EX-99.1 2 a2143995zex-99_1.htm EXHIBIT 99.1
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Exhibit 99.1


SUPPLEMENTAL REGULATION FD DISCLOSURE

DEFINITIONS

        In this Form 8-K, all references to (1) "JIHC" refer to Jostens IH Corp., a wholly owned subsidiary of Jostens Holding, and its subsidiaries, the corporation that operates Jostens and will operate Von Hoffmann and Arcade after giving effect to the Transactions, (2) "Jostens Holding" refer to Jostens Holding Corp., after giving effect to the Transactions, unless the context otherwise requires or it is otherwise indicated, (3) "Jostens" refer to Jostens, Inc. and its subsidiaries, (4) "Von Hoffmann" refer to Von Hoffmann Holdings Inc. and its subsidiaries, after giving effect to the Transactions, unless the context otherwise requires or it is otherwise indicated, (5) "Arcade" refer to AHC I Acquisition Corp. and its subsidiaries, after giving effect to the Transactions, unless the context otherwise requires or it is otherwise indicated, (6) "we", "us", "our companies" and "our businesses" refer to Jostens, Von Hoffmann and Arcade and (7) "Transactions" refer to the "Contribution", "Mergers" and related financing transactions described under "Transactions".


MARKET DATA

        Data relating to market and competitive position contained in this Form 8-K have been prepared based on internal estimates and research as well as from industry and general publications and research, surveys and studies conducted by third parties. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While management believes that each of these publications, studies and surveys is reliable, data from third party sources have not been independently verified. While management believes our internal company research is reliable, such research has not been verified by any independent source.


SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

        This Form 8-K contains certain forward-looking statements, including, without limitation, statements concerning expected cost savings, operations, economic performance and financial condition, including, in particular, statements relating to our future capital structure and financial condition. The words "may", "might", "will", "should", "estimate", "project", "plan", "anticipate", "expect", "intend", "outlook", "believe" and other similar expressions are intended to identify forward-looking statements and information. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by Management that, although believed to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these forward-looking statements: (i) our substantial indebtedness following the consummation of the Transactions; (ii) our inability to implement our business strategy and achieve anticipated cost savings in a timely and effective manner; (iii) competition from other companies; (iv) the seasonality of our businesses; (v) loss of significant customers or customer relationships; (vi) fluctuations of raw material prices and our reliance on a limited number suppliers; (vii) Jostens' reliance on independent sales representatives; (viii) our reliance on numerous complex information systems; (ix) Von Hoffmann's dependency on the sale of school textbooks; (x) the textbook adoption cycle and levels of government funding for education spending; (xi) the reliance of our businesses on limited production facilities; (xii) the amount of capital expenditures required at our businesses; (xiii) the failure of Arcade's sampling systems to comply with U.S. postal regulations; (xiv) labor disturbances; (xv) environmental regulations; (xvi) foreign currency fluctuations and foreign exchange rates; (xvii) the outcome of litigation; and (xviii) control by our controlling shareholders. We caution you that the foregoing list of important factors is not exclusive. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Form 8-K may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise.


SELECTED BUSINESS INFORMATION

        Jostens is the nation's leading provider of school-related affinity products and services, including yearbooks, class rings and graduation products. Management believes that Jostens has an estimated 40% to 50% market share across its major product lines. Management believes that, with this market share, Jostens holds the number one market position in yearbooks, class rings and graduation products in North America and the number one market position in school photography in Canada.

        By combining the businesses of Jostens, Von Hoffmann and Arcade in connection with the Transactions, management believes that significant, near-term cost saving opportunities exist. These cost savings will primarily be achieved through procurement initiatives aimed at reducing the costs of materials and services used in our operations and reducing corporate and administrative expenses. Procurement initiatives will focus on our raw materials, but will also encompass other materials and services such as logistics and energy costs. We expect to reduce our corporate and administrative expenses through selected rationalization of certain overhead costs across our three businesses. Through these initiatives, we expect to achieve annual cost savings of between $22 million and $30 million, with approximately $20 million achievable in 2005.

2


THE TRANSACTIONS

        We will become indirectly owned by affiliates of DLJ Merchant Banking Partners III, L.P., or DLJMBP III, affiliates of Kohlberg Kravis Roberts & Co. L.P., or KKR (together with DLJMBP III, the "Sponsors"), other co-investors and certain members of management through a series of transactions. On July 21, 2004, Jostens Holding entered into a contribution agreement with Fusion Acquisition LLC, or Fusion, an affiliate of KKR, pursuant to which Fusion will contribute to Jostens Holding (the "Contribution") all of the stock of Von Hoffmann and Arcade that Fusion will acquire immediately prior to such Contribution pursuant to two separate mergers, or the Mergers. Jostens Holding will then issue shares of its common stock to Fusion. Subsequent to the Contribution, Jostens Holding will cause all of the equity interests of Von Hoffmann and Arcade held by it to be contributed to us, which will result in Von Hoffmann and Arcade becoming our wholly-owned subsidiaries.

