10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 29, 2002

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-5064

Jostens, Inc.

(Exact name of Registrant as specified in its charter)

Minnesota	41-0343440
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification number)
5501 Norman Center Drive, Minneapolis, Minnesota	55437
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number: (952) 830-3300

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 requirement for the past 90 days. Yes [X]    No [    ]

On August 9, 2002 there were 8,955,741 shares of the Registrant’s common stock outstanding.

Jostens, Inc. and Subsidiaries

		Page
Part I Financial Information
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations for the three and six months ended June 29, 2002 and June 30, 2001	3
	Condensed Consolidated Balance Sheets as of June 29, 2002, June 30, 2001 and December 29, 2001	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2002 and June 30, 2001	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18
Part II Other Information
Item 1.	Legal Proceedings	19
Item 6.	Exhibits and Reports on Form 8-K	19
Signatures		20

2

PART I FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

JOSTENS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three months ended						Six months ended
In thousands, except per-share data	June 29, 2002			June 30, 2001			June 29, 2002			June 30, 2001
Net sales	$	353,720		$	337,740		$	475,043		$	454,804
Cost of products sold		151,446			145,638			199,153			191,564
Gross profit		202,274			192,102			275,890			263,240
Selling and administrative expenses		100,480			95,433			167,491			162,548
Special charges		—			2,138			—			2,138
Operating income		101,794			94,531			108,399			98,554
Net interest expense		17,016			19,640			34,706			40,922
Income from continuing operations before income taxes		84,778			74,891			73,693			57,632
Provision for income taxes		35,184			31,012			30,584			23,739
Income from continuing operations		49,594			43,879			43,109			33,893
Gain (loss) on discontinued operations, net of tax		940			(1,391	)		940			(3,681	)
Net income		50,534			42,488			44,049			30,212
Dividends and accretion on redeemable preferred shares		(2,883	)		(2,504	)		(5,666	)		(4,922	)
Net income available to common shareholders	$	47,651		$	39,984		$	38,383		$	25,290
Earnings per common share
Basic
Income from continuing operations	$	5.22		$	4.60		$	4.18		$	3.22
Gain (loss) on discontinued operations		0.10			(0.15	)		0.10			(0.41	)
Basic earnings per common share	$	5.32		$	4.45		$	4.28		$	2.81
Diluted
Income from continuing operations	$	4.70		$	4.16		$	3.77		$	2.91
Gain (loss) on discontinued operations		0.09			(0.14	)		0.09			(0.37	)
Diluted earnings per common share	$	4.79		$	4.02		$	3.86		$	2.54
Weighted average common shares outstanding
Basic		8,958			8,993			8,961			8,993
Diluted		9,951			9,949			9,946			9,949

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

3

JOSTENS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)						December 29, 2001
In thousands, except per-share data	June 29, 2002			June 30, 2001
ASSETS
Current assets
Cash and cash equivalents	$	59,148		$	43,070		$	43,100
Accounts receivable, net of allowance of $3,789, $3,550 and $3,657		80,418			94,440			56,238
Inventories, net of reserve of $2,340, $3,558 and $2,089		47,167			60,728			70,514
Deferred income taxes		19,964			17,995			19,964
Salespersons overdrafts, net of allowance of $6,595, $5,800 and $6,897		14,913			14,177			28,037
Prepaid expenses and other current assets		5,189			4,574			7,723
Current assets of discontinued operations		—			—			7,029
Total current assets		226,799			234,984			232,605
Other assets
Intangibles, net		14,763			17,105			14,260
Deferred financing costs, net		25,194			30,331			27,476
Other		34,520			30,672			32,075
Total other assets		74,477			78,108			73,811
Property and equipment		274,431			290,061			267,255
Less accumulated depreciation		(209,562	)		(216,136	)		(199,064	)
Property and equipment, net		64,869			73,925			68,191
	$	366,145		$	387,017		$	374,607
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Accounts payable	$	8,040		$	14,569		$	18,721
Accrued employee compensation and related taxes		26,519			25,855			27,392
Commissions payable		41,996			43,479			18,639
Customer deposits		59,662			58,516			126,400
Income taxes payable		48,556			38,307			16,940
Interest payable		7,667			8,876			10,567
Current portion of long-term debt		22,049			20,879			20,966
Other accrued liabilities		13,906			16,073			16,913
Current liabilities of discontinued operations		5,939			—			16,511
Total current liabilities		234,334			226,554			273,049
Long-term debt—less current maturities, net of unamortized original issue discount of $17,547, $18,700 and $18,143		610,547			655,430			626,017
Other noncurrent liabilities including deferred tax liabilities of $4,077, $5,108 and $3,472		15,342			15,385			15,628
Total liabilities		860,223			897,369			914,694
Commitments and contingencies
Redeemable preferred shares $.01 par value (liquidation preference: $78,741;authorized: 308 shares; issued and outstanding: June 29, 2002—79;June 30, 2001—69; December 29, 2001—74		64,710			53,763			59,043
Preferred shares $.01 par value (authorized: 4,000 shares; issued and outstanding in the form of redeemable preferred shares listed above: June 29, 2002—79; June 30, 2001—69: December 29, 2001—74; undesignated: 3,921)		—			—			—
Shareholders’ deficit
Common shares (note 8)		1,003			1,015			1,006
Additional paid-in-capital—warrants		24,733			24,733			24,733
Officer notes receivable		(1,578	)		(1,775	)		(1,407	)
Accumulated deficit		(572,845	)		(578,822	)		(610,959	)
Accumulated other comprehensive loss		(10,101	)		(9,266	)		(12,503	)
Total shareholders’ deficit		(558,788	)		(564,115	)		(599,130	)
	$	366,145		$	387,017		$	374,607

The accompanying notes are an integral part of the consolidated financial statements.

4

JOSTENS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six months ended
In thousands	June 29, 2002			June 30, 2001
Operating activities
Net income	$	44,049		$	30,212
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		11,492			12,998
Amortization of debt discount and deferred financing costs		2,878			3,547
Other amortization		1,099			1,634
Other		(311	)		(2,319	)
Changes in assets and liabilities:
Accounts receivable		(24,180	)		(29,496	)
Inventories		23,347			30,502
Commissions payable		23,357			23,584
Customer deposits		(66,738	)		(50,332	)
Income taxes payable		31,616			23,152
Other		(6,977	)		(13,005	)
Net cash provided by operating activities		39,632			30,477
Investing activities
Purchases of property and equipment		(8,512	)		(9,045	)
Other investing activities, net		56			4,077
Net cash used for investing activities		(8,456	)		(4,968	)
Financing activities
Principal payments on long-term debt		(14,983	)		(8,991	)
Other financing activities, net		(145	)		—
Net cash used for financing activities		(15,128	)		(8,991	)
Change in cash and cash equivalents		16,048			16,518
Cash and cash equivalents, beginning of period		43,100			26,552
Cash and cash equivalents, end of period	$	59,148		$	43,070

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

5

Notes to Condensed Consolidated Financial Statements (Unaudited)

Jostens, Inc. and subsidiaries

1. Basis of Presentation

We prepared our accompanying unaudited condensed consolidated financial statements following the requirements of the Securities and Exchange (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information normally required by accounting principles generally accepted in the United States of America can be condensed or omitted. Therefore, we suggest that these financial statements be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K for the fiscal year ended December 29, 2001 (“2001 Form 10-K”). The condensed consolidated balance sheet data as of December 29, 2001 were derived from audited financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America.

Revenues, expenses, cash flows, assets and liabilities can and do vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year.

In our opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring items) considered necessary to present fairly, when read in conjunction with the 2001 Form 10-K, our financial position, results of operations and cash flows for the periods presented. Certain balances have been reclassified to conform to the 2002 presentation.

2. Earnings Per Common Share

Basic earnings per share are computed by dividing net income available to common shareholders by the weighted average number of outstanding common shares. Diluted earnings per share are computed by dividing net income available to common shareholders by the weighted average number of outstanding common shares and common share equivalents. Common share equivalents include the dilutive effects of warrants and options.

For the three and six-month periods ended June 29, 2002 and June 30, 2001, approximately 1.0 million shares of common stock equivalents were included in the computation of diluted net earnings per share. Options to purchase 42,250 shares of common stock were outstanding at June 29, 2002, but were excluded from the computation of common share equivalents for the six-month period ended June 29, 2002 because they were antidilutive.

