-----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, R7LgtbJjwDWBtlRREnXzrlra7vYCcU8HhYwrKP+QfhlF9wXPMFoq8mJkGYJmGX91 lSC+rYvFRJjwuPSw9d3WGQ== 0001045969-98-000323.txt : 19980401 0001045969-98-000323.hdr.sgml : 19980401 ACCESSION NUMBER: 0001045969-98-000323 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19980103 FILED AS OF DATE: 19980331 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: SEC FILE NUMBER: 001-05064 FILM NUMBER: 98580121 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 ANNUAL REPORT 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 JANUARY 3, 1998. 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. [x] The aggregate market value of voting stock held by nonaffiliates of the Registrant on March 3, 1998, was $890,609,303. The number of shares outstanding of Registrant's only class of common stock on March 3, 1998, was 38,203,080. 1 DOCUMENTS INCORPORATED BY REFERENCE DOCUMENT FORM - ------------------------------------- --------------- 10-K Parts II and IV Annual Report to Shareholders for The Year Ended January 3, 1998 Proxy Statement for Annual Meeting of Parts I and III Shareholders to be held April 23, 1998 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 July 1997, the Board of Directors authorized the repurchase of up to $100 million in shares of the Company's common stock. Under the authorization, shares may be repurchased periodically in the open market and through privately negotiated transactions. The repurchase is to be funded from the Company's cash and short-term investment balance, as well as short-term borrowings. As of January 3, 1998, the Company had repurchased $20 million in common shares. In July 1997, the Company purchased the Gold Lance class ring brand from Town & Country Corporation for $9.5 million in cash. Under the terms of the agreement, the Company purchased the Gold Lance name, accounts and notes receivable, and tooling. In March 1997, the Company closed its Porterville, California, graduation announcement facility and transferred operations to the Company's announcement plant in Shelbyville, Tennessee. In February 1997 and October 1996, the Company entered into joint venture agreements with partners in Columbia and Chile, respectively. The Company began selling its products in these countries during calendar 1997. The Company's commitment to provide financing to these joint ventures is insignificant. Since November 1996, Jostens has overseen a Mexican facility in Nuevo Laredo, Mexico, which is being operated under a contract manufacturing agreement. Based on the successful results of a test project completed in February 1997, the Company transferred virtually all non-precious metal ring finishing volume to the facility in Mexico. Furthermore, in February 1988, the Company announced plans to shift some high school gold ring finishing volume from the Attleboro, Massachusetts, and Denton, Texas facilities, to the Nuevo Laredo, Mexico, facility. In July 1996, the Company closed its Winnipeg, Manitoba, jewelry manufacturing facility and transferred production to the Denton, Texas plant. Additionally, a photography plant in Lachine, Quebec was closed in January 1997 with processing volume transferred to the Winnipeg facility. 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, the Company sold its JLC curriculum software subsidiary to a group led by Bain Capital, Inc. Information related to the sale of JLC is in the financial statement footnote "Discontinued Operations" on pages 44 through 45 of the 1997 Annual Report to Shareholders. 3 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 treated Wicat Systems as a discontinued operation in June 1995, pending the sale of the business. Information related to the sale of Wicat Systems is in the financial statement footnote "Discontinued Operations" on pages 44 through 45 of the 1997 Annual Report to Shareholders. In October 1996, the Company elected to change its fiscal year end from June 30 to the Saturday closest to December 31, effective December 29, 1996. The change was made to enable better business planning and internal management. (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 43 and 44 of the 1997 Annual Report to Shareholders. 4 (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 950 representatives. In the year ended June 30, 1995, the Company had a discontinued operation (JLC) that produced educational software for students in kindergarten through grade 12. The JLC discontinued operation included JLC's Wicat subsidiary which was subsequently sold in October 1995. 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 $631.9 million in calendar 1997 included these five lines of business and $6.9 million in other sales. Printing & Publishing: The Company manufactures and sells student- created yearbooks in elementary schools, junior high schools, high schools and colleges. Independent sales representatives and their associates work closely with each school's yearbook staff (both students and a faculty adviser), assisting with the planning, editing, layout and printing scheduling until the book is completed. The Company's sales representatives work with the faculty advisers to renew yearbook contracts each year. This business also prints commercial brochures, and promotional books and materials. Printing & Publishing contributed approximately 37% of School Products segment sales volume for the year ended January 3, 1998 (calendar 1997), and 32%, 30%, 37% and 36% for the year ended December 28, 1996 (calendar 1996), the six months ended December 28, 1996 (the 1996 Transition Period), fiscal 1996 and fiscal 1995, respectively. Jewelry: The Company manufactures and sells rings representing a graduating class primarily to high school and college students. This product line contributed approximately 28% of the School Products segment sales volume in calendar 1997 and 25%, 38%, 28% and 27% in calendar 1996, the 1996 Transition Period, fiscal 1996 and fiscal 1995, respectively. Many schools have only one school-designated supplier to its students each year. Rings may be sold through bookstores, other campus stores, retail jewelry stores and within the school through temporary order-taking booths. The Company, through its independent and employee sales representatives, manages the process of interacting with the 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: The Company manufactures and sells graduation announcements and accessories, diplomas and caps and gowns to students and administrators in high schools and colleges. This product group contributed approximately 24% of School Products segment sales volume in calendar 1997, and 21%, 12% , 23% and 24% of sales to this segment in calendar 1996, the 1996 Transition Period, fiscal 1996 and fiscal 1995, respectively. Jostens independent and employee sales representatives make calls on schools and sales are taken through temporary order-taking booths, telemarketing programs and college bookstores. Photography: U.S. Photography provides 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. These services are provided through a sales force and independent dealers, who arrange the sittings/shootings at individual schools or in their own studios. This business contributed approximately 4% of School Products segment sales volume in calendar 1997, and 4%, 8%, 4% and 4% in calendar 1996, the 1996 Transition Period, fiscal 1996 and fiscal 1995, respectively. The Company processes the photos at its plants in the U.S. and Canada. 5 Jostens Canada: The Company is the leader in school photography, yearbooks and class rings in Canada. Approximately 59% of the calendar 1997 sales in Canada were from school photography. Jostens Canada contributed approximately 6% of School Products segment sales in calendar 1997, and 7%, 10%, 7% and 7%, in calendar 1996, the 1996 Transition Period, and fiscal 1996 and fiscal 1995, respectively. MARKETS: School Products serves elementary schools, middle schools, high schools, colleges, alumni associations and other organizations in the United States and Canada through approximately 865 independent and employee sales representatives. Jostens also maintains an international sales force servicing primarily American schools and military installations in about 50 countries. 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, and senior graduation portraits . SALES FORCE: The School Products segment markets its products primarily through independent and employee sales representatives. Approximately 418 persons are dedicated to selling class rings and graduation products, 326 to yearbooks and 121 to photography. Information related to changes in sales representatives' contracts is under the caption "Commitment and Contingencies" on pages 22 through 23, and pages 38 through 39 in the Company's Annual Report to Shareholders for the year ended January 3, 1998. 6 SEASONALITY: This segment experiences strong seasonal business swings concurrent with the school year, with 40-45 percent of full-year sales and 65-70 percent of full-year profits occurring in the period from April to June. The business generally requires short-term financing during the course of the year. COMPETITION: The business of the School Products segment is highly competitive, primarily in the pricing, product development and marketing areas. 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 differentiator. In the class ring business, the Company has two primary national competitors: Herff Jones and Commemorative Brands (CBI), which markets through the Balfour and ArtCarved brands. Herff Jones distributes its product in schools, in a manner similar to the Company's, while CBI distributes its product through multiple distribution channels including schools, independent and chain jewelers and mass merchandisers. In the Graduation Products business, several national and numerous local and regional competitors offer products similar to those of the Company. In Photography, the Company competes with Lifetouch, Olan Mills, Herff Jones and a variety of regional and locally owned and operated photographers. 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. RECOGNITION SEGMENT The Recognition segment helps companies and other organizations promote and recognize achievement in people's careers. It designs, communicates and administers programs to help customers improve performance and recognize employee service. It also produces awards for 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 an assortment of products and services tailored to the needs of the organization it is serving under a Strategic Recognition(TM) approach. For global companies, the Company customizes programs to meet specific customer needs. 7 Standardized programs, such as Symphony(TM) and Crescendo(TM), provide small and mid-size companies the same product and service features without complex customization. Recognition enjoys exclusive product and personalization distributor arrangements including Hartmann luggage and Lenox china for the service award marketplace. SALES FORCE: Recognition sells its products through approximately 85 independent sales representatives who develop programs incorporating Recognition products. COMPETITION: The Recognition business competes primarily with O.C. Tanner and the Robbins Company on a national basis, as well as several regional companies. Recognition focuses on service and product offerings in competing with these companies. JOSTENS, INC. -- INFORMATION REGARDING ALL BUSINESSES BACK ORDERS: Because of the nature of the Company's business, generally all orders are filled within a few months from the time of placement. However, the School Products segment obtains student yearbook contracts in one year for a significant portion of the yearbooks to be delivered in the next year. Often the prices of the yearbooks are not established at the time of the order because the content of the books may not have been finalized. Subject to the foregoing qualifications, the Company estimates that as of January 3, 1998, the backlog of orders related to continuing operations was approximately $276.2 million, compared with $260.8 million at December 28, 1996, primarily related to student yearbooks, jewelry and graduation products. The Company expects most of the backlog orders to be confirmed and filled in 1998. ENVIRONMENTAL: Information related to the Company's environmental management progam is under the caption "Commitment and Contingencies" on pages 22 through 23, and pages 38 through 39 in the Company's Annual Report to Shareholders for the year ended January 3, 1998. 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 10% of the Company's cost of products sold for the year ended January 3, 1998. For the 1996 Transition Period and the fiscal 8 years ended June 30, 1996 and 1995, gold usage accounted for approximately 11%, 10% and 10%, respectively, of the Company's cost of products sold. INTELLECTUAL PROPERTY: The Company has no patents, licenses, franchises or concessions that are material to it as a whole, but does have a number of proprietary trade secrets, 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 January 3, 1998, the total number of employees of the Company was approximately 6,500 (not including independent sales representatives). Because of seasonal fluctuations and the nature of the business, the number of employees tends to vary. As of January 3, 1998, the Company had 277 employees who were members of two separate unions. The Company has not had a work stoppage or strike that had a material impact on the Company's operations. (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. 9 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 Nuevo Laredo, Mexico* Class Rings 43,000 Laurens, South Carolina Caps and Gowns 98,000 Laurens, South Carolina* Caps and Gowns 105,000 Red Wing, Minnesota Graduation Products 132,000 Shelbyville, Tennessee Graduation Products 87,000 Burnsville, Minnesota * Scholastic Support 47,000 Edina, Minnesota * IS Support 21,000 Owatonna, Minnesota ** Scholastic 118,000 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 Anaheim, California* Photography Retail 12,000 Webster, New York Photography Products 60,000 Winnipeg, Manitoba Photography and Yearbooks 69,000 Winnipeg, Manitoba * Class Rings 22,000 Executive offices are located in a company-owned general office building, which has approximately 116,000 square feet and is located in a Minneapolis, Minnesota suburb. A portion of this facility has been financed through revenue bonds. 10 Item 2. PROPERTIES (continued) * Represents leased properties with the following expiration dates. Nuevo Laredo 1998 Laurens 1998 Burnsville 2000 Edina 1999 Owatonna 2000 Sherbrooke 2002 Anaheim 1998 Winnipeg 2000 ** Several locations. Item 3. LEGAL PROCEEDINGS There are no material pending or threatened legal, governmental, administrative or other proceedings to which the Company or any subsidiary as a defendant or plaintiff is subject. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 11 Item 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference is information under the caption "Election of Directors" contained on pages 3 through 6 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 23, 1998. Executive officers of the Registrant are as follows:
YEARS OF SERVICE WITH NAME THE COMPANY AGE TITLE AND BUSINESS EXPERIENCE - ----- ----------- --- ----------------------------- Robert C. Buhrmaster 5 50 CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER Mr. Buhrmaster joined the Company in December 1992 as Executive Vice President and Chief Staff Officer. He was named President and Chief Operating Officer in June 1993; was named Chief Executive Officer in March 1994; and was named Chairman in February 1998. Prior to joining the Company, Mr. Buhrmaster was with Corning, Inc. for 18 years, most recently as Senior Vice President of Strategy and Business Development. Carl H. Blowers 1 58 SENIOR VICE PRESIDENT - MANUFACTURING, TECHNOLOGY, AND OPERATIONS Mr. Blowers joined the Company in June 1996 as Division Vice President, Manufacturing & Engineering and was appointed to his current position in February 1998. Prior to joining the Company, Mr. Blowers was with Corning, Inc. for 27 years, most recently as Vice President and General Manager of Corning's Advanced Materials and Process Technologies Division. Thomas W. Jans 2 49 VICE PRESIDENT AND PRESIDENT OF THE RECOGNITION DIVISION Mr. Jans joined the Company in August 1995 as President of Business Recognition. He was appointed to his current position in May 1997. From 1992 to 1995, he worked for Carlson Travel, most recently as Executive Vice President of Global Sales and Marketing. David J. Larkin 0 58 EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER Mr. Larkin joined the Company in February 1998 in his current position. From 1995 to 1998, Mr. Larkin was an independent management consultant. Prior to 1995, he worked for Honeywell Inc. for 30 years, most recently as Chairman, President and CEO of Honeywell Limited in Canada.
12 YEARS OF SERVICE WITH NAME THE COMPANY AGE TITLE AND BUSINESS EXPERIENCE - ----- ----------- --- ----------------------------- Gregory S. Lea 4 45 VICE PRESIDENT - COLLEGE AND UNIVERSITY Mr. Lea joined the Company in November 1993 as Vice President - Total Quality Management. He was named to his current position in June 1995. Prior to joining the Company, Mr. Lea spent 19 years with International Business Machines Corp. in various financial, operations and quality positions. John J. Mann 2 53 VICE PRESIDENT - SCHOLASTIC DIVISION Mr. Mann joined the Company in April 1996 as General Manager - Scholastic and was appointed to his current position in May 1997. Prior to joining the Company, Mr. Mann was a director at Coopers & Lybrand Consulting. From 1991 to 1995, he worked for Grand Metropolitan PLC, most recently as Senior Vice President of strategic customer service development at Pillsbury. Lee U. McGrath 3 41 VICE PRESIDENT AND TREASURER Mr. McGrath joined the Company in May 1995 in his current position. For the six years prior to joining the Company, he was the assistant treasurer for H.B. Fuller Company, a manufacturer of chemical products. William N. Priesmeyer 1 53 SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Mr. Priesmeyer joined the Company in August 1997 in his current position. From April to August 1997, Mr. Priesmeyer was Senior Vice President and CFO of MVE Holdings. From 1994 to 1997, he was Senior Vice President and CFO with Waldorf Corp.; and from 1993 to 1994 was Vice President and CFO for DataCard Corp. Kevin M. Whalen 5 38 VICE PRESIDENT - CORPORATE COMMUNICATIONS & INVESTOR RELATIONS Mr. Whalen joined the Company in 1993 as Director - Corporate Communications and was appointed to his current position in May 1997. Prior to joining the Company, he worked for Honeywell Inc. for two years as the Director of Corporate Public Relations.
