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UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended January 1, 2005
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission
File Number
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Registrant,
State of Incorporation
Address and Telephone Number
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I.R.S.
Employer
Identification
Number
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333-112055
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VISANT HOLDING CORP.
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90-0207875
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(Incorporated in
Delaware)
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One
Byram Brook Place, Suite 202
Armonk,
New York 10504
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Telephone: (914) 595-8200
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333-120386
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VISANT CORPORATION
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90-0207604
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(Incorporated in
Delaware)
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One
Byram Brook Place, Suite 202
Armonk New York 10504
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Telephone: (914) 595-8200
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Securities Registered Pursuant to Section 12(b) of the
Act: None
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Securities
Registered Pursuant to Section 12(g) of the Act:
None
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Indicate by check mark whether each 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 ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein,
and will not be contained, to the best of each registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether any of the registrants is an accelerated
filer (as defined in Rule 12b-2 of the Act).
Yes o No ý
The common stock of each registrant is not publicly traded. Therefore, the aggregate market value is not
readily determinable.
As of March 23, 2005, there were 5,971,577 shares of Class A Common
Stock, par value $.01 per share, and one share of Class C Common Stock, par
value $.01 per share, of Visant Holding Corp. outstanding and 1,000 shares of
common stock, par value $.01 per share, of Visant Corporation outstanding (all
of which are owned beneficially by Visant Holding Corp.)
Documents incorporated by reference:
None
Visant Corporation meets the conditions set forth in General
Instruction (I)(1)(a) and (b) of the Form 10-K and is therefore filing this
Form 10-K with the reduced disclosure format.
FILING FORMAT
This Annual Report on Form 10-K is a combined report being filed
separately by two registrants: Visant
Holding Corp. (“Holdings”) and Visant Corporation, a wholly owned subsidiary of
Holdings (“Visant”). Unless the context
indicates otherwise, any references in this report to the “Company,” “we,” “our,”
“us” or “Holdings” refers to Visant Holding Corp., together with Visant
Corporation and its consolidated subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in
this Annual Report on Form 10-K under the captions ITEM 1., Business, ITEM
7., Management’s Discussion and Analysis
of Financial Condition and Results of Operations and elsewhere constitute “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995. The Private Securities
Litigation Reform Act of 1995 provides a “safe harbor” for certain
forward-looking statements so long as such information is identified as
forward-looking and is accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those projected in the information. When used in this Annual Report on Form 10-K,
the words “may”, “might”, “will”, “should”,
“estimate”, “project”, “plan”, “anticipate”, “expect”, “intend”, “outlook”, “continue”,
“believe”, or the negative thereof or other similar expressions are intended to
identify forward-looking statements and information. We may also make written or oral
forward-looking statements in our periodic reports to the Securities and
Exchange Commission on Forms 10-Q and 8-K, in press releases and other written
materials and in oral statements made by our officers, directors or employees
to third parties. Such forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of the
Company, or industry results, to differ materially from historical results, any
future results, performance or achievements expressed or implied by such
forward-looking statements. These forward-looking
statements are based on estimates and assumptions by our management that,
although we believe are reasonable, are inherently uncertain and subject to a
number of risks and uncertainties and you should not place undue reliance on
them.
Such risks and
uncertainties include, but are not limited to, the following: our substantial
indebtedness; our inability to implement our business strategy and achieve
anticipated cost savings in a timely and effective manner; competition from
other companies; the seasonality of our businesses; the loss of significant
customers or customer relationships; fluctuations in raw material prices; our
reliance on a limited number of suppliers; our reliance on numerous complex
information systems; the reliance of our businesses on limited production
facilities; the amount of capital expenditures required at our businesses;
labor disturbances; environmental regulations; foreign currency fluctuations
and foreign exchange rates; the outcome of litigation; control by our
controlling stockholders; the dependency on the sale of school textbooks, the
textbook adoption cycle and levels of government funding for education spending;
Jostens’ (as defined) reliance on independent sales representatives; and the
failure of Arcade’s (as defined) sampling systems to comply with U.S. postal
regulations. These factors could cause
actual results to differ materially from historical results or those
anticipated or predicted by the forward-looking statements.
We caution that the foregoing list of important
factors is not exclusive.
Forward-looking statements speak only as of the date they are made and
we undertake no obligation to update publicly or revise any of them in light of
new information, future events or otherwise, except as required by law.
Available Information
We are subject to the
informational requirements of the Securities Exchange Act of 1934 (the “Exchange
Act”). We therefore file periodic
reports and other information with the Securities and Exchange Commission (“SEC”). We make available free of charge on our internet
website at http://www.Jostens.com (on or about May 15, 2005, at
http://www.visant.net) our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, and any amendments to those reports
filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act that
are filed with the SEC. These reports
are available as soon as reasonably practicable after such material is
electronically filed with, or furnished to, the SEC. The reference to our website address does not
constitute incorporation by reference of the information contained on the
website, and the information contained on the website is not part of this
document. In addition, the SEC maintains
an internet site (http://www.sec.gov) that contains periodic reports and other
information regarding issuers that file electronically.
1
Except
where otherwise indicated, all references in this report to (1) the “Company,” “we,”
“our,” “us” or “Holdings” refers to Visant Holding Corp. (formerly Jostens
Holding Corp.), together with Visant Corporation (formerly Jostens IH Corp.)(“Visant”)
and its subsidiaries, (2) “Jostens” refers to Jostens, Inc. and its
subsidiaries, (3) “Von Hoffmann” refers to Von Hoffmann Holdings Inc. and its
subsidiaries and (4) “Arcade” refers to AHC I Acquisition Corp. and its
subsidiaries. All references to a
particular fiscal year are to the four fiscal quarters ended the Saturday
nearest to December 31.
Our Company
We are a leading North American specialty printing,
marketing and school-related affinity products and services enterprise that was
formed through the consolidation of Jostens, Von Hoffmann and Arcade. We generated approximately 77% of our fiscal
2004 net sales from printing and marketing products, which include, among
others, yearbooks, educational materials, diplomas, announcements, direct
marketing materials and commercial printing.
We also manufacture and distribute other non-print based school-related
affinity products and services such as class rings, caps and gowns and school
photography.
Background
We are owned by
affiliates of DLJ Merchant Banking Partners III, L.P. (“DLJMBP III”),
affiliates of Kohlberg, Kravis, Roberts & Co. L.P. (“KKR”), other
co-investors and certain members of management.
Each of Holdings and Visant was incorporated in the state of Delaware in
2003. On July 21, 2004, Holdings
entered into a contribution agreement with Fusion Acquisition LLC (“Fusion”),
an affiliate of KKR, pursuant to which Fusion contributed (the “Contribution”)
all of the stock of Von Hoffmann and
Arcade that Fusion acquired immediately prior to such Contribution pursuant to
two separate mergers in exchange for shares of Holdings common stock. Subsequent to the Contribution, Holdings
caused all of the equity interests of Von Hoffmann and Arcade held by it to be
contributed to Visant, which resulted in Von Hoffmann and Arcade becoming
wholly-owned subsidiaries of Visant.
The Contribution, mergers
and related financing transactions are referred to collectively as the “Transactions”.
Prior to the Transactions, Von Hoffmann and Arcade
were each controlled by affiliates of DLJ Merchant Banking
Partners II, L.P. (“DLJMBP II”), and DLJMBP III owned
approximately 82.5% of Holdings’ outstanding equity, with the remainder held by
other co-investors and certain members of management. Upon consummation of the Transactions, an
affiliate of KKR was issued equity interests representing approximately 49.6%
of Holdings’ voting interest and 45% of its economic interest. Immediately following the Transactions,
affiliates of DLJMBP III held equity interests representing approximately
41% of Holdings’ voting interest and 45% of its economic interest, with the
remainder held by other co-investors and certain members of management. After giving effect to the issuance of equity
to additional members of management, as of March 23, 2005, affiliates of KKR
and DLJMBP III hold approximately 49.1% and 41.0%, respectively, of the voting
interests of Holdings, while each continue to hold approximately 45% of
Holdings’ economic interest.
In connection with the
Transactions, Visant entered into new senior secured credit facilities,
providing for an aggregate amount of $1,270 million, consisting of a $150
million Term A loan facility, an $870 million Term C loan
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facility and a
$250 million revolving credit facility, primarily to cover seasonal
working capital requirements, and issued $500 million aggregate principal
amount of 75/8% senior subordinated notes.
In connection with the Transactions, we concluded
tender offers to repurchase any and 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 received the requisite consents from the
respective holders of these notes to amend the covenants and effect certain
other amendments to those indentures. In
accordance with the contribution agreement, we discharged the indentures
governing the 123/4% Senior Subordinated Notes
Due 2010 of Jostens and the 101/4% Senior Notes Due 2009 of Von
Hoffmann and redeemed all such other notes not tendered in connection with the
tender offers.
Additionally, in connection with the Transactions:
• Von
Hoffmann equity holders were paid approximately $183.8 million;
• Holders
of Arcade’s Amended and Restated Notes were paid $76.5 million and holders of
Arcade’s Mandatorily Redeemable Preferred Stock were paid $65.2 million;
• Jostens
repaid approximately $77.1 million of indebtedness under its previous revolving
credit facility;
• We
used approximately $1,384.6 million 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);
• We
paid approximately $95.6 million of transaction fees and expenses; and
• We
issued shares of Holdings’ common stock and options to purchase shares of
Holdings’ common stock to Marc Reisch, our Chairman, President and Chief
Executive Officer.
As a result of the merger with a subsidiary
established by DLJMBP III on July 29, 2003 (the “2003 Jostens merger”), we
applied purchase accounting and a new basis of accounting began after
July 29, 2003. Fiscal 2003 includes
a predecessor period from December 29, 2002 to July 29, 2003 (seven
months) and a successor period from July 30, 2003 to January 3, 2004
(five months). The consolidated
financial statements for the predecessor period are those of Jostens and its
wholly owned subsidiaries and have been prepared using the historical basis of
accounting for Jostens The financial
statements for the successor period include the consolidation of Jostens, Von
Hoffmann and Arcade, entities under common control.
In connection with the Transactions, during the fourth
quarter of 2004, we changed the Company’s reportable segments to reflect the
impact of the Transactions, including the addition of the results of operations
of Von Hoffmann, Lehigh Lithographers, Arcade and Lehigh Direct to our
consolidated reported results. The
segments were identified based on factors including the nature of products and
services, the availability of discrete financial information, and the manner in
which the chief operating decision maker regularly assesses the information for
decision-making purposes. Our reportable
segments consist of Jostens and our Print Group. Segment revenues for Jostens and our Print
Group in fiscal 2004 were $807.2 million and $654.9 million, respectively. For additional financial information about
our operating segments, see Note 18 of the Notes to Consolidated Financial
Statements.
Jostens
Jostens is the nation’s leading provider of school-related
affinity products and services including yearbooks, class rings and graduation
products. Jostens has a 107-year history
of providing quality products, which has enabled it to develop long-standing
relationships with school administrators throughout the country. Jostens’ high degree of customer satisfaction
translates into annual retention rates of over 90% in its major product
lines. Jostens’ products and services
are predominantly offered to North American high school and college students,
primarily through a network of approximately 1,000 sales representatives and
associates. Most of these sales
representatives and associates are independent.
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Principal products and services
Yearbooks. We believe Jostens is the leading
manufacturer of yearbooks sold to schools in the United States, serving U.S.
high schools, colleges, universities and middle schools. Jostens generates the majority of its
revenues from high school accounts, although a small commercial printing
business is also included in this product line.
Jostens’ sales representatives and technical support employees assist
students and faculty advisers with the planning and layout of yearbooks. With a new class of students each year and
periodic faculty advisor turnover, Jostens’ independent sales representatives
and customer service employees are the main point of continuity for the
yearbook production process on a year-to-year basis.
Class
and affiliation rings.
We believe Jostens is the leading provider of class and affiliation
rings, serving U.S. high schools, colleges, universities and other specialty
markets. In most schools with which it
has a relationship, Jostens sells class rings to students as the designated
supplier of the school’s official class ring.
Class rings are also sold through college bookstores, other campus
stores, retail jewelry stores and via the Internet. Jostens sells a significant portion of its
class rings within schools, where Jostens’ independent sales representatives,
along with the support of customer service employees, coordinate ring design,
promotion and ordering with the students.
Jostens’ proprietary ring dies and tooling and Jostens’ manufacturing
expertise enable it to offer highly customized class rings. Jostens also designs, manufactures and sells
championship rings for professional sports and affinity rings for a variety of
specialty markets.
Graduation
products. We believe
Jostens is the leading provider of graduation products, serving U.S. high
schools, colleges and universities.
Jostens sells caps, gowns, diplomas and announcements, as well as
graduation-related accessories, to students and administrators through the same
independent sales representatives who sell class rings. Jostens has a proven track record of
providing high quality on-time delivery of its wide array of graduation
products. In recent years, Jostens’ line
of graduation products has been expanded to include diploma plaques and
personalization options for its regalia line.
Jostens maintains product-specific tooling as well as a library of
school logos and mascots that can be used repeatedly for specific school
accounts over time.
Photography. We believe Jostens is the leading provider of
school photography products and services in Canada and has a small but growing
presence in the United States. Through
Jostens’ network of sales representatives and independent dealers, Jostens
provides photography services for special events and class and individual
school pictures of elementary, middle and high school students. Jostens also provides high school senior
portraits and photography for proms and other special events. In addition to its products designed for
student purchasers, Jostens provides photography products to school
administrators, including office records photos, school composites, pictorial
directories and identification cards.
Sales and marketing
Although Jostens markets its products primarily
through independent sales representatives, Jostens also markets certain of its
products through a direct employee-based sales organization. We believe Jostens has the largest sales
force in the school-related affinity products and services industry. Sales representatives gain access to K-12
schools and colleges through administrators or student representatives who are
involved in the selection process. Once
selected, the sales representative coordinates between the school and Jostens’
customer service and plant employees to ensure satisfactory quality and
service. Jostens’ sales representatives
and their associates sell yearbooks directly to schools. Class rings are sold within the school through
temporary order-taking booths, bookstores, other campus stores and retail
jewelry stores. Jostens’ sales
representatives make calls on schools and take sales orders for graduation
products through temporary order-taking booths, telemarketing programs, college
bookstores and via the Internet. Jostens
sells its photography services through sales representatives who arrange the
sittings at individual schools or in their own studios.
Production and manufacturing
Jostens has continually
invested in its manufacturing facilities to achieve process improvements and
has implemented the lean manufacturing concept in many of its processes. We believe that these investments, along with
Jostens’ significant experience in its industry, have made
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Jostens one of the most efficient manufacturers of
school-related affinity products.
Additionally, by investing to establish these capabilities, we have been
able to consistently provide high quality products to our customers in a timely
fashion.
The school-related affinity products market is
seasonal, with the majority of the yearbooks and graduation products
manufacturing occurring in the winter through spring season, while the majority
of class ring and photography manufacturing occurs in the fall. We believe Jostens’ leading market share and
technology position, in connection with its extensive manufacturing capacity,
allow it to better manage periods of high and low capacity utilization, as well
as the corresponding impact on working capital, by “flexing” up and down
activity very efficiently. To facilitate
this “flexing”, Jostens maintains access to a pool of skilled seasonal
employees, many of whom have been employed by Jostens on a seasonal basis for
numerous years.
The Print Group
The Print Group is comprised of
the operations of Von Hoffmann, Lehigh Lithographers, Arcade and Lehigh
Direct. Lehigh Lithographers and Lehigh
Direct were acquired by Von Hoffmann through its acquisition of The Lehigh
Press, Inc., or Lehigh Press, in October 2003.
Von Hoffmann
Von Hoffmann is a leading
manufacturer of four-color case-bound and soft-cover educational textbooks,
textbook covers, standardized test materials and related components for major
educational publishers in the United States.
In addition to textbook manufacturing, Von Hoffmann provides its
customers with a full range of value-added printing and design services from
early design to final distribution. Over
its 100-year history, Von Hoffmann has established itself as a trusted provider
of quality products with a reputation for on-time delivery and innovation. Von Hoffmann also provides commercial
printing services to non-educational customers, including business-to-business
catalog publishers, the federal government, trade publishers and the
health-care and financial services industries.
Lehigh Lithographers is a leader in the printing of decorative covers
and book components in the instructional materials market.
Principal products and services
Four-color
educational and commercial materials. Von Hoffmann’s Jefferson City, Missouri
facility focuses primarily on the manufacture of four-color products including
textbooks for the elementary through high school, or ELHI, and college markets
and commercial products. Von Hoffmann
employs specially modified machinery to meet the demanding service, quality and
delivery requirements of these markets, and we believe that Von Hoffmann is
well-positioned to accommodate the relatively short lead-times, a broad variety
of complex binding requirements and highly variable run lengths that typify the
four-color product industries. These
factors distinguish Von Hoffmann from other book manufacturers who focus on
multiple products and for whom four-color products represent only a small
portion of overall product mix.
Approximately 50% of ELHI textbooks are shipped to
states that require publishers to keep a particular title in print and supply
orders for reprints for periods generally ranging from five to eight
years. Other ELHI and college textbooks
are kept in print for approximately four to six years. The reprint business is also necessitated by
partial corrections or copyright edition changes that must be made in order to
incorporate new information or to comply with editorial changes demanded by
school committees in various states. In
2004, approximately 74% of Von Hoffmann’s four-color ELHI net sales were
generated from reprints, and Von Hoffmann retained over 98% of its ELHI reprint
business while losing less than 2% to competitors.
One-
and two-color educational and commercial materials. Von Hoffmann’s Owensville, Missouri and
Eldridge, Iowa facilities currently focus on the one- and two-color book
manufacturing market. These facilities
also feature binding operations, including adhesive and saddle-stitch styles,
and provide fulfillment and distribution services.
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Creative
and book design services.
With the acquisitions of H&S Graphics, Preface and Lehigh Digital,
Von Hoffmann added the ability to serve the educational publishers in the
design, creative editorial development, project management, digital pre-press
and composition areas of book production.
Offering these services, which represent the early production processes
in the manufacturing of a book, positions Von Hoffmann to manage production
more efficiently and more fully serve the needs of educational publishers. In June 2004, Von Hoffmann announced plans to
integrate the skills and capabilities of these pre-media operations to form one
full-service pre-media business known as Anthology, Inc. The integration of these operations into one
facility located in Arlington Heights, Illinois is expected to be completed during
the first half of 2005. The cost impact
to our ongoing operations and financial position is not expected to be
material.
Lehigh Lithographers
Textbook
covers and components.
Complementing the Von Hoffmann operations is the Lehigh Lithographers business. Lehigh Lithographers is a market leader in
cover component manufacturing, principally highly differentiated book covers,
for the ELHI and college market sectors of the book publishing industry. Lehigh Lithographers also prints commercial
products, such as posters, folders, catalogs, brochures and synthetic
substrates, which consist of overhead transparency products and plastic inserts
for educational textbooks. Lehigh
Lithographers’ customer base includes the same major educational publishing houses
with which Von Hoffmann has long-standing relationships, including Reed Elsevier
Group, Plc, Houghton Mifflin Company, The McGraw-Hill Companies and Pearson
Plc.
Sales and marketing
Instructional
materials market. Von
Hoffmann’s educational textbook sales team works to develop, support and
enhance its relationships with publishers in both the college and ELHI markets,
as well as with smaller independent publishers.
The cost of printing a textbook typically represents a small percentage
of a publisher’s total cost for a textbook, but the failure to meet a
production deadline could result in a significant loss to the publisher. As a result, competition in the textbook
manufacturing industry is equally service- and quality-driven. Accordingly, a significant element of Von
Hoffmann’s marketing efforts consists of maintaining close relationships with
its customers to ensure proper production, scheduling and timely delivery. Von Hoffmann’s senior management team and
sales support staff maintain close contact with key customers in order to
identify relevant issues affecting these customers as well as to identify
competitive advantages. In addition, the
sales force and planners are in regular contact with the manufacturing
personnel of Von Hoffmann’s customers with pending indications or firm orders
in order to deal with changes or production issues that arise throughout the
process.
Von Hoffmann has concentrated on maintaining
long-standing relationships with the major educational publishers. These publishers have consolidated
significantly over the past several years, reducing the major educational
publishers to four. These publishers
accounted for approximately 40% of Von Hoffmann’s net sales during 2004.
Commercial
printing market. Von
Hoffmann’s sales and marketing organization is pursuing a focused sales
strategy across the identified commercial market segments. With dedicated sales people located
throughout the United States, Von Hoffmann addresses this market on a national
level. Customer needs are matched to one
of Von Hoffmann’s manufacturing facilities and its array of production
capabilities.
Production and manufacturing
As a contract print manufacturer, Von Hoffmann
principally manufactures products pursuant to firm customer orders. Von Hoffmann provides its customers with a
full range of value-added printing and design services from early design to
final distribution. Von Hoffmann’s
typical production run size ranges from less than 2,500 units to over 250,000
units, with the capability to produce profitable runs under 2,500 units. Von Hoffmann can cost-effectively produce
these short runs due to its ability to shift work rapidly among printing
presses. Customers generally seek to
lower costs by maintaining low inventory levels and ordering small quantities
for just-in-time delivery. We believe
that Von Hoffmann’s ability to produce short runs effectively is a significant
competitive advantage.
6
Pre-press. Von Hoffmann has invested in state-of-the-art,
integrated and standardized digital pre-press equipment that streamlines and
enhances the traditional pre-press process.
Rather than outsourcing this service, all of its printing facilities
have the ability to perform the complete digital pre-press workflow directly
from digital media provided by its customers.
This system gives Von Hoffmann an electronic capability to make plates
using the single-burn process, saving time and expense, while reducing the
chance of error. This is particularly
significant in products that entail repeated changes and multiple short-run
print jobs. Von Hoffmann has
standardized across its entire platform direct-to-plate capabilities, which
eliminate the film-output step of the pre-press process. Von Hoffmann now has complete redundancy in
the digital pre-press process throughout its plants, which gives Von Hoffmann
increased flexibility in the manufacturing process.
Printing
and binding. Von
Hoffmann has a variety of web printing presses configured to maximize its
manufacturing flexibility. Although a
certain number of Von Hoffmann’s presses are dedicated to 9”, 10” or 11”
products, these presses are highly specialized and have been modified to have
the flexibility to print any of these sizes on the next-larger press size. Specifically, Von Hoffmann has developed
equipment adaptations and proprietary production methods for its printing and
binding operations that significantly reduce the make-ready time per changeover
of plates compared to that of Von Hoffmann’s competitors. In addition, Von Hoffmann’s state-of-the-art
modified web presses are capable of running at speeds of up to 50,000
impressions per hour. Von Hoffmann
currently maintains multiple binding lines in each of its manufacturing plants,
providing virtually all of the binding options used in the industry.
Over the past five years, Von Hoffmann has invested
significantly in high-quality, high-throughput machinery and plant expansions,
enhancing its competitive position and significantly expanding its production
capacity for future growth. Von Hoffmann
has made investments in one- through four-color web printing presses,
additional sheet-fed presses, new digital pre-press equipment and additional
manufacturing space. Von Hoffmann has
also invested extensively in customized, highly efficient bookbinding
production lines.
Arcade
Arcade is a leading
global marketer and manufacturer of multi-sensory and interactive advertising
sampling systems that utilize various technologies to engage the senses of
touch, sight and smell. Arcade has over
a 100-year history and pioneered its ScentStrip® product in 1980. Arcade offers an extensive portfolio of
proprietary, patented and patent-pending technologies that can be incorporated
into various marketing programs designed to reach the consumer at home or
in-store, such as magazine inserts, catalog inserts, remittance envelopes,
statement enclosures, blow-ins, direct mail, direct sell and point-of-sale
materials and gift-with-purchase/purchase-with-purchase programs.
We believe product
sampling is one of the most effective, widely used and growing forms of
promotional activity. Product sampling
is particularly crucial to the fragrance and cosmetics industries where
consumers traditionally “try before they buy” due to the highly personal nature
of the products. We believe that Arcade’s
introduction in 1980 of the ScentStrip®, the first pull-apart,
microencapsulated scent sampling system, transformed the fragrance sampling
industry. With the creation of a multi-sensory
marketing program—combining advertising with a sampling system—marketers are
afforded a cost-effective means to reach consumers in their homes on a mass
scale with quality renditions of perfume, skincare products, foundation,
lipstick and cosmetic powders. Arcade
has a diverse portfolio of alternative scent sampling systems, all designed for
cost-effective mass distribution and continues to be a leading innovator in
sampling system technologies. We believe
that Arcade’s innovative sampling systems have altered the economics and
efficiencies of product sampling in the cosmetic and fragrance markets. In recent years, Arcade has expanded its
sampling system business by developing and acquiring new technologies in the
olfactory and beauty sampling system categories.
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Principal products
Arcade offers a broad and diversified portfolio of
innovative, interactive sampling systems and advertising formats for the
fragrance, cosmetics and personal care markets as well as other consumer
products markets including household products and food and beverage
markets. Each of Arcade’s sample systems
is generally sold to the same category of manufacturers as the product being
advertised. Almost all of these sampling
systems have been designed to meet U.S. Postal Service, or USPS, approval for
subscription magazine periodical rates, which we believe is a competitive
advantage over other products that do not qualify for these rates.
Olfactory
sampling systems. Arcade’s diverse portfolio of fragrance
sampling systems, which comprises a variety of proprietary chemistries and
processes, historically has represented a significant portion of Arcade’s
annual sales. While scent strip samplers
continue to be a widely used technology for sampling products for the fine
fragrance industry, we believe that Arcade’s other sampling systems have
enabled it to maintain a competitive advantage and affirm Arcade’s position as
an innovator in the sampling industry.
In recent years, Arcade’s products have been used in many major new fine
fragrance launches that have utilized sampling systems. Key products include ScentStrip® and
LiquaTouch®. A proprietary technology
introduced by Arcade in 1980, ScentStrip® is microencapsulated essential oil
deposited between two layers of paper which “snap” open to release a quality
fragrance rendition. ScentStrip® can
deliver quality aroma renditions of fine fragrance, personal care, sun care and
consumer products. LiquaTouch® is a
patented technology that delivers a rendition of finished fragrance product
(e.g. eau de parfum, eau de toilette or after shave), any liquid treatment or
personal care product and contains an applicator. LiquaTouch® is hermetically sealed with no
pre-release and delivers a spill proof trail of any alcohol formulated
fragrance product. The product is
available in a single or dual chamber pressure-sensitive format.
Beauty
sampling systems.
Arcade’s portfolio also includes non-fragrance sampling system products,
primarily for the beauty industry, which represent a growing percentage of
Arcade’s sales. These sampling systems
are utilized to sample cosmetics and beauty care products including foundation,
creams and lotions, lipstick and powders.
Key products include BeautiSeal® and ShadeSeal®. BeautiSeal® is a sampling system for quality
renditions of creams, lotion, gel or personal care products which are deposited
between the foil layers of a heat-sealed, pressure sensitive well. BeautiSeal® is ideal for magazine and
catalogue inserts, bind-in cards, direct mailers, brochures and in-store
handout and regimen cards. ShadeSeal® is
used to sample renditions of cosmetic powders or lip products. The product rendition is deposited between
two substrates which pull apart to offer a trial sample, while a transparent “window”
displays the shade. This product can be
utilized in many different formats to accommodate either multiple shades or a
variety of cosmetic products, including both long-lasting and conventional
lipsticks. Both key products involve
proprietary, patented technology.
Consumer
products related offerings.
Arcade’s portfolio of sampling systems is also well suited for use by
consumer product offerings. Its sampling
systems have been used to promote laundry detergents, fabric softeners,
automobiles, liqueurs, orange juice, breakfast bars and many other consumer
products. The key product is DiscCover®,
a peel-and-reveal, non-encapsulated patented sampling system label that opens
and reseals, delivering a quality aroma rendition up to 25 times. This technology is color-printable, affixable
to nearly any surface, including plastic and glass, and can be die-cut in
nearly any shape and size. This
technology is popular in the delivery of quality aroma in the marketing of a
variety of personal care products and food and beverage products as well as
fine fragrances.
Lehigh Direct
Direct
marketing.
Complementing the Arcade operations is the Lehigh Direct business. Lehigh Direct, with over 30 years of experience
in the processing of direct marketing materials, serves direct marketers, catalogers,
publishers, advertising agencies and national advertisers. Lehigh Direct specializes in high-quality
long-run commercial printing and in-line finished products and can accommodate
large marketing projects with its range of digital pre-press, personalization,
dimensional printing, in-line finishing, data processing and mailing
services. Lehigh Direct distinguishes
itself by offering an array of unique formats including pop-ups, graphic
motions, scratch-offs, kiss-cut stickers, magic windows and doors, and creative
die-cutting. Its inkjet personalization
capabilities offer individualized messages to each recipient within a geographical
area or demographic group for targeted marketing efforts.
8
Sales and marketing
Arcade’s sales and marketing efforts are organized
geographically. The U.S. sales group is
supervised by Arcade’s Senior Vice President of Marketing and Business
Development, while Arcade’s European sales executives are based in Paris,
France, and London, England, and are managed by an executive based in Paris,
France. Arcade also has representatives
in Australia, Brazil, Canada, Japan and Mexico.
Each sales executive is dedicated to a certain number of identified
customers. In addition, these sales
efforts are supported by production managers/customer service representatives,
who are based in Chattanooga, Tennessee; Baltimore, Maryland; and Paris,
France.
Lehigh Direct’s sales and marketing efforts are based
out of its Broadview, Illinois production facility, with a network of sales
representatives located in other strategic locations, covering regions
throughout the United States.
Production and manufacturing
Arcade’s manufacturing processes are highly technical
and largely proprietary. Its sampling
systems must meet demanding performance specifications regarding fidelity to
the product being sampled, shelf life, resistance to pressure and temperature
variations and various other requirements.
Arcade’s manufacturing processes are composed of one or more of the
following:
• formulating
cosmetic and fragrance product renditions in Arcade’s in-house laboratories;
• printing
advertising pages and other media;
• manufacturing
the sampling product, which consists of either applying an encapsulated slurry
onto paper or producing sampling labels
that contain fragrance or other cosmetic product renditions; and
• affixing
Arcade’s label products onto a preprinted advertising carrier.
All of Arcade’s manufacturing facilities have been
awarded International Organization for Standardization, or ISO, 9001:2000
registration. The ISO standards serve as
guidelines for businesses interested in assuring that their processes result in
products that reflect the highest level of quality. The ISO 9001:2000 standard applies to
organizations that design, develop and produce, while assuming and controlling
quality through continuous improvement.
In addition, both of Arcade’s Chattanooga and Baltimore operations have
been awarded The Procter & Gamble Triple Pinnacle Award, which is
presented to companies as recognition for having met certain quality
requirements and having demonstrated outstanding quality assurance. Both operations are also registered with the
Food and Drug Administration for the packaging of regulated cosmetic products,
and Arcade maintains environmentally controlled cGMP (current good
manufacturing practice) compliant facilities.
We believe that Arcade’s formulation capabilities are
among the best in the cosmetics and fragrance sampling industry. The formulation process is highly complex
because Arcade strives to replicate the fragrance of a product in a bottle
containing an alcohol solution.
Formulation approval is an interactive process between Arcade and its
customers. Arcade has more than 125
different proprietary formulations that it uses in replicating different
characteristics of over 500 fragrances to obtain a customer-approved
rendition. A number of these
formulations are patented and the majority of the formulation process is based
on proprietary methods. Formulation of
the fragrance and cosmetic product rendition is performed under very strict
tolerances and in complete conformity to the formula that the customer has
pre-approved. Formulation is conducted
in Arcade’s specially designed formulation laboratories by trained specialists.
The artwork for substantially all printed pieces is
typically furnished by the customer or its advertising agency. Arcade’s digital prepress department utilizes
state-of-the-art technology to transfer customer specifications directly to its
printing plates. Arcade has the
capability to produce high quality printed materials, including the covers of
major fashion magazines, in connection with fragrance sampling systems.
Lehigh Direct’s production operations are housed in
one location in Broadview, Illinois, outside of Chicago. Press equipment includes halfwebs, standard
and extra-wide webs and an array of sophisticated in-line finishing
systems. Lehigh Direct recently
announced the addition of a new M-600 web press. This press, which evidences our commitment to
continue investing in our businesses through the addition of state-of-the-art
technology, has a closed-loop scanner integrated control system that ensures
consistent registration accuracy and color fidelity.
9
Competition
Jostens
The school-related affinity products and services
industry consists primarily of national manufacturers and a number of small
regional competitors. Jostens is one of
four national competitors in the sale of yearbooks, class rings and/or
graduation products along with American Achievement Corporation, Herff
Jones, Inc. and Walsworth Publishing Company. We believe that Jostens is the largest of the
national competitors in yearbooks, class rings and graduation products based on
the number of schools served. American
Achievement Corporation and Herff Jones, Inc. are the only other national
manufacturers that sell each of these three product lines. We believe that due to the size of the
market, the time required to develop relationships with schools, the cost of
acquiring the equipment and the expertise required for the customization of
products, there have been few new entrants since the 1970s.
Yearbooks. In the sale of yearbooks, Jostens competes
primarily with American Achievement Corporation (which markets under the Taylor
Publishing brand), Herff Jones, Inc. and Walsworth Publishing
Company. Each competes on the basis of
service, product customization and personalization, on-time delivery, print
quality, price and product offerings.
Customization and personalization combined with technical assistance and
customer service capabilities are important factors in yearbook production.
Class
and affiliation rings.
Jostens’ competition in class rings consists primarily of two national
firms, Herff Jones, Inc. and American Achievement Corporation (which
markets the Balfour and ArtCarved brands).
Herff Jones, Inc. distributes its products within schools, while
American Achievement Corporation distributes its products through multiple
distribution channels including schools, independent and chain jewelers and
mass merchandisers. Jostens distributes
its products primarily within schools.
In the affiliation ring market, Jostens competes primarily with national
manufacturers, consumer product and jewelry companies and a number of small
regional competitors. Class rings sold
through independent and chain jewelers and mass merchandisers are generally
lower priced rings than class rings sold through schools. Customer service is particularly important in
the sale of class rings because of the high degree of customization and the
emphasis on timely delivery.
Graduation
products. In the sale
of graduation products, Jostens competes primarily with American Achievement
Corporation and Herff Jones, Inc. as well as numerous local and regional
competitors who offer products similar to Jostens. Each competes on the basis of service,
on-time delivery, product quality, price and product offerings with particular
importance given to establishing a proven track record of timely delivery of
quality products.
Photography. Jostens’ sales of school photography products
and services are divided between Canada and the United States. In Canada, Jostens competes with a variety of
regional and local photographers. In the
United States, Jostens’ primary competitors are Herff Jones, Inc. and
Lifetouch Inc. as well as regional and local photographers. Each competes on the basis of quality, price,
on-time delivery and product offerings.
The Print Group
Von Hoffmann
Textbook manufacturers compete based on their ability
to maintain and adhere to a strict manufacturing schedule, the quality of
product and service, competitive pricing and capability to provide “one-stop
shopping” to the publisher. Competitive
advantages include pricing, quality, service and rapid turnaround as well as
other non-print, value-added services including fulfillment and
distribution. Von Hoffmann’s major
competitors in the four-color educational textbook manufacturing market are
R.R. Donnelley & Sons Company and Quebecor World Inc. Von Hoffmann’s major competitors in the one-
and two-color educational and commercial printing manufacturing markets are
Banta Corporation and The Hess Companies.
Von Hoffmann, through Lehigh Lithographers, also competes with Coral
Graphics Services, Inc. and Phoenix Color Corporation.
10
Von Hoffmann’s competition in the commercial printing
market is comprised of a more extensive array of smaller and more diversified
printing companies that range in size and scope. The costs of entry relative to people, equipment
and facilities are not as significant as the instructional materials
market. We do not believe, however, that
any competitor currently encompasses a market position that would prevent Von
Hoffmann’s growth in this market sector.
Arcade
While most of Arcade’s
sampling systems are manufactured using proprietary technology, Arcade’s
competitors are actively engaged in manufacturing products in competition with
Arcade’s products. Competition in Arcade’s
market is based on product quality, product technologies, customer
relationships, price and customer service.
Arcade’s principal competitors in the printed fragrance and cosmetic
samplers market are Webcraft, the fragrance division of Vertis, Inc.,
Orlandi, Inc. and a number of smaller competitors, including
Appliquesence, Delta Graphics, Inc., Follmann & Co., Klocke,
Manka Creations, Marietta Corp., Nord’est, Rotakon GmbH and Sampling
Dimensions, LLC. Arcade also competes
with numerous manufacturers of miniatures, vials, packets, sachets, blister
packs and scratch and sniff products. In
addition, some cosmetics companies produce sampling products for their own
cosmetic products. Arcade also competes
with numerous other marketing and advertising venues for marketing dollars
customers allocate to various types of advertising, marketing and promotional
efforts such as print, television and in-store promotions.
Lehigh Direct
Lehigh Direct competes
with a number of regional and national commercial printers. Its primary competitors are Banta
Corporation, R.R. Donnelley & Sons Company, Quebecor World Inc.
and Vertis Inc.
Business Strategy
Since the Transactions
and the creation of the specialty printing, marketing and school-related
affinity products and services enterprise that was formed through the combination
of Jostens, Von Hoffmann and Arcade, the principal features of our business
strategy have been the following:
Improve customer service and selling strategy to drive
growth
We expect to enhance our relationships with our
customers through a focus on customer service and sales force effectiveness
across our businesses. Each of the
businesses maintain separate sales forces to sell their products, which helps
to ensure continuity in our customer relationships. We believe there are opportunities within
each of our businesses to increase sales to existing customers and to expand
our customer base through a continued focus on our selling strategy. At Jostens, our sales strategy is focused on
improving account retention and buy rates through enhanced customer service and
new product offerings, increasing the cross-selling of additional Jostens
products to existing customers and adding new customers. At Von Hoffmann, our efforts are directed at
increasing our sales to existing educational customers through a focus on
product quality, customer service and the breadth of our product offering
following the acquisition of Lehigh Lithographers. We also are taking efforts to expand our
commercial printing business during our off-peak seasons through a targeted
sales effort to non-educational customers.
At Arcade and Lehigh Direct, we intend to grow our market share with our
core customers through a continued emphasis on customer service and product
innovation. At Arcade, we also are
making efforts to expand our customer base by emphasizing the effectiveness of Arcade’s
advertising solutions in less traditional markets such as consumer-packaged
goods.
Enhance core product and service offerings
We have continually invested in our businesses to
position ourselves as a leader in innovation and breadth of products and
services in each market we serve.
Through new product development and services and the addition of new
features, add-ons and customization, we believe we will further stimulate the
demand for our products, improve account retention and relationships and
generate additional revenue. For
instance, Jostens continues to be an industry leader in introducing the
electronic manufacturing of yearbooks.
Similarly, Von Hoffmann has selectively added service
11
offerings, such as design, art procurement, editorial, color separation
and printing plastic transparencies and decorative covers in the instructional
materials and commercial printing markets.
Arcade has expanded its sampling system business by developing and
acquiring new technologies in the olfactory and beauty sampling system
categories. Lehigh Direct continues to
develop innovative in-line manufacturing solutions for its direct marketing
customers. We continue to invest time
and resources to maintain our leading positions in our two operating
segments. Since the closing of the
Transactions, we have invested in new equipment, including new presses being
installed at Lehigh Direct and Jostens’ Clarksville, Tennessee facility.
Implement near-term cost savings initiatives
By combining our three businesses in connection with
the Transactions, we believe 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, such as logistics and energy, used in our
operations and reducing corporate and administrative expenses. We are taking steps to reduce our corporate
and administrative expenses through selected rationalization of certain
overhead costs across our businesses. A
variety of factors could cause us not to achieve the benefits of the savings
plan in a timely manner or at all, or could result in harm to our businesses
and could adversely affect our results of operations.
Improve operating efficiencies and asset utilization
The combination of Jostens and the businesses
comprising the Print Group provides opportunities to maximize the efficiency of
our assets and operations and grow revenue and profitability. The seasonality present in our businesses
allows us the opportunity to capture selected commercial printing
business. We also intend to leverage Von
Hoffmann’s facilities, our reputation in the commercial market and our
management team’s experience in the commercial printing industry to increase
our presence in the commercial printing market.
Selectively pursue complementary acquisitions
We intend to pursue opportunistic acquisitions to
leverage our existing infrastructure, expand our geographic reach and broaden
our product and service offerings.
Seasonality
We experience seasonal
fluctuations in our net sales tied primarily to the North American school
year. We recorded approximately 38% of
our annual net sales for fiscal 2004 during the second quarter of our fiscal
year. Jostens generates a significant
portion of its annual net sales in the second quarter. Deliveries of caps, gowns and diplomas for
spring graduation ceremonies and spring deliveries of school yearbooks are the
key drivers of Jostens’ seasonality. The
net sales of Von Hoffmann and Lehigh Lithographers are impacted seasonally by
state and local schoolbook purchasing schedules, which commence in the spring
and peak in the summer months preceding the start of the school year. The college textbook market is also seasonal
with the majority of textbook sales occurring during June through August and
November through January. Significant
amounts of inventory are acquired by publishers prior to those periods in order
to meet customer delivery requirements.
The net sales of Arcade and Lehigh Direct have also historically
reflected seasonal variations, and we expect these businesses to generate a
majority of their annual net sales during our third and fourth quarters for the
foreseeable future. These seasonal
variations are based on the timing of customers’ advertising campaigns, which
have traditionally been concentrated prior to the Christmas and spring holiday
seasons. The
12
seasonality of each of our businesses requires us to
allocate our resources to manage our manufacturing capacity, which often
operates at full or near full capacity during peak seasonal demands.
Raw
Materials
Jostens
The principal raw materials that Jostens purchases are
precious metals, paper products and precious, semiprecious and synthetic
stones. The cost of precious metals and precious, semiprecious and synthetic
stones is affected by market volatility.
To manage the risk associated with changes in the prices of precious
metals, Jostens enters into forward contracts to purchase gold, platinum and
silver based upon the estimated ounces needed to satisfy projected customer
demand. Jostens purchases substantially
all precious, semiprecious and synthetic stones from a single supplier located
in Germany whom we believe is also a supplier to Jostens’ major class ring
competitors in the United States.
Matters pertaining to our
market risks are set forth below in ITEM 7A, Quantitative and Qualitative
Disclosures about Market Risk.
The Print Group
The principal raw materials purchased by the Print
Group consist of paper and ink. Paper
costs generally flow through to the customer as paper is ordered for specific
jobs and the Company does not take significant commodity risk on paper. Von Hoffmann operates a paper management
program for several of its customers, which is designed to allow Von Hoffmann
to (1) standardize the type of paper it uses on presses, thereby reducing
production and start-up costs and (2) avoid the cost of additional storage
space and production inefficiencies required by separating each publisher’s
consigned paper. Customers are not
contractually obligated to purchase their paper through this program and customer
participation varies from year to year.
Generally, the raw
materials used by Arcade in the manufacturing of its products have been readily
available from numerous suppliers and have been purchased by Arcade at prices
that we believe are competitive.
However, Arcade’s encapsulated paper products utilize specific grades of
paper, which Arcade purchases primarily from one manufacturer. We continue to research methods of
replicating the advantages of these specific grades of paper with other available
grades of paper. These paper products
are subject to comprehensive evaluation and certification by Arcade for
quality, consistency and fit. Certain of
Arcade’s foil laminates are also purchased from single sources under certain
specifications.
Backlog
Because of the nature of
our business, all orders are generally filled within a few months from the time
of placement. However, Jostens typically
obtains contracts in the second quarter of one year for student yearbooks to be
delivered in the second and third quarters of the subsequent year. Often the total revenue pertaining to a
yearbook order is not established at the time of the order because the content
of the book is not final. Subject to the foregoing qualifications, we estimate
the backlog of orders, primarily related to student yearbooks, was $359.2
million and $340.6 million as of the end of 2004 and 2003,
respectively. We expect most of the 2004
backlog to be confirmed and filled in 2005.
13
Environmental
Our operations are
subject to a wide variety of federal, state, local and foreign laws and
regulations governing emissions to air, discharges to waters, the generation,
handling, storage, transportation, treatment and disposal of hazardous substances
and other materials, and employee health and safety matters. Our costs include compliance with such laws
and regulations, which generally have become more stringent over time.
Also, as an owner and operator of real property or a
generator of hazardous substances, we may be subject to environmental cleanup
liability, regardless of fault, pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act or analogous state laws, as well as to
claims for harm to health or property or for natural resource damages arising
out of contamination or exposure to hazardous substances. Some of our current or past operations have
involved metalworking and plating, printing, and other activities that have
resulted in environmental conditions that have given rise to liabilities.
As part of our environmental management program, we
are currently involved in environmental remediation at several properties. Principal among them is a property formerly
owned and operated by Jostens for jewelry manufacturing. Although Jostens no longer owns the site,
Jostens continues to manage the remediation project, which began in 2000. As of January 1, 2005, Jostens had made
payments totaling $7.6 million for remediation at this site. During 2001, Jostens received reimbursement
from its insurance carrier in the amount of $2.7 million, net of legal
costs. Based on findings included in
remediation reports and discussions with our advisors, we estimate that less
than $1 million will be needed to finish addressing environmental
conditions there, of which the balance is included in “other accrued
liabilities” in our consolidated balance sheet as of January 1, 2005. Jostens will have certain ongoing monitoring
obligations following the completion of remediation. We do not expect the cost of such ongoing
monitoring to be material. While Jostens
may have an additional right of contribution or reimbursement under insurance
policies, amounts recoverable from other entities with respect to a particular
site are not considered until recoveries are deemed probable. Jostens has not established a receivable for
potential recoveries as of January 1, 2005.
Intellectual
Property
Our businesses rely on a combination of patents,
copyrights, trademarks, licensing agreements and unpatented proprietary
know-how and trade secrets to establish and protect our intellectual property
rights. We enter into confidentiality
and licensing agreements with customers, vendors, employees, consultants and
potential acquisition candidates to protect our and our customers’ and vendors’
know-how, trade secrets and other proprietary information and intellectual
property. We have trademarks registered
in the United States, and we have also filed and registered trademarks in over
15 jurisdictions around the world, including Australia, Brazil, the European
Union and Japan. In particular, Arcade
has registered patents covering the proprietary processes used to produce many
of its products in both the United States and abroad and has submitted patent applications
for certain of its other manufacturing processes. However, many of Arcade’s manufacturing
processes are not covered by any patent or patent application. As a result, our business may be adversely
affected by competitors who independently develop equivalent or superior
technologies, know-how, trade secrets or production methods or processes than
those employed by us. We are involved in
litigation from time to time in the course of our businesses to protect and
enforce our intellectual property rights, and third parties from time to time
may initiate litigation against us asserting that our businesses infringe or
otherwise violate their intellectual property rights.
Our company has ongoing research efforts and expects
to seek additional patents in the future covering results of its research. Pending patent applications filed by us may
not result in patents being issued.
Similarly, patents now or hereafter owned by us may not afford
protection against competitors with similar or superior technology. Our patents may be infringed upon, designed
around by others, challenged by others or held to be invalid or unenforceable.
Employees
As of March 1, 2005, we
had approximately 8,300 full-time employees.
As of March 1, 2005, approximately 900 of Jostens’ employees were
represented under two collective bargaining agreements that expire in June and
August of 2007 and approximately 600 employees of our businesses comprising the
Print Group were represented under six collective bargaining agreements that
expire at various times between April 2005 and March 2008.
14
Given the seasonality of its business, Jostens
utilizes a high percentage of seasonal employees to maximize efficiency and
manage its costs. The total number of employees fluctuates throughout the year,
with the number typically being highest in March and lowest in July.