3. Comprehensive Income (Loss)

Comprehensive income and its components, net of tax, are as follows:

	Three months ended				Six months ended
In thousands	June 29, 2002		June 30, 2001		June 29, 2002		June 30, 2001
Net income	$	50,534	$	42,488	$	44,049	$	30,212
Change in cumulative translation adjustment		1,239		784		1,249		(322	)
Transition adjustment relating to adoption of SFAS 133		—		—		—		(1,821	)
Change in fair value of interest rate swap agreement		64		202		924		(932	)
Change in fair value of foreign currency hedge		229		—		229		—
		1,532		986		2,402		(3,075	)
Comprehensive income	$	52,066	$	43,474	$	46,451	$	27,137

6

Notes to Condensed Consolidated Financial Statements (Unaudited)

Jostens, Inc. and subsidiaries

The following amounts were included in accumulated other comprehensive loss as of June 29, 2002:

In thousands	Foreign currency translation			Minimum pension liability			Fair value of interest rate swap			Fair value of foreign currency hedge		Accumulated other comprehensive loss
Balance at December 29, 2001	$	(6,745	)	$	(2,371	)	$	(3,387	)	$	—	$	(12,503	)
Current period change		1,249			—			924			229		2,402
Balance at June 29, 2002	$	(5,496	)	$	(2,371	)	$	(2,463	)	$	229	$	(10,101	)

4. Derivatives and Hedging Activities

We use a floating-to-fixed cash flow interest rate swap to modify risk from interest rate fluctuations in our underlying debt. Our senior secured credit facility bears a variable interest rate predominantly linked to LIBOR. The interest rate provided by the swap agreement is fixed at 7.0% as opposed to LIBOR. Notional amounts outstanding as of June 29, 2002, June 30, 2001 and December 29, 2001 were $95.0 million, $120.0 million and $100.0 million, respectively. Substantially all aspects of the swap agreement expire June 30, 2003. We expect that pre-tax costs totaling $4.1 million, which are recorded in “accumulated other comprehensive loss” (AOCL) at June 29, 2002, and represent the difference between the fixed rate of the swap agreement and variable interest of the term note, will be recognized within the next twelve months as part of interest expense. The fair value of the interest rate swap is based on current settlement values and as of June 29, 2002, June 30, 2001 and December 29, 2001 was a non-cash liability of $4.1 million ($2.5 million net of tax), $4.6 million ($2.8 million net of tax) and $5.6 million ($3.4 million net of tax), respectively, and is recorded in “other noncurrent liabilities” in our Condensed Consolidated Balance Sheet. Based on the critical terms of the interest rate swap and the hedged debt, there is no ineffectiveness for this hedge.

The purpose of our foreign currency hedging activities is to protect us from the risk that inventory purchases denominated in foreign currency will be adversely affected by changes in foreign currency rates. We enter into forward exchange contracts to hedge forecasted cash flows denominated in foreign currencies (principally euro). The effective portion of the changes in fair value for these contracts, which have been designated as cash flow hedges, is reported in AOCL and reclassified into earnings in the same financial statement line item and in the same period or periods during which the hedged transaction affects earnings. Any ineffective portion of the change in fair value of these instruments is immediately recognized in earnings. The amount of contracts outstanding at June 29, 2002 was $2.2 million. There were no forward exchange contracts outstanding at June 30, 2001 and December 29, 2001. These contracts will mature over the remainder of the current fiscal year, the period in which all amounts included in AOCL will be reclassified into earnings.

5. Inventories

Inventories, net are comprised of the following:

In thousands	June 29, 2002		June 30, 2001		December 29, 2001
Raw material and supplies	$	11,855	$	15,840	$	10,302
Work-in-process		24,228		27,864		28,447
Finished goods		11,084		17,024		31,765
Total inventories, net	$	47,167	$	60,728	$	70,514

Net inventories as of June 30, 2001 included $7.6 million related to discontinued operations.

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

Jostens, Inc. and subsidiaries

6. Goodwill and Other Intangible Assets

On December 30, 2001, the beginning of our fiscal year, we adopted Statement of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.” SFAS 142 addresses the accounting and financial reporting for acquired goodwill and other intangible assets. Under the new statement, goodwill and intangible assets with indefinite lives are no longer amortized, but are subject to impairment testing on at least an annual basis. Other than goodwill, we have no intangible assets with indefinite useful lives. Adoption of this statement resulted in no goodwill impairment losses and had no impact on our financial position as of December 30, 2001. Had SFAS 142 been effective at the beginning of 2001, the non-amortization provisions would have increased net earnings by $0.3 million and $0.5 million for the three and six months ended June 30, 2001 and would have increased income from continuing operations by $0.1 million and $0.3 million for the same periods. As of June 29, 2002, the net carrying amount of goodwill was $14.3 million and intangible pension assets totaled $0.5 million.

7. Borrowings

Long-term debt consists of the following:

In thousands	June 29, 2002		June 30, 2001		December 29, 2001
Borrowings under senior secured credit facility:
Term loan A, variable rate, 4.11 percent at June 29, 2002, 6.59 percent at June 30, 2001 and 4.63 percent at December 29, 2001, with semi-annual principal and interest payments through May 2006	$	94,852	$	128,956	$	108,187
Term loan B, variable rate, 5.36 percent at June 29, 2002, 7.34 percent at June 30, 2001 and 5.38 percent at December 29, 2001, with semi-annual principal and interest payments through May 2008		330,291		341,053		331,939
Senior subordinated notes, 12.75 percent fixed rate, net of discounts of $17,547 at June 29, 2002, $18,700 at June 30, 2001 and $18,143 at December 29, 2001, with semi-annual interest payments of $14,334, principal due and payable at maturity—May 2010		207,453		206,300		206,857
		632,596		676,309		646,983
Less current portion		22,049		20,879		20,966
	$	610,547	$	655,430	$	626,017

We have a $150.0 million revolving credit facility that expires on May 31, 2006. We may borrow funds and elect to pay interest under the “alternative base rate” or “eurodollar” interest rate provisions as defined in the agreement. The eurodollar rate is based upon the London Interbank Offered Rate (“LIBOR”) and the alternative base rate is based upon the prime rate. There was $6.3 million outstanding under this facility, in the form of letters of credit, as of June 29, 2002.

8. Shareholders’ Deficit

Our common stock consists of Class A through Class E common stock as well as undesignated common stock. Holders of Class A common stock are entitled to one vote per share, whereas holders of Class D common stock are entitled to 306.55 votes per share. Holders of Class B common stock, Class C common stock and Class E common stock have no voting rights.

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

Jostens, Inc. and subsidiaries

The par value and number of authorized, issued and outstanding shares for each class of common stock is set forth below:

In thousands, except par value data	Par Value	Authorized Shares	Issued and Outstanding Shares
			June 29, 2002	June 30, 2001	December 29, 2001
Class A	$.33 1/3	4,200	2,825	2,862	2,834
Class B	$.01	5,300	5,300	5,300	5,300
Class C	$.01	2,500	811	811	811
Class D	$.01	20	20	20	20
Class E	$.01	1,900	—	—	—
Undesignated	$.01	12,020	—	—	—
		25,940	8,956	8,993	8,965

During the quarter ended June 29, 2002, we repurchased 9,522 actual shares of our Class A common stock from a senior executive in accordance with his separation agreement. The senior executive repaid an outstanding promissory note of approximately $0.1 million. The promissory note had been executed by the executive as partial payment for such shares.

9. Special Charges

Accrued special charges of $0.2 million, $2.0 million and $0.2 million at June 29, 2002, June 30, 2001 and December 29, 2002, respectively, are included in “other current liabilities” in our Condensed Consolidated Balance Sheets. In the second quarter of 2001, we entered into a separation agreement with a senior executive. The total cost of $2.1 million for severance and related termination benefits was expensed in 2001 and included costs for the senior executive and two other management personnel. We utilized $1.9 million of the special charge in 2001. The remaining liability of approximately $0.2 million will continue to be paid out over the next twelve months as specified under the separation agreement.