        Von Hoffmann and Arcade are each currently controlled by affiliates of DLJ Merchant Banking Partners II, L.P., or DLJMBP II. DLJMBP III currently owns approximately 82.5% of Jostens Holding's outstanding equity, with the remainder held by other co-investors and certain members of management. Upon consummation of the Transactions, KKR will be issued equity interests representing up to 50% of the voting interest and 45% of the economic interest of Jostens Holding, and DLJMBP III will be issued equity interests representing up to 41% of the voting interest and 45% of the economic interest of Jostens Holding, with the remainder held by other co-investors and certain members of management.

        The aggregate transaction value of the Contribution and Mergers, including the assumption of indebtedness, premiums and fees and expenses, is approximately $2.3 billion, including approximately $254.5 million of new equity provided by KKR, approximately $254.5 million of equity rolled over by DLJMBP III, approximately $54.4 million rolled over by other co-investors and certain members of management and approximately $5 million of new equity provided by certain members of management (subject to certain closing adjustments). Approximately $163.1 million of 101/4% Senior Discount Notes due 2013 of Jostens Holding will remain outstanding, as of October 4, 2004, and will remain outstanding following the closing.

        We have commenced tender offers to repurchase all of the outstanding 123/4% Senior Subordinated Notes due 2010 of Jostens, 101/4% Senior Notes due 2009 and 103/8% Senior Subordinated Notes due 2007 of Von Hoffmann Corporation, 131/2% Subordinated Exchange Debentures due 2009 of Von Hoffmann Holdings Inc. and 101/2% Senior Notes Due 2008 of AKI, Inc. and are soliciting consents from the respective holders of those notes to amend the indentures governing each respective series of notes to eliminate substantially all of the restrictive covenants and effect certain other amendments to those indentures (the requisite consents for which have been received as of the date hereof). The contribution agreement entered into in connection with the Transactions includes a condition to closing that all notes not tendered in connection with the tender offers be redeemed or repurchased, which condition must be satisfied or waived by Fusion and Jostens Holding.

        In connection with the Transactions (assuming an expected closing of October 4, 2004):

    •
    we intend to enter into the new senior secured credit facilities, consisting of a $150 million Term Loan A Facility and an $870 million Term Loan B Facility, all of which will be drawn at closing, and a $250 million revolving credit facility, approximately $70 million of which will be drawn at closing;

    •
    we intend to incur $500 million of new senior subordinated indebtedness;

    •
    Von Hoffmann equity holders will be paid approximately $183.4 million;

    •
    we intend to pay $76.9 million to holders of Arcade's Amended and Restated Notes and holders of Arcade's Mandatorily Redeemable Preferred Stock will be paid $64.9 million;

3

    •
    we intend to repay approximately $86 million of indebtedness under our existing revolving credit facility and to draw approximately $70 million under our new revolving credit facility primarily to cover seasonal working capital requirements;

    •
    we intend to use $1,273.0 million in order to redeem Jostens' 14% Senior Redeemable Payment-in-Kind Preferred Stock and to refinance other outstanding indebtedness of Jostens, Von Hoffmann and Arcade (including accrued interest, tender premiums and prepayment penalties, assuming 100% of the preferred stock is redeemed and 100% of the notes are tendered);

    •
    we intend to pay approximately $85.8 million of transaction fees and expenses; and

    •
    we intend to issue new options to purchase shares of common stock of Jostens Holding to certain members of management.

4


UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA

        The following unaudited pro forma condensed consolidated financial statements are derived from the historical consolidated financial statements of JIHC, Von Hoffmann and Arcade. The historical consolidated financial data of Combined JIHC set forth below combine the historical consolidated financial data of JIHC, Von Hoffmann and Arcade after July 29, 2003 as a result of common ownership of JIHC, Von Hoffmann and Arcade by affiliates of DLJMBP III effective as of such date. The historical consolidated financial statements of JIHC prior to July 29, 2003 are those of Jostens as the predecessor of JIHC. The selected consolidated financial data of JIHC prior to July 29, 2003 have been prepared using JIHC's historical basis of accounting. The unaudited pro forma condensed consolidated balance sheet gives effect to (1) the Transactions and (2) the reclassification of Lehigh Direct from an asset held for sale to an asset held for use, as if they had all occurred on July 3, 2004. The unaudited pro forma condensed consolidated statements of income for the 2003 fiscal year and the six month periods ended June 28, 2003 and July 3, 2004 give effect to (1) the Transactions, (2) the 2003 Jostens Merger, (3) the Lehigh Press Acquisition and (4) the reclassification of Lehigh Direct from a discontinued operation to a continuing operation as if they had all occurred on December 29, 2002. The unaudited pro forma condensed consolidated statement of income for the 2002 fiscal year ended December 28, 2002 gives effect to (1) the Transactions, (2) the 2003 Jostens Merger and (3) the Lehigh Press Acquisition as if they had all occurred on December 30, 2001. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with these unaudited pro forma condensed consolidated financial statements. The Von Hoffmann and Arcade pro forma financial data have been presented based on their respective four quarters ended December 31 and two quarters ended June 30.

