,159 124,392
Inventories: Finished products 20,147 17,079
Work-in-process 29,175 26,928
Materials and supplies 29,646 27,387
- ------------------------------------------------------------------------------------------------------------------------
78,968 71,394
Deferred income taxes 14,832 17,845
Prepaid expenses 1,833 2,869
Other receivables, net of allowance of $6,545 and $6,176, respectively 12,241 12,399
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 251,339 402,368
- ------------------------------------------------------------------------------------------------------------------------
Other assets
Intangibles 28,332 30,915
Note receivable, net of $9,900 discount and $17,175 and $11,131 deferred gain, respectively 12,925 18,969
Noncurrent deferred income taxes 11,374 15,590
Other 12,967 12,301
- ------------------------------------------------------------------------------------------------------------------------
Total other assets 65,597 77,775
- ------------------------------------------------------------------------------------------------------------------------
Property and equipment
Land 5,260 5,260
Buildings 38,026 38,253
Machinery and equipment 144,965 141,043
- ------------------------------------------------------------------------------------------------------------------------
188,251 184,556
Accumulated depreciation and amortization (121,214) (116,731)
- ------------------------------------------------------------------------------------------------------------------------
Total property and equipment 67,037 67,825
- ------------------------------------------------------------------------------------------------------------------------
Total assets $ 383,974 $ 547,968
========================================================================================================================
</TABLE>
See notes to consolidated financial statements
22
<PAGE>
<TABLE>
<CAPTION>
June 30
1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and shareholders' investment
Current liabilities
Notes payable $ 27,587 $ ---
Current maturities on long-term debt 50,025 355
Accounts payable 16,276 17,624
Salaries, wages and commissions 54,303 52,544
Customer deposits 37,608 36,367
Income taxes 27,322 35,372
Dividends payable 8,505 10,005
Other accrued liabilities 20,837 43,820
- --------------------------------------------------------------------------------------------------------
Total current liabilities 242,463 196,087
Long-term debt, less current maturities 3,874 53,899
Accrued pension costs 4,621 12,578
Other noncurrent liabilities 11,215 14,791
- --------------------------------------------------------------------------------------------------------
Total liabilities 262,173 277,355
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 1996 -- 38,653; 1995 -- 45,482 12,884 15,160
Capital surplus 1,316 154,410
Retained earnings 110,872 105,213
Foreign currency translation adjustment (3,271) (4,170)
- --------------------------------------------------------------------------------------------------------
Total shareholders' investment 121,801 270,613
- --------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' investment $383,974 $547,968
========================================================================================================
</TABLE>
23
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS 1996
Jostens Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended June 30
(Dollars in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 51,625 $ 50,368 $ (16,169)
Depreciation 14,999 18,357 19,157
Amortization 1,558 9,982 19,770
Noncash restructuring charges --- --- 27,333
Deferred income taxes 7,229 607 (21,254)
Gain on sale of discontinued operations --- --- (10,987)
Changes in assets and liabilities, net of effects from sale of discontinued operations:
Accounts receivable (10,401) (1,303) 37,000
Inventories (8,157) 2,436 26,333
Prepaid expenses 993 434 4,577
Accounts payable 460 (11,009) (19,396)
Other (29,431) 11,070 58,747
- ------------------------------------------------------------------------------------------------------------------------
28,875 80,942 125,111
- ------------------------------------------------------------------------------------------------------------------------
Investing activities
Capital expenditures (15,371) (19,142) (15,202)
Software development costs --- (9,560) (19,437)
Other --- 4,074 (144)
Net proceeds from sale of discontinued operations 1,813 49,471 43,808
- ------------------------------------------------------------------------------------------------------------------------
(13,558) 24,843 9,025
- ------------------------------------------------------------------------------------------------------------------------
Financing activities
Cash dividends (35,515) (40,000) (39,999)
Exercise of stock options 2,136 225 702
Short-term borrowing 27,587 --- ---
Reduction in long-term notes (355) (368) (576)
Share repurchase (169,332) --- ---
- ------------------------------------------------------------------------------------------------------------------------
(175,479) (40,143) (39,873)
- ------------------------------------------------------------------------------------------------------------------------
Change in cash and short-term investments (160,162) 65,642 94,263
Cash and short-term investments, beginning of year 173,469 107,827 13,564
- ------------------------------------------------------------------------------------------------------------------------
Cash and short-term investments, end of year $ 13,307 $173,469 $ 107,827
========================================================================================================================
</TABLE>
See notes to consolidated financial statements
24
<PAGE>
1996
STATEMENTS OF CONSOLIDATED CHANGES IN
SHAREHOLDERS' INVESTMENT
Jostens Inc. and Subsidiaries
<TABLE>
<CAPTION>
Foreign
Currency
Common Shares Capital Retained Translation
(Dollars in thousands, except per-share data) Number Amount Surplus Earnings Adjustment
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - June 30, 1993 45,425 $15,142 $ 152,312 $151,013 $(2,749)
Stock options and restricted stock - net 57 18 684
Net loss (16,169)
Cash dividends declared of $.88 per share (39,999)
Change in cumulative translation adjustment (1,681)
Adjustment in minimum pension liability (1,990)
- ---------------------------------------------------------------------------------------------------------
Balance - June 30, 1994 45,482 15,160 152,996 92,855 (4,430)
Stock options and restricted stock - net 1,414
Net income 50,368
Cash dividends declared of $.88 per share (40,000)
Change in cumulative translation adjustment 260
Adjustment in minimum pension liability 1,990
- ---------------------------------------------------------------------------------------------------------
Balance - June 30, 1995 45,482 15,160 154,410 105,213 (4,170)
Stock options and restricted stock - net 182 61 1,903
Share repurchase (7,011) (2,337) (155,168) (11,827)
Net income 51,625
Cash dividends declared of $.88 per share (34,015)
Tax benefit of stock options 171
Change in cumulative translation adjustment 899
Adjustment in minimum pension liability (124)
- ---------------------------------------------------------------------------------------------------------
Balance - June 30, 1996 38,653 $12,884 $ 1,316 $110,872 $(3,271)
========================================================================================================
</TABLE>
See notes to consolidated financial statements
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------
Jostens Inc. and Subsidiaries
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OVERVIEW Jostens Inc. is a provider of products and services that
help people recognize achievement and affiliation throughout their lives. The
company's products include yearbooks, class rings, graduation products, school
photography and service and achievement awards for businesses.