10. Discontinued Operations

Discontinued operations represents the results of our Recognition business, which we exited on December 3, 2001 by selling certain assets and leasing our production facility to a current supplier who manufactures awards and trophies.

Revenue and loss from discontinued operations for the three and six-month periods ended June 30, 2001 were as follows:

In thousands	Three months ended June 30, 2001			Six months ended June 30, 2001
Revenue from external customers	$	13,235		$	32,940
Pre-tax loss from operations of discontinued operations before measurement date	$	(2,262	)	$	(5,985	)
Pre-tax loss on disposal		—			—
Income tax benefit		871			2,304
Net loss from discontinued operations	$	(1,391	)	$	(3,681	)

In conjunction with exiting the Recognition business, we recorded a $27.4 million pre-tax loss on disposal for the discontinued segment in the fourth quarter of 2001. The pre-tax loss on disposal consisted of a non-cash charge of $11.1 million to write off certain net assets not sold in the exit from the Recognition business plus a $16.3 million charge for accrued costs related to exiting the Recognition business. During the three-month period ended June 29, 2002, we reversed $1.4 million of these charges plus an additional $0.2

9

Notes to Condensed Consolidated Financial Statements (Unaudited)

Jostens, Inc. and subsidiaries

million in other liabilities for a total pre-tax gain on discontinued operations of $1.6 million ($0.9 million, net of tax). Components of the accrued disposal costs are as follows:

In thousands	Initial charge		Prior accrual		Net adjustments in 2002			Utilization			Balance June 29, 2002
								Six months ended June 29, 2002
Employee separation benefits and other related costs	$	6,164	$	—	$	(550	)	$	(4,443	)	$	1,171
Phase-out costs of exiting the Recognition business		4,255		—		(874	)		(2,592	)		789
Salesperson transition benefits		2,855		1,236		—			(737	)		3,354
Other costs related to exiting the Recognition business		3,018		1,434		—			(3,069	)		1,383
	$	16,292	$	2,670	$	(1,424	)	$	(10,841	)	$	6,697

The plan of disposal contemplated a workforce reduction of 150 full-time positions in the Recognition business and corporate support functions. As of June 29, 2002, 114 employees had been terminated and the estimated workforce reduction has been revised to 130 full-time positions resulting in a $0.5 million pre-tax reduction to the accrued costs. Termination benefits will continue to be paid out over the benefit period as specified under our severance plan.

The $4.3 million charge for phase-out costs of exiting the Recognition business included $1.3 million for payroll and benefits, $0.8 million for information systems and customer service costs and $2.2 million of internal support costs expected to be incurred during the phase-out period. During the quarter ended June 29, 2002, we revised our estimate of phase-out costs, resulting in a $0.9 million pre-tax reduction to the accrued costs mainly due to lower information systems, customer service and internal support costs than originally anticipated.

The charge for accrued disposal costs also included $2.8 million for future payments of transition benefits earned by certain Recognition sales representatives. The transition benefits will be paid out over the next three years. In addition, we accrued $3.0 million for customer receivable and salesperson overdraft allowances anticipated as a result of exiting the Recognition business.

With the exception of certain transition benefits, we anticipate the remaining payments will occur in 2002. Of the $6.7 million in our Condensed Consolidated Balance Sheet as of June 29, 2002, $5.3 million is classified as “current liabilities of discontinued operations” and $1.4 million is classified as a contra asset. Assets of discontinued operations have been reclassified in aggregate to “current liabilities of discontinued operations”.

Assets and liabilities of the discontinued business included in our Condensed Consolidated Balance Sheets were as follows:

In thousands	June 29, 2002		June 30, 2001		December 29, 2001
Assets
Accounts receivable	$	—	$	10,745	$	—
Inventories		—		7,621		—
Salespersons overdrafts		—		2,013		—
Current assets of discontinued operations		—		—		7,029
Intangibles		—		2,605		—
Property and equipment, net		—		2,058		—
Other		—		792		—
	$	—	$	25,834	$	7,029
Liabilities
Accounts payable	$	—	$	3,929	$	—
Accrued employee compensation and related taxes		—		1,245		—
Commissions payable		—		2,564		—
Other		—		3,189		—
Current liabilities of discontinued operations		5,939		—		16,511
	$	5,939	$	10,927	$	16,511

10

Notes to Condensed Consolidated Financial Statements (Unaudited)

Jostens, Inc. and subsidiaries

11. New Accounting Standards

Accounting for Asset Retirement Obligations

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143 (SFAS 143), “Accounting for Asset Retirement Obligations.” SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective for fiscal years beginning after June 15, 2002, with early adoption permitted. We expect that the provisions of SFAS 143 will not have a material impact, if any, on our consolidated results of operations, cash flows and financial position.

Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections

In April 2002, the FASB issued SFAS 145, which rescinds SFAS 4, “Reporting Gains and Losses from Extinguishments of Debt,” SFAS 44, “Accounting for Intangible Assets of Motor Carriers” and SFAS 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements” and amends SFAS 13, “Accounting for Leases.” As a result of rescinding SFAS 4 and SFAS 64, the criteria in APB 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” will be used to classify gains and losses from extinguishments of debt. SFAS 145 also amends SFAS 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. SFAS 145 is effective for fiscal years beginning after May 15, 2002, with early adoption permitted. We expect that the provisions of SFAS 145 will not have a material impact, if any, on our consolidated results of operations, cash flows and financial position.

12. Subsequent Events

On July 31, 2002 we amended and restated our senior secured credit facility to provide for the repayment of Term Loan B with the proceeds of a new Term Loan C in the amount of $330.0 million. Term Loan C is payable in semi-annual installments of $1.0 million through June 30, 2008 and $106.0 million though December 31, 2009. The initial interest margin on Term Loan C is 75 basis points less than Term Loan B resulting in an approximate $2.5 million reduction of annual interest expense. In addition, Term Loan C provides for the repurchase of a limited amount of subordinated securities. Capitalized loan fees related to Term Loan B will continue to be amortized over the life of Term Loan C.

11

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our disclosure and analysis in this report may contain some “forward-looking statements.” Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue,” or the negative thereof or similar words. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report and in any public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual results may vary materially. Investors are cautioned not to place undue reliance on any forward-looking statements. Investors should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties.

Any change in the following factors may impact the achievement of results:

· our ability to satisfy our debt obligations, including related covenants;

· the seasonality of our sales and operating income;

· our relationship with our independent sales representatives and employees;

· the fluctuating prices of raw materials, primarily gold;

· our dependence on a key supplier for our synthetic and semiprecious stones;

· fashion and demographic trends;

· litigation cases, if decided against us, may adversely affect our financial results; and

· environmental regulations that could impose substantial costs upon us may adversely affect our financial results.

The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact our business.

Except to the extent required by law, we undertake no obligation to publicly update or revise any forward-looking statements.

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RESULTS OF OPERATIONS

The following table sets forth selected information from our Condensed Consolidated Statements of Operations expressed as a percentage of net sales.

Dollars in thousands	Three months ended						$ Change			% Change		Six months ended						$ Change			% Change
	June 29, 2002			June 30, 2001								June 29, 2002			June 30, 2001
Net sales	$	353,720		$	337,740		$	15,980		4.7	%	$	475,043		$	454,804		$	20,239		4.5	%
% of net sales		100.0	%		100.0	%							100.0	%		100.0	%
Cost of products sold		151,446			145,638			5,808		4.0	%		199,153			191,564			7,589		4.0	%
% of net sales		42.8	%		43.1	%							41.9	%		42.1	%
Gross profit		202,274			192,102			10,172		5.3	%		275,890			263,240			12,650		4.8	%
% of net sales		57.2	%		56.9	%							58.1	%		57.9	%
Selling and administrative expenses		100,480			95,433			5,047		5.3	%		167,491			162,548			4,943		3.0	%
% of net sales		28.4	%		28.3	%							35.3	%		35.7	%
Special charges, net		—			2,138			(2,138	)	NM			—			2,138			(2,138	)	NM
Operating income		101,794			94,531			7,263		7.7	%		108,399			98,554			9,845		10.0	%
% of net sales		28.8	%		28.0	%							22.8	%		21.7	%
Net interest expense		17,016			19,640			(2,624	)	(13.4	%)		34,706			40,922			(6,216	)	(15.2	%)
% of net sales		4.8	%		5.8	%							7.3	%		9.0	%
Income from continuing operations before income taxes		84,778			74,891			9,887		13.2	%		73,693			57,632			16,061		27.9	%
% of net sales		24.0	%		22.2	%							15.5	%		12.7	%
Provision for income taxes		35,184			31,012			4,172		13.5	%		30,584			23,739			6,845		28.8	%
% of net sales		9.9	%		9.2	%							6.4	%		5.2	%
Income from continuing operations		49,594			43,879			5,715		13.0	%		43,109			33,893			9,216		27.2	%
% of net sales		14.0	%		13.0	%							9.1	%		7.5	%
Gain (loss) on discontinued operations, net of tax		940			(1,391	)		2,331		NM			940			(3,681	)		4,621		NM
% of net sales		0.3	%		-0.4	%							0.2	%		-0.8	%
Net income	$	50,534		$	42,488		$	8,046		18.9	%	$	44,049		$	30,212		$	13,837		45.8	%
% of net sales		14.3	%		12.6	%							9.3	%		6.6	%

Percentages in this table may reflect rounding adjustments.