        The 2003 Jostens Merger and the Lehigh Press Acquisition were accounted for utilizing purchase accounting, which resulted in a new valuation for the assets and liabilities of Jostens and Lehigh Press to their fair values. The following unaudited pro forma condensed consolidated financial statements give effect to purchase accounting for these transactions for all periods presented. The combination of JIHC, Von Hoffmann and Arcade has been accounted for as a combination of entities under common control, and as such the historical basis of accounting has not been adjusted.

        The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances. The unaudited pro forma financial information is presented for informational purposes only. The unaudited pro forma financial information does not purport to represent what our results of operations or financial condition would actually have been had all of the events described above, including the Transactions, occurred on the dates indicated, nor does it purport to project the results of operations or financial condition of JIHC for any future period or as of any future date.

5


JOSTENS IH CORP.

Unaudited Pro Forma Condensed Consolidated Balance Sheet

 
   As of July 3, 2004
 
   Combined JIHC
Historical
   Adjustments
   Pro Forma
 
   (In thousands)
Assets                  
Cash and cash equivalents   $ 28,527   $ (18,144 )(a) $ 10,421
            38   (b)    
Accounts receivable, net     169,169     15,777   (b)   184,946
Inventories, net     96,890     2,893   (b)   99,783
Deferred income taxes     14,573     189   (b)   26,409
            11,647   (c)    
Salesperson overdrafts, net     21,414     —     21,414
Prepaid and other current assets     10,585     719   (b)   11,304
Assets held for sale     62,280     (62,280 )(b)   —
   
 
 
  Total current assets     403,438     (49,161 )   354,277

Property and equipment, net
 
 
223,700
 
 
26,560
  (b)
 
250,260
Goodwill     1,111,041     9,277   (b)   1,120,318
Intangibles, net     627,750     16,000   (b)   643,750
Deferred financing costs, net     33,939     (33,939 )(d)   —
New deferred financing costs, net     —     53,878   (e)   53,878
Other     11,080     —     11,080
   
 
 
    $ 2,410,948   $ 22,615   $ 2,433,563
   
 
 
Liabilities and Shareholders' Equity                  
Short-term borrowings   $ 9,675   $ (9,675 )(a) $ —
Accounts payable     43,382     6,867   (b)   50,249
Accrued employee compensation and related taxes     40,620     504   (b)   41,124
Commissions payable     45,653     —     45,653
Customer deposits     57,866     —     57,866
Income taxes payable     34,200     353   (b)   —
            (46,200 )(c)    
            11,647   (c)    
Interest payable     22,564     (22,564 )(a)   —
Current portion old debt     5,150     (5,150 )(a)   —
Current portion new debt           9,975   (a)   9,975
Deferred income taxes     —     —     —
Other accrued liabilities     20,162     489   (b)   20,651
Current portion of discontinued operations     2,770     —     2,770
   
 
 
  Total current liabilities     282,042     (53,754 )   228,288

Old debt
 
 
1,260,515
 
 
(1,237,652
)(a)
 
—
            (22,863 )(f)    
New debt     —     1,510,025   (a)   1,510,025
Redeemable preferred stock     255,387     (173,903 )(a)   —
            (16,328 )(f)    
            (65,156 )(g)    
Deferred income taxes     250,844     960   (b)   260,156
            8,352   (c)    
Pension liabilities, net     —     —     —
Other noncurrent liabilities     34,144     —     34,144
   
 
 
  Total liabilities     2,082,932     (50,319 )   2,032,613
   
 
 
  Total shareholders' equity     328,016     72,934   (h)   400,950
   
 
 
    $ 2,410,948   $ 22,615   $ 2,433,563
   
 
 

See the accompanying notes to the unaudited pro forma condensed consolidated balance sheet.

6


JOSTENS IH CORP.

Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet

(In thousands)

(a)
Set forth below are the estimated sources and uses of funds pertaining to the Transactions as described in "Use of Proceeds".

(1)   Sources of funds:        
    Proceeds from revolving credit facility   $ —  
    Proceeds from Term loan A facility (current portion of $5,625)     150,000  
    Proceeds from Term loan B facility (current portion of $4,350)     870,000  
    Proceeds from new senior subordinated indebtedness     500,000  
    Von Hoffmann/Arcade available cash     18,144  
    Proceeds from KKR equity contribution     254,500  
    Proceeds from management investment     5,000  
       
 
                Total sources of funds   $ 1,797,644  
       
 

(2)
 
Uses of funds:
 
 
 
 
    Repayment of Jostens revolving credit facility   $ 9,675  
       
 
    Repayment of long term debt:        
                Jostens term loan     417,705  
                Jostens 123/4% Senior Subordinated Notes     203,985  
                Von Hoffmann credit facility     23,500  
                Von Hoffmann 101/4% Senior Notes     275,000  
                Von Hoffmann 103/8% Senior Subordinated Notes     100,000  
                Von Hoffmann 131/2% Subordinated Exchange Debentures     44,181  
                Arcade credit facility     1,500  
                Arcade 101/2% Senior Notes     103,510  
                Repurchase of notes held by Arcade shareholders
            including $483 of accrued interest		     73,904  
       
