**UNITED STATES SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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FORM 10-K

**x**  ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe Fiscal Year Ended January 3, 2004**

**OR**

**o**  TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Commission file number 1-5064**

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Jostens, Inc.

**(Exact name of Registrant asspecified in its charter)**
| **Minnesota**                                                   | ** ** | **41-0343440**                           |
|-----------------------------------------------------------------|------------|------------------------------------------|
| (State or other  jurisdiction of  incorporation or organization | ** ** | (I.R.S. employer  identification number) |
| **5501 American Boulevard West  Minneapolis, Minnesota**        | ** ** | **55437**                                |
| (Address of principal  executive offices)                       | ** ** | (Zip code)                               |

 

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

**Securities registered pursuant to Section 12(b) ofthe Act:  None**

**Securities registered pursuant to Section 12(g) ofthe Act:  None**

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Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13or 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 suchreports) and (2) has been subject to such filing requirement for the past90 days. Yes x     No o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of Registrant’sknowledge, in definitive proxy or information statements incorporated byreference in PART III of this Form 10-K or any amendment tothis Form 10-K. Yes o     No x

Indicate by check markwhether the Registrant is an accelerated filer (as defined in Rule 12b-2of the Act). Yes o      No x

The aggregate market valueof voting and non-voting stock held by nonaffiliates of the Registrant on June 28,2003:  Not applicable.

Number of shares of CommonStock outstanding as of March 31, 2004: 1,000.

Documents incorporated by reference:  None

 

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**Jostens, Inc. and Subsidiaries Annual Report on Form 10-K For the Year Ended January 3, 2004**
| **PART I**                |       |                                                                                              |       |
|--------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | ** **                                                                                        | ** ** | **Page** | ** ** |
| ITEM 1.                        |       | Business                                                                                          |       | 1 |   |
| ITEM 2.                        |       | Properties                                                                                        |       | 5 |   |
| ITEM 3.                        |       | Legal Proceedings                                                                                 |       | 5 |   |
| ITEM  4.                       |       | Submission  of Matters to a Vote of Security Holders                                              |       | 5 |   |
| **PART II**               |       |                                                                                              |       |
| ITEM  5.                       |       | Market  for Registrant’s Common Equity and Related Stockholder Matters                       |       | 5 |   |
| ITEM 6.                        |       | Selected  Financial Data                                                                          |       | 6 |   |
| ITEM  7.                       |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations  |       | 8 |   |
| ITEM  7A.                      |       | Quantitative  and Qualitative Disclosures about Market Risk                                       |       | 24 |   |
| ITEM  8.                       |       | Financial  Statements and Supplementary Data                                                      |       | 25 |   |
| ITEM  9.                       |       | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure        |       | 60 |   |
| ITEM 9A.                       |       | Controls and  Procedures                                                                          |       | 60 |   |
| **PART III**              |       |                                                                                              |       |
| ITEM  10.                      |       | Directors  and Executive Officers of the Registrant                                               |       | 61 |   |
| ITEM 11.                       |       | Executive  Compensation                                                                           |       | 64 |   |
| ITEM  12.                      |       | Security  Ownership of Certain Beneficial Owners and Management                                   |       | 67 |   |
| ITEM  13.                      |       | Certain  Relationships and Related Transactions                                                   |       | 68 |   |
| ITEM  14.                      |       | Principal  Accountants Fees and Services                                                          |       | 70 |   |
| **PART IV**               |       |                                                                                              |       |
| ITEM 15.                       |       | Exhibits,  Financial Statement Schedules and Reports on Form 8-K                             |       | 71 |   |
|                           |       | Signatures                                                                                        |       | 74 |   |
| Financial Statement  Schedules |       | 75                                                                                                |       |
| Exhibits                       |       | 77                                                                                                |       |

 

 

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*Unless otherwise indicated, allreferences to “Jostens,” “we,” “our,” “us” or the “Company” refer to Jostens, Inc.and its subsidiaries.*

**PART I**

**ITEM1.**   BUSINESS

***General***

We are a leading providerof school-related affinity products and services in three major productcategories: yearbooks, class rings and graduation products, which includesdiplomas, graduation regalia, such as caps and gowns, accessories and finepaper announcements. We also are a leading provider of school photographyproducts and services in Canada and have a small but growing presence in theUnited States. We have a 107-year history of providing quality products,which has enabled us to develop long-standing relationships with schooladministrators throughout the country.

***Merger***

On June 17, 2003, we entered into a mergeragreement with Jostens Holding Corp. (formerly known as Ring Holding Corp.) andRing Acquisition Corp., an entity organized for the sole purpose of effecting amerger on behalf of DLJ Merchant Banking Partners III, L.P. and certain of itsaffiliated funds (collectively, the “DLJMB Funds”). On July 29, 2003, RingAcquisition Corp. merged with and into Jostens, Inc., with Jostens, Inc.becoming the surviving company and an indirect subsidiary of Jostens HoldingCorp. (the “merger”). As a result of the merger, the DLJMB Funds and certainco-investors beneficially own 99% of our outstanding voting securities andcertain members of our senior management and directors own the remaining 1%.

In connection with the merger, we received $417.9million of proceeds from a capital contribution by Jostens IH Corp. (“JIHC”),which was established for purposes of the merger. We used the proceeds from thecapital contribution, along with incremental borrowings under our new seniorsecured credit facility, to repurchase all previously outstanding common stockand warrants. We paid $471.0 million to holders of common stock and warrantsrepresenting a cash payment of $48.25 per share.

As a result of the merger, in accordance withStatement of Financial Accounting Standards (SFAS) 141, *“Business Combinations”,*we have reflecteda pre-merger period from December 29, 2002 to July 29, 2003 and apost-merger period from July 30, 2003 to January 3, 2004 in ourconsolidated financial statements for fiscal 2003. Our consolidated financialstatements for the pre-merger period from December 29, 2002 through July 29,2003, were prepared using our historical basis of accounting. As a result ofthe transaction on July 29, 2003, we applied purchase accounting. Althougha new basis of accounting began on July 29, 2003, we have presentedresults for the fiscal year ended January 3, 2004 on a combined basis inthe following discussion as we believe this presentation facilitates thecomparison of our results with the corresponding periods for fiscal years 2002and 2001.

For further information onthe merger and the related accounting treatment see ITEM 7, Management’sDiscussion and Analysis of Financial Condition and Results of Operations.

***Principal Products***

Although we market our products primarily throughindependent sales representatives, we also market certain of our productsthrough a direct employee-based sales organization. We offer our productspredominantly to North American high school and college students. Approximately94% of our combined 2003 net sales and 95% of both our 2002 and 2001 net saleswere in the U.S. market. Additional information is set forth below in ITEM 8,Note 15 of the Notes to Consolidated Financial Statements.

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*Yearbooks:**  *Wemanufacture and sell yearbooks to students in U.S. high schools, middleschools, colleges and universities. We earn the majority of our revenues fromhigh school accounts, although a small commercial printing business is alsoincluded in this product line. Our independent sales representatives andtechnical support employees based in our five printing facilities assiststudents and faculty advisers with the planning, editing and layout ofyearbooks. With a new class of students each year and periodic faculty advisorturnover, our independent sales representatives and customer service employeesare the main point of continuity for the yearbook production process on ayear-to-year basis. Yearbooks contributed 41%, 42% and 41% of our net sales inthe combined 2003 periods, 2002 and 2001, respectively.

*Class Rings:  *Wedesign, manufacture and sell class rings to students in U.S. high schools,colleges and universities. Most schools have only one school-designatedsupplier who sells the school’s official class ring to students. Class ringsare sold within the high schools, through college bookstores, other campusstores, retail jewelry stores and the Internet. We sell a significant portionof our class rings within schools, where our independent sales representatives,along with the support of customer service employees, coordinate ring design,promotion and ordering with the students. Our proprietary ring dies and toolingand our manufacturing expertise enable us to offer highly customized classrings. We also design, manufacture and sell championship rings for professionalsports and commemorative rings for a variety of specialty markets. Ringscontributed 26%, 27% and 28% of our net sales in the combined 2003 periods,2002 and 2001, respectively.

*Graduation Products:**  *Wemanufacture and sell graduation products to students and administrators in U.S.high schools, colleges and universities. We sell caps, gowns, diplomas andannouncements, as well as graduation-related accessories, to students andadministrators through the same independent sales representatives who sell classrings. We have a proven track record of providing timely delivery of a widearray of high quality graduation products. In recent years, our line ofgraduation products has been expanded to include such products as diplomaplaques and personalization options for our regalia line. We maintainproduct-specific tooling as well as a library of school logos and mascots thatcan be used repeatedly for specific school accounts over time. Graduationproducts contributed 25%, 24% and 24% of our net sales in the combined 2003periods, 2002 and 2001, respectively.

*Photography:**  *Weprocess and sell photography products and services to students in Canada andthe United States. Through our network of sales representatives and independentdealers, we provide class and individual school pictures of high school, middleand elementary school students. We also provide high school senior portraitsand photography for proms and other special events. In recent years, we haveintroduced a number of new digital photography products. In addition to ourproducts designed for student purchasers, we provide photography products toschool administrators, including office records photos, school composites,pictorial directories and identification cards. Photography contributed 8%, 7%and 7% of our net sales in the combined 2003 periods, 2002 and 2001,respectively.

***Competition***

We are one of four national competitors in the sale ofyearbooks, class rings and/or graduation products along with Herff Jones, Inc.,American Achievement Corporation and Walsworth Publishing Company. We believethat we are the largest of the national competitors in yearbooks, class ringsand graduation products based on the number of schools served. Herff Jones, Inc.and American Achievement Corporation are the only other national manufacturersthat sell each of these three product lines.

*Yearbooks:**  *Inthe sale of yearbooks, we compete primarily with Herff Jones, Inc.,American Achievement Corporation (which markets under the Taylor Publishingbrand), Walsworth Publishing Company and Lifetouch, Inc. Each competes onthe basis of service, on-time delivery, print quality, price 

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and product offerings.Customization and personalization combined with technical assistance andcustomer service capabilities are important factors in yearbook production.

*Class Rings:  *Ourcompetition in class rings consists primarily of two national firms, HerffJones, Inc. and American Achievement Corporation (which markets theBalfour and ArtCarved brands). Herff Jones, Inc. distributes its productswithin schools, while American Achievement Corporation distributes its productsthrough multiple distribution channels including schools, independent and chainjewelers and mass merchandisers. We distribute our products primarily withinschools. Class rings sold through independent and chain jewelers and massmerchandisers are generally lower priced rings than class rings sold withinschools. Customer service is particularly important in the sale of class ringsbecause of the high degree of customization and the emphasis on timelydelivery.

*Graduation Products:**  *Inthe sale of graduation products, we compete primarily with Herff Jones, Inc.and American Achievement Corporation as well as numerous local and regionalcompetitors who offer products similar to ours. Each competes on the basis ofservice, on-time delivery, product quality, price and product offerings withparticular importance given to establishing a proven track record of timelydelivery of quality products.

*Photography:**  *Oursales of school photography products and services are divided between Canadaand the United States. In Canada, we compete with a variety of regional andlocal photographers. In the United States, our primary competitors areLifetouch Inc. and Herff Jones, Inc. as well as regional and localphotographers. Each competes on the basis of quality, price, on-time deliveryand product offerings.

***Seasonality***

We experience seasonalityconcurrent with the North American school year, with nearly one half of full-yearsales and approximately three fourths of full-year operating income typicallyoccurring in the second quarter.

***Raw Materials***

The principal raw materials that we purchase are goldand other precious metals, paper products, and precious, semiprecious andsynthetic stones. The cost of gold and precious, semiprecious and syntheticstones is affected by market volatility. To manage the risk associated withgold price changes, we enter into gold forward contracts based upon theestimated ounces needed to satisfy projected customer demand.

We purchase substantially all precious, semipreciousand synthetic stones from a single supplier located in Germany whom we believeis also a supplier to our major class ring competitors in the United States. Webelieve that the loss of this supplier could adversely affect our businessduring the time period in which alternate sources would adapt their productioncapabilities to meet increased demand.

Matters pertaining to ourmarket risks are set forth below in ITEM 7A, Quantitative and QualitativeDisclosures about Market Risk.

***Backlog***

Because of the nature ofour business, all orders are generally filled within a few months from the timeof placement. However, we typically obtain contracts in the second quarter ofone year for student yearbooks to be delivered in the second and third quartersof the subsequent year. Often the total revenue pertaining to a yearbook orderis not established at the time of the order because the content of the book isnot final. Subject to the foregoing qualifications, we estimate the backlog oforders, primarily related to student yearbooks, was approximately $340.6million, $324.0 million and $308.0 million as of the end of 2003, 2002 and2001, respectively. We expect most of the 2003 backlog to be confirmed andfilled in 2004.

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***Environmental***

Matters pertaining to theenvironment are set forth below in ITEM 7, Management’s Discussion and Analysisof Financial Condition and Results of Operations.

***Employees***

Given the seasonality of our business, we utilize ahigh percentage of cyclical employees to maximize efficiency and manage ourcosts. The total number of employees fluctuates throughout the year, with thenumber typically being highest in March and lowest in August.

We have two union organizations within our workforce.The Topeka Printing operation located in Kansas (which is a “right to work”state) has the Graphic Communication International Union Local 49C affiliatedwith the AFL/CIO. The Owatonna Jewelry Warranty and Refinery operation locatedin Minnesota (which is not a “right to work” state) has the InternationalAssociation of Machinists and Aerospace Workers Union Local 1416 affiliatedwith the AFL/CIO.

As of the end of February 2004,we had approximately 6,300 employees, of which approximately 230 were membersof the two aforementioned unions.

***Intellectual Property***

We have licenses, patents,trademarks and copyrights that, in the aggregate, are an important part of ourbusiness. However, we do not regard our business as being materially dependentupon any single license, patent, trademark or copyright. We have patent andtrademark registration applications pending and will pursue other filings andregistrations as appropriate to establish and preserve our intellectualproperty rights.

***International Operations***

Our foreign sales arederived primarily from operations in Canada. Local taxation, import duties,fluctuation in currency exchange rates and restrictions on exportation ofcurrencies are among risks attendant to foreign operations, but these risks arenot considered significant with respect to our business. Our margins on foreignsales are comparable to our margins on domestic sales.

***Availability of Reports***

We make available free ofcharge our annual reports on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K and all amendments to those reports assoon as reasonably practical after such material is electronically filed withor furnished to the Securities and Exchange Commission. Such reports can beobtained by contacting us at *www.jostens.com*or at Jostens, Inc., 5501 American Boulevard West, Minneapolis, Minnesota55437. Our main phone number is (952) 830-3300.

**CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS**

Our disclosure and analysis in this report may contain“forward-looking statements.” Forward-looking statements give our currentexpectations or forecasts of future events and generally can be identified bythe use of forward-looking terminology such as “may,” “will,” “expect,” “intend,”“estimate,” “anticipate,” “believe,” “project,” or “continue,” or the negativethereof or similar words. From time to time, we also may provide oral orwritten forward-looking statements in other materials we release to the public.We base these forward-looking statements on assumptions that we believe arereasonable; however, these assumptions may prove incorrect and may be affectedby known or unknown risks or uncertainties. As a result, actual results mayvary materially from those set forth in our forward-looking statements.Investors are cautioned not to place undue reliance on any forward-lookingstatements.

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These risks and uncertainties include the following: ourability to satisfy our debt obligations, including related covenants; theseasonality of our sales and operating income; our relationship with ourindependent sales representatives; the fluctuating prices of raw materials,primarily gold; our dependence on a key supplier for our precious, semipreciousand synthetic stones; our dependence on numerous complex information systemsfor operational and financial information; fashion, consumer preferences anddemographic trends; the competitive environment; general economic conditions;litigation cases, if decided against us, that could adversely affect ourfinancial results; and environmental regulations that could impose substantialcosts upon us adversely affecting our financial results.

The foregoing factors arenot exhaustive, and new factors may emerge or changes to the foregoing factorsmay occur that could impact our business. Except to the extent required by law,we undertake no obligation to publicly update or revise any forward-lookingstatements.

**ITEM2.**   PROPERTIES

Our principal executive offices are owned and arelocated in Minneapolis, Minnesota. Our manufacturing facilities are located inMinnesota, Kansas, North Carolina, South Carolina, Tennessee, California,Pennsylvania, Texas, Massachusetts and Winnipeg, Manitoba. We own approximately96%, or 1,219,000 square feet, of our total manufacturing space and lease thebalance. We also lease 158,000 square feet of warehouse facilities. All owneddomestic properties represent collateral under our senior secured creditfacility.

We also maintain sales and administrative officespace, primarily for our photography product line, in forty locations innineteen states and three Canadian provinces. With the exception of onelocation, all of this space is leased.

In management’s opinion,all buildings, machinery and equipment are suitable for their purposes and aremaintained on a basis consistent with sound operations. The extent ofutilization of individual facilities varies significantly due to the seasonalnature of the business. We believe that we have sufficient space for ourcurrent operations and for foreseeable expansion in the next few years.

**ITEM 3.**   LEGALPROCEEDINGS

Matters pertaining tolegal proceedings are set forth below in ITEM 7, Management’s Discussion andAnalysis of Financial Condition and Results of Operations and ITEM 8, Note 10of the Notes to Consolidated Financial Statements.

**ITEM 4.**   SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

None

**PART II**

**ITEM 5.**   MARKET FOR REGISTRANT’S COMMON EQUITY ANDRELATED STOCKHOLDER MATTERS

Currently, there is noestablished public trading market for our closely held common stock. Ourability to pay dividends is limited by the terms of our senior secured creditfacility and the senior subordinated notes.

At March 20, 2004,there was one shareholder of record for our common stock.

***Recent Sales of Unregistered Securities***

We have not issued nor sold securities within the pastthree years pursuant to offerings that were not registered under the SecuritiesAct of 1933, as amended (the “Securities Act”).

