<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-5064
Jostens, Inc.
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(Exact name of Registrant as specified in its charter)
Minnesota 41-0343440
- ------------------------------------------------- ------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification number)
5501 Norman Center Drive, Minneapolis, Minnesota 55437
- ------------------------------------------------ ------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (612-830-3300)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ---------------------------------- -----------------------------------------
Common Shares, $0.33 1/3 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
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 March 3, 1999, was $779,308,114. The number of shares outstanding
of Registrant's only class of common stock on March 3, 1999, was 35,134,930.
Documents Incorporated by Reference
Portions of the Registrant's 1998 Annual Report to Shareholders are incorporated
by reference into Parts I, II and IV; Portions of the Registrant's Proxy
Statement for Annual Meeting of Shareholders to be held April 22, 1999 are
incorporated by reference into Part III.
<PAGE>
PART I
Item 1. BUSINESS
Jostens, Inc. ("Jostens" or the "company") was incorporated in 1906 under the
laws of the State of Minnesota. Jostens is a leading provider of products and
services that help people celebrate important moments, recognize achievements
and build affiliations. The company's products include yearbooks, class rings,
graduation products and school photography, as well as sports and employee
achievement awards.
In December 1998, the Board of Directors authorized the repurchase of up to $100
million shares of the company's common stock. Under the authorization, shares
may be repurchased periodically in the open market and through privately
negotiated transactions. The repurchase is to be funded from the company's cash,
short-term investments and short-term borrowings. A similar $100 million
repurchase program was authorized in July 1997 and completed in the fourth
quarter of 1998. Under this program the company repurchased 4.4 million shares,
including 3.6 million shares for $80 million in 1998. In fiscal year 1996, the
company repurchased 7 million shares for $169 million.
In June 1995, the company sold its Jostens Learning Corp. (JLC) curriculum
software subsidiary to a group led by Bain Capital, Inc. As partial
consideration for the sale, Jostens received two notes, which were discounted
and recorded at their estimated fair values. In addition, the transaction gain
of $13.2 million was deferred in accordance with the SEC Staff Accounting
Bulletin No. 81, Gain Recognition on the Sale of a Business or Operating Assets
to a Highly Leveraged Entity. The company recorded $12.9 million on its
consolidated balance sheets representing the estimated fair value of the notes,
net of the deferred gain.
In January 1999, the company received information from JLC indicating to
management that the carrying value of the notes were permanently impaired. As a
result, the company wrote off $12 million in 1998 for the carrying value of the
notes, net of miscellaneous JLC-related assets and liabilities, plus $3.7
million of net deferred tax assets associated with the initial sale of JLC that
management does not expect to realize. In addition, the company did not record a
tax benefit related to the write-off because it is currently not expected to be
realized for tax purposes.
Jostens' operations are classified into two business segments based upon
products and services provided: school-based recognition products and services
(School Products) and longevity and performance recognition products and
services for business (Recognition). The School Products segment primarily
manufactures and sells to school and college students products and services
including yearbooks, class rings, graduation products and student photography
packages. The Recognition segment manufactures and sells customized sales,
service and business achievement awards. Business segment financial information
is contained in Note 9 of the Notes to Consolidated Financial Statements on
pages 39 through 41 of Jostens' 1998 Annual Report to Shareholders and is
incorporated herein by reference.
SCHOOL PRODUCTS SEGMENT
School Products recognizes individual and group achievement and affiliation
primarily in the academic market. School Products comprises four product lines:
Printing & Publishing, Jewelry, Graduation Products and Photography.
Printing & Publishing
The company manufactures and sells student-created yearbooks in elementary
schools, middle schools, high schools and colleges. The company's independent
and employee sales representatives and their associates 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 yearbook is
completed. The company's independent and employee sales representatives work
with the faculty advisers to renew yearbook contracts each year. The company
also prints commercial brochures, and promotional books and materials. Printing
& Publishing contributed approximately 39 percent of School Products segment
sales in 1998 and 1997 and 38 percent in 1996.
2
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Jewelry
The company manufactures and sells class rings primarily to high school and
college students. This product line contributed approximately 30 percent of
School Products segment sales in 1998, 1997 and 1996. Many schools have only one
school-designated supplier to its students each year. Rings may be sold through
bookstores, other campus stores, retail jewelry stores and within the school
through temporary order-taking booths. The company, through its independent and
employee sales representatives, manages the process of interacting with the
students through ring design, promotion, ordering and presentation to relieve
school officials of administrative burden connected with students purchasing
this symbol of achievement.
Graduation Products
The company manufactures and sells graduation announcements and accessories,
diplomas and caps and gowns to students and administrators in high schools and
colleges. This product line contributed approximately 24 percent of School
Products segment sales in 1998, 1997 and 1996. Jostens independent and employee
sales representatives make calls on schools and sales are taken through
temporary order-taking booths, telemarketing programs and college bookstores.
Photography
Photography provides class and individual school pictures to students in
elementary, middle school 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. These services are provided
through an employee sales force and independent dealers, who arrange the
sittings/shootings at individual schools or in their own studios. This product
line contributed approximately 7 percent of School Products segment sales in
1998 and 8 percent in 1997 and 1996.
Seasonality
This segment experiences strong seasonal business swings concurrent with the
school year, with 40-45 percent of full-year sales and 55-65 percent of
full-year operating income occurring in the period from April to June. The
business generally requires short-term financing during the course of the year.
Competition
Consumers differentiate school products on the basis of price, quality,
marketing and service.
Printing & Publishing products competition is primarily made up of two national
firms (Herff Jones and Taylor Publishing) and one smaller regional firm
(Walsworth Publishing). All compete on the basis of price, print quality,
product offerings and service. Technological offerings in the way of computer
based publishing and curricula are becoming a more significant market
differentiator.
Customer service is particularly important in the sale of class rings because of
the high degree of customization and the emphasis on timely delivery. Class
rings with different quality and price points are marketed through different
channels. Jewelry products competition is primarily made up of two national
firms, Herff Jones and Commemorative Brands (CBI), which markets the Balfour and
ArtCarved brands. Herff Jones distributes its product in schools, in a manner
similar to the company's, while CBI distributes its product through multiple
distribution channels including schools, independent and chain jewelers and mass
merchandisers.
In Graduation Products, several national and numerous local and regional
competitors offer products similar to those of the company.
In Photography products, the company competes with Lifetouch, Herff Jones and a
variety of regional and locally owned and operated photographers.
3
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RECOGNITION SEGMENT
The Recognition segment helps companies and other organizations promote and
recognize achievement in people's careers. It designs, communicates and
administers programs to help customers improve performance and recognize
employee service. It also produces awards for professional sports team
accomplishments and affinity products for associations.
Recognition serves customers from small and mid-size companies to global
corporations, professional sports teams and special interest associations.
Recognition offers an assortment of products and services tailored to the needs
of the organization it is serving under a Strategic Recognition(TM) approach.
For global companies, Jostens customizes programs to meet specific customer
needs.
Standardized programs, such as Symphony(TM) provide small and mid-size companies
the same product and service features without complex customization. Recognition
enjoys exclusive product and personalization distributor arrangements including
Hartmann luggage and Lenox china for the service award marketplace.
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 markets items
manufactured by others for incorporation into programs sold to Recognition
customers. These products include items supplied by Lenox, Hartmann, Waterman,
Howard Miller and Oneida.
Recognition sells its products through independent and employee sales
representatives who develop programs incorporating Recognition products.
Competition
The Recognition business competes primarily with O.C. Tanner and the Robbins
Company on a national basis, as well as several regional companies. Recognition
focuses on service and product offerings in competing with these companies.
JOSTENS, INC. - INFORMATION REGARDING ALL BUSINESSES
Backlog
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 year for a significant portion
of the yearbooks to be delivered in the next 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 January 2, 1999, the backlog of orders related
to continuing operations was approximately $291.6 million, compared with $278.1
million at January 3, 1998, primarily related to student yearbooks, jewelry and
graduation products. The company expects most of the January 2, 1999, backlog to
be confirmed and filled in 1999.
Environmental
The information in the section "Commitments and Contingencies" on page 22 and in
Note 7 on pages 36 through 37 in Jostens' 1998 Annual Report to Shareholders is
incorporated herein by reference.
4
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Raw Materials
The principal raw materials that the company purchases are paper products, ink,
gold and precious, semiprecious and synthetic stones. The cost of gold and
precious, semiprecious and synthetic stones are affected by market volatility.
Any material increase in the price of these raw materials could adversely impact
the company's cost of sales. To manage the risk associated with gold price
changes, the company enters into gold forward purchase contracts based upon the
estimated ounces needed to satisfy projected orders for the upcoming school
year. The company then sets ring prices at the beginning of the school year to
reflect the locked-in gold price.
The company purchases substantially all synthetic and semiprecious stones from a
single supplier, located in Germany, which supplies semiprecious and synthetic
stones to almost all of the class ring manufacturers in the United States. The
company believes that the loss of this source of synthetic and semiprecious
stones could adversely affect its business during the time period in which
alternate sources adapted production capabilities to meet increased demand.
Intellectual Property
The company has no patents, licenses, franchises or concessions that are
material to it as a whole, but does have a number of proprietary trade secrets,
patents, trademarks and copyrights that it considers important. In addition,
licenses are an important component of certain aspects of the company's
businesses; however, the loss of any license would not have a material effect on
the company's operations.
Employees
At February 28, 1999, the total number of employees of the company was
approximately 6,800 (not including independent sales representatives). Because
of seasonal fluctuations and the nature of the business, the number of employees
tends to vary.
As of February 28, 1999, the company had 394 employees who were members of two
separate unions. The company has not had a work stoppage or strike that had a
material impact on the company's operations.
Foreign Operations
The company's foreign sales are derived primarily from operations in Canada. 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.
5
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Item 2. PROPERTIES
The physical properties used by the Registrant and its significant business
segments are summarized below:
<TABLE>
<CAPTION>
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Owned Approximate
or Square
Business Location Type of Property Leased Footage
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<S> <C> <C> <C> <C>
Corporate Bloomington, MN (1) Office Owned 116,000
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Edina, MN Office Leased 21,000
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School Products Anaheim, CA Office Leased 12,000
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Attleboro, MA Manufacturing Owned 52,000
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Burnsville, MN Office/Manufacturing Leased 47,000
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Clarksville, TN Manufacturing Owned 105,000
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Denton, TX Manufacturing Owned 56,000
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Laurens, SC Manufacturing/Distribution Owned 97,700
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Laurens, SC Warehouse Leased 105,000
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Nuevo Laredo, Mexico Manufacturing Leased 36,000
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Owatonna, MN Office Owned 88,000
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Owatonna, MN Manufacturing Owned 30,000
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Owatonna, MN Warehouse Leased 24,000
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Red Wing, MN Manufacturing Owned 132,000
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Shelbyville, TN Manufacturing Owned 87,000
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State College, PA Manufacturing Owned 66,000
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Topeka, KS Manufacturing Owned 236,000
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Visalia, CA Manufacturing Owned 96,000
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Winnipeg, MAN Manufacturing Owned 69,000
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Winnipeg, MAN Office/Warehouse Leased 28,000
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Winston-Salem, NC Manufacturing Owned 132,000
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Webster, NY Manufacturing Owned 60,000
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Recognition Memphis, TN Office/Distribution Center Owned 67,000
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Princeton, IL Manufacturing Owned 65,000
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Saddle Brook, NJ Office Leased 6,000
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Sherbrooke, QUE Manufacturing Leased 15,000
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</TABLE>
(1) A portion of this facility has been financed through revenue bonds
Management believes that the company's production facilities are suitable for
their purpose and adequate to support its businesses. The extent of utilization
of individual facilities varies due to the seasonal nature of the business.
Item 3. LEGAL PROCEEDINGS
In January 1999, a federal judge in Texas overturned a jury's $25.3 million
verdict against Jostens in an antitrust lawsuit. The judge, acting on Jostens'
post-trial motions, set aside the jury's verdict and dismissed all claims
against Jostens in the case. Yearbook competitor Taylor Publishing, a unit of
Insilco Holding Corp. and the plaintiff in the case has indicated in a press
release that it intends to appeal the decision and will seek to have the jury
verdict reinstated. No costs were accrued related to the lawsuit, because
management determined a potential loss was unlikely.
There are no other material pending or threatened legal, governmental,
administrative or other proceedings to which the company or any subsidiary as a
defendant or plaintiff is subject.
6
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not Applicable
Executive Officers of the Registrant
Incorporated by reference is information under the caption "Election of
Directors" contained on pages 3 through 5 of Jostens' Proxy Statement for the
Annual Meeting of Shareholders to be held on April 22, 1999. Executive officers
of the Registrant are as follows:
<TABLE>
<CAPTION>
Name Age Title and Business Experience
- ---- --- -----------------------------
<S> <C> <C>
Robert C. Buhrmaster 51 Chairman of the Board, 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; was named Chief Executive Officer in March 1994; and was named
Chairman in February 1998. Prior to joining the company, Mr. Buhrmaster was
with Corning, Inc. for 18 years, most recently as Senior Vice President. He is
also a director of The Toro Company.
David J. Larkin 59 Executive Vice President and Chief Operating Officer
Mr. Larkin joined the company in February 1998 in his current position. From
1995 to 1998, Mr. Larkin was an independent management consultant. Prior to
1995, he worked for Honeywell Inc. for 30 years, most recently as Chairman,
President and CEO of Honeywell Limited in Canada. He is a director of Ault,
Inc.
Carl H. Blowers 59 Senior Vice President - Operations
Mr. Blowers joined the company in May 1996 as an independent consultant serving
as Division Vice President, Manufacturing & Engineering and was hired as an
employee in 1997 and appointed to his current position in February 1998. Prior
to joining the company, Mr. Blowers was with Corning, Inc. for 27 years, most
recently as Vice President and General Manager of Corning's Advanced Materials
and Process Technologies Division.
William N. Priesmeyer 54 Senior Vice President and Chief Financial Officer
Mr. Priesmeyer joined the company in August 1997 in his current position. From
April to August 1997, Mr. Priesmeyer was Senior Vice President and CFO of MVE
Holdings. From 1994 to 1997, he was Senior Vice President and CFO with Waldorf
Corp.; and from 1993 to 1994 was Vice President and CFO for DataCard Corp.
Michael Bailey 43 Vice President and General Manager - Jostens School Solutions
Mr. Bailey joined the company in 1978. He has held a variety of leadership
positions including director of marketing, planning manager for manpower and
sales, national product sales director, division manager for Printing &
Publishing and printing operations manager. He was appointed to his current
position in January 1999.
William J. George 50 Vice President, General Counsel & Secretary
Mr. George joined the company in February 1999 in his current position. From
1995 to 1999, Mr. George was Vice President, General Counsel and Secretary of
Simplex Time Recorder Co.From 1978 to 1995, he worked for Honeywell, Inc., most
recently as Vice President and Associate General Counsel.
Thomas W. Jans 50 Vice President-Consumer Marketing and Channel Development
Mr. Jans joined the company in August 1995 as President of Business Recognition.
He was appointed to his current position in January 1999. From 1992 to 1995, he
worked for Carlson Travel, most recently as Executive Vice
</TABLE>
7
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<TABLE>
<CAPTION>
Name Age Title and Business Experience
- ---- --- -----------------------------
<S> <C> <C>
President of Global Sales and Marketing.
Rodney Jordan 46 Vice President - Human Resources
Mr. Jordan joined the company in 1981. He has served as staff attorney, senior
attorney and assistant general counsel. He was named staff vice president-human
resources in 1996. He was appointed to his current position in April 1998.
Gregory S. Lea 46 Vice President and General Manager - College and University
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.
John J. Mann 54 Vice President and General Manager - Scholastic
Mr. Mann joined the company in April 1996 as General Manager - Scholastic and
was appointed to his current position in May 1997. Prior to joining the company,
Mr. Mann was a director at Coopers & Lybrand Consulting. From 1991 to 1995, he
worked for Grand Metropolitan PLC, most recently as Senior Vice President of
strategic customer service development at Pillsbury.
Lee U. McGrath 42 Vice President and Treasurer
Mr. McGrath joined the company in May 1995 in his current position. For the six
years prior to joining the company, he was the assistant treasurer for H.B.
Fuller Company, a manufacturer of chemical products.
Kevin M. Whalen 39 Vice President - Corporate Communications & Investor Relations
Mr. Whalen joined the company in 1993 as Director - Corporate Communications and
was appointed to his current position in May 1997. Prior to joining the company,
he worked for Honeywell Inc. for two years as the Director of Corporate Public
Relations.
</TABLE>
8
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The information in the sections "Dividends" on page 22 and "Unaudited Quarterly
Financial Data" on page 42 of Jostens' 1998 Annual Report to Shareholders is
incorporated herein by reference. As of December 31, 1998, there were
approximately 5,400 shareholders of record.
Item 6. SELECTED FINANCIAL DATA
The information for the years 1994 through 1998 on page 43 of Jostens' 1998
Annual Report to Shareholders is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth in the section "Management Discussion and Analysis" on
pages 16 through 22 of Jostens' 1998 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth in the section "Market Risk" on page 20 of Jostens'
1998 Annual Report to Shareholders is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements, together with the report thereon of independent auditors dated
February 2, 1999, appearing on pages 23 through 42 and the information on page
43 (excluding fiscal years 1992-1993) of Jostens' 1998 Annual Report to
Shareholders are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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 on pages 3 through 5 of
Jostens' Proxy Statement for the Annual Meeting of Shareholders to be held April
22, 1999, with respect to directors and executive officers of the company, is
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
Incorporated by reference is information under the caption "Executive
Compensation" on pages 11 through 15 of Jostens' Proxy Statement for the Annual
Meeting of Shareholders to be held April 22, 1999.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
9
<PAGE>
Incorporated by reference is information under the captions "Principal Holders
of Common Stock" on page 2 and "Shares held by Directors and Officers" on page 7
of Jostens' Proxy Statement for the Annual Meeting of Shareholders to be held
April 22, 1999.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
10
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
(1) Financial Statements -
Consolidated Balance Sheets - January 2, 1999 and January 3, 1998
(incorporated by reference to page 25 of Jostens' 1998 Annual Report
to Shareholders)
Statements of Consolidated Operations for the years ended January 2,
1999, January 3, 1998, and December 28, 1996 (unaudited); Six-months
ended December 28, 1996; and the year ended June 30, 1996
(incorporated by reference to page 24 of Jostens' 1998 Annual Report
to Shareholders)
Statements of Consolidated Cash Flows for the years ended January 2,
1999, January 3, 1998, and December 28, 1996 (unaudited); Six-months
ended December 28, 1996; and the year ended June 30, 1996
(incorporated by reference to page 26 of Jostens' 1998 Annual Report
to Shareholders)
Statements of Consolidated Changes in Shareholders' Investment for the
years ended January 2, 1999 and January 3, 1998; Six-months ended
December 28, 1996; and the year ended June 30, 1996 (incorporated by
reference to page 27 of Jostens' 1998 Annual Report to Shareholders)
Notes to Consolidated Financial Statements (incorporated by reference
to pages 28 through 42, and page 43 (excluding fiscal years 1992-1993)
of Jostens' 1998 Annual Report to Shareholders)
(2) Financial Statement Schedules -
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have
been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
(3) Exhibits
2 Stock Purchase Agreement by and between JLC Holdings, Inc.
Software Systems Corp. and JLC Acquisition, 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 Articles of Incorporation and Bylaws (Incorporated by reference
to Exhibit 3(a) contained in the Annual Report on Form 10-K for
1993).
4 Rights Agreement, dated July 23, 1998, between Jostens, Inc. and
Norwest Bank Minnesota, N.A. (incorporated by reference to the
companyis Form 8-A filed on August 5, 1998).
4.1 Form of Indenture, dated 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 Registration
Statement on Form S-3, File No. 33-40233).
11
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10 1984 Stock Option Plan (incorporated by reference to the
company's Registration Statement on Form S-8, File No. 2-95076).
10.1 1987 Stock Option Plan (incorporated by reference to the
company's Registration Statement on Form S-8, File No. 33-19308).
10.2 1992 Stock Incentive Plan (incorporated by reference to Exhibit
10(d) contained in the Annual Report on Form 10-K for 1992).
10.3 Form of Contract entered into with respect to Executive
Supplemental Retirement Plan (incorporated by reference to the
company's Registration Statement on Form 8 dated May 2, 1991).
10.4 Written description of the company's Retired Director Consulting
Plan (incorporated by reference to the company's Registration
Statement on Form 8 dated May 2, 1991).
10.5 1992 Stock Incentive Plan Performance Share Agreement
(incorporated by reference to Exhibit 10(f) contained in the
Annual Report on Form 10-K for 1997).
10.6 Deferred Compensation Plan (incorporated by reference to Exhibit
10(j) contained in the Annual Report on Form 10-K for 1997).
10.7 Jostens, Inc. Deferred Compensation Plan 1998 Revision and
Jostens, Inc. Deferred Commission Plan 1998 Revision
(incorporated by reference to the company's Registration
Statement on Form S-8 filed on June 9, 1998, File No. 333-56455).
10.8 Jostens, Inc. Executive Change in Control Severance Pay Plan
effective January 1, 1999.
10.9 Executive Stock Purchase Program dated February 15, 1999 (filed
by the company on Form S-8 filed on February 12, 1999, File No.
333-72347).
13 Annual Report to Shareholders for the year ended January 2, 1999.
21 List of company subsidiaries.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Jostens during the quarter ended
January 2, 1999.
12
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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.
March 31, 1999
By /s/ Robert C. Buhrmaster
-----------------------------------
Robert C. Buhrmaster
Chairman of the Board, 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 registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Robert C. Buhrmaster Chairman of the Board, President March 31, 1999
- -------------------------- and Chief Executive Officer
Robert C. Buhrmaster
/s/ William N. Priesmeyer Senior Vice President and Chief March 31, 1999
- -------------------------- Financial Officer
William N. Priesmeyer
/s/ Lilyan H. Affinito Director March 31, 1999
- --------------------------
Lilyan H. Affinito
/s/ Mannie L. Jackson Director March 31, 1999
- --------------------------
Mannie L. Jackson
/s/ Jack W. Eugster Director March 31, 1999
- --------------------------
Jack W. Eugster
/s/ Richard A. Zona Director March 31, 1999
- --------------------------
Richard A. Zona
/s/ Kendrick B. Melrose Director March 31, 1999
- --------------------------
Kendrick B. Melrose
/s/ Walker Lewis Director March 31, 1999
- --------------------------
Walker Lewis
13
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JOSTENS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Additions
-----------------------------
Charged to
Balance Charged to other Balance
beginning costs and accounts - Deductions - end of
Description of period expenses describe describe period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserves and allowances deducted from
asset accounts:
Allowances for uncollectible accounts:
Year ended January 2, 1999 $ 7,446 $ 1,858 $ - $ 1,996 (1) $7,308
Year ended January 3, 1998 $ 6,884 $ 2,245 $ - $ 1,683 (1) $7,446
Six months ended December 28, 1996 $ 5,966 $ 1,202 $ - $ 284 (1) $6,884
Year ended June 30, 1996 $ 9,049 $ 2,195 $ - $ 5,278 (1) $5,966
Allowances for sales returns:
Year ended January 2, 1999 $ 5,569 $17,753 $ - $17,822 (2) $5,500
Year ended January 3, 1998 $ 4,787 $18,352 $ - $17,570 (2) $5,569
Six months ended December 28, 1996 $ 6,518 $ 6,308 $ - $ 8,039 (2) $4,787
Year ended June 30, 1996 $ 7,509 $12,951 $ - $13,942 (2) $6,518
Sales person overdraft reserves:
Year ended January 2, 1999 $ 8,322 $ 1,947 $ - $ 3,208 (1) $7,061
Year ended January 3, 1998 $ 7,344 $ 2,946 $ - $ 1,968 (1) $8,322
Six months ended December 28, 1996 $ 6,545 $ 1,740 $ - $ 941 (1) $7,344
Year ended June 30, 1996 $ 6,157 $ 2,838 $ - $ 2,450 (1) $6,545
</TABLE>
Note (1) -- Uncollectible accounts written off - net of recoveries.
Note (2) -- Returns processed against reserve.
14
<PAGE>
Exhibit 10.8
JOSTENS, INC.
EXECUTIVE CHANGE IN CONTROL SEVERANCE PAY PLAN
As Adopted Effective January 1, 1999
<PAGE>
JOSTENS, INC.
EXECUTIVE CHANGE IN CONTROL SEVERANCE PAY PLAN
Table of Contents
Page
ARTICLE 1. INTRODUCTION.....................................................1
1.1. PLAN NAME..........................................................1
1.2. PLAN TYPE..........................................................1
1.3. PLAN PURPOSE.......................................................1
ARTICLE 2. DEFINITIONS, CONSTRUCTION AND INTERPRETATIONS....................1
2.1. AFFILIATE..........................................................1
2.2. BASE PAY...........................................................1
2.3. BENEFIT PLAN.......................................................1
2.4. BOARD..............................................................2
2.5. CAUSE..............................................................2
2.6. CHANGE IN CONTROL..................................................3
2.7. CODE...............................................................4
2.8. COMPANY............................................................4
2.9. CONTINUATION PERIOD................................................4
2.10. DATE OF TERMINATION................................................4
2.11. ELIGIBLE PARTICIPANT...............................................5
2.12. ERISA..............................................................5
2.13. EXCHANGE ACT.......................................................5
2.14. GOOD REASON........................................................6
2.15. GOVERNING LAW......................................................7
2.16. HEADINGS...........................................................7
2.17. NOTICE OF TERMINATION..............................................7
2.18. NUMBER AND GENDER..................................................7
2.19. OTHER ARRANGEMENT..................................................7
2.20. PARENT CORPORATION.................................................7
2.21. PARTICIPANT........................................................7
2.22. PLAN...............................................................8
2.23. PERSON.............................................................8
2.24. QUALIFIED EMPLOYEE.................................................8
2.25. SUCCESSOR..........................................................8
2.26. TRUST..............................................................8
2.27. TRUSTEE............................................................8
ARTICLE PARTICIPATION AND ELIGIBILITY FOR BENEFITS..........................9
3.1. COMMENCEMENT OF PARTICIPATION......................................9
3.2. CEASING TO BE A QUALIFIED EMPLOYEE.................................9
3.3. ELIGIBILITY FOR BENEFITS...........................................9
ARTICLE BENEFITS...........................................................10
4.1. COMPENSATION AND BENEFITS BEFORE DATE OF TERMINATION..............10
4.2. CASH PAYMENT......................................................10
4.3. CONTINUATION OF CERTAIN WELFARE BENEFITS..........................11
4.4. CONTINUATION OF PERQUISITES.......................................12
4.5. EXCESS PARACHUTE PAYMENTS.........................................12
4.6. INDEMNIFICATION...................................................13
ARTICLE ADMINISTRATION AND ENFORCEMENT OF RIGHTS...........................13
5.1. PLAN ADMINISTRATION...............................................13
5.2. AMENDMENT AND TERMINATION.........................................13
i
<PAGE>
5.3. BENEFIT CLAIMS....................................................14
5.4. DISPUTES..........................................................14
5.5. FUNDING AND PAYMENT...............................................15
ARTICLE MISCELLANEOUS......................................................15
6.1. SUCCESSORS........................................................15
6.2. BINDING PLAN......................................................16
6.3. VALIDITY..........................................................16
6.4. NO MITIGATION.....................................................16
6.5. NO SET-OFF........................................................16
6.6. TAXES.............................................................16
6.7. NOTICES...........................................................16
6.8. EFFECT OF PLAN BENEFITS ON OTHER SEVERANCE PLANS..................16
6.9. RELATED PLANS.....................................................16
6.10. NO EMPLOYMENT OR SERVICE CONTRACT.................................17
6.11. SURVIVAL..........................................................17
6.12. EFFECT ON OTHER PLANS.............................................17
6.13. PROHIBITION OF ALIENATION.........................................17
6.14. NOTICE OF REEMPLOYMENT............................................17
ii
<PAGE>
JOSTENS, INC.