 
                   $ 1,243,285 *

 
 
Repayment or Repurchase of Preferred Stock:
 
 
 
 
                Repurchase of Jostens Preferred Stock     106,107  
                Payment to Arcade Preferred Shareholders     67,796  
       
 
          173,903  
    Payment of accrued interest, excluding $483 related to the Arcade shareholder notes     22,081  
    Payment to Von Hoffmann shareholders     183,800  
    Payment of transaction fees, expenses and other transaction costs     85,800  
    Payment of prepayment penalties/premiums     79,100  
       
 
                    Total uses of funds   $ 1,797,644  
       
 

*
 
Total repayment of long term debt
 
1,243,285
 
                less current liabilities   (5,150 )
                less accrued interest   (483 )
       
 
        1,237,652  

7

(b)
Reclassification of balance sheet for Lehigh Direct that was reported as an asset held for sale in the historical financial results. In connection with the Transactions, Lehigh Direct will be treated as a business held for use and not as a business held for sale. The reclassification is as follows:

Cash and cash equivalents   $ 38  
Accounts receivable, net     15,777  
Inventories, net     2,893  
Deferred income taxes     189  
Prepaid and other current assets     719  
Assets held for sale     (62,280 )
Property and equipment, net     26,560  
Goodwill     9,277  
Intangibles     16,000  
   
 
  Total assets   $ 9,173  
   
 

Accounts payable
 
$
6,867
 
Accrued employee compensation and related taxes     504  
Income taxes payable     353  
Other accrued liabilities     489  
Deferred income taxes     960  
   
 
  Total liabilities   $ 9,173  
   
 
(c)
Reflects the incremental tax effect of the Transactions as follows:

Currently deductible transaction costs   $ 7,322  
Prepayment penalties (excluding $15,700 of non-deductible preferred stock penalties)     63,400  
Unamortized premium related to Von Hoffmann 101/4% Senior Notes     (2,485 )
Unamortized debt issuance costs related to historical debt     33,939  
Unamortized original issue discount related to existing Jostens
123/4% Senior Subordinated Notes (tax basis)		     13,323  
   
 
      115,499  
Tax rate     40 %
   
 
Current tax provision   $ 46,200 *
   
 
Unamortized premium related to Jostens 123/4% Senior Subordinated Notes (book basis)   $ (20,879 )
Tax rate     40 %
   
 
Deferred tax provision   $ (8,352 )
   
 
Total tax provision   $ 37,848  
   
 
*
The $46,200 debit to income tax payable resulted in an increase to the deferred tax asset of $11,647.

(d)
Reflects the elimination of unamortized debt issuance costs of $33,939 related to the existing notes and credit facilities that are being repaid in connection with the Transactions.

(e)
Reflects capitalization of estimated debt issuance costs of $53,878 that we will incur in connection with the new senior credit facilities we are entering into and the new senior subordinated indebtedness.

8

(f)
Reflects gain from unamortized premiums of $20,879 related to the Jostens senior notes, unamortized premiums of $2,485 related to the Von Hoffmann senior notes, unamortized premiums of $16,328 related to the Jostens preferred stock and a loss from $501 discount on the Arcade notes.

(g)
Reflects redemption of Arcade preferred stock with a book value of $132,952 for cash payment to its shareholders of $67,796. The excess $65,156 book value of the preferred stock over the cash payment to the shareholders has been reflected as an adjustment to net income.

(h)
Reflects adjustments to equity consisting of:

Management equity contribution   $ 5,000  
KKR equity contribution     254,500  
Cash to Von Hoffmann shareholders     (183,800 )
Income statement adjustments(1)     (2,766 )
       
 
        $ 72,934  
       
 
       

(1)
 
Reflects income statement impact as follows:
 
 
 
 
    Transaction fees and expenses, net of amount capitalized   $ (31,922 )
    Prepayment penalties/premiums*     (79,100 )
    Write-off of historical unamortized debt issuance costs     (33,939 )
    Write-off of historical premiums and discounts on debt and preferred stock     39,191  
    Tax impact as described in note (c) above.     37,848  
    Arcade net income adjustment as described in note (g) above     65,156  
       
 
        $ (2,766 )
       
 
      *
      Assumes that 100% of holders tender their notes in the currently outstanding tender offers and that all outstanding preferred stock is redeemed.

9


JOSTENS IH CORP.

