Back to GetFilings.com



Table of Contents
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 29, 2002
 
OR
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 
Commission file number 1-5064
 
 
Jostens, Inc.
(Exact name of Registrant as specified in its charter)
 
 
 
Minnesota
   
41-0343440
(State or other jurisdiction of incorporation or organization)
   
(I.R.S. employer identification number)
5501 Norman Center Drive, Minneapolis, Minnesota
   
55437
(Address of principal executive offices)
   
(Zip code)
 
 
Registrant’s telephone number: (952) 830-3300
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirement for the past 90 days. Yes [X]    No [    ]
 
On August 9, 2002 there were 8,955,741 shares of the Registrant’s common stock outstanding.
 

Table of Contents
 
Jostens, Inc. and Subsidiaries
 
         
Page
Part I Financial Information
     
Item 1.
   
Financial Statements (Unaudited)
     
       
3
       
4
       
5
       
6
Item 2.
      
12
Item 3.
      
18
Part II Other Information
     
Item 1.
      
19
Item 6.
      
19
  
20
 

2

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

3

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

4

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

5

Table of Contents

Notes to Condensed Consolidated Financial Statements (Unaudited)
Jostens, Inc. and subsidiaries

 
1.
 
Basis of Presentation
 
We prepared our accompanying unaudited condensed consolidated financial statements following the requirements of the Securities and Exchange (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information normally required by accounting principles generally accepted in the United States of America can be condensed or omitted. Therefore, we suggest that these financial statements be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K for the fiscal year ended December 29, 2001 (“2001 Form 10-K”). The condensed consolidated balance sheet data as of December 29, 2001 were derived from audited financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America.
 
Revenues, expenses, cash flows, assets and liabilities can and do vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year.
 
In our opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring items) considered necessary to present fairly, when read in conjunction with the 2001 Form 10-K, our financial position, results of operations and cash flows for the periods presented. Certain balances have been reclassified to conform to the 2002 presentation.
 
2.
 
Earnings Per Common Share
 
Basic earnings per share are computed by dividing net income available to common shareholders by the weighted average number of outstanding common shares. Diluted earnings per share are computed by dividing net income available to common shareholders by the weighted average number of outstanding common shares and common share equivalents. Common share equivalents include the dilutive effects of warrants and options.
 
For the three and six-month periods ended June 29, 2002 and June 30, 2001, approximately 1.0 million shares of common stock equivalents were included in the computation of diluted net earnings per share. Options to purchase 42,250 shares of common stock were outstanding at June 29, 2002, but were excluded from the computation of common share equivalents for the six-month period ended June 29, 2002 because they were antidilutive.
 
3.
 
Comprehensive Income (Loss)
 
Comprehensive income and its components, net of tax, are as follows:
 
    
Three months ended
   
Six months ended
  
In thousands
   
June 29, 2002
   
June 30, 2001
   
June 29, 2002
   
June 30, 2001
  
Net income
   
$
50,534
   
$
42,488
   
$
44,049
   
$
30,212
 
Change in cumulative translation adjustment
   
 
1,239
   
 
784
   
 
1,249
   
 
(322
)
Transition adjustment relating to adoption of SFAS 133
   
 
—
   
 
—
   
 
—
   
 
(1,821
)
Change in fair value of interest rate swap agreement
   
 
64
   
 
202
   
 
924
   
 
(932
)
Change in fair value of foreign currency hedge
   
 
229
   
 
—
   
 
229
   
 
—
 
    
  
  
  
    
 
1,532
   
 
986
   
 
2,402
   
 
(3,075
)
    
  
  
  
Comprehensive income
   
$
52,066
   
$
43,474
   
$
46,451
   
$
27,137
 
    
  
  
  

6

Table of Contents

Notes to Condensed Consolidated Financial Statements (Unaudited)
Jostens, Inc. and subsidiaries

 
The following amounts were included in accumulated other comprehensive loss as of June 29, 2002:
 
In thousands
   
Foreign currency translation
     
Minimum pension liability
     
Fair value of interest rate swap
     
Fair value of foreign currency hedge
   
Accumulated other comprehensive loss
  
Balance at December 29, 2001
   
$
(6,745
)
   
$
(2,371
)
   
$
(3,387
)
   
$
—
   
$
(12,503
)
Current period change
   
 
1,249
 
   
 
—
 
   
 
924
 
   
 
229
   
 
2,402
 
    
  
  
  
  
Balance at June 29, 2002
   
$
(5,496
)
   
$
(2,371
)
   
$
(2,463
)
   
$
229
   
$
(10,101
)
    
  
  
  
  
 
4.
 