We consider our relations with our employees to be
satisfactory.
International
Operations
Jostens’ and Arcade’s
foreign sales are derived primarily from operations in Canada and Europe,
respectively. Local taxation, import duties, fluctuation in currency exchange
rates and restrictions on exportation of currencies are among risks attendant
to foreign operations, but these risks are not considered significant with
respect to our businesses.
A summary of the physical properties we currently use
follows:
15
|
Business
|
|
Facility Location (1)
|
|
Principal Purpose
|
|
Square
Footage
|
|
Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jostens
|
|
Topeka, Kansas
|
|
Yearbook printing
|
|
236,000
|
|
Owned
|
|
|
|
|
Winston-Salem,
North Carolina
|
|
Yearbook printing
|
|
132,000
|
|
Owned
|
|
|
|
|
Bloomington,
Minnesota
|
|
Corporate office
|
|
109,000
|
|
Owned
|
|
|
|
|
Clarksville,
Tennessee
|
|
Yearbook printing
|
|
105,000
|
|
Owned
|
|
|
|
|
Laurens, South
Carolina
|
|
Graduation products
|
|
98,000
|
|
Owned
|
|
|
|
|
Visalia,
California
|
|
Yearbook printing
|
|
96,000
|
|
Owned
|
|
|
|
|
Owatonna,
Minnesota
|
|
Sales and administrative office space
|
|
88,000
|
|
Owned
|
|
|
|
|
Shelbyville,
Tennessee
|
|
Graduation products
|
|
87,000
|
|
Owned
|
|
|
|
|
Winnipeg,
Manitoba
|
|
Photo processing
|
|
69,000
|
|
Owned
|
|
|
|
|
State College,
Pennsylvania
|
|
Yearbook printing
|
|
66,000
|
|
Owned
|
|
|
|
|
Denton, Texas
|
|
Ring manufacturing
|
|
56,000
|
|
Owned
|
|
|
|
|
Attleboro,
Massachusetts
|
|
Ring manufacturing
|
|
52,000
|
|
Owned
|
|
|
|
|
Owatonna,
Minnesota
|
|
Refinery/warranty service
|
|
30,000
|
|
Owned
|
|
|
|
|
Indianapolis,
Indiana
|
|
Photography office
|
|
8,600
|
|
Owned
|
|
|
|
|
Laurens, South
Carolina
|
|
Warehouse facility
|
|
74,000
|
|
Leased
|
|
|
|
|
Shelbyville,
Tennessee
|
|
Warehouse facility
|
|
72,000
|
|
Leased
|
|
|
|
|
Topeka, Kansas
|
|
Warehouse facility
|
|
60,000
|
|
Leased
|
|
|
|
|
Burnsville,
Minnesota
|
|
Design/tooling
|
|
47,000
|
|
Leased
|
|
|
|
|
Bloomington,
Minnesota
|
|
Administrative office space
|
|
37,000
|
|
Leased
|
|
|
|
|
Owatonna,
Minnesota
|
|
Warehouse facility and office space
|
|
29,000
|
|
Leased
|
|
|
|
|
Clarksville,
Tennessee
|
|
Warehouse facility
|
|
13,000
|
|
Leased
|
|
|
|
|
Visalia,
California
|
|
Warehouse facility
|
|
13,000
|
|
Leased
|
|
|
|
|
Winnipeg, Manitoba
|
|
Sales and administrative office space
|
|
13,000
|
|
Leased
|
|
|
|
|
State College,
Pennsylvania
|
|
Yearbook printing
|
|
9,000
|
|
Leased
|
|
|
|
|
State College,
Pennsylvania
|
|
Warehouse facility
|
|
6,000
|
|
Leased
|
|
|
|
|
Winnipeg,
Manitoba
|
|
Warehouse facility
|
|
6,000
|
|
Leased
|
|
|
|
|
Yorba Linda,
California
|
|
Sales and administrative office space
|
|
6,000
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Print Group
|
|
|
|
|
|
|
|
|
|
|
Von
Hoffmann
|
|
Jefferson City, Missouri
|
|
Four-color book manufacturing
|
|
636,000
|
|
Owned
|
|
|
|
|
Owensville,
Missouri
|
|
One- and
two-color book manufacturing,
distribution and fulfillment
|
|
450,000
|
|
Owned
|
|
|
|
|
Eldridge, Iowa
|
|
One- and two-color book manufacturing
|
|
325,000
|
|
Owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arlington
Heights, Illinois
|
|
Creative and book design services
|
|
46,000
|
|
Leased
|
|
|
|
|
St. Louis,
Missouri
|
|
Executive offices
|
|
25,000
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lehigh
Lithographers
|
|
Pennsauken, New Jersey
|
|
Digital
pre-press and book cover production
|
|
145,000
|
|
Owned
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Arcade
|
|
Chattanooga, Tennessee
|
|
Executive
offices and primary production facility
|
|
67,900
|
|
Owned
|
|
|
|
|
Chattanooga,
Tennessee
|
|
Product development and manufacturing
|
|
36,700
|
|
Owned
|
|
|
|
|
Chattanooga,
Tennessee
|
|
Production and warehousing
|
|
29,500
|
|
Owned
|
|
|
|
|
Baltimore,
Maryland
|
|
Production and warehousing
|
|
60,000
|
|
Leased
|
|
|
|
|
Baltimore,
Maryland
|
|
Warehouse facility
|
|
13,000
|
|
Leased
|
|
|
|
|
New York, New
York
|
|
Executive and sales offices
|
|
8,100
|
|
Leased
|
|
|
|
|
Paris, France
|
|
Sales office
|
|
4,600
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lehigh
Direct
|
|
Broadview, Illinois
|
|
Digital direct
marketing, pre-press and production
|
|
212,000
|
|
Owned
|
|
(1) Excludes properties held
for sale.
(2) Includes 31,600 square
footage of a leased bindery facility.
In addition, we lease
smaller sales and administrative office space and photography space in other
locations. In management’s opinion, all
buildings, machinery and equipment are suitable for their purposes and are
maintained on a basis consistent with sound operations. The extent of utilization of individual
facilities varies significantly due to the seasonal nature of our
business. In addition, certain of our
properties are subject to a mortgage held by Visant’s lenders under its senior
secured credit facilities.
16
ITEM
3. LEGAL
PROCEEDINGS
On February 11,
2004, plaintiff Christian Pocino filed a complaint against Jostens in the
Superior Court of California for the County of Los Angeles for alleged breach
of express warranty (Cal. Comm. Code Section 2313), and for alleged
violation of California’s false advertising and unfair competition laws (Cal.
Bus. & Prof. Code Sections 17500 and 17200). Plaintiff alleged that Jostens violated these
laws by purportedly violating Federal Trade Commission “guides” with regard to
the marketing and sale of jewelry.
Specifically, plaintiff contended that: (1) Jostens failed to
comply with the FTC guide that every use of the word “stone” be immediately
preceded by the word “imitation”, “synthetic” or a similar term; and
(2) Jostens failed to comply with a separate FTC guide relating to use of
the word silver in connection with Jostens’ SilverElite® with platinum
alloy. Plaintiff sought equitable relief
and unspecified monetary damages on behalf of himself and a purported class of
similarly-situated consumers.
Jostens brought a demurrer and motion to strike the
plaintiff’s complaint on June 25, 2004, challenging the legal sufficiency
of plaintiff’s allegations on the basis, inter alia, that the FTC guides are
nonbinding and that plaintiff’s allegations generally failed to state a claim
on which relief could be granted. On
August 13, 2004, the Superior Court sustained Jostens’ demurrer with leave
to amend.
On August 25, 2004, the plaintiff filed an
amended complaint which contained substantially the same allegations regarding “stones”
while dropping the claims regarding SilverElite® with platinum. On September 29, 2004, Jostens filed
another demurrer/motion to strike, challenging the legal sufficiency of
plaintiff’s amended complaint. On
November 24, 2004, the Superior Court again sustained Jostens’ demurrer
with leave to amend. The plaintiff
filed a second amended complaint dated December 16, 2004. The court dismissed the action on January 26,
2005. The plaintiff has appealed the
court’s decision. It is anticipated that
the appeal will be fully briefed by the fourth quarter of 2005 and that
arguments will occur thereafter.
In communications with U.S. Customs and Border
Protection (Customs), the Company has learned of an alleged inaccuracy of the
tariff classification for certain of Jostens’ imports from Mexico. In late January 2005, Jostens promptly filed
with Customs a voluntary disclosure to limit its monetary and penalty exposure. The effect of these alleged tariff
classification errors is that back duties and fees (or “loss of revenue”) may
be owed on imports dating back five years.
Additionally, Customs may impose
interest on the loss of revenue. No
formal notice of, or demand for, the loss of revenue has yet been issued by
Customs. A review of Jostens’ import
practices has revealed that during the relevant five-year period, Jostens’ merchandise
qualified for duty-free tariff treatment under the North American Free Trade
Agreement (NAFTA), in which case there should be no loss of revenue or interest
payment owed Customs. However, Customs
allegations indicate that Jostens committed a technical oversight in claiming
the preferential tariff treatment.
Through its prior disclosure to Customs, Jostens is in the process of
addressing this technical oversight but may be foreclosed under statute from
making post-entry NAFTA claims for those imports made prior to 2004. Jostens is in the early stages of
administrative review of this matter, and it is not clear what Customs’ position
will be with respect to the alleged tariff classification errors. Jostens intends to vigorously defend its
position and has recorded no accrual for any potential liability. However, there can be no assurance that Jostens
will be successful in its defense or that the disposition of this matter will
not have a material effect on the Company’s results of operations.
We
are also 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 business, financial condition and results
of operations, if any, for the disposition of these matters will not be material,
however, there can be no assurance in this regard.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
By Action of Stockholders Taken by Written Consent on
October 4, 2004, the stockholders approved the 2004 Stock Option Plan for Key
Employees of Visant Holding Corp. and its Subsidiaries.
17
By Action of Stockholders Taken by Written Consent on
October 4, 2004, the stockholders approved the reconstitution of the Board of
Directors up to eight directors and appointed each of Messrs. Reisch, Bae,
Burgstahler, Dean, Navab, Olson and Pieper as new directors.
ITEM
5. MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
There is no established
public trading market for Holdings or Visant common stock. As of March 23, 2005, there were 27
stockholders of record of the Holdings Class A Common Stock. See ITEM 12, Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters for a
discussion of the ownership of Holdings.
Holdings beneficially owns 100% of the common stock of Visant.
Holdings has not paid
cash dividends on its common stock and does not anticipate paying any such
dividends in the foreseeable future.
Visant may from time to time pay cash dividends on its common stock to
permit Holdings to make required payments relating to its 10¼% senior discount
notes.
Visant’s senior secured
credit facility and the indenture relating to the 10¼% senior discount notes of
Holdings (the “Holdings notes”) prohibit the payment of dividends by Holdings
on shares of common stock (other than dividends payable solely in shares of
capital stock of Holdings).
Additionally, because Holdings is a holding company, its ability to pay
dividends is dependent upon the receipt of dividends from its direct and
indirect subsidiaries. Each of the
senior secured credit facility and the indenture relating to the 75/8%
senior subordinated notes of Visant contains covenants which impose substantial
restrictions on Visant’s ability to pay dividends or make distributions to
Holdings.
Equity Compensation Plan Information
The following table sets
forth information about equity compensation plans of Holdings as of January 1,
2005.
|
Plan Category
|
|
Number of securities
to be issued upon
exercise of
outstanding options
|
|
Weighted-average
exercise price of
outstanding options
|
|
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders
|
|
|
|
|
|
|
|
|
2004 Stock
Option Plan
|
|
137,871
|
|
$
|
96.10401
|
|
372,359
|
|
|
2003 Stock
Incentive Plan
|
|
197,988
|
|
$
|
87.12
|
|
100,035
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
N/A
|
|
N/A
|
|
N/A
|
|
Recent Sales of Unregistered Securities
Our equity securities are
not registered pursuant to Section 12 of the Exchange Act. For the quarter ended January 1, 2005, we did
not issue or sell securities pursuant to offerings that were not registered
under the Securities Act of 1933, as amended (the “Securities Act”), except
that on October 4, 2004, (a) Holdings sold (i) in connection with the
Transactions and the contribution by Fusion of the stock of Von Hoffmann and
Arcade to Holdings, 2,664,356 shares of its Class A Voting Stock (the “Class A
Common Stock”) and one share of its Class C Voting Stock (the “Class C Common
Stock”) to Fusion Acquisition LLC, an affiliate of KKR, for an aggregate purchase
price of $256.1 million and; (ii)
18
36,419 shares of its Class A Common Stock to Mr. Marc
L. Reisch, our Chief Executive Officer, for an aggregate purchase price of $3.5
million; (b) Holdings issued 10,405 restricted shares of Class A Common Stock,
and 127,466 options to purchase Class A Common Stock with an exercise price of
$96.10401 per share to Mr. Marc L. Reisch in consideration of his employment by
us, in each case in reliance on Section 4(2) of the Securities Act; and (c) Visant sold $500 million in aggregate principal amount of
75/8% senior subordinated notes (the “Visant notes”) due
2012 in a private placement under Rule 144A and Regulation S under the
Securites Act to a limited number of qualified institutional buyers, as defined
under the Securities Act, and to a limited number of persons outside the United
States. On March 30, 2005, we completed
an offer to exchange the entire principal amount of the Visant notes for an
equal amount of notes with substantially identical terms that have been
registered under the Securities Act.
On January 20, 2004,
Holdings issued an aggregate of 251,258 options to purchase Class B Common
Stock with an exercise price of $87.12 per share to certain directors and
members of management under the 2003 Stock Incentive Plan. In connection with the Transactions, these
stock options were converted into options to purchase shares of Class A Common
Stock of Holdings. A total of 53,270
options under this plan were cancelled during 2004.
ITEM
6. SELECTED
FINANCIAL DATA
The selected financial
data of Holdings set forth below presents the consolidated financial data of
Holdings, Von Hoffmann and Arcade after July 29, 2003 as a result of the common
ownership of these entities by affiliates of DLJMBP III on such date. The selected historical financial data for
the fiscal year ended January 1, 2005 (successor), the period from July 30,
2003 to January 4, 2004 (five months, successor), the period from December 29,
2002 to July 29, 2003 (seven months, predecessor) and for each of the three
fiscal years in the period ended December 28, 2002 (predecessor) have been
derived from our audited historical consolidated financial statements. The data presented below should be read in
conjunction with the consolidated financial statements and related notes
included herein and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
19
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In millions, except for percentages
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of Operations Data (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,462.2
|
|
$
|
502.7
|
|
$
|
504.1
|
|
$
|
756.0
|
|
$
|
736.6
|
|
$
|
724.6
|
|
|
Cost of products
sold
|
|
915.0
|
|
335.9
|
|
218.6
|
|
316.0
|
|
311.2
|
|
305.1
|
|
|
Gross profit
|
|
547.2
|
|
166.8
|
|
285.5
|
|
440.0
|
|
425.3
|
|
419.5
|
|
|
Selling and
administrative expenses
|
|
434.0
|
|
168.5
|
|
196.4
|
|
306.4
|
|
300.9
|
|
301.7
|
|
|
Transaction
costs (2)
|
|
15.9
|
|
0.2
|
|
31.0
|
|
—
|
|
—
|
|
46.4
|
|
|
Special charges
(3)
|
|
15.7
|
|
—
|
|
—
|
|
—
|
|
2.5
|
|
0.3
|
|
|
Operating income
(loss)
|
|
81.6
|
|
(1.9
|
)
|
58.1
|
|
133.6
|
|
121.9
|
|
71.1
|
|
|
Loss on
redemption of debt (4)
|
|
75.8
|
|
0.5
|
|
13.9
|
|
1.8
|
|
—
|
|
—
|
|
|
Interest
expense, net
|
|
160.3
|
|
68.0
|
|
32.5
|
|
67.3
|
|
76.8
|
|
58.9
|
|
|
Other income
|
|
(1.0
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Equity losses
and write-down of investment (3)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6.7
|
|
|
(Loss) income
from continuing operations before income taxes
|
|
(153.5
|
)
|
(70.4
|
)
|
11.7
|
|
64.5
|
|
45.1
|
|
5.5
|
|
|
(Benefit from)
provision for income taxes
|
|
(52.8
|
)
|
(19.2
|
)
|
8.7
|
|
36.2
|
|
18.6
|
|
16.0
|
|
|
(Loss) income
from continuing operations
|
|
(100.7
|
)
|
(51.2
|
)
|
3.0
|
|
28.3
|
|
26.5
|
|
(10.5
|
)
|
|
Gain (loss) on
discontinued operations, net of tax
|
|
—
|
|
—
|
|
—
|
|
1.6
|
|
(22.4
|
)
|
(2.3
|
)
|
|
Cumulative
effect of accounting change, net of tax
|
|
—
|
|
—
|
|
4.6
|
|
—
|
|
—
|
|
(5.9
|
)
|
|
Net (loss)
income
|
|
(100.7
|
)
|
(51.2
|
)
|
7.6
|
|
29.9
|
|
4.1
|
|
(18.7
|
)
|
|
Dividends and
accretion on redeemable preferred shares
|
|
—
|
|
—
|
|
(6.5
|
)
|
(11.7
|
)
|
(10.2
|
)
|
(5.8
|
)
|
|
Net (loss)
income available to common shareholders
|
|
$
|
(100.7
|
)
|
$
|
(51.2
|
)
|
$
|
1.1
|
|
$
|
18.2
|
|
$
|
(6.1
|
)
|
$
|
(24.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
provided by (used in) operating activities
|
|
$
|
114.1
|
|
$
|
103.0
|
|
$
|
(6.8
|
)
|
$
|
55.5
|
|
$
|
71.6
|
|
$
|
35.5
|
|
|
Net cash used in
investing activities
|
|
(37.9
|
)
|
(552.3
|
)
|
(11.9
|
)
|
(22.8
|
)
|
(15.8
|
)
|
(18.2
|
)
|
|
Net cash (used
in) provided by financing activities
|
|
(40.5
|
)
|
482.3
|
|
12.9
|
|
(64.8
|
)
|
(39.3
|
)
|
(29.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Financial Data (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of
earnings to fixed charges and preferred stock dividends (5)
|
|
—
|
|
—
|
|
1.3
|
x
|
1.9
|
x
|
1.6
|
x
|
1.1
|
x
|
|
Depreciation and
amortization
|
|
$
|
164.2
|
|
$
|
47.8
|
|
$
|
14.6
|
|
$
|
26.9
|
|
$
|
28.6
|
|
$
|
26.8
|
|
|
Capital
expenditures
|
|
49.3
|
|
20.7
|
|
6.1
|
|
22.8
|
|
22.2
|
|
21.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
85.0
|
|
$
|
49.1
|
|
|
|
$
|
10.9
|
|
$
|
43.1
|
|
$
|
26.6
|
|
|
Working capital
(6)
|
|
37.9
|
|
23.0
|
|
|
|
(51.5
|
)
|
(55.0
|
)
|
(12.8
|
)
|
|
Property and
equipment, net
|
|
241.1
|
|
272.1
|
|
|
|
65.4
|
|
68.2
|
|
79.3
|
|
|
Total assets
|
|
2,511.4
|
|
2,522.6
|
|
|
|
327.5
|
|
374.6
|
|
388.3
|
|
|
Total debt
|
|
1,695.5
|
|
1,476.4
|
|
|
|
589.4
|
|
647.0
|
|
684.8
|
|
|
Redeemable
preferred stock (7)
|
|
—
|
|
258.8
|
|
|
|
70.8
|
|
59.0
|
|
48.8
|
|
|
Shareholders’
equity (deficit)
|
|
212.3
|
|
173.9
|
|
|
|
(582.5
|
)
|
(599.1
|
)
|
(586.3
|
)
|
(1) Certain selected financial
data have been reclassified for all periods presented to reflect the results of
discontinued operations consisting of the exit of our Recognition
business. See ITEM 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”.
(2) For 2004, transaction
costs represent $15.9 million of expenses incurred in connection with the
Transactions. For the successor period
in 2003, transaction costs represent $0.2 million of expenses incurred in
connection with the 2003 Jostens merger.
For the predecessor period in 2003, transaction costs represent $31.0
million of expenses incurred in connection with the 2003 Jostens merger. For 2000, transaction costs represent $46.4
of million of expenses incurred in connection with the merger and
recapitalization of Jostens.
(3) For 2004, special charges
consist of restructuring charges of $3.9 million for employee severance and
equipment relocation related to closure of the Frederick, Maryland and
Precision Offset Printing, Inc. facilities and $11.8 million of restructuring
charges consisting primarily of severance costs for the termination of senior
executives and other employees associated with reorganization activity as a
result of the Transactions. For 2001,
special charges represent $2.1 million of severance costs in conjunction with
the termination of three senior executives and $0.4 million to write off an
investment in a joint venture in
20
Mexico. For
2000, special charges represent $0.3 million of additional restructuring costs
related to exiting Jostens’ direct marketing sales channel to college alumni in
1999, and equity losses and write-downs of $6.7 million in connection with two
equity investments.
(4) For 2004, loss on
redemption of debt represents a loss of $75.4 million in connection with
repayment of all existing indebtedness and remaining preferred stock of
Jostens, Von Hoffmann and Arcade in conjunction with the Transactions and a
loss of $0.4 million in connection with the repurchase of $5.0 million
principal amount of Jostens’ 12 ¾% senior subordinated notes prior to the
Transactions. For the successor period
in 2003, loss on redemption of debt represents a loss of $0.5 million in
connection with the repurchase of $8.5 million principal amount of Jostens’ 12
¾% senior subordinated notes. For the
predecessor period in 2003, loss on redemption of debt represents a loss of
$13.9 million consisting of the write-off of unamortized deferred financing
costs in connection with refinancing Jostens’ senior secured credit
facility. For 2002, loss on redemption
of debt represents a loss of $1.8 million in connection with the repurchase of
$7.5 million principal amount of Jostens’ 12 ¾% senior subordinated notes.
(5) For the purposes of
calculating the ratio of earnings to fixed charges, 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 expense. For 2004 and the successor period in 2003, we
did not cover fixed charges by $153.5 million and $70.4 million, respectively.
(6) Working capital represents
current assets (excluding cash and cash equivalents and deferred income taxes)
less current liabilities (excluding short-term borrowings and current
maturities of long-term debt, deferred income taxes, income taxes payable and
interest payable, as applicable).
(7) Liquidation preference of
redeemable preferred stock as of the end of 2003, 2002, 2001and 2000 was $222.6
million, $86.3 million, $75.2 million and $65.6 million, respectively,
including accrued dividends.
ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion contains forward-looking statements that involve numerous
risks and uncertainties. Our actual results could differ materially from those
discussed in the forward-looking statements as a result of these risks and
uncertainties, including those set forth in this report under “Cautionary Note
Regarding Forward-Looking Statements”.
You should read the following discussion in conjunction with ITEM 6, Selected
Financial Data and the consolidated financial statements and related notes
included herein.
Management
Overview
Our businesses generate a significant portion of their
net sales through the sale of specialty printing and marketing products to the
North American education sector. Our
printing and marketing products include, among others, yearbooks, educational
materials, diplomas, announcements, direct marketing materials and commercial
printing. We also manufacture and
distribute school-related affinity products and services, such as class rings,
graduation products and school photography.
We sell our products and services to end customers through several
different sales channels including independent sales representatives and
dedicated sales forces. Our sales and
results of operations are impacted by general economic conditions, seasonality,
cost of raw materials, school population trends, product quality and service
and price.
In connection with the Transactions, during the fourth
quarter of 2004, we changed the Company’s reportable segments to reflect the
impact of the Transactions, including the addition of the results of operations
of Von Hoffmann, Lehigh Lithographers, Arcade and Lehigh Direct to our
consolidated reported results. The
segments were identified based on factors including the nature of products and
services, the availability of discrete financial information, and the manner in
which the chief operating decision maker regularly assesses the information for
decision-making purposes. Our reportable
segments consist of Jostens and our Print Group.
Jostens is the nation’s leading provider of
school-related affinity products and services that help people celebrate
important moments, recognize achievements and build affiliation. Jostens’ products include class rings and
21
graduation products (together “scholastic products”), yearbooks and
school photography. Graduation products
include diplomas, graduation regalia such as caps and gowns, accessories and
fine paper announcements. This business
is affected by seasonality of sales, buy rates, the prices of its products and
services, the maintenance and addition of accounts and trends in consumer
purchasing demands or consumer preferences.
We believe that our success in the school-related affinity products and
services industry depends on our ability to effectively address the degree of
seasonality in our industry and the highly specific needs of our customers, who
require personalized, timely service.
The Print Group includes
the operations of Von Hoffmann, Lehigh Lithographers, Arcade and Lehigh
Direct. Effective immediately upon the
close of the Transactions, we initiated actions to operate and manage these
operations as an integrated business specializing in the production of printed
materials. Von Hoffmann is a leading
manufacturer of four-color case bound and soft-cover educational textbooks,
standardized test materials and related components for major educational
publishers in the United States. Von
Hoffmann also provides commercial printing services to non-educational
customers, including business-to-business catalogers. Lehigh Lithographers is a leading provider of
textbook covers. Arcade is a leading
global marketer and manufacturer of multi-sensory and interactive advertising
sampling systems for the fragrance, cosmetics and personal care markets as well
as other consumer product markets, including household products and the food
and beverage industries. Lehigh Direct
provides a range of innovative printing products and services to the direct
marketing sector. The sale of products
by Von Hoffmann and Lehigh Lithographers is affected by a number of factors
including competition, the ELHI textbook adoption process, general economic
conditions and market seasonality. The
sale of instructional materials is also affected over the long term by
demographic trends in ELHI and college populations. Arcade sells its products to fragrance
companies, prestige and mass cosmetic companies, consumer products companies,
department stores, home shopping retailers and specialty retailers. Lehigh Direct provides products and services
primarily to direct marketers. The
advertising and marketing budgets of these customers are affected by prevailing
economic cycles and market conditions.
We experience seasonal
fluctuations in our net sales tied primarily to the North American school
year. For 2004, we recorded
approximately 38% of our annual net sales during the second quarter of our
fiscal year. Jostens generates a
significant portion of its annual net sales in the second quarter. Deliveries of caps, gowns and diplomas for
spring graduation ceremonies and spring deliveries of school yearbooks are the
key drivers of Jostens’ seasonality. The
net sales of Von Hoffmann and Lehigh Lithographers are impacted seasonally by
state and local schoolbook purchasing schedules, which commence in the spring
and peak in the summer months preceding the start of the school year. The college textbook market is also seasonal
with the majority of textbook sales occurring during June through August and
November through January. Significant
amounts of inventory are acquired by publishers prior to those periods in order
to meet customer delivery requirements.
The net sales of Arcade and Lehigh Direct have also historically
reflected seasonal variations, and we expect these businesses to generate a
majority of their annual net sales during our third and fourth quarters. These seasonal variations are based on the
timing of customers’ advertising campaigns, which have traditionally been
concentrated prior to the Christmas and spring holiday seasons. The seasonality of each of our businesses
requires us to allocate our resources to manage our manufacturing capacity,
which often operates at full or near full capacity during peak seasonal
demands.
Excess capacity in the
commercial printing industry in which we operate coupled with recent weaker
economic conditions have resulted in continued downward pricing pressures in an
already competitive industry environment.
Our net sales include sales to certain customers of paper we
purchase. The price of paper, a primary
material across most of our products and services, is volatile over time and
may cause swings in net sales and cost of sales. We generally are able to pass on increases in
the cost of paper to our customers across most product lines as such increases
are realized by us. Increases in paper
prices that began in the second quarter of 2004 continued throughout the year. These increases are expected to continue
through 2005. In addition, global and
U.S. aluminum supply has shown increasing tightness. Aluminum is a key component of lithographic
plates used in the printing process.
While our vendors are working to minimize the impact by managing product
demand and sourcing alternative aluminum vendors, this tightness in supply may
affect our ability to obtain plates and could result in increases in the price
for plates.
Acquisitions
2003
Jostens Merger. On
July 29, 2003, DLJMBP III acquired Jostens through a merger in which
Jostens became the surviving company and our wholly-owned subsidiary. Jostens paid $471.0 million to holders
of its
22
common stock, warrants and options representing a cash payment of
$48.25 per share. Jostens accounted for
the merger using the purchase method of accounting. The aggregate purchase price of
$471.0 million, excluding certain capitalized transaction costs, was
allocated to the tangible and intangible assets acquired and liabilities
assumed based upon their relative fair values as of the date of the
merger. As a result of the merger, Jostens reflected a predecessor period from
December 29, 2002 to July 29, 2003 (seven months) and a successor period from
July 30, 2003 to January 3, 2004 (five months) in its consolidated financial
statements for fiscal 2003.
Lehigh
Press Acquisition. On
October 22, 2003, Von Hoffmann acquired all of the outstanding shares of Lehigh
Press for approximately $108.3 million, which we refer to as the Lehigh
Press Acquisition. The Lehigh Press
Acquisition was financed by the borrowing of funds under Von Hoffmann’s former
senior secured credit facilities and cash on hand. The acquisition was accounted for under the
purchase method of accounting. The cost
of the acquisition was allocated to the assets acquired and liabilities assumed
based upon their relative fair values as of the date of the acquisition. The allocation of purchase price resulted in
value being assigned to intangible assets and goodwill of $45.3 million
and $49.8 million, respectively. In
addition, approximately $3.0 million has been escrowed for certain potential
indemnification obligations pursuant to the related stock purchase
agreement. The escrow provisions expire
in April 2005.
The Transactions. On July 21, 2004, Holdings entered into
a contribution agreement with Fusion Acquisition LLC (“Fusion”), an
affiliate of KKR, pursuant to which Fusion contributed (the “Contribution”) all
of the stock of Von Hoffmann and Arcade
that Fusion acquired immediately prior to such Contribution pursuant to two
separate mergers in exchange for shares of Holdings common stock. Subsequent to the Contribution, Holdings
caused all of the equity interests of Von Hoffmann and Arcade held by it to be
contributed to Visant, which resulted in Von Hoffmann and Arcade becoming
wholly-owned subsidiaries of Visant. The
Contribution, mergers and related financing transactions are referred to
collectively as the “Transactions”.
Restructuring
Activity
On March 16, 2005,
Jostens announced a reorganization of operational, sales and administrative
functions that altered the existing management structure and resulted in a
reduction of staff. We do not expect the
severance and related costs incurred as a result of this initiative to be
material.
On November 10,
2004, Von Hoffmann announced the closure of its Frederick, Maryland
facility. The decision to close the
Frederick facility was made in an effort to rationalize its one- and two-color
capacity by consolidating the one- and two-color print operations primarily
into the Eldridge, Iowa and Owensville, Missouri facilities, which can offer
greater scale efficiencies and state-of-the-art equipment. We expect to incur a total pre-tax charge of
approximately $5.5 million to $6.0 million related to severance
payments, equipment relocation costs and the write-down of certain fixed assets
that will not be relocated. The cash
portion of this charge is estimated to be approximately $3.0 million to
$3.5 million. During 2004, we
incurred approximately $2.7 million of pre-tax expenses included in “special
charges” and $1.9 million of pre-tax expenses included in “cost of products
sold” associated with this closure. A liability of $2.6 million related to these
charges is classified in “other accrued liabilities” in our consolidated
balance sheet as of January 1, 2005. We
anticipate the closure of the facility to be completed during the first half of
fiscal 2005 and will incur the remaining charges during that time period.
On June 22, 2004,
Jostens announced its decision to close its graduation diploma customer service
and production operations at its Red Wing, Minnesota manufacturing facility,
and to relocate these operations to facilities in Owatonna, Minnesota,
Shelbyville, Tennessee and Topeka, Kansas.
During 2004, we recorded a $2.9 million purchase accounting
adjustment to recognize a liability for severance and other personnel costs
related to the involuntary termination or relocation of approximately 180 full-time
and seasonal plant and administrative employees associated with the
closure. The decision to close the Red
Wing facility was made in order to improve customer service and the overall
efficiency of Jostens. In addition to
the exit costs, during 2004, Jostens incurred $1.0 million of capital
expenditures, as well as approximately $3.7 million of pre-tax expenses
included in “cost of goods sold” and “selling and administrative expenses” to
transfer equipment, develop information systems and train employees.
On June 18, 2004,
Von Hoffmann announced plans to integrate the skills and capabilities of its
three premedia operations: Preface,
H & S Graphics and Lehigh Digital, to form one full-service business
known as Anthology, Inc., which performs services from creative through
premedia. The integration of these
operations into one facility located in Arlington Heights, Illinois is expected
to be completed during the first half of 2005.
The cost impact to our ongoing operations and financial position is not
expected to be material.
On December 11,
2003, Von Hoffmann announced the closure of two manufacturing facilities under
the Precision Offset Printing Company Inc., or Precision, subsidiary. The remaining operations of this subsidiary
have been combined into the Pennsauken, New Jersey-based Lehigh Lithographers
division of Lehigh Press. The purpose of
the closure was to reduce the cost structure as well as to consolidate Von
Hoffmann’s service offerings to the educational customers who print products on
plastics and other synthetic substrates.
During 2004, we incurred approximately $1.2 million of pre-tax expenses
included in “special charges” and $1.0 million of pre-tax expenses included in “cost
of products sold” associated with this closure.
23
Other
Factors Affecting Comparability
On July 29, 2003,
Jostens was acquired by DLJMBP III through a merger in which Jostens became the
surviving company and our wholly-owned subsidiary. As a result of the 2003 Jostens merger,
Jostens applied purchase accounting, and a new basis of accounting began on
July 29, 2003. Accordingly, the
results of operations of Jostens for periods prior to the acquisition are not comparable
to results for subsequent periods. In
the discussion below, we have isolated the impact of purchase accounting on
Jostens’ results of operations.
As a result of the
merger, we have reflected a Jostens predecessor period from December 29,
2002 to July 29, 2003 and a successor period from July 30, 2003 to
January 3, 2004 (together, the “Twelve Month 2003” period) in the
management’s discussion and analysis of financial condition and results of
operations for fiscal 2003. The
financial information for the predecessor periods prior to July 29, 2003
is that of Jostens and its wholly-owned subsidiaries and was prepared using
Jostens’ historical basis of accounting.
As
further disclosed in the Notes to Consolidated Financial Statements, the assets
and liabilities pertaining to the Lehigh Direct division of Lehigh Press have
been reclassified within their respective individual financial statement line
items rather than as an asset held for sale as previously reported. Furthermore, the statement of operations for
the successor period in 2003 includes the reclassification of the Lehigh Direct
division’s results of operations previously reported as a discontinued
operation.
Critical Accounting Policies and Estimates
In the ordinary course of
business, we make a number of estimates and assumptions relating to the
reporting of results of operations and financial condition in the preparation
of our financial statements in conformity with accounting principles generally
accepted in the United States. Actual
results could differ significantly from those estimates and assumptions. We believe that the following discussion
addresses our most critical accounting policies, which are those that are most
important to the portrayal of our financial condition and results and require
management’s judgment about the effect of matters that are uncertain.
On an ongoing basis,
management evaluates its estimates and assumptions, including those related to
revenue recognition, recoverability of long-lived assets, continued value of
goodwill and intangibles and pension and other postretirement benefits. Management bases its estimates and
assumptions on historical experience, the use of independent third-party
specialists and on various other factors that are believed to be reasonable at
the time the estimates and assumptions are made. Actual results may differ from these
estimates and assumptions under different circumstances or conditions.
Goodwill and Indefinite-Lived Intangible Assets
Under Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, we are required to
test goodwill and intangible assets with indefinite lives for impairment
annually, or more frequently if impairment indicators occur. The impairment test requires management to
make judgments in connection with identifying reporting units, assigning assets
and liabilities to reporting units, assigning goodwill and indefinite-lived
intangible assets to reporting units, and determining the fair value of each
reporting unit. Significant judgments
required to estimate the fair value of reporting units include projecting
future cash flows, determining appropriate discount rates and other
assumptions. The projections are based
on management’s best estimate given recent financial performance, market
trends, strategic plans and other available information. Changes in these estimates and assumptions
could materially affect the determination of fair value and/or impairment for
each reporting unit. The impairment
testing was completed as of the beginning of our fourth quarter and we believe
that there are no indications of impairment.
24
However, unforeseen future events could adversely
affect the reported value of goodwill and indefinite-lived intangible assets,
which totaled approximately $1.7 billion at the end of 2004.
Pension and Other Postretirement Benefits
Jostens sponsors several
defined-benefit pension plans that cover nearly all of its employees. Jostens also provides certain medical and
life insurance benefits for eligible retirees.
Von Hoffmann maintains a trusteed, noncontributory defined benefit
pension plan for eligible employees of the Lehigh Press not otherwise covered
by collective bargaining agreements (the “Lehigh Pension”). On December 31, 2004, the Lehigh Pension plan
was merged into one of Jostens’ defined benefit pension plans. Jostens and Von Hoffmann account for their
respective plans under SFAS No. 87, Employer’s
Accounting for Pensions, which requires management to use three key
assumptions when computing estimated annual pension expense. These assumptions are the discount rate
applied to the projected benefit obligation, expected return on plan assets and
the rate of compensation increases.
Of the three key
assumptions, only the discount rate is based on external market indicators,
such as the yield on currently available high-quality, fixed income investments
or annuity settlement rates. The
discount rate used to value the pension obligation at any year-end is used for
expense calculations the next year. For
the rates of expected return on assets and compensation increases, management
uses estimates based on experience as well as future expectations. Due to the long-term nature of pension
liabilities, management attempts to choose rates for these assumptions that
will have long-term applicability.
The following is a
summary of the three key assumptions that were used in determining 2004 pension
expense for Jostens and Von Hoffmann, along with the impact of a 1% change in
each assumed rate. Brackets indicate
annual pension expense would be reduced.
Modification of these assumptions does not impact Jostens’ and Von
Hoffmann’s respective pension funding requirements.
|
Assumption
|
|
Rate
|
|
Impact of
1%
increase
|
|
Impact of
1%
decrease
|
|
|
Jostens
|
|
|
|
|
|
|
|
|
Discount rate
|
|
6.00
|
%
|
$
|
(556
|
)
|
$
|
1,799
|
|
|
Expected return
on plan assets
|
|
9.50
|
%
|
(1,893
|
)
|
1,893
|
|
|
Rate of
compensation increases
|
|
6.30
|
%
|
526
|
|
(456
|
)
|
|
Von
Hoffmann
|
|
|
|
|
|
|
|
|
Discount rate
|
|
6.25
|
%
|
(456
|
)
|
234
|
|
|
Expected return
on plan assets
|
|
7.50
|
%
|
(222
|
)
|
222
|
|
|
Rate of
compensation increases
|
|
3.00
|
%
|
124
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
As part of the process of
preparing our consolidated financial statements, we are required to estimate
our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual
current tax liability together with assessing temporary differences resulting
from differing treatment of items such as capital assets for tax and accounting
purposes. These temporary differences
result in deferred tax assets and liabilities, which are included in our
consolidated balance sheets. We must
then assess the likelihood that any deferred tax assets will be recovered from
taxable income of the appropriate character within the carryback or
carryforward period and to the extent that recovery is not likely, a valuation
allowance must be established.
Significant management judgment is required in determining the provision
for income taxes, deferred tax assets and liabilities and any valuation
allowance recorded against deferred tax assets.
On a consolidated basis, we have established a tax valuation allowance
of $16.9 million as of the end of fiscal 2004 related to capital loss
carryforwards and foreign tax credit carryforwards, because we believe the tax
benefits are not likely to be fully realized.
As a result of the Transactions, the valuation allowance attributable to
accrued interest was reduced by approximately $12.5 million because the related
tax benefit is
25
likely to be fully realized. The
valuation allowance was also reduced by approximately $10.7 million because a
capital loss carryforward expired at the end of 2004.
Revenue Recognition
The SEC’s Staff
Accounting Bulletin, or SAB, No. 101, Revenue
Recognition, provides guidance on the application of accounting
principles generally accepted in the United States to selected revenue
recognition issues. In accordance with
SAB No. 101, we recognize revenue when products are shipped (if shipped FOB
shipping point), delivered (if shipped FOB destination), risk of loss transfers
or as services are performed as determined by contractual agreement and
collectibility is reasonably assured.
The policies are consistent with industry practices.
Results of Operations
The following table sets forth selected information
derived from our consolidated statements of operations for fiscal year 2004
(successor), the Twelve Month 2003 period, the successor period from July 30,
2003 to January 3, 2004, the predecessor period from December 29, 2002 to July
29, 2003 and fiscal year 2002 (predecessor).
In the text below, amounts and percentages have been rounded and are
based on the financial statement amounts.
|
In thousands
|
|
Holdings
(Successor)
|
|
Twelve
Months
2003
|
|
Holdings
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
% Change
between
Twelve
Months
2003 and
2004
|
|
% Change
between
2002 and
Twelve
Months
2003
|
|
|
2004
|
Five
Months
2003
|
Seven
Months
2003
|
|
2002
|
|
Net sales
|
|
$
|
1,462,161
|
|
$
|
1,006,722
|
|
$
|
502,664
|
|
$
|
504,058
|
|
$
|
755,984
|
|
45.2
|
%
|
33.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
547,197
|
|
452,302
|
|
166,838
|
|
285,464
|
|
440,023
|
|
21.0
|
%
|
2.8
|
%
|
|
%
of net sales
|
|
37.4
|
%
|
44.9
|
%
|
|
|
|
|
58.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and
administrative expenses
|
|
434,068
|
|
364,900
|
|
168,470
|
|
196,430
|
|
306,449
|
|
19.0
|
%
|
19.1
|
%
|
|
%
of net sales
|
|
29.7
|
%
|
36.2
|
%
|
|
|
|
|
40.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs
|
|
15,899
|
|
31,186
|
|
226
|
|
30,960
|
|
—
|
|
(49.0
|
)%
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges
|
|
15,663
|
|
—
|
|
—
|
|
—
|
|
—
|
|
NM
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
|
81,567
|
|
56,216
|
|
(1,858
|
)
|
58,074
|
|
133,574
|
|
45.1
|
%
|
(57.9
|
)%
|
|
%
of net sales
|
|
5.6
|
%
|
5.6
|
%
|
|
|
|
|
17.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
|
160,279
|
|
100,436
|
|
67,990
|
|
32,446
|
|
67,326
|
|
59.6
|
%
|
49.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on
redemption of debt
|
|
75,849
|
|
14,381
|
|
503
|
|
13,878
|
|
1,765
|
|
427.4
|
%
|
714.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from)
provision for income taxes
|
|
(52,771
|
)
|
(10,541
|
)
|
(19,236
|
)
|
8,695
|
|
36,214
|
|
(400.6
|
)%
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect
of accounting change
|
|
—
|
|
4,585
|
|
—
|
|
4,585
|
|
—
|
|
NM
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
(100,698
|
)
|
(43,475
|
)
|
(51,115
|
)
|
7,640
|
|
29,906
|
|
(131.6
|
)%
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM = Not meaningful
We consider our business
to be managed on the basis of two reportable segments: Jostens and our Print Group. The following table sets forth selected
segment information derived from our consolidated statements of operations for
fiscal year 2004 and the successor period from July 30, 2003 to January 3,
2004. As a result of the 2003 Jostens
merger, we have accounted for the consolidation of Jostens, Von Hoffmann and
Arcade as entities under common control as of July 30, 2003. Since our Print Group consists of the
operations of Von Hoffmann, including its subsidiary, Lehigh Press, as well as
Arcade, our consolidated results of operations prior to July 30, 2003 do not
include the operations of the Print Group.
For additional financial information about our operating segments, see
Note 18 of the Notes to Consolidated Financial Statements.
26
|
|
|
Holdings
(Successor)
|
|
|
|
Holdings
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
% Change
between
Twelve Months
|
|
|
|
|
|
|
Twelve Months
|
|
Five Months
|
|
Seven Months
|
|
2003 and
|
|
|
In thousands
|
|
2004
|
|
2003
|
|
2003
|
|
2003
|
|
2004
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Jostens
|
|
$
|
807,239
|
|
$
|
788,229
|
|
$
|
284,171
|
|
$
|
504,058
|
|
2.4
|
%
|
|
Print Group
|
|
654,922
|
|
218,493
|
|
218,493
|
|
—
|
|
NM
|
|
|
|
|
$
|
1,462,161
|
|
$
|
1,006,722
|
|
$
|
502,664
|
|
$
|
504,058
|
|
45.2
|
%
|
|
Operating income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Jostens
|
|
$
|
36,848
|
|
$
|
35,518
|
|
$
|
(22,556
|
)
|
$
|
58,074
|
|
3.7
|
%
|
|
Print Group
|
|
44,969
|
|
20,698
|
|
20,698
|
|
—
|
|
NM
|
|
|
Other
|
|
(250
|
)
|
—
|
|
—
|
|
—
|
|
NM
|
|
|
|
|
$
|
81,567
|
|
$
|
56,216
|
|
$
|
(1,858
|
)
|
$
|
58,074
|
|
45.1
|
%
|
NM = Not meaningful
Year Ended January 1, 2005 Compared to the Twelve
Month 2003 Period
Net sales. Net sales increased $455.4 million, or
45.2%, to $1,462.2 million for 2004 from $1,006.7 for the Twelve Month
2003 period. The consolidation of the
Print Group with Visant accounted for $436.4 million of the increased net
sales, while Jostens’ net sales increased $19.0 million, or 2.4%, compared
to the same prior year period.
The 2.4% increase in Jostens’ net sales resulted
primarily from price increases across all product lines partially offset by a
reduction in overall volume. This lower
overall sales volume was largely a result of decreased sales orders primarily
associated with a modest decline in net accounts and buy rates. This decline was partially offset by
increased sales volume for graduation regalia products, increased sales volume
for yearbooks associated with our acquisition of a yearbook business in the
latter part of 2003 and an increase in the number of color yearbook pages
printed.
Gross profit. Gross profit increased $94.9 million, or
21.0%, to $547.2 million for 2004 from $452.3 million for the Twelve Month
2003 period. As a percentage of net
sales, gross profit margin decreased 7.5 percentage points to 37.4% for 2004
from 44.9% for the Twelve Month 2003 period.
The consolidation of the Print Group with Visant contributed
$97.2 million of the gross profit increase, but negatively impacted gross
profit margin by 6.0 percentage points, since the Print Group is characterized
by typically lower gross margins than Jostens.
Jostens’ gross profit decreased $2.3 million, or 0.6%, compared to
the same prior year period. Excluding
costs associated with purchase accounting related to the 2003 merger
($54.6 million of depreciation and amortization expense in 2004 and $43.3
million of inventory costs and depreciation and amortization expense in 2003),
Jostens’ gross profit increased $8.9 million resulting in a 0.2 percentage
point increase in gross profit margin.
Jostens’ gross profit was favorably impacted in 2004
by the sales fluctuations discussed above as well as the absence of prior year
costs associated with difficulties we encountered in connection with an ERP
system implementation. In 2003, we
incurred additional production costs, as well as certain selling and
administrative expenses, in order to resolve those difficulties while
continuing to provide timely delivery of our products. Although our efforts minimized the impact to
our customers, the associated costs negatively impacted our margins in
2003. We have since resolved our
production issues related to the ERP system installation. Conversely, Jostens’ gross profit in 2004 was
negatively impacted by increased costs for precious raw materials compared to
last year as well as period costs associated with the facility closure and
relocation of our graduation diploma production and customer service
operations.
Selling
and administrative expenses.