Unaudited Pro Forma Condensed Consolidated Statement of Income

 
   Fiscal Year 2002
  
 
   JIHC
Historical
   Von Hoffmann
Historical
   Arcade
Historical*
   Pro Forma
Adjustments
   Pro Forma
  
 
   (In thousands)

  
Net sales   $ 755,984   $ 379,437   $ 133,202   $ 118,741   (a) $ 1,387,364  
Cost of products sold     315,961     321,331     80,439     133,031   (b)   850,762  
   
 
 
 
 
 
  Gross profit     440,023     58,106     52,763     (14,290 )   536,602  
Selling and administrative expenses     306,449     26,177     23,688     65,402   (c)   421,716  
Special charges (credits)     —     2,453     (992 )   —     1,461  
   
 
 
 
 
 
  Operating income (loss)     133,574     29,476     30,067     (79,692 )   113,425  
Interest expense, net     67,326     38,818     23,869     (31,324 )(d)   98,689  
Loss (gain) on redemption of debt     1,765     (280 )   (4,085 )   2,600   (e)   —  
Other expense (income)     —     (2,773 )   250     73   (f)   (2,450 )
   
 
 
 
 
 
  Income (loss) from continuing operations before income taxes     64,483     (6,289 )   10,033     (51,041 )   17,186  
Provision (benefit) for income taxes     36,214     (993 )   7,925     (31,460 )   11,686  
   
 
 
 
 
 
Income (loss) from continuing operations   $ 28,269   $ (5,296 ) $ 2,108   $ (19,581 ) $ 5,500  
   
 
 
 
 
 

*12 month period ended December 31, 2002

See the accompanying notes to the unaudited pro forma condensed consolidated statement of income.

10


JOSTENS IH CORP.

Unaudited Pro Forma Condensed Consolidated Statement of Income
Fiscal Year 2003

 
   Combined JIHC
Five Months
Ended
January 4, 2004
Historical
   Jostens
Seven Months
Ended
July 29, 2003
Historical
   Von Hoffmann
Seven Months
Ended
July 31, 2003
Historical
   Arcade
Seven Months
Ended
July 31, 2003
Historical
   Pro Forma
Adjustments
   Pro Forma
  
 
   (In thousands, except for ratio)

  
Net sales   $ 486,358   $ 504,058   $ 233,776   $ 64,230   $ 121,121   (a) $ 1,409,543  
Cost of products sold     323,779     218,594     191,250     41,298     93,446   (b)   868,367  
   
 
 
 
 
 
 
  Gross profit     162,579     285,464     42,526     22,932     27,675     541,176  
Selling and administrative expenses     164,588     196,430     12,730     10,793     46,838   (c)   431,379  
Transaction costs     226     30,960     —     —     (31,186 )(h)   —  
Special charges     1,512     —     390     —     —     1,902  
   
 
 
 
 
 
 
  Operating income (loss)     (3,747 )   58,074     29,406     12,139     12,023     107,895  
Interest expense, net     66,691     32,446     23,640     15,056     (42,357 )(d)   95,476  
Loss on redemption of debt     503     13,878     —     1,015     (15,396 )(e)   —  
Other expense     325     —     287     266     262   (f)   1,140  
   
 
 
 
 
 
 
  Income (loss) from continuing operations before income taxes     (71,266 )   11,750     5,479     (4,198 )   69,514     11,279  
Provision (benefit) for income taxes     (19,618 )   8,695     2,252     804     15,537   (g)   7,670  
   
 
 
 
 
 
 
Income (loss) from continuing operations   $ (51,648 ) $ 3,055   $ 3,227   $ (5,002 ) $ 53,977   $ 3,609  
   
 
 
 
 
 
 
Other Financial Data:                                      
Ratio of earnings to fixed charges     1.1 x(i)

See the accompanying notes to the unaudited pro forma condensed consolidated statement of income.

11


JOSTENS IH CORP.

Unaudited Pro Forma Condensed Consolidated Statement of Income

 
   Six Months Ended July 3, 2004
  
 
   Combined JIHC
Historical
   Pro Forma
Adjustments
   Pro Forma
  
 
   (In thousands, except for ratio)

  
Net sales   $ 810,785   $ 47,010   (a) $ 857,795  
Cost of products sold     482,759     13,463   (b)   496,222  
   
 
 
 
  Gross profit     328,026     33,547     361,573  
Selling and administrative expenses     235,502     7,539   (c)   243,041  
Special charges     1,229     —     1,229  
   
 
 
 
  Operating income     91,295     26,008     117,303  
Interest expense, net     77,759     (30,202 )(d)   47,557  
Loss on redemption of debt     420     (420 )(e)   —  
Other expense     158     —   (f)   158  
   
 
 
 
  Income from continuing operations before income taxes     12,958     56,630     69,588  
Provision for income taxes     3,526     44,794   (g)   47,320  
   
 
 
 
Income from continuing operations   $ 9,432   $ 12,836   $ 22,268  
   
 
 
 
Other Financial Data:                    
Ratio of earnings to fixed charges     2.4 x(i)

See the accompanying notes to the unaudited pro forma condensed consolidated statement of income.

12


JOSTENS IH CORP.