13 PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Incorporated by reference is information under the captions "Dividends" on page 22; "Unaudited Quarterly Financial Data" on page 46 and "Shareholder Information" on page 48 in the Company's Annual Report to Shareholders for the year ended January 3, 1998. Item 6. SELECTED FINANCIAL DATA Incorporated by reference is information under the caption "Six-Year Financial Summary" on page 47 in the Company's Annual Report to Shareholders for the year ended January 3, 1998. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference is information under the caption "Management Discussion and Analysis" on pages 16 through 24 of the Company's Annual Report to Shareholders for the year ended January 3, 1998. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference are consolidated balance sheets of Jostens, Inc. as of January 3, 1998, and December 28, 1996, and the related consolidated statements of operations, changes in shareholders' investment and cash flows for the years ended January 3, 1998, and December 28, 1996 (unaudited); the six-month transition period ended December 28, 1996; and the years ended June 30, 1996 and 1995, together with the related notes and the report of Ernst & Young, LLP, independent auditors, all contained on pages 25 through 46 of the Company's Annual Report to Shareholders for the year ended January 3, 1998. Item 9. CHANGES IN AND DISAGREEMENTS WITH 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 on pages 3 through 6 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held April 23, 1998, with respect to directors and executive officers of the Company, is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION Incorporated by reference is information under the caption "Executive Compensation" on pages 8 through 15 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held April 23, 1998. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference is information under the caption "Shares held by Directors and Officers" on page 7 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held April 23, 1998. 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 January 3, 1998, are incorporated herein by reference. PAGES IN ANNUAL REPORT ------------- Consolidated Balance Sheets - January 3, 1998 and December 28, 1996 28 and 29 Statement of Consolidated Operations for the years ended January 3, 1998, and December 28, 1996 (unaudited); the six-month period ended December 28, 1996; and the years ended June 30, 1996 and 1995 26 Statement of Consolidated Cash Flows for the years 27 ended January 3, 1998, and December 28, 1996 (unaudited); the six-month period ended December 28, 1996; and the years ended June 30, 1996 and 1995. Statements of Consolidated Changes in Shareholders' Investment for the years ended January 3, 1998 and December 28, 1996 (unaudited); the six-month period ended December 28, 1996; and the years ended June 30, 1996 and 1995. 30 Notes to Consolidated Financial Statements 31 through 46 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 year ended January 3, 1998. (c) Exhibits 2.a. Stock Purchase Agreement by and between JLC Holdings, Inc. Software Systems Corp. and JLC Acquisition, Inc. and Jostens, Inc. (incorporated by reference to Exhibit 2.1 contained in the Current Report on Form 8-K filed on July 14, 1995). 3.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, 1998, between the Company and Norwest Bank Minnesota, N.A. (incorporated by reference to the Company's Form 8-A dated August 17, 1998, 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 of Form S-8, File No. 2-95076). b. Company's 1987 Stock Option Plan (incorporated by reference to the Company's Registration Statement of 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). 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. 1992 Stock Incentive Plan Performance Share Agreement (filed with this report). 17 Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (continued) g. Employment and Separation Agreement dated February 3, 1997, with Charles W. Schmid (incorporated by reference to Exhibit 10(j) contained in the Transition Report on Form 10-K for the six-month period ended December 28, 1996). h. Employment and Separation Agreement dated April 1, 1997, with Jack Thornton. i. Employment and Consulting Transition Agreement dated December 19, 1997, with Orville E. Fisher, Jr. j. Deferred Compensation Plan (filed with this report). 13. Annual Report to Shareholders for the year ended January 3, 1998. 21. List of Company 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: March 31, 1998 By /S/ ROBERT C. BUHRMASTER ------------------------------- Robert C. Buhrmaster Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants in the capacities and on the dates indicated. /S/ ROBERT C. BUHRMASTER - --------------------------------- March 31, 1998 Robert C. Buhrmaster (Principal Executive Officer) Chairman of the Board, President and Chief Executive Officer and Director /S/ WILLIAM N. PRIESMEYER - ---------------------------------- March 31, 1998 William N. Priesmeyer (Principal Financial and Accounting Officer) Senior Vice President and Chief Financial Officer /S/ LILYAN H. AFFINITO - ---------------------------------- March 31, 1998 Lilyan H. Affinito Director /S/ MANNIE L. JACKSON - ---------------------------------- March 31, 1998 Mannie L. Jackson Director /S/ JACK W. EUGSTER - ---------------------------------- March 31, 1998 Jack W. Eugster Director /S/ RICHARD A. ZONA - ---------------------------------- March 31, 1998 Richard A. Zona Director /S/KENDRICK B. MELROSE - ---------------------------------- March 31, 1998 Kendrick B. Melrose Director /S/WALKER LEWIS - ---------------------------------- March 31, 1998 Walker Lewis 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 January 3, 1998 $ 6,884 $ 2,245 $ - $ 1,683 (1) $ 7,446 Six months ended December 28, 1996 $ 5,966 $ 1,202 $ - $ 284 (1) $ 6,884 Year ended June 30, 1996 $ 9,049 $ 2,195 $ - $ 5,278 (1) $ 5,966 Year ended June 30, 1995 $13,749 $ 3,552 $ - $ 8,252 (2) $ 9,049 - -------------------------------------------------------------------------------------------------------------- Allowances for sales returns: Year ended January 3, 1998 $ 4,787 $18,352 $ - $17,570 (3) $ 5,569 Six months ended December 28, 1996 $ 6,518 $ 6,308 $ - $ 8,039 (3) $ 4,787 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 - -------------------------------------------------------------------------------------------------------------- SFAS No. 109 valuation allowance: Year ended January 3, 1998 $ 4,494 $ 451 (4) $ - $ 2,030 (10) $ 2,915 Six months ended December 28, 1996 $ 5,920 $ - $ - $ 1,426 (11) $ 4,494 Year ended June 30, 1996 $ 2,117 $ 3,803 (4) $ - $ - $ 5,920 Year ended June 30, 1995 $ 3,642 $ - $ - $ 1,525 (5) $ 2,117 - -------------------------------------------------------------------------------------------------------------- Overdraft reserves: Year ended January 3, 1998 $ 7,344 $ 2,946 $ - $ 1,968 (1) $ 8,322 Six months ended December 28, 1996 $ 6,545 $ 1,740 $ - $ 941 (1) $ 7,344 Year ended June 30, 1996 $ 6,157 $ 2,838 $ - $ 2,450 (1) $ 6,545 Year ended June 30, 1995 $ 7,796 $ 1,943 $ - $ 3,582 (1) $ 6,157 - ------------------------------------------------------------------------------------------------------------- Reserves and allowances added to liability accounts: - ------------------------------------------------------------------------------------------------------------- Restructuring charges: Year ended January 3, 1998 $ 1,300 $ - $ - $ 800 (9) $ 500 Six months ended December 28, 1996 $ 2,700 $ - $ - $ 1,400 (8) $ 1,300 Year ended June 30, 1996 $ 8,636 $ - $ - $ 5,936 (6) $ 2,700 Year ended June 30, 1995 $39,821 $ - $ - $31,185 (7) $ 8,636 - -----------------------------------------------------------------------------------------------------------
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 ($1,000), Noncash items ($400) Note (9) -- Payments ($700), Noncash items ($100) Note (10) -- Reduced for anticipated NOL utilization related to the Photography business. Note (11) -- To adjust reserve for foreign tax credits and NOL per the returns as filed. S-1 20 EX-10.F 2 1992 STOCK INCENTIVE PLAN PERFORMANCE SHARE AGREEM JOSTENS, INC. EXHIBIT 10.f. 1992 STOCK INCENTIVE PLAN PERFORMANCE SHARE AGREEMENT THIS AGREEMENT is entered into and effective as of this 24th day of July, 1997 (the "Date of Grant"), by and between Jostens, Inc. (the "Company") and ________________ (the "Grantee"). A. The Company has adopted the Jostens, Inc. 1992 Stock Incentive Plan (the "Plan") authorizing the Board of Directors of the Company, or a committee as provided for in the Plan (the Board or such a committee to be referred to as the "Committee"), to grant performance share awards to certain employees and non-employee consultants and independent contractors or agents of the Company and its Subsidiaries (as defined in the Plan). B. The Company desires to give the Grantee a proprietary interest in the Company and an added incentive to advance the interests of the Company by granting to the Grantee performance shares of common stock of the Company pursuant to the Plan. Accordingly, the parties agree as follows: ARTICLE 1. GRANT. The Company hereby grants to the Grantee as a matter of separate inducement and agreement in connection with the Grantee's services to the Company, and not in lieu of any salary or other compensation for services, a performance award (the "Performance Award") consisting of shares (the "Performance Shares") of the Company's common stock, par value $.33 1/3 per share (the "Common Stock"), according to the terms and subject to the restrictions and conditions hereinafter set forth and as set forth in the Plan. ARTICLE 2. PERFORMANCE CRITERIA The Grantee's right to receive a payout of the Performance Award shall be subject to the following performance criteria for the Company's 1998 fiscal year ("CY98"): 2.1 RETURN ON ASSETS. Return on assets as publicly reported for the Company for CY98 must be at least _______ percent (___%) for any Performance Shares to be earned; and 2.2 EARNINGS PER SHARE (EPS): Earnings Per Share (EPS) for the Company for CY98 as publicly reported and adjusted (as further defined in Schedule A attached hereto and made a part hereof) must be at least 90% of the EPS target of $____ per share ("EPS Target"). ARTICLE 3: PAYOUT OF PERFORMANCE SHARES 3.1 If the performance criteria in Sections 2.1 and 2.2 are not met, no Performance Shares shall be earned or payable under this Agreement. 3.2 If the performance criteria in Sections 2.1 and 2.2 are met, a number of Performance Shares shall be earned by Grantee based on the following percentages: EPS Results Percentage of (% OF EPS TARGET) PERFORMANCE SHARES EARNED ----------------- ------------------------- 90% 25% 100% 100% 110% and above 150% For EPS results between the points listed above, the percentage of Performance Shares which shall be earned shall be determined by interpolation. 3.3 The number of Performance Shares earned will be payable to Grantee in shares of Common Stock and in cash as follows: (a) COMMON STOCK: Grantee will be issued the number of shares of Common Stock equal to 50% of the number Performance Shares Earned. (b) CASH: Grantee will be paid in cash equal to 50% of Performance Shares Earned based on the Fair Market Value (as defined in the Plan) of Common Stock on the on last trading day of CY98. 3.4 Payout of Performance Shares will occur as soon as administratively possible after the final determination of EPS is made by the Compensation Committee of the Board of Directors of the Company, but in no event later than 90 days after the end of CY98. ARTICLE 4. DEFERRAL 4.1 ELECTION. Grantee may elect to defer, under the Company's Deferred Compensation Plan, up to 100% of any payout of Performance Shares earned. The deferral election under the Deferred Compensation Plan must be made by December 31, 1997 by separate election. The terms of any deferral will be governed by the applicable provisions of the Deferred Compensation Plan. 2 4.2 DEFERRAL ACCOUNT. Any deferral of Performance Shares Earned will be credited to Grantee's deferred compensation account in equal allocations to participant's Cash Account and Share Account as each is defined under the Company's Deferred Compensation Plan. ARTICLE 5. FORFEITURE 5.1 FORFEITURE. Any Performance Awards that are not earned under Section 3 above shall be forfeited effective at the end of CY98. 5.2 TERMINATION OF EMPLOYMENT OR OTHER SERVICE. Except as otherwise provided in Section 5.3 and 5.4 below, in the event that the Grantee's employment or other service with the Company and all Subsidiaries is terminated for any reason prior to the end of the Company's CY98, all rights of the Grantee under this Agreement shall immediately terminate without notice of any kind, and this Performance Award shall be terminated and the Performance Shares shall be forfeited. 5.3 DEATH, DISABILITY OR RETIREMENT. (a) In the event that the Grantee's employment or other service with the Company is terminated by reason of the Grantee's death, Disability or Retirement prior to the end of CY98, the Grantee will continue to have the right to earn the Performance Shares for CY98 as if the Grantee had remained in the employment of the Company through the end of CY98, provided that the number of Performance Shares earned will be prorated based on the proportion that the number of days in CY98 prior to such termination bears to the total number of days in CY98. (b) For purposes of this Agreement, "Disability" means the disability of the Grantee as defined in the long-term disability plan of the Company or Subsidiary then covering the Grantee or, if no such plan exists, the permanent and total disability of the Grantee within the meaning of Section 22(e)(3) of the Code and "Retirement" means the retirement of the Grantee pursuant to and in accordance with the regular (or, if approved by the Committee for purposes of the Plan, early) retirement/pension plan of the Company or Subsidiary then covering the Grantee. 5.4 CHANGE IN CONTROL. (a) For purposes of this Section 5.4, the term "Change in Control" shall have the meaning set forth in Section 13.1 of the Plan. (b) If any events constituting a Change in Control of the Company shall 3 occur, then Performance Shares shall be deemed to have been 100% earned and will be paid out based on the fair market value of Common Stock immediately prior to the effective date of the Change of Control, whether or not the Grantee remains in the employ or service of the Company or any Subsidiary. (c) Notwithstanding anything in this Section 5.4 to the contrary, if, with respect to the Grantee, acceleration of the vesting of this Performance Award (which acceleration could be deemed a "payment" within the meaning of Section 280G(b)(2) of the Code), together with any other payments which the Grantee has the right to receive from the Company or any corporation which is a member of an "affiliated group" (as defined in Section 1504(a) of the Code without regard to Section 1504(b) of the Code) of which the Company is a member, would constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Code), the payments to the Grantee as set forth herein shall be reduced to the largest amount as will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the Code. ARTICLE 6. PERFORMANCE SHARE RESTRICTIONS 6.1 NO PRIVILEGES OF A SHAREHOLDER; TRANSFERABILITY. The Grantee shall not be recorded on the books of the Company as the owner of any Common Stock related to the Performance Award until such time as Performance Shares have been earned and paid out pursuant to this Agreement. At such time the Company shall issue one or more duly issued and executed stock certificates evidencing the same. The Performance Award shall not be assignable or transferable by the Grantee, either voluntarily or involuntarily, and shall not be subjected to any lien, directly or indirectly, by operation of law or otherwise. Any attempt to transfer, assign or encumber the Performance Award other than in accordance with this Agreement and the Plan shall be null and void and shall void the Performance Award. 6.2 DIVIDENDS AND OTHER DISTRIBUTIONS. The Grantee shall have no right to receive dividends or distributions with respect to Performance Award, including stock dividends or dividends in kind, dividends or distributions paid in cash, the proceeds of any stock split or the proceeds resulting from any changes or exchanges described in Article 5 of this Agreement (all of which shall collectively be referred to as "Dividend Proceeds"), until such time as Performance Shares are earned and paid out. ARTICLE 7. ADJUSTMENTS. In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering or divestiture (including a spin-off) or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation), in order to prevent dilution or enlargement of the rights of the Grantee, 4 shall make appropriate adjustment (which determination shall be conclusive) as to the number and kind of securities subject to this Performance Award. ARTICLE 8. LIMITATION OF LIABILITY. Nothing in this Agreement shall be construed to (a) limit in any way the right of the Company to terminate the employment or service of the Grantee at any time, or (b) be evidence of any agreement or understanding, express or implied, that the Company will retain the Grantee in any particular position at any particular rate of compensation or for any particular period of time. ARTICLE 9. WITHHOLDING TAXES. The Company is entitled to (i) withhold and deduct from the portion of the Performance Shares Earned and paid in cash under Section 3.3(b), or from future wages of the Grantee, all legally required amounts necessary to satisfy any federal, state or local withholding tax requirements attributable to the earned Performance Awards or (ii) require the Grantee to promptly remit the amount of such withholding to the Company. In the event that the Company is unable to withhold such amounts, for whatever reason, the Grantee hereby agrees to pay to the Company an amount equal to the amount the Company would otherwise be required to withhold under federal, state or local law. ARTICLE 10. SUBJECT TO PLAN. The Performance Awards granted pursuant to this Agreement have been granted under and are subject to the terms of the Plan. Terms of the Plan are incorporated by reference herein in their entirety; and the Grantee, by execution hereof, acknowledges having received a copy of the Plan. The provisions of this Agreement shall be interpreted as to be consistent with the Plan, and any ambiguities herein shall be interpreted by reference to the Plan. In the event that any provision hereof is inconsistent with the terms of the Plan, the terms of the Plan shall prevail. ARTICLE 10. MISCELLANEOUS. 10.1 BINDING EFFECT. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto. 10.2 GOVERNING LAW. This Agreement and all rights and obligations hereunder shall be construed in accordance with the Plan and governed by the laws of the State of Minnesota. 10.3 ENTIRE AGREEMENT. This Agreement and the Plan set forth the entire agreement and understanding of the parties hereto with respect to the grant and 5 exercise of this Award and the administration of the Plan and supersede all prior agreements, arrangements, plans and understandings relating to the grant and vesting of this Award and the administration of the Plan. 10.4 AMENDMENT AND WAIVER. Other than as provided in the Plan, this Agreement may be amended, waived, modified or canceled only by a written instrument executed by the parties hereto or, in the case of a waiver, by the party waiving compliance. The parties hereto have executed this Agreement effective the day and year first above written. JOSTENS, INC. By ------------------------------- Its VICE PRESIDENT GRANTEE ---------------------------------- 6 SCHEDULE A The Company's Earnings Per Share (EPS) shall be calculated based on the EPS from continuing operations as reported in the Company's audited consolidated financial statements for the fiscal year as adjusted to eliminate charges for any extraordinary or unusual items separately identified and quantified in the MD&A section of the annual report or the footnotes to the audited financial statements. Actual EPS as reported will be adjusted to eliminate the impact of the share repurchase program. The Compensation Committee of the Company's Board of Directors, however, reserves the right, in its sole discretion, adjust (but not accelerate or increase) the payout due any grantee by considering the effect on EPS of such extraordinary or unusual items or by considering the effect of discontinued operations on EPS. Such determination with respect to any one grantee shall have no effect on the EPS calculation with respect to other grantees. 7 EX-10.H 3 EMPLOYMENT & SEPARATION AGREEMENT WITH J. THORNTON Exhibit 10.h. April 1, 1997 BUSINESS RESTRICTED PERSONAL AND CONFIDENTIAL Mr. Jack Thornton RE: Employment and Separation Agreement Dear Jack: This letter when signed by you will void and supersede any prior agreements between you and Jostens, Inc. ("Jostens") relating to your employment and possible separation from "Jostens" and it will confirm the mutual arrangements we have made for your continued employment and your planned separation from Jostens. The terms of the Agreement are as follows 1. You will continue in your current employment capacity with Jostens through June 30, 1997. During that period of time you will assist as requested by me in the transition of Jostens Printing, Photo and Canadian business responsibilities to those individuals I appoint as being responsible for assuming those duties. For the period up through June 30, 1997 you will continue to receive all the benefits and perquisites that you are currently receiving on the same basis and terms. At all times during this active employment period with Jostens you, of course, will support, follow and implement the directions and strategies requested by me as the Chief Executive Officer of Jostens. 2. You agree to terminate your active employment duties with Jostens as of June 30, 1997 ("Discontinuance of Active Employment"). 3. Effective as of your Discontinuance of Active Employment, the terms set out below will govern the separation arrangement between you and Jostens. a. You will receive a special performance bonus based on the first six (6) months performance under the current calendar year profit plan for the Printing & Publishing, Photography and Canadian businesses ("Operating Businesses"). If you achieve the total aggregate planned EBIT contribution amounts for these three business units for the six month period ending June 30, 1997, Jostens will pay you a special performance bonus equal to two (2) months of your current base salary. This bonus will be paid to you in August, 1997. b. You also will be eligible to participate in the regular calendar year 1997 management bonus program. This program has three basic components consisting of i. Twenty percent (20%) based on the full calendar year corporate net income amounts; ii. Twenty percent (20%) based on the full calendar year personal key business initiatives (KBIs); and iii. Sixty percent (60%) based on your operating business EBIT contribution for the full calendar year. You will be eligible for a bonus under this program on the following basis: A. The 20% corporate net income component payable to you will be based on 50% of the final calendar year end company results. B. The 20% KBI performance component will be based on your personal performance against these KBIs through June 30, 1997 and will be equal to one-half of the annualized level. C. The bonus payment component related to the Operating Businesses will be prorated upon the percent of aggregate "EBIT contribution" earned by the Operating Businesses through June 30, 1997 versus the total projected "EBIT contribution" earned by the Operating Businesses for the full twelve (12) month period ending December 31, 1997. The management bonuses referred to in this section will be paid to you in February 1998. c. You will be eligible to participate in the Jostens Performance Pays Program for the period through June 30, 1997 on the same basis as other senior vice presidents of Jostens. d. Commencing as of July 1, 1997 you will receive the equivalent of sixteen (16) months of your then current base salary payable over a period of the next sixteen (16) months ("Salary Continuation Period"). e. Payment for four (4) weeks' of unused vacation will be paid to you in a lump sum within thirty (30) days of the Discontinuance of Active Employment. No vacation will be accrued during the Salary Continuation Period. f. All of your current employee benefits and executive perquisites will continue in the same manner as that of a full-time, active senior executive of Jostens through your Salary Continuation Period with the exception of your short and long-term disability and travel insurance, which will no longer be effective as of your Discontinuance of Active Employment. Through your Salary Continuation Period, you will continue to receive the following employee benefits and receive years of service credit as if you were still a full-time active employee of Jostens: health and dental coverage, life insurance, continued eligibility and participation in the Jostens 401(k) Retirement Savings Plan, Jostens Pension Plan "D" and supplemental pension program on the same terms and conditions as apply to other executive officers of Jostens. g. For purposes of Jostens providing life, health and dental coverages, Jostens will consider your separation date from Jostens to be effective as of the last day of your Salary Continuation Period and your annual base salary to be the annual rate as of June 30, 1997. You will be eligible for normal COBRA benefits after October 30, 1998. In addition, pursuant to the terms of the Jostens 401(k) Retirement Savings Plan, you will continue to receive Jostens company matching contributions under the Plan for all contributions made through October 31, 1998. h. You will be able to continue participatin in the current executive vehicle lease program with your existing vehicle through the last day of your Salary Continuation Period on the same basis that you currently receive it which includes, among other things, insurance coverage and vehicle registration costs. i. To assist you in obtaining possible alternative employment, Jostens will reimburse you for up to $25,000 for employment assistance costs and services which you actually incur prior to the end of the Salary Continuation Period. This payment will be provided to you to cover re-employment assistance, outplacement services, search firms, employment agencies or firms, personal travel expenses and other costs you may incur as part of your efforts to seek other employment. j. You will be eligible to continue your financial planning, executive medical reimbursement and executive physical benefits on the same basis as they have been provided to you in the past through the conclusion of your Salary Continuation Period. k. As of the Discontinuance of Active Employment you will no longer be considered an insider of Jostens for federal securities rules reporting purposes. Please note that the same reporting requirements you have been obligated to follow in the past will continue to apply for a period of six (6) months after the Discontinuance of Active Employment. l. For purposes of vesting and the exercise of any stock option grants and restricted shares that you have been awarded in Jostens stock, you will be considered a full-time active employee of Jostens through the last day of your Salary Continuation Period, which date for purposes of these stock awards will be considered your effective termination date from Jostens. m. In consideration for what Jostens has agreed to provide you as identified above, you agree: i. That from the date of this Agreement through the Salary Continuation Period, you will support and endorse the strategies, directions and goals of Jostens. ii. That you will not, during or subsequent to your employment with Jostens, divulge, furnish, or make accessible to anyone any confidential proprietary information of Jostens or any of its subsidiary or affiliated companies. iii. That, during the period up to and including October 31, 1999, you will not solicit or entice current Jostens employees or sales representatives to accept employment with you or any new employer with whom you may become associated. iv. Unless specifically approved in writing by the General Counsel of Jostens, you will not on or before October 31, 1999 serve as a director, officer, employee, consultant, partner, representative, agent, advisor or independent contractor of any company or establish your own business which is in direct or indirect competition with any of Jostens' current or currently planned business activities. v. Should you breach any terms of this paragraph, Jostens will be entitled, in addition to any other legal rights it may have, to terminate any unpaid monies that may be due you under this Agreement and shall have the right to recover that portion of any payments made to you under the terms of this Agreement. In addition, you will forfeit any shares of restricted stock which have not fully vested. In the event of a breach by either party, the prevailing party in any subsequent litigation or arbitration shall be entitled to recover their reasonable attorney's fees. vi. To return all company property not otherwise provided for herein, including keys and credit cards on or before June 30, 1997. 4. Jostens, its officers, directors, agents, employees, and subsidiary companies, on one hand, and you, on the other hand, agree to release and forever discharge each other from and to waive all causes of action, damages, liability and claims of whatever nature relating to or arising out of your employment with Jostens and the cessation of that employment including, but not limited to, claims under federal, state, or local discrimination laws, and the Age Discrimination and Employment Act, provided however, that nothing herein shall release or discharge Jostens or you from obligations under this Agreement or which arise after the date you sign this Agreement. Also, nothing herein shall limit or restrict your right to indemnification, which right shall continue through the Salary Continuation Period on the same basis as it is offered to all other executive offices. 