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.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. The most significant areas that require the use of management's
estimates relate to the allowance for uncollectible receivables, inventory
reserves, sales returns, warranty costs, environmental accruals and deferred
income tax valuations.
CASH, SHORT-TERM INVESTMENTS AND CASH FLOWS For purposes of reporting cash
flows, cash and short-term investments include cash on hand, time deposits and
commercial paper. SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities, was adopted in fiscal 1995. The implementation of this
statement did not have a material impact on the results of operations. Short-
term investments have an original maturity of three months or less and are
considered cash equivalents. All investments in debt securities have an original
maturity of three months or less and are considered to be held to maturity. The
short-term securities are carried at amortized cost, which approximates fair
value and totaled $2.6 million and $161.1 million at June 30, 1996 and 1995,
respectively. Total cash payments for income taxes and interest, respectively,
were $34.3 million and $8.7 million in 1996, $15.1 million and $4.2 million in
1995, and $8.9 million and $5.9 million in 1994.
INVENTORIES Gold and certain other inventories aggregating $2.7 million at
June 30, 1996, and $2.6 million at June 30, 1995, are stated at the lower of
last-in, first-out (LIFO) cost or market, and are $14.7 million and $14.8
million lower in the respective years than such inventories determined 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.
26
<PAGE>
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 the 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 and
are amortized over various periods of up to 40 years. Accumulated amortization
at June 30, 1996 and 1995, was $16.1 million and $14.5 million, respectively.
The carrying value of intangible assets is assessed semiannually or when factors
indicating an impairment are present. The company employs an undiscounted cash
flow method of assessment for these assets. The intangible balance also includes
the intangible asset related to additional minimum pension liability of $1.7
million and $2.7 million at June 30, 1996 and 1995, respectively.
PROPERTY AND EQUIPMENT Property and equipment are carried at cost.
Depreciation and amortization on buildings, machinery and equipment and
purchased software, including software implementation costs, 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; purchased software, two to five years.
Depreciation and amortization expense charged to continuing operations was $15
million, $13.6 million and $13.3 million in 1996, 1995 and 1994, respectively.
The carrying value of property, equipment and purchased software is assessed
annually and/or when circumstances indicating that their carrying value may be
impaired or not recoverable. The company determines such impairment by measuring
undiscounted future cash flows. If an impairment is present, the assets are
reported at the lower of carrying value or fair value.
Beginning in 1996, the company capitalized certain software implementation
costs. Prior to 1996, such costs were not significant. Implementation costs are
expensed until the company has determined that the software will result in
probable future economic benefits and management has committed to funding the
project. Thereafter, all direct implementation costs and purchased software
costs are capitalized and amortized using the straight-line method over the
remaining estimated useful lives, not exceeding five years.
INCOME TAXES The company records income taxes in accordance with SFAS No.
109, Accounting for Income Taxes. This statement requires the use of the asset
and liability method of accounting for income taxes. 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.
SALES, SALES RETURNS AND WARRANTY COSTS Sales are recognized at the date of
product shipment. Provisions for sales returns and warranty costs are recorded
at the time of sale based on historical information adjusted for current trends.
27
<PAGE>
FOREIGN CURRENCY The company enters into foreign currency forward
contracts to hedge purchases of inventory in foreign currency. The purpose of
these hedging activities is to protect the company from the risk that inventory
purchases denominated in foreign currency will be adversely affected by changes
in foreign currency rates. All contracts the company had at June 30, 1996,
mature within one year and are held for purposes other than trading. The amounts
of contracts outstanding at June 30, 1996 and 1995, were $9.1 million and
$100,000, respectively. The company is exposed to credit loss in the event of
nonperformance by counterparties on foreign exchange forward contracts. Jostens
does not anticipate nonperformance by any of these counterparties. The amount of
this credit exposure is generally limited to unrealized gains on the contracts.
At June 30, 1996 and 1995, there were no material unrealized gains or losses on
outstanding foreign currency forward contracts.
Assets and liabilities denominated in foreign currency are translated at
the current exchange rate as of the balance sheet date, and income statement
amounts are translated at the average monthly exchange rate. Translation
adjustments resulting from fluctuations in exchange rates are recorded in a
separate component of equity. Realized and unrealized gains and losses on
foreign currency forward contracts used to purchase inventory with no firm
purchase commitments are recognized currently in net income because they do not
qualify as hedges for accounting purposes. Realized and unrealized gains and
losses on forward contracts used to purchase inventory for which the company has
firm purchase commitments qualify as accounting hedges and are therefore
deferred and recognized in income when the inventory is sold.
EARNINGS PER COMMON SHARE Earnings per share have been computed by
dividing net income by the weighted 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 In the first quarter of fiscal 1995, the company
adopted SFAS No. 112, Employers' Accounting for Postemployment Benefits.
Adopting this statement resulted in a $1.1 million ($600,000 after tax) charge
to operations.
RECENT ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation.
Under SFAS No. 123, companies can elect to account for stock-based compensation
plans using a fair-value-based method or continue measuring compensation expense
for these plans using the intrinsic value method prescribed in Accounting
Principles Board opinion No. 25. SFAS No. 123 requires that companies electing
to continue using the intrinsic method make pro forma disclosures of net income
and earnings per share as if the fair-value-based method of accounting had been
applied. The company will adopt the disclosure requirements of SFAS No. 123 in
fiscal 1997.