Derivatives and Hedging Activities
 
We use a floating-to-fixed cash flow interest rate swap to modify risk from interest rate fluctuations in our underlying debt. Our senior secured credit facility bears a variable interest rate predominantly linked to LIBOR. The interest rate provided by the swap agreement is fixed at 7.0% as opposed to LIBOR. Notional amounts outstanding as of June 29, 2002, June 30, 2001 and December 29, 2001 were $95.0 million, $120.0 million and $100.0 million, respectively. Substantially all aspects of the swap agreement expire June 30, 2003. We expect that pre-tax costs totaling $4.1 million, which are recorded in “accumulated other comprehensive loss” (AOCL) at June 29, 2002, and represent the difference between the fixed rate of the swap agreement and variable interest of the term note, will be recognized within the next twelve months as part of interest expense. The fair value of the interest rate swap is based on current settlement values and as of June 29, 2002, June 30, 2001 and December 29, 2001 was a non-cash liability of $4.1 million ($2.5 million net of tax), $4.6 million ($2.8 million net of tax) and $5.6 million ($3.4 million net of tax), respectively, and is recorded in “other noncurrent liabilities” in our Condensed Consolidated Balance Sheet. Based on the critical terms of the interest rate swap and the hedged debt, there is no ineffectiveness for this hedge.
 
The purpose of our foreign currency hedging activities is to protect us from the risk that inventory purchases denominated in foreign currency will be adversely affected by changes in foreign currency rates. We enter into forward exchange contracts to hedge forecasted cash flows denominated in foreign currencies (principally euro). The effective portion of the changes in fair value for these contracts, which have been designated as cash flow hedges, is reported in AOCL and reclassified into earnings in the same financial statement line item and in the same period or periods during which the hedged transaction affects earnings. Any ineffective portion of the change in fair value of these instruments is immediately recognized in earnings. The amount of contracts outstanding at June 29, 2002 was $2.2 million. There were no forward exchange contracts outstanding at June 30, 2001 and December 29, 2001. These contracts will mature over the remainder of the current fiscal year, the period in which all amounts included in AOCL will be reclassified into earnings.
 
5.
 
Inventories
 
Inventories, net are comprised of the following:
 
In thousands
   
June 29, 2002
   
June 30, 2001
   
December 29, 2001
Raw material and supplies
   
$
11,855
   
$
15,840
   
$
10,302
Work-in-process
   
 
24,228
   
 
27,864
   
 
28,447
Finished goods
   
 
11,084
   
 
17,024
   
 
31,765
    
  
  
Total inventories, net
   
$
47,167
   
$
60,728
   
$
70,514
    
  
  
 
Net inventories as of June 30, 2001 included $7.6 million related to discontinued operations.

7

Table of Contents

Notes to Condensed Consolidated Financial Statements (Unaudited)
Jostens, Inc. and subsidiaries

 
6.
 
Goodwill and Other Intangible Assets
 
On December 30, 2001, the beginning of our fiscal year, we adopted Statement of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.” SFAS 142 addresses the accounting and financial reporting for acquired goodwill and other intangible assets. Under the new statement, goodwill and intangible assets with indefinite lives are no longer amortized, but are subject to impairment testing on at least an annual basis. Other than goodwill, we have no intangible assets with indefinite useful lives. Adoption of this statement resulted in no goodwill impairment losses and had no impact on our financial position as of December 30, 2001. Had SFAS 142 been effective at the beginning of 2001, the non-amortization provisions would have increased net earnings by $0.3 million and $0.5 million for the three and six months ended June 30, 2001 and would have increased income from continuing operations by $0.1 million and $0.3 million for the same periods. As of June 29, 2002, the net carrying amount of goodwill was $14.3 million and intangible pension assets totaled $0.5 million.
 
7.
 
Borrowings
 
Long-term debt consists of the following:
 
In thousands
   
June 29, 2002
   
June 30, 2001
   
December 29, 2001
Borrowings under senior secured credit facility:
                     
Term loan A, variable rate, 4.11 percent at June 29, 2002, 6.59 percent at June 30, 2001 and 4.63 percent at December 29, 2001, with semi-annual principal and interest payments through May 2006
   
$
94,852
   
$
128,956
   
$
108,187
Term loan B, variable rate, 5.36 percent at June 29, 2002, 7.34 percent at June 30, 2001 and 5.38 percent at December 29, 2001, with semi-annual principal and interest payments through May 2008
   
 
330,291
   
 
341,053
   
 
331,939
Senior subordinated notes, 12.75 percent fixed rate, net of discounts of $17,547 at June 29, 2002, $18,700 at June 30, 2001 and $18,143 at December 29, 2001, with semi-annual interest payments of $14,334, principal due and payable at maturity—May 2010
   
 
207,453
   
 
206,300
   
 
206,857
    
  
  
    
 
632,596
   
 
676,309
   
 
646,983
Less current portion
   
 
22,049
   
 
20,879
   
 
20,966
    
  
  
    
$
610,547
   
$
655,430
   
$
626,017
    
  
  
 
We have a $150.0 million revolving credit facility that expires on May 31, 2006. We may borrow funds and elect to pay interest under the “alternative base rate” or “eurodollar” interest rate provisions as defined in the agreement. The eurodollar rate is based upon the London Interbank Offered Rate (“LIBOR”) and the alternative base rate is based upon the prime rate. There was $6.3 million outstanding under this facility, in the form of letters of credit, as of June 29, 2002.
 
