-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GMv2FiCPWh6rMvEDuf7eQjqXWRqntCSr8SKyQNZ263DK+0Jxmnwwvk0fs46NsJIc zbPGeX2Z/GYWTEyEbfdowA== 0000950131-96-004719.txt : 19960926 0000950131-96-004719.hdr.sgml : 19960926 ACCESSION NUMBER: 0000950131-96-004719 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960925 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOSTENS INC CENTRAL INDEX KEY: 0000054050 STANDARD INDUSTRIAL CLASSIFICATION: JEWELRY, PRECIOUS METAL [3911] IRS NUMBER: 410343440 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05064 FILM NUMBER: 96634183 BUSINESS ADDRESS: STREET 1: 5501 NORMAN CTR DR CITY: MINNEAPOLIS STATE: MN ZIP: 55437 BUSINESS PHONE: 6128303300 MAIL ADDRESS: STREET 1: 5501 NORMAN CENTER DRIVE CITY: MINNEAPOLIS STATE: MN ZIP: 55437 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1996. OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------------- ----------------- Commission File No. 1-5064 JOSTENS, INC. ---------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Minnesota 41-0343440 - ------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5501 Norman Center Drive, Minneapolis, Minnesota 55437 - -------------------------------------------------- --------- (Address of principal executive offices) (Zip Code) (612) 830-3300 ------------------------------------------------------ (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered - --------------------------------- ----------------------------------------- Common Shares, $.33 1/3 par value New York Stock Exchange, Inc. Common Share Purchase Rights New York Stock Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of voting stock held by nonaffiliates of the Registrant on September 4, 1996, was $727,570,963. The number of shares outstanding of Registrant's only class of common stock on September 4, 1996, was 38,546,806. 1 DOCUMENTS INCORPORATED BY REFERENCE Document Form 10-K - ------------------------------------------- -------------------------- Annual Report to Shareholders for Parts II and IV The Year Ended June 30, 1996. Proxy Statement for Annual Meeting of Parts I and III Shareholders to be held October 24, 1996 2 PART I Item 1. BUSINESS -------- (a) The Company is a Minnesota corporation, incorporated in 1906. The Company provides products and services that help people celebrate achievement, reward performance, recognize service and commemorate experiences throughout their lives. Products and services include: yearbooks, class rings, graduation products, student photography packages, customized business performance and service awards, sports awards and customized affinity products. In September 1995, the Company repurchased 7,011,108 shares of its common stock, the maximum number of shares allowable for purchase, for $169.3 million through a Modified Dutch Auction tender offer. The repurchase was funded from the Company's cash and short-term investment balance, as well as short-term borrowings. In June 1995, Jostens sold its Jostens Learning Corp. (JLC) curriculum software subsidiary to a group led by Bain Capital, Inc. for $50 million in cash, a $36 million note maturing in eight years and a separate $4 million note convertible into 19 percent of the equity of Jostens Learning, subject to dilution in certain events. The transaction gain of $11.1 million ($5.8 million after tax) was deferred in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 81, Gain Recognition on the Sale of a Business or Operating Assets to a Highly Leveraged Entity. In the second quarter of fiscal 1996, the deferred gain increased as a result of the sale of Wicat Systems ($5.3 million) and some accrual settlements ($800,000). Wicat Systems was the small, computer-based aviation training subsidiary of JLC which was sold to Wicat Acquisition Corp., a private investment group, for $1.5 million in cash plus a promissory note for approximately $150,000. The adjusted $17.2 million gain ($9.7 million after tax) and interest on the notes receivable, will be deferred until cash flows from the operating activities of JLC are sufficient to fund debt service, dividend or any other covenant requirements. In the fourth quarter of fiscal 1994, the Company recorded an $8.5 million restructuring charge ($5.1 million after tax, or 12 cents per share) related to continuing operations, covering headcount reductions in the general and administrative functions. Jostens also recorded a restructuring charge of $60.9 million ($40.2 million after tax, or 88 cents per share) related to JLC, which has been reclassified as part of discontinued operations. The restructuring charge relating to JLC included $39.1 million to focus its product development, $7.3 million to exit both direct and indirect investments in three ancillary lines of business, $4.1 million to exit the hardware sales and service business, and $10.4 million for work-force reductions. In the third quarter of fiscal 1994, the U.S. Photography business closed leased facilities in Clinton, Mississippi, and Lake Forest, California, and transferred production in fiscal 1995 to owned facilities in Webster, New York, and Winnipeg, Manitoba. In the third quarter of fiscal 1995, the U.S. Photography business also closed its Jackson, Mississippi facility, transferring production to Webster, New York, and Winnipeg, Manitoba. 3 In January 1994, Jostens sold its Sportswear business to a subsidiary of Fruit of the Loom for $46.7 million in cash. Jostens recognized an $18.5 million gain ($11 million after tax) on the sale, primarily because the Sportswear business had been written down by $15 million to its then estimated net realizable value. There have been no material changes during fiscal 1996 in the mode in which the Company has conducted its business. (b) The Company's operations are classified into two business segments: school-based recognition products and services (School Products) and longevity and performance recognition products and services for businesses (Recognition). Business segment financial information is in the financial statement footnote "Business Segment Information" on pages 35 and 36 of the 1996 Annual Report to Shareholders. (c) The Company's two business segments sell their products in elementary schools, high schools, colleges and businesses in the 50 United States and some foreign countries through a sales force of approximately 1,125 independent representatives. In fiscal 1995, the Company had a discontinued operation (JLC) which produced educational software for students in kindergarten through grade 12. The JLC discontinued operation included its Wicat subsidiary which was subsequently sold in fiscal 1996. In fiscal 1994, the Company had a discontinued operation (Sportswear), which manufactured and marketed decorated sportswear to retail outlets and schools. 4 SCHOOL PRODUCTS SEGMENT - ----------------------- School Products recognizes individual and group achievement and affiliation primarily in the academic market. School Products comprises five businesses: Printing & Publishing, Jewelry, Graduation Products, U.S. Photography and Jostens Canada. The School Products segment's sales of $595 million in 1996 included these five lines of business and $8.8 million in other sales. Printing & Publishing: Jostens manufactures and sells student-created yearbooks in elementary schools, junior high schools, high schools and colleges. Independent sales representatives work closely with each school's yearbook staff (both students and a faculty adviser), assisting with the planning, editing, layout and printing scheduling until the book is completed. Jostens sales representatives work with the faculty advisers to renew yearbook contracts each year. This business also provides commercial printing of annual reports, brochures, and promotional books and materials. Printing & Publishing contributed approximately 37% of sales volume of this segment in fiscal 1996, 36% in 1995 and 35% in 1994. Jewelry: Jostens manufactures and sells rings representing a graduating class primarily to high school and college students. This product contributed approximately 28% of the sales volume of this segment in fiscal 1996 and 27% in 1995 and 1994. Most schools have only one supplier to its students each year. Rings may be sold through bookstores, other campus stores, retail jewelry stores as well as within the school through temporary order-taking booths. Jostens, through its independent sales representatives, manages the entire process of interacting with the student through ring design, promotion, ordering and presentation to relieve school officials of any administrative burden connected with students purchasing this symbol of achievement. Graduation Products: Jostens manufactures and sells graduation announcements, diplomas and caps and gowns to students and administrators in high schools and colleges. This product group contributed approximately 23%, 24% and 23% of sales to this segment in fiscal years 1996, 1995 and 1994, respectively. Jostens independent sales representatives make calls on schools and sales are taken through temporary order-taking booths. Photography: Jostens U.S. Photography provides student pictures and senior portraits to elementary, junior high and high school students through its sales force and dealer network, which arrange the sittings/shootings at individual schools or in their own studios. This business contributed approximately 4% of sales to this segment in fiscal 1996 and 1995 and 5% in fiscal 1994. Jostens processes the photos at its plants in the U.S. and Canada. Jostens Canada: Jostens is the leader in school photography, yearbooks and class rings in Canada. Approximately 60% of fiscal 1996 sales volume was attributable to school photography. This product group contributed approximately 7% of sales to this segment in fiscal 1996 and 1995 and 8% in fiscal 1994. MARKETS: School Products serves elementary schools, middle schools, high schools, colleges, alumni associations and other organizations in the United States and Canada through approximately 1,025 independent sales representatives. Jostens also maintains an international sales force covering about 50 countries servicing primarily American schools and military installations. 5 PRODUCTS: School products include elementary through college yearbooks, commercial printing, desktop publishing curriculum kits, class rings, graduation caps and gowns, graduation announcements and accessories, diplomas, alumni products, individual and group school pictures, group photographs for youth camps and organizations, and senior graduation portraits. SALES FORCE: The School Products segment markets its products primarily through independent sales representatives. Approximately 450 persons are dedicated to selling class rings and graduation products, 325 to yearbooks and 250 to photography. During 1996, the company was approached by a group of sales representatives seeking changes in their agreements with Jostens. All of the company's sales representatives have similar contractual arrangements, and the company does not anticipate substantial changes to that relationship with the majority of sales representatives. For some of the about 50 representatives who serve the college market, the company anticipates a change in the contract status. These representatives' contracts call for a transition commission to be paid after the representative leaves the business. Historically, these transition payments have been paid by the new sales representative who assumed responsibility for the accounts of the outgoing representative, with Jostens acting as the collection agent. Although the nature of the potential changes to the contractual relationship with the representatives serving the college market is unknown, any change to the current arrangement may result in the company being required to account in the future for these contingent payments as a liability. In the absence of substantial contractual changes, the company does not anticipate any change in the accounting for the contracts with its other independent sales representatives. SEASONALITY: This product segment experiences a strong seasonality concurrent with the school year with 40-50% of full-year sales occurring in the fourth quarter. The business generally requires short-term financing during the course of the fiscal year. COMPETITION: The business of the School Products segment is highly competitive, primarily in the pricing, product development and marketing areas. In the class ring business, the Company has two primary national competitors: Town & Country (Balfour) and Herff Jones, both with distribution methods similar to the Company's. The class ring business is also served through retail jewelry stores, dominated by two companies: Commitment Jewelry Company with two lines (ArtCarved and R. Johns) and Town & Country with one line (Gold Lance). In the Graduation Products business, several national and numerous local and regional competitors offer products similar to those of the Company. Printing & Publishing competition is primarily made up of two national firms (Herff Jones and Taylor Publishing) and one smaller regional firm (Walsworth Publishing). All compete on price, print quality, product offerings and service. Technological offerings in the way of computer based curricula are becoming a more significant market advantage. In the Photography area, the Company competes with Lifetouch, Olan Mills and Herff-Jones, and a variety of regional and locally owned and operated photographers that process product in small batches in the U.S. In Canada, the Company competes with Lifetouch and a variety of regional and locally owned and operated photographers. The Company's strategy for competing with these companies is based on its service and quality. 6 RECOGNITION SEGMENT - ------------------- The Recognition segment helps companies promote and recognize achievement in people's careers. It designs, communicates and administers programs to help customers improve performance and employee service. Jostens provides products and services that reflect achievements in service, sales, quality, productivity, attendance, safety and retirements. It also produces awards for championship team accomplishments and affinity products for associations. This business manufactures and markets a wide variety of products sold primarily to corporations and businesses in the United States and Canada. The products manufactured by Recognition include customized and personalized jewelry, rings, watches and engraved certificates. In addition, this business also remarkets items manufactured by others for incorporation into programs sold to Recognition customers. These products include items supplied by Lenox, Hartmann, Waterman, Kirk Stieff and Oneida. MARKETS: Recognition serves customers from small and mid-size companies to global corporations, professional and amateur sports teams and special interest associations. PRODUCTS: Recognition offers a wide assortment of products and services tailored to the needs of the organization it is serving. For global companies, Jostens customizes programs to meet specific customer needs. Standardized programs, such as New Generation and Reflections, provide small and mid-size companies the same product and service features without complex customization. Recognition enjoys exclusive product and personalization distributor arrangements offering such products as Lenox[TM] luggage for the service award marketplace. SALES FORCE: Recognition sells its products through approximately 100 independent sales representatives who develop programs incorporating Recognition products. COMPETITION: The business of the Recognition segment is highly competitive with a very fragmented and diverse set of competitors. The Recognition business competes primarily with O.C. Tanner and the Robbins Company on a national basis as well as several regional recognition companies. Recognition focuses on service and product offerings in competing with these companies. 7 JOSTENS, INC.--INFORMATION REGARDING ALL BUSINESSES ----------------------------------------------------- BACKORDERS: Because of the nature of the Company's business, generally all orders are filled within a few months from the time of placement. However, the School Products Segment obtains student yearbook contracts in one fiscal year for a significant portion of the yearbooks to be delivered in the next fiscal year. Often the prices of the yearbooks are not established at the time of the order because the content of the books may not have been finalized. Subject to the foregoing qualifications, the Company estimates that as of June 30, 1996, the backlog of orders related to continuing operations was approximately $210 million compared with $231 million a year earlier, primarily related to student yearbooks. The Company expects most of the backlog orders to be confirmed and filled within the current fiscal year. ENVIRONMENTAL: The Company does not believe that compliance with federal, state, and local provisions protecting the environment will have a material affect upon its capital expenditures, earnings, or competitive position. RAW MATERIALS: All of the raw materials used by the Company are available from several sources. Gold is an important raw material and accounted for approximately 9%, 10%, and 9%, respectively, of the Company's cost of products sold in the fiscal years ended June 30, 1996, 1995 and 1994. INTELLECTUAL PROPERTY: The Company has no patents, licenses, franchises or concessions that are material to the Company as a whole, but does have a number of proprietary trade secrets, trademarks and copyrights that it considers important. In addition, licenses are an important part of certain aspects of the Company's businesses; however, the loss of any license would not have a material affect on the Company's operations. SIGNIFICANT CUSTOMERS: No material part of any business of the Company depends upon a single customer or very few customers. FEDERAL GOVERNMENT CONTRACTS: No material portion of the Company's business is subject to renegotiation of profits or the termination of contracts or subcontracts at the election of the United States Government. EMPLOYEES: At June 30, 1996, the total number of employees of the Company was approximately 6,100 (not including independent sales representatives). Because of seasonal fluctuations and the nature of the business, the number of employees tends to vary. (d) The Company's foreign sales are derived primarily from operations in Canada and the United Kingdom. The accounts and operations of the Company's foreign businesses are not material. Local taxation, import duties, fluctuation in currency exchange rates and restrictions on exportation of currencies are among risks attendant to foreign operations, but these risks are not considered material with respect to the Company's business. The profit margin on foreign sales is approximately the same as the profit margin on domestic sales. 8 Item 2. PROPERTIES ---------- The principal plants, which are owned by the Company unless otherwise noted, are as follows:
Approximate Area in Location Principal Products Square Feet - -------- ------------------ ----------- Attleboro, Massachusetts Class Rings 52,000 Denton, Texas Class Rings 57,000 Laurens, South Carolina Caps and Gowns 98,000 Porterville, California Graduation Products 92,000 Red Wing, Minnesota Graduation Products 132,000 Shelbyville, Tennessee Graduation Products 87,000 Burnsville, Minnesota * Scholastic Support 44,000 Edina, Minnesota * Scholastic Support 22,000 Owatonna, Minnesota ** Scholastic Support 154,000 Owatonna, Minnesota * Scholastic Support 24,000 Memphis, Tennessee Recognition Awards 67,000 Princeton, Illinois Recognition Awards 65,000 Sherbrooke, Quebec Recognition Awards 15,000 Clarksville, Tennessee Yearbooks 105,000 State College, Pennsylvania Yearbooks 66,000 Topeka, Kansas Yearbooks 236,000 Visalia, California Yearbooks 96,000 Winston-Salem, North Carolina Yearbooks/Commercial Printing 132,000 Webster, New York Photography Products 60,000 Webster, New York * Photography Products 10,000 Winnipeg, Manitoba Photography and Yearbooks 69,000 Winnipeg, Manitoba * Class Rings 11,000
Executive offices are located in a general offices building owned by the Company, which has approximately 116,000 square feet and is located in a Minneapolis, MN suburb. A portion of this facility has been financed through the issuance of revenue bonds. 9 Item 2. PROPERTIES (continued) ---------- * Represents leased properties with the following expiration dates. The Company expects to renew those leases expiring in fiscal 1997 with the exception of Clinton and the Winnipeg Ring Plant.
Edina 1997 Webster 1997 Toronto 2000 Winnipeg Ring Plant 1997 (Announced closing in July 1996) Extension of Photo Plant 1999 General Offices 1998 Burnsville 1997 Owatonna 2001
** Several locations. Item 3. LEGAL PROCEEDINGS ----------------- No material legal proceedings involving the Company or any subsidiary as a defendant are pending or threatened. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- None. 10 Item 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- The information under the caption "Election of Directors" contained on pages 2 through 7 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on October 24, 1996, as filed with the Securities and Exchange Commission is hereby incorporated herein by reference. Executive officers of the Registrant are as follows:
Years of Service With Name the Company Age Title and Business Experience - ---- ------------ --- ----------------------------- Robert C. Buhrmaster 4 49 President and Chief Executive Officer Mr. Buhrmaster joined the Company in December 1992 as Executive Vice President and Chief Staff Officer. He was named President and Chief Operating Officer in June 1993 and was named to his current position in March 1994. Prior to joining Jostens, Mr. Buhrmaster had been with Corning, Inc. for 18 years serving in various capacities, most recently as Senior Vice President of Strategy and Business Development. Charles W. Schmid 3 53 Executive Vice President and General Manager - Scholastic and Recognition Mr. Schmid joined the Company in April 1994 as Senior Vice President and Chief Marketing Officer. He was appointed to his current position in August 1995. Prior to joining the Company he was President and Chief Operating Officer for Carlson Companies, Inc. From 1979 through 1991, Mr. Schmid served in various executive capacities for Philip Morris Companies, Inc., most recently as Senior Vice President of Marketing for its Miller Brewing Company. Orville E. Fisher Jr. 21 52 Senior Vice President, General Counsel and Secretary Mr. Fisher joined the Company in 1975 as General Counsel, was named Vice President, General Counsel and Assistant Secretary in 1977. He assumed his present position in 1988. John L. Jones 5 59 Senior Vice President - International Mr. Jones joined the Company in January, 1992 as Senior Vice President-Human Resources. Prior to joining Jostens, he was Director of Human Resources, Americas Operations of Xerox Corporation, and had held various human resource positions with Xerox since 1971.
11 Item 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued) --------------------------------------------------
Years of Service With Name the Company Age Title and Business Experience - ---- ------------ --- ----------------------------- Trudy A. Rautio 3 43 Senior Vice President and Chief Financial Officer Ms. Rautio joined the Company in June 1993 as Vice President-Finance and Administration of the School Products Group. She was appointed to Corporate Vice President and Controller in August 1993, and Senior Vice President - Finance in October 1994. She was appointed to her current position in August 1995. Prior to joining Jostens, she worked for the Pillsbury Company for 12 years; most recently as Vice President, Finance International and Strategic Brand Development and earlier as Vice President, Finance for Green Giant. Jack Thornton 18 43 Senior Vice President and General Manager - Printing & Publishing / Photography / Jostens Canada Mr. Thornton has held several management positions with Jostens since starting as a personnel manager in 1978. He was promoted to Operations Manager of the Printing and Publishing Division in 1989 and Vice President of Operations-School Products Group one year later. He was named a Vice President for Jostens in February 1991. He was appointed a Senior Vice President of the School Products Group in October 1992. He was appointed General Manager of the Printing & Publishing business in April 1993. He assumed his current position in August 1995.
12 Item 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued) -------------------------------------------------- Years of Service With Name the Company Age Title and Business Experience - ---- ------------ --- ----------------------------- Greg S. Lea 3 44 Vice President and General Manager - Colleges and Universities Mr. Lea joined the Company in November 1993 as Vice President - Total Quality Management. He was named to his current position in June 1995. Prior to joining the Company, Mr. Lea spent 19 years with International Business Machines Corp. in various financial, operations and quality positions, most recently as Director of Market Driven Quality for IBM's AS/400 Division. Lee U. McGrath 2 40 Vice President and Treasurer Mr. McGrath joined the Company in May 1995. Prior to joining the Company he worked for six years for H.B. Fuller Company in various positions, most recently as assistant treasurer. 13 PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS ------------------------ The information under the captions "Unaudited Quarterly Financial Data", contained on page 38 and "Shareholder Information" and "Stock Exchange Listing" contained on page 41 in the Company's annual report to shareholders for the year ended June 30, 1996, is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA ----------------------- The information under the caption "Six-Year Financial Summary" contained on page 39 in the Company's annual report to shareholders for the year ended June 30, 1996, is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------ The information under the caption "Management's Discussion and Analysis" contained on pages 14 through 19 of the Company's annual report to shareholders for the year ended June 30, 1996, is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The consolidated balance sheets of Jostens, Inc. as of June 30, 1996 and 1995, and the related statements of consolidated operations, changes in shareholders' investment and cash flows for each of the years in the three-year period ended June 30, 1996, together with the related notes and the report of Ernst & Young LLP, independent auditors, all contained on pages 20 through 37 of the Company's annual report to shareholders for the year ended June 30, 1996, are incorporated herein by reference. Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ---------------------------------------------------- None. 14 PART III Item 10. DIRECTORS AND OFFICERS OF THE REGISTRANT ---------------------------------------- In addition to certain information as to executive officers of the Company included in Part I of this Form 10-K, the information contained on pages 2 through 7 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held October 24, 1996, with respect to directors and executive officers of the Company, is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION ---------------------- The information under the caption "Executive Compensation" contained on pages 8 through 14 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on October 24, 1996, as filed with the Securities and Exchange Commission is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- The information under the caption "Shares Held by Directors and Officers" on pages 6 through 7 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held October 24, 1996, is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- None. 15 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K -------------------------------------------------------------- (a) 1. Financial Statements: The following financial statements of the Company appearing on the indicated pages of the Annual Report to Shareholders for the year ended June 30, 1996, are incorporated herein by reference.