NM = percentage not meaningful

Three Months Ended June 29, 2002 Compared to the Three Months Ended June 30, 2001

Net Sales

Net sales increased $16.0 million, or 4.7%, to $353.7 million for the three months ended June 29, 2002 from $337.7 million for the same period last year. The increase in net sales resulted from price increases averaging approximately 2.7% and volume/mix increases of approximately 2.0%. The increase in net sales was primarily due to:

· price increases in the printing and graduation product lines;

· increased volume as a result of new account growth across all product lines;

· increased volume for yearbook printing due to an increase in the number of color pages; and

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· increased volume in the high school jewelry market due to timing of delivery dates compared to last year.

These increases were partially offset by the following:

· decreased volume in commercial printing;

· decreased volume for graduation diplomas due to earlier deliveries than last year; and

· decreased volume in graduation announcements due to lower dollars spent per student.

Gross Margin

Gross profit increased $10.2 million, or 5.3%, to $202.3 million for the three months ended June 29, 2002 from $192.1 million for the same prior year period. As a percentage of sales, gross margin increased 0.3% to 57.2% for the current three-month period from 56.9% for the same period last year. The increase in gross margin can be attributed to:

· price increases primarily in the printing and graduation product lines;

· continued improvement in plant efficiencies company-wide, particularly in jewelry production; and

· a favorable sales mix of our printing products resulting in increased higher margin yearbook volume and decreased lower margin commercial printing volume.

These increases were partially offset by a shift in sales mix of graduation product offerings.

Selling and Administrative Expenses

Selling and administrative expenses increased $5.0 million, or 5.3%, to $100.5 million for the three months ended June 29, 2002 from $95.4 million for the same prior year period. As a percentage of sales, selling and administrative expenses remained relatively flat at 28.4% for the current three-month period compared to 28.3% for the same period last year. The $5.0 million increase is primarily due to higher commission expense in our printing and jewelry product lines and higher general and administrative expense, both as a result of increased sales.

Net Interest Expense

Net interest expense decreased $2.6 million to $17.0 million for the three months ended June 29, 2002 as compared to $19.6 million for the three months ended June 30, 2001. The decrease was due to a lower average outstanding balance and a lower average interest rate.

Provision for Income Taxes

Our effective tax rate for continuing operations was 41.5% for the three months ended June 29, 2002 compared to 41.4% for the same period last year.

Income From Continuing Operations

Income from continuing operations increased $5.7 million, or 13.0% to $49.6 million for the three months ended June 29, 2002 from $43.9 million for the same prior year period as a result of increased net sales, relatively flat spending and lower net interest expense.

Discontinued Operations

Loss from discontinued operations was $1.4 million for the three months ended June 30, 2001. This represents the results of our Recognition business, which we exited in December 2001 by selling certain assets and leasing our production facility to a former supplier who manufactures awards and trophies. Income from discontinued operations of $0.9 million for the three months ended June 29, 2002 represents the after-tax effect of a $1.6 million reversal of accrued disposal costs.

In conjunction with exiting the Recognition business, we recorded a $27.4 million pre-tax loss on disposal of the discontinued segment in the fourth quarter of 2001. The pre-tax loss on disposal consisted of a non-cash charge of $11.1 million to write off certain net assets not sold in the exit from the Recognition business

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plus a $16.3 million charge for accrued costs related to exiting the Recognition business. During the three-month period ended June 29, 2002, we reversed $1.4 million of these charges plus an additional $0.2 million in other liabilities for a total pre-tax gain on discontinued operations of $1.6 million ($0.9 million, net of tax). Components of the accrued disposal costs are as follows:

								Utilization
In thousands	Initial charge		Prior accrual		Net adjustments in 2002			Six months ended June 29, 2002			Balance June 29, 2002
Employee separation benefits and other related costs	$	6,164	$	—	$	(550	)	$	(4,443	)	$	1,171
Phase-out costs of exiting the Recognition business		4,255		—		(874	)		(2,592	)		789
Salesperson transition benefits		2,855		1,236		—			(737	)		3,354
Other costs related to exiting the Recognition business		3,018		1,434		—			(3,069	)		1,383
	$	16,292	$	2,670	$	(1,424	)	$	(10,841	)	$	6,697

The plan of disposal contemplated a workforce reduction of 150 full-time positions in the Recognition business and corporate support functions. As of June 29, 2002, 114 employees had been terminated and the estimated workforce reduction has been revised to 130 full-time positions resulting in a $0.5 million pre-tax reduction to the accrued costs. Termination benefits will continue to be paid out over the benefit period as specified under our severance plan.

The $4.3 million charge for phase-out costs of exiting the Recognition business included $1.3 million for payroll and benefits, $0.8 million for information systems and customer service costs and $2.2 million of internal support costs expected to be incurred during the phase-out period. During the quarter ended June 29, 2002, we revised our estimate of phase-out costs, resulting in a $0.9 million pre-tax reduction to the accrued costs mostly due to lower information systems, customer service and internal support costs than originally anticipated.

The charge for accrued disposal costs also included $2.8 million for future payments of transition benefits earned by certain Recognition sales representatives. The transition benefits will be paid out over the next three years. In addition, we accrued $3.0 million for customer receivable and salesperson overdraft allowances anticipated as a result of exiting the Recognition business.

With the exception of certain transition benefits, we anticipate the remaining payments will occur in 2002. Of the $6.7 million in our Condensed Consolidated Balance Sheet as of June 29, 2002, $5.3 million is classified as “current liabilities of discontinued operations” and $1.4 million is classified as a contra asset. Assets of discontinued operations have been reclassified in aggregate to “current liabilities of discontinued operations”.

Six Months Ended June 29, 2002 Compared to the Six Months Ended June 30, 2001

Net Sales

Net sales increased $20.2 million, or 4.5%, to $475.0 million for the six months ended June 29, 2002 from $454.8 million for the same period last year. The increase in net sales resulted from price increases averaging approximately 2.7% and volume/mix increases of approximately 1.8%. The increase in net sales was primarily due to:

· price increases in the printing and graduation product lines;

· increased volume as a result of new account growth across all product lines; and

· increased volume for yearbook printing due to an increase in the number of color pages.

These increases were partially offset by the following:

· decreased volume in the college jewelry and graduation product lines as a result of the loss of a significant customer;

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· volume decreases in graduation announcements due to lower dollars spent per student; and

· decreased volume in commercial printing.

Gross Margin

Gross profit increased $12.7 million, or 4.8%, to $275.9 million for the six months ended June 29, 2002 from $263.2 million for the same prior year period. As a percentage of sales, gross margin increased 0.2% to 58.1% for the current six-month period from 57.9% for the same period last year. The increase in gross margin can be attributed to:

· price increases primarily in the printing and graduation product lines;

· continued improvement in plant efficiencies company-wide, particularly in jewelry production; and

· a favorable sales mix of our printing products resulting in increased higher margin yearbook volume and decreased lower margin commercial printing volume.

These increases were partially offset by a shift in sales mix of graduation product offerings.