8.
 
Shareholders’ Deficit
 
Our common stock consists of Class A through Class E common stock as well as undesignated common stock. Holders of Class A common stock are entitled to one vote per share, whereas holders of Class D common stock are entitled to 306.55 votes per share. Holders of Class B common stock, Class C common stock and Class E common stock have no voting rights.

8

Table of Contents

Notes to Condensed Consolidated Financial Statements (Unaudited)
Jostens, Inc. and subsidiaries

 
The par value and number of authorized, issued and outstanding shares for each class of common stock is set forth below:
 
In thousands, except par value data
     
Par Value
     
Authorized Shares
     
Issued and Outstanding Shares
              
June 29, 2002
     
June 30, 2001
     
December 29, 2001
Class A
     
$.33 1/3
     
4,200
     
2,825
     
2,862
     
2,834
Class B
     
$.01
     
5,300
     
5,300
     
5,300
     
5,300
Class C
     
$.01
     
2,500
     
811
     
811
     
811
Class D
     
$.01
     
20
     
20
     
20
     
20
Class E
     
$.01
     
1,900
     
—
     
—
     
—
Undesignated
     
$.01
     
12,020
     
—
     
—
     
—
             
    
    
    
             
25,940
     
8,956
     
8,993
     
8,965
             
    
    
    
 
During the quarter ended June 29, 2002, we repurchased 9,522 actual shares of our Class A common stock from a senior executive in accordance with his separation agreement. The senior executive repaid an outstanding promissory note of approximately $0.1 million. The promissory note had been executed by the executive as partial payment for such shares.
 
9.
 
Special Charges
 
Accrued special charges of $0.2 million, $2.0 million and $0.2 million at June 29, 2002, June 30, 2001 and December 29, 2002, respectively, are included in “other current liabilities” in our Condensed Consolidated Balance Sheets. In the second quarter of 2001, we entered into a separation agreement with a senior executive. The total cost of $2.1 million for severance and related termination benefits was expensed in 2001 and included costs for the senior executive and two other management personnel. We utilized $1.9 million of the special charge in 2001. The remaining liability of approximately $0.2 million will continue to be paid out over the next twelve months as specified under the separation agreement.
 
10.
 
Discontinued Operations
 
Discontinued operations represents the results of our Recognition business, which we exited on December 3, 2001 by selling certain assets and leasing our production facility to a current supplier who manufactures awards and trophies.
 
Revenue and loss from discontinued operations for the three and six-month periods ended June 30, 2001 were as follows:
 
In thousands
     
Three months ended June 30, 2001
       
Six months ended June 30, 2001
  
Revenue from external customers
     
$
13,235
 
     
$
32,940
 
      
    
Pre-tax loss from operations of discontinued operations before measurement date
     
$
(2,262
)
     
$
(5,985
)
Pre-tax loss on disposal
     
 
—
 
     
 
—
 
Income tax benefit
     
 
871
 
     
 
2,304
 
      
    
Net loss from discontinued operations
     
$
(1,391
)
     
$
(3,681
)
      
    
 
In conjunction with exiting the Recognition business, we recorded a $27.4 million pre-tax loss on disposal for the discontinued segment in the fourth quarter of 2001. The pre-tax loss on disposal consisted of a non-cash charge of $11.1 million to write off certain net assets not sold in the exit from the Recognition business plus a $16.3 million charge for accrued costs related to exiting the Recognition business. During the three-month period ended June 29, 2002, we reversed $1.4 million of these charges plus an additional $0.2
 

9

Table of Contents

Notes to Condensed Consolidated Financial Statements (Unaudited)
Jostens, Inc. and subsidiaries

million in other liabilities for a total pre-tax gain on discontinued operations of $1.6 million ($0.9 million, net of tax). Components of the accrued disposal costs are as follows:
 
In thousands
   
Initial charge
   
Prior accrual
   
Net adjustments in 2002
     
Utilization
     
Balance June 29, 2002
           
Six months ended June 29, 2002
     
Employee separation benefits and other related costs
   
$
6,164
   
$
—
   
$
(550
)
   
$
(4,443
)
   
$
1,171
Phase-out costs of exiting the Recognition business
   
 
4,255
   
 
—
   
 
(874
)
   
 
(2,592
)
   
 
789
Salesperson transition benefits
   
 
2,855
   
 
1,236
   
 
—
 
   
 
(737
)
   
 
3,354
Other costs related to exiting the Recognition business
   
 
3,018
   
 
1,434
   
 
—
 
   
 
(3,069
)
   
 
1,383
    
  
  
  
  
    
$
16,292
   
$
2,670
   
$
(1,424
)
   
$
(10,841
)
   
$
6,697
    
  
  
  
  
 
The plan of disposal contemplated a workforce reduction of 150 full-time positions in the Recognition business and corporate support functions. As of June 29, 2002, 114 employees had been terminated and the estimated workforce reduction has been revised to 130 full-time positions resulting in a $0.5 million pre-tax reduction to the accrued costs. Termination benefits will continue to be paid out over the benefit period as specified under our severance plan.
 