5. At Jostens' request, you will continue to fully cooperate with Jostens in any current and future claims or lawsuits involving Jostens where you have knowledge of the underlying facts. In addition, you will not voluntarily aid, assist, or cooperate with any claimants or plaintiffs or their attorneys or agents in any claims or lawsuits commenced in the future against Jostens; provided, however, that nothing in this Agreement will be construed to prevent you from testifying at an administrative hearing, a deposition or in court in response to a lawful subpoena in any litigation or proceeding involving Jostens. Jostens further agrees to reimburse you for any requested out-of-pocket expenses you incur in cooperation with the rendering of any assistance to Jostens pursuant to this paragraph. 6. This Agreement shall be binding upon Jostens and any of its successors in interest and shall inure to the benefit of your heirs or successors. This Agreement contains the entire agreement and understanding of the parties and no representations have been made or relied upon by either party other than those that are expressly set forth herein. This Agreement may not be altered, modified or amended unless done in writing and signed by you and an officer of Jostens. In the event of your death, the salary continuation payments provided for in paragraph 2 (a) and (b) herein shall inure to the benefit of your heirs. 7. Jostens, upon specific request, will provide legally appropriate references. Should you wish to have any additional information released by Jostens, you should request such in writing and agree to hold Jostens harmless for any such information transmitted on your behalf pursuant to your request. You acknowledge that you have been given up to twenty-one (21) days to consider this Agreement and have been advised and have had the opportunity to consult legal counsel of your own choosing concerning this Agreement and that you have entered into it of your own free will and without compulsion. You have the right to rescind that portion of this waiver and release which deals with charges or claims brought pursuant to the Minnesota Human Rights Act or the Age Discrimination and Employment Act within fifteen (15) days from the date you sign this Agreement. To be effective, this rescission must be in writing and hand delivered or mailed to Jostens, Inc. to the attention of Orville E. Fisher, Jr. within the fifteen (15) day period. If mailed, the recision must be post marked within the fifteen (15) day period, and be properly addressed to Jostens, Inc., 5501 Norman Center Drive, Minneapolis, Minnesota 55437, Attention: Orville E. Fisher, Jr. and sent by certified return receipt requested. Rescission of the release will result in cessation of all payments and benefits provided by Jostens pursuant hereto. If this Agreement and the conditions contained herein are agreeable to you, please sign and return this letter to me within twenty-one (21) days or as soon as possible, thereby noting your knowing and voluntary agreement. Sincerely, /s/ Robert C. Buhrmaster Robert C. Buhrmaster President and CEO AGREED AND APPROVED: /S/ JACK THORNTON - ---------------------------------- Jack Thornton Dated: APRIL 18, 1997 ---------------------------- EX-10.I 4 EMPLOYMENT & CONSULTING AGREEMENT WITH O. FISCHER Exhibit 10.i. December 19, 1997 BUSINESS RESTRICTED PERSONAL AND CONFIDENTIAL Orville E. Fisher RE: Employment and Consulting Transition Agreement Dear Chip: This letter when signed by you will confirm the mutual arrangements we have made for your continued employment and the planned transition to your formal retirement from and consulting services to be provided to Jostens. The effective date of this Agreement will be January 31, 1998. The terms of the Agreement are as follows: 1. You will continue in an employment capacity with Jostens through January 31, 1999 (hereinafter referred to as the "Employment Period"). During that period of time you will assist in the transition of all of your current duties and responsibilities to those individuals responsible for assuming those duties. At all times during this Employment Period with Jostens you, of course, will support, follow and implement all reasonable directions and strategies requested by me as the Chief Executive Officer of Jostens. Specifically, the employment services to be provided by you herein will be to manage the following specific projects to completion or transition to another assigned Jostens employee: _____________________. 2. You agree to resign as an officer of Jostens and any of its subsidiaries and joint ventures and from the Board of Directors of any of Jostens subsidiaries or joint ventures effective as of January 31, 1998. 3. During the Employment Period and in consideration of the mutual undertakings herein, the following terms will govern the relationship between you and Jostens. a. You will receive a management bonus for CY1997 (if any is earned) in accordance with the terms offered to you under the 1997 Annual Page 2 Management Bonus Plan, with 100% credit given for the KBI portion of that program. This bonus will be paid at the same time as Bonus payments are paid to other Jostens Executives under this plan. b. You will be paid an annual base salary in semi-monthly payments equal to Two Hundred Thirty Thousand Eight Hundred Six and no/100 Dollars ($230,806) per year during the Employment Period. c. All of your current employee benefits and executive perquisites will continue in the same manner as that of a full-time, active senior executive of Jostens through the Employment Period. Through the Employment Period you will also continue to receive the additional following employee benefits and receive vesting and years of service credit in these benefits as if you were at all times a full-time active senior executive of Jostens: health and dental coverage, life insurance, continued eligibility and participation in the Performance Pays Plan, Jostens Pension Plan "D" and supplemental pension programs on the same terms and conditions as apply to other senior executive officers of Jostens. In addition, you will continue to receive, through the full Employment Period, vesting and years of service credit under the Executive Supplemental Retirement Agreement you have with the Company. January 31, 1999 will be deemed your retirement date from Jostens. As of the date of your retirement you will be 100% vested in said plan and will be given credit for 24 years of service and your benefit thereunder will be based upon an annual base salary of $230,806. d. For purposes of Jostens providing you with life, health and dental coverage, Jostens will consider your separation retirement date from Jostens to be effective as of the last day of the Employment Period and your annual base salary to be $230,806. You will be eligible for normal COBRA benefits after January 31, 1999. In addition, pursuant to the terms of the Jostens 401(k) Retirement Savings Plan, you will continue to be eligible to receive vesting and Jostens company matching contributions under the Plan for all contributions to be made relating to all the years through the Employment Period. e. Payment for five (5) weeks of unused vacation will be made to you in a lump sum by February 28, 1998. No vacation will be accrued during the remainder of the Employment Period. f. Jostens will continue to provide you with the lease of the company vehicle currently in your possession and continue to reimburse you for gas, Page 3 insurance and other costs of operating that vehicle or alternatively, you will be provided a monthly vehicle allowance on the same basis as other top level senior executives of Jostens. At the end of the Employment Period you will have the option of returning the vehicle, personally continuing to pay the lease payments or purchase said vehicle under the terms set by the lessor. g. You will continue to have the possession and use of Jostens' personal computer and be eligible for charitable gift matching. You will also be eligible for full reimbursement of all club dues and assessments, long distance and cellular phone charges and for financial planning, executive medical reimbursement and executive physical benefits programs. h. You will not be eligible for any other management bonus plans or future stock award grants. i. As of January 31, 1998 you will no longer be considered an insider of Jostens for federal securities rules reporting purposes. Please note that the same reporting requirements you have been obligated to follow in the past will continue to apply for a period of six (6) months after January 31, 1998. j. Your vesting and exercise rights for the stock option grants and restricted shares that you have been awarded in Jostens stock, will continue as if you were a full-time active employee of Jostens through the last day of the Consulting Period. January 31, 2000, which is the last day of the Consulting Period, will for the purposes of all stock awards granted to you, be considered your fully qualified effective retirement date from Jostens. In addition, the 3,500 performance shares awarded to you by the Compensation Committee on July 24, 1997 shall be amended to eliminate the EPS targets required to earn these shares. These 3,500 performance shares shall be deemed to be earned based on criteria similar to those approved by the Compensation Committee of the Board of Directors for other senior executives of the Company. k. Jostens will consider separately engaging you, after June 30, 1998, on terms mutually acceptable to both parties, to assist Jostens in any merger or acquisition transactions, if you are at the time actively involved in such career activities. l. Jostens shall not be obligated to provide you with any office or clerical services, on its premises, beyond February 6, 1998. Page 4 4. During the period February 1, 1999 through January 31, 2000 you shall be an independent consultant to Jostens and will be paid the sum of $230,806 in equal semi-monthly payments during this period of time (hereinafter referred to as the "Consulting Period"). During the Consulting Period you will provide consulting services as reasonably requested by me and that we mutually agree upon. You will not be eligible for any Jostens employment benefits or executive perquisites during the Consulting Period. 5. In consideration for what Jostens has agreed to provide you as identified above, you agree: a. At all times during the Employment Period and Consulting Period, you will be publicly portrayed as Retiring from Jostens. b. It is understood that you will be free to begin your active, public search for new career opportunities as of January 1, 1998 and that anytime after January 31, 1998 you may become fully engaged in other career activities. You agree not to undertake any business activities during the Employment Period that would prevent you from adequately performing the services you have undertaken herein. c. That from the date of this Agreement through the Employment Period and Consulting Period, you will publicly support and positively endorse the strategies, directions and goals of Jostens. d. That you will not, during or subsequent to your employment with Jostens, divulge, furnish, or make accessible to anyone any confidential proprietary information of Jostens or any of its subsidiary or affiliated companies. e. That, during the period up to and including January 31, 2000 you will not solicit or entice current Jostens employees or sales representatives to accept employment with you or any new employer with whom you may become associated. f. Unless specifically approved in writing by the General Counsel of Jostens, which approval will not be unreasonably withheld, you will not on or before January 31, 2002 serve as a director, officer or employee of any company or establish your own business which is in direct or indirect competition with any of Jostens' business activities. Any request by you for confirmation that an activity is not competitive or request for consent shall be responded to within thirty (30) days of such request. Should you breach this paragraph, Jostens shall be entitled to terminate any unpaid monies that may be due you under Section 3.b. and Section 4 of this Agreement and shall have the right to recover any payments made to you Page 5 under Section 3.b and Section 4 of this Agreement during such breach. The only other competitor restrictions that will apply to you are the provisions of Section 11 of the Executive Supplemental Retirement Agreement, which shall apply only to payments under that agreement. g. Should you breach any terms of Section 5 and such breach remains uncured after providing you with twenty (20) days prior written notice of such breach, Jostens will be entitled, in addition to any other legal rights it may have, to terminate any unpaid monies that may be due you under this Agreement and shall have the right to recover that portion of any payments made to you under the terms of this Agreement. In addition, you will forfeit any shares of restricted stock which have not fully bested. h. To return all company property not otherwise provided for herein, including keys and credit cards on or before June 30, 1998 6. Jostens, its officers, directors, agents, employees and subsidiary companies, on one hand, and you, on the other hand, agree to release and forever discharge each other from and to waive all causes of action, damages, liability and claims of whatever nature relating to or arising out of your employment with Jostens and the cessation of that employment including, but not limited to, claims under federal, state, or local discrimination laws, and the Age Discrimination and Employment Act, provided, however, that nothing herein shall release or discharge Jostens or you from obligations under this Agreement or which arise after the date you sign this Agreement. Also, nothing herein shall limit or restrict your right to indemnification, which right shall continue on the same basis as it is offered to all other executive officers of Jostens. 7. At Jostens' request, you will continue to fully cooperate with Jostens in any current and future claims or lawsuits involving Jostens where you have knowledge of the underlying facts. In addition, you will not voluntarily aid, assist, or cooperate with any claimants or plaintiffs or their attorneys or agents in any claims or lawsuits commenced in the future against Jostens; provided, however, that nothing in this Agreement will be construed to prevent you from testifying at an administrative hearing, a deposition or in court in response to a lawful subpoena in any litigation or proceeding involving Jostens. Jostens further agrees to reimburse you for any reasonable out of pocket expenses you incur in cooperation with the rendering of any assistance to Jostens pursuant to this paragraph. 8. Jostens will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Jostens to expressly assume and agree to perform this Agreement in the same manner and to the same extent Jostens would be required to perform if no such succession had taken place. Page 6 This Agreement shall inure to the benefit of and be enforceable by your personal or legal representative, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any benefits, perquisites or any amounts would still be payable hereunder as if you had continued to live, all such benefits, perquisites and amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your wife, or, if there is no such wife, to your estate. 9. This Agreement contains the entire agreement and understanding of the parties and no representations have been made or relied upon by either party other than those that are expressly set forth herein. This Agreement may not be altered, modified or amended unless done in writing and signed by you and an officer of Jostens. 10. Jostens, upon specific request, will provide legally appropriate references. Should you wish to have any additional information released by Jostens, you should request such in writing and agree to hold Jostens harmless for any such information transmitted on your behalf pursuant to your request. We also understand that you may contact individuals within Jostens for personal references outside of our normal Human Resource procedure. In this situation, we expect your requests to be in writing and such company employees will be providing their own personal opinion and not those of Jostens. In these situations, you agree not to make any claims and shall hold Jostens harmless for any information provided from your personal requests. 11. In the event of a breach by either party, the prevailing party in any subsequent litigation or arbitration shall be entitled to recover their reasonable attorney's fees. You acknowledge that you have been given up to twenty-one (21) days to consider this Agreement and have been advised and have had the opportunity to consult legal counsel of your own choosing concerning this Agreement and that you have entered into it of your own free will and without compulsion. You have the right to rescind that portion of this waiver and release which deals with charges or claims brought pursuant to the Minnesota Human Rights Act or the Age Discrimination and Employment Act within fifteen (15) days from the date you sign this Agreement. To be effective, this rescission must be in writing and hand delivered or mailed to Jostens, Inc. to the attention of Brian K. Beutner within a fifteen (15) day period, and be properly addressed to: Jostens, Inc., 5501 Norman Center Drive, Minneapolis, MN 55437, Attn: Brian K. Beutner, and sent by certified mail - return receipt requested. Rescission of the release will result in cessation of all payments and benefits provided by Jostens pursuant hereto. Page 7 If this Agreement and the conditions contained herein are agreeable to you, please sign and return this letter to me within twenty-one (21) days or as soon as possible, thereby noting your knowing and voluntary agreement. Regards, /s/ Robert C. Buhrmaster ---------------------------------- Robert C. Buhrmaster President and CEO AGREED AND ACCEPTED THIS 13TH DAY OF JANUARY, 1998. /s/ Orville E. Fisher, Jr. ---------------------------------- Orville E. Fisher, Jr. EX-10.J 5 DEFERRED COMPENSATION PLAN EXHIBT 10.J. JOSTENS, INC. DEFERRED COMPENSATION PLAN 1998 REVISION As Amended Effective as of January 1, 1998 JOSTENS, INC. DEFERRED COMPENSATION PLAN 1998 REVISION TABLE OF CONTENTS PAGE ARTICLE 1. DESCRIPTION ................................................... 1 1.1. Plan Name ..................................................... 1 1.2. Plan Purposes ................................................. 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 ........................................ 3 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 .............................................. 7 3.4. Vesting ....................................................... 8 3.5. Current Election by Qualified Director ........................ 8 ARTICLE 4. DISTRIBUTION .................................................. 10 4.1. Distribution to Participant ................................... 10 4.2. Distribution to Beneficiary ................................... 13 4.3. Limitations on Share Distributions ............................ 14 4.4. Payment in Event of Incapacity ................................ 14 ARTICLE 5. SOURCE OF PAYMENTS: NATURE OF INTEREST ....................... 15 5.1. Establishment of Trust ........................................ 15 5.2. Source of Payments ............................................ 15 5.3. Status of Plan ................................................ 15 5.4. Non-assignability of Benefits ................................. 16 ARTICLE 6. ADOPTION, AMENDMENT, TERMINATION .............................. 17 i 6.1. Adoption ...................................................... 17 6.2. Amendment ..................................................... 17 6.3. Termination of Participation .................................. 17 6.4. Termination ................................................... 18 ARTICLE 7. DEFINITIONS, CONSTRUCTION AND INTERPRETATION .................. 19 7.1. Account ....................................................... 19 7.2. Active Participant ............................................ 19 7.3. Administrator ................................................. 19 7.4. Affiliated Organization ....................................... 19 7.5. Annual Bonus .................................................. 19 7.6. Base Compensation ............................................. 19 7.7. Board ......................................................... 20 7.8. Beneficiary ................................................... 20 7.9. Cash Account .................................................. 20 7.10. Change of Control ............................................ 20 7.11. Code ......................................................... 21 7.12. Company ...................................................... 21 7.13. Cross Reference .............................................. 21 7.14. Effective Date ............................................... 21 7.15. ERISA ........................................................ 21 7.16. Exchange Act ................................................. 21 7.17. Governing Law ................................................ 22 7.18. Headings ..................................................... 22 7.19. Long- Term Incentive Payout .................................. 22 7.20. Market Price ................................................. 22 7.21. Merger Date .................................................. 22 7.22. Number and Gender ............................................ 22 7.23. Participant .................................................. 22 7.24. Participating Employer ....................................... 22 7.25. Plan ......................................................... 23 7.26. Plan Year .................................................... 23 7.27. Plan Rules ................................................... 23 7.28. Qualified Director ........................................... 23 7.29. Qualified Employee ........................................... 23 7.30. Restricted Stock Unit Subaccount ............................. 23 7.31. Shares ....................................................... 23 7.32. Share Account ................................................ 23 7.33. Termination of Employment .................................... 24 7.34. Trust ........................................................ 24 7.35. Trustee ...................................................... 24 7.36. Unforeseeable Emergency ...................................... 24 ARTICLE 8. ADMINISTRATION ................................................ 25 8.1. Administrator ................................................. 25 8.2. Plan Rules and Regulations .................................... 25 8.3. Administrator's Discretion .................................... 25 ii 8.4. Specialist's Assistance ....................................... 25 8.5. Indemnification ............................................... 25 8.6. Benefit Claim Procedure ....................................... 25 8.7. Disputes ...................................................... 26 ARTICLE 9. MISCELLANEOUS ................................................. 28 9.1. Withholding and Offsets ....................................... 28 9.2. Other Benefits ................................................ 28 9.3. No Warranties Regarding Tax Treatment ......................... 28 9.4. No Rights to Continued Service Created ........................ 28 9.5. Successors .................................................... 28 iii JOSTENS, INC. DEFERRED COMPENSATION PLAN 1998 REVISION 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 and Long-Term Incentive Payout, that would otherwise be payable to them, (b) to permit Active Participants who are Qualified Directors to elect to receive current Base Compensation in the form of Shares and (c) to provide for the annual grant to Participants who are Qualified Directors of restricted stock units through credits to their Share Accounts pursuant to the Plan. 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. (a) 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 (b) Effective as of the Merger Date, the Jostens, Inc. Directors' Deferred Compensation Plan and the Jostens, Inc. Officers' Deferred Compensation Plan were restated in the manner set forth in the instrument entitled "Jostens, Inc. Deferred Compensation Plan" to reflect the merger of the plans. (c) Effective as of January 1, 1998, the Plan was restated in the manner set forth in the 1998 Revision. 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 Sections 3.2(a), 3.2(b) and 3.2(c) 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. Each individual who is a Qualified Director on the date as of which a credit is made pursuant to Section 3.2(g) is eligible to have such credit made to his or her Account. (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) or Section 3.2(c), with respect to the remainder of the Plan Year. (c) A Participant who, pursuant to Section 3.2(b)(iii) or Section 3.2(c)(iii), has revoked a deferral election in connection with an Unforeseeable Emergency or, pursuant to Section 4.1(d)(iii), has received a distribution due to an Unforeseeable Emergency, is not eligible to elect additional deferrals (of Base Salary, Annual Bonus or Long-Term Incentive Payout) 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, other than his or her Restricted Stock Unit Subaccount, will be distributed following his or her termination of employment in the form of a lump sum payment or installment payments. Such election is irrevocable and applies to all benefits distributed to the Participant pursuant to the Plan except for benefits attributable to his or her Restricted Stock Unit Subaccount. 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, Annual Bonus and Long-Term Incentive Payout from each such Participating Employer. 2 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, 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. Amounts credited to a Qualified Director Participant's Share Account pursuant to Section 3.2(g) will be credited to a separate subaccount within such Account called the Restricted Stock Unit Subaccount. If a Qualified Employee Participant makes deferrals with respect to Base Compensation, Annual Bonus or Long-Term Incentive Payout from more than one Participating Employer, deferrals attributable to each such Participating Employer will be credited to separate subaccounts within the appropriate Account. 3.2. DEFERRAL CREDITS. (a) Base Compensation deferrals will be made in accordance with the following rules: (i) 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. (ii) 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. (iii) 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. (iv) 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 4 follows by at least 30 days (or such shorter period as Plan Rules may allow) the Administrator's receipt of a properly complete 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 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. 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. (v) 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: (i) 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. (ii) 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 is earned. (iii) 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, Annual Bonus or Long-Term Incentive Payout) 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)(ii) 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) Long-Term Incentive Payout deferrals by an Active Participant who is a Qualified Employee will be made in accordance with the following rules: 5 (i) 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 Long-Term Incentive Payout for the Plan Year from a minimum percentage or dollar amount to a maximum percentage or dollar amount, as specified in Plan Rules. (ii) 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 first day of the Plan Year immediately preceding the Plan Year in which the Long-Term Incentive Payout would have been paid to the Participant but for his or her election. (iii) An election pursuant to this Subsection (c) relating to the deferral of a Long-Term Incentive Payout 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, Annual Bonus or Long-Term Incentive Payout) 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; and, 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 a Long-Term Incentive Payout deferral is credited to his or her Account, other than in connection with a divestiture contemplated by Section 4.1(d)(ii) in which the Participant is covered in a successor plan, the deferral election with respect to such Long-Term Incentive Payout 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. (d) 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. (e) Any deferral pursuant to Subsection (c) will be allocated between a Participant's Cash Account and Share Account in the same proportion as the Long-Term Incentive Payout is paid in cash and Shares, respectively, as specified in the award agreement. (f) Deferrals of an Active Participant's Base Compensation, Annual Bonus and Long-Term Incentive Payout 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, Annual Bonus or Long-Term Incentive Payout but for his or her deferral election pursuant to this 6 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, Annual Bonus or Long-Term Incentive Payout 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. (g) As of the first day of the calendar quarter first following the date of the Company's annual shareholders meeting, the Restricted Stock Unit Subaccount of each Participant who is then a Qualified Director will be credited with the number of full and fractional shares determined by dividing an amount equal to 50 percent of the retainer payable by the Company to Qualified Directors at the annual rate then in effect by the Market Price on the date as of which the credit is made. (h) In conjunction with the termination of the Company's Non-Employee Directors Retirement Program effective immediately after the end of the Company's annual meeting on October 24, 1996, the Account of each individual listed on Exhibit A to the Plan will be credited with the amount set forth with respect to the individual on Exhibit A representing the entire value of his or her interest under the Non-Employee Directors Retirement Program. The credit will be made as of January 2, 1997, and will be allocated between the individual's Share Account and his or her Cash Account in accordance with a separate written election made by the individual pursuant to Plan Rules; provided, that if the individual fails to make such a separate written election, the credit will be allocated between the individual's Share Account and his or her Cash Account in accordance with his or her most recent election pursuant to Section 3.2(d) or, in the absence of such an election, to the individual's Cash Account. If an individual listed on Exhibit A has not, prior to October 24, 1996, otherwise made an election pursuant to Section 2.1(d) regarding the form of his or her distribution in connection with his or her initial election to participate in the Plan, the individual must, not later than December 3,1 1996, make such election on a form provided by the Administrator; provided that if such an individual who has not otherwise made an election pursuant to Section 2.1(d) has ceased to be a member of the Company's board of directors on or before October 24, 1996, his or her Account will be distributed in the form of quarterly installment payments for a period of four years commencing in accordance with Section 4.1(b) and with the amount of each installment payment determined in accordance with the applicable provisions of Section 4.1(c). 