Selling and administrative expenses increased $69.2 million, or 19.0%,
to $434.1 million for 2004 from $364.9 million for the Twelve Month 2003
period. As a percentage of net sales,
selling and administrative expenses decreased 6.5 percentage points to
29.7% for 2004 from 36.2% for the Twelve Month 2003 period. The consolidation of the Print Group with
Visant contributed $50.4 million of the increased expense, but favorably
impacted selling and administrative expenses as a percentage of net sales by
7.9 percentage points. Jostens’ selling
and administrative expenses increased $19.2 million, or 5.6%, compared to the
same prior year period. Excluding costs
associated with purchase accounting related to the 2003 Jostens merger
27
($40.9 million and
$17.3 million of depreciation and amortization expense in 2004 and 2003,
respectively), Jostens’ selling and administrative expenses decreased
$4.3 million and selling and administrative expenses as a percentage of
net sales declined 1.3 percentage points.
Jostens’ $4.3
million decrease in selling and administrative expenses was primarily due to
the absence of prior year costs associated with the difficulties encountered
with the ERP system implementation, lower information systems expense due to
reduced depreciation expense in connection with fully amortized software and
overall cost controls. The decrease was
partially offset by higher commission expense as a result of increased sales
and additional investment in customer service.
Transaction costs. During 2004, we incurred $15.9 million
of expenses in connection with the Transactions, including $5.4 million of
compensation expense primarily representing the excess of the fair market value
over the exercise price of outstanding Von Hoffmann stock options and $10.5
million consisting primarily of investment banking, legal and accounting
fees. During the Twelve Month 2003
period, Jostens incurred $31.2 million of transaction expenses in connection
with the 2003 Jostens merger.
Special charges. During
2004, we incurred special charges totaling $15.7 million including $3.9 million
in connection with restructuring activity related to Von Hoffmann’s Frederick,
Maryland facility, as well as the consolidation of its Precision business. The remaining $11.8 million of additional
charges consist primarily of severance and related separation benefits for the
departure of senior executives and other employees associated with
reorganization activity as a result of the Transactions.
Operating
income. Operating
income increased $25.4 million, or 45.1%, to $81.6 million for 2004 from
$56.2 million for the Twelve Month 2003 period. As a percentage of net sales, operating
income was 5.6% for both 2004 and the Twelve Month 2003 period. The consolidation of Print Group with Visant
contributed $24.3 million of the increased operating income while Jostens’
operating income increased $1.3 million compared to the same prior year
period. Excluding costs associated with
purchase accounting related to the 2003 Jostens merger ($95.6 million of
depreciation and amortization expense in 2004 and $60.7 million of inventory
costs and depreciation and amortization expense in 2003) and excluding the
fluctuation of transaction costs and special charges, Jostens’ operating income
increased $13.3 million primarily as a result of the absence of prior year
costs associated with the difficulties encountered with the ERP system
implementation and overall cost controls.
Net
interest expense. Net
interest expense is comprised of the following:
|
|
|
Holdings
(Successor)
|
|
|
|
Holdings
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
|
|
|
|
Twelve Months
|
|
Five Months
|
|
Seven Months
|
|
|
In
thousands
|
|
2004
|
|
2003
|
|
2003
|
|
2003
|
|
|
Visant:
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
98,559
|
|
$
|
70,349
|
|
$
|
41,775
|
|
$
|
28,574
|
|
|
Accrued interest on mandatorily redeemable preferred
stock and subordinated exchange debentures
|
|
38,816
|
|
23,322
|
|
22,480
|
|
842
|
|
|
Amortization of debt discount, premium and deferred
financing costs
|
|
7,120
|
|
5,965
|
|
2,853
|
|
3,112
|
|
|
Interest income
|
|
(678
|
)
|
(499
|
)
|
(417
|
)
|
(82
|
)
|
|
|
|
143,817
|
|
99,137
|
|
66,691
|
|
32,446
|
|
|
Holdings:
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
193
|
|
—
|
|
—
|
|
—
|
|
|
Amortization of debt discount, premium and deferred
financing costs
|
|
16,297
|
|
1,315
|
|
1,315
|
|
—
|
|
|
Interest income
|
|
(28
|
)
|
(16
|
)
|
(16
|
)
|
—
|
|
|
|
|
16,462
|
|
1,299
|
|
1,299
|
|
—
|
|
|
|
|
$
|
160,279
|
|
$
|
100,436
|
|
$
|
67,990
|
|
$
|
32,446
|
|
28
Net interest
expense increased $59.8 million, or 59.6%, to $160.3 million for 2004 as
compared to $100.4 million for the Twelve Month 2003 period. The increase is primarily due to the impact
of the Transactions and the resulting consolidation of the Print Group with
Visant, which contributed $46.0 million of the increased expense. Amortized interest related to the Holdings
10¼% senior discount notes contributed another $15.0 million.
Loss
on redemption of debt. In
connection with the Transactions, Jostens, Von Hoffmann and Arcade repaid their
existing indebtedness and remaining redeemable preferred stock and recognized
related losses of $75.4 million. The
losses included $81.0 million of aggregate redemption premium paid and an
aggregate net credit balance of $5.6
million for unamortized deferred financing costs, discounts and premiums
related to the debt instruments.
Also during 2004,
we voluntarily redeemed $5.0 million principal amount of Jostens’ senior
subordinated notes, recognizing a loss of $0.4 million, which consisted of
redemption premium paid plus unamortized premium, original issuance discount
and deferred financing costs related to the notes.
Benefit
from income taxes. Our
consolidated effective tax rate was 34.4% for 2004 compared with 18.0% for the
Twelve Month 2003 period. The rate of
tax benefit for both periods was less than the statutory federal rate due to
the unfavorable effect of nondeductible expenses. For 2004, the unfavorable effect of
nondeductible interest expense was largely offset by the reduction of our
valuation allowance for accrued high-yield interest, as further described in
Note 15 of the Notes to Consolidated Financial Statements. The 2004 effective rate of tax benefit was
also unfavorably affected by nondeductible transaction costs. The rate of tax benefit for the Twelve Month
2003 period was significantly less than the federal statutory rate due to the
unfavorable effect of nondeductible interest and transaction costs applied to a
pre-tax loss amount that was significantly smaller than the loss for 2004. In addition, the Twelve Month 2003 period did
not include any tax benefit recognized for the repayment of high-yield debt
obligations. For 2005, we anticipate a
consolidated effective tax rate between 38% and 40%.
Net loss.
As a result of the foregoing discussion, net loss increased
$57.2 million to $100.7 million from $43.5 million for the Twelve
Month 2003 period.
Twelve
Month 2003 Period Compared to the Year Ended December 28, 2002
Net sales.
Net sales increased $250.7 million, or 33.2%, to
$1,006.7 million for the Twelve Month 2003 period from $756.0 million
for 2002. The consolidation of the Print
Group with Visant accounted for $218.5 million of the increased net sales,
while Jostens’ net sales increased $32.2 million, or 4.3%, compared to the
same prior year period.
Of the
4.3% increase in Jostens’ net sales, approximately 2.2% resulted from price
increases across all product lines, approximately 1.3% resulted from volume/mix
increases and approximately 0.8% was due to the strengthening of the Canadian
dollar against the U.S. dollar. The
fluctuation attributable to price increases included the effect of a slight
recovery in jewelry product mix toward more precious metals with higher price
points. Specific factors contributing to
the increase in volume from 2002 to the Twelve Month 2003 period included:
• net account growth across most of our
product lines;
• an increase in the number of
individual orders for graduation products and higher average purchases per
student;
• volume associated with our
acquisition of a photography business early in the year;
• an increase in the number of color
yearbook pages printed; and
• incremental jewelry volume from the
affinity market.
The
increase was partially offset by a modest decline in net accounts for yearbooks
compounded by a slight shift in mix of orders to smaller yearbooks, slightly
lower same school buy rates for high school class rings and lower commercial
printing volume.
Gross profit. Gross profit increased $12.3 million, or
2.8%, to $452.3 million for the Twelve Month 2003 period from
$440.0 million for 2002. As a
percentage of net sales, gross profit margin decreased 13.3 percentage
points
29
to 44.9% for the Twelve
Month 2003 period from 58.2% for 2002.
The consolidation of the Print Group with Visant contributed
$45.3 million, or 10.3%, of the gross profit increase, but negatively
impacted gross profit margin by 6.7 percentage points. Jostens’ gross profit decreased
$33.0 million, or 7.5%, compared to the same prior year period. Excluding $43.3 million of inventory
costs and depreciation and amortization expense associated with purchase
accounting related to the 2003 Jostens merger, Jostens’ gross profit increased
$10.3 million resulting in a 1.1 percentage point decrease in gross
profit margin.
The
decrease in Jostens’ gross profit margin was primarily due to additional
production costs and production inefficiencies incurred in connection with the
installation of an ERP system in Jostens’ graduation products line. The decline in gross profit margin was due,
to a lesser extent, to an increase in the price of gold, higher pension and
employee benefit costs, the effect of sales growth on lower margin products and
an unfavorable currency fluctuation against the euro associated with our purchases
of precious, semiprecious and synthetic stones.
Gross profit results were favorably impacted by the general price
increases and incremental volume discussed above combined with the
strengthening of the Canadian dollar against the U.S. dollar.
Selling and administrative expenses. Selling and administrative expenses increased
$58.5 million, or 19.1%, to $364.9 million for the Twelve Month 2003
period from $306.4 million for 2002.
As a percentage of net sales, selling and administrative expenses
decreased 4.3 percentage points to 36.2% for the Twelve Month 2003 period
from 40.5% for 2002. The consolidation
of the Print Group with Visant contributed $24.6 million, or 8.1%, of the
increased expense, but favorably impacted selling and administrative expenses
as a percentage of net sales by 6.9 percentage points. Jostens’ selling and administrative expenses
increased $33.8 million, or 11.0%, compared to the same prior year
period. Excluding $17.3 million of
depreciation and amortization expense associated with purchase accounting
related to the 2003 Jostens merger, Jostens’ selling and administrative
expenses increased $16.5 million, resulting in a 5.4 percentage point
increase in selling and administrative expenses as a percentage of net
sales. The $16.5 million increase
was primarily due to the following:
• higher commission expense as a result
of increased sales;
• incremental spending on information
systems, customer service support and selling activities to address the
difficulties encountered with the installation of the ERP system;
• higher pension and employee benefit
costs;
• additional investment in customer
service and support; and
• incremental spending on a combination
of severance costs, a legal settlement and acquisition related expenses.
The
increase was partially offset by lower general and administrative expense
compared to 2002.
Transaction costs. During the Twelve Month 2003 period, Jostens
incurred $31.2 million of transaction expenses in connection with the 2003
Jostens merger, consisting of investment banking fees, legal and accounting
fees, compensation expense related to stock option payments and a charge to
write off prepaid management fees.
Operating income. Operating income decreased
$77.4 million, or 57.9%, to $56.2 million for the Twelve Month 2003 period
from $133.6 million for 2002. As a
percentage of net sales, operating income decreased 12.1 percentage points to
5.6% for the Twelve Month 2003 period from 17.7% for 2002. The consolidation of the Print Group with
Visant contributed $20.7 million of increased operating income while
Jostens’ operating income decreased $98.1 million compared to the same
prior year period. Excluding $60.7
million of inventory costs and depreciation and amortization expense associated
with purchase accounting related to the 2003 Jostens merger and $31.2 million
of related transaction costs, Jostens’ operating income decreased
$6.2 million primarily as a result of the incremental costs incurred to
address the difficulties encountered with the ERP system implementation.
Net interest expense. Net interest expense increased
$33.1 million, or 49.2%, to $100.4 million for the Twelve Month 2003
period as compared to $67.3 million for 2002. The consolidation of the Print Group with
Visant contributed $35.6 million of the increased expense. The remaining overall decrease of $2.5
million was primarily due to a lower average outstanding debt balance during
the predecessor period of 2003 compared to 2002 and lower average interest
rates offset by $6.4 million of additional interest expense as a result of
the reclassification of dividends on
30
Jostens’ redeemable
preferred stock in connection with the change in accounting principle, $1.3
million of additional amortized interest related to the Holdings 10¼% senior
discount notes and $2.8 million of dividends on the 8% Visant redeemable
preferred stock.
Loss on redemption of debt. As a result of refinancing the senior secured
credit facility in connection with the 2003 Jostens merger, we recognized a
loss of $13.9 million consisting of unamortized deferred financing
costs. In addition, during the successor
period of 2003, we redeemed $8.5 million principal amount of Jostens’
senior subordinated notes, recognizing a loss of $0.5 million, which
consisted of redemption premium paid plus unamortized premium, original
issuance discount and deferred financing costs related to the notes.
(Benefit from) provision for income taxes. The effective rate of tax presented for the
results of operations for the Twelve Month 2003 period was based on the total
income tax expense (benefit) recorded on each of our companies’ separately
reported financial statements. Jostens
and its holding companies applied a 22.3% rate of tax benefit to its 12-month
pre-tax loss of $43,726. The rate of tax
benefit was less than the statutory rate of 35% due to the unfavorable effect
of nondeductible interest expense on redeemable preferred stock and
nondeductible transaction costs. The rate
of tax expense (benefit) provided by Von Hoffmann and Arcade on pre-tax results
for the five month successor period in 2003 was (33.4)% and 30.4%,
respectively. Von Hoffmann’s effective
tax rate was negatively impacted by the effect of nondeductible interest
expense on its subordinated exchange debentures. Arcade’s effective tax rate was negatively
impacted by the effect of nondeductible interest expense on its redeemable
preferred stock and an increase in the valuation allowance on certain of its
deferred tax assets.
The
18.0% effective rate of tax for the Twelve Month 2003 period is not intended to
reflect the rate that would have applied had the transaction occurred at the
beginning of the period.
For
2002, Jostens’ effective tax rate was 56.2%. The rate was greater than the
statutory rate due primarily to the negative effect of Jostens’ foreign
earnings repatriation.
Cumulative effect of accounting change. We recognized a cumulative effect of a change
in accounting principle upon adoption of SFAS 150 at the beginning of our
third quarter in 2003. Jostens assessed
the value of its 14% redeemable preferred stock at the present value of the
settlement obligation using the rate implicit at inception of the obligation,
resulting in an adjustment of $4.6 million. Jostens did not provide any tax provision in
connection with the adoption of SFAS 150 because the payment of the
related preferred dividend and discount amortization were not tax deductible. The
assessment performed by Arcade of its redeemable senior preferred stock did not
result in an adjustment.
Net (loss) income. As a result of the foregoing discussion, net
income decreased $73.4 million to a loss of $43.5 million for the
Twelve Month 2003 period from $29.9 million for 2002.
Discontinued
Operations
In December 2001, the Board of Directors of
Jostens approved a plan to exit its former Recognition business in order to
focus its resources on its core school-related affinity products business. During 2002, Jostens reversed $2.3 million of
the original $16.3 million of charges based on revised estimates for employee
separation costs and phase-out costs. Of
the total adjustment, $0.5 million resulted from modifying the anticipated
workforce reduction from 150 to 130 full-time positions and $1.8 million
resulted from lower information systems, customer service and internal support
costs and lower receivable write-offs than originally anticipated. In addition, Jostens reversed $0.4 million in
other liabilities for a total pre-tax gain on discontinued operations of $2.7
million ($1.6 million net of tax).
As of the end of 2004, accrued disposal costs,
consisting of $1.8 million of transition benefits, are included in “current
liabilities of discontinued operations” in the consolidated balance sheet. Transition benefits will continue to be paid
through the period of our statutory obligations.
31
Liquidity and Capital Resources
Contractual Obligations
The
following table shows due dates and amounts of our contractual obligations:
|
|
|
Payments due by calendar year
|
|
|
In
thousands
|
|
Total
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
Thereafter
|
|
|
7 5/8% senior subordinated notes
|
|
$
|
500,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
500,000
|
|
|
10 1/4% senior discount notes
|
|
247,200
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
247,200
|
|
|
Term loans (1)
|
|
1,020,000
|
|
19,950
|
|
19,950
|
|
23,700
|
|
23,700
|
|
23,700
|
|
909,000
|
|
|
Operating leases
|
|
24,182
|
|
7,743
|
|
6,181
|
|
3,968
|
|
2,849
|
|
2,025
|
|
1,416
|
|
|
Precious metals forward contracts
|
|
10,096
|
|
10,096
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Minimum royalties
|
|
7,200
|
|
1,200
|
|
1,200
|
|
1,200
|
|
1,200
|
|
1,200
|
|
1,200
|
|
|
Interest expense (2)
|
|
734,435
|
|
86,941
|
|
85,985
|
|
84,984
|
|
85,956
|
|
108,042
|
|
282,527
|
|
|
Total contractual cash obligations (3)
|
|
$
|
2,543,113
|
|
$
|
125,930
|
|
$
|
113,316
|
|
$
|
113,852
|
|
$
|
113,705
|
|
$
|
134,967
|
|
$
|
1,941,343
|
|
(1) In February 2005,
we prepaid $63.6 million of principal due under the Visant term loans including
all principal payments due in 2005 through 2007.
(2) Projected
interest expense related to the variable rate term loans is based on market
rates as of the end of 2004.
(3) Also
outstanding is $13.2 million in the form of letters of credit.
Operating
activities generated cash of $114.1 million in 2004 compared with $96.2 million
in the Twelve Month 2003 period and $55.5 million in 2002. For 2004, the consolidation of the Print
Group with Visant decreased operating cash flow compared to the Twelve Month
2003 period primarily due to $24.0 million of aggregated transaction costs and
special charges reported by the Print Group in 2004. Jostens’ operating cash flow increased
compared to the Twelve Month 2003 period primarily due to improved operating
profitability combined with a $22.2 million decrease in aggregated transaction
costs and special charges reported by Jostens compared to the same prior year
period.
As of
the end of 2004, we had cash and cash equivalents of approximately $85.0
million. Our principal sources of
liquidity are cash flows from operating activities and borrowings under Visant’s
new revolving credit facility. We use
cash primarily for debt service obligations, capital expenditures and to fund
working capital requirements.
We
intend to fund ongoing operations through cash generated by operations and
borrowings under the new revolving credit facility. We have substantial debt service
requirements.
Visant’s
new senior secured credit facilities are comprised of a $150 million
senior secured Term A loan facility with a six-year maturity, an
$870 million senior secured Term C loan facility with a seven-year
maturity and a $250 million senior secured revolving credit facility with
a five-year maturity. As of year-end
2004, we had $13.2 million standby letters of credit outstanding. Except for approximately $8.3 million of
outstanding indebtedness under the Canadian portion of our new revolving credit
facility, we repaid the entire outstanding indebtedness under our new revolving
credit facility during the fourth quarter of 2004. On February 22, 2005, we voluntarily
prepaid $63.6 million of scheduled payments under the term loan facilities with
free cash flow generated from operations.
Borrowings
under the new senior secured credit facilities bear interest at our option at
either adjusted LIBOR plus an applicable margin or the alternate base rate plus
an applicable margin and are subject to adjustment based on a pricing grid.
The
new senior secured credit facilities require us to meet a maximum total
leverage ratio, a minimum interest coverage ratio and a maximum capital
expenditures limitation. In addition,
the new senior secured credit facilities contain certain restrictive covenants
which, among other things, limit our ability to incur additional indebtedness,
pay dividends, prepay subordinated debt, make investments, merge or consolidate,
change our business, amend the terms of
32
our subordinated debt and
engage in certain other activities customarily restricted in such
agreements. It also contains certain
customary events of default, subject to grace periods, as appropriate.
On October 4,
2004, Visant issued $500 million in principal amount of 7 5/8%
senior subordinated notes (the “Visant notes”) due October 1, 2012 in a
private placement to a limited number of qualified institutional buyers, as
defined under the Securities Act, and to a limited number of persons outside
the United States. On March 30,
2005, we completed an offer to exchange the entire principal amount of these
notes for an equal amount of notes with substantially identical terms that have
been registered under the Securities Act.
The Visant notes are not collateralized and are subordinate in right of
payment to the senior secured credit facilities. The senior secured credit facilities and the
Visant notes are guaranteed by all of Visant’s direct and indirect domestic
subsidiaries.
On December 2,
2003, Holdings issued $247.2 million in principal amount at maturity of 101/4%
senior discount notes (the “Holdings notes”) due December 1, 2013 in a
private placement to a limited number of qualified institutional buyers, as
defined under the Securities Act, and to a limited number of persons outside
the United States for gross proceeds of $150 million. On March 8, 2004, we completed an offer
to exchange the entire principal amount at maturity of these notes for an equal
amount at maturity of notes with substantially identical terms that had been
registered under the Securities Act. The
Holdings notes are not collateralized, are subordinate in right of payment to
all debt and other liabilities of our subsidiaries and are not guaranteed.
The
indentures governing the Visant notes and the Holdings notes also contain
numerous covenants including, among other things, restrictions on our ability
to: incur or guarantee additional
indebtedness or issue disqualified or preferred stock; pay dividends or make
other equity distributions; repurchase or redeem capital stock; make
investments or other restricted payments; sell assets or consolidate or merge
with or into other companies; create limitations on the ability of our
restricted subsidiaries to make dividends or distributions to us; engage in
transactions with affiliates; and create liens.
Future principal debt payments are expected to be paid out
of cash flows from operations, borrowings under Visant’s new revolving credit
facility and future refinancing of our debt.
We
also have capital expenditure requirements for our operations. For 2004, we had capital expenditures of
$49.3 million, primarily for additional press capacity, automation, information
technology and ongoing maintenance. For
the Twelve Month 2003 period and for 2002, we had capital expenditures of
$26.8 million and $22.8 million, respectively. We expect capital expenditures to increase in
2005 due to anticipated capacity needs.
Our
ability to make scheduled payments of principal, or to pay the interest or
additional interest, if any, on, or to refinance our indebtedness, or to fund
planned capital expenditures will depend on our future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. Based upon the current level of operations,
we believe that cash flow from operations, available cash and short-term
investments, together with borrowings available under Visant’s new senior
secured credit facilities, are adequate to meet our future liquidity needs
throughout 2005. Our assumptions with
respect to future costs may not be correct, and funds available to us from the
sources discussed above may not be sufficient to enable us to service our
indebtedness, including the notes, or cover any shortfall in funding for any
unanticipated expenses. In addition, to
the extent we make future acquisitions, we may require new sources of funding
including additional debt or equity financing or some combination thereof. We may not be able to secure additional
sources of funding on favorable terms.
Off
Balance Sheet Arrangements
Precious Metals Consignment Arrangement
We
have a precious metals consignment arrangement with a major financial
institution whereby we have the ability to obtain up to $30 million in
consigned inventory. Under the terms of the consignment arrangement, we do not
own the consigned inventory until it is shipped in the form of a product to the
customer. Accordingly, we do not include
the value of consigned inventory or the corresponding liability in our
financial statements. The value of
consigned inventory as of the end of 2004 and 2003 was $22.6 million and
$24.0 million, respectively.
33
Other
than our precious metals consignment arrangement and general operating leases,
we have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
Recent Accounting Pronouncements
SFAS 123R – Statement of Accounting Standards No. 123
(revised 2004) Share-Based Payment
In December 2004, the Financial Accounting
Standards Board (FASB) issued a revision of SFAS 123. This statement eliminates the alternative to
use the intrinsic value method of accounting that was permitted in SFAS 123 as
originally issued and will require recognition of compensation expense related
to all equity awards granted after the required effective date and to awards
modified, repurchased, or cancelled after that date based on the grant date
fair values of the awards. This
statement is effective for us as of the first interim or annual reporting
period that commences after December 15, 2005. We have not yet determined the impact of
adopting this statement on our consolidated financial position, results of
operations or cash flows.
FSP 109-2 – Accounting and Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs Creation Act
of 2004.
In October 2004, the American Jobs Creation Act
of 2004 (the “AJC Act”) was signed into law.
This legislation creates, among other things, a temporary incentive for
U.S. multinational companies to repatriate accumulated income earned outside
the United States at a favorable rate of tax.
The U.S. Treasury Department has not issued final guidelines for
applying the repatriation provisions of the AJC Act. In December 2004, the FASB issued Staff
Position (FSP) 109-2, which provides accounting and disclosure guidance
for the repatriation provision. We
anticipate we will repatriate earnings from our foreign subsidiaries during
2005, but we do not presently know the amount of such distributions because we
have not completed our evaluation of the related tax effect under the AJC
Act. We anticipate that our evaluation
will be completed during the third quarter of 2005 and that the related tax
effect will not have a material impact on our consolidated effective tax rate
for 2005.
FSP 106-2 – Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug Improvement and Modernization Act of
2003
In May 2004,
the FASB issued FSP 106-2, which was effective for us as of the beginning
of the third quarter of 2004. The
Medicare Prescription Drug Improvement and Modernization Act of 2003 (the “Medicare
Act”) includes a prescription drug benefit under Medicare Part D as well
as a federal subsidy to sponsors of retiree health care benefit plans that
provide a benefit that is at least actuarially equivalent (as defined in the
Medicare Act) to Medicare Part D.
The adoption of FSP 106-2 did not have a material effect on our
financial condition or results of operations.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Market Risk
We are
subject to market risk associated with changes in interest rates, foreign
currency exchange rates and commodity prices. To reduce any one of these risks,
we may at times use financial instruments. All hedging transactions are
authorized and executed under clearly defined company policies and procedures,
which prohibit the use of financial instruments for trading purposes.
Interest Rate Risk
We are
subject to market risk associated with changes in LIBOR and other variable
interest rates in connection with our senior secured credit facilities. If the short-term interest rates or the LIBOR
averaged 10% more or less,
34
interest expense would
have changed by $0.8 million for 2004, $2.0 million for the Twelve Month 2003
period and $2.4 million for 2002.
Foreign Currency
Exchange Rate Risk
We are
exposed to market risks from changes in foreign exchange rates. Jostens and Arcade have foreign operations
primarily in Canada and France, respectively, where substantially all
transactions are denominated in Canadian dollars and euros. Jostens periodically enters into forward
foreign currency exchange contracts to hedge certain purchases of inventory
denominated in foreign currency. Arcade
periodically enters into forward foreign currency exchange contracts to hedge
certain exposures related to selected transactions that are relatively certain
as to both timing and amount and to hedge a portion of the production costs
expected to be denominated in foreign currencies. The purpose of these hedging activities is
to minimize the impact of foreign currency fluctuations on our results of
operations and cash flows. We consider
our market risk in such activities to be immaterial.
Commodity Price
Risk
We are
subject to market risk associated with changes
in the price of precious metals. To
mitigate our commodity price risk, we enter into forward contracts to purchase
gold, platinum and silver based upon the estimated ounces needed to satisfy
projected customer demand. We
periodically prepare a sensitivity analysis to estimate our exposure to market
risk on open precious metal forward purchase contracts. We consider our market risk associated with
these contracts as of the end of 2004 and 2003 to be immaterial. Market risk was estimated as the potential
loss in fair value resulting from a hypothetical 10% adverse change in fair
value and giving effect to the increase in fair value over our aggregate
forward contract commitment.
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The
Financial Statements are set forth herein commencing on page F-1 of
this Report.
ITEM 9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND
PROCEDURES
As of
the end of the period covered by this report, management, under the supervision
of our Chief Executive Officer and Vice President, Finance, evaluated the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures that are designed to ensure that information that is required to
be disclosed in our annual report is recorded, processed and summarized within
time periods specified in the Securities and Exchange Commission’s rules and
regulations and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Vice President, Finance,
as appropriate to allow timely decisions regarding required disclosures. Based upon that evaluation, our Chief
Executive Officer and Vice President, Finance concluded that these disclosure
controls and procedures are effective, in all material respects, in timely
alerting them to material information relating to the Company required to be
included in our periodic reports filed under the Securities Exchange Act of
1934, as amended.
During
the Company’s fiscal quarter ended January 1, 2005, there have been no
changes in the Company’s internal control over financial reporting in
connection with the above described evaluation that materially affected, or are
reasonably likely to materially affect, these controls.
ITEM 9B. OTHER INFORMATION
None.
35
PART III
Information
required by items 10 through 14 with respect to Visant has been omitted
pursuant to General Instruction I of Form 10-K. Information required by items 10 through 14
with respect to Holdings is described below.
ITEM 10. DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set
forth below are the names, ages, positions and business backgrounds of our
executive officers and the directors of Holdings as of March 15, 2005.
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
|
|
Marc L. Reisch
|
|
49
|
|
Chairman,
President and Chief Executive Officer, Holdings and Visant
|
|
|
Marie D. Hlavaty
|
|
41
|
|
Vice President,
General Counsel and Secretary, Holdings and Visant
|
|
|
Paul B. Carousso
|
|
35
|
|
Vice President,
Finance, Holdings and Visant
|
|
|
Michael L.
Bailey
|
|
49
|
|
President and
Chief Executive Officer, Jostens
|
|
|
John
Van Horn
|
|
64
|
|
Group
President, Arcade/Lehigh Direct and President and Chief Executive Officer,
Arcade
|
|
|
Joseph
Y. Bae
|
|
33
|
|
Director,
Holdings and Visant
|
|
|
David
F. Burgstahler
|
|
36
|
|
Director,
Holdings and Visant
|
|
|
Thompson
Dean
|
|
46
|
|
Director,
Holdings and Visant
|
|
|
Alexander
Navab
|
|
39
|
|
Director,
Holdings and Visant
|
|
|
Tagar
C. Olson
|
|
27
|
|
Director,
Holdings and Visant
|
|
|
Charles
P. Pieper
|
|
58
|
|
Director,
Holdings and Visant
|
|
Marc L. Reisch joined Holdings and
Visant as Chairman, President and Chief Executive Officer upon the closing of
the Transactions. Mr. Reisch has
been one of the directors of Jostens since November 2003. Immediately prior to joining Holdings and
Visant, Mr. Reisch served as a Senior Advisor to KKR. Mr. Reisch was Chairman and Chief
Executive Officer of Quebecor World North America between August 1999 and September 2002. Prior to holding that position, he held the
position of President of World Color Press, Inc., since November 1998
and Group President since 1996. Mr. Reisch
has been the Chairman of the Board of Yellow Pages Group Co. since December 2002
and also serves on the board of directors of FIND/SVP, Inc.
Marie D. Hlavaty served as an advisor
to our businesses since August 2004 and joined Holdings and Visant as Vice
President, General Counsel and Secretary upon the consummation of the
Transactions. Prior to joining Visant, Ms. Hlavaty
was Of Counsel with Latham & Watkins LLP from January 2003 until June 2004. Ms. Hlavaty was Vice President, General
Counsel and Secretary of Quebecor World Inc. between February 2001
and November 2002, also serving as General Counsel of Quebecor World North
America since November 1999. Prior
to that, she held legal positions at World Color Press, Inc. since 1994,
last holding the position of Vice President, Deputy General Counsel.
Paul B. Carousso joined Holdings and
Visant in October 2004 as Vice President, Finance. From April 2003 until October 2004,
Mr. Carousso held the position of Executive Vice President, Chief
Financial Officer, of Vestcom International, Inc., a digital printing
company. Prior to holding his position
at Vestcom, from October 1994 until September 2002, Mr. Carousso
held various accounting and financial reporting positions at Quebecor World
North America and World Color Press, Inc., last holding the position of
Vice President, Controller.
Michael L. Bailey joined Jostens in 1978. He has held a variety of leadership
positions, including director of marketing, planning manager for manpower and
sales, national product sales director, division manager for printing and
publishing, printing operations manager and Senior Vice President – Jostens
School Solutions. He was appointed as
President in February 2003 and became Chief Executive Officer in July 2004.
36
John Van Horn served as an advisor to
our Arcade/Lehigh Direct businesses since September 2004 and joined us as
Group President, Arcade/Lehigh Direct and President and Chief Executive Officer
of Arcade upon the consummation of the Transactions. Prior to joining us, Mr. Van Horn held
various positions at Quebecor World Inc. (or its predecessor, World Color Press, Inc.)
since 1993, last serving as President, Catalog Market of Quebecor World North
America.
Joseph Y. Bae is a Director at
KKR. Prior to joining KKR in 1996, Mr. Bae
was with Goldman Sachs & Co. in its Principal Investment Area where he
was involved in a wide range of merchant banking transactions. Mr. Bae is also a director of PanAmSat
Corporation and Primedia Inc.
David F. Burgstahler is a Partner of
DLJMBP and a Director of CSFB. Mr. Burgstahler
joined CSFB in 2000 when it merged with Donaldson, Lufkin & Jenrette. Mr. Burgstahler joined Donaldson, Lufkin
& Jenrette in 1995 and was previously a Principal of DLJMBP. Mr. Burgstahler has been a director of
Visant Holding Corp. since 2003. He also
serves as a director of Focus Diagnostics, Inc., Target Media Partners, Warner
Chilcott Holdings and WRC Media, Inc.
Thompson Dean is the Head of Leveraged
Corporate Private Equity, Managing Partner and Investment Committee Chairman of
DLJMBP. Mr. Dean joined DLJMBP in
1988 and became the Managing Partner in 1995.
Following the merger of DLJ and CSFB, he became the Head of Leveraged
Corporate Private Equity, responsible for CSFB’s worldwide leveraged buyout
business. Mr. Dean serves as
Managing Partner of DLJ Merchant Banking Partners I, L.P., DLJMBP II, DLJMBP
III and DLJ Growth Capital Partners, and as Chairman of their respective
Investment Committees. Prior to joining
DLJ, he was a Vice President in the Special Finance Group (Leveraged
Transactions) at Goldman, Sachs & Co.
Mr. Dean is the Chairman of the Board of DeCrane Aircraft Holdings, Inc.,
Mueller Holdings (N.A.) Inc. and Nycomed Holdings, and is a director of
American Ref-Fuel Company LLC, Merrill Corporation, Safilo S.p.A and United
American Energy Corp. He is also a
director of the Lenox Hill Neighborhood Association, and serves on various
committees for The Society of Memorial Sloan Kettering, The Museum of the City
of New York, The Boys Club of New York and The University of Virginia.
Alexander Navab is a Member of
KKR. He joined KKR in 1993 and oversees
KKR’s North American efforts in media and telecommunications. Prior to joining KKR, Mr. Navab was with
James D. Wolfensohn Incorporated, where he was involved in merger and
acquisition transactions as well as corporate finance advisory
assignments. From 1987 to 1989, he was
with Goldman, Sachs & Co. in the Investment Banking division. Mr. Navab is also a director of PanAmSat
Corporation.
Tagar C. Olson is an Executive at
KKR. Prior to joining KKR in 2002, Mr. Olson
was with Evercore Partners Inc. since 1999, where he was involved in a
number of private equity transactions and mergers and acquisitions.
Charles P. Pieper is an Operating
Partner of DLJMBP and a Managing Director of CSFB. Prior to joining CSFB in 2004, Mr. Pieper
held senior operating positions in both private industry and private equity,
including being President and Chief Executive Officer of several General
Electric Company businesses. He was
self-employed from January 2003 to April 2004 as the head of Charles
Pieper and Associates, an investment and advisory firm, and from March 1997
to December 2002, Mr. Pieper was Operating Partner of Clayton,
Dubilier and Rice, a private equity investment firm. Mr. Pieper also previously served as Chairman
and Acting CEO of Alliant Foodservice, Inc., Chairman of North American
Van Lines and Vice Chairman of Dynatech.
Mr. Pieper served as Chairman of the Board of U.S. Office Products
from March 1998 to March 2001; U.S. Office Products filed for bankruptcy
in 2001. From April 2000 to April 2002,
Mr. Pieper served as Chairman of the Board of Fairchild Dornier Corp. and
Chairman of the Supervisory Board of Fairchild Dornier GmbH; Fairchild Dornier
filed for bankruptcy in 2002. He also
serves as a director of Advanstar Holding Corp., Grohe AG, Mueller Holdings
(N.A.) Inc. and Safilo S.p.A.
37
Our
Board of Directors
Our
Board of Directors is comprised of seven members. KKR and DLJMBP III each has the right to
designate four of Holdings’ directors (and each initially designated three
directors) and our Chief Executive Officer and President, Marc Reisch, is
Chairman. Our Board of Directors
currently has three standing committees – an Audit Committee, a Compensation
Committee and an Executive Committee. We
expect the chairmanship of each of the Audit Committee and Compensation
Committee will be rotated annually between a director designated by KKR and a
director designated by DLJMBP III.
Audit Committee
The
primary duties of the Audit Committee include assisting the Board of Directors
in its oversight of (i) the integrity of the Company’s financial
statements and financial reporting process; (ii) the integrity of the
Company’s internal controls regarding finance, accounting and legal compliance;
and (iii) the independence and performance of the Company’s independent
auditors and internal audit function.
The Audit Committee also reviews our critical accounting policies, our
annual and quarterly reports on Form 10-K and Form 10-Q,
and our earnings releases before they are published. The Audit Committee has sole authority to
engage, evaluate and replace the independent auditor. The Audit Committee also has the authority to
retain special legal, accounting and other consultants it deems necessary in
the performance of its duties. The Audit
Committee meets regularly with our management, independent auditors and
internal auditors to discuss our internal controls and financial reporting
process and also meets regularly with the Company’s independent auditors and
internal auditors in private.
The
current members of the Audit Committee are Messrs. Bae (Chairman),
Burgstahler and Olson. The Board of
Directors has determined that each of the current members qualifies as an “audit
committee financial expert” through their relevant work experience. Mr. Bae is a Director and Mr. Olson
is an Executive, both with KKR, and Mr. Burgstahler is a Partner of
DLJMBP. None of the members of the Audit
Committee are considered “independent” as defined under the federal securities
law.
Compensation Committee
The
primary duty of the Compensation Committee is to discharge the responsibilities
of the Board of Directors relating to compensation practices for the Company’s
executive officers and other key employees, as the Committee may determine, to
ensure that management’s interests are aligned with the interest of the Company’s
equity holders. The Committee also
reviews and makes recommendations to the Board of Directors with respect to the
Company’s employee benefits plans, compensation and equity based plans and
compensation of Directors. The current
members of the Compensation Committee are Messrs. Bae, Burgstahler
(Chairman), Navab and Pieper.
Executive Committee
The
current members of the Executive Committee are Messrs. Reisch, Navab and
Dean.
Compensation of Directors
We
expect to pay annual director’s fees of $50,000 to each of our directors. On March 18, 2005, we granted to each of
our non-executive directors options to purchase 3,122 shares of the Class A
Common Stock of Holdings.
Code of Ethics
We
have a Code of Business Conduct and Ethics which was adopted to cover the
entire Visant organization following the Transactions and which applies to our
Chief Executive Officer, Vice President, Finance and Corporate Controller and
all other employees. We will review our Code
of Business Conduct and Ethics and amend it as necessary to be in compliance
with current law. Any changes to, or
waiver from, our Code that applies to our Chief Executive Officer, Vice
President, Finance or Corporate Controller will be posted on our website. A copy of the Code has been filed as an
exhibit to this Annual Report and on our website at http://www.Jostens.com (on
or about May 15, 2005, at http://www.Visant.net).
38
Section 16(a)
Beneficial Ownership Reporting Compliance
Executive
officers and directors of Holdings are not subject to the reporting
requirements of Section 16 of the Exchange Act.
ITEM 11. EXECUTIVE
COMPENSATION
Summary Compensation Table
The
following table sets forth the cash and non-cash compensation for 2004, 2003
and 2002 awarded to or earned by our Chief Executive Officer as of the end of
fiscal 2004, each of the four other most highly compensated executive officers
as of the end of fiscal 2004 and two additional executive officers for whom
disclosure would have been provided but for the fact that the individual was
not serving as an executive officer as of the end of fiscal 2004.
|
|
|
|
|
|
|
|
|
|
|
Long-term
Compensation
|
|
|
|
|
|
|
Annual Compensation
|
|
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Other annual
|
|
stock
|
|
underlying
|
|
All other
|
|
|
Name and principal position
|
|
Year
|
|
Salary (1)
|
|
Bonus (2)
|
|
compensation (3)
|
|
awards (#) (4)
|
|
options (#)
|
|
compensation (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marc L. Reisch
|
|
2004
|
|
$
|
180,226
|
|
$
|
1,025,000
|
|
$
|
—
|
|
10,405
|
|
134,066
|
|
$
|
148,749
|
|
|
Chairman, President and
|
|
2003
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Chief Executive Officer, Holdings and
|
|
2002
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Visant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marie D. Hlavaty
|
|
2004
|
|
$
|
66,888
|
|
$
|
39,375
|
|
$
|
—
|
|
—
|
|
—
|
|
$
|
63,000
|
|
|
Vice President, General Counsel and
|
|
2003
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Secretary, Holdings and Visant
|
|
2002
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael L. Bailey (6)
|
|
2004
|
|
$
|
416,943
|
|
$
|
767,234
|
|
$
|
—
|
|
—
|
|
35,200
|
|
$
|
—
|
|
|
President and
|
|
2003
|
|
327,859
|
|
109,800
|
|
52,574
|
|
—
|
|
—
|
|
1,779,066
|
|
|
Chief Executive Officer, Jostens
|
|
2002
|
|
283,346
|
|
159,787
|
|
64,628
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert S. Mathews (7)
|
|
2004
|
|
$
|
300,000
|
|
$
|
—
|
|
$
|
37,308
|
|
—
|
|
—
|
|
$
|
479,730
|
|
|
President and
|
|
2003
|
|
300,000
|
|
135,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Chief Executive Officer,
|
|
2002
|
|
231,731
|
|
175,000
|
|
79,284
|
|
—
|
|
—
|
|
—
|
|
|
Von Hoffmann
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Van Horn
|
|
2004
|
|
$
|
78,816
|
|
$
|
101,667
|
|
$
|
—
|
|
—
|
|
—
|
|
$
|
28,650
|
|
|
Group President, Arcade/Lehigh
|
|
2003
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Direct and President and Chief
|
|
2002
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Executive Officer, Arcade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert C. Buhrmaster (8)
|
|
2004
|
|
$
|
436,320
|
|
$
|
304,850
|
|
$
|
75,175
|
|
—
|
|
70,400
|
|
$
|
2,210,413
|
|
|
Former Chairman of the Board
|
|
2003
|
|
650,942
|
|
270,270
|
|
—
|
|
—
|
|
—
|
|
6,671,480
|
|
|
and Chief Executive Officer, Jostens
|
|
2002
|
|
611,711
|
|
381,542
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David A. Tayeh (9)
|
|
2004
|
|
$
|
290,376
|
|
$
|
658,464
|
|
$
|
91,100
|
|
—
|
|
26,400
|
|
$
|
—
|
|
|
Chief Financial Officer, Jostens
|
|
2003
|
|
31,848
|
|
443,342
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
2002
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1) Each
of Messrs. Reisch and Van Horn and Ms. Hlavaty became employees of
Visant as of October 4, 2004, and accordingly the amounts reflect salary
received after such date.
(2) Amounts
in 2004 include earnings under the management incentive bonus program as
follows: Mr. Reisch: $425,000; Ms. Hlavaty:
$39,375; Mr. Bailey: $258,875; Mr. Van Horn: $61,667; Mr. Buhrmaster:
$304,850 and Mr. Tayeh: $144,187.
Amounts in 2004 also include (a) a signing bonus for Mr. Reisch
of $600,000, the after-tax proceeds of which were reinvested in Holdings Class A
Common Stock and for Mr. Van Horn of $40,000; (b) retention bonuses
for Mr. Bailey of $500,000 and Mr. Tayeh of $400,000, the after-tax
proceeds of which were reinvested in Holdings Class A Common Stock; and (c) a
special bonus to Mr. Tayeh of $100,000 in recognition of his significant
contribution in consummating the Transactions.
Amounts in 2003 include earnings under the management incentive bonus
program as follows: Mr. Bailey:
$101,170; Mr. Buhrmaster: $270,270 and Mr. Tayeh: $142,500. Amount in 2003 for Mr. Tayeh also
includes a signing bonus of $300,000.
Amounts in 2002 for Mr. Bailey and Mr. Buhrmaster include
earnings under the management incentive bonus program of $145,223 and $381,542,
respectively.
39
(3) Excludes
perquisites where the aggregate amount of such compensation is the lesser of
either $50,000 or 10% of the total annual salary and bonus reported. Amount in 2004 for Mr. Mathews includes miscellaneous
perquisites comprised primarily of $14,350 of contributions made under the
retirement savings plan, $12,094 for reimbursement of club dues and $9,622 for
automobile reimbursement. Amount in 2004
for Mr. Buhrmaster includes miscellaneous perquisites comprised primarily
of $30,000 for financial planning and $24,287 for automobile
reimbursement. Amount in 2004 for Mr. Tayeh
includes miscellaneous perquisites comprised primarily of $61,441 for
reimbursement of relocation costs.
Amounts in 2003 and 2002 for Mr. Bailey include miscellaneous
perquisites comprised primarily of $28,780 and $41,737, respectively, for use
of the corporate jet. Amount in 2002 for
Mr. Mathews includes miscellaneous perquisites comprised primarily of $59,567
for reimbursement of relocation costs.
(4) In
connection with the consummation of the Transactions and his joining us as
Chief Executive Officer, Mr. Reisch was granted 10,405 restricted shares
of Holdings Class A Common Stock at $96.10401 per share and 127,466 stock
options with an exercise price of $96.10401 per share under the 2004 Stock
Option Plan. The restricted stock is
100% vested and nonforfeitable by Mr. Reisch.
(5) Amounts
in 2004 for Mr. Reisch, Ms. Hlavaty and Mr. Van Horn represent
advisory fees earned in connection with the Transactions. Amount in 2004 for Mr. Mathews
represents cancellation of stock options in connection with the Transactions
for consideration of $479,730. Amount in
2004 for Mr. Buhrmaster represents repurchase of 3,125 shares of Holdings Class A
Common Stock and 16,875 shares of Holdings Class B Non-Voting Common Stock
for aggregate consideration of $1,922,080 and severance compensation of
$288,333. Amounts in 2003 for Mr. Bailey
and Mr. Buhrmaster represent cancellation of stock options in connection
with the 2003 Jostens merger for consideration of $1,779,066 and $6,671,480,
respectively.
(6) Mr. Bailey
resigned as an officer of Holdings in October 2004 in connection with the
Transactions. He remains the President
and Chief Executive Officer of Jostens.
(7) Mr. Mathews
was appointed as Chief Operating Officer of Von Hoffmann in January 2002
and as President, Chief Executive Officer and a director of Von Hoffmann in February 2002. He was the President and Chief Executive
Officer of Von Hoffmann as of the end of fiscal year 2004. Mr. Mathews left Von Hoffmann effective March 31,
2005.
(8) Mr. Buhrmaster,
who held responsibilities for Holdings and Jostens during 2004, retired from
his position in July 2004.
(9) Mr. Tayeh,
who held responsibilities for Holdings and Jostens during 2004, is currently
serving solely as the Chief Financial Officer of Jostens.
Compensation
Committee Interlocks and Insider Participation
Messrs. David
Wittels and John Castro, who were members of Holdings’ Board of Directors
during 2003 and part of 2004, and Mr. Burhmaster, who was the Chief
Executive Officer of Holdings and Jostens until July 2004, comprised the
Compensation Committee from September 2003 through March 2004. Mr. Wittels was affiliated with DLJMBP,
and Mr. Castro was President and Chief Executive Officer of Merrill
Corporation during this time. DLJMBP has
an ownership interest in Merrill Corporation.
Commencing in March 2004, each of Messrs. Burgstahler,
Burhmaster and Castro served as members of the Compensation Committee until the
consummation of the Transactions.
Thereafter, the Compensation Committee was comprised of Messrs. Burgstahler
(Chairman), Bae, Navab and Pieper. Messrs. Burgstahler
and Pieper are affiliated with DLJMBP, and Messrs. Bae and Navab are a
Director and Member, respectively, of KKR, of which Fusion is an affiliate.