The $4.3 million charge for phase-out costs of exiting the Recognition business included $1.3 million for payroll and benefits, $0.8 million for information systems and customer service costs and $2.2 million of internal support costs expected to be incurred during the phase-out period. During the quarter ended June 29, 2002, we revised our estimate of phase-out costs, resulting in a $0.9 million pre-tax reduction to the accrued costs mainly due to lower information systems, customer service and internal support costs than originally anticipated.
 
The charge for accrued disposal costs also included $2.8 million for future payments of transition benefits earned by certain Recognition sales representatives. The transition benefits will be paid out over the next three years. In addition, we accrued $3.0 million for customer receivable and salesperson overdraft allowances anticipated as a result of exiting the Recognition business.
 
With the exception of certain transition benefits, we anticipate the remaining payments will occur in 2002. Of the $6.7 million in our Condensed Consolidated Balance Sheet as of June 29, 2002, $5.3 million is classified as “current liabilities of discontinued operations” and $1.4 million is classified as a contra asset. Assets of discontinued operations have been reclassified in aggregate to “current liabilities of discontinued operations”.
 
Assets and liabilities of the discontinued business included in our Condensed Consolidated Balance Sheets were as follows:
 
In thousands
   
June 29, 2002
   
June 30, 2001
   
December 29, 2001
Assets
                     
Accounts receivable
   
$
—
   
$
10,745
   
$
—
Inventories
   
 
—
   
 
7,621
   
 
—
Salespersons overdrafts
   
 
—
   
 
2,013
   
 
—
Current assets of discontinued operations
   
 
—
   
 
—
   
 
7,029
Intangibles
   
 
—
   
 
2,605
   
 
—
Property and equipment, net
   
 
—
   
 
2,058
   
 
—
Other
   
 
—
   
 
792
   
 
—
    
  
  
    
$
—
   
$
25,834
   
$
7,029
    
  
  
Liabilities
                     
Accounts payable
   
$
—
   
$
3,929
   
$
—
Accrued employee compensation and related taxes
   
 
—
   
 
1,245
   
 
—
Commissions payable
   
 
—
   
 
2,564
   
 
—
Other
   
 
—
   
 
3,189
   
 
—
Current liabilities of discontinued operations
   
 
5,939
   
 
—
   
 
16,511
    
  
  
    
$
5,939
   
$
10,927
   
$
16,511
    
  
  

10

Table of Contents

Notes to Condensed Consolidated Financial Statements (Unaudited)
Jostens, Inc. and subsidiaries

 
11.
 
New Accounting Standards
 
Accounting for Asset Retirement Obligations
In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143 (SFAS 143), “Accounting for Asset Retirement Obligations.” SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective for fiscal years beginning after June 15, 2002, with early adoption permitted. We expect that the provisions of SFAS 143 will not have a material impact, if any, on our consolidated results of operations, cash flows and financial position.
 
Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections
In April 2002, the FASB issued SFAS 145, which rescinds SFAS 4, “Reporting Gains and Losses from Extinguishments of Debt,” SFAS 44, “Accounting for Intangible Assets of Motor Carriers” and SFAS 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements” and amends SFAS 13, “Accounting for Leases.” As a result of rescinding SFAS 4 and SFAS 64, the criteria in APB 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” will be used to classify gains and losses from extinguishments of debt. SFAS 145 also amends SFAS 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. SFAS 145 is effective for fiscal years beginning after May 15, 2002, with early adoption permitted. We expect that the provisions of SFAS 145 will not have a material impact, if any, on our consolidated results of operations, cash flows and financial position.
 
12.
 
Subsequent Events
 
On July 31, 2002 we amended and restated our senior secured credit facility to provide for the repayment of Term Loan B with the proceeds of a new Term Loan C in the amount of $330.0 million. Term Loan C is payable in semi-annual installments of $1.0 million through June 30, 2008 and $106.0 million though December 31, 2009. The initial interest margin on Term Loan C is 75 basis points less than Term Loan B resulting in an approximate $2.5 million reduction of annual interest expense. In addition, Term Loan C provides for the repurchase of a limited amount of subordinated securities. Capitalized loan fees related to Term Loan B will continue to be amortized over the life of Term Loan C.
 

11

Table of Contents
 
ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Our disclosure and analysis in this report may contain some “forward-looking statements.” Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue,” or the negative thereof or similar words. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report and in any public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual results may vary materially. Investors are cautioned not to place undue reliance on any forward-looking statements. Investors should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties.
 
Any change in the following factors may impact the achievement of results:
 
 
·
 
our ability to satisfy our debt obligations, including related covenants;
 
 
·
 
the seasonality of our sales and operating income;
 
 
·
 
our relationship with our independent sales representatives and employees;
 
 
·
 
the fluctuating prices of raw materials, primarily gold;
 
 
·
 
our dependence on a key supplier for our synthetic and semiprecious stones;
 
 
·
 
fashion and demographic trends;
 
 
·
 
litigation cases, if decided against us, may adversely affect our financial results; and
 
 
·
 
environmental regulations that could impose substantial costs upon us may adversely affect our financial results.
 