EXECUTIVE CHANGE IN CONTROL SEVERANCE PAY PLAN
ARTICLE
1.
INTRODUCTION
1.1. Plan Name.
The name of the Plan is the "Jostens, Inc. Executive Change in Control
Severance Pay Plan."
1.2. Plan Type.
The Plan is an unfunded plan maintained by the Company primarily for the
purpose of providing benefits for a select group of management or highly
compensated employees and, as such, is intended to be exempt from the provisions
of Parts 2, 3 and 4 of Subtitle B of Title I of ERISA, to the extent such
provisions would otherwise be applicable, by operation of Sections 201(2),
301(a)(3) and 401(a)(1) thereof, respectively. The Plan is also intended to be
unfunded for tax purposes. The Plan will be construed in a manner that gives
effect to such intent.
1.3. Plan Purpose.
The purpose of the Plan is to provide benefits to Qualified Employees
whose employment is terminated in connection with a Change in Control.
ARTICLE
2.
DEFINITIONS, CONSTRUCTION AND INTERPRETATIONS
The definitions and rules of construction and interpretation set forth in
this Article 2 apply in construing the Plan unless the context otherwise
indicates.
2.1. Affiliate.
An "Affiliate" is:
(a) any corporation at least a majority of whose outstanding
securities ordinarily having the right to vote at elections of
directors is owned directly or indirectly by the Parent
Corporation; or
(b) any other form of business entity in which the Parent Corporation,
by virtue of a direct or indirect ownership interest, has the
right to elect a majority of the members of such entity's
governing body.
2.2. Base Pay.
The "Base Pay" of a Participant is his or her annual base salary from the
Company at the rate in effect immediately prior to the Change in Control or at
the time Notice of Termination is given, whichever is greater. Base Pay includes
only regular cash salary and is determined before any reduction or deduction of
any kind.
2.3. Benefit Plan.
A "Benefit Plan" is any
(a) employee benefit plan as defined in ERISA Section 3(3),
<PAGE>
(b) cafeteria plan described in Code Section 125,
(c) plan, policy or practice providing for paid vacation, other paid
time off or short- or long-term profit sharing, bonus or incentive
payments or perquisites or
(d) stock option, stock purchase, restricted stock, phantom stock,
stock appreciation right or other equity-based compensation plan
that is sponsored, maintained or contributed to by the Company for the
benefit of employees (and/or their families and dependents) generally or
a Participant (and/or a Participant's family and dependents) in
particular.
2.4. Board.
The "Board" is the board of directors of the Parent Corporation duly
qualified and acting at the time in question. On and after the date of a Change
in Control, any duty of the Board in connection with the Plan is nondelegable
and any attempt by the Board to delegate any such duty is ineffective.
2.5. Cause.
(a) Subject to Subsection (b), "Cause" with respect to a particular
Participant is any of the following:
(i) the Participant's gross misconduct;
(ii) the Participant's willful and continued failure to perform
substantially his or her duties with the Company (other
than any such failure relating to changes in the
Participant's duties after a Change in Control that
constitute Good Reason) after a demand for substantial
performance is delivered to the Participant by the Chair of
the Board which specifically identifies the manner in which
the Board believes that the Participant has not
substantially performed his or her duties and provides for
a reasonable period of time within which the Participant
may take corrective measures; or
(iii) the Participant's conviction (including a plea of nolo
contendere) of willfully engaging in illegal conduct
constituting a felony or gross misdemeanor under federal or
state law which is materially and demonstrably injurious to
the Company or which impairs the Participant's ability to
perform substantially his or her duties with the Company.
An act or failure to act will be considered "gross" or "willful"
for this purpose only if done, or omitted to be done, by the
Participant in bad faith and without reasonable belief that it was
in, or not opposed to, the best interests of the Company. Any act,
or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board (or a committee thereof) or
based upon the advice of counsel for the Company will be
conclusively presumed to be taken or not taken by the Participant
in good faith and in the best interests of the Company. In
addition, the Participant's attention to matters not directly
related to the business of the Company will not provide a basis
for termination for Cause so long as the Board did not expressly
disapprove in writing to the Participant's engagement in such
activities either before or within a reasonable time after the
Board knew or reasonably should have known that the Participant
engaged in the activities.
(b) Notwithstanding Subsection (a), a Participant may not be
terminated for Cause unless and until there has been delivered to
the Participant a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire
membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice to such Participant and
an opportunity for the Participant, together with his or her
counsel, to be heard before the Board), finding that in the
2
<PAGE>
good faith opinion of the Board the Participant was guilty of the
conduct set forth in clause (i), (ii) or (iii) of Subsection (a)
and specifying the particulars thereof in detail.
2.6. Change in Control.
(a) "Change in Control" is the occurrence of any of the following on
or after January 1, 1999:
(i) the sale, lease, exchange or other transfer, directly or
indirectly, of all or substantially all of the assets of
the Parent Corporation, in one transaction or in a series
of related transactions, to any Person;
(ii) the approval by the stockholders of the Parent Corporation
of any plan or proposal for the liquidation or dissolution
of the Parent Corporation;
(iii) any Person, other than a "bona fide underwriter," is or
becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of (1) 20
percent or more, but not more than 50 percent, of the
combined voting power of the Parent Corporation's
outstanding securities ordinarily having the right to vote
at elections of directors, unless the transaction resulting
in such ownership has been approved in advance by the
"continuity directors," as defined at Subsection (b) or (2)
more than 50 percent of the combined voting power of the
Parent Corporation's outstanding securities ordinarily
having the right to vote at elections of directors
(regardless of any approval by the continuity directors);
(iv) a merger or consolidation to which the Parent Corporation
is a party if the stockholders of the Parent Corporation
immediately prior to the effective date of such merger or
consolidation have, solely on account of ownership of
securities of the Parent Corporation at such time,
"beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) immediately following the effective date of
such merger or consolidation of securities of the surviving
corporation representing (1) 50 percent or more, but not
more than 80 percent, of the combined voting power of the
surviving corporation's then outstanding securities
ordinarily having the right to vote at elections of
directors, unless such merger or consolidation has been
approved in advance by the continuity directors, or (2)
less than 50 percent of the combined voting power of the
surviving corporation's then outstanding securities
ordinarily having the right to vote at elections of
directors (regardless of any approval by the continuity
directors); or
(v) the continuity directors cease for any reason to constitute
at least a majority the Board.
(b) For purposes of this section-
(i) "Continuity director" means any individual who was a member
of the Board on April 24, 1998, 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 Parent Corporation'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 Parent
Corporation in which such individual is named as a nominee
for director without objection to such nomination). For
example, if a majority of the seven individuals
constituting the Board on April 24, 1998, approved a proxy
statement in which two different individuals were nominated
to replace two of the individuals who were members of the
Board on April 24, 1998, the two newly elected directors
would join the five remaining directors who were members of
the Board on April 24, 1998 as continuity directors.
Similarly, if a majority of those seven directors approved
a proxy statement in which three different individuals were
nominated to replace three other directors who were members
of the Board on April 24, 1998, the
3
<PAGE>
three newly elected directors would also become, along with
the other four directors, continuity directors. Individuals
subsequently joining the Board could become continuity
directors under the principles reflected in this example.
(ii) "Bona fide underwriter" means a Person engaged in business
as an underwriter of securities that acquires securities of
the Parent Corporation from the Parent Corporation through
such Person's participation in good faith in a firm
commitment underwriting until the expiration of 40 days
after the date of such acquisition.
2.7. Code.
The "Code" is the Internal Revenue Code of 1986, as amended. Any
reference to a specific provision of the Code includes a reference to such
provision as it may be amended from time to time and to any successor provision.
2.8. Company.
The "Company" is the Parent Corporation, any Successor and any Affiliate.
2.9. Continuation Period.
The "Continuation Period" with respect to an Eligible Participant is the
period that begins on the Eligible Participant's Date of Termination and ends on
the last day of the
(a) thirty-sixth month that begins after the Eligible Participant's
Date of Termination if, immediately prior to the date of the
Change in Control (or, if earlier, immediately prior to the
Eligible Participant's Date of Termination), the Eligible
Participant was the Chief Executive Officer of the Parent
Corporation, or
(b) twenty-fourth month that begins after the Eligible Participant's
Date of Termination if, immediately prior to the date of the
Change in Control (or, if earlier, immediately prior to the
Eligible Participant's Date of Termination), the Eligible
Participant was the President of the Parent Corporation (unless
the Chief Executive Officer of the Parent Corporation is also the
President of the Parent Corporation, in which case the
Continuation Period will be the period specified in clause (a)),
an Executive Vice President of the Parent Corporation or a Senior
Vice President of the Parent Corporation, or
(c) eighteenth month that begins after the Eligible Participant's Date
of Termination if, immediately prior to the date of the Change in
Control (or, if earlier, immediately prior to the Eligible
Participant's Date of Termination), the Eligible Participant was a
Vice President of the Parent Corporation elected by the Board
other than an Executive Vice President or Senior Vice President,
or
(d) fifteenth month that begins after the Eligible Participant's Date
of Termination in the case of any other Eligible Participant.
4
<PAGE>
2.10. Date of Termination.
The "Date of Termination" with respect to a Participant following a
Change in Control (or prior to a Change in Control if the Participant's
termination was either a condition of the Change in Control or was at the
request or insistence of any Person related to the Change in Control) means:
(a) if the Participant's employment is to be terminated by the
Participant for Good Reason, the date specified in the Notice of
Termination which in no event may be a date more than 15 days
after the date on which Notice of Termination is given unless the
Company expressly agrees in writing to a later date;
(b) if the Participant's employment is to be terminated by the Company
for Cause, the date specified in the Notice of Termination;
(c) if the Participant's employment is terminated by reason of his or
her death, the date of his or her death; or
(d) if the Participant's employment is to be terminated by the Company
for any reason other than Cause or his or her death, the date
specified in the Notice of Termination, which in no event may be a
date earlier than 15 days after the date on which a Notice of
Termination is given, unless the Participant expressly agrees in
writing to an earlier date.
If the Company terminates a Participant's employment for Cause following a
Change in Control (or prior to a Change in Control if the Participant's
termination was either a condition of the Change in Control or was at the
request or insistence of any Person related to the Change in Control) and the
Participant has not previously expressly agreed in writing to the termination,
then within the 30-day period after the Participant's receipt of the Notice of
Termination, the Participant may notify the Company that a dispute exists
concerning the termination, in which event the Date of Termination will be the
date set either by mutual written agreement of the parties or by the arbitrators
or a court in a proceeding as provided in Section 5.4. During the pendency of
any such dispute, the Participant will continue to make himself or herself
available to provide services to the Company and the Company will continue to
pay the Participant his or her full compensation and benefits in effect
immediately prior to the date on which the Notice of Termination is given
(without regard to any changes to such compensation or benefits which constitute
Good Reason) and until the dispute is resolved in accordance with Section 5.4.
The Participant will be entitled to retain the full amount of any such
compensation and benefits without regard to the resolution of the dispute unless
the arbitrators or judge decide(s) that the Participant's claim of a dispute was
frivolous or advanced by the Participant in bad faith.
2.11. Eligible Participant.
An "Eligible Participant" is a Participant who has become eligible to
receive benefits pursuant to Section 3.3.
2.12. ERISA.
"ERISA" is the Employee Retirement Income Security Act of 1974, as
amended. Any reference to a specific provision of ERISA includes a reference to
such provision as it may be amended from time to time and to any successor
provision.
5
<PAGE>
2.13. Exchange Act.
The "Exchange Act" is the Securities Exchange Act of 1934, as amended.
Any reference to a specific provision of the Exchange Act or to any rule or
regulation thereunder includes a reference to such provision as it may be
amended from time to time and to any successor provision.
2.14. Good Reason.
(a) Subject to Subsection (a), "Good Reason" with respect to a
Participant is any of the following:
(i) a change in the Participant's title(s), status,
position(s), authority, duties or responsibilities as an
executive of the Company as in effect at any time during
the 90-day period ending on the date of the Change in
Control which, in the Participant's reasonable judgment, is
adverse (other than, if applicable, any such change
directly attributable to the fact that the Parent
Corporation is no longer publicly owned); provided,
however, that Good Reason does not include a change in a
Participant's title(s), status, position(s), authority,
duties or responsibilities caused by an insubstantial and
inadvertent action that is remedied by the Company promptly
after receipt of notice of such change is given by the
Participant;
(ii) a reduction by the Company in the Participant's Base Pay,
or an adverse change in the form or timing of the payment
thereof, as in effect immediately prior to the Change in
Control or as thereafter increased or by a reduction in the
Participant's target annual incentive award as in effect
immediately prior to the Change in Control or as thereafter
increased;
(iii) the failure by the Company to cover the Participant under
Benefit Plans that, in the aggregate, provide substantially
similar benefits to the Participant and/or his or her
family and dependents at a substantially similar total cost
to the Participant (e.g., premiums, deductibles, co-pays,
out of pocket maximums, required contributions, taxes and
the like) relative to the benefits and total costs under
the Benefit Plans in which the Participant (and/or his or
her family or dependents) is participating at any time
during the 90-day period immediately preceding the Change
in Control;
(iv) the Company's requiring a Participant to be based more than
30 miles from where his or her office is located
immediately prior to the Change in Control, except for
required travel on the Company's business, and then only to
the extent substantially consistent with the business
travel obligations which the Participant undertook on
behalf of the Company during the 180-day period ending on
the date of the Change in Control (without regard to travel
related to or in anticipation of the Change in Control);
(v) the failure of the Parent Corporation to obtain from any
Successor the assent to this Plan contemplated by Section
6.1;
(vi) any purported termination by the Company of a Participant's
employment which is not properly effected pursuant to a
Notice of Termination and pursuant to any other
requirements of this Plan, and for purposes of this Plan,
no such purported termination will be effective; or
(vii) any refusal by the Company to continue to allow a
Participant to attend to matters or engage in activities
not directly related to the business of the Company which,
at any time
6
<PAGE>
prior to the Change in Control, the Participant was not
expressly prohibited by the Company from attending to or
engaging in.
(b) A Participant's continued employment does not constitute consent
to, or waiver of any rights arising in connection with, any
circumstance constituting Good Reason. Termination by a
Participant of his or her employment for Good Reason as defined in
this section will constitute Good Reason for all purposes of this
Plan, notwithstanding that the Participant may also thereby be
deemed to have "retired" under any applicable retirement programs
of the Company.
2.15. Governing Law.
To the extent that state law is not preempted by provisions of ERISA or
any other laws of the United States, all questions pertaining to the
construction, validity, effect and enforcement of this Plan will be determined
in accordance with the internal, substantive laws of the State of Minnesota,
without regard to the conflict of laws principles of the State of Minnesota or
of any other jurisdiction.
2.16. Headings.
The headings of articles and sections are included solely for
convenience. If there is a conflict between the headings and the text of the
Plan, the text will control.
2.17. Notice of Termination.
A "Notice of Termination" is a written notice given on or after the date
of a Change in Control (unless the termination before the date of the Change in
Control was either a condition of the Change in Control or was at the request or
insistence of any Person related to the Change in Control in which case the
written notice may be given before the date of the Change in Control) which
indicates the specific termination provision in this Plan pursuant to which the
notice is given. Any purported termination by the Company or by a Participant
for Good Reason on or after the date of a Change in Control (or before the date
of the Change in Control if the termination was either a condition of the Change
in Control or was at the request or insistence of any Person related to the
Change in Control) must be communicated by written Notice of Termination to be
effective; provided, that a Participant's failure to provide Notice of
Termination will not limit any of his or her rights under the Plan except to the
extent the Company demonstrates that it suffered material actual damages by
reason of such failure.
2.18. Number and Gender.
Wherever appropriate, the singular number may be read as the plural, the
plural number may be read as the singular and a reference to one gender may be
read as a reference to the other.
2.19. Other Arrangement.
An "Other Arrangement" is any Benefit Plan or other plan, policy or
practice of the Company or any other agreement between the Participant and the
Company, other than the Plan.
2.20. Parent Corporation.
The "Parent Corporation" is Jostens, Inc. and any Successor.
2.21. Participant.
A "Participant" is a Qualified Employee who is participating in the Plan
pursuant to Article 3.
7
<PAGE>
2.22. Plan.
The "Plan" is that set forth in this instrument as it may be amended from
time to time.
2.23. Person.
A "Person" includes any individual, corporation, partnership, group,
association or other "person," as such term is used in Section 13 (d) or Section
14(d) of the Exchange Act, other than the Parent Corporation, any Affiliate or
any benefit plan sponsored by the Parent Corporation or an Affiliate.
2.24. Qualified Employee.
(a) A "Qualified Employee" is an individual who (i) is either (1)
employed by the Parent Corporation as an executive officer of the
Parent Corporation elected by the Board or (2) employed by the
Company as a management or highly compensated employee, as
determined by the Chief Executive Officer of the Parent
Corporation, and selected as a Qualified Employee by the Chief
Executive Officer of the Parent Corporation and (ii) is not a
party to a separate written agreement with the Company which by
its express terms specifically provides that the individual is not
eligible to participate in the Plan.
(b) An individual who, during the 90-day period ending on the date of
a Change in Control, ceases to be an executive officer of the
Parent Corporation elected by the Board, will nevertheless remain
a Qualified Employee until his or her Date of Termination.
(c) In the case of an individual who is selected as a Qualified
Employee pursuant to Subsection (a)(i)(2), the Chief Executive
Officer of the Parent Corporation may at any time prior to a
Change in Control, but not thereafter, determine that the
individual is no longer a Qualified Employee but as to that
individual, the Chief Executive Officer's determination will be
deemed to be an amendment to the Plan subject to the provisions of
Section 5.2(a).
2.25. Successor.
A "Successor" is any Person that succeeds to, or has the practical
ability to control (either immediately or solely with the passage of time), the
Parent Corporation's business directly, by merger, consolidation or other form
of business combination, or indirectly, by purchase of the Parent Corporation's
outstanding securities ordinarily having the right to vote at the election of
directors, all or substantially all of its assets or otherwise.
2.26. Trust.
"Trust" means the trust or trusts, if any, established by the Company
pursuant to Section 5.5.
2.27. Trustee.
"Trustee" means the one or more banks or trust companies which at the
relevant time has or have been appointed by the Company to act as Trustee of the
Trust.
8
<PAGE>
ARTICLE
3.
PARTICIPATION AND ELIGIBILITY FOR BENEFITS
3.1. Commencement of Participation.
(a) An individual who is employed by the Parent Corporation as an
executive officer of the Parent Corporation elected by the Board
will commence participation in the Plan on the first day on which
he or she performs services for the Parent Corporation as an
executive officer of the Parent Corporation elected by the Board.
(b) An individual who is selected by the Chief Executive Officer of
the Parent Corporation as a Qualified Employee pursuant to Section
2.24(a)(i)(2) will commence participation in the Plan as of the
date specified by the Chief Executive Officer of the Parent
Corporation in a notice to the individual regarding his or her
selection.
(c) Notwithstanding any other provision of the Plan to the contrary,
no individual will commence participation in the Plan on or after
the date of a Change in Control.
3.2. Ceasing to be a Qualified Employee.
(a) A Participant who ceases for any reason to be a Qualified Employee
will, except with respect to any current or future benefit to
which he or she is then entitled, thereupon cease his or her
participation in the Plan.
(b) Notwithstanding any other provision of the Plan to the contrary, a
Participant will cease to be a Qualified Employee if, prior to the
date of a Change in Control: (i) an Affiliate is sold, merged,
transferred or in any other manner or for any other reason ceases
to be an Affiliate or all or any portion of the business or assets
of an Affiliate are sold, transferred or otherwise disposed of and
no Change in Control occurs in connection therewith; (ii) the
Participant's primary employment duties are with the Affiliate at
the time of the occurrence of such event; and (iii) such
Participant does not, in conjunction therewith, transfer
employment directly to the Parent Corporation or another Affiliate
as a Qualified Employee.
3.3. Eligibility for Benefits.
(a) A Participant will become eligible for the benefits provided in
Article 4 if and only if (i) (1) the Company terminates his or her
employment for any reason other than his or her death or Cause or
(2) the Participant terminates employment with the Company for
Good Reason and (ii) the termination occurs within the period
beginning on the date of a Change in Control and ending on the
last day of the twenty-fourth month that begins after the month in
which the Change in Control occurs or prior to a Change in Control
if the termination was either a condition of the Change in Control
or at the request or insistence of a Person related to the Change
in Control.
(b) If, on or after the date of a Change in Control, an Affiliate is
sold, merged, transferred or in any other manner or for any other
reason ceases to be an Affiliate or all or any portion of the
business or assets of an Affiliate is or are sold, transferred or
otherwise disposed of and the acquiror is not the Parent
Corporation or an Affiliate (a "Disposition"), any individual who
was a Qualified Employee immediately prior to the Disposition and
who remains or becomes employed by the acquiror or any Person
that, directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, the
acquiror (an "Acquiror Affiliate") in connection with the
Disposition will be deemed to have terminated employment on the
effective
9
<PAGE>
date of the Disposition for purposes of Subsection (a) unless (i)
the acquiror and the Acquiror Affiliates jointly and severally
expressly assume and agree, in a manner that is enforceable by the
individual, to perform the obligations of this Plan to the same
extent that the Company would be required to perform if the
Disposition had not occurred and (ii) the Successor guarantees, in
a manner that is enforceable by the individual, payment and
performance by the acquiror.
ARTICLE
4.
BENEFITS
4.1. Compensation and Benefits Before Date of Termination.
During the period beginning on the date a Participant or the Company, as
the case may be, receives Notice of Termination and ending on the Date of
Termination, the Company will continue to pay the Participant his or her Base
Pay and cause his or her continued participation in all Benefit Plans in
accordance with the terms of such Benefit Plans.
4.2. Cash Payment.
(a) The Company will make a cash payment to an Eligible Participant in
an amount equal to the product of the applicable amount determined
under clause (i) multiplied by the applicable factor determined
under clause (ii).
(i) The applicable amount with respect to an Eligible
Participant is the sum of the Eligible Participant's Base
Pay plus the greater of
(1) the amount of the Eligible Participant's target
annual incentive award for the fiscal year of the
Company during which the Date of Termination occurs
and
(2) the average amount of the Eligible Participant's
actual annual incentive award for the three
consecutive fiscal years of the Company ending
immediately prior to the date of the Change in
Control (or if the Eligible Participant was not an
employee of the Company for such three-year period,
the average amount of his or her actual annual
incentive award for any prior full fiscal years of
the Company).
(ii) The applicable factor with respect to an Eligible
Participant is
(1) three if, immediately prior to the date of the
Change in Control (or, if earlier, immediately prior
to the Eligible Participant's Date of Termination),
the Eligible Participant was the Chief Executive
Officer of the Parent Corporation, or
(2) two if, immediately prior to the date of the Change
in Control (or, if earlier, immediately prior to the
Eligible Participant's Date of Termination), the
Eligible Participant was the President of the Parent
Corporation (unless the Chief Executive Officer of
the Parent Corporation is also the President of the
Parent Corporation, in which case the applicable
factor is the factor specified in item (1)), an
Executive Vice President of the Parent Corporation
or a Senior Vice President of the Parent
Corporation, or
(3) one and one-half if, immediately prior to the date
of the Change in Control (or, if earlier,
immediately prior to the Eligible Participant's Date
of Termination), the Eligible Participant was a Vice
President of the Parent Corporation elected by the
Board other than an Executive Vice President or
Senior Vice President, or
10
<PAGE>
(4) one and one-quarter in the case of any other
Eligible Participant.
The payment pursuant to this subsection is in lieu of any other
cash bonus payment to which the Eligible Participant may otherwise
be entitled under any annual bonus plan for the period that
includes the Participant's Date of Termination.
(b) The Company will make a lump sum cash payment to an Eligible
Participant in an amount equal to the amount by which the
actuarially equivalent lump sum value of the benefit he or she
would have received under the Company Pension Plans had he or she
remained employed with the Company until the end of his or her
Continuation Period and had his or her benefit under all such
Company Pension Plans been fully vested exceeds the actuarially
equivalent lump sum value of the benefit which he or she is
actually entitled to receive under the Company Pension Plans. For
purposes of applying the foregoing sentence:
(i) Company Pension Plan means each qualified or nonqualified
defined benefit pension plan, arrangement or agreement
maintained by the Company and covering the Eligible
Participant, or to which the Company and the Eligible
Participant are parties, as in effect immediately prior to
the Eligible Participant's Date of Termination (without
regard to any changes to such plans, arrangements or
agreements that constitute Good Reason);
(ii) An Eligible Participant will be deemed to have continued
employment during the Continuation Period in the same
position and on the same schedule as in effect immediately
prior to his or her Date of Termination (without regard to
any change that constitutes Good Reason) and will be deemed
to have received compensation equal to the amount of the
cash payment pursuant to Subsection (a) but paid ratably
over the Continuation Period;
(iii) The Participant will be deemed to commence his or her
benefit under each Company Pension Plan as of his or her
normal retirement date under the Company Pension Plan (of
if later as of the first day of the month first following
the Participant's Date of Termination) in the normal form
of payment under the Company Pension Plan; and
(iv) Actuarial equivalence will be determined based on the
assumptions used as of the date of the payment pursuant to
this section to determine the value of a lump sum payment
of $5000 or less under the Jostens Pension Plan D (or any
successor plan) or if that plan has been terminated without
the establishment of a successor plan, based on the
assumptions used to determine the value of lump sum
payments of $5000 or less in connection with the
termination.
(c) The amounts determined under Subsections (a) and (b) will be paid
in a single lump sum within ten days after the Eligible
Participant's Date of Termination or, if later, within ten
business days following the date of the Change in Control.
11
<PAGE>
4.3. Continuation of Certain Welfare Benefits.
(a) Through the end of an Eligible Participant's Continuation Period
or, if earlier, through the last day of the first month after the
Eligible Participant's Date of Termination during which the
Eligible Participant commences full-time employment, the Company
will provide, or arrange to provide, medical, dental, vision and
life insurance benefits (excluding premium conversion or flexible
spending accounts under any cafeteria plan) to each Eligible
Participant (and his or her family members and dependents who were
eligible to be covered at any time during the 90-day period ending
on the date of a Change in Control for the period after the Change
in Control in which such family members and dependents would
otherwise continue to be covered under the terms of the applicable
Benefit Plan in effect immediately prior to the Change in Control)
under the same terms and at the same cost to the Eligible
Participant and his or her family members and dependents as
similarly situated executives who continue to be employed by the
Company (without regard to any reduction in such benefits that
constitutes Good Reason).
(b) To the extent an Eligible Participant incurs a tax liability
(including federal, state and local taxes and any interest and
penalties with respect thereto) in connection with a benefit
provided pursuant to Subsection (a) which he or she would not have
incurred had he or she been an active employee of the Company
participating in the Company's Benefit Plan, the Company will make
a payment to the Eligible Participant in an amount equal to such
tax liability plus an additional amount sufficient to permit the
Eligible Participant to retain a net amount after all taxes
(including penalties and interest) equal the initial tax liability
in connection with the benefit. For purposes of applying the
foregoing, an Eligible Participant's tax rate will be deemed to be
the highest statutory marginal state and federal tax rate (on a
combined basis) then in effect. The payment pursuant to this
subsection will be made within ten days after the Eligible
Participant's remittal of a written request therefor accompanied
by a statement indicating the basis for and amount of the
liability.