Pages in Annual Report ------------- Consolidated Balance Sheets - June 30, 1996 and 1995 22 and 23 Statements of Consolidated Operations for the Years Ended June 30, 1996, 1995, and 1994 21 Statements of Consolidated Changes in Shareholders' Investment for the Years Ended June 30, 1996, 1995, and 1994 25 Statements of Consolidated Cash Flows for the Years Ended June 30, 1996, 1995, and 1994 24 Notes to Consolidated Financial Statements 26 through 37
2. Financial Statement Schedule Page in 10-K ------------ Schedule II - Valuation and Qualifying Accounts S-1 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted as not required or not applicable or the information required to be shown thereon is included in the financial statements and related notes. 16 Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K -------------------------------------------------------------- (continued) 3. Executive Agreements The following agreement is an exhibit to this Annual Report on Form 10-K: Deferred Compensation Plan (b) Reports on Form 8-K: No reports on Form 8-K were filed during the fourth quarter of the year ended June 30, 1996. (c) Exhibits 2. a. Stock Purchase Agreement by and between JLC Holdings, Inc. Software Systems Corp. and JLC Acquisitions, Inc. and Jostens, Inc. (incorporated by reference to Exhibit 2.1 contained in the Current Report on Form 8-K filed on July 14, 1995) 3. a. Articles of Incorporation and Bylaws (Incorporated by reference to Exhibit 3(a) contained in the Annual Report on Form 10-K for the year ended June 30, 1993). 4. a. Rights Agreement dated August 9, 1988 between the Company and Norwest Bank Minnesota, N.A. (incorporated by reference to the Company's Form 8-A dated August 17, 1988, File No. 1-5064). b. Form of Indenture, dated as of May 1, 1991, between Jostens, Inc. and Norwest Bank Minnesota, N.A., as Trustee (incorporated by reference to Exhibit 4.1 contained in the Company's Form S-3, File No. 33-40233). 10. a. Company's 1984 Stock Option Plan (incorporated by reference to the Company's Registration Statement on Form S-8, File No. 2-95076). b. Company's 1987 Stock Option Plan (incorporated by reference to the Company's Registration Statement on Form S-8, File No. 33-19308). c. Company's 1992 Stock Incentive Plan (incorporated by reference to Exhibit 10(d) contained in the Annual Report on Form 10-K for the year ended June 30, 1992). 17 Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K -------------------------------------------------------------- (continued) d. Form of Contract entered into with respect to Executive Supplemental Retirement Plan (incorporated by reference to the Company's Form 8 dated May 2, 1991). e. Written description of the Company's Retired Director Consulting Plan (incorporated by reference to the Company's Form 8 dated May 2, 1991). f. Form of Performance Share Agreement entered into with respect to the Special Equity Performance Plan (incorporated by reference to Exhibit 10(g) contained in the Annual Report on Form 10-K for year ended June 30, 1995). g. Executive Supplemental Retirement Agreement with John L. Jones (incorporated by reference to Exhibit 10(h) contained in the Annual Report on Form 10-K for year ended June 30, 1995). h. Deferred Compensation Plan (filed herewith) 11. Computation of earnings per share. 13. Annual Report to Shareholders for the year ended June 30, 1996. 21. List of Company's subsidiaries. 23. Consent of Independent Auditors. 27. Financial Data Schedule. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JOSTENS, INC. Date: September 20, 1996 By /s/ Robert C. Buhrmaster -------------------------------------------------------- Robert C. Buhrmaster President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants in the capacities and on the dates indicated.
/s/ Robert C. Buhrmaster September 20, 1996 - ------------------------------------------------------------ Robert C. Buhrmaster (Principal Executive Officer) President and Chief Executive Officer and Director /s/ Trudy A. Rautio September 20, 1996 - ------------------------------------------------------------ Trudy A. Rautio (Principal Financial and Accounting Officer) Senior Vice President and Chief Financial Officer /s/ Robert P. Jensen September 20, 1996 - ------------------------------------------------------------ Robert P. Jensen Chairman of the Board and Director /s/ Lilyan H. Affinito September 20, 1996 - ------------------------------------------------------------ Lilyan H. Affinito Director /s/ William A. Andres September 20, 1996 - ------------------------------------------------------------ William A. Andres Director /s/ Jack W. Eugster September 20, 1996 - ------------------------------------------------------------ Jack W. Eugster Director /s/ Mannie L. Jackson September 20, 1996 - ------------------------------------------------------------ Mannie L. Jackson Director /s/ John W. Stodder September 20, 1996 - ------------------------------------------------------------ John W. Stodder Director /s/ Richard A. Zona September 20, 1996 - ------------------------------------------------------------ Richard A. Zona Director
19 JOSTENS INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (In Thousands)
- ----------------------------------------------------------------------------------------------------------- COL A. COL. B COL. C COL. D COL. E - ----------------------------------------------------------------------------------------------------------- Additions -------------------------- Charged to Balance at Charged to Other Balance at Beginning Costs and Accounts - Deductions - End of Description of Period Expenses Describe Describe Period - ----------------------------------------------------------------------------------------------------------- Reserves and allowances deducted from asset accounts: - ----------------------------------------------------------------------------------------------------------- Allowances for uncollectible accounts: Year ended June 30, 1996 $ 9,049 $ 2,195 $ - $ 5,278(1) $ 5,966 Year ended June 30, 1995 $13,749 $ 3,552 $ - $ 8,252(2) $ 9,049 Year ended June 30, 1994 $ 6,869 $10,576(9) $ - $ 3,696(1) $13,749 - ----------------------------------------------------------------------------------------------------------- Allowances for sales returns: Year ended June 30, 1996 $ 7,509 $12,951 $ - $13,942(3) $ 6,518 Year ended June 30, 1995 $ 6,719 $12,763 $ - $11,973(3) $ 7,509 Year ended June 30, 1994 $ 8,733 $10,843 $ - $12,857(3) $ 6,719 - ----------------------------------------------------------------------------------------------------------- SFAS No. 109 valuation allowance: Year ended June 30, 1996 $ 2,117 $ 3,803(4) $ - $ - $ 5,920 Year ended June 30, 1995 $ 3,642 $ - $ - $ 1,525(5) $ 2,117 Year ended June 30, 1994 $ 3,547 $ 95 $ - $ - $ 3,642 - ----------------------------------------------------------------------------------------------------------- Overdraft reserves: Year ended June 30, 1996 $ 6,157 $ 2,838 $ - $ 2,450(1) $ 6,545 Year ended June 30, 1995 $ 7,796 $ 1,943 $ - $ 3,582(1) $ 6,157 Year ended June 30, 1994 $ 3,243 $ 4,553(9) $ - - $ 7,796 - ----------------------------------------------------------------------------------------------------------- Reserves and allowances added to liability accounts: - ----------------------------------------------------------------------------------------------------------- Restructuring charges: Year ended June 30, 1996 $ 8,636 $ - $ - $ 5,936(6) $ 2,700 Year ended June 30, 1995 $39,821 $ - $ - $31,185(7) $ 8,636 Year ended June 30, 1994 $38,203 $28,668 $ - $27,050(8) $39,821 - -----------------------------------------------------------------------------------------------------------
Note (1) -- Uncollectible accounts written off - net of recoveries. Note (2) -- Uncollectible amounts written off - net of recoveries ($5,796) plus disposition of Jostens Learning ($2,456). Note (3) -- Returns processed against reserve. Note (4) -- Increased due to the increase in foreign tax credits not likely to be utilized. Note (5) -- Reduced for utilization of Jostens Learning NOL. Note (6) -- Payments ($2,400), Noncash items ($400), and disposition of Wicat ($3,136). Note (7) -- Payments ($21,090), Noncash items ($3,523) and disposition of Jostens Learning ($6,572). Note (8) -- Payments ($12,050) and disposition of Sportswear business ($15,000). Note (9) -- Includes change in estimate. S-1 20 EX-10.(H) 2 JOSTENS, INC. DEFERRED COMPENSATION PLAN EXHIBIT 10. h. JOSTENS, INC. DEFERRED COMPENSATION PLAN As Amended Effective as of August 15, 1996 JOSTENS, INC. DEFERRED COMPENSATION PLAN Table of Contents
ARTICLE 1 DESCRIPTION............................................. 1 1.1 Plan Name............................................... 1 1.2 Plan Purpose............................................ 1 1.3 Plan Type............................................... 1 1.4 Plan Background......................................... 1 ARTICLE 2 PARTICIPATION........................................... 2 2.1 Eligibility............................................. 2 2.2 Transfer Among Participating Employers.................. 2 2.3 Multiple Employment..................................... 2 2.4 Ceasing to be Eligible.................................. 2 2.5 Condition of Participation.............................. 3 2.6 Termination of Participation............................ 3 ARTICLE 3 BENEFITS................................................ 4 3.1 Participant Accounts.................................... 4 3.2 Deferral Credits........................................ 4 3.3 Earnings Credits........................................ 6 3.4 Vesting................................................. 7 3.5 Current Election by Qualified Director.................. 7 ARTICLE 4 DISTRIBUTION............................................ 8 4.1 Distribution to Participant............................. 8 4.2 Distribution to Beneficiary............................. 11 4.3 Limitations on Share Distributions...................... 12 4.4 Payment in Event of Incapacity.......................... 12 ARTICLE 5 SOURCE OF PAYMENTS; NATURE OF INTEREST.................. 13 5.1 Establishment of Trust.................................. 13 5.2 Source of Payments...................................... 13 5.3 Status of Plan.......................................... 13 5.4 Non-assignability of Benefits........................... 13 ARTICLE 6 ADOPTION, AMENDMENT, TERMINATION........................ 14 6.1 Adoption................................................ 14 6.2 Amendment............................................... 14 6.3 Termination of Participation............................ 14 6.4 Termination............................................. 15
i
ARTICLE 7 DEFINITIONS, CONSTRUCTION AND INTERPRETATION....................................... 16 7.1 Account............................................................................ 16 7.2 Active Participant................................................................. 16 7.3 Administrator...................................................................... 16 7.4 Affiliated Organization............................................................ 16 7.5 Annual Bonus....................................................................... 16 7.6 Base Compensation.................................................................. 16 7.7 Board.............................................................................. 17 7.8 Beneficiary........................................................................ 17 7.9 Change of Control.................................................................. 17 7.10 Code............................................................................... 18 7.11 Company............................................................................ 18 7.12 Cross Reference.................................................................... 18 7.13 Effective Date..................................................................... 18 7.14 ERISA.............................................................................. 18 7.15 Exchange Act....................................................................... 18 7.16 Governing Law...................................................................... 18 7.17 Headings........................................................................... 18 7.18 Market Price....................................................................... 18 7.19 Merger Date........................................................................ 18 7.20 Number and Gender.................................................................. 18 7.21 Participant........................................................................ 18 7.22 Participating Employer............................................................. 18 7.23 Plan............................................................................... 19 7.24 Plan Year.......................................................................... 19 7.25 Plan Rules......................................................................... 19 7.26 Qualified Director................................................................. 19 7.27 Qualified Employee................................................................. 19 7.28 Shares............................................................................. 19 7.29 Termination of Employment.......................................................... 19 7.30 Trust.............................................................................. 19 7.31 Trustee............................................................................ 19 7.32 Unforeseeable Emergency............................................................ 19 ARTICLE 8 ADMINISTRATION..................................................................... 20 8.1 Administrator...................................................................... 20 8.2 Plan Rules and Regulations......................................................... 20 8.3 Administrator's Discretion......................................................... 20 8.4 Specialist's Assistance............................................................ 20 8.5 Indemnification.................................................................... 20 8.6 Benefit Claim Procedure............................................................ 20 8.7 Disputes........................................................................... 21 ARTICLE 9 MISCELLANEOUS...................................................................... 22 9.1 Withholding and Offsets............................................................ 22 9.2 Other Benefits..................................................................... 22
ii 9.3 No Warranties Regarding Tax Treatment..................... 22 9.4 No Rights to Continued Service Created.................... 22 9.5 Successors................................................ 22
iii JOSTENS, INC. DEFERRED COMPENSATION PLAN ARTICLE 1 DESCRIPTION 1.1 PLAN NAME. The name of the Plan is the "Jostens, Inc. Deferred Compensation Plan." 1.2 PLAN PURPOSES. The purposes of the Plan are (a) to provide Active Participants with the opportunity to defer receipt of a portion of the Base Compensation and, in the case of Active Participants who are Qualified Employees, the Annual Bonus, that would otherwise be payable to them and (b) to permit Active Participants who are Qualified Directors to elect to receive Base Compensation currently in the form of Shares. 1.3 PLAN TYPE. The Plan is an unfunded plan maintained primarily for the purpose of providing deferred compensation for Qualified Directors and a select group of management or highly compensated employees. It is intended that, with respect to participation by Qualified Directors, ERISA will not apply to the Plan and that, with respect to participation by Qualified Employees, the Plan is exempt from the provisions of Parts 2, 3 and 4 of Subtitle B of Title I of ERISA by operation of sections 201(2), 301(a)(3) and 401(a)(4) thereof, respectively, and from the provisions of Title IV of ERISA, to the extent otherwise applicable, by operation of section 4021(b)(6) thereof. The Plan is also intended to be unfunded for tax purposes. The Plan will be construed and administered in a manner that is consistent with and gives effect to the foregoing. 1.4 PLAN BACKGROUND. The Company adopted the Jostens, Inc. Directors' Deferred Compensation Plan effective as of January 1, 1995. The Company adopted the Jostens, Inc. Officers' Deferred Compensation Plan effective as of January 1, 1996. Effective as of the Merger Date, such plans were restated in the manner set forth in the instrument entitled "Jostens, Inc. Deferred Compensation Plan" to reflect the merger of the plans. In the case of a Participant who was a Participant in the Jostens, Inc. Directors' Deferred Compensation Plan prior to the Merger Date, references to the Plan for the period prior to the Merger Date are to the Jostens, Inc. Directors' Deferred Compensation Plan. In the case of a Participant who was a Participant in the Jostens, Inc. Officers' Deferred Compensation Plan prior to the Merger Date, references to the Plan for the period prior to the Merger Date are to the Jostens, Inc. Officers' Deferred Compensation Plan. 1 ARTICLE 2 PARTICIPATION 2.1 ELIGIBILITY. (A) Each individual who is a Qualified Employee on the first day of a Plan Year is eligible to make deferral elections pursuant to Section 3.2(A) and (B) with respect to the Plan Year. Each individual who is a Qualified Director on the first day of a Plan Year is eligible to make deferral elections pursuant to Section 3.2(A) with respect to the Plan Year. (B) At any time during a Plan Year, the Administrator may determine that an individual who became a Qualified Employee or Qualified Director after the first day of the Plan Year is eligible to make a deferral election pursuant to Section 3.2(A), but not Section 3.2(B), with respect to the remainder of the Plan Year. (C) A Participant who, pursuant to Section 3.2(B)(3), has revoked an Annual Bonus deferral election in connection with an Unforeseeable Emergency or, pursuant to Section 4.1(D)(3), has received a distribution due to an Unforeseeable Emergency, is not eligible to elect additional deferrals (of Base Salary or Annual Bonus) with respect to the remainder of the Plan Year during which the revocation occurs or distribution is received and the immediately following Plan Year. (D) In conjunction with his or her initial election to participate in the Plan, a Participant must elect, in accordance with Section 4.1(A), whether his or her Account will be distributed following his or her termination of employment in the form of a lump sum payment or installments. Such election is irrevocable and applies to all benefits distributed to the Participant pursuant to the Plan. 2.2 TRANSFER AMONG PARTICIPATING EMPLOYERS. A Qualified Employee Active Participant who transfers employment from one Participating Employer to another Participating Employer and who continues to be a Qualified Employee after the transfer will, for the duration of the Plan Year during which the transfer occurs, continue to participate in the Plan, in accordance with the election in effect for the portion of the Plan Year before the transfer, as a Qualified Employee of such other Participating Employer. 2.3 MULTIPLE EMPLOYMENT. A Qualified Employee Active Participant who is simultaneously employed as a Qualified Employee with more than one Participating Employer will participate in the Plan as a Qualified Employee of all such Participating Employers on the basis of a single deferral election pursuant to Section 3.2 applied separately to his or her Base Compensation and Annual Bonus from each such Participating Employer. 2.4 CEASING TO BE ELIGIBLE. An Active Participant who, during a Plan Year, is determined by the Administrator to have ceased to be a Qualified Employee or Qualified Director is not eligible for further deferral credits for the Plan Year pursuant to Section 3.2 other than such credits relating to Base Compensation with respect to the period prior to such cessation. 2.5 CONDITION OF PARTICIPATION. Each Qualified Employee and Qualified Director, as a condition of participation in the Plan, is bound by all the terms and conditions of the Plan and the Plan Rules, 2 including but not limited to the reserved right of the Company to amend or terminate the Plan and the provisions of Section 8.7, and must furnish to the Administrator such pertinent information, and must execute such election forms and other instruments, as the Administrator or Plan Rules may require by such dates as the Administrator or Plan Rules may establish. 2.6 TERMINATION OF PARTICIPATION. A Participant will cease to be such as of the date on which he or she is not then eligible to make deferrals and his or her entire Account balance has been distributed. 3 ARTICLE 3 BENEFITS 3.1 PARTICIPANT ACCOUNTS. For each Participant, the Administrator will establish and maintain a Cash Account, a Share Account or both to evidence amounts credited with respect to the Participant pursuant to Sections 3.2 and 3.3 or credited to the corresponding account under the Jostens, Inc. Directors' Deferred Compensation Plan immediately prior to the Merger Date. If a Qualified Employee Participant makes deferrals with respect to Base Compensation or Annual Bonus from more than one Participating Employer, the Administrator will establish and maintain separate subaccounts within each Account with respect to, and will separately account for the deferrals attributable to, each such Participating Employer. 3.2 DEFERRAL CREDITS. (A) Base Compensation deferrals will be made in accordance with the following rules: (1) An Active Participant may elect to defer a portion of his or her Base Compensation for a Plan Year from a minimum percentage or dollar amount to a maximum percentage or dollar amount, as specified in Plan Rules. Any percentage so elected will automatically apply to the Participant's Base Compensation as adjusted from time to time. (2) An election made pursuant to this subsection will not be effective unless it is made on a properly completed election form received by the Administrator by a date specified by the Administrator which is prior to the first day of the Plan Year to which the election relates or, in the case of an Active Participant who is determined by the Administrator to be eligible to participate for a Plan Year pursuant to Section 2.1(B), within 30 days after the Administrator's determination. (3) One time during a Plan Year, a Participant may elect to increase or decrease the rate or amount of deferrals made pursuant to this subsection for the remainder of the Plan Year. In the case of an Active Participant who is a Qualified Employee, the modification will be effective as of the first day of the first payroll period that follows by at least 30 days (or such shorter period as Plan Rules may allow) the Administrator's receipt of a properly completed form. In the case of an Active Participant who is a Qualified Director, the modification will be effective with respect to any payment of Base Compensation that (a) follows by at least 30 days (or such shorter period as Plan Rules may allow) the Administrator's receipt of a properly completed form and (b) relates to services as a Qualified Director after the date on which the Administrator receives such notice. (4) In addition to the modification permitted pursuant to clause (3), an Active Participant may revoke a deferral election made pursuant to this subsection at any time. In the case of an Active Participant who is a Qualified Employee, the revocation will be effective as of the first day of the first payroll period that follows by at least 30 days (or such shorter period as Plan Rules may allow) the Administrator's receipt of a properly completed form. In the case of an Active Participant who is a Qualified Director, the revocation will be effective with respect to any payment of Base Compensation that (a) follows by at least 30 days (or such shorter period as Plan Rule may allow) the Administrator's receipt of a properly completed form and (b) 4 relates to services as a Qualified Director after the date on which the Administrator receives such notice. Upon making a revocation, the Active Participant will be unable to make further deferrals of Base Compensation until the first following Plan Year in which he or she is again determined by the Administrator to be eligible to make deferrals. (5) Any election, modification or revocation pursuant to this subsection applies only to Base Compensation relating to services performed after the effective date of the election, modification or revocation. (B) Annual Bonus deferrals by an Active Participant who is a Qualified Employee will be made in accordance with the following rules: (1) An Active Participant who is determined by the Administrator to be eligible to participate for a Plan Year pursuant to Section 2.1(A) may elect to defer a portion of his or her Annual Bonus for the Plan Year from a minimum percentage or dollar amount to a maximum percentage or dollar amount, as specified in Plan Rules. (2) An election made by a Participant pursuant to this subsection will not be effective unless it is made on a properly completed election form received by the Administrator by a date specified in Plan Rules but not later than the last day of the Plan Year immediately preceding the Plan Year in which the Annual Bonus would have been paid to the Participant but for his or her election. (3) An election pursuant to this Subsection (B) relating to the deferral of an Annual Bonus is irrevocable after the latest date by which it must be received by the Administrator to be effective; provided, first, that an Active Participant may revoke a deferral election made pursuant to this subsection in connection with an Unforeseeable Emergency in which case no further deferrals (of Base Compensation or Annual Bonus) will be made with respect to the Participant for the remainder of the Plan Year in which the revocation is made and the next following Plan Year; or, second, that if a Participant terminates employment with all Affiliated Organizations or otherwise ceases to be a Qualified Employee before the date as of which an Annual Bonus deferral is credited to his or her Account, other than in connection with a divestiture contemplated by Section 4.1(D)(2) in which the Participant is covered in a successor plan, the deferral election with respect to such Annual Bonus will automatically be revoked as of the date of the Participant's termination of employment or on which he or she ceases to be a Qualified Employee, as the case may be. (C) In conjunction with each deferral election made pursuant to Subsection (A) and each deferral election made pursuant to Subsection (B) (or an election made pursuant to the Jostens, Inc. Directors' Deferred Compensation Plan or Jostens, Inc. Officers' Deferred Compensation Plan prior to the Merger Date and in effect immediately prior to the Merger Date), an Active Participant must elect, in accordance with and subject to Plan Rules, how the deferral is to be allocated among his or her Cash Account and Share Account. Except as provided in Section 3.3(C), such an election is irrevocable after the latest date by which the deferral election to which it relates must be received by the Administrator to be effective. 