The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact our business.
 
Except to the extent required by law, we undertake no obligation to publicly update or revise any forward-looking statements.

12

Table of Contents
 
RESULTS OF OPERATIONS
 
The following table sets forth selected information from our Condensed Consolidated Statements of Operations expressed as a percentage of net sales.
 
Dollars in thousands
   
Three months ended
     
$ Change
     
% Change
     
Six months ended
     
$ Change
     
% Change
  
  
June 29, 2002
     
June 30, 2001
           
June 29, 2002
     
June 30, 2001
        
Net sales
   
$
353,720
 
   
$
337,740
 
   
$
15,980
 
   
4.7
%
   
$
475,043
 
   
$
454,804
 
   
$
20,239
 
   
4.5
%
% of net sales
   
 
100.0
%
   
 
100.0
%
                   
 
100.0
%
   
 
100.0
%
                
Cost of products sold
   
 
151,446
 
   
 
145,638
 
   
 
5,808
 
   
4.0
%
   
 
199,153
 
   
 
191,564
 
   
 
7,589
 
   
4.0
%
% of net sales
   
 
42.8
%
   
 
43.1
%
                   
 
41.9
%
   
 
42.1
%
                
    
  
  
  
  
  
  
  
Gross profit
   
 
202,274
 
   
 
192,102
 
   
 
10,172
 
   
5.3
%
   
 
275,890
 
   
 
263,240
 
   
 
12,650
 
   
4.8
%
% of net sales
   
 
57.2
%
  
 
56.9
%
                  
 
58.1
%
   
 
57.9
%
                
Selling and administrative expenses
   
 
100,480
 
   
 
95,433
 
   
 
5,047
 
   
5.3
%
   
 
167,491
 
   
 
162,548
 
   
 
4,943
 
   
3.0
%
% of net sales
   
 
28.4
%
   
 
28.3
%
                   
 
35.3
%
   
 
35.7
%
                
Special charges, net
   
 
—  
 
   
 
2,138
 
   
 
(2,138
)
   
NM
 
   
 
—  
 
   
 
2,138
 
   
 
(2,138
)
   
NM
 
    
  
  
  
  
  
  
  
Operating income
   
 
101,794
 
   
 
94,531
 
   
 
7,263
 
   
7.7
%
   
 
108,399
 
   
 
98,554
 
   
 
9,845
 
   
10.0
%
% of net sales
   
 
28.8
%
   
 
28.0
%
                   
 
22.8
%
   
 
21.7
%
                
Net interest expense
   
 
17,016
 
   
 
19,640
 
   
 
(2,624
)
   
(13.4
%)
   
 
34,706
 
   
 
40,922
 
   
 
(6,216
)
   
(15.2
%)
% of net sales
   
 
4.8
%
   
 
5.8
%
                   
 
7.3
%
   
 
9.0
%
                
    
  
  
  
  
  
  
  
Income from continuing operations before income taxes
   
 
84,778
 
   
 
74,891
 
   
 
9,887
 
   
13.2
%
   
 
73,693
 
   
 
57,632
 
   
 
16,061
 
   
27.9
%
% of net sales
   
 
24.0
%
   
 
22.2
%
                   
 
15.5
%
   
 
12.7
%
                
Provision for income taxes
   
 
35,184
 
   
 
31,012
 
   
 
4,172
 
   
13.5
%
   
 
30,584
 
   
 
23,739
 
   
 
6,845
 
   
28.8
%
% of net sales
   
 
9.9
%
   
 
9.2
%
                   
 
6.4
%
   
 
5.2
%
                
    
  
  
  
  
  
  
  
Income from continuing operations
   
 
49,594
 
   
 
43,879
 
   
 
5,715
 
   
13.0
%
   
 
43,109
 
   
 
33,893
 
   
 
9,216
 
   
27.2
%
% of net sales
   
 
14.0
%
   
 
13.0
%
                   
 
9.1
%
   
 
7.5
%
                
Gain (loss) on discontinued operations, net of tax
   
 
940
 
   
 
(1,391
)
   
 
2,331
 
   
NM
 
   
 
940
 
   
 
(3,681
)
   
 
4,621
 
   
NM
 
% of net sales
   
 
0.3
%
   
 
-0.4
%
                   
 
0.2
%
   
 
-0.8
%
                
    
  
  
  
  
  
  
  
Net income
   
$
50,534
 
   
$
42,488
 
   
$
8,046
 
   
18.9
%
   
$
44,049
 
   
$
30,212
 
   
$
13,837
 
   
45.8
%
    
  
  
  
  
  
  
  
% of net sales
   
 
14.3
%
   
 
12.6
%
                   
 
9.3
%
   
 
6.6
%
                
Percentages in this table may reflect rounding adjustments.
NM = percentage not meaningful
 
Three Months Ended June 29, 2002 Compared to the Three Months Ended June 30, 2001
 
Net Sales
Net sales increased $16.0 million, or 4.7%, to $353.7 million for the three months ended June 29, 2002 from $337.7 million for the same period last year. The increase in net sales resulted from price increases averaging approximately 2.7% and volume/mix increases of approximately 2.0%. The increase in net sales was primarily due to:
 
 
·
 
price increases in the printing and graduation product lines;
 
·
 
increased volume as a result of new account growth across all product lines;
 
·
 
increased volume for yearbook printing due to an increase in the number of color pages; and
 

13

Table of Contents
 
·
 
increased volume in the high school jewelry market due to timing of delivery dates compared to last year.
 