Because Jostens anticipates continuing to account for stock-based
compensation using the intrinsic value method, SFAS No. 123 will not have an
impact on the company's results of operations or financial position.
RECLASSIFICATION Certain 1995 and 1994 balances have been reclassified to
conform to the 1996 presentation.
28
<PAGE>
LONG-TERM DEBT AND OTHER BORROWINGS
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
June 30
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
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 299 654
- --------------------------------------------------------------------------------
53,899 54,254
Less current maturities 50,025 355
- --------------------------------------------------------------------------------
$ 3,874 $53,899
================================================================================
</TABLE>
Annual maturities on long-term debt are zero in fiscal 1998 to 2001 and
$3.9 million thereafter. The fair value of long-term debt at June 30, 1996 and
1995, approximated the carrying value and is estimated based on the quoted
market prices for comparable instruments.
Effective December 20, 1995, the company terminated its unsecured lines of
credit and replaced them with a $150 million, five-year bank credit agreement.
Annual fees and interest on borrowings are based on the company's long-term debt
rating or the commercial paper rating, if the company ceases, at any time, to
have a long-term debt rating. Annual fees range from 0.075 percent to 0.15
percent of the commitment. Under the restrictive covenants of the agreement, the
company must maintain a minimum interest coverage ratio and net worth (as
defined in the agreement). Credit available under the company's $150 million
bank credit agreement, which expires in December 2000, is reduced by commercial
paper outstanding. Commercial paper borrowings outstanding at June 30, 1996, due
within 90 days, were $27.6 million and are included in notes payable in the
consolidated balance sheets. Maximum and average borrowing levels during 1996
were $127 million and $68.4 million, respectively, at a weighted average
interest rate of 5.6 percent. There were no short-term borrowings in 1995. At
June 30, 1996, $122.4 million was available under the bank credit agreement.
In addition, the company had available unsecured demand facilities with
three banks totaling $80 million. Such credit arrangements are renegotiated
periodically based on the anticipated seasonal needs for short-term financing.
In April 1996, the company entered into a one-year interest rate swap
commencing July 8, 1996. Under terms of the agreement, the company will pay
interest at a rate of 5.962 percent and will receive interest weekly at a
floating rate equal to the seven-day U.S. commercial paper rate. The interest
rate swap agreement effectively converts variable rate obligations to a fixed
rate basis in order to reduce the impact of interest rate changes on the
company's debt. The agreement involves the exchange of fixed or floating rate
interest payments without the exchange of the underlying notional amount. The
notional amount of the agreement changes on a weekly basis based on the
company's planned borrowing needs and ranges from $4 million to $146.5 million.
The notional amount is used to measure the interest to be paid or received and
does not represent the amount of exposure to loss. There were no material
deferred gains or losses outstanding on the contract as of June 30, 1996.
29
<PAGE>
INCOME TAXES
Income from continuing operations before taxes, discontinued operations and
change in accounting principle are as follows:
<TABLE>
<S> <C> <C> <C>
(Dollars in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------
Domestic $82,818 $87,009 $42,095
- ----------------------------------------------------------------------------
Foreign 4,661 6,884 6,399
- ----------------------------------------------------------------------------
$87,479 $93,893 $48,494
============================================================================
</TABLE>
The components of the provision for income taxes attributable to earnings
from continuing operations are as follows:
<TABLE>
<S> <C> <C> <C>
(Dollars in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------
Federal $21,425 $23,272 $18,710
State 5,385 5,198 3,883
Foreign 2,041 3,518 2,603
- ----------------------------------------------------------------------------
28,851 31,988 25,196
Deferred 7,003 6,039 (4,656)
- ----------------------------------------------------------------------------
$35,854 $38,027 $20,540
============================================================================
</TABLE>
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:
<TABLE>
<S> <C> <C> <C>
(Dollars in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------
Tax at U.S. statutory rate $30,618 $32,862 $16,973
State income taxes,
net of federal income
tax benefit 4,012 3,682 2,455
All other, net 1,224 1,483 1,112
- -----------------------------------------------------------------------------
$35,854 $38,027 $20,540
=============================================================================
</TABLE>
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, 1996 and 1995,
were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- -----------------------------------------------------
<S> <C> <C>
Deferred tax liabilities
Tax over book depreciation $(4,595) $(4,119)
Other, net (4,175) (3,694)
- -----------------------------------------------------
Deferred tax liabilities (8,770) (7,813)
Deferred tax assets
Restructuring charges 2,524 3,694
Net operating loss and
tax credit carryforwards
of acquired companies 3,992 6,412
Foreign tax credit carryforwards 3,803 --
Allowance for doubtful accounts 3,016 4,657
Sales representatives'
overdraft reserve 2,165 2,389
Sales returns and allowances 3,040 2,929
Postretirement benefits 3,115 3,200
Pension plans 677 3,228
Deferred gain on sale of
Jostens Learning 7,486 5,330
Discount on note receivable 3,950 3,950
Reserves for discontinued
operations -- 2,156
Other, net 7,128 5,420
- -----------------------------------------------------
40,896 43,365
Valuation allowance (5,920) (2,117)
- -----------------------------------------------------
Deferred tax assets 34,976 41,248
- -----------------------------------------------------
Net deferred tax asset $ 26,206 $ 33,435
=====================================================
</TABLE>
At June 30, 1996, the company had net operating loss carryforwards from
business acquisitions of $8.2 million for federal income tax purposes that
expire in the years 1998 through 2004. The company also had investment, research
and experimentation, and foreign tax credit carryforwards of $4.9 million that
expire in the years 1998 through 2004. The increase in the valuation allowance
from June 30, 1995, to June 30, 1996, is due to the increase in foreign tax
credits not likely to be utilized.
30
<PAGE>
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.