4.4. Continuation of Perquisites.
Through the end of an Eligible Participant's Continuation Period or, if
earlier, through the last day of the first month after the Eligible
Participant's Date of Termination during which the Eligible Participant
commences full-time employment, the Company will provide the Eligible
Participant with the same perquisites he or she was entitled to receive
immediately prior to his or her Date of Termination (without regard to any
reduction in perquisites that constitutes Good Reason).
4.5. Excess Parachute Payments.
(a) In the case of an Eligible Participant who, immediately prior to
the date of a Change in Control, was the Chief Executive Officer
of the Parent Corporation, an Executive Vice President of the
Parent Corporation or a Senior Vice President of the Parent
Corporation, following the Change in Control, the Company will
cause its independent auditors promptly to review, at the
Company's sole expense, the applicability of Code Section 4999 to
any payment or distribution of any type by the Company to such
Participant or for his or her benefit, whether paid or payable or
distributed or distributable pursuant to the terms of this Plan,
any other Benefit Plan or otherwise (the "Total Payments"). If the
auditor determines that the Total Payments result in an excise tax
imposed by Code Section 4999 or any comparable state or local law
or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are
collectively referred to as the "Excise Tax"), the Company will
make an additional cash payment (a "Gross-Up Payment") to the
Participant within 10 days after such determination equal to an
amount such that after payment by the Participant of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, the Participant would retain an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Total Payments.
For purposes of the foregoing determination, the Participant's tax
rate will be deemed to be the highest statutory marginal state and
federal tax
12
<PAGE>
rate (on a combined basis) then in effect. If no determination by
the Company's auditors is made prior to the time the Participant
is required to file a tax return reflecting the Total Payments,
the Participant will be entitled to receive from the Company a
Gross-Up Payment calculated on the basis of the Excise Tax the
Participant reported in such tax return, within 10 days after the
later of the date on which the Participant files such tax return
or the date on which the Participant provides a copy thereof to
the Company. In all events, if any tax authority determines that a
greater Excise Tax should be imposed upon the Total Payments than
is determined by the Company's independent auditors or reflected
in the Participant's tax return pursuant to this Section 4.5, the
Participant will be entitled to receive from the Company the full
Gross-Up Payment calculated on the basis of the amount of Excise
Tax determined to be payable by such tax authority within 10 days
after the Participant notifies the Company of such determination.
If any Other Arrangement specifically provides that benefits
thereunder will be reduced or limited so that such benefits or the
Total Payments will not result in the imposition of an excise tax
pursuant to Code Section 4999, the reduction or limitation will
apply, to the extent provided in the Other Arrangement, solely to
the benefits provided pursuant to the Other Arrangement as if the
benefits under the Other Arrangement constituted the entire Total
Payments, and such reduction or limitation will not otherwise
reduce or limit the actual Total Payments.
(b) In the case of any Eligible Participant not described in
Subsection (a), notwithstanding anything in this Plan to the
contrary, if any payments or benefits to be made or provided by
the Company to or for the benefit of the Participant constitute an
"excess parachute payment" (as defined in Code Section 280G(b)),
the payments or benefits to be made or provided in connection with
this Plan will be reduced to the extent necessary to prevent any
portion of such payments or benefits from becoming subject to the
excise tax imposed under Code Section 4999. The determination as
to whether any such decrease in the payments or benefits to be
made or provided in connection with this Plan is necessary must be
made in good faith by legal counsel or a certified public
accountant selected by the Company, and such determination will be
conclusive and binding. In the event that such a reduction is
necessary, the Participant will have the right to designate the
particular payments or benefits that are to be reduced or
eliminated so that no portion of the payments or benefits to be
made or provided in connection with this Plan will be excess
parachute payments subject to the excise tax under Code Section
4999.
4.6. Indemnification.
Following a Change in Control, the Company will indemnify and advance
expenses to an Eligible Participant to the full extent permitted by law for
damages, costs and expenses (including, without limitation, judgments, fines,
penalties, settlements and reasonable fees and expenses of the Participant's
counsel) incurred in connection with all matters, events and transactions
relating to such Eligible Participant's service to or status with the Company or
any other corporation, employee benefit plan or other entity with whom the
Eligible Participant served at the request of the Company.
ARTICLE
5.
ADMINISTRATION AND ENFORCEMENT OF RIGHTS
5.1. Plan Administration.
The Board has the power and authority to construe, interpret and
administer the Plan. Prior to the date of a Change in Control, the Board may
delegate such power and authority to any committee or individual but such
delegation will automatically cease to be effective on the date of a Change in
Control. Prior to (but not after) the date of a Change in Control, the power and
authority of the Board and any individual or committee to whom such power and
authority is in whole or in part delegated is discretionary as to all matters.
5.2. Amendment and Termination.
13
<PAGE>
(a) Prior to the date of a Change in Control, the Board may amend the
Plan from time to time in such respects as the Board may deem
advisable; provided, that the effective date of any amendment that
adversely affects a Qualified Employee may not be less than one
year after the date on which the amendment is approved by the
Board and, if a Change in Control occurs prior to the date on
which the amendment would otherwise be effective, the amendment
automatically will be null and void. On and after the date of a
Change in Control, the Plan may be amended only if each
Participant and Eligible Participant is provided with written
notice of the amendment (which must include a complete and
accurate description of the amendment and its intended and
potential impact on Participants and Eligible Participants and a
copy of the proposed amendment) at least 90 days before the
adoption of the amendment and the amendment is approved by the
affirmative vote of not less than 80 percent of all Participants
and Eligible Participants.
(b) The Board may terminate the Plan at any time; provided, first,
that prior to the date of a Change in Control, the effective date
of the termination may not be less than one year after the date on
which the termination is approved by the Board; and, second, that
the Plan cannot be terminated, and no termination will become
effective, within the period beginning on the date of a Change in
Control and ending on the last day of the thirty-sixth month that
begins after the month in which the Change in Control occurs.
(c) Any amendment or termination of the Plan must be set forth in a
written instrument approved by the Board and signed by at least
two officers of the Parent Corporation.
5.3. Benefit Claims.
A person whose employment relationship with the Company has terminated
and who has not been awarded benefits under the Plan or who objects to the
amount of the benefits so awarded may file a written request for benefits with
the Board. The Board will review such request and will notify the claimant of
its decision within 60 days after such request is filed. If the Board denies the
claim for benefits, the notice of the denial will contain
(a) the specific reason for the denial,
(b) a specific reference to the provision of the Plan on which denial
is based,
(c) a description of any additional information or material necessary
for the person to perfect his or her claim (and an explanation of
why such information is material or necessary), and
(d) an explanation of the Plan's claim review procedure.
If the Board determines that a claimant is not eligible for benefits, or
if the claimant believes that he or she is entitled to greater or
different benefits, the claimant may file a petition for review with the
Board within 60 days after the claimant receives the notice issued by the
Board. Within 60 days after the Board receives the petition, the Board
will give the claimant (and his or her counsel, if any) an opportunity to
present his or her position to the Board orally or in writing, and the
claimant (or his or her counsel) will have the right to review the
pertinent documents. Within 60 days after the hearing (or the date of
receipt of the petition if the claimant presents his or her position in
writing) the Board will notify the claimant of its decision in writing,
stating the decision and the specific provisions of the Plan on which the
decision is based.
5.4. Disputes.
(a) If a Participant so elects, any dispute, controversy or claim
arising under or in connection with this Plan will be settled
exclusively by binding arbitration in Minneapolis, Minnesota in
accordance with the Employee Benefit Plan Claims Arbitration Rules
of the American Arbitration Association, incorporated by
referenced herein; provided, that a Participant may seek
14
<PAGE>
specific performance of his or her right to receive benefits until
the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with the Plan. Judgment
may be entered on the arbitrator's award in any court having
jurisdiction. If any dispute, controversy or claim for damages
arising under or in connection with this Plan is settled by
arbitration, the Company will pay, or if elected by the
Participant, reimburse, all fees, costs and expenses incurred by a
Participant related to such arbitration unless the arbitrator
decides that the claim was frivolous or advanced by the
Participant in bad faith.
(b) If a Participant does not elect arbitration, he or she may pursue
all available legal remedies. The Company will pay, or if elected
by the Participant, reimburse each Participant for, all fees,
costs and expenses incurred by such Participant in connection with
any actual, threatened or contemplated litigation relating to this
Plan to which the Participant is or reasonably expects to become a
party, whether or not initiated by the Participant, if the
Participant is successful in recovering any benefit under this
Plan as a result of such action.
(c) In any dispute or controversy with any Participant arising under
or in connection with this Plan, the Company will not assert the
Participant's failure to exhaust administrative remedies.
5.5. Funding and Payment.
(a) The Company may establish a Trust with an independent corporate
trustee. The Trust must (i) be a grantor trust with respect to
which the Company is treated as grantor for purposes of Code
Section 677, (ii) not cause the Plan to be funded for purposes of
Title I of ERISA and (iii) provide that Trust assets will, upon
the insolvency of the Company, be used to satisfy claims of the
Company's general creditors. The Company may from time to time
transfer to the Trust cash, marketable securities or other
property acceptable to the Trustee.
(b) The Trustee will make distributions to Participants and
Beneficiaries from the Trust in satisfaction of the Company's
obligations under the Plan in accordance with the terms of the
Trust. The Company is responsible for paying any benefits that are
not paid from the Trust.
(c) 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 Company and no Participant has any interest
in the assets of the Trust. 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 Company.
ARTICLE
6.
MISCELLANEOUS
6.1. Successors.
The Parent Corporation will require any Successor to expressly assume and
agree to perform the obligations of this Plan in the same manner and to the same
extent that the Parent Corporation would be required to perform if no such
succession had taken place. Failure of the Parent Corporation to obtain such
assumption and agreement at least three business days prior to the time a Person
becomes a Successor (or where the Parent Corporation does not have at least
three business days' advance notice that a Person may become a Successor, within
one business day after having notice that such Person may become or has become a
Successor) will constitute Good Reason for termination of a Participant's
employment. The date on which any such succession becomes effective will be
deemed the Date of Termination and Notice of Termination will be deemed to have
been given on such date. A Successor has no rights, authority or power with
respect to the Plan prior to a Change in Control.
15
<PAGE>
6.2. Binding Plan.
This Plan is for the benefit of, and is enforceable by, each Participant,
each Participant's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees, but a
Participant may not otherwise assign any of his or her rights or delegate any of
his or her obligations under this Plan. If a Participant dies after becoming
entitled to, but before receiving, any amounts payable under this Plan, all such
amounts, unless otherwise provided in this Plan, will be paid in accordance with
the terms of this Plan to such Participant's devisee, legatee or other designee
or, if there be no such designee, to such Participant's estate.
6.3. Validity.
The invalidity or unenforceability of any provision of the Plan does not
affect the validity or enforceability of any other provision of the Plan, which
will remain in full force and effect.
6.4. No Mitigation.
No Eligible Participant will be required to mitigate the amount of any
benefits the Company becomes obligated to provide in connection with this Plan
by seeking other employment or otherwise and the benefits to be provided in
connection with this Plan may not be reduced, offset or subject to recovery by
the Company by any benefits an Eligible Participant may receive from other
sources.
6.5. No Set-off.
The Company has no right to set-off benefits owed under this Plan against
amounts owed or claimed to be owed by an Eligible Participant to the Company
under this Plan or otherwise.
6.6. Taxes.
All benefits to be provided to each Eligible Participant in connection
with this Plan will be subject to required withholding of federal, state and
local income, excise and employment-related taxes.
6.7. Notices.
For the purposes of this Plan, notices and all other communications
provided for in, or required under, this Plan must be in writing and will be
deemed to have been duly given when personally delivered or when mailed by
United States registered or certified mail, return receipt requested, postage
prepaid and addressed to each Participant's or the Company's (as the case may
be) respective address (provided that all notices to the Company must be
directed to the attention of the chair of the Board). For purposes of any such
notice requirement, the Company will use the Participant's most current address
on file in the Company's personnel records. Any notice of a Participant's change
of address will be effective only upon receipt by the Company.
6.8. Effect of Plan Benefits on Other Severance Plans.
A Participant who receives any payment under the terms of this Plan will
not be eligible to receive benefits under any other severance pay plan sponsored
or maintained by the Company.
16
<PAGE>
6.9. Related Plans.
To the extent that any provision of any Other Arrangement limits,
qualifies or is inconsistent with any provision of this Plan, then for purposes
of this Plan, while such Other Arrangement remains in force, the provision of
this Plan will control and such provision of such Other Arrangement will be
deemed to have been superseded, and to be of no force or effect, as if such
Other Arrangement had been formally amended to the extent necessary to
accomplish such purpose. Nothing in this Plan prevents or limits a Participant's
continuing or future participation in any Other Arrangement, and nothing in this
Plan limits or otherwise affects the rights Participants may have under any
Other Arrangement. Amounts which are vested benefits or which Participants are
otherwise entitled to receive under any Other Arrangement at or subsequent to
the Date of Termination will be payable in accordance with such Other
Arrangement.
6.10. No Employment or Service Contract.
Nothing in this Plan is intended to provide any Participant with any
right to continue in the employ of the Company for any period of specific
duration or interfere with or otherwise restrict in any way Participants' rights
or the rights of the Company, which rights are hereby expressly reserved, to
terminate a Participant's employment at any time for any reason or no reason
whatsoever, with or without cause.
6.11. Survival.
The respective obligations of, and benefits afforded to, the Company and
the Participants which by their express terms or clear intent survive
termination of a Participant's employment with the Company or termination of
this Plan, as the case may be, will remain in full force and effect according to
their terms notwithstanding the termination of a Participant's employment with
the Company or termination of this Plan, as the case may be.
6.12. Effect on Other Plans.
Unless otherwise expressly provided therein, benefits paid or payable
under the Plan will not be deemed to be salary or compensation for purposes of
determining the benefits to which a Participant may be entitled under any other
Benefit Plan sponsored, maintained or contributed to by the Company.
6.13. Prohibition of Alienation.
No Participant will have the right to alienate, assign, encumber,
hypothecate or pledge his or her interest in any benefit provided under the
Plan, voluntarily or involuntarily, and any attempt to so dispose of any
interest will be void.
6.14. Notice of Reemployment.
If an Eligible Participant commences full-time employment during his or
her Continuation Period, he or she must notify the Company not later than five
business days after he or she commences full-time employment.
17
<PAGE>
Exhibit 10.9
SUPPLEMENT TO PROSPECTUS
JOSTENS, INC.
500,000 Shares of Common Stock, including
Preferred Share Purchase Rights
----------------
Offered pursuant to the
Jostens, Inc. Executive Stock Purchase Program
---------------
This document constitutes part of a prospectus covering
securities that have been registered under
the Securities Act of 1933.
----------------
This Supplement modifies the Prospectus dated February 15, 1999 covering
the offer and sale of shares of Common Stock, including attached Preferred Share
Purchase Rights, of Jostens, Inc. under the Jostens, Inc. Executive Stock
Purchase Program.
---------------------------------------------------------------------------
The Prospectus for Jostens, Inc. Executive Stock Purchase Program offered
you the opportunity to elect to participate in the Program during two purchase
periods: a period beginning on March 1, 1999 and ending on March 19, 1999 or
during a period beginning on June 8, 1999 and ending on July 9, 1999. You also
could elect to purchase under the Program during both periods.
Due to lack of interest in the second purchase period, it has been deemed
advisable to purchase Common Stock under the Program during only one purchase
period beginning on March 1, 1999 and ending on March 19, 1999. The first
interest payment on the Program Loan will now be due on June 3, 1999. The
interest rate on your Program Loan will now convert to a rate that is fixed for
the remaining life of the loan on March 25, 1999 rather than July 15, 1999.
The date of this Prospectus is February 15, 1999.
<PAGE>
PROSPECTUS
JOSTENS, INC.
500,000 Shares of Common Stock, including
Preferred Share Purchase Rights
----------------
Offered pursuant to the
Jostens, Inc. Executive Stock Purchase Program
----------------
This document constitutes part of a prospectus covering
securities that have been registered under
the Securities Act of 1933.
-----------------
This Prospectus covers offers and sales of shares of Common Stock,
including attached Preferred Share Purchase Rights, of Jostens, Inc. under the
Jostens, Inc. Executive Stock Purchase Program.
Important Notices to all Program Participants
You may not use this Prospectus to reoffer or resell shares of Common
Stock acquired under the Program if you are an "affiliate" (generally a
director, officer or other controlling person) of Jostens. Affiliates may,
however, resell shares without registration under the Securities Act of 1933, as
amended, pursuant to an exemption from registration. An exemption from
registration is available by following the terms and conditions of Rule 144
under the Securities Act (other than the holding period requirements).
In addition, you should not sell any shares of Common Stock without
carefully considering:
o the laws prohibiting trading on the basis of material, inside
information,
o laws prohibiting "short swing" profits, and
o your personal financial and tax situation.
Additional Information
Please see "Certain Federal Income Tax Consequences" beginning on page 13
and "Impact of Short-Swing Profit Provisions" on page 14 for more information.
For additional information about the Program and its administrators,
please contact Diana Weber of Jostens' legal department, by mail at 5501 Norman
Center Drive, Minneapolis, Minnesota, or by telephone at (612) 830-3300.
<PAGE>
Table of Contents
Page
Limitations on the Use of this
Prospectus.......................................2
Summary of the Program...............................3
Introduction.....................................3
Eligible Participants............................4
Administration and Amendment.....................4
No Right to Service..............................5
The Program Loan.................................5
The Reimbursement Agreement......................7
The Restricted Stock Match.......................7
Stock Subject to the Program.....................7
Selling Your Stock...............................7
Potential Gain/(Loss) on Program.................8
Numerical Examples..............................10
Certain Federal Income Tax
Consequences....................................13
Impact of Short-Swing Profit
Provisions......................................14
Questions and Answers...............................15
Additional Information..............................19
Available Information...........................19
Documents Incorporated by
Reference....................................19
Limitations on the
Use of this Prospectus
No one is authorized to provide you with information that is not
contained in either this Prospectus or in the documents referenced in this
Prospectus.
If someone has given you information or made a representation that is not
contained in this Prospectus or in the documents referenced in this Prospectus,
you must not rely on such information or representations as being authorized by
Jostens.
The business and affairs of Jostens may have changed since the date of
this Prospectus or since the date of the documents referenced in this
Prospectus. Please do not assume otherwise simply because Jostens has delivered
this Prospectus to you.
This Prospectus does not constitute:
o an offer to buy or sell any securities other than the Common Stock
offered under the Program, or
o an offer of securities in any state where such an offer would be
unlawful.
2
<PAGE>
Summary of the Program
---------------------------------------------------------------------------
Introduction
The Executive Stock Purchase Program represents a major financial
commitment on the part of participants. Please read carefully all of the
information presented in this Prospectus. You should also seek the advice of an
independent financial advisor before you participate in the Program.
The Jostens, Inc. Executive Stock Purchase Program is a voluntary program
which provides you and certain other key executives of Jostens with the
opportunity to purchase shares of Jostens' Common Stock.
The purpose of the Program is to facilitate the immediate purchase of
shares of Common Stock by you and other members of Jostens' management in order
to:
o increase the ownership of Common Stock among key employees of
Jostens;
o more closely align key employees' financial rewards with the
financial rewards realized by all other Jostens' shareholders; and
o increase key employees' motivation to manage Jostens as owners.
Under the Program, Jostens will make arrangements for you to obtain a
loan from The First National Bank of Chicago, the proceeds of which will be used
to purchase shares of Common Stock. If you decide to participate, you must take
out a loan.
The maximum dollar value of shares that you can purchase under the
Program will be one to three times your base salary, depending upon your
position within Jostens. The minimum dollar value of shares of Common Stock that
you will be able to purchase under the Program is 50% of your maximum purchase.
As an added incentive to participate in the Program, Jostens will grant
you a number of shares of restricted Common Stock equal to 15% of the number of
shares that you purchase in the Program.
If you elect to participate in the Program, shares of Common Stock will
be purchased on your behalf on the open market at prevailing market prices
during a period beginning on March 1, 1999 and ending on March 19, 1999 or
during a period beginning on June 8, 1999 and ending on July 9, 1999, or both,
depending on your election. If you elect to purchase shares during both periods,
your overall purchase obligation is subject to a $25,000 minimum per period.
The price for your shares purchased under the Program will be the
weighted average purchase price paid for shares during each period in which you
participate.
The shares that you purchase through the Program will bear dividends at
the same times and in the same amounts as all other
3
<PAGE>
shares of Common Stock and will be registered in your name. You will have all
the rights of a shareholder with respect to shares purchased under the Program,
including the right to vote the shares and the right to receive dividends.
Participants should note that the Program is not:
o an employee benefit plan subject to the Employee Retirement Income
Security Act of 1974;
o qualified under Section 401(a) of the Internal Revenue Code; or
o an "employee stock purchase plan" (as defined in Section 423 of
the Internal Revenue Code).
Eligible Participants
Participation is only open to certain employees determined to be eligible
by the Compensation Committee of the Board of Directors (the "Committee") or its
designee. These employees will be given notice prior to the date on which
purchase elections may be made.
To become a participant an eligible employee must, prior to February 19,
1999:
o complete and sign an irrevocable election to purchase shares of
Common Stock under the Program;
o complete and sign all necessary agreements and provide other
documents (including a personal financial statement) relating to
Program Loans, as described below; and
o satisfy all other terms and conditions of participation in the
Program established by the Committee.
The agreements and other documents specified above must be in such forms
and submitted at such times as specified by the Committee. Eligible employees
are not required to participate in the Program.
Administration and Amendment
The Committee or its designee will administer the Program. All questions
of interpretation of the Program will be determined by the Committee and will be
conclusive and binding for all purposes.
The Committee or its designee(s) will have the authority and power to:
o adopt, alter, waive and repeal administrative rules, guidelines,
practices and provisions of the Program as the Committee may deem
advisable, interpret terms and provisions of the Program (and any
agreements relating to the Program), and supervise the
administration of the Program;
o select eligible employees;
o designate purchase periods;
o designate minimum and maximum purchases under the Program, either
by the number of shares of Common Stock or by the purchase price;
and
o negotiate terms and conditions of the related bank guarantees.
The Committee may waive, amend, alter or discontinue all or any provision
of the Program. However, no waiver, amendment, alteration or discontinuation
4
<PAGE>
may be made which would adversely impair your rights under the Program without
your consent.
No Right to Service
Nothing in the Program limits Jostens' right to terminate your service or
employment at any time or otherwise confers any right to your continued service
or employment.
The Program Loan
If you elect to participate in the Program, Jostens will arrange for you
to receive a full recourse loan from The First National Bank of Chicago to buy
Common Stock. Proceeds of this loan will be paid by The First National Bank of
Chicago to an independent agent who will make Program purchases on behalf of all
participants as directed by Jostens.
Jostens will guarantee repayment to The First National Bank of Chicago of
one hundred percent (100%) of all principal, interest, early payment fees and
other obligations of each participant's Program Loan. The terms and conditions
of the guaranty are as agreed by Jostens and The First National Bank of Chicago.
Although Jostens will guarantee repayment of your Program Loan to The
First National Bank of Chicago in the event of default, the loan will be your
personal obligation. You will be responsible for satisfying all of the bank's
requirements in connection with your Program Loan. Even if Jostens pays the
Program Loan in the event you default, you will remain personally liable for the
loan balance, accrued interest and other expenses incurred by Jostens in
connection with your Program Loan. Jostens may take all actions relating to you
and your assets which the Committee deems reasonable and necessary to obtain
full reimbursement for amounts Jostens pays to The First National Bank of
Chicago under its guarantee of your Program Loan.
The specific terms of the Program Loan vary with respect to each purchase
period, and are more fully described below:
March Purchases
Purchases made in March 1999 will be funded with a five year term Program
Loan that initially bears interest at The First National Bank of Chicago's
corporate base rate. The first interest payment on the Program Loan will be due
on July 15, 1999 to coincide with the end of the second purchase period.
Any dividends you have received may be directed to The First National
Bank of Chicago and will be applied toward your first interest payment. The
amount by which this first interest payment exceeds any income you earned from
dividends will be added to the principal amount of your Program Loan. The total
amount of your Program Loan will exceed the dollar amount of the shares you
elect to purchase because the net amount of interest on July 15, 1999 will be
added to the total amount of the Program Loan.
If you elect to purchase shares only in March 1999, on July 15, 1999 the
interest rate on your Program Loan will convert to a rate that is fixed for the
remaining life of the loan.
June and July Purchases
5
<PAGE>
Purchases made in June and July 1999 will be funded with an approximately
4.75 year term Program Loan that will initially bear interest at The First
National Bank of Chicago's corporate base rate. Interest will accrue on the
Program Loan at this interest rate until the rate is fixed on July 15, 1999. The
accrued interest will be added to the principal amount of your Program Loan on
July 15, 1999. The total amount of your Program Loan will exceed the dollar
amount of the shares you elect to purchase due to this accrued interest.
On July 15, 1999, the interest rate on your Program Loan will convert to
a rate that is fixed for the remaining life of the loan.
Purchases in Both Periods
If you elect to purchase shares in both the March and June and July
periods, the balance on your Program Loan attributable to purchases in March and
the amount of interest due on July 15, 1999 that is not covered by dividends
will be added to the dollar amount of purchases made in June and July. This will
equal the total amount of your Program Loan. This total will exceed the dollar
amount of the shares you elect to purchase because the net amount of interest on
July 15, 1999 will be added to the amount of the Program Loan used to purchase
shares. The total amount of your Program Loan will bear interest at a new rate
that will be fixed on July 15, 1999 for the remaining approximately 4.75 year
life of the Program Loan.
Other Program Loan Terms
Every participant in the Program will have the same fixed interest rate
on his or her Program Loan.
The Program Loan will carry a customized interest payment schedule with
two interest components i) current interest and ii) deferred interest. The
current interest payment schedule will be structured to coincide with Jostens's
projected future dividend payments over the life of the Program Loan. The intent
is that your current interest payments will be substantially covered by the
dividends paid on the shares you purchase with the Program Loan. However, there
is no guarantee that Jostens' Board of Directors will continue to declare
dividends or that such dividends will be sufficient to cover your current
interest payments.
You should note that, at present, the dividend yield on Jostens' Common
Stock is below market rates of interest. Consequently, the current interest rate
is less than the interest rate on the Program Loan. The amount of interest in
excess of the current interest will be deferred and will be due at maturity
along with the principal amount.
You may prepay the Program Loan on any interest payment date. However,
you will want to consider the following items before you decide to prepay:
o Prepayments must be made in a minimum principal amount of $25,000
and in $5,000 increments above $25,000.
o The Program Loan is NOT structured like some home mortgages which
allow prepayment without penalty regardless of current market
interest rates. Beginning on July 15, 1999, the Program Loan
contains a "make whole" provision similar to those commonly found
in
6
<PAGE>
fixed rate loans for Jostens. See "Numerical Example--Prepayment
Fee Illustration" for more details.
If you prepay, you will be responsible for paying any interest that has
been deferred, any amount required to make The First National Bank of Chicago
whole for any changes in the market level of interest rates since the interest
rate on your Program Loan was established and an administrative fee of $750.