Unaudited Pro Forma Condensed Consolidated Statement of Income

 
   Six Months Ended June 28, 2003
 
   JIHC
Historical
   Von Hoffmann
Historical
   Arcade
Historical
   Adjustments
   Pro Forma
 
   (In thousands)
Net sales   $ 496,460   $ 198,114   $ 53,263   $ 67,316   (a) $ 815,153
Cost of products sold     211,750     161,902     34,664     56,506   (b)   464,822
   
 
 
 
 
  Gross profit     284,710     36,212     18,599     10,810     350,331
Selling and administrative expenses     180,047     11,089     9,138     32,390   (c)   232,664
Special charges     —     334     —     —     334
   
 
 
 
 
  Operating income     104,663     24,789     9,461     (21,580 )   117,333
Interest expense, net     27,475     20,276     11,708     (11,994 )(d)   47,465
Loss on redemption of debt     —     —     1,015     (1,015 )(e)   —
Other expense     —     288     233     69   (f)   590
   
 
 
 
 
  Income (loss) from continuing operations before income taxes     77,188     4,225     (3,495 )   (8,640 )   69,278
Provision for income taxes     32,079     1,738     182     13,110   (g)   47,109
   
 
 
 
 
Income (loss) from continuing operations   $ 45,109   $ 2,487   $ (3,677 ) $ (21,750 ) $ 22,169
   
 
 
 
 

See the accompanying notes to the unaudited pro forma condensed consolidated statement of income.

13


JOSTENS IH CORP.

Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income

(In thousands)

(a)
Represents adjustments to net sales consisting of:

 
    
    
   Six Months Ended
 
   Fiscal Year
 
   June 28, 2003
   July 3, 2004
 
   2002
   2003
Lehigh Press Acquisition(1)   $ 118,741   $ 104,815   $ 67,316   $ —
Lehigh Direct reclassification(2)     —     16,306     —     47,010
   
 
 
 
    $ 118,741   $ 121,121   $ 67,316   $ 47,010
   
 
 
 
    (1)
    Reflects sales of Lehigh Press prior to the Lehigh Press Acquisition.

    (2)
    Reclassification of sales of Lehigh Direct, which was reported as a discontinued operation in the historical financial results of Von Hoffmann. In connection with the Transactions, Lehigh Direct will no longer be treated as a discontinued operation.

(b)
Represents adjustments to cost of products sold consisting of:

 
    
    
   Six Months Ended
  
 
   Fiscal Year
  
 
   June 28, 2003
   July 3, 2004
  
 
   2002
   2003
  
Jostens historical purchase accounting adjustments(1)   $ —   $ (43,330 ) $ —   $ (38,278 )
Jostens depreciation expense(2)     7,908     7,908     4,012     3,584  
Jostens order backlog intangible(3)     36,900     36,900     2,400     11,800  
Lehigh Press Acquisition(4)     88,022     79,256     50,001     —  
Lehigh Direct reclassification(5)     —     12,047     —     34,049  
Lehigh Press depreciation expense(6)     201     665     93     2,308  
   
 
 
 
 
    $ 133,031   $ 93,446   $ 56,506   $ 13,463  
   
 
 
 
 
    (1)
    Elimination of Jostens' historical purchase accounting adjustments recorded in connection with the 2003 Jostens Merger in the period from July 30, 2003 to July 3, 2004. The adjustment eliminates the effect of amortization of purchase price allocated to the order backlog intangible asset of $2,190 and $34,400 for the fiscal year ended January 3, 2004 and the six months ended July 3, 2004, respectively, incremental depreciation as a result of the write-up of property, plant and equipment of $3,393 and $3,858 for the fiscal year 2003 and the six months ended July 3, 2004, respectively, and sale of inventory of $37,747 for fiscal year 2003.

    (2)
    Incremental Jostens' depreciation as a result of the purchase price allocated to property, plant and equipment, in applying purchase accounting in connection with the 2003 Jostens Merger, depreciated over the remaining useful lives.

    (3)
    Reflects Jostens' amortization of purchase price allocated to order backlog intangible, in applying purchase accounting in connection with the 2003 Jostens Merger, as product in backlog is delivered to customers over a 17 month period.

    (4)
    Reflects cost of products sold related to sales adjustment in (a)(1) above.

    (5)
    Reclassification of cost of products sold related to sales adjustment in (a)(2) above.

14

    (6)
    Incremental Lehigh Press depreciation as a result of the purchase price allocated to property, plant and equipment, in applying purchase accounting in connection with the Lehigh Press Acquisition, depreciated over the remaining useful lives.

(c)
Represents adjustments to selling and administrative expenses consisting of:

 
   Fiscal Year
  
Six Months Ended
  
 
   2002
   2003
   June 28, 2003
   July 3, 2004
  
Jostens historical purchase accounting adjustments(1)   $ —   $ (17,312 ) $ —   $ (20,738 )
Jostens school relationship intangible(2)     33,505     33,505     16,438     16,438  
Jostens internally developed software intangible(3)     3,398     3,398     1,699     1,736  
Jostens patented/unpatented technology intangible(4)     3,713     3,713     1,820     1,820  
Jostens depreciation expense(5)     580     580     (166 )   779  
Lehigh Press Acquisition(6)     22,862     19,305     11,702     —  
Lehigh Direct reclassification(7)     —     2,045     —     6,029  
Lehigh Press depreciation(8)     (2 )   (13 )   (37 )   1,475  
Lehigh Press amortization(9)     4,005     3,829     2,002     —  
Lehigh Press shareholder expenses(10)     (2,315 )   (1,855 )   (895 )   —  
Lehigh Press historical amortization(11)     (344 )   (357 )   (173 )   —  
   
 
 
 
 
    $ 65,402   $ 46,838   $ 32,390   $ 7,539  
   
 
 
 
 
    (1)
    Elimination of Jostens' historical purchase accounting adjustments recorded in connection with the 2003 Jostens Merger in the period from July 30, 2003 to July 3, 2004 related to amortization of purchase price allocated to intangibles in applying purchase accounting.