Equity
Compensation
The
2003 Stock Incentive Plan (the “2003 Plan”) was approved by the Board of
Directors and effective as of October 30, 2003. The 2003 Plan permits us to grant key
employees and certain other persons stock options and stock awards and
currently provides for a total of 288,023 shares of common stock for issuance
of options and awards to employees of the Company and a total of 10,000 shares
of common stock for issuance of options and awards to directors and other
persons providing services to the Company.
The maximum grant to any one person shall not exceed in the aggregate
70,400 shares. Option grants consist of “time
options”, which vest and become exercisable in 20% equal annual installments
over the first five years following the date of grant and/or “performance
options”, which vest and become exercisable over the first five years following
the date of grant at varying levels based on the achievement of certain EBITDA
targets, and in any event by the eighth anniversary of the date of grant.
40
Upon the
occurrence of a “change in control” (as defined in the 2003 Plan), the unvested
portion of any time option will immediately become vested and exercisable, and
the vesting and exercisability of the unvested portion of any performance
option may accelerate depending on the timing of the change of control and
return on the equity investment by DLJMBP III in the Company as provided under
the 2003 Plan. The Transactions did not
constitute a change of control under the 2003 Plan. Options issued under the 2003 Plan expire on
the tenth anniversary of the grant date.
The shares underlying the options are subject to certain transfer and
other restrictions set forth in that certain Stockholders Agreement dated July 29,
2003, by and among the Company and certain holders of the capital stock of the
Company. Participants under the 2003
Plan also agree to certain restrictive covenants with respect to confidential
information of the Company and non-competition in connection with their grant
of options.
All
outstanding options to purchase Holdings common stock continued following the
closing of the Transactions. In
connection with the Transactions, all outstanding options to purchase Von
Hoffmann and Arcade common stock were cancelled and extinguished. Consideration paid in respect of the Von
Hoffmann options was an amount equal to the difference between the per share
merger consideration in the Transactions and the exercise price therefor. No consideration was paid in respect of the
Arcade options.
In
connection with the closing of the Transactions, we established the 2004 Stock
Option Plan, which permits us to grant key employees and certain other persons
various equity-based awards, including stock options and restricted stock. The plan, currently known as the Second
Amended and Restated 2004 Stock Option Plan for Key Employees of Visant Holding
Corp. and Subsidiaries, provides for issuance of a total of 510,230 shares of
Holdings Class A Common Stock.
Under his employment agreement, as described below, our Chief Executive
Officer received awards of stock options and restricted stock under the
plan. Additional members of management
are eligible to receive equity-based awards.
Option grants consist of “time options”, which vest and become
exercisable in 20% equal annual installments over a five-year period from the
date of grant, and/or “performance options”, which vest and become exercisable
over the first five years following the date of grant based upon the
achievement of certain EBITDA and other performance targets, and in any event
by the eighth anniversary of the date of grant.
Upon the occurrence of a “change in control” (as defined in the plan),
the unvested portion of any time option will immediately become vested and
exercisable, and the vesting and exercisability of the unvested portion of any
performance option may accelerate if certain EBITDA or other performance
measures have been satisfied. Options
issued pursuant to the plan expire on the tenth anniversary of the grant date.
All
options, restricted shares and any common stock for which such equity awards
are exercised or with respect to which restrictions lapse are governed by a
management stockholders’ agreement and a sale participation agreement, which
together generally provide for the following:
• transfer restrictions until the fifth
anniversary of purchase, subject to certain exceptions;
• a right of first refusal of Jostens
at any time after the fifth anniversary of purchase but prior to a registered
public offering of Jostens stock meeting certain specified criteria;
• in the event of termination of
employment, call and put rights with respect to Holdings stock and outstanding
and exercisable options;
• “piggyback” registration rights on
behalf of the members of management;
• “tag-along” rights in connection with
transfers by Fusion on behalf of the members of management and “drag-along”
rights for Fusion and DLJMBP III; and
• a confidentiality provision and
noncompetition and nonsolicitation provisions that apply for two years
following termination of employment.
Stock Options Granted in 2004
The
following table provides information on stock options granted to the named
executive officers in 2004.
41
|
|
|
Individual
Grants in 2004
|
|
|
|
|
Name
|
|
Number of
securities
underlying
options
granted
|
|
Percentage
of
total options
granted to
employees in
fiscal year
|
|
Exercise
price
($ /share)
|
|
Expiration
date
|
|
Grant date
present
value ($ )
|
|
|
Marc L. Reisch
|
|
127,466
|
|
33.7
|
%
|
$
|
96.10
|
|
10/14/2014
|
|
$
|
4,138,821
|
(2)
|
|
|
|
6,600
|
|
1.7
|
%
|
$
|
87.12
|
|
1/20/2014
|
|
186,120
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marie D. Hlavaty (1)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Michael L. Bailey
|
|
35,200
|
|
9.3
|
%
|
$
|
87.12
|
|
1/20/2014
|
|
992,640
|
(3)
|
|
Robert S. Mathews (1)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
John Van Horn (1)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Robert C. Buhrmaster (4)
|
|
70,400
|
|
18.6
|
%
|
$
|
87.12
|
|
1/20/2014
|
|
1,985,280
|
(3)
|
|
David A. Tayeh
|
|
26,400
|
|
7.0
|
%
|
$
|
87.12
|
|
1/20/2014
|
|
744,480
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) As a
condition to the closing of the Transactions, Mr. Reisch made a cash investment
in Holdings Class A Common Stock and was granted certain options and restricted
stock. Mr. Van Horn’s and Ms. Hlavaty’s
investments in Holdings Class A Common Stock, and in the case of Ms. Hlavaty,
related grant of options, in connection with the Transactions and their
employment by Visant, did not occur until the first quarter of 2005. Mr. Mathews has left the employ of Von
Hoffmann effective March 31, 2005.
(2) This
estimated hypothetical value is based on a Black-Scholes option pricing model
in accordance with SEC rules. We used
the following assumptions in estimating this value: potential option term, 10 years; risk-free
rate of return, 4.17%; expected volatility, 1.0%; and expected dividend yield,
none.
(3) These
estimated hypothetical values are based on a Black-Scholes option pricing model
in accordance with SEC rules. We used
the following assumptions in estimating this value: potential option term, 10 years; risk-free
rate of return, 3.95%; expected volatility, 1.0%; and expected dividend yield,
none.
(4) Pursuant
to Mr. Buhrmaster’s separation agreement, he was vested in a total of
32,851 options upon his separation and 37,549 options were cancelled. Mr. Buhrmaster has until the end of a
thirty (30) day period commencing on July 29, 2008 to exercise his vested
options, provided there has not been an initial public offering of the Company
or a sale of the majority control of the Company prior to such date.
Aggregated Stock Options Exercised in 2004 and Fiscal Year End Option
Value
The
following tables provide information on stock option holdings at the end of
2004. There were no stock options
exercised in 2004 by the named executive officers.
|
|
|
Number of securities
underlying unexercised options
at fiscal year end (#)
|
|
Value of unexercised
in-the-money options
at fiscal year end ($ ) (1)
|
|
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marc L. Reisch
|
|
10,424
|
|
123,642
|
|
$
|
11,859
|
|
$
|
47,436
|
|
|
Marie D. Hlavaty (2)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Michael L. Bailey
|
|
7,040
|
|
28,160
|
|
63,247
|
|
252,990
|
|
|
Robert S. Mathews (2)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
John Van Horn (2)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Robert C. Buhrmaster
|
|
32,851
|
|
—
|
|
295,137
|
|
—
|
|
|
David A. Tayeh
|
|
5,280
|
|
21,120
|
|
47,436
|
|
189,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) There
is no established public trading market for the Holdings Class A Common Stock. For purposes of this table, in-the-money
options are calculated based on the estimated fair value of Holdings Class A
Common Stock of $96.10401 as determined by the Compensation Committee of the
Board of Directors.
(2) As a
condition to the closing of the Transactions, Mr. Reisch made a cash investment
in Holdings Class A Common Stock and was granted certain options and restricted
stock. Mr. Van Horn’s and Ms. Hlavaty’s
investments in Holdings Class A Common Stock, and in the case of Ms. Hlavaty,
related grant of options, in connection with the Transactions and their
employment by Visant, did not occur until the first quarter of 2005. Mr. Mathews has left the employ of Von
Hoffmann effective March 31, 2005.
Employment
Agreements and Arrangements
Employment
agreement with Marc L. Reisch
In
connection with the Transactions, Holdings entered into a new employment
agreement with Marc L. Reisch on the following terms, under which he serves as
the Chairman of our Board of Directors (the “Board”) and our Chief Executive
Officer and President.
42
Mr. Reisch’s
employment agreement has an initial term of five years and automatically
extends for additional one-year periods at the end of the initial term and each
renewal term, subject to earlier termination of his employment by either Mr. Reisch
or by us pursuant to the terms of the agreement. Mr. Reisch’s agreement provides for the
payment of an annual base salary of $850,000, subject to annual review and
increase by our Board, plus an annual cash bonus opportunity between zero and
150% of annual base salary, with a target bonus of 100% of annual base salary.
Pursuant
to the agreement, Mr. Reisch was paid a cash signing bonus of $600,000,
the after-tax proceeds of which were reinvested as part of his initial equity
participation. Pursuant to the
agreement, Mr. Reisch invested $3,500,000 in cash to purchase Holdings Class A
Common Stock, and we granted him an option to purchase 3.5 shares of Holdings Class A
Common Stock for every one share of the $3,500,000 in value of Holdings Class A
Common Stock initially purchased by him.
Under his stock option agreement, we granted Mr. Reisch a total of
127,466 shares of Holdings stock, of which 56,449 shares are subject to
time-based vesting (the “time option”) and 71,017 shares are subject to
performance-based vesting (the “performance option”). The time option became vested and exercisable
with respect to 9,104 of the shares on December 31, 2004. The remaining 47,345 shares subject to the time
option will vest and become exercisable in five annual installments commencing
on December 31, 2005 as to the following percentages: 25%, 25%, 25%, 15%
and 10%. The performance option will
vest on a cliff basis on December 31, 2012, subject to acceleration based
on the achievement of certain EBITDA or other performance targets. Additionally, under a restricted stock award
agreement, we made a one-time grant of 10,405 shares of Holdings Class A
Common Stock, which stock is 100% vested and nonforfeitable by Mr. Reisch,
subject to the same rights and restrictions set forth in the management
stockholders’ agreement and the sale participation agreement described above,
other than Holdings’ call rights in the event of termination of employment.
The
agreement also provides that if Mr. Reisch is terminated by us without “cause”
(which includes our nonrenewal of the agreement for an additional one-year
period, as described above) or if he resigns for “good reason” (as such terms
are defined in the agreement), he will be entitled to receive: (1) a cash
payment equal to the sum of (A) a prorated bonus for the year of
termination, payable in a lump sum, plus (B) two times the sum of (i) Mr. Reisch’s
then annual base salary and (ii) his target bonus for the year of termination,
payable in equal monthly installments, and (2) continued participation in
welfare benefit plans until the earlier of two years after the date of
termination or the date that Mr. Reisch becomes covered by a similar plan
maintained by any subsequent employer, or cash in an amount that allows him to
purchase equivalent coverage for the same period. The agreement additionally provides that, in
the event of a “change in control” (as defined in the agreement), the vesting
of Mr. Reisch’s time option will accelerate in full and the vesting of his
performance option may accelerate if specified performance targets have been
achieved. The agreement provides for a
retirement benefit supplemental to those benefits payable under our qualified
and nonqualified retirement plans, the vesting of which benefit would
accelerate upon a change in control or termination of Mr. Reisch’s
employment by us without cause or by his resignation for good reason after the
third anniversary of the closing date of the Transactions. Mr. Reisch’s agreement also provides for
a tax gross-up payment in the event that any amounts or benefits due to him
would be subject to excise taxes under Section 280G of the Internal
Revenue Code of 1986, as amended, or the Code.
Employment arrangements
with Michael L. Bailey
Michael
L. Bailey, an employee at will with Jostens, joined Jostens in 1978 and has
held a variety of leadership positions, most recently having been elected by
the Board of Directors of Jostens to serve as the Chief Executive Officer of
Jostens effective as of July 20, 2004.
In exchange for his services, Mr. Bailey is currently compensated
with a base salary of $500,000, a bonus based on targets as determined by the
Compensation Committee of our Board of Directors and perquisites commensurate
with his position. In the event that Mr. Bailey
is terminated for cause, there is no provision for salary continuation past the
date of termination. In the event that Mr. Bailey
is terminated without cause, he is entitled to receive severance payments and
other perquisites commensurate with his position pursuant to the Jostens
Executive Severance Pay Plan.
43
Employment
agreement with Robert S. Mathews
Von
Hoffmann entered into an amended employment agreement with Robert S. Mathews
effective as of January 1, 2005.
Pursuant to that agreement, Mr. Mathews served in an executive
position for Von Hoffmann. On
March 3, 2005, we announced the departure of Mr. Mathews effective
March 31, 2005. In connection with
his departure, Mr. Mathews is entitled to receive salary continuation in an
aggregate amount equal to $375,000 and continuation of health benefits for up
to 15 months. The employment agreement
also includes a noncompetition provision prohibiting Mr. Mathews from
competing with Von Hoffmann for one year from the termination of his employment
agreement.
Employment
arrangements with David A. Tayeh
David
A. Tayeh joined Jostens as an employee at will in November of 2003. He currently serves as the Chief Financial
Officer of Jostens. In exchange for his
services, Mr. Tayeh is currently compensated with a base salary of
$290,700, a bonus (the majority of which is tied to the achievement of
specified Jostens financial targets) as such bonus is determined by the Chief
Executive Officer and approved by the Compensation Committee of our Board of
Directors and perquisites commensurate with his position. In the event that Mr. Tayeh is
terminated for cause, there is no provision for salary continuation beyond the
date of termination. In the event that Mr. Tayeh
is terminated without cause, he is entitled to receive severance payments and
other perquisites commensurate with his position pursuant to the Jostens
Executive Severance Pay Plan.
Separation agreement with Robert C. Buhrmaster
Holdings
and Jostens entered into a separation agreement with Robert C. Burhmaster in
connection with his resignation effective as of July 20, 2004. The agreement provides for cash severance in
the amount of 36 months of salary continuation at his base salary in effect as
of his resignation, two-thirds of his annual incentive award in the amount of
$304,850, reimbursement of COBRA premiums and continuation of certain other
perquisites, including use of the Company’s aircraft, and certain retirement
benefits. Under the terms of the
agreement, Mr. Burhmaster remains vested in 32,851 options, which he will
have the opportunity to exercise, provided there has not been an initial public
offering of the Company or sale of majority control of the Company, during a
thirty (30) day period commencing on July 29, 2008. In consideration, Mr. Buhrmaster
executed a release of claims against the Company. Mr. Burhmaster is also bound by certain
agreements with the Company as to confidentiality and non-competition.
Other
Cash Incentive Compensation
The
Company has an annual incentive compensation plan, which permits us to grant
various performance-based compensation awards to key employees. Such compensation awards are based on a
combination of individual performance and/or financial results. The qualitative and quantitative criteria are
determined from time to time by our Board of Directors or the Compensation
Committee thereof.
Retirement
Plans
Jostens
maintains a non-contributory pension plan, Pension Plan D (Plan D), which
provides benefits for certain salaried employees. Retirement income benefits are based upon a
participant’s highest average annual cash compensation (base salary plus annual
bonus, if any) during any five consecutive calendar years, years of credited
service (to a maximum of 35 years) and the Social Security-covered
compensation table in effect at termination.
44
Jostens
also maintains an unfunded supplemental retirement plan that gives additional
credit under Plan D for years of service as a Jostens’ sales representative to
those salespersons who were hired as employees of Jostens prior to October 1,
1991. In addition, benefits specified in
Plan D may exceed the level of benefits that may be paid from a tax-qualified
plan under the Code. The benefits up to
IRS limits are paid from Plan D and benefits in excess, to the extent they
could have been earned in Plan D, are paid from the unfunded supplemental plan.
Certain
of the executive officers participate in Plan D. The following table shows estimated annual
retirement benefits payable for life at age 65 for various levels of
compensation and service under these plans.
The table does not take into account transition rule provisions of
the plan for employees who were participants on June 30, 1988.
|
|
|
Years of service at retirement (1)
|
|
|
Remuneration
|
|
15
|
|
20
|
|
25
|
|
30
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
200,000
|
|
$
|
36,800
|
|
$
|
49,100
|
|
$
|
61,400
|
|
$
|
73,700
|
|
$
|
85,900
|
|
|
250,000
|
|
48,100
|
|
64,100
|
|
80,100
|
|
96,200
|
|
112,200
|
|
|
300,000
|
|
59,300
|
|
79,100
|
|
98,900
|
|
118,700
|
|
138,400
|
|
|
400,000
|
|
81,800
|
|
109,100
|
|
136,400
|
|
163,700
|
|
190,900
|
|
|
500,000
|
|
104,300
|
|
139,100
|
|
173,900
|
|
208,700
|
|
243,400
|
|
|
600,000
|
|
126,800
|
|
169,100
|
|
211,400
|
|
253,700
|
|
295,900
|
|
|
700,000
|
|
149,300
|
|
199,100
|
|
248,900
|
|
298,700
|
|
348,400
|
|
|
800,000
|
|
171,800
|
|
229,100
|
|
286,400
|
|
343,700
|
|
400,900
|
|
|
900,000
|
|
194,300
|
|
259,100
|
|
323,900
|
|
388,700
|
|
453,400
|
|
|
1,000,000
|
|
216,800
|
|
289,100
|
|
361,400
|
|
433,700
|
|
505,900
|
|
|
1,100,000
|
|
239,300
|
|
319,100
|
|
398,900
|
|
478,700
|
|
558,400
|
|
|
1,200,000
|
|
261,800
|
|
349,100
|
|
436,400
|
|
523,700
|
|
610,900
|
|
|
1,250,000
|
|
273,100
|
|
364,100
|
|
455,100
|
|
546,200
|
|
637,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The
following individuals named in the Summary Compensation Table have the
respective number of years of service under Plan D: Mr. Reisch, 0.25
years; Ms. Hlavaty, 0.25 years; Mr. Van Horn, 0.25 years; Mr. Bailey,
25.5 years including sales service of 6.5 years, Mr. Buhrmaster: 11.7
years and Mr. Tayeh: 1.2 years.
We
also maintain a non-contributory unfunded supplemental pension plan for certain
named executive officer participants. Participants
who retire after age 55 with at least seven full calendar years of service as an
executive officer are eligible for a benefit equal to 1% of final base salary
for each full calendar year of service, up to a maximum of 30%. Only service after age 30 is recognized in
the plan. The calculation of benefits is
frozen at the levels reached at age 60. In
the event of a change in control (as defined under the plan), a participant is
deemed to have completed at least seven (7) years of service as an executive
officer. If participants continue in
their current positions at their current levels of compensation and retire at
age 60, the estimated total annual pension amounts from this plan for Messrs. Reisch,
Bailey and Tayeh and Ms. Hlavaty would be $92,732, $150,233, $67,514 and
$59,565, respectively. In connection
with his retirement, Mr. Buhrmaster elected to commence annual benefit
payments of $95,880 under this plan.
ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The
following table sets forth information regarding beneficial ownership of our Class A
Common Stock and our Class C Common Stock as of March 23, 2005 by (i) each
person we believe owns beneficially more than five percent of our outstanding
common stock, (ii) each of our directors, (iii) each of our named
executive officers and (iv) all directors and executive officers as a
group.
45
|
|
|
Class A Voting
Common Stock
|
|
Class C Voting
Common Stock
|
|
|
Holder
|
|
Shares (1)
|
|
Percent
of class
|
|
Shares (1)
|
|
Percent
of class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KKR and related funds (2)
|
|
2,664,356
|
|
44.1
|
%
|
1
|
(3)
|
100.0
|
%
|
|
DLJMBP III and related funds (4)
|
|
2,664,357
|
|
44.1
|
%
|
—
|
|
—
|
|
|
Joseph Y. Bae (2)
|
|
2,664,356
|
|
44.1
|
%
|
1
|
(3)
|
100.0
|
%
|
|
David F. Burgstahler (4)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Thomson Dean (4)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Alexander Navab (2)
|
|
2,664,356
|
|
44.1
|
%
|
1
|
(3)
|
100.0
|
%
|
|
Tagar C. Olson (2)
|
|
2,664,356
|
|
44.1
|
%
|
1
|
(3)
|
100.0
|
%
|
|
Charles P. Pieper (4)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Marc L. Reisch (5) (6)
|
|
57,248
|
|
|
*
|
—
|
|
—
|
|
|
Marie D. Hlavaty (5)
|
|
6,243
|
|
|
*
|
—
|
|
—
|
|
|
Michael L. Bailey (5) (6)
|
|
17,446
|
|
|
*
|
—
|
|
—
|
|
|
Robert Mathews
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
John Van Horn (5)
|
|
5,203
|
|
|
*
|
—
|
|
—
|
|
|
Robert C. Buhrmaster (5) (6) (7)
|
|
32,851
|
|
|
*
|
—
|
|
—
|
|
|
David A. Tayeh (5) (6)
|
|
9,442
|
|
|
*
|
—
|
|
—
|
|
|
Directors and officers as a group (2) (4) (8)
|
|
2,753,618
|
|
45.5
|
%
|
1
|
(3)
|
100.0
|
%
|
* Indicates
less than one percent.
(1) The
amounts and percentages of our common stock beneficially owned are reported on
the basis of regulations of the SEC governing the determination of beneficial
ownership of securities. Under the rules of
the SEC, a person is deemed to be a “beneficial owner” of a security if that
person has or shares “voting power”, which includes the power to vote or to
direct the voting of such security, or “investment power”, which includes the
power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial
owner of any securities of which that person has a right to acquire beneficial
ownership within 60 days. Under
these rules, more than one person may be deemed to be a beneficial owner of
such securities as to which such person has an economic interest.
(2) Our
shares shown as beneficially owned by KKR Millennium GP LLC reflect shares of
our common stock owned by KKR Millennium Fund L.P. KKR Millennium GP LLC is the general partner
of KKR Associates Millennium L.P., which is the general partner of the KKR
Millennium Fund L.P. Messrs. Henry
R. Kravis, George R. Roberts, James H. Greene, Jr., Paul E. Raether,
Michael W. Michelson, Perry Golkin, Scott Stuart, Edward A. Gilhuly, Johannes
P. Huth, Todd A. Fisher, Alexander Navab, Marc Lipschultz and Jacques
Garaialde, as members of KKR Millennium GP LLC, may be deemed to share
beneficial ownership of any shares beneficially owned by KKR Millennium GP LLC,
but disclaim such beneficial ownership. Messrs. Joseph
Y. Bae and Tagar C. Olson are directors of Holdings and executives of KKR. They disclaim beneficial ownership of any
shares beneficially owned by KKR. The
address of KKR Millennium GP LLC and each individual listed above is c/o Kohlberg
Kravis Roberts & Co. L.P., 9 West 57th Street, New York, New York
10019.
(3) The
contribution agreement entered into in connection with the Transactions
provided that KKR receive one share of Holdings Class C Common Stock,
which, together with its shares of Holdings Class A Common Stock, provides
KKR with approximately 49.1% of our voting interest.
(4) Includes
shares held by DLJ Merchant Banking Partners III, L.P., DLJ Offshore Partners
III-1, C.V., DLJ Offshore Partners III-2, C.V., DLJ Offshore Partners
III, C.V., DLJ MB Partners III GmbH & Co. KG, Millennium Partners II,
L.P. and MBP III Plan Investors, L.P., all of which form a part of CSFB’s
Alternative Capital Division. The
address for each of the foregoing is 11 Madison Avenue, New York, New York
10010, except that the address of the three “Offshore Partners” entities is c/o
John B. Gosiraweg 14, Willemstad, Curacao, Netherlands Antilles. David F. Burgstahler, Thompson Dean and
Charles P. Pieper are employees of CSFB’s Alternative Capital Division, of
which DLJMBP III is a part, and they do not have sole or shared voting or
dispositive power over shares shown as held by DLJMBP III and related funds,
and therefore, do not have beneficial ownership of such shares to which each of
them disclaims beneficial ownership.
46
(5) The
address for Mr. Reisch and Ms. Hlavaty is c/o Visant Holding Corp.,
One Byram Brook Place, Suite 202, Armonk, New York 10504. The address for Messrs. Bailey, Tayeh
and Buhrmaster is c/o Jostens, Inc., 5501 American Boulevard West,
Minneapolis, Minnesota 55437. The
address for Mr. Van Horn is c/o Lehigh Direct, 1900 South 25th
Avenue, Broadview, Illinois 60155.
(6) Includes
shares underlying stock options that are currently exercisable or will become
exercisable within 60 days.
(7) Mr. Buhrmaster
retired from his position in July 2004.
(8) Does
not include Messrs. Buhrmaster and Tayeh, who are no longer executive officers
of Holdings.
Equity Compensation Plan Information
Information pertaining to our equity compensation
plans as of the end of 2004 is set forth above in ITEM 5, Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions
with Sponsors
The Transactions
In
connection with the Transactions, DLJMBP II received total consideration
of approximately $320 million in respect of the (i) acquisition by
Fusion of all of DLJMBP II’s Von Hoffmann capital stock, (ii) repayment of
Arcade’s Amended and Restated Notes held by DLJMBP II and (iii) acquisition
by Fusion of Arcade’s Mandatorily Redeemable Preferred Stock held by DLJMBP II.
Stockholders
Agreement
In
connection with the Transactions, we entered into a stockholders agreement with
an entity affiliated with KKR and entities affiliated with DLJMBP III (each an “Investor
Entity” and together the “Investor Entities”) that provides for, among other
things,
• a right of each of the Investor
Entities to designate a certain number of directors to our board of directors
for so long as they hold a certain amount of our common stock. Of the eight members of our board, KKR and
DLJMBP III each has the right to designate four of our directors (and each
initially designated three directors) and our Chief Executive Officer, Marc
Reisch, is chairman;
• certain limitations on transfer of
our common stock held by the Investor Entities for a period of four years after
the completion of the Transactions, after which, if we have not completed an
initial public offering, any Investor Entity wishing to sell any of our common
stock held by it must first offer to sell such stock to us and the other
Investor Entities, provided that, if we complete an initial public offering
during the four years after the completion of the Transactions, any Investor
Entity may sell pursuant to its registration rights as described below;
• a consent right for the Investor
Entities with respect to certain corporate actions;
• the ability of the Investor Entities
to “tag-along” their shares of our common stock to sales by any other Investor
Entity, and the ability of the Investor Entities to “drag-along” our common
stock held by the other Investor Entities under certain circumstances;
• the right of the Investor Entities to
purchase a pro rata portion of all or any part of any new securities offered by
us; and
• a restriction on the ability of the
Investor Entities and certain of their affiliates to own, operate or control a
business that competes with us, subject to certain exceptions.
Pursuant
to the Stockholders Agreement, an aggregate transaction fee of
$25.0 million was paid to the sponsors upon the closing of the
Transactions.
47
Management Services
Agreement
In
connection with the Transactions, we entered into a management services
agreement with the sponsors pursuant to which the sponsors will provide certain
structuring, consulting and management advisory services to us. The sponsors will receive an annual advisory
fee of $3.0 million that is payable quarterly and which increases by 3%
per year. We will indemnify the sponsors
and their affiliates, directors, officers and representatives for losses
relating to the services contemplated by the management services agreement and
the engagement of the sponsors pursuant to, and the performance by the sponsors
of the services contemplated by, the management services agreement.
Registration Rights
Agreement
In
connection with the Transactions, Holdings entered into a registration rights
agreement with the Investor Entities pursuant to which the Investor Entities
are entitled to certain demand and piggyback rights with respect to the
registration and sale of our common stock held by them.
Other
During
2004, we retained Capstone Consulting to provide certain of our businesses with
consulting services, primarily to identify and advise on potential
opportunities to improve operating efficiencies. Although neither KKR nor any entity
affiliated with KKR owns any of the equity of Capstone Consulting, KKR has
provided financing to Capstone Consulting.
In March 2005, an affiliate of Capstone Consulting invested $1.3 million
in Holdings Class A Common Stock and has been granted 13,527 options to
purchase Holdings Class A Common Stock, with an exercise price of
$96.10401 per share under the 2004 Stock Option Plan.
Transactions
with Other Co-Investors and Management
Syndicate
Stockholders Agreement
In September 2003,
Holdings, Visant, DLJMBP III and certain of its affiliated funds
(collectively, the “DLJMB Funds”) and certain of the DLJMB Funds’ co-investors
entered into a stock purchase and stockholders’ agreement, or the Syndicate
Stockholders Agreement, pursuant to which the DLJMB Funds sold to the co-investors
shares of: (1) our Class A Voting Common Stock, (2) our Class B
Non-Voting Common Stock and (3) Visant’s 8% Senior Redeemable Preferred
Stock, which has since been repurchased.
The
Syndicate Stockholders Agreement contains provisions which, among other things:
• restrict the ability of the syndicate
stockholders to make certain transfers;
• grant the co-investors certain board
observation and information rights;
• provide for certain tag-along and
drag-along rights;
• grant preemptive rights to the
co-investors to purchase a pro rata share of any new shares of common stock
issued by Holdings, Visant or Jostens to any of the DLJMB Funds or their
successors prior to an initial public offering; and
• give the stockholders piggyback
registration rights in the event of a public offering in which the DLJMB Funds
sell shares.
Management
Stockholders Agreement
In July 2003,
Holdings, the DLJMB Funds and certain members of management entered into a
stockholders’ agreement that contains certain provisions which, among other
things:
• restrict the ability of the
management stockholders to transfer their shares;
• provide for certain tag-along and
drag-along rights;
48
• grant preemptive rights to the management
stockholders to purchase a pro rata share of any new shares of common stock
issued by Holdings, Visant or Jostens to any of the DLJMB Funds or their
successors prior to an initial public offering;
• grant the DLJMB Funds six demand
registration rights; and
• give the stockholders piggyback
registration rights in the event of a public offering in which the DLJMB Funds
sell shares.
Other
For a
description of the management stockholders agreement and sale participation
agreement entered into with certain members of management in connection with
the Transactions, see matters pertaining to “Equity Compensation” set forth in
ITEM 11., Executive Compensation.
Historical
Jostens
Lease Agreements. Jostens entered into an aircraft lease
agreement with us, pursuant to which Jostens paid us an aggregate of $449,400
per year for use of a Citation CJ2 aircraft owned by us. Jostens also entered into a time-sharing
agreement with each of DLJMBP III, Inc. and Robert C. Buhrmaster,
Jostens’ former Chairman and Chief Executive Officer, entitling each to
sublease the Citation CJ2 from Jostens at a rate equal to twice Jostens’ cost
of fuel plus incidentals. The time-sharing
agreement with DLJMBP III, Inc. was terminated in connection with the
Transactions. We consummated the sale of
the Citation CJ2 in late December 2004.
In connection with this sale, the lease agreement with Jostens was
terminated. Under the terms of Mr. Buhrmaster’s
separation agreement, he will be entitled to use other Jostens aircraft on the
terms provided in the time-sharing agreement and his separation agreement. KA Rentals, an entity wholly owned by Mr. Buhrmaster,
agreed to make the aircraft that it owns available to Jostens for lease when
Jostens’ principal aircraft was not available.
Jostens paid KA Rentals an aggregate of $18,558 during 2004 for use of
the aircraft under this lease arrangement.
We believe that the lease arrangement with KA Rentals was on terms at
least as favorable to Jostens as could have been obtained from an unaffiliated
third party. The aircraft lease
agreement with KA Rentals has been terminated.
Financial Monitoring Agreements. Pursuant to a financial advisory agreement
with CSFB that Holdings entered into on July 29, 2003 and terminated on March 24,
2004, CSFB was retained to act as financial advisor for a five-year period,
unless terminated earlier. CSFB was
entitled to receive an annual financial advisory retainer of $0.5 million,
payable in installments at the beginning of each calendar quarter.
Pursuant
to an agreement with DLJMBP III, Inc. that Holdings entered into on July 29,
2003 and amended on March 24, 2004, DLJMBP III, Inc. was
retained to act as financial advisor for a five-year period, unless terminated
earlier. For its services,
DLJMBP III, Inc. was entitled to receive an annual financial advisory
retainer of $1.0 million, payable in installments at the beginning of each
calendar quarter. DLJMBP III, Inc.
further received annual credit used solely to offset amounts payable by
DLJMBP III, Inc. to Jostens pursuant to the time-sharing agreement in
an amount of up to $0.5 million.
This financial monitoring agreement was terminated in connection with
the Transactions.
Von Hoffmann
Financial Services Agreements. On April 27, 2004, DLJ Merchant Banking II, Inc.,
or DLJMB II, Inc., Von Hoffmann Corporation and CSFB entered into an
agreement pursuant to which, among other things, CSFB assigned its rights and
obligations under the financial advisory agreement to DLJMB II, Inc.,
and, after giving effect to such assignment, the terms of the financial
advisory agreement were amended to one year and to provide that DLJMB II, Inc.
would be paid an annual financial advisory fee of $0.5 million. This financial advisory agreement was
terminated in connection with the Transactions.
49
Nelson Loan. On May 22, 1997, pursuant to a
non-recourse secured promissory note, an affiliate of DLJMBP II loaned Craig
Nelson, Von Hoffmann Corporation’s former Vice President of Human Resources,
$100,000 at an interest rate of 9.4% per annum for the purchase of 100,000
shares of Von Hoffmann’s common stock. Such affiliate of DLJMBP II subsequently
sold this promissory note to Von Hoffmann Corporation. The promissory note was secured by a total of
200,000 shares of common stock of Von Hoffmann.
This arrangement was negotiated on an arm’s length basis. This arrangement was terminated in connection
with the Transactions.
Other.
On November 21, 2003, Von Hoffmann Corporation entered into an
agreement to engage CSFB to act as its exclusive financial advisor with respect
to a potential sale of Lehigh Direct.
Under the agreement, CSFB would assist Von Hoffmann Corporation in
analyzing and evaluating Lehigh Direct, in preparing materials to distribute to
potential purchasers, to evaluate potential purchasers and to assist in
structuring and negotiating a potential sale.
For its services, CSFB received a transaction fee equal to
$1.0 million. This agreement was
terminated in connection with the Transactions.
Von
Hoffmann paid consulting fees to CSFB (or its predecessor) of approximately
$0.5 million in 2004.
In
connection with the execution of the Von Hoffmann merger agreement as part of
the Transactions, Von Hoffmann entered into a financial advisory agreement with
DLJMBP II pursuant to which Von Hoffmann agreed to pay DLJMBP II a
financial advisory fee of $2.0 million, which fee was paid upon the
closing of the Transactions.
Arcade
Transactions with DLJMBP II and their Affiliates. Pursuant to an agreement that was
terminated in connection with the Transactions, DLJMBP II, Inc. (upon
assignment of such agreement from CSFB) was entitled to receive an annual
financial advisory fee of $0.5 million, payable in installments, at the
beginning of each calendar quarter.
In
connection with the execution of the Arcade merger agreement as part of the
Transactions, Arcade entered into a financial advisory agreement with
DLJMBP II pursuant to which Arcade agreed to pay DLJMBP II a
financial advisory fee of $2.0 million which fee was paid upon the closing
of the Transactions.
Stockholder Note. AKI, Inc. has a promissory note payable
to Arcade which allows AKI, Inc. to borrow up to $10.0 million at
such interest rates and maturity dates as agreed upon by AKI, Inc. and
Arcade. Interest paid to Arcade in
connection with the promissory note totaled approximately $21,000 for fiscal
2004.
Other.
In connection with the Transactions, $0.2 million was paid to
Renaissance Brands LLC, whose president was a member of the Board of Directors
of Arcade.
ITEM 14. PRINCIPAL
ACCOUNTING FEES AND SERVICES
Amounts below are shown
in whole dollars.
Audit Fees
Ernst &
Young LLP, or E&Y, has been engaged as our independent accountant since October 13,
2003. The aggregate fees billed to us by
E&Y during 2004 and 2003 were $1,350,300 and $1,026,900, respectively. Prior to October 13, 2003,
PricewaterhouseCoopers LLP, or PwC, was engaged as our independent
accountant. The aggregate fees billed to
us by PwC during 2003 were $118,100.
Such fees were for audits of our annual consolidated financial
statements, reviews of our quarterly consolidated financial statements and
issuance of comfort letters in connection with the filing of registration
statements related to the notes offerings.
Audit-Related Fees
The
aggregate fees billed to us by E&Y for audit-related services during 2004
and 2003 were $141,900 and $138,500, respectively, related primarily to audits
of pension and other employee benefit plans and certain accounting
matters. The aggregate fees billed to us
by PwC for audit-related services during 2003 were $968,800,
50
related primarily
to audits of pension and other employee benefit plan financial statements and
professional advisory fees in connection with the 2003 Jostens merger.
Tax Fees
The
aggregate fees billed to us by E&Y for tax services rendered during 2004
and 2003 were $733,700 and $1,220,000, respectively, related primarily to tax
compliance, including the outsourced preparation of and assistance with
federal, state and local income tax returns, sales and use tax filings, foreign
and other tax compliance. The aggregate
fees billed to us by PwC for tax services rendered during 2003 were $76,400, related
primarily to domestic and foreign tax planning and other consulting services
pertaining to tax matters.
All Other Fees
The
aggregate fees billed to us by PwC for all other services rendered during 2003
were $20,200. These fees were for other
professional research and consulting services.
Audit Committee
The
Audit Committee has the authority to appoint and retain, replace or terminate
the independent auditor. The Audit
Committee is directly responsible for the appointment, compensation, evaluation,
retention and oversight of the work of the independent auditor, including
resolution of disagreements between management and the independent auditor
regarding financial reporting for the purpose of preparing or issuing an audit
report or related work. The Audit
Committee also establishes policies and procedures for and pre-approves all
auditing services and permitted non-audit services (including, without
limitation, accounting services related to merger and acquisition transactions
and related financing activities) to be performed for the Company by its
independent auditor.
Independence
At the
time of the engagement of E&Y as the outside auditors for Holdings in October 2003,
E&Y considered independence issues in accordance with its standard practice
at the time, including consideration of whether the tax operations services it
provided to Jostens during fiscal 2003 would impair its independence. As a result of this process, in connection
with E&Y becoming Holdings’ outside auditor in late 2003, E&Y revised
its tax services arrangement with Jostens.
Based on what was known at the time, E&Y’s audit and tax engagement
personnel concluded that the services detailed in the tax services engagement
letter complied with the applicable independence rules of the SEC, the
AICPA independence rules and E&Y policy, and the Audit Committee in
place at that time was advised accordingly.
In
connection with our filing of the Visant S-4 registration statement in
the fall of 2004, E&Y’s policies and procedures required it to review once
again its independence with respect to Holdings. As part of this process, E&Y reviewed the
tax operations services it had provided to Jostens and interviewed members of
E&Y’s tax operations services team.
As a result of this review, E&Y identified three primary activities
related to the provision of tax operations services that raised questions about
E&Y’s independence:
• Calculation of sales tax. Jostens uses software programs that calculate
the amount of sales tax for each sale.
E&Y’s tax operations services team assisted in maintaining the
accuracy of these programs by inputting changes into an ancillary software
application to account for changes in laws and regulations in various
states. E&Y also made limited edits
to customer profiles in Jostens’ database in order to update the “taxable/tax
exempt” field whenever a customer submitted proof to Jostens that it was exempt
from sales tax. In addition, in
connection with assisting another accounting firm which provides Jostens with sales
tax compliance services, E&Y reviewed spreadsheets generated by such firm
that showed the amounts to be paid in sales tax to each jurisdiction in which
Jostens sold products to confirm that the aggregate sales tax liability shown
on the spreadsheet agreed with the general ledger balance and then initialed
the spreadsheet to signify that their review had been completed and that all
sales tax returns appeared to be processed timely and completely.
51
• Check handling. E&Y’s tax operations services team opened
mail routed to the Jostens’ tax department, which at times included tax refund
checks payable to Jostens. Occasionally,
a member of E&Y’s tax operations services team would mail tax-related
checks for Jostens.
• Authorization of Jostens disbursements. A member of E&Y’s tax operations services
team authorized certain tax-related disbursements totaling $294,779 in 2003
(out of a total of approximately $10.8 million for all such disbursements in
2003), including $4,986 of disbursements subsequent to E&Y’s appointment as
auditor in October 2003.
E&Y’s
2004 review discovered a further activity that required consideration with
respect to E&Y’s independence. On April 8,
2003, Jostens Canada, Ltd. (“JCL”), a subsidiary of Jostens, engaged a law firm
in Ottawa, Ontario, Canada, to represent JCL in proceedings for the recovery of
Ontario sales tax, which firm is an affiliate of E&Y Canada. Additionally, the engagement letter provided
for a contingent fee based upon the amount of tax and interest refunded to JCL.
E&Y
brought the independence matters described above to the attention of the Audit
Committee in mid-December 2004. In
response, the Audit Committee took prompt action, including retaining outside counsel
which interviewed management and E&Y personnel and overseeing a review by
our internal audit group of past procedures and documentation related to the
matters raised. Together with management
and E&Y, the Audit Committee has been involved in the identification of the
matters and the analysis of the scope and nature of such matters. The Audit Committee also retained a forensic
accounting firm, which was charged with reviewing and confirming the accuracy
of the analysis undertaken by our internal audit group and confirming its
analysis regarding the lack of discrepancies.
On January 17, 2005, E&Y and Jostens agreed to immediately
terminate the tax operations services arrangement.
The
Audit Committee and E&Y each concluded that there were violations of the
Commission’s independence rules.
Consequently, the Audit Committee conducted an inquiry into, and an
evaluation of, the facts and circumstances surrounding the matters presented,
after which inquiry and evaluation the Audit Committee and E&Y each concluded
pursuant to Rule 2-01(b) of Regulation S-X under the Exchange
Act that there has been no impairment of E&Y’s independence for the 2003 or
2004 audit. E&Y concluded, and the
Audit Committee concurred, that E&Y’s capacity for objective judgment was
not and is not diminished and that the investing public would not perceive that
an impairment of independence affecting the integrity of the financial
statements has occurred. Based upon all
the facts and circumstances, E&Y and the Audit Committee share the view
that, throughout the audit and professional engagement period and continuing to
date, E&Y has been and continues to be capable of exercising objective and
impartial judgment on all issues encompassed within the audit engagement. In particular, the Audit Committee concluded
that: the individuals involved did not, at any time, appreciate the
consequences of the actions taken; and the amounts involved, individually and
in the aggregate, were de minimis. In addition,
the Audit Committee understands that the E&Y audit team believed they were
independent, that matters affecting independence had been addressed prior to
E&Y being engaged in October 2003 and that the audit team conducted
themselves accordingly and were not influenced, directly or indirectly, by any
of the matters noted. The Audit
Committee has been separately advised by both management and E&Y that these
violations did not result in any change to any aspect of the Company’s
financial statements.
In
addition to the steps already implemented at the direction of the Audit
Committee in connection with the inquiry, including the retention of the
forensic accounting firm, the termination of the E&Y tax operations
services arrangement, and the termination of the arrangement between JCL and an
affiliate of E&Y Canada in January 2005 without payment of any fees or
expenses by JCL, Jostens or Holdings to such firm, the Audit Committee has
directed that certain long-term remedial efforts and initiatives be taken which
are designed to prevent independence issues from occurring in the future,
including:
• the adoption of additional policies
and procedures regarding independence;
• the institution of additional
training for the management group and finance staff to heighten awareness
regarding auditor independence requirements;
52
• the
designation or retention of a person, who will be a member of our internal
audit staff, to act as Director of Audit Independence and who will report
directly to the Audit Committee on independence issues and will act as a
liaison among the Audit Committee, management and the outside auditor;
• the
hiring of a corporate Director of Tax who will report to our Vice President of
Finance and will be responsible for all tax compliance matters of Holdings and
each of its operating subsidiaries;
• considering
the separation of tax compliance from the attest functions to avoid the
potential for an independence issue arising in the future with respect to tax
compliance services; and
• considering
whether to engage a new auditor for the audit of fiscal year 2005.
Based on these
remediation measures, the Audit Committee believes that the Company has taken
and is taking appropriate steps designed to eliminate the possibility of an
independence violation arising in the future.
On February 11,
2005, E&Y issued its independence letter to our Audit Committee pursuant to
Rule 3600T of the Public Company Accounting Oversight Board, which adopts
on an interim basis the Independence Standards Board’s Standard No. 1. That letter reported that E&Y satisfies
the auditor independence standards of Regulation S-X in connection with its
audit opinion for the financial statements contained in this Annual Report on Form 10-K.
ITEM
15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part
of this report:
(1) Financial
Statements
Reports of
Independent Registered Public Accounting Firms
Visant Holding
Corp. and subsidiaries
Consolidated
Statements of Operations for the fiscal year in the successor period ended January 1,
2005, the period from July 30, 2003 to January 3, 2004 (successor,
five months), the period from December 29, 2002 to July 29, 2003
(predecessor, seven months) and the fiscal year in the predecessor period ended
December 28, 2002
Consolidated
Balance Sheets as of January 1, 2005 and January 3, 2004
Consolidated
Statements of Cash Flows for the fiscal year in the successor period ended January 1,
2005, the period from July 30, 2003 to January 3, 2004 (successor,
five months), the period from December 29, 2002 to July 29, 2003
(predecessor, seven months) and the fiscal year in the predecessor period ended
December 28, 2002
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit) for the fiscal year in
the successor period ended January 1, 2005, the period from July 30,
2003 to January 3, 2004 (successor, five months), the period from December 29,
2002 to July 29, 2003 (predecessor, seven months) and the fiscal year in
the predecessor period ended December 28, 2002
Visant Corporation
and subsidiaries
Consolidated
Statements of Operations for the fiscal year in the successor period ended January 1,
2005, the period from July 30, 2003 to January 3, 2004 (successor,
five months), the period from December 29, 2002 to July 29, 2003
(predecessor, seven months) and the fiscal year in the predecessor period ended
December 28, 2002
Consolidated
Balance Sheets as of January 1, 2005 and January 3, 2004
53
Consolidated
Statements of Cash Flows for the fiscal year in the successor period ended January 1,
2005, the period from July 30, 2003 to January 3, 2004 (successor,
five months), the period from December 29, 2002 to July 29, 2003
(predecessor, seven months) and the fiscal year in the predecessor period ended
December 28, 2002
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit) for the fiscal year in
the successor period ended January 1, 2005, the period from July 30,
2003 to January 3, 2004 (successor, five months), the period from December 29,
2002 to July 29, 2003 (predecessor, seven months) and the fiscal year in
the predecessor period ended December 28, 2002
Notes to
Consolidated Financial Statements
(2) Financial
Statement Schedules
Reports of
Independent Registered Public Accounting Firms
Schedule II
Valuation and Qualifying Accounts
All other
schedules for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission have been omitted because they are
not applicable or the required information is shown in the financial statements
or notes thereto.
(3) Exhibits
The exhibits
listed on the accompanying Exhibit Index are incorporated by reference
herein and filed as part of this report.