In the event of your death, disability, early retirement or the
termination of your employment with Jostens, your Program Loan will become due
and payable. You will incur the same costs if your loan becomes due and payable
early for any of these reasons as you will incur if you voluntarily prepay.
In addition, certain actions by Jostens can cause your Program Loan to
become due and payable. Specifically, if there is a change in control of Jostens
or if Jostens breaches the representations, warranties or covenants in its
Facility and Guaranty Agreement with The First National Bank of Chicago,
defaults under certain other important debt obligations or becomes insolvent,
your Program Loan will become due and payable. Prepayment pricing provisions
will apply.
The Reimbursement Agreement
As a condition to participation in the Program, you will be required to
enter into a Reimbursement Agreement with Jostens, providing for your absolute
and unconditional agreement to reimburse Jostens for all costs and expenses
incurred if Jostens is required to perform under its guarantee of your Program
Loan.
The Reimbursement Agreement includes a right of setoff in favor of
Jostens against amounts owed to you, and requires you to agree to certain
financial covenants and to make certain representations and warranties.
As with each other document required in connection with the Program Loan,
you should carefully read the Reimbursement Agreement and understand its terms
before deciding to participate in the Program.
The Restricted Stock Match
Jostens will match your purchases under the Program by awarding you
shares of restricted stock equal to 15% of the number of shares that you
purchase through the Program.
These shares of restricted stock will be awarded under and subject to the
terms of Jostens' 1992 Stock Incentive Plan, and will vest in their entirety on
the loan maturity date, subject to forfeiture if conditions to vesting
(including continued employment by Jostens) are not satisfied.
A separate prospectus for the 1992 Stock Incentive Plan has been or will
be provided to you, which will describe the operation of that plan and provide
you with other information regarding these restricted stock awards.
Stock Subject to the Program
Jostens' has registered a maximum of 500,000 shares of Common Stock for
purchase under the Program.
7
<PAGE>
Selling Your Stock
Determining when to sell shares of Common Stock you acquire under the
Program is a personal decision. You may sell the shares you purchase at any
time, subject to the restrictions that normally apply to your sales of Common
Stock, including those noted on the cover and elsewhere in this Prospectus.
In addition to those items, you should also carefully consider the
following factors before you sell:
o The dividend payments on your shares may be used to pay a portion
of the interest on your Program Loan. Unless you simultaneously
prepay the Program Loan, you will need to begin providing cash for
these interest payments after you sell the stock.
o The price of a share of Common Stock on the date you sell may be
above or below the purchase price for your shares, resulting in a
gain or loss on sale. The gain or loss on sale will have
consequences on your personal tax position. (See "Certain Federal
Income Tax Consequences.")
o You will incur transaction expenses when you sell your shares,
which are your responsibility.
Potential Gain/(Loss) on Program
Some examples of the gain or loss you may experience as a participant in
the Program are illustrated below. This illustration reflects current market
conditions and is for informational purposes only. The weighted average purchase
price for your shares and the fixed interest rate on your Program Loan have not
yet been established. The price for Common Stock in connection with purchases in
June and July and the fixed interest rate on your Program Loan will not be known
until the end of the June and July purchase window. Consequently, they may be
significantly different from the figures shown below. Any differences will
affect your actual gain or loss at maturity.
The example below assumes that i) Jostens' Board of Directors continues
to declare dividends according to its historic practices, ii) you apply the
dividends from your restricted stock match to pay interest on your Program Loan
and iii) your restricted stock vests. There is no guarantee that Jostens' Board
of Directors will continue to declare dividends or that such dividends will be
sufficient to meet required interest payments.
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<PAGE>
At the maturity of your Program Loan, your pre-tax gain or loss will be
equal to the market value of the shares you purchased plus the matching shares
(i.e., 5,000 shares in the example below) minus the amount due on your loan at
maturity (i.e., principal plus interest, including all deferred interest,
$118,359, in the example below.)
Illustration Assumptions:
Weighted Average Purchase Price.. $23.00
Shares Purchased................. 4,348
Restricted Share
Match.......................... 652
Loan Amount (a).................. $101,828
Interest Rate on Program Loan
(Simple Interest).............. 7.90%
Annual Dividend (b).............. $0.88 on
all shares
(a) equals an assumed $100,000 stock purchase plus $1,828 additional principal
from net interest on shares purchased.
(b) Includes the value of the matching restricted stock grant
Estimated Pre-Tax Gain/Loss at Various Stock Prices at Maturity:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Ending Market Ending Market Value Loan Principal
Annual Stock Return Price of Stock of Stock Plus Interest Gain/(Loss)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-5.0% $17.90 $89,000 $118,359 $(29,359)
- ----------------------------------------------------------------------------------------------------------------------
-2.5% $20.37 $101,350 $118,359 $(17,009)
- ----------------------------------------------------------------------------------------------------------------------
+0.6% $23.67 $122,100 $118,359 $0
- ----------------------------------------------------------------------------------------------------------------------
+2.5% $26.02 $130,100 $118,359 $11,741
- ----------------------------------------------------------------------------------------------------------------------
+5.0% $29.35 $146,750 $118,359 $28,391
- ----------------------------------------------------------------------------------------------------------------------
+7.5% $33.02 $165,100 $118,359 $46,741
- ----------------------------------------------------------------------------------------------------------------------
+10.0% $37.04 $185,200 $118,359 $66,841
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The intent of the Program is that (i) the dividends paid on shares
purchased in the Program together with dividends paid on the restricted stock
awarded will cover the
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<PAGE>
interest on the Program Loan, and (ii) the value of the purchased and restricted
shares will appreciate so that they will be at least equal to the principal and
deferred interest due on the Program Loan at maturity. However, there is no
guarantee that the stock price will appreciate or that the dividends will
continue to be paid.
In addition, there may be a mismatch between i) the assumed dividend
payment dates and when dividends are actually credited to your account and/or
ii) the actual dividend yield on the shares you hold and the dividend yield used
to calculate the current interest rate for the Program Loan. This mismatch may
give rise to payments due or credited amounts in your Program account during the
life of the Program.
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<PAGE>
Numerical Examples
Cash Flow Illustration
An example of potential cash flows for a Program participant are
illustrated below. This example is for informational purposes only and is
intended to illustrate simplified terms of the Program. All of your dividend and
interest payments will occur quarterly.
The example assumes that a participant elects to purchase $100,000 worth
of Common Stock through the Program, with all of the purchase made in March.
Other assumptions include a weighted average purchase price of $23.00 per share;
a fixed rate yield to maturity on the Program Loan of 7.38%; and a Common Stock
dividend of $0.88 per year on both purchased and restricted shares.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Year 5 Year 5
3/1 to 7/15 (Q2-Q4) (Q1-Q4) (Q1-Q4) (Q1-Q4) (Q1-Q3) Maturity
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rate of Interest Due
This Period
(Act/360) 7.75% 4.26% 4.26% 4.26% 4.26% 4.26%(b) 18.70%(c)
- ------------------------------------------------------------------------------------------------------------------------------
Interest Payment Due $(2,928) $(3,300) $(4,400) $(4,400) $(4,400) $(3,300) $(19,306)
- ------------------------------------------------------------------------------------------------------------------------------
Dividends Received on Stock $1,100 $3,300 $4,400 $4,400 $4,400 $3,300 $1,100
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flow $(1,828)(a) $0.00 $0.00 $0.00 $0.00 $0.00 $(18,206)
- ------------------------------------------------------------------------------------------------------------------------------
Loan Amount $100,000 $101,828 $101,828 $101,828 $101,828 $101,828 $101,828
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Amount included in principal beginning in Year One, Q2
(b) Represents 75% (three quarters) of the annual rate of interest
(c) Represents the final quarter of current loan interest plus deferred interest
Interest Rate Structure
You will see the fixed interest rate for your Program Loan stated two
ways - as a simple interest rate and as a yield to maturity. The simple interest
rate and yield to maturity for your Program Loan have not yet been established.
Consequently, they may differ from the rates shown below.
o Simple Interest Rate. The simple interest rate for a Program Loan
is currently 7.90%. Over the fixed rate life of a $101,828 Program
Loan with a 7.90% simple interest rate, a participant will
effectively accrue interest of $8,156 per year. This calculation
does not include the time value of money. (Interest is calculated
on an actual/360 day basis.)
o Yield to Maturity. The yield to maturity for a Program Loan is
currently 7.38%. This interest rate takes into account the fact
that money paid today is more valuable than money paid five years
from now. Since the current fixed interest payments from July 15,
1999 until the final quarter of the Program Loan will be
substantially below market
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<PAGE>
interest rates, the amount of interest due at maturity (i.e., the
deferred interest) will equal the difference between the rate of
interest paid quarterly and the yield to maturity.
Prepayment
Once your Program Loan carries a fixed interest rate, you will incur
early payment fees if you wish to prepay your Program Loan before its final
maturity. These early payment fees contain a "make whole" provision that is
similar to the provisions contained in corporate fixed rate loans. The
methodology for calculating these early payment fees is explicitly defined in
the Facility and Guaranty Agreement between Jostens and The First National Bank
of Chicago. It is consistent with practices commonly used to value corporate
fixed rate loans.
The early payment fee for prepaying either a part of or the entire
Program Loan will approximate the amount of interest deferred to date, adjusted
for any reinvestment cost for The First National Bank of Chicago and the $750
administrative fee. Your total prepayment amount will equal the principal amount
you are prepaying, any interest accrued during the quarter, the early payment
fees and the administrative fee.
Deferred Interest
Since you will be paying current interest at below market rates for all
but the final quarter that your Program Loan carries a fixed rate, the
difference between the amount paid and the full interest rate is deferred until
the last quarter of the Program Loan. The annual amount of deferred interest for
the second, third and fourth years of the Program Loan period is illustrated
below. Please note that the simple interest rate and the current rate of
interest paid on your Program Loan may be significantly different than the rates
used here for illustration.
Simple Interest Rate 7.90%
Rate of Interest Paid in Cash
("Current Interest") 4.40%
Rate of Deferred Interest 3.50%
Loan Amount (a) $101,828
Annual Deferred Interest $3,564
(a) equals an assumed $100,000 stock purchase plus $1,828 additional
principal from net interest on shares purchased.
Bank Reinvestment Cost
The customized rate structure built into your Program Loan makes it
almost impossible to determine the bank's reinvestment cost in advance. The
bank's reinvestment cost is a function of how interest rates change over the
life of your Program Loan. However, it is possible to make reasonable estimates
of this potential cost using varying interest rate assumptions.
In general, higher market rates relative to the fixed rate on your
Program Loan will result in relatively lower bank reinvestment cost, and,
therefore, lower early payment fees. Conversely, lower market rates will mean
relatively higher bank reinvestment cost and higher early payment fees. In any
event, your prepayment fees will compensate The First National Bank of Chicago
for the market value of the deferred interest that you would otherwise pay at
maturity.
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<PAGE>
The following table provides estimates for the amount of deferred
interest adjusted for the First National Bank of Chicago's approximate
reinvestment cost under various interest rate movement scenarios (i.e., yield
shifts) for a $100,000 Program Loan.
- --------------------------------------------------------------------------------
Yield Shift End of Yr. End of End of Yr.
Two* Yr. Three* Four*
- --------------------------------------------------------------------------------
2.0% $3,999 $9,188 $13,263
- --------------------------------------------------------------------------------
1.0% $7,081 $11,368 $14,403
- --------------------------------------------------------------------------------
0% $10,263 $13,597 $15,558
- --------------------------------------------------------------------------------
-1.0% $13,549 $15,877 $16,727
- --------------------------------------------------------------------------------
-2.0% $16,942 $18,209 $17,910
- --------------------------------------------------------------------------------
*All amounts represent estimates only. Actual early payment fees will vary with
prepayment dates, actual number of days during the quarter, shape of the yield
curve and the interest payment set at Program Loan pricing.
Please note that the level of interest rates will probably be different
when your Program Loan is priced than interest rate levels were when this
illustration was calculated. Consequently, estimates for early prepayment fees
will be different than those shown here.
13
<PAGE>
Certain Federal Income Tax Consequences
The discussion below is a summary of the federal income tax consequences
(and not foreign, state or local) that may result in connection with your
participation in the Program.
Because you are an insider and because the federal income tax
consequences depend upon regulations under the Internal Revenue Code and your
tax status, Jostens strongly recommends that you consult your personal tax
advisor before electing to participate in the Program or to sell any shares of
Common Stock you acquire under the Program.
o Dividends paid on stock you purchase through the Program are
considered investment income and will be includable in your
taxable income in the year received.
o Interest on your Program Loan is considered to be interest on
investment indebtedness.
o Due to the structure of the Program, the interest that is deemed
to be deductible is based upon the overall interest rate over the
period of the Program Loan. This is true even though the actual
interest paid in cash (the current interest) is less than the
simple interest rate and yield to maturity on the Program Loan.
o The amount of interest deduction you may use in any period will be
limited by your amount of investment income for the period.
Interest on investment indebtedness that cannot be deducted during
a period may be carried over.
o Your purchase price or total cost for the Common Stock acquired
under the Program will be your tax basis in your shares of Common
Stock.
o You may receive a capital gain or loss when you sell shares of
Common Stock you purchase through the Program. Whether the gain
(or loss) constitutes long or short term capital gain (or loss)
will depend upon the length of time you hold the shares prior to
disposition.
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<PAGE>
Impact of Short-Swing Profit Provisions
Under Section 16(b) of the Securities Exchange Act of 1934, as amended,
any profit by an "insider" of Jostens (an officer, director, greater-than-10%
shareholder or other person deemed an insider by Jostens) on a purchase and sale
or sale and purchase of Common Stock within any six-month period belongs to and
is recoverable by Jostens. Rule 16b-3 under the Exchange Act exempts certain
transactions by insiders from the operation of Section 16(b).
Under Rule 16b-3, the purchase of shares of Common Stock under the
Program is an exempt purchase under Section 16(b), and is also exempt from the
reporting requirements of Section 16(a).
The sale of shares acquired under the Program, however, will be deemed to
be a sale for the purpose of Section 16(b), regardless of Rule 16b-3, and will
generally be required to be reported on a Form 4.
This discussion of the impact of Section 16 is only a brief summary of
certain rules and is not intended to provide comprehensive guidance to Program
participants.
The rules and regulations relating to Section 16 are extremely complex,
and transactions under the Program may or may not be deemed purchases or sales
under Section 16 depending on the facts and circumstances of such transactions.
As a result, Jostens strongly recommends that participants who are insiders
consult with Jostens' legal department or their own counsel regarding the
applicability of Section 16 of their transactions under the Program.
15
<PAGE>
Questions and Answers
Q: When may I sell the shares that I acquire under the Program?
A: You may sell your shares any time subject to the restrictions that normally
apply to your sales of Jostens' Common Stock. Some of these restrictions are
summarized in this Prospectus.
Q: How would I go about selling my shares?
A: Pursuant to Jostens' normal policy, you must inform Jostens's legal
department before you sell your shares.
Q: What happens if I leave Jostens after I have agreed to participate in the
Program?
A: Termination of employment other than through normal retirement will cause the
Program Loan to become immediately payable. In addition, you will forfeit the
restricted stock match if your termination occurs prior to the end of the
vesting period.
Q: Can I be assured that dividends will continue to be paid on my shares of
Common Stock so that my normal cash flow will be unaffected during the period I
am required to pay loan interest?
A: No. The payment of dividends is determined by Jostens' Board of Directors.
There is no guarantee that the Board of Directors will declare a dividend or
that there will be ongoing dividend payments.
Q: Is it possible that my interest cost could exceed the dividends that I
receive?
A: Yes, if future dividend payments do not equal the projected dividend payments
used to structure the Program Loan. You will receive a quarterly payment notice
that reflects interest due, dividends paid and any excess or shortage.
Q: If dividends exceed interest payments, I understand that the excess will be
deposited into my account with The First National Bank of Chicago. May I
withdraw these funds?
A: Yes, but you are expected to have your account fully funded by each interest
payment date.
Q: Why has the Program been structured so that cash interest payments are low
for the majority of the life of the Program Loan with a large balloon payment at
maturity?
A: We have tried to minimize your out-of-pocket cash expenditures during the
life of the Program Loan.
Q: Can I avoid paying the balloon payment if I repay the Program Loan before it
matures?
16
<PAGE>
A: No. When you decide to prepay the Program Loan, you will be informed of the
amount of principal, interest and early payment fees you owe. On the day you
prepay, this amount will be due in the form of a balloon payment.
Q: What is the Facility and Guaranty Agreement and what impact does it have on
me as a borrower?
A: The Facility and Guaranty Agreement is the agreement between Jostens and The
First National Bank of Chicago whereby Jostens guarantees the obligation of the
participant. The agreement includes many definitions which are used in the
Master Note Agreement you will sign. The Facility and Guaranty Agreement
contains the provision for calculating the early payment fees. It also specifies
events relating to Jostens which may trigger repayment of the loan and early
payment fees.
Q: Why is the simple interest rate different from the yield-to-maturity interest
rate?
A: The Program is structured such that, until maturity, the cash interest paid
on the Program Loan is limited to the dividend yield on the stock. The First
National Bank of Chicago requires a yield-to-maturity interest rate which is
similar to the interest rate on normal market loans. For normal market loans,
interest would be due currently on loan amounts outstanding, with the full
interest paid quarterly. Under the Program Loan structure, you are permitted to
make current interest payments of a lower rate, with a catch up balloon payment
at maturity to cover deferred interest costs. The deferred interest expense
results in an increased simple interest rate above the yield-to-maturity rate.
Q: Can I make voluntary early payment of the loan?
A: Yes, on any interest payment date. Once the Program Loan bears interest at a
fixed rate on July 15, 1999, voluntary early payments are allowed subject to
certain minimum amounts, together with all accrued interest, early payment fees
and the administration fee. In the event of an early repayment of all or any
portion of the loan (whether voluntary or by reason of an event of default or
acceleration), you will be obliged to reimburse The First National Bank of
Chicago for certain reinvestment costs which may be substantial and which are
described in the Program Loan documents.
Q: Are there any situations which may give rise to acceleration of the Program
Loan repayment requirement?
A: Yes, certain events may result in acceleration of Program Loans, including
default, death, disability, early retirement, termination of employment, failure
to pay interest and other amounts under the Program Loan when due and
insolvency. With respect to Jostens, breaches of representations, warranties or
covenants, under Jostens guaranty documents, or certain defaults by Jostens
under other important debt obligations, or insolvency events concerning Jostens
may result in acceleration of Program Loans. You will incur early payment fees
for Program Loan repayments resulting from acceleration.
17
<PAGE>
Q: What is the nature of the dividends paid on shares I purchase under the
Program?
A: Dividends paid on shares purchased under the Program are considered
investment income and are reported on Schedule B of an individual's federal
income tax return (Form 1040).
Q: Is the interest I pay to The First National Bank of Chicago deductible for
federal income tax purposes?
A: Yes. The interest is considered to be interest on investment indebtedness. An
individual's deduction for interest on investment indebtedness is limited to
such individual's net investment income. Net investment income is defined as
being the excess of investment income over investment expenses. Investment
income includes (but is not limited to) all dividend income, all interest
income, annuity income, royalty income, net short term capital gains, and if
elected, long term capital gains (see IRS Form 4952 for more details). It should
be noted that any investment interest that is disallowed because of the
limitation may be carried over the succeeding tax year and is deductible to the
extent of the limitation in that year.
Q: The example used in this Prospectus illustrates the financial impact of a
yield-to-maturity Program Loan over the term at a stated percent. In the
example, in the early years of the Program, I understand that the interest I
actually pay on the Program Loan is much lower. What is the investment interest
that is considered to be deductible?
A: Because of the structure of the Program, the interest that is deemed to be
deductible is based upon the overall interest rate over the period of the
Program Loan. The actual deduction, of course, is limited to the individual's
net investment income, as described above, and any unused interest expense can
be carried over to future years. The interest that Jostens believes to be
eligible for deduction as investment interest will vary from year to year.
Q: If at the end of the term of the Program Loan I have not been able to deduct
all of my investment interest, can I consider the capital gain I receive when I
sell my shares to be investment income that can be utilized to offset any unused
investment interest?
A: Yes, if you so elect. Net capital gains from investments can be considered to
be investment income for purposes of the investment interest deduction. All net
short term capital gains (gains where your holding period is equal to or less
than one year) are considered to be investment income. Net long term capital
gains (holding periods of more than one year) are excluded from investment
income; however, you can elect to treat as much or as little of any long term
capital gain as investment income as you like. If you elect to treat any
long-term capital gains as investment income, you give up the long term capital
gains rate (currently 20%). Consequently, the elected income is treated as
ordinary income and you get to offset any investment interest expense to the
extent of your election (e.g. this largely eliminates capital gain income from
your taxable income). Even if you do not make this election, you still will be
able to deduct your investment interest in future years if you have other
investment income.
Q: If I sell my stock for a gain and use the proceeds of the sale to repay my
Program Loan, will the gain be treated as capital gains, subject to favorable
income tax rates?
A: Any gain on the subsequent disposition of your stock will be treated as
capital gain unless an election is made as discussed above. If you sell your
stock more than one year after it is purchased, your capital gains will be
treated as "long-term" capital gain, and under current federal tax law the
income is subject to more favorable income tax rates (generally 20%) than
ordinary income tax rates. The gain that will be treated as capital gain will be
the difference between the sale proceeds on your shares, and the sum of your
initial Common Stock purchase price, any broker's fees and, any early loan
payment fees you incur (other than interest expense charges), if you sell your
Program shares early.
18
<PAGE>
Additional Information
Available Information
Jostens will provide you the following information, without charge, upon
your written or oral request:
o a copy of our most recent Annual Report to Shareholders;
o a copy of this Prospectus and the Facility and Guaranty Agreement;
o copies of all future reports, proxy statements and other
communications distributed to our shareholders generally;
o updating information regarding the Program and any other
information covered by this Prospectus, as deemed necessary; and
o the documents "incorporated by reference."
Requests should be directed to the attention of Diana Weber in Jostens'
legal department at the address and telephone number on the cover of this
Prospectus.
Documents Incorporated
by Reference
The following documents that have been filed by Jostens with the SEC are
incorporated into this Prospectus:
o our Annual Report on Form 10-K for the year ended January 3, 1998;
o our Quarterly Reports on Form 10-Q for the quarters ended April 4,
1998, July 4, 1998; and October 3, 1998;
o our Current Report on Form 8-K, dated July 23, 1998;
o all other reports filed by us pursuant to Sections 13 or 15(d) of
the Securities Exchange Act of 1934, since January 3, 1998; and
o the descriptions of our Common Stock and Preferred Share Purchase
Rights contained in our Registration Statements on Form 8-A,
including any amendments or reports filed for the purpose of
updating such description.
This Prospectus also incorporates all documents Jostens files with the
SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934 after the date of this Prospectus from their date of filing. These
documents will be incorporated into this Prospectus until Jostens (a) files an
amendment with the SEC indicating that all shares of Common Stock covered by
this Prospectus have been sold, or (b) deregisters all shares of Common Stock
remaining unsold.
All reports filed by Jostens under the Exchange Act are filed with the
SEC under Jostens' file number 1-5064.
19
<PAGE>
[picture]
50s male cheerleader
ANNUAL REPORT Jostens 98
<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 partner-
ship 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 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.
<PAGE>
CONTENTS
3 Shareholders Letter
6 Infrastructure
8 Our Market Strength
10 New Products, Services and Channels
12 Performance Improvements
14 Jostens at a Glance
16 Management Discussion and Analysis
24 Consolidated Financial Statements and Notes
44 Corporate Information
Financial Highlights Jostens Inc. and subsidiaries
[picture]
blackboard art
[Insert Bar Graph Chart]
Net sales Yr 94 649.9
continuing operations 95 665.1
($ in millions)(1) 96 695.1
97 742.5
98 770.9
Earnings per diluted share Yr 94 0.62
continuing operations 95 1.22
(in $)(1)(2) 96 1.28
97 1.47
98 1.14
Return on investment Yr 94 (5.7%)
(in %)(1) 95 19.1%
96 26.3%
97 47.7%
98 45.1%
<TABLE>
<CAPTION>
Years ended
======================================
Dollars in millions, except ratio and per-share data January 2, 1999 January 3, 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS
Net sales $770.9 $742.5
Income before income taxes 83.5 93.4
Net income(2) 41.8 57.2
Return on sales 5.4% 7.7%
- ---------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital $(47.2) $ 6.3
Current ratio 0.8 1.0
Total assets 366.2 390.7
Total shareholders' investment 58.6 127.1
- ---------------------------------------------------------------------------------------------
COMMON SHARE DATA
Earnings per share:
Basic $ 1.14 $ 1.47
Diluted 1.14 1.47
Stock price:
High 26 1/4 28 13/16
Low 19 20
Cash dividends per share 0.88 0.88
=============================================================================================
</TABLE>
(1) Sales, EPS and ROI graphs reflect June fiscal year-end results for 1994-
1996 and calendar 1997 and 1998 results. In 1996, the company changed its fiscal
year end from June 30 to the Saturday closest to December 31, resulting in a
six-month transition period from July 1 to December 28, 1996. The 1998 year
ended January 2, 1999, and the 1997 year ended January 3, 1998.
(2) Includes a $15.7 million charge (43 cents per share) in the fourth quarter
of 1998 for the write-off of Jostens Learning Corp. (JLC) notes receivable and
related net deferred tax assets.
1
<PAGE>
(Picture)
letter jacket J
A letter from Robert C. Buhrmaster Chairman, President ...
2
<PAGE>
[picture]
Robert C. Buhrmaster Chairman,
President...
...and Chief Executive Officer.
To our shareholders: 3
On Balance, 1998 was a good year for Jostens. We did what we set out to do: We
generated record performance from our largest product lines; we made internal
investments necessary to strengthen our infrastructure and establish a
foundation to handle more robust growth; we delivered reasonable earnings
improvement from our ongoing business; and we utilized our share repurchase
program to improve earnings per share.
It was also a year in which our progress was overshadowed by a one-time, noncash
charge to write off notes receivable and deferred tax assets related to the 1995
sale of a former subsidiary, Jostens Learning Corp. Our decision to take the
charge at year end reflects a conservative stance regarding this investment,
which we've now written down to zero. This was unrelated to ongoing business or
cash flow performance. Excluding the JLC charge, our business improved nicely
over 1997.
In recent years, we have devoted a great deal of energy to internal
improvements -- including systems, business practices and policies, process
simplification and a renewed emphasis on the customer. Attention to those areas
are central factors in our strategy to build the organization's capability to
efficiently handle the growth we see in relevant opportunities available to us.
I am pleased to report that our infrastructure work peaked in 1998. More
importantly, those efforts have led to tangible improvements in several
performance measures -- from working capital reductions to gross profit margin
gains to unit sales growth.
Performance Recap
In 1998, we continued to drive significant change while maintaining strong
financial fundamentals.
We reported net income of $41.8 million, or $1.14 per diluted share. Those
results include the noncash JLC charge, which reduced net income by $15.7
million, or 43 cents per share. Excluding the JLC charge, we earned $57.5
million, up slightly from 1997.
Because the JLC charge has no bearing on the past or future performance of
our ongoing business, I will focus the rest of my letter on our results
excluding the charge.
<PAGE>
[picture] IN 1998, WE CONTINUED TO DRIVE
Robert C. Buhrmaster Chairman,
President...
SIGNIFICANT CHANGE WHILE
MAINTAINING STRONG
FINANCIAL FUNDAMENTALS
...In 1999, we will devote more time and energy to building our business.