    (2)
    Reflects amortization over 10 years of purchase price allocated to school relationship intangible, in applying purchase accounting.

    (3)
    Reflects amortization over two to five years of purchase price allocated to internally developed software intangible, in applying purchase accounting.

    (4)
    Reflects amortization over three years of purchase price allocated to patented/unpatented technology intangible, in applying purchase accounting.

    (5)
    Incremental depreciation as a result of the purchase price allocated to property, plant and equipment, in applying purchase accounting in connection with the 2003 Jostens Merger, depreciated over the remaining useful lives.

    (6)
    Reflects selling and administrative expenses of Lehigh Press incurred prior to the Lehigh Press Acquisition.

    (7)
    Reclassification of selling and administrative expenses of Lehigh Direct that were reported as a discontinued operation in the historical financial results of Von Hoffmann. In connection with the Transactions, Lehigh Direct will no longer be treated as a discontinued operation.

    (8)
    Incremental Lehigh Press depreciation as a result of the purchase price allocated to property, plant and equipment, in applying purchase accounting, depreciated over the remaining useful lives.

15

    (9)
    Amortization of purchase price allocated to Lehigh Press non-compete agreements and customer relationship intangibles, in applying purchase accounting in connection with the Lehigh Press Acquisition, over their estimated useful lives.

    (10)
    Elimination of compensation, fringe benefits and other costs directly associated with two Lehigh Press stockholders whose employment did not continue after completion of the Lehigh Press Acquisition.

    (11)
    Adjustment for elimination of compensation arrangements associated with these Lehigh Press stockholders.

(d)
Reflects pro forma interest expense resulting from our new capital structure based on an assumed London Interbank Offered Rate, or LIBOR, of 1.98% as follows:

 
   Fiscal Year
  
Six Months Ended
  
 
   2002
   2003
   June 28, 2003
   July 3, 2004
  
Revolving credit facility(1)   $ 1,871   $ 1,871   $ 531   $ 1,144  
Term Loan A Facility(2)     6,657     6,657     3,360     3,171  
Term Loan B Facility(3)     38,927     38,927     19,488     19,342  
New senior subordinated indebtedness(4)     38,125     38,125     19,063     19,063  
Commitment fees(5)     1,041     1,041     566     497  
Gold contract fees(6)     316     358     153     290  
Other miscellaneous interest expense and fees(7)     4,568     1,313     712     458  
   
 
 
 
 
Total cash interest expense     91,505     88,292     43,873     43,965  
Amortization of capitalized debt issuance costs(8)     7,184     7,184     3,592     3,592  
   
 
 
 
 
Total pro forma net interest expense     98,689     95,476     47,465     47,557  
   
 
 
 
 
Less historical net interest expense     (130,013 )   (137,833 )   (59,459 )   (77,759 )
   
 
 
 
 
Net adjustment to net interest expense   $ (31,324 ) $ (42,357 ) $ (11,994 ) $ (30,202 )
   
 
 
 
 
    (1)
    Reflects pro forma interest expense on our new revolving credit facility assuming outstanding balances ranging from $18,000 to $96,000 and using an effective interest rate of LIBOR plus 2.50%.

    (2)
    Reflects pro forma interest expense on our new Term Loan A Facility assuming an initial outstanding balance of $150,000 and scheduled semi-annual amortization and using an effective interest rate of LIBOR plus 2.50%.

    (3)
    Reflects pro forma interest expense on our new Term Loan B Facility assuming an initial outstanding balance of $870,000 and scheduled semi-annual amortization and using an effective interest rate of LIBOR plus 2.50%.

    (4)
    Reflects pro forma interest expense on $500,000 of new senior subordinated indebtedness using an interest rate of 7.625%.

    (5)
    Reflects commitment fees of 0.50% on the undrawn balance of the $250,000 revolving credit facility.

    (6)
    Represents fees paid under our precious metals consignment arrangement in order to finance our gold inventory.

16

    (7)
    Reflects miscellaneous interest expense related to payments of tax liabilities and deferred compensation arrangements as well as fees incurred to maintain operating bank accounts. For the fiscal year 2003, includes $2,860 for interest expense related to a settlement with the Internal Revenue Service.

    (8)
    Reflects non-cash amortization of capitalized debt issuance costs over the term of our senior secured credit facilities.