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**ITEM 6.**   SELECTEDFINANCIAL DATA

The table below sets forthour selected consolidated historical data. The selected historical financialinformation for the pre-merger period from December 29, 2002 through July 29,2003 (seven months), the post-merger period from July 30, 2003 through January 3,2004 (five months) and each of the four fiscal years in the period ended December 28,2002 was derived from our audited historical consolidated financial statements.
| ** **                                                    | ** ** | **Post-Merger**                                                    | ** ** | **Pre-Merger**        | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                    | ** ** | **Five Months**                                               | ** ** | **Seven Months** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                    | ** ** | **2003**                                                           | ** ** | **2003**              | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** | **1999** | ** ** |
| ** **                                                    | ** ** | **In millions, except common share data** | ** ** |
| **Statement of Operations  Data(1):**                         | ** ** | ** **                                                         | ** ** |                  | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                     |       | $                                                                  | 284.2      |                  |       | $ | 504.1 | ** ** |   | $ | 756.0 |   | $ | 736.6 |   | $ | 724.6 |   | $ | 701.5 |   |
| Cost of products sold                                         |       | 162.7                                                              |       |                  | 218.6      | ** ** |   | 316.0 |   | 311.2 |   | 305.1 |   | 305.0 |   |
| Gross profit                                                  |       | 121.5                                                              |       |                  | 285.5      | ** ** |   | 440.0 |   | 425.3 |   | 419.5 |   | 396.5 |   |
| Selling and  administrative expenses                          |       | 143.8                                                              |       |                  | 196.4      | ** ** |   | 306.4 |   | 300.9 |   | 301.7 |   | 293.6 |   |
| Loss on redemption of  debt(2)                                |       | 0.5                                                                |       |                  | 13.9       | ** ** |   | 1.8 |   | — |   | — |   | — |   |
| Transaction costs(3)                                          |       | 0.2                                                                |       |                  | 31.0       | ** ** |   | — |   | — |   | 46.4 |   | — |   |
| Special charges                                               |       | —                                                             |       |                  | —     | ** ** |   | — |   | 2.5 |   | 0.2 |   | 20.2 |   |
| Operating (loss) income                                       |       | (23.1                                                              | )          |                  | 44.2       | ** ** |   | 131.8 |   | 121.9 |   | 71.2 |   | 82.7 |   |
| Interest expense, net                                         |       | 28.3                                                               |       |                  | 32.4       | ** ** |   | 67.3 |   | 76.8 |   | 58.9 |   | 7.0 |   |
| Equity losses and  write-down of investment                   |       | —                                                             |       |                  | —     | ** ** |   | — |   | — |   | 6.7 |   | — |   |
| (Loss) income from  continuing operations before income taxes |       | (51.4                                                              | )          |                  | 11.8       | ** ** |   | 64.5 |   | 45.1 |   | 5.5 |   | 75.7 |   |
| (Benefit from) provision  for income taxes                    |       | (18.0                                                              | )          |                  | 8.7        | ** ** |   | 36.2 |   | 18.6 |   | 16.0 |   | 31.7 |   |
| (Loss) income from  continuing operations                     |       | (33.4                                                              | )          |                  | 3.1        | ** ** |   | 28.3 |   | 26.5 |   | (10.5 | ) | 44.0 |   |
| Gain (loss) on  discontinued operations, net of tax           |       | —                                                             |       |                  | —     | ** ** |   | 1.6 |   | (22.4 | ) | (2.3 | ) | (0.8 | ) |
| Cumulative effect of  accounting change, net of tax           |       | —                                                             |       |                  | 4.6        | ** ** |   | — |   | — |   | (5.9 | ) | — |   |
| Net (loss) income                                             |       | (33.4                                                              | )          |                  | 7.6        | ** ** |   | 29.9 |   | 4.1 |   | (18.7 | ) | 43.2 |   |
| Dividends and accretion  on redeemable preferred shares       |       | —                                                             |       |                  | (6.5       | **)** |   | (11.7 | ) | (10.2 | ) | (5.8 | ) | — |   |
| Net (loss) income  available to common  shareholders          |       | (33.4                                                              | )          |                  | 1.1        | ** ** |   | 18.2 |   | (6.1 | ) | (24.5 | ) | 43.2 |   |
| **Common  Share Data(4):**                                    | ** ** | ** **                                                         | ** ** |                  | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic EPS—(loss) income  from continuing operations      |       | $                                                                  | (33,402.00 | )                     |       | $ | (0.39 | **)** |   | $ | 1.85 |   | $ | 1.82 |   | $ | (0.92 | ) | $ | 1.29 |   |
| Basic EPS—net (loss)  income                             |       | (33,402.00                                                         | )          |                  | 0.12       | ** ** |   | 2.03 |   | (0.68 | ) | (1.38 | ) | 1.27 |   |
| Diluted EPS—(loss) income  from continuing  operations   |       | (33,402.00                                                         | )          |                  | (0.39      | **)** |   | 1.66 |   | 1.65 |   | (0.92 | ) | 1.29 |   |
| Diluted EPS—net (loss)  income                           |       | (33,402.00                                                         | )          |                  | 0.12       | ** ** |   | 1.83 |   | (0.61 | ) | (1.38 | ) | 1.27 |   |
| Cash dividends declared  per share                            |       | —                                                             |       |                  | —     | ** ** |   | — |   | — |   | 0.22 |   | 0.88 |   |
| Common shares outstanding  at period end (in thousands)  |       | 1                                                                  |       |                  | 8,956      | ** ** |   | 8,959 |   | 8,980 |   | 8,993 |   | 33,324 |   |
| **Balance  Sheet Data (at end of period):**                   | ** ** | ** **                                                         | ** ** |                  | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current assets                                                |       | $                                                                  | 189.4      |                  |       |   | ** ** |   | $ | 187.1 |   | $ | 232.6 |   | $ | 236.1 |   | $ | 286.3 |   |
| Working capital, as  defined(5)                               |       | (76.8                                                              | )          |                  |       | ** ** |   | (56.0 | ) | (62.6 | ) | (20.0 | ) | 8.3 |   |
| Property and equipment,  net                                  |       | 105.6                                                              |       |                  |       | ** ** |   | 65.4 |   | 68.2 |   | 79.3 |   | 84.6 |   |
| Total assets                                                  |       | 1,720.4                                                            |       |                  |       | ** ** |   | 327.5 |   | 374.6 |   | 388.3 |   | 408.2 |   |
| Short-term borrowings                                         |       | 13.0                                                               |       |                  |       | ** ** |   | 9.0 |   | — |   | — |   | 117.6 |   |
| Long-term debt, including  current maturities                 |       | 685.4                                                              |       |                  |       | ** ** |   | 580.4 |   | 647.0 |   | 684.8 |   | 3.6 |   |
| Redeemable preferred  stock(6)                                |       | 135.3                                                              |       |                  |       | ** ** |   | 70.8 |   | 59.0 |   | 48.8 |   | — |   |
| Shareholders’ equity  (deficit)                          |       | 384.5                                                              |       |                  |       | ** ** |   | (582.5 | ) | (599.1 | ) | (586.3 | ) | 36.5 |   |
| **Statement  of Cash Flows:**                                 |       |                                                               |       |                  |       | ** ** |   |   |   |   |   |   |   |   |   |
| Net cash provided by  (used for) operating activities         |       | $                                                                  | 71.8       |                  |       | $ | (6.8 | **)** |   | $ | 55.5 |   | $ | 71.6 |   | $ | 35.5 |   | $ | 125.2 |   |
| Net cash used for  investing activiites                       |       | (28.0                                                              | )          |                  | (11.9      | **)** |   | (22.8 | ) | (15.8 | ) | (18.2 | ) | (37.2 | ) |
| Net cash (used for)  provided by financing activities         |       | (30.0                                                              | )          |                  | 12.9       | ** ** |   | (64.8 | ) | (39.3 | ) | (29.3 | ) | (52.1 | ) |
| **Other  Financial Data(1):**                                 |       |                                                               |       |                  |       | ** ** |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                 |       | $                                                                  | 34.5       |                  |       | $ | 14.6 | ** ** |   | $ | 26.9 |   | $ | 28.6 |   | $ | 26.8 |   | $ | 22.7 |   |
| Capital expenditures                                          |       | 17.0                                                               |       |                  | 6.1        | ** ** |   | 22.8 |   | 22.2 |   | 21.2 |   | 26.8 |   |
| Adjusted EBITDA(7)                                            |       | 50.4                                                               |       |                  | 103.6      | ** ** |   | 160.9 |   | 153.0 |   | 144.6 |   | 125.6 |   |
| Adjusted EBITDA margin(8)                                     |       | 17.7                                                               | %          |                  | 20.6       | **%** |   | 21.3 | % | 20.8 | % | 20.0 | % | 17.9 | % |

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(1)    Certain Statement of Operations Data and OtherFinancial Data have been reclassified for all periods presented to reflect theresults of discontinued operations consisting of the exit of our Recognitionbusiness as set forth below in ITEM 7, Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.

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(2)    For thepost-merger period in 2003, loss on redemption of debt represents a loss of$0.5 million in connection with our repurchase of $8.5 million principal amountof senior subordinated notes. For the pre-merger period in 2003, loss onredemption of debt represents a loss of $13.9 million consisting of thewrite-off of unamortized deferred financing costs in connection withrefinancing the old senior secured credit facility. For 2002, loss onredemption of debt represents a loss of $1.8 million in connection with ourrepurchase of $7.5 million principal amount of senior subordinated notes.

(3)    For thepost-merger and pre-merger periods in 2003, transaction costs represent $0.2million and $31.0 million, respectively, of transaction expenses incurred inconnection with the 2003 merger. For 2000, transaction costs represent $46.4million of transaction expenses incurred in connection with the merger andrecapitalization during such period.

(4)    Earningsper share calculations include the effect of dividends and accretion onredeemable preferred shares.

(5)    Workingcapital represents current assets (excluding cash and cash equivalents) lesscurrent liabilities (excluding short-term borrowings, book overdrafts andcurrent maturities of long-term debt, as applicable).

(6)    Liquidationpreference of our redeemable preferred stock as of the end of 2003, 2002, 2001and 2000 was $99.1 million, $86.3 million, $75.2 million and $65.6 million,respectively, including accrued dividends.

(7)    EBITDA represents earnings before interest, taxes,depreciation and amortization. Adjusted EBITDA represents EBITDA as adjustedfor the impact of purchase accounting, loss on the redemption of debt,transaction costs, the cumulative effect of accounting changes, (gain) loss ondiscontinued operations and certain other items as described below. We believeEBITDA and Adjusted EBITDA provide meaningful additional information thatenables management to monitor and evaluate our ongoing operating results andtrends and provide investors an understanding of operating performance overcomparative periods. Adjusted EBITDA is also one component of measurement usedin our compensation plans. EBITDA and Adjusted EBITDA are not measures ofperformance under generally accepted accounting principles in the United States(GAAP) and should not be considered in isolation or as a substitute for netincome, cash flows from operations, or other income and cash flow statementdata prepared in accordance with GAAP or as measures of profitability orliquidity. Moreover, EBITDA and Adjusted EBITDA are not standardized measuresand may be calculated in a number of ways. Accordingly, the EBITDA and AdjustedEBITDA information provided might not be comparable to other similarly titledmeasures provided by other companies. Adjusted EBITDA is calculated as follows:

**Reconciliation ofEBITDA and Adjusted EBITDA**
| ** **                                 | ** ** | **Post-Merger**      | ** ** | **Pre-Merger**        | ** ** |
|--------------------------------------------|------------|----------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **Five Months** | ** ** | **Seven Months** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **2003**             | ** ** | **2003**              | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** | **1999** | ** ** |
| ** **                                 | ** ** | **In millions** | ** ** |
| Net (loss) income                          |       |                 | $          | (33.4                 | )          |   |   | $ | 7.6 |   |   | $ | 29.9 |   | $ | 4.1 |   | $ | (18.7 | ) | $ | 43.2 |   |
| Interest expense,  net                     |       |                 | 28.3       |                  |       |   | 32.4 |   |   | 67.3 |   | 76.8 |   | 58.9 |   | 7.0 |   |
| (Benefit from)  provision for income taxes |       |                 | (18.0      | )                     |       |   | 8.7 |   |   | 36.2 |   | 18.6 |   | 16.0 |   | 31.7 |   |
| Depreciation and  amortization expense     |       |                 | 34.5       |                  |       |   | 14.6 |   |   | 26.9 |   | 28.6 |   | 26.8 |   | 22.7 |   |
| **EBITDA**                                 | ** ** | ** **           | **11.4**   |                  | ** ** | ** ** | **63.3** |   | ** ** | **160.3** | ** ** | **128.1** | ** ** | **83.0** | ** ** | **104.6** | ** ** |
| Impact of purchase  accounting(a)          |       |                 | 37.7       |                  |       |   | — |   |   | — |   | — |   | — |   | — |   |
| Loss on redemption  of debt                |       |                 | 0.5        |                  |       |   | 13.9 |   |   | 1.8 |   | — |   | — |   | — |   |
| Transaction costs                          |       |                 | 0.2        |                  |       |   | 31.0 |   |   | — |   | — |   | 46.4 |   | — |   |
| Cumulative effect  of accounting change(b) |       |                 | —     |                  |       |   | (4.6 | ) |   | — |   | — |   | 5.9 |   | — |   |
| (Gain) loss on  discontinued operations(c) |       |                 | —     |                  |       |   | — |   |   | (1.6 | ) | 22.4 |   | 2.3 |   | 0.8 |   |
| Other(d)                                   |       |                 | 0.6        |                  |       |   | — |   |   | 0.4 |   | 2.5 |   | 7.0 |   | 20.2 |   |
| **Adjusted EBITDA**                        | ** ** | ** **           | **$**      | **50.4**              |       | ** ** | ** ** | **$** | **103.6** |   | ** ** | **$** | **160.9** | ** ** | **$** | **153.0** | ** ** | **$** | **144.6** | ** ** | **$** | **125.6** | ** ** |

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(a)             As a result of purchase accounting, wewrote up our inventory by $37.7 million. This adjustment reflects the eliminationof the excess purchase price allocated to inventory sold during the period.

(b)            In the third quarter of fiscal 2003, we adopted SFAS150 that resulted in the recognition of a cumulative effect of a change inaccounting principle, which increased net income by $4.6 million in connectionwith the revaluation of our redeemable preferred stock. In 2000, we adopted SAB101 that resulted in the recognition of a cumulative effect of a change inaccounting principle, which reduced net income by $5.9 million, net of tax.

(c)             In 2001, we exited our Recognition business. Inconnection with the exit, we incurred a $27.4 million charge ($16.8 million,net of tax), which reduced net income. As a result of this action, we madecorresponding after-tax 

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reclassifications fordiscontinued operations of $5.6 million in 2001, $2.3 million in 2000 and $0.8million in 1999. In 2002, we reversed $2.7 million of the charge ($1.6 million,net of tax), which increased net income during the period.

(d)            Represents non-recurring costs consisting of (i) forthe post-merger period of 2003, primarily financial advisory fees of $0.5million; (ii) for 2002, financing costs of $0.4 million in connection withour Canadian credit facility; (iii) for 2001, primarily severance costs of$2.1 million in connection with our termination of three senior executives; (iv) for2000, primarily equity losses and write-downs of $6.7 million in connectionwith two equity investments; and (v) for 1999, a restructuring charge of$20.2 million ($13.3 million, net of tax) in connection with a reorganization.

(8)          Adjusted EBITDA margin represents the ratio of AdjustedEBITDA to net sales.

**ITEM 7.**   MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

**OVERVIEW**

During 2003, we faced some unusual challenges. Wespent a considerable part of the year on activities aimed at marketing andselling the Company to DLJ Merchant Banking Partners III, L.P; we refinancedour bank debt; and we raised additional public debt at the new holding companylevel. Although we experienced sales growth, particularly in our graduationproducts and photography lines, this sales growth did not translate intoearnings growth.

During our busy spring season, we encountered seriousdifficulties in connection with the installation of an enterprise-wide resourceplanning (“ERP”) system in our graduation products line. Our efforts to rectifythese difficulties and to continue to provide timely delivery of our productsrequired us to divert manufacturing, customer service and information systemssupport resources. Although these efforts minimized the impact to ourcustomers, the associated costs negatively affected our margins. Our resultswere also affected by rising costs, particularly associated with employeehealth care costs and the price of gold; foreign currency exchange ratefluctuation against the euro in connection with our precious, semiprecious andsynthetic stone purchases; and the effect of stock market performance and lowinterest rates on accounting for our defined benefit pension plans.

Despite these challenges,we generated $65.0 million of cash from operating activities. Although our debtlevel increased in connection with the merger, we intend to continue our focuson increasing our cash flow in order to pay down debt. We made paymentstotaling approximately $41.7 million in 2003, $68.3 million in 2002 and $38.9million in 2001 on the face value of our debt.

**MERGER**

On June 17, 2003, we entered into a mergeragreement with Jostens Holding Corp. (formerly known as Ring Holding Corp.) andRing Acquisition Corp., an entity organized for the sole purpose of effecting amerger on behalf of DLJ Merchant Banking Partners III, L.P. and certain of itsaffiliated funds (collectively, the “DLJMB Funds”). On July 29, 2003, RingAcquisition Corp. merged with and into Jostens, Inc., with Jostens, Inc.becoming the surviving company and an indirect subsidiary of Jostens HoldingCorp. (the “merger”). As a result of the merger, the DLJMB Funds and certainco-investors beneficially own 99% of the outstanding voting securities ofJostens Holding Corp. and certain members of our senior management and directorsown the remaining 1%.

In connection with the merger, we received $417.9million of proceeds from a capital contribution by Jostens IH Corp. (“JIHC”),which was established for purposes of the merger. We used the proceeds from thecapital contribution, along with incremental borrowings under our new seniorsecured credit facility, to repurchase all previously outstanding common stockand warrants. We paid $471.0 million to holders of common stock and warrantsrepresenting a cash payment of $48.25 per share. In addition, we paid 

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approximately $41.2million of fees and expenses associated with the merger including $12.6 millionof compensation expense representing the excess of the fair market value overthe exercise price of outstanding stock options, $12.6 million of capitalizedmerger costs and $16.0 million of expensed costs consisting primarily ofinvestment banking, legal and accounting fees. We also recognized $2.6 millionof transaction costs as a result of writing off certain prepaid management feeshaving no future value.

Also in connection withthe merger, we refinanced our senior secured credit facility through theestablishment of a new senior secured credit facility. We received $475.0million in borrowings under the new credit facility and repaid $371.1 millionof outstanding indebtedness under the old credit facility. In addition, weincurred transaction fees and related costs of $20.2 million associated withthe new credit facility, which have been capitalized and are being amortized asinterest expense over the life of the facility. We also wrote off theunamortized balance of $13.9 million relating to deferred financing costsassociated with the old credit facility.