(b) Exhibit Index
54
EXHIBIT INDEX
|
Exhibit No.
|
|
Exhibit Description
|
|
|
|
|
|
2.1 (16)
|
|
Agreement and
Plan of Merger, dated as of July 21, 2004, among Fusion
Acquisition LLC, VHH Merger, Inc. and Von Hoffmann
Holdings Inc.
|
|
|
|
|
|
2.2 (14)
|
|
Agreement and
Plan of Merger, dated as of July 21, 2004, among Fusion
Acquisition LLC, AHC Merger, Inc. and
AHC I Acquisition Corp.
|
|
|
|
|
|
2.3 (15)
|
|
Contribution
Agreement, dated as of July 21, 2004 between Visant Holding Corp. (f/k/a
Jostens Holding Corp.) and Fusion Acquisition LLC.
|
|
|
|
|
|
2.4 (2)
|
|
Amendment
No. 1 to Contribution Agreement, dated as of September 30, 2004,
between Visant Holding Corp. and Fusion Acquisition LLC.
|
|
|
|
|
|
3.1 (3)
|
|
Second Amended
and Restated Certificate of Incorporation of Visant Holding Corp.
|
|
|
|
|
|
3.2 (23)
|
|
Certificate of
Amendment of the Second Amended and Restated Certificate of Incorporation of
Visant Holding Corp.
|
|
|
|
|
|
3.3 (3)
|
|
By-Laws of
Visant Holding Corp.
|
|
|
|
|
|
3.4 (23)
|
|
Certificate of
Incorporation of Visant Secondary Holding Corp.
|
|
|
|
|
|
3.5 (23)
|
|
Certificate of
Amendment of the Certificate of Incorporation of Visant Secondary Holdings
Corp.
|
|
|
|
|
|
3.6 (23)
|
|
By-Laws of
Visant Secondary Holding Corp.
|
|
|
|
|
|
3.7 (6)
|
|
Amended and
Restated Certificate of Incorporation of Visant Corporation (f/k/a Jostens IH
Corp.)
|
|
|
|
|
|
3.8 (23)
|
|
Certificate of
Amendment of the Amended and Restated Certificate of Incorporation of Visant
Corporation.
|
|
|
|
|
|
3.9 (6)
|
|
By-Laws of
Visant Corporation.
|
|
|
|
|
|
3.10 (20)
|
|
Form of
Amended and Restated Articles of Incorporation of Jostens, Inc.
|
|
|
|
|
|
3.11 (21)
|
|
By-Laws of
Jostens, Inc.
|
|
|
|
|
|
3.12 (5)
|
|
Amended and
Restated Certificate of Incorporation of Von Hoffmann Holdings Inc.
|
|
|
|
|
|
3.13 (8)
|
|
By-Laws of Von
Hoffmann Holdings Inc.
|
|
|
|
|
|
3.14 (8)
|
|
Certificate of
Incorporation of Von Hoffmann Corporation and Certificate of Ownership and
Merger of Von Hoffmann Graphics, Inc. with and into Von Hoffmann
Press, Inc.
|
|
|
|
|
|
3.15 (8)
|
|
By-Laws of Von
Hoffmann Corporation.
|
|
|
|
|
|
3.16 (19)
|
|
Articles of
Incorporation of The Lehigh Press, Inc.
|
|
|
|
|
|
3.17 (19)
|
|
Amended and
Restated By-Laws of The Lehigh Press, Inc.
|
|
|
|
|
|
3.18 (8)
|
|
Certificate of
Incorporation of Precision Offset Printing Company, Inc.
|
|
|
|
|
|
3.19 (8)
|
|
By-Laws of
Precision Offset Printing Company, Inc.
|
|
|
|
|
|
3.20 (8)
|
|
Certificate of
Incorporation of Anthology, Inc. (f/k/a H&S Graphics, Inc.)
|
|
|
|
|
|
3.21 (6)
|
|
Certificate of
Amendment to the Certificate of Incorporation of Anthology, Inc.
|
55
|
3.22 (8)
|
|
By-Laws of
Anthology, Inc.
|
|
|
|
|
|
3.23 (5)
|
|
Amended and
Restated Certificate of Incorporation of AHC I Acquisition Corp.
|
|
|
|
|
|
3.24 (6)
|
|
By-Laws of AHC I
Acquisition Corp.
|
|
|
|
|
|
3.25 (9)
|
|
Certificate of
Incorporation of AKI Holding Corp.
|
|
|
|
|
|
3.26 (10)
|
|
By-Laws of AKI
Holding Corp.
|
|
|
|
|
|
3.27 (11)
|
|
Certificate of
Incorporation of AKI, Inc.
|
|
|
|
|
|
3.28 (12)
|
|
By-Laws of
AKI, Inc.
|
|
|
|
|
|
3.29 (6)
|
|
Certificate of
Incorporation of IST, Corp.
|
|
|
|
|
|
3.30 (6)
|
|
By-Laws of IST,
Corp.
|
|
|
|
|
|
4.1 (4)
|
|
Indenture, dated
December 2, 2003 between Visant Holding Corp. and BNY Midwest Trust
Company, as trustee.
|
|
|
|
|
|
4.2 (4)
|
|
Registration
Rights Agreement, dated November 25, among Visant Holding Corp., Credit
Suisse First Boston LLC and Deutsche Bank Securities Inc.
|
|
|
|
|
|
4.3 (6)
|
|
Indenture, dated
October 4, 2004 among Visant Corporation, the guarantors parties thereto
and The Bank of New York, as trustee.
|
|
|
|
|
|
4.4 (6)
|
|
Exchange and
Registration Rights Agreement, dated October 4, 2004, among Visant
Corporation, the guarantors parties thereto, Credit Suisse First
Boston LLC and Deutsche Bank Securities Inc.
|
|
|
|
|
|
4.5 (2)
|
|
Registration
Rights Agreement, dated as of October 4, 2004 between Visant Holding
Corp. and the Stockholders named therein.
|
|
|
|
|
|
10.1(6)
|
|
Credit
Agreement, dated as of October 4, 2004, among Visant Corporation, as
Borrower, Jostens Canada Ltd., as Canadian Borrower, Visant Secondary
Holdings Corp., as Guarantor, Credit Suisse First Boston, as
Administrative Agent, Credit Suisse First Boston Toronto Branch, as Canadian
Administrative Agent, Credit Suisse First Boston, as Sole Lead Arranger and
Sole Bookrunner, Deutsche Bank Securities Inc. and Banc of America
Securities LLC, as Co-Arrangers and Co-Syndication Agents, and certain
other lending institutions from time to time parties thereto.
|
|
|
|
|
|
10.2 (6)
|
|
U.S. Guarantee,
dated as of October 4, 2004, among Visant Secondary Holdings Corp., each
of the subsidiaries of Visant Corporation, listed on Annex A thereto and
Credit Suisse First Boston, as administrative agent for the lenders from time
to time parties to the Credit Agreement, dated as of October 4, 2004.
|
|
|
|
|
|
10.3 (6)
|
|
Canadian
Guarantee, dated as of October 4, 2004, among Visant Corporation, Visant
Secondary Holdings Corp., the subsidiaries of Visant Corporation listed on
Schedule 1 thereto and Credit Suisse First Boston Toronto Branch, as
Canadian Administrative Agent for the lenders from time to time parties to
the Credit Agreement, dated as of October 4, 2004.
|
56
|
10.4 (6)
|
|
Security
Agreement, dated as of October 4, 2004, among Visant Secondary Holdings
Corp., Visant Corporation, each of the subsidiaries of Visant Corporation
listed on Annex A thereto, and Credit Suisse First Boston, as
administrative agent for the lenders from time to time party to the Credit
Agreement, dated as of October 4, 2004.
|
|
|
|
|
|
10.5 (6)
|
|
Canadian
Security Agreement, dated as of October 4, 2004, between Jostens Canada
Ltd. and Credit Suisse First Boston Toronto Branch, as Canadian
administrative agent for the lenders from time to time party to the Credit
Agreement, dated as of October 4, 2004.
|
|
|
|
|
|
10.6 (6)
|
|
Pledge
Agreement, dated as of October 4, 2004, among Visant Corporation, Visant
Secondary Holdings Corp., each of the subsidiaries of Visant Corporation
listed on Schedule 1 thereto and Credit Suisse First Boston, as
administrative agent for the lenders from time to time party to the Credit
Agreement, dated as of October 4, 2004.
|
|
|
|
|
|
10.7 (6)
|
|
Canadian Pledge
Agreement, dated as of October 4, 2004, between Jostens Canada Ltd. and
Credit Suisse First Boston Toronto Branch, as Canadian administrative agent
for the lenders from time to time parties to the Credit Agreement, dated as
of October 4, 2004.
|
|
|
|
|
|
10.8 (6)
|
|
Trademark
Security Agreement, dated as of October 4, 2004, among Visant Secondary
Holdings Corp., Visant Corporation, the subsidiaries of Visant Corporation
listed on Schedule I thereto and Credit Suisse First Boston, as
administrative agent.
|
|
|
|
|
|
10.9 (6)
|
|
Patent Security
Agreement, dated as of October 4, 2004, among Visant Secondary Holdings
Corp., Visant Corporation., the subsidiaries of Visant Corporation listed on
Schedule I thereto and Credit Suisse First Boston, as administrative
agent.
|
|
|
|
|
|
10.10 (6)
|
|
Copyright
Security Agreement, dated as of October 4, 2004, among Visant Secondary
Holdings Corp., Visant Corporation, the subsidiaries of Visant Corporation
listed on Schedule I thereto and Credit Suisse First Boston, as
administrative agent.
|
|
|
|
|
|
10.11 (17)
|
|
Stock Purchase
and Stockholders’ Agreement, dated as of September 3, 2003, among Visant
Holding Corp., Visant Corporation and the stockholders party thereto.
|
|
|
|
|
|
10.12 (19)
|
|
Stock Purchase
Agreement among Von Hoffmann Corporation, The Lehigh Press, Inc. and the
shareholders of The Lehigh Press Inc., dated September 5, 2003.
|
|
|
|
|
|
10.13 (18)
|
|
Jostens, Inc.
Executive Severance Pay Plan-2003 Revision, effective February 26,
2003.*
|
|
|
|
|
|
10.14 (7)
|
|
Management Stock
Incentive Plan established by Jostens, Inc., dated as of May 10,
2000.*
|
|
|
|
|
|
10.15 (22)
|
|
Form of
Contract entered into with respect to Executive Supplemental Retirement
Plan.*
|
|
|
|
|
|
10.16 (1)
|
|
Amended and
Restated 2004 Stock Option Plan for Key Employees of Visant Holding Corp. and
its Subsidiaries, dated as of January 6, 2005.*
|
|
|
|
|
|
10.17 (2)
|
|
Employment
Agreement, dated as of October 4, 2004, between Visant Holding Corp. and
Marc Reisch.*
|
|
|
|
|
|
10.18 (2)
|
|
Management
Stockholder’s Agreement, dated as of October 4, 2004, between Visant
Holding Corp. and Marc Reisch.*
|
|
|
|
|
|
10.19 (2)
|
|
Restricted Stock
Award Agreement, dated as of October 4, 2004, between Visant Holding
Corp. and Marc Reisch.*
|
57
|
10.20 (2)
|
|
Sale
Participation Agreement, dated as of October 4, 2004, between Visant
Holding Corp. and Marc Reisch.*
|
|
|
|
|
|
10.21 (2)
|
|
Stock Option
Agreement, dated as of October 4, 2004, between Visant Holding Corp. and
Marc Reisch.*
|
|
|
|
|
|
10.22 (8)
|
|
Employment
Agreement, dated as of January 31, 2002, between Von Hoffmann
Corporation and Robert Mathews.*
|
|
|
|
|
|
10.23 (13)
|
|
Separation
Agreement, dated as of July 14, 2004, among Visant Holding Corp.,
Jostens, Inc. and Robert C. Buhrmaster.*
|
|
|
|
|
|
10.24 (13)
|
|
Separation
Agreement, dated as of September 17, 2004, among Visant Holding Corp.,
Jostens, Inc. and Steven A. Tighe.*
|
|
|
|
|
|
10.25 (5)
|
|
Separation Agreement,
dated September 30, 2004, among AHC I Acquisition Corp., AKI Holding
Corp., AKI, Inc. and William J. Fox.*
|
|
|
|
|
|
10.26 (5)
|
|
Amendment
No. 1 and Agreement, dated as of December 21, 2004, to the Credit
Agreement dated as of October 4, 2004, among Visant Corporation, Jostens
Canada Ltd., Visant Secondary Holdings Corp., the lending institutions from
time to time parties thereto, Credit Suisse First Boston, as Administrative
Agent, and Credit Suisse First Boston Toronto Branch, as Canadian
Administrative Agent.
|
|
|
|
|
|
10.27 (1)
|
|
Stockholders
Agreement, dated as of October 4, 2004, among Visant Holding Corp. and
the stockholders named therein.
|
|
|
|
|
|
10.28 (5)
|
|
Amendment
No. 1 to Executive Employment Agreement, dated as of December 30,
2004, among Von Hoffmann Holdings Inc., Von Hoffmann Corporation and Robert
S. Mathews.*
|
|
|
|
|
|
10.29 (2)
|
|
Transaction and
Monitoring Agreement, dated as of October 4, 2004, between Visant
Holding Corp., Kohlberg Kravis Roberts & Co. L.P. and DLJ Merchant
Banking III, Inc.
|
|
|
|
|
|
10.30 (23)
|
|
Second Amended
and Restated 2004 Stock Option Plan for Key Employees of Visant Holding Corp.
and its Subsidiaries, dated as of March 14, 2005.*
|
|
|
|
|
|
10.31 (23)
|
|
Form of
Management Stockholders Agreement.*
|
|
|
|
|
|
10.32 (23)
|
|
Form of
Sale Participation Agreement.*
|
|
|
|
|
|
10.33 (23)
|
|
Form of
Visant Holding Corp. Stock Option Agreement.*
|
|
|
|
|
|
10.34 (23)
|
|
Form of
Jostens, Inc. Stock Option Agreement.*
|
|
|
|
|
|
10.35 (23)
|
|
Form of Von
Hoffmann Holdings, Inc. Stock Option Agreement.*
|
|
|
|
|
|
12 (23)
|
|
Computation of
Ratio of Earnings to Fixed Charges.
|
|
|
|
|
|
14.1 (23)
|
|
Visant Holding
Corp. and Visant Corporation and Subsidiaries Code of Business Conduct and
Ethics.
|
|
|
|
|
|
21 (23)
|
|
Subsidiaries of
Visant Holding Corp.
|
|
|
|
|
|
31.1 (23)
|
|
Certification of
Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
31.2 (23)
|
|
Certification of
Vice President, Finance pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
58
|
31.1 (23)
|
|
Certification of
Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
31.2 (23)
|
|
Certification of
Vice President, Finance pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
(1) Incorporated
by reference to Visant Holding Corp.’s Form S-4/A (file no. 333-112055),
filed on February 14, 2005.
(2) Incorporated
by reference to Visant Holding Corp.’s Form S-4/A (file no. 333-112055),
filed on November 12, 2004.
(3) Incorporated
by reference to Visant Holding Corp.’s Form S-4/A (file no. 333-112055),
filed on February 2, 2004.
(4) Incorporated
by reference to Visant Holding Corp.’s Form S-4 (file no. 333-112055),
filed on January 21, 2004.
(5) Incorporated
by reference to Visant Corporation’s Form S-4/A (file no. 333-120386), filed
on February 14, 2005.
(6) Incorporated
by reference to Visant Corporation’s Form S-4 (file no. 333-120386), filed
on November 12, 2004.
(7) Incorporated
by reference to Jostens, Inc.’s Form S-4 (file no. 333-45006), filed
on September 1, 2000.
(8) Incorporated
by reference to Von Hoffmann Holdings, Inc. and Von Hoffmann Corporation’s
Form S-1 (file no. 333-90992), filed on June 21, 2002.
(9) Incorporated
by reference to AKI Holding Corp.’s Form S-4/A (file no. 333-60991), filed
on October 13, 1998.
(10) Incorporated
by reference to AKI Holding Corp.’s Form S-4 (file no. 333-60991), filed
on August 7, 1998.
(11) Incorporated
by reference to AKI, Inc.’s Form S-4/A (file no. 333-60989), filed on
November 13, 1998.
(12) Incorporated
by reference to AKI, Inc.’s Form S-4 (file no. 333-60989), filed on August 7,
1998.
(13) Incorporated
by reference to Visant Holding Corp.’s Form 10-Q, filed on November 16,
2004.
(14) Incorporated
by reference to AKI, Inc.’s Form 10-K, filed on September 1,
2004.
(15) Incorporated
by reference to Visant Holding Corp.’s Form 10-Q, filed on August 17,
2004.
(16) Incorporated
by reference to Von Hoffmann Holdings, Inc.’s Form 10-Q/A, filed on August 12,
2004.
(17) Incorporated
by reference to Visant Holding Corp.’s Form 10-K, filed on April 28,
2004.
(18) Incorporated
by reference to Jostens, Inc.’s Form 10-K, filed on April 1,
2004.
(19) Incorporated
by reference to Von Hoffmann Holdings, Inc.’s Form 10-Q, filed on November 10,
2003.
(20) Incorporated
by reference to Jostens, Inc.’s Form 10-Q, filed on November 12,
2003.
(21) Incorporated
by reference to Jostens, Inc.’s Form 10-Q, filed on August 13,
1999.
(22) Incorporated
by reference to Jostens, Inc.’s Form 8, dated May 2, 1991.
(23) Filed
herewith
* Management
contract or compensatory plan or arrangement
59
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
VISANT HOLDING CORP.
|
|
|
|
VISANT CORPORATION
|
|
|
|
|
|
|
|
|
|
|
Date: March 31,
2005
|
/s/ Marc L.
Reisch
|
|
|
|
Marc L. Reisch
|
|
|
|
Chief Executive
Officer
|
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated and on the dates indicated.
|
|
|
Signature
|
|
Title
|
|
|
|
|
|
|
|
Date: March 31,
2005
|
|
/s/ Marc L.
Reisch
|
|
Chairman of the Board,
President and
Chief Executive Officer
|
|
|
|
Marc L. Reisch
|
|
(Principal Executive
Officer)
|
|
|
|
|
|
|
|
Date: March 31,
2005
|
|
/s/ Paul B.
Carousso
|
|
Vice President, Finance
|
|
|
|
Paul B. Carousso
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
Date: March 31, 2005
|
|
|
|
Director
|
|
|
|
Joseph Y. Bae
|
|
|
|
|
|
|
|
|
|
Date: March 31,
2005
|
|
/s/ David F.
Burgstahler
|
|
Director
|
|
|
|
David F.
Burgstahler
|
|
|
|
|
|
|
|
|
|
Date: March 31,
2005
|
|
/s/ Thompson
Dean
|
|
Director
|
|
|
|
Thompson Dean
|
|
|
|
|
|
|
|
|
|
Date: March 31,
2005
|
|
|
|
Director
|
|
|
|
Alexander Navab
|
|
|
|
|
|
|
|
|
|
Date: March 31,
2005
|
|
/s/ Tagar C.
Olson
|
|
Director
|
|
|
|
Tagar C. Olson
|
|
|
|
|
|
|
|
|
|
Date: March 31,
2005
|
|
|
|
Director
|
|
|
|
Charles P.
Pieper
|
|
|
60
INDEX
TO FINANCIAL STATEMENTS
|
Reports
of Independent Registered Public Accounting Firms
|
|
|
|
|
|
|
|
Visant Holding Corp.
and subsidiaries:
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations for the fiscal year in the successor period ended
January 1, 2005, the period from July 30, 2003 to January 3,
2004 (successor, five months), the period from December 29, 2002 to
July 29, 2003 (predecessor, seven months) and the fiscal year in the
predecessor period ended December 28, 2002
|
|
|
|
|
|
|
|
Consolidated Balance Sheets
as of January 1, 2005 and January 3, 2004
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the fiscal year in the successor period ended
January 1, 2005, the period from July 30, 2003 to January 3,
2004 (successor, five months), the period from December 29, 2002 to
July 29, 2003 (predecessor, seven months) and the fiscal year in the
predecessor period ended December 28, 2002
|
|
|
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit) for the fiscal year
in the successor period ended January 1, 2005, the period from
July 30, 2003 to January 3, 2004 (successor, five months), the
period from December 29, 2002 to July 29, 2003 (predecessor, seven
months) and the fiscal year in the predecessor period ended December 28,
2002
|
|
|
|
|
|
|
|
Visant Corporation and
subsidiaries:
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations for the fiscal year in the successor period ended
January 1, 2005, the period from July 30, 2003 to January 3,
2004 (successor, five months), the period from December 29, 2002 to
July 29, 2003 (predecessor, seven months) and the fiscal year in the
predecessor period ended December 28, 2002
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets as of January 1, 2005 and January 3, 2004
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the fiscal year in the successor period ended
January 1, 2005, the period from July 30, 2003 to January 3,
2004 (successor, five months), the period from December 29, 2002 to
July 29, 2003 (predecessor, seven months) and the fiscal year in the
predecessor period ended December 28, 2002
|
|
|
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit) for the fiscal year
in the successor period ended January 1, 2005, the period from
July 30, 2003 to January 3, 2004 (successor, five months), the
period from December 29, 2002 to July 29, 2003 (predecessor, seven
months) and the fiscal year in the predecessor period ended December 28,
2002
|
|
|
|
|
|
|
|
Notes to
Consolidated Financial Statements
|
|
|
|
|
|
|
|
Financial Statement
Schedules:
|
|
|
|
Schedule II
– Valuation and Qualifying Accounts
|
|
|
F-1
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors
Visant
Holding Corp.
We have audited the
accompanying consolidated balance sheets of Visant Holding Corp. and
subsidiaries (formerly Jostens Holding Corp.) and Visant Corporation and
subsidiaries (formerly Jostens IH Corp.) at January 1, 2005 and January 3,
2004, and the related consolidated statements of operations, changes in
stockholders’ equity and cash flows for the year ended January 1, 2005 and
for the period from July 30, 2003 to January 3, 2004 (successor, five
months) and the period from December 29, 2002 to July 29, 2003
(predecessor, seven months). The
financial statements are the responsibility of Visant Holding Corp. and Visant
Corporation’s management. Our
responsibility is to express an opinion on the financial statements based on
our audits.
We conducted our audits
in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. We were not engaged to perform an audit of
Visant Holding Corp. and Visant Corporation’s internal control over financial
reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of Visant Holding
Corp. and Visant Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Visant Holding Corp. and
subsidiaries and Visant Corporation and subsidiaries at January 1, 2005
and January 3, 2004, and the related consolidated results of operations
and their cash flows for the year ended January 1, 2005 and for the period
from July 30, 2003 to January 3, 2004 and the period from December 29,
2002 to July 29, 2003, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 1 to
the consolidated financial statements, Visant Holding Corp. and Visant
Corporation adopted Statement of Financial Accounting Standards No. 150, “Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity,” effective June 29, 2003 and changed their method of accounting
for redeemable preferred stock.
ERNST & YOUNG
LLP
Minneapolis, Minnesota
February 18, 2005
F-2
Report of Independent Registered
Public Accounting Firm
To the Shareholders and Board of
Directors of Jostens, Inc.:
In our opinion, the
accompanying consolidated statements of operations, of changes in stockholders’
equity (deficit) and of cash flows present fairly, in all material respects,
the consolidated results of operations and cash flows of Jostens, Inc. and its
subsidiaries for the year ended December 28, 2002, in conformity with
accounting principles generally accepted in the United States of America. These financial statements are the
responsibility of Jostens, Inc.’s management; our responsibility is to
express an opinion on these financial statements based on our audit. We conducted our audit of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS
LLP
Minneapolis,
Minnesota
February 12, 2003
F-3
VISANT
HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2002
|
|
|
Net
sales
|
|
$
|
1,462,161
|
|
$
|
502,664
|
|
$
|
504,058
|
|
$
|
755,984
|
|
|
Cost of products
sold
|
|
914,964
|
|
335,826
|
|
218,594
|
|
315,961
|
|
|
Gross profit
|
|
547,197
|
|
166,838
|
|
285,464
|
|
440,023
|
|
|
Selling and
administrative expenses
|
|
434,068
|
|
168,470
|
|
196,430
|
|
306,449
|
|
|
Transaction
costs
|
|
15,899
|
|
226
|
|
30,960
|
|
—
|
|
|
Special charges
|
|
15,663
|
|
—
|
|
—
|
|
—
|
|
|
Operating
income (loss)
|
|
81,567
|
|
(1,858
|
)
|
58,074
|
|
133,574
|
|
|
Interest income
|
|
(706
|
)
|
(433
|
)
|
(82
|
)
|
(1,109
|
)
|
|
Interest expense
|
|
160,985
|
|
68,423
|
|
32,528
|
|
68,435
|
|
|
Loss on
redemption of debt
|
|
75,849
|
|
503
|
|
13,878
|
|
1,765
|
|
|
Other income
|
|
(1,092
|
)
|
—
|
|
—
|
|
—
|
|
|
(Loss) income
from continuing operations before income taxes
|
|
(153,469
|
)
|
(70,351
|
)
|
11,750
|
|
64,483
|
|
|
(Benefit from)
provision for income taxes
|
|
(52,771
|
)
|
(19,236
|
)
|
8,695
|
|
36,214
|
|
|
(Loss)
income from continuing operations
|
|
(100,698
|
)
|
(51,115
|
)
|
3,055
|
|
28,269
|
|
|
Discontinued
operations - gain on disposal (net of income tax expense of $1,071)
|
|
—
|
|
—
|
|
—
|
|
1,637
|
|
|
Cumulative
effect of accounting change
|
|
—
|
|
—
|
|
4,585
|
|
—
|
|
|
Net
(loss) income
|
|
(100,698
|
)
|
(51,115
|
)
|
7,640
|
|
29,906
|
|
|
Dividends and
accretion on redeemable preferred shares
|
|
—
|
|
—
|
|
(6,525
|
)
|
(11,747
|
)
|
|
Net
(loss) income available to common stockholders
|
|
$
|
(100,698
|
)
|
$
|
(51,115
|
)
|
$
|
1,115
|
|
$
|
18,159
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
F-4
VISANT HOLDING CORP. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
(Successor)
|
|
|
In thousands, except share
amounts
|
|
2004
|
|
2003
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
84,964
|
|
$
|
49,112
|
|
|
Accounts
receivable, net
|
|
158,243
|
|
141,725
|
|
|
Inventories, net
|
|
129,450
|
|
111,962
|
|
|
Salespersons
overdrafts, net of allowance of $12,722 and $10,953, respectively
|
|
35,415
|
|
30,062
|
|
|
Prepaid expenses
and other current assets
|
|
13,639
|
|
18,762
|
|
|
Deferred income
taxes
|
|
58,892
|
|
4,591
|
|
|
Total
current assets
|
|
480,603
|
|
356,214
|
|
|
Property, plant
and equipment, net
|
|
241,123
|
|
272,060
|
|
|
Goodwill
|
|
1,108,445
|
|
1,138,664
|
|
|
Intangibles, net
|
|
606,195
|
|
700,185
|
|
|
Deferred
financing costs, net
|
|
64,127
|
|
44,510
|
|
|
Other assets
|
|
10,904
|
|
10,997
|
|
|
|
|
$
|
2,511,397
|
|
$
|
2,522,630
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
8,300
|
|
$
|
42,251
|
|
|
Accounts payable
|
|
53,505
|
|
45,440
|
|
|
Accrued employee
compensation and related taxes
|
|
46,860
|
|
40,731
|
|
|
Commissions
payable
|
|
16,694
|
|
18,706
|
|
|
Customer
deposits
|
|
156,511
|
|
149,809
|
|
|
Income taxes
payable
|
|
8,291
|
|
9,629
|
|
|
Interest payable
|
|
9,815
|
|
23,389
|
|
|
Current portion
of long-term debt
|
|
19,950
|
|
2,000
|
|
|
Deferred income
taxes
|
|
—
|
|
4,283
|
|
|
Other accrued
liabilities
|
|
24,636
|
|
21,695
|
|
|
Current
liabilities of discontinued operations
|
|
1,744
|
|
3,100
|
|
|
Total
current liabilities
|
|
346,306
|
|
361,033
|
|
|
|
|
|
|
|
|
|
Long-term debt -
less current maturities
|
|
1,667,231
|
|
1,432,161
|
|
|
Redeemable
preferred stock
|
|
—
|
|
258,787
|
|
|
Deferred income
taxes
|
|
252,414
|
|
261,243
|
|
|
Pension
liabilities, net
|
|
27,489
|
|
29,724
|
|
|
Other noncurrent
liabilities
|
|
5,643
|
|
5,814
|
|
|
Total
liabilities
|
|
2,299,083
|
|
2,348,762
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
Class A $.01 par
value; authorized 7,000,000 shares; issued and outstanding: 5,909,844 shares at
January 1, 2005; 504,584 shares at January 3, 2004
|
|
|
|
|
|
|
Class B $.01 par
value; non-voting; authorized 2,724,759 shares; issued and outstanding: none
at January 1, 2005; 2,724,759 shares at January 3, 2004
|
|
|
|
|
|
|
Class C $.01 par
value; authorized 1 share; issued and outstanding: 1 share at January 1,
2005; none at January 3, 2004
|
|
59
|
|
32
|
|
|
Additional paid-in-capital
|
|
518,413
|
|
380,377
|
|
|
Accumulated
deficit
|
|
(307,617
|
)
|
(206,919
|
)
|
|
Accumulated
other comprehensive income
|
|
1,459
|
|
906
|
|
|
Officer notes
receivable
|
|
—
|
|
(528
|
)
|
|
Total
stockholders’ equity
|
|
212,314
|
|
173,868
|
|
|
|
|
$
|
2,511,397
|
|
$
|
2,522,630
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
F-5
VISANT HOLDING CORP. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2002
|
|
|
Net (loss)
income
|
|
$
|
(100,698
|
)
|
$
|
(51,115
|
)
|
$
|
7,640
|
|
$
|
29,906
|
|
|
Adjustments to
reconcile net (loss) income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
69,196
|
|
26,200
|
|
12,649
|
|
24,645
|
|
|
Amortization of
intangible assets
|
|
94,140
|
|
21,254
|
|
616
|
|
55
|
|
|
Amortization of
debt discount, premium and deferred financing costs
|
|
23,417
|
|
4,168
|
|
3,112
|
|
7,422
|
|
|
Other
amortization
|
|
847
|
|
356
|
|
1,323
|
|
2,197
|
|
|
Accrued interest
on redeemable preferred stock
|
|
38,816
|
|
22,480
|
|
842
|
|
—
|
|
|
Deferred income
taxes
|
|
(66,042
|
)
|
(21,453
|
)
|
(1,500
|
)
|
11,805
|
|
|
Loss on
redemption of debt
|
|
75,849
|
|
503
|
|
13,878
|
|
1,765
|
|
|
Other
|
|
888
|
|
1,034
|
|
(1,820
|
)
|
(959
|
)
|
|
Changes in assets
and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
(16,371
|
)
|
12,019
|
|
4,576
|
|
(2,789
|
)
|
|
Inventories
|
|
(17,186
|
)
|
29,208
|
|
14,293
|
|
1,166
|
|
|
Prepaid expenses
and other current assets
|
|
5,612
|
|
(5,158
|
)
|
3,405
|
|
(891
|
)
|
|
Accounts payable
and accrued expenses
|
|
11,822
|
|
(10,407
|
)
|
9,665
|
|
(3,811
|
)
|
|
Customer
deposits
|
|
6,352
|
|
90,845
|
|
(76,069
|
)
|
7,440
|
|
|
Income taxes
payable
|
|
9,782
|
|
(8,857
|
)
|
8,288
|
|
(9,624
|
)
|
|
Interest payable
|
|
(13,570
|
)
|
5,364
|
|
(6,750
|
)
|
222
|
|
|
Other
|
|
(8,722
|
)
|
(13,399
|
)
|
(941
|
)
|
(13,077
|
)
|
|
Net
cash provided by (used in) operating activities
|
|
114,132
|
|
103,042
|
|
(6,793
|
)
|
55,472
|
|
|
Acquisition of
businesses, net of cash acquired
|
|
—
|
|
(531,752
|
)
|
(5,008
|
)
|
—
|
|
|
Purchases of
property, plant and equipment
|
|
(49,274
|
)
|
(20,700
|
)
|
(6,129
|
)
|
(22,843
|
)
|
|
Proceeds from
sale of property, plant and equipment
|
|
11,512
|
|
198
|
|
90
|
|
1,256
|
|
|
Other investing
activities, net
|
|
(183
|
)
|
(72
|
)
|
(828
|
)
|
(1,225
|
)
|
|
Net
cash used in investing activities
|
|
(37,945
|
)
|
(552,326
|
)
|
(11,875
|
)
|
(22,812
|
)
|
|
Net short-term
(repayments) borrowings
|
|
(35,244
|
)
|
11,658
|
|
1,500
|
|
8,960
|
|
|
Repurchase of
common stock and warrants
|
|
(2,948
|
)
|
—
|
|
(471,044
|
)
|
(2,851
|
)
|
|
Redemption of
preferred stock
|
|
(188,849
|
)
|
(102,820
|
)
|
—
|
|
—
|
|
|
Principal
payments on long-term debt
|
|
(464,955
|
)
|
(25,875
|
)
|
(379,270
|
)
|
(60,855
|
)
|
|
Redemption of
senior subordinated notes
|
|
(336,437
|
)
|
(9,325
|
)
|
—
|
|
(8,456
|
)
|
|
Redemption of
senior notes
|
|
(411,436
|
)
|
—
|
|
—
|
|
—
|
|
|
Redemption of
PIK notes to stockholders
|
|
(81,037
|
)
|
—
|
|
—
|
|
—
|
|
|
Redemption of
subordinated exchange debentures
|
|
(49,001
|
)
|
—
|
|
—
|
|
—
|
|
|
Proceeds from
issuance of long-term debt
|
|
1,524,000
|
|
153,711
|
|
475,000
|
|
—
|
|
|
Proceeds from
issuance of common stock
|
|
4,500
|
|
342,934
|
|
417,934
|
|
—
|
|
|
Net proceeds
from issuance of common stock to KKR
|
|
237,468
|
|
—
|
|
—
|
|
—
|
|
|
Distribution to stockholders
|
|
(175,648
|
)
|
(41,586
|
)
|
—
|
|
—
|
|
|
Proceeds from
issuance of redeemable preferred stock
|
|
—
|
|
100,000
|
|
—
|
|
—
|
|
|
Proceeds from
issuance of senior notes
|
|
—
|
|
62,850
|
|
|
|
|
|
|
Debt financing
costs
|
|
(61,430
|
)
|
(9,213
|
)
|
(20,212
|
)
|
(1,620
|
)
|
|
Merger costs
|
|
—
|
|
—
|
|
(12,608
|
)
|
—
|
|
|
Other financing
activities, net
|
|
566
|
|
—
|
|
1,625
|
|
—
|
|
|
Net
cash (used in) provided by financing activities
|
|
(40,451
|
)
|
482,334
|
|
12,925
|
|
(64,822
|
)
|
|
Effect of
exchange rate changes on cash and cash equivalents
|
|
116
|
|
144
|
|
236
|
|
—
|
|
|
Increase (decrease)
in cash and cash equivalents
|
|
35,852
|
|
33,194
|
|
(5,507
|
)
|
(32,162
|
)
|
|
Cash and cash
equivalents, beginning of period
|
|
49,112
|
|
15,918
|
|
10,938
|
|
43,100
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
84,964
|
|
$
|
49,112
|
|
$
|
5,431
|
|
$
|
10,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
|
|
Income taxes
paid
|
|
$
|
2,162
|
|
$
|
15,039
|
|
$
|
1,895
|
|
$
|
31,492
|
|
|
Interest paid
|
|
$
|
144,427
|
|
$
|
40,437
|
|
$
|
32,162
|
|
$
|
61,542
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
F-6
VISANT HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
Additional
|
|
Additional
paid-in
|
|
|
|
|
|
Accumulated
other
|
|
|
|
|
|
|
Common
shares
|
|
paid-in
|
|
capital
|
|
Officer
notes
|
|
Accumulated
|
|
comprehensive
|
|
|
|
|
In
thousands
|
|
Number
|
|
Amount
|
|
capital
|
|
warrants
|
|
receivable
|
|
deficit
|
|
income
(loss)
|
|
Total
|
|
|
Jostens,
Inc. (Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 29, 2001
|
|
8,965
|
|
$
|
1,006
|
|
$
|
—
|
|
$
|
24,733
|
|
$
|
(1,407
|
)
|
$
|
(610,959
|
)
|
$
|
(12,503
|
)
|
$
|
(599,130
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
29,906
|
|
|
|
29,906
|
|
|
Change in
cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
579
|
|
579
|
|
|
Change in fair
value of interest rate swap agreement, net of $1,351 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,065
|
|
2,065
|
|
|
Adjustment in
minimum pension liability, net of $627 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(958
|
)
|
(958
|
)
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,592
|
|
|
Preferred stock
dividends
|
|
|
|
|
|
|
|
|
|
|
|
(11,097
|
)
|
|
|
(11,097
|
)
|
|
Preferred stock
accretion
|
|
|
|
|
|
|
|
|
|
|
|
(650
|
)
|
|
|
(650
|
)
|
|
Repurchase of
common stock
|
|
(9
|
)
|
(3
|
)
|
|
|
|
|
126
|
|
(268
|
)
|
|
|
(145
|
)
|
|
Reacquisition of
warrants to purchase common shares
|
|
|
|
|
|
|
|
(3,769
|
)
|
|
|
1,063
|
|
|
|
(2,706
|
)
|
|
Interest accrued
on officer notes receivable
|
|
|
|
|
|
|
|
|
|
(344
|
)
|
|
|
|
|
(344
|
)
|
|
Balance
- December 28, 2002
|
|
8,956
|
|
$
|
1,003
|
|
$
|
—
|
|
$
|
20,964
|
|
$
|
(1,625
|
)
|
$
|
(592,005
|
)
|
$
|
(10,817
|
)
|
$
|
(582,480
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
7,640
|
|
|
|
7,640
|
|
|
Change in
cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(278
|
)
|
(278
|
)
|
|
Change in fair
value of interest rate swap agreement, net of $846 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,293
|
|
1,293
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,655
|
|
|
Preferred stock
dividends
|
|
|
|
|
|
|
|
|
|
|
|
(6,148
|
)
|
|
|
(6,148
|
)
|
|
Preferred stock
accretion
|
|
|
|
|
|
|
|
|
|
|
|
(377
|
)
|
|
|
(377
|
)
|
|
Payment on
officer notes receivable
|
|
|
|
|
|
|
|
|
|
1,625
|
|
|
|
|
|
1,625
|
|
|
Repurchase of
common stock and warrants
|
|
(8,956
|
)
|
(1,003
|
)
|
|
|
(20,964
|
)
|
|
|
(449,077
|
)
|
|
|
(471,044
|
)
|
|
Issuance of
common stock
|
|
1
|
|
—
|
|
417,934
|
|
|
|
|
|
|
|
|
|
417,934
|
|
|
Effect of
purchase accounting
|
|
|
|
|
|
|
|
|
|
|
|
1,039,967
|
|
9,802
|
|
1,049,769
|
|
|
Balance
- July 29, 2003
|
|
1
|
|
$
|
—
|
|
$
|
417,934
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
417,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Visant Holding
Corp.
|
|
3,229
|
|
$
|
32
|
|
$
|
322,902
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
322,934
|
|
|
Von Hoffman
|
|
|
|
|
|
78,680
|
|
|
|
(509
|
)
|
(52,013
|
)
|
|
|
26,158
|
|
|
Arcade
|
|
|
|
|
|
381
|
|
|
|
|
|
(103,791
|
)
|
350
|
|
(103,060
|
)
|
|
Balance
- July 29, 2003
|
|
3,229
|
|
$
|
32
|
|
$
|
401,963
|
|
$
|
—
|
|
$
|
(509
|
)
|
$
|
(155,804
|
)
|
$
|
350
|
|
$
|
246,032
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
(51,115
|
)
|
—
|
|
(51,115
|
)
|
|
Change in
cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
556
|
|
556
|
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,559
|
)
|
|
Accrued interest
on officer notes receivable
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
(19
|
)
|
|
Return of capital
|
|
|
|
|
|
(41,586
|
)
|
|
|
|
|
|
|
|
|
(41,586
|
)
|
|
Contribution from
stockholder
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
Balance
- January 3, 2004
|
|
3,229
|
|
$
|
32
|
|
$
|
380,377
|
|
$
|
—
|
|
$
|
(528
|
)
|
$
|
(206,919
|
)
|
$
|
906
|
|
$
|
173,868
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
(100,698
|
)
|
—
|
|
(100,698
|
)
|
|
Change in
cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
553
|
|
553
|
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,145
|
)
|
|
Accrued interest
on officer notes receivable
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
|
|
(38
|
)
|
|
Payment on
officer notes receivable
|
|
|
|
|
|
|
|
|
|
566
|
|
|
|
|
|
566
|
|
|
Issuance of
common stock to KKR, net of equity raising costs of $18,587
|
|
2,664
|
|
27
|
|
237,441
|
|
|
|
|
|
|
|
|
|
237,468
|
|
|
Issuance of
common stock
|
|
47
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
4,500
|
|
|
Repurchase of
common stock
|
|
(31
|
)
|
—
|
|
(2,948
|
)
|
|
|
|
|
|
|
|
|
(2,948
|
)
|
|
Return of capital
|
|
|
|
|
|
(175,648
|
)
|
|
|
|
|
|
|
|
|
(175,648
|
)
|
|
Gain on
redemption of preferred stock
|
|
|
|
|
|
74,691
|
|
|
|
—
|
|
|
|
|
|
74,691
|
|
|
Balance
- January 1, 2005
|
|
5,909
|
|
$
|
59
|
|
$
|
518,413
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(307,617
|
)
|
$
|
1,459
|
|
$
|
212,314
|
|
The accompanying notes
are an integral part of the consolidated financial statements.
F-7
VISANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2002
|
|
|
Net
sales
|
|
$
|
1,462,161
|
|
$
|
502,664
|
|
$
|
504,058
|
|
$
|
755,984
|
|
|
Cost of products
sold
|
|
914,964
|
|
335,826
|
|
218,594
|
|
315,961
|
|
|
Gross profit
|
|
547,197
|
|
166,838
|
|
285,464
|
|
440,023
|
|
|
Selling and
administrative expenses
|
|
434,197
|
|
168,470
|
|
196,430
|
|
306,449
|
|
|
Transaction
costs
|
|
15,899
|
|
226
|
|
30,960
|
|
—
|
|
|
Special charges
|
|
15,663
|
|
—
|
|
—
|
|
—
|
|
|
Operating
income (loss)
|
|
81,438
|
|
(1,858
|
)
|
58,074
|
|
133,574
|
|
|
Interest income
|
|
(678
|
)
|
(417
|
)
|
(82
|
)
|
(1,109
|
)
|
|
Interest expense
|
|
144,495
|
|
67,108
|
|
32,528
|
|
68,435
|
|
|
Loss on
redemption of debt
|
|
75,849
|
|
503
|
|
13,878
|
|
1,765
|
|
|
Other income
|
|
(1,092
|
)
|
—
|
|
—
|
|
—
|
|
|
(Loss) income
from continuing operations before income taxes
|
|
(137,136
|
)
|
(69,052
|
)
|
11,750
|
|
64,483
|
|
|
(Benefit from)
provision for income taxes
|
|
(46,728
|
)
|
(18,755
|
)
|
8,695
|
|
36,214
|
|
|
(Loss)
income from continuing operations
|
|
(90,408
|
)
|
(50,297
|
)
|
3,055
|
|
28,269
|
|
|
Discontinued
operations - gain on disposal (net of income tax expense of $1,071)
|
|
—
|
|
—
|
|
—
|
|
1,637
|
|
|
Cumulative
effect of accounting change
|
|
—
|
|
—
|
|
4,585
|
|
—
|
|
|
Net
(loss) income
|
|
(90,408
|
)
|
(50,297
|
)
|
7,640
|
|
29,906
|
|
|
Dividends and
accretion on redeemable preferred shares
|
|
—
|
|
—
|
|
(6,525
|
)
|
(11,747
|
)
|
|
Net
(loss) income available to common stockholders
|
|
$
|
(90,408
|
)
|
$
|
(50,297
|
)
|
$
|
1,115
|
|
$
|
18,159
|
|
The accompanying notes
are an integral part of the consolidated financial statements.
F-8
VISANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
(Successor)
|
|
|
In thousands, except share
amounts
|
|
2004
|
|
2003
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
82,269
|
|
$
|
43,731
|
|
|
Accounts
receivable, net
|
|
158,243
|
|
141,725
|
|
|
Inventories, net
|
|
129,450
|
|
111,962
|
|
|
Salespersons
overdrafts, net of allowance of $12,722 and $10,953, respectively
|
|
35,415
|
|
30,062
|
|
|
Prepaid expenses
and other current assets
|
|
13,639
|
|
18,762
|
|
|
Deferred income
taxes
|
|
58,892
|
|
4,591
|
|
|
Total
current assets
|
|
477,908
|
|
350,833
|
|
|
Property, plant
and equipment, net
|
|
241,123
|
|
272,060
|
|
|
Goodwill
|
|
1,108,445
|
|
1,138,664
|
|
|
Intangibles, net
|
|
606,195
|
|
700,185
|
|
|
Deferred
financing costs, net
|
|
58,679
|
|
38,836
|
|
|
Other assets
|
|
10,904
|
|
10,997
|
|
|
|
|
$
|
2,503,254
|
|
$
|
2,511,575
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDER’S EQUITY
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
8,300
|
|
$
|
42,251
|
|
|
Accounts payable
|
|
53,505
|
|
44,966
|
|
|
Accrued employee
compensation and related taxes
|
|
46,860
|
|
40,731
|
|
|
Commissions
payable
|
|
16,694
|
|
18,706
|
|
|
Customer
deposits
|
|
156,511
|
|
149,809
|
|
|
Income taxes
payable
|
|
8,460
|
|
9,636
|
|
|
Interest payable
|
|
9,815
|
|
23,389
|
|
|
Current portion
of long-term debt
|
|
19,950
|
|
2,000
|
|
|
Deferred income
taxes
|
|
—
|
|
4,283
|
|
|
Other accrued
liabilities
|
|
25,688
|
|
21,695
|
|
|
Current liabilities
of discontinued operations
|
|
1,744
|
|
3,100
|
|
|
Total
current liabilities
|
|
347,527
|
|
360,566
|
|
|
|
|
|
|
|
|
|
Long-term debt -
less current maturities
|
|
1,500,050
|
|
1,280,875
|
|
|
Redeemable
preferred stock
|
|
—
|
|
258,787
|
|
|
Deferred income
taxes
|
|
258,769
|
|
261,717
|
|
|
Pension
liabilities, net
|
|
27,489
|
|
29,724
|
|
|
Other noncurrent
liabilities
|
|
5,643
|
|
5,814
|
|
|
Total
liabilities
|
|
2,139,478
|
|
2,197,483
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
$.01 par value; authorized: 2,000,000 shares; issued and outstanding:
1,000 shares at January 1, 2005 and January 3, 2004
|
|
—
|
|
—
|
|
|
Additional
paid-in-capital
|
|
658,826
|
|
519,815
|
|
|
Accumulated
deficit
|
|
(296,509
|
)
|
(206,101
|
)
|
|
Accumulated
other comprehensive income
|
|
1,459
|
|
906
|
|
|
Officer notes
receivable
|
|
—
|
|
(528
|
)
|
|
Total
stockholder’s equity
|
|
363,776
|
|
314,092
|
|
|
|
|
$
|
2,503,254
|
|
$
|
2,511,575
|
|
The accompanying notes are an integral part of
the consolidated financial statements.