5 (D) Deferrals of an Active Participant's Base Compensation and Annual Bonus pursuant to this section will be credited to his or her Cash Account or Share Account, as the case may be, as of the first day of the month first following the date on which the Participant would have otherwise received the Base Compensation or Annual Bonus but for his or her deferral election pursuant to this section. Such credits to a Participant's Cash Account will be in United States dollars in an amount equal to the amount of the deferral allocated to the Cash Account by the Participant. Such credits to a Participant's Share Account will be the number of full and fractional shares determined by dividing the United States dollar amount of the deferral allocated by the Participant to the Share Account by the Market Price on the date as of which the credit is made. If an Active Participant's Base Compensation or Annual Bonus would otherwise be paid in a currency other than United States dollars, the Administrator will convert from such other currency into United States dollars in accordance with Plan Rules. 3.3 EARNINGS CREDITS. (A) Cash Account. As of the last day of each calendar month, a Participant's Cash Account will be credited with earnings for the month at a rate equal to the monthly equivalent of one percent plus the annual rate shown for United States Treasury Notes with an original maturity of not less than seven years and with a remaining maturity closest to seven years in the "representative mid-afternoon over-the-counter quotations supplied by the Federal Reserve Bank of New York City, based on transactions of $1 million or more," as reported in The Wall Street Journal. The rate to be paid during each calendar month will be fixed for the month as of the first business day of the month. (B) Share Account. (1) As of the first business day of the calendar quarter first following the date on which dividends are paid on Shares, a Participant's Share Account will be credited with that number of full and fractional Shares determined by dividing the dollar amount of the dividends that would have been payable to the Participant if the number of Shares credited to the Share Account on the record date for such dividend payment had then been registered in his or her name by the Market Price on the date as of which the credit is made. (2) In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering or any other change in the Company's corporate structure or Shares, the Administrator will make such adjustment, if any, as the Administrator may deem appropriate in the number and kinds of Shares credited to Share Accounts. (C) Allocation Changes. One time during a Plan Year, an Active Participant who would otherwise have deferrals credited to his or her Share Account during the Plan Year (attributable to either deferrals of Base Compensation for the Plan Year pursuant to Section 3.2(A) or a deferral of an Annual Bonus for the prior Plan Year pursuant to Section 3.2(B) which has not yet been credited to his or her Share Account pursuant to Section 3.3(B)) may elect to have all such deferrals instead credited to his or her Cash Account. Such election will be effective for deferrals credited during such Plan Year pursuant to Section 3.2 as of a date that follows by at least 30 days (or such shorter period as Plan Rules may allow) the Administrator's receipt of a properly completed form. 6 3.4 VESTING. Each Participant always has a fully vested nonforfeitable interest in his or her Account. 3.5 CURRENT ELECTION BY QUALIFIED DIRECTOR. (A) An Active Participant who is a Qualified Director may elect to receive any portion of his or her Base Compensation for a Plan Year that is not subject to a deferral election pursuant to Section 3.2(A) in the form of Shares. The election must be made in accordance with and is subject to Plan Rules. (B) An election made pursuant to this section will not be effective unless it is made on a properly completed form received by the Administrator by a date specified by the Administrator which is prior to the first day of the Plan Year to which the election relates. (C) An Active Participant may revoke an election made pursuant to this section at any time. The revocation will be effective with respect to any payment of Base Compensation that follows by at least 30 days (or such shorter period as Plan Rules may allow) the Administrator's receipt of a properly completed form. (D) If an Active Participant has elected to receive Base Compensation in the form of Shares, Base Compensation covered by the election will be deposited into an account established on behalf of the Active Participant in the Company's dividend reinvestment plan. The deposit will be made on or as soon as administratively practicable after the first day of the calendar quarter following the calendar quarter during which the Base Compensation would have been paid in cash but for the Active Participant's election pursuant to this section. 7 ARTICLE 4 DISTRIBUTION 4.1 DISTRIBUTION TO PARTICIPANT. (A) FORM. (1) CASH ACCOUNT. A Participant's Cash Account will be distributed to the Participant in the form of a lump sum payment or quarterly installment payments for a period not to exceed ten years, as elected by the Participant in conjunction with his or her initial election to participate in the Plan. Any distribution from a Participant's Cash Account will be made in cash. (2) SHARE ACCOUNT. A Participant's Share Account will be distributed to the Participant in the form of a lump sum payment or annual installment payments for a period not to exceed ten years, as elected by the Participant in conjunction with his or her initial election to participate in the Plan. Subject to Section 4.3, any distribution from a Participant's Share Account will be made in full Shares and cash in lieu of any fractional Share. (B) TIME. Distribution to a Participant will be made or commence on or as soon as administratively practicable after the first day of the calendar quarter that follows by six months the date on which the Participant terminates employment or ceases to be a member of the Company's board of directors. (C) AMOUNT. (1) CASH ACCOUNT. (a) LUMP SUM. The amount of a lump sum payment from a Participant's Cash Account will be equal to the balance of the Account as of the first day of the calendar month coinciding with or immediately preceding the date on which the payment is made. (b) INSTALLMENTS. The amount of an installment payment from a Participant's Cash Account will be determined by dividing the balance of the Account as of the first day of the calendar month coinciding with or immediately preceding the date on which the payment is made by the total number of remaining payments (including the current payment). (2) SHARE ACCOUNT. (a) LUMP SUM. A lump sum distribution from a Participant's Share Account will consist of the number of full Shares credited to the Account as of the first day of the calendar month coinciding with or immediately preceding the date on which the distribution is made plus cash in lieu of any fractional share then credited to the Account in an amount based on the Market Price on that date. 8 (b) INSTALLMENTS. Installment distributions from a Participant's Share Account, other than the final distribution, will consist of the number of Shares determined by dividing the number of full and fractional Shares credited to the Account as of the first day of the calendar month coinciding with or immediately preceding the date on which the distribution is made by the total number of remaining payments (including the current payment) and rounding the quotient to the next higher full share. The amount of the final payment will be determined in accordance with clause (a). (D) SPECIAL RULES. The provisions of this subsection apply notwithstanding Subsection (A), (B) or (C) or any election by a Participant to the contrary. (1) NONDEDUCTIBILITY. If the Administrator determines in good faith that there is a reasonable likelihood that any compensation paid to a Participant by an Affiliated Organization for a taxable year of the Affiliated Organization would not be deductible by the Affiliated Organization solely by reason of the limitation under Code section 162(m), to the extent deemed necessary by the Administrator to ensure that the entire amount of any distribution to the Participant is deductible, the Administrator may defer all or any portion of the distribution. Any amounts deferred pursuant to this subsection will continue to be credited with earnings in accordance with Section 3.3. The deferred amounts and earnings thereon will be distributed to the Participant, or to his or her Beneficiary in the case of the Participant's death, at the earliest possible date, as determined by the Administrator in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Affiliated Organization during which the distribution is made will not be limited by Code section 162(m). (2) DIVESTITURES. (a) If some or all of the assets of a Participating Employer are sold or otherwise disposed of to an unrelated third party, other than in connection with a Change of Control, the Administrator may, but is not required to, cause to be distributed the Account of any Qualified Employee Participant whose employment with all Affiliated Organizations is terminated in connection with the sale or disposition unless the acquirer adopts a successor plan which is substantially similar to the Plan in all material respects and expressly assumes the Participating Employer's obligation to provide benefits to the Participant, in which case the Participating Employer will cease to have any obligation to provide benefits to the Participant pursuant to the Plan as of the effective date of the assumption. Any such distribution will be made in the form of a lump sum payment as soon as administratively practicable after the date of the sale or disposition. Any distribution from a Participant's Cash Account will be made in cash and, subject to Section 4.3, any distribution from a Participant's Share Account will be made in full Shares and cash in lieu of any fractional Share. The amount of the payment will be determined in accordance with Subsection (C). (b) If a Participating Employer ceases to be an Affiliated Organization, unless otherwise provided in an agreement between an Affiliated Organization and the Participating Employer or an Affiliated Organization 9 and an unrelated third-party acquirer: (i) a Participant who is employed with the Participating Employer or (ii) a Participant who is not employed with the Participating Employer but has an Account balance attributable to service with the Participating Employer as a Qualified Employee will not become entitled to his or her Account balance attributable to service with the Participating Employer as a Qualified Employee solely as a result of the cessation and the Participating Employer will, after the date on which it ceases to be an Affiliated Organization, continue to be solely responsible to provide benefits to the Participant at least equal to the balance of the Account as of the effective date of the cessation and as thereafter increased by deferral credits relating to the period before the effective date and earnings credits pursuant to Section 3.3. (3) WITHDRAWALS DUE TO UNFORESEEABLE EMERGENCY. A distribution will be made to a Participant from his or her Cash Account if the Participant submits a written distribution request to the Administrator and the Administrator determines that the Participant has experienced an Unforeseeable Emergency. The amount of the distribution may not exceed the lesser of (a) the amount necessary to satisfy the emergency, as determined by the Administrator or (b) the balance of the Cash Account as of the date of the distribution determined in accordance with Subsection (C). The distribution will be made in the form of a lump sum cash payment as soon as administratively practicable after the Administrator's determination that the Participant has experienced an Unforeseeable Emergency. (4) CHANGE OF CONTROL. Upon the occurrence of a Change of Control - (a) A Participant's Cash Account will be distributed to the Participant in a lump sum cash payment on the effective date of the Change of Control. The amount of the payment will be determined in accordance with Subsection (C). (b) A Participant's Share Account will be distributed to the Participant in a lump sum cash payment in lieu of Shares on the effective date of the Change of Control. The amount of the payment will be equal to the number of full and fractional Shares then credited to the Participant's Share Account multiplied by the greater of (i) the highest price per Share paid for the purchase of Shares in connection with the Change of Control or (ii) the highest Market Price paid during the 30-day period immediately preceding the Change of Control. (E) REDUCTION OF ACCOUNT BALANCE. The balance of the Account from which a distribution is made will be reduced by the amount of the distribution as of the date of the distribution. 10 4.2 DISTRIBUTION TO BENEFICIARY. --------------------------- (A) FORM. In the event of a Participant's death, the balance of the Participant's Account will be distributed to the Participant's Beneficiary in a lump sum payment whether or not payments had commenced to the Participant in the form of installments prior to his or her death. Any distribution from a Participant's Cash Account will be made in cash and any distribution from a Participant's Share Account will be made in full Shares and cash in lieu of any fractional Share. (B) TIME. Distribution to a Beneficiary will be made as soon as administratively practicable after the date on which the Administrator receives notice of the Participant's death. (C) AMOUNT. The amount of the payment will be determined in accordance with Section 4.1(C). (D) REDUCTION OF ACCOUNT BALANCE. The balance of the Account from which a distribution is made will be reduced by the amount of the distribution as of the date of the distribution. (E) BENEFICIARY DESIGNATION. (1) Each Participant may designate, on a form furnished by the Administrator, one or more primary Beneficiaries or alternative Beneficiaries to receive all or a specified part of his or her Account after his or her death, and the Participant may change or revoke any such designation from time to time. No such designation, change or revocation is effective unless executed by the Participant and received by the Administrator during the Participant's lifetime. No designation of a Beneficiary other than the Participant's spouse is effective unless the spouse consents to the designation or the Administrator determines that spousal consent cannot be obtained because the spouse cannot reasonably be located or is legally incapable of consenting. The consent must be in writing, must acknowledge the effect of the election and must be witnessed by a notary public. The consent is effective only with respect to the Beneficiary or class of Beneficiaries so designated and only with respect to the spouse who so consented. (2) If a Participant - (a) fails to designate a Beneficiary, or (b) revokes a Beneficiary designation without naming another Beneficiary, or (c) designates one or more Beneficiaries none of whom survives the Participant or exists at the time in question, for all or any portion of his or her Account, such Account or portion will be paid to the Participant's surviving spouse or, if the Participant is not survived by a spouse, to the representative of the Participant's estate. (3) The automatic Beneficiaries specified above and, unless the designation otherwise specifies, the Beneficiaries designated by the Participant, become fixed as of the 11 Participant's death so that, if a Beneficiary survives the Participant but dies before the receipt of the payment due such Beneficiary, the payment will be made to the representative of such Beneficiary's estate. Any designation of a Beneficiary by name that is accompanied by a description of relationship or only by statement of relationship to the Participant is effective only to designate the person or persons standing in such relationship to the Participant at the Participant's death. 4.3 LIMITATIONS ON SHARE DISTRIBUTIONS. Notwithstanding any other provision of the Plan to the contrary, neither a Participating Employer nor the Trustee is required to issue or distribute any Shares under this Plan, and a distributee may not sell, assign, transfer or otherwise dispose of Shares issued or distributed pursuant to the Plan, unless (a) there is in effect with respect to such Shares a registration statement under the Securities Act of 1933 and any applicable state securities laws or an exemption from such registration under the Securities Act of 1933 and applicable state securities laws and (b) there has been obtained any other consent, approval or permit from any other regulatory body which the Company deems necessary or advisable. A Participating Employer or the Trustee may condition such issuance, distribution, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing Shares, as may be deemed necessary or advisable by the Company in order to comply with such securities laws or other restrictions. 4.4 PAYMENT IN EVENT OF INCAPACITY. If any individual entitled to receive any payment under the Plan is, in the judgment of the Administrator, physically, mentally or legally incapable of receiving or acknowledging receipt of the payment, and no legal representative has been appointed for the individual, the Administrator may (but is not required to) cause the payment to be made to any one or more of the following as may be chosen by the Administrator: the Beneficiary (in the case of the incapacity of a Participant); the institution maintaining the individual; a custodian for the individual under the Uniform Transfers to Minors Act of any state; or the individual's spouse, children, parents, or other relatives by blood or marriage. The Administrator is not required to see to the proper application of any such payment and the payment completely discharges all claims under the Plan against the Participating Employer, the Plan and Trust to the extent of the payment. 12 ARTICLE 5 SOURCE OF PAYMENTS; NATURE OF INTEREST -------------------------------------- 5.1 ESTABLISHMENT OF TRUST. A Participating Employer may establish a Trust, or may be covered by a Trust established by another Participating Employer, with an independent corporate trustee. The Trust must be a grantor trust that conforms substantially with the model trust described in Revenue Procedure 92-64. The Participating Employers may from time to time transfer to the Trust cash, marketable securities or other property acceptable to the Trustee in accordance with the terms of the Trust. 5.2 SOURCE OF PAYMENTS. (A) Each Participating Employer will pay, from its general assets, the portion of any benefit pursuant to Article 4 or Section 6.3 or 6.4 attributable to a Participant's Account with respect to that Participating Employer, and all costs, charges and expenses relating thereto. (B) The Trustee will make distributions to Participants and Beneficiaries from the Trust in satisfaction of a Participating Employer's obligations under the Plan in accordance with the terms of the Trust. The Participating Employer is responsible for paying any benefits attributable to a Participant's Account with respect to that Participating Employer that are not paid by the Trust. (C) To the extent a Participating Employer other than the Company fails for any reason to pay any benefit pursuant to the Plan when it is due and the benefit is not paid by the Trustee from the Trust, the Company will pay the unpaid portion of the benefit in accordance with the terms of the Plan as if it were the Participating Employer obligated to pay the benefit pursuant to Subsection (A). 5.3 STATUS OF PLAN. Nothing contained in the Plan or Trust is to be construed as providing for assets to be held for the benefit of any Participant or any other person or persons to whom benefits are to be paid pursuant to the terms of this Plan, the Participant's or other person's only interest under the Plan being the right to receive the benefits set forth herein. The Trust is established only for the convenience of the Participating Employers and the Participants, and no Participant has any interest in the assets of the Trust prior to distribution of such assets pursuant to the Plan. Until such time as Shares are distributed to a Participant, Beneficiary of a deceased Participant or other person, he or she has no rights as a shareholder with respect to any Shares credited to a Share Account pursuant to the Plan. To the extent the Participant or any other person acquires a right to receive benefits under this Plan or the Trust, such right is no greater than the right of any unsecured general creditor of the Participating Employer. 5.4 NON-ASSIGNABILITY OF BENEFITS. The benefits payable under the Plan and the right to receive future benefits under the Plan may not be anticipated, alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any charge or legal process. 13 ARTICLE 6 ADOPTION, AMENDMENT, TERMINATION -------------------------------- 6.1 ADOPTION. With the prior approval of the Administrator, an Affiliated Organization may adopt the Plan and become a Participating Employer by furnishing to the Administrator a certified copy of a resolution of its Board adopting the Plan. 6.2 AMENDMENT. (A) The Company reserves the right to amend the Plan at any time to any extent that it may deem advisable. To be effective, an amendment must be stated in a written instrument approved in advance or ratified by the Company's Board and executed in the name of the Company by its President or a Vice President and attested by the Secretary or an Assistant Secretary. (B) An amendment adopted in accordance with Subsection (A) is binding on all interested parties as of the effective date stated in the amendment; provided, however, that no amendment will have any retroactive effect so as to deprive any Participant, or the Beneficiary of a deceased Participant, of any benefit to which he or she is entitled under the terms of the Plan in effect immediately prior to the effective date of the amendment, determined in the case of a Participant who is employed by an Affiliated Organization, as if he or she had terminated employment immediately prior to the effective date of the amendment. Notwithstanding the foregoing, prior to, but not after, a Change of Control, the Company reserves the right to eliminate Section 4.1(D)(4) with respect to the entire Account balances of all or any group of Participants. (C) Any amendment that changes the method of determining the earnings credited to Participants' Accounts pursuant to Section 3.3 is effective with respect to the portion of the Accounts attributable to credits made before the date on which the amendment is adopted only if the Company's Board determines in good faith that on that date, it is reasonably likely that, in the long run, the new method will not result in materially lower earnings credits than the old method. (D) The provisions of the Plan in effect at the termination of a Participant's employment will, except as otherwise expressly provided by a subsequent amendment, continue to apply to such Participant. 6.3 TERMINATION OF PARTICIPATION. Notwithstanding any other provision of the Plan to the contrary, if determined by the Administrator to be necessary to ensure that the Plan is exempt from ERISA to the extent contemplated by Section 1.3, or upon the Administrator's determination that a Participant's interest in the Plan has been or is likely to be includable in the Participant's gross income for federal income tax purposes prior to the actual payment of benefits pursuant to the Plan, the Administrator may take any or all of the following steps: (a) terminate the Participant's future participation in the Plan; (b) cause the Participant's entire interest in the Plan to be distributed to the Participant in the form of an immediate lump sum; and/or 14 (c) transfer the benefits that would otherwise be payable pursuant to the Plan for all or any of the Participants to a new plan that is similar in all material respects (other than those which require the action in question to be taken.) 6.4 TERMINATION. The Company reserves the right to terminate the Plan in its entirety at any time. Each Participating Employer reserves the right to cease its participation in the Plan at any time. The Plan will terminate in its entirety or with respect to a particular Participating Employer as of the date specified by the Company or such Participating Employer in a written instrument by its authorized officers to the Administrator, adopted in the manner of an amendment. Upon the termination of the Plan in its entirety or with respect to any Participating Employer, the Company or Participating Employer, as the case may be, will either cause (a) any benefits to which Participants have become entitled prior to the effective date of the termination to continue to be paid in accordance with the provisions of Article 4 or (b) the entire interest in the Plan of any or all Participants, or the Beneficiaries of any or all deceased Participants, to be distributed in the form of an immediate lump sum payment. 15 ARTICLE 7 DEFINITIONS, CONSTRUCTION AND INTERPRETATION -------------------------------------------- The definitions and rules of construction and interpretation set forth in this article apply in construing the Plan unless the context otherwise indicates. 7.1 ACCOUNT. "Account" means the bookkeeping account or accounts maintained with respect to a Participant pursuant to Section 3.1. 7.2 ACTIVE PARTICIPANT. "Active Participant" with respect to a Plan Year is a Qualified Employee or Qualified Director who is eligible to make deferrals pursuant to the Plan during the Plan Year, for the portion of the Plan Year during which he or she remains eligible. 7.3 ADMINISTRATOR. The "Administrator" of the Plan is the Company's Benefits Administration Committee or the person to whom administrative duties are delegated pursuant to the provisions of Section 8.1, as the context requires. 7.4 AFFILIATED ORGANIZATION. An "Affiliated Organization" is the Company and any corporation that is a member of a controlled group of corporations within the meaning of Code section 414(b) that includes the Company. 