***Merger Accounting***

Beginning on July 29, 2003, Jostens, Inc.and JIHC, a subsidiary of Jostens Holding Corp., accounted for the merger as apurchase in accordance with the provisions of Statement of Financial AccountingStandards (SFAS) 141, *“Business Combinations”,*which requires a valuation for the assets and liabilities of JIHC and itssubsidiaries based upon the fair values as of the date of the merger. Asallowed under SEC Staff Accounting Bulletin No. 54, *“Push Down Basis of Accounting Required in CertainLimited Circumstances”,*we have reflected all applicable purchaseaccounting adjustments recorded by JIHC in our consolidated financialstatements for all SEC filings covering periods subsequent to the merger (“purchaseaccounting”). Purchase accounting requires us to establish a new basis for ourassets and liabilities based on the amount paid for ownership at July 29,2003. Accordingly, JIHC’s ownership basis is reflected in our consolidatedfinancial statements beginning upon completion of the merger. In order to applypurchase accounting, JIHC’s purchase price of $471.0 million was allocated tothe assets and liabilities based on their relative fair values and $417.9million was reflected in shareholders’ equity of Jostens, Inc. as thevalue of JIHC’s ownership upon completion of the merger. Immediately prior tothe merger, shareholders’ equity of Jostens, Inc. was a deficit ofapproximately $578.7 million. As of January 3, 2004, our preliminaryallocation of the purchase price is as follows:
| ** **                  | ** ** | **In thousands** | ** **  |
|-----------------------------|------------|-----------------------|-------------|
| Current assets              |       | $                     | 165,280     |   |
| Property and  equipment     |       | 101,989               |        |
| Intangible assets           |       | 660,399               |        |
| Goodwill                    |       | 727,633               |        |
| Other assets                |       | 18,622                |        |
| Current  liabilities        |       | (199,776              | )           |
| Long-term debt              |       | (594,494              | )           |
| Redeemable  preferred stock |       | (126,511              | )           |
| Deferred income  taxes      |       | (253,577              | )           |
| Other liabilities           |       | (28,521               | )           |
|                        |       | **$**                 | **471,044** |   |

 

We have estimated the fair value of our assets andliabilities, including intangible assets and property and equipment, as of themerger date, utilizing information available at the time that our consolidatedfinancial statements were prepared. These estimates are subject to refinementuntil all pertinent information has been obtained. We also recognized thefunding status of our pension and postretirement benefit plans as of July 29,2003 and updated the calculation of our post-merger pension expense.

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As a result of the merger, in accordance with SFAS141, we have reflected a pre-merger period from December 29, 2002 to July 29,2003 (seven months) and a post-merger period from July 30, 2003 to January 3,2004 (five months) in our consolidated financial statements for fiscal 2003.

During the post-mergerperiod in 2003, we recognized the following items in our consolidated statementof operations: (a) $37.7 million of excess purchase price allocated toinventory as cost of products sold; (b) $19.8 million of additionalamortization expense of intangible assets including $2.2 million in cost ofproducts sold and $17.6 million in selling and administrative expenses; (c) $3.1million of higher depreciation expense including $3.4 million in cost ofproducts sold offset by a $0.3 million adjustment in selling and administrativeexpenses; and (d) $1.9 million of lower interest expense from theamortization of a premium allocated to long-term debt, all as compared to ourhistorical basis of accounting prior to the merger.

**RESULTS OF OPERATIONS**

Ourconsolidated financial statements for the pre-merger period from December 29,2002 through July 29, 2003, were prepared using our historical basis ofaccounting. As a result of the transaction on July 29, 2003, we applied purchaseaccounting as discussed above under “Merger Accounting.”  Although a new basis of accounting began on July 29,2003, we have presented results for the fiscal year ended January 3, 2004on a combined basis as we believe this presentation facilitates the comparisonof our results with the corresponding periods for fiscal years 2002 and 2001.In addition, we have adjusted our combined operating results for the periodended January 3, 2004 to exclude the impact of purchase accounting as webelieve this further enhances comparability to the corresponding periods in2002 and 2001. The adjusted combined operating results may not reflect theactual results we would have achieved absent the adjustments and may not bepredictive of future results of operations. Our adjusted combined operatingresults for 2003 were derived as follows:
| ** **                                                    | ** ** | **Five Months  Post-Merger** | ** **  | **Seven Months  Pre-Merger** | ** ** | **Combined** | ** ** | **Adjustments** | ** **  | **Adjusted  Combined** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------|-------------|-----------------------------------|------------|--------------|------------|-----------------|-------------|------------------------|------------|
| ** **                                                    | ** ** | **In thousands**             | ** **  |
| **Net  sales**                                                | ** ** |                              | **$**       | **284,171**                       | ** ** |         |       | **$**           | **504,058** | ** **             |       | **$** | **788,229** | ** ** |   | **$** | **—** | ** ** |   | **$** | **788,229** | ** ** |
| Cost of products  sold                                        |       |                              | 162,656     | ** **                        |       |         | 218,594    | ** **      |        | 381,250                |       |   | 43,329 |  (1) |   | 337,921 |   |
| Gross profit                                                  |       |                              | 121,515     | ** **                        |       |         | 285,464    | ** **      |        | 406,979                |       |   | (43,329 | ) |   | 450,308 |   |
| Selling and  administrative expenses                          |       |                              | 143,845     | ** **                        |       |         | 196,430    | ** **      |        | 340,275                |       |   | 17,323 |  (2) |   | 322,952 |   |
| Loss on redemption  of debt                                   |       |                              | 503         | ** **                        |       |         | 13,878     | ** **      |        | 14,381                 |       |   | (1,119 | )(3) |   | 15,500 |   |
| Transaction costs                                             |       |                              | 226         | ** **                        |       |         | 30,960     | ** **      |        | 31,186                 |       |   | — |   |   | 31,186 |   |
| **Operating (loss) income**                                   | ** ** |                              | **(23,059** | **)**                             |       |         | **44,196** | ** **      |        | **21,137**             | ** ** |   | **(59,533** | **)** |   | **80,670** | ** ** |
| Interest expense,  net                                        |       |                              | 28,298      | ** **                        |       |         | 32,446     | ** **      |        | 60,744                 |       |   | (1,909 | )(4) |   | 62,653 |   |
| (Loss) income from continuing operations before  income taxes |       |                              | (51,357     | )                                 |       |         | 11,750     | ** **      |        | (39,607                | )          |   | (57,624 | **)** |   | 18,017 |   |
| (Benefit from)  provision for income taxes                    |       |                              | (17,955     | )                                 |       |         | 8,695      | ** **      |        | (9,260                 | )          |   | (22,889 | )(5) |   | 13,629 |   |
| **(Loss)  income from continuing operations**                 | ** ** |                              | **(33,402** | **)**                             |       |         | **3,055**  | ** **      |        | **(30,347**            | **)**      |   | **(34,735** | **)** |   | **4,388** | ** ** |
| Cumulative effect  of accounting change                  |       |                              | —      | ** **                        |       |         | 4,585      | ** **      |        | 4,585                  |       |   | — | ** ** |   | 4,585 |   |
| **Net  (loss) income**                                        | ** ** |                              | **$**       | **(33,402**                       | **)**      |         |       | **$**           | **7,640**   | ** **             |       | **$** | **(25,762** | **)** |   | **$** | **(34,735** | **)** |   | **$** | **8,973** | ** ** |

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(1)          Reflects the eliminationof $37.7 million of excess purchase price allocated to inventory sold duringthe period, $2.2 million of amortization expense for excess purchase priceallocated to an intangible 

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asset for order backlogand $3.4 million of depreciation expense for excess purchase price allocated toproperty and equipment.

(2)          Reflects $17.6 millionof amortization expense for excess purchase price allocated to variousintangible assets offset by $0.3 million to adjust depreciation expense forexcess purchase price allocated to property and equipment including a change indepreciable lives.

(3)          Reflects $1.1 million ofaccelerated amortized interest reduction for excess purchase price allocated toa premium in connection with the partial redemption of the senior subordinatednotes.

(4)          Reflects $1.9 million ofamortized interest reduction for excess purchase price allocated to a premiumon the senior subordinated notes.

(5)          Reflects benefit fromincome taxes on the aforementioned items.

The followingtable sets forth selected information derived from our adjusted combinedoperating results for the period ended January 3, 2004 and ourconsolidated statements of operations for fiscal years 2002 and 2001, expressedas a percentage of net sales. In the text below, amounts and percentages havebeen rounded and are based on the financial statement amounts.
| ** **                                              | ** ** | **Percentage of net sales** | ** ** | **Percentage change** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------|------------|----------------------------|------------|
| ** **                                              | ** ** | **Combined  2003**                         | ** ** | **2002**                   | ** ** | **2001** | ** ** | **Combined 2003  vs. 2002** | ** ** | **2002 vs. 2001** | ** ** |
| **Net  sales**                                          |       |                                       | 100.0      | %                          |       | 100.0 | % | 100.0 | % |   | 4.3 | % |   |   | 2.6 | % |   |
| Cost of products  sold                                  |       |                                       | 42.9       | %                          |       | 41.8 | % | 42.3 | % |   | 7.0 | % |   |   | 1.5 | % |   |
| Gross profit                                            |       |                                       | 57.1       | %                          |       | 58.2 | % | 57.7 | % |   | 2.3 | % |   |   | 3.5 | % |   |
| Selling and  administrative expenses                    |       |                                       | 41.0       | %                          |       | 40.5 | % | 40.9 | % |   | 5.4 | % |   |   | 1.8 | % |   |
| Loss on  redemption of debt                             |       |                                       | 2.0        | %                          |       | 0.2 | % | — |   |   | NM |   |   |   | NM |   |   |
| Transaction costs                                       |       |                                       | 4.0        | %                          |       | — |   | — |   |   | NM |   |   |   | — |   |   |
| Special charges                                         |       |                                       | —     |                       |       | — |   | 0.3 | % |   | — |   |   |   | NM |   |   |
| **Operating income**                                    |       |                                       | 10.2       | %                          |       | 17.4 | % | 16.5 | % |   | (38.8 | )% |   |   | 8.1 | % |   |
| Interest expense,  net                                  |       |                                       | 7.9        | %                          |       | 8.9 | % | 10.4 | % |   | (6.9 | )% |   |   | (12.3 | )% |   |
| Income from continuing operations before income  taxes  |       |                                       | 2.3        | %                          |       | 8.5 | % | 6.1 | % |   | (72.1 | )% |   |   | 42.9 | % |   |
| Provision for  income taxes                             |       |                                       | 1.7        | %                          |       | 4.8 | % | 2.5 | % |   | (62.4 | )% |   |   | 95.0 | % |   |
| **Income  from continuing operations**                  |       |                                       | 0.6        | %                          |       | 3.7 | % | 3.6 | % |   | (84.5 | )% |   |   | 6.5 | % |   |
| Gain (loss) on  discontinued operations, net of tax     |       |                                       | —     |                       |       | 0.2 | % | (3.0 | )% |   | NM |   |   |   | NM |   |   |
| Cumulative effect  of accounting change                 |       |                                       | 0.6        | %                          |       | — |   | — |   |   | NM |   |   |   | — |   |   |
| Net income                                              |       |                                       | 1.1        | %                          |       | 4.0 | % | 0.6 | % |   | (70.0 | )% |   |   | 629.4 | % |   |
| Dividends and  accretion on redeemable preferred shares |       |                                       | (0.8       | )%                         |       | (1.6 | )% | (1.4 | )% |   | 44.5 | % |   |   | (15.1 | )% |   |
| **Net  income (loss) available to common shareholders** |       |                                       | 0.3        | %                          |       | 2.4 | % | (0.8 | )% |   | (86.5 | )% |   |   | 397.6 | % |   |

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NM=percentage not meaningful

**Year Ended January 3,2004 Compared to the Year Ended December 28, 2002**

***Net Sales***

Net sales increased$32.2 million, or 4.3%, to $788.2 million for 2003 from $756.0 million for2002. Of this 4.3% increase, approximately 2.2% resulted from price increasesacross all product lines, approximately 1.3% resulted from volume/mix increasesand approximately 0.8% was due to the 

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strengtheningof the Canadian dollar against the U.S. dollar. The fluctuation attributable toprice increases includes the effect of a slight recovery in jewelry product mixtoward more precious metals with higher price points. Primary factorscontributing to the increase in volume from 2002 to 2003 include:

·       netaccount growth across most of our product lines;

·       anincrease in the number of individual orders for graduation products and higheraverage purchases per student;

·       volumeassociated with our acquisition of a photography business early in the year;

·       anincrease in the number of color pages per yearbook; and

·       incrementaljewelry volume from an emerging market.

These increases werepartially offset by a modest decline in net accounts for yearbooks compoundedby a slight shift in mix of orders to smaller yearbooks; slightly lower sameschool buy rates for high school class rings; and lower commercial printingvolume.

***Gross Profit***

Excluding the impact of purchase accounting, grossprofit increased $10.3 million, or 2.3%, to $450.3 million for 2003 from $440.0million for 2002. As a percentage of net sales, however, gross profit margindecreased 1.1 percentage points to 57.1% for 2003 from 58.2% for 2002.

The decrease in grossprofit margin is primarily due to additional production costs and productioninefficiencies incurred in connection with the installation of an ERP system inour graduation products line. The decline in gross profit margin is due, to alesser extent, to an increase in the price of gold, higher pension and employeebenefit costs, the effect of sales growth on lower margin products and anunfavorable currency fluctuation against the euro associated with our purchasesof precious, semiprecious and synthetic stones. Gross profit results werefavorably impacted by the general price increases and incremental volumediscussed above combined with the strengthening of the Canadian dollar againstthe U.S. dollar.

***Selling and Administrative Expenses***

Excluding theimpact of purchase accounting, selling and administrative expenses increased$16.5 million, or 5.4%, to $323.0 million for 2003 from $306.4 million for2002. As a percentage of net sales, selling and administrative expensesincreased 0.5 percentage points to 41.0% for 2003 from 40.5% for 2002. The$16.5 million increase is primarily due to the following:

·       highercommission expense as a result of increased sales;

·       incrementalspending on information systems, customer service support and sellingactivities to address the difficulties encountered with the installation of theERP system;

·       higherpension and employee benefit costs;

·       additionalinvestment in customer service and support; and

·       incrementalspending on a combination of severance costs, a legal settlement andacquisition related expenses.

These increases werepartially offset by lower general and administrative expense compared to lastyear.

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***Loss on Redemption of Debt***

As a result of refinancingour senior secured credit facility, we recognized a loss of $13.9 millionconsisting of unamortized deferred financing costs. In addition, during thepost-merger period of 2003, we redeemed $8.5 million principal amount of oursenior subordinated notes. As a result, we recognized a loss of $0.5 millionconsisting of $0.8 million of premium paid on redemption of the notes and a net$0.3 million credit to write-off unamortized premium, original issuancediscount and deferred financing costs.

***Transaction Costs***

During the post-merger andpre-merger periods, we incurred $0.2 million and $31.0 million, respectively,of transaction expenses in connection with the merger, consisting of investmentbanking fees, legal and accounting fees, compensation expense related to stockoption payments and a charge to write off prepaid management fees.

***Net Interest Expense***

Excluding the impact ofpurchase accounting, net interest expense decreased $4.7 million, or 6.9%, to$62.7 million for 2003 as compared to $67.3 million for 2002. The decrease wasdue to a lower average outstanding debt balance during the pre-merger period of2003 compared to last year and lower average interest rates offset by $6.4million of additional interest expense as a result of the reclassification ofdividends on our redeemable preferred stock in connection with the change inaccounting principle as further described in ITEM 8, Note 8 of the Notes toConsolidated Financial Statements.

***(Benefit from) Provision for Income Taxes***

Excluding the impact ofpurchase accounting, our effective tax rate was 75.6% for 2003 compared to56.2% for 2002. The increase reflects the impact of nondeductible transactionrelated costs and nondeductible interest expense associated with thereclassification of dividends on our redeemable preferred stock in connectionwith the change in accounting principle discussed below. Our effective rate oftax benefit for the post-merger period of 2003 is 35%. The rate of benefit isless than our historical effective income tax rate due primarily to theunfavorable impact of nondeductible interest expense attributable to the changein accounting principle compounded by our loss position. Excluding the impactof purchase accounting, we anticipate a 2004 effective tax rate between 45% and50%.

***Cumulative Effect of Accounting Change***

We recognized a cumulativeeffect of a change in accounting principle upon adoption of SFAS 150 on June 29,2003, the beginning of our third quarter. We assessed the value of ourredeemable preferred stock at the present value of the settlement obligationusing the rate implicit at inception of the obligation, resulting in anadjustment of $4.6 million. We did not provide any tax provision in connectionwith the adoption of SFAS 150 because the payment of the related preferreddividend and discount amortization are not tax deductible.

***Net Income***

Excluding the impact ofpurchase accounting, and as a result of the foregoing discussion, net incomedecreased $20.9 million, or 70.0%, to $9.0 million for 2003 from $29.9 millionfor 2002.

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**Year Ended December 28,2002 Compared to the Year Ended December 29, 2001**

***Net Sales***

Net sales increased $19.4million, or 2.6%, to $756.0 million for 2002 from $736.6 million for 2001. Ofthis 2.6% increase, approximately 2.2% resulted from price increases across allproduct lines and approximately 0.4% resulted from volume/mix increases. Thefluctuation attributable to price increases is net of the effect of a shift injewelry product mix toward non-precious metals with lower price points. Primaryfactors contributing to the increase in volume from 2001 to 2002 include netaccount growth across most of our product lines; an increase in the number of pages peryearbook including more color pages; and photography territory additions andnew product development. These increases were partially offset by the loss of alarge college customer in the jewelry and graduation product lines; lower sameschool buy rates for high school class rings; lower average purchases perstudent for graduation products; and lower commercial printing volume.