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. 7 (b) SHARE ACCOUNT. (i) As of the first 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. (ii) 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. (i) Subject to Section 3.3(c)(ii), 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. (ii) Section 3.3(c)(i) does not apply to amounts credited to a Participant's Share Account pursuant to Section 3.2(c) or a Participant's Restricted Stock Unit Subaccount pursuant to Section 3.2(g). 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 an 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 8 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. 9 ARTICLE 4. DISTRIBUTION 4.1. DISTRIBUTION TO PARTICIPANT. (a) FORM. (i) 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. (ii) SHARE ACCOUNT. A Participant's Restricted Stock Unit Subaccount will be distributed to the Participant in the form of a lump sum payment. The remainder of 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. (i) CASH ACCOUNT. 1. 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. 2. 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). (ii) SHARE ACCOUNT. 1. 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 10 fractional share then credited to the Account in an amount based on the Market Price on that date. 2. 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 1. (d) SPECIAL RULES. The provisions of this subsection apply notwithstanding Subsection (a), (b) or (c) or any election by a Participant to the contrary. (i) 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). (ii) DIVESTITURES. 1. 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 11 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). 2. 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 and an unrelated third-party acquirer: (A) a Participant who is employed with the Participating Employer or (B) 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. (iii) 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. (iv) CHANGE OF CONTROL. Upon the occurrence of a Change of Control-- 1. 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). 2. 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 12 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. 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. (i) 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. (ii) If a Participant-- 1. fails to designate a Beneficiary, or 2. revokes a Beneficiary designation without naming another Beneficiary, or 3. designates one or more Beneficiaries, none of whom survives the Participant or exists at the time in question, 13 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. (iii) The automatic Beneficiaries specified above and, unless the designation otherwise specifies, the Beneficiaries designated by the Participant, become fixed as of the 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. 14 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 (a) be a grantor trust with respect to which the Participating Employer is treated as the grantor for purposes of Code section 677, (b) not cause the Plan to be funded for purposes of Title I of ERISA and (c) provide that the Trust assets will, upon the insolvency of a Participating Employer, be used to satisfy claims of the Participating Employer's general creditors. 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. 15 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. 16 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)(iv) 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; 17 (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 (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. 18 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 annual cash bonus earned during the Plan Year and paid to the Participant by a Participating Employer during the following 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; 19 (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. 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. CASH ACCOUNT. "Cash Account" with respect to a Participant is the bookkeeping account described in Section 3.1. 7.10. 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. 20 (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). 7.11. 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. 7.12. COMPANY. "Company" means Jostens, Inc. 7.13. 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. 7.14. EFFECTIVE DATE. "Effective Date" means January 1, 1996. 7.15. 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. 7.16. 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. 21 7.17. 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. 7.18. 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. 7.19. LONG-TERM INCENTIVE PAYOUT. "Long-Term Incentive Payout" with respect to a Participant who is a Qualified Employee means a long-term incentive award payout made to the Participant by a Participating Employer in the form of cash or Shares pursuant to the Company's 1992 Stock Incentive Plan (or any successor plan) or the payout that would have been made but for an election made pursuant to the Plan. 7.20. 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. 7.21. MERGER DATE. "Merger Date" means August 15, 1996. 7.22. 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. 7.23. 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. 7.24. 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. 22 7.25. PLAN. "Plan" means the Jostens, Inc. Deferred Compensation Plan, as from time to time amended or restated. 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. 7.26. PLAN YEAR. "Plan Year" means the calendar year. 7.27. PLAN RULES. "Plan Rules" are rules, policies, practices or procedures adopted by the Administrator pursuant to Section 8.2. 7.28. 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). 7.29. QUALIFIED EMPLOYEE. "Qualified Employee" means an individual who (a) is an executive of the Company elected by the Company's board of directors or an employee of the Company with a salary grade of 15 or above or (b) was an executive of the Company elected by the Company's board of directors or an employee of the Company with a salary grade of 15 or above 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. 7.30. RESTRICTED STOCK UNIT SUBACCOUNT. "Restricted Stock Unit Subaccount" with respect to a Participant is the bookkeeping subaccount described in Section 3.1. 7.31. 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)(ii). 7.32. SHARE ACCOUNT. "Share Account" with respect to a Participant is the bookkeeping account described in Section 3.1. 23 7.33. 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. 7.34. TRUST. "Trust" means any trust or trusts established by a Participating Employer pursuant to Section 5.1. 7.35. 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. 7.36. 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. 24 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. 25 (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. (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 26 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. 27 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. 28 EX-13 6 ANNUAL REPORT TO SHAREHOLDERS YEAR ENDED JAN 3 1998 [BACKGROUND ARTWORK] helping people celebrate life's important moments Annual Report 1997 [JOSTENS LOGO] [BACKGROUND PHOTOGRAPH] For a century, Jostens has created products and services to help our customers celebrate life's important moments. CREATING [BACKGROUND PHOTOGRAPH] FOR MOST OF OUR HISTORY, THE FOCUS HAS BEEN ON STUDENTS. A BRAND GENERATIONS OF GRADUATES RECOGNIZE JOSTENS AS THE COMPANY THAT HELPED THEM COMMEMORATE HIGH SCHOOL ACHIEVEMENTS. 1 [BACKGROUND PHOTOGRAPH] When you get down to it, our products are symbols of our customers' achievements and affiliations, milestones that people celebrate throughout life. BASED ON Today, we're starting to use the power of the Jostens brand to reach out to customers at other times in their lives. 2 [BACKGROUND PHOTOGRAPH] 100 years A CENTURY one hundred years We'll still be there to help students celebrate their accomplishments and to commemorate dedicated service to a company. But we'll also be there more often, reaching out to customers in more ways and in more places. 3 [BACKGROUND PHOTOGRAPH] OF MOMENTS We may be known as a ring and yearbook company, but its really about more than that -- it's about helping people celebrate. 4 [BACKGROUND PHOTOGRAPH] We want to be the company people choose to help them celebrate their most important moments and accomplishments. TO CELEBRATE Jostens. When you get there, we'll be there. 5 [BACKGROUND ARTWORK] 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 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. 6 [BAR GRAPH] sales continuing operations ($ in millions) 93 652.4 94 641.9 95 673.0 96 708.7 97 742.5 [BAR GRAPH] earnings per diluted share continuing operations (in $)* 93 .19 94 .62 95 1.22 96 1.28 97 1.47 [BAR GRAPH] return on investment (in %)* 93 (3.7) 94 (5.7) 95 19.1 96 26.3 97 47.7 FINANCIAL HIGHLIGHTS JOSTENS INC. Year ended -------------------------------------- January 3, 1998 December 28, 1996 Dollars in millions, (unaudited) except ratio and per-share data - -------------------------------- --------------- ------------------ STATEMENT OF OPERATIONS Net sales $ 742.5 $ 708.7 Net income 57.2 36.3 ------- ------- BALANCE SHEET DATA Working capital $ 6.3 $ 11.8 Current ratio 1.0 1.0 Total assets 390.7 383.8 Long-term debt 3.6 3.9 Shareholders investment 127.1 112.6 ------- ------- COMMON SHARE DATA Earnings per share: basic $ 1.47 $ 0.94 diluted 1.47 0.94 Cash dividends per share .88 .66 Stock price: high 28-13/16 24-3/8 low 20 17-1/4 ------- ------- * EPS and ROI graphs reflect June fiscal year-end results for 1993-1996, and calendar 1997 results. In 1996, the company changed from a June year end to the Saturday closest to December 31, resulting in a six-month transition period from July 1 to December 28, 1996. The 1997 year ended January 3, 1998. 7 [PHOTO OF ROBERT C. BUHRMASTER] WORK IN PROGRESS Jostens Inc. a letter from Robert C. Buhrmaster, chairman, president and chief executive officer. TO OUR INVESTORS Three words summarize Jostens in 1997: WORK IN PROCESS. Since our last report*, we have made excellent progress on our plan to transform Jostens from a "ring and yearbook" company to one that people call upon to help celebrate their most important moments. Our approach continues to be to improve our infrastructure, to build upon the strength of our current businesses and to reach consumers in new ways. Making the changes necessary to put this century-old company on a healthy, upward track for the future is taking time, energy and resources and we are moving forward. In this year's report, I will share with you my candid assessment of where we stand in the transformation process, the progress we made last year and the issues we will tackle in 1998. FINANCIAL RESULTS The changes necessary for the company's long-term health required substantial reinvestment in 1997. Consequently, our aim was to strike a balance between investing in priority initiatives and delivering a meaningful return to shareholders. I believe we accomplished that. Our company earned net income of $57.2 million, or $1.47 per share. That represents a strong increase over 1996 reported net income of $36.3 million, or 94 cents per share. However, 1996 results were reduced by 35 cents per share for an environmental charge and a new inventory cost accounting system. Our ability to balance investments and shareholder returns came, in part, from success at offsetting some of our internal investments during the year. For example, the one-time costs associated with closing a graduation announcement plant and buying the Gold Lance(R) retail ring business were roughly offset by a terrific, companywide effort to reduce gold inventory. That effort, part of an ongoing emphasis on working capital management, provided a one-time earnings benefit of 10 cents per share in 1997. Results also benefited by 5 cents per share from lower taxes related to a tax loss carryforward. All in, our fundamental business performance delivered $1.42 per share, up about 10 percent from $1.29 in 1996, on a comparable basis. Much of that improvement came from strong performance in our three largest businesses Printing & Publishing, Jewelry and Graduation Products. Underpinning the results were efficiency gains from initiatives begun in the second half of 1996 and early 1997, as well as from a continuing emphasis on consumer-based marketing programs which drove much of our growth. For example, we sold 5 percent more class rings last year, solidifying a turnaround after ending 12 straight years of decline in 1994. The 1997 increase was led by healthy consumer interest in specially designed rings for high school students in the "millennium classes," which graduate in 1999, 2000 and 2001. * In 1996, Jostens changed its fiscal year. As a result, the period from July 1 through December 28, 1996, was treated as a six-month transition period. Consequently, no annual report was published. 8 In Printing & Publishing, we delivered a record number of yearbooks, gained market share and introduced Pay By Mail, a new direct-bill program designed to streamline the buying process. It also spurs buying interest; we experienced double-digit gains in student purchases in schools that had Pay By Mail in 1997. Graduation Products, as well, had good results, as more students moved from a la carte product purchases to convenient and easy-to-understand product packages. In addition to our three big school businesses, Jostens Canada had strong profit performance despite being affected by labor strikes by teachers in Ontario and postal workers nationwide. In Recognition, 1997 performance was flat with 1996 on an apples-to-apples basis, and was less than we anticipated. Although we won a healthy amount of business with our new Strategic Recognition(TM) programs, we lost one-time product sales at about the same rate. We did win some highly visible championship accounts -- making jewelry for the 1997 Super Bowl champion Green Bay Packers, the Chicago Bulls in the NBA and the Detroit Red Wings, winners of the NHL's Stanley Cup. Recognition has significant opportunity to grow profitably; we have another year or so of preparatory work before this business can start living up to its potential. In the U.S. Photography business, results were disappointing. Sales from our independent photo dealers were below expectations, and we had higher than expected costs in some of our company-owned sites, as well as in our photo processing plant. Across the company, sales increased about 5 percent last year, to $742.5 million. Gross margin also improved, demonstrating results from our initiatives of the last few years. General and administrative expenses rose with sales as we reinvested in the next round of improvements. TRANSFORMING THE COMPANY Our vision of the future is simple: To be the company people select to help them celebrate lifes important moments. Implicit in that vision is a commitment to strengthen our mainline businesses and to develop new ways to reach customers beyond the school and workplace. Also implicit is that Jostens must undergo substantial change a transformation, if you will. For a century, Jostens has enjoyed success in the school and business recognition markets. However, two byproducts have emerged over the years to hinder us as we attempt to become faster and more agile: We have too much complexity and some lingering organizational silos. The effect of those byproducts is that we devote too much effort and resource to maintaining our business. We need to simplify what we do and make sure everyone across the company is working together to generate profitable growth. Making that happen was at the root of our activities in 1997. NEW IN 97 - - Pay By Mail billing program - - Hear the Year(TM) music CD product - - Launched identity/brand initiative - - Implemented college market strategy - - Purchased Gold Lance(R) retail ring business - - Won NBA, NFL and NHL pro championship accounts - - Repurchased $20 million in Jostens shares - - Introduced Strategic Recognition(TM) concept - - Opened joint ventures in Chile, Colombia - - Announcement plant consolidation - - Completed systems program design - - Millennium(TM) class ring offering - - Start-up of Mexico plant 9 [PHOTOGRAPH OF OTTO JOSTEN] great people sharing a goal together Otto Josten (in vest) opened his shop in 1897 and built an organization with good people. THE JOSTENS BRAND Last summer, for instance, in conjunction with our centennial celebration, we launched a new logo and identity system. The new image is designed to present a uniform, energetic "look" to our consumers. The Jostens name is widely known, and we are starting for the first time to consciously build brand awareness and preference. Hand in hand with our branding activity is new business development. In the last few months, we have begun researching and testing several concepts to extend our brand and help customers celebrate. MANUFACTURING In mid-1996, we began a thorough review of our manufacturing capacity and requirements. That effort centers on two objectives: improve efficiency and, where possible, consolidate plants while retaining peak production capacity, maintaining product quality and meeting delivery requirements. To date, we have closed three plants, including a ring plant in Winnipeg, Manitoba, and a small photography processing facility near Montreal. In both cases, volume was transferred smoothly to other Jostens facilities. In 1997, we closed the graduation announcement plant in Porterville, Calif., and consolidated production in our Shelbyville, Tenn., facility. Easing the human impact was the fact that nearly 30 of our Porterville workers transferred to Shelbyville. We expect the three consolidations to reduce annual costs by about $4 million, starting in 1998. In addition, we established an operation in Nuevo Laredo, Mexico. In early 1997, we tested the ability to perform ring finishing operations at the Nuevo Laredo facility. Based on that test, we increased the number of rings finished in Mexico, with its attendant lower cost structure. While decisions to consolidate facilities are difficult because of their impact on people, they are necessary to preserve future jobs and the long-term health of the organization. ORGANIZATIONAL ALIGNMENT To drive the company in a single, unified direction, we are aligning the organization behind common goals and objectives. In a company that has historically operated in a decentralized manner, organizational alignment represents a cultural change for employees and independent sales representatives. In 1997 we took several steps toward alignment. Performance Pays Bonus Plan. We created the Performance Pays bonus program for all company employees. Performance Pays results in cash bonuses for all employees if Jostens achieves net income targets established at the start of the year 10 [PHOTOGRAPH OF M.J. BAUER] living strategic recognition M. J. Bauer was among the first to receive the Jostens Leader Award and approved by the board. The objective of Performance Pays is to give everyone some "skin in the game" to raise awareness of and provide financial incentives to act in ways that support the company's business and financial objectives. Jostens Quest. We also began Jostens Quest, a program that provides a coordinated framework for recognizing and rewarding employee service and performance that furthers our mission, goals and business objectives. Jostens Quest was developed by our Recognition business as an element of the new Strategic Recognition program offering. The beauty of Jostens Quest is that we are linking together our various incentive and recognition efforts to better motivate people to actively support company objectives. Independent Sales Force. For the independent sales representatives, organizational alignment means new ways of working with Jostens as we intensify efforts to better understand our consumers. We are taking a common-sense approach in making changes necessary to continue improving our businesses. At the same time, we recognize that the changes represent a significant cultural shift for many of our independent sales representatives. For example, in 1997, we continued shifting to consumer-based marketing programs, easy-to-understand pricing and a consistent selling process. Where those concepts have been applied, business and profitability has increased. We also established an initial framework for sales force performance management, including territory and account profitability. In addition, we set the stage for standardized policies, processes and programs necessary streamlining steps as we install new, common information systems. All of these changes are designed to better link what's good for the sales representative and whats good for the company so that we're all motivated to generate profitable growth. College Sales Force. We took a somewhat more dramatic approach with the sales force serving the college market for Jewelry and Graduation Products. In college, we faced myriad issues, underscored by this historical reality: Jostens (and our competitors) treated college as an extension of the high school market, when in fact it is a distinct market. In 1997, we acknowledged that reality and completely changed our market model. Today, we have segmented the college market, with our sales force deployed not against geographic territories but against specific accounts offering the greatest business opportunities. No longer are we merely selling rings and announcements to students. We are utilizing value-adding programs to help school administrators build closer relationships with students, as well as faculty, alumni and other important constituencies. Our products become the symbols of those relationships and affinities. 11 [PHOTOGRAPH] continuous pride in artisanship In addition, we changed from an independent sales force to an employee sales force. We retained about half of our independent representatives as employees, and we filled the balance of positions with strong sales professionals from other industries. The combination is an energetic and enthusiastic group that increased sales in the college market in 1997, even as we made fundamental changes in the business. I am enthusiastic about the preliminary results. In the first six months of the new college approach, we signed a number of major multi-year, multi-product accounts, and generated more new ideas and had more bids in the pipeline than at any other time in my five years with Jostens. Frankly, we have also been pleasantly surprised by the power of the Jostens brand and the loyalty it enjoys in the college marketplace. 1998 OUTLOOK Even more than 1997, the coming year will be a time of reinvestment and internally focused activity, as we reach peak effort on some critical initiatives. We will focus our efforts on three areas in 1998 systems, manufacturing and market leadership all of which build on our 1997 accomplishments. SYSTEMS In 1998, we begin a multi-year, business-by-business implementation of common, integrated information systems. This project will for the first time put the entire company on a common systems platform, enabling us to serve customers better and to gather and analyze relevant business information as never before. This is the first significant systems program in more than 20 years, so we are making a quantum step forward in our systems capabilities. Because of the installation timeline, we will also upgrade some of our current systems to be year-2000 compliant. The systems initiative is critical to our ability to work smarter and faster, and it requires a substantial investment in people and dollars. However, I expect the benefits to yield significant efficiency gains, as well as enhance our ability to serve customers better, faster and more precisely. MANUFACTURING We will continue with our manufacturing activities in 1998, with the potential for further plant consolidations. Whether or not that occurs, we will maintain our vigilance on improving efficiency and strengthening our operating capabilities. 12 [PHOTOGRAPH OF CLASS RINGS] moments that change a life Unique schoolwide ring designs symbolize alumni affinity with their alma mater. MARKET LEADERSHIP Even as we continue to make internal improvements in systems and manufacturing, we are looking outward, examining what it will take for Jostens to be a leader in our markets in the future. We have enjoyed solid leadership positions in most of our businesses over the years, but future success will require new and different skills. Determining those requirements is the emphasis of the market leadership initiative in 1998. This effort will focus further attention on aligning Jostens and our independent sales representatives, as we implement new policies and practices designed to simplify our business, complete the shift to research-based marketing programs and institute performance-based management practices. It will also entail a broad look at what we do today and what we CAN do for our customers in the future. Well look at everything including markets, distribution channels, products and the Jostens brand. SUMMARY 1997 was an eventful year for our company. We reflected on a hundred years of success that started when Otto Josten opened his small business in Owatonna, Minn. We celebrated our centennial with an energetic new image for a new century a look this book was designed to project. We began peering into the future to understand how to reach more customers more often Thanks to the hard work of thousands of Jostens people, 1997 was also a year of action and change. We made tangible progress in ways that enabled us to improve financial performance and make some of the difficult but important changes necessary to keep Jostens vibrant and successful for the long run. 1998 will be a year much like 1997, as we continue improving the infrastructure, strengthening our businesses and working on new opportunities. We anticipate that our mainline businesses will have a strong year, and we expect to use the resulting improvement in profitability to fund reinvestments and generate modest earnings growth. In addition, well utilize our strong cash flow and balance sheet to retire shares under our $100 million repurchase authorization a move that should help boost earnings per share. As with 1997, the watchword in 1998 is balance making the changes necessary for Jostens to be a more dynamic company while delivering reasonable results for our shareholders. I look forward to sharing with you our company's progress in the year ahead. /s/ Robert C. Buhrmaster - --------------------------------- Robert C. Buhrmaster, Chairman, President and Chief Executive Officer 13 JOSTENS AT A GLANCE
CORE PRODUCTS SERVICES/NEW PRODUCTS CUSTOMERS Printing & Yearbooks, memory books YearTech(R) desktop publishing Students in elementary, junior Publishing and related items, kits, yearbook class curriculum, high and senior high schools, commercial printing services. Hear The Year(TM) music CD, corporations, ad agencies and Jostens Rennaisance(R) program direct mailers. to recognize academic achievement. Jewelry Class, school and athletic HIGH SCHOOL: Millennium(TM) ring Students and parents of rings symbolizing affinity collection, Jostens Renaissance. students in junior high, senior or achievement. COLLEGE: Custom Collegiate high and colleges/universities. Collection(TM) (one ring design for one school), Complete Custom Collegiate Collection(TM)(a ring for each student). Graduation Products Graduation announcements, HIGH SCHOOL: Jostens Renaissance, Students and parents of diplomas, caps and gowns, BDG new gown offering. students in junior high, senior accessories and other COLLEGE: Senior Salute(TM) high and colleges/universities. graduation-related items. program to boost commencement participation. Jostens Canada Class and individual school Student ID cards, Elementary, junior high and pictures, senior portraits, Hear The Year, senior high school students special school event photos Millennium collection, across Canada. and related products, Excellence in Education(TM) yearbooks, and class rings. recognition program. Photography Class and individual school PanelXPress(R) Elementary, junior high and pictures, senior portraits, photo page layout service. senior high school students in special school event photos the United States. and related products. Recognition Programs and products that New Strategic Recognition(TM) Executives, managers and help motivate, recognize and system helps clients align employees of companies and reward individual and team all recognition and corporations. contributions that support performance initiatives to organizational objectives. support the organization's vision, mission, goals and values; jewelry products for sports fans.