4
Earnings per share increased 10 cents to $1.57, reflecting the impact of
our share repurchase program, which we said we would use to strengthen EPS.
Included in the $1.57 were 6 cents of LIFO earnings resulting from a decision to
expand our gold consignment program. Excluding that gain and a similar 1997 LIFO
gain from gold inventory reductions, our earnings were $1.51 per share, versus
$1.37 on a comparable basis in 1997.
In manufacturing, solid performance in 1998 generated gains that helped
offset higher general and administrative spending associated with our internal
investments.
Sales for the year were $771 million, up about 4 percent from 1997. That
was below my target for the organization, but the top line was not our primary
focus in 1998. Infrastructure was our focus, and we continued our program to
strengthen the underpinnings of the company.
Systems
Our information systems work in 1998 centered on preparing for the year
2000 and beginning a longer-term effort to install integrated systems throughout
the company.
With our year 2000 project, we are both upgrading our current systems and,
where upgrades aren't feasible, installing new systems. The upgrade work is well
along. We repaired computer code in virtually all relevant systems in 1998, and
we are now testing those repairs. In 1999, our activities will include analyzing
contingencies and planning to minimize the risk of business interruptions as a
result of the year-date change.
In addition, our core finance functions were the first to receive new
systems under our integrated systems program. Additional installations scheduled
for 1999 are part of a multi-year effort to modernize our information
technology, as well as to ensure year 2000 readiness.
Our systems work in 1998 represented a major investment of resources. As we
complete year 2000 preparations, we will have more flexibility in pacing future
investments to upgrade and integrate our information technology.
Manufacturing
We also continued an initiative begun in 1996 to improve manufacturing
performance, with steps that resulted in a $28 million increase in gross profit
margin in 1998.
During the year, we closed our last remaining U.S. photo processing plant.
The resulting consolidation of photography production in Winnipeg, Manitoba,
went smoothly and successfully. In its first peak season of consolidated
operations, Winnipeg met customer quality and delivery requirements and
generated solid cost efficiencies.
In addition, we had strong manufacturing performance in our graduation
announcement plant -- the result of a consolidation in 1997 -- and in our
yearbook printing facilities, which are benefiting from the use of technology
and from a multi-facility management approach. I am also pleased with a growing
emphasis on uniform manufacturing and quality processes taking hold across the
company.
<PAGE>
Overall, it was a very good year in manufacturing, one of our areas of
internal focus. We did not, however, meet our expectations for greater
efficiency in Jewelry manufacturing. We have identified the issues and are
working to ensure better results in 1999.
Share Repurchase
To strengthen EPS growth in the face of our internal investments, we
repurchased about 3.6 million shares in 1998, exhausting a $100 million
repurchase authorization approved by the board in July 1997. We funded most of
the program with cash generated by improvements in working capital.
A new $100 million authorization was approved in December, and we expect to
continue repurchasing shares as a tool to improve earnings per share in the
short term. That said, the best use of our resources is to grow the company. The
first step toward that end has been to build an infrastructure to support higher
growth, and much of that work is now behind us.
Key Improvements
In recent years, we have increased our customer knowledge and used it to
improve the appeal of our products and services. As we have applied that
learning, our largest product lines -- Printing & Publishing, Jewelry and
Graduation Products have generated steadily improving results. In 1998, those
three product lines delivered record sales and profit contribution.
Those results relate directly to new product and service introductions, as
well as to updating and extending existing products and services. For example:
. We improved the Jostens Complete(SM) program and expanded this direct
marketing service to 2,000 schools. Through the program, we are making it easier
for our customers to do business with us and we are winning more business per
customer.
. We launched a series of new graduation- and yearbook-related products to
help students commemorate the millennium. Starting in 1999, we expect to see the
results of those offerings, which are in addition to our successful millennium
class ring collection introduced in 1996.
. College sales and profits accelerated in the second half of 1998,
reflecting higher-than-historical growth rates as a result of a new market
strategy initiated in 1997. We expect continued improvement in the college
market for our Jewelry and Graduation product lines in 1999.
In addition, we organized our leadership team to further develop our school
business, to coordinate the development of new business concepts and to develop
additional distribution channels, such as electronic commerce and direct
marketing, that will complement our sales representative network.
Today we are devoting more activity than at any other time this decade to
testing and introducing new products and services, product extensions and market
strategies -- some of which I expect will help our 1999 results. I also expect
that level of activity to increase as we move through the year.
1999 Outlook
Our company is in a great business. We do wonderful things for our
customers, helping them celebrate important moments, recognize achievements and
build lasting affinity. Because celebration, recognition and affinity are
important to everyone, we have plenty of opportunities to expand.
Our company is working from a position of strength. We are the industry
leader in our largest market, with a well-established distribution channel that
provides a variety of programs, products and services to high school students,
parents and school administrators. We have a strong presence, as well, in the
college market, and we are among the leaders in recognition products and
programs for businesses.
Financially, Jostens is healthy. Our income statement and balance sheets
are strong, the fundamentals of the business are solid and we generate terrific
cash flow. Now, more than ever, we have a strong base on which to build, and in
1999 we will have more expansion activity.
In 1998, we achieved a good balance between delivering reasonable earnings
and other performance improvements and upgrading our infrastructure. That work,
undertaken by talented people throughout Jostens, was the means to an end --
building a solid foundation that can support more robust top-line growth.
In 1999 -- particularly in the second half of the year -- we will devote
more time and energy to building our business. It won't be overnight and we'll
still be working on our infrastructure, but the changing emphasis should be
noticeable.
I anticipate an exciting year for our company, and I look forward to
sharing our progress with you.
/s/ Robert C. Buhrmaster
Robert C. Buhrmaster
Chairman, President and Chief Executive Officer
5
<PAGE>
[picture]
marching band tubas
Integration
[picture]
kid playing
twister
Streamlining
[picture]
waving graduates
Technology
--------------
INFRASTRUCTURE
--------------
Efficiency
[picture]
girl wearing saftey
goggles in shop class
Teamwork
[picture]
2 guys in glasses with rulers
Simplification Quality
Manufacturing Improvements
Systems
INFRASTRUCTURE
A multi-year effort to improve the company's infrastructure peaked in 1998.
While the work is not yet done, a great deal of improvements have been made -
improvements that have started making a positive impact on our performance.
<PAGE>
Systems
In 1998, we devoted a great deal of resources to information technology,
primarily to prepare Jostens to meet the year 2000 (Y2K) computer-bug challenge.
A detailed project and systems plan developed in 1997 was implemented in
1998. Our Y2K readiness plan includes upgrading many of our current systems.
Where it's not possible to upgrade current systems, we are installing new
systems, utilizing software from Oracle Corp. and Trilogy.
Specific progress in 1998 included: Installing and implementing new core
financial systems, including accounts receivable, accounts payable and sales
compensation; identifying and updating 3.4 million lines of obsolete computer
code in our current systems and rolling the calendar forward into 2000 to test
the updated code; contacting and evaluating external partners, such as vendors
and raw material suppliers, to assess their Y2K readiness and minimize potential
business problems; beginning to develop specific contingencies; and adhering to
timelines calling for new systems to be implemented by mid-1999 in the
Recognition, Cap & Gown and Diploma product areas.
Our systems program is making us year 2000 ready but it's also part of a
longer-term initiative to install new, integrated information systems across the
company. As we complete year 2000 work, we'll evaluate and pace additional
systems installations based on their impact.
Simplification
We're also attacking needless complexity created over the last century.
This is important work, since complexity adds cost and time but not value. And
it can be challenging work, since many of the changes we are making touch
employees and independent sales representatives used to doing business a certain
way.
For example, in 1998 we moved Jewelry customer service activities to one
central call center, a change from locating customer service at manufacturing
sites. Along with that consolidation, we automated our order-entry process, a
step that required sales representatives to adopt, for the first time, a
standardized ordering process and format.
By centralizing Jewelry customer service, we expect to reduce costs. More
importantly, we'll speed the processing of incoming orders and provide faster
service and information to our customers whether they're calling to place an
order, ask a question or learn the status of their purchase.
Manufacturing Improvements
Since the launch of a manufacturing improvement program in 1996, we have
closed and consolidated five facilities and generated steady increases in gross
profit margin.
In 1998, manufacturing performed very well, contributing to a 1.7 point
gain in gross profit as a percentage of sales. Notable performances came from
Graduation Products, which realized a full year of efficiency gains following
the 1997 consolidation of announcement production in Shelbyville, Tenn.
In Printing & Publishing, our five yearbook production plants also had an
excellent year. Success there was due in part to our 1997 program to implement
standard processes and install multi-plant management concepts steps that
enabled us to more easily shift production to match customer requirements with
manufacturing capabilities and capacity. We also continued to benefit from the
ever-increasing use of technology by our customers. In 1998, about 70 percent of
our yearbook pages were prepared by school staffs using desktop publishing
systems, enabling us to take greater advantage of our technology investments in
our plants.
Our major consolidation project in 1998 occurred in North American
Photography. In August, we shut down our last remaining U.S. photo processing
plant and shifted all photo production to our existing facility in Winnipeg,
Manitoba. Excellent planning and execution resulted in a smooth transition and
outstanding manufacturing performance during photo's busy fall season.
Our lone manufacturing disappointment in 1998 was in Jewelry, where we did
not realize expected cost improvements. The key issue involved logistical
challenges associated with moving product among two U.S. plants and a contract
ring finishing facility in Mexico. Efforts to streamline the movement of product
among plants, expand our training programs and more effectively retain qualified
workers fell short of our objectives.
In February 1999, we decided to discontinue activities at the Mexico
facility and return all aspects of ring production to our existing sites in the
United States. We believe this step will enable us to meet customer expectations
for quality and delivery and to reduce costs through process improvements and
the use of technology.
Infrastructure Outlook
We've come a long way in improving our infrastructure and building our
ability to profitably expand. But our work isn't completed. Infrastructure
activities will continue in 1999, with our integrated systems program, process
improvements and consolidation opportunities.
At the same time, we believe we will have the resource capacity to increase
our activity on expansion opportunities.
7
<PAGE>
Our Market Strength
[picture] [picture]
chemistry student thumbs up guy
JOSTENS IS BEST KNOWN FOR ITS SCHOOL PRODUCTS AND SERVICES,
and they remain our strength today.
We lead the U.S. market in yearbooks, class rings, graduation announcements, and
caps and gowns, and we are the Canadian market leader in school photography.
In the last four years, sales in our three largest product lines Printing &
Publishing, Jewelry and Graduation Products have increased an average of 6.2
percent.
The reason for our continued success? Consumer focus. Marketing programs.
And products that take the enduring qualities of tradition and inject them with
a relevance for today's youth. It's all adding up to improving performance in
our main school product lines.
Reversing the Trends
For decades, Jostens has had a strong presence in the youth market, founded
on a network of sales representatives who reach customers in high schools and
colleges. In the 1980s, however, the products we are known best for began to
lose their luster. While sales dollars continued to grow, the actual number of
rings we sold declined, while yearbooks held steady.
We solved the problem with a consumer approach. We went to the people whose
opinions count most our customers. Based on what we learned, we have made
improvements from uniform marketing practices to streamlined product offerings
to consumer-friendly pricing strategies.
<TABLE>
<CAPTION>
[INSERT BAR CHART]
U.S. HIGH SCHOOL RINGS SOLD U.S. YEARBOOKS SOLD
<S> <C>
In thousands In thousands
1000 8000
800 6000
600 4000
400 2000
200 0
0
80 82 84 86 88 90 92 94 96 98 80 82 84 86 88 90 92 94 96 98
81 83 85 87 89 91 93 95 97 81 83 85 87 89 91 93 95 97
Year Year
</TABLE>
8
<PAGE>
[picture]
girl with braids and
calculator
[picture]
student election [picture]
[picture] three cheerleaders
handing out an award
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We have redesigned entire product programs - as with our high school class
ring offering, where we reduced the number of styles and made our pricing
structure easier to understand.
We have introduced convenient product packages to make it easier for
consumers not interested in a la carte product menus. To add value for
customers, we have worked with schools to create a yearbook curriculum to build
students' journalism skills.
We've added new features to personalize and customize yearbooks and
graduation announcements for each student. And we've introduced new product
designs, such as millennium ring, yearbook and graduation products for graduates
in 1999, 2000 and 2001. In addition, we've added complementary products, such as
Hear the Year(R) multi-media CDs sold as companions to school yearbooks.
In Photography, we took steps to improve our results by consolidating
manufacturing, and we now manage the product line on a North American basis,
including sales from Canada and the United States. Looking ahead, we are working
to expand our business through the use of digital technology and new products
and services.
Beyond High School
For many students, after high school comes college. Jostens is there as
well, as a market leader in college rings and graduation products. Our primary
emphasis in college is to work with university leaders to build affiliation
between the school and students and alumni. Our products and services symbolize
that affinity bond.
In 1998, we continued to expand the number of campus events, such as Senior
Salute,(SM) where we can merchandise products and help improve commencement
participation. In addition, 16 schools last year adopted one unique ring design
representing a lasting, unchanging symbol of affiliation that is easily
recognized, strengthens the student's relationship with the school and generates
more business for us.
For 1999, we expect double-digit sales growth in our college market
business, which represented nearly 10 percent of School Products segment sales
in 1998. In 1999, we will serve all four major U.S. service academies Army,
Navy, Air Force and Coast Guard. And two of those schools have signed multi-year
relationships based on our past performance.
Business Recognition
Jostens also serves the business market through our Recognition segment,
which provides performance awards and support services to companies and their
employees. We are a leading provider of turn-key programs structured to
celebrate and reward employee service and affiliation. We continue to implement
Strategic Recognition(TM) to help business leaders develop coordinated programs
to influence and reward employees in a wide range of performance areas.
In 1998, Recognition was internally focused, as it prepared for the
installation of a new business information system in 1999. Preparations included
simplifying business processes and reducing by 40 percent the number of base
products, effectively eliminating products with low consumer demand.
9
<PAGE>
[picture football player with trophy]
[picture soccer goalie]
Even while we've focused on internal IMPROVEMENTS, we've been testing and
introducing new products, programs
[picture boys at a computer]
NEW PRODUCTS, [LOGO P&C&S here] SERVICES and
10
Products and Programs--and Services
Sure, we've got products and programs. But we also provide services--a
little known but increasingly important aspect of what we do. Some services,
such as Jostens Renaissance(R), are a way to help schools improve and celebrate
academic performance.
Other services make it easier for schools to offer, and customers to
purchase, affinity-building products. Our Jostens Complete(SM) service does
both. Introduced as a way to eliminate the headaches schools experience in
collecting yearbook payments, Jostens Complete was an immediate hit with
administrators. By coordinating with schools to offer yearbooks and related
products directly to student homes, we created a direct-payment ability removing
the cash-collection task from teachers and administrators. In addition,
customers like the option of shopping at home, and they're more likely to select
additional products such as personalized yearbook covers.
In Printing & Publishing, the notion of service extends to YearTech(R), a
tool to automate and simplify the yearbook preparation process for students.
YearTech, which is updated annually, helps simplify yearbook creation through
page design options, automatic creation of portrait pages and automated
functions for submitting completed yearbook pages. It also helps schools stay on
top of deadlines to ensure on-time delivery of their yearbooks.
Yearbook staffs give YearTech excellent marks--and that's important, since
70 percent of our yearbooks are prepared with electronic publishing software.
Sports Marketing--The Ring is the Thing
For decades, Jostens has been a leader in helping professional and
collegiate athletes commemorate championship performances. For instance, the
quest for excellence in pro football is symbolized by the Super Bowl ring. And
20 of the 32 NFL Super Bowl winners have selected Jostens to design and produce
their championship rings, pendants and watches.
In 1998, we were selected to produce jewelry for several teams, including:
. The San Diego Padres, champions of Major League Baseball's National
League;
. The Chicago Bulls, who won their sixth National Basketball Association
championship of the 1990s; and
. The Green Bay Packers, the National Football League's NFC champions.
We also created jewelry for various collegiate champs, including the
University of Kentucky Wildcats, who won the men's Final Four(R) basketball
championship.
<PAGE>
[picture] golfer
and services. And we're EXPLORING additional channels so our customers can
REACH us at their convenience.
[picture] three women looking at a piece of paper
[picture] hand with five championship rings
Channels move the business.
11
Fan Appeal
More recently, we've extended our product line from champions to fans of
champions.
In 1998, for example, we unveiled fan collections for the Boston Red Sox,
Cleveland Indians and New York Yankees. We introduced fan products commemorating
the Detroit Red Wings' National Hockey League Stanley Cup win, in addition to
collections for fans of the Boston Bruins and New York Rangers.
We also signed an exclusive, multi-year agreement with the National
Collegiate Athletic Association giving us exclusive use of the NCAA(R)
championship brand names in creating jewelry for fans. In December, we
introduced our first products under that agreement--rings to celebrate the seven
NCAA basketball championships earned by the University of Kentucky Wildcats. We
anticipate offering similar programs for teams in sports that include
basketball, hockey, soccer and baseball.
Fore!
Whether its sports, school or business, our products symbolize achievement
and affiliation. In late 1998 we took another step forward in affiliation
marketing, becoming the official award and recognition company of The PGA of
America.
More than 24,000 PGA golf pros across the country will now have access to a
full line of Jostens products to help display their personal affiliation with
this rapidly growing sport. In addition, our products can be used as
participation and achievement awards at the tens of thousands of local golf
events hosted annually by PGA pros nationwide. This multi-year relationship is
just getting started in 1999, but it represents our efforts to expand beyond
traditional school and business markets.
Developing Alternative Distribution Channels
One of our strengths is a network of about 1,000 independent and employee
sales representatives, who put a personal face on our products, programs and
services.
As successful as this distribution channel continues to be, we cannot rely
solely on one channel--especially as people of all ages become increasingly
comfortable shopping in such diverse channels as retail, direct mail and
electronic commerce.
In 1998, we centralized our retail, Internet development and direct
marketing activities to better coordinate strategies and tactics to benefit the
entire organization.
In 1999, we expect to take additional steps. For example, we expect to
offer the ability for PGA pros to order products on line under our new
agreement.
<PAGE>
[picture]
satin-clad victory graduate
[picture]
girls putting on makeup
[picture]
kid lifting weights
[picture]
marching band horn player
PERFORMANCE
IMPROVEMENTS
12
We have strengthened the company's foundation in recent years
to enable us to handle our current business more efficiently and build the
organization's ability to handle more rapid growth.
[picture]
student playing violin
[picture] [picture]
students arm wrestling baseball students high-fiving
<PAGE>
Cash Flows and Balance Sheet
Buoyed by healthy and improving product lines, we continue to generate
strong cash flow. In 1998, $102 million in cash generated from operations
enabled us to fund infrastructure projects and improve shareholder returns by
repurchasing stock.
In recent years, we've put in place programs to reduce inventories. At
year-end 1998, inventories declined by about $1.5 million from 1997, even as
sales increased by $28 million. Closer adherence to policies, as well as a
decision to expand our gold consignment program rather than own our inventory
outright, contributed to the 1998 improvement.
We have also developed new ways to improve customer deposits. We've worked
with the sales force to introduce new methods to collect deposits. And we've had
success with Jostens Complete, which provides a means for payments to go
directly from customers to Jostens, rather than through schools first. It's
convenient for customers and schools, and it enables us to improve deposits and
reduce receivables. The transition to a new format for the Jostens Complete
program in 1998 led to a delay in receiving customer deposits in the second half
of the year.
We currently carry only $4 million in long-term debt, although we fund
seasonal operating requirements with short-term borrowings.
At year-end 1998 we had negative working capital, a positive sign of how
effective our programs are. Internally, we also use economic value added
(EVA)(1) as a strategic performance measure. EVA grew for the third straight
year--in 1998 it grew by 12 percent compared with 1997. It is another indicator
of our company's health.
Cash to Shareholders
In 1998, in a decision made to balance acceptable shareholder returns with
internal investments, we utilized our strong cash flow to aggressively
repurchase Jostens stock to help improve earnings per share.
Since 1994 we've returned to shareholders more than $450 million through
cash dividends and share repurchases. In addition to an 88-cent per share annual
dividend, we have been in the market regularly repurchasing our stock. In 1998,
we invested $80 million in repurchases, completing a $100 million repurchase
program authorized in mid-1997.
In December, the board authorized a new $100 million program. Although
there is no deadline to complete the new program, we expect to be a regular
participant in the market repurchasing our stock-but likely at a lower rate
than in 1998.
Asset Utilization
Our company's assets are working harder and more effectively than ever.
Total assets have been reduced from $570 million in 1994 to $366 million in
1998--that's a 36 percent decline--as we sold under-performing product lines,
closed under-used manufacturing facilities and repurchased shares.
During the same period, income from continuing operations has held fairly
steady, which means we're getting greater productivity from an asset base that's
a third smaller than it was four years ago.
ASSET UTILIZATION
[Bar graph goes here]
Dollars in millions
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Total Assets 570 548 384 391 366
Income from
continuing operations 28 56 52 57 42
</TABLE>
CASH RETURNED TO SHAREHOLDERS
[Bar graph goes here]
Dollars in millions
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Dividends 40 40 36 34 32
Share repurchases -- -- 169 20 80
</TABLE>
OPERATING CASH FLOW
[Bar graph goes here]
Dollars in millions
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
125 81 29 117 102
</TABLE>
WORKING CAPITAL
[Bar graph goes here]
Dollars in millions
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
173 206 9 6 -47
</TABLE>
Graph information reflects June fiscal year-end results for 1994-1996 and
calendar 1997 and 1998 results.
(1) EVA is a trademark of Stern Stewart & Co., New York.
13
<PAGE>
[LOGO JOSTENS GOES HERE] at a glance An overview of our business
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SEGMENTS PRODUCT LINE CORE PRODUCTS NEW PRODUCTS/SERVICES
School Products PRINTING & Yearbooks, memory books YearTech(R) yearbook design and
School-related products and PUBLISHING and related items, commercial marketing kits; yearbook class
services primarily in the printing services. curriculum; Hear The Year(R)
United States and Canada. multi-media CD; Jostens
Complete(R); Millennia Review(TM)
historical summary.
Recognition
Products and services
for companies and
their employees
---------------------------------------------------------------------------------------------------
JEWELRY Class and school-related High School:
activity rings symbolizing Millennium Collection(TM);
affinity or achievement. Jostens Renaissance(R) program to
recognize academic achievement.
College:
Custom Collegiate Collection(TM)
14 (one ring design for one school).
Net Sales
(in millions)
---------------------------------------------------------------------------------------------------
$103.9
[pie chart goes here] GRADUATION Graduation announcements, High School:
PRODUCTS diplomas, graduation regalia, Jostens Renaissance,
accessories and other millennium-related products.
celebration-related items.
$659.5 College:
Senior Salute(TM) program to boost
commencement participation.
Operating income
(in millions) ---------------------------------------------------------------------------------------------------
NORTH AMERICAN Class and individual school Student ID cards, Excellence in
$10.4 PHOTOGRAPHY pictures, senior portraits, Education(TM) recognition program.
[pie chart goes here] special school events photos PanelXPress(R) photo page layout
and related products in the service.
K-12 market.
$127.9
---------------------------------------------------------------------------------------------------
RECOGNITION Programs and products that Strategic Recognition(TM) helps
help motivate, recognize and clients align all recognition and
reward individual and team performance initiatives to support
contributions that support the organization's vision, mission,
organizational objectives. goals and values; and jewelry
for professional sports teams,
associations and fans.
</TABLE>
<PAGE>
segments, product lines and offerings
<TABLE>
<CAPTION>
MANUFACTURING COMPETITORS DISTRIBUTION NET SALES ($ in millions)
(Calendar year)
<S> <C> <C> <C> <C>
Visalia, Calif. Herff Jones In schools via independent
Topeka, Kan. Taylor Publishing sales agents and sales 98 258.4
Winston/Salem, N.C. Walsworth associates, and through direct 97 243.8
State College, Pa. Lifetouch marketing channels. 96 230.2
Clarksville, Tenn. 95 214.0
94 201.3
Attleboro, Mass. Commemorative Brands In junior and senior high
Denton, Texas (ArtCarved and Balfour schools via independent sales 98 194.3
Burnsville, Minn. brands) agents and sales associates, 97 186.8
Herff Jones and through retail jewelers. 96 177.5
95 167.6
94 153.1
In colleges and universities
via employee sales force and
through college bookstores.
Red Wing, Minn. Herff Jones In schools via independent
Laurens, S.C. Commemorative Brands sales agents and sales 98 159.5
Shelbyville, Tenn. Carlson Craft associates. 97 153.1
96 142.7
In colleges and universities 95 136.9
via employee sales force and 94 124.4
through college bookstores.
Winnipeg, Manitoba Lifetouch In schools via independent
D.W. Friesen photo dealers and through 98 47.3
Herff Jones emplolyees and freelance 97 48.2
Olan Mills photographers. 96 48.8
95 48.7
94 50.8
Princeton, Ill. O.C. Tanner Directly to clients via 98 103.9
Memphis, Tenn. Tiffany independent and employee 97 103.7
(distribution center) Robbins sales agents. 96 101.3
Red Wing, Minn. 95 96.9
Sherbrooke, Quebec 94 103.9
</TABLE>
15
<PAGE>
Management Discussion and
Management Discussion and Analysis Jostens Inc. and subsidiaries
[picture]
trophy
The company occasionally may make statements regarding its business and
markets, such as projections of future performance, statements of management's
plans and objectives, forecasts of market trends and other matters. To the
extent such statements are not historical fact, they may constitute forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Statements containing the words or phrases "will likely
result," "are expected to," "expects," "will continue," "anticipates,"
"believes," "estimates," "projected" or similar expressions are intended to
identify forward-looking statements. Forward-looking statements may appear in
this document or other documents, reports, press releases and written or oral
presentations made by officers of the company to shareholders, analysts, news
organizations or others. All forward-looking statements speak only as of the
date on which the statements are made. Actual results could be affected by one
or more factors, which could cause the results to differ materially. Therefore,
all forward-looking statements are qualified in their entirety by such factors,
including the factors listed below. Such factors may be more fully discussed
periodically in the company's subsequent filings with the Securities and
Exchange Commission (SEC).
Any change in the following factors may impact the achievement of results
in forward-looking statements: the price of gold; the company's access to
students and consumers in schools; the seasonality of the company's business;
the company's relationship with its sales force; fashion and demographic trends;
the general economy, especially during peak buying seasons for the company's
products and services; the company's ability to respond to customer change
orders and delivery schedules; competitive pricing and program changes; the
ability to manufacture quality products and continue improving operating
efficiencies; the impact of year 2000 compliance on computer-based systems of
the company and its external relationships; and the costs and impact of the
company's information systems implementations.
The foregoing factors are not exhaustive, and new factors may emerge or
changes to the foregoing factors may occur that would impact the company's
business.
INTRODUCTION
Effective December 29, 1996, we changed our fiscal year end from June 30 to
the Saturday closest to December 31. The change was made to enable better
business planning and internal management. The consolidated financial statements
and notes include our results of operations and cash flows for the years ended
January 2, 1999 (calendar 1998), January 3, 1998 (calendar 1997), and December
28, 1996 (calendar 1996) (unaudited); the six-month transition period ended
December 28, 1996; and the fiscal year ended June 30, 1996.
This discussion summarizes significant factors that affected the
consolidated operating results, financial condition and liquidity of Jostens in
the 1998, 1997 and 1996 (unaudited) calendar years and should be read in
conjunction with the consolidated financial statements and accompanying notes.