***Gross Profit***

Gross profit increased$14.7 million, or 3.5%, to $440.0 million for 2002 from $425.3 million for2001. As a percentage of net sales, gross profit margin increased 0.5percentage points to 58.2% in 2002 from 57.7% in 2001. Gross profit wasfavorably impacted by general price increases across all product lines;continued improvement in plant efficiencies including the implementation oflean manufacturing principles; and sales mix of our printing products resultingin increased higher margin yearbook volume and decreased lower margincommercial printing volume. These profit improvements were partially offset byan increase in the price of gold compared to 2001; higher employee benefitcosts; and a general shift in consumer spending toward lower-priced productswith lower profit margins in some of our product lines.

***Selling and Administrative Expenses***

Selling and administrativeexpenses increased $5.5 million, or 1.8%, to $306.4 million for 2002 from$300.9 million for 2001. As a percentage of net sales, selling andadministrative expenses decreased 0.4 percentage points to 40.5% for 2002compared to 40.9% for 2001. The $5.5 million increase is primarily due tohigher spending on information systems related to the upgrade of ourtransaction processing system and early costs associated with the installationof an ERP system in our graduation products line; as well as higher commissionsand general and administrative expenses, both as a result of increased sales.These increases were partially offset by reduced spending for outside legalcounsel in connection with the resolution of a specific legal matter pending in2001.

***Loss on Redemption of Debt***

During 2002, we redeemed$7.5 million principal amount of our senior subordinated notes. As a result, werecognized a loss of $1.8 million in 2002 consisting of $1.0 million of premiumpaid on redemption of the notes and $0.8 million to write-off unamortizedoriginal issuance discount and deferred financing costs.

***Net Interest Expense***

Net interest expensedecreased $9.4 million, or 12.3%, to $67.3 million for 2002 as compared to$76.8 million for 2001. The decrease was due to a lower average outstandingdebt balance and a lower average interest rate, partially as a result ofrefinancing a portion of our senior secured credit facility, but primarily dueto declining interest rates in 2002.

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***Provision for Income Taxes***

Our effective tax rate forcontinuing operations was 56.2% for 2002 compared to 41.2% for 2001. Theincrease was due primarily to the effect of additional federal and state incometaxes attributable to earnings repatriated from our Canadian subsidiary.

***Income from Continuing Operations***

Income from continuingoperations increased $1.7 million, or 6.5%, to $28.3 million for 2002 from$26.5 million for 2001 primarily as a result of increased net sales, improvedgross profit margin and lower net interest expense.

**DISCONTINUED OPERATIONS**

In December 2001, our Board of Directors approveda plan to exit our former Recognition business in order to focus our resourceson our core school-related affinity products business. The results of theRecognition business are reflected as discontinued operations in ourconsolidated statement of operations for all periods presented.

Revenueand loss from discontinued operations were as follows:
| ** **                                                                       | ** ** | **2002**              | ** ** | **2001**   | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------|------------|------------|------------|
| ** **                                                                       | ** ** | **In thousands** | ** ** |
| Revenue from  external customers                                                 |       | $                     | —     |       | $          | 55,913 |   |
| Pre-tax loss from  operations of discontinued operations before measurement date |       | —                |       | (9,036     | )          |
| Pre-tax gain  (loss) on disposal                                                 |       | 2,708                 |       | (27,449    | )          |
| Income tax  (expense) benefit                                                    |       | (1,071                | )          | 14,045     |       |
| Gain (loss) on  discontinued operations                                          | ** ** | **$**                 | **1,637**  | ** ** | **$**      | **(22,440** | **)** |

 

During 2001, the results of discontinued operationsencompassed the period through the December 3, 2001 measurement date. The$27.4 million pre-tax loss on disposal of the discontinued business consistedof a non-cash charge of $11.1 million to write off certain net assets of theRecognition business plus a $16.3 million charge for accrued costs related toexiting the Recognition business.

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During2002, we reversed $2.3 million of the accrued charges based on our revisedestimates for employee separation costs and phase-out costs. Of the totaladjustment, $0.5 million resulted from modifying our anticipated workforcereduction from 150 to 130 full-time positions and $1.8 million resulted fromlower information systems, customer service and internal support costs andlower receivable write-offs than originally anticipated. In addition, wereversed $0.4 million in other liabilities for a total pre-tax gain ondiscontinued operations of $2.7 million ($1.6 million net of tax). Componentsof the accrued disposal costs, which are included in “current liabilities ofdiscontinued operations” in our consolidated balance sheet, are as follows:
| ** **                                               | ** ** | ** **            | ** ** | ** **         | ** ** | ** **           | ** ** | **Utilization**    | ** ** | **Balance**          | ** ** |
|----------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|----------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                               | ** ** | **Initial  charge**   | ** ** | **Prior  accrual** | ** ** | **Net  adjustments** | ** ** | **Prior  periods** | ** ** | **Pre-Merger  2003** | ** ** | **Post-Merger  2003** | ** ** | **end of  2003** | ** ** |
| ** **                                               | ** ** | **In thousands** | ** ** |
| Employee  separation benefits and other related costs    |       | $                     | 6,164      |               | $          | —               |       |               | $          | (523                 | )          |   | $ | (5,109 | ) |   | $ | (156 | ) |   |   | $ | — | ** ** |   | $ | 376 |   |
| Phase-out costs  of exiting the Recognition business     |       | 4,255                 |       | —             |       |                 | (1,365     | )                  |       | (2,591               | )          |   | (72 | ) |   |   | (7 | ) |   | 220 |   |
| Salesperson  transition benefits                    |       | 2,855                 |       | 1,236              |       |                 | (191       | )                  |       | (767                 | )          |   | (688 | ) |   |   | (252 | ) |   | 2,193 |   |
| Other costs  related to exiting the Recognition business |       | 3,018                 |       | 1,434              |       |                 | (228       | )                  |       | (4,224               | )          |   | — | ** ** |   |   | — | ** ** |   | — |   |
| ** **                                               | ** ** | **$**                 | **16,292** | ** **         | **$**      | **2,670**            | ** ** | ** **         | **$**      | **(2,307**           | **)**      | ** ** | **$** | **(12,691** | **)** | ** ** | **$** | **(916** | **)** | ** ** | ** ** | **$** | **(259** | **)** | ** ** | **$** | **2,789** | ** ** |

 

Our obligation forseparation benefits continues through 2004 over the benefit period as specifiedunder our severance plan, and transition benefits will continue to be paidthrough the period of our statutory obligations.

**LIQUIDITY AND CAPITAL RESOURCES**

***Contractual Obligations***

Thefollowing table shows due dates and amounts of our contractual obligations:
| ** **                           | ** ** | **Total**             | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **Thereafter** | ** ** |
|--------------------------------------|------------|-----------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|
| ** **                           | ** ** | **In thousands** | ** ** |
| Long-term debt  excluding premium    |       | $                     | 662,690    |     | $          | —   |       | $        | 29,849     |     | $          | 41,789   |       | $              | 47,758     |   | $ | 59,698 |   | $ | 483,596 |   |
| Revolving credit  facility(1)        |       | 13,013                |       | —   |       | —   |       | —   |       | —   |       | 13,013   |       | —         |       |
| Operating leases                     |       | 5,518                 |       | 3,472    |       | 1,443    |       | 516      |       | 81       |       | 6        |       | —         |       |
| Gold forward  contracts              |       | 7,462                 |       | 7,462    |       | —   |       | —   |       | —   |       | —   |       | —         |       |
| Redeemable  preferred stock(2)  |       | 272,630               |       | —   |       | —   |       | —   |       | —   |       | —   |       | 272,630        |       |
| Total contractual cash  obligations  |       | $                     | 961,313    |     | $          | 10,934   |       | $        | 31,292     |     | $          | 42,305   |       | $              | 47,839     |   | $ | 72,717 |   | $ | 756,226 |   |

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(1)          Also outstanding is$12.8 million in the form of letters of credit.

(2)          Includespayment-in-kind dividends compounded quarterly through maturity in May 2011.

 

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***Operating Activities***

Operating activities generated cash of $65.0 millionin the combined 2003 periods compared with $55.5 million in 2002 and $71.6million in 2001. The increase in 2003 was primarily due to improvements inworking capital, mostly related to income tax payments and the timing ofcustomer deposits received compared to 2002. This increase was partially offsetby $28.5 million of transaction related expenses paid in connection with themerger.

During 2002, we agreed tocertain adjustments proposed by the Internal Revenue Service in connection withits audit of our federal income tax returns filed for years 1996 through 1998.As a result of the audit, we agreed to pay additional federal taxes of $11.3million. Combined with additional state taxes and interest charges, theliability related to these adjustments was approximately $17.0 million and hadpreviously been accrued. During 2003, we filed an appeal with the InternalRevenue Service concerning a further proposed adjustment of approximately $8.0million. While the appeal process may take up to two years to complete, webelieve the outcome of this matter will not have a material impact on ourresults of operations.

***Investing Activities***

Capital expenditures in the combined 2003 periods,2002 and 2001 were $23.2 million, $22.8 million and $22.7 million, respectively.The majority of our spending in each period was for technology, expansion ofour color printing capacity and proprietary dies and tooling.

In January 2003, weacquired the net assets of a photography business for $5.0 million in cash andin September 2003, we acquired the net assets of a printing business for$10.9 million in cash. The operating results of these two acquisitions areincluded in our consolidated financial statements from the date of acquisition.Proforma results of operations have not been presented since the effect on ourfinancial position and results of operations is not material.

***Financing Activities***

Net cash used for financing activities in the combined2003 periods, 2002 and 2001 was $17.1 million, $64.8 million and $39.3 million,respectively. As a result of the merger, we received a $417.9 million capitalcontribution by JIHC. We used the proceeds from the capital contribution, alongwith incremental borrowings under our new senior secured credit facility, torepurchase all common stock and warrants outstanding immediately prior to themerger. We paid $471.0 million to holders of common stock and warrantsrepresenting $48.25 per share. In addition, we incurred $12.6 million ofcapitalized merger costs.

Also in connection with the merger, we received $475.0million of borrowings under our new credit facility and repaid $371.1 millionof outstanding indebtedness under the old credit facility. In addition, weincurred transaction fees and related costs of $20.2 million associated withthe new credit facility, which have been capitalized and are being amortized asinterest expense over the life of the facility.

During 2003, we continued our focus on increasing ourcash flow. During the combined 2003 period, 2002 and 2001, we made scheduledprincipal payments of $8.2 million, $20.9 million and $14.9 million,respectively, and voluntarily prepaid an additional $25.0 million, $40.0million and $24.0 million, respectively, of principal on our senior securedcredit facility. Also during 2003, we redeemed $8.5 million principal amount ofour senior subordinated notes for total consideration paid of $9.3 million.

We may, from time to timepurchase outstanding debt securities for cash in private transactions subjectto compliance with our debt and redeemable preferred stock commitments.

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***Borrowing Arrangements***

Future mandatory principal payment obligations underthe term loan are due semi-annually beginning on July 2, 2005 at an amountequal to 2.63% of the current outstanding balance of the term loan. Thereafter,semi-annual principal payments gradually increase through July 2009 to anamount equal to 7.89% of the current outstanding balance of the term loan, withtwo final principal payments due in December 2009 and July 2010, eachequal to 26.32% of the current outstanding balance of the term loan. The $209.0million in notes come due May 2010. In addition, mandatory interestobligations on the notes are $13.3 million semi-annually through May 2010.

We experience seasonality that corresponds to theNorth American school year. To manage the seasonal nature of our cash flow, wehave a $150.0 million revolving credit facility that expires on July 29,2008. At the end of 2003, there was $13.0 million outstanding in the form ofshort-term borrowings at our Canadian subsidiary and an additional $12.8million outstanding in the form of letters of credit, leaving $124.2 millionavailable under this facility. We also have a precious metals consignmentarrangement with a major financial institution whereby we have the ability toobtain up to $30.0 million in consigned inventory. At the end of 2003, we had$6.0 million available under this facility.

The senior subordinated notes are not collateralizedand are subordinate in right of payment to the senior secured credit facility,which is collateralized by substantially all the assets of our operations. Thesenior secured credit facility requires that we meet certain financialcovenants, ratios and tests, including a maximum senior leverage ratio, amaximum leverage ratio and a minimum interest coverage ratio. The seniorsecured credit facility and the senior subordinated notes contain certaincross-default and cross-acceleration provisions whereby default under oracceleration of one debt obligation would, consequently, cause a default oracceleration under the other debt obligation. At the end of 2003, we were incompliance with all covenants.

The redeemable payment-in-kind preferred shares had aninitial liquidation preference of $60.0 million and are entitled to receivedividends at 14.0% per annum, compounded quarterly, and are payable either incash or in additional shares of the same series of preferred stock. We plan topay dividends in additional shares of preferred stock for the foreseeablefuture. The redeemable preferred shares are subject to mandatory redemption byJostens in May 2011. The aggregate liquidation preference outstanding asof the end of 2003 and 2002 was $99.1 million and $86.3 million, respectively,including accrued dividends.

Our ability to makescheduled principal payments on existing indebtedness and preferred stock or torefinance our indebtedness, will depend on our future financial and operatingperformance, which to a certain extent is subject to general economic,financial, competitive, legislative, regulatory and other factors that arebeyond our control. Based on the current anticipated level of operations, webelieve that cash flows from operations and available cash, together withavailable borrowings under the senior secured credit facility will be adequateto meet our anticipated future requirements for working capital, budgetedcapital expenditures and scheduled payments of principal and interest on ourindebtedness for the next twelve months. However, there can be no assurancethat our business will generate sufficient cash flows from operations or thatfuture borrowings will be available under the senior secured credit facility inan amount sufficient to enable us to service our indebtedness and the preferredstock obligation. In addition, our indirect parent, Jostens Holding Corp., isdependent upon us to generate sufficient cash to service its debt obligations.

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**COMMITMENTS AND CONTINGENCIES**

***Environmental***

Our operations are subject to a wide variety offederal, state, local and foreign laws and regulations governing emissions toair, discharges to waters, the generation, handling, storage, transportation,treatment and disposal of hazardous substances and other materials, andemployee health and safety matters. Also, as an owner and operator of realproperty or a generator of hazardous substances, we may be subject toenvironmental cleanup liability, regardless of fault, pursuant to theComprehensive Environmental Response, Compensation and Liability Act. As partof our environmental management program, we are currently involved in variousenvironmental remediation activities. As sites are identified and assessed inthis program, we determine potential environmental liabilities. Factorsconsidered in assessing liability include, but are not limited to: whether wehave been designated as a potentially responsible party, the number of otherpotentially responsible parties designated at the site, the stage of the proceedingsand available environmental technology.

In 1996, we assessed thelikelihood as probable that a loss had been incurred at one of our sites basedon findings included in remediation reports and from discussions with legalcounsel. Although we no longer own the site, we continue to manage theremediation project, which began in 2000. As of the end of 2003, we had madepayments totaling $7.3 million for remediation at this site and ourconsolidated balance sheet included $0.9 million in “other accrued liabilities”related to this site. During 2001, we received reimbursement from our insurancecarrier in the amount of $2.7 million, net of legal costs. While we may have anadditional right of contribution or reimbursement under insurance policies,amounts recoverable from other entities with respect to a particular site arenot considered until recoveries are deemed probable. We have not established areceivable for potential recoveries as of January 3. 2004. We believe theeffect on our consolidated results of operations, cash flows and financialposition, if any, for the disposition of this matter will not be material.

***Litigation***

A federal antitrust action was served on us on October 23,1998. The complainant, Epicenter Recognition, Inc. (Epicenter), allegedthat we attempted to monopolize the market of high school graduation productsin the state of California. Epicenter is a successor to a corporation formed byfour of our former independent sales representatives. The plaintiff claimeddamages of approximately $3.0 million to $10.0 million under various theoriesand differing sized relevant markets. Epicenter waived its right to a jury, sothe case was tried before a judge in U.S. District Court in Orange County,California. On June 18, 2002, the Court found, among other things, thatwhile our use of rebates, contributions and value-added programs are legitimatebusiness practices widely practiced in the industry and do not violateantitrust laws, our use of multi-year Total Service Program contracts violated Section 2of the Sherman Act because these agreements could “exclude competition bymaking it difficult for a new vendor to compete against Jostens.”

On July 12, 2002, the Court entered an initialorder providing, among other things, that Epicenter be awarded damages of$1.00, trebled pursuant to Section 15 of the Clayton Act, and that in thestate of California, Jostens was enjoined for a period of ten years fromutilizing any contract, including those for Total Service Programs, for aperiod which extends for more than one year (the “Initial Order”). The InitialOrder also provided for payment to Epicenter of reasonable attorneys fees andcosts. We made a motion to set aside the Initial Order. On August 23,2002, the Court entered its ruling on the motion, and granted, in part, ourmotion for relief from judgment, changing the Initial Order and enjoining usfor only five years, and allowing us to enter into multi-year agreements in thefollowing specific circumstances: (1) when a school requests a multi-yearagreement, in writing and on its own accord, or (2) in response to acompetitor’s offer to enter into a multi-year agreement. On August 23,2002, the Court entered an 

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additional order grantingEpicenter’s motion for attorneys’ fees in the amount of $1.6 million plus $0.1million in out-of-pocket expenses for a total award of $1.7 million. On September 12,2002, we filed a Notice of Appeal to the Ninth Circuit of the United StatesCourt of Appeals. Payment of attorneys’ fees and costs were stayed pendingappeal. In November 2002, we issued a letter of credit in the amount of$2.0 million to secure the judgment on attorneys’ fees and costs. Our brief onappeal was filed with the Court on February 13, 2003. Oral argument wasscheduled by the Court and heard by a three-judge panel on October 7,2003. On November 20, 2003, the Ninth Circuit panel completely reversedthe decision of the lower court, holding that we had not violated antitrustlaws because we did not possess a monopoly in the relevant market and that thelower court had erred when it founded an injunction under the California unfaircompetition law. The Ninth Circuit panel also reversed the grant of damages,costs, attorneys’ fees and the injunction. On January 6, 2004, the Ninth Circuitpanel denied a Petition for Rehearing and for Rehearing En Banc that had beenfiled by Epicenter on December 4, 2003. In response to the appellate court’sreversal of the Initial Order, the trial court on March 19, 2004, entereda revised judgment for Jostens and against Epicenter on all claims. The case isnow closed.

We are a party to otherlitigation arising in the normal course of business. We regularly analyzecurrent information and, as necessary, provide accruals for probableliabilities on the eventual disposition of these matters. We believe the effecton our consolidated results of operations, cash flows and financial position,if any, for the disposition of these matters, will not be material.