7.5 ANNUAL BONUS. "Annual Bonus" with respect to a Participant who is a Qualified Employee for a Plan Year means the discretionary annual cash bonus paid to the Participant by a Participating Employer during the third calendar quarter of the following the Plan Year or that would have been so paid but for an election made pursuant to the Plan. 7.6 BASE COMPENSATION. "Base Compensation" with respect to a Participant who is a Qualified Employee for a Plan Year means the regular cash remuneration for services rendered as a Qualified Employee or salary continuation benefits paid to the Participant by a Participating Employer during the Plan Year or that would have been so paid but for an election made pursuant to the Plan, excluding the following: (a) any bonus; (b) the value of life insurance coverage included in the Participant's wages under Code section 79; (c) any car allowance, moving expense or mileage reimbursement; (d) any educational assistance payment; (e) any lump sum severance pay; (f) any payments under any qualified or nonqualified plan of deferred compensation; (g) any benefit under any qualified or nonqualified stock option or stock purchase plan; or (h) any other element of compensation specified in Plan Rules. 16 Base Compensation with respect to a Participant who is a Qualified Director for a Plan Year means the compensation that is paid, or would be paid but for an election made pursuant to the Plan, to the Qualified Director during the Plan Year in cash for his or her services to the Company as an "independent" (i.e., non-employee) director of the Company, including, without limitation, retainer fees for service on the Company's board of directors and committees of the board and fees for attendance at regular or special meetings of the board and board committees, but does not include travel expense allowances or other expense reimbursement. 7.7 BOARD. "Board" means the board of directors of the Affiliated Organization in question. When the Plan provides for an action to be taken by the Board, the action may be taken by any committee or individual authorized to take such action pursuant to a proper delegation by the board of directors in question. 7.8 BENEFICIARY. "Beneficiary" with respect to a Participant is the person designated or otherwise determined under the provisions of Section 4.2(E) as the distributee of benefits payable after the Participant's death. A person designated or otherwise determined to be a Beneficiary under the terms of the Plan has no interest in or right under the Plan until the Participant in question has died. A Beneficiary will cease to be such on the day on which all benefits to which he, she or it is entitled under the Plan have been distributed. 7.9 CHANGE OF CONTROL. ----------------- (A) A "Change of Control" means (1) the sale, lease, exchange or other transfer of substantially all of the assets of the Company (in one transaction or in a series of related transactions) to, or the merger or consolidation of the Company with, a "person" or (2) a change of control of the Company of a nature that would be required to be reported pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Company is then subject to such reporting requirement, including, without limitation, such time as (a) any person becomes, after January 1, 1996, the "beneficial owner" (as defined in Rule 13d- 3 under the Exchange Act), directly or indirectly, of 25 percent or more of the combined voting power of the Company's outstanding securities ordinarily having the right to vote at elections of directors or (b) the "continuity directors" cease for any reason to constitute at least a majority of the Company's board of directors. (B) For purposes of this section, (1) "person" means any individual, corporation, partnership, group, association or other "person," as such term is used in section 14(d) of the Exchange Act, other than the Company, any corporation or other form of business entity that is directly or indirectly controlled by the Company or any benefit plan sponsored by the Company or a corporation or other form of business entity that is directly or indirectly controlled by the Company and (2) "continuity director" means any individual who is a member of the Company's board of directors on January 1, 1996, while he or she is a member of the board, and any individual who subsequently becomes a member of the board whose election or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors who are continuity directors (either by a specific vote or by approval of the proxy statement of the Company in which such individual is named as a nominee for director without objection to such nomination). 17 7.10 CODE. "Code" means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code includes a reference to that provision as it may be amended from time to time and to any successor provision. 7.11 COMPANY. "Company" means Jostens, Inc. 7.12 CROSS REFERENCE. References within a section of the Plan to a particular subsection refer to that subsection within the same section and references within a section or subsection to a particular clause refer to that clause within the same section or subsection, as the case may be. 7.13 EFFECTIVE DATE. "Effective Date" means January 1, 1996. 7.14 ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. Any reference to a specific provision of ERISA includes a reference to that provision as it may be amended from time to time and to any successor provision. 7.15 EXCHANGE ACT. "Exchange Act" means the Securities Exchange Act of 1934, as amended. Any reference to a specific provision of the Exchange Act includes a reference to that provision as it may be amended from time to time and to any successor provision. 7.16 GOVERNING LAW. To the extent that state law is not preempted by the provisions of ERISA, or any other laws of the United States, all questions pertaining to the construction, validity, effect and enforcement of the Plan will be determined in accordance with the internal, substantive laws of the State of Minnesota without regard to its conflict of laws rules of the State of Minnesota or any other jurisdiction. 7.17 HEADINGS. The headings of articles and sections are included solely for convenience of reference; if there exists any conflict between such headings and the text of the Plan, the text will control. 7.18 MARKET PRICE. "Market Price" means the closing sale price for Shares on a specified date or, if Shares were not then traded, on the most recent prior date when Shares were traded, all as quoted in The Wall Street Journal reports of New York Stock Exchange - Composite Transactions. 7.19 MERGER DATE. "Merger Date" means August 15, 1996. 7.20 NUMBER AND GENDER. Wherever appropriate, the singular may be read as the plural, the plural may be read as the singular and one gender may be read as the other gender. 7.21 PARTICIPANT. "Participant" is a current or former Active Participant to whose Account amounts have been credited pursuant to Article 3 and who has not ceased to be a Participant pursuant to Section 2.6. 7.22 PARTICIPATING EMPLOYER. "Participating Employer" is the Company and any other Affiliated Organization that has adopted the Plan, or all of them collectively, as the context requires. An Affiliated Organization will cease to be a Participating Employer upon a termination of the Plan as to its Qualified Employees and the satisfaction in full of all of its obligations under the Plan or upon its ceasing to be an Affiliated Organization. 7.23 PLAN. "Plan" means the Jostens, Inc. Officers' Deferred Compensation Plan, as from time to time amended or restated. 18 7.24 PLAN YEAR. "Plan Year" means the calendar year. 7.25 PLAN RULES. "Plan Rules" are rules, policies, practices or procedures adopted by the Administrator pursuant to Section 8.2. 7.26 QUALIFIED DIRECTOR. "Qualified Director" means an individual who is a member of the Company's board of directors and is independent (i.e., is not an employee of the Company or any of its affiliates or subsidiaries). 7.27 QUALIFIED EMPLOYEE. "Qualified Employee" means an individual who (a) is an executive officer of the Company elected by the Company's board of directors or (b) was such an executive officer on the date on which he or she ceased to perform services for all Participating Employers as an employee if he or she (i) is receiving salary continuation benefits from a Participating Employer and (ii) has not received such salary continuation benefits for a period of more than two consecutive years. 7.28 SHARES. "Shares" means shares of common stock of the Company, $.33-1/3 par value, or such other class or kind of shares or other securities as may be applicable pursuant to Section 3.3(B)(2). 7.29 TERMINATION OF EMPLOYMENT. An individual who participates in the Plan as a Qualified Employee will be deemed to have terminated employment for purposes of the Plan on the later of (a) the date on which he or she has completely severed his or her employment relationship with all Affiliated Organizations and (b) the earlier of the date as of which (i) his or her salary continuation benefits from a Participating Employer end and (ii) he or she has received such salary continuation benefits for a period of two consecutive years. 7.30 TRUST. "Trust" means any trust or trusts established by a Participating Employer pursuant to Section 5.1. 7.31 TRUSTEE. "Trustee" means the independent corporate trustee or trustees that at the relevant time has or have been appointed to act as Trustee of the Trust. 7.32 UNFORESEEABLE EMERGENCY. "Unforeseeable Emergency" means an unanticipated emergency that is caused by an event beyond the Participant's control resulting in a severe financial hardship that cannot be satisfied through other means. The existence of an unforeseeable emergency will be determined by the Administrator. 19 ARTICLE 8 ADMINISTRATION -------------- 8.1 ADMINISTRATOR. The general administration of the Plan and the duty to carry out its provisions is vested in the Company's Benefits Administration Committee. Such Committee may delegate such duty or any portion thereof to a named person and may from time to time revoke such authority and delegate it to another person. 8.2 PLAN RULES AND REGULATIONS. The Administrator has the discretionary power and authority to make such Plan Rules as the Administrator determines to be consistent with the terms, and necessary or advisable in connection with the administration, of the Plan and to modify or rescind any such Plan Rules. 8.3 ADMINISTRATOR'S DISCRETION. The Administrator has the discretionary power and authority to make all determinations necessary for administration of the Plan, except those determinations that the Plan requires others to make, and to construe, interpret, apply and enforce the provisions of the Plan and Plan Rules whenever necessary to carry out its intent and purpose and to facilitate its administration, including, without limitation, the discretionary power and authority to remedy ambiguities, inconsistencies, omissions and erroneous benefit calculations. In the exercise of its discretionary power and authority, the Administrator will treat all similarly situated persons uniformly. 8.4 SPECIALIST'S ASSISTANCE. The Administrator may retain such actuarial, accounting, legal, clerical and other services as may reasonably be required in the administration of the Plan, and may pay reasonable compensation for such services. All costs of administering the Plan will be paid by the Participating Employers. 8.5 INDEMNIFICATION. The Participating Employers jointly and severally agree to indemnify and hold harmless, to the extent permitted by law, each director, officer, and employee of any Affiliated Organization against any and all liabilities, losses, costs and expenses (including legal fees) of every kind and nature that may be imposed on, incurred by, or asserted against such person at any time by reason of such person's services in connection with the Plan, but only if such person did not act dishonestly or in bad faith or in willful violation of the law or regulations under which such liability, loss, cost or expense arises. The Participating Employers have the right, but not the obligation, to select counsel and control the defense and settlement of any action for which a person may be entitled to indemnification under this provision. 8.6 BENEFIT CLAIM PROCEDURE. (A) If a request for a benefit by a Participant or Beneficiary of a deceased Participant is denied in whole or in part, he or she may, not later than 30 days after the denial, file with the Administrator a written claim objecting to the denial. (B) The Administrator, not later than 90 days after receipt of such claim, will render a written decision to the claimant on the claim. If the claim is denied, in whole or in part, such decision will include the reason or reasons for the denial; a reference to the Plan provisions on which the denial is based; a description of any additional material or information, if any, necessary for the claimant to perfect his or her claim; an explanation as to why such information or material is necessary; and an explanation of the Plan's claim procedure. 20 (C) The claimant may file with the Administrator, not later than 60 days after receiving the Administrator's written decision, a written notice of request for review of the Administrator's decision, and the claimant or his or her representative may thereafter review relevant Plan documents which relate to the claim and may submit written comments to the Administrator. (D) Not later than 60 days after receipt of such review request, the Administrator will render a written decision on the claim, which decision will include the specific reasons for the decision, including a reference to the Plan's specific provisions where appropriate. (E) The foregoing 90 and 60-day periods during which the Administrator must respond to the claimant may be extended by up to an additional 90 or 60 days, respectively, if special circumstances beyond the Administrator's control so require and notice of such extension is given to the claimant prior to the expiration of such initial 90 or 60-day period, as the case may be. (F) A Participant or Beneficiary must exhaust the procedure described in this section before making any claim of entitlement to benefits pursuant to the Plan in any court or other proceeding. 8.7 DISPUTES. (A) In the case of a dispute between a Qualified Employee Participant or his or her Beneficiary and a Participating Employer, the Administrator or other person relating to or arising from the Plan, the United States District Court for the District of Minnesota is a proper venue for any action initiated by or against the Participating Employer, Administrator or other person and such court will have personal jurisdiction over any Participant or Beneficiary named in the action. (B) Regardless of where an action relating to or arising from the participation in the Plan by a Qualified Employee is pending, the law as stated and applied by the United States Court of Appeals for the Eighth Circuit or the United States District Court for the District of Minnesota will apply to and control all actions relating to the Plan brought against the Plan, a Participating Employer, the Administrator or any other person or against any such Participant or his or her Beneficiary. (C) In the event of a Change of Control, the Participating Employers will pay all of the legal fees and expenses reasonably incurred by a Participant or Beneficiary of a deceased Participant to enforce his or her rights under the Plan as in effect immediately before such Change of Control. The Participating Employers will pay such fees and expenses promptly after bills therefor are submitted from time to time by attorneys representing the claimant. However, the Participating Employers will not be obligated to pay such fees and expenses if a court of competent jurisdiction finds of law that the claim is not well grounded in fact and warranted by existing law or a good faith argument for the extension, modification or reversal of existing law and will be entitled to full reimbursement of any amounts previously paid pursuant to this subsection. In any such proceeding, the burden of proof is on the Participating Employers. Notwithstanding anything else contained in the Plan, the rights of Participants and their Beneficiaries under this subsection survive amendment of this subsection, as well as termination of the Plan, after a Change of Control, regardless of whether such rights arise before or after the date of amendment or termination. 21 ARTICLE 9 MISCELLANEOUS ------------- 9.1 WITHHOLDING AND OFFSETS. The Participating Employers and the Trustee retain the right to withhold from any compensation, deferral and/or benefit payment pursuant to the Plan, any and all income, employment, excise and other tax as the Participating Employers or Trustee deems necessary and, prior to a Change of Control, the Participating Employers may offset against amounts payable to a Participant or Beneficiary under the Plan any amounts then owing to the Participating Employers by such Participant or Beneficiary. 9.2 OTHER BENEFITS. Neither amounts deferred nor amounts paid pursuant to the Plan constitute salary or compensation for the purpose of computing benefits under any other benefit plan, practice, policy or procedure of a Participating Employer unless otherwise expressly provided thereunder. 9.3 NO WARRANTIES REGARDING TAX TREATMENT. The Participating Employers make no warranties regarding the tax treatment to any person of any deferrals or payments made pursuant to the Plan and each Participant will hold the Administrator and the Participating Employers and their officers, directors, employees, agents and advisors harmless from any liability resulting from any tax position taken in good faith in connection with the Plan. 9.4 NO RIGHTS TO CONTINUED SERVICE CREATED. Neither the establishment of or participation in the Plan gives any individual the right to continued employment or service on the Company's board of directors or limits the right of the Participating Employer to discharge, transfer, demote, modify terms and conditions of employment or service on the Company's board of directors or otherwise deal with any individual without regard to the effect which such action might have on him or her with respect to the Plan. 9.5 SUCCESSORS. Except as otherwise expressly provided in the Plan, all obligations of the Participating Employers under the Plan are binding on any successor to the Participating Employer whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise of all or substantially all of the business and/or assets of the Participating Employer. 22 EX-11 3 COMPUTATION OF EARNINGS PER SHARE JOSTENS INC. AND SUBSIDIARIES EXHIBIT 11 -- COMPUTATION OF EARNINGS PER SHARE (In Thousands, Except Per Share Data)
Year Ended June 30, -------------------------------- 1996 1995 1994 -------- -------- -------- Net Income (Loss) $ 51,625 $ 50,368 $(16,169) Primary: Average shares outstanding 40,207 45,492 45,455 Net effect of dilutive stock options - based on the treasury stock method using average market price 229 97 N/A -------- -------- -------- 40,436 45,589 45,455 Per Share Amount: Net Income (Loss) $ 1.28 $ 1.10 $ (0.36) ======== ======== ======== Per Share Amount as reported based on average shares outstanding: Net Income (Loss) $ 1.28 $ 1.11 $ (0.36) ======== ======== ======== Fully diluted: Average shares outstanding 40,207 45,492 45,455 Net effect of dilutive stock options - based on the treasury stock method using the year-end market price if higher than average market price 234 198 N/A -------- -------- -------- 40,441 45,690 45,455 Per Share Amount: Net Income (Loss) $ 1.28 $ 1.10 $ (0.36) ======== ======== ======== Per Share Amount as reported based on average shares outstanding: Net Income (Loss) $ 1.28 $ 1.11 $ (0.36) ======== ======== ========
21 EX-13 4 JOSTENS ANNUAL REPORT 1996 Exhibit 13 We continued to make the company's transition from a "fix it" to a "build it" mode. fix build it it JOSTENS ANNUAL REPORT 1996 -------------------------- JOSTENS provides products and services that help people celebrate achievement, reward performance, recognize service and commemorate experiences. We provide these achievement and affiliation products in partnership with the diverse organizations people belong to throughout their lives. As a partner, we are committed to delivering value and quality that exceed the needs of the people and the organizations we serve. Jostens is a TEAM of employees and independent business partners. Our aim is to be the world LEADER in providing achievement and affiliation products and to constantly deliver exceptional performance. Jostens Mission Statement -------------------------
[CHART] Sales 92 93 94 95 96 Continuing Operations 639.2 634.8 649.9 665.1 695.1 [$ in millions] Earnings per Share 92 93 94 95 96 Continuing Operations 1.00 .19 .61 1.23 1.28 [in $] Return on Investment 92 93 94 95 96 [in %] 16.9 (3.7) (5.7) 19.1 26.3
Financial Highlights
Years ended June 30 (Dollars in millions, except ratio and per-share data) 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Statement of operations Net sales $ 695.1 $ 665.1 Income from continuing operations 51.6 55.9 Net income 51.6 50.4 - ----------------------------------------------------------------------------------------------------------------------------------- Balance sheet data Working capital $ 8.9 $ 206.3 Current ratio 1.0 2.1 Total assets 384.0 548.0 Long-term debt 3.9 53.9 Shareholders' investment 121.8 270.6 - ------------------------------------------------------------------------------------------------------------------------------------ Common share data Earnings per share from continuing operations $ 1.28 $ 1.23 Earnings per share 1.28 1.11 Cash dividends per share .88 .88 Stock price: high 25 1/8 21 5/8 low 19 1/2 15 3/4 - ------------------------------------------------------------------------------------------------------------------------------------
Letter to Shareholders 2 Q&A 4 Jostens at a Glance 10 MD&A 14 Financial Statements 21 Notes to Financial Statements 26
1 To our investors: [PHOTO OF ROBERT C. BUHRMASTER] [PHOTO OF ROBERT P. JENSEN] Fiscal 1996 was a year in which we continued to make the company's transition from a "fix it" to a "build it" mode. It is a challenging and difficult transition that requires us to modernize our systems and change many deeply ingrained processes and practices. Through the year, we made solid progress in several areas; however, we didn't do all we set out to do in 1996, particularly in earnings performance. We generated a slight increase in net income, although earnings from continuing operations declined as a result of higher interest expenses, as we returned to more normalized seasonal borrowing levels. Earnings per share, meanwhile, improved 15 percent as a result of our share repurchase last fall. In fiscal 1996, we increased our level of investment in marketing-related initiatives, an important step in priming our businesses for profitable growth. We saw some results from those initiatives last year, and we expect to see more in the year to come. Overall, while we would have preferred to see greater earnings progress, we are encouraged that we maintained earnings while moving forward on several important fronts. Some highlights: SHARE REPURCHASE We began the year with the repurchase of 7 million shares of common stock -- 15 percent of our outstanding shares -- in a tender offer concluded in mid-September. This was an important step in returning to shareholders cash generated from the sale of businesses that either were unprofitable or didn't fit with our vision for the future. PROGRAM-DRIVEN VOLUME GROWTH We demonstrated that research-based products, marketing programs and uniform sales processes can increase unit volume. For example, we sold nearly 10 percent more high school class rings in 1996, stemming largely from a product repositioning program introduced across the United States. That unit growth, combined with a 4 percent unit gain in 1995, are the first steps in reversing what was a long-term decline in ring unit volume for the company. In the college market, we expanded the Senior Salute(TM) graduation fair concept to more than 225 schools. Where Senior Salutes were conducted, our sales increased more than 20 percent on average. There was a similarly strong increase in student commencement participation in Senior Salute schools -- an important factor in administration support for this program. 