Selling and Administrative Expenses

Selling and administrative expenses increased $4.9 million, or 3.0%, to $167.5 million for the six months ended June 29, 2002 from $162.5 million for the same prior year period. As a percentage of sales, selling and administrative expenses decreased 0.4% to 35.3% for the current six-month period from 35.7% for the same period last year. The $4.9 million increase is primarily due to:

· higher commission expense as a result of increased sales;

· higher spending on information systems related to the upgrade of our transaction processing system and application development in one of our product lines; and

· higher general and administrative expenses as a result of increased sales.

Net Interest Expense

Net interest expense decreased $6.2 million to $34.7 million for the six months ended June 29, 2002 as compared to $40.9 million for the six months ended June 30, 2001. Similar to the quarter activity, the decrease was due to a lower average outstanding balance and a lower average interest rate.

Provision for Income Taxes

Our effective tax rate for continuing operations was 41.5% for the three months ended June 29, 2002 compared to 41.2% for the same period last year.

Income From Continuing Operations

Income from continuing operations increased $9.2 million, or 27.2% to $43.1 million for the six months ended June 29, 2002 from $33.9 million for the same prior year period as a result of increased net sales, relatively flat spending and lower net interest expense.

Discontinued Operations

Loss from discontinued operations was $3.7 million for the six months ended June 30, 2001 and represents the results of our Recognition business, which we exited in December 2001. Income from discontinued operations of $0.9 million for the six months ended June 29, 2002 represents the after-tax effect of a $1.6 million reversal of accrued disposal costs.

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LIQUIDITY AND CAPITAL RESOURCES

Our primary cash needs are for debt service obligations, capital expenditures, working capital and general corporate purposes. As of June 29, 2002, we had cash and cash equivalents of $59.1 million. Our free cash flow for the six months ended June 29, 2002 was $31.2 million compared to $25.5 million for the same period last year. Free cash flow excludes the effects of cash flow from financing activities.

Operating Activities

Operating activities generated cash of $39.6 million during the six months ended June 29, 2002 compared to $30.5 million for the same prior year period. Principal components of the $9.1 million increase include a $9.2 million improvement in earnings from continuing operations plus a $4.6 million favorable fluctuation in the results of discontinued operations. In addition, working capital related to continuing operations improved $6.0 million, but was offset by a $10.1 million decrease in operating cash flow associated with our discontinued operations.

Investing Activities

Capital expenditures for the six months ended June 29, 2002 were $8.5 million compared to $9.0 million for the same period last year. $0.3 million of the decrease relates to 2001 capital spending on our discontinued operations.

Financing Activities

Net cash used for financing activities consists primarily of principal payments on our long-term debt. During the six months ended June 29, 2001, we made scheduled principal payments of $10.0 million and voluntarily prepaid an additional $5.0 million of principal on our senior secured credit facility. We have a $150.0 million revolving credit facility that expires on May 31, 2006. There was no short-term borrowing activity during the first six months of 2002, however there was $6.3 million outstanding under this facility, in the form of letters of credit, as of June 29, 2002.

On July 31, 2002 we amended and restated our senior secured credit facility to provide for the repayment of Term Loan B with the proceeds of a new Term Loan C in the amount of $330.0 million. Term Loan C is payable in semi-annual installments of $1.0 million through June 30, 2008 and $106.0 million though December 31, 2009. The initial interest margin on Term Loan C is 75 basis points less than Term Loan B resulting in an approximate $2.5 million reduction of annual interest expense. In addition, Term Loan C provides for the repurchase of a limited amount of subordinated securities. Capitalized loan fees related to Term Loan B will continue to be amortized over the life of Term Loan C.

NEW ACCOUNTING STANDARDS

Accounting for Asset Retirement Obligations

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143 (SFAS 143), “Accounting for Asset Retirement Obligations.” SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective for fiscal years beginning after June 15, 2002, with early adoption permitted. We expect that the provisions of SFAS 143 will not have a material impact, if any, on our consolidated results of operations, cash flows and financial position.

Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections

In April 2002, the FASB issued SFAS 145, which rescinds SFAS 4, “Reporting Gains and Losses from Extinguishments of Debt,” SFAS 44, “Accounting for Intangible Assets of Motor Carriers” and SFAS 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements” and amends SFAS 13, “Accounting for Leases.” As a result of rescinding SFAS 4 and SFAS 64, the criteria in APB 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” will be used to classify gains and losses from

17

extinguishments of debt. SFAS 145 also amends SFAS 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. SFAS 145 is effective for fiscal years beginning after May 15, 2002, with early adoption permitted. We expect that the provisions of SFAS 145 will not have a material impact, if any, on our consolidated results of operations, cash flows and financial position.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk during the six months ended June 29, 2002. For additional information, refer to Item 7A of our 2001 Form 10-K.

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PART II    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

A federal antitrust action was served on Jostens on October 23, 1998. The complainant, Epicenter Recognition, Inc. (“Epicenter”), alleges that Jostens has attempted to monopolize the market of high school graduation products in the state of California. Epicenter is a successor to a corporation formed by four of our former sales representatives. The plaintiff claimed damages of approximately $3.0 million to $10.0 million under various theories and differing sized relevant markets. Epicenter waived its right to a jury, so the case was tried before a judge in U.S. District Court in Orange County, California. On June 18, 2002, the Court found, among other things, that while Jostens’ use of rebates, contributions and value-added programs are legitimate business practices widely practiced in the industry and not violative of antitrust laws, our use of multi-year Total Service Program contracts violated Section 2 of the Sherman Act because these agreements could “exclude competition by making it difficult for a new vendor to compete against Jostens.” On July 12, 2002, the Court entered an Order providing, among other things, that Epicenter be awarded damages of $1.00, trebled pursuant to Section 15 of the Clayton Act, and that in the state of California, Jostens is enjoined for a period of ten years from utilizing any contract, including those for Total Service Programs, for a period which extends for more than one year. The Order also provides for payment to Epicenter of reasonable attorneys fees and costs. Jostens has made a Rule 60 motion to set aside the Order. The Court has taken it and the written arguments of the parties on attorneys fees under advisement. We expect a ruling shortly.

We are a party to other litigation arising in the normal course of business. We regularly analyze current information and, as necessary, provide accruals for probable liabilities on the eventual disposition of these matters. We believe the effect on our consolidated results of operations, cash flows and financial position, if any, for the disposition of these matters will not be material.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1	Separation Agreement, dated as of April 1, 2002 between Jostens, Inc. and Mr. Gregory S. Lea.
12	Computation of Ratio of Earnings to Fixed Charges

(b) Reports on Form 8-K

A Form 8-K dated July 31, 2002 and filed on August 8, 2002 announcing an amendment of the senior secured credit facility.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	JOSTENS, INC.
August 9, 2002	By	/s/    Robert C. Buhrmaster
		Robert C. Buhrmaster
		Chairman, President and Chief Executive Officer
August 9, 2002	By	/s/ John A. Feenan
		John A. Feenan
		Sr. Vice President and Chief Financial Officer

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EX-10.1

                                  EXHIBIT 10.1

                                  JOSTENS, INC.
                   SEPARATION AGREEMENT AND RELEASE OF CLAIMS

     This Separation Agreement including a General and Special Release of Claims
(this "Agreement") is made as of the 1st day of April, 2002, by and between
JOSTENS, INC., a Minnesota corporation (the "Company") and Gregory S. Lea (the
"Executive").

                              W I T N E S S E T H:
                              - - - - - - - - - -

     WHEREAS, the Executive is a Vice President and General Manager of the
Company; and

     WHEREAS, the Executive wishes to resign from his position as a Vice
President and General Manager to pursue other interests; and

     WHEREAS, the parties wish to set forth their agreement as to the timing and
circumstances of the Executive's resignation and the undertakings of the parties
in connection therewith;

     NOW, THEREFORE, in consideration of the mutual covenants, conditions and
obligations set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties hereby agree as
follows:

     1.   Resignation.

     The Executive hereby resigns from his position as a Vice President and
General Manager of the Company and terminates his employment with the Company
effective as of April 1, 2002 (the "Effective Date"). The Executive also resigns
as an officer and director of all subsidiaries and affiliates of the Company
effective as of the Effective Date.