RESULTS OF OPERATIONS
The following table sets forth selected information from the company's
Statements of Consolidated Operations, expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Years ended Increase (decrease)
=============================================================
January 2 January 3 December 28 1998 1997
1999 1998 1996 over over
(unaudited) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES 100.0% 100.0% 100.0% 3.8% 4.8%
Cost of products sold 45.6% 47.3% 49.9% 0.1% (0.7%)
- ----------------------------------------------------------------------------------------------------------------------
Gross margin 54.4% 52.7% 50.1% 7.1% 10.3%
Selling and administrative expenses 41.1% 39.3% 39.9% 8.7% 3.1%
- ----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 13.3% 13.4% 10.2% 2.5% 38.6%
Net interest expense (0.9%) (0.8%) (1.2%) 6.1% (30.0%)
Write-off of JLC notes receivable, net (1.6%) - - - -
- ----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 10.8% 12.6% 9.0% (10.6%) 48.3%
Income taxes 5.4% 4.9% 3.8% 15.2% 36.0%
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 5.4% 7.7% 5.2% (26.9%) 57.4%
======================================================================================================================
</TABLE>
16
<PAGE>
Analysis
Net Sales
Net sales in 1998, 1997 and 1996 were $770.9 million, $742.5 million and
$708.7 million, respectively. The increase from 1997 to 1998 of $28.4 million,
or 3.8 percent, and the increase of $33.8 million, or 4.8 percent, from 1996 to
1997 were driven by increases in sales volume and pricing in our three largest
school product lines -- Printing & Publishing, Jewelry and Graduation Products.
Price increases in 1998 and 1997 varied by product and ranged from zero to 4
percent in 1998 and zero to 5 percent in 1997. We experienced 4 to 6 percent
year-over-year sales growth in the three largest product lines and essentially
flat sales in the remaining lines in 1998. Gains in our largest product lines
stem from new marketing programs and products. We expect 1999 sales to increase
by a mid-single digit percentage rate over 1998.
Gross Margin
Gross margin in 1998 was 54.4 percent, compared with 52.7 percent in 1997
and 50.1 percent in 1996. The 1.7 percentage point increase in 1998 was
primarily the result of investments to improve our internal processes and
increase manufacturing efficiencies. In addition, 1998 gross margin benefited
from a decrease in raw material costs for jewelry compared with 1997. Offsetting
those improvements was a one-time charge of $2.5 million to consolidate all
photography processing into one facility. In addition, as part of our balance
sheet management, in the fourth quarter of 1998 we expanded our policy of
consigning our gold inventory used in products and samples. The conversion to
consigned gold, executed via a sale of all owned gold, resulted in a one-time
pre-tax income benefit of $3.7 million (6 cents per share) in 1998 due to the
lower carrying value of gold under LIFO. In 1997, pre-tax income similarly
benefited by $6.8 million (10 cents per share) from a gold inventory reduction
program. We anticipate additional improvements in gross margin in 1999; however,
we expect the rate of improvement to be lower than in 1998.
The 2.6 percentage point increase in gross margin in 1997 primarily
reflects the July 1996 implementation of a new inventory cost accounting system,
which provided more precise, detailed performance information by product within
each line. The new system resulted in a more accurate valuation of inventories
and recording of cost of products sold, consistent with prior year ends. As a
result of this implementation, the cost of products sold in the six months ended
December 28, 1996, was $16.9 million (26 cents per share) higher than what would
have been reported using the prior method, while the cost of products sold in
the six months ended June 28, 1997, had an equally positive impact. Also
contributing to the increase in 1997 gross margin compared with 1996 was the
previously mentioned gold inventory reduction program, which decreased total net
costs by $6.8 million (10 cents per share) in 1997. In 1997, the positive impact
of the new cost accounting system and the gold reduction program was partially
offset by higher training costs to prepare a facility in Mexico for its first
peak ring finishing season, as well as costs to consolidate our two graduation
announcement plants.
Selling and Administrative Expenses
Selling and administrative expenses increased to $316.9 million in 1998
from $291.5 million in 1997 and $282.9 million in 1996. As a percentage of
sales, the 1.8 percentage point increase from 1997 to 1998 was primarily the
result of investments in information systems, market research expenses and
expensed year 2000 readiness costs. Selling and administrative expenses as a
percentage of sales are anticipated to remain about flat in 1999 compared with
1998. The decrease in costs as a percentage of sales from 1996 to 1997 primarily
related to the recording of $6 million in reserves in 1996 to cover
environmental investigation and cleanup costs (see subsequent discussion under
"Commitments and Contingencies"). This was partially offset by higher salary and
legal costs in 1997 associated with changing the college market sales force from
independent representatives to employees, and by the development of marketing
materials for the Gold Lance retail ring business, which was acquired in 1997
(see subsequent discussion under "Capital Expenditures and Acquisition").
Net Interest Expense
Net interest expense was $6.7 million in 1998, compared with $6.3 million
in 1997 and $9 million in 1996. Our short-term borrowing needs increased in 1998
over 1997, primarily because we repurchased $80 million (3.6 million shares) of
Jostens common stock and received less cash from customer deposit programs.
Despite the short-term borrowing increase, net interest expense remained
comparable to 1997, primarily the result of favorable interest rates and
capitalizing $700,000 of interest related to software development. Net interest
expense in 1997 was $2.6 million lower than 1996, primarily because long-term
notes with higher interest rates were paid off in August 1996.
17
<PAGE>
Management Discussion and Analysis Jostens Inc. and subsidiaries
Write-off of JLC Notes Receivable, Net
In June 1995, we sold our Jostens Learning Corp. (JLC) curriculum software
subsidiary to a group led by Bain Capital, Inc. As partial consideration for the
sale, we received two notes, which were discounted and recorded at their
estimated fair values. In addition, the transaction gain of $13.2 million was
deferred in accordance with the SEC Staff Accounting Bulletin No. 81, Gain
Recognition on the Sale of a Business or Operating Assets to a Highly Leveraged
Entity. We recorded $12.9 million on our consolidated balance sheets
representing the estimated fair value of the notes, net of the deferred gain.
In January 1999, we received information from JLC indicating to us that the
carrying value of the notes was permanently impaired. As a result, we wrote off
$12 million in 1998 for the carrying value of the notes, net of miscellaneous
JLC-related assets and liabilities, plus $3.7 million of net deferred tax assets
associated with the initial sale of JLC that we do not expect to realize. In
addition, we did not record a tax benefit related to the write-off because it is
currently not expected to be realized for tax purposes.
Income Taxes
Our 1998 effective income tax rate was 49.9 percent, compared with 38.8
percent in 1997 and 42.3 percent in 1996. The increase from 1997 to 1998 was
primarily due to the $3.7 million write-off of net deferred tax assets related
to the 1995 sale of JLC, combined with the fact that no tax benefit was recorded
on the write-off of the JLC notes. The 1998 rate benefited from a $750,000 (2
cents per share) reduction of a valuation reserve to reflect the utilization of
previously reserved foreign tax credits as a result of executed tax planning
strategies. Our 1997 effective income tax rate decreased by 3.5 percentage
points compared with the 1996 rate as we combined the U.S. Photography legal
entity with the main U.S. businesses. As a result, we reduced income tax expense
by recognizing $2 million (5 cents per share) of accumulated net operating loss
carryforward benefits through the reversal of a deferred tax asset valuation
reserve. We expect the effective tax rate in 1999 to be about 40.5 percent.
SCHOOL PRODUCTS SEGMENT
Sales in the School Products segment increased 4.4 percent to $659.5
million in 1998, compared with $631.9 million in 1997 and $599.2 million in
1996. The sales increase resulted primarily from sales volume and price
increases in the Printing & Publishing, Jewelry and Graduation Products product
lines.
Printing & Publishing sales were $258.4 million in 1998, compared with
$243.8 million in 1997 and $230.2 million in 1996. Year-over-year sales growth
in Printing & Publishing was driven by new marketing programs and products that
targeted new accounts and increased volume in the existing account base. The
$14.6 million, or 6 percent, increase from 1997 to 1998 was primarily the result
of a 3 percent price increase and a 3 percent volume increase. Yearbook sales
dollars in 1997 increased over 1996 by 8 percent, partially offset by a 9
percent decline in commercial printing sales, as more production capacity was
used to produce higher-margin yearbook products.
Jewelry sales in 1998 were $194.3 million, compared with $186.8 million in
1997 and $177.5 million in 1996. The 1998 increase of $7.5 million, or 4
percent, was driven by a 5.2 percent increase in unit volume. Sales dollar
increases in the high school market were partially offset by a decrease in the
college market as a result of having only one service academy account in 1998
versus three in 1997. We expect college market sales to increase in 1999 at a
double-digit rate. Overall ring sales in high school and college increased by 5
percent from 1996 to 1997. In high school, the number of class rings sold
increased by 5 percent, led by healthy consumer acceptance of specially designed
rings for students graduating in 1999, 2000 and 2001, the "Millennium classes."
Our 1998 results put us on track for the fifth straight school year of increased
ring unit volume after a 12-year decline.
Graduation Products sales increased to $159.5 million in 1998, from $153.1
million in 1997 and $142.7 million in 1996. The 4.2 percent increase in 1998
from 1997 and the 7.3 percent increase from 1996 to 1997 reflects more customers
purchasing products and higher sales dollars per customer.
North American Photography sales decreased by 2 percent to $47.3 million in
1998, from $48.2 million in 1997. The decrease was planned, as we did not renew
our relationships with a number of independent wholesalers whose volume
generated unacceptable returns. Photography sales in 1997 were 1.1 percent lower
than the $48.7 million recorded in 1996. The decline was the result of strikes
by Ontario school teachers and the Canadian postal service, hindering our
ability to take and ship orders in the peak fall season.
18
<PAGE>
Operating income for School Products was $127.9 million in 1998, compared
with $109.1 million in 1997 and $85.9 million in 1996. The 17.2 percent increase
in 1998 resulted from investments to improve internal processes and
manufacturing efficiencies, primarily in Printing & Publishing and Graduation
Products. Printing & Publishing decreased cycle times and lowered costs by
operating plants with common management teams, utilizing consistent processes
and coordinating production loads. In 1997, we spent $2.6 million to close an
announcement plant. A full year of post-consolidation efficiencies were achieved
in 1998 by reducing fixed costs, streamlining product offerings and reducing
process complexity. Operating income was also favorably impacted by a decrease
in Jewelry raw material costs in 1998, partially offset by higher than expected
costs associated with the facility in Mexico and $2.5 million to consolidate all
photography processing into one facility. In addition, pre-tax income was $3.1
million higher in 1997 than in 1998 due to the LIFO gain from converting owned
gold to consigned gold in both 1997 and 1998. The 26 percent increase in 1997
operating income resulted primarily from higher sales, the inventory cost
accounting system implemented in 1996 and the 1997 gold inventory reduction
program. The increase was partially offset by training costs associated with a
new facility in Mexico, as well as costs associated with consolidating our two
graduation announcement facilities.
RECOGNITION SEGMENT
Recognition sales were $103.9 million in 1998, compared with $103.7 million
in 1997 and $101.3 million in 1996. In 1998, Recognition sales were expected to
be flat as we realigned sales management, drove internal efficiencies and
streamlined business processes in advance of the installation of a new computer
system in 1999. The 1997 sales increase of 2.3 percent resulted from new
accounts and an increase in sales volume from the Strategic Recognition program,
from high-profile account wins in professional sports and from the introduction
of jewelry products for fans of sports teams. These gains were largely offset by
declines in the sale of individual products to corporate accounts.
Operating income in 1998 was $10.4 million, compared with the $8.9 million
in 1997 and $3 million in 1996. The $1.5 million increase in 1998 was primarily
the result of $3.3 million in material cost reductions, overhead spending
reductions and production efficiency improvements. This was offset by $1.8
million of additional investments in sales and marketing staff and to realign
sales management. The $6.9 million increase in operating income from 1996 to
1997 was primarily attributed to a $6 million environmental liability charge in
1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operating activities and short-term borrowings have
been our principal sources of liquidity. Cash has been used primarily for
dividends, common stock repurchases, capital expenditures, the purchase of Gold
Lance in 1997 and the repayment of $50 million medium-term notes in 1996.
Operating activities generated cash of $101.6 million in 1998 compared with
$116.7 million in 1997. The decrease of $15.1 million in cash generated in 1998
compared with 1997 primarily reflected a change in the timing of customer
deposit collections resulting from a new payment plan implemented in 1998.
Compared with 1996, we generated $27.6 million more cash from operating
activities in 1997. The increase related primarily to a $7.7 million increase in
net income adjusted for depreciation, amortization and deferred taxes, and $19.9
million of cash generated as a result of our working capital reduction efforts.
Net cash provided by operating activities funded capital expenditures and
cash dividends in 1998, 1997 and 1996. However, because most of our sales volume
occurs in the second and fourth quarters, we usually require interim financing
of inventories and receivables. We have a $180 million, five-year bank credit
agreement that expires in December 2000. Credit available under this agreement
is reduced by commercial paper borrowings outstanding. At January 2, 1999, $86
million was available under the bank credit agreement as a result of $94 million
in outstanding commercial paper borrowings. Average short-term borrowing under
the commercial paper program was $108.3 million and $94.4 million in 1998 and
1997, with highs of $180 million in 1998 and $143 million in 1997. In addition,
we had available unsecured demand facilities with three banks totaling $54.2
million. These demand facilities are renegotiated periodically based on our
anticipated seasonal needs for short-term financing. There were no borrowings
outstanding under these demand facilities at January 2, 1999. We also have a
gold consignment arrangement with a major financial institution whereby we have
the ability to obtain up to $15 million in consigned inventory. Under the terms
of the consignment arrangement, we do not own the consigned gold until it is
shipped in the form of a product to a customer. Accordingly, we do not include
for financial statement purposes the value of consigned gold in inventory with a
corresponding liability. At January 2, 1999, $611,000 was available under this
agreement.
19
<PAGE>
Management Discussion and Analysis Jostens Inc. and subsidiaries
We believe 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, dividends, share repurchases
and seasonal build-ups of inventories and accounts receivable in 1999 and
beyond.
CAPITAL EXPENDITURES AND ACQUISITION
We invested $36.9 million in capital expenditures in 1998, compared with
$24.4 million in 1997 and $16.9 million in 1996. The 1998 increase of $12.5
million reflected additional investments to replace information systems to
ensure year 2000 compliance. Capital expenditure increases of $7.5 in 1997
resulted from investments to upgrade processes and yearbook printing technology
and to improve information systems. We anticipate spending approximately $32
million in 1999 on capital projects, including about $14 million for hardware,
software, internal payroll costs devoted to information systems projects, and
consulting fees.
In 1997, we purchased the Gold Lance class ring brand for $9.5 million in
cash. Gold Lance products are sold at retail locations and represent part of our
strategy to develop additional distribution channels.
MARKET RISK
The market risk inherent in our financial instruments and positions is the
potential loss arising from adverse changes in interest rates and commodity
prices as discussed below. To reduce risk, we selectively use financial
instruments. All hedging transactions are authorized and executed under clearly
defined policies and procedures, which prohibit the use of financial instruments
for trading purposes. While we do have international operations, primarily in
Canada, we consider our market risk in such activities to be immaterial.
Commodity Price Risk
Our consolidated results of operations could be significantly affected by
changes in the price of gold. To manage the risk associated with gold price
changes, we enter into gold forward purchase contracts based upon the estimated
ounces needed to satisfy projected orders for the upcoming school year. We then
set our ring prices at the beginning of the school year to reflect the locked-in
gold price. We prepared a sensitivity analysis as of January 2, 1999, to
estimate our exposure to market risk on our gold forward purchase contracts. The
fair value of our gold positions was calculated by valuing each position at
quoted futures prices at January 2, 1999, and was $17.8 million. The market risk
associated with these contracts was $1.8 million at January 2, 1999, and is
estimated as the potential loss in fair value resulting from a hypothetical 10
percent adverse change in such prices.
Interest Rate Risk
Our earnings are affected by changes in short-term interest rates as a
result of our issuing short-term commercial paper. At January 2, 1999, the fair
market value of our outstanding commercial paper approximated the carrying
value. If market interest rates for commercial paper borrowings averaged 10
percent more or less in 1998, our interest expense would have changed by
approximately $700,000.
YEAR 2000
We have developed programs to address the impact of the year 2000 on our
computer systems. Key financial, information and operational systems, including
equipment with embedded microprocessors, have been inventoried and assessed, and
detailed programs are in place for the required systems modifications or
replacements. Progress against these programs is monitored and reported
regularly to management and to the Audit Committee of the Board of Directors.
Both internal and external resources are being utilized to implement the
programs. Systems that will not be replaced before 2000 are being modified to
achieve year 2000 functionality. The total year 2000 program cost is estimated
at $50 million. Approximately $35 million of the $50 million will be used to
license and implement new software that will be capitalized as part of a
companywide systems replacement program, and $15 million will be expensed as
incurred. The estimated program cost includes internally allocated expenses such
as salaries, benefits and contractor costs. Our spending on the project since
inception in 1997 has been $36.2 million, of which $27.3 million has been
capitalized. In 1998, we spent $28.7 million, including $21.5 million in capital
spending.
We have divided our year 2000 program into eight planks covering the
following areas: 1) mainframe infrastructure; 2) central legacy applications; 3)
shared technical infrastructure; 4) distributed systems and manufacturing
technology by product line; 5) distributed systems and manufacturing technology
by plant; 6) external agents; 7) legal and audit; and 8) conversions to new
software systems. Each plank is separated into three categories based on the
potential impact on our operations: mission critical, high impact and low
impact.
20
<PAGE>
Mission critical inventory items are those where loss or interruption of
functionality, support or delivery would have a catastrophic impact on our
customers, operations or earnings. High impact inventory items are those where
loss or interruption of functionality, support or delivery would have a serious
impact on internal productivity with minor impact to our customers. Low impact
inventory items are those where loss or interruption of functionality, support
or delivery would have a nominal impact on internal productivity with no impact
to our customers. Inventory items refer to computer hardware, software, embedded
equipment, machinery and devices, and external suppliers of products and
services.
We have completed most mission critical activities. Outstanding critical
tasks include upgrading the Oracle-based software used in our Cap & Gown
manufacturing facility, a project scheduled for completion in the third quarter
of 1999; installing an Oracle-based system in the Recognition segment, a project
scheduled for completion in the first quarter of 1999; remediating a current
system used to support one marketing program in the Recognition segment, a
project scheduled for completion in the second quarter of 1999; upgrading two
AS400 systems and applications in the Jewelry product line, a project scheduled
for completion in June 1999. All mission critical activities are scheduled to be
completed by September 1999. However, they are subject to ongoing integration
testing throughout 1999. For external agents, the testing phase commencing after
the scheduled completion in March 1999 of mission critical activities will
consist primarily of confirming third-party readiness and our alternatives for
ensuring continuity of the products and services they provide. As of February 4,
1999, the completion status of the mission critical planks was:
Year 2000 project completion percentage
<TABLE>
<CAPTION>
Actual Estimated
February 4 March 31
Mission critical activities by plank 1999 1999
<S> <C> <C>
1. Mainframe infrastructure 94% 100%
2. Central legacy applications 78% 95%
3. Shared technical infrastructure 89% 95%
4. Distributed systems and manufacturing
technology, by product line 92% 95%
5. Distributed systems and manufacturing
technology, by plant 82% 90%
6. External agent due diligence and
contingency planning 62% 100%
7. Legal and audit 75% 100%
8. Conversions to new software systems 82% 92%
</TABLE>
We believe that modifications to existing software and conversions to new
software for mission critical activities are sufficiently on schedule so the
year 2000 issue will not pose significant operational problems.
Activities on all high impact categories are scheduled to occur from
January 1999 through September 1999 and through June 2000 on low impact
activities. The completion status of the planks for these low impact activities
ranged from 21 percent to 60 percent as of February 4, 1999.
As part of the external agents plank, we are in contact with suppliers and
customers to assess the potential impact on operations if key third parties do
not convert their systems in a timely manner. Risk assessment, readiness
evaluation, action plans and contingency plans related to these third parties
are expected to be completed by March 1999.
We have begun, but not yet completed, a comprehensive analysis of and
contingency planning process for the operational problems and costs (including
the loss of revenues) that could most likely result from a potential failure by
us or certain third parties to achieve year 2000 compliance on a timely basis.
We anticipate that this analysis and related plans will be completed by June
1999. In planning for the most reasonably likely worst case scenarios, we
believe our information technology systems and manufacturing systems will be
ready for the year 2000, but we may experience isolated incidents of non-
compliance. We plan to allocate resources to be ready to take action if these
events occur. We also recognize the risks to us if other key suppliers in areas
such as utilities, communications, transportation, banking and government are
not ready for the year 2000, and we are developing plans to minimize the
potential adverse impacts of these risks.
The costs of the program and the dates when we believe the year 2000
modifications will be completed are based on our best estimates. Estimates were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources and other factors. There can be no guarantee
that we will achieve these estimates, and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, the impact of year 2000 compliance on computer-based systems of
our suppliers and customers, and similar uncertainties.
21
<PAGE>
Management Discussion and Analysis Jostens Inc. and subsidiaries
DIVIDENDS
We paid $32.3 million, $34.2 million and $34.1 million to shareholders in
1998, 1997 and 1996, respectively. In fiscal 1996, $35.5 million in cash
dividends were paid to shareholders. Dividends declared were 88 cents per share
in 1998 and 1997 and 66 cents in 1996. The increase from 1996 to 1997 was due to
the timing of declarations. Dividends declared in fiscal 1996 were 88 cents per
share.
COMMITMENTS AND CONTINGENCIES
Environmental
As part of our environmental management program, we are involved in various
environmental remediation activities. As sites are identified and assessed in
this program, we determine potential environmental liability. Factors considered
in assessing liability include, among others, the following: whether we had 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. As of January 2, 1999, we identified three
sites requiring further investigation. However, we have not been designated as a
potentially responsible party at any site.
We have assessed the likelihood that a loss has been incurred at one of our
sites as probable and, based on findings included in remediation reports and
discussions with legal counsel, we estimated the potential loss at January 2,
1999, to range from $3 million to $4.2 million. As of January 2, 1999, $4.2
million was accrued and is included with "other accrued liabilities" on the
consolidated balance sheets. While we may have a right of contribution or
reimbursement under insurance policies, amounts recoverable from other entities
with respect to a particular site are not considered until recoveries are deemed
probable. No assets for potential recoveries were established as of January 2,
1999.
Litigation
In January 1999, a federal judge in Texas overturned a jury's $25.3 million
verdict against Jostens in an antitrust lawsuit. The judge, acting on Jostens'
post-trial motions, set aside the jury's verdict and dismissed all claims
against Jostens in the case. Yearbook competitor Taylor Publishing, a unit of
Insilco Holding Corp. and the plantiff in the case, has indicated in a press
release that it intends to appeal the decision and will seek to have the jury
verdict reinstated. No costs were accrued related to the lawsuit, since we
believed a potential loss was unlikely.
Jostens is a party to litigation arising in the normal course of business.
We regularly analyze current information and, as necessary, provide accruals for
probable liabilities on the eventual disposition of these matters. We believe
the effect on our consolidated results of operations and financial position, if
any, for the disposition of these matters will not be material.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 133 will be
effective for us beginning January 2, 2000, and requires recognition of all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the hedged
assets, liabilities or firm commitments are recognized through earnings or in
other comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. We have not yet determined what the effect of SFAS 133
will be on our earnings and financial position.
22
<PAGE>
Reports of Management and Independent Auditors
REPORT OF MANAGEMENT
The management of Jostens is responsible for the integrity and objectivity
of the financial information presented in this report. The financial statements
have been prepared in accordance with generally accepted accounting principles
and include certain amounts based on management's best estimates and judgment.
Management is also responsible for establishing and maintaining the
company's accounting systems and related internal controls, which are designed
to provide reasonable assurance that assets are safeguarded and transactions are
properly recorded. These systems and controls are reviewed by the internal
auditors. In addition, the company's code of conduct states that its affairs are
to be conducted under the highest ethical standards.