F-9
VISANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2002
|
|
|
Net (loss)
income
|
|
$
|
(90,408
|
)
|
$
|
(50,297
|
)
|
$
|
7,640
|
|
$
|
29,906
|
|
|
Adjustments to
reconcile net (loss) income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
68,990
|
|
26,200
|
|
12,649
|
|
24,645
|
|
|
Amortization of
intangible assets
|
|
94,140
|
|
21,254
|
|
616
|
|
55
|
|
|
Amortization of
debt discount, premium and deferred financing costs
|
|
7,120
|
|
2,853
|
|
3,112
|
|
7,422
|
|
|
Other
amortization
|
|
847
|
|
356
|
|
1,323
|
|
2,197
|
|
|
Accrued interest
on redeemable preferred stock
|
|
38,816
|
|
22,480
|
|
842
|
|
—
|
|
|
Deferred income
taxes
|
|
(60,161
|
)
|
(20,979
|
)
|
(1,500
|
)
|
11,805
|
|
|
Loss on
redemption of debt
|
|
75,849
|
|
503
|
|
13,878
|
|
1,765
|
|
|
Other
|
|
1,177
|
|
1,034
|
|
(1,820
|
)
|
(959
|
)
|
|
Changes in
assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
(16,371
|
)
|
12,019
|
|
4,576
|
|
(2,789
|
)
|
|
Inventories
|
|
(17,186
|
)
|
29,208
|
|
14,293
|
|
1,166
|
|
|
Prepaid expenses
and other current assets
|
|
5,612
|
|
(5,158
|
)
|
3,405
|
|
(891
|
)
|
|
Accounts payable
and accrued expenses
|
|
13,350
|
|
(10,881
|
)
|
9,665
|
|
(3,811
|
)
|
|
Customer
deposits
|
|
6,352
|
|
90,845
|
|
(76,069
|
)
|
7,440
|
|
|
Income taxes
payable
|
|
9,944
|
|
(8,850
|
)
|
8,288
|
|
(9,624
|
)
|
|
Interest payable
|
|
(13,570
|
)
|
5,364
|
|
(6,750
|
)
|
222
|
|
|
Other
|
|
(8,722
|
)
|
(13,399
|
)
|
(941
|
)
|
(13,077
|
)
|
|
Net
cash provided by (used in) operating activities
|
|
115,779
|
|
102,552
|
|
(6,793
|
)
|
55,472
|
|
|
Acquisition of
businesses, net of cash acquired
|
|
—
|
|
(531,752
|
)
|
(5,008
|
)
|
—
|
|
|
Purchases of
property, plant and equipment
|
|
(44,358
|
)
|
(20,700
|
)
|
(6,129
|
)
|
(22,843
|
)
|
|
Proceeds from
sale of property, plant and equipment
|
|
6,512
|
|
198
|
|
90
|
|
1,256
|
|
|
Other investing
activities, net
|
|
(183
|
)
|
(72
|
)
|
(828
|
)
|
(1,225
|
)
|
|
Net
cash used in investing activities
|
|
(38,029
|
)
|
(552,326
|
)
|
(11,875
|
)
|
(22,812
|
)
|
|
Net short-term
(repayments) borrowings
|
|
(35,244
|
)
|
11,658
|
|
1,500
|
|
8,960
|
|
|
Repurchase of
common stock and warrants
|
|
—
|
|
—
|
|
(471,044
|
)
|
(2,851
|
)
|
|
Redemption of
preferred stock
|
|
(188,849
|
)
|
(102,820
|
)
|
—
|
|
—
|
|
|
Principal
payments on long-term debt
|
|
(460,955
|
)
|
(25,875
|
)
|
(379,270
|
)
|
(60,855
|
)
|
|
Redemption of
senior subordinated notes
|
|
(336,437
|
)
|
(9,325
|
)
|
—
|
|
(8,456
|
)
|
|
Redemption of
senior notes
|
|
(411,436
|
)
|
—
|
|
—
|
|
—
|
|
|
Redemption of
PIK notes to stockholders
|
|
(81,037
|
)
|
—
|
|
—
|
|
—
|
|
|
Redemption of
subordinated exchange debentures
|
|
(49,001
|
)
|
—
|
|
—
|
|
—
|
|
|
Proceeds from
issuance of long-term debt
|
|
1,520,000
|
|
3,705
|
|
475,000
|
|
—
|
|
|
Proceeds from
issuance of common stock
|
|
—
|
|
337,934
|
|
417,934
|
|
—
|
|
|
Net contribution
from Visant Holding Corp.
|
|
239,968
|
|
102,820
|
|
—
|
|
—
|
|
|
Distribution to stockholders
|
|
(175,648
|
)
|
—
|
|
—
|
|
—
|
|
|
Proceeds from
issuance of redeemable preferred stock
|
|
—
|
|
100,000
|
|
—
|
|
—
|
|
|
Proceeds from
issuance of senior notes
|
|
—
|
|
62,850
|
|
—
|
|
—
|
|
|
Debt financing
costs
|
|
(61,255
|
)
|
(3,504
|
)
|
(20,212
|
)
|
(1,620
|
)
|
|
Merger costs
|
|
—
|
|
—
|
|
(12,608
|
)
|
—
|
|
|
Other financing
activities, net
|
|
566
|
|
—
|
|
1,625
|
|
—
|
|
|
Net
cash (used in) provided by financing activities
|
|
(39,328
|
)
|
477,443
|
|
12,925
|
|
(64,822
|
)
|
|
Effect of exchange
rate changes on cash and cash equivalents
|
|
116
|
|
144
|
|
236
|
|
—
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
38,538
|
|
27,813
|
|
(5,507
|
)
|
(32,162
|
)
|
|
Cash and cash
equivalents, beginning of period
|
|
43,731
|
|
15,918
|
|
10,938
|
|
43,100
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
82,269
|
|
$
|
43,731
|
|
$
|
5,431
|
|
$
|
10,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
|
|
Income taxes
paid
|
|
$
|
2,162
|
|
$
|
15,039
|
|
$
|
1,895
|
|
$
|
31,492
|
|
|
Interest paid
|
|
$
|
144,234
|
|
$
|
40,437
|
|
$
|
32,162
|
|
$
|
61,542
|
|
The accompanying notes
are an integral part of the consolidated financial statements.
F-10
VISANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(DEFICIT)
|
|
|
|
|
|
|
Additional
|
|
Additional
paid-in
|
|
|
|
|
|
Accumulated
other
|
|
|
|
|
|
|
Common
shares
|
|
paid-in
|
|
capital
|
|
Officer
notes
|
|
Accumulated
|
|
comprehensive
|
|
|
|
|
In thousands
|
|
Number
|
|
Amount
|
|
capital
|
|
warrants
|
|
receivable
|
|
deficit
|
|
income
(loss)
|
|
Total
|
|
|
Jostens,
Inc. (Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 29, 2001
|
|
8,965
|
|
$
|
1,006
|
|
$
|
—
|
|
$
|
24,733
|
|
$
|
(1,407
|
)
|
$
|
(610,959
|
)
|
$
|
(12,503
|
)
|
$
|
(599,130
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
29,906
|
|
|
|
29,906
|
|
|
Change in
cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
579
|
|
579
|
|
|
Change in fair
value of interest rate swap agreement, net of $1,351 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,065
|
|
2,065
|
|
|
Adjustment in
minimum pension liability, net of $627 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(958
|
)
|
(958
|
)
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,592
|
|
|
Preferred stock
dividends
|
|
|
|
|
|
|
|
|
|
|
|
(11,097
|
)
|
|
|
(11,097
|
)
|
|
Preferred stock
accretion
|
|
|
|
|
|
|
|
|
|
|
|
(650
|
)
|
|
|
(650
|
)
|
|
Repurchase of
common stock
|
|
(9
|
)
|
(3
|
)
|
|
|
|
|
126
|
|
(268
|
)
|
|
|
(145
|
)
|
|
Reacquisition of
warrants to purchase common shares
|
|
|
|
|
|
|
|
(3,769
|
)
|
|
|
1,063
|
|
|
|
(2,706
|
)
|
|
Interest accrued
on officer notes receivable
|
|
|
|
|
|
|
|
|
|
(344
|
)
|
|
|
|
|
(344
|
)
|
|
Balance
- December 28, 2002
|
|
8,956
|
|
$
|
1,003
|
|
$
|
—
|
|
$
|
20,964
|
|
$
|
(1,625
|
)
|
$
|
(592,005
|
)
|
$
|
(10,817
|
)
|
$
|
(582,480
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
7,640
|
|
|
|
7,640
|
|
|
Change in
cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(278
|
)
|
(278
|
)
|
|
Change in fair
value of interest rate swap agreement, net of $846 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,293
|
|
1,293
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,655
|
|
|
Preferred stock
dividends
|
|
|
|
|
|
|
|
|
|
|
|
(6,148
|
)
|
|
|
(6,148
|
)
|
|
Preferred stock
accretion
|
|
|
|
|
|
|
|
|
|
|
|
(377
|
)
|
|
|
(377
|
)
|
|
Payment on
officer notes receivable
|
|
|
|
|
|
|
|
|
|
1,625
|
|
|
|
|
|
1,625
|
|
|
Repurchase of
common stock and warrants
|
|
(8,956
|
)
|
(1,003
|
)
|
|
|
(20,964
|
)
|
|
|
(449,077
|
)
|
|
|
(471,044
|
)
|
|
Issuance of
common stock
|
|
1
|
|
—
|
|
417,934
|
|
|
|
|
|
|
|
|
|
417,934
|
|
|
Effect of
purchase accounting
|
|
|
|
|
|
|
|
|
|
|
|
1,039,967
|
|
9,802
|
|
1,049,769
|
|
|
Balance
- July 29, 2003
|
|
1
|
|
$
|
—
|
|
$
|
417,934
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
417,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Visant
Corporation
|
|
1
|
|
$
|
—
|
|
$
|
317,934
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
317,934
|
|
|
Von Hoffman
|
|
|
|
|
|
78,680
|
|
|
|
(509
|
)
|
(52,013
|
)
|
|
|
26,158
|
|
|
Arcade
|
|
|
|
|
|
381
|
|
|
|
|
|
(103,791
|
)
|
350
|
|
(103,060
|
)
|
|
Balance
- July 29, 2003
|
|
1
|
|
$
|
—
|
|
$
|
396,995
|
|
$
|
—
|
|
$
|
(509
|
)
|
$
|
(155,804
|
)
|
$
|
350
|
|
$
|
241,032
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
(50,297
|
)
|
—
|
|
(50,297
|
)
|
|
Change in
cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
556
|
|
556
|
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,741
|
)
|
|
Accrued interest
on officer notes receivable
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
(19
|
)
|
|
Contribution from
Visant Holding Corp.
|
|
|
|
|
|
102,820
|
|
|
|
|
|
|
|
|
|
102,820
|
|
|
Contribution from
stockholder
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
Balance
- January 3, 2004
|
|
1
|
|
$
|
—
|
|
$
|
519,815
|
|
$
|
—
|
|
$
|
(528
|
)
|
$
|
(206,101
|
)
|
$
|
906
|
|
$
|
314,092
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
(90,408
|
)
|
—
|
|
(90,408
|
)
|
|
Change in
cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
553
|
|
553
|
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89,855
|
)
|
|
Accrued interest
on officer notes receivable
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
|
|
(38
|
)
|
|
Payment on
officer notes receivable
|
|
|
|
|
|
|
|
|
|
566
|
|
|
|
|
|
566
|
|
|
Contribution from
Visant Holding Corp., net of equity raising costs of $18,587
|
|
|
|
|
|
239,968
|
|
|
|
|
|
|
|
|
|
239,968
|
|
|
Distribution to stockholders
|
|
|
|
|
|
(175,648
|
)
|
|
|
|
|
|
|
|
|
(175,648
|
)
|
|
Gain on
redemption of preferred stock
|
|
|
|
|
|
74,691
|
|
|
|
|
|
|
|
|
|
74,691
|
|
|
Balance
- January 1, 2005
|
|
1
|
|
$
|
—
|
|
$
|
658,826
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(296,509
|
)
|
$
|
1,459
|
|
$
|
363,776
|
|
The accompanying notes
are an integral part of the consolidated financial statements.
F-11
VISANT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
1. Summary of Significant
Accounting Policies
Description of Business
We are a leading North
American specialty printing, marketing and school-related affinity products and
services enterprise. We generate the
majority of our net sales from printing and marketing products, which include,
among others, yearbooks, educational materials, diplomas, announcements, direct
marketing materials and commercial printing.
We also manufacture and distribute other non-print based school-related
affinity products and services such as class rings, caps and gowns and school
photography.
Basis
of Presentation
The consolidated
financial statements included herein are:
• Visant
Holding Corp. and its wholly-owned subsidiaries (Holdings) which include Visant
Corporation (Visant); and
• Visant and
its wholly-owned subsidiaries.
All significant
intercompany balances and transactions are eliminated in consolidation.
As a result of the 2003
Jostens merger as discussed in Note 3, we applied purchase accounting and a new
basis of accounting began after July 29, 2003. Fiscal 2003 includes a predecessor period
from December 29, 2002 to July 29, 2003 (seven months) and a
successor period from July 30, 2003 to January 3, 2004 (five
months). The consolidated financial
statements for the predecessor period are those of Jostens, Inc. and its
wholly owned subsidiaries and have been prepared using the historical basis of
accounting for Jostens, Inc. As a
result of the Transactions as discussed in Note 2, the consolidated financial
statements for the successor period include the consolidation of Jostens, Inc.
(“Jostens”), Von Hoffmann Holdings, Inc. (“Von Hoffmann”) and AHC I
Acquisition Corp. (“Arcade”), entities under common control.
Reclassifications
Certain reclassifications of previously reported amounts have been made
to conform to the current year presentation and to conform to recent accounting
pronouncements and guidance. As
disclosed in Note 4, the assets and liabilities pertaining to the Lehigh Direct
division of The Lehigh Press, Inc. have been reclassified within their
respective individual financial statement line items rather than as an asset
held for sale as previously reported.
Furthermore, the statement of operations for the successor period in
2003 includes the reclassification of the Lehigh Direct division’s results of
operations previously reported as a discontinued operation. The reclassifications had no impact on net
earnings as previously reported.
Fiscal
Year
We
utilize a fifty-two, fifty-three week fiscal year ending on the Saturday
nearest December 31. Fiscal year
2004, the successor period in 2003 and fiscal year 2002 ended on January 1,
2005, January 3, 2004 and December 28, 2002, respectively. Fiscal years 2004 and 2002 each consisted of
fifty-two weeks while the combined predecessor and successor periods in 2003
consisted of fifty-three weeks.
Use of
Estimates
The preparation of our consolidated financial statements in conformity
with U.S. generally accepted accounting principles requires us to make
estimates and assumptions about future events that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash
Equivalents
All investments with an original maturity of three months or less on
their acquisition date are considered to be cash equivalents.
F-12
Allowance for Doubtful Accounts
We make estimates of
potentially uncollectible customer accounts receivable and evaluate the adequacy
of the allowance on a periodic basis.
The evaluation includes historical loss experience, the length of time
receivables are past due, adverse situations that may affect a customer’s
ability to repay, and prevailing economic conditions. We make adjustments to the allowance balance
if the evaluation of allowance requirements differs from the actual aggregate
reserve. This evaluation is inherently
subjective and estimates may be revised as more information becomes available.
Allowance for Sales Returns
We make estimates of
potential future product returns related to current period product
revenue. We evaluate the adequacy of the
allowance on a periodic basis. This
evaluation includes historical returns experience, changes in customer demand
and acceptance of our products, and prevailing economic conditions. We make adjustments to the allowance if the
evaluation of allowance requirements differs from the actual aggregate
reserve. This evaluation is inherently
subjective and estimates may be revised as more information becomes available.
Allowance for Salespersons Overdrafts
We make estimates of
potentially uncollectible receivables arising from sales representative draws
paid in excess of earned commissions.
For veteran sales representatives, these estimates are based on
historical commissions earned and length of service. For newer sales representatives, receivables
arising from draws paid in excess of earned commissions are fully reserved. We evaluate the adequacy of the allowance on
a periodic basis. The evaluation
includes historical loss experience, length of time receivables are past due,
adverse situations that may affect a sales representative’s ability to repay
and prevailing economic conditions. We
make adjustments to the allowance balance if the evaluation of allowance
requirements differs from the actual aggregate reserve. This evaluation is inherently subjective and
estimates may be revised as more information becomes available.
Inventories
Inventories are stated at the lower of cost or market value. Cost is determined by using standard costing,
which approximates the first-in, first-out (FIFO) method for all inventories
except gold, certain other precious metals, and paper, which are determined
using the last-in, first-out (LIFO) method.
Cost includes direct materials, direct labor and applicable
overhead. Obsolescence reserves are
provided as necessary in order to approximate inventories at market value.
Property,
Plant and Equipment
Property, plant and equipment are stated at historical cost except that
Jostens adjusted its property, plant and equipment to fair value in accordance
with applying purchase accounting in conjunction with the merger on July 29,
2003. Maintenance and repairs are
charged to operations as incurred. Major
renewals and betterments are capitalized.
Depreciation is determined for financial reporting purposes by using the
straight-line method over the following estimated useful lives:
|
|
|
Years
|
|
|
Buildings
|
|
7 to 40
|
|
|
Machinery and
equipment
|
|
3 to 12
|
|
|
Capitalized
software
|
|
2 to 5
|
|
|
Transportation
equipment
|
|
4 to 10
|
|
|
Furniture and
fixtures
|
|
3 to 7
|
|
Capitalization
of Internal-Use Software
Costs
of software developed or obtained for internal use are capitalized once the
preliminary project stage has concluded, management commits to funding the
project and it is probable that the project will be completed and the software
will be used to perform the function intended.
Capitalized costs include only (1) external direct costs of
materials and services consumed in developing or obtaining internal-use
software, (2) payroll and payroll-related costs for employees who are
directly associated with and who devote time to the internal-use software
project and (3) interest costs incurred, when material, while developing
internal-use software. Capitalization of
costs ceases when the project is substantially complete and ready for its
intended use.
F-13
Goodwill and
Other Intangible Assets
Goodwill
and other intangible assets are originally recorded at their fair values at the
date of acquisition. Goodwill and
indefinite-lived intangibles are no longer amortized, but are tested annually
for impairment, or more frequently if impairment indicators occur. The impairment test requires
management to make judgments in connection with identifying reporting units,
assigning assets and liabilities to reporting units, assigning goodwill and
indefinite-lived intangible assets to reporting units, and determining the fair
value of each reporting unit. The
impairment testing was completed as of the beginning of our fourth quarter and
we believe that there are no indications of impairment. Definite-lived
intangibles are amortized over their estimated useful lives and are evaluated
for impairment annually, or more frequently if impairment indicators are
present, using a process similar to that used to test other long-lived assets
for impairment.
Impairment of
Long-Lived Assets
Long-lived
assets, including intangible assets with finite lives, are evaluated in
compliance with Statement of Financial Accounting Standards (SFAS) 144, Accounting for the Impairment or Disposal of Long-Lived Assets. An impairment loss is recognized whenever
events or changes in circumstances indicate the carrying amount of an asset is
not recoverable. In applying SFAS 144,
assets are grouped and evaluated at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows of other
groups of assets. We consider historical
performance and future estimated results in our evaluation of impairment. If the carrying amount of the asset exceeds
expected undiscounted future cash flows, we measure the amount of impairment by
comparing the carrying amount of the asset to its fair value, generally
measured by discounting expected future cash flows at the rate we utilize to
evaluate potential investments.
Customer Deposits
Amounts received from
customers in the form of cash down payments to purchase goods are recorded as a
liability until the goods are delivered.
Income Taxes
Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Income tax
expense represents the taxes payable for the year and the change in deferred
taxes during the year. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Revenue Recognition
Revenue is recognized
when the earnings process is complete, evidenced by an agreement between the
Company and the customer, delivery and acceptance has occurred, collectibility
is probable and pricing is fixed and determinable.
Shipping and Handling
Net sales include amounts
billed to customers for shipping and handling costs. Costs incurred for shipping and handling are
recorded in cost of products sold.
Foreign Currency Translation
Assets and liabilities
denominated in foreign currency are translated at the current exchange rate as
of the balance sheet date, and income statement amounts are translated at the
average monthly exchange rate.
Translation adjustments resulting from fluctuations in exchange rates
are recorded in other comprehensive income (loss).
Supplier Concentration
Jostens purchases
substantially all precious, semiprecious and synthetic stones from a single
supplier located in Germany. We believe
this supplier is also a supplier to our major class ring competitors in the
United States.
F-14
Arcade’s products utilize
specific grades of paper that are produced exclusively for Arcade by one
domestic supplier or specific component materials that are sourced from one
qualified supplier.
Derivative Financial Instruments
All
derivatives are accounted for in accordance with SFAS 133, Accounting for Derivatives and Hedging Activities,
as amended. SFAS 133 requires that we
recognize all derivatives on the balance sheet at fair value and establish
criteria for designation and effectiveness of hedging relationships. Changes in the fair value of derivatives are
recorded in earnings or other comprehensive income (loss), based on whether the
instrument is designated as part of a hedge transaction and, if so, the type of
hedge transaction. Gains or losses on
derivative instruments reported in other comprehensive income (loss) are
reclassified into earnings in the period in which earnings are affected by the
underlying hedged item. The ineffective
portion of a derivative’s change in fair value is recognized in earnings in the
current period.
Stock-Based Compensation
We apply the intrinsic
value method prescribed by Accounting Principles Board Opinion (APB) 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for stock options granted to
employees and non-employee directors.
Accordingly, since all options are granted at or above fair value, no
compensation cost is typically reflected in net income (loss) for these
plans. The following table illustrates
the effect on net income in the predecessor period if Jostens had applied the
fair value recognition provisions of SFAS 123, Accounting
for Stock-Based Compensation.
For the successor period, our pro forma net loss incorporating the
amortization of the stock-based compensation expense would not have been
materially different from reported net loss.
|
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands, except per-share
data
|
|
Seven Months
2003
|
|
2002
|
|
|
Net
income available to common stockholders
|
|
|
|
|
|
|
As reported
|
|
$
|
1,115
|
|
$
|
18,159
|
|
|
Add stock-based
employee compensation expense included in reported net income available to
common stockholders, net of tax effects
|
|
7,608
|
|
—
|
|
|
Deduct total
stock-based employee compensation expense determined under fair value based
method for all awards, net of tax effects
|
|
(2,184
|
)
|
(483
|
)
|
|
Proforma net
income available to common stockholders
|
|
$
|
6,539
|
|
$
|
17,676
|
|
Accounting Change
SFAS 150 – Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity At
the beginning of our third quarter in 2003, we adopted SFAS 150, which establishes
guidance for how certain financial instruments with characteristics of both
liabilities and equity are classified, and requires that a financial instrument
that is within its scope be classified as a liability (or an asset in some
circumstances). In accordance with SFAS
150, Jostens reclassified its redeemable preferred stock to the liabilities section of
the balance sheet and began reporting the preferred dividend as interest
expense in its results of operations rather than as a reduction to retained earnings. Jostens also recognized a $4.6 million
cumulative effect of a change in accounting principle. Jostens did not provide any tax benefit in
connection with the cumulative effect adjustment because payment of the related
preferred dividend and the discount amortization were not tax deductible. Had SFAS 150 been effective since the
beginning of 2002, net income (loss) available to common shareholders (a) for
the seven month predecessor period in 2003 would have decreased $3.6 million
due to the pro forma effects of eliminating the $4.6 million cumulative effect
change as well as $6.5 million of dividends and accretion deducted from net
earnings and including $5.5 million of additional interest expense and (b) for
2002 would have increased $1.4 million due to the pro forma
F-15
effects
of eliminating $11.7 million of dividends and accretion deducted from net
earnings and including $10.4 million of additional interest expense.
The
assessment performed by Arcade of its redeemable senior preferred stock did not
result in an adjustment and the redeemable senior preferred stock was
appropriately reclassified to a liability.
Recent Accounting Pronouncements
SFAS 123R –
Statement of Accounting Standards No. 123 (revised 2004) Share-Based
Payment
In
December 2004, the Financial Accounting Standards Board (FASB) issued a
revision of SFAS 123. This statement
eliminates the alternative to use the intrinsic value method of accounting that
was permitted in SFAS 123 as originally issued and will require recognition of
compensation expense related to all equity awards granted after the required
effective date and to awards modified, repurchased, or cancelled after that
date based on the grant date fair values of the awards. This statement is effective for us as of the
first interim or annual reporting period that commences after December 15,
2005. We have not yet determined the
impact of adopting this statement on our consolidated financial position,
results of operations or cash flows.
FSP 109-2 –
Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004.
In
October 2004, the American Jobs Creation Act of 2004 (the “AJC Act”) was
signed into law. This legislation
creates, among other things, a temporary incentive for U.S. multinational
companies to repatriate accumulated income earned outside the U.S. at a
favorable rate of tax. The U.S. Treasury
Department has not issued final guidelines for applying the repatriation
provisions of the AJC Act. In December 2004,
the FASB issued Staff Position (FSP) 109-2, which provides accounting and
disclosure guidance for the repatriation provision. We anticipate we will repatriate earnings
from our foreign subsidiaries during 2005, but we do not presently know the
amount of such distributions because we have not completed our evaluation of
the related tax effect under the AJC Act.
We anticipate that our evaluation will be completed during the third
quarter of 2005 and that the related tax effect will not have a material impact
on our consolidated effective tax rate for 2005.
FSP 106-2 –
Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug Improvement and Modernization Act of 2003
In May 2004, the
FASB issued FSP 106-2, which was effective for us as of the beginning of the
third quarter in 2004. The Medicare
Prescription Drug Improvement and Modernization Act of 2003 (the “Medicare Act”)
includes a prescription drug benefit under Medicare Part D as well as a
federal subsidy to sponsors of retiree health care benefit plans that provide a
benefit that is at least actuarially equivalent (as defined in the Medicare
Act) to Medicare Part D. The
adoption of FSP 106-2 did not have a material effect on our financial condition
or results of operations.
2. Transactions
On
July 21, 2004, we entered into a contribution agreement with Fusion
Acquisition LLC, or Fusion, an affiliate of Kohlberg, Kravis, Roberts &
Co. L.P. (“KKR”), pursuant to which Fusion contributed (the “Contribution”) all
of the stock of Von Hoffmann and Arcade that Fusion acquired immediately prior
to such Contribution pursuant to two separate mergers in exchange for shares of
our common stock. Subsequent to the
Contribution, we caused all of the equity interests of Von Hoffmann and Arcade
held by us to be contributed to Visant, which resulted in Von Hoffmann and
Arcade becoming wholly-owned subsidiaries of Visant.
The Contribution, mergers
and related financing transactions are referred to collectively as the “Transactions”.
Prior to the
Transactions, Von Hoffmann and Arcade were each controlled by affiliates of
DLJ Merchant Banking Partners II, L.P. (“DLJMBP II”), and
DLJ Merchant Banking Partners III, L.P. (“DLJMBP III”) owned approximately
82.5% of our outstanding equity, with the remainder held by other co-investors
and certain members of management. Upon
consummation of the Transactions, an affiliate of KKR invested $256.1 million
and was issued equity interests representing approximately 49.6% of our voting
interest and 45% of our economic interest.
Approximately $175.6 million of the proceeds were distributed to certain
shareholders, and certain treasury stock held by Von Hoffmann was
F-16
redeemed. As a result of the Transactions, affiliates
of DLJMBP III held equity interests representing approximately 41% of our
voting interest and 45% of our economic interest, with the remainder held by
other co-investors and certain members of management. In addition, we paid approximately $34.5
million of fees and expenses associated with the Transactions including $5.4
million of compensation expense primarily representing the excess of the fair
market value over the exercise price of outstanding Von Hoffmann stock options,
$18.6 million of capitalized equity raising costs and $10.5 million of expensed
costs consisting primarily of investment banking, legal and accounting fees.
In connection with the
Transactions, Visant entered into new senior secured credit facilities,
providing for an aggregate amount of $1,270 million, including a
$250 million revolving credit facility and issued $500 million
aggregate principal amount of senior subordinated notes. We incurred transaction fees and related
costs of $60.9 million associated with the new credit facilities and notes,
which have been capitalized and are being amortized as interest expense over
the lives of the respective debt instruments.
In connection with the
Transactions, Jostens, Von Hoffmann and Arcade repaid their existing
indebtedness having an aggregate face value of $1,392.6 million including
redemption value of the remaining redeemable preferred stock. In addition, we wrote off an aggregate net
credit balance of $5.6 million relating to unamortized deferred financing
costs, discounts and premiums associated with the old debt instruments and
incurred $81.0 million of aggregate redemption premiums.
3. 2003 Jostens Merger
On
June 17, 2003, Holdings entered into a merger agreement with Jostens and
Ring Acquisition Corp., an entity organized by Holdings for the sole purpose of
effecting its acquisition of Jostens. On
July 29, 2003, Ring Acquisition Corp. merged with and into Jostens with
Jostens surviving as an indirect subsidiary of Holdings (the “2003 Jostens
merger”).
Holdings
was capitalized in July 2003 through the issuance of common stock to DLJ
Merchant Banking Partners III, L.P. and certain of its affiliated funds
(collectively, the “DLJMB Funds”) and members of our management, and received
proceeds of $322.9 million. Holdings
established a wholly-owned subsidiary, Jostens IH Corp. (subsequently renamed
Visant Corporation), and capitalized it through the purchase of common stock
for $317.9 million. Visant used the
$317.9 million, along with $100.0 million of proceeds from the issuance of
redeemable preferred stock to the DLJMB Funds, to make a capital contribution
of $417.9 million to Jostens. Jostens
used the proceeds from the capital contribution, along with incremental
borrowings under its senior secured credit facility, to repurchase all
previously outstanding common stock and warrants. Jostens paid $471.0 million to holders of its
common stock and warrants representing a cash payment of $48.25 per share. In addition, Jostens paid approximately $41.2
million of fees and expenses associated with the merger including $12.6 million
of compensation expense representing the excess of the fair market value over
the exercise price of outstanding stock options, $12.6 million of capitalized
merger costs and $16.0 million of expensed costs consisting primarily of
investment banking, legal and accounting fees.
Jostens also recognized $2.6 million of transaction costs as a result of
writing off certain prepaid management fees having no future value.
The
2003 Jostens merger was accounted for as a purchase in accordance with the
provisions of SFAS 141 Business Combinations. The price paid to holders of common stock and
warrants of $471.0 million, excluding certain capitalized transaction costs,
was allocated to the tangible and intangible assets acquired and liabilities
assumed, based upon their relative fair values as of the date of the merger.
The allocation of the purchase price, excluding certain transaction costs,
was as follows:
F-17
|
In thousands
|
|
|
|
|
Current assets
|
|
$
|
165,280
|
|
|
Property, plant
and equipment
|
|
101,389
|
|
|
Intangible
assets
|
|
660,399
|
|
|
Goodwill
|
|
709,724
|
|
|
Other assets
|
|
18,622
|
|
|
Current
liabilities
|
|
(202,635
|
)
|
|
Long-term debt
|
|
(594,494
|
)
|
|
Redeemable
preferred stock
|
|
(106,511
|
)
|
|
Deferred income
taxes
|
|
(252,209
|
)
|
|
Other
liabilities
|
|
(28,521
|
)
|
|
|
|
$
|
471,044
|
|
4. Acquisition of The
Lehigh Press, Inc.
On
October 22, 2003, Von Hoffmann acquired all of the outstanding shares of
The Lehigh Press, Inc. (“Lehigh Press”) for approximately $108.3 million
(the “Lehigh Press Acquisition”). Lehigh
Press is a leading provider of book covers and other components and a provider
of digital premedia and direct marketing printing services, operating through
its Lehigh Lithographers and Lehigh Direct divisions. The acquisition reinforced Von Hoffmann’s
market position within the elementary and high school case-bound education
market, as well as its strategy to increase product offerings and capabilities
to its customer base. The Lehigh Press
Acquisition was financed by the borrowing of funds under Von Hoffmann’s
existing credit agreement and cash on hand.
The
acquisition was accounted for as a purchase in accordance with the provisions of SFAS 141 Business Combinations. The cost of the acquisition was allocated to
the tangible and intangible assets acquired and liabilities assumed, based upon
their relative fair values as of the date of the acquisition.
The allocation of the purchase price was as follows:
|
In thousands
|
|
|
|
|
Current assets
|
|
$
|
18,658
|
|
|
Property, plant
and equipment
|
|
38,437
|
|
|
Intangible
assets
|
|
45,300
|
|
|
Goodwill
|
|
49,790
|
|
|
Current
liabilities
|
|
(13,153
|
)
|
|
Deferred income
taxes
|
|
(19,960
|
)
|
|
Deferred compensation
and pension
|
|
(10,760
|
)
|
|
|
|
$
|
108,312
|
|
In addition,
approximately $3.0 million has been escrowed for certain potential
indemnification obligations pursuant to the related stock purchase
agreement. The escrow provisions expire
at various dates through April 2005.
The
consolidated financial statements include the results of operations of Lehigh
Press from October 22, 2003, the date of acquisition.
In
November 2003, Von Hoffmann’s Board of Directors authorized the sale of
Lehigh Direct. As a result, retroactive
to the date Von Hoffmann acquired Lehigh Press, it was originally determined
that the Lehigh Direct division met the criteria for classification as an asset
held for sale as outlined by SFAS 144 Accounting
for the Impairment or Disposal of Long-Lived Assets. Accordingly, as of the acquisition date, the
carrying value of the
F-18
division’s
net assets was adjusted to its fair value less expected costs to sell,
amounting to $55.0 million, based on an internal analysis of similar current
transactions.
In
conjunction with the Transactions, it was determined that the Lehigh Direct
division would be an operating business and as a result, it no longer met the
criteria for classification as an asset held for sale under SFAS 144. Accordingly, during the third quarter of
2004, the Lehigh Direct division was valued at the lower of its carrying amount
adjusted for any depreciation and amortization that would have been recognized
had the division been continuously classified as an asset held and used since
its acquisition date, or the fair value at the date of the subsequent decision
not to sell. The change in
classification resulted in its assets and liabilities being included within
their respective individual financial statement line items rather than
aggregated within the “asset held for sale” line item in the consolidated
balance sheet as previously reported.
Furthermore, within the statement of operations for the successor period
in 2003, the results of the Lehigh Direct division are classified as an
operating business rather than a discontinued operation as previously reported.
5. Pro Forma Financial
Results
The
following unaudited pro forma information presents results of operations as if
the 2003 Jostens merger and the acquisition of Lehigh Press had occurred at the
beginning of the respective years. The
unaudited pro forma information also consolidates the operations of Von
Hoffmann and Arcade for the respective years.
|
In thousands
|
|
2003
|
|
2002
|
|
|
Visant:
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,409,543
|
|
$
|
1,387,364
|
|
|
Net loss
|
|
(46,271
|
)
|
(39,762
|
)
|
|
Holdings:
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,409,543
|
|
$
|
1,387,364
|
|
|
Net loss
|
|
(47,089
|
)
|
(39,762
|
)
|
6. Restructuring
Activity and Other Special Charges
On November 10,
2004, Von Hoffmann announced the closure of its Frederick, Maryland
facility. The decision to close the
Frederick facility was made in an effort to rationalize its one- and two-color
capacity by consolidating the one- and two-color print operations into the
Eldridge, Iowa and Owensville, Missouri facilities, which can offer greater
scale efficiencies and state-of-the-art equipment. We expect to incur a pre-tax charge of
approximately $5.5 million to $6.0 million related to severance
payments, equipment relocation costs and the write-down of certain fixed assets
that will not be relocated. The cash
portion of this charge is estimated to be approximately $3.0 million to
$3.5 million. During 2004, we
incurred approximately $2.7 million of pre-tax expenses included in “special
charges” and $1.9 million of pre-tax expenses included in “cost of products
sold” associated with this closure. A liability of $2.6 million related to these
charges is classified in “other accrued liabilities” in our consolidated
balance sheet as of the end of 2004. We
anticipate the closure of the facility to be completed during the first half of
fiscal 2005 and we will incur the remaining charges during that time period.
On June 22, 2004,
Jostens announced its decision to close its graduation diploma customer service
and production operations at its Red Wing, Minnesota manufacturing facility,
and to relocate these operations to facilities in Owatonna, Minnesota,
Shelbyville, Tennessee and Topeka, Kansas.
During 2004, we recorded a $2.9 million purchase accounting
adjustment to recognize a liability for severance and other personnel costs
related to the involuntary termination or relocation of approximately 180 full-time
and seasonal plant and administrative employees associated with the closure. The decision to close the Red Wing facility
was made in order to improve customer service and the overall efficiency of
Jostens. In addition to the exit costs,
during 2004, Jostens incurred $1.0 million of capital expenditures, as
well as approximately $3.7 million of pre-tax expenses included in “cost
of goods sold” and “selling and administrative expenses” to transfer equipment,
develop information systems and train employees.
F-19
On June 18, 2004, Von
Hoffmann announced plans to integrate the skills and capabilities of its three
premedia operations: Preface, H &
S Graphics and Lehigh Digital, to form one full-service business known as
Anthology, Inc., which performs services from creative through premedia. The integration of these operations into one
facility located in Arlington Heights, Illinois is expected to be completed
during the first half of 2005. The cost
impact to our ongoing operations and financial position is not expected to be
material.
During
2004, we incurred additional costs also included in “special charges” totaling
$11.8 million consisting primarily of severance and related separation benefits
for the departure of senior executives and other employees associated with
reorganization activity as a result of the Transactions.
On December 11,
2003, Von Hoffmann announced the closure of two manufacturing facilities under
the Precision Offset Printing Company Inc. subsidiary. The remaining operations of this subsidiary
have been combined into the Pennsauken, NJ-based Lehigh Lithographers division
of Lehigh Press. The purpose of the
closure was to reduce the cost structure as well as to consolidate Von Hoffmann’s
service offerings to the educational customers who print products on plastics
and other synthetic substrates. During
2004, we incurred approximately $1.2 million of pre-tax expenses included in “special
charges” and $1.0 million of pre-tax expenses included in “cost of products
sold” associated with this closure.
7. Accumulated
Comprehensive Income (Loss)
The
following amounts were included in accumulated other comprehensive income
(loss) as of the dates indicated:
|
In thousands
|
|
Foreign
currency
translation
|
|
Minimum
pension
liability
|
|
Fair value
of interest
rate swap
agreement
|
|
Accumulated
other
comprehensive
income (loss)
|
|
|
Jostens,
Inc. (Predecessor)
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 29, 2001
|
|
$
|
(6,745
|
)
|
$
|
(2,371
|
)
|
$
|
(3,387
|
)
|
$
|
(12,503
|
)
|
|
Fiscal 2002
period change
|
|
579
|
|
(958
|
)
|
2,065
|
|
1,686
|
|
|
Balance at
December 28, 2002
|
|
(6,166
|
)
|
(3,329
|
)
|
(1,322
|
)
|
(10,817
|
)
|
|
Fiscal 2003
predecessor period change
|
|
(278
|
)
|
—
|
|
1,293
|
|
1,015
|
|
|
Effect of
purchase accounting
|
|
6,444
|
|
3,329
|
|
29
|
|
9,802
|
|
|
Balance at July
29, 2003
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
Balance at July
29, 2003
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Fiscal 2003
successor period change
|
|
906
|
|
—
|
|
—
|
|
906
|
|
|
Balance at
January 3, 2004
|
|
906
|
|
—
|
|
—
|
|
906
|
|
|
Fiscal 2004
period change
|
|
553
|
|
—
|
|
—
|
|
553
|
|
|
Balance at
January 1, 2005
|
|
$
|
1,459
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Accounts Receivable
and Inventories
Net accounts receivable
were comprised of the following:
|
|
|
(Successor)
|
|
|
In thousands
|
|
2004
|
|
2003
|
|
|
Trade
receivables
|
|
$
|
167,663
|
|
$
|
151,054
|
|
|
Allowance for
doubtful accounts
|
|
(3,621
|
)
|
(3,538
|
)
|
|
Allowance for
sales returns
|
|
(5,799
|
)
|
(5,791
|
)
|
|
Accounts
receivable, net
|
|
$
|
158,243
|
|
$
|
141,725
|
|
F-20
Net inventories were
comprised of the following:
|
|
|
(Successor)
|
|
|
In thousands
|
|
2004
|
|
2003
|
|
|
Raw materials and
supplies
|
|
$
|
47,581
|
|
$
|
35,178
|
|
|
Work-in-process
|
|
47,695
|
|
45,819
|
|
|
Finished goods
|
|
38,938
|
|
34,713
|
|
|
Reserve for
obsolescence
|
|
(2,592
|
)
|
(2,506
|
)
|
|
|
|
131,622
|
|
113,204
|
|
|
LIFO reserve
|
|
(2,172
|
)
|
(1,242
|
)
|
|
Inventories, net
|
|
$
|
129,450
|
|
$
|
111,962
|
|
LIFO inventories
represented 33.0% and 22.8% of gross inventory as of the end of 2004 and 2003,
respectively, and approximated replacement cost in both years.
Precious Metals Consignment Arrangement
We have a precious
metals consignment arrangement with a major financial institution whereby we
have the ability to obtain up to $30 million in consigned inventory. We expensed consignment fees related to this
facility of $0.5 million in 2004, $0.2 million in the successor period of 2003,
$0.2 million in the predecessor period of 2003 and $0.3 million in 2002. Under the terms of the consignment
arrangement, we do not own the consigned inventory until it is shipped in the
form of a product to our customer.
Accordingly, we do not include the value of consigned inventory nor the
corresponding liability in our financial statements. The value of consigned inventory as of the
end of 2004 and 2003 was $22.6 million and $24.0 million, respectively.
9. Property, Plant and
Equipment
Net property, plant and equipment consisted of:
|
|
|
(Successor)
|
|
|
In thousands
|
|
2004
|
|
2003
|
|
|
Land
|
|
$
|
18,280
|
|
$
|
19,694
|
|
|
Buildings
|
|
79,579
|
|
83,144
|
|
|
Machinery and
equipment
|
|
379,880
|
|
360,567
|
|
|
Capitalized
software
|
|
16,979
|
|
13,410
|
|
|
Transportation
equipment
|
|
1,686
|
|
853
|
|
|
Furniture and fixtures
|
|
12,639
|
|
11,746
|
|
|
Construction in
progress
|
|
12,241
|
|
3,750
|
|
|
Total property,
plant and equipment
|
|
521,284
|
|
493,164
|
|
|
Less accumulated
depreciation and amortization
|
|
280,161
|
|
221,104
|
|
|
Property, plant
and equipment, net
|
|
$
|
241,123
|
|
$
|
272,060
|
|
Property,
plant and equipment are stated at historical cost except for adjustments to
fair value that were made in applying purchase accounting. Depreciation expense was $69.2 million
for 2004, $26.2 million for the successor period in 2003, $12.6 million for the
predecessor period in 2003 and $24.6 million for 2002. Amortization
related to capitalized software is included in depreciation expense and totaled
$5.7 million for 2004, $2.6 million for the successor period in 2003,
$3.8 million for the predecessor period in 2003 and $6.9 million for 2002.
F-21
10. Goodwill and Other Intangible Assets
Goodwill
The
changes in the net carrying amount of goodwill were as follows:
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2002
|
|
|
Balance at
beginning of period
|
|
$
|
1,138,664
|
|
$
|
679,231
|
|
$
|
14,450
|
|
$
|
13,759
|
|
|
Consolidation of
Print Group
|
|
—
|
|
342,849
|
|
—
|
|
—
|
|
|
Goodwill
acquired during the period
|
|
32
|
|
55,484
|
|
664,668
|
|
678
|
|
|
Purchase price
adjustments
|
|
(30,341
|
)
|
61,028
|
|
—
|
|
—
|
|
|
Currency
translation
|
|
90
|
|
72
|
|
113
|
|
13
|
|
|
Balance at end
of period
|
|
$
|
1,108,445
|
|
$
|
1,138,664
|
|
$
|
679,231
|
|
$
|
14,450
|
|
During
fiscal 2004, purchase price adjustments primarily relate to Jostens and consist
of a reduction to the fair value of Jostens’ redeemable preferred stock and
property, plant and equipment in the amounts of $20.0 million and $0.6 million,
respectively, establishment of a $2.9 million purchase accounting liability (as
well as its deferred tax impact) related to the closure of the Red Wing,
Minnesota facility and a reduction of our income tax payable reserve by $11.0
million in response to a favorable Internal Revenue Service settlement of a tax
issue related to prior years.
The
increase in goodwill acquired during the predecessor and successor periods of
2003 is primarily attributable to the effect of purchase accounting in
connection with the 2003 Jostens merger as discussed in Note 3 and the Lehigh
Press Acquisition as discussed in Note 4, respectively. During the successor period of 2003, we
refined our purchase price allocations related to these two transactions as we
obtained pertinent information. In
addition, Jostens acquired the net assets of a photography business in January 2003
for $5.0 million and the net assets of a printing business in September 2003
for $10.9 million. The aggregate
purchase price allocation for these two acquisitions was $1.1 million to net
tangible assets, $7.7 million to amortizable intangible assets and $7.1 million
to goodwill.
Other Intangible Assets
Information
regarding our other intangible assets as of the end of 2004 and 2003 is as
follows:
|
|
|
|
|
(Successor)
|
|
|
|
|
|
|
2004
|
|
2003
|
|
|
In thousands
|
|
Estimated
useful life
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
|
|
|
School
relationships
|
|
10 years
|
|
$
|
330,000
|
|
$
|
(47,414
|
)
|
$
|
282,586
|
|
$
|
330,000
|
|
$
|
(14,540
|
)
|
$
|
315,460
|
|
|
Order backlog
|
|
1.5 years
|
|
49,394
|
|
(49,394
|
)
|
—
|
|
49,394
|
|
(2,803
|
)
|
46,591
|
|
|
Internally
developed software
|
|
2 to 5 years
|
|
12,200
|
|
(4,919
|
)
|
7,281
|
|
12,200
|
|
(1,447
|
)
|
10,753
|
|
|
Patented/unpatented
technology
|
|
3 years
|
|
19,659
|
|
(7,755
|
)
|
11,904
|
|
19,508
|
|
(3,303
|
)
|
16,205
|
|
|
Customer
relationships
|
|
4 to 40 years
|
|
35,455
|
|
(7,836
|
)
|
27,619
|
|
35,455
|
|
(5,225
|
)
|
30,230
|
|
|
Other
|
|
3 years
|
|
17,619
|
|
(5,394
|
)
|
12,225
|
|
17,619
|
|
(1,253
|
)
|
16,366
|
|
|
|
|
|
|
464,327
|
|
(122,712
|
)
|
341,615
|
|
464,176
|
|
(28,571
|
)
|
435,605
|
|
|
Trademarks
|
|
Indefinite
|
|
264,580
|
|
—
|
|
264,580
|
|
264,580
|
|
—
|
|
264,580
|
|
|
|
|
|
|
$
|
728,907
|
|
$
|
(122,712
|
)
|
$
|
606,195
|
|
$
|
728,756
|
|
$
|
(28,571
|
)
|
$
|
700,185
|
|
Amortization
expense was $94.1 million for 2004, $21.3 million for the successor period in
2003, $0.6 million for the predecessor period in 2003 and $0.1 million for
2002. Estimated amortization expense for
each of the five succeeding fiscal years based on intangible assets as of the
end of 2004 is as follows:
F-22
|
In thousands
|
|
|
|
|
2005
|
|
$
|
46,573
|
|
|
2006
|
|
44,196
|
|
|
2007
|
|
40,400
|
|
|
2008
|
|
38,554
|
|
|
2009
|
|
34,736
|
|
|
|
|
$
|
204,459
|
|
11. Long-term Debt
As
of the end of 2004 and 2003, long-term debt consists of the following:
|
|
|
(Successor)
|
|
|
In thousands
|
|
2004
|
|
2003
|
|
|
Visant:
|
|
|
|
|
|
|
Borrowings under
our senior secured credit facility:
|
|
|
|
|
|
|
Term Loan A,
variable rate, 4.90 percent at January 1, 2005, with semi-annual principal
and interest payments through October 2010
|
|
$
|
150,000
|
|
$
|
—
|
|
|
Term Loan C,
variable rate, 4.65 percent at January 1, 2005, with semi-annual principal
and interest payments through October 2011
|
|
870,000
|
|
—
|
|
|
Senior
subordinated notes, 7.625 percent fixed rate, with semi-annual interest
payments of $19.1 million, principal due and payable at maturity - October
2012
|
|
500,000
|
|
—
|
|
|
Term loan -
Jostens, variable rate, 3.72 percent at January 3, 2004, paid in full October
2004
|
|
—
|
|
453,705
|
|
|
Senior
subordinated notes - Jostens, 12.75 percent fixed rate, including premium of
$22,717 at January 3, 2004, paid in full October 2004
|
|
—
|
|
231,702
|
|
|
Senior notes -
Von Hoffmann, 10.25 percent fixed rate, including premium of $2,749 at
January 3, 2004, paid in full October 2004
|
|
—
|
|
277,749
|
|
|
Senior
subordinated notes - Von Hoffmann, 10.375 percent fixed rate, paid in full
October 2004
|
|
—
|
|
100,000
|
|
|
Subordinated
exchange debentures - Von Hoffmann, 13.5 percent fixed rate, paid in full
October 2004
|
|
—
|
|
41,169
|
|
|
Term loan -
Arcade, variable rate, 4.72 percent at January 3, 2004, paid in full October
2004
|
|
—
|
|
7,250
|
|
|
Senior notes -
Arcade, 10.5 percent fixed rate, paid in full October 2004
|
|
—
|
|
103,510
|
|
|
Amended and
restated notes - Arcade, 16.0 percent fixed rate, net of discount of $547 at
January 3, 2004, paid in full October 2004
|
|
—
|
|
67,790
|
|
|
|
|
1,520,000
|
|
1,282,875
|
|
|
Less current
portion
|
|
19,950
|
|
2,000
|
|
|
|
|
1,500,050
|
|
1,280,875
|
|
|
|
|
|
|
|
|
|
Holdings:
|
|
|
|
|
|
|
Senior discount
notes, 10.25 percent fixed rate, net of discount of $80,019 at January 1,
2005 and $95,914 at January 3, 2004, with semi-annual interest accretion
through December 1, 2008, thereafter semi-annual interest payments of $12.7
million, accreted principal due and payable at maturity - December 2013
|
|
167,181
|
|
151,286
|
|
|
|
|
$
|
1,667,231
|
|
$
|
1,432,161
|
|
F-23
Maturities of long-term
debt, at face value, as of the end of 2004 are as follows:
|
In thousands
|
|
|
|
|
Visant:
|
|
|
|
|
2005 (1)
|
|
$
|
19,950
|
|
|
2006 (1)
|
|
19,950
|
|
|
2007 (1)
|
|
23,700
|
|
|
2008
|
|
23,700
|
|
|
2009
|
|
23,700
|
|
|
Thereafter
|
|
1,409,000
|
|
|
|
|
1,520,000
|
|
|
Holdings:
|
|
|
|
|
2010 and
thereafter
|
|
247,200
|
|
|
|
|
$
|
1,767,200
|
|
(1) In February 2005,
we prepaid $63.6 million of principal due under the term loans including all
principal payments due in 2005 through 2007.