The components of pension cost and the funded status are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 3,459 $ 3,366 $ 3,254
Interest on projected benefit obligation 7,737 7,447 6,925
Return on assets: actual loss (gain) (28,589) (7,556) 326
deferred 18,830 (262) (6,978)
Amortization 137 243 (359)
- -------------------------------------------------------------------------------------------------------------------------------
Pension cost $ 1,574 $ 3,238 $ 3,168
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
Plans whose assets Plans whose accrued
(Dollars in thousands) exceed accrued benefits benefits exceed assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $ 79,242 $ 15,570
Accumulated benefit obligation 82,838 16,288
Projected benefit obligation 90,331 17,274
Fair value of plan assets 121,560 -
Plan assets in excess of (less than) projected benefit obligation 31,229 (17,274)
Unrecognized net (gain) loss (22,810) 1,022
Unrecognized prior service cost 9,835 1,660
Unrecognized net (asset) obligation at transition (6,532) 118
Adjustment required to recognize minimum liability - (1,869)
- ------------------------------------------------------------------------------------------------------------------------------
Net pension asset (liability) in consolidated balance sheets $ 11,722 ($16,343)
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
June 30, 1995
Plans whose assets Plans whose accrued
(Dollars in thousands) exceed accrued benefits benefits exceed assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vested benefit obligation $ 64,047 $ 24,661
Accumulated benefit obligation 67,818 25,869
Projected benefit obligation 75,285 27,425
Fair value of plan assets 81,635 9,777
Plan assets in excess of (less than) projected benefit obligation 6,350 (17,648)
Unrecognized net (gain) loss (5,460) 1,339
Unrecognized prior service cost 9,486 3,348
Unrecognized net (asset) at transition (6,796) (513)
Adjustment required to recognize minimum liability - (2,684)
- ------------------------------------------------------------------------------------------------------------------------------
Net pension asset (liability) in consolidated balance sheets $ 3,580 ($16,158)
==============================================================================================================================
</TABLE>
31
<PAGE>
Plan assets consist primarily of corporate equity, including the fair value
of the company's common stock of $4.2 million at June 30, 1996 and 1995,
respectively, as well as corporate and U.S. government debt, and real estate.
The assumptions used in determining the components of pension cost and the
funded status were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average
discount rates 7.75% 8.00% 7.50%
Rates of increase
in compensation 5.00% 5.00% 5.00%
Expected rate of
return on assets 10.00% 8.75% 8.00%
</TABLE>
In conjunction with the 1994 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 curtailment loss of $700,000 was included in the gain
on the sale 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, in the form of Jostens common shares purchased in the
open market, was $2.4 million for each of the three years ended June 30, 1996,
representing 50 percent of eligible employee contributions.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Jostens provides medical insurance benefits for substantially all retirees.
Employees who retired prior to June 30, 1993, 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.
Postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 72 $ 75 $ 77
Interest cost of
benefit obligation 450 463 466
Amortization of net (gain)
from earlier periods (34) (471) --
Amortization of unrecognized
prior service cost (7) (7) (7)
- -----------------------------------------------------------------------------------------------
Postretirement benefit cost $ 481 $ 60 $ 536
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Retirees $3,957 $5,009
Fully eligible active participants 85 82
Other active participants 942 959
- -----------------------------------------------------------------------------------------------
4,984 6,050
Unrecognized prior service cost 76 84
Unrecognized net gain 1,971 884
- -----------------------------------------------------------------------------------------------
Accumulated postretirement
benefit obligations $7,031 $7,018
===============================================================================================
</TABLE>
The assumptions used in determining the benefit obligation in fiscal 1996
included a medical plan cost trend rate of 12 percent, declining to 6 percent in
the year 2002, and a weighted average discount rate of 7.75 percent. Fiscal 1995
assumptions included a medical plan cost trend rate of 13.4 percent, declining
to 7.9 percent in the year 2000, and a weighted average discount rate of 8
percent. Fiscal 1994 assumptions 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.
32
<PAGE>
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 $300,000 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. Unrecognized net
gains or losses in excess of 10 percent of the accumulated post-retirement
benefit obligation are amortized over the average remaining service period of
active plan participants.
COMMITMENTS AND CONTINGENCIES
The company's noncancelable minimum rental commitments for facilities and
equipment are $5.6 million in fiscal 1997, $2.1 million in 1998, $1 million in
1999, $800,000 in 2000, $300,000 in 2001 and zero thereafter. Operating lease
rental expenses were $6.3 million in 1996, $6.3 million in 1995 and $6 million
in 1994. Jostens has forward contracts of $32.4 million for commitments to
purchase 80,037 ounces of gold that mature at various times in 1997 with prices
ranging from $396 to $414 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.
Jostens also assesses reasonably possible environmental liability beyond
that which has been accrued. This liability is not probable, but is more likely
than remote. As of June 30, 1996, the company identified four sites requiring
further investigation. The potential liability cannot be fully assessed, since
the sites are still in various stages of investigation. In addition, two other
sites nearing completion did not require any accruals as of June 30, 1996. The
amount of environmental liability identified that is reasonably possible is in
the range of $600,000 to $4.6 million. As of June 30, 1996, the company has not
been designated as a potentially responsible party at any site. The amount
accrued as of June 30, 1996 with respect to potential liability is $600,000 and
is recorded as part of "other accrued liabilities." The company does not expect
to incur liabilities at the higher end of the range, based on the limited
information currently available.
During 1996, the company was approached by a group of sales representatives
seeking changes in their agreements with Jostens. All of the company's sales
representatives have similar contractual arrangements, and the company does not
anticipate substantial changes to that relationship with the majority of sales
representatives.
For some of the about 50 representatives who serve the college market, the
company anticipates a change in the contract status. These representatives'
contracts call for a transition commission to be paid after the representative
leaves the business. Historically, these transition payments have been paid by
the new sales representative who assumed responsibility for the accounts of the
outgoing representative, with Jostens acting as the collection agent. Although
the nature of the potential changes to the contractual relationship with the
representatives serving the college market is unknown, any change to the current
arrangement may result in the company being required to account in the future
for these contingent payments as a liability.