     2.   Payments And Benefits Following Resignation.

     Subject to the Executive's compliance with all of his obligations under
this Agreement, and in consideration of the Executive, among other things,
agreeing to maintain confidential information and not to compete with the
Company during the 18-month period April 1, 2002 - September 30, 2003 (the
"Benefits Period"), as provided in Sections 4 and 5 below and executing the
waivers and releases set forth in Section 7 below, the Company shall provide the
Executive with the payments and other benefits provided for under this
Agreement, as follows:

     (a)  Severance Benefits and Vacation Pay. The Company shall pay the
Executive in a lump sum as soon as reasonably practicable after the Effective
Date (the "Payment Date") a severance benefit of $805,485.85, less applicable
withholding taxes, representing the aggregate of all amounts payable to the
Executive upon his termination of service, including salary, bonus,



medical insurance, perquisites, Executive Supplemental Retirement Agreement
benefits, benefits under the Company's Executive Change in Control Severance Pay
Plan, and an income tax gross-up amount compensating him for the Company's cash
payment in lieu of providing him with certain tax-free benefits in kind. In
addition, the Company shall pay the Executive on the Payment Date $12,636.69 in
lieu of the fifteen days of accrued and unused vacation that the Executive has
earned as of the Effective Date under the Company's vacation plan for similarly
situated employees.

     (b) Outplacement Benefits and Computer Use. The Company shall provide the
Executive with outplacement services with the firm of Lee Hecht Harrison for a
period ending on the earlier to occur of September 30, 2003, or the date on
which the Executive commences new full-time employment. During the same period,
the Executive shall be entitled to continue using the laptop computer and
associated software owned or licensed by the Company and currently provided for
his use; provided, however, that (i) the Executive shall no longer be provided
with access to the Company's internal computer network, except for access to any
e-mail that may be received for him; and (ii) at or before the end of such
period, the Executive shall return that computer to the Company in good working
condition, ordinary wear and tear excepted.

     After the Effective Date, no other welfare benefits shall be provided by
the Company to or for the benefit of the Executive, except to the extent
included in the severance benefit payable under Section 2(a), the benefits
provided under this Section 2(b) or provided by or through the Company at the
expense of the beneficiary under Section 2(g).

     (c) Repurchase of Shares. The Company shall repurchase from the Executive,
on the Payment Date, 5,351 shares of the Company's stock which are owned without
restriction, and 4,171 shares which are now pledged to secure a loan to the
Executive from the Company, in accordance with Section 3(a) of the Management
Shareholder Agreement, and Section 1.4(b) of the Loan and Pledge Agreement, both
dated as of May 10, 2000 between the Company and the Executive. The repurchase
price for all of the shares shall be $28.50 per share which is the fair market
value of the shares as of December 31, 2001 as determined by the Company's Board
of Directors. The proceeds of the repurchase of both the pledged shares and the
shares owned without restriction shall first be applied in satisfaction of the
Executive's $125,790.11 outstanding loan from the Company (i.e., principal of
$105,318 and interest of $20,472.11), and the balance of the proceeds shall be
paid to the Executive.

     (d) Pension Benefits. An aggregate annual benefit of $32,408 shall be paid
to the Executive each year commencing in the year in which he attains age 65, of
which $20,258 shall be paid from Pension Plan D and the balance shall be paid by
the Company pursuant to the Supplemental Pension Plan; provided, however, that
if the annual benefit payable under Pension Plan D is less than $20,258 at that
time, the difference shall be paid by the Company under the Supplemental Pension
Plan. The Executive shall remain entitled to receive his benefits under those
plans at the time and in the manner he chooses, subject to the terms and
conditions of those plans. This Agreement does not adversely affect any of the
Executive's benefits or other rights under Pension Plan D, the Supplemental
Pension Plan or the Company's 401(k) Retirement Savings Plan.



     (e) Options. Executive holds an option to acquire an aggregate of 38,680
shares issued pursuant to the Stock Option Agreement made pursuant to the
Jostens, Inc. Stock Incentive Plan and dated as of May 10, 2000, between the
Company and the Executive, the exercisable portion of which represents the right
to acquire 7,736 shares. The Company shall pay Executive $25,142 on the Payment
Date in respect of such exercisable portion, upon which payment the entire
option shall be cancelled.

     (f) References and Non-disparagement. The Company shall provide the
Executive with a favorable written reference (in the form attached hereto as
Exhibit A) and, if requested, favorable written references relating to his
employment by the Company. The Executive and the Company agree that, before and
after his termination of employment with the Company, neither of them will make
any statement or communication of information by whatever means relating to his
employment with the Company that may be reasonably interpreted to be critical of
or derogatory to the other party to this Agreement, including, in the case of
the Company, its officers, directors and employees; provided, however, that
nothing in this paragraph is intended to keep either party from testifying
truthfully under subpoena or other legal process before any court or
administrative agency of competent jurisdiction.

     (g) Election to Continue or Convert Welfare Benefits. This Agreement shall
not adversely affect the rights of the Executive and/or his eligible spouse and
dependents to elect to continue (or convert to individual coverage), after the
Effective Date and at such individual's own expense, any of the group health,
life insurance and/or disability income insurance benefits provided to him by
the Company as of the Effective Date, but only to the extent any such individual
is entitled to such rights under applicable state or federal law or the terms of
the applicable Company plan or insurance contract.

     3.  Exclusive Separation Payments And Benefits.

     The Executive and the Company acknowledge and agree that this Agreement is
intended to be the exclusive separation arrangement between the Company and the
Executive. Accordingly, unless otherwise agreed to in writing signed by the
Executive and the Company, the Executive and the Company agree that the
Executive shall not be entitled to any remuneration, payments or other benefits
under any other severance or separation plan or arrangement of the Company
(other than the payments and other benefits provided to the Executive pursuant
to, or referred to in, this Agreement); and Executive specifically waives any
and all rights he may have to benefits under the Executive Supplemental
Retirement Agreement between the Executive and the Company. The payments and
other benefits provided by or referred to in this Agreement include any
severance or termination benefits that may be required by applicable law.

     4.  Confidential Information.

     (a) The Executive shall not, at any time or for any reason, disclose,
exploit, sell, publish, communicate or divulge, directly or indirectly, to any
person, corporation or entity, or use for his own benefit, any Confidential or
Proprietary Information. For the purposes of this Agreement, "Confidential or
Proprietary Information" shall mean information belonging to the Company or any
of its affiliates and acquired by the Executive during the course of his



employment that is of a special and unique nature and value, (i) where such
information is not generally known in the industries in which the Company is
currently engaged in business; and (ii) where such information refers or relates
in any manner whatsoever to the business activities, processes, services or
products of the Company or its affiliates. Such information (whether in printed
or electronic form) includes, but is not limited to, such matters as the
Company's employee lists and other personnel and compensation information;
office policies and practices; manuals, books and training materials; management
organization and methods; performance reviews, project assessments and all other
forms and documents used in management of the Company's employees and in
performing work for the Company; trade secrets; procedures; financial accounts,
costs and sales data; supply sources, resources and contracts; accounting and
bookkeeping practices and financial, marketing and operating data and records;
databases; information relating to costs and revenues; other financial
information; marketing and business forecasts and business and development plans
and strategies (whether contemplated, initiated or completed); advertising and
marketing methods; customer and prospective customer names and lists; price
lists; business contacts and existing and potential business opportunities; data
collection forms and other documents provided to customers, contracts or other
agreements with customers or vendors; customers' needs for the Company's
products and services; any information concerning any publication, product,
technology, procedure or service currently offered or under development by the
Company; other information specific to the Company's products; any litigation
and other legal matters (including but not limited to the terms of this
Agreement); all reports, statements, correspondence, memoranda, methods of
operation, policies, results of analysis, strategic information and other
information distributed to policy or management committee members or at business
meetings; and any other similar information.

     (b) In the event the Executive shall be requested, by subpoena or
otherwise, in a judicial, administrative or government proceeding to make
disclosures of Confidential or Proprietary Information which are otherwise
prohibited by this Agreement (whether by way of oral questions, interrogatories,
requests for information or documents, subpoenas or similar process), the
Executive shall notify the Company in writing of such request (and shall provide
a copy of such request to the Company) within two (2) business days of the
Executive's receipt thereof and before providing any information in response to
such request. The Company shall provide counsel to represent the Executive at
the Company's expense in connection with responding to any such subpoena or
request for information.