The independent auditors provide an independent review of the financial
statements and the fairness of the information presented therein. The Audit
Committee of the Board of Directors, composed 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/ William N. Priesmeyer
William N. Priesmeyer
Senior Vice President and Chief Financial Officer
/s/ Robert C. Buhrmaster
Robert C. Buhrmaster
Chairman of the Board, President and
Chief Executive Officer
Minneapolis, Minnesota
February 2, 1999
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of Jostens, Inc.:
We have audited the accompanying consolidated balance sheets of Jostens,
Inc. and subsidiaries as of January 2, 1999 and January 3, 1998, and the related
consolidated statements of operations, changes in shareholders' investment and
cash flows for the years ended January 2, 1999 and January 3, 1998, the six-
month period ended December 28, 1996, and the year 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 as of January 2, 1999 and January 3, 1998, and the consolidated
results of their operations and cash flows for the years ended January 2, 1999,
and January 3, 1998, the six-month period ended December 28, 1996, and the year
ended June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Minneapolis, Minnesota
February 2, 1999
23
<PAGE>
Operations
Statements of Consolidated Operations Jostens Inc. and subsidiaries
<picture>
hat and diploma
<TABLE>
<CAPTION>
Years ended Six-months ended Year ended
================================================================================================================
In thousands, except per-share data January 2 January 3 December 28 December 28 June 30
1999 1998 1996 1996 1996
(unaudited)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES $770,917 $742,479 $708,734 $277,118 $695,149
Cost of products sold 351,795 351,290 353,938 141,493 332,212
- ----------------------------------------------------------------------------------------------------------------
Gross margin 419,122 391,189 354,796 135,625 362,937
Selling and administrative expenses 316,933 291,527 282,870 131,473 268,135
- ----------------------------------------------------------------------------------------------------------------
OPERATING INCOME 102,189 99,662 71,926 4,152 94,802
Interest income 366 587 370 204 2,080
Interest expense (7,026) (6,866) (9,343) (4,330) (9,403)
Write-off of JLC notes receivable, net (12,009) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 83,520 93,383 62,953 26 87,479
Income taxes 41,700 36,200 26,617 829 35,854
- ----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 41,820 $ 57,183 $ 36,336 $ (803) $ 51,625
================================================================================================================
EARNINGS PER COMMON SHARE
Basic $ 1.14 $ 1.47 $ 0.94 $ (0.02) $ 1.29
Diluted $ 1.14 $ 1.47 $ 0.94 $ (0.02) $ 1.28
================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 36,527 38,773 38,639 38,647 40,157
Diluted 36,705 38,969 38,815 38,763 40,337
================================================================================================================
</TABLE>
See notes to consolidated financial statements
24
<PAGE>
Balance Sheets
Consolidated Balance Sheets Jostens Inc. and subsidiaries
<picture>
yearbook
<TABLE>
<CAPTION>
=================================================================================================
In thousands, except per-share data January 2 January 3
1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Short-term investments $ 2,595 $ 6,068
Accounts receivable, net of allowance of $7,308 and $7,446, respectively 106,347 108,697
Inventories 90,494 92,062
Deferred income taxes 14,682 15,543
Other receivables, net of allowance of $7,061 and $8,322, respectively 20,689 25,495
Prepaid expenses and other current assets 5,737 4,679
- -------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 240,544 252,544
- -------------------------------------------------------------------------------------------------
OTHER ASSETS
Intangibles, net 28,165 30,749
Notes receivable, net of $35,044 discount and $13,181 deferred gain -- 12,925
Noncurrent deferred income taxes -- 7,743
Other 8,811 12,631
- -------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 36,976 64,048
- -------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 88,647 74,138
- -------------------------------------------------------------------------------------------------
$366,167 $390,730
=================================================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
Notes payable $ 93,922 $ 49,974
Accounts payable 23,682 30,553
Employee compensation 27,560 19,446
Commissions payable 22,131 19,222
Customer deposits 92,092 98,659
Income taxes 4,713 11,098
Other accrued liabilities 23,679 17,281
- -------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 287,779 246,233
OTHER NONCURRENT LIABILITIES 19,836 17,404
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 307,615 263,637
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
January 2, 1999 - 35,071; January 3, 1998 - 38,422 11,690 12,853
Retained earnings 54,627 119,378
Accumulated other comprehensive loss (7,765) (5,138)
- -------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' INVESTMENT 58,552 127,093
- -------------------------------------------------------------------------------------------------
$366,167 $390,730
=================================================================================================
</TABLE>
See notes to consolidated financial statements
25
<PAGE>
Cash Flows
Statements of Consolidated Cash Flows Jostens Inc. and subsidiaries
[picture]
class pin
<TABLE>
<CAPTION>
Years ended Six months ended Year ended
============================================================================================================================
In thousands January 2 January 3 December 28 December 28 June 30
1999 1998 1996 1996 1996
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 41,820 $ 57,183 $ 36,336 $ (803) $ 51,625
Depreciation 20,587 19,845 15,962 8,992 14,999
Amortization 2,584 2,297 1,726 942 1,558
Deferred income taxes 15,712 (3,403) 14,158 6,933 7,315
Write-off of JLC notes receivable, net 12,009 -- -- -- --
CHANGES IN ASSETS AND LIABILITIES,
NET OF EFFECTS OF BUSINESS ACQUISITION:
Accounts receivable 2,167 (651) (6,409) 22,845 (10,401)
Inventories 1,568 6,431 18,103 (19,525) (8,157)
Other receivables 4,806 (602) 1,311 (12,652) 158
Prepaid expenses and other current assets (1,058) 4,554 (6,041) (7,400) 992
Accounts payable (1,171) 1,506 (2,513) (1,329) 460
Employee compensation 8,114 4,457 1,137 82 (4,236)
Commissions payable 2,909 1,628 1,831 (21,803) 6,326
Customer deposits (6,567) 22,625 19,460 38,426 1,472
Income taxes (6,044) 5,658 (10,030) (20,384) (7,879)
Other 4,179 (4,811) 4,035 (959) (25,185)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 101,615 116,717 89,066 (6,635) 29,047
- ----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property and equipment (36,936) (24,381) (16,864) (9,897) (15,371)
Business acquisition -- (9,883) -- -- --
Other 1,675 -- -- -- 1,813
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (35,261) (34,264) (16,864) (9,897) (13,558)
- ----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net short-term borrowings (repayments) 38,248 (36,238) 7,980 72,725 27,587
Principal payments on long-term debt -- (281) (50,018) (50,018) (355)
Dividends paid (32,332) (34,198) (34,135) (17,011) (35,515)
Proceeds from exercise of stock options 4,258 11,693 625 168 1,964
Repurchases of common stock (80,001) (20,000) -- -- (169,332)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) for financing activities (69,827) (79,024) (75,548) 5,864 (175,651)
- ----------------------------------------------------------------------------------------------------------------------------
CHANGE IN SHORT-TERM INVESTMENTS (3,473) 3,429 (3,346) (10,668) (160,162)
SHORT-TERM INVESTMENTS, BEGINNING OF PERIOD 6,068 2,639 5,985 13,307 173,469
- ----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS, END OF PERIOD $ 2,595 $ 6,068 $ 2,639 $ 2,639 $ 13,307
============================================================================================================================
Income taxes paid $ 32,357 $ 26,300 $ 28,800 $ 22,100 $ 34,300
Interest paid $ 6,426 $ 5,900 $ 5,511 $ 3,200 $ 8,700
============================================================================================================================
</TABLE>
See notes to consolidated financial statements
26
<PAGE>
Statements of [picture] Shareholders' Investment
Consolidated Changes in round award Jostens Inc. and subsidiaries
Shareholders' Investment
<TABLE>
<CAPTION>
Accumulated
In thousands, except per-share data other
Common Shares Capital Retained comprehensive Comprehensive
Number Amount surplus earnings loss Total income (loss)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JUNE 30, 1995 45,482 $ 15,160 $ 154,410 $105,213 $ (4,170) $ 270,613
Stock options and restricted stock - net 182 61 1,903 1,964
Tax benefit of stock options 171 171
Share repurchases (7,011) (2,337) (155,168) (11,827) (169,332)
Cash dividends declared of $0.88 per share (34,015) (34,015)
Net income 51,625 51,625 $ 51,625
Change in cumulative translation adjustment 899 899 899
Adjustment in minimum pension liability,
net of $86 tax (124) (124) (124)
---------
Comprehensive income $ 52,400
- --------------------------------------------------------------------------------------------------------------------- =========
BALANCE - JUNE 30, 1996 38,653 12,884 1,316 110,996 (3,395) 121,801
Stock options and restricted stock - net 12 4 164 168
Cash dividends declared of $0.22 per share (8,506) (8,506)
Net loss (803) (803) $ (803)
Change in cumulative translation adjustment (51) (51) (51)
Adjustment in minimum pension liability,
net of $4 tax 4 4 4
---------
Comprehensive loss $ (850)
- ----------------------------------------------------------------------------------------------------------------------- =========
BALANCE - DECEMBER 28, 1996 38,665 12,888 1,480 101,687 (3,442) 112,613
Stock options and restricted stock - net 584 241 11,452 11,693
Cash dividends declared of $0.88 per share (34,198) (34,198)
Share repurchases (827) (276) (14,430) (5,294) (20,000)
Tax benefit of stock options 1,498 1,498
Net income 57,183 57,183 $ 57,183
Change in cumulative translation adjustment (824) (824) (824)
Adjustment in minimum pension liability,
net of $606 tax (872) (872) (872)
---------
Comprehensive income $ 55,487
- ---------------------------------------------------------------------------------------------------------------------- =========
BALANCE - JANUARY 3, 1998 38,422 12,853 -- 119,378 (5,138) 127,093
Stock options and restricted stock - net 234 78 4,180 4,258
Cash dividends declared of $0.88 per share (32,332) (32,332)
Share repurchases (3,585) (1,241) (4,521) (74,239) (80,001)
Tax benefit of stock options 341 341
Net income 41,820 41,820 $ 41,820
Change in cumulative translation adjustment (1,576) (1,576) (1,576)
Adjustment in minimum pension liability,
net of $649 tax (1,051) (1,051) (1,051)
---------
Comprehensive income $ 39,193
- ---------------------------------------------------------------------------------------------------------------------- =========
BALANCE - JANUARY 2, 1999 35,071 $ 11,690 $ -- $ 54,627 $ (7,765) $ 58,552
=================================================================================================================================
</TABLE>
See notes to consolidated financial statements
27
<PAGE>
Notes to Consolidated
Notes to Consolidated Financial Statements Jostens Inc. and subsidiaries
[picture]
class ring
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Overview
Jostens is a leading provider of products and services that help people
celebrate important moments, recognize achievements and build affiliations. The
company's products include yearbooks, class rings, graduation products and
school photography, as well as sports and employee achievement awards.
Fiscal Year
In October 1996, the company elected to change its fiscal year end from June
30 to the 52- or 53-week period ending the Saturday closest to December 31,
effective December 29, 1996. The change was made to enable better business
planning and internal management. The consolidated financial statements and
notes include the company's results of operations and cash flows for the years
ended January 2, 1999, January 3, 1998, and December 28, 1996 (unaudited); the
six-month transition period ended December 28, 1996; and the fiscal year ended
June 30, 1996. Calendar year 1998 consisted of 52 weeks, calendar year 1997
consisted of 53 weeks, and calendar year 1996 and fiscal year 1996 consisted of
52 weeks.
Principles of Consolidation
The consolidated financial statements include the accounts of the company and
its subsidiaries. All material inter-company 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 reserves, valuation of intangibles and deferred income tax
valuations.
Cash and Short-term Investments
Cash and short-term investments include cash on hand, time deposits and
commercial paper. Short-term investments have an original maturity of three
months or less 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. Negative cash balances of $8.4 million and $14.1
million at January 2, 1999, and January 3, 1998, respectively, have been
reclassified to "accounts payable" on the consolidated balance sheets.
Inventories
Inventories are stated at the lower of cost or market. Cost is primarily
determined using standard costs, which approximate costs utilizing the first-in,
first-out (FIFO) method. Gold and certain other precious metal inventories
aggregating $196,000 at January 2, 1999, and $677,000 at January 3, 1998, are
stated at the lower of last-in, first-out (LIFO) cost or market, and are zero
and $6.8 million lower in the respective periods than such inventories
determined under the lower of FIFO cost or market. In 1998 and 1997, gold
inventory quantities were reduced, causing a liquidation of LIFO inventory. The
liquidation increased pre-tax income by $3.7 million (6 cents per share) in 1998
and $6.8 million (10 cents per share) in 1997, due to LIFO cost being less than
current cost. At January 2, 1999, gold inventory was zero, as a result of the
company's decision to expand its consigned gold inventory program.
In July 1996, the company implemented a new inventory cost accounting system,
which provided more precise, detailed performance information by product within
each line. The new system resulted in a more accurate valuation of inventories
and recording of cost of products sold during the individual quarters,
consistent with the manner used to value inventory at previous June year ends.
As a result of this implementation, cost of products sold reported during the
six months ended December 28, 1996, was $16.9 million (26 cents per share)
higher than what would have been reported using the prior method, while cost of
products sold in the six months ended June 28, 1997, had an equally positive
impact.
28
<PAGE>
Financial Statements
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 January 2, 1999,
and January 3, 1998, was $21.9 million and $19.3 million, respectively. The
carrying value of intangible assets is assessed semiannually, or more often when
factors indicate an impairment. The company employs an undiscounted cash flow
method to assess these assets. The intangible balance also includes the
intangible asset related to additional minimum pension liability of $1.3 million
and $1.4 million at January 2, 1999, and January 3, 1998, respectively.
Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization on
buildings, machinery and equipment and capitalized software, including purchased
software and 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; capitalized software, two to five years. The carrying value of property,
equipment and capitalized software is assessed when circumstances indicate 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 fair value.
Beginning in fiscal 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.
In March 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position (SOP) 98-1, Accounting for Costs of Computer
Software Developed or Obtained for Internal Use. The SOP, which was adopted in
1998, requires the capitalization of certain costs incurred to develop or obtain
internal-use software. The effect of adopting the SOP was to increase net income
in 1998 by $1.1 million, or 3 cents per share.
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 when product is shipped. Provisions for sales returns and
warranty costs are recorded at the time of sale based on historical information
and current trends.
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. The amount of contracts outstanding at January 2, 1999, and January 3,
1998, were zero and $2.4 million, respectively. The company is exposed to credit
loss in the event of nonperformance by counterparties on foreign exchange
forward contracts. The amount of this credit exposure is generally limited to
unrealized gains on the contracts. At January 2, 1999, and January 3, 1998,
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 comprehensive
income. 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.
29
<PAGE>
Notes to Consolidated Financial Statements Jostens Inc. and Subsidiaries
Earnings Per Common Share
Basic earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share are
computed by dividing net income by the average number of common shares
outstanding, including the dilutive effects of options, restricted stock and
contingently issuable shares. Unless otherwise noted, references are to diluted
earnings per share.
<TABLE>
<CAPTION>
Years ended Six months ended Year ended
--------------------------------- ---------------- ----------
January 2 January 3 December 28 December 28 June 30
In thousands, except per-share data 1999 1998 1996 1996 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS PER SHARE -- BASIC
Net income (loss) $41,820 $57,183 $36,336 $ (803) $51,625
Weighted average common shares outstanding -- basic 36,527 38,773 38,639 38,647 40,157
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) per share -- basic $ 1.14 $ 1.47 $ 0.94 $ (0.02) $ 1.29
=====================================================================================================================
EARNINGS PER SHARE -- DILUTED
Net income (loss) $41,820 $57,183 $36,336 $ (803) $51,625
Weighted average common shares outstanding -- basic 36,527 38,773 38,639 38,647 40,157
Effect of dilutive securities:
Stock options and awards 178 196 176 116 180
- ---------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding -- diluted 36,705 38,969 38,815 38,763 40,337
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) per share -- diluted $ 1.14 $ 1.47 $ 0.94 $ (0.02) $ 1.28
=====================================================================================================================
</TABLE>
New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 will
be effective for the company beginning January 2, 2000, and requires recognition
of all derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of the
hedged assets, liabilities or firm commitments are recognized through earnings
or in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The company has not yet determined the
effect of SFAS 133 on the earnings and financial position of the company.
Reclassification
Certain balances have been reclassified to conform to the January 2, 1999,
presentation.
2
SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
January 2 January 3
In thousands 1999 1998
- --------------------------------------------------------------------
<S> <C> <C>
INVENTORIES
Finished goods $ 38,141 $ 38,122
Work-in-process 29,735 29,388
Raw materials and supplies 22,618 24,552
- --------------------------------------------------------------------
Total inventories $ 90,494 $ 92,062
====================================================================
PROPERTY AND EQUIPMENT
Land $ 4,866 $ 4,928
Buildings 36,210 35,500
Machinery and equipment 182,698 185,177
Capitalized software 32,391 6,142
- --------------------------------------------------------------------
Total property and equipment 256,165 231,747
Accumulated depreciation and amortization (167,518) (157,609)
- --------------------------------------------------------------------
Property and equipment, net $ 88,647 $ 74,138
====================================================================
</TABLE>
30
<PAGE>
3
COMPREHENSIVE INCOME
In 1998, The company adopted SFAS No. 130, Reporting Comprehensive Income.
SFAS 130 establishes new rules for the reporting and display of comprehensive
income and its components. SFAS 130 requires minimum pension liability
adjustments and foreign currency translation adjustments, which prior to
adoption were reported separately in shareholders' investment, to be included in
other comprehensive income. The adoption of SFAS 130 resulted in revised and
additional disclosures but had no impact on the company's consolidated financial
position, results of operations or liquidity. The following amounts were
included in accumulated other comprehensive loss at January 2, 1999, and January
3, 1998:
<TABLE>
<CAPTION>
January 2 January 3
In thousands 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Minimum pension liability adjustments, net of tax $(2,043) $ (992)
Foreign currency translation adjustments (5,722) (4,146)
- ------------------------------------------------------------------------------
Accumulated other comprehensive loss $(7,765) $(5,138)
==============================================================================
</TABLE>
4
BORROWINGS
The company has a $180 million, five-year bank credit agreement that
expires December 31, 2000. Credit available under the agreement is reduced by
commercial paper borrowings outstanding. Annual fees and interest on borrowings
are based on the company's commercial paper rating. Annual fees range from 0.075
to 0.15 percent of the commitment. The weighted average interest rate on
commercial paper outstanding at January 2, 1999, and January 3, 1998, was 5.8
and 6.2 percent, respectively. Under the restrictive covenants of the agreement,
the company must maintain a defined minimum interest coverage ratio and a
maximum leverage ratio. At January 2, 1999, $86 million was available under the
bank credit agreement.
In 1997, the company entered into a 12-month interest rate swap agreement
that expired December 29, 1998, as a means of managing its interest rate risk.
Under the terms of the agreement, the company paid interest at a rate of 5.89
percent and received interest weekly at a floating rate equal to the seven-day
U.S. commercial paper rate, without the exchange of the underlying notional
amount upon which the payments were based. The notional amount of the agreement
changed weekly based on the company's borrowings. The difference paid or
received from counterparties as interest rates changed was included in other
liabilities or assets, with the corresponding amount accrued and recognized as
an adjustment of interest expense related to the debt. The fair value of swap
agreements are not recognized in the financial statements.
Commercial paper outstanding is due within 90 days and is included in notes
payable in the consolidated balance sheets.
In addition, the company had available at January 2, 1999, unsecured demand
facilities with three banks totaling $54.2 million. Such credit arrangements are
renegotiated periodically based on the anticipated seasonal needs for short-term
financing.
31
<PAGE>
Notes to Consolidated Financial Statements Jostens Inc. and subsidiaries
5
INCOME TAXES
The following summarizes the differences between income taxes computed at the
U.S. statutory rate and income tax expense for financial reporting purposes:
<TABLE>
<CAPTION>
Years ended Six months ended Year ended
========================== ================ ===========
January 2 January 3 December 28 June 30
Dollars in thousands 1999 1998 1996 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. federal statutory income tax rate 35% 35% 35% 35%
Federal tax at statutory rate $29,232 $32,684 $ 9 $30,618
State income taxes, net of federal tax benefit 4,509 4,223 (84) 4,012
Write-off of JLC notes and related deferred tax assets 7,245 -- -- --
Reduction in deferred tax valuation allowance (750) (2,030) -- --
Other differences, net 1,464 1,323 904 1,224
- ---------------------------------------------------------------------------------------------------------------
Income tax expense $41,700 $36,200 $829 $35,854
===============================================================================================================
</TABLE>
The U.S. and foreign components of income before income taxes and the
provision for income taxes were as follows:
<TABLE>
<CAPTION>
Years ended Six months ended Year ended
========================== ================ ===========
January 2 January 3 December 28 June 30
In thousands 1999 1998 1996 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME BEFORE INCOME TAXES
Domestic $ 77,756 $88,275 $(3,585) $82,818
Foreign 5,764 5,108 3,611 4,661
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes $ 83,520 $93,383 $ 26 $87,479
===============================================================================================================
PROVISION FOR INCOME TAXES
Federal $ 18,435 $30,227 $(6,943) $21,425
State 4,439 6,864 (101) 5,385
Foreign 3,114 2,512 948 2,041
- ---------------------------------------------------------------------------------------------------------------
Total current taxes 25,988 39,603 (6,096) 28,851
Deferred 15,712 (3,403) 6,925 7,003
- ---------------------------------------------------------------------------------------------------------------
Income tax expense $ 41,700 $36,200 $ 829 $35,854
===============================================================================================================
</TABLE>
32
<PAGE>
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 January 2, 1999, and January 3, 1998, were as follows:
<TABLE>
<CAPTION>
========================
January 2 January 3
In thousands 1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Tax over book depreciation $ (4,083) $(3,763)
Capitalized software development costs (8,076) (2,285)
Other, net (2,792) (2,800)
- -------------------------------------------------------------------
DEFERRED TAX LIABILITIES (14,951) (8,848)
- -------------------------------------------------------------------
DEFERRED TAX ASSETS
Reserves not recognized for tax purposes 11,994 12,489
Net operating loss and tax credit
carryforwards of acquired companies 687 1,844
Foreign tax credit carryforwards 1,900 2,915
Deferred gain on sale of JLC -- 5,908
Other, net 10,492 11,893
- -------------------------------------------------------------------
Deferred tax assets 25,073 35,049
VALUATION ALLOWANCE (1,900) (2,915)
- -------------------------------------------------------------------
DEFERRED TAX ASSETS 23,173 32,134
- -------------------------------------------------------------------
NET DEFERRED TAX ASSET $ 8,222 $23,286
===================================================================
</TABLE>
The net deferred tax asset at January 2, 1999, consisted of $14.7 million
of current net deferred tax assets and $6.5 million of noncurrent net deferred
tax liabilities. The net deferred tax asset at January 3, 1998, consisted of
$15.5 million of current and $7.8 million of noncurrent net deferred tax assets.
At January 2, 1999, the company had net operating loss carryforwards (NOLs)
from business acquisitions of $2 million for federal income tax purposes that
expire in the years 1999 through 2002. In 1998, the company consolidated two
legal entities, which management believes will allow the company to utilize the
remaining NOLs. The company also has foreign tax credit carryforwards of $1.9
million that expire in 1999 through 2002. The foreign tax credits of $1.9
million and $2.9 million at January 2, 1999, and January 3, 1998, were fully
reserved.
33
<PAGE>
Notes to Consolidated Financial Statements Jostens Inc. and subsidiaries
6
BENEFIT PLANS
In 1998, the company adopted SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. SFAS 132 revises the disclosures
for pensions and other postretirement benefits; however, this statement has no
impact on the company's consolidated net income or shareholders' investment.
Financial information from prior periods contained in this report conforms to
SFAS 132 requirements.
Noncontributory defined-benefit pension plans cover nearly all employees.
The benefits provided under the plans are based on years of service and/or
compensation levels. The company also provides health care insurance benefits
for nearly all retirees. Generally, the health care plans require contributions
from retirees. The following tables contain information on the company's pension
and postretirement plans:
<TABLE>
<CAPTION>
Six months Year
Years ended ended ended
-----------------------------------------------
Pension Benefits January 2 January 3 December 28 June 30
In thousands 1999 1998 1996 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 4,044 $ 3,988 $ 1,899 $3,459
Interest cost 8,838 8,346 4,061 7,737
Expected return on plan assets (13,447) (11,653) (5,431) (9,759)
Amortization of prior year service cost 1,716 1,585 793 1,578
Amortization of transition amount (894) (894) (447) (894)
Amortization of net actuarial gains (929) (698) (318) (547)
- --------------------------------------------------------------------------------------------
Net periodic benefit (income) cost $ (672) $ 674 $ 557 $ 1,574
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Six months Year
Years ended ended ended
----------------------------------------------
Retiree Health Benefits January 2 January 3 December 28 June 30
In thousands 1999 1998 1996 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 65 $ 61 $ 30 $ 72
Interest cost 372 377 185 450
Amortization of prior year service cost (7) (7) (4) (7)
Amortization of net actuarial gains (95) (109) (57) (34)
- --------------------------------------------------------------------------------------------
Net periodic benefit cost $ 335 $ 322 $ 154 $481
============================================================================================
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Retiree Health Benefits
Years ended Years ended
=============================================
January 2 January 3 January 2 January 3
In thousands 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $117,670 $110,700 $ 5,047 $ 5,064
Service cost 4,044 3,988 65 61
Interest cost 8,838 8,346 372 377
Plan amendments 1,575 1,311 -- --
Actuarial loss (gain) 14,004 (3,508) 643 (26)
Benefits paid (7,306) (3,167) (889) (429)
- -----------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $138,825 $117,670 $ 5,238 $ 5,047
=================================================================================================================
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $167,246 $125,803 $ -- $ --
Actual return on plan assets 2,397 39,899 -- --
Company contributions 1,766 4,710 889 429
Benefits paid (7,306) (3,166) (889) (429)
- -----------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $164,103 $167,246 $ -- $ --
=================================================================================================================
FUNDED STATUS:
Funded (unfunded) status at end of year $ 25,278 $ 49,576 $(5,238) $(5,047)
Unrecognized cost:
Net actuarial gains (23,611) (49,593) (1,095) (1,832)
Transition amount (4,179) (5,073) -- --
Prior service cost 10,285 10,426 (58) (66)
- -----------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 7,773 $ 5,336 $(6,391) $(6,945)
=================================================================================================================
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF:
Prepaid benefit cost $ 22,918 $ 20,199 $ -- $ --
Accrued benefit liability (19,808) (17,922) (6,391) (6,945)
Intangible asset 1,283 1,379 -- --
Accumulated other comprehensive income 3,380 1,680 -- --
- -----------------------------------------------------------------------------------------------------------------
Net amount recognized $ 7,773 $ 5,336 $(6,391) $(6,945)
=================================================================================================================
</TABLE>
Amounts applicable to the company's plan with accumulated benefit obligations
in excess of plan assets were as follows:
<TABLE>
<CAPTION>
Years ended
=====================
January 2 January 3
In thousands 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation $21,048 $18,851
Accumulated benefit obligation 19,808 17,736
Fair value of plan assets -- --
=================================================================================================================
</TABLE>
The assumptions used in determining the components of pension and retiree
health expense were as follows:
<TABLE>
<CAPTION>
Pension Benefits Retiree Health Benefits
Six months Year Six months Year
Years ended ended ended Years ended ended ended
==============================================================================================
January 2 January 3 December 28 June 30 January 2 January 3 December 28 June 30
1999 1998 1996 1996 1999 1998 1996 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Discount rate 7.00% 7.75% 7.75% 7.75% 7.00% 7.75% 7.75% 7.75%
Expected return on plan assets 10.00% 10.00% 10.00% 10.00% -- -- -- --
Rate of compensation increase 5.00% 5.00% 5.00% 5.00% -- -- -- --
Initial health care cost trend rate* -- -- -- -- 8.00% 9.00% 10.00% 12.00%
=================================================================================================================================
</TABLE>
*Assumed to decrease to 6 percent in 2002.
35
<PAGE>
Notes to Consolidated Financial Statements Jostens Inc. and subsidiaries
A 1 percentage-point change in the assumed health care cost trend rate
would have the following effects:
<TABLE>
<CAPTION>
===============================
1 Percentage- 1 Percentage-
In thousands Point Increase Point Decrease
- -------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest
cost components for the year
ended January 2, 1999 $ 23 $ 22
Effect on postretirement benefit
obligation as of January 2, 1999 $325 $316
=========================================================================
</TABLE>
Plan assets consist primarily of corporate equity as well as corporate U.S.
government debt and real estate. Corporate equity investments include the fair
value of the company's common stock of $5.3 million at January 3, 1998. There
were no investments in the company's common stock at January 2, 1999.
In its retirement savings plan, which covers nearly all nonunion employees,
the company provides a matching contribution 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 $2.6 million in 1998,
$2.3 million in 1997, $1.1 million in the six-month period ended December 28,
1996, and $2.4 million in the fiscal year ended June 30, 1996. This represents
50 percent of eligible employee contributions.
7
COMMITMENTS AND CONTINGENCIES
Gold Forward Purchase Contracts
The company has forward contracts of $19 million for commitments to
purchase gold that mature at various times in 1999.
Consigned Gold
The company has a gold consignment arrangement with a major financial
institution whereby the company has the ability to obtain up to $15 million in
consigned inventory. In 1998 and 1997, the company expensed consignment fees of
approximately $92,000 and $72,000, respectively, in connection with this
facility. Under the terms of the consignment arrangement, the company does not
own the consigned gold until it is shipped in the form of a product to a
customer. Accordingly, the company does not include for financial statement
purposes the value of consigned gold in inventory with a corresponding
liability.
The value of the company's consigned gold at January 2, 1999, and January
3, 1998, was $14.4 million and $6.8 million.
Environmental
As part of its environmental management program, the company is involved in
various environmental remediation activities. As sites are identified and
assessed in this program, the company determines potential environmental
liability. Factors considered in assessing liability include, among others, the
following: whether the company had 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. As of
January 2, 1999, the company had identified three sites requiring further
investigation. However, the company has not been designated as a potentially
responsible party at any site.
Management has assessed the likelihood that a loss has been incurred at one
of its sites as probable and, based on findings included in remediation reports
and discussions with legal counsel, estimated the potential loss at January 2,
1999, to range from $3 million to $4.2 million. As of January 2, 1999, $4.2
million had been accrued and is included with "other accrued liabilities" on the
consolidated balance sheets. While Jostens may have a right of contribution or
reimbursement under insurance policies, amounts recoverable from other entities
with respect to a particular site are not considered until recoveries are deemed
probable. No assets for potential recoveries were established as of January 2,
1999.
Sales Force
In 1997, the company changed the contract for sales representatives who
serve the college market for Jewelry and Graduation Products from independent
sales representatives to company employees. The change was made to better enable
the company to address market needs and strengthen its position in the market.