These increases were partially offset by the following:
 
 
·
 
decreased volume in commercial printing;
 
·
 
decreased volume for graduation diplomas due to earlier deliveries than last year; and
 
·
 
decreased volume in graduation announcements due to lower dollars spent per student.
 
Gross Margin
Gross profit increased $10.2 million, or 5.3%, to $202.3 million for the three months ended June 29, 2002 from $192.1 million for the same prior year period. As a percentage of sales, gross margin increased 0.3% to 57.2% for the current three-month period from 56.9% for the same period last year. The increase in gross margin can be attributed to:
 
 
·
 
price increases primarily in the printing and graduation product lines;
 
·
 
continued improvement in plant efficiencies company-wide, particularly in jewelry production; and
 
·
 
a favorable sales mix of our printing products resulting in increased higher margin yearbook volume and decreased lower margin commercial printing volume.
 
These increases were partially offset by a shift in sales mix of graduation product offerings.
 
Selling and Administrative Expenses
Selling and administrative expenses increased $5.0 million, or 5.3%, to $100.5 million for the three months ended June 29, 2002 from $95.4 million for the same prior year period. As a percentage of sales, selling and administrative expenses remained relatively flat at 28.4% for the current three-month period compared to 28.3% for the same period last year. The $5.0 million increase is primarily due to higher commission expense in our printing and jewelry product lines and higher general and administrative expense, both as a result of increased sales.
 
Net Interest Expense
Net interest expense decreased $2.6 million to $17.0 million for the three months ended June 29, 2002 as compared to $19.6 million for the three months ended June 30, 2001. The decrease was due to a lower average outstanding balance and a lower average interest rate.
 
Provision for Income Taxes
Our effective tax rate for continuing operations was 41.5% for the three months ended June 29, 2002 compared to 41.4% for the same period last year.
 
Income From Continuing Operations
Income from continuing operations increased $5.7 million, or 13.0% to $49.6 million for the three months ended June 29, 2002 from $43.9 million for the same prior year period as a result of increased net sales, relatively flat spending and lower net interest expense.
 
Discontinued Operations
Loss from discontinued operations was $1.4 million for the three months ended June 30, 2001. This represents the results of our Recognition business, which we exited in December 2001 by selling certain assets and leasing our production facility to a former supplier who manufactures awards and trophies. Income from discontinued operations of $0.9 million for the three months ended June 29, 2002 represents the after-tax effect of a $1.6 million reversal of accrued disposal costs.
 
In conjunction with exiting the Recognition business, we recorded a $27.4 million pre-tax loss on disposal of the discontinued segment in the fourth quarter of 2001. The pre-tax loss on disposal consisted of a non-cash charge of $11.1 million to write off certain net assets not sold in the exit from the Recognition business

14

Table of Contents
plus a $16.3 million charge for accrued costs related to exiting the Recognition business. During the three-month period ended June 29, 2002, we reversed $1.4 million of these charges plus an additional $0.2 million in other liabilities for a total pre-tax gain on discontinued operations of $1.6 million ($0.9 million, net of tax). Components of the accrued disposal costs are as follows:
 
                     
Utilization
       
In thousands
   
Initial charge
   
Prior accrual
   
Net adjustments in 2002
     
Six months ended June 29, 2002
     
Balance June 29, 2002
Employee separation benefits and other related costs
   
$
6,164
   
$
—
   
$
(550
)
   
$
(4,443
)
   
$
1,171
Phase-out costs of exiting the Recognition business
   
 
4,255
   
 
—
   
 
(874
)
   
 
(2,592
)
   
 
789
Salesperson transition benefits
   
 
2,855
   
 
1,236
   
 
—
 
   
 
(737
)
   
 
3,354
Other costs related to exiting the Recognition business
   
 
3,018
   
 
1,434
   
 
—
 
   
 
(3,069
)
   
 
1,383
    
  
  
  
  
    
$
16,292
   
$
2,670
   
$
(1,424
)
   
$
(10,841
)
   
$
6,697
    
  
  
  
  
 
The plan of disposal contemplated a workforce reduction of 150 full-time positions in the Recognition business and corporate support functions. As of June 29, 2002, 114 employees had been terminated and the estimated workforce reduction has been revised to 130 full-time positions resulting in a $0.5 million pre-tax reduction to the accrued costs. Termination benefits will continue to be paid out over the benefit period as specified under our severance plan.
 