     (c) The Executive shall return to the Company immediately upon request of
the Company at any time during the Benefits Period all of the Company's property
and Confidential or Proprietary Information which is in tangible form
(including, but not limited to, all correspondence, memoranda, files, manuals,
books, lists, records, equipment, computer disks, magnetic tape, and electronic
or other media and equipment) and all copies thereof in the Executive's
possession, custody or control.

     5.  Covenant Not to Compete.

     (a) Without the written consent of the Company in its sole and absolute
discretion, the Executive shall not, directly or indirectly, either individually
or as a stockholder, director, officer, partner, consultant, owner, capital
investor, lender, employee, agent, or in any other capacity (other than as a
holder of no more than one percent (1%) of the outstanding stock of a



publicly-traded corporation), for the duration of the Benefits Period, engage in
the Company Business, or work for or provide services to any Competitor of the
Company or its affiliates. For the purposes of this Agreement, (i) the term
"Company Business" shall mean both the domestic and international school-related
affinity products and services business, including but not limited to the school
photography business, and any other business engaged in, or proposed to be
engaged in, by the Company or its affiliates as of the effective date of this
Agreement; and (ii) the term "Competitor" shall mean any natural person,
corporation, firm, organization, trust, partnership, association, joint venture,
governmental agency or other entity that engages, or proposes to engage, in the
Company Business.

     (b) During the Benefits Period, the Executive shall not directly or
indirectly, (i) induce or attempt to induce or otherwise counsel, advise, ask or
encourage any individual who at the time is a current employee of the Company or
its affiliates, to leave the employ of the Company or its affiliates or to
accept employment with another employer besides the Company or its affiliates as
an employee or as an independent contractor; (ii) offer employment to or hire
such individual, or (iii) cause, encourage or assist any other person or entity,
directly or indirectly, either individually or as a stockholder, director,
officer, partner, consultant, owner, capital investor, lender, employee, agent,
or in any other capacity (other than as a holder of no more than one percent
(1%) of the outstanding stock of a publicly-traded corporation) to offer
employment to or hire any such individual.

     (c) The Executive agrees that the restrictions imposed upon him by the
provisions of this Section 5 are fair and reasonable considering the nature of
the Company's business, and are reasonably required for the protection of the
Company. The Executive further agrees that the provisions of Section 5(a)
relating to areas of restriction and time periods of restriction were
specifically discussed in good faith and are acceptable to the Executive.
Nevertheless, to the extent that these restrictions exceed the maximum areas of
restriction, limitations or periods of time which a court of competent
jurisdiction would enforce, the areas of restriction, limitations or time
periods shall be modified by such court to be the maximum areas of restriction,
limitations or time periods which such court would enforce in any state in which
such court shall be convened. If any other part of this Section 5 is held to be
invalid or unenforceable, the remaining parts shall nevertheless continue to be
valid and enforceable as though the unenforceable portions were absent.

     (d) The Executive acknowledges that a breach of any of the provisions of
this Section 5 may result in continuing and irreparable damages to the Company
for which there may be no adequate remedy at law and that the Company, in
addition to all other relief available to it, shall be entitled to the issuance
of a temporary restraining order, preliminary injunction and permanent
injunction restraining the Executive from committing or continuing to commit any
breach of the provisions of Section 4 above or this Section 5 pending further
legal proceedings and for appropriate periods in the future. Furthermore, the
Executive understands that his breach of the provisions of Section 4 above or
this Section 5 may cause monetary damages to the Company. In the event of a
final adjudication by a court of competent jurisdiction that the Executive has
breached the provisions of Section 4 above or this Section 5, the Executive
shall be required to pay the Company the amount of any actual damages awarded to
the Company as a result of such adjudication, plus the amount of the Company's
reasonable attorneys fees and expenses. In the event of a final adjudication by
a court of competent jurisdiction that the



Executive has not breached the provisions of Section 4 above or this Section 5,
the Company shall be required to pay the Executive the amount of the reasonable
attorneys fees and expenses incurred by the Executive in connection with the
proceedings resulting in such final adjudication. For the purposes of this
Agreement, a "final adjudication" is a judgment from which no further appeal may
be taken, either because no further appeal is available or because the time for
taking such appeal has expired.

     6.  Release and Waiver of Claims Against the Company.

     (a) The Executive, on behalf of himself, his agents, heirs, successors,
assigns, executors and administrators, in consideration for the payments and
other consideration provided for under this Agreement, hereby forever releases
and discharges the Company and its successors, their affiliated entities and
controlling persons, and their past and present directors, employees, agents,
attorneys, accountants, representatives, plan fiduciaries, successors and
assigns from any and all known and unknown causes of action, actions, judgments,
liens, indebtedness, damages, losses, claims, liabilities, and demands of
whatsoever kind and character in any manner whatsoever arising on or prior to
the date of this Agreement, including but not limited to (i) any claim for
breach of contract, breach of implied covenant, breach of oral or written
promise, wrongful termination, intentional infliction of emotional distress,
defamation, interference with contract relations or prospective economic
advantage, negligence, misrepresentation or employment discrimination, and
including without limitation alleged violations of Title VII of the Civil Rights
Act of 1964, as amended, prohibiting discrimination based on race, color,
religion, sex or national origin; the Family and Medical Leave Act; the
Americans With Disabilities Act prohibiting discrimination based on disability;
the Age Discrimination in Employment Act prohibiting discrimination based on age
over 40; other federal, state and local laws, ordinances and regulations; and
any unemployment or workers' compensation law; (ii) any and all liability that
was or may have been alleged against or imputed to the Company by the Executive
or by anyone acting on his behalf; (iii) all claims for wages, monetary or
equitable relief, employment or reemployment with the Company in any position,
and any punitive, compensatory or liquidated damages; and (iv) all rights to and
claims for attorneys' fees and costs except as otherwise provided herein;
provided, however, that this release shall not extend to the obligations of the
Company that are specifically recited or referred to in this Agreement, or to
the rights of Executive and/or his spouse and eligible dependents with respect
to the Company's benefit plans as described in Sections 2(d) and 2)(g) of this
Agreement. The Executive expressly waives any and all rights granted by any
federal, state or local laws or ordinances or regulations that are intended to
protect the Executive from waiving unknown claims.

     (b) The Executive shall not file or cause to be filed any action, suit,
claim, charge or proceeding with any federal, state or local court or agency
relating to any claim within the scope of this Section 6. The Executive
represents and warrants that he has not assigned any claim released herein, or
authorized any other person to assert any claim on his behalf.

     (c) In the event any action, suit, claim, charge or proceeding within the
scope of this Section 6 is brought by any government agency, putative class
representative or other third party to vindicate any alleged rights of the
Executive, (i) the Executive shall, except to the extent required or compelled
by law, legal process or subpoena, refrain from participating, testifying or



producing documents therein, and (ii) all damages, inclusive of attorneys' fees,
if any, required to be paid to the Executive by the Company as a consequence of
such action, suit, claim, charge or proceeding shall be repaid to the Company by
the Executive within ten (10) days of his receipt thereof.

     (d) Notwithstanding anything in this Agreement to the contrary, in the
event of a violation of this Section 6 by the Executive, the Company's
obligations pursuant to this Agreement shall cease as of the date of such
violation and the Executive shall be liable to the Company for any actual
damages the Company suffers as a result of such violation, including costs,
expenses and all attorneys' fees and expenses.

     7.  Release and Waiver of Claims Against the Executive.

     The Company hereby forever releases and discharges the Executive from any
and all actions, causes of action, claims or demands in general, special or
punitive damages, attorneys' fees and costs, expenses or other compensation
which in any way relate to or arise out of the Company's employment of the
Executive or the termination of such employment or otherwise, which the Company
may now or hereafter have under any federal, state or local law, regulation or
ordinance. The release and waiver contained in this Section 7 of this Agreement
shall not apply to any act of fraud or criminal conduct by the Executive of
which the Company is not aware as of the date of this Agreement, nor to any act
of non-compliance with the terms of this Agreement by the Executive.