SHAREHOLDERS' INVESTMENT
Share Repurchase In September 1995, the company repurchased 7,011,108
shares of its common stock, the maximum number of shares allowable for purchase,
for $169.3 million through a Modified Dutch Auction tender offer. The repurchase
was funded from the company's cash and short-term investment balance, as well as
short-term borrowings.
33
<PAGE>
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 company
follows APB opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations in accounting for its employee stock options. Under APB
No. 25, when the exercise price of employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recorded. The following summarizes the changes in stock options outstanding:
<TABLE>
<CAPTION>
Options Outstanding
(In thousands) 1996 1995 1994
- --------------------------------------------------------
<S> <C> <C> <C>
Beginning of year 2,971 2,400 2,446
Granted 278 822 463
Exercised (163) (28) (26)
Canceled (335) (223) (483)
- --------------------------------------------------------
End of year 2,751 2,971 2,400
========================================================
</TABLE>
The options exercised during fiscal 1996 ranged in price from $1.21 to
$22.88 per share. At June 30, 1996, the exercise price on outstanding options
ranged from $11.47 to $34.19 per share, and 1.5 million options were exercisable
under stock option plans. Approximately 1.3 million and 700,000 common shares
were reserved for future grants under the stock option plans at June 30, 1996
and 1995, respectively.
During fiscal 1995, certain members of the Jostens senior management team
were granted performance share units, as part of Jostens' long-term management
incentive plan. Performance share units are tied directly to attaining specific
financial performance targets. If all or a portion of the performance units are
awarded, the units are converted into a restricted stock award, which is subject
to transfer and vesting restrictions based upon continuous employment of the
recipient. Holders of restricted shares have voting, liquidation and other
rights with respect to these shares and receive dividends paid on common stock.
A portion of these performance share units were to be converted into restricted
shares in each of fiscal years 1995, 1996 and 1997, contingent upon achieving
the financial performance targets established under the plan. Performance share
unit and restricted share activity under this plan are summarized as follows:
<TABLE>
<CAPTION>
Performance Restricted
(In thousands) Share Units Shares
- -----------------------------------------------------
<S> <C> <C>
Balances, June 30, 1994 -- --
- -----------------------------------------------------
Granted 171,573 --
Converted (53,290) 53,290
- -----------------------------------------------------
Balances, June 30, 1995 118,283 53,290
- -----------------------------------------------------
Granted 13,807 --
Canceled (77,144) --
Redeemed -- (5,141)
- -----------------------------------------------------
Balances, June 30, 1996 54,946 48,149
=====================================================
</TABLE>
In fiscal 1995, restricted shares were awarded under this plan as a result
of achieving 1995 performance share unit targets, resulting in $1.2 million in
expense in 1995. The company did not achieve the 1996 financial targets, which
resulted in the cancellation of a portion of the outstanding performance share
units. In addition, certain participating employees terminated their employment
with the company, which resulted in the cancellation of additional performance
share units and the redemption of previously issued restricted shares.
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
34
<PAGE>
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 two business segments: school-
based recognition products and services (School Products) and longevity and
performance recognition products and services for businesses (Recognition).
The School Products segment manufactures and sells products and services
including yearbooks, class rings, graduation products and student photography
packages, as well as customized products for university alumni and other
affinity groups.
Operations within the Recognition segment include the manufacture and sale
of customized sales, service and business achievement awards.
Operating income 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 assets used exclusively in the operations of each
business segment and are reflected after eliminating intercompany balances.
Corporate assets principally comprise cash, short-term investments, deferred
income tax assets, notes receivable and certain property and equipment.
Financial information by reportable business segment is included in the
following summary:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
School Products $594,941 $565,033 $546,191
Recognition 100,208 100,066 103,678
- ---------------------------------------------------------------
CONSOLIDATED $695,149 $665,099 $649,869
===============================================================
INCOME FROM
CONTINUING OPERATIONS
School Products $107,648 $107,071 $ 73,463
Recognition 9,468 4,727 9,489
Corporate items
and eliminations (22,314) (17,180) (29,478)
- ---------------------------------------------------------------
Consolidated 94,802 94,618 53,474
Net interest expense (7,323) (725) (4,980)
- ---------------------------------------------------------------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES $ 87,479 $ 93,893 $ 48,494
===============================================================
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
INDENTIFIABLE ASSETS
School Products $253,736 $236,424 $225,249
Recognition 46,960 45,177 47,315
Discontinued operations - 6,165 119,999
Corporate items and
eliminations 83,278 260,202 177,268
- ---------------------------------------------------------------
CONSOLIDATED $383,974 $547,968 $569,831
===============================================================
DEPRECIATION AND AMORTIZATION
School Products $ 11,395 $ 10,951 $ 11,700
Recognition 2,056 2,111 1,775
Discontinued operations - 13,179 24,013
Corporate items 3,106 2,098 1,439
- ---------------------------------------------------------------
CONSOLIDATED $ 16,557 $ 28,339 $ 38,927
===============================================================
CAPITAL EXPENDITURES
School Products $ 12,948 $ 8,540 $ 6,252
Recognition 463 1,369 1,054
Discontinued operations - 2,559 3,994
Corporate items 1,960 6,674 3,902
- ---------------------------------------------------------------
CONSOLIDATED $ 15,371 $ 19,142 $ 15,202
===============================================================
</TABLE>
35
<PAGE>
Corporate recorded a restructuring charge of $8.5 million in 1994. Income
from continuing operations for School Products in 1994 included $16.4 million of
provisions for revised estimates of inventories, receivables and overdrafts.
Income from continuing operations for Recognition in 1994 included $500,000 for
revised inventory estimates.
DISCONTINUED OPERATIONS
The statements of consolidated operations are presented to reflect the
company's JLC, Wicat Systems and Sportswear businesses as discontinued
operations.