14
MANUFACTURING COMPETITORS DISTRIBUTION SALES (IN MILLIONS) [BAR GRAPH] Visalia, Calif. Herff Jones In schools via independent sales 93 192.3 Topeka, Kan. Taylor Publishing agents and sales associates. 94 192.6 Winston/Salem, N.C. Walsworth 95 205.0 State College, Pa. 96 220.4 Clarksville, Tenn. 97 233.7 [BAR GRAPH] Attleboro, Mass. Commemorative In junior and senior high schools via 93 152.6 Denton, Texas Brands independent sales agents and sales 94 146.7 Nuevo Laredo, Mexico (ArtCarved and associates, and through retail 95 161.2 Burnsville, Minn. Balfour brands), jewelers and merchants. 96 171.7 Herff Jones 97 180.9 In colleges and universities via employee sales force, through college bookstores. [BAR GRAPH] Red Wing, Minn. Herff Jones In schools via independent sales 93 126.9 Laurens, S.C. Commemorative Brands agents and sales associates, and 94 124.2 Shelbyville, Tenn. Carlson Craft through retail jewelers and merchants. 95 136.9 96 142.7 In colleges and universities via 97 153.7 employee sales force, through college bookstores. [BAR GRAPH] Winnipeg, Manitoba Lifetouch In schools via statutory employees. 93 44.9 D. W. Friesen 94 40.7 Herff Jones 95 41.3 96 40.0 97 38.7 [BAR GRAPH] Webster, N.Y. Lifetouch In schools via independent photo 93 28.1 Olan Mills dealers and through employees and 94 25.4 freelance photographers. 95 22.8 96 24.4 97 25.5 [BAR GRAPH] Princeton, Ill. O.C. Tanner Directly to clients via independent 93 97.7 Memphis, Tenn. Tiffany sales agents. 94 103.9 Red Wing, Minn. Robbins 95 96.9 Sherbrooke, Quebec 96 101.3 97 103.7
15 MANAGEMENTS DISCUSSION AND ANALYSIS JOSTENS INC. The company occasionally may make statements regarding its business and markets, such as projections of future performance, statements of managements plans and objectives, forecasts of market trends and other matters. To the extent such statements are not historical fact, they may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements containing the words or phrases "will likely result", "are expected to", "will continue", "anticipates", "believe", "estimate", "projected" or similar expressions are intended to identify forward-looking statements. Forward-looking statements may appear in this document or other documents, reports, press releases and written or oral presentations made by officers of the company to shareholders, analysts, news organizations or others. All forward-looking statements speak only as of the date on which the statements are made. Actual results could be affected by one or more factors, which could cause the results to differ materially. Therefore, all forward-looking statements are qualified in their entirety by such factors, including the factors listed below. Such factors may be more fully discussed periodically in the company's subsequent filings with the Securities and Exchange Commission (SEC). Any change in the following factors may impact the achievement of results in forward-looking statements: the price of gold; the company's access to students and consumers in schools; the seasonality of the company's business; regulatory and accounting rules with respect to the company's independent sales force; the company's relationship with its sales force; fashion and demographic trends; the general economy, especially during peak buying seasons for the company's products and services; the company's ability to respond to customer change orders and delivery schedules; competitive pricing and program changes; continued success improving operating efficiencies; and the impact of year-2000 compliance on computer-based systems of the company and its external relationships. The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact the company's business. INTRODUCTION In October 1996, Jostens elected to change its fiscal year end from June 30 to the Saturday closest to December 31, effective December 29, 1996. The change was made to enable better business planning and internal management. The Consolidated Financial Statements and Notes include the company's results of operations and cash flows for the years ended January 3, 1998 (calendar 1997), and December 28, 1996 (calendar 1996)(unaudited); the six-month transition period ended December 28, 1996; and fiscal years ended June 30, 1996 and 1995. This discussion summarizes significant factors that affected the consolidated operating results, financial condition and liquidity of Jostens in the 1997 and 1996 (unaudited) calendar years and the two fiscal years ended June 30, 1996 and 1995. Material in this section reflects the June 1995 sale of the Jostens Learning Corporation (JLC) subsidiary and the October 1995 sale of the Wicat Systems business, both of which are treated as discontinued operations in the statements of consolidated operations presented in this report. 16 RESULTS OF OPERATIONS YEAR ENDED JANUARY 3, 1998, COMPARED WITH YEAR ENDED DECEMBER 28, 1996 (UNAUDITED) Sales in calendar 1997 increased 4.8 percent to $742.5 million from $708.7 million in calendar 1996. The sales improvement was driven by increases in sales volume and pricing in the company's three largest business lines Printing & Publishing, Jewelry and Graduation Products. Price increases in calendar 1997 varied by business and ranged from zero to 5 percent, reflecting the company's continued efforts to minimize price increases. Gross margin in calendar 1997 was 52.7 percent, compared with 50.1 percent in calendar 1996. The 2.6 percentage point increase primarily reflects the July 1996 implementation of a new inventory cost accounting system, which provides more precise, detailed performance information by product within each line. The new system results in a more accurate valuation of inventories and recording of cost of products sold during the individual quarters, consistent with the manner used to value inventory at previous June year ends. As a result of this implementation, the cost of products sold reported during the six months ended December 28, 1996, was $16.9 million (26 cents per share) higher than what would have been reported using the prior method, while the cost of products sold in the six months ended June 28, 1997, had an equally positive impact. Implementation of the new cost accounting system does not impact the comparability of reported cost of products sold or earnings per share for the six months ended January 3, 1998, since the new cost accounting system was in place for both the 1997 and 1996 periods. Also contributing to the increase in 1997 gross margins was a gold inventory reduction program, which decreased total net costs by $6.8 million (10 cents per share) in calendar 1997 as a result of a gain recognized related to a LIFO inventory liquidation. The positive impact of the new cost accounting system and the gold reduction program on the calendar 1997 and 1996 comparisons were partially offset by higher training costs in calendar 1997 to prepare a new facility in Mexico for its irst peak ring finishing season, as well as by costs to consolidate the company's two graduation announcement plants (see subsequent discussion under "Plant Consolidation"). Selling and administrative expenses increased to $291.5 million from $282.9 million in calendar 1996. As a percentage of sales, selling and administrative expenses in calendar 1997 were 39.3 percent, compared with 39.9 percent in calendar 1996. The decrease in costs as a percentage of sales primarily relates to the recognition of an additional $6 million in reserves during calendar 1996 to cover continued environmental investigation and cleanup costs (see subsequent discussion under "Commitments and Contingencies"). The decrease in the calendar 1997 selling and administrative expenses as a percentage of sales was partially offset by higher salary and legal costs associated with changing the college sales force from independent representatives to employees, and by the development of products and marketing materials for the Gold Lance retail ring business, which was acquired in 1997 (see subsequent discussion under "Capital Expenditures, Product Development and Acquisition"). The company's strong cash position in calendar 1997 reduced the need for short-term borrowing, which lowered net interest expense to $6.3 million from $9 million in calendar 1996. The lower borrowing levels in calendar 1997 primarily resulted from a greater emphasis on customer deposit programs, partially offset by a $9.5 million payment to Town & Country Corporation to buy Gold Lance. The company's positive cash position was also impacted when, in July 1997, the Board of Directors authorized the repurchase of up to $100 million in shares of Jostens common stock. Under the authorization, shares may be repurchased periodically in the open market and through privately negotiated transactions. 17 The repurchase is to be funded from the company's cash and short-term investment balance, as well as short-term borrowings. As of January 3, 1998, the company had repurchased $20 million in common shares. The company's calendar 1997 effective income tax rate was 38.8 percent, compared with 42.3 percent in calendar 1996. The decrease was primarily attributed to the company's initial efforts to combine the U.S. Photography legal entity with the main U.S. businesses. As a result, the company reduced income tax expense by recognizing $2 million (5 cents per share) of accumulated net operating loss (NOL) carryforward benefits through the reversal of a deferred tax asset reserve. Management expects the effective tax rate to be between 40 and 41 percent in 1998. Calendar 1997 net income was $57.2 million, or earnings per share of $1.47 (basic and diluted), compared with net income in calendar 1996 of $36.3 million, or earnings per share of 94 cents (basic and diluted). SCHOOL PRODUCTS SEGMENT Sales in this segment increased 5.2 percent to $638.8 million in calendar 1997, compared with $607.4 million in calendar 1996. The sales increase was primarily driven by gains in the Printing & Publishing, Jewelry and Graduation Products businesses, which recorded calendar 1997 sales of $233.7, $180.9 and $153.1 million, respectively. Growth in Printing & Publishing stemmed from new marketing programs and products that targeted the winning of new accounts and increased volume in the existing account base. Yearbook sales increased over calendar 1996 by 8 percent, offset by a decline in commercial printing sales of $2 million. The reduction of commercial printing sales was anticipated as more production capacity was used to produce higher-margin yearbook products. In Jewelry, overall ring sales in the high school and college markets increased about 5 percent. In high school, the number of class rings sold increased by 5 percent, led by healthy consumer acceptance of specially designed rings for the graduating classes of 1999, 2000 and 2001, the "millennium classes". Results through December 1997 put the company on track for a fourth straight year of unit-volume improvement after a 12-year decline. In Graduation Products, the average sales dollars per customer and the number of customers who purchased products increased in calendar 1997. The business also continued a product and process simplification effort, completing those activities in the cap and gown product line. In Photography, sales increased 4.6 percent to $25.5 million, compared with $24.4 million in calendar 1996. The 1997 sales growth was predominately due to volume increases in new retail sites. Despite the sales increase, profitability slipped due to manufacturing cost overruns, as well as higher than expected start-up costs associated with some company-operated retail sites. Jostens Canada sales were $38.7 million, compared with $40 million in the year-earlier period. The decline primarily resulted from strikes by Ontario school teachers and the Canadian postal service, which hindered the company's ability to take and ship orders in the peak fall season. Jostens has closed two facilities in Canada, a ring manufacturing plant in Winnipeg, Manitoba, in calendar 1996 and a photography facility in Montreal in calendar 1997. Production from both plants was transferred to other Jostens facilities. Operating profit for the School Products segment was $107.5 million and $85.3 million in calendar years 1997 and 1996, respectively. The 26 percent increase resulted primarily from increased sales, the new inventory cost accounting system implemented in 1996, and the gold inventory reduction program. The increase in profits was partially offset by training costs associated with a new facility in Mexico, as well as costs associated with consolidating the company's two graduation announcement facilities. 18 RECOGNITION SEGMENT Recognition sales increased 2.3 percent to $103.7 million, compared with sales in calendar 1996 of $101.3 million. The business gained new accounts and sales volume with a new Strategic Recognition program concept, with high-profile account wins in professional sports and with the introduction of jewelry products for fans of sports teams. These gains were largely offset by declines in the sale of individual products to corporate accounts. Operating profit for the Recognition segment was $8.9 million and $3 million in calendar years 1997 and 1996, respectively. The increase was primarily attributed to the calendar year 1997 gold reduction program, as well as a $6 million environmental liability charge in calendar 1996. YEAR ENDED JUNE 30, 1996, COMPARED WITH YEAR ENDED JUNE 30, 1995 Sales from continuing operations increased 4.5 percent in the year ended June 30, 1996 (fiscal 1996), to $695.1 million from $665.1 million in the year ended June 30, 1995 (fiscal 1995). The fiscal 1996 sales increase was driven by gains in the company's three largest business lines Printing & Publishing, Jewelry and Graduation Products. There were minimal price increases in fiscal 1996, reflecting a continued effort to minimize price increases. Gross margin in fiscal 1996 was 52.2 percent, compared with 52.8 percent in fiscal 1995. The margin decline in fiscal 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 June quarter. Selling and administrative expenses increased to $268.1 million in fiscal 1996 from $256.8 million in fiscal 1995. The fiscal 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 fiscal 1996 and fiscal 1995. 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 fiscal 1996 interest expense of $4 million. In addition, interest income decreased $2.6 million from fiscal 1995 due to lower cash balances following the share repurchase. Net income in fiscal 1996 was $51.6 million, compared with $50.4 million in fiscal 1995. Basic earnings per share were $1.29 ($1.28 diluted) in fiscal 1996, compared with $1.11 ($1.10 diluted) in fiscal 1995. Earnings per share from continuing operations prior to the change in accounting principle and discontinued operations were $1.29 ($1.28 diluted) in fiscal 1996 and $1.23 ($1.22 diluted) in fiscal 1995. SCHOOL PRODUCTS SEGMENT. Sales in this segment increased 5.3 percent to $594.9 million in fiscal 1996, compared with $565 million in fiscal 1995. Record sales were recorded in the Printing & Publishing ($217.2 million), Jewelry ($166.4 million) and Graduation Products ($138.5 million) businesses in fiscal 1996. Printing & Publishing produced a record number of yearbook pages in fiscal 1996, reflecting success at retaining current accounts and winning new accounts. This business 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 fiscal 1996 than fiscal 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. 19 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. U.S. Photography sales were $23.4 million, a 3 percent decline from fiscal 1995, due to the loss of a large wholesale dealer and about 50 school accounts. However, efforts to build closer ties between Photography and Printing & Publishing resulted in about $1 million in new photography sales in fiscal 1996. Jostens Canada sales were $40.6 million, compared with $41.7 million in fiscal 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. The School Products segment's fiscal 1996 operating profit was $107.6 million, essentially flat with fiscal 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 fiscal 1996 was also affected by lower gross margins associated with sales volumes shifting to the June quarter. RECOGNITION SEGMENT Sales were $100.2 million, compared with $100.1 million in fiscal 1995. Operating profit increased 102 percent to $9.5 million in fiscal 1996, compared with $4.7 million in fiscal 1995. The fiscal 1996 operating profit increase reflected successful efforts to simplify work processes, reduce costs and lower the costs associated with carrying slow-moving and excess inventories. Additionally, fiscal 1995 operating profit was impacted by charges to establish an environmental reserve and abandon a unique computer system. LIQUIDITY AND CAPITAL RESOURCES Cash generated from operating activities, short-term borrowings and, in fiscal 1995, net proceeds from the sale of discontinued operations, have been Jostens' principal sources of liquidity. Cash has been used primarily for dividends, capital expenditures, the purchase of Gold Lance in calendar 1997, share repurchases and the repayment of $50 million medium-term notes in calendar 1996. Operating activities generated cash of $120.8 million in calendar 1997 primarily due to net income adjusted for depreciation, amortization and deferred taxes ($75.9 million), an increase in customer deposits ($22.6 million) and other working capital reductions. Compared with calendar 1996, the company generated $22.3 million more cash from operating activities in calendar 1997. This increase related primarily to a $7.7 million increase in net income adjusted for depreciation, amortization and deferred taxes, and by cash generated ($14.6 million) as a result of management's working capital reduction efforts. The decrease in cash provided from operating activities in fiscal 1996 over fiscal 1995 was primarily attributable to decreases in restructuring reserves and retained liabilities related to discontinued operations ($21.5 million) and the pension liability ($8.1 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. 20 While operating cash flows were sufficient to fund capital expenditures and cash dividends in fiscal 1995, the company returned to its typical need for seasonal short-term borrowings beginning in fiscal 1996 following the $169.3 million share repurchase. Because most of the company's sales volume occurs in quarters ending in December and June, Jostens usually requires interim financing of inventories and receivables. The company has a $180 million, five-year bank credit agreement. Credit available for borrowing is reduced by commercial paper borrowings outstanding. At January 3, 1998, $130 million was available under the bank credit agreement as a result of $50 million in outstanding commercial paper borrowings. In addition, the company had available unsecured demand facilities with three banks totaling $84.6 million at January 3, 1998. These demand facilities are renegotiated periodically based on the anticipated seasonal needs for short-term financing. There were no borrowings outstanding under these demand facilities at January 3, 1998. Average short-term borrowing was $94.4 million in calendar 1997, $109 million in the 1996 transition period, $68.4 million in fiscal 1996 and zero in fiscal 1995, with highs of $143 million in calendar 1997, $164 million in the 1996 transition period and $127 million in fiscal 1996. In fiscal 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 fiscal 1996 as the company returned $169.3 million to shareholders through the September 1995 share repurchase. 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, dividends and seasonal build-ups of inventories and accounts receivable in 1998. CAPITAL EXPENDITURES, PRODUCT DEVELOPMENT AND ACQUISITION The company invested $24.4 million in capital expenditures in calendar 1997, compared with $16.9 million in calendar 1996. The largest investments in calendar 1997 were to upgrade processes and yearbook printing technology and to enhance certain management information and communication systems. Capital expenditures in fiscal 1996 were $15.4 million, compared with $19.1 million in fiscal 1995. Approximately $38 million in capital projects are planned for 1998, including approximately $19 million to install and implement common, integrated systems in School Products, Recognition and corporate. The projects are expected to be funded internally. The company purchased the Gold Lance class ring brand from Town & Country Corporation for $9.5 million in cash on July 31, 1997. Under the terms of the agreement, the company purchased the Gold Lance name, accounts and notes receivable, and tooling. The company also incurred $383,000 of direct, acquisition-related costs, which were capitalized as part of the purchase price. The acquisition was recorded using the purchase method of accounting, which resulted in the recording of $5.9 million of goodwill that is being amortized over 10 years. YEAR 2000 CONVERSION COSTS Management has initiated a companywide program to prepare the company's computer systems and applications, microprocessor-driven equipment, external relationships and customers for the year 2000. Both internal and external resources are being utilized to implement new software and integrate the company's systems. Those systems that will not be replaced before the year 2000 are being modified to make them year-2000 compliant. The total year 2000 project cost is estimated at $50 million, which includes $35 million to purchase and implement new software that will be capitalized 21 as part of the companywide systems replacement program and $15 million that will be expensed as incurred. Through calendar 1997, the company incurred approximately $7 million ($5.6 million capitalized), primarily to assess systems replacement program requirements, develop a modification plan and purchase new hardware and software. The project is estimated to be completed not later than October 1999, which is prior to any anticipated impact on its operating systems. The company believes that with modifications to existing software and conversions to new software, the year 2000 issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made on time, the year 2000 issue could have a material impact on the operations of the company. The costs of the project and the date when the company believes it will complete the year 2000 modifications are based on managements best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. DIVIDENDS The company paid $34.2 million to shareholders in calendar 1997 and $34.1 million in calendar 1996. In fiscal 1996, $35.5 million in cash dividends were paid to shareholders, compared with $40 million in fiscal 1995. Dividends declared in calendar 1997 were 88 cents per share verses 66 cents per share in calendar 1996. The year-to-year increase was due to the timing of declarations. The annual dividend was 88 cents per share in fiscal 1996 and 1995. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL As part of its 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 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. As of January 3, 1998, the company had identified three sites requiring further investigation. However, the company has not been designated as a potentially responsible party at any site. During the six-month period ending December 28, 1996, the company adopted Statement of Position (SOP) 96-1, Environmental Remediation Liabilities. Under SOP 96-1, the company is required to assess the likelihood that an environmental liability has been incurred and to accrue for the best estimate of any loss where the likelihood of incurrence is assessed as probable and the amount can be reasonably estimated. Management has assessed the likelihood that a loss has been incurred at its sites as probable and, based on findings included in remediation reports, estimates the potential loss to range from $1million to $9 million; $6.6 million had been accrued. As of January 3, 1998, the company had made payments of $1.3 million, bringing the reserve balance to $5.3 million. The current portion of the reserve ($1.3 million) is included with "other accrued liabilities" on the consolidated balance sheets, while the long-term portion ($4 million) is included with "other noncurrent liabilities." While Jostens may have a right of contribution or reimbursement under insurance policies, amounts recoverable from other entities with respect to a particular site are not considered until recoveries are deemed probable. No assets for potential recoveries were established as of January 3, 1998. 