2 MARKET SHARE GAINS With record sales in our largest businesses -- Printing & Publishing, Jewelry and Graduation Products -- we added market share at the expense of our competitors. Printing & Publishing continued its three-year string of increasing high school yearbook market share. Jewelry expanded its share, while Graduation Products increased its share and sales dollars per customer, without increasing prices. MARKET SEGMENT PENETRATION During 1996, we continued to develop products and programs to reach customers in elementary and junior high schools. We are particularly pleased with the success of a new junior high ring program, the Memory Express(TM) yearbook product for elementary students and the new Milestone(TM) yearbook offering in junior high. REBOUND IN RECOGNITION This business improved dramatically in 1996. After conducting a thorough internal and market analysis, we implemented changes that brought immediate results. Recognition's operating profit doubled in 1996 through sound cost-control and process improvement measures. For example, by eliminating low-demand products, we were able to reduce our offering by 50 percent. With companies increasing their investment in service award programs by about 5 percent a year, and with the development of programs in the performance award area, we are encouraged about Recognition's future. RECORD FOURTH QUARTER The trend for more of our business to occur in the fourth quarter continued in 1996, and we ended the year with a record quarter in sales volume and profitability in our current businesses. We were pleased with our ability to handle the volume and meet customer delivery deadlines. The only flaw was in the yearbook business, where we incurred higher-than-expected costs to produce the books on time. Despite that hurdle, we had a terrific fourth quarter. That is by no means the complete list of what we accomplished in 1996. In all areas, our energies are focused on profitably building our business for the long-term benefit of shareholders, as well as our other stakeholders. Building for the future requires tremendous cultural changes throughout the organization. A great amount of change has occurred over the past three years, and it is a credit to the people of this company to have come so far. Yet, the work is not done. The changes we have made and will continue to make are unsettling to some, as we modernize our processes, clarify our relationship with the independent sales force and take steps to simplify and focus on the things that truly add value for our consumers. But the changes we're making -- in our systems as well as in our culture -- are necessary ingredients in our recipe for the future. The pages that follow contain a Q&A discussion of how senior management sees the company's future. As we move ahead into 1997, we will continue to work on ways to expand our current businesses, pursue new opportunities that build on our strengths, and emphasize cost-control and internal efficiencies -- all with a focus on creating shareholder value and continuing our one-step-at-a-time approach. /s/ Robert C. Buhrmaster ------------------------ Robert C. Buhrmaster President and Chief Executive Officer /s/ Robert P. Jensen -------------------- Robert P. Jensen Chairman of the Board August 31, 1996 3 [ARTWORK OF Q & A] In the last three years, Jostens has worked methodically, one step at a time, to address business issues and restore financial performance to historical levels. As the shorter-term issues have been addressed, company leaders have developed a vision of the future of Jostens. That vision sees people selecting Jostens because we're the best at helping them celebrate important moments and achievements throughout their lives. It's a vision that expands on what Jostens does best -- providing products and services that commemorate life's great experiences. We help create memories. The future entails building on the company's current business strengths and viewing our customers differently -- not just as students or company employees -- but as customers for life. That's a big change, requiring us to develop new ways to identify and reach customers; new ways to measure ourselves; new thinking that challenges the status quo and inspires growth, improvement and changes of magnitude -- like striving to double the number of customers we serve and double our annual sales per customer; and new ways to expand our business. The Jostens vision became clearer in 1996, and, while it's not a vision that will become reality in a year or two, we are moving forward. In the following pages, the company's senior leaders -- Bob Buhrmaster, Chuck Schmid, Chip Fisher, Jack Jones, Trudy Rautio and Jack Thornton -- discuss the opportunities, progress and outlook for Jostens. q Where is the company in its transition from "fix it" to "build it"? a We have successfully fixed and improved many things in the last three years. The most obvious accomplishments were restoring profitability after a period of decline; developing a clear direction for our company's future; and selling businesses that either were underperformers or didn't fit with our future direction. Along the way, we've had plenty of effort in other areas, particularly in upgrading systems, streamlining processes and creating a true consumer awareness and focus. We've put many of the major "fixes" in place, but not all of the work is completed. In many respects, we are never really done fixing things. However, we have progressed to the point that we can work on ways to improve earnings and sales as we continue to create greater efficiency and simplification throughout the company. [PHOTO OF BOB BUHRMASTER] 4 q What are your strategies for growth? a We believe we can improve earnings and sales through efforts in the key areas of expanded markets, targeted product lines, greater value and efficiency and great people working together. Expanded Markets This strategy offers opportunity on three levels: First, we will do better in our areas of strength. In School Products, this means reaching more high school students, parents and administrators. In Recognition, it means continuing to build the primary business of employee service awards, a market growing at about 5 percent a year. Second, we will use our strengths to expand into related market segments. For example, we are extending our high school presence with products for students in elementary and junior high schools, and we're evaluating how to more effectively expand the college market. In Recognition, we now offer performance award programs for companies to recognize employees for achieving specific business objectives. Third, we will reach customers in other activities and at special times of their lives. People participate in many organizations, activities and associations - and all are opportunities for Jostens to help celebrate important moments and achievements. Expanded markets also means geographic expansion. About 7 percent of the company's 1996 sales came from outside the United States - nearly all of which was in Canada. We expect that our first steps into new international markets will be in Latin America, where market research shows that our school products and recognition products and services will fit local cultures and customs. [PHOTO OF TRUDY RAUTIO] Targeted Product Lines As we expand our markets, we'll reach customers with research-based products and programs that target specific consumer groups. The fiscal 1996 high school ring program, which spurred a 10 percent increase in the number of class rings sold, is a good example of how such a program can deliver strong unit-volume gains. Reaching customers in new ways means, in part, that we will segment them into smaller groups identified by their interests and associations. That plays into our unique ability to customize products for individual customers or groups of customers. Greater Value and Efficiency, and Great People Working Together This strategy reflects a continuing commitment to control costs, upgrade systems, modernize processes and provide training and development for Jostens people. This strategy also incorporates balancing our manufacturing requirements to create the best value for the consumer while maintaining flexibility for the enterprise. q What about acquisitions? a We do expect that a portion of our growth will come through acquisitions. We are routinely considering acquiring companies that either add value to our existing businesses or add competencies to support our direction for the future. 5 [PHOTO OF CHUCK SCHMID] q What are your financial objectives? a We are measuring our performance in three areas. Sales: As we become better able to build the top line, we anticipate generating sales increases in the 5 to 7 percent range expanding to 10 percent and beyond in the next few years. Earnings: At any point, we expect to generate earnings growth in excess of sales growth. ROI: We anticipate maintaining return on investment of well above 20 percent. In addition, we intend to balance an above-market dividend yield with healthy earnings growth, providing a solid total return for our investors. q What is your assessment of 1996 performance? a The year was one of investing in our businesses -- programs, products and marketing initiatives to begin generating profitable growth. We experienced some benefit from those efforts last year, and we anticipate seeing more benefits in fiscal 1997. In retrospect, we could have paced our internal investments more effectively. While we moved forward in a number of important areas, we did not improve earnings from continuing operations, and that was disappointing. In fiscal 1997, we will keep an eye on top-line growth, but our primary emphasis will be on generating the earnings improvement needed to provide meaningful shareholder value. q Why did income from continuing operations decline in 1996? a First, we invested additional operating funds in new programs and initiatives. Some of those initiatives delivered benefits during the year; we anticipate that others will bring benefits in 1997. For example, in 1996 we developed new products for students in the millennium classes of 1999, 2000 and 2001. The first of those products debuts this fall. The second reason operating income declined in 1996 was a higher than planned commission rate associated with the repositioned high school ring program. While that new program led to a nearly 10 percent increase in the number of rings sold, the mix of products sold resulted in lower margins for the company. We have adjusted the program for fiscal 1997 to balance the benefits to the company and the sales force. The third reason for decline in operating income was higher than expected costs in the yearbook business. In the fourth quarter the business incurred additional overtime and manufacturing costs in order to produce and deliver a record amount of product on [PHOTO OF CHIP FISHER] 6 time -- a critical factor in retaining accounts. Through one of the 1996 investment programs, sales force automation, we will have better tools in 1997 to more closely track each yearbook account and better anticipate production requirements. q What's going on with the independent sales force? a Over the years, the independent sales channel has worked to the mutual benefit of the company and the sales force. Today, independent sales representatives continue to work well as the primary distribution channel for most of our products. We currently utilize about 1,000 independent sales representatives, who specialize in various product lines, such as Jewelry/Graduation Products, Printing & Publishing (yearbooks), Photography and Recognition. However, just as we are asking people within the company to absorb and embrace changes to improve our business, so too are we asking the sales organization to change. For example, in the last three years, much of the yearbook market share we've gained has been a direct consequence of working with the sales force in new ways to uncover dissatisfied competitor accounts and focus our energies on those most likely to switch to Jostens. In the high school Jewelry and Graduation Products area, we are continuing to change the way we as a company approach the marketplace -- in ways that have made the business more successful in the last two years. In that time, we have worked with the sales force to demonstrate that research-based products, delivered through uniform sales processes, can and do attract more customers and drive unit volume higher. For the high school Jewelry and Graduation Products sales representatives, this approach represents a cultural shift from past practice. But it's an approach that works and that we will expand upon. Although a group of representatives who sell Jewelry and Graduation Products has requested changes in their agreements and arrangements with the company, the fact is that the current relationship works well. Consequently, we do not anticipate a substantial change in the contractual arrangement between Jostens and most of the sales force. [PHOTO OF JACK JONES] The year was one of investing in our businesses - programs, products and marketing initiatives to begin generating profitable growth. We experienced some benefit from those efforts last year, and we anticipate seeing more benefits in fiscal 1997. 7 In 1996 and early fiscal 1997, we took steps to clarify the roles of management and the sales organization, setting a clear expectation of how we will conduct business in the future. Not everyone will like this cultural change, and as we evolve from entrepreneurial territory selling to more organized consumer marketing programs, we expect that some Jewelry and Graduation Products sales representatives will choose to not remain with Jostens, and that we will have some territory transitions. q What is the direction in the college market? a Although Jostens has historically looked at the college market as an extension of the high school market, they are quite different. It's more difficult to reach college students directly, and in college much of our business goes through campus bookstores. With 52 sales representatives serving the college market, coverage is a challenge, and the percentage of college students buying our products is much lower than in high school. Those business realities tell us that, while the college market presents a very good opportunity, we need to think more creatively about how we go to market. We are currently evaluating options for the structure of our sales force, and we may change the status of the college sales representatives in the future. q What has been done on the international front? a Over the last 18 months, we've developed a business strategy and identified the best opportunities for taking our school and recognition product lines into non-English speaking markets. In the last year, we conducted deeper levels of market research with local [PHOTO OF JACK THORNTON] business organizations in a handful of countries. As fiscal 1996 closed, we were negotiating formal business relationships in two Latin American countries. q What is the millennium opportunity? a Research indicates that, as the new millennium approaches, year-dated materials will become more important to consumers. And since most of our school- related business involves preserving memories with year-dated products, the millennium offers us a natural and unique opportunity that, we believe, could enable us to increase student buy rates by up to 10 percent over the next five years. For Jostens, the millennium opportunity is already beginning; fiscal 1997 is the first of a five-year window. This fall we will introduce 12 new class ring designs created especially for the class of 1999 -- students who are sophomores in the fall of 1996. As these students move through their high school careers, we will have an opportunity to reach them with traditional yearbook and graduation products -- as well as some newly created offerings. That same opportunity also exists in the college market. We help create 8 q What are you doing to further reduce costs? a We have reduced annual expenses by about $11 million over the last two years as a result of organizational streamlining and initial process reengineering. With that "low-hanging fruit" already harvested, we are engaging in more fundamental process reengineering in conjunction with systems upgrades targeted to improve our administrative cost structure. Cost-control efforts are under way in operations, as well. In Recognition, for example, we cut $2 million in costs in fiscal 1996 by reducing inventory and eliminating slow-moving products -- all steps that were invisible to the consumer. In fiscal 1997, we plan to implement a new, companywide cost accounting system enabling us to track in greater detail our business performance and profitability by product line. In the area of manufacturing capacity and distribution, we are conducting a comprehensive review of our requirements for both today and the future. We expect the review to lead to additional outsourcing, as well as to some plant consolidations over the next two years. The first step in this area was taken at fiscal year-end, when we closed our jewelry plant in Winnipeg and transferred volume to other facilities. That move is expected to result in an annualized savings of about a half-million dollars. q What are the benefits of linking Photography and Yearbook? a Digital technology is providing an incentive to more closely link photographic images and the printed page. This is to our advantage, since we are able to forge greater ties between our market-leading yearbook business and the photography business, providing us a competitive tool unique to the companies in our industry. Based on a successful test in fiscal 1996, we are expanding efforts to jointly sell yearbook and photo services to school accounts -- and then to provide photo services through company-owned centers at selected cities in the United States. The pilot generated about $1 million in new photo sales in 1996, and we anticipate additional sales in 1997. Not only are the pilots building new photo business, we can use the images to deliver additional services. For example, in 1996 we introduced PanelExpress(R), a process by which we automatically flow the student photos onto yearbook class pages. This removes a tedious step from the yearbook staff and presents an opportunity for us to reduce costs and minimize mistaken identities. In another project, we are testing a new, quick-production photo memory book at cheerleader camps. The concept is to produce photos and memory books that are printed and ready to take home when cheerleaders leave camp. Early results suggest good customer acceptance of the product, which can be adapted to other markets. [PHOTO] memories. 9 School Products Segment Summary: The businesses in this segment provide products and services primarily to students, parents and schools in the United States and Canada. Customers are served principally through a network of about 900 independent sales representatives and associates. In addition, the company markets products through direct mail and retail establishments. Jostens' School Products businesses provide value-added services through Jostens Renaissance(R), a program that brings together teachers, administrators, students, parents and the local business community in recognizing and rewarding academic achievement. Schools with Renaissance programs have reported improvements in attendance and grade point averages and reductions in disciplinary problems. 92 544.0 93 540.7 94 546.2 95 565.0 96 594.9 School Products Sales [$ in millions] 92 85.1 93 40.0 94 73.5 95 107.1 96 107.6 School Products Operating Profit [$ in millions] Printing & Publishing [PHOTO] Products: Yearbooks, memory books and desktop publishing kits for students in high schools, colleges, junior high and elementary schools throughout the United States; commercial printing services. Update: High school yearbook market share increased in 1996 for the third straight year, as a result of winning new accounts through the effective use of lead generation techniques. Based on a market survey, Jostens is now the preferred yearbook provider, delivering the strongest value and performance. Effective in early fiscal 1997, all 235 independent sales representatives in this business are utilizing Sales Force Automation (SFA), a remote link to the company's internal data base. SFA enables reps to more effectively monitor customer accounts and keep yearbook staffs on track. A record number of yearbook pages were printed in the fourth quarter of fiscal 1996, and, even with record volume, deliveries were on time. However, some additional expenses were incurred and some schools printed fewer pages than originally planned. Those one-time events both relate to schools submitting pages later than expected. With SFA now used by the entire yearbook sales force, the company can better help yearbook staffs meet page deadlines throughout the school year. 92 186.5 93 189.1 94 191.7 95 203.1 96 217.2 Printing & Publishing Sales [$ in millions] Jostens [PHOTO] 10 Jewelry Products: Class rings, school rings and athletic rings for students in junior high, high school and college. Update: Overall ring unit volume increased about 12 percent in fiscal 1996. The increase was led by a nearly 10 percent increase in the number of high school class rings sold. That growth was driven by the national introduction of a repositioned ring program, which makes it simpler and easier for customers to compare, select and order a class ring. Unit volume also improved through a new, streamlined championship ring program for high schools, a new junior high ring program and continued expansion of the Studio 1(R) retail ring line. In fiscal 1997, Jostens is introducing 12 ring designs created especially for students in the high school class of 1999. This is the initial offering directed to the millennium classes of 1999, 2000 and 2001 -- a five-year opportunity for Jostens that begins with high school class rings and eventually involves yearbooks, graduation products and products offered to college students. 92 148.1 93 144.0 94 149.1 95 154.5 96 166.4 Jewelry Sales [$ in millions] [PHOTO] [PHOTO] Graduation Products Products: Announcements and related products, caps and gowns, diplomas and accessories for students in high school and college. Update: Senior Salute, a program in which Jostens works with college administrations to conduct "graduation fairs" for students, was expanded to more than 225 schools in 1996. The results were strong, with sales in Senior Salute schools increasing an average of more than 20 percent. Senior Salute is another example of how research-based programs delivered through a standardized sales process can lead to volume growth. In high school, sales dollars per customer improved, and the business benefited from enrollment increases as well as from new accounts. 92 109.0 93 117.2 94 125.0 95 133.0 96 138.5 Graduation Products Sales [$ in millions] 11 at a Glance Photography Sales [$ in millions]
92 35.0 93 30.6 94 27.7 95 24.2 96 23.4
Canada Sales [$ in millions]
92 47.0 93 46.8 94 42.3 95 41.7 96 40.6
PHOTOGRAPHY Products: Class and individual school pictures to students in elementary, junior high and high school; high school senior portrait photography; photography for proms and other special events; and other photo-based products such as student ID cards. Update: Photography is forging a closer link with Printing & Publishing through the use of digital technology. With PanelExpress, Jostens can take student photographs used to create photo packages, and flow the images onto yearbook panel pages -- eliminating a tedious step for the yearbook staff. Joint selling of yearbook and photo accounts generated $1 million in photo volume in 1996 and is expected to deliver about $2 million in 1997. Profitability in Photography, which returned to the black in 1995, solidified in 1996 through cost control and more efficient manufacturing utilization between processing plants in Canada and the United States. JOSTENS CANADA Products: Photography, yearbooks and class rings to students and schools throughout Canada. Update: Canada was brought under the same leadership organization with Photography and Printing & Publishing. A new leadership team for the business is being created, with an emphasis on more fully developing the Canadian market. In a cost-improvement step, the company closed its jewelry manufacturing facility in Winnipeg in early fiscal 1997 and shifted the volume to other facilities. The annual savings from the consolidation is expected to be about $500,000, starting in 1997. [PHOTO] Jostens 12 Recognition Segment - ------------------- Summary: This single-business segment provides products and services that help companies recognize and reward employee service longevity and achievement of performance objectives. Customers are served through about 100 independent sales representatives. Update: Following a decline in profitability in 1995, Recognition rebounded with a doubling of operating profit in 1996. During the year, new management in the business conducted an internal review and external market analysis. Based on that work, the business focused on reducing costs and improving efficiencies. For example, the Memphis Distribution Center was realigned around customer accounts rather than product lines to serve customers more effectively. The business also eliminated slow-moving products -- resulting in a 50 percent reduction in product without reducing sales. Overall, in 1996, costs were reduced by about $2 million. This business is focused on two major market segments: service awards and performance awards. Spending on service awards by U.S. companies is increasing at about 5 percent a year -- providing a natural opportunity for Jostens to expand its market position. Recognition is also developing programs and services in the performance market -- helping companies create programs to provide incentives and recognition for employees who meet specific objectives -- such as safety improvements and productivity gains. 92 95.3 93 94.1 94 103.7 95 100.1 96 100.2 Recognition Sales [$ in millions] 92 7.6 93 8.6 94 9.5 94 4.7 96 9.5 Recognition Operating Profit [$ in millions] [PHOTO HERE] [PHOTO HERE] [PHOTO HERE] at a Glance 13 MANAGEMENT'S DISCUSSION AND ANALYSIS INTRODUCTION This discussion summarizes significant factors that affected the consolidated operating results, financial condition and liquidity of Jostens Inc. in the three years ended June 30, 1996. Material in this section reflects the October 1995 sale of the Wicat Systems business, the June 1995 sale of the company's Jostens Learning Corporation (JLC) subsidiary and the January 1994 sale of the Sportswear business, all of which are treated as discontinued operations in the statements of consolidated operations presented in this report. RESULTS OF OPERATIONS Overall Jostens' sales from continuing operations increased 5 percent in fiscal 1996, to $695.1 million from $665.1 million in fiscal 1995. Sales in 1995 increased 2 percent from $649.9 million in 1994. The 1996 sales increase was driven by gains in the company's three largest business lines -- Printing & Publishing, Jewelry and Graduation Products. There were no, or minimal, price increases in 1996 and 1995, reflecting a continued effort to minimize price increases. Gross margins in 1996 were 52.2 percent, compared with 52.8 percent in 1995 and up from 51.7 percent in fiscal 1994. The margin decline in 1996 resulted from higher than expected manufacturing costs incurred to handle record page volume and meet yearbook delivery commitments as sales volumes shifted to the fourth quarter. Selling and administrative expenses increased to $268.1 million in 1996 from $256.8 million in 1995 and decreased from $274.1 million in 1994. The 1996 increase in selling and administrative expenses was primarily due to planned investments in the businesses, including marketing materials, business development and pilot projects for new business, as well as increased commission rates for class rings and graduation products. As a percentage of sales, these expenses remained consistent at 38.6 percent in 1996 and 1995, compared with 42.2 percent in 1994. The percentage decrease from 1994 to 1995 was due primarily to cost improvements realized through the company's reengineering efforts. In September 1995, the company repurchased 7 million shares of its common stock for $169.3 million through a Modified Dutch Auction tender offer. The repurchase was funded from the company's cash and short-term investment balance, as well as short-term borrowings. The result was an increase in interest expense of $4 million from 1995 and $2.6 million from 1994. In addition, interest income decreased $2.6 million from 1995 as the company maintained lower cash balances following the share repurchase. Interest income in 1995 increased $2.9 million over 1994 because the company maintained higher cash balances. Net income for 1996 was $51.6 million, compared with $50.4 million in 1995 and a loss of $16.2 million in 1994. Included in the 1994 income from continuing operations was an after-tax restructuring charge of $5.1 million. In addition, net income in 1995 included an after-tax charge of $600,000 associated with the adoption of Statement of Financial Accounting Standard (SFAS) No. 112, Employer's Accounting for Postemployment Benefits, and a net after-tax loss on discontinued operations of $4.9 million, compared with net after-tax losses on discontinued operations of $44.1 million in 1994. 