Senior Secured
Credit Facility
On October 4, 2004,
in connection with the Transactions, Visant entered into a Credit Agreement
among Visant, as Borrower, Jostens, Ltd., as Canadian borrower, Visant
Secondary Holdings Corp., as Guarantor, the lenders from time to time parties
thereto, Credit Suisse First Boston, as Administrative Agent, and Credit Suisse
First Boston Toronto Branch, as Canadian Administrative Agent, providing for
senior secured credit facilities in an aggregate amount of $1,270 million
consisting of $150 million of a Term A loan facility, an $870 million
Term B loan facility and a $250 million revolving credit facility.
On December 21,
2004, Visant entered into the First Amendment (the “First Amendment”) to the
Credit Agreement, dated as of October 4, 2004 (as amended by the First
Amendment, the “Credit Agreement”). The
First Amendment provides for an $870 million Term C loan facility, the proceeds
of which were used to repay in full the outstanding borrowings under the Term B
loan facility. We effectively reduced
the interest rate on our borrowings by 25 basis points by refinancing the Term
B facility with a new Term C facility and did not incur any additional borrowings
under the First Amendment.
Visant’s
obligations under the senior secured credit facilities are unconditionally and
irrevocably guaranteed jointly and severally by Visant Secondary Holdings
Corp., a direct wholly-owned subsidiary of Holdings and the parent of Visant,
and by Visant’s material current and future domestic subsidiaries. The obligations of Visant’s principal
Canadian operating subsidiary under the senior secured credit facilities are
unconditionally and irrevocably guaranteed jointly and severally by Visant
Secondary Holdings Corp., by Visant, by Visant’s material current and future
domestic subsidiaries and by Visant’s other current and future Canadian
subsidiaries. Visant’s obligations under
the senior secured credit facilities, and the guarantees of those obligations,
are secured by substantially all of Visant’s assets and substantially all of
the assets of Visant Secondary Holdings Corp. and Visant’s material current and
future domestic subsidiaries, including but not limited to:
• all of
Visant’s capital stock and the capital stock of each of Visant’s existing and
future direct and indirect subsidiaries, except that with respect to foreign
subsidiaries such lien and pledge is limited to 65% of the capital stock of “first-tier”
foreign subsidiaries; and
• substantially
all of Visant’s material existing and future domestic subsidiaries’ tangible
and intangible assets.
The obligations of
Jostens Canada Ltd. under the senior secured credit facilitites, and the
guarantees of those obligations, are secured by the collateral referred to in
the prior paragraph and substantially all of the tangible and intangible assets
of Jostens Canada Ltd. and each of Visant’s other current and future Canadian
subsidiaries.
The borrowings under the
Credit Agreement bear a variable interest rate based upon either the London
Interbank Offered Rate (“LIBOR”) or an alternative base rate (“ABR”) based upon
the greater of the federal funds effective
F-24
rate plus 0.5%, or the
prime rate, plus a fixed margin. The
interest rate per year on the Term A and Term C loan facilities is ABR or LIBOR
plus a basis point spread. Both are
subject to a step-down determined by reference to a performance test. The Term A loan facility provides for
semi-annual amortization payments and matures on October 4, 2010. The Term C loan facility will amortize on a
semi-annual basis commencing on July 1, 2005 and mature on October 4,
2011 with amortization prior to the maturity date to be at nominal
percentages. The Term C loan facility is
also subject (with certain exceptions) to a 1% prepayment premium if such loans
are voluntarily prepaid in full on or prior to December 21, 2005 with the
proceeds of new bank loans bearing interest at a lower rate than, but otherwise
having substantially the same terms as, the Term C facility. In addition, transaction fees and related
costs of $38.1 million associated with the senior secured credit facilities
were capitalized and are being amortized as interest expense over the lives of
the facilities.
The interest rate per
year on the revolving credit facility is LIBOR plus 2.50% or ABR plus 1.50%
(or, in the case of Canadian dollar denominated loans, the bankers’ acceptance
discount rate plus 2.50% or the Canadian prime rate plus 1.50%). The revolving credit facility contains a
sub-facility that allows our Canadian subsidiary to borrow funds not to exceed
$20 million of the total $250 million facility.
The revolving credit facility expires on October 4, 2009. At the end of 2004, there was $8.3 million
outstanding in the form of short-term borrowings at our Canadian subsidiary at
a weighted average interest rate of 5.42% and an additional $13.2 million
outstanding in the form of letters of credit, leaving $228.5 million available
under this facility. We are obligated to
pay commitment fees of 0.50% on the unused portion of this facility.
In conjunction with the
Transactions as described in Note 2, we repaid the existing indebtedness of
Jostens, Von Hoffmann and Arcade in full.
Visant Senior Subordinated Notes
On October 4, 2004,
in connection with the Transactions, Visant issued $500 million in principal
amount of 75/8% senior
subordinated notes (the “Visant notes”) due October 2012 in a private
placement to a limited number of qualified institutional buyers, as defined
under the Securities Act, and to a limited number of persons outside the United
States. On March 30, 2005, we
completed an offer to exchange the entire principal amount at maturity of these
notes for an equal amount of notes with substantially identical terms that have
been registered under the Securities Act.
The Visant notes are not
collateralized, are subordinate in right of payment to all existing and future
senior indebtedness of Visant and its subsidiaries and are guaranteed by all
restricted subsidiaries that are domestic subsidiaries and guarantee the senior
secured credit facilities. Cash interest
on the Visant notes will accrue and be payable semiannually in arrears on April 1
and October 1 of each year, commencing April 1, 2005, at a rate of 75/8%. The Visant notes may be redeemed at the
option of Visant on or after October 1, 2008 at prices ranging from
103.813% of principal to 100% in 2010 and thereafter. In addition, transaction fees and related
costs of $22.8 million associated with the Visant notes were capitalized and
are being amortized as interest expense through October 1, 2012.
Holdings
Senior Discount Notes
On December 2,
2003, we issued $247.2 million in principal amount of 101/4%
senior discount notes (the “Holdings notes”) due December 2013 in a
private placement to a limited number of qualified institutional buyers, as
defined under the Securities Act, and to a limited number of persons outside
the United States for gross proceeds of $150.0 million. On March 8, 2004, we completed an offer
to exchange the entire principal amount at maturity of these notes for an equal
amount at maturity of notes with substantially identical terms that had been
registered under the Securities Act.
The Holdings notes are
not collateralized, are subordinate in right of payment to all debt and other
liabilities of our subsidiaries, including our senior secured credit facilities
and the Visant notes, and are not guaranteed. No cash interest will accrue on the Holdings
notes prior to December 1, 2008.
Thereafter, cash interest on the Holdings notes will accrue and be
payable semiannually in arrears on June 1 and December 1 of each
year, commencing June 1, 2009, at a rate of 101/4%. The Holdings notes were issued with an
initial accreted value of $150.0 million, resulting in an original issuance
discount of $97.2 million. The accreted
value of the Holdings notes will increase from the
F-25
date of issuance until December 1,
2008 at a rate of 101/4% per annum such that on December 1,
2008, the accreted value will equal the stated principal amount at
maturity. The Holdings notes will mature
on December 1, 2013. The Holdings
notes may be redeemed at the option of Holdings on or after December 1,
2008 at prices ranging from 105.125% of principal to 100% in 2011 and
thereafter.
The discount accretion
is being amortized to interest expense through 2008 and, during 2004 and the
successor period of 2003, the amount of interest expense related to the
discount accretion was $15.9 million and $1.3 million, respectively. In addition, transaction fees and related
costs of $5.7 million associated with the Holdings notes were capitalized and
are being amortized as interest expense through December 1, 2013.
The new senior secured
credit facilities require us to meet a maximum total leverage ratio, a minimum
interest coverage ratio and a maximum capital expenditures limitation. In addition, the new senior secured credit
facilities contain certain restrictive covenants which will, among other
things, limit our ability to incur additional indebtedness, pay dividends,
prepay subordinated debt, make investments, merge or consolidate, change our business,
amend the terms of our subordinated debt and engage in certain other activities
customarily restricted in such agreements.
It also contains certain customary events of default, subject to grace
periods, as appropriate.
The indentures
governing the Visant notes and the Holdings notes also contain numerous
covenants including, among other things, restrictions on our ability to: incur or guarantee additional indebtedness or
issue disqualified or preferred stock; pay dividends or make other equity distributions;
repurchase or redeem capital stock; make investments or other restricted
payments; sell assets or consolidate or merge with or into other companies;
create limitations on the ability of our restricted subsidiaries to make
dividends or distributions to us; engage in transactions with affiliates; and
create liens.
As of the end of 2004,
the fair value of our debt, excluding the Visant notes and the Holdings notes,
approximated its carrying value and is estimated based on quoted market prices
for comparable instruments. The fair
value of the Visant notes and the Holdings notes as of the end of 2004 was
$520.0 million and $175.5 million, respectively, and was estimated based on
quoted market prices.
12. Redeemable Preferred Stock
In
connection with the 2003 Jostens merger, Visant issued 8% senior redeemable
preferred stock (the “Visant preferred stock”) to the DLJMBP Funds and received
proceeds of $100.0 million. A portion of
the net proceeds from the Holdings notes offering was used to purchase all of
the outstanding Visant preferred stock for $102.8 million, which Holdings
contributed to the capital of Visant.
In conjunction with the
Transactions as described in Note 2, all outstanding shares of redeemable
preferred stock of Jostens and Arcade, together with accrued dividends, were
redeemed in full.
13. Derivative Financial
Instruments and Hedging Activities
Our involvement with
derivative financial instruments is limited principally to managing
well-defined interest rate and foreign currency exchange risks. Forward foreign currency exchange contracts
may be used to hedge the impact of currency fluctuations primarily on inventory
purchases denominated in euros. There
were no open forward foreign currency exchange contracts at the end of 2004.
During 2003 and 2002, we
used an interest rate swap agreement to modify risk from interest rate risk
fluctuations associated with a specific portion of our underlying debt. The interest rate swap was designated as a
cash flow hedge and was reflected at fair value in our consolidated balance
sheets. Differences paid or received
under the swap contract were recognized over the life of the contract as
adjustments to interest expense. As the
critical terms of the interest rate swap and the hedged debt matched, there was
an assumption of no ineffectiveness for this hedge. The contract matured in August of 2003
and was not renewed.
F-26
14. Commitments and
Contingencies
Leases
Equipment and office,
warehouse and production space under operating leases expire at various
dates. Rent expense was $9.0 million for
2004, $3.0 million for the successor period in 2003, $2.4 million for the
predecessor period in 2003 and $4.0 million for 2002. Future minimum lease payments under the
leases are as follows:
|
In thousands
|
|
|
|
|
2005
|
|
$
|
7,743
|
|
|
2006
|
|
6,181
|
|
|
2007
|
|
3,968
|
|
|
2008
|
|
2,849
|
|
|
2009
|
|
2,025
|
|
|
Thereafter
|
|
1,416
|
|
|
|
|
$
|
24,182
|
|
Forward Purchase Contracts
We are subject to market
risk associated with changes in the price of precious metals. To mitigate our commodity price risk, we
enter into forward contracts to purchase gold, platinum and silver based upon
the estimated ounces needed to satisfy projected customer demand. Our purchase commitment at the end of 2004
was $10.1 million with delivery dates occurring throughout 2005. These forward purchase contracts are
considered normal purchases and therefore not subject to the requirements of
SFAS 133. The fair market value of our
open precious metal forward contracts at the end of 2004 was $10.1 million and
was calculated by valuing each contract at quoted futures prices.
Environmental
Our operations are
subject to a wide variety of federal, state, local and foreign laws and
regulations governing emissions to air, discharges to waters, the generation,
handling, storage, transportation, treatment and disposal of hazardous
substances and other materials, and employee health and safety matters. Our costs include compliance with such laws
and regulations, which generally have become more stringent over time.
Also, as an owner and
operator of real property or a generator of hazardous substances, we may be
subject to environmental cleanup liability, regardless of fault, pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act or
analogous state laws, as well as to claims for harm to health or property or
for natural resource damages arising out of contamination or exposure to
hazardous substances. Some of our
current or past operations have involved metalworking and plating, printing,
and other activities that have resulted in environmental conditions that have
given rise to liabilities.
As part of our
environmental management program, we are currently involved in environmental
remediation at several properties.
Principal among them is a property formerly owned and operated by
Jostens for jewelry manufacturing.
Although Jostens no longer owns the site, Jostens continues to manage
the remediation project, which began in 2000. As of the end of 2004, Jostens
had made payments totaling $7.6 million for remediation at this site. During 2001, Jostens received reimbursement
from its insurance carrier in the amount of $2.7 million, net of legal
costs. Based on findings included in
remediation reports and discussions with our advisors, we estimate that less
than $1 million will be needed to finish addressing environmental
conditions there, of which the balance is included in “other accrued
liabilities” in our consolidated balance sheet as of the end of 2004. Jostens will have certain ongoing monitoring
obligations following the completion of remediation. We do not expect the cost of such ongoing
monitoring to be material. While Jostens
may have an additional right of contribution or reimbursement under insurance
policies, amounts recoverable from other entities with respect to a particular
site are not considered until recoveries are deemed probable. Jostens has not established a receivable for
potential recoveries as of the end of 2004.
Legal Proceedings
On February 11,
2004, plaintiff Christian Pocino filed a complaint against Jostens in the
Superior Court of California for the County of Los Angeles for alleged breach
of express warranty (Cal. Comm. Code Section 2313), and for alleged violation
of California’s false advertising and unfair competition laws (Cal. Bus. &
Prof. Code Sections 17500 and 17200).
Plaintiff alleged that Jostens violated these laws by purportedly
violating Federal Trade Commission “guides”
F-27
with regard to the
marketing and sale of jewelry.
Specifically, plaintiff contended that: (1) Jostens failed to
comply with the FTC guide that every use of the word “stone” be immediately
preceded by the word “imitation”, “synthetic” or a similar term; and (2) Jostens
failed to comply with a separate FTC guide relating to use of the word silver
in connection with Jostens’ SilverElite® with platinum alloy. Plaintiff sought equitable relief and
unspecified monetary damages on behalf of himself and a purported class of
similarly-situated consumers.
Jostens brought a
demurrer and motion to strike the plaintiff’s complaint on June 25, 2004,
challenging the legal sufficiency of plaintiff’s allegations on the basis,
inter alia, that the FTC guides are nonbinding and that plaintiff’s allegations
generally failed to state a claim on which relief could be granted. On August 13, 2004, the Superior Court
sustained Jostens’ demurrer with leave to amend.
On August 25, 2004,
the plaintiff filed an amended complaint which contains substantially the same
allegations regarding “stones” while dropping the claims regarding SilverElite®
with platinum. On September 29,
2004, Jostens filed another demurrer/motion to strike, challenging the legal sufficiency
of plaintiff’s amended complaint. On November 24,
2004, the Superior Court again sustained Jostens’ demurrer with leave to
amend. The plaintiff filed a second
amended complaint dated December 16, 2004.
The court dismissed the action on January 26, 2005. The plaintiff has appealed the court’s
decision. It is anticipated that the
appeal will be fully briefed by the fourth quarter of 2005 and that arguments
will occur thereafter.
In communications with
U.S. Customs and Border Protection (Customs), the Company has learned of an
alleged inaccuracy of the tariff classification for certain of Jostens’ imports
from Mexico. In late January 2005, Jostens
promptly filed with Customs a voluntary disclosure to limit its monetary and
penalty exposure. The effect of these alleged
tariff classification errors is that back duties and fees (or “loss of revenue”)
may be owed on imports dating back five years.
Additionally, Customs may impose interest on the loss of revenue. No formal notice of, or demand for, the loss
of revenue has yet been issued by Customs. A review of Jostens’ import practices has
revealed that during the relevant five-year period, Jostens’ merchandise
qualified for duty-free tariff treatment under the North American Free Trade
Agreement (NAFTA), in which case there should be no loss of revenue or interest
payment owed Customs. However, Customs
allegations indicate that Jostens committed a technical oversight in claiming
the preferential tariff treatment.
Through its prior disclosure to Customs, Jostens is in the process of
addressing this technical oversight but may be foreclosed under statute from
making post-entry NAFTA claims for those imports made prior to 2004. Jostens is in the early stages of
administrative review of this matter, and it is not clear what Customs’ position
will be with respect to the alleged tariff classification errors. Jostens intends to vigorously defend its
position and has recorded no accrual for any potential liability. However, there can be no assurance that Jostens
will be successful in its defense or that the disposition of this matter will
not have a material effect on the Company’s results of operations.
We are also 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 business, financial condition and results of operations, if
any, for the disposition of these matters will not be material, however, there
can be no assurance in this regard.
15. Income Taxes
Holdings
will file its first consolidated federal tax return for 2004, which will
include the taxable income (loss) for its newly acquired companies for the post
Transaction three-month period ended January 1, 2005. Holdings and its subsidiaries will file state
tax returns on a consolidated or separate basis as required in the applicable
jurisdictions.
Holdings
The
U.S. and foreign components of (loss) income from continuing operations before
income taxes and the (benefit from) provision for income taxes from continuing
operations of Holdings consists of:
F-28
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2002
|
|
|
Domestic
|
|
$
|
(160,494
|
)
|
$
|
(76,212
|
)
|
$
|
10,648
|
|
$
|
57,436
|
|
|
Foreign
|
|
7,025
|
|
5,861
|
|
1,102
|
|
7,047
|
|
|
(Loss)
income from continuing operations before income taxes
|
|
$
|
(153,469
|
)
|
$
|
(70,351
|
)
|
$
|
11,750
|
|
$
|
64,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
9,155
|
|
$
|
(277
|
)
|
$
|
7,977
|
|
$
|
20,029
|
|
|
State
|
|
1,060
|
|
(46
|
)
|
1,609
|
|
2,289
|
|
|
Foreign
|
|
3,056
|
|
2,344
|
|
609
|
|
3,162
|
|
|
Total current
income taxes
|
|
13,271
|
|
2,021
|
|
10,195
|
|
25,480
|
|
|
Deferred
|
|
(66,042
|
)
|
(21,257
|
)
|
(1,500
|
)
|
10,734
|
|
|
(Benefit
from) provision for income taxes from continuing operations
|
|
$
|
(52,771
|
)
|
$
|
(19,236
|
)
|
$
|
8,695
|
|
$
|
36,214
|
|
A
reconciliation between the (benefit from) provision for income taxes computed
at the U.S. Federal statutory rate and income taxes from continuing operations
for financial reporting purposes is as follows:
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2002
|
|
|
Federal
statutory income tax rate
|
|
35
|
%
|
35
|
%
|
35
|
%
|
35
|
%
|
|
Federal
(benefit) tax at statutory rate
|
|
$
|
(53,714
|
)
|
$
|
(24,623
|
)
|
$
|
4,113
|
|
$
|
22,569
|
|
|
State (benefit)
tax, net of federal tax benefit
|
|
(3,454
|
)
|
(2,495
|
)
|
873
|
|
2,394
|
|
|
Foreign tax
credits used (generated), net
|
|
(233
|
)
|
2,033
|
|
—
|
|
(16,240
|
)
|
|
Foreign earnings
repatriation, net
|
|
—
|
|
933
|
|
—
|
|
9,278
|
|
|
Nondeductible
interest expense
|
|
14,092
|
|
5,763
|
|
295
|
|
—
|
|
|
Nondeductible
transaction costs
|
|
2,316
|
|
—
|
|
3,095
|
|
—
|
|
|
Capital loss
resulting from IRS audit
|
|
—
|
|
—
|
|
—
|
|
(10,573
|
)
|
|
(Decrease)
increase in deferred tax valuation allowance
|
|
(12,278
|
)
|
(890
|
)
|
—
|
|
26,813
|
|
|
Other
differences, net
|
|
500
|
|
43
|
|
319
|
|
1,973
|
|
|
(Benefit
from) provision for income taxes from continuing operations
|
|
$
|
(52,771
|
)
|
$
|
(19,236
|
)
|
$
|
8,695
|
|
$
|
36,214
|
|
F-29
The
tax effect of temporary differences which give rise to deferred tax assets and
liabilities are:
|
|
|
(Successor)
|
|
|
In thousands
|
|
2004
|
|
2003
|
|
|
Tax depreciation
in excess of book
|
|
$
|
(28,251
|
)
|
$
|
(31,360
|
)
|
|
Basis difference
on property, plant and equipment
|
|
(11,720
|
)
|
(15,506
|
)
|
|
Capitalized
software development costs
|
|
(1,895
|
)
|
(2,324
|
)
|
|
Tax on
unremitted non-U.S. earnings
|
|
(1,060
|
)
|
(904
|
)
|
|
Pension benefits
|
|
(22,439
|
)
|
(21,976
|
)
|
|
Basis difference
on intangible assets
|
|
(234,231
|
)
|
(269,576
|
)
|
|
Other
|
|
(5,518
|
)
|
(4,776
|
)
|
|
Deferred
tax liabilities
|
|
(305,114
|
)
|
(346,422
|
)
|
|
Reserves for
accounts receivable and salespersons overdrafts
|
|
7,511
|
|
7,058
|
|
|
Reserves for
employee benefits
|
|
20,346
|
|
20,984
|
|
|
Other reserves
not recognized for tax purposes
|
|
7,841
|
|
8,473
|
|
|
Foreign tax
credit carryforwards
|
|
14,625
|
|
14,392
|
|
|
Capital loss
carryforwards
|
|
2,228
|
|
12,884
|
|
|
Net operating
loss carryovers
|
|
41,585
|
|
—
|
|
|
Basis difference
on pension liabilities
|
|
20,759
|
|
21,262
|
|
|
Basis difference
on long-term debt
|
|
—
|
|
31,194
|
|
|
Amortization of
original issue discount
|
|
6,355
|
|
474
|
|
|
Other
|
|
7,195
|
|
6,248
|
|
|
Deferred tax
assets
|
|
128,445
|
|
122,969
|
|
|
Valuation
allowance
|
|
(16,853
|
)
|
(37,482
|
)
|
|
Deferred
tax assets, net
|
|
111,592
|
|
85,487
|
|
|
Net
deferred tax liability
|
|
$
|
(193,522
|
)
|
$
|
(260,935
|
)
|
Visant
The
U.S. and foreign components of (loss) income from continuing operations before
income taxes and the (benefit from) provision for income taxes from continuing
operations of Visant consists of:
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2002
|
|
|
Domestic
|
|
$
|
(144,161
|
)
|
$
|
(74,913
|
)
|
$
|
10,648
|
|
$
|
57,436
|
|
|
Foreign
|
|
7,025
|
|
5,861
|
|
1,102
|
|
7,047
|
|
|
(Loss)
income from continuing operations before income taxes
|
|
$
|
(137,136
|
)
|
$
|
(69,052
|
)
|
$
|
11,750
|
|
$
|
64,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
9,304
|
|
$
|
(271
|
)
|
$
|
7,977
|
|
$
|
20,029
|
|
|
State
|
|
1,073
|
|
(45
|
)
|
1,609
|
|
2,289
|
|
|
Foreign
|
|
3,056
|
|
2,344
|
|
609
|
|
3,162
|
|
|
Total current
income taxes
|
|
13,433
|
|
2,028
|
|
10,195
|
|
25,480
|
|
|
Deferred
|
|
(60,161
|
)
|
(20,783
|
)
|
(1,500
|
)
|
10,734
|
|
|
(Benefit
from) provision for income taxes from continuing operations
|
|
$
|
(46,728
|
)
|
$
|
(18,755
|
)
|
$
|
8,695
|
|
$
|
36,214
|
|
F-30
A
reconciliation between the (benefit from) provision for income taxes computed
at the U.S. Federal statutory rate and income taxes from continuing operations
for financial reporting purposes is as follows:
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2002
|
|
|
Federal
statutory income tax rate
|
|
35
|
%
|
35
|
%
|
35
|
%
|
35
|
%
|
|
Federal
(benefit) tax at statutory rate
|
|
$
|
(47,997
|
)
|
$
|
(24,168
|
)
|
$
|
4,113
|
|
$
|
22,569
|
|
|
State (benefit)
tax, net of federal tax benefit
|
|
(3,128
|
)
|
(2,469
|
)
|
873
|
|
2,394
|
|
|
Foreign tax
credits used (generated), net
|
|
(233
|
)
|
2,033
|
|
—
|
|
(16,240
|
)
|
|
Foreign earnings
repatriation, net
|
|
—
|
|
933
|
|
—
|
|
9,278
|
|
|
Nondeductible
interest expense
|
|
14,092
|
|
5,763
|
|
295
|
|
—
|
|
|
Nondeductible
transaction costs
|
|
2,316
|
|
—
|
|
3,095
|
|
—
|
|
|
Capital loss
resulting from IRS audit
|
|
—
|
|
—
|
|
—
|
|
(10,573
|
)
|
|
(Decrease)
increase in deferred tax valuation allowance
|
|
(12,278
|
)
|
(890
|
)
|
—
|
|
26,813
|
|
|
Other
differences, net
|
|
500
|
|
43
|
|
319
|
|
1,973
|
|
|
(Benefit
from) provision for income taxes from continuing operations
|
|
$
|
(46,728
|
)
|
$
|
(18,755
|
)
|
$
|
8,695
|
|
$
|
36,214
|
|
The
tax effect of temporary differences which give rise to deferred tax assets and
liabilities are:
|
|
|
(Successor)
|
|
|
In thousands
|
|
2004
|
|
2003
|
|
|
Tax depreciation
in excess of book
|
|
$
|
(28,251
|
)
|
$
|
(31,360
|
)
|
|
Basis difference
on property, plant and equipment
|
|
(11,720
|
)
|
(15,506
|
)
|
|
Capitalized
software development costs
|
|
(1,895
|
)
|
(2,324
|
)
|
|
Tax on
unremitted non-U.S. earnings
|
|
(1,060
|
)
|
(904
|
)
|
|
Pension benefits
|
|
(22,439
|
)
|
(21,976
|
)
|
|
Basis difference
on intangible assets
|
|
(234,231
|
)
|
(269,576
|
)
|
|
Other
|
|
(5,518
|
)
|
(4,776
|
)
|
|
Deferred
tax liabilities
|
|
(305,114
|
)
|
(346,422
|
)
|
|
Reserves for
accounts receivable and salespersons overdrafts
|
|
7,511
|
|
7,058
|
|
|
Reserves for
employee benefits
|
|
20,346
|
|
20,984
|
|
|
Other reserves
not recognized for tax purposes
|
|
7,841
|
|
8,473
|
|
|
Foreign tax
credit carryforwards
|
|
14,625
|
|
14,392
|
|
|
Capital loss
carryforwards
|
|
2,228
|
|
12,884
|
|
|
Net operating
loss carryovers
|
|
41,585
|
|
—
|
|
|
Basis difference
on pension liabilities
|
|
20,759
|
|
21,262
|
|
|
Basis difference
on long-term debt
|
|
—
|
|
31,194
|
|
|
Other
|
|
7,195
|
|
6,248
|
|
|
Deferred tax
assets
|
|
122,090
|
|
122,495
|
|
|
Valuation
allowance
|
|
(16,853
|
)
|
(37,482
|
)
|
|
Deferred
tax assets, net
|
|
105,237
|
|
85,013
|
|
|
Net
deferred tax liability
|
|
$
|
(199,877
|
)
|
$
|
(261,409
|
)
|
F-31
During 2004, in
connection with the Transaction, as further described in Note 2, we acquired
the stock of Von Hoffmann and Arcade and refinanced our credit facilities. As part of the refinancing, two applicable
high yield debt obligations were refinanced resulting in approximately $56.0
million of interest deductions. The
effect of these deductions, along with certain other refinancing costs,
contributed to a consolidated net operating loss for income tax purposes for
2004 of approximately $113.0 million for each of Holdings and Visant. For taxable periods prior to the Transaction
date, Von Hoffmann and Arcade filed separate federal and state tax returns
reflecting the taxable results of their consolidated separate operations. The effect of Von Hoffmann’s and Arcade’s
taxable results of operations for periods prior to the Transaction date are
included in the amounts reported above for the U.S. and foreign components of
(loss) income from continuing operations, the income tax rate reconciliation
with the U.S. Federal statutory rate and the tax effect of temporary
differences which give rise to deferred tax assets and liabilities.
In connection with the
repayment of one of the high yield debt obligations, we reduced a deferred tax
asset valuation allowance by $12.5 million.
Prior to the transaction, the allowance had been established because it
was more likely than not that the related tax benefit would not be realized. We have not established a valuation allowance
for the deferred tax asset of $41.6 million attributable to net operating loss
carryovers, because it is more likely than not the deferred tax asset will be
realized.
During 2003, we
recognized $258.2 million of net deferred tax liabilities in connection with the 2003 Jostens merger, as further
described in Note 3. This amount
represents the tax effect for temporary differences between the carrying amount
of assets and liabilities resulting from the purchase price allocation and the
related tax bases. During 2004, we
recognized $1.4 million of additional deferred tax assets in connection with a
purchase accounting liability related to a plant closure. At the end of 2004 and 2003, the net deferred
tax liability related to temporary differences arising from our 2003 Jostens
merger accounting was $211.9 million and $235.3 million, respectively.
During
2002, we agreed to certain adjustments proposed by the Internal Revenue Service
(IRS) in connection with its audit of the Jostens federal income tax returns
filed for years 1996 through 1998. As a
result of the audit, we agreed to pay additional federal taxes of $11.3
million. Combined with additional state
taxes and interest charges, the liability related to these adjustments, which
had previously been accrued, was approximately $17.0 million. During 2003, we filed an appeal with the IRS
concerning a further proposed adjustment of approximately $8.0 million. On February 1, 2005, the IRS notified us
that agreement had been reached wherein no further deficiency or overassessment
remained for the years 1996 through 1998.
Based on the IRS notification, we recorded an adjustment in 2004
reducing our tax reserves and goodwill by $11.0 million for the tax and related
interest attributable to the contested liability.
In
connection with the aforementioned audit, the IRS recharacterized as a capital
loss approximately $27.0 million of notes that were written off in 1998. The notes were received in connection with
the 1995 sale of a subsidiary. During
2004, the carryforward period attributable to these notes expired. At the end of 2004, we have capital loss
carryforwards totaling $5.6 million of which $4.0 million expire in 2006 and
$1.6 million expire in 2007. Since
capital losses may only be used to offset future capital gains, we have
provided a valuation allowance for the entire related deferred tax asset
because the tax benefit related to our capital losses may not be realized.
During
2003 and 2002, Jostens repatriated $3.0 million and $32.1 million,
respectively, of earnings from our Canadian subsidiary. We were unable to fully utilize all foreign
tax credits generated in connection with the distributions. During 2003, we reduced our deferred tax
asset balance and related valuation allowance by $2.4 million to reflect foreign
tax credit carryforwards as reported on the Jostens 2002 income tax
return. At the end of 2004, we have
foreign tax credit carryforwards totaling $14.5 million of which approximately
$13.5 million expire in 2007, $0.9 million expire in 2008 and $0.1 million
expire in 2009. We have provided a
valuation allowance for the entire related deferred tax asset because the tax
benefit related to the foreign tax credits may not be realized. During 2004, 2003 and 2002, we provided
deferred income taxes of $0.2 million, $0.1 million and $0.8 million on
approximately $3.3 million, $0.5 million and $4.0 million, respectively, of
unremitted Canadian earnings that are no longer considered permanently
invested. In addition, we have not
provided deferred income taxes on approximately $5.4 million of unremitted
earnings from another foreign subsidiary because the earnings were considered
permanently invested for periods prior to the Transactions. We have not completed our evaluation of the
tax effect
F-32
of
the dividend repatriation provisions under the American Jobs Creation Act of
2004. We anticipate that our evaluation
will be completed during the third quarter of 2005 and that the related tax
effect will not have a material impact on our consolidated effective tax rate
for 2005.
As
described in Note 11, during December 2003, Holdings issued $150 million
of senior discount notes due 2013. The
notes have significant original issue discount (“OID”) and are considered
applicable high yield discount obligations because the yield to maturity of the
notes exceeds the sum of the applicable federal rate in effect for the month
the notes were issued and five percentage points. As a result, Holdings will not be allowed a deduction
for interest (including OID) accrued on the notes until such time as it
actually pays such interest (including OID) in cash or other property. Holdings has provided deferred income taxes
of approximately $6.4 million on $17.2 million of OID accrued through December 2004.
16. Benefit Plans
Pension and
Other Postretirement Benefits
Jostens has
noncontributory defined-benefit pension plans that cover nearly all
employees. The benefits provided under
the plans are based on years of service, age eligibility and employee
compensation. The benefits for Jostens’
qualified pension plans have been funded through pension trusts, the objective
being to accumulate sufficient funds to provide for future benefits. In addition to qualified pension plans, Jostens
has unfunded, non-qualified pension plans covering certain employees, which
provide for benefits in addition to those provided by the qualified plans. Jostens also provides certain medical and
life insurance benefits for eligible retirees, including their spouses and
dependents. Generally, the
postretirement benefits require contributions from retirees.
With the acquisition of
Lehigh Press, Von Hoffmann maintains a trusteed, noncontributory defined
benefit pension plan for eligible employees of the Lehigh divisions not
otherwise covered by collective bargaining agreements. In addition, Von Hoffmann maintains an
unfunded supplemental retirement plan (SRP) for certain key executives of
Lehigh Press. The SRP no longer has any
active participants accruing benefits under the SRP. The plans provide benefits based on years of
service and final average compensation.
Von Hoffmann also contributes to a multi-employer pension plan covered
by labor union contracts. Contribution
amounts are determined by contract and we do not administer or control the
funds in any way. On December 31,
2004, the Lehigh Press defined benefit plan was merged into one of Jostens’
defined benefit plans.
The following tables set
forth the components of the changes in benefit obligations and fair value of
plan assets during 2004 and 2003 as well as the funded status and amounts both
recognized and not recognized in the balance sheets as of January 1, 2005
and January 3, 2004, for all defined benefit plans combined. The information presented for the Jostens
plans is based on a measurement date of September 30 while that of the
Lehigh Press plan is based on a measurement date of December 31. Furthermore, the Jostens plans represent 86%
of the aggregate benefit obligation and 89% of the aggregate plan assets as of
the end of 2004.
F-33
|
|
|
Pension benefits
|
|
Postretirement benefits
|
|
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
|
Change
in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation, beginning of period
|
|
$
|
239,990
|
|
$
|
201,857
|
|
$
|
185,388
|
|
$
|
6,553
|
|
$
|
6,309
|
|
$
|
8,942
|
|
|
Acquisition
|
|
—
|
|
30,366
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Service cost
|
|
7,680
|
|
1,206
|
|
4,846
|
|
41
|
|
6
|
|
65
|
|
|
Interest cost
|
|
14,159
|
|
2,463
|
|
10,176
|
|
348
|
|
60
|
|
388
|
|
|
Plan amendments
|
|
486
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Actuarial loss
(gain)
|
|
4,565
|
|
5,756
|
|
8,935
|
|
(579
|
)
|
313
|
|
(2,170
|
)
|
|
Administrative
expenses
|
|
(2,311
|
)
|
(17
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Special
termination benefits
|
|
598
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Benefits paid
|
|
(10,652
|
)
|
(1,641
|
)
|
(7,488
|
)
|
(807
|
)
|
(135
|
)
|
(916
|
)
|
|
Benefit
obligation, end of period
|
|
$
|
254,515
|
|
$
|
239,990
|
|
$
|
201,857
|
|
$
|
5,556
|
|
$
|
6,553
|
|
$
|
6,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
plan assets, beginning of period
|
|
$
|
214,692
|
|
$
|
189,923
|
|
$
|
165,929
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Acquisition
|
|
—
|
|
20,573
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Actual return on
plan assets
|
|
27,376
|
|
5,560
|
|
29,975
|
|
—
|
|
—
|
|
—
|
|
|
Company
contributions
|
|
4,414
|
|
294
|
|
1,507
|
|
807
|
|
135
|
|
916
|
|
|
Administrative
expenses
|
|
(2,311
|
)
|
(17
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Benefits paid
|
|
(10,652
|
)
|
(1,641
|
)
|
(7,488
|
)
|
(807
|
)
|
(135
|
)
|
(916
|
)
|
|
Fair
value of plan assets, end of period
|
|
$
|
233,519
|
|
$
|
214,692
|
|
$
|
189,923
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status,
end of period
|
|
$
|
13,835
|
|
$
|
8,733
|
|
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
Unfunded status,
end of period
|
|
(34,832
|
)
|
(34,031
|
)
|
|
|
(5,556
|
)
|
(6,553
|
)
|
|
|
|
Net unfunded
status, end of period
|
|
(20,997
|
)
|
(25,298
|
)
|
|
|
(5,556
|
)
|
(6,553
|
)
|
|
|
|
Unrecognized
cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial
loss
|
|
294
|
|
3,450
|
|
|
|
(267
|
)
|
312
|
|
|
|
|
Prior service
cost
|
|
438
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
|
Net
amount recognized
|
|
$
|
(20,265
|
)
|
$
|
(21,848
|
)
|
|
|
$
|
(5,823
|
)
|
$
|
(6,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in the balance sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit
cost
|
|
$
|
13,741
|
|
$
|
12,579
|
|
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
Accrued benefit
cost
|
|
(34,006
|
)
|
(34,427
|
)
|
|
|
(5,823
|
)
|
(6,241
|
)
|
|
|
|
Net
amount recognized
|
|
$
|
(20,265
|
)
|
$
|
(21,848
|
)
|
|
|
$
|
(5,823
|
)
|
$
|
(6,241
|
)
|
|
|
During 2003, Jostens
changed the discount rate assumption from 6.75% to 6.00% for the pension and
postretirement plans. This increased the
year-end benefit obligations and accounts for the majority of the amounts shown
as 2003 actuarial loss.
In accordance with
purchase accounting requirements, Jostens recognized the funding status of its
pension and postretirement benefit plans as of July 29, 2003. At the end of 2004, the unrecognized net
actuarial loss for pension benefits was $0.3 million.
The accumulated benefit
obligation (ABO) for all defined benefit pension plans was $237.5 million and
$225.1 million at the end of 2004 and 2003, respectively. The ABO differs from the projected benefit
obligation shown in the table in that it includes no assumption about future
compensation levels.
F-34
Non-qualified pension
plans, included in the tables above, with obligations in excess of plan assets
were as follows:
|
|
|
(Successor)
|
|
|
In thousands
|
|
2004
|
|
2003
|
|
|
Projected
benefit obligation
|
|
$
|
24,506
|
|
$
|
24,829
|
|
|
Accumulated
benefit obligation
|
|
23,397
|
|
23,578
|
|
|
Fair value of
plan assets
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
The projected benefit
obligation, ABO and fair value of plan assets for one qualified plan with
obligations in excess of fair value at the end of 2004 was $35.3 million, $32.1
million and $24.9 million, respectively.
Net periodic benefit
expense (income) of the pension and other postretirement benefit plans included
the following components:
|
|
|
Pension benefits
|
|
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2002
|
|
|
Service cost
|
|
$
|
7,680
|
|
$
|
1,206
|
|
$
|
4,846
|
|
$
|
4,944
|
|
|
Interest cost
|
|
14,159
|
|
2,463
|
|
10,176
|
|
11,705
|
|
|
Expected return
on plan assets
|
|
(19,654
|
)
|
(3,254
|
)
|
(16,973
|
)
|
(21,569
|
)
|
|
Amortization of
prior year service cost
|
|
48
|
|
—
|
|
1,548
|
|
1,837
|
|
|
Amortization of
transition amount
|
|
—
|
|
—
|
|
(461
|
)
|
(714
|
)
|
|
Amortization of
net actuarial loss (gain)
|
|
—
|
|
—
|
|
439
|
|
(1,626
|
)
|
|
Net periodic
benefit expense (income)
|
|
$
|
2,233
|
|
$
|
415
|
|
$
|
(425
|
)
|
$
|
(5,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefits
|
|
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2002
|
|
|
Service cost
|
|
$
|
41
|
|
$
|
6
|
|
$
|
65
|
|
$
|
89
|
|
|
Interest cost
|
|
348
|
|
60
|
|
388
|
|
438
|
|
|
Amortization of
prior year service cost
|
|
—
|
|
—
|
|
(16
|
)
|
(7
|
)
|
|
Amortization of
net actuarial loss
|
|
—
|
|
—
|
|
232
|
|
186
|
|
|
Net periodic
benefit expense
|
|
$
|
389
|
|
$
|
66
|
|
$
|
669
|
|
$
|
706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions
Weighted-average
assumptions used to determine end of year benefit obligations are as follows:
|
|
|
Pension benefits
|
|
Postretirement
benefits
|
|
|
|
|
2004
|
|
2003
|
|
2004
|
|
2003
|
|
|
Discount rate:
|
|
|
|
|
|
|
|
|
|
|
Jostens
|
|
6.00
|
%
|
6.00
|
%
|
6.00
|
%
|
6.00
|
%
|
|
Von Hoffmann
|
|
5.75
|
%
|
6.25
|
%
|
—
|
|
—
|
|
|
Rate of
compensation increase:
|
|
|
|
|
|
|
|
|
|
|
Jostens
|
|
6.00
|
%
|
6.30
|
%
|
—
|
|
—
|
|
|
Von Hoffmann
|
|
3.00
|
%
|
3.00
|
%
|
—
|
|
—
|
|
F-35
Weighted-average
assumptions used to determine net periodic benefit cost for the year are as
follows:
|
|
|
Pension benefits
|
|
Postretirement
benefits
|
|
|
|
|
2004
|
|
2003
|
|
2004
|
|
2003
|
|
|
Discount rate:
|
|
|
|
|
|
|
|
|
|
|
Jostens
|
|
6.00
|
%
|
6.75
|
%
|
6.00
|
%
|
6.75
|
%
|
|
Von Hoffmann
|
|
6.25
|
%
|
8.00
|
%
|
—
|
|
—
|
|
|
Expected
long-term rate of return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
Jostens
|
|
9.50
|
%
|
9.50
|
%
|
—
|
|
—
|
|
|
Von Hoffmann
|
|
7.50
|
%
|
8.00
|
%
|
—
|
|
—
|
|
|
Rate of
compensation increase:
|
|
|
|
|
|
|
|
|
|
|
Jostens
|
|
6.30
|
%
|
6.30
|
%
|
—
|
|
—
|
|
|
Von Hoffmann
|
|
3.00
|
%
|
3.00
|
%
|
—
|
|
—
|
|
We employ a building
block approach in determining the long-term rate of return for plan
assets. Historical markets are studied
and long-term historical relationships between equities and fixed income are
preserved congruent with the widely accepted capital market principle that
assets with higher volatility generate a greater return over the long run. Current market factors such as inflation and
interest rates are evaluated before long-term capital market assumptions are
determined. The long-term portfolio
return is established with a proper consideration of diversification and
rebalancing. Peer data and historical
returns are reviewed to check for reasonability and appropriateness.
Assumed health care cost
trend rates are as follows:
|
|
|
Postretirement
benefits
|
|
|
|
|
2004
|
|
2003
|
|
|
Health care cost
trend rate assumed for next year
|
|
8.00
|
%
|
9.00
|
%
|
|
Rate to which
the cost trend rate is assumed to decline (the ultimate trend rate)
|
|
5.00
|
%
|
5.00
|
%
|
|
Year that the
rate reaches the ultimate trend rate
|
|
2007
|
|
2007
|
|
Assumed health care cost
trend rates have a significant effect on the amounts reported for health care
plans. For 2004, a one percentage point
change in the assumed health care cost trend rates would have the following
effects:
|
In thousands
|
|
Impact of
1%
Increase
|
|
Impact of
1%
Decrease
|
|
|
Effect on total
of service and interest cost components
|
|
$
|
22
|
|
$
|
(20
|
)
|
|
Effect on
postretirement benefit obligation
|
|
$
|
926
|
|
$
|
272
|
|
Plan Assets
Our weighted-average
asset allocations for the pension plans as of the measurement dates of 2004 and
2003, by asset category, are as follows:
F-36
|
Asset Category
|
|
2004
|
|
2003
|
|
Target
|
|
|
Equity
securities
|
|
77.1
|
%
|
76.0
|
%
|
80.0
|
%
|
|
Debt securities
|
|
22.5
|
%
|
23.2
|
%
|
20.0
|
%
|
|
Real estate
|
|
—
|
|
—
|
|
—
|
|
|
Other
|
|
0.4
|
%
|
0.8
|
%
|
—
|
|
|
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
We employ a total return
investment approach whereby a mix of equities and fixed income investments are
used to maximize the long-term return of plan assets for a prudent level of
risk. The intent of this strategy is to
minimize plan expenses by outperforming plan liabilities over the long
run. Risk tolerance is established
through careful consideration of plan liabilities, plan funded status, and
corporate financial condition. The
investment portfolio contains a diversified blend of equity and fixed income
investments. Furthermore, equity
investments are diversified across U.S. and non-U.S. stocks as well as growth,
value, and small and large capitalizations.