22 SALES FORCE For 52 sales representatives who served the college market in the Jewelry and Graduation Products businesses, the company changed their contract status from independent sales representatives to company employees effective July 1, 1997. As of July 1, all college sales positions were filled either with incumbents or new sales professionals. The change from independent representatives to employees was made to better enable the company to address market needs and strengthen its market position. The previous independent agent contracts called for a transition commission, which historically was paid by the new sales representatives who assumed responsibility for the accounts of the outgoing representative, with the company acting as a collection agent. College sales representatives who elected to become Jostens employees forfeited their right to the transition commission in exchange for participation in a newly created severance plan and other employee benefit programs. As a result, the company will ratably recognize about $4 million of severance costs over these representatives' estimated average remaining service period of five years. During calendar 1997, the company recognized $358,000 of these severance costs. Representatives who elected not to become employees will receive estimated future transition payments from the company of $5.5 million in exchange for helping to transition and retain existing business and for signing agreements not to compete. These costs will be ratably recognized as a charge to operations over the individual noncompete periods, typically three years. Calendar 1997 costs associated with nonemployee representatives were $763,000. Management expects payments in future years relating to the severance plan and transition payments to be partially offset by reduced operating costs. Management also believes the change in contractual relationship will have positive business results and the associated liabilities will not have a material negative impact in the future. The company, in calendar 1997, also communicated contractual changes and policy clarifications to the approximately 350 independent sales representatives who serve the high school Jewelry and Graduation Products market. The changes, which took effect July 1, 1997 and do not affect the representatives independent status, are intended to better align the interests of the sales force with the company's interests. 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. As part of the JLC sale, Jostens also agreed to pay $13 million over two years to fund certain JLC existing liabilities. As of January 3, 1998, the entire $13 million was paid. 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 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 23 deferred gain increased to $17.2 million ($9.7 million after tax) as a result of the sale of Wicat ($5.3 million) and some accrual settlements ($800,000). In conjunction with JLC's efforts in 1996 to raise additional equity capital for ongoing cash requirements, JLC requested that the company restructure its interests in JLC. On November 8, 1996, the company restructured terms of its $36 million, unsecured, subordinated note from JLC in conjunction with a third-party equity infusion into JLC. Terms of the restructuring resulted in the exchange of the $36 million unsecured, subordinated note and accrued interest for a new $57.2 million unsecured, subordinated note maturing on June 29, 2003, with a stated interest rate of 6 percent and rights to early redemption discounts. The early redemption discounts, exercisable only in whole at JLC's option, adjust periodically and range from a 60 percent discount on the face value if redeemed by December 31, 1998, to 40 percent if redeemed by March 31, 2003. The new note was recorded at fair value using an estimated 20 percent discount rate on the $57.2 million note, resulting in a discount of $35.1 million. The restructuring had no impact on the net carrying value of Jostens' investment in JLC, as the $4 million reduction in the note receivables carrying value was offset by a corresponding reduction in the deferred gain to $13.2 million ($7.3 million after tax). The adjusted $13.2 million gain 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 $35.1 million discount and the deferred gain. Despite the equity infusion and restructuring of Jostens' interests in JLC, there is no guarantee that JLC will be able to repay the note. JLC has incurred losses since the sale in 1995, however, the company believes that the carrying value is not impaired based on current facts and circumstances. PLANT CONSOLIDATION In March 1997, the company announced it would close its Porterville, Calif., graduation announcement facility and transfer all operations to the company's announcement plant in Shelbyville, Tenn. As a result, the company recorded a pre-tax charge to operations of $3 million in the first quarter of 1997, primarily to accrue for severance and other employee-related costs, generally expected to be incurred over the following 12 months. As of January 3, 1998, the accrual decreased by $2.6 million due to incurred costs of $2.2 million and revisions to the initial estimate of $438,000. NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosure about Segment of an Enterprise and Related Information. SFAS No. 130 establishes standards for reporting and presenting comprehensive income and its components. SFAS No. 131 establishes standards for defining operating segments and reporting certain information regarding operating segments. The company does not believe that either statement will have a material impact on the financial statements since both standards are for informational purposes only. If the company determines that it has a reporting obligation under either new standard, the necessary information will be disclosed as part of the company's financial reporting when effective. 24 REPORT OF MANAGEMENT The management of Jostens is responsible for the integrity and objectivity of the financial information presented in this report. The financial statements have been prepared in accordance with generally accepted accounting principles and include certain amounts based on managements best estimates and judgment. Management is also responsible for establishing and maintaining the company's accounting systems and related internal controls, which are designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded. These systems and controls are reviewed by the internal auditors. In addition, the company's code of conduct states that its affairs are to be conducted under the highest ethical standards. The independent auditors provide an independent review of the financial statements and the fairness of the information presented therein. The Audit Committee of the Board of Directors, composed solely of outside directors, meets regularly with management, the company's internal auditors and its independent auditors to review audit activities, internal controls and other accounting, reporting and financial matters. Both the independent auditors and internal auditors have unrestricted access to the Audit Committee. /s/ Willian N. Priesmeyer - ---------------------------------- William N. Priesmeyer Senior Vice President and Chief Financial Officer /s/ Robert C. Buhrmaster - ---------------------------------- Robert C. Buhrmaster, President and Chief Executive Officer Minneapolis, Minn., February 2, 1998 REPORT OF INDEPENDENT AUDITORS To the Stockholders of Jostens, Inc.: We have audited the accompanying consolidated balance sheets of Jostens, Inc. and subsidiaries as of January 3, 1998 and December 28, 1996, and the related consolidated statements of operations, changes in shareholders' investment and cash flows for the year ended January 3, 1998, the six-month period ended December 28, 1996, and the years ended June 30, 1996 and 1995. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Jostens, Inc. and subsidiaries as of January 3 1998, and December 28, 1996 and the consolidated results of their operations and cash flows for the year ended January 3, 1998, the six month period ended December 28, 1996 and the years ended June 30, 1996 and 1995, in conformity with generally accepted accounting principles. As discussed in the notes to the financial statements, the company changed its method of accounting for postemployment benefits during the year ended June 30, 1995. /s/ Ernst & Young LLP - ---------------------------------- Ernst & Young LLP Minneapolis, Minn., February 2, 1998 25 STATEMENTS OF CONSOLIDATED OPERATIONS JOSTENS INC. AND SUBSIDIARIES
Years ended Six months ended Years ended --------------------------- ----------------- ---------------- January 3 December 28 December 28 June 30 1998 1996 1996 1996 1995 In thousands, except per-share data (unaudited) - ------------------------------------------------------------------------------------------------------------ NET SALES $ 742,479 $ 708,734 $ 277,118 $ 695,149 $ 665,099 Cost of Products Sold 351,290 353,938 141,493 332,212 313,659 - ------------------------------------------------------------------------------------------------------------ 391,189 354,796 135,625 362,937 351,440 Selling and Administrative Expenses 291,527 282,870 131,473 268,135 256,822 - ------------------------------------------------------------------------------------------------------------ OPERATING INCOME 99,662 71,926 4,152 94,802 94,618 Interest Income 587 370 204 2,080 4,727 Interest Expense (6,866) (9,343) (4,330) (9,403) (5,452) - ------------------------------------------------------------------------------------------------------------ INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 93,383 62,953 26 87,479 93,893 Income Taxes 36,200 26,617 829 35,854 38,027 - ------------------------------------------------------------------------------------------------------------ INCOME (LOSS) FROM CONTINUING OPERATIONS 57,183 36,336 (803) 51,625 55,866 LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX -- -- -- -- (4,864) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX -- -- -- -- (634) - ------------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) $ 57,183 $ 36,336 $ (803) $ 51,625 $ 50,368 ============================================================================================================ BASIC EARNINGS (LOSS) PER COMMON SHARE Continuing Operations $ 1.47 $ 0.94 $ (0.02) $ 1.29 $ 1.23 Loss from Discontinued Operations -- -- -- -- (0.11) Cumulative Effect of Change In Accounting Principle -- -- -- -- (0.01) - ------------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) $ 1.47 $ 0.94 $ (0.02) $ 1.29 $ 1.11 ============================================================================================================ SHARES USED TO COMPUTE BASIC PER-SHARE AMOUNTS 38,773 38,639 38,647 40,157 45,492 - ------------------------------------------------------------------------------------------------------------ DILUTED EARNINGS (LOSS) PER COMMON SHARE Continuing Operations $ 1.47 $ 0.94 $ (0.02) $ 1.28 $ 1.22 Loss From Discontinued Operations -- -- -- -- (0.11) Cumulative Effect of Change In Accounting Principle -- -- -- -- (0.01) - ------------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) $ 1.47 $ 0.94 $ (0.02) $ 1.28 $ 1.10 ============================================================================================================ SHARES USED TO COMPUTE DILUTED PER-SHARE AMOUNTS 38,969 38,815 38,763 40,337 45,588 - ------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements 26 STATEMENTS OF CONSOLIDATED CASH FLOWS JOSTENS INC. AND SUBSIDIARIES
Years ended Six months ended Years ended --------------------------- ----------------- ---------------- January 3 December 28 December 28 June 30 1998 1996 1996 1996 1995 In thousands, except per-share data (unaudited) - ------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net Income (Loss) $ 57,183 $ 36,336 $ (803) $ 51,625 $ 50,368 Depreciation 19,845 15,962 8,992 14,999 18,357 Amortization 2,297 1,726 942 1,558 9,982 Deferred Income Taxes (3,403) 14,158 6,929 7,229 607 CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECTS FROM SALE OF DISCONTINUED OPERATIONS: Accounts Receivable (651) (6,409) 22,844 (10,401) (1,303) Inventories 6,431 18,103 (19,525) (8,157) 2,436 Prepaid Expenses and Other Current Assets (602) (6,041) (7,400) 993 434 Accounts Payable 6,206 6,887 8,071 460 (11,009) Other 33,485 17,744 (17,285) (29,431) 11,070 - ------------------------------------------------------------------------------------------------------------ 120,791 98,466 2,765 28,875 80,942 - ------------------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES Capital Expenditures (24,381) (16,864) (9,897) (15,371) (19,142) Software Development Costs (JLC) -- -- -- -- (9,560) Business Acquisition (9,883) -- -- -- -- Net Proceeds From Sale of Discontinued Operations -- -- -- 1,813 49,471 Other -- -- -- -- 4,074 - ------------------------------------------------------------------------------------------------------------ (34,264) (16,864) (9,897) (13,558) 24,843 - ------------------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES Cash Dividends (34,198) (34,135) (17,011) (35,515) (40,000) Exercise of Stock Options 11,926 625 168 2,136 225 Short-term Borrowing (40,938) (1,420) 63,325 27,587 -- Reduction in Long-term Debt (281) (50,018) (50,018) (355) (368) Share Repurchase (20,000) -- -- (169,332) -- Other 393 -- -- -- -- - ------------------------------------------------------------------------------------------------------------ (83,098) (84,948) (3,536) (175,479) (40,143) - ------------------------------------------------------------------------------------------------------------ CHANGE IN CASH AND SHORT-TERM INVESTMENTS 3,429 (3,346) (10,668) (160,162) 65,642 CASH AND SHORT-TERM INVESTMENTS, BEGINNING OF PERIOD 2,639 5,985 13,307 173,469 107,827 - ------------------------------------------------------------------------------------------------------------ CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 6,068 $ 2,639 $ 2,639 $ 13,307 $ 173,469 ============================================================================================================ CASH PAID DURING THE YEAR FOR: Income Taxes $ 26,300 $ 28,800 $ 22,100 $ 34,300 $ 15,100 Interest 5,900 5,511 3,200 8,700 4,200 ============================================================================================================
See notes to consolidated financial statements 27 CONSOLIDATED BALANCE SHEETS JOSTENS INC. AND SUBSIDIARIES January 3 December 28 Dollars in thousands, except per-share data 1998 1996 - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Short-term investments $ 6,068 $ 2,639 Accounts receivable, net of allowance of $7,446 and $6,884, respectively 108,697 107,314 Inventories: Finished products 38,122 40,174 Work-in-process 29,388 28,176 Materials and supplies 24,552 30,143 - -------------------------------------------------------------------------------- 92,062 98,493 Deferred income taxes 15,543 14,928 Other receivables, net of allowance of $8,322 and $7,344, respectively 25,495 24,893 Prepaid expenses and other current assets 4,679 9,233 - -------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 252,544 257,500 - -------------------------------------------------------------------------------- OTHER ASSETS Intangibles, net 30,749 27,264 Note receivable, net of $35,044 discount and $13,181 deferred gain 12,925 12,925 Noncurrent deferred income taxes 7,743 4,349 Other 12,631 14,166 - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS 64,048 58,704 - -------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT Land 4,928 5,104 Buildings 35,500 36,868 Machinery and equipment 191,319 168,953 - -------------------------------------------------------------------------------- 231,747 210,925 Accumulated depreciation and amortization (157,609) (143,282) - -------------------------------------------------------------------------------- Total property and equipment 74,138 67,643 - -------------------------------------------------------------------------------- TOTAL ASSETS $390,730 $383,847 ================================================================================ See notes to consolidated financial statements 28 CONSOLIDATED BALANCE SHEETS JOSTENS INC. AND SUBSIDIARIES January 3 December 28 1998 1996 - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES Notes payable $ 49,974 $ 90,912 Accounts payable 30,553 24,347 Salaries, wages and commissions 38,668 32,583 Customer deposits 98,659 76,034 Income taxes 11,098 6,938 Other accrued liabilities 17,281 14,933 - -------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 246,233 245,747 OTHER NONCURRENT LIABILITIES 17,404 25,487 - -------------------------------------------------------------------------------- TOTAL LIABILITIES 263,637 271,234 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' INVESTMENT Preferred shares, $1.00 par value: authorized 4,000 shares, none issued Common shares, $.33-1/3 par value: authorized 100,000 shares, issued January 3, 1998 -- 38,422; December 28, 1996 -- 38,665 12,853 12,888 Capital surplus -- 1,480 Retained earnings 118,386 101,567 Foreign currency translation adjustment (4,146) (3,322) - -------------------------------------------------------------------------------- TOTAL SHAREHOLDERS INVESTMENT 127,093 112,613 - -------------------------------------------------------------------------------- $ 390,730 $ 383,847 ================================================================================ 29 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 Total - ---------------------------------------------------------------------------------------------------------------- BALANCE JUNE 30, 1994 45,482 $15,160 $152,996 $ 92,855 $(4,430) $256,581 Stock options and restricted stock net 1,414 1,414 Net income 50,368 50,368 Cash dividends declared of $.88 per share (40,000) (40,000) Change in cumulative translation adjustment 260 260 Adjustment in minimum pension liability 1,990 1,990 - ---------------------------------------------------------------------------------------------------------------- BALANCE JUNE 30, 1995 45,482 15,160 154,410 105,213 (4,170) 270,613 Stock options and restricted stock net 182 61 1,903 1,964 Share repurchase (7,011) (2,337) (155,168) (11,827) (169,332) Net income 51,625 51,625 Cash dividends declared of $.88 per share (34,015) (34,015) Tax benefit of stock options 171 171 Change in cumulative translation adjustment 899 899 Adjustment in minimum pension liability (124) (124) - ---------------------------------------------------------------------------------------------------------------- BALANCE JUNE 30, 1996 38,653 12,884 1,316 110,872 (3,271) 121,801 Stock options and restricted stock net 12 4 164 168 Net loss (803) (803) Cash dividends declared of $.22 per share (8,506) (8,506) Change in cumulative translation adjustment (51) (51) Adjustment in minimum pension liability 4 4 - ---------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 28, 1996 38,665 12,888 1,480 101,567 (3,322) 112,613 Stock options and restricted stock net 584 241 11,452 11,693 Share repurchase (827) (276) (14,430) (5,294) (20,000) Net income 57,183 57,183 Cash dividends declared of $.88 per share (34,198) (34,198) Tax benefit of stock options 1,498 1,498 Change in cumulative translation adjustment (824) (824) Adjustment in minimum pension liability (872) (872) - ---------------------------------------------------------------------------------------------------------------- BALANCE JANUARY 3, 1998 38,422 $12,853 $ -- $118,386 $(4,146) $127,093 ================================================================================================================
See notes to consolidated financial statements 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JOSTENS INC. AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS OVERVIEW Jostens provides 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. FISCAL YEAR In October 1996, the company elected to change its fiscal year end from June 30 to the 52- or 53-week period ending the Saturday closest to December 31, effective December 29, 1996. The change was made to enable better business planning and internal management. The Consolidated Financial Statements and Notes include the company's results of operations and cash flows for the years ended January 3, 1998, and December 28, 1996 (unaudited); the six-month transition period ended December 28, 1996; and fiscal years ended June 30, 1996 and 1995. Calendar 1997 consists of 53 weeks, while calendar 1996 and fiscal years 1996 and 1995 consist of 52 weeks. 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 managements estimates relate to the allowance for uncollectible receivables, inventory reserves, sales returns, warranty costs, environmental reserves, valuation of intangibles and deferred income tax valuations. CASH AND SHORT-TERM INVESTMENTS Cash and short-term investments include cash on hand, time deposits and commercial paper. Short-term investments have an original maturity of three months or less and are considered cash equivalents. All investments in debt securities have an original maturity of three months or less and are considered to be held to maturity. The short-term securities are carried at amortized cost, which approximates fair value. Negative cash balances of $14.1 million and $9.4 million at January 3, 1998, and December 28, 1996, respectively, have been reclassified to "accounts payable" on the consolidated balance sheets. INVENTORIES In July 1996, the company implemented a new inventory cost accounting system, which provides more precise, detailed performance information by product within each line. The new system results in a more accurate valuation of inventories and recording of cost of products sold during the individual quarters, consistent with the manner used to value inventory at previous June year ends. As a result of this implementation, cost of products sold reported during the six months ended December 28, 1996, was $16.9 million (26 cents per share) higher than what would have been reported using the prior method, while cost of products sold in the six months ended June 28, 1997, had an equally positive impact. Implementation of the new cost accounting system does not impact the comparability of reported cost of products sold or earnings per share for the six months ended January 3, 1998, since the new cost accounting system was in place for both the 1997 and 1996 periods. 31 Inventories are stated at the lower of cost or market. Cost is primarily determined using standard costs, which approximate costs utilizing the first-in, first-out (FIFO) method. Gold and certain other precious metal inventories aggregating $677,000 at January 3, 1998, and $3.8 million at December 28, 1996, are stated at the lower of last-in, first-out (LIFO) cost or market, and are $6.8 and $15 million lower in the respective periods than such inventories determined under the lower of FIFO cost or market. During the year ended January 3, 1998, gold inventory quantities were reduced, which caused a liquidation of LIFO inventory values. The liquidation increased net income by $6.8 million (10 cents per share). INVENTORY OBSOLESCENCE The company uses 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 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 January 3, 1998, and December 28, 1996, was $19.3 million and $17 million, respectively. The carrying value of intangible assets is assessed semiannually, or more often when factors indicate an impairment. The company employs an undiscounted cash flow method to assess these assets. The intangible balance also includes the intangible asset related to additional minimum pension liability of $1.4 million and $1.6 million at January 3, 1998, and December 28, 1996, 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. The carrying value of property, equipment and purchased software is assessed when circumstances indicate that their carrying value may be impaired or not recoverable. The company determines such impairment by measuring undiscounted future cash flows. If an impairment is present, the assets are reported at fair value. Beginning in fiscal 1996, the company capitalized certain software implementation costs. Prior to 1996, such costs were not significant. Implementation costs are expensed until the company has determined that the software will result in probable future economic benefits and management has committed to funding the project. Thereafter, all direct implementation costs and purchased software costs are capitalized and amortized using the straight-line method over the remaining estimated useful lives, not exceeding five years. INCOME TAXES The company records income taxes in accordance with Statement of Financial Accounting Standards (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 when product is shipped. Provisions for sales returns and warranty costs are recorded at the time of sale based on historical information and current trends. FOREIGN CURRENCY The company enters into foreign currency forward contracts to hedge purchases of inventory in foreign currency. The purpose of these hedging activities is to protect the company from the risk that inventory purchases denominated in foreign currency will be adversely affected by changes in foreign currency rates. All 32 contracts at January 3, 1998, mature within one year and are held for purposes other than trading. The amount of contracts outstanding at January 3, 1998, and December 28, 1996, were $2.4 and $4 million, 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 January 3, 1998, and December 28, 1996, 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 The company adopted SFAS No. 128, Earnings Per Share, in the fourth quarter of calendar 1997. Adopting this statement resulted in disclosure of both "basic" and "diluted" earnings per share. Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share are computed by dividing net income by the average number of common shares outstanding, including the dilutive effects of options, restricted stock and contingently issuable shares. Unless otherwise noted, references are to basic earnings per share. The adoption of SFAS No. 128 did not have a material impact on earnings per share, as indicated below:
Year ended Jan. 3, 1998 Year ended Dec. 28, 1996 Six-months ended Dec. 28, 1996 ---------------------------- --------------------------- -------------------------------- In thousands, except Per-share Per-share Per-share per-share data Income Shares amount Income Shares amount Income Shares amount ------------------------------------------------------------------------------------------------------------------- Basic EPS Net income (loss) $57,183 38,773 $1.47 $36,336 38,639 $0.94 $(803) 38,647 $(0.02) - -------------------------------------------------------------------------------------------------------------------- Effect of dilutive securities Options 196 133 90 Awards -- 43 26 - -------------------------------------------------------------------------------------------------------------------- Diluted EPS Net income (loss) $57,183 38,969 $1.47 $36,336 38,815 $0.94 $(803) 38,763 $(0.02) ==================================================================================================================== Year ended June 30, 1996 Year ended June 30, 1995 --------------------------- --------------------------------- Per-share Per-share In thousands, except per-share data Income Shares amount Income Shares amount - -------------------------------------------------------------------------------------------------------------------- Basic EPS Income $51,625 40,157 $1.29 $50,368 45,492 $1.11 - -------------------------------------------------------------------------------------------------------------------- Effect of dilutive securities Options 153 96 Awards 27 - -------------------------------------------------------------------------------------------------------------------- Diluted EPS Net income $51,625 40,337 $1.28 $50,368 45,588 $1.10 ====================================================================================================================
33 An insignificant number of restricted shares and stock options were excluded from the weighted average shares outstanding because they would have an anti-dilutive effect. 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. NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosure about Segment of an Enterprise and Related Information. SFAS No. 130 establishes standards for reporting and presenting comprehensive income and its components. SFAS No. 131 establishes standards for defining operating segments and reporting certain information regarding operating segments. The company does not believe that either statement will have a material impact on the financial statements since both standards are for informational purposes only. If the company determines that it has a reporting obligation under either new standard, the necessary information will be disclosed as part of the company's financial reporting when effective. RECLASSIFICATION Certain balances at December 28, 1996, and June 30, 1996 and 1995, have been reclassified to conform to the January 3, 1998, presentation. BORROWINGS The company has a $180 million, five-year bank credit agreement that expires in December 2000. Credit available under the agreement is reduced by commercial paper borrowings outstanding. Annual fees and interest on borrowings are based on the company's commercial paper rating. Annual fees range from 0.075 percent to 0.15 percent of the commitment. Under the restrictive covenants of the agreement, the company must maintain a defined minimum interest coverage ratio and a maximum leverage ratio. At January 3, 1998, $130 million was available under the bank credit agreement. Amounts related to the company's commercial paper program follow:
Years ended (unaudited) Six months ended Year ended Dollars in millions January 3, December 28, June 30, June 30, 1998 1996 1996 1996 - --------------------------------------------------------------------------------------------------------- Balance at end of period $ 50 $90.9 $90.9 $27.6 Weighted average interest rate 6.2% 5.9% 6.0% 5.6% Maximum outstanding during the period $ 143 $ 164 $ 164 $ 127 Average borrowing level during the period $94.4 $90.8 $ 109 $68.4
Commercial paper outstanding is due within 90 days and is included in notes payable in the consolidated balance sheets. In addition, the company had available at January 3, 1998, unsecured demand facilities with three banks totaling $84.6 million. Such credit arrangements are renegotiated periodically based on the anticipated seasonal needs for short-term financing. In October 1997, the company entered into a 12-month interest rate swap agreement that commenced on December 29, 1997, as a means of managing its interest rate risk. Under the terms of the agreement, the company pays interest at a rate of 5.89 percent and receives interest weekly at a floating rate equal to the seven-day U.S. commercial paper rate, without the exchange of the underlying notional amount upon which the payments are based. The notional amount of the agreement changes weekly based on the 34 company's planned borrowing needs and ranges from $35 million to $85 million. The difference to be paid or received from counterparties as interest rates change will be included in other liabilities or assets, with the corresponding amount accrued and recognized as an adjustment of interest expense related to the debt. There were no material interest rate differences as of January 3, 1998. The fair values of swap agreements are not recognized in the financial statements. Gains and losses on terminations of interest rate swap agreements are deferred as an adjustment to the carrying amount of the outstanding debt and amortized as an adjustment to interest expense related to the debt over the remaining term of the original contract life of the terminated swap agreement. If a designated debt obligation is extinguished early, any realized or unrealized gain or loss from the swap agreement would be recognized in income during the same period as the debt extinguishment. INCOME TAXES Income (loss) from continuing operations before taxes, discontinued operations and changes in accounting principle are as follows:
Year ended Six months ended Years ended Dollars in thousands January 3, 1998 December 28, 1996 June 30, 1996 June 30, 1995 - ----------------------------------------------------------------------------------------------------- Domestic $88,275 $(3,585) $82,818 $87,009 Foreign 5,108 3,611 4,661 6,884 ----------------------------------------------------------------- $93,383 $ 26 $87,479 $93,893 =================================================================
The components of the provision for income taxes attributable to earnings from continuing operations are as follows:
Year ended Six months ended Years ended Dollars in thousands January 3, 1998 December 28, 1996 June 30, 1996 June 30, 1995 - ------------------------------------------------------------------------------------------- Federal $30,227 $(6,943) $21,425 $23,272 State 6,864 (101) 5,385 5,198 Foreign 2,512 948 2,041 3,518 ----------------------------------------------------------------- 39,603 (6,096) 28,851 31,988 Deferred (3,403) 6,925 7,003 6,039 ----------------------------------------------------------------- $36,200 $ 829 $35,854 $38,027 =================================================================
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:
Year ended Six months ended Years ended Dollars in thousands January 3, 1998 December 28, 1996 June 30, 1996 June 30, 1995 - ----------------------------------------------------------------------------------------------------- Tax at U.S. statutory rate $32,684 $ 9 $30,618 $32,862 State income taxes, net of federal income tax benefit 4,223 (84) 4,012 3,682 Reduction in deferred tax valuation allowance (2,030) -- -- All other, net 1,323 904 1,224 1,483 ----------------------------------------------------------------- $36,200 $829 $35,854 $38,027 =================================================================
35 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 liabilites and assests as of January 3, 1998, and December 28, 1996, are as follows: January 3 December 28 Dollars in thousands 1998 1996 - ------------------------------------------------------------------------------ DEFERRED TAX LIABILITIES Tax over book depreciation $(3,763) $(4,507) Discount on note receivable -- (1,920) Other, net (5,085) (4,381) ---------------------------- DEFERRED TAX LIABILITIES (8,848) (10,808) ---------------------------- DEFERRED TAX ASSETS Reserves not recognized for tax purposes 12,489 14,287 Net operating loss and tax credit carryforwards of acquired companies 1,844 3,905 Foreign tax credit carryforwards 2,915 2,464 Deferred gain on sale of Jostens Learning 5,908 5,908 Other, net 11,893 8,015 ---------------------------- 35,049 34,579 VALUATION ALLOWANCE (2,915) (4,494) ---------------------------- DEFERRED TAX ASSETS 32,134 30,085 ---------------------------- NET DEFERRED TAX ASSET $23,286 $19,277 ============================ At January 3, 1998, the company had net operating loss carryforwards (NOLs) from business acquisitions of $3.5 million for federal income tax purposes that expire in the years 1998 through 2002. In calendar 1997, the company reduced the valuation reserve for certain of these NOLs related to the Photography business. The company has initiated plans to consolidate two of its legal entities, which management believes will allow the company to utilize the previously reserved NOLs. The company also has research and experimentation and foreign tax credit carryforwards of $3.5 million that expire in 1998 through 2002. The foreign tax credits of $2.9 million and $2.5 million at January 3, 1998, and December 28, 1996, respectively, have been fully reserved. 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 current-year service. The projected benefit obligation is the present value of benefits, assuming future compensation levels, for services rendered to date. 36 The components of pension expense follow:
Year ended Six months ended Years ended Dollars in thousands January 3, 1998 December 28, 1996 June 30, 1996 June 30, 1995 - -------------------------------------------------------------------------------------------- Service cost $ 3,988 $1,899 $3,459 $3,366 Interest on projected benefit obligation 8,346 4,061 7,737 7,447 Return on assets: Actual gain (39,899) (5,910) (28,589) (7,556) Deferred 28,246 479 18,830 (262) Amortization (7) 28 137 243 -------------------------------------------------------------- PENSION COST $ 674 $557 $1,574 $3,238 ==============================================================
The funded status of the company's pension plans based on valuations as of September 30 for each year follows: January 3, 1998 ------------------------------------------- Plans whose assets Plans whose accrued exceed benefits accrued benefits exceed assets ------------------------------------------- Vested benefit obligation $ 86,878 $16,976 Accumulated benefit obligation 90,754 17,736 Projected benefit obligation 98,819 18,851 Fair value of plan assets 167,246 -- - ----------------------------------------------------------------------------- Plan assets in excess of (less than) projected benefit obligation 68,427 (18,851) Unrecognized net (gain) loss (52,100) 2,507 Unrecognized prior service cost 9,041 1,328 Unrecognized net (asset) obligation at transition (5,169) 96 Adjustment required to recognize miniumum liability -- (3,059) - ----------------------------------------------------------------------------- NET PENSION ASSET (LIABILITY) IN CONSOLIDATED BALANCE SHEETS $ 20,199 $(17,979) =============================================================================
December 28, 1996 --------------------------------------------- Plans whose assets Plans whose accrued exceed benefits In thousands accrued benefits exceed assets --------------------------------------------- Vested benefit obligation $ 81,833 $ 15,710 Accumulated benefit obligation 85,537 16,435 Projected benefit obligation 93,270 17,430 Fair value of plan assets 125,857 -- - ------------------------------------------------------------------------------- Plan assets in excess of (less than) projected benefit obligation 32,587 (17,430) Unrecognized net (gain) loss (22,966) 1,019 Unrecognized prior service cost 9,132 1,568 Unrecognized net (asset) obligation at transition (6,078) 110 Adjustment required to recognize miniumum liability -- (1,767) - ------------------------------------------------------------------------------- NET PENSION ASSET (LIABILITY) IN CONSOLIDATED BALANCE SHEETS $ 12,675 $(16,500) ===============================================================================
Plan assets consist primarily of corporate equity as well as corporate and U.S. government debt and real estate. Corporate equity investments include the fair value of the company's common stock of $5.3 million at January 3, 1998, and $4.5 million at December 28, 1996. 37 The assumptions used in determining the components of pension expense and the funded status follow:
Year Ended Six Months Ended Years Ended January 3, 1998 December 28, 1996 June 30, 1996 June 30, 1995 - ---------------------------------------------------------------------------------------------------------- Weighted average discount rates 7.75% 7.75% 7.75% 8.00% Rates of increase in compensation 5.00% 5.00% 5.00% 5.00% Expected rate of return on assets 10.00% 10.00% 10.00% 8.75%
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 $2.3 million for the year ended January 3, 1998, $1.1 million for the six-month period ended December 28, 1996, and $2.4 million for each of the two fiscal years ended June 30, 1996 and 1995, representing 50 percent of eligible employee contributions. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Jostens provides medical insurance benefits for substantially all retirees. Employees who retired before 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 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 expense was $323,000 for the year ended January 3, 1998, $154,000 for the six months ended December 28, 1996, and $481,000 and $60,000 for the fiscal years ended June 30, 1996 and 1995, respectively. The accumulated postretirement benefit obligation, based on valuations as of September 30, as of January 3, 1998, and December 28, 1996, are $6.9 million and $7.1 million, respectively. The assumptions used in determining the benefit obligation in the year ended January 3, 1998, included a medical plan cost trend rate of 9 percent, declining to 6 percent in 2002, and a weighted average discount rate of 7.75 percent. Assumptions used in the six-month period ended December 28, 1996, included a medical plan cost trend rate of 10 percent, declining to 6 percent in 2002, and a weighted average discount rate of 7.75 percent. Fiscal 1996 assumptions included a medical plan cost trend rate of 12 percent, declining to 6 percent in the year 2002, and 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 2000, and a weighted average discount rate of 8 percent. A one-percentage-point increase in the assumed health care cost trend rates for each future year increases the accumulated postretirement benefit obligation for health care benefits by approximately $279,000, 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 postretirement benefit obligation are amortized over the average remaining service period of active plan participants. COMMITMENTS AND CONTINGENCIES GOLD FORWARD CONTRACTS. Jostens has forward contracts of $11.4 million for commitments to purchase gold that mature at various times in 1998. LITIGATION Jostens is a party to litigation arising in the normal course of business. Management regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. Management believes the effect on the company's results of 38 operations and financial position, if any, for the disposition of these matters will not be material. ENVIRONMENTAL As part of its environmental management program, the company 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 liability include, among others, the following: whether the company had been designated as a potentially responsible party, the number of other potentially responsible parties designated at the site, the stage of the proceedings and available environmental technology. As of January 3, 1998, the company had identified three sites requiring further investigation. However, the company has not been designated as a potentially responsible party at any site. During the six-month period ending December 28, 1996, the company adopted Statement of Position (SOP) 96-1, Environmental Remediation Liabilities. Under SOP 96-1, the company is required to assess the likelihood that an environmental liability has been incurred and to accrue for the best estimate of any loss where the likelihood of incurrence is assessed as probable and the amount can be reasonably estimated. Management has assessed the likelihood that a loss has been incurred at its sites as probable and, based on findings included in remediation reports, estimates the potential loss to range from $1 million to $9 million; $6.6 million had been accrued. As of January 3, 1998, the company had made payments of $1.3 million, bringing the reserve balance to $5.3 million. The current portion of the reserve ($1.3 million) is included with "other accrued liabilities" on the consolidated balance sheets, while the long-term portion ($4 million) is included with "other noncurrent liabilities." While Jostens may have a right of contribution or reimbursement under insurance policies, amounts recoverable from other entities with respect to a particular site are not considered until recoveries are deemed probable. No assets for potential recoveries were established as of January 3, 1998. SALES FORCE For sales representatives' who serve the college market in the Jewelry and Graduation Products businesses, the company changed their contract status from independent sales representatives to company employees effective July 1, 1997. The change from independent representatives to employees was made to better enable the company to address market needs and strengthen its position in the market. These representatives previous contracts called for a transition commission, which historically was paid by the new sales representatives who assumed responsibility for the accounts of the outgoing representative, with the company acting as a collection agent. College sales representatives who elected to become Jostens employees forfeited their right to the transition commission in exchange for participation in a newly created severance plan and other employee benefit programs. As a result, the company will recognize approximately $4 million of severance costs ratably over these representatives' estimated average remaining service period of five years. As of January 3, 1998, the company had recognized $358,000 of these severance costs. Representatives who elected not to become employees will receive estimated future transition payments from the company of $5.5 million in exchange for helping to transition and retain existing business and for signing agreements not to compete. These costs will be recognized as a charge to operations ratably over the individual noncompete periods, generally three years. As of January 3, 1998, the company had recognized $763,000 of these costs associated with nonemployee representatives. ACQUISITION The company purchased the Gold Lance class ring brand from Town & Country Corporation for $9.5 million in cash on July 31, 1997. Under the terms of the agreement, the company purchased the Gold Lance name, accounts and notes receivable, and tooling. The company also incurred $383,000 39 of direct, acquisition-related costs, which were capitalized as part of the purchase price. The acquisition was recorded using the purchase method of accounting, which resulted in the recording of $5.9 million of goodwill that is being amortized over 10 years. SHAREHOLDERS' INVESTMENT SHARE REPURCHASES In July 1997, the Board of Directors authorized the repurchase of up to $100 million in shares of the company's common stock. Under the authorization, shares may be repurchased periodically in the open market and through privately negotiated transactions. The repurchase is to be funded from the company's cash and short-term investment balance, as well as short-term borrowings. As of January 3, 1998, the company had repurchased $20 million in common shares. 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, and short-term borrowings. STOCK OPTIONS AND RESTRICTED STOCK Under stock option plans, the company has granted to key employees options to purchase Jostens common shares at 100 percent of the market price on the dates the options are granted. One plan also provides for increases in the number of shares available for future grants equal to 1 percent of the outstanding common shares on July 1 of each year through 2002. The company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee stock options and long-term management incentive plans, which are described below. Accordingly, no compensation cost has been recognized for these plans. Had compensation cost for the company's stock option and long-term management incentive plans been determined based on fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, Accounting for Stock-Based Compensation, the company's net income and earnings per share would have been affected as indicated by the pro-forma amounts indicated below. Six Months Year Ended Ended Year Ended Dollars in thousands, January 3 December 28 June 30 except per-share data 1998 1996 1996 - -------------------------------------------------------------------- Net income (loss) As reported $57,183 $ (803) $51,625 Pro forma $56,800 $ (905) $51,500 - -------------------------------------------------------------------- Basic earnings per share As reported $ 1.47 $(0.02) $ 1.29 Pro forma $ 1.46 $(0.02) $ 1.28 - -------------------------------------------------------------------- Diluted earnings per share As reported $ 1.47 $(0.02) $ 1.28 Pro forma $ 1.46 $(0.02) $ 1.28 - -------------------------------------------------------------------- The pro-forma amounts indicated above reflect the amortization to expense the estimated fair value of the stock awards over the awards' vesting period. The effects of applying the fair value method of measuring compensation expense for the year ended January 3, 1998, the six months ended December 28, 1996, and fiscal 1996 are not likely to be representative of the effects for future years, in part because the fair value method was applied only to stock options granted after June 30, 1995. 40 The weighted average fair values of options granted in the year ended January 3, 1998, the six-month period ended December 28, 1996, and fiscal 1996 are $4.44, $3.01 and $4.18 per option, respectively. The company used weighted average assumptions in the Black-Scholes option pricing model in estimating the fair value of stock options at the date of grant, as shown in the chart on the right: Six Months Year Ended Ended Year Ended January 3 December 28 June 30 1998 1996 1996 - ------------------------------------------------------------------------- Risk-free interest rate 5.4% 6.2% 6.2% Dividend yield 3.6% 4.7% 3.9% Volatility factor of the expected market price of the company's common stock 22% 20% 20% Expected life of the award (years) 4.7 5.2 5.2 - ------------------------------------------------------------------------- Following is a summary of stock option activity:
Year ended Six-months ended Year ended Year ended January 3, 1998 December 28, 1996 June 30, 1996 June 30, 1995 ------------------------ ----------------------- ------------------------ ------------------------ In thousands, Weighted-average Weighted-average Weighted-average Weighted-average except dollar amounts Shares exercise price Shares exercise price Shares exercise price Shares exercise price - ---------------------------------------------------------------------------------------------------------------------------- Outstanding-- beginning of year 2,882 $22.13 2,751 $22.38 2,971 $22.39 2,400 $24.96 Granted 496 $24.69 192 $18.66 278 $22.61 822 $18.28 Exercised (581) $25.05 (26) $19.32 (163) $17.53 (28) $11.78 Forfeited (582) $25.14 (35) $24.95 (335) $25.04 (223) $23.94 - ---------------------------------------------------------------------------------------------------------------------------- Outstanding-- end of year 2,215 $22.31 2,882 $22.13 2,751 $22.38 2,971 $22.39 Exercisable at end of year 969 $23.79 1,573 $24.73 1,491 $24.87 1,576 $24.77 Reserved for issuance 4,272 4,448 4,098 3,849 Available for future grants 1,966 1,511 1,292 775 - ----------------------------------------------------------------------------------------------------------------------------
At January 3, 1998, the range of exercise prices on outstanding options are as follows:
Options outstanding Options exercisable ---------------------------------------------------------------- ------------------------------------- Range of Number outstanding Weighted average Weighted average Number exercisable Weighted average exercise prices (in thousands) remaining life (in years) exercise price (in thousands) exercise price - ---------------------------------------------------------------------------------------------------------------------------- $16.56--$20.00 1,063 6.6 $18.22 415 $18.12 $20.01--$25.00 819 8.1 $24.21 221 $24.07 $25.01--$30.00 122 3.0 $26.16 122 $26.16 $30.01--$34.19 211 3.7 $33.26 211 $33.26 - ----------------------------------------------------------------------------------------------------------------------------- 2,215 6.7 $22.31 969 $23.79 - -----------------------------------------------------------------------------------------------------------------------------
41 In fiscal 1995, certain members of the Jostens senior management team were granted performance share units as part of a long-term management incentive plan. Performance share units were tied directly to attaining specific financial performance targets. Performance units that were awarded were converted into a restricted stock award, which was subject to transfer and vesting restrictions based upon continuous employment of the recipient. In addition, holders of restricted shares had voting, liquidation and other rights with respect to these shares and received 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 and 1996 and the year ended January 3, 1998, 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 - ------------------------------------------------------------------- Canceled (5,333) -- - ------------------------------------------------------------------- BALANCES, DECEMBER 28, 1996 49,613 48,149 - ------------------------------------------------------------------- Canceled (49,613) -- Lapse of restriction -- 48,149 - ------------------------------------------------------------------- BALANCES, JANUARY 3, 1998 -- -- =================================================================== 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 fiscal 1995. The company did not achieve the fiscal 1996 and calendar 1997 financial targets. As a result, the remaining outstanding performance share units under this plan were canceled. In addition, certain participating employees terminated their employment with the company in fiscal 1996, resulting in the cancellation of additional performance share units and the redemption of previously issued restricted shares. In July 1997, a new management incentive plan was approved. Under the plan, certain members of the senior management team will receive the market value of up to 56,400 shares of Jostens common stock upon achieving specific financial targets for the year ending January 2, 1999. If all or part of the award is earned, participants will be paid 50 percent of the value of the award in cash and 50 percent in unrestricted common stock of the company. SHAREHOLDER RIGHTS PLAN In August 1988, the Board of Directors declared a distribution to shareholders of one common share purchase right for each outstanding common share. Each right entitles the holder to purchase one common share at an exercise price of $60. The rights become exercisable if a person acquires 20 percent or more, or announces a tender offer for 25 percent or more, of the company's common shares. If a person acquires at least 25 percent of the company's outstanding shares, each right will entitle the holder to purchase the company's common shares having a market value of twice the exercise price of the right. If the company is acquired in a merger or other business combination, each right will entitle the holder to purchase common stock of the acquiring company at a similar 50 percent discount. The rights, which expire in August 1998, may be redeemed by the company at a price of 1 cent per right at any time prior to the 30th day after a person has acquired at least 20 percent of the company's outstanding shares. 42 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. 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 certain 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:
Years ended Years ended June 30 ----------------------------------- ------------------- January 3, 1998 December 28, 1996 Six months ended Dollars in thousands (unaudited) December 28, 1996 1996 1995 - ----------------------------------------------------------------------------------------------------- NET SALES School Products $638,828 $607,411 $236,042 $594,941 $565,033 Recognition 103,651 101,323 41,076 100,208 100,066 - ----------------------------------------------------------------------------------------------------- CONSOLIDATED $742,479 $708,734 $277,118 $695,149 $665,099 ===================================================================================================== INCOME FROM CONTINUING OPERATIONS - ----------------------------------------------------------------------------------------------------- School Products $107,534 $ 85,334 $ 20,632 $107,648 $107,071 Recognition 8,916 3,048 (4,403) 9,468 4,727 Corporate items and eliminations (16,788) (16,456) (12,077) (22,314) (17,180) - ----------------------------------------------------------------------------------------------------- Consolidated 99,662 71,926 4,152 94,802 94,618 Net interest expense (6,279) (8,973) (4,126) (7,323) (725) - ------------------------------------------------------------------------------------------------------ INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES $93,383 $62,953 $ 26 $ 87,479 $ 93,893 ======================================================================================================
43
Years ended Years ended ----------------------------------- ------------------- January 3, 1998 December 28, 1996 Six months ended Dollars in thousands (unaudited) December 28, 1996 1996 1995 - ----------------------------------------------------------------------------------------------------- IDENTIFIABLE ASSETS School Products $280,177 $265,970 $265,970 $253,736 $236,424 Recognition 43,080 42,905 42,905 46,960 45,177 Discontinued operations -- -- -- 6,165 Corporate items and eliminations 67,473 74,972 74,972 83,278 260,202 - ----------------------------------------------------------------------------------------------------- CONSOLIDATED $390,730 $383,847 $383,847 $383,974 $547,968 ===================================================================================================== DEPRECIATION AND AMORTIZATION School Products $ 16,220 $ 12,616 $ 7,085 $ 11,395 $ 10,951 Recognition 3,002 2,426 1,409 2,056 2,111 Discontinued operations -- -- 13,179 Corporate items 2,920 2,646 1,440 3,106 2,098 - ----------------------------------------------------------------------------------------------------- CONSOLIDATED $ 22,142 $ 17,688 $ 9,934 $ 16,557 $ 28,339 ===================================================================================================== CAPITAL EXPENDITURES School Products $ 14,774 $ 13,758 $ 7,691 $ 12,948 $ 8,540 Recognition 2,036 1,732 1,434 463 1,369 Discontinued operations -- -- 2,559 Corporate items 7,571 1,374 773 1,960 6,674 - ----------------------------------------------------------------------------------------------------- CONSOLIDATED $ 24,381 $ 16,864 $ 9,898 $ 15,371 $ 19,142 =====================================================================================================
In the year ended January 3, 1998, gold inventory quantities were reduced, which caused a liquidation of LIFO inventory values. The liquidation increased net income by $6.8 million (10 cents per share). Income from continuing operations for the year ended December 28, 1996, includes an additional $16.9 million (26 cents per share) in cost of products sold for School Products related to the new inventory cost accounting system, as well as $6 million (9 cents per share) in environmental charges to cover a continued environmental investigation and cleanup at a Recognition plant. DISCONTINUED OPERATIONS In June 1995, the company 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. As part of the JLC sale, the company also agreed to pay $13 million over two years to fund certain JLC existing liabilities. As of January 3, 1998, the entire $13 million was paid. 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 44 tax) was originally recorded at the time of the JLC sale and deferred in accordance with the SEC Staff Accounting Bulletin No. 81, Gain Recognition on the Sale of a Business or Operating Assets to a Highly Leveraged Entity. In October 1995, the deferred gain increased to $17.2 million ($9.7 million after tax) as a result of the sale of Wicat ($5.3 million) and some accrual settlements ($800,000). In conjunction with its efforts to raise additional equity capital for ongoing cash requirements, JLC requested that the company restructure its interests in JLC. In November 1996, the company restructured terms of its $36 million, unsecured, subordinated note from JLC in conjunction with a third-party equity infusion into JLC. Terms of the restructuring resulted in the exchange of the $36 million unsecured, subordinated note and accrued interest for a new $57.2 million unsecured, subordinated note maturing June 29, 2003, with a stated interest rate of 6 percent and rights to early redemption discounts. The early redemption discounts, exercisable only in whole at JLC's option, adjust periodically and range from a 60 percent discount on the face value if redeemed by December 31, 1998, to 40 percent if redeemed by March 31, 2003. The new note was recorded at fair value using an estimated 20 percent discount rate on the $57.2 million note, resulting in a discount of $35.1 million. The restructuring had no impact on the net carrying value of Jostens investment in JLC, since the $4 million reduction in the note receivables carrying value was offset by a corresponding reduction in the deferred gain to $13.2 million ($7.3 million after tax). The adjusted $13.2 million gain 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 $35.1 million discount and the deferred gain. Despite the equity infusion and restructuring of Jostens' interests in JLC, there is no guarantee that JLC will be able to repay the note. JLC has incurred losses in 1997, 1996 and 1995; however, the company believes the carrying value is not impaired, based on current facts and circumstances. Significant accounting policies relevant to discountinued 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 and 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, provided that no significant vendor or post-contract obligations remained outstanding and collection of the resulting receivable was deemed probable. Revenue generated from service contracts and post-contract 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 post-contract obligations remaining at the time of shipment, the company's policy was to accrue all such obligations. Revenue and income data related to discontinued operations is as follows: JLC / Wicat Systems Year ended June 30 Dollars in thousands 1995 ------------------------------------------ Revenue $108.6 Income tax benefit 2.5 Loss from operations $ 4.9 45 PLANT CONSOLIDATION In March 1997, the company announced it would close its Porterville, Calif., graduation announcement facility and transfer all operations to the company's announcement plant in Shelbyville, Tenn. As a result, the company recorded a pre-tax charge to operations of $3 million in the first quarter of 1997, primarily to accrue for severance and other employee-related costs, generally expected to be incurred over the following 12 months. As of January 3, 1998, the accrual decreased by $2.6 million due to incurred costs of $2.2 million and revisions to the initial estimate of $438,000. UNAUDITED QUARTERLY FINANCIAL DATA JOSTENS INC. AND SUBSIDIARIES YEAR ENDED JANUARY 3, 1998
Total Dollars in thousands, except per-share data First Second Third Fourth year - -------------------------------------------------------------------------------------------------------------------------- Net sales $150,437 $297,316 $109,079 $185,647 $742,479 Gross margin $ 86,041 $151,025 $ 45,671 $108,452 $391,189 Income from continuing operations $ 9,954 $ 38,323 $ (6,187) $ 15,093 $ 57,183 Net income $ 9,954 $ 38,323 $ (6,187) $ 15,093 $ 57,183 Earnings per share (1): basic $ 0.26 $ 0.99 $ (0.16) $ 0.39 $ 1.47 diluted $ 0.26 $ 0.98 $ (0.16) $ 0.39 $ 1.47 Stock price: high $ 22 7/8 $ 26 7/8 $ 28 13/16 $ 27 15/16 $ 28 13/16 low $ 20 $ 21 5/8 $ 23 1/4 $ 22 3/16 $ 20 Dividends per share $ 0.22 $ 0.22 $ 0.22 $ 0.22 $ 0.88
YEAR ENDED DECEMBER 28, 1996 Total Dollars in thousands, except per-share data First Second Third Fourth year - -------------------------------------------------------------------------------------------------------------------------- Net sales $141,863 $289,753 $105,399 $171,719 $708,734 Gross margin (2) $ 81,347 $137,824 $ 44,552 $ 91,073 $354,796 Income from continuing operations $ 6,773 $ 30,366 $ (5,027) $ 4,224 $ 36,336 Net Income $ 6,773 $ 30,366 $ (5,027) $ 4,224 $ 36,336 Earnings per share (1): basic $ 0.18 $ 0.79 $ (0.13) $ 0.11 $ 0.94 diluted $ 0.17 $ 0.78 $ (0.13) $ 0.11 $ 0.94 Stock price: high $ 24 3/8 $ 22 7/8 $ 20 7/8 $ 22 1/4 $ 24 3/8 low $ 21 3/4 $ 19 5/8 $ 17 1/4 $ 19 5/8 $ 17 1/4 Dividends per share (3) $ 0.22 $ 0.22 $ -- $ 0.22 $ 0.66 ==========================================================================================================================
(1) Amounts may not total to the annual earnings per share because each quarter and the year are calculated separately based on average outstanding shares and common share equivalents during that period. (2) The implementation of the new inventory cost accounting system in July 1996 had the effect of increasing cost of products sold $16.9 million for calendar 1996. (3) No cash dividend was declared in the third quarter due to the timing of the delcarations. The third quarter dividend of 22 cents per share was declared in the fourth quarter of calendar year 1996. The fourth quarter dividend of 22 cents per share was declared in January 1997. 46 SIX-YEAR FINANCIAL SUMMARY JOSTENS INC. AND SUBSIDIARIES
Six months Year ended ended Year ended Year ended Year ended Year ended Year ended January 3 December 28 June 30 June 30 June 30 June 30 June 30 In millions, except per-share data 1998 1996 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS Net sales $742.5 $277.1 $695.1 $665.1 $649.9 $634.8 $639.2 Cost of products sold 351.3 141.5 332.2 313.7 313.8 310.4 314.0 Net interest expense 6.3 4.1 7.3 0.7 5.0 5.7 8.7 Income taxes 36.2 0.8 35.9 38.0 20.5 10.7 29.8 Income (loss) -- continuing operations 57.2 (0.8) 51.6 55.9 28.0 8.5 45.2 Return on sales -- continuing operations 7.7% (0.3%) 7.4% 8.4% 4.3% 1.3% 7.1% Net income (loss) 57.2 (0.8) 51.6 50.4 (16.2) (12.7) 59.2 Return on investment 47.7% (0.7%) 26.3% 19.1% (5.7%) (3.7%) 16.9% - ------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA Current assets $252.5 $257.5 $251.3 $402.4 $396.1 $401.6 $436.3 Working capital 6.3 11.8 8.9 206.3 172.7 185.3 232.2 Current ratio 1.0 1.0 1.0 2.1 1.8 1.9 2.2 Property and equipment, net 74.1 67.6 67.0 67.8 75.8 88.9 89.2 Total assets 390.7 383.8 384.0 548.0 569.8 613.5 643.3 Notes payable 50.0 90.9 27.6 Long-term debt, including current maturities 3.6 3.9 53.9 54.3 54.8 55.3 79.4 Shareholders investment 127.1 112.6 121.8 270.6 256.6 315.7 364.7 - ------------------------------------------------------------------------------------------------------------------- COMMON SHARE DATA Basic EPS -- continuing operations $ 1.47 $(0.02) $ 1.29 $ 1.23 $ 0.61 $ 0.19 $ 1.00 Basic EPS -- net income (loss) 1.47 (0.02) 1.29 1.11 (0.36) (0.28) 1.32 Diluted EPS -- continuing operations 1.47 (0.02) 1.28 1.22 0.62 0.19 1.09 Diluted EPS -- net income (loss) 1.47 (0.02) 1.28 1.10 (0.36) (0.28) 1.43 Cash dividends declared .88 0.22 0.88 0.88 0.88 0.88 0.84 Book value 3.31 2.91 3.15 5.95 5.64 6.95 8.10 Common shares outstanding 38.4 38.7 38.7 45.5 45.5 45.4 45.0 Stock price high 28 13/16 22 1/4 25 1/8 21 5/8 20 7/8 31 1/4 37 3/8 Stock price low 20 17 1/4 19 1/2 15 3/4 15 1/8 16 1/2 24 1/8 - --------------------------------------------------------------------------------------------------------------------
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 fiscal 1994, $16.9 million was recorded for provisions related to revised estimates of reserves for inventories, receivables and overdrafts. Net income for fiscal 1993 reflects the cumulative effect of adopting SFAS 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). 47 CORPORATE INFORMATION BOARD OF DIRECTORS LILYAN H. AFFINITO Former Vice Chairman of the Board, President and Chief Operations Officer of Maxxam Group Inc.; Director, Caterpillar Inc., Chrysler Corp., Kmart Corp. (Member, Audit Committee and Compensation Committee) ROBERT C. BUHRMASTER Chairman of the Board, 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, Compensation Committee and Executive Committee) MANNIE L. JACKSON Chairman of the Board, Harlem Globetrotters Inc.; Former Senior Vice President-Corporate Marketing and Administration, Honeywell Inc.; Director, Ashland Inc., Martech Controls-South Africa, Reebok International Ltd., The Stanley Works. (Member, Compensation Committee) WALKER LEWIS Senior Adviser, SBC Warburg Dillon Read; Chairman of the Board, Devon Value Advisers; Former Chairman of the Board, Strategic Planning Associates; Former President, Avon Products Inc., U.S. Division; Director, American Management Systems, Owens Corning. KENDRICK B. MELROSE Chairman of the Board and Chief Executive Officer, The Toro Company; Director, Donaldson Company Inc., SurModics Inc., Valspar Corp. (Member, Audit Committee) RICHARD A. ZONA Vice Chairman-Finance, U.S. Bancorp. (Member, Audit Committee, Compensation Committee, Executive Committee) MANAGEMENT ROBERT C. BUHRMASTER, 50, Chairman of the Board, President and Chief Executive Officer, an employee since 1992. DAVID J. LARKIN, 58, Executive Vice President and Chief Operating Officer, an employee since 1998. CARL H. BLOWERS, 58, Senior Vice President-Operations, with Jostens since 1996. WILLIAM N. PRIESMEYER, 53, Senior Vice President and Chief Financial Officer, an employee since 1997. BRIAN K. BEUTNER, 35, Corporate Secretary, an employee since 1991. TOM JANS, 49, Vice President and President-Business Recognition, an employee since 1995. GREG S. LEA, 45, Vice President and General Manager-Colleges and Universities, an employee since 1993. JOHN MANN, 53, Vice President and General Manager-Scholastic, an employee since 1996. LEE U. MCGRATH, 41, Vice President-Treasurer, an employee since 1995. KEVIN M. WHALEN, 38, Vice President-Corporate Communications, an employee since 1993. SHAREHOLDER INFORMATION ANNUAL MEETING OF SHAREHOLDERS The annual meeting of shareholders will be held at 10 a.m. Thursday, April 23, 1998, in the Jostens auditorium, 5501 Norman Center Drive, Minneapolis, Minn. All shareholders are invited to attend. SHAREHOLDER INFORMATION People who want more information about Jostens (such as annual reports, form 10-Q and 10-K reports and automatic dividend reinvestment brochures) 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, MN 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 and optional cash deposits to the purchase of additional Jostens shares. Shareholders interested in this service can obtain a brochure by contacting Norwest Shareowner Services at the address listed above. Stock Exchange Listing Jostens common stock is traded on the New York Stock Exchange under the trading symbol JOS. There were approximately 7,300 shareholders of record as of December 31, 1997. [RECYCLED SYMBOL] This report was printed by the Jostens facility in Winston-Salem, N.C., on recycled (and recyclable) paper containing 10% post-consumer waste. 48 [BACKGROUND PHOTO] Jostens: helping people celebrate important moments that create a lifetime of memories. [BACKGROUND ARTWORK] celebrate! [JOSTENS LOGO] For more information about products and services from Jostens, please contact us. Jostens Inc. 5501 Norman Center Drive Minneapolis, Minnesota 55437 Telephone (612) 830-3300 www.jostens.com EX-21 7 LIST OF COMPANY SUBSIDIARIES JOSTENS, INC. AND SUBSIDIARIES EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT State or Other Name Jurisdiction of Organization ---- ---------------------------- American Yearbook Company, Inc. Kansas Jostens Canada, Ltd. Manitoba, Canada Jostens Direct, Inc. Minnesota Jostens Photography, Inc. California The Jostens Foundation, Inc. Minnesota EX-23 8 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Annual Report (Form 10-K) of Jostens, Inc. of our report dated February 2, 1998, included in the 1997 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 Number 2-95076, 33-19308, 33-58414 and 33- 00713 on Form S-8 of Jostens, Inc. of our report dated February 2, 1998, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in the Annual Report (Form 10-K) of Jostens, Inc. /s/ Ernst & Young LLP - --------------------- Ernst & Young LLP Minneapolis, Minnesota March 31, 1998 EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JOSTENS, INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JANUARY 3, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-03-1998 DEC-29-1996 JAN-03-1998 0 6,068 116,143 (7,446) 92,062 252,544 231,747 (157,609) 390,730 246,233 3,600 0 0 12,853 114,240 390,730 742,479 742,479 351,290 351,290 291,527 2,245 6,866 93,383 36,200 57,183 0 0 0 57,183 1.47 1.47
EX-27.1 10 RESTATED FDS PERIOD END 12/28/1996
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JOSTENS, INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-28-1996 JUL-01-1996 DEC-28-1996 0 2,639 114,198 (6,884) 98,493 257,500 210,925 (143,282) 383,847 245,747 3,881 0 0 12,888 99,725 383,847 277,118 277,118 141,493 141,493 131,473 0 (4,330) 26 829 (803) 0 0 0 (803) .02 .02
EX-27.2 11 RESTATED FDS PERIOD END 06/30/1996
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 1.29 1.28
EX-27.3 12 RESTATED FDS PERIOD END 06/30/1995
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JOSTENS, INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JUN-30-1995 JUL-01-1994 JUN-30-1995 12,373 161,096 133,441 (9,049) 71,394 402,368 184,556 (116,731) 547,968 196,087 53,899 0 0 15,160 255,453 547,968 665,099 665,099 313,659 313,659 256,822 3,552 5,452 93,893 38,027 55,866 (4,864) 0 (634) 50,368 1.11 1.10
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