**OFF-BALANCE SHEET ARRANGEMENTS**

***Precious Metals Consignment Arrangement***

We have a precious metals consignment arrangement witha major financial institution whereby we have the ability to obtain up to $30.0million 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 aproduct to our customer. Accordingly, we do not include the value of consignedinventory nor the corresponding liability in our financial statements. Thevalue of consigned inventory as of the end of 2003 and 2002 was $24.1 millionand $17.4 million, respectively.

Other than our preciousmetals consignment arrangement and general operating leases, we have nooff-balance sheet arrangements that have or are reasonably likely to have acurrent or future effect on our financial condition, changes in financialcondition, revenues or expenses, results of operations, liquidity, capitalexpenditures or capital resources that is material to investors.

**CRITICAL ACCOUNTING POLICIES**

Our accounting policiesare more fully described in ITEM 8, Note 1 of the Notes to ConsolidatedFinancial Statements. As disclosed in Note 1, the preparation of financialstatements in conformity with generally accepted accounting principles in theUnited States (GAAP) requires management to make estimates and assumptionsabout future events that affect the amounts reported in our financialstatements and accompanying notes. Actual results could differ significantlyfrom those estimates. We believe that the following discussion addresses ourmost critical accounting policies, which are those that are most important tothe portrayal of our financial condition and results of operations and requiremanagement’s most difficult, subjective and complex judgments.

***Goodwill and Indefinite-Lived Intangible Assets***

Effective December 30, 2001, we adopted SFAS 142,*“Goodwill and Other Intangible Assets”.*UnderSFAS 142, we are required to test goodwill and intangible assets withindefinite lives for impairment annually, or more frequently if impairmentindicators occur. The impairment test requires management to make judgments inconnection with identifying reporting units, assigning assets and liabilitiesto reporting 

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units, assigning goodwilland indefinite-lived intangible assets to reporting units, and determining thefair value of each reporting unit. Significant judgments required to estimatethe fair value of reporting units include projecting future cash flows,determining appropriate discount rates and other assumptions. The projectionsare based on management’s best estimate given recent financial performance,market trends, strategic plans and other available information. Changes inthese estimates and assumptions could materially affect the determination offair value and/or impairment for each reporting unit.

We believe that we had nounrecorded impairment as of the end of 2003 and 2002; however, unforeseenfuture events could adversely affect the reported value of goodwill andindefinite-lived intangible assets, which totaled $1.0 billion at January 3,2004.

***Pension and Other Postretirement Benefits***

We sponsor several defined-benefit pension plans thatcover nearly all employees. We also provide certain medical and life insurancebenefits for eligible retirees. Several statistical and other factors, whichattempt to anticipate future events, are used in calculating the expense andliability related to the plans. Key factors include assumptions about theexpected rates of return on plan assets, discount rates and health care costtrend rates, as determined by management, within certain guidelines. We alsoconsider market conditions, including changes in investment returns andinterest rates, in making these assumptions.

We used an expected long-term rate of return on planassets of 9.5% in the combined 2003 periods compared with 10.0% in 2002 todetermine net periodic benefit cost for the respective periods. The expectedlong-term rate of return on plan assets was determined based on the buildingblock method, which consists of aggregating the expected rates of return foreach component of the plans’ asset mix. Plan assets are comprised primarily ofa diversified blend of equity and fixed income investments. We also consideredour historic 10-year and 15-year compounded annual returns of 11.9% and 12.1%,respectively, combined with current market conditions to estimate the rate ofreturn. The expected rate of return on plan assets is a long-term assumptionand generally does not change annually.

We used a discount rate of 6.75% in the combined 2003periods compared with 7.25% in 2002 to determine net periodic benefit cost forthe respective periods. The discount rate reflects the market rate forhigh-quality fixed income debt instruments on our annual measurement date (September 30)and is subject to change each year.

Holding all otherassumptions constant, a reduction of 25 basis points in the discount rate wouldhave increased our pension and other postretirement benefit expense $0.7million in the combined 2003 periods. Likewise, a reduction of 50 basis pointsin the expected long-term return assumption would have increased our pensionexpense $1.0 million in the combined 2003 periods. While we believe that theassumptions used are appropriate, differences in actual experience or changesin the assumptions could materially affect our financial position or results ofoperations.

***Income Taxes***

As part of the process ofpreparing our consolidated financial statements, we are required to estimateour income taxes in each of the jurisdictions in which we operate. This processinvolves estimating our actual current tax exposure together with assessingtemporary differences resulting from differing treatment of items such ascapital assets for tax and accounting purposes. These differences result indeferred tax assets and liabilities, which are included within our consolidatedbalance sheet. We must then assess the likelihood that our deferred tax assetswill be recovered from taxable income of the appropriate character within thecarryback or carryforward period and to the extent we believe that recovery isnot likely, we must establish a valuation allowance. Significant managementjudgment is required in determining our provision for income taxes, ourdeferred tax assets and liabilities and any valuation 

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allowancerecorded against our deferred tax assets. We have estimated a tax valuationallowance related to capital loss and foreign tax credit carryforwards becausewe believe the tax benefits are not likely to be fully realized.

**NEW ACCOUNTING STANDARDS**

***SFAS 143—Accounting for Asset Retirement Obligations***

In the first quarter offiscal 2003, we adopted SFAS 143, which addresses financial accounting andreporting for obligations associated with the retirement of tangible long-livedassets and the associated asset retirement costs. Adoption of this Statementhad no impact on our financial statements.

***SFAS 146—Accounting for Costs Associated with Exit orDisposal Activities***

In the first quarter offiscal 2003, we adopted SFAS 146, which requires that a liability for a costassociated with an exit or disposal activity be recognized when the liabilityis incurred and be measured at fair value. Adoption of this Statement had noimpact on our financial statements.

***SFAS 150—Accounting for Certain Financial Instrumentswith Characteristics of both Liabilities and Equity***

As of June 29, 2003, we adopted SFAS 150, whichestablishes guidance for how certain financial instruments with characteristicsof both liabilities and equity are classified and requires that a financialinstrument that is within its scope be classified as a liability (or as anasset in some circumstances). We determined that the characteristics of ourredeemable preferred stock were such that the securities should be classifiedas a liability and we recognized a $4.6 million cumulative effect of a changein accounting principle upon adoption. Restatement of prior periods was notpermitted. We assessed the value of our redeemable preferred stock at thepresent value of the settlement obligation using the rate implicit at inceptionof the obligation, thus recognizing a discount of $19.7 million. The redeemablepreferred stock was reclassified to the liabilities section of our consolidatedbalance sheet and the preferred dividend and related discount amortization weresubsequently recorded as interest expense in our results of operations ratherthan as a reduction to retained earnings. We did not provide any tax benefit inconnection with the cumulative effect adjustment because payment of the relatedpreferred dividend and the discount amortization are not tax deductible.

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Unauditedproforma amounts assuming the change in accounting principle had been in effectsince the beginning of 2001 are as follows:
| ** **                                                                  | ** ** | **Post-Merger**                                                  | ** ** | **Pre-Merger**              | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                  | ** ** | **Five Months  2003**                                       | ** ** | **Seven Months  2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                  | ** ** | **In thousands, except per share data** | ** ** |
| **Net (loss) income available to  common shareholder(s)**                   |       |                                                             |       |                        |       |   |   |   |   |   |   |
| As reported                                                                 |       | $                                                                | (33,402    | )                           |       | $ | 1,115 |   |   | $ | 18,159 |   | $ | (6,102 | ) |
| Dividends and  accretion on redeemable preferred shares previously reported |       | —                                                           |       |                        | 6,525      |   |   | 11,747 |   | 10,202 |   |
| Reverse  cumulative effect of accounting change                             |       | —                                                           |       |                        | (4,585     | ) |   | — |   | — |   |
| Proforma interest  expense                                                  |       | —                                                           |       |                        | (5,528     | ) |   | (10,395 | ) | (8,788 | ) |
| Proforma net  (loss) income available to common shareholder(s)              |       | $                                                                | (33,402    | )                           |       | $ | (2,473 | ) |   | $ | 19,511 |   | $ | (4,688 | ) |
| **Net  (loss) income per share**                                            |       |                                                             |       |                        |       |   |   |   |   |   |   |
| Basic—as  reported                                                     |       | $                                                                | (33,402.00 | )                           |       | $ | 0.12 |   |   | $ | 2.03 |   | $ | (0.68 | ) |
| Basic—proforma                                                         |       | $                                                                | (33,402.00 | )                           |       | $ | (0.28 | ) |   | $ | 2.18 |   | $ | (0.52 | ) |
| Diluted—as  reported                                                   |       | $                                                                | (33,402.00 | )                           |       | $ | 0.12 |   |   | $ | 1.83 |   | $ | (0.61 | ) |
| Diluted—proforma                                                       |       | $                                                                | (33,402.00 | )                           |       | $ | (0.28 | ) |   | $ | 1.97 |   | $ | (0.47 | ) |

 

***SFAS 132 (Revised)—Employers’ Disclosures aboutPensions and Other Postretirement Benefits***

As of January 3,2004, we adopted the provisions of SFAS 132 (Revised), which amends thedisclosure requirements of SFAS 132 to require more complete information inboth annual and interim financial statements about the assets, obligations,cash flows and net periodic benefit cost of defined benefit pension plans andpostretirement benefit plans. A discussion of our accounting policy and therequired disclosures under the revised provisions of SFAS 132 are included inNote 12. Adoption of this Statement had no impact on our financial statements.

***FSP 106-1—Accounting and Disclosure RequirementsRelated to the Medicare Prescription Drug Improvement and Modernization Act of2003***

On December 8, 2003,President Bush signed into law a bill that expands Medicare, primarily adding aprescription drug benefit for Medicare-eligible retirees starting in 2006.Under this bill, postretirement plans with prescription drug benefits that areat least “actuarially equivalent” to the Medicare Part D benefit will beeligible for a 28% subsidy. In response to this bill, on January 12, 2004,the Financial Accounting Standards Board (FASB) issued FASB Staff Position(FSP) 106-1. FSP 106-1 addresses how to incorporate this subsidy intothe calculation of the accumulated periodic benefit obligation (APBO) and netperiodic postretirement benefit costs, and also allows plan sponsors to deferrecognizing the effects of the bill in the accounting for its postretirementplan under SFAS 106, *Employers’ Accountingfor Postretirement Benefits Other Than Pensions*, until furtherauthoritative guidance on the accounting for the federal subsidy is issued. Asthe measurement date for our postretirement benefit plan is September 30,2003, the APBO and the net periodic postretirement benefit cost in thefinancial statements and accompanying notes do not reflect the effects of thebill on the plan. In addition, specific authoritative guidance on theaccounting for the federal subsidy is pending, and when issued, could require achange to previously reported information. We have deferred adoption of this standard,as is allowed under FSP 106-1, until further guidance is issued.

23

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**ITEM 7A.**   QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

***Market Risk***

We are subject to marketrisk associated with changes in interest rates, foreign currency exchange ratesand commodity prices. To reduce any one of these risks, we may at times use financialinstruments. All hedging transactions are authorized and executed under clearlydefined company policies and procedures, which prohibit the use of financialinstruments for trading purposes.

***Interest Rate Risk***

We are subject to marketrisk associated with changes in the London Interbank Offered Rate (LIBOR) inconnection with our senior secured credit facility. We periodically prepare asensitivity analysis to estimate our exposure to market risk on our floatingrate debt. If short-term interest rates or the LIBOR averaged 10% more or lessin the pre-merger period of 2003, the post-merger period of 2003 and in 2002,our interest expense would have changed by $1.0 million, $1.0 million and $2.4million, respectively.

***Foreign Currency Exchange Rate Risk***

From time to time, we mayenter into foreign currency contracts to hedge purchases of inventorydenominated in foreign currency. The purpose of these hedging activities is toprotect us from the risk that inventory purchases denominated in foreign currencieswill be adversely affected by changes in foreign currency rates. Our principalcurrency exposures relate to the Canadian dollar and the euro. We consider ourmarket risk in such activities to be immaterial. Our foreign operations areprimarily in Canada, and substantially all transactions are denominated in thelocal currency.

***Commodity Price Risk***

We are subject to market risk associated with changesin the price of gold. To mitigate our commodity price risk, we may enter intoforward contracts to purchase gold based upon the estimated ounces needed tosatisfy projected customer demand. We periodically prepare a sensitivityanalysis to estimate our exposure to market risk on our open gold forwardpurchase contracts. We consider our market risk associated with these contractsas of the end of 2003 and 2002 to be immaterial. Market risk was estimated asthe potential loss in fair value resulting from a hypothetical 10% adversechange in fair value and giving effect to the increase in fair value over ouraggregate forward contract commitment.

24

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**ITEM 8.**   FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

**Report of Independent Auditors**

To the Shareholder andBoard of DirectorsJostens, Inc.Minneapolis, Minnesota

We have audited the accompanying consolidated balancesheet of Jostens, Inc. and subsidiaries as of January 3, 2004(post-merger), and the related consolidated statements of operations, changesin shareholders’ equity (deficit) and cash flows for the period from July 30,2003 to January 3, 2004 (post-merger, five months) and the period from December 29,2002 to July 29, 2003 (pre-merger, seven months). These financialstatements are the responsibility of Jostens, Inc.’s management. Ourresponsibility is to express an opinion on these financial statements based onour audit.

We conducted our audit in accordance with auditingstandards generally accepted in the United States. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of Jostens, Inc. and subsidiaries as of January 3, 2004, andthe results of their operations and their cash flows 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 accounting principles generally accepted in the UnitedStates.

Asdiscussed in Note 1 to the consolidated financial statements, Jostens, Inc.adopted Statement of Financial Accounting Standards No. 150, “Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity,” effective June 29, 2003 and changed its method of accounting forredeemable preferred stock.
|                   |   |        |
|------------------------|--------|--------|
| Minneapolis, Minnesota |   |   |
| February 12, 2004 |   |   |

 

25

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**Report of IndependentAuditors**

*To the Shareholderand Board of Directors of Jostens, Inc.:*

In our opinion, theaccompanying consolidated balance sheet and the related consolidated statementsof operations, of changes in shareholders’ equity (deficit) and of cash flowspresent fairly, in all material respects, the consolidated financial positionof Jostens, Inc. and its subsidiaries at December 28, 2002, and theconsolidated results of their operations and their cash flows for each of thetwo fiscal years in the period ended December 28, 2002, in conformity withaccounting principles generally accepted in the United States of America. Thesefinancial statements are the responsibility of Jostens, Inc.’s management;our responsibility is to express an opinion on these financial statements basedon our audits. We conducted our audits of these financial statements inaccordance with auditing standards generally accepted in the United States ofAmerica, which require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

Asdiscussed in Note 6 to the consolidated financial statements, the Companyadopted Statement of Financial Accounting Standards No. 142, “Goodwill andOther Intangible Assets,” on December 30, 2001.
|                             |   |   |
|-----------------------------|--------|--------|
| PricewaterhouseCoopers  LLP |   |   |
| Minneapolis, Minnesota      |   |   |
| February 12, 2004      |   |   |

** **

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**JOSTENS, INC. ANDSUBSIDIARIESCONSOLIDATED STATEMENTS OFOPERATIONS**
| ** **                                                                                       | ** ** | **Post-Merger**                                                  | ** **  | **Pre-Merger**              | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------|-------------|-----------------------------|------------|
| ** **                                                                                       | ** ** | **Five Months  2003**                                       | ** **  | **Seven Months  2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                                       | ** ** | **In thousands, except per share data** | ** **  |
| **Net sales**                                                                                    | ** ** | **$**                                                            | **284,171** | ** **                  |       | **$** | **504,058** | ** ** |   | **$** | **755,984** | ** ** | **$** | **736,560** | ** ** |
| Cost of products sold                                                                            |       | 162,656                                                          |        |                        | 218,594    | ** ** |   | 315,961 |   | 311,212 |   |
| Gross profit                                                                                     |       | 121,515                                                          |        |                        | 285,464    | ** ** |   | 440,023 |   | 425,348 |   |
| Selling and administrative expenses                                                              |       | 143,845                                                          |        |                        | 196,430    | ** ** |   | 306,449 |   | 300,927 |   |
| Loss on redemption of debt                                                                       |       | 503                                                              |        |                        | 13,878     | ** ** |   | 1,765 |   | — |   |
| Transaction costs                                                                                |       | 226                                                              |        |                        | 30,960     | ** ** |   | — |   | — |   |
| Special charges                                                                                  |       | —                                                           |        |                        | —     | ** ** |   | — |   | 2,540 |   |
| **Operating (loss) income**                                                                      | ** ** | **(23,059**                                                      | **)**       |                        | **44,196** | ** ** |   | **131,809** | ** ** | **121,881** | ** ** |
| Interest income                                                                                  |       | 323                                                              |        |                        | 82         | ** ** |   | 1,109 |   | 2,269 |   |
| Interest expense                                                                                 |       | 28,621                                                           |        |                        | 32,528     | ** ** |   | 68,435 |   | 79,035 |   |
| (Loss) income from continuing operations before  income taxes                                    |       | (51,357                                                          | )           |                        | 11,750     | ** ** |   | 64,483 |   | 45,115 |   |
| (Benefit from) provision for income taxes                                                        |       | (17,955                                                          | )           |                        | 8,695      | ** ** |   | 36,214 |   | 18,575 |   |
| **(Loss) income from continuing operations**                                                     | ** ** | **(33,402**                                                      | **)**       |                        | **3,055**  | ** ** |   | **28,269** | ** ** | **26,540** | ** ** |
| Discontinued operations:                                                                         |       |                                                             |        |                        |       | ** ** |   |   |   |   |   |
| Loss from operations (net of income tax benefit of  $3,422)                                      |       | —                                                           |        |                        | —     | ** ** |   | — |   | (5,614 | ) |
| Gain (loss) on disposal (net of income tax expense of  $1,071 and income tax benefit of $10,623) |       | —                                                           |        |                        | —     | ** ** |   | 1,637 |   | (16,826 | ) |
| Gain (loss) on discontinued operations                                                           |       | —                                                           |        |                        | —     | ** ** |   | 1,637 |   | (22,440 | ) |
| Cumulative effect of accounting change                                                           |       | —                                                           |        |                        | 4,585      | ** ** |   | — |   | — |   |
| Net (loss) income                                                                                |       | (33,402                                                          | )           |                        | 7,640      | ** ** |   | 29,906 |   | 4,100 |   |
| Dividends and accretion on redeemable preferred  shares                                          |       | —                                                           |        |                        | (6,525     | ) |   | (11,747 | ) | (10,202 | ) |
| **Net (loss) income available to common  shareholder(s)**                                        | ** ** | **$**                                                            | **(33,402** | **)**                       |       | **$** | **1,115** | ** ** |   | **$** | **18,159** | ** ** | **$** | **(6,102** | **)** |
| **Basic net (loss) income per  common share:**                                                   | ** ** | ** **                                                       | ** **  |                        | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| (Loss) income from continuing operations                                                         |       | $                                                                | (33,402.00  | )                           |       | $ | (0.39 | **)** |   | $ | 1.85 |   | $ | 1.82 |   |
| Gain (loss) on discontinued operations                                                           |       | —                                                           |        |                        | —     | ** ** |   | 0.18 |   | (2.50 | ) |
| Cumulative effect of accounting change                                                           |       | —                                                           |        |                        | 0.51       | ** ** |   | — |   | — |   |
|                                                                                             |       | $                                                                | (33,402.00  | )                           |       | $ | 0.12 | ** ** |   | $ | 2.03 |   | $ | (0.68 | ) |
| **Diluted net (loss) income per  common share:**                                                 | ** ** | ** **                                                       | ** **  |                        | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| (Loss) income from continuing operations                                                         |       | $                                                                | (33,402.00  | )                           |       | $ | (0.39 | **)** |   | $ | 1.66 |   | $ | 1.65 |   |
| Gain (loss) on discontinued operations                                                           |       | —                                                           |        |                        | —     | ** ** |   | 0.17 |   | (2.26 | ) |
| Cumulative effect of accounting change                                                           |       | —                                                           |        |                        | 0.51       | ** ** |   | — |   | — |   |
|                                                                                             |       | $                                                                | (33,402.00  | )                           |       | $ | 0.12 | ** ** |   | $ | 1.83 |   | $ | (0.61 | ) |
| Weighted average common shares outstanding                                                       |       | 1                                                                |        |                        | 8,956      | ** ** |   | 8,959 |   | 8,980 |   |
| Dilutive effect of warrants and stock options                                                    |       | —                                                           |        |                        | —     | ** ** |   | 941 |   | 957 |   |
| Weighted average  common shares outstanding assuming dilution                                    |       | 1                                                                |        |                        | 8,956      | ** ** |   | 9,900 |   | 9,937 |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