In June 1995, Jostens sold its JLC curriculum software subsidiary to a
group led by Bain Capital, Inc. for $50 million in cash; a $36 million
unsecured, subordinated note maturing in eight years with a stated interest rate
of 11 percent; and a separate $4 million note with a stated interest rate of 8.3
percent convertible into 19 percent of the equity of Jostens Learning, subject
to dilution in certain events. The notes were recorded at fair value, using an
estimated 20 percent discount rate on the $36 million note resulting in a
discount of $9.9 million.
In October 1995, the company sold its Wicat Systems business to Wicat
Acquisition Corp., a private investment group. Wicat Systems was the small,
computer-based aviation training subsidiary of JLC that was retained in the sale
of JLC, but held for sale. The company received $1.5 million in cash plus a
promissory note for approximately $150,000 from the sale. The company treated
Wicat Systems as a discontinued operation from June 1995 on, pending the sale of
the business.
A transaction gain of $11.1 million ($5.8 million after tax) was originally
recorded at the time of the JLC sale and deferred in accordance with Securities
and Exchange Commission Staff Accounting Bulletin No. 81, Gain Recognition on
the Sale of a Business or Operating Assets to a Highly Leveraged Entity. In the
second quarter of fiscal 1996, the deferred gain increased as a result of the
sale of Wicat ($5.3 million) and some accrual settlements ($800,000). The
adjusted $17.2 million gain ($9.7 million after tax) and interest on the notes
receivable will be deferred until cash flows from the operating activities of
JLC are sufficient to fund debt service, dividend or any other covenant
requirements. The deferred gain is presented in the condensed consolidated
balance sheets as an offset to notes receivable. The notes receivable balance
represents amounts owed by JLC related to the sale of JLC, net of a discount of
$9.9 million and the deferred gain.
As part of the transaction Jostens also agreed to pay $13 million over two
years to fund certain JLC existing liabilities; $9 million was paid through June
30, 1996. The remaining $4 million has been accrued as part of other accrued
liabilities.
In 1994, Jostens recorded a restructuring charge of $60.9 million ($40.2
million after tax, or 88 cents per share) related to JLC, which has been
reclassified as part of discontinued operations. The restructuring charge
relating to JLC included $39.1 million to focus its product development, $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 reductions.
Significant accounting policies relevant to discontinued operations
included those related to capitalization of software development costs and
software revenue recognition. JLC capitalized software development costs when
the project reached technological feasibility and ceased capitalization when the
product was ready for release. Research and development costs related to
software
36
<PAGE>
development that had not reached technological feasibility were expensed as
incurred. Software development costs were amortized on the straight-line method
over a maximum of five years or the expected life of the product, whichever was
less. JLC recognized revenue for hardware and software upon shipment of the
product, provided that no significant vendor or postcontract obligations
remained outstanding and collection of the resulting receivable was deemed
probable. Revenue generated from service contracts and postcontract customer
support on software was recognized ratably over the period of the contract. The
revenue recognition for instruction and user training was part of the service
contract recognized ratably over the life of the contract. For insignificant
vendor and postcontract obligations remaining at the time of shipment, the
company's policy was to accrue all such obligations.
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 previously been written down by $15 million to its estimated net
realizable value.
Revenue and income data related to discontinued operations is as follows:
<TABLE>
<CAPTION>
JLC/Wicat Systems
(Dollars in thousands) 1995 1994
- ------------------------------------------
<S> <C> <C>
Revenue $108.6 $177.5
Restructuring charges - 60.9
Income tax benefit 2.5 28.0
Loss from operations $ 4.9 $ 54.3
Sportswear 1994
- ------------------------------------------
Revenue $ 52.1
Income tax benefit .5
Loss from operations .8
Gain on sale, net of tax $ 11.0
</TABLE>
RESTRUCTURINGS
The company recorded an $8.5 million restructuring charge ($5.1 million
after tax, or 12 cents per share) related to continuing operations in the fourth
quarter of 1994, covering headcount reductions in the general and administrative
functions. The company also recorded a $40.2 million ($25.3 million after tax,
or 56 cents per share) charge to continuing operations in 1993 to restructure
the Photography business, reduce headcount and write off abandoned receivables.
In 1995, restructuring reserves decreased by $13.4 million to $5.5 million at
June 30, 1995, due to payments of $11.1 million and noncash items of $2.3
million. In 1996, restructuring reserves decreased by $2.8 million to $2.7
million at June 30, 1996, due to payments of $2.4 million and noncash items of
$400,000.
CHANGES IN ACCOUNTING ESTIMATES
As a result of certain changes in business conditions, the company
conducted a review that concluded at the end of the third quarter of fiscal
1994. That review led the company to increase 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 pretax income for 1994 by $16.9
million ($10.1 million after tax, or 22 cents per share).
37
<PAGE>
Unaudited Quarterly Financial Data 1996
<TABLE>
<CAPTION>
Jostens Inc. and Subsidiaries
Fiscal 1996
(Dollars in thousands, except per-share data) First Second Third Fourth Total Year
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $97,754 $165,779 $141,863 $289,753 $695,149
Gross margin $51,954 $ 91,812 $ 81,347 $137,824 $362,937
Income from continuing operations $ 2,513 $ 11,973 $ 6,773 $ 30,366 $ 51,625
Net income $ 2,513 $ 11,973 $ 6,773 $ 30,366 $ 51,625
Earnings(1) per share $ .06 $ .31 $ .18 $ .79 $ 1.28
Stock price: high $24 1/2 $ 25 1/8 $ 24 3/8 $ 22 7/8 $ 25 1/8
low $20 7/8 $ 22 1/4 $ 21 1/8 $ 19 1/2 $ 19 1/2
Dividends per share $ .22 $ .22 $ .22 $ .22 $ .88
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Unaudited Quarterly Financial Data 1995
Jostens Inc. and Subsidiaries
Fiscal 1995
(Dollars in thousands, except per-share data) First Second(2) Third(2) Fourth Total Year
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $98,023 $157,623 $139,038 $270,415 $665,099
Gross margin $53,135 $ 84,675 $ 77,925 $135,705 $351,440
Income from continuing operations $ 3,589 $ 12,367 $ 9,437 $ 30,473 $ 55,866
Net income $ 1,316 $ 11,707 $ 8,511 $ 28,834 $ 50,368
Earnings per share: continuing operations $ .08 $ .27 $ .21 $ .67 $ 1.23
net income $ .03 $ .26 $ .18 $ .64 $ 1.11
Stock price: high $18 3/4 $ 19 3/8 $ 21 1/4 $ 21 5/8 $ 21 5/8
low $15 3/4 $ 16 7/8 $ 17 3/4 $ 18 7/8 $ 15 3/4
Dividends per share $ .22 $ .22 $ .22 $ .22 $ .88
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Earnings per share by quarter in 1996 do not add up to the annual earnings
per share amount because each quarter and the year are calculated separately
based on weighted average outstanding shares and common share equivalents during
that period.