The $4.3 million charge for phase-out costs of exiting the Recognition business included $1.3 million for payroll and benefits, $0.8 million for information systems and customer service costs and $2.2 million of internal support costs expected to be incurred during the phase-out period. During the quarter ended June 29, 2002, we revised our estimate of phase-out costs, resulting in a $0.9 million pre-tax reduction to the accrued costs mostly due to lower information systems, customer service and internal support costs than originally anticipated.
 
The charge for accrued disposal costs also included $2.8 million for future payments of transition benefits earned by certain Recognition sales representatives. The transition benefits will be paid out over the next three years. In addition, we accrued $3.0 million for customer receivable and salesperson overdraft allowances anticipated as a result of exiting the Recognition business.
 
With the exception of certain transition benefits, we anticipate the remaining payments will occur in 2002. Of the $6.7 million in our Condensed Consolidated Balance Sheet as of June 29, 2002, $5.3 million is classified as “current liabilities of discontinued operations” and $1.4 million is classified as a contra asset. Assets of discontinued operations have been reclassified in aggregate to “current liabilities of discontinued operations”.
 
Six Months Ended June 29, 2002 Compared to the Six Months Ended June 30, 2001
 
Net Sales
Net sales increased $20.2 million, or 4.5%, to $475.0 million for the six months ended June 29, 2002 from $454.8 million for the same period last year. The increase in net sales resulted from price increases averaging approximately 2.7% and volume/mix increases of approximately 1.8%. The increase in net sales was primarily due to:
 
 
·
 
price increases in the printing and graduation product lines;
 
·
 
increased volume as a result of new account growth across all product lines; and
 
·
 
increased volume for yearbook printing due to an increase in the number of color pages.
 
These increases were partially offset by the following:
 
 
·
 
decreased volume in the college jewelry and graduation product lines as a result of the loss of a significant customer;

15

Table of Contents
 
·
 
volume decreases in graduation announcements due to lower dollars spent per student; and
 
·
 
decreased volume in commercial printing.
 
Gross Margin
Gross profit increased $12.7 million, or 4.8%, to $275.9 million for the six months ended June 29, 2002 from $263.2 million for the same prior year period. As a percentage of sales, gross margin increased 0.2% to 58.1% for the current six-month period from 57.9% for the same period last year. The increase in gross margin can be attributed to:
 
 
·
 
price increases primarily in the printing and graduation product lines;
 
·
 
continued improvement in plant efficiencies company-wide, particularly in jewelry production; and
 
·
 
a favorable sales mix of our printing products resulting in increased higher margin yearbook volume and decreased lower margin commercial printing volume.
 
These increases were partially offset by a shift in sales mix of graduation product offerings.
 
Selling and Administrative Expenses
Selling and administrative expenses increased $4.9 million, or 3.0%, to $167.5 million for the six months ended June 29, 2002 from $162.5 million for the same prior year period. As a percentage of sales, selling and administrative expenses decreased 0.4% to 35.3% for the current six-month period from 35.7% for the same period last year. The $4.9 million increase is primarily due to:
 
 
·
 
higher commission expense as a result of increased sales;
 
·
 
higher spending on information systems related to the upgrade of our transaction processing system and application development in one of our product lines; and
 
·
 
higher general and administrative expenses as a result of increased sales.
 
Net Interest Expense
Net interest expense decreased $6.2 million to $34.7 million for the six months ended June 29, 2002 as compared to $40.9 million for the six months ended June 30, 2001. Similar to the quarter activity, the decrease was due to a lower average outstanding balance and a lower average interest rate.
 
Provision for Income Taxes
Our effective tax rate for continuing operations was 41.5% for the three months ended June 29, 2002 compared to 41.2% for the same period last year.
 
Income From Continuing Operations
Income from continuing operations increased $9.2 million, or 27.2% to $43.1 million for the six months ended June 29, 2002 from $33.9 million for the same prior year period as a result of increased net sales, relatively flat spending and lower net interest expense.
 
Discontinued Operations
Loss from discontinued operations was $3.7 million for the six months ended June 30, 2001 and represents the results of our Recognition business, which we exited in December 2001. Income from discontinued operations of $0.9 million for the six months ended June 29, 2002 represents the after-tax effect of a $1.6 million reversal of accrued disposal costs.

16

Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
 
Our primary cash needs are for debt service obligations, capital expenditures, working capital and general corporate purposes. As of June 29, 2002, we had cash and cash equivalents of $59.1 million. Our free cash flow for the six months ended June 29, 2002 was $31.2 million compared to $25.5 million for the same period last year. Free cash flow excludes the effects of cash flow from financing activities.
 
Operating Activities
Operating activities generated cash of $39.6 million during the six months ended June 29, 2002 compared to $30.5 million for the same prior year period. Principal components of the $9.1 million increase include a $9.2 million improvement in earnings from continuing operations plus a $4.6 million favorable fluctuation in the results of discontinued operations. In addition, working capital related to continuing operations improved $6.0 million, but was offset by a $10.1 million decrease in operating cash flow associated with our discontinued operations.
 