14 Earnings per share were $1.28 in 1996, compared with $1.11 in 1995 and a loss per share of 36 cents in 1994. Earnings per share from continuing operations prior to the change in accounting principle, discontinued operations and restructuring charges were $1.28 in 1996, $1.23 in 1995 and 73 cents in 1994. School Products Segment Sales in this segment increased 5.3 percent to $594.9 million in fiscal 1996, compared with $565 million in 1995 and $546.2 million in 1994. Record sales were recorded in the Printing & Publishing ($217.2 million), Jewelry ($166.4 million) and Graduation Products ($138.5 million) businesses. Printing & Publishing produced a record number of yearbook pages in 1996, reflecting success at retaining current accounts and winning new accounts. This business has also successfully positioned itself as the preferred yearbook supplier in the industry, based on customer surveys. In Jewelry, nearly 10 percent more high school rings were sold in 1996 than 1995, and the number of rings sold overall increased nearly 12 percent in 1996. Much of the unit gain resulted from newly repositioned ring programs, including a high school program introduced nationwide in 1996. This was the second straight year of unit-volume improvement after a 12-year decline. In Graduation Products, sales growth was driven by an increase in the number of customers who purchased products and by an increase in the average sales dollars per customer. The Photography business solidified its return to profitability in 1996. Sales were $23.4 million, a 3 percent decline from 1995, due to the loss of a large wholesale dealer and about 50 school accounts. However, initial efforts to build closer ties between Photography and Printing & Publishing resulted in about $1 million in new photography sales in 1996. Jostens Canada sales were $40.6 million, compared with $41.7 million in 1995. The decline resulted from fewer graduation portrait orders and from a slightly lower percentage of students buying school photo packages. Currency exchange rate fluctuations partially offset the sales decline. In July 1996, the company closed its ring manufacturing plant in Winnipeg, Manitoba, and shifted production to facilities in Attleboro, Massachusetts, and Denton, Texas. The School Products segment 1996 operating profit was $107.6 million, essentially flat with 1995 levels, despite record sales volumes in its main business lines. Increased selling and administrative expenses offset sales increases as the company invested in marketing materials, business development and pilot projects for new business, as well as increased commission rates for class rings and graduation products. Operating profit in 1996 was also impacted by lower gross margins associated with sales volumes shifting to the fourth quarter. Fiscal 1995 operating profit increased 45.7 percent to $107.1 million from $73.5 million in 1994, which included changes in estimates of $16.4 million related to inventory, accounts receivable and overdraft reserves. Recognition Segment Sales were $100.2 million, compared with $100.1 million in 1995 and a record 1994 level of $103.7 million. Operating profit increased 102 percent to $9.5 million in 1996, compared with $4.7 million in 1995 and $9.5 million in 1994. The 1996 operating profit increase reflected successful efforts to simplify work processes, reduce costs and lower the costs associated with carrying inventories. Additionally, 1995 operating profit was affected by charges to establish an environmental reserve and abandon a unique computer system. 15 LIQUIDITY AND CAPITAL RESOURCES Cash generated from operating activities, short-term borrowings and, in 1995 and 1994, net proceeds from the sale of discontinued operations, have been Jostens' principal sources of liquidity. Cash generated from these activities has been used primarily for dividends, capital expenditures and the $169.3 million share repurchase in the first quarter of fiscal 1996. Operating activities provided cash of $28.9 million in 1996, compared with $80.9 million in 1995 and $125.1 million in 1994. The decrease in cash from operating activities in 1996 was primarily attributable to payments of restructuring liabilities and retained liabilities related to discontinued operations ($21.5 million) and pension liability ($8 million), along with increases in the levels of accounts receivable ($10.4 million) and inventory ($8.2 million) balances. The accounts receivable increase was driven by sales volumes shifting to the fourth quarter as manufacturing efficiencies enabled the company to produce products closer to customer-selected delivery dates. The increase in inventory was primarily related to additional raw materials in the cap and gown business in anticipation of a new product offering in 1997. The decrease in cash provided from operating activities in 1995 over 1994 was due primarily to decreases in deferred revenues associated with the disposition of JLC ($14.8 million), pension liability ($5.5 million), restructuring reserves established in prior years ($6.4 million) and accounts receivable ($1.3 million), and increases in inventories ($2.4 million). In addition, 1994 operating cash flows benefited from significant reductions in both accounts receivable ($37 million) and inventories ($26.3 million). While operating cash flows were sufficient to fund capital expenditures and cash dividends in 1995 and 1994, the company returned in 1996 to its typical need for seasonal short-term borrowings. Because most of the company's sales volume occurs in the second and fourth quarters of each year, Jostens usually requires interim financing of inventories and receivables. Effective December 20, 1995, the company terminated its unsecured lines of credit and replaced them with a $150 million, five-year bank credit agreement. Credit available under this bank credit agreement is reduced by commercial paper outstanding. At June 30, 1996, $122.4 million was available under the bank credit agreement as a result of $27.6 million in outstanding borrowings. In addition, the company had available unsecured demand facilities with three banks totaling $80 million. These demand facilities are renegotiated periodically based on the anticipated seasonal needs for short-term financing. Average short-term borrowing was $68.4 million in 1996, zero in 1995 and $28.6 million in 1994, with highs of $127 million in 1996 and $87 million in 1994. In 1995, the company's strong cash position, which resulted primarily from the net proceeds from the sale of discontinued operations, eliminated the need for short-term borrowing. As planned, short-term financing resumed in 1996 as the company returned $169.3 million to shareholders through the September 1995 share repurchase. Long-term debt, including current maturities, as a percentage of total capitalization was 26.5 percent and 16.7 percent at June 30, 1996 and 1995, respectively. 16 The company also had $50 million of medium-term notes due in August 1996. These notes were repaid in August 1996 with proceeds drawn from the company's $150 million bank credit facility. Management believes that cash generated from operating activities, together with credit available under the bank credit agreement and demand facilities, will be sufficient to fund planned capital expenditures, repayment of the medium-term notes, dividends and seasonal build-ups of inventories and accounts receivable in fiscal 1997. CAPITAL EXPENDITURES AND PRODUCT DEVELOPMENT The company invested $15.4 million in capital expenditures in 1996, compared with $19.1 million in 1995. The largest investments were made in the School Products segment to upgrade presses and other yearbook printing equipment, to improve photo processing and field camera equipment, and to enhance certain management information and communication systems. Corporate and Recognition expended $2 million and $500,000, respectively. About $18 million in capital projects is planned for 1997, including additional investments to upgrade certain printing and photography technology and replace School Products, Recognition and corporate management information systems. The projects are expected to be funded internally. DIVIDENDS The company paid $35.5 million in cash dividends to shareholders in fiscal 1996. The annual dividend was 88 cents per share in 1996, 1995 and 1994. COMMITMENTS AND CONTINGENCIES Environmental As part of its continuing environmental management program, Jostens is involved in various environmental improvement activities. As sites are identified and assessed in this program, the company determines potential environmental liability. Factors considered in assessing this liability include, among others, the following: whether the company has been designated as a potentially responsible party, the number of other potentially responsible parties designated at the site, the stage of the proceedings, and available environmental technology. When the potential liability amounts are probable and reasonably estimable, Jostens accrues the best estimate available. For specific sites where only a range of liability is probable and reasonably estimable and no amount in the range is a better estimate than another, the company would accrue the low end of that range. While Jostens may have a right of contribution or reimbursement under insurance policies, amounts that may be recoverable from other entities by the company with respect to a particular site are not considered until recoveries are deemed to be probable. No assets for potential recoveries have been established as of June 30, 1996. Jostens also assesses reasonably possible environmental liability beyond that which has been accrued. This liability is not probable, but is more likely than remote. As of June 30, 1996, the company identified four sites requiring further investigation. The potential liability cannot be fully assessed, since the sites are still in various stages of investigation. In addition, two other sites nearing completion did not require any accruals as of June 30, 1996. The amount of environmental liability 17 identified that is reasonably possible is in the range of $600,000 to $4.6 million. As of June 30, 1996, the company has not been designated as a potentially responsible party at any site. As of June 30, 1996, the amount accrued with respect to potential liability is $600,000 and is recorded as part of "other accrued liabilities". The company does not expect to incur liabilities at the higher end of the range, based on the limited information currently available. Sales Force During 1996, the company was approached by a group of sales representatives seeking changes in their agreements with Jostens. All of the company's sales representatives have similar contractual arrangements, and the company does not anticipate substantial changes to that relationship with the majority of sales representatives. For some of the about 50 representatives who serve the college market, the company anticipates a change in the contract status. These representatives' contracts call for a transition commission to be paid after the representative leaves the business. Historically, these transition payments have been paid by the new sales representative who assumed responsibility for the accounts of the outgoing representative, with Jostens acting as the collection agent. Although the nature of the potential changes to the contractual relationship with the representatives serving the college market is unknown, any change to the current arrangement may result in the company being required to account in the future for these contingent payments as a liability. DISCONTINUED OPERATIONS The statements of consolidated operations are presented to reflect the company's JLC, Wicat Systems and Sportswear businesses as discontinued operations. In June 1995, Jostens sold its JLC curriculum software subsidiary to a group led by Bain Capital, Inc. for $50 million in cash; a $36 million unsecured, subordinated note maturing in eight years with a stated interest rate of 11 percent; and a separate $4 million note with a stated interest rate of 8.3 percent convertible into 19 percent of the equity of Jostens Learning, subject to dilution in certain events. The notes were recorded at fair value, using an estimated 20 percent discount rate on the $36 million note, resulting in a discount of $9.9 million. In October 1995, the company sold its Wicat Systems business to Wicat Acquisition Corp., a private investment group. Wicat Systems was the small, computer-based aviation training subsidiary of JLC that was retained in the sale of JLC, but held for sale. The company received $1.5 million in cash plus a promissory note for approximately $150,000 from the sale. The company treated Wicat Systems as a discontinued operation in June 1995, pending the sale of the business. A transaction gain of $11.1 million ($5.8 million after tax) was originally recorded at the time of the JLC sale and deferred in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 81, Gain Recognition on the Sale of a Business or Operating Assets to a Highly Leveraged Entity. In the second quarter of fiscal 1996, the deferred gain increased as a result of the sale of Wicat ($5.3 million) and some accrual settlements ($800,000). The adjusted $17.2 million gain ($9.7 million after tax) and interest on the notes receivable will be 18 deferred until cash flows from the operating activities of JLC are sufficient to fund debt service, dividend or any other covenant requirements. The deferred gain is presented in the condensed consolidated balance sheets as an offset to notes receivable. The notes receivable balance represents amounts owed by JLC related to the sale of JLC, net of a $9.9 million discount and the deferred gain. JLC operations are tracking close to their revised plan and Jostens has been informed that JLC is currently attempting to raise additional capital for ongoing cash requirements which may result in a restructuring of holdings. Given Jostens' current carrying value of its investment in JLC, the company does not believe at this time that the carrying value is impaired. As part of the original sale, Jostens also agreed to pay $13 million over two years to fund certain JLC existing liabilities; $9 million has been paid through June 30, 1996. The remaining $4 million has been accrued as part of other accrued liabilities and is expected to be paid in 1997. In 1994, Jostens also recorded a restructuring charge of $60.9 million ($40.2 million after tax, or 88 cents per share) related to JLC, which has been reclassified as part of discontinued operations. The restructuring charge relating to JLC included $39.1 million to focus its product development, $7.3 million to exit both direct and indirect investments in three ancillary lines of business, $4.1 million to exit the hardware sales and service business, and $10.4 million for work-force reductions. In January 1994, Jostens sold its Sportswear business to a subsidiary of Fruit of the Loom for $46.7 million in cash. Jostens recognized an $18.5 million gain ($11 million after tax) on the sale, primarily because the Sportswear business had been written down by $15 million in 1993 to its then estimated net realizable value. RESTRUCTURINGS The company recorded an $8.5 million restructuring charge ($5.1 million after tax, or 12 cents per share) related to continuing operations in the fourth quarter of 1994, covering headcount reductions in the general and administrative functions. The company also recorded a $40.2 million ($25.3 million after tax, or 56 cents per share) charge to continuing operations in 1993 to restructure the Photography business, reduce headcount and write off abandoned receivables. In 1995, restructuring reserves decreased by $13.4 million to $5.5 million at June 30, 1995, due to payments of $11.1 million and noncash items of $2.3 million. In 1996, restructuring reserves decreased by $2.8 million to $2.7 million at June 30, 1996, due to payments of $2.4 million and noncash items of $400,000. CHANGES IN ACCOUNTING ESTIMATES As a result of certain changes in business conditions, the company conducted a review that concluded at the end of the third quarter of fiscal 1994. That review led the company to increase reserves for inventories, receivables and overdrafts from independent sales representatives to reflect amounts estimated not to be recoverable, based upon current facts and circumstances. The revised estimates reduced pre-tax income for 1994 by $16.9 million ($10.1 million after tax, or 22 cents per share). FISCAL YEAR Jostens currently operates under a fiscal year that ends June 30. Due to the strong seasonality of its businesses, the company believes that a calendar fiscal year would enable better internal management and planning, and is seeking the necessary approvals to make this change effective January 1, 1997. 19 REPORTS OF - -------------------------------------------------------------------------------- MANAGEMENT The management of Jostens is responsible for the integrity and objectivity of the financial information presented in this report. The financial statements have been prepared in accordance with generally accepted accounting principles and include certain amounts based on management's best estimates and judgment. Management is also responsible for establishing and maintaining the company's accounting systems and related internal controls, which are designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded. These systems and controls are reviewed by the internal auditors. In addition, the company's code of conduct states that its affairs are to be conducted under the highest ethical standards. The independent auditors provide an independent review of the financial statements and the fairness of the information presented therein. The Audit Committee of the Board of Directors, comprised solely of outside directors, meets regularly with management, the company's internal auditors and its independent auditors to review audit activities, internal controls and other accounting, reporting and financial matters. Both the independent auditors and internal auditors have unrestricted access to the Audit Committee. /s/Trudy A. Rautio Trudy A. Rautio, Senior Vice President and Chief Financial Officer /s/Robert C. Buhrmaster Robert C. Buhrmaster, President and Chief Executive Officer Minneapolis, Minnesota, July 31, 1996 INDEPENDENT AUDITORS To the Stockholders of Jostens Inc.: We have audited the accompanying consolidated balance sheets of Jostens Inc. and subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of operations, changes in shareholders' investment and cash flows for each of the three years in the period ended June 30, 1996. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jostens Inc. and subsidiaries at June 30, 1996 and 1995, and the consolidated results of their operations and cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. As discussed in the notes to the financial statements, the company changed its method of accounting for post-employment benefits in 1995. /s/Ernst & Young LLP Ernst & Young LLP Minneapolis, Minnesota, July 31, 1996 20 STATEMENT OF CONSOLIDATED OPERATIONS 1996 Jostens Inc. and Subsidiaries
Years ended June 30 (Dollars in thousands, except per-share data) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $695,149 $665,099 $649,869 Cost of products sold 332,212 313,659 313,755 - ------------------------------------------------------------------------------------------------------------------------------------ 362,937 351,440 336,114 Selling and administrative expenses 268,135 256,822 274,140 Restructuring charges --- --- 8,500 - ------------------------------------------------------------------------------------------------------------------------------------ Operating income 94,802 94,618 53,474 Interest income 2,080 4,727 1,823 Interest expense (9,403) (5,452) (6,803) - ------------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations before income taxes 87,479 93,893 48,494 Income taxes 35,854 38,027 20,540 - ------------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations 51,625 55,866 27,954 Discontinued operations: Loss from operations, net of tax --- (4,864) (55,110) Gain on sale, net of tax --- --- 10,987 Cumulative effect of changes in accounting principle, net of tax --- (634) --- - ------------------------------------------------------------------------------------------------------------------------------------ Net income (loss) $ 51,625 $ 50,368 $(16,169) ==================================================================================================================================== Earnings (loss) per common share Continuing operations $ 1.28 $ 1.23 $ .61 Loss from discontinued operations --- (.11) (1.21) Gain on sale of discontinued operations --- --- .24 Cumulative effect of changes in accounting principle --- (.01) --- - ------------------------------------------------------------------------------------------------------------------------------------ Net income (loss) $ 1.28 $ 1.11 $ (.36) ==================================================================================================================================== Weighted average number of shares outstanding 40,207 45,494 45,455 ====================================================================================================================================
See notes to consolidated financial statements 21 CONSOLIDATED BALANCE SHEETS 1996 Jostens Inc. and Subsidiaries
June 30 (Dollars in thousands, except per-share data) 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ Assets Current assets Cash and short-term investments $ 13,307 $ 173,469 Accounts receivable, net of allowance of $5,966 and $9,049, respectively 130,159 124,392 Inventories: Finished products 20,147 17,079 Work-in-process 29,175 26,928 Materials and supplies 29,646 27,387 - ------------------------------------------------------------------------------------------------------------------------ 78,968 71,394 Deferred income taxes 14,832 17,845 Prepaid expenses 1,833 2,869 Other receivables, net of allowance of $6,545 and $6,176, respectively 12,241 12,399 - ------------------------------------------------------------------------------------------------------------------------ Total current assets 251,339 402,368 - ------------------------------------------------------------------------------------------------------------------------ Other assets Intangibles 28,332 30,915 Note receivable, net of $9,900 discount and $17,175 and $11,131 deferred gain, respectively 12,925 18,969 Noncurrent deferred income taxes 11,374 15,590 Other 12,967 12,301 - ------------------------------------------------------------------------------------------------------------------------ Total other assets 65,597 77,775 - ------------------------------------------------------------------------------------------------------------------------ Property and equipment Land 5,260 5,260 Buildings 38,026 38,253 Machinery and equipment 144,965 141,043 - ------------------------------------------------------------------------------------------------------------------------ 188,251 184,556 Accumulated depreciation and amortization (121,214) (116,731) - ------------------------------------------------------------------------------------------------------------------------ Total property and equipment 67,037 67,825 - ------------------------------------------------------------------------------------------------------------------------ Total assets $ 383,974 $ 547,968 ========================================================================================================================
See notes to consolidated financial statements 22
June 30 1996 1995 - -------------------------------------------------------------------------------------------------------- Liabilities and shareholders' investment Current liabilities Notes payable $ 27,587 $ --- Current maturities on long-term debt 50,025 355 Accounts payable 16,276 17,624 Salaries, wages and commissions 54,303 52,544 Customer deposits 37,608 36,367 Income taxes 27,322 35,372 Dividends payable 8,505 10,005 Other accrued liabilities 20,837 43,820 - -------------------------------------------------------------------------------------------------------- Total current liabilities 242,463 196,087 Long-term debt, less current maturities 3,874 53,899 Accrued pension costs 4,621 12,578 Other noncurrent liabilities 11,215 14,791 - -------------------------------------------------------------------------------------------------------- Total liabilities 262,173 277,355 Commitments and contingencies --- --- Shareholders' investment Preferred shares, $1.00 par value: authorized 4,000 shares, none issued --- --- Common shares, $.33 1/3 par value: authorized 100,000 shares Issued 1996 -- 38,653; 1995 -- 45,482 12,884 15,160 Capital surplus 1,316 154,410 Retained earnings 110,872 105,213 Foreign currency translation adjustment (3,271) (4,170) - -------------------------------------------------------------------------------------------------------- Total shareholders' investment 121,801 270,613 - -------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' investment $383,974 $547,968 ========================================================================================================
23 STATEMENTS OF CONSOLIDATED CASH FLOWS 1996 Jostens Inc. and Subsidiaries
Years ended June 30 (Dollars in thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ Operating activities Net income (loss) $ 51,625 $ 50,368 $ (16,169) Depreciation 14,999 18,357 19,157 Amortization 1,558 9,982 19,770 Noncash restructuring charges --- --- 27,333 Deferred income taxes 7,229 607 (21,254) Gain on sale of discontinued operations --- --- (10,987) Changes in assets and liabilities, net of effects from sale of discontinued operations: Accounts receivable (10,401) (1,303) 37,000 Inventories (8,157) 2,436 26,333 Prepaid expenses 993 434 4,577 Accounts payable 460 (11,009) (19,396) Other (29,431) 11,070 58,747 - ------------------------------------------------------------------------------------------------------------------------ 28,875 80,942 125,111 - ------------------------------------------------------------------------------------------------------------------------ Investing activities Capital expenditures (15,371) (19,142) (15,202) Software development costs --- (9,560) (19,437) Other --- 4,074 (144) Net proceeds from sale of discontinued operations 1,813 49,471 43,808 - ------------------------------------------------------------------------------------------------------------------------ (13,558) 24,843 9,025 - ------------------------------------------------------------------------------------------------------------------------ Financing activities Cash dividends (35,515) (40,000) (39,999) Exercise of stock options 2,136 225 702 Short-term borrowing 27,587 --- --- Reduction in long-term notes (355) (368) (576) Share repurchase (169,332) --- --- - ------------------------------------------------------------------------------------------------------------------------ (175,479) (40,143) (39,873) - ------------------------------------------------------------------------------------------------------------------------ Change in cash and short-term investments (160,162) 65,642 94,263 Cash and short-term investments, beginning of year 173,469 107,827 13,564 - ------------------------------------------------------------------------------------------------------------------------ Cash and short-term investments, end of year $ 13,307 $173,469 $ 107,827 ========================================================================================================================