(2) Certain amounts in 1995 have been reclassified between cost of products
sold and selling and administrative expenses to conform to the 1996
presentation.
The quarterly financial data above include the effects of reclassifying Jostens
Learning Corporation and Wicat Systems as discontinued operations.
38
<PAGE>
Six-Year Financial Summary
Jostens Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Dollars in millions, except per-share data) 1996 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statement of operations
Net sales $ 695.1 $ 665.1 $ 649.9 $ 634.8 $ 639.2 $632.1
Cost of products sold 332.2 313.7 313.8 310.4 314.0 311.3
Net interest expense 7.3 .7 5.0 5.7 8.7 10.2
Income taxes 35.9 38.0 20.5 10.7 29.8 27.5
Income -- continuing operations 51.6 55.9 28.0 8.5 45.2 45.0
Return on sales -- continuing operations 7.4% 8.4% 4.3% 1.3% 7.1% 7.1%
Net income (loss) 51.6 50.4 (16.2) (12.7) 59.2 61.6
Return on investment 26.3% 19.1% (5.7%) (3.7%) 16.9% 19.6%
- -----------------------------------------------------------------------------------------------------------------
Balance sheet data
Current assets $ 251.3 $ 402.4 $ 396.1 $ 401.6 $ 436.3 $389.4
Working capital 8.9 206.3 172.7 185.3 232.2 167.7
Current ratio 1.0 2.1 1.8 1.9 2.2 1.8
Property and equipment 188.3 184.6 207.6 218.9 207.4 192.3
Total assets 384.0 548.0 569.8 613.5 643.3 596.4
Notes payable 27.6 - - - - 35.2
Long-term debt, including current maturities 53.9 54.3 54.8 55.3 79.4 53.4
Shareholders' investment 121.8 270.6 256.6 315.7 364.7 333.6
- -----------------------------------------------------------------------------------------------------------------
Common share data
EPS -- continuing operations $ 1.28 $ 1.23 $ .61 $ .19 $ 1.00 $1.01
EPS -- net income (loss) 1.28 1.11 (.36) (.28) 1.32 1.38
Cash dividends .88 .88 .88 .88 .84 .80
Book value 3.15 5.95 5.64 6.95 8.10 7.46
Common shares outstanding (in millions) 38.7 45.5 45.5 45.4 45.0 44.7
Stock price: high 25 1/8 21 5/8 20 7/8 31 1/4 37 3/8 38 5/8
low 19 1/2 15 3/4 15 1/8 16 1/2 24 1/8 23 1/2
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The financial information above reflects Jostens Learning, Wicat Systems and
Sportswear as discontinued operations. Restructuring charges totaling $8.5
million and $40.2 million were recorded in continuing operations and $60.9
million and $25.4 million in discontinued operations in the fourth quarters of
fiscal 1994 and 1993, respectively. In 1994, $16.9 million was recorded for
provisions related to revised estimates of reserves for inventories, receivables
and overdrafts. Net income for fiscal 1993 reflects the cumulative effect of
adopting SFAS No. 106 of $6.7 million ($4.2 million after tax, or 9 cents per
share). Net income for fiscal 1995 reflects the cumulative effect of adopting
SFAS No. 112 of $1.1 million ($600,000 after tax, or 1 cent per share).
39
<PAGE>
Board of Directors
Lilyan H. Affinito Former Vice Chairman of the Board, Maxxam Group Inc.;
Director, Caterpillar Inc., Chrysler Corp., New York Telephone Co. and New
England Telephone Co., Tambrands Inc., Lillian Vernon Corp., Kmart Corp.
(Member, Audit Committee and Compensation Committee)
William A. Andres Retired Chairman of the Board and Chief Executive
Officer, Dayton Hudson Corp.; Director, Lowe's Companies Inc., Hannaford Bros.
Co., The St. Paul Companies. (Member, Audit Committee and Compensation
Committee)
Robert C. Buhrmaster President and Chief Executive Officer, Jostens Inc.;
Director, The Toro Company. (Member, Executive Committee)
Jack W. Eugster Chairman of the Board, President and Chief Executive
Officer, Musicland Stores Corp.; Director, Damark International Inc., Donaldson
Co. Inc., MidAmerican Energy Co., ShopKo Stores Inc. (Member, Audit Committee
and Compensation Committee)
Mannie L. Jackson Chairman of the Board, Harlem Globetrotters Inc.; Former
Senior Vice President-Corporate Marketing and Administration, Honeywell Inc.;
Director, Ashland Oil Corp., Martech Controls-South Africa, Reebok Corp.,
Stanley Products. (Member, Compensation Committee and Executive Committee)
Robert P. Jensen Chairman of the Board, Jostens Inc.; Private Investor;
Former Chairman of the Board and Chief Executive Officer, GK Technologies Inc.,
Tiger International Inc., EF Hutton LBO Inc. (Member, Audit Committee and
Executive Committee)
John W. Stodder Vice Chairman of the Board and Audit Committee Chairman,
Jostens Inc.; Independent Corporate Finance Consultant; Director, Tally
Industries Inc., Stevens International Inc., TransLeasing International Inc.