A 1/8% change in the interest rate on our new indebtedness would have the following effect on pro forma interest expense:

 
    
    
   Six Months Ended
 
   Fiscal Year
 
   June 28, 2003
   July 3, 2004
 
   2002
   2003
New senior secured credit facilities   $ 1,324   $ 1,324   $ 652   $ 660
New senior subordinated indebtedness     625     625     312     312
   
 
 
 
    $ 1,949   $ 1,949   $ 964   $ 972
   
 
 
 

As of July 3, 2004, the estimated weighted average interest rate on our new borrowings is approximately 5.51%.

(e)
Represents elimination of the historical loss (gain) related to redemption of existing notes and credit facilities that was recorded during the applicable periods as a result of redemptions recorded during such periods. The existing notes and existing credit facilities are being repaid in connection with the Transactions.

(f)
Represents adjustments to other expense consisting of:

 
    
    
   Six Months Ended
 
   Fiscal Year
 
   June 28, 2003
   July 3, 2004
 
   2002
   2003
Lehigh Press Acquisition other expenses(1)   $ 73   $ 12,460   $ 81   $ —
Lehigh Press Acquisition transaction expenses(2)     —     (12,186 )   —     —
Lehigh Press gain on disposal of fixed assets(3)     —     (12 )   (12 )   —
   
 
 
 
    $ 73   $ 262   $ 69   $ —
   
 
 
 
    (1)
    Reflects other expenses of Lehigh Press incurred prior to or concurrently with the Lehigh Press Acquisition, including transaction expenses in connection with the Lehigh Press Acquisition.

    (2)
    Reflects expenses incurred by Lehigh Press in connection with the Lehigh Press Acquisition.

    (3)
    Reflects gain on disposal of fixed assets prior to the Lehigh Press Acquisition.

(g)
Reflects an effective tax rate of 68%. The effective tax rate is higher than the statutory rate due to the relatively large impact of permanent differences on relatively small pre-tax net income. The effective rate for the year is used to record tax expense on an interim basis through the year as required by generally accepted accounting principles. We have assumed a rate of 68% for 2002 for consistency purposes.

(h)
Represents elimination of transaction expenses related to the 2003 Jostens Merger.

(i)
For the purposes of calculating the ratio of earnings to fixed charges (and for any period subsequent to the adoption of SFAS 150, preferred stock dividends), earnings represent income (loss) from continuing operations before income taxes plus fixed charges. Fixed charges consist of interest expense (including capitalized interest) on all indebtedness plus amortization of debt issuance costs (and for any period subsequent to the adoption of SFAS 150, accretion of preferred stock dividends), and the portion of rental expense that we believe is representative of the interest component of rental expenses.

17


CONTRACTUAL OBLIGATIONS AND CONTRACTUAL COMMITMENTS

        The following schedule summarizes our contractual obligations and commercial commitments as of July 3, 2004 on a pro forma basis:

 
   Payments Due by Calendar Year
(In thousands)
Contractual Obligations
  Total
   2004
   2005
   2006
   2007
   2008
   2009
   Thereafter
 
    
   (six months)

    
    
    
    
    
    
New senior subordinated indebtedness   $ 500,000   $ —   $ —   $ —   $ —   $ —   $ —   $ 500,000
Term loans     1,020,000     —     19,950     19,950     23,700     23,700     23,700     909,000
Operating leases     27,716     4,346     7,612     5,525     3,689     3,155     1,973     1,416
Precious metals forward contracts     7,348     7,348     —     —     —     —     —     —
Foreign currency contracts     2,687     2,687     —     —     —     —     —     —
Minimum royalties     9,206     895     1,200     1,200     1,200     1,200     1,200     2,311
Purchase obligations     20,986     19,437     1,549     —     —     —     —     —
Other long-term obligations     750     —     750     —     —     —     —     —
   
 
 
 
 
 
 
 
  Total contractual cash obligations   $ 1,588,693   $ 34,713   $ 31,061   $ 26,675   $ 28,589   $ 28,055   $ 26,873   $ 1,412,727
   
 
 
 
 
 
 
 

        In addition, Jostens, Von Hoffmann and Arcade had $10.8 million, $3.4 million and $0.4 million, respectively, outstanding in the form of letters of credit, on July 3, 2004. The notes and term loans shown above exclude interest payments.

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SUPPLEMENTAL REGULATION FD DISCLOSURE
DEFINITIONS
MARKET DATA
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
SELECTED BUSINESS INFORMATION
THE TRANSACTIONS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
JOSTENS IH CORP. Unaudited Pro Forma Condensed Consolidated Balance Sheet
JOSTENS IH CORP. Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet (In thousands)
JOSTENS IH CORP. Unaudited Pro Forma Condensed Consolidated Statement of Income
JOSTENS IH CORP. Unaudited Pro Forma Condensed Consolidated Statement of Income Fiscal Year 2003
JOSTENS IH CORP. Unaudited Pro Forma Condensed Consolidated Statement of Income
JOSTENS IH CORP. Unaudited Pro Forma Condensed Consolidated Statement of Income
JOSTENS IH CORP. Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income (In thousands)
CONTRACTUAL OBLIGATIONS AND CONTRACTUAL COMMITMENTS