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**JOSTENS, INC. ANDSUBSIDIARIESCONSOLIDATED BALANCE SHEETSJanuary 3, 2004 and December 28, 2002**
| ** **                                                                                                                | ** ** | **Post-Merger**                                         | ** **    | **Pre-Merger** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|---------------|----------------|------------|
| ** **                                                                                                                | ** ** | **2003**                                                | ** **    | **2002**       | ** ** |
| ** **                                                                                                                | ** ** | **In thousands,   except share amounts** | ** **    |
| **ASSETS**                                                                                                                | ** ** |                                                    | ** **    | ** **     |       |   | ** ** | ** ** |   |
| Cash and cash  equivalents                                                                                                |       |                                                    | $             | 19,371         | ** ** |   |   | $ | 10,938 | ** ** |   |
| Accounts  receivable, net                                                                                                 |       |                                                    | 57,018        | ** **     |       |   | 59,027 | ** ** |   |
| Inventories, net                                                                                                          |       |                                                    | 72,523        | ** **     |       |   | 69,348 | ** ** |   |
| Deferred income  taxes                                                                                                    |       |                                                    | —        | ** **     |       |   | 13,631 | ** ** |   |
| Salespersons  overdrafts, net of allowance of $10,953 and $8,034, respectively                                            |       |                                                    | 30,062        | ** **     |       |   | 25,585 | ** ** |   |
| Prepaid expenses  and other current assets                                                                                |       |                                                    | 10,446        | ** **     |       |   | 8,614 | ** ** |   |
| **Total  current assets**                                                                                                 | ** ** |                                                    | **189,420**   | ** **     |       |   | **187,143** | ** ** |   |
| Property and  equipment, net                                                                                              |       |                                                    | 105,593       | ** **     |       |   | 65,448 | ** ** |   |
| Goodwill                                                                                                                  |       |                                                    | 746,025       | ** **     |       |   | 14,450 | ** ** |   |
| Intangibles, net                                                                                                          |       |                                                    | 644,654       | ** **     |       |   | 479 | ** ** |   |
| Deferred financing  costs, net                                                                                            |       |                                                    | 23,809        | ** **     |       |   | 22,665 | ** ** |   |
| Pension assets,  net                                                                                                      |       |                                                    | —        | ** **     |       |   | 21,122 | ** ** |   |
| Other assets                                                                                                              |       |                                                    | 10,857        | ** **     |       |   | 16,214 | ** ** |   |
| ** **                                                                                                                | ** ** |                                                    | **$**         | **1,720,358**  | ** ** |   |   | **$** | **327,521** | ** ** |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                                                  | ** ** |                                                    | ** **    | ** **     |       |   | ** ** | ** ** |   |
| Short-term  borrowings                                                                                                    |       |                                                    | $             | 13,013         | ** ** |   |   | $ | 8,960 | ** ** |   |
| Accounts payable                                                                                                          |       |                                                    | 17,009        | ** **     |       |   | 13,893 | ** ** |   |
| Accrued employee  compensation and related taxes                                                                          |       |                                                    | 28,124        | ** **     |       |   | 31,354 | ** ** |   |
| Commissions  payable                                                                                                      |       |                                                    | 16,736        | ** **     |       |   | 15,694 | ** ** |   |
| Customer deposits                                                                                                         |       |                                                    | 149,809       | ** **     |       |   | 133,840 | ** ** |   |
| Income taxes  payable                                                                                                     |       |                                                    | 8,840         | ** **     |       |   | 7,316 | ** ** |   |
| Interest payable                                                                                                          |       |                                                    | 4,910         | ** **     |       |   | 10,789 | ** ** |   |
| Current portion of  long-term debt                                                                                        |       |                                                    | —        | ** **     |       |   | 17,094 | ** ** |   |
| Deferred income  taxes                                                                                                    |       |                                                    | 4,283         | ** **     |       |   | — | ** ** |   |
| Other accrued  liabilities                                                                                                |       |                                                    | 14,065        | ** **     |       |   | 14,968 | ** ** |   |
| Current  liabilities of discontinued operations                                                                           |       |                                                    | 3,100         | ** **     |       |   | 4,323 | ** ** |   |
| **Total  current liabilities**                                                                                            | ** ** |                                                    | **259,889**   | ** **     |       |   | **258,231** | ** ** |   |
| Long-term debt -  less current maturities                                                                                 |       |                                                    | 685,407       | ** **     |       |   | 563,334 | ** ** |   |
| Redeemable  preferred stock (liquidation preference: $99,052)                                                             |       |                                                    | 135,272       | ** **     |       |   | — | ** ** |   |
| Deferred income  taxes                                                                                                    |       |                                                    | 231,890       | ** **     |       |   | 9,668 | ** ** |   |
| Pension  liabilities, net                                                                                                 |       |                                                    | 18,695        | ** **     |       |   | — | ** ** |   |
| Other noncurrent  liabilities                                                                                             |       |                                                    | 4,664         | ** **     |       |   | 7,978 | ** ** |   |
| **Total  liabilities**                                                                                                    | ** ** |                                                    | **1,335,817** | ** **     |       |   | **839,211** | ** ** |   |
| Commitments and contingencies                                                                                             |       |                                                    |          | ** **     |       |   |   | ** ** |   |
| Redeemable  preferred stock (liquidation preference: $86,318)                                                             |       |                                                    | —        | ** **     |       |   | 70,790 | ** ** |   |
| Common stock $.01  par value; authorized: 2,000,000 shares; issued and outstanding: 1,000 shares  at January 3, 2004 |       |                                                    | —        | ** **     |       |   | — | ** ** |   |
| Common stock                                                                                                              |       |                                                    | —        | ** **     |       |   | 1,003 | ** ** |   |
| Additional  paid-in-capital                                                                                               |       |                                                    | 417,934       | ** **     |       |   | 20,964 | ** ** |   |
| Officer notes  receivable                                                                                                 |       |                                                    | —        | ** **     |       |   | (1,625 | **)** |   |
| Accumulated  deficit                                                                                                      |       |                                                    | (33,402       | **)**          |       |   | (592,005 | **)** |   |
| Accumulated other  comprehensive income (loss)                                                                            |       |                                                    | 9             | ** **     |       |   | (10,817 | **)** |   |
| **Total  shareholders’ equity (deficit)**                                                                            | ** ** |                                                    | **384,541**   | ** **     |       |   | **(582,480** | **)** |   |
| ** **                                                                                                                | ** ** |                                                    | **$**         | **1,720,358**  | ** ** |   |   | **$** | **327,521** | ** ** |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements*.*

28

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**JOSTENS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS**
| ** **                                                                                           | ** ** | **Post-Merger**       | ** **  | **Pre-Merger**        | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-----------------------|-------------|-----------------------|------------|
| ** **                                                                                           | ** ** | **Five Months**  | ** **  | **Seven Months** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                           | ** ** | **2003**              | ** **  | **2003**              | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                                           | ** ** | **In thousands** | ** **  |
| Net (loss) income                                                                                    |       |                  | $           | (33,402               | )          |   |   | $ | 7,640 |   |   | $ | 29,906 |   | $ | 4,100 |   |
| Adjustments to reconcile net (loss) income to net  cash provided by (used for) operating activities: |       |                  |        | *** ***          |       |   |   |   |   |   |   |   |   |
| Depreciation                                                                                         |       |                  | 13,900      | *** ***          |       |   | 12,649 |   |   | 24,645 |   | 25,910 |   |
| Amortization of  debt discount, premium and deferred financing   costs                               |       |                  | 1,611       | *** ***          |       |   | 3,112 |   |   | 7,422 |   | 6,960 |   |
| Other amortization                                                                                   |       |                  | 20,621      | *** ***          |       |   | 1,939 |   |   | 2,252 |   | 2,708 |   |
| Depreciation and  amortization of discontinued operations                                            |       |                  | —      | *** ***          |       |   | — |   |   | — |   | 1,202 |   |
| Accrued interest  on redeemable preferred stock                                                      |       |                  | 5,598       | *** ***          |       |   | 842 |   |   | — |   | — |   |
| Deferred income  taxes                                                                               |       |                  | (19,577     | )                     |       |   | (1,500 | ) |   | 11,805 |   | (2,237 | ) |
| Loss on redemption  of debt                                                                          |       |                  | 503         |                  |       |   | 13,878 |   |   | 1,765 |   | — |   |
| Cumulative effect  of accounting change, net of tax                                                  |       |                  | —      |                  |       |   | (4,585 | ) |   | — |   | — |   |
| Other                                                                                                |       |                  | 180         |                  |       |   | 2,765 |   |   | (959 | ) | 3,038 |   |
| Changes in assets and liabilities:                                                                   |       |                  |        |                  |       |   |   |   |   |   |   |   |   |
| Accounts  receivable                                                                                 |       |                  | (1,888      | )                     |       |   | 4,576 |   |   | (2,789 | ) | 8,706 |   |
| Inventories                                                                                          |       |                  | 21,102      |                  |       |   | 14,293 |   |   | 1,166 |   | 20,716 |   |
| Salespersons  overdrafts                                                                             |       |                  | (4,840      | )                     |       |   | 1,645 |   |   | 2,452 |   | (810 | ) |
| Prepaid expenses  and other current assets                                                           |       |                  | (4,724      | )                     |       |   | 3,405 |   |   | (891 | ) | 2,423 |   |
| Pension liabilities/assets                                                                           |       |                  | (1,478      | )                     |       |   | (750 | ) |   | (5,983 | ) | (6,875 | ) |
| Accounts payable                                                                                     |       |                  | 8,794       |                  |       |   | (5,969 | ) |   | (4,828 | ) | (5,709 | ) |
| Accrued employee  compensation and related taxes                                                     |       |                  | 6,487       |                  |       |   | (9,998 | ) |   | 3,962 |   | (3,434 | ) |
| Commissions  payable                                                                                 |       |                  | (24,953     | )                     |       |   | 25,632 |   |   | (2,945 | ) | (1,256 | ) |
| Customer deposits                                                                                    |       |                  | 90,845      |                  |       |   | (76,069 | ) |   | 7,440 |   | 17,552 |   |
| Income taxes  payable                                                                                |       |                  | (6,773      | )                     |       |   | 8,288 |   |   | (9,624 | ) | 1,785 |   |
| Interest payable                                                                                     |       |                  | 871         |                  |       |   | (6,750 | ) |   | 222 |   | 471 |   |
| Net liabilities of  discontinued operations                                                          |       |                  | (326        | )                     |       |   | (897 | ) |   | (5,159 | ) | 6,982 |   |
| Other                                                                                                |       |                  | (767        | )                     |       |   | (939 | ) |   | (4,387 | ) | (10,585 | ) |
| **Net cash  provided by (used for) operating activities**                                            | ** ** | ** **            | **71,784**  |                  | ** ** | ** ** | **(6,793** | **)** | ** ** | **55,472** | ** ** | **71,647** | ** ** |
| Acquisition of  businesses, net of cash acquired                                                     |       |                  | (10,936     | )                     |       |   | (5,008 | ) |   | — |   | — |   |
| Purchases of  property and equipment                                                                 |       |                  | (17,041     | )                     |       |   | (6,129 | ) |   | (22,843 | ) | (22,205 | ) |
| Purchases of  property and equipment related to discontinued operations                              |       |                  | —      |                  |       |   | — |   |   | — |   | (496 | ) |
| Proceeds from sale  of property and equipment                                                        |       |                  | 7           |                  |       |   | 90 |   |   | 1,256 |   | 4,204 |   |
| Proceeds from sale  of business                                                                      |       |                  | —      |                  |       |   | — |   |   | — |   | 2,500 |   |
| Other investing  activities, net                                                                     |       |                  | (18         | )                     |       |   | (828 | ) |   | (1,225 | ) | 168 |   |
| **Net cash  used for investing activities**                                                          | ** ** | ** **            | **(27,988** | **)**                 | ** ** | ** ** | **(11,875** | **)** | ** ** | **(22,812** | **)** | **(15,829** | **)** |
| Net short-term  borrowings                                                                           |       |                  | 620         |                  |       |   | 1,500 |   |   | 8,960 |   | — |   |
| Repurchase of  common stock and warrants                                                             |       |                  | —      |                  |       |   | (471,044 | ) |   | (2,851 | ) | (396 | ) |
| Principal payments  on long-term debt                                                                |       |                  | (25,000     | )                     |       |   | (379,270 | ) |   | (60,855 | ) | (38,874 | ) |
| Redemption of  senior subordinated notes payable                                                     |       |                  | (9,325      | )                     |       |   | — |   |   | (8,456 | ) | — |   |
| Proceeds from  issuance of long-term debt                                                            |       |                  | 3,705       |                  |       |   | 475,000 |   |   | — |   | — |   |
| Proceeds from  issuance of common stock                                                              |       |                  | —      |                  |       |   | 417,934 |   |   | — |   | — |   |
| Debt financing  costs                                                                                |       |                  | —      |                  |       |   | (20,212 | ) |   | (1,620 | ) | — |   |
| Merger costs                                                                                         |       |                  | —      |                  |       |   | (12,608 | ) |   | — |   | — |   |
| Other financing  activities, net                                                                     |       |                  | —      |                  |       |   | 1,625 |   |   | — |   | — |   |
| **Net cash  (used for) provided by financing activities**                                            | ** ** | ** **            | **(30,000** | **)**                 | ** ** | ** ** | **12,925** |   | ** ** | **(64,822** | **)** | **(39,270** | **)** |
| Effect of exchange  rate changes on cash and cash equivalents                                        |       |                  | 144         |                  |       |   | 236 |   |   | — |   | — |   |
| Increase  (decrease) in cash and cash equivalents                                                    | ** ** | ** **            | 13,940      |                  |       |   | (5,507 | ) |   | (32,162 | ) | 16,548 | ** ** |
| Cash and cash  equivalents, beginning of period                                                      |       |                  | 5,431       |                  |       |   | 10,938 |   |   | 43,100 |   | 26,552 |   |
| **Cash and  cash equivalents, end of period**                                                        | ** ** | ** **            | **$**       | **19,371**            |       | ** ** | ** ** | **$** | **5,431** |   | ** ** | **$** | **10,938** | ** ** | **$** | **43,100** | ** ** |
| **Supplemental information:**                                                                        | ** ** | ** **            | ** **  |                  | ** ** | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income taxes paid                                                                                    |       |                  | $           | 8,398                 |       |   |   | $ | 1,895 |   |   | $ | 31,492 |   | $ | 5,004 |   |
| Interest paid                                                                                        |       |                  | $           | 23,703                |       |   |   | $ | 32,162 |   |   | $ | 61,542 |   | $ | 71,604 |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