Derivatives may be used to gain market exposure in an efficient and
timely manner, however, derivatives may not be used to leverage the portfolio
beyond the market value of the underlying investments. Investment risk is measured and monitored on
an ongoing basis through annual liability measurements, periodic asset/liability
studies and quarterly investment portfolio reviews.
Contributions
Projected contributions
for 2005 include $2.7 million to the pension plans and $0.7 million to the
postretirement benefit plans. The actual
amount of contributions is dependent upon the actual return on plan assets.
Benefit Payments
Estimated benefit
payments under the pension and postretirement benefit plans are as follows:
|
In thousands
|
|
Pension benefits
|
|
Postretirement
benefits
|
|
|
2005
|
|
$
|
10,895
|
|
$
|
745
|
|
|
2006
|
|
11,421
|
|
737
|
|
|
2007
|
|
11,942
|
|
730
|
|
|
2008
|
|
12,597
|
|
713
|
|
|
2009
|
|
13,292
|
|
690
|
|
|
2010 through
2014
|
|
79,646
|
|
2,910
|
|
|
|
|
$
|
139,793
|
|
$
|
6,525
|
|
401(k) Plans
We have 401(k) savings
plans, which cover substantially all salaried and hourly employees who have met
the plans’ eligibility requirements. We
provide a matching contribution on amounts contributed by employees, limited to
a specific amount of compensation that varies among the plans. In some instances we provide profit sharing
contributions. The aggregate matching and
other contributions were $10.0 million for 2004, $3.7 million for the successor
period in 2003, $2.7 million for the predecessor period in 2003 and $4.4
million for 2002.
17. Stock Plans
Stock Options
In connection with the
2003 Jostens merger, all options to purchase Jostens common stock that were
outstanding immediately prior to the merger were cancelled and
extinguished. Consideration paid in
respect of the Jostens options was an amount equal to the difference between
the per share 2003 Jostens merger consideration and the exercise price,
resulting in an aggregate payment of $12.6 million included in “transaction
costs” for the predecessor period of 2003.
F-37
The 2003 Stock Incentive
Plan (the “2003 Plan”) was approved by the Board of Directors and effective as
of October 30, 2003. The 2003 Plan
permits us to grant key employees and certain other persons stock options and
stock awards and provides for a total of 288,023 shares of common stock for issuance
of options and awards to employees of the Company and a total of 10,000 shares
of common stock for issuance of options and awards to directors and other
persons providing services to the Company.
The maximum grant to any one person shall not exceed in the aggregate
70,400 shares. Option grants consist of “time
options”, which vest and become exercisable in 20% equal annual installments
over the first five years following the date of grant and/or “performance
options”, which vest and become exercisable over the first five years following
the date of grant at varying levels based on the achievement of certain EBITDA
targets, and in any event by the eighth anniversary of the date of grant. Upon the occurrence of a “change in control”
(as defined in the 2003 Plan), the unvested portion of any time option will
immediately become vested and exercisable, and the vesting and exercisability
of the unvested portion of any performance option may accelerate depending on
the timing of the change of control and return on the equity investment by
DLJMBP III in the Company as provided under the 2003 Plan. The Transactions did not constitute a change
of control under the 2003 Plan. Options
issued under the 2003 Plan expire on the tenth anniversary of the grant date. The shares underlying the options are subject
to certain transfer and other restrictions set forth in that certain
Stockholders Agreement dated July 29, 2003 by and among the Company and
certain holders of the capital stock of the Company.
In connection with the
Transactions, all options to purchase Von Hoffmann and Arcade common stock that
were outstanding immediately prior to the Transactions were cancelled and
extinguished. Consideration paid in
respect of the Von Hoffmann options was an amount equal to the difference
between the per share Transaction consideration and the exercise price,
resulting in an aggregate payment of approximately $5.4 million included in “transaction
costs” for 2004. No consideration was
paid in respect of the Arcade options.
All outstanding options to purchase Holdings common stock continued
following the closing of the Transactions.
In connection with the
closing of the Transactions, we established the 2004 Stock Option Plan, which
permits us to grant key employees and certain other persons various equity-based
awards, including stock options and restricted stock. The plan, currently known as the Second
Amended and Restated 2004 Stock Option Plan for Key Employees of Visant Holding
Corp. and Subsidiaries, provides for issuance of a total of 510,230 shares of
Holdings Class A Common Stock.
Under his employment agreement, the Company’s Chief Executive Officer
received awards of stock options and restricted stock under the plan. Additional members of management are eligible
to receive equity-based awards. Option
grants consist of “time options”, which vest and become exercisable in 20%
equal annual installments over a five-year period from the date of grant,
and/or “performance options”, which vest and become exercisable over the first
five years following the date of grant based upon the achievement of certain
EBITDA and other performance targets, and in any event by the eighth
anniversary of the date of grant. Upon
the occurrence of a “change in control” (as defined in the plan), the unvested
portion of any time option will immediately become vested and exercisable, and
the vesting and exercisability of the unvested portion of any performance
option may accelerate if certain EBITDA or other performance measures have been
satisfied. Options issued pursuant to
the plan expire on the tenth anniversary of the grant date. All options, restricted shares and any common
stock for which such equity awards are exercised or with respect to which
restrictions lapse are governed by a management stockholders’ agreement and
sale participation agreement.
The
weighted average fair value of Holdings options granted in 2004 was $29.64 per
option. We did not grant any stock
options in 2003. We estimated the
average fair value using the Black-Scholes option-pricing model, modified for
dividends and using the following assumptions:
|
|
|
2004
|
|
|
Risk-free rate
|
|
4.0
|
%
|
|
Dividend yield
|
|
—
|
|
|
Volatility
factor of the expected market price of Holdings common stock
|
|
1.0
|
%
|
|
Expected life of
the award
|
|
10 years
|
|
F-38
The
following table summarizes stock option activity for Holdings:
|
Shares in thousands
|
|
Shares
|
|
Weighted-
average
exercise price
|
|
|
Outstanding at
January 3, 2004
|
|
—
|
|
$
|
—
|
|
|
Granted
|
|
379
|
|
$
|
90.14
|
|
|
Cancelled
|
|
(53
|
)
|
$
|
87.12
|
|
|
Outstanding
at January 1, 2005
|
|
326
|
|
$
|
90.64
|
|
|
|
|
|
|
|
|
|
Exercisable
at January 1, 2005
|
|
75
|
|
|
|
The weighted average
remaining contractual life of outstanding options at the end of 2004 was
approximately 9.3 years.
18. Business Segments
In connection with the
Transactions, during the fourth quarter of 2004, we changed the Company’s
reportable segments to reflect the impact of the Transactions, including the
addition of the results of operations of Von Hoffmann, Lehigh Lithographers,
Arcade and Lehigh Direct to our consolidated reported results. The segments were identified based on factors
including the nature of products and services, the availability of discrete
financial information, and the manner in which the chief operating decision
maker regularly assesses the information for decision-making purposes. Our reportable segments consist of Jostens
and our Print Group.
The Print Group includes
the operations of Von Hoffmann, Lehigh Lithographers, Arcade and Lehigh
Direct. Effective immediately upon the
close of the Transactions, we initiated actions to operate and manage these
operations as an integrated business specializing in the production of printed
materials. Von Hoffmann is a leading
manufacturer of four-color case bound and soft-cover educational textbooks,
standardized test materials and related components for major educational
publishers in the United States. Lehigh
Lithographers is a leading provider of textbook covers. Von Hoffmann also provides commercial
printing services to non-educational customers, including business-to-business
catalogers. Arcade is a leading global
marketer and manufacturer of multi-sensory and interactive advertising sampling
systems for the fragrance, cosmetics and personal care markets as well as other
consumer product markets, including household products and the food and
beverage industries. Lehigh Direct
provides a range of innovative printing products and services to the direct
marketing sector.
Jostens is a leading
provider of school-related affinity products and services that help people
celebrate important moments, recognize achievements and build affiliation. Jostens’ products include class rings and
graduation products (together “scholastic products”), yearbooks and school
photography. Graduation products include
diplomas, graduation regalia such as caps and gowns, accessories and fine paper
announcements.
For
the predecessor period, Jostens managed its business on the basis of one
reportable segment: the development,
manufacturing and distribution of school-related affinity products.
F-39
The
following table presents information of Holdings by business segment:
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2002
|
|
|
Net
sales to external customers
|
|
|
|
|
|
|
|
|
|
|
Jostens
|
|
$
|
807,239
|
|
$
|
284,171
|
|
$
|
504,058
|
|
$
|
755,984
|
|
|
Print Group
|
|
654,922
|
|
218,493
|
|
—
|
|
—
|
|
|
|
|
$
|
1,462,161
|
|
$
|
502,664
|
|
$
|
504,058
|
|
$
|
755,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
|
|
|
|
|
|
|
|
Jostens
|
|
$
|
36,848
|
|
$
|
(22,556
|
)
|
$
|
58,074
|
|
$
|
133,574
|
|
|
Print Group
|
|
44,969
|
|
20,698
|
|
—
|
|
—
|
|
|
Other
|
|
(250
|
)
|
—
|
|
—
|
|
—
|
|
|
|
|
$
|
81,567
|
|
$
|
(1,858
|
)
|
$
|
58,074
|
|
$
|
133,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
Jostens
|
|
$
|
119,089
|
|
$
|
34,521
|
|
$
|
14,588
|
|
$
|
26,897
|
|
|
Print Group
|
|
44,888
|
|
13,289
|
|
—
|
|
—
|
|
|
Other
|
|
206
|
|
—
|
|
—
|
|
—
|
|
|
|
|
$
|
164,183
|
|
$
|
47,810
|
|
$
|
14,588
|
|
$
|
26,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest,
net
|
|
|
|
|
|
|
|
|
|
|
Jostens
|
|
$
|
62,546
|
|
$
|
28,298
|
|
$
|
32,446
|
|
$
|
67,326
|
|
|
Print Group
|
|
81,618
|
|
35,573
|
|
—
|
|
—
|
|
|
Other
|
|
16,115
|
|
4,119
|
|
—
|
|
—
|
|
|
|
|
$
|
160,279
|
|
$
|
67,990
|
|
$
|
32,446
|
|
$
|
67,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax (benefit)
|
|
|
|
|
|
|
|
|
|
|
Jostens
|
|
$
|
(14,297
|
)
|
$
|
(17,955
|
)
|
$
|
8,695
|
|
$
|
36,214
|
|
|
Print Group
|
|
(32,419
|
)
|
(800
|
)
|
—
|
|
—
|
|
|
Other
|
|
(6,055
|
)
|
(481
|
)
|
—
|
|
—
|
|
|
|
|
$
|
(52,771
|
)
|
$
|
(19,236
|
)
|
$
|
8,695
|
|
$
|
36,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Jostens
|
|
$
|
1,693,404
|
|
$
|
1,720,358
|
|
|
|
|
|
|
Print Group
|
|
826,682
|
|
791,217
|
|
|
|
|
|
|
Other
|
|
(8,689
|
)
|
11,055
|
|
|
|
|
|
|
|
|
$
|
2,511,397
|
|
$
|
2,522,630
|
|
|
|
|
|
Net
sales are reported in the geographic area where the final sales to customers
are made, rather than where the transaction originates. No single customer accounted for more than
10% of revenue in 2004, the successor and predecessor periods in 2003 or in
2002.
F-40
The
following table presents net sales by class of similar products and certain
geographic information:
|
|
|
(Successor)
|
|
Jostens, Inc.
(Predecessor)
|
|
|
In thousands
|
|
2004
|
|
Five Months
2003
|
|
Seven Months
2003
|
|
2002
|
|
|
Net
sales by class of similar products
|
|
|
|
|
|
|
|
|
|
|
Scholastic
products
|
|
$
|
403,928
|
|
$
|
144,538
|
|
$
|
254,320
|
|
$
|
383,861
|
|
|
Yearbooks
|
|
335,183
|
|
94,429
|
|
229,041
|
|
318,451
|
|
|
Print Group
|
|
654,922
|
|
218,493
|
|
—
|
|
—
|
|
|
Other, primarily
Photography
|
|
68,128
|
|
45,204
|
|
20,697
|
|
53,672
|
|
|
|
|
$
|
1,462,161
|
|
$
|
502,664
|
|
$
|
504,058
|
|
$
|
755,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales by geographic area
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,357,175
|
|
$
|
465,433
|
|
$
|
484,460
|
|
$
|
716,110
|
|
|
France
|
|
19,177
|
|
9,818
|
|
—
|
|
—
|
|
|
Other, primarily
Canada
|
|
85,809
|
|
27,413
|
|
19,598
|
|
39,874
|
|
|
|
|
$
|
1,462,161
|
|
$
|
502,664
|
|
$
|
504,058
|
|
$
|
755,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
property, plant and equipment and intangible assets by geographic area
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,889,714
|
|
$
|
2,044,768
|
|
|
|
|
|
|
Other, primarily
Canada
|
|
66,049
|
|
66,141
|
|
|
|
|
|
|
|
|
$
|
1,955,763
|
|
$
|
2,110,909
|
|
|
|
|
|
19. Discontinued Operations
In
December 2001, the Board of Directors of Jostens approved a plan to exit
its former Recognition business in order to focus its resources on its core
school-related affinity products business.
During 2002, Jostens reversed $2.3 million of the original $16.3 million
of charges based on revised estimates for employee separation costs and
phase-out costs. Of the total
adjustment, $0.5 million resulted from modifying the anticipated workforce
reduction from 150 to 130 full-time positions and $1.8 million resulted from
lower information systems, customer service and internal support costs and
lower receivable write-offs than originally anticipated. In addition, Jostens reversed $0.4 million in
other liabilities for a total pre-tax gain on discontinued operations of $2.7
million ($1.6 million net of tax).
As
of the end of 2004, accrued disposal costs, consisting of $1.8 million of
transition benefits, are included in “current liabilities of discontinued
operations” in the consolidated balance sheet.
Transition benefits will continue to be paid through the period of our statutory
obligations.
20. Condensed Consolidating
Guarantor Information
Visant’s obligations
under the senior secured credit facilities and the 7 5/8%senior subordinated notes are guaranteed by certain of its wholly-owned
subsidiaries on a full unconditional and joint and several basis. The following tables present condensed
consolidating financial information for Visant, as issuer, and its guarantor
subsidiaries.
F-41
CONDENSED CONSOLIDATING
STATEMENT OF OPERATIONS
2004
|
|
|
Issuer
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Net
sales
|
|
$
|
—
|
|
$
|
1,399,083
|
|
$
|
75,110
|
|
$
|
(12,032
|
)
|
$
|
1,462,161
|
|
|
Cost of products
sold
|
|
—
|
|
895,822
|
|
31,164
|
|
(12,022
|
)
|
914,964
|
|
|
Gross profit
|
|
—
|
|
503,261
|
|
43,946
|
|
(10
|
)
|
547,197
|
|
|
Selling and
administrative expenses
|
|
(299
|
)
|
398,998
|
|
35,498
|
|
—
|
|
434,197
|
|
|
Transaction
costs
|
|
678
|
|
15,221
|
|
—
|
|
—
|
|
15,899
|
|
|
Special charges
|
|
—
|
|
15,663
|
|
—
|
|
—
|
|
15,663
|
|
|
Operating
(loss) income
|
|
(379
|
)
|
73,379
|
|
8,448
|
|
(10
|
)
|
81,438
|
|
|
Loss on
redemption of debt
|
|
—
|
|
75,040
|
|
809
|
|
—
|
|
75,849
|
|
|
Other income
|
|
—
|
|
(1,092
|
)
|
—
|
|
—
|
|
(1,092
|
)
|
|
Net interest
expense
|
|
24,587
|
|
143,065
|
|
1,099
|
|
(24,934
|
)
|
143,817
|
|
|
Equity loss (earnings)
in subsidiary, net of tax
|
|
93,435
|
|
(3,965
|
)
|
—
|
|
(89,470
|
)
|
—
|
|
|
(Loss) income
before income taxes
|
|
(118,401
|
)
|
(139,669
|
)
|
6,540
|
|
114,394
|
|
(137,136
|
)
|
|
(Benefit from)
provision for income taxes
|
|
(8,506
|
)
|
(46,234
|
)
|
2,575
|
|
5,437
|
|
(46,728
|
)
|
|
Net
(loss) income
|
|
$
|
(109,895
|
)
|
$
|
(93,435
|
)
|
$
|
3,965
|
|
$
|
108,957
|
|
$
|
(90,408
|
)
|
CONDENSED CONSOLIDATING
STATEMENT OF OPERATIONS
Five Months 2003
|
|
|
Issuer
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Net
sales
|
|
$
|
—
|
|
$
|
469,337
|
|
$
|
45,858
|
|
$
|
(12,531
|
)
|
$
|
502,664
|
|
|
Cost of products
sold
|
|
—
|
|
326,756
|
|
21,709
|
|
(12,639
|
)
|
335,826
|
|
|
Gross profit
|
|
—
|
|
142,581
|
|
24,149
|
|
108
|
|
166,838
|
|
|
Selling and
administrative expenses
|
|
—
|
|
150,514
|
|
17,956
|
|
—
|
|
168,470
|
|
|
Transaction
costs
|
|
—
|
|
226
|
|
—
|
|
—
|
|
226
|
|
|
Operating
(loss) income
|
|
—
|
|
(8,159
|
)
|
6,193
|
|
108
|
|
(1,858
|
)
|
|
Loss on redemption
of debt
|
|
—
|
|
503
|
|
—
|
|
—
|
|
503
|
|
|
Net interest
expense
|
|
2,820
|
|
63,385
|
|
486
|
|
—
|
|
66,691
|
|
|
Equity loss (earnings)
in subsidiary, net of tax
|
|
51,087
|
|
(3,047
|
)
|
—
|
|
(48,040
|
)
|
—
|
|
|
(Loss) income
before income taxes
|
|
(53,907
|
)
|
(69,000
|
)
|
5,707
|
|
48,148
|
|
(69,052
|
)
|
|
(Benefit from)
provision for income taxes
|
|
(766
|
)
|
(17,913
|
)
|
2,660
|
|
(2,736
|
)
|
(18,755
|
)
|
|
Net
(loss) income
|
|
$
|
(53,141
|
)
|
$
|
(51,087
|
)
|
$
|
3,047
|
|
$
|
50,884
|
|
$
|
(50,297
|
)
|
F-42
CONDENSED CONSOLIDATING
STATEMENT OF OPERATIONS
Seven Months 2003
|
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Net
sales
|
|
$
|
485,482
|
|
$
|
24,205
|
|
$
|
(5,629
|
)
|
$
|
504,058
|
|
|
Cost of products
sold
|
|
213,742
|
|
10,481
|
|
(5,629
|
)
|
218,594
|
|
|
Gross profit
|
|
271,740
|
|
13,724
|
|
—
|
|
285,464
|
|
|
Selling and
administrative expenses
|
|
184,283
|
|
12,147
|
|
—
|
|
196,430
|
|
|
Transaction
costs
|
|
30,960
|
|
—
|
|
—
|
|
30,960
|
|
|
Operating
income
|
|
56,497
|
|
1,577
|
|
—
|
|
58,074
|
|
|
Loss on
redemption of debt
|
|
13,878
|
|
—
|
|
—
|
|
13,878
|
|
|
Net interest
expense
|
|
31,977
|
|
469
|
|
—
|
|
32,446
|
|
|
Equity earnings
in subsidiary, net of tax
|
|
913
|
|
—
|
|
(913
|
)
|
—
|
|
|
Income from
continuing operations before income taxes
|
|
11,555
|
|
1,108
|
|
(913
|
)
|
11,750
|
|
|
Provision for
income taxes
|
|
8,500
|
|
195
|
|
—
|
|
8,695
|
|
|
Income
from continuing operations
|
|
3,055
|
|
913
|
|
(913
|
)
|
3,055
|
|
|
Cumulative
effect of accounting change
|
|
4,585
|
|
—
|
|
—
|
|
4,585
|
|
|
Net
income
|
|
$
|
7,640
|
|
$
|
913
|
|
$
|
(913
|
)
|
$
|
7,640
|
|
CONDENSED CONSOLIDATING
STATEMENT OF OPERATIONS
2002
|
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Net
sales
|
|
$
|
716,825
|
|
$
|
53,593
|
|
$
|
(14,434
|
)
|
$
|
755,984
|
|
|
Cost of products
sold
|
|
307,936
|
|
22,459
|
|
(14,434
|
)
|
315,961
|
|
|
Gross profit
|
|
408,889
|
|
31,134
|
|
—
|
|
440,023
|
|
|
Selling and
administrative expenses
|
|
282,243
|
|
24,206
|
|
—
|
|
306,449
|
|
|
Operating
income
|
|
126,646
|
|
6,928
|
|
—
|
|
133,574
|
|
|
Loss on
redemption of debt
|
|
1,765
|
|
—
|
|
—
|
|
1,765
|
|
|
Net interest
expense (income)
|
|
67,348
|
|
(22
|
)
|
—
|
|
67,326
|
|
|
Equity earnings
in subsidiary, net of tax
|
|
3,752
|
|
—
|
|
(3,752
|
)
|
—
|
|
|
Income from
continuing operations before income taxes
|
|
61,285
|
|
6,950
|
|
(3,752
|
)
|
64,483
|
|
|
Provision for
income taxes
|
|
32,957
|
|
3,257
|
|
—
|
|
36,214
|
|
|
Income
from continuing operations
|
|
28,328
|
|
3,693
|
|
(3,752
|
)
|
28,269
|
|
|
Gain on
discontinued operations
|
|
1,578
|
|
59
|
|
—
|
|
1,637
|
|
|
Net income
|
|
$
|
29,906
|
|
$
|
3,752
|
|
$
|
(3,752
|
)
|
$
|
29,906
|
|
F-43
CONDENSED CONSOLIDATING
BALANCE SHEET
2004
|
|
|
Issuer
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
80,933
|
|
$
|
(2,241
|
)
|
$
|
3,577
|
|
$
|
—
|
|
$
|
82,269
|
|
|
Accounts
receivable, net
|
|
—
|
|
147,262
|
|
10,981
|
|
—
|
|
158,243
|
|
|
Inventories, net
|
|
—
|
|
127,036
|
|
2,443
|
|
(29
|
)
|
129,450
|
|
|
Salespersons
overdrafts, net
|
|
—
|
|
27,541
|
|
7,874
|
|
—
|
|
35,415
|
|
|
Prepaid expenses
and other current assets
|
|
530
|
|
12,648
|
|
461
|
|
—
|
|
13,639
|
|
|
Intercompany
(payable) receivable
|
|
(85,221
|
)
|
85,221
|
|
—
|
|
—
|
|
—
|
|
|
Deferred income
taxes
|
|
—
|
|
58,817
|
|
75
|
|
—
|
|
58,892
|
|
|
Total
current assets
|
|
(3,758
|
)
|
456,284
|
|
25,411
|
|
(29
|
)
|
477,908
|
|
|
Property, plant,
and equipment, net
|
|
62
|
|
236,714
|
|
4,347
|
|
—
|
|
241,123
|
|
|
Goodwill
|
|
—
|
|
1,066,320
|
|
42,125
|
|
—
|
|
1,108,445
|
|
|
Intangibles, net
|
|
—
|
|
585,285
|
|
20,910
|
|
—
|
|
606,195
|
|
|
Deferred
financing costs, net
|
|
58,679
|
|
—
|
|
—
|
|
—
|
|
58,679
|
|
|
Intercompany (payable)
receivable
|
|
(58,679
|
)
|
58,114
|
|
565
|
|
—
|
|
—
|
|
|
Other assets
|
|
—
|
|
10,425
|
|
2,191
|
|
(1,712
|
)
|
10,904
|
|
|
Investment in
subsidiaries
|
|
375,015
|
|
63,747
|
|
—
|
|
(438,762
|
)
|
—
|
|
|
|
|
$
|
371,319
|
|
$
|
2,476,889
|
|
$
|
95,549
|
|
$
|
(440,503
|
)
|
$
|
2,503,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
—
|
|
$
|
—
|
|
$
|
8,300
|
|
$
|
—
|
|
$
|
8,300
|
|
|
Accounts payable
|
|
2,508
|
|
49,278
|
|
1,719
|
|
—
|
|
53,505
|
|
|
Accrued employee
compensation
|
|
308
|
|
44,487
|
|
2,065
|
|
—
|
|
46,860
|
|
|
Commissions payable
|
|
—
|
|
14,173
|
|
2,521
|
|
—
|
|
16,694
|
|
|
Customer
deposits
|
|
—
|
|
151,103
|
|
5,408
|
|
—
|
|
156,511
|
|
|
Income taxes
payable
|
|
(11
|
)
|
7,558
|
|
924
|
|
(11
|
)
|
8,460
|
|
|
Interest payable
|
|
9,606
|
|
209
|
|
—
|
|
—
|
|
9,815
|
|
|
Current portion
of long-term debt
|
|
19,950
|
|
—
|
|
—
|
|
—
|
|
19,950
|
|
|
Intercompany
(receivable) payable
|
|
(9,707
|
)
|
26,073
|
|
475
|
|
(16,841
|
)
|
—
|
|
|
Other accrued
liabilities
|
|
—
|
|
24,001
|
|
1,687
|
|
—
|
|
25,688
|
|
|
Current
liabilities of discontinued operations
|
|
—
|
|
1,744
|
|
—
|
|
—
|
|
1,744
|
|
|
Total
current liabilities
|
|
22,654
|
|
318,626
|
|
23,099
|
|
(16,852
|
)
|
347,527
|
|
|
Long-term debt,
less current maturities
|
|
1,500,050
|
|
—
|
|
—
|
|
—
|
|
1,500,050
|
|
|
Intercompany
(receivable) payable
|
|
(1,500,050
|
)
|
1,500,050
|
|
—
|
|
—
|
|
—
|
|
|
Deferred income
taxes
|
|
—
|
|
250,066
|
|
8,703
|
|
—
|
|
258,769
|
|
|
Pension
liabilities, net
|
|
—
|
|
27,489
|
|
—
|
|
—
|
|
27,489
|
|
|
Other noncurrent
liabilities
|
|
—
|
|
5,643
|
|
—
|
|
—
|
|
5,643
|
|
|
Total
liabilities
|
|
22,654
|
|
2,101,874
|
|
31,802
|
|
(16,852
|
)
|
2,139,478
|
|
|
Stockholders’
equity
|
|
348,665
|
|
375,015
|
|
63,747
|
|
(423,651
|
)
|
363,776
|
|
|
|
|
$
|
371,319
|
|
$
|
2,476,889
|
|
$
|
95,549
|
|
$
|
(440,503
|
)
|
$
|
2,503,254
|
|
F-44
CONDENSED CONSOLIDATING
BALANCE SHEET
2003
|
|
|
Issuer
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
—
|
|
$
|
37,100
|
|
$
|
6,631
|
|
$
|
—
|
|
$
|
43,731
|
|
|
Accounts
receivable, net
|
|
—
|
|
130,261
|
|
11,464
|
|
—
|
|
141,725
|
|
|
Inventories, net
|
|
—
|
|
109,280
|
|
2,701
|
|
(19
|
)
|
111,962
|
|
|
Salespersons
overdrafts, net
|
|
—
|
|
22,388
|
|
7,674
|
|
—
|
|
30,062
|
|
|
Prepaid expenses
and other current assets
|
|
—
|
|
17,800
|
|
955
|
|
7
|
|
18,762
|
|
|
Deferred income
taxes
|
|
—
|
|
4,516
|
|
75
|
|
—
|
|
4,591
|
|
|
Total
current assets
|
|
—
|
|
321,345
|
|
29,500
|
|
(12
|
)
|
350,833
|
|
|
Property, plant,
and equipment, net
|
|
—
|
|
267,490
|
|
4,570
|
|
—
|
|
272,060
|
|
|
Goodwill
|
|
—
|
|
1,099,177
|
|
39,487
|
|
—
|
|
1,138,664
|
|
|
Intangibles, net
|
|
—
|
|
676,401
|
|
23,784
|
|
—
|
|
700,185
|
|
|
Deferred
financing costs, net
|
|
—
|
|
37,905
|
|
931
|
|
—
|
|
38,836
|
|
|
Other assets
|
|
—
|
|
11,514
|
|
1,194
|
|
(1,711
|
)
|
10,997
|
|
|
Investment in
subsidiaries
|
|
312,271
|
|
59,782
|
|
—
|
|
(372,053
|
)
|
—
|
|
|
|
|
$
|
312,271
|
|
$
|
2,473,614
|
|
$
|
99,466
|
|
$
|
(373,776
|
)
|
$
|
2,511,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
—
|
|
$
|
29,238
|
|
$
|
13,013
|
|
$
|
—
|
|
$
|
42,251
|
|
|
Accounts payable
|
|
—
|
|
41,957
|
|
3,009
|
|
—
|
|
44,966
|
|
|
Accrued employee
compensation
|
|
—
|
|
39,100
|
|
1,631
|
|
—
|
|
40,731
|
|
|
Commissions
payable
|
|
—
|
|
15,733
|
|
2,973
|
|
—
|
|
18,706
|
|
|
Customer
deposits
|
|
—
|
|
145,109
|
|
4,700
|
|
—
|
|
149,809
|
|
|
Income taxes
payable
|
|
—
|
|
7,695
|
|
1,941
|
|
—
|
|
9,636
|
|
|
Interest payable
|
|
—
|
|
23,389
|
|
—
|
|
—
|
|
23,389
|
|
|
Current portion
of long-term debt
|
|
—
|
|
2,000
|
|
—
|
|
—
|
|
2,000
|
|
|
Deferred income
taxes
|
|
—
|
|
4,283
|
|
—
|
|
—
|
|
4,283
|
|
|
Intercompany
(receivable) payable
|
|
(6,197
|
)
|
3,544
|
|
—
|
|
2,653
|
|
—
|
|
|
Other accrued
liabilities
|
|
—
|
|
18,294
|
|
3,401
|
|
—
|
|
21,695
|
|
|
Current
liabilities of discontinued operations
|
|
—
|
|
3,100
|
|
—
|
|
—
|
|
3,100
|
|
|
Total
current liabilities
|
|
(6,197
|
)
|
333,442
|
|
30,668
|
|
2,653
|
|
360,566
|
|
|
Long-term debt,
less current maturities
|
|
—
|
|
1,280,875
|
|
—
|
|
—
|
|
1,280,875
|
|
|
Redeemable
preferred stock
|
|
—
|
|
258,787
|
|
—
|
|
—
|
|
258,787
|
|
|
Deferred income
taxes
|
|
—
|
|
252,822
|
|
8,895
|
|
—
|
|
261,717
|
|
|
Pension
liabilities, net
|
|
—
|
|
29,724
|
|
—
|
|
—
|
|
29,724
|
|
|
Other noncurrent
liabilities
|
|
—
|
|
5,693
|
|
121
|
|
—
|
|
5,814
|
|
|
Total
liabilities
|
|
(6,197
|
)
|
2,161,343
|
|
39,684
|
|
2,653
|
|
2,197,483
|
|
|
Stockholders’
equity
|
|
318,468
|
|
312,271
|
|
59,782
|
|
(376,429
|
)
|
314,092
|
|
|
|
|
$
|
312,271
|
|
$
|
2,473,614
|
|
$
|
99,466
|
|
$
|
(373,776
|
)
|
$
|
2,511,575
|
|
F-45
CONDENSED CONSOLIDATING
STATEMENT OF CASH FLOWS
2004
|
|
|
Issuer
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Net (loss)
income
|
|
$
|
(109,895
|
)
|
$
|
(93,435
|
)
|
$
|
3,965
|
|
$
|
108,957
|
|
$
|
(90,408
|
)
|
|
Other cash provided
by (used in) operating activities
|
|
97,975
|
|
216,505
|
|
664
|
|
(108,957
|
)
|
206,187
|
|
|
Net
cash (used in) provided by operating activities
|
|
(11,920
|
)
|
123,070
|
|
4,629
|
|
—
|
|
115,779
|
|
|
Purchases of
property, plant, and equipment
|
|
(62
|
)
|
(43,129
|
)
|
(1,167
|
)
|
—
|
|
(44,358
|
)
|
|
Proceeds from
sale of property and equipment
|
|
—
|
|
6,512
|
|
—
|
|
|
|
6,512
|
|
|
Other investing
activities, net
|
|
—
|
|
(152
|
)
|
(31
|
)
|
—
|
|
(183
|
)
|
|
Net
cash used in investing activities
|
|
(62
|
)
|
(36,769
|
)
|
(1,198
|
)
|
—
|
|
(38,029
|
)
|
|
Net short-term
(repayments) borrowings
|
|
—
|
|
(29,238
|
)
|
(6,006
|
)
|
—
|
|
(35,244
|
)
|
|
Redemption of
preferred stock
|
|
—
|
|
(188,849
|
)
|
—
|
|
—
|
|
(188,849
|
)
|
|
Principal
payments on long-term debt
|
|
—
|
|
(460,955
|
)
|
—
|
|
—
|
|
(460,955
|
)
|
|
Redemption of
senior subordinated notes
|
|
—
|
|
(336,437
|
)
|
—
|
|
—
|
|
(336,437
|
)
|
|
Redemption of
senior notes
|
|
—
|
|
(411,436
|
)
|
—
|
|
—
|
|
(411,436
|
)
|
|
Redemption of
PIK notes to stockholders
|
|
—
|
|
(81,037
|
)
|
—
|
|
—
|
|
(81,037
|
)
|
|
Redemption of
subordinated exchange debentures
|
|
—
|
|
(49,001
|
)
|
—
|
|
—
|
|
(49,001
|
)
|
|
Proceeds from
issuance of long-term debt
|
|
1,520,000
|
|
—
|
|
—
|
|
—
|
|
1,520,000
|
|
|
Net contribution
from parent
|
|
239,968
|
|
256,055
|
|
—
|
|
(256,055
|
)
|
239,968
|
|
|
Distribution to
shareholders
|
|
(175,648
|
)
|
(175,648
|
)
|
—
|
|
175,648
|
|
(175,648
|
)
|
|
Debt financing
costs
|
|
(61,255
|
)
|
—
|
|
—
|
|
—
|
|
(61,255
|
)
|
|
Intercompany
(receivable) payable
|
|
(1,430,150
|
)
|
1,350,338
|
|
(595
|
)
|
80,407
|
|
—
|
|
|
Other financing
activities, net
|
|
—
|
|
566
|
|
—
|
|
—
|
|
566
|
|
|
Net
cash provided by (used in) financing activities
|
|
92,915
|
|
(125,642
|
)
|
(6,601
|
)
|
—
|
|
(39,328
|
)
|
|
Effect of
exchange rate changes on cash and cash equivalents
|
|
—
|
|
—
|
|
116
|
|
—
|
|
116
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
80,933
|
|
(39,341
|
)
|
(3,054
|
)
|
—
|
|
38,538
|
|
|
Cash and cash
equivalents, beginning of period
|
|
—
|
|
37,100
|
|
6,631
|
|
—
|
|
43,731
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
80,933
|
|
$
|
(2,241
|
)
|
$
|
3,577
|
|
$
|
—
|
|
$
|
82,269
|
|
F-46
CONDENSED CONSOLIDATING
STATEMENT OF CASH FLOWS
Five Months 2003
|
|
|
Issuer
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Net (loss) income
|
|
$
|
(53,141
|
)
|
$
|
(51,087
|
)
|
$
|
3,047
|
|
$
|
50,884
|
|
$
|
(50,297
|
)
|
|
Other cash
provided by operating activities
|
|
53,141
|
|
144,595
|
|
5,997
|
|
(50,884
|
)
|
152,849
|
|
|
Net
cash provided by operating activities
|
|
—
|
|
93,508
|
|
9,044
|
|
—
|
|
102,552
|
|
|
Acquisition of
businesses, net of cash acquired
|
|
(412,503
|
)
|
(116,840
|
)
|
(2,409
|
)
|
—
|
|
(531,752
|
)
|
|
Purchases of
property, plant, and equipment
|
|
—
|
|
(19,922
|
)
|
(778
|
)
|
—
|
|
(20,700
|
)
|
|
Other investing
activities, net
|
|
—
|
|
146
|
|
(20
|
)
|
—
|
|
126
|
|
|
Net
cash used in investing activities
|
|
(412,503
|
)
|
(136,616
|
)
|
(3,207
|
)
|
—
|
|
(552,326
|
)
|
|
Net short-term
borrowings
|
|
—
|
|
11,038
|
|
620
|
|
—
|
|
11,658
|
|
|
Redemption of
preferred stock
|
|
(102,820
|
)
|
—
|
|
—
|
|
—
|
|
(102,820
|
)
|
|
Principal
payments on long-term debt
|
|
—
|
|
(25,875
|
)
|
—
|
|
—
|
|
(25,875
|
)
|
|
Redemption of senior
subordinated notes
|
|
—
|
|
(9,325
|
)
|
—
|
|
—
|
|
(9,325
|
)
|
|
Proceeds from
issuance of long-term debt
|
|
—
|
|
3,705
|
|
—
|
|
—
|
|
3,705
|
|
|
Proceeds from
issuance of senior notes
|
|
—
|
|
62,850
|
|
—
|
|
—
|
|
62,850
|
|
|
Proceeds from
issuance of common stock
|
|
317,934
|
|
20,000
|
|
—
|
|
—
|
|
337,934
|
|
|
Proceeds from
issuance of preferred stock
|
|
100,000
|
|
—
|
|
—
|
|
—
|
|
100,000
|
|
|
Contribution
from parent
|
|
102,820
|
|
—
|
|
—
|
|
—
|
|
102,820
|
|
|
Intercompany
(receivable) payable
|
|
(5,431
|
)
|
5,431
|
|
—
|
|
—
|
|
—
|
|
|
Debt financing
costs
|
|
—
|
|
(3,504
|
)
|
—
|
|
—
|
|
(3,504
|
)
|
|
Other financing
activities, net
|
|
—
|
|
3,096
|
|
(3,096
|
)
|
—
|
|
—
|
|
|
Net
cash provided by (used in) financing activities
|
|
412,503
|
|
67,416
|
|
(2,476
|
)
|
—
|
|
477,443
|
|
|
Effect of
exchange rate changes on cash and cash equivalents
|
|
—
|
|
—
|
|
144
|
|
—
|
|
144
|
|
|
Increase in cash
and cash equivalents
|
|
—
|
|
24,308
|
|
3,505
|
|
—
|
|
27,813
|
|
|
Cash and cash
equivalents, beginning of period
|
|
—
|
|
12,792
|
|
3,126
|
|
—
|
|
15,918
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
—
|
|
$
|
37,100
|
|
$
|
6,631
|
|
$
|
—
|
|
$
|
43,731
|
|
CONDENSED CONSOLIDATING
STATEMENT OF CASH FLOWS
Seven Months 2003
|
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Net income
|
|
$
|
7,640
|
|
$
|
913
|
|
$
|
(913
|
)
|
$
|
7,640
|
|
|
Other cash used
in operating activities
|
|
(12,461
|
)
|
(2,885
|
)
|
913
|
|
(14,433
|
)
|
|
Net
cash used in operating activities
|
|
(4,821
|
)
|
(1,972
|
)
|
—
|
|
(6,793
|
)
|
|
Acquisition of
business, net of cash acquired
|
|
(4,942
|
)
|
(66
|
)
|
—
|
|
(5,008
|
)
|
|
Purchases of
property, plant, and equipment
|
|
(5,721
|
)
|
(408
|
)
|
—
|
|
(6,129
|
)
|
|
Other investing
activities, net
|
|
(738
|
)
|
—
|
|
—
|
|
(738
|
)
|
|
Net
cash used in investing activities
|
|
(11,401
|
)
|
(474
|
)
|
—
|
|
(11,875
|
)
|
|
Net short-term
borrowings
|
|
—
|
|
1,500
|
|
—
|
|
1,500
|
|
|
Repurchase of
common stock and warrants
|
|
(471,044
|
)
|
—
|
|
—
|
|
(471,044
|
)
|
|
Principal
payments on long-term debt
|
|
(379,270
|
)
|
—
|
|
—
|
|
(379,270
|
)
|
|
Proceeds from
issuance of long-term debt
|
|
475,000
|
|
—
|
|
—
|
|
475,000
|
|
|
Proceeds from
issuance of common stock
|
|
417,934
|
|
—
|
|
—
|
|
417,934
|
|
|
Debt financing
costs
|
|
(20,212
|
)
|
—
|
|
—
|
|
(20,212
|
)
|
|
Merger costs
|
|
(12,608
|
)
|
—
|
|
—
|
|
(12,608
|
)
|
|
Other financing
activities, net
|
|
1,909
|
|
(284
|
)
|
—
|
|
1,625
|
|
|
Net
cash provided by financing activities
|
|
11,709
|
|
1,216
|
|
—
|
|
12,925
|
|
|
Effect of
exchange rate changes on cash and cash equivalents
|
|
—
|
|
236
|
|
—
|
|
236
|
|
|
Decrease in cash
and cash equivalents
|
|
(4,513
|
)
|
(994
|
)
|
—
|
|
(5,507
|
)
|
|
Cash and cash
equivalents, beginning of period
|
|
7,552
|
|
3,386
|
|
—
|
|
10,938
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
3,039
|
|
$
|
2,392
|
|
$
|
—
|
|
$
|
5,431
|
|
F-47
CONDENSED CONSOLIDATING
STATEMENT OF CASH FLOWS
2002
|
|
|
Guarantors
|
|
Non-
Guarantors
|
|
Eliminations
|
|
Total
|
|
|
Net income
|
|
$
|
29,906
|
|
$
|
3,752
|
|
$
|
(3,752
|
)
|
$
|
29,906
|
|
|
Other cash used
in operating activities
|
|
17,970
|
|
3,844
|
|
3,752
|
|
25,566
|
|
|
Net
cash provided by operating activities
|
|
47,876
|
|
7,596
|
|
—
|
|
55,472
|
|
|
Purchases of
property, plant, and equipment
|
|
(22,387
|
)
|
(456
|
)
|
—
|
|
(22,843
|
)
|
|
Other investing
activities, net
|
|
31
|
|
—
|
|
—
|
|
31
|
|
|
Net
cash used in investing activities
|
|
(22,356
|
)
|
(456
|
)
|
—
|
|
(22,812
|
)
|
|
Net short-term borrowings
|
|
—
|
|
8,960
|
|
—
|
|
8,960
|
|
|
Repurchase of
common stock and warrants
|
|
(2,851
|
)
|
—
|
|
—
|
|
(2,851
|
)
|
|
Principal
payments on long-term debt
|
|
(60,855
|
)
|
—
|
|
—
|
|
(60,855
|
)
|
|
Redemption of
senior subordinated notes
|
|
(8,456
|
)
|
—
|
|
—
|
|
(8,456
|
)
|
|
Debt financing
costs
|
|
(1,384
|
)
|
(236
|
)
|
—
|
|
(1,620
|
)
|
|
Canada dividend
|
|
32,150
|
|
(32,150
|
)
|
—
|
|
—
|
|
|
Other financing
activities, net
|
|
642
|
|
(642
|
)
|
—
|
|
—
|
|
|
Net
cash used in financing activities
|
|
(40,754
|
)
|
(24,068
|
)
|
—
|
|
(64,822
|
)
|
|
Decrease in cash
and cash equivalents
|
|
(15,234
|
)
|
(16,928
|
)
|
—
|
|
(32,162
|
)
|
|
Cash and cash
equivalents, beginning of period
|
|
22,786
|
|
20,314
|
|
—
|
|
43,100
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
7,552
|
|
$
|
3,386
|
|
$
|
—
|
|
$
|
10,938
|
|
F-48
Report
of Independent
Registered Public Accounting Firm on Financial Statement Schedule
To the
Shareholders and Board of Directors
Visant Holding
Corp.
Minneapolis,
Minnesota
We have audited the consolidated
financial statements of Visant Holding Corp. and subsidiaries and Visant
Corporation and subsidiaries as of January 1, 2005, January 3, 2004,
and for the year ended January 1, 2005 and the period from July 30,
2003 to January 3, 2004 (successor) and the period from December 29,
2002 to July 29, 2003 (predecessor), and have issued our report thereon
dated February 18, 2005 (included elsewhere in this Form 10-K). Our audits also included the financial
statement schedule listed in Item 15(a)(2) of this Form 10-K. This schedule is the responsibility of
Visant Holding Corp. and Visant Corporation’s management. Our responsibility is to express an opinion
based on our audits.
In
our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG
LLP
Minneapolis, Minnesota
February 18, 2005
Report of Independent Registered
Public Accounting Firm on Financial Statement Schedule
To the Board of Directors of
Jostens Inc.:
Our audit of the
consolidated statements of operations, of changes in stockholders' equity
(deficit) and of cash flows for the year ended December 28, 2002, referred
to in our report dated February 12, 2003 appearing in this Annual Report
on Form 10-K also included an audit for the year ended
December 28, 2002, of the financial statement schedule listed in Item
15(a)(2) of this Form 10-K.
In our opinion, this financial statement schedule presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS
LLP
Minneapolis,
Minnesota
February 12,
2003
Schedule II – Valuation and Qualifying Accounts
Visant Holding Corp. and subsidiaries and Visant
Corporation and subsidiaries
|
In thousands
|
|
Balance
beginning
of period
|
|
Charged to
costs and
expenses
|
|
Deductions
|
|
Addition (1)
|
|
Balance
end of
period
|
|
|
Reserves
and allowances deducted from asset accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances
for uncollectible accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
January 1, 2005
|
|
$
|
3,538
|
|
$
|
973
|
|
$
|
890
|
(2)
|
$
|
—
|
|
$
|
3,621
|
|
|
July 30, 2003
through January 3, 2004
|
|
2,569
|
|
14
|
|
399
|
(2)
|
1,354
|
|
3,538
|
|
|
Jostens, Inc.
(Predecessor)
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
December 29,
2002 through July 29, 2003
|
|
2,557
|
|
491
|
|
479
|
(2)
|
—
|
|
2,569
|
|
|
Year ended
December 28, 2002
|
|
3,657
|
|
869
|
|
1,969
|
(2)
|
—
|
|
2,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances
for sales returns
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
January 1, 2005
|
|
5,791
|
|
21,165
|
|
21,157
|
(3)
|
—
|
|
5,799
|
|
|
July 30, 2003
through January 3, 2004
|
|
9,585
|
|
7,950
|
|
11,744
|
(3)
|
—
|
|
5,791
|
|
|
Jostens, Inc.
(Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29,
2002 through July 29, 2003
|
|
5,597
|
|
13,276
|
|
9,288
|
(3)
|
—
|
|
9,585
|
|
|
Year ended
December 28, 2002
|
|
5,727
|
|
18,337
|
|
18,467
|
(3)
|
—
|
|
5,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salesperson
overdraft reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
January 1, 2005
|
|
10,953
|
|
4,250
|
|
2,481
|
(2)
|
—
|
|
12,722
|
|
|
July 30, 2003
through January 3, 2004
|
|
8,629
|
|
2,204
|
|
(120
|
)(2)
|
—
|
|
10,953
|
|
|
Jostens, Inc.
(Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29,
2002 through July 29, 2003
|
|
8,034
|
|
1,285
|
|
690
|
(2)
|
—
|
|
8,629
|
|
|
Year ended
December 28, 2002
|
|
6,897
|
|
3,603
|
|
2,466
|
(2)
|
—
|
|
8,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) As a result of the consolidation of entities
under common control
(2) Uncollectible accounts written off, net of
recoveries
(3) Returns processed against reserve