These representatives' previous contracts called for a transition
commission, which historically was paid by the new sales representatives who
assumed responsibility for the accounts of the outgoing representative, with the
company acting as a collection agent. College market sales representatives who
elected to become Jostens employees forfeited their right to the transition
commission in exchange for participation in a newly created severance plan and
other employee benefit programs. As a result, the company will recognize
approximately $4 million of severance costs ratably over these representatives'
estimated average remaining service
36
<PAGE>
period of five years. The company recognized severance costs of $691,000 in 1998
and $358,000 in 1997. Representatives who elected not to become employees will
receive estimated future transition payments from the company of $5.5 million in
exchange for helping to transition and retain existing business and for signing
agreements not to compete. These costs are recognized as a charge to operations
ratably over the individual noncompete periods, generally three years, and were
$1.4 million in 1998 and $763,000 in 1997.
Litigation
In January 1999, a federal judge in Texas overturned a jury's $25.3 million
verdict against Jostens in an antitrust lawsuit. The judge, acting on Jostens'
post-trial motions, set aside the jury's verdict and dismissed all claims
against Jostens in the case. Yearbook competitor Taylor Publishing, a unit of
Insilco Holding Corp. and the plaintiff in the case, has indicated in a press
release that it intends to appeal the decision and will seek to have the jury
verdict reinstated. No costs were accrued related to the lawsuit, as
management's assessment of a potential loss was unlikely.
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 the impact on the company's consolidated results of
operations and financial position, if any, for the disposition of these matters
will not be material.
8
SHAREHOLDERS' INVESTMENT
Share Repurchases
In December 1998, the Board of Directors authorized the repurchase of up to
$100 million shares of the company's common stock. Under the authorization,
shares may be repurchased periodically in the open market and through privately
negotiated transactions. The repurchase is to be funded from the company's cash,
short-term investments and short-term borrowings. A similar $100 million
repurchase program was authorized in July 1997 and completed in the fourth
quarter of 1998. Under this program the company repurchased 4.4 million shares,
including 3.6 million shares for $80 million in 1998. In fiscal year 1996, the
company repurchased 7 million shares for $169 million.
Stock Options and Restricted Stock
Under stock option plans, the company has granted to key employees options
to purchase Jostens common shares at 100 percent of the market price on the
dates the options were granted. One plan also provides for increases in the
number of shares available for future grants equal to 1 percent of the
outstanding common shares on July 1 of each year through 2002. The company
applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations in accounting for its employee stock
options and long-term management incentive plans, which are described below.
Accordingly, no compensation cost has been recognized for these plans. Had the
company determined compensation cost based upon the fair value at the grant
dates for its stock option and long-term management incentive plans under SFAS
No. 123, Accounting for Stock-Based Compensation, the company's consolidated net
income and earnings per share would have been affected by the pro forma amounts
indicated below.
<TABLE>
<CAPTION>
Years ended
==================================
In thousands, January 2 January 3 June 30
except per-share data 1999 1998 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Net income
As reported $41,820 $57,183 $51,625
Pro forma $41,404 $56,800 $51,500
- ----------------------------------------------------------------
Basic earnings per share
As reported $ 1.14 $ 1.47 $ 1.29
Pro forma $ 1.13 $ 1.46 $ 1.28
- ----------------------------------------------------------------
Diluted earnings per share
As reported $ 1.14 $ 1.47 $ 1.28
Pro forma $ 1.13 $ 1.46 $ 1.28
================================================================
</TABLE>
37
<PAGE>
Notes to Consolidated Financial Statements Jostens Inc. and subsidiaries
The pro forma amounts indicated above reflect the amortization to expense
the estimated fair value of the stock awards over the awards' vesting period.
The effects of applying the fair value method of measuring compensation expense
in 1998, 1997 and fiscal 1996 are not likely to be representative of the effects
for future years, in part because the fair value method was applied only to
stock options granted after June 30, 1995.
The weighted average fair values of options granted in 1998, 1997 and
fiscal 1996 are $4.67, $4.44 and $4.18 per option, respectively. The company
used the weighted average assumptions in the Black-Scholes option pricing model
in estimating the fair value of stock options at the date of grant, as shown in
the following table:
<TABLE>
<CAPTION>
Years ended
===============================
January 2 January 3 June 30
1999 1998 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free rate 4.7% 5.4% 6.2%
Dividend yield 3.8% 3.6% 3.9%
Volatility factor of the
expected market price
of the company's
common stock 26% 22% 20%
Expected life of the award 5.2 4.7 5.2
====================================================================
</TABLE>
Following is a summary of stock option activity:
<TABLE>
<CAPTION>
Years ended Six months ended Year ended
January 2, 1999 January 3, 1998 December 28, 1996 June 30, 1996
===========================================================================================
Weighted Weighted Weighted Weighted
average average average average
Shares exercise Shares exercise Shares exercise Shares exercise
In thousands, except dollar amounts price price price price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding beginning of year 2,215 $22.31 2,882 $22.13 2,751 $22.38 2,971 $22.39
Granted 946 $23.47 496 $24.69 192 $18.66 278 $22.61
Exercised (199) $23.81 (581) $25.05 (26) $19.32 (163) $17.53
Forfeited (62) $24.40 (582) $25.14 (35) $24.95 (335) $25.04
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding end of year 2,900 $22.69 2,215 $22.31 2,882 $22.13 2,751 $22.38
Exercisable at end of year 1,289 $22.84 969 $23.79 1,573 $24.73 1,491 $24.87
Reserved for issuance 4,441 4,272 4,448 4,098
Available for future grants 1,495 1,966 1,511 1,292
===================================================================================================================================
</TABLE>
At January 2, 1999, the range of exercise prices on outstanding options were
as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
=========================================================================================
Number Weighted-average
outstanding remaining life Weighted-average Number exercisable Weighted-average
Range of exercise prices (in thousands) (in years) exercise price (in thousands) exercise price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$16.56 - $20.00 939 5.7 $18.21 596 $18.14
$20.01 - $25.00 1,668 8.2 $23.81 400 $24.14
$25.01 - $30.00 110 2.1 $26.26 110 $26.26
$30.01 - $34.19 183 2.6 $33.27 183 $33.27
- -----------------------------------------------------------------------------------------------------------------------
Summary 2,900 6.8 $22.69 1,289 $22.84
=======================================================================================================================
</TABLE>
38
<PAGE>
The company has a stock incentive plan under which eligible employees have
been awarded restricted shares of common stock of the company. The awards have
restriction periods that are tied primarily to employment and/or service. The
awards are recorded at market value on the date of the grant as unearned
compensation and amortized over the restriction periods. Restricted stock and
annual expense information is as follows:
<TABLE>
<CAPTION>
Years ended
===================================
January 2 January 3 December 28
Restricted stock awards 1999 1998 1996
(unaudited)
- --------------------------------------------------------------------
<S> <C> <C> <C>
Number of restricted
shares awarded during
the year 5,350 46,050 6,000
Average market price of
shares awarded during
the year $ 23.72 $ 23.51 $ 20.03
Restricted shares
outstanding at year end 47,100 53,350 63,517
Annual expense, net
(in thousands) $ 416 $ 36 $ 39
</TABLE>
In July 1997, a new management incentive plan was approved. Under the plan,
certain members of the senior management team would receive the market value of
up to 56,400 shares of Jostens common stock upon achieving specific financial
targets in 1998. Under the plan, 50 percent of the value of the award would be
paid in cash and 50 percent in unrestricted common stock of the company. The
company recorded $1.1 million as compensation expense in 1998 as a result of
achieving the financial targets contained in the plan.
Shareholder Rights Plan
In July 1998, the Board of Directors declared a distribution to
shareholders of one preferred share purchase right for each outstanding share of
common stock. The dividend was payable August 19, 1998, to shareholders of
record at the close of business on that date. Each right entitles the holder to
purchase one one-hundredth of a share of Series A Junior Participating Preferred
Stock at an exercise price of $90. If a person or group acquires at least 20
percent of the company's common stock, each right will entitle its holder (other
than the acquiring person or group) to purchase, at the right's then-current
exercise price, a number of Jostens common shares having a market value of twice
the exercise price. In addition, if Jostens is acquired in a merger or other
business combination transaction after a person has acquired at least 20 percent
of the company's common stock, each right will entitle its holder to purchase,
at the right's then-current exercise price, a number of the acquiring company's
common shares having a market value of twice the exercise price. If a person or
group acquires at least 20 percent and less than 50 percent of the company's
common stock, the Board of Directors may exchange the rights (other than the
rights owned by the acquiring person or group), in whole or in part, for the
number of shares of common stock per right as could be purchased at the then-
current exercise price. Before a person or group acquires at least 20 percent of
the company's stock, the rights are redeemable for one-tenth of a cent per right
at the option of a committee of the board composed exclusively of the company's
independent, non-employee directors. The rights will expire in August 2008,
unless extended or redeemed earlier by the company.
9
BUSINESS SEGMENTS
The company adopted SFAS no. 131, Disclosures About Segments of an
Enterprise and Related Information, during the quarter ended January 2, 1999.
SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements of public companies and requires
selected information about operating segments to be reported in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services and geographic areas. The
company has defined its operating segments based upon the financial information
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Jostens' operations are classified into two business segments based upon
products and services provided: school-based recognition products and services
(School Products) and longevity and performance recognition products and
services for business (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. The Recognition segment
manufactures and sells customized sales, service and business achievement
awards. The Other segment includes principally corporate amounts.
39
<PAGE>
Notes to Consolidated Financial Statements Jostens Inc. and subsidiaries
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. Jostens evaluates
performance based on the operating income of the segment. Revenues are reported
in the geographic area where the final sales to customers are made, rather than
where the transaction originates.
Financial information by reportable business segment is included in the
following summary:
<TABLE>
<CAPTION>
Years ended Six months ended Year ended
====================================================================
January 2 January 3 December 28 December 28 June 30
1999 1998 1996 1996 1996
In thousands (unaudited)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES FROM EXTERNAL CUSTOMERS
School Products $659,505 $631,931 $599,179 $232,588 $586,098
Recognition 103,929 103,651 101,323 41,076 100,208
Other 7,483 6,897 8,232 3,454 8,843
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED $770,917 $742,479 $708,734 $277,118 $695,149
==============================================================================================================
OPERATING INCOME
School Products(1) $127,889 $109,079 $ 85,899 $ 19,086 $100,373
Recognition(2) 10,430 8,916 3,048 (4,616) 8,661
Other (36,130) (18,333) (17,021) (10,318) (14,232)
- --------------------------------------------------------------------------------------------------------------
Consolidated 102,189 99,662 71,926 4,152 94,802
Net interest expense (6,660) (6,279) (8,973) (4,126) (7,323)
Write-off of JLC notes receivable, net (12,009) -- -- -- --
- --------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES $ 83,520 $ 93,383 $ 62,953 $ 26 $ 87,479
==============================================================================================================
IDENTIFIABLE ASSETS
School Products $262,345 $272,005 $269,488 $269,488 $253,830
Recognition 43,089 43,080 43,253 43,253 48,190
Other 60,733 75,645 71,106 71,106 81,954
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED $366,167 $390,730 $383,847 $383,847 $383,974
==============================================================================================================
DEPRECIATION AND AMORTIZATION
School Products $ 16,032 $ 15,244 $ 12,275 $ 7,197 $ 11,086
Recognition 2,749 3,002 2,369 1,409 2,056
Other 4,390 3,896 3,044 1,328 3,415
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED $ 23,171 $ 22,142 $ 17,688 $ 9,934 $ 16,557
==============================================================================================================
CAPITAL EXPENDITURES
School Products $ 12,358 $ 14,754 $ 13,865 $ 7,691 $ 13,023
Recognition 1,966 2,036 1,669 1,434 381
Other 22,612 7,591 1,330 772 1,967
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED $ 36,936 $ 24,381 $ 16,864 $ 9,897 $ 15,371
==============================================================================================================
</TABLE>
(1) Includes A LIFO gain from converting owned gold to consigned gold of $2.3
million in 1998 and $5.4 million in 1997, offset by charges of $2.5
million in 1998 and $2.6 million in 1997 for plant closing costs.
Operating income in 1996 included $16.9 million higher cost of products
sold as a result of implementing a new inventory cost accounting system.
(2) Includes a LIFO gain from converting owned gold to consigned gold of $1.4
million in 1998 and in 1997. Operating income in 1996 also included $6
million in environmental charges.
40
<PAGE>
<TABLE>
<CAPTION>
Years ended Six months ended Year ended
================================================================
January 2 January 3 December 28 December 28 June 30
1999 1998 1996 1996 1996
Dollars in thousands (unaudited)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES BY CLASSES OF SIMILAR PRODUCTS OR SERVICES
Printing, primarily yearbooks $258,452 $243,806 $230,219 $ 75,697 $226,520
Jewelry 194,283 186,816 177,465 92,465 172,655
Photography 47,297 48,245 48,791 35,714 48,465
Graduation products 159,473 153,066 142,706 28,714 138,458
Recognition 103,929 103,651 101,323 41,076 100,208
Other 7,483 6,895 8,230 3,452 8,843
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED $770,917 $742,479 $708,734 $277,118 $695,149
=====================================================================================================================
SALES BY GEOGRAPHIC AREA
United States $732,041 $703,659 $668,700 $253,570 $654,531
Other, primarily Canada 38,876 38,820 40,034 23,548 40,618
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED $770,917 $742,479 $708,734 $277,118 $695,149
=====================================================================================================================
PROPERTY, PLANT AND EQUIPMENT AND
INTANGIBLES (NET) BY GEOGRAPHIC AREA
United States $108,411 $100,999 $ 90,071 $ 90,071 $ 90,478
Other, primarily Canada 8,401 3,888 4,836 4,836 4,891
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED $116,812 $104,887 $ 94,907 $ 94,907 $ 95,369
=====================================================================================================================
</TABLE>
10
WRITE-OFF OF JLC NOTES RECEIVABLE, NET
In June 1995, the company sold its Jostens Learning Corp. (JLC) curriculum
software subsidiary to a group led by Bain Capital, Inc. As partial
consideration for the sale, Jostens received two notes, which were discounted
and recorded at their estimated fair values. In addition, the transaction gain
of $13.2 million was deferred in accordance with the SEC Staff Accounting
Bulletin No. 81, Gain Recognition on the Sale of a Business or Operating Assets
to a Highly Leveraged Entity. The company recorded $12.9 million on its
consolidated balance sheets representing the estimated fair value of the notes,
net of the deferred gain.
In January 1999, the company received information from JLC indicating to
management that the carrying value of the notes were permanently impaired. As a
result, the company wrote off $12 million in 1998 for the carrying value of the
notes, net of miscellaneous JLC-related assets and liabilities, plus $3.7
million of net deferred tax assets associated with the initial sale of JLC that
management does not expect to realize. In addition, the company did not record a
tax benefit related to the write-off because it is currently not expected to be
realized for tax purposes.
11
ACQUISITION
The company purchased the Gold Lance class ring brand for $9.5 million in
cash on July 31, 1997. Under the terms of the agreement, the company purchased
the Gold Lance name, accounts and notes receivable, and tooling. The company
also incurred $383,000 of direct, acquisition-related costs, which were
capitalized as part of the purchase price. The acquisition was recorded using
the purchase method of accounting, which resulted in the recording of $5.9
million of goodwill that is being amortized over 10 years.
41
<PAGE>
<TABLE>
Notes to Consolidated Financial Statements Jostens Inc. and subsidiaries
Unaudited Quarterly Financial Data Total
In thousands, except per-share data First Second Third Fourth Year
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 2, 1999
Net sales $ 168,277 $298,879 $ 127,009 $ 176,752 $ 770,917
Gross margin 99,604 156,320 56,539 106,659 419,122
Net income (loss)(1) 10,496 37,632 (7,178) 870 41,820
Earnings (loss) per share(1)(2):
Basic 0.28 1.02 (0.20) 0.02 1.14
Diluted 0.28 1.01 (0.20) 0.02 1.14
Stock price:
High 24 15/16 26 1/4 25 5/8 26 1/4 26 1/4
Low 22 1/16 22 7/8 19 9/16 19 19
Dividends per share 0.22 0.22 0.22 0.22 0.88
================================================================================================
YEAR ENDED JANUARY 3, 1998
Net sales $ 150,437 $297,316 $ 109,079 $ 185,647 $ 742,479
Gross margin 86,041 151,025 45,671 108,452 391,189
Net income (loss) 9,954 38,323 (6,187) 15,093 57,183
Earnings (loss) per share(2):
Basic 0.26 0.99 (0.16) 0.39 1.47
Diluted 0.26 0.98 (0.16) 0.39 1.47
Stock price:
High 22 7/8 26 7/8 28 13/16 27 15/16 28 13/16
Low 20 21 5/8 23 1/4 22 3/16 20
Dividends per share 0.22 0.22 0.22 0.22 0.88
================================================================================================
</TABLE>
(1) Includes a $15.7 million charge (43 cents per share) in the fourth quarter
of 1998 for the write-off of JLC notes receivable and related net deferred
tax assets.
(2) Amounts may not total to the annual earnings per share because each
quarter and the year are calculated separately based on average
outstanding shares and common share equivalents during that period.
42
<PAGE>
<TABLE>
<CAPTION>
Years ended Six months Years ended
ended
Seven-Year Financial Summary ---------------------------------------------------------------------------------------------
Dollars in thousands, except January 2 January 3 December 28 June 30 June 30 June 30 June 30 June 30
per-share data 1999 1998 1996 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net sales $ 770.9 $ 742.5 $ 277.1 $ 695.1 $ 665.1 $ 649.9 $ 634.8 $ 639.2
Cost of products sold 351.8 351.3 141.5 332.2 313.7 313.8 310.4 314.0
Net interest expense 6.7 6.3 4.1 7.3 0.7 5.0 5.7 8.7
Income taxes 41.7 36.2 0.8 35.9 38.0 20.5 10.7 29.8
Income (loss)--continuing
operations 41.8 57.2 (0.8) 51.6 55.9 28.0 8.5 45.2
Return on sales--continuing
operations 5.4% 7.7% (0.3%) 7.4% 8.4% 4.3% 1.3% 7.1%
Net income (loss) 41.8 57.2 (0.8) 51.6 50.4 (16.2) (12.7) 59.2
Return on investment 45.1% 47.7% (0.7%) 26.3% 19.1% (5.7%) (3.7%) 16.9%
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Current assets $ 240.5 $ 252.5 $ 257.5 $ 251.3 $ 402.4 $ 396.1 $ 401.6 $ 436.3
Working capital (47.2) 6.3 11.8 8.9 206.3 172.7 185.3 232.2
Current ratio 0.8 1.0 1.0 1.0 2.1 1.8 1.9 2.2
Property and equipment, net 88.6 74.1 67.6 67.0 67.8 75.8 88.9 89.2
Total assets 366.2 390.7 383.8 384.0 548.0 569.8 613.5 643.3
Notes payable 93.9 50.0 90.9 27.6 -- -- -- --
Long-term debt, including current
maturities 3.6 3.6 3.9 53.9 54.3 54.8 55.3 79.4
Shareholders' investment 58.6 127.1 112.6 121.8 270.6 256.6 315.7 364.7
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON SHARE DATA
Basic EPS--continuing operations $ 1.14 $ 1.47 $ (0.02) $ 1.29 $ 1.23 $ 0.61 $ 0.19 $ 1.00
Basic EPS--net income (loss) 1.14 1.47 (0.02) 1.29 1.11 (0.36) (0.28) 1.32
Diluted EPS--continuing operations 1.14 1.47 (0.02) 1.28 1.22 0.62 0.19 1.09
Diluted EPS--net income (loss) 1.14 1.47 (0.02) 1.28 1.10 (0.36) (0.28) 1.43
Cash dividends declared 0.88 0.88 0.22 0.88 0.88 0.88 0.88 0.84
Book value 1.67 3.31 2.91 3.15 5.95 5.64 6.95 8.10
Common shares outstanding 35.1 38.4 38.7 38.7 45.5 45.5 45.4 45.0
Stock price high 26 1/4 28 13/16 22 1/4 25 1/8 21 5/8 20 7/8 31 1/4 37 3/8
Stock price low 19 20 17 1/4 19 1/2 15 3/4 15 1/8 16 1/2 24 1/8
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income for 1998 reflects a charge of $15.7 million (43 cents per share) for
the write-off of JLC notes receivable and related net deferred tax assets.
Discontinued operations reflects JLC, Wicat Systems and Sportswear.
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 fiscal 1994 and 1993, respectively. In fiscal 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 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 112 of $1.1 million ($600,000 after tax, or 1 cent per share).
43
<PAGE>
Corporate Information
BOARD OF DIRECTORS
[picture]
Lilyan H. Affinito
Lilyan H. Affinito
Former Vice Chairman of the Board, President and Chief Operations Officer of
Maxxam Group Inc. ... Director, Caterpillar Inc. ... Chrysler Corp. ... Kmart
Corp. ... KeySpan Energy Corporation (Member, Audit Committee and Compensation
Committee)
[picture]
Mannie L. Jackson
Mannie L. Jackson
Chairman of the Board, Harlem Globetrotters Inc. ... Former Senior Vice
President-Corporate Marketing and Administration, Honeywell Inc. ... Director,
Ashland Inc. ... Reebok International Ltd. ... The Stanley Works. (Member,
Compensation Committee)
[picture]
Robert C. Buhrmaster
Robert C. Buhrmaster
Chairman of the Board, President and Chief Executive Officer, Jostens Inc. ...
Director, The Toro Company. (Member, Executive Committee)
[picture]
Walker Lewis
Walker Lewis
Senior Advisor, SBC Warburg Dillon Read ... Chairman of the Board, Devon Value
Advisors ... Former Chairman of the Board, Strategic Planning Associates ...
Former President, Avon Products Inc., U.S. Division ... Director, American
Management Systems ... Owens Corning ... London Fog Industries Inc.
[picture]
Richard A. Zona
Richard A. Zona
Vice Chairman, U.S. Bancorp. (Member, Audit Committee and Executive
Committee)
[picture]
Jack W. Eugster
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, Compensation Committee
and Executive Committee)
[picture]
Kendrick B. Melrose
Kendrick B. Melrose
Chairman of the Board and Chief Executive Officer, The Toro Company ...
Director, Donaldson Company Inc. ... SurModics Inc. ... Valspar Corp. (Member,
Audit Committee and Executive Committee)
MANAGEMENT
Robert C. Buhrmaster, 51
Chairman of the Board, President and Chief Executive Officer
David J. Larkin, 59
Executive Vice President and
Chief Operating Officer
Carl H. Blowers, 59
Senior Vice President-Manufacturing
William N. Priesmeyer, 54
Senior Vice President and
Chief Financial Officer
Bob Adkinson, 45
Vice President and Chief Information Officer
Michael Bailey, 43
Vice President and General Manager-Jostens School Solutions
William J. George, 50
Vice President, General Counsel and Corporate Secretary
Thomas W. Jans, 50
Vice President-Consumer Marketing and Channel Development
Rodney Jordan, 46
Vice President-Human Resources
Greg S. Lea, 46
Vice President and General Manager-Colleges and Universities
John Mann, 54
Vice President and General Manager-Scholastic
Lee U. McGrath, 42
Vice President-Treasurer
Patricia Schiavone, 47
Vice President and General Manager-Recognition
Kevin M. Whalen, 39
Vice President-Corporate Communications
Most photos in this annual report have been provided by high school and middle
school students participating in the annual Jostens Photo Contest.
[RECYCLE LOGO]
This report was printed on recycled (and recyclable)
paper containing 10% post-consumer waste.
44
<PAGE>
Shareholder Information
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders will be held at 10 a.m. Thursday, April 22,
1999, in the Jostens auditorium, 5501 Norman Center Drive, Minneapolis,
Minnesota. All shareholders are invited to attend.
SHAREHOLDER INFORMATION
Common Stock
Communications concerning stockholdings, transfer requirements, address changes,
dividend checks and requests for automatic dividend reinvestment brochures
should be directed to the company's transfer agent and registrar: Norwest
Shareowner Services, P.O. Box 64854, St. Paul, MN 55164-0854. Telephone: (800)
468-9716.
Financial Publications
Investors seeking financial publications such as annual reports and form 10-Q
and 10-K reports may call (612) 830-3214. Financial statements and other
information about Jostens are also available electronically via the worldwide
web at www.jostens.com.
General Stockholder and Investor Questions
Jostens maintains an Investor Relations office to assist stockholders and
investors. Inquiries may be directed to: Heide Erickson, Director - Investor
Relations, Jostens Inc., 5501 Norman Center Drive, Minneapolis, MN 55437.
Telephone (612) 830-3332.
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 and optional cash deposits to the purchase of additional Jostens
shares. Shareholders interested in this service can obtain a brochure by
contacting Norwest Shareowner Services at the address listed above.
STOCK EXCHANGE LISTING
Jostens common stock is traded on the New York Stock Exchange under the trading
symbol JOS. There were approximately 5,400 shareholders of record as of December
31, 1998.
<PAGE>
[picture]
50s female cheerleader
[LOGO]
For more information about our products and services, please contact us.
Jostens Inc.
5501 Norman Center Drive Telephone (612) 830-3300
Minneapolis, MN 55437 www.jostens.com
<PAGE>
EXHIBIT 21
JOSTENS, INC. AND SUBSIDIARIES
Name of Company Jurisdiction of Incorporation
American Yearbook Company, Inc. Kansas
Jostens Canada, Ltd. Canada
Balfirm Canada, Inc. Canada
Jostens Can Investments B.V. Netherlands
Jostens International Holding B.V. Netherlands
JC Trading, Inc. Puerto Rico
Conceptos Jostens, S.A. de C.V. Mexico
Reconocimientos E Incentivos, S.A. de C.V. Mexico
JostFer, S.A. de C.V. Mexico
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Annual Report (Form 10-K) of
Jostens, Inc. of our report dated February 2, 1999, included in the 1998 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 Jostens Inc.'s Registration
Statement Number 33-40233 on Form S-3 and Registration Statements on Form S-8
(Post-effective Amendment Number 1 to Registration Statement Number 2-95076,
33-19308, 33-58414, 333-00713, 333-13221, 333-13223, 333-56455, and 333-72347)
of our report dated February 2, 1999, 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
the Annual Report (Form 10-K) of Jostens, Inc.
/s/ Ernst & Young LLP
Ernst & Young LLP
Minneapolis, Minnesota
March 31, 1999
<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 JANUARY 2,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-03-1998
<PERIOD-END> JAN-02-1999
<CASH> 0
<SECURITIES> 2,595
<RECEIVABLES> 113,655
<ALLOWANCES> (7,308)
<INVENTORY> 90,494
<CURRENT-ASSETS> 240,544
<PP&E> 256,165
<DEPRECIATION> (167,518)
<TOTAL-ASSETS> 366,167
<CURRENT-LIABILITIES> 287,779
<BONDS> 3,600
0
0
<COMMON> 11,690
<OTHER-SE> 46,862
<TOTAL-LIABILITY-AND-EQUITY> 366,167
<SALES> 770,917
<TOTAL-REVENUES> 770,917
<CGS> 351,795
<TOTAL-COSTS> 351,795
<OTHER-EXPENSES> 316,933
<LOSS-PROVISION> 1,858
<INTEREST-EXPENSE> 7,026
<INCOME-PRETAX> 83,520
<INCOME-TAX> 41,700
<INCOME-CONTINUING> 41,820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,820
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
</TABLE>