29

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**JOSTENS, INC. ANDSUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY(DEFICIT)**
| ** **                                                                      | ** ** | **Common shares** | ** ** | **Additional  paid-in-  capital** | ** ** | **Additional  paid-in-** | ** ** | **Officer  notes** | ** ** | **Accumulated** | ** **  | **Accumulated  other  compre-  hensive  income** | ** ** | ** **  | ** ** |
|---------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------------------|------------|--------------------------|------------|--------------------|------------|-----------------|-------------|--------------------------------------------------|------------|-------------|------------|
| **Pre-Merger**                                                                  | ** ** | ** **             | ** ** | **Number**                        | ** ** | **Amount**               | ** ** | **warrants**       | ** ** | **capital**     | ** **  | **receivable**                                   | ** ** | **deficit** | ** ** | **(loss)** | ** ** | **Total** | ** ** |
| ** **                                                                      | ** ** | **In thousands**  | ** ** |
| Balance—December 30,  2000                                            |       | 8,993                  |       | $                                 | 1,015      |                     | $          | 24,733             |       | $               | —      |                                             |       | $           | (1,775     | ) |   | $ | (604,102 | ) |   | $ | (6,191 | ) |   | $ | (586,320 | ) |
| Net income                                                                      |       |                   |       |                              |       |                     |       |               |       |            |        | ** **                                       |       | 4,100       |       |   |   |   |   | 4,100 |   |
| Change in cumulative  translation adjustment                                    |       |                   |       |                              |       |                     |       |               |       |            |        | ** **                                       |       |        |       |   | (1,502 | ) |   | (1,502 | ) |
| Transition  adjustment relating to the adoption of SFAS 133, net of  $1,194 tax |       |                   |       |                              |       |                     |       |               |       |            |        | ** **                                       |       |        |       |   | (1,821 | ) |   | (1,821 | ) |
| Change in fair  value of interest rate swap agreement, net of $1,021 tax        |       |                   |       |                              |       |                     |       |               |       |            |        | ** **                                       |       |        |       |   | (1,566 | ) |   | (1,566 | ) |
| Adjustment in  minimum pension liability, net of $931 tax                       |       |                   |       |                              |       |                     |       |               |       |            |        | ** **                                       |       |        |       |   | (1,423 | ) |   | (1,423 | ) |
| Comprehensive loss                                                              |       |                   |       |                              |       |                     |       |               |       |            |        | ** **                                       |       |        |       |   |   |   |   | (2,212 | ) |
| Preferred stock  dividends                                                      |       |                   |       |                              |       |                     |       |               |       |            |        | ** **                                       |       | (9,670      | )          |   |   |   |   | (9,670 | ) |
| Preferred stock  accretion                                                      |       |                   |       |                              |       |                     |       |               |       |            |        | ** **                                       |       | (532        | )          |   |   |   |   | (532 | ) |
| Repurchase of  common stock                                                     |       | (28                    | )          | (9                                | )          |                     |       |               |       |            | 368         | ** **                                       |       | (755        | )          |   |   |   |   | (396 | ) |
| **Balance—December 29,  2001**                                        | ** ** | **8,965**              | ** ** | **$**                             | **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** | ** ** |
| **Post-Merger**                                                                 | ** ** |                   |       |                              |       |                     |       |               |       |            |        |                                             | ** ** |        |       |   |   |   |   |   |   |   |
| Balance  July 29, 2003                                                     |       | 1                      |       | $                                 | —     |                     | $          | —             |       | $               | 417,934     |                                             |       | $           | —     | ** ** |   | $ | — |   |   | $ | — |   |   | $ | 417,934 |   |
| Net loss                                                                        |       |                   |       |                              |       |                     |       |               |       |            |        | ** **                                       |       | (33,402     | )          |   |   |   |   | (33,402 | ) |
| Change in  cumulative translation adjustment                                    |       |                   |       |                              |       |                     |       |               |       |            |        | ** **                                       |       |        |       |   | 9 |   |   | 9 |   |
| Comprehensive loss                                                              |       |                   |       |                              |       |                     |       |               |       |            |        | ** **                                       |       |        |       |   |   |   |   | (33,393 | ) |
| **Balance—January 3,  2004**                                          | ** ** | **1**                  | ** ** | **$**                             | **—** | ** **               | **$**      | **—**         | ** ** | **$**           | **417,934** | ** **                                       | ** ** | **$**       | **—** | ** ** | ** ** | **$** | **(33,402** | **)** | ** ** | **$** | **9** |   | ** ** | **$** | **384,541** | ** ** |
|                                                                                 |            |                        |            |                                   |            |                          |            |                    |            |                 |             |                                                  |            |             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

30

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.**   Summaryof Significant Accounting Policies

***Basis of Presentation***

Our consolidated financialstatements for the pre-merger period from December 29, 2002 through July 29,2003 were prepared using our historical basis of accounting. As a result of themerger transaction as discussed in Note 2, we applied purchase accountingand a new basis of accounting began on July 29, 2003. We have reflected apre-merger period from December 29, 2002 to July 29, 2003 (sevenmonths) and a post-merger period from July 30, 2003 to January 3,2004 (five months) in our consolidated financial statements for fiscal 2003.

***Principles of Consolidation***

The consolidated financialstatements include the accounts of Jostens, Inc. and its wholly ownedsubsidiaries. All significant intercompany accounts and transactions have beeneliminated.

***Reclassifications***

Certain reclassificationsof previously reported amounts have been made to conform to the current yearpresentation and to conform with recent accounting pronouncements and guidance.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.The post-merger period in 2003 and fiscal years 2002 and 2001 ended on January 3,2004, December 28, 2002 and December 29, 2001, respectively. Thecombined pre-merger and post-merger periods in 2003 consisted of fifty-threeweeks while fiscal years 2002 and 2001 each consisted of fifty-two weeks.

***Use of Estimates***

The preparation of ourconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires us to makeestimates and assumptions about future events that affect the amounts reportedin the financial statements and accompanying notes. Actual results could differfrom those estimates.

***Cash and Cash Equivalents***

We consider allinvestments with an original maturity of three months or less on theiracquisition date to be cash equivalents.

***Allowance for Doubtful Accounts***

We make estimates ofpotentially uncollectible customer accounts receivable. We believe that ourcredit risk for these receivables is limited because of our large number ofcustomers and the relatively small account balances for most of our customers.We evaluate the adequacy of the allowance on a periodic basis. The evaluationincludes historical loss experience, length of time receivables are past due,adverse situations that may affect a customer’s ability to repay and prevailingeconomic conditions. We make adjustments to the allowance balance if theevaluation of allowance requirements differs from the 

31

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

actualaggregate reserve. This evaluation is inherently subjective and estimates maybe revised as more information becomes available.

***Allowance for Sales Returns***

We make estimates ofpotential future product returns related to current period product revenue. Weevaluate the adequacy of the allowance on a periodic basis. This evaluationincludes historical returns experience, changes in customer demand andacceptance of our products and prevailing economic conditions. We makeadjustments to the allowance if the evaluation of allowance requirementsdiffers from the actual aggregate reserve. This evaluation is inherentlysubjective and estimates may be revised as more information becomes available.

***Allowance for Salespersons Overdrafts***

We make estimates ofpotentially uncollectible receivables arising from sales representative drawspaid in excess of earned commissions. For veteran sales representatives, theseestimates are based on historical commissions earned and length of service. Fornewer sales representatives, receivables arising from draws paid in excess ofearned commissions are fully reserved. We evaluate the adequacy of theallowance on a periodic basis. The evaluation includes historical lossexperience, length of time receivables are past due, adverse situations thatmay affect a sales representative’s ability to repay and prevailing economicconditions. We make adjustments to the allowance balance if the evaluation ofallowance requirements differs from the actual aggregate reserve. Thisevaluation is inherently subjective and estimates may be revised as moreinformation becomes available.

***Inventories***

Inventories are stated atthe lower of cost or market value. Cost is determined by using standardcosting, which approximates the first-in, first-out (FIFO) method for allinventories except gold and certain other precious metals, which are determinedusing the last-in, first-out (LIFO) method. Cost includes direct materials,direct labor and applicable overhead. LIFO inventories were $0.1 million at theend of 2003 and 2002 and approximated replacement cost. Obsolescence reservesare provided as necessary in order to approximate inventories at market value.

***Property and Equipment***

Propertyand equipment are stated at historical cost for the pre-merger period through July 29,2003, at which time we adjusted property and equipment to fair value inaccordance with purchase accounting. Maintenance and repairs are charged tooperations as incurred. Major renewals and betterments are capitalized.Depreciation is determined for financial reporting purposes by using thestraight-line method over the following estimated useful lives:
| ** **               | ** ** | **Years** | ** ** |
|--------------------------|------------|-----------|------------|
| Buildings                |       | 15  to 40 |       |
| Machinery and  equipment |       | 3 to  10  |       |
| Capitalized software     |       | 2 to 5    |       |

 

32

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

***Capitalization of Internal-Use Software***

We capitalize costs ofsoftware developed or obtained for internal use once the preliminary projectstage has concluded, management commits to funding the project and it isprobable that the project will be completed and the software will be used toperform the function intended. Capitalized costs include only (1) externaldirect costs of materials and services consumed in developing or obtaininginternal-use software, (2) payroll and payroll-related costs for employeeswho are directly associated with and who devote time to the internal-usesoftware project and (3) interest costs incurred, when material, whiledeveloping internal-use software. Capitalization of costs ceases when theproject is substantially complete and ready for its intended use.

***Goodwill and Other Intangible Assets***

Goodwill and otherintangible assets are originally recorded at their fair values at date ofacquisition. Goodwill and indefinite-lived intangibles are no longer amortized,but are tested annually for impairment, or more frequently if impairmentindicators occur, as further described in ITEM 7 “Critical AccountingPolicies”. Prior to fiscal 2002, goodwill and intangibles were amortized overtheir estimated useful lives, not to exceed a period of forty years.Definite-lived intangibles are amortized over their estimated useful lives andare evaluated for impairment annually, or more frequently if impairment indicatorsare present, using a process similar to that used to test other long-livedassets for impairment.

***Impairment of Long-Lived Assets***

We evaluate our long-livedassets, including intangible assets with finite lives, in compliance withStatement 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 circumstancesindicate 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 areidentifiable cash flows that are largely independent of the cash flows of othergroups of assets. We consider historical performance and future estimatedresults in our evaluation of impairment. If the carrying amount of the assetexceeds expected undiscounted future cash flows, we measure the amount ofimpairment by comparing the carrying amount of the asset to its fair value,generally measured by discounting expected future cash flows at the rate weutilize to evaluate potential investments.

***Customer Deposits***

Amounts received fromcustomers in the form of cash down payments to purchase goods are recorded as aliability until the goods are delivered.

***Income Taxes***

Deferred tax assets andliabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to berecovered or settled. The effect on deferred tax assets and liabilities of achange in tax rates is recognized in income in the period that includes theenactment date. Income tax expense represents the taxes payable for the year 

33

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

and thechange in deferred taxes during the year. Valuation allowances are establishedwhen necessary to reduce deferred tax assets to the amount expected to berealized.

***Revenue Recognition and Warranty Costs***

We recognize revenue whenthe earnings process is complete, evidenced by an agreement between Jostens andthe customer, delivery and acceptance has occurred, collectibility is probableand pricing is fixed and determinable. Provisions for warranty costs related toour jewelry products, sales returns and uncollectible amounts are recordedbased on historical information and current trends.

***Shipping and Handling***

Net sales include amountsbilled to customers for shipping and handling costs. Costs incurred forshipping and handling are recorded in cost of products sold.

***Foreign Currency Translation***

Assets and liabilitiesdenominated in foreign currency are translated at the current exchange rate asof the balance sheet date, and income statement amounts are translated at theaverage monthly exchange rate. Translation adjustments resulting fromfluctuations in exchange rates are recorded in other comprehensive income(loss).

***Supplier Concentration***

We purchase substantiallyall precious, semiprecious and synthetic stones from a single supplier locatedin Germany, whom we believe is also a supplier to our major class ringcompetitors in the United States.

***Derivative Financial Instruments***

We account for all derivativesin accordance with SFAS 133, *“Accountingfor Derivatives and Hedging Activities”*, as amended. SFAS 133requires that we recognize all derivatives on the balance sheet at fair valueand establish criteria for designation and effectiveness of hedgingrelationships. Effective December 31, 2000, the beginning of fiscal year2001, we adopted SFAS 133 and recognized a $1.8 million, net-of-taxcumulative effect adjustment in other comprehensives income (loss). Changes inthe fair value of derivatives are recorded in earnings or other comprehensiveincome (loss), based on whether the instrument is designated as part of a hedgetransaction and, if so, the type of hedge transaction. Gains or losses onderivative instruments reported in other comprehensive income (loss) arereclassified into earnings in the period in which earnings are affected by theunderlying hedged item. The ineffective portion of a derivative’s change infair value is recognized in earnings in the current period.

***(Loss) Earnings Per Common Share***

Basic (loss) earnings per share are computed bydividing net (loss) income available to common shareholder(s) by the weightedaverage number of outstanding common shares. Diluted earnings per share arecomputed by dividing net income available to common shareholder(s) by theweighted average number of outstanding common shares and common shareequivalents. Common share equivalents include the dilutive effects of warrantsand options.

34

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

There were no common shareequivalents outstanding subsequent to the merger on July 29, 2003 asdiscussed in Note 2. For the pre-merger period in 2003, approximately 0.9million shares of common share equivalents were excluded in the computation ofnet (loss) earnings per share since they were antidilutive due to the net lossincurred in the period. For 2002, options to purchase 44,750 shares of commonstock were outstanding, but were excluded from the computation of common shareequivalents because they were antidilutive.

***Stock-Based Compensation***

Weapply the intrinsic value method prescribed by Accounting Principles BoardOpinion (APB) 25, *“Accounting for StockIssued to Employees,”* and related interpretations in accounting forstock options granted to employees and non-employee directors. Accordingly, nocompensation cost has been reflected in net income for these plans since alloptions are granted at or above fair value. The following table illustrates theeffect on net income and earnings per share if we had applied the fair valuerecognition provisions of SFAS 123, *“Accountingfor Stock-Based Compensation”.*There were no stock optionsoutstanding subsequent to the merger on July 29, 2003, as discussed inNote 2.
| ** **                                                                                                                           | ** ** | **Pre-Merger**                                              | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                                           | ** ** | **Seven Months**                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                                           | ** ** | **2003**                                                    | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                                                                           | ** ** | **In thousands, except per-share data** | ** ** |
| **Net income (loss) available to  common shareholders**                                                                              |       |                                                        |       |   |   |   |   |   |   |
| As reported                                                                                                                          |       |                                                        | $          | 1,115 |   |   | $ | 18,159 |   | $ | (6,102 | ) |
| Add stock-based  employee compensation expense included in reported net income available to  common shareholders, 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 |       |                                                        | (2,185     | ) |   | (483 | ) | (375 | ) |
| Proforma net  income (loss) available to common shareholders                                                                         | ** ** | ** **                                                  | **$**      | **6,539** |   | ** ** | **$** | **17,676** | ** ** | **$** | **(6,477** | **)** |
| **Net  income (loss) per share**                                                                                                     |       |                                                        |       |   |   |   |   |   |   |
| Basic—as  reported                                                                                                              |       |                                                        | $          | 0.12 |   |   | $ | 2.03 |   | $ | (0.68 | ) |
| Basic—proforma                                                                                                                  |       |                                                        | $          | 0.73 |   |   | $ | 1.97 |   | $ | (0.72 | ) |
| Diluted—as  reported                                                                                                            |       |                                                        | $          | 0.12 |   |   | $ | 1.83 |   | $ | (0.61 | ) |
| Diluted—proforma                                                                                                                |       |                                                        | $          | 0.66 |   |   | $ | 1.79 |   | $ | (0.65 | ) |

 

***New Accounting Standards***

***SFAS 143—Accounting for Asset Retirement Obligations***

In the first quarter offiscal 2003, we adopted SFAS 143, which addresses financial accounting andreporting for obligations associated with the retirement of tangible long-livedassets and the associated asset retirement costs. Adoption of this Statementhad no impact on our financial statements.

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

***SFAS 146—Accounting for Costs Associated with Exit orDisposal Activities***

In the first quarter offiscal 2003, we adopted SFAS 146, which requires that a liability for acost associated with an exit or disposal activity be recognized when theliability is incurred and be measured at fair value. Adoption of this Statementhad no impact on our financial statements.

***SFAS 150—Accounting for Certain Financial Instrumentswith Characteristics of both Liabilities and Equity***

As of June 29, 2003, we adopted SFAS 150,which establishes guidance for how certain financial instruments withcharacteristics of both liabilities and equity are classified and requires thata financial instrument that is within its scope be classified as a liability(or as an asset in some circumstances). We determined that the characteristicsof our redeemable preferred stock were such that the securities should beclassified as a liability and we recognized a $4.6 million cumulativeeffect of a change in accounting principle upon adoption. Restatement of priorperiods was not permitted. We assessed the value of our redeemable preferredstock at the present value of the settlement obligation using the rate implicitat inception of the obligation, thus recognizing a discount of $19.7 million.The redeemable preferred stock was reclassified to the liabilities section ofour consolidated balance sheet and the preferred dividend and related discountamortization were subsequently recorded as interest expense in our results ofoperations rather than as a reduction to retained earnings. We did not provideany tax benefit in connection with the cumulative effect adjustment becausepayment of the related preferred dividend and the discount amortization are nottax deductible.

Unauditedproforma amounts assuming the change in accounting principle had been in effectsince the beginning of 2001 are as follows:
| ** **                                                                  | ** ** | **Post-Merger**                                                  | ** ** | **Pre-Merger**        | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                  | ** ** | **Five Months**                                             | ** ** | **Seven Months** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                  | ** ** | **2003**                                                         | ** ** | **2003**              | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                  | ** ** | **In thousands, except per share data** | ** ** |
| **Net (loss) income available to  common shareholder(s)**                   |       |                                                             |       |                  |       |   |   |   |   |   |   |
| As reported                                                                 |       | $                                                                | (33,402    | )                     |       | $ | 1,115 |   |   | $ | 18,159 |   | $ | (6,102 | ) |
| Dividends and  accretion on redeemable preferred shares previously reported |       | —                                                           |       |                  | 6,525      |   |   | 11,747 |   | 10,202 |   |
| Reverse  cumulative effect of accounting change                             |       | —                                                           |       |                  | (4,585     | ) |   | — |   | — |   |
| Proforma interest  expense                                                  |       | —                                                           |       |                  | (5,528     | ) |   | (10,395 | ) | (8,788 | ) |
| Proforma net  (loss) income available to common shareholder(s)              |       | $                                                                | (33,402    | )                     |       | $ | (2,473 | ) |   | $ | 19,511 |   | $ | (4,688 | ) |
| **Net  (loss) income per share**                                            |       |                                                             |       |                  |       |   |   |   |   |   |   |
| Basic—as  reported                                                     |       | $                                                                | (33,402.00 | )                     |       | $ | 0.12 |   |   | $ | 2.03 |   | $ | (0.68 | ) |
| Basic—proforma                                                         |       | $                                                                | (33,402.00 | )                     |       | $ | (0.28 | ) |   | $ | 2.18 |   | $ | (0.52 | ) |
| Diluted—as  reported                                                   |       | $                                                                | (33,402.00 | )                     |       | $ | 0.12 |   |   | $ | 1.83 |   | $ | (0.61 | ) |
| Diluted—proforma                                                       |       | $                                                                | (33,402.00 | )                     |       | $ | (0.28 | ) |   | $ | 1.97 |   | $ | (0.47 | ) |

 

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

***SFAS 132 (Revised)—Employers’ Disclosures aboutPensions and Other Postretirement Benefits***

As of January 3,2004, we adopted the provisions of SFAS 132 (Revised), which amends thedisclosure requirements of SFAS 132 to require more complete informationin both annual and interim financial statements about the assets, obligations,cash flows and net periodic benefit cost of defined benefit pension plans andpostretirement benefit plans. A discussion of our accounting policy and therequired disclosures under the revised provisions of SFAS 132 are includedin Note 12. Adoption of this Statement had no impact on our financialstatements.