     8.  No Admission of Wrongdoing.

     The release and waiver of claims by the Company in Section 7 of this
Agreement, and the payment by the Company of that portion of the amounts and
other benefits set forth in this Agreement to which the Executive would not
otherwise be entitled, are being given to the Executive in return for the
Executive's agreements and covenants contained in this Agreement. Nothing
contained in this Agreement shall be construed as an admission of liability or
wrongdoing by either the Executive or the Company.

     9.  Voluntary Execution of Agreement.

     BY HIS SIGNATURE BELOW, THE EXECUTIVE ACKNOWLEDGES THAT:

     (A) I HAVE RECEIVED A COPY OF THIS AGREEMENT AND WAS OFFERED A PERIOD OF
FORTY-FIVE (45) DAYS TO REVIEW AND CONSIDER IT;

     (B) IF I SIGN THIS AGREEMENT PRIOR TO THE EXPIRATION OF FORTY-FIVE DAYS, I
KNOWINGLY AND VOLUNTARILY WAIVE AND GIVE UP THIS RIGHT OF REVIEW;

     (C) I HAVE THE RIGHT TO REVOKE THIS AGREEMENT FOR A PERIOD OF SEVEN DAYS
AFTER I SIGN IT BY MAILING OR DELIVERING A WRITTEN NOTICE OF REVOCATION TO THE
CHIEF EXECUTIVE OFFICER OF THE COMPANY, NO LATER THAN THE CLOSE OF BUSINESS ON
THE SEVENTH DAY AFTER THE DAY ON WHICH I SIGNED THIS AGREEMENT;



     (D) THIS AGREEMENT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE
SEVEN DAY REVOCATION PERIOD HAS EXPIRED WITHOUT THE AGREEMENT HAVING BEEN
REVOKED;

     (E) THIS AGREEMENT WILL BE FINAL AND BINDING AFTER THE EXPIRATION OF THE
REVOCATION PERIOD REFERRED TO IN (C). I AGREE NOT TO CHALLENGE ITS
ENFORCEABILITY;

     (F) I AM AWARE OF MY RIGHT TO CONSULT AN ATTORNEY, HAVE BEEN ADVISED IN
WRITING TO CONSULT WITH AN ATTORNEY, AND HAVE HAD THE OPPORTUNITY TO CONSULT
WITH AN ATTORNEY, IF DESIRED, PRIOR TO SIGNING THIS AGREEMENT;

     (G) NO PROMISE OR INDUCEMENT FOR THIS AGREEMENT HAS BEEN MADE EXCEPT AS SET
FORTH IN THIS AGREEMENT;

     (H) I AM LEGALLY COMPETENT TO EXECUTE THIS AGREEMENT AND ACCEPT FULL
RESPONSIBILITY FOR IT; AND

     (I) I HAVE CAREFULLY READ THIS AGREEMENT INCLUDING THE RELEASE SET FORTH IN
SECTION 6, ACKNOWLEDGE THAT I HAVE NOT RELIED ON ANY REPRESENTATION OR
STATEMENT, WRITTEN OR ORAL, NOT SET FORTH IN THIS DOCUMENT OR THE WRITTEN
MATERIALS PRESENTED TO ME WITH THIS AGREEMENT, AND WARRANT AND REPRESENT THAT I
AM SIGNING THIS AGREEMENT KNOWINGLY AND VOLUNTARILY.

     10. Notices.

     All notices, requests, demands and other communications required or
permitted hereunder shall be in writing, shall be deemed properly given if
delivered personally or sent by certified or registered mail, postage prepaid,
return receipt requested, or sent by telegram, telex, telecopy or similar form
of telecommunication, and shall be deemed to have been given when received. Any
such notice, request, demand or communication shall be addressed: (a) if to the
Company, to the Chief Executive Officer of the Company, 5501 Norman Center
Drive, Minneapolis, Minnesota 55437; (b) if to the Executive, to his last known
home address on file with the Company; or (c) to such other address as the
parties shall have furnished to one another in writing.

     11. Termination and Amendments; Miscellaneous.

     (a) This Agreement may only be terminated, or the provisions of this
Agreement amended or waived, prior to the expiration of the Company's and the
Executive's obligations under this Agreement, by a writing signed by the Company
and the Executive.

     (b) The Company may withhold from any amounts payable under this Agreement
such federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.



     (c) The failure to insist upon strict compliance with any provision hereof,
or the failure to assert any right hereunder, shall not be deemed to be a waiver
of such provision or right or of any other provision or right under this
Agreement. In the event that any term, provision or release of claims or rights
contained in this Agreement is found or determined to be illegal or otherwise
invalid and unenforceable, whether in whole or in part, such invalidity shall
not affect the enforceability of the remaining terms, provisions and releases of
claims or rights.

     (d) Except for payments to be made from the trusts under the Company's
Pension Plan D and 401(k) Retirement Savings Plan, all payments to be made
hereunder shall be paid from the Company's general funds and no special or
separate fund shall be established and no segregation of assets shall be made to
assure the payment of such amounts. Nothing contained in this Agreement shall
create or be construed to create a trust of any kind, or a fiduciary
relationship between the Company and the Executive or any other person with
respect to amounts to be paid hereunder; provided, however, that this Agreement
does not affect the existing fiduciary duties of the Company under its Pension
Plan D and 401(k) Retirement Savings Plan.

     (e) Nothing in this Agreement shall confer upon the Executive any right to
continue in the employ of the Company or its affiliates.

     (f) This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter hereof and supersedes all prior
oral and written and all contemporaneous oral discussions, agreements and
understandings of any kind or nature. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective permitted
successors and assigns.

     (g) Any reference within this Agreement to an action, judgment, conclusion,
or determination by the Company shall mean an action, judgment, conclusion, or
determination of the Board of Directors of the Company or its authorized
representative(s).

     (h) The headings preceding the text of the sections hereof are inserted
solely for convenience of reference, and shall not constitute a part of this
Agreement, nor shall they affect its meaning, construction or effect.

     (i) This Agreement shall be governed by, and construed and enforced in
accordance with the laws of the State of Minnesota.

     (j) This Agreement may be executed in two or more counterparts, all of
which shall have the same force and effect as if all parties thereto had
executed a single copy.

     IN WITNESS WHEREOF, the Company and the Executive have acknowledged and
executed this Agreement effective as of the seventh day following the date first
set forth above, unless revoked by the Executive in the manner set forth in
Section 9 above.

                                       JOSTENS, INC.




_________________________________      By: _____________________________________
Gregory S. Lea                         Name: ___________________________________
                                       Title: __________________________________

EX-12

                                   EXHIBIT 12
                         JOSTENS, INC. AND SUBSIDIARIES
          COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED)



                                                 Six months ended                               Years ended
                                              ---------------------   --------------------------------------------------------------
                                               June 29,    June 30,   December 29,    December 30, January 1,  January 2, January 3,
Dollars in thousands                             2002        2001         2001            2000        2000        1999       1998
- -------------------------------------------------------------------   --------------------------------------------------------------
                                                                                                     
Earnings
Income (loss) from continuing operations
before income taxes                           $  73,693   $  57,632   $    26,540      $ (10,468)   $ 43,999    $ 35,952   $ 52,379

Interest expense
(excluding capitalized interest)                 35,468      41,816        79,035         60,252       7,486       7,026      6,866

Portion of rent expense under
long-term operating leases
representative of an interest factor                720         644         1,164          1,121       1,483       1,233      2,133

- -------------------------------------------------------------------   --------------------------------------------------------------
Total earnings                                $ 109,881   $ 100,092   $   106,739      $  50,905    $ 52,968    $ 44,211   $ 61,378
===================================================================   ==============================================================

Fixed charges
Interest expense
(including capitalized interest)              $  35,468   $  41,816   $    79,035      $  60,252    $  7,887    $  7,729   $  6,866

Portion of rent expense under
long-term operating leases
representative of an interest factor                720         644         1,164          1,121       1,483       1,233      2,133

- -------------------------------------------------------------------   --------------------------------------------------------------
Total fixed charges                           $  36,188   $  42,460   $    80,199      $  61,373    $  9,370    $  8,962   $  8,999
===================================================================   ==============================================================

Ratio of earnings to fixed charges                  3.0         2.4           1.3            0.8         5.7         4.9        6.8