(Member, Audit Committee, Compensation Committee and Executive Committee)
Richard A. Zona Vice Chairman-Finance, First Bank System Inc.; Director,
Olympic Financial Ltd. (Member, Audit Committee)
Corporate Management
Robert C. Buhrmaster, 49, President and Chief Executive Officer, an
employee since 1992.
Charles W. Schmid, 53, Executive Vice President and General Manager-
Scholastic and Recognition, an employee since 1994.
Orville E. Fisher Jr., 52, Senior Vice President, General Counsel and
Secretary, an employee since 1975.
John L. Jones, 59, Senior Vice President-International, an employee since
1992.
Trudy A. Rautio, 43, Senior Vice President and Chief Financial Officer, an
employee since 1993.
Jack Thornton, 43, Senior Vice President and General Manager-Printing &
Publishing/Photography/Jostens Canada, an employee since 1978.
Greg S. Lea, 44, Vice President and General Manager-Colleges and
Universities, an employee since 1993.
Lee U. McGrath, 40, Vice President and Treasurer, an employee since 1995.
40
<PAGE>
Shareholder Information
Annual Meeting of Shareholders The annual meeting of shareholders will be
held at 10 a.m. Thursday, October 24, 1996, in the Jostens auditorium, 5501
Norman Center Drive, Minneapolis, Minnesota. All shareholders are invited to
attend.
Shareholder Information People who want more information about Jostens
(such as annual and quarterly reports, Form 10-K reports and automatic dividend
reinvestment) or who have questions about stockholdings, dividend checks,
transfer requirements and address changes should contact the company's transfer
agent and registrar: Norwest Shareowner Services, P.O. Box 64854, St. Paul,
Minnesota 55164-0854. Telephone: (800) 468-9716.
Dividend Reinvestment Jostens' automatic dividend reinvestment service is a
convenient way for shareholders to increase their investment in the company.
About 40 percent of Jostens' registered shareholders use this service, which
applies quarterly dividends, plus optional cash deposits, to the purchase of
additional Jostens shares. Shareholders interested in this service can obtain a
brochure by contacting Norwest Shareowner Services as listed above.
Stock Exchange Listing Jostens common stock is traded on the New York Stock
Exchange (symbol: JOS). There were approximately 9,400 shareholders of record
as of June 30, 1996.
Annual Report of Corporate Responsibility The Jostens annual report of
corporate responsibility is available by writing: The Jostens Foundation, 5501
Norman Center Drive, Minneapolis, Minnesota 55437-1088
Facilities
United States
. Porterville and Visalia, California
. Princeton, Illinois
. Topeka, Kansas
. Attleboro, Massachusetts
. Burnsville, Eden Prairie, Edina, Minneapolis,
Owatonna and Red Wing, Minnesota
. Webster, New York
. Winston-Salem, North Carolina
. State College, Pennsylvania
. Laurens, South Carolina
. Clarksville, Memphis and Shelbyville, Tennessee
. Denton, Texas
Canada
. Winnipeg, Manitoba
. Toronto, Ontario
. Montreal and Sherbrooke, Quebec
[LOGO OF RECYCLED PAPER]
This report was printed by the Jostens commercial printing facility in
Winston-Salem, North Carolina, on recycled (and recyclable) paper, containing
10% post-consumer waste.
41
<PAGE>
For more information
about products and services from
[LOGO] JOSTENS
please contact us. Our address is
5501 Norman Center Drive
Minneapolis, Minnesota 55437.
You may also reach us by calling
(612) 830-3300 or by visiting our
Internet site at www.jostens.com.
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State or Other
Name Jurisdiction of Organization
---- ------------------------------
<S> <C>
American Yearbook Company, Inc. Kansas
Hunter Publishing Company North Carolina
Jostens Canada, Ltd. Manitoba, Canada
Jostens/Massachusetts, Inc. Massachusetts
Jostens Photography, Inc. California
Jostens Publishing Group, Inc. Minnesota
The Jostens Foundation, Inc. Minnesota
Wayneco Enterprises, Incorporated Pennsylvania
Wicat Sales, Inc. Minnesota
</TABLE>
22
<PAGE>
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 July 31, 1996, included in the 1996 Annual
Report to Shareholders of Jostens, Inc.
Our audits also included the financial statement schedule of Jostens, Inc.
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents 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; Post-effective Amendment
Number 1 to Registration Statement Numbers 2-95076, 33-19308, 33-58414 and 33-
00713 on Form S-8 of Jostens, Inc. and in the related Prospectuses of our report
dated July 31, 1996, 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 schedule included in this
Annual Report (Form 10-K) of Jostens, Inc.
/s/ ERNST & YOUNG LLP
- ---------------------
ERNST & YOUNG LLP
Minneapolis, Minnesota
September 25, 1996
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
JOSTENS, INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED
JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 10,755
<SECURITIES> 2,552
<RECEIVABLES> 136,125
<ALLOWANCES> (5,966)
<INVENTORY> 78,968
<CURRENT-ASSETS> 251,339
<PP&E> 188,251
<DEPRECIATION> (121,214)
<TOTAL-ASSETS> 383,974
<CURRENT-LIABILITIES> 242,463
<BONDS> 3,874
<COMMON> 0
0
12,884
<OTHER-SE> 108,917
<TOTAL-LIABILITY-AND-EQUITY> 383,974
<SALES> 695,149
<TOTAL-REVENUES> 695,149
<CGS> 332,212
<TOTAL-COSTS> 332,212
<OTHER-EXPENSES> 268,135
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,403
<INCOME-PRETAX> 87,479
<INCOME-TAX> 35,854
<INCOME-CONTINUING> 51,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,625
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