See notes to consolidated financial statements 24 1996 STATEMENTS OF CONSOLIDATED CHANGES IN SHAREHOLDERS' INVESTMENT Jostens Inc. and Subsidiaries
Foreign Currency Common Shares Capital Retained Translation (Dollars in thousands, except per-share data) Number Amount Surplus Earnings Adjustment - --------------------------------------------------------------------------------------------------------- Balance - June 30, 1993 45,425 $15,142 $ 152,312 $151,013 $(2,749) Stock options and restricted stock - net 57 18 684 Net loss (16,169) Cash dividends declared of $.88 per share (39,999) Change in cumulative translation adjustment (1,681) Adjustment in minimum pension liability (1,990) - --------------------------------------------------------------------------------------------------------- Balance - June 30, 1994 45,482 15,160 152,996 92,855 (4,430) Stock options and restricted stock - net 1,414 Net income 50,368 Cash dividends declared of $.88 per share (40,000) Change in cumulative translation adjustment 260 Adjustment in minimum pension liability 1,990 - --------------------------------------------------------------------------------------------------------- Balance - June 30, 1995 45,482 15,160 154,410 105,213 (4,170) Stock options and restricted stock - net 182 61 1,903 Share repurchase (7,011) (2,337) (155,168) (11,827) Net income 51,625 Cash dividends declared of $.88 per share (34,015) Tax benefit of stock options 171 Change in cumulative translation adjustment 899 Adjustment in minimum pension liability (124) - --------------------------------------------------------------------------------------------------------- Balance - June 30, 1996 38,653 $12,884 $ 1,316 $110,872 $(3,271) ========================================================================================================
See notes to consolidated financial statements 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------- Jostens Inc. and Subsidiaries SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS OVERVIEW Jostens Inc. is a provider of products and services that help people recognize achievement and affiliation throughout their lives. The company's products include yearbooks, class rings, graduation products, school photography and service and achievement awards for businesses. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the company and its subsidiaries. All material intercompany accounts and transactions have been eliminated. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The most significant areas that require the use of management's estimates relate to the allowance for uncollectible receivables, inventory reserves, sales returns, warranty costs, environmental accruals and deferred income tax valuations. CASH, SHORT-TERM INVESTMENTS AND CASH FLOWS For purposes of reporting cash flows, cash and short-term investments include cash on hand, time deposits and commercial paper. SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, was adopted in fiscal 1995. The implementation of this statement did not have a material impact on the results of operations. Short- term investments have an original maturity of three months or less and are considered cash equivalents. All investments in debt securities have an original maturity of three months or less and are considered to be held to maturity. The short-term securities are carried at amortized cost, which approximates fair value and totaled $2.6 million and $161.1 million at June 30, 1996 and 1995, respectively. Total cash payments for income taxes and interest, respectively, were $34.3 million and $8.7 million in 1996, $15.1 million and $4.2 million in 1995, and $8.9 million and $5.9 million in 1994. INVENTORIES Gold and certain other inventories aggregating $2.7 million at June 30, 1996, and $2.6 million at June 30, 1995, are stated at the lower of last-in, first-out (LIFO) cost or market, and are $14.7 million and $14.8 million lower in the respective years than such inventories determined under the lower of first-in, first-out (FIFO) cost or market. All other inventories are stated at the lower of FIFO cost or market. 26 INVENTORY OBSOLESCENCE The company's policy is to employ a systematic methodology that includes quarterly evaluations of inventory, based upon business trends, to specifically identify obsolete, slow-moving and nonsalable inventory. Inventory reserves are evaluated quarterly to ensure they continually reflect the current business environment and trends. INTANGIBLES Intangibles primarily represent the excess of the purchase price over the fair value of the net tangible assets of acquired businesses and are amortized over various periods of up to 40 years. Accumulated amortization at June 30, 1996 and 1995, was $16.1 million and $14.5 million, respectively. The carrying value of intangible assets is assessed semiannually or when factors indicating an impairment are present. The company employs an undiscounted cash flow method of assessment for these assets. The intangible balance also includes the intangible asset related to additional minimum pension liability of $1.7 million and $2.7 million at June 30, 1996 and 1995, respectively. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Depreciation and amortization on buildings, machinery and equipment and purchased software, including software implementation costs, is provided principally on the straight-line method for financial reporting purposes over their estimated useful lives: buildings, 15 to 40 years; machinery and equipment, three to 10 years; purchased software, two to five years. Depreciation and amortization expense charged to continuing operations was $15 million, $13.6 million and $13.3 million in 1996, 1995 and 1994, respectively. The carrying value of property, equipment and purchased software is assessed annually and/or when circumstances indicating that their carrying value may be impaired or not recoverable. The company determines such impairment by measuring undiscounted future cash flows. If an impairment is present, the assets are reported at the lower of carrying value or fair value. Beginning in 1996, the company capitalized certain software implementation costs. Prior to 1996, such costs were not significant. Implementation costs are expensed until the company has determined that the software will result in probable future economic benefits and management has committed to funding the project. Thereafter, all direct implementation costs and purchased software costs are capitalized and amortized using the straight-line method over the remaining estimated useful lives, not exceeding five years. INCOME TAXES The company records income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. This statement requires the use of the asset and liability method of accounting for income taxes. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. Changes in enacted tax rates are reflected in the tax provision as they occur. SALES, SALES RETURNS AND WARRANTY COSTS Sales are recognized at the date of product shipment. Provisions for sales returns and warranty costs are recorded at the time of sale based on historical information adjusted for current trends. 27 FOREIGN CURRENCY The company enters into foreign currency forward contracts to hedge purchases of inventory in foreign currency. The purpose of these hedging activities is to protect the company from the risk that inventory purchases denominated in foreign currency will be adversely affected by changes in foreign currency rates. All contracts the company had at June 30, 1996, mature within one year and are held for purposes other than trading. The amounts of contracts outstanding at June 30, 1996 and 1995, were $9.1 million and $100,000, respectively. The company is exposed to credit loss in the event of nonperformance by counterparties on foreign exchange forward contracts. Jostens does not anticipate nonperformance by any of these counterparties. The amount of this credit exposure is generally limited to unrealized gains on the contracts. At June 30, 1996 and 1995, there were no material unrealized gains or losses on outstanding foreign currency forward contracts. Assets and liabilities denominated in foreign currency are translated at the current exchange rate as of the balance sheet date, and income statement amounts are translated at the average monthly exchange rate. Translation adjustments resulting from fluctuations in exchange rates are recorded in a separate component of equity. Realized and unrealized gains and losses on foreign currency forward contracts used to purchase inventory with no firm purchase commitments are recognized currently in net income because they do not qualify as hedges for accounting purposes. Realized and unrealized gains and losses on forward contracts used to purchase inventory for which the company has firm purchase commitments qualify as accounting hedges and are therefore deferred and recognized in income when the inventory is sold. EARNINGS PER COMMON SHARE Earnings per share have been computed by dividing net income by the weighted average number of common shares outstanding. The impact of any additional shares issuable upon the exercise of dilutive stock options is not material. POSTEMPLOYMENT BENEFITS In the first quarter of fiscal 1995, the company adopted SFAS No. 112, Employers' Accounting for Postemployment Benefits. Adopting this statement resulted in a $1.1 million ($600,000 after tax) charge to operations. RECENT ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation. Under SFAS No. 123, companies can elect to account for stock-based compensation plans using a fair-value-based method or continue measuring compensation expense for these plans using the intrinsic value method prescribed in Accounting Principles Board opinion No. 25. SFAS No. 123 requires that companies electing to continue using the intrinsic method make pro forma disclosures of net income and earnings per share as if the fair-value-based method of accounting had been applied. The company will adopt the disclosure requirements of SFAS No. 123 in fiscal 1997. Because Jostens anticipates continuing to account for stock-based compensation using the intrinsic value method, SFAS No. 123 will not have an impact on the company's results of operations or financial position. RECLASSIFICATION Certain 1995 and 1994 balances have been reclassified to conform to the 1996 presentation. 28 LONG-TERM DEBT AND OTHER BORROWINGS Long-term debt consisted of the following:
June 30 (Dollars in thousands) 1996 1995 - -------------------------------------------------------------------------------- Medium-term notes, due in August 1996, plus interest at 8.02% $50,000 $50,000 6.75% revenue bonds, covering general offices, due in January 2004 3,600 3,600 Other 299 654 - -------------------------------------------------------------------------------- 53,899 54,254 Less current maturities 50,025 355 - -------------------------------------------------------------------------------- $ 3,874 $53,899 ================================================================================
Annual maturities on long-term debt are zero in fiscal 1998 to 2001 and $3.9 million thereafter. The fair value of long-term debt at June 30, 1996 and 1995, approximated the carrying value and is estimated based on the quoted market prices for comparable instruments. Effective December 20, 1995, the company terminated its unsecured lines of credit and replaced them with a $150 million, five-year bank credit agreement. Annual fees and interest on borrowings are based on the company's long-term debt rating or the commercial paper rating, if the company ceases, at any time, to have a long-term debt rating. Annual fees range from 0.075 percent to 0.15 percent of the commitment. Under the restrictive covenants of the agreement, the company must maintain a minimum interest coverage ratio and net worth (as defined in the agreement). Credit available under the company's $150 million bank credit agreement, which expires in December 2000, is reduced by commercial paper outstanding. Commercial paper borrowings outstanding at June 30, 1996, due within 90 days, were $27.6 million and are included in notes payable in the consolidated balance sheets. Maximum and average borrowing levels during 1996 were $127 million and $68.4 million, respectively, at a weighted average interest rate of 5.6 percent. There were no short-term borrowings in 1995. At June 30, 1996, $122.4 million was available under the bank credit agreement. In addition, the company had available unsecured demand facilities with three banks totaling $80 million. Such credit arrangements are renegotiated periodically based on the anticipated seasonal needs for short-term financing. In April 1996, the company entered into a one-year interest rate swap commencing July 8, 1996. Under terms of the agreement, the company will pay interest at a rate of 5.962 percent and will receive interest weekly at a floating rate equal to the seven-day U.S. commercial paper rate. The interest rate swap agreement effectively converts variable rate obligations to a fixed rate basis in order to reduce the impact of interest rate changes on the company's debt. The agreement involves the exchange of fixed or floating rate interest payments without the exchange of the underlying notional amount. The notional amount of the agreement changes on a weekly basis based on the company's planned borrowing needs and ranges from $4 million to $146.5 million. The notional amount is used to measure the interest to be paid or received and does not represent the amount of exposure to loss. There were no material deferred gains or losses outstanding on the contract as of June 30, 1996. 29 INCOME TAXES Income from continuing operations before taxes, discontinued operations and change in accounting principle are as follows: (Dollars in thousands) 1996 1995 1994 - ---------------------------------------------------------------------------- Domestic $82,818 $87,009 $42,095 - ---------------------------------------------------------------------------- Foreign 4,661 6,884 6,399 - ---------------------------------------------------------------------------- $87,479 $93,893 $48,494 ============================================================================
The components of the provision for income taxes attributable to earnings from continuing operations are as follows: (Dollars in thousands) 1996 1995 1994 - ---------------------------------------------------------------------------- Federal $21,425 $23,272 $18,710 State 5,385 5,198 3,883 Foreign 2,041 3,518 2,603 - ---------------------------------------------------------------------------- 28,851 31,988 25,196 Deferred 7,003 6,039 (4,656) - ---------------------------------------------------------------------------- $35,854 $38,027 $20,540 ============================================================================
The following summarizes the differences between income taxes computed at the U.S. statutory rate and income tax expense from continuing operations for financial reporting purposes: (Dollars in thousands) 1996 1995 1994 - ----------------------------------------------------------------------------- Tax at U.S. statutory rate $30,618 $32,862 $16,973 State income taxes, net of federal income tax benefit 4,012 3,682 2,455 All other, net 1,224 1,483 1,112 - ----------------------------------------------------------------------------- $35,854 $38,027 $20,540 =============================================================================
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred income tax liabilities and assets as of June 30, 1996 and 1995, were as follows:
(Dollars in thousands) 1996 1995 - ----------------------------------------------------- Deferred tax liabilities Tax over book depreciation $(4,595) $(4,119) Other, net (4,175) (3,694) - ----------------------------------------------------- Deferred tax liabilities (8,770) (7,813) Deferred tax assets Restructuring charges 2,524 3,694 Net operating loss and tax credit carryforwards of acquired companies 3,992 6,412 Foreign tax credit carryforwards 3,803 -- Allowance for doubtful accounts 3,016 4,657 Sales representatives' overdraft reserve 2,165 2,389 Sales returns and allowances 3,040 2,929 Postretirement benefits 3,115 3,200 Pension plans 677 3,228 Deferred gain on sale of Jostens Learning 7,486 5,330 Discount on note receivable 3,950 3,950 Reserves for discontinued operations -- 2,156 Other, net 7,128 5,420 - ----------------------------------------------------- 40,896 43,365 Valuation allowance (5,920) (2,117) - ----------------------------------------------------- Deferred tax assets 34,976 41,248 - ----------------------------------------------------- Net deferred tax asset $ 26,206 $ 33,435 =====================================================
At June 30, 1996, the company had net operating loss carryforwards from business acquisitions of $8.2 million for federal income tax purposes that expire in the years 1998 through 2004. The company also had investment, research and experimentation, and foreign tax credit carryforwards of $4.9 million that expire in the years 1998 through 2004. The increase in the valuation allowance from June 30, 1995, to June 30, 1996, is due to the increase in foreign tax credits not likely to be utilized. 30 BENEFIT PLANS The company's noncontributory pension plans cover substantially all employees. The defined benefits provided under the plans are based on years of service and/or compensation levels. Annually, the company funds the actuarially determined costs of these plans, including the amortization of prior service costs over 30 years. Service cost represents the present value of the increase in future benefits resulting from the current year's service. The projected benefit obligation is the present value of benefits, assuming future compensation levels, for services rendered to date. The components of pension cost and the funded status are as follows:
(Dollars in thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------ Service cost $ 3,459 $ 3,366 $ 3,254 Interest on projected benefit obligation 7,737 7,447 6,925 Return on assets: actual loss (gain) (28,589) (7,556) 326 deferred 18,830 (262) (6,978) Amortization 137 243 (359) - ------------------------------------------------------------------------------------------------------------------------------- Pension cost $ 1,574 $ 3,238 $ 3,168 ===============================================================================================================================
June 30, 1996 Plans whose assets Plans whose accrued (Dollars in thousands) exceed accrued benefits benefits exceed assets - ------------------------------------------------------------------------------------------------------------------------------ Vested benefit obligation $ 79,242 $ 15,570 Accumulated benefit obligation 82,838 16,288 Projected benefit obligation 90,331 17,274 Fair value of plan assets 121,560 - Plan assets in excess of (less than) projected benefit obligation 31,229 (17,274) Unrecognized net (gain) loss (22,810) 1,022 Unrecognized prior service cost 9,835 1,660 Unrecognized net (asset) obligation at transition (6,532) 118 Adjustment required to recognize minimum liability - (1,869) - ------------------------------------------------------------------------------------------------------------------------------ Net pension asset (liability) in consolidated balance sheets $ 11,722 ($16,343) ==============================================================================================================================
June 30, 1995 Plans whose assets Plans whose accrued (Dollars in thousands) exceed accrued benefits benefits exceed assets - ------------------------------------------------------------------------------------------------------------------------------ Vested benefit obligation $ 64,047 $ 24,661 Accumulated benefit obligation 67,818 25,869 Projected benefit obligation 75,285 27,425 Fair value of plan assets 81,635 9,777 Plan assets in excess of (less than) projected benefit obligation 6,350 (17,648) Unrecognized net (gain) loss (5,460) 1,339 Unrecognized prior service cost 9,486 3,348 Unrecognized net (asset) at transition (6,796) (513) Adjustment required to recognize minimum liability - (2,684) - ------------------------------------------------------------------------------------------------------------------------------ Net pension asset (liability) in consolidated balance sheets $ 3,580 ($16,158) ==============================================================================================================================
31 Plan assets consist primarily of corporate equity, including the fair value of the company's common stock of $4.2 million at June 30, 1996 and 1995, respectively, as well as corporate and U.S. government debt, and real estate. The assumptions used in determining the components of pension cost and the funded status were as follows:
1996 1995 1994 - ----------------------------------------------------------------------------------------------- Weighted average discount rates 7.75% 8.00% 7.50% Rates of increase in compensation 5.00% 5.00% 5.00% Expected rate of return on assets 10.00% 8.75% 8.00%
In conjunction with the 1994 divestiture of Sportswear, accrued benefits under the applicable defined-benefit pension plans were frozen and active participants became fully vested. The plans' trustee will continue to maintain and invest plan assets and will administer benefit payments. In accordance with SFAS No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans, a curtailment loss of $700,000 was included in the gain on the sale of Sportswear. The company's retirement savings plan, which covers substantially all nonunion employees, provides for a matching contribution by the company on amounts, limited to 6 percent of compensation, contributed by employees. The company's contribution, in the form of Jostens common shares purchased in the open market, was $2.4 million for each of the three years ended June 30, 1996, representing 50 percent of eligible employee contributions. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Jostens provides medical insurance benefits for substantially all retirees. Employees who retired prior to June 30, 1993, pay medical contributions at an amount either frozen at retirement or at a fixed percentage of the plan costs prior to age 65. Employees retiring after that date receive only a fixed dollar contribution toward coverage prior to age 65. The fixed dollar contribution is based on vested service at retirement and is not projected to increase in the future. Postretirement benefit cost included the following components:
(Dollars in thousands) 1996 1995 1994 - ----------------------------------------------------------------------------------------------- Service cost of benefits earned $ 72 $ 75 $ 77 Interest cost of benefit obligation 450 463 466 Amortization of net (gain) from earlier periods (34) (471) -- Amortization of unrecognized prior service cost (7) (7) (7) - ----------------------------------------------------------------------------------------------- Postretirement benefit cost $ 481 $ 60 $ 536 ===============================================================================================
(Dollars in thousands) 1996 1995 - ----------------------------------------------------------------------------------------------- Retirees $3,957 $5,009 Fully eligible active participants 85 82 Other active participants 942 959 - ----------------------------------------------------------------------------------------------- 4,984 6,050 Unrecognized prior service cost 76 84 Unrecognized net gain 1,971 884 - ----------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligations $7,031 $7,018 ===============================================================================================
The assumptions used in determining the benefit obligation in fiscal 1996 included a medical plan cost trend rate of 12 percent, declining to 6 percent in the year 2002, and a weighted average discount rate of 7.75 percent. Fiscal 1995 assumptions included a medical plan cost trend rate of 13.4 percent, declining to 7.9 percent in the year 2000, and a weighted average discount rate of 8 percent. Fiscal 1994 assumptions included a medical plan cost trend rate of 14.5 percent, declining to 7.9 percent in the year 2000, and a weighted average discount rate of 7.5 percent. 32 A one-percentage-point increase in the assumed health care cost trend rates for each future year increases the accumulated postretirement benefit obligation for health care benefits by approximately $300,000 with minimal impact on interest cost and no impact on service cost, since benefits for future retirees are defined-dollar benefits unrelated to health care benefits. Unrecognized net gains or losses in excess of 10 percent of the accumulated post-retirement benefit obligation are amortized over the average remaining service period of active plan participants. COMMITMENTS AND CONTINGENCIES The company's noncancelable minimum rental commitments for facilities and equipment are $5.6 million in fiscal 1997, $2.1 million in 1998, $1 million in 1999, $800,000 in 2000, $300,000 in 2001 and zero thereafter. Operating lease rental expenses were $6.3 million in 1996, $6.3 million in 1995 and $6 million in 1994. Jostens has forward contracts of $32.4 million for commitments to purchase 80,037 ounces of gold that mature at various times in 1997 with prices ranging from $396 to $414 per ounce. Jostens is a party to litigation arising in the normal course of business. Management regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. Management believes that the effect on the company's results of operations and financial position, if any, for the disposition of these matters will not be material. Jostens also assesses reasonably possible environmental liability beyond that which has been accrued. This liability is not probable, but is more likely than remote. As of June 30, 1996, the company identified four sites requiring further investigation. The potential liability cannot be fully assessed, since the sites are still in various stages of investigation. In addition, two other sites nearing completion did not require any accruals as of June 30, 1996. The amount of environmental liability identified that is reasonably possible is in the range of $600,000 to $4.6 million. As of June 30, 1996, the company has not been designated as a potentially responsible party at any site. The amount accrued as of June 30, 1996 with respect to potential liability is $600,000 and is recorded as part of "other accrued liabilities." The company does not expect to incur liabilities at the higher end of the range, based on the limited information currently available. During 1996, the company was approached by a group of sales representatives seeking changes in their agreements with Jostens. All of the company's sales representatives have similar contractual arrangements, and the company does not anticipate substantial changes to that relationship with the majority of sales representatives. For some of the about 50 representatives who serve the college market, the company anticipates a change in the contract status. These representatives' contracts call for a transition commission to be paid after the representative leaves the business. Historically, these transition payments have been paid by the new sales representative who assumed responsibility for the accounts of the outgoing representative, with Jostens acting as the collection agent. Although the nature of the potential changes to the contractual relationship with the representatives serving the college market is unknown, any change to the current arrangement may result in the company being required to account in the future for these contingent payments as a liability. SHAREHOLDERS' INVESTMENT Share Repurchase In September 1995, the company repurchased 7,011,108 shares of its common stock, the maximum number of shares allowable for purchase, for $169.3 million through a Modified Dutch Auction tender offer. The repurchase was funded from the company's cash and short-term investment balance, as well as short-term borrowings. 33 Stock Options and Restricted Stock Under stock option plans, Jostens has granted options to key employees to purchase common shares of the company at 100 percent of the market price on the dates the options are granted. The company follows APB opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee stock options. Under APB No. 25, when the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recorded. The following summarizes the changes in stock options outstanding:
Options Outstanding (In thousands) 1996 1995 1994 - -------------------------------------------------------- Beginning of year 2,971 2,400 2,446 Granted 278 822 463 Exercised (163) (28) (26) Canceled (335) (223) (483) - -------------------------------------------------------- End of year 2,751 2,971 2,400 ========================================================
The options exercised during fiscal 1996 ranged in price from $1.21 to $22.88 per share. At June 30, 1996, the exercise price on outstanding options ranged from $11.47 to $34.19 per share, and 1.5 million options were exercisable under stock option plans. Approximately 1.3 million and 700,000 common shares were reserved for future grants under the stock option plans at June 30, 1996 and 1995, respectively. During fiscal 1995, certain members of the Jostens senior management team were granted performance share units, as part of Jostens' long-term management incentive plan. Performance share units are tied directly to attaining specific financial performance targets. If all or a portion of the performance units are awarded, the units are converted into a restricted stock award, which is subject to transfer and vesting restrictions based upon continuous employment of the recipient. Holders of restricted shares have voting, liquidation and other rights with respect to these shares and receive dividends paid on common stock. A portion of these performance share units were to be converted into restricted shares in each of fiscal years 1995, 1996 and 1997, contingent upon achieving the financial performance targets established under the plan. Performance share unit and restricted share activity under this plan are summarized as follows:
Performance Restricted (In thousands) Share Units Shares - ----------------------------------------------------- Balances, June 30, 1994 -- -- - ----------------------------------------------------- Granted 171,573 -- Converted (53,290) 53,290 - ----------------------------------------------------- Balances, June 30, 1995 118,283 53,290 - ----------------------------------------------------- Granted 13,807 -- Canceled (77,144) -- Redeemed -- (5,141) - ----------------------------------------------------- Balances, June 30, 1996 54,946 48,149 =====================================================
In fiscal 1995, restricted shares were awarded under this plan as a result of achieving 1995 performance share unit targets, resulting in $1.2 million in expense in 1995. The company did not achieve the 1996 financial targets, which resulted in the cancellation of a portion of the outstanding performance share units. In addition, certain participating employees terminated their employment with the company, which resulted in the cancellation of additional performance share units and the redemption of previously issued restricted shares. SHAREHOLDER RIGHTS PLAN In August 1988, the Board of Directors declared a distribution to shareholders of one common share purchase right for each outstanding common share. Each right entitles the holder to purchase one common share at an exercise price of $60. The rights become exercisable if a person acquires 20 percent or more, or announces a tender offer for 25 percent or more, of the company's common shares. If a person acquires at least 25 percent of the company's outstanding 34 shares, each right will entitle the holder to purchase the company's common shares having a market value of twice the exercise price of the right. If the company is acquired in a merger or other business combination, each right will entitle the holder to purchase common stock of the acquiring company at a similar 50 percent discount. The rights, which expire in August 1998, may be redeemed by the company at a price of 1 cent per right at any time prior to the 30th day after a person has acquired at least 20 percent of the company's outstanding shares. BUSINESS SEGMENT INFORMATION The company's operations are classified into two business segments: school- based recognition products and services (School Products) and longevity and performance recognition products and services for businesses (Recognition). The School Products segment manufactures and sells products and services including yearbooks, class rings, graduation products and student photography packages, as well as customized products for university alumni and other affinity groups. Operations within the Recognition segment include the manufacture and sale of customized sales, service and business achievement awards. Operating income from continuing operations by business segment is defined as sales less operating costs and expenses. Income and expense not allocated to business segments include investment income, interest expense and corporate administrative costs. Identifiable assets are assets used exclusively in the operations of each business segment and are reflected after eliminating intercompany balances. Corporate assets principally comprise cash, short-term investments, deferred income tax assets, notes receivable and certain property and equipment. Financial information by reportable business segment is included in the following summary:
(Dollars in thousands) 1996 1995 1994 - --------------------------------------------------------------- NET SALES School Products $594,941 $565,033 $546,191 Recognition 100,208 100,066 103,678 - --------------------------------------------------------------- CONSOLIDATED $695,149 $665,099 $649,869 =============================================================== INCOME FROM CONTINUING OPERATIONS School Products $107,648 $107,071 $ 73,463 Recognition 9,468 4,727 9,489 Corporate items and eliminations (22,314) (17,180) (29,478) - --------------------------------------------------------------- Consolidated 94,802 94,618 53,474 Net interest expense (7,323) (725) (4,980) - --------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES $ 87,479 $ 93,893 $ 48,494 ===============================================================
(Dollars in thousands) 1996 1995 1994 - --------------------------------------------------------------- INDENTIFIABLE ASSETS School Products $253,736 $236,424 $225,249 Recognition 46,960 45,177 47,315 Discontinued operations - 6,165 119,999 Corporate items and eliminations 83,278 260,202 177,268 - --------------------------------------------------------------- CONSOLIDATED $383,974 $547,968 $569,831 =============================================================== DEPRECIATION AND AMORTIZATION School Products $ 11,395 $ 10,951 $ 11,700 Recognition 2,056 2,111 1,775 Discontinued operations - 13,179 24,013 Corporate items 3,106 2,098 1,439 - --------------------------------------------------------------- CONSOLIDATED $ 16,557 $ 28,339 $ 38,927 =============================================================== CAPITAL EXPENDITURES School Products $ 12,948 $ 8,540 $ 6,252 Recognition 463 1,369 1,054 Discontinued operations - 2,559 3,994 Corporate items 1,960 6,674 3,902 - --------------------------------------------------------------- CONSOLIDATED $ 15,371 $ 19,142 $ 15,202 ===============================================================
35 Corporate recorded a restructuring charge of $8.5 million in 1994. Income from continuing operations for School Products in 1994 included $16.4 million of provisions for revised estimates of inventories, receivables and overdrafts. Income from continuing operations for Recognition in 1994 included $500,000 for revised inventory estimates. DISCONTINUED OPERATIONS The statements of consolidated operations are presented to reflect the company's JLC, Wicat Systems and Sportswear businesses as discontinued operations. In June 1995, Jostens sold its JLC curriculum software subsidiary to a group led by Bain Capital, Inc. for $50 million in cash; a $36 million unsecured, subordinated note maturing in eight years with a stated interest rate of 11 percent; and a separate $4 million note with a stated interest rate of 8.3 percent convertible into 19 percent of the equity of Jostens Learning, subject to dilution in certain events. The notes were recorded at fair value, using an estimated 20 percent discount rate on the $36 million note resulting in a discount of $9.9 million. In October 1995, the company sold its Wicat Systems business to Wicat Acquisition Corp., a private investment group. Wicat Systems was the small, computer-based aviation training subsidiary of JLC that was retained in the sale of JLC, but held for sale. The company received $1.5 million in cash plus a promissory note for approximately $150,000 from the sale. The company treated Wicat Systems as a discontinued operation from June 1995 on, pending the sale of the business. A transaction gain of $11.1 million ($5.8 million after tax) was originally recorded at the time of the JLC sale and deferred in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 81, Gain Recognition on the Sale of a Business or Operating Assets to a Highly Leveraged Entity. In the second quarter of fiscal 1996, the deferred gain increased as a result of the sale of Wicat ($5.3 million) and some accrual settlements ($800,000). The adjusted $17.2 million gain ($9.7 million after tax) and interest on the notes receivable will be deferred until cash flows from the operating activities of JLC are sufficient to fund debt service, dividend or any other covenant requirements. The deferred gain is presented in the condensed consolidated balance sheets as an offset to notes receivable. The notes receivable balance represents amounts owed by JLC related to the sale of JLC, net of a discount of $9.9 million and the deferred gain. As part of the transaction Jostens also agreed to pay $13 million over two years to fund certain JLC existing liabilities; $9 million was paid through June 30, 1996. The remaining $4 million has been accrued as part of other accrued liabilities. In 1994, Jostens recorded a restructuring charge of $60.9 million ($40.2 million after tax, or 88 cents per share) related to JLC, which has been reclassified as part of discontinued operations. The restructuring charge relating to JLC included $39.1 million to focus its product development, $7.3 million to exit both direct and indirect investments in three ancillary lines of business, $4.1 million to exit the hardware sales and service business, and $10.4 million for work-force reductions. Significant accounting policies relevant to discontinued operations included those related to capitalization of software development costs and software revenue recognition. JLC capitalized software development costs when the project reached technological feasibility and ceased capitalization when the product was ready for release. Research and development costs related to software 36 development that had not reached technological feasibility were expensed as incurred. Software development costs were amortized on the straight-line method over a maximum of five years or the expected life of the product, whichever was less. JLC recognized revenue for hardware and software upon shipment of the product, provided that no significant vendor or postcontract obligations remained outstanding and collection of the resulting receivable was deemed probable. Revenue generated from service contracts and postcontract customer support on software was recognized ratably over the period of the contract. The revenue recognition for instruction and user training was part of the service contract recognized ratably over the life of the contract. For insignificant vendor and postcontract obligations remaining at the time of shipment, the company's policy was to accrue all such obligations. In January 1994, Jostens sold its Sportswear business to a subsidiary of Fruit of the Loom for $46.7 million in cash. Jostens recognized an $18.5 million gain ($11 million after tax) on the sale, primarily because the Sportswear business had previously been written down by $15 million to its estimated net realizable value. Revenue and income data related to discontinued operations is as follows:
JLC/Wicat Systems (Dollars in thousands) 1995 1994 - ------------------------------------------ Revenue $108.6 $177.5 Restructuring charges - 60.9 Income tax benefit 2.5 28.0 Loss from operations $ 4.9 $ 54.3 Sportswear 1994 - ------------------------------------------ Revenue $ 52.1 Income tax benefit .5 Loss from operations .8 Gain on sale, net of tax $ 11.0
RESTRUCTURINGS The company recorded an $8.5 million restructuring charge ($5.1 million after tax, or 12 cents per share) related to continuing operations in the fourth quarter of 1994, covering headcount reductions in the general and administrative functions. The company also recorded a $40.2 million ($25.3 million after tax, or 56 cents per share) charge to continuing operations in 1993 to restructure the Photography business, reduce headcount and write off abandoned receivables. In 1995, restructuring reserves decreased by $13.4 million to $5.5 million at June 30, 1995, due to payments of $11.1 million and noncash items of $2.3 million. In 1996, restructuring reserves decreased by $2.8 million to $2.7 million at June 30, 1996, due to payments of $2.4 million and noncash items of $400,000. CHANGES IN ACCOUNTING ESTIMATES As a result of certain changes in business conditions, the company conducted a review that concluded at the end of the third quarter of fiscal 1994. That review led the company to increase reserves for inventories, receivables and overdrafts from independent sales representatives to reflect amounts estimated not to be recoverable, based upon current facts and circumstances. The revised estimates reduced pretax income for 1994 by $16.9 million ($10.1 million after tax, or 22 cents per share). 37 Unaudited Quarterly Financial Data 1996
Jostens Inc. and Subsidiaries Fiscal 1996 (Dollars in thousands, except per-share data) First Second Third Fourth Total Year - -------------------------------------------------------------------------------------------------------------------- Net sales $97,754 $165,779 $141,863 $289,753 $695,149 Gross margin $51,954 $ 91,812 $ 81,347 $137,824 $362,937 Income from continuing operations $ 2,513 $ 11,973 $ 6,773 $ 30,366 $ 51,625 Net income $ 2,513 $ 11,973 $ 6,773 $ 30,366 $ 51,625 Earnings(1) per share $ .06 $ .31 $ .18 $ .79 $ 1.28 Stock price: high $24 1/2 $ 25 1/8 $ 24 3/8 $ 22 7/8 $ 25 1/8 low $20 7/8 $ 22 1/4 $ 21 1/8 $ 19 1/2 $ 19 1/2 Dividends per share $ .22 $ .22 $ .22 $ .22 $ .88 - --------------------------------------------------------------------------------------------------------------------
Unaudited Quarterly Financial Data 1995 Jostens Inc. and Subsidiaries Fiscal 1995 (Dollars in thousands, except per-share data) First Second(2) Third(2) Fourth Total Year - -------------------------------------------------------------------------------------------------------------------- Net sales $98,023 $157,623 $139,038 $270,415 $665,099 Gross margin $53,135 $ 84,675 $ 77,925 $135,705 $351,440 Income from continuing operations $ 3,589 $ 12,367 $ 9,437 $ 30,473 $ 55,866 Net income $ 1,316 $ 11,707 $ 8,511 $ 28,834 $ 50,368 Earnings per share: continuing operations $ .08 $ .27 $ .21 $ .67 $ 1.23 net income $ .03 $ .26 $ .18 $ .64 $ 1.11 Stock price: high $18 3/4 $ 19 3/8 $ 21 1/4 $ 21 5/8 $ 21 5/8 low $15 3/4 $ 16 7/8 $ 17 3/4 $ 18 7/8 $ 15 3/4 Dividends per share $ .22 $ .22 $ .22 $ .22 $ .88 - --------------------------------------------------------------------------------------------------------------------
(1) Earnings per share by quarter in 1996 do not add up to the annual earnings per share amount because each quarter and the year are calculated separately based on weighted average outstanding shares and common share equivalents during that period. (2) Certain amounts in 1995 have been reclassified between cost of products sold and selling and administrative expenses to conform to the 1996 presentation. The quarterly financial data above include the effects of reclassifying Jostens Learning Corporation and Wicat Systems as discontinued operations. 38 Six-Year Financial Summary Jostens Inc. and Subsidiaries
(Dollars in millions, except per-share data) 1996 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------- Statement of operations Net sales $ 695.1 $ 665.1 $ 649.9 $ 634.8 $ 639.2 $632.1 Cost of products sold 332.2 313.7 313.8 310.4 314.0 311.3 Net interest expense 7.3 .7 5.0 5.7 8.7 10.2 Income taxes 35.9 38.0 20.5 10.7 29.8 27.5 Income -- continuing operations 51.6 55.9 28.0 8.5 45.2 45.0 Return on sales -- continuing operations 7.4% 8.4% 4.3% 1.3% 7.1% 7.1% Net income (loss) 51.6 50.4 (16.2) (12.7) 59.2 61.6 Return on investment 26.3% 19.1% (5.7%) (3.7%) 16.9% 19.6% - ----------------------------------------------------------------------------------------------------------------- Balance sheet data Current assets $ 251.3 $ 402.4 $ 396.1 $ 401.6 $ 436.3 $389.4 Working capital 8.9 206.3 172.7 185.3 232.2 167.7 Current ratio 1.0 2.1 1.8 1.9 2.2 1.8 Property and equipment 188.3 184.6 207.6 218.9 207.4 192.3 Total assets 384.0 548.0 569.8 613.5 643.3 596.4 Notes payable 27.6 - - - - 35.2 Long-term debt, including current maturities 53.9 54.3 54.8 55.3 79.4 53.4 Shareholders' investment 121.8 270.6 256.6 315.7 364.7 333.6 - ----------------------------------------------------------------------------------------------------------------- Common share data EPS -- continuing operations $ 1.28 $ 1.23 $ .61 $ .19 $ 1.00 $1.01 EPS -- net income (loss) 1.28 1.11 (.36) (.28) 1.32 1.38 Cash dividends .88 .88 .88 .88 .84 .80 Book value 3.15 5.95 5.64 6.95 8.10 7.46 Common shares outstanding (in millions) 38.7 45.5 45.5 45.4 45.0 44.7 Stock price: high 25 1/8 21 5/8 20 7/8 31 1/4 37 3/8 38 5/8 low 19 1/2 15 3/4 15 1/8 16 1/2 24 1/8 23 1/2 - -----------------------------------------------------------------------------------------------------------------
The financial information above reflects Jostens Learning, Wicat Systems and Sportswear as discontinued operations. Restructuring charges totaling $8.5 million and $40.2 million were recorded in continuing operations and $60.9 million and $25.4 million in discontinued operations in the fourth quarters of fiscal 1994 and 1993, respectively. In 1994, $16.9 million was recorded for provisions related to revised estimates of reserves for inventories, receivables and overdrafts. Net income for fiscal 1993 reflects the cumulative effect of adopting SFAS No. 106 of $6.7 million ($4.2 million after tax, or 9 cents per share). Net income for fiscal 1995 reflects the cumulative effect of adopting SFAS No. 112 of $1.1 million ($600,000 after tax, or 1 cent per share). 39 Board of Directors Lilyan H. Affinito Former Vice Chairman of the Board, Maxxam Group Inc.; Director, Caterpillar Inc., Chrysler Corp., New York Telephone Co. and New England Telephone Co., Tambrands Inc., Lillian Vernon Corp., Kmart Corp. (Member, Audit Committee and Compensation Committee) William A. Andres Retired Chairman of the Board and Chief Executive Officer, Dayton Hudson Corp.; Director, Lowe's Companies Inc., Hannaford Bros. Co., The St. Paul Companies. (Member, Audit Committee and Compensation Committee) Robert C. Buhrmaster President and Chief Executive Officer, Jostens Inc.; Director, The Toro Company. (Member, Executive Committee) Jack W. Eugster Chairman of the Board, President and Chief Executive Officer, Musicland Stores Corp.; Director, Damark International Inc., Donaldson Co. Inc., MidAmerican Energy Co., ShopKo Stores Inc. (Member, Audit Committee and Compensation Committee) Mannie L. Jackson Chairman of the Board, Harlem Globetrotters Inc.; Former Senior Vice President-Corporate Marketing and Administration, Honeywell Inc.; Director, Ashland Oil Corp., Martech Controls-South Africa, Reebok Corp., Stanley Products. (Member, Compensation Committee and Executive Committee) Robert P. Jensen Chairman of the Board, Jostens Inc.; Private Investor; Former Chairman of the Board and Chief Executive Officer, GK Technologies Inc., Tiger International Inc., EF Hutton LBO Inc. (Member, Audit Committee and Executive Committee) John W. Stodder Vice Chairman of the Board and Audit Committee Chairman, Jostens Inc.; Independent Corporate Finance Consultant; Director, Tally Industries Inc., Stevens International Inc., TransLeasing International Inc. (Member, Audit Committee, Compensation Committee and Executive Committee) Richard A. Zona Vice Chairman-Finance, First Bank System Inc.; Director, Olympic Financial Ltd. (Member, Audit Committee) Corporate Management Robert C. Buhrmaster, 49, President and Chief Executive Officer, an employee since 1992. Charles W. Schmid, 53, Executive Vice President and General Manager- Scholastic and Recognition, an employee since 1994. Orville E. Fisher Jr., 52, Senior Vice President, General Counsel and Secretary, an employee since 1975. John L. Jones, 59, Senior Vice President-International, an employee since 1992. Trudy A. Rautio, 43, Senior Vice President and Chief Financial Officer, an employee since 1993. Jack Thornton, 43, Senior Vice President and General Manager-Printing & Publishing/Photography/Jostens Canada, an employee since 1978. Greg S. Lea, 44, Vice President and General Manager-Colleges and Universities, an employee since 1993. Lee U. McGrath, 40, Vice President and Treasurer, an employee since 1995. 40 Shareholder Information Annual Meeting of Shareholders The annual meeting of shareholders will be held at 10 a.m. Thursday, October 24, 1996, in the Jostens auditorium, 5501 Norman Center Drive, Minneapolis, Minnesota. All shareholders are invited to attend. Shareholder Information People who want more information about Jostens (such as annual and quarterly reports, Form 10-K reports and automatic dividend reinvestment) or who have questions about stockholdings, dividend checks, transfer requirements and address changes should contact the company's transfer agent and registrar: Norwest Shareowner Services, P.O. Box 64854, St. Paul, Minnesota 55164-0854. Telephone: (800) 468-9716. Dividend Reinvestment Jostens' automatic dividend reinvestment service is a convenient way for shareholders to increase their investment in the company. About 40 percent of Jostens' registered shareholders use this service, which applies quarterly dividends, plus optional cash deposits, to the purchase of additional Jostens shares. Shareholders interested in this service can obtain a brochure by contacting Norwest Shareowner Services as listed above. Stock Exchange Listing Jostens common stock is traded on the New York Stock Exchange (symbol: JOS). There were approximately 9,400 shareholders of record as of June 30, 1996. Annual Report of Corporate Responsibility The Jostens annual report of corporate responsibility is available by writing: The Jostens Foundation, 5501 Norman Center Drive, Minneapolis, Minnesota 55437-1088 Facilities United States . Porterville and Visalia, California . Princeton, Illinois . Topeka, Kansas . Attleboro, Massachusetts . Burnsville, Eden Prairie, Edina, Minneapolis, Owatonna and Red Wing, Minnesota . Webster, New York . Winston-Salem, North Carolina . State College, Pennsylvania . Laurens, South Carolina . Clarksville, Memphis and Shelbyville, Tennessee . Denton, Texas Canada . Winnipeg, Manitoba . Toronto, Ontario . Montreal and Sherbrooke, Quebec [LOGO OF RECYCLED PAPER] This report was printed by the Jostens commercial printing facility in Winston-Salem, North Carolina, on recycled (and recyclable) paper, containing 10% post-consumer waste. 41 For more information about products and services from [LOGO] JOSTENS please contact us. Our address is 5501 Norman Center Drive Minneapolis, Minnesota 55437. You may also reach us by calling (612) 830-3300 or by visiting our Internet site at www.jostens.com. EX-21 5 SUBSIDIARIES OF THE REGISTRANT JOSTENS, INC. AND SUBSIDIARIES EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT
State or Other Name Jurisdiction of Organization ---- ------------------------------ American Yearbook Company, Inc. Kansas Hunter Publishing Company North Carolina Jostens Canada, Ltd. Manitoba, Canada Jostens/Massachusetts, Inc. Massachusetts Jostens Photography, Inc. California Jostens Publishing Group, Inc. Minnesota The Jostens Foundation, Inc. Minnesota Wayneco Enterprises, Incorporated Pennsylvania Wicat Sales, Inc. Minnesota
22 EX-23 6 CONSENT OF THE INDEPENDENT AUDITORS EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Jostens, Inc. of our report dated July 31, 1996, included in the 1996 Annual Report to Shareholders of Jostens, Inc. Our audits also included the financial statement schedule of Jostens, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in Registration Statement Number 33-40233 and Registration Statement Number 33-37076 on Form S-3; Registration Statement Number 33-49968 on Form S-4; Post-effective Amendment Number 1 to Registration Statement Numbers 2-95076, 33-19308, 33-58414 and 33- 00713 on Form S-8 of Jostens, Inc. and in the related Prospectuses of our report dated July 31, 1996, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of Jostens, Inc. /s/ ERNST & YOUNG LLP - --------------------- ERNST & YOUNG LLP Minneapolis, Minnesota September 25, 1996 23 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JOSTENS, INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JUN-30-1996 JUL-01-1995 JUN-30-1996 10,755 2,552 136,125 (5,966) 78,968 251,339 188,251 (121,214) 383,974 242,463 3,874 0 0 12,884 108,917 383,974 695,149 695,149 332,212 332,212 268,135 0 9,403 87,479 35,854 51,625 0 0 0 51,625 1.28 1.28
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