Investing Activities
Capital expenditures for the six months ended June 29, 2002 were $8.5 million compared to $9.0 million for the same period last year. $0.3 million of the decrease relates to 2001 capital spending on our discontinued operations.
 
Financing Activities
Net cash used for financing activities consists primarily of principal payments on our long-term debt. During the six months ended June 29, 2001, we made scheduled principal payments of $10.0 million and voluntarily prepaid an additional $5.0 million of principal on our senior secured credit facility. We have a $150.0 million revolving credit facility that expires on May 31, 2006. There was no short-term borrowing activity during the first six months of 2002, however there was $6.3 million outstanding under this facility, in the form of letters of credit, as of June 29, 2002.
 
On July 31, 2002 we amended and restated our senior secured credit facility to provide for the repayment of Term Loan B with the proceeds of a new Term Loan C in the amount of $330.0 million. Term Loan C is payable in semi-annual installments of $1.0 million through June 30, 2008 and $106.0 million though December 31, 2009. The initial interest margin on Term Loan C is 75 basis points less than Term Loan B resulting in an approximate $2.5 million reduction of annual interest expense. In addition, Term Loan C provides for the repurchase of a limited amount of subordinated securities. Capitalized loan fees related to Term Loan B will continue to be amortized over the life of Term Loan C.
 
NEW ACCOUNTING STANDARDS
 
Accounting for Asset Retirement Obligations
In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143 (SFAS 143), “Accounting for Asset Retirement Obligations.” SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective for fiscal years beginning after June 15, 2002, with early adoption permitted. We expect that the provisions of SFAS 143 will not have a material impact, if any, on our consolidated results of operations, cash flows and financial position.
 
Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections
In April 2002, the FASB issued SFAS 145, which rescinds SFAS 4, “Reporting Gains and Losses from Extinguishments of Debt,” SFAS 44, “Accounting for Intangible Assets of Motor Carriers” and SFAS 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements” and amends SFAS 13, “Accounting for Leases.” As a result of rescinding SFAS 4 and SFAS 64, the criteria in APB 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” will be used to classify gains and losses from

17

Table of Contents
extinguishments of debt. SFAS 145 also amends SFAS 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. SFAS 145 is effective for fiscal years beginning after May 15, 2002, with early adoption permitted. We expect that the provisions of SFAS 145 will not have a material impact, if any, on our consolidated results of operations, cash flows and financial position.
 
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
There have been no material changes in our market risk during the six months ended June 29, 2002. For additional information, refer to Item 7A of our 2001 Form 10-K.

18

Table of Contents
PART II    OTHER INFORMATION
 
ITEM 1.    LEGAL PROCEEDINGS
 
A federal antitrust action was served on Jostens on October 23, 1998. The complainant, Epicenter Recognition, Inc. (“Epicenter”), alleges that Jostens has attempted to monopolize the market of high school graduation products in the state of California. Epicenter is a successor to a corporation formed by four of our former sales representatives. The plaintiff claimed damages of approximately $3.0 million to $10.0 million under various theories and differing sized relevant markets. Epicenter waived its right to a jury, so the case was tried before a judge in U.S. District Court in Orange County, California. On June 18, 2002, the Court found, among other things, that while Jostens’ use of rebates, contributions and value-added programs are legitimate business practices widely practiced in the industry and not violative of antitrust laws, our use of multi-year Total Service Program contracts violated Section 2 of the Sherman Act because these agreements could “exclude competition by making it difficult for a new vendor to compete against Jostens.” On July 12, 2002, the Court entered an Order providing, among other things, that Epicenter be awarded damages of $1.00, trebled pursuant to Section 15 of the Clayton Act, and that in the state of California, Jostens is enjoined for a period of ten years from utilizing any contract, including those for Total Service Programs, for a period which extends for more than one year. The Order also provides for payment to Epicenter of reasonable attorneys fees and costs. Jostens has made a Rule 60 motion to set aside the Order. The Court has taken it and the written arguments of the parties on attorneys fees under advisement. We expect a ruling shortly.
 
We are a party to other litigation arising in the normal course of business. We regularly analyze current information and, as necessary, provide accruals for probable liabilities on the eventual disposition of these matters. We believe the effect on our consolidated results of operations, cash flows and financial position, if any, for the disposition of these matters will not be material.
 
ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K
 
(a)
 
Exhibits
 
10.1
   
Separation Agreement, dated as of April 1, 2002 between Jostens, Inc. and Mr. Gregory S. Lea.
12
   
Computation of Ratio of Earnings to Fixed Charges
 
(b)
 
Reports on Form 8-K
 
    
 
A Form 8-K dated July 31, 2002 and filed on August 8, 2002 announcing an amendment of the senior secured credit facility.

19

Table of Contents
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
   
JOSTENS, INC.
August 9, 2002
  
By
  
/s/    Robert C. Buhrmaster
       
       
Robert C. Buhrmaster
       
Chairman, President and Chief Executive Officer
August 9, 2002
  
By
  
/s/ John A. Feenan
       
       
John A. Feenan
       
Sr. Vice President and Chief Financial Officer

20