***FSP 106-1—Accounting and Disclosure RequirementsRelated to the Medicare Prescription Drug Improvement and Modernization Act of2003***

On December 8, 2003,President Bush signed into law a bill that expands Medicare, primarily adding aprescription drug benefit for Medicare-eligible retirees starting in 2006.Under this bill, postretirement plans with prescription drug benefits that areat least “actuarially equivalent” to the Medicare Part D benefit will beeligible for a 28% subsidy. In response to this bill, on January 12, 2004,the Financial Accounting Standards Board (FASB) issued FASB Staff Position(FSP) 106-1. FSP 106-1 addresses how to incorporate this subsidy intothe calculation of the accumulated periodic benefit obligation (APBO) and netperiodic postretirement benefit costs, and also allows plan sponsors to deferrecognizing the effects of the bill in the accounting for its postretirementplan under SFAS 106, *Employers’Accounting for Postretirement Benefits Other Than Pensions*, untilfurther authoritative guidance on the accounting for the federal subsidy isissued. As the measurement date for our postretirement benefit plan is September 30,2003, the APBO and the net periodic postretirement benefit cost in thefinancial statements and accompanying notes do not reflect the effects of thebill on the plan. In addition, specific authoritative guidance on theaccounting for the federal subsidy is pending, and when issued, could require achange to previously reported information. We have deferred adoption of this standard,as is allowed under FSP 106-1, until further guidance is issued.

**2.**   Merger

On June 17, 2003, we entered into a mergeragreement with Jostens Holding Corp. (formerly known as Ring Holding Corp.) andRing Acquisition Corp., an entity organized for the sole purpose of effecting amerger on behalf of DLJ Merchant Banking Partners III, L.P. and certain of itsaffiliated funds (collectively, the “DLJMB Funds. On July 29, 2003, RingAcquisition Corp. merged with and into Jostens, Inc., with Jostens, Inc.becoming the surviving company and an indirect subsidiary of Jostens HoldingCorp. (the “merger”). As a result of the merger, the DLJMB Funds and certainco-investors beneficially own 99% of the outstanding voting securities of JostensHolding Corp. and certain members of our senior management and directors ownthe remaining 1%.

In connection with the merger, we received $417.9million of proceeds from a capital contribution by Jostens IH Corp. (“JIHC”),which was established for purposes of the merger. We used the proceeds from thecapital contribution, along with incremental borrowings under our new seniorsecured credit facility, to repurchase all previously outstanding common stockand warrants. We paid $471.0 million to holders of common stock and warrantsrepresenting a cash payment of $48.25 per share. In addition, we paidapproximately $41.2 million of fees and expenses associated with the mergerincluding $12.6 million of compensation expense representing the excess of thefair market value over the exercise price of 

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

outstanding stock options,$12.6 million of capitalized merger costs and $16.0 million of expensed costsconsisting primarily of investment banking, legal and accounting fees. We alsorecognized $2.6 million of transaction costs as a result of writing off certainprepaid management fees having no future value.

Also in connection withthe merger, we refinanced our senior secured credit facility through theestablishment of a new senior secured credit facility. We received $475.0million in borrowings under the new credit facility and repaid $371.1 millionof outstanding indebtedness under the old credit facility. In addition, weincurred transaction fees and related costs of $20.2 million associated withthe new credit facility, which have been capitalized and are being amortized asinterest expense over the life of the facility. We also wrote off theunamortized balance of $13.9 million relating to deferred financing costsassociated with the old credit facility.

***Merger Accounting***

Beginning on July 29,2003, Jostens, Inc. and JIHC, a subsidiary of Jostens Holding Corp.,accounted for the merger as a purchase in accordance with the provisions ofSFAS 141, *“Business Combinations”,*which requires a valuation for the assets and liabilities of JIHC and itssubsidiaries based upon the fair values as of the date of the merger. Asallowed under SEC Staff Accounting Bulletin No. 54, *“Push Down Basis of Accounting Required in CertainLimited Circumstances”,*we have reflected all applicable purchaseaccounting adjustments recorded by JIHC in our consolidated financialstatements for all SEC filings covering periods subsequent to the merger (“purchaseaccounting”). Purchase accounting requires us to establish a new basis for ourassets and liabilities based on the amount paid for ownership at July 29,2003. Accordingly, JIHC’s ownership basis is reflected in our consolidatedfinancial statements beginning upon completion of the merger. In order to applypurchase accounting, JIHC’s purchase price of $471.0 million was allocated tothe assets and liabilities based on their relative fair values and $417.9million was reflected in shareholders’ equity of Jostens, Inc. as thevalue of JIHC’s ownership upon completion of the merger. Immediately prior tothe merger, shareholders’ equity of Jostens, Inc. was a deficit ofapproximately $578.7 million. As of January 3, 2004, our preliminaryallocation of the purchase price is as follows:
| ** **                  | ** ** | ** In thousands ** | ** ** |
|-----------------------------|------------|-----------------------------------|------------|
| Current assets              |       |                              | $          | 165,280 |   |   |
| Property and  equipment     |       |                              | 101,989    |   |   |
| Intangible assets           |       |                              | 660,399    |   |   |
| Goodwill                    |       |                              | 727,633    |   |   |
| Other assets                |       |                              | 18,622     |   |   |
| Current  liabilities        |       |                              | (199,776   | ) |   |
| Long-term debt              |       |                              | (594,494   | ) |   |
| Redeemable  preferred stock |       |                              | (126,511   | ) |   |
| Deferred income  taxes      |       |                              | (253,577   | ) |   |
| Other liabilities           |       |                              | (28,521    | ) |   |
|                        | ** ** | ** **                        | **$**      | **471,044** |   |   |

 

We have estimated the fair value of our assets andliabilities, including intangible assets and property and equipment, as of themerger date, utilizing information available at the time that our consolidatedfinancial statements were prepared. These estimates are subject to refinementuntil all pertinent 

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

information has beenobtained. We also recognized the funding status of our pension andpostretirement benefit plans as of July 29, 2003 and updated thecalculation of our post-merger pension expense.

As a result of the merger,in accordance with SFAS 141, we have reflected a pre-merger period from December 29,2002 to July 29, 2003 (seven months) and a post-merger period from July 30,2003 to January 3, 2004 (five months) in our consolidated financialstatements for fiscal 2003.

**3.**   AccumulatedComprehensive Income (Loss)

Thefollowing amounts were included in accumulated other comprehensive income(loss) as of the dates indicated:
| ** **                                              | ** ** | ** **            | ** ** | ** **      | ** ** | **Fair value**  | ** ** | **Accumulated**   | ** ** |
|---------------------------------------------------------|------------|-----------------------|------------|-----------------|------------|----------------------|------------|-------------------|------------|
| ** **                                              | ** ** | **Foreign**           | ** ** | **Minimum**     | ** ** | **of interest** | ** ** | **other**         | ** ** |
| ** **                                              | ** ** | **currency**          | ** ** | **pension**     | ** ** | **rate swap**   | ** ** | **comprehensive** | ** ** |
| **Pre-Merger**                                          | ** ** | ** **            | ** ** | **translation** | ** ** | **liability**        | ** ** | **agreement**     | ** ** | **income (loss)** | ** ** |
| ** **                                              | ** ** | **In thousands** | ** ** |
| Balance at December 30,  2000                           |       |                  | $          | (5,243          | )          |                 | $          | (948              | )          |   | $ | — | ** ** |   |   | $ | (6,191 | ) |   |
| Transition adjustment  relating to adoption of SFAS 133 |       |                  | —     |            |       | —               |       |              | (1,821     | ) |   |   | (1,821 | ) |   |
| Current period change                                   |       |                  | (1,502     | )               |       | (1,423               | )          |              | (1,566     | ) |   |   | (4,491 | ) |   |
| **Balance at December 29, 2001**                        | ** ** | ** **            | **(6,745** | **)**           | ** ** | **(2,371**           | **)**      | ** **        | **(3,387** | **)** | ** ** | ** ** | **(12,503** | **)** |   |
| Current period change                                   |       |                  | 579        | ** **      |       | (958                 | )          |              | 2,065      | ** ** |   |   | 1,686 | ** ** |   |
| **Balance at December 28, 2002**                        | ** ** | ** **            | **(6,166** | **)**           | ** ** | **(3,329**           | **)**      | ** **        | **(1,322** | **)** | ** ** | ** ** | **(10,817** | **)** |   |
| Pre-merger period change                                |       |                  | (278       | )               |       | —               |       |              | 1,293      | ** ** |   |   | 1,015 | ** ** |   |
| Effect of purchase  accounting                          |       |                  | 6,444      | ** **      |       | 3,329                |       |              | 29         | ** ** |   |   | 9,802 | ** ** |   |
| **Balance at July 29, 2003**                            | ** ** | ** **            | **$**      | **—**      | ** ** | ** **           | **$**      | **—**        | ** ** | ** ** | **$** | **—** | ** ** | ** ** | ** ** | **$** | **—** | ** ** |   |
| **Post-Merger**                                         | ** ** |                  |       |            | ** ** |                 |       |              |       |   | ** ** |   |   |   | ** ** |   |
| Balance at July 29, 2003                                |       |                  | $          | —          | ** ** |                 | $          | —            |       |   | $ | — | ** ** |   |   | $ | — | ** ** |   |
| Post-merger period  change                              |       |                  | 9          | ** **      |       | —               |       |              | —     | ** ** |   |   | 9 | ** ** |   |
| **Balance at January 3, 2004**                          | ** ** | ** **            | **$**      | **9**           | ** ** | ** **           | **$**      | **—**        | ** ** | ** ** | **$** | **—** | ** ** | ** ** | ** ** | **$** | **9** | ** ** |   |
|                                                         |            |                       |            |                 |            |                      |            |                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**4.**   Accounts Receivableand Inventories

Netaccounts receivable were comprised of the following:
| ** **                       | ** ** | **Post-Merger**       | ** ** | **Pre-Merger** | ** ** |
|----------------------------------|------------|-----------------------|------------|----------------|------------|
| ** **                       | ** ** | **2003**              | ** ** | **2002**       | ** ** |
| ** **                       | ** ** | **In thousands** | ** ** |
| Trade receivables                |       |                  | $          | 64,993         |       |   |   | $ | 67,181 |   |   |
| Allowance for  doubtful accounts |       |                  | (2,184     | )              |       |   | (2,557 | ) |   |
| Allowance for  sales returns     |       |                  | (5,791     | )              |       |   | (5,597 | ) |   |
| Accounts receivable, net         |       |                  | **$**      | **57,018**     | ** ** | ** ** | ** ** | **$** | **59,027** |   |   |

 

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Netinventories were comprised of the following:
| ** **                  | ** ** | **Post-Merger**       | ** ** | **Pre-Merger** | ** ** |
|-----------------------------|------------|-----------------------|------------|----------------|------------|
| ** **                  | ** ** | **2003**              | ** ** | **2002**       | ** ** |
| ** **                  | ** ** | **In thousands** | ** ** |
| Raw materials and  supplies |       |                  | $          | 11,416         |       |   |   | $ | 10,810 |   |   |
| Work-in-process             |       |                  | 28,084     |           |       |   | 27,347 |   |   |
| Finished goods              |       |                  | 34,713     |           |       |   | 32,850 |   |   |
| Reserve for  obsolescence   |       |                  | (1,690     | )              |       |   | (1,659 | ) |   |
| Inventories, net            |       |                  | **$**      | **72,523**     | ** ** | ** ** | ** ** | **$** | **69,348** |   |   |

 

***Precious Metals Consignment Arrangement***

We have a precious metalsconsignment arrangement with a major financial institution whereby we have theability to obtain up to $30.0 million in consigned inventory. We expensedconsignment fees related to this facility of $0.2 million in the post-mergerperiod of 2003, $0.2 million in the pre-merger period of 2003 and $0.3 millionand $0.5 million in 2002 and 2001, respectively. Under the terms of theconsignment arrangement, we do not own the consigned inventory until it isshipped in the form of a product to our customer. Accordingly, we do notinclude the value of consigned inventory nor the corresponding liability in ourfinancial statements. The value of consigned inventory as of the end of 2003and 2002 was $24.1 million and $17.4 million, respectively.

**5.**   Property andEquipment

As ofthe end of 2003 and 2002, net property and equipment consisted of:
| ** **                                      | ** ** | **Post-Merger**       | ** ** | **Pre-Merger** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|----------------|------------|
| ** **                                      | ** ** | **2003**              | ** ** | **2002**       | ** ** |
| ** **                                      | ** ** | **In thousands** | ** ** |
| Land                                            |       |                  | $          | 12,617         |       |   | $ | 2,795 |   |
| Buildings                                       |       |                  | 26,925     |           |       | 36,332 |   |
| Machinery and  equipment                        |       |                  | 66,554     |           |       | 201,421 |   |
| Capitalized  software                           |       |                  | 13,410     |           |       | 40,242 |   |
| Total property  and equipment                   |       |                  | 119,506    |           |       | 280,790 |   |
| Less accumulated  depreciation and amortization |       |                  | 13,913     |           |       | 215,342 |   |
| Property and equipment,  net                    |       |                  | **$**      | **105,593**    | ** ** | ** ** | **$** | **65,448** |   |

 

Property and equipment arestated at historical cost for the pre-merger period through July 29, 2003,at which time we adjusted property and equipment to fair value in accordancewith purchase accounting. Depreciation expense was $13.9 million for thepost-merger period in 2003 and $12.6 million for the pre-merger period in 2003.Depreciation expense for 2002 and 2001 was $24.6 million and $25.9 million,respectively. The amount in 2001 relates to continuing operations. Amortizationrelated to capitalized software is included in depreciation expense and totaled$2.6 million for the post-merger period in 2003, $3.8 million for thepre-merger period in 2003 and $6.9 million and $6.6 million in 2002 and 2001,respectively.

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**6.**   Goodwill and OtherIntangible Assets

On December 30, 2001,the beginning of fiscal year 2002, we adopted SFAS 142 *“Goodwill and Other Intangible Assets”,*whichprovides that goodwill and other indefinite-lived intangible assets are nolonger amortized but are reviewed for impairment annually, or more frequentlyif impairment indicators occur. Separable intangible assets that are deemed tohave a definite life continue to be amortized over their useful lives. Had theprovisions of SFAS 142 been in effect during fiscal year 2001, net lossavailable to common shareholders would have decreased by $1.0 million or$.09 per diluted share and income from continuing operations would haveincreased by $0.5 million or $.05 per diluted share.

***Goodwill***

Thechanges in the net carrying amount of goodwill were as follows:
| ** **                           | ** ** | **Post-Merger**       | ** ** | **Pre-Merger**        | ** ** |
|--------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **Five Months**  | ** ** | **Seven Months** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | **2003**              | ** ** | **2003**              | ** ** | **2002** | ** ** |
| ** **                           | ** ** | **In thousands** | ** ** |
| Balance at  beginning of period      |       |                  | $          | 679,231               |       |   |   | $ | 14,450 |   |   | $ | 13,759 |   |
| Goodwill acquired  during the period |       |                  | 10,954     |                  |       |   | 664,668 |   |   | 678 |   |
| Purchase price  adjustments          |       |                  | 55,768     |                  |       |   | — |   |   | — |   |
| Currency translation                 |       |                  | 72         |                  |       |   | 113 |   |   | 13 |   |
| Balance at end of period             | ** ** | ** **            | **$**      | **746,025**           |       | ** ** | ** ** | **$** | **679,231** |   | ** ** | **$** | **14,450** | ** ** |

 

***Other Intangible Assets***

Informationregarding our other intangible assets as of the end of 2003 and 2002 is asfollows:
| ** **                      | ** ** | **Post-Merger**       | ** ** |
|---------------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2003**              | ** ** |
| ** **                      | ** ** | ** **            | ** ** | **Gross** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                      | ** ** | **Estimated**         | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                      | ** ** | **Useful Life**  | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Net** | ** ** |
| ** **                      | ** ** | **In thousands** | ** ** |
| School  relationships           |       | 10  years             |       | $ | 330,000 |   |   | $ | (14,540 | ) |   | $ | 315,460 |   |
| Order backlog                   |       | 1.5  years            |       | 48,700 |   |   | (2,190 | ) |   | 46,510 |   |
| Internally  developed software  |       | 2 to  5 years         |       | 12,200 |   |   | (1,447 | ) |   | 10,753 |   |
| Patented/unpatented  technology |       | 3  years              |       | 11,000 |   |   | (1,612 | ) |   | 9,388 |   |
| Customer  relationships         |       | 4 to  8 years         |       | 8,666 |   |   | (1,135 | ) |   | 7,531 |   |
| Other                           |       | 3  years              |       | 24 |   |   | (12 | ) |   | 12 |   |
|                            |       |                  |       | 410,590 |   |   | (20,936 | ) |   | 389,654 |   |
| Trademarks                      |       | Indefinite            |       | 255,000 |   |   | — |   |   | 255,000 |   |
| ** **                      | ** ** | ** **            | ** ** | **$** | **665,590** | ** ** |   | **$** | **(20,936** | **)** | ** ** | **$** | **644,654** | ** ** |

 

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 
| ** **              | ** ** | **Pre-Merger**        | ** ** |
|-------------------------|------------|-----------------------|------------|
| ** **              | ** ** | **2002**              | ** ** |
| ** **              | ** ** | ** **            | ** ** | **Gross** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **              | ** ** | **Estimated**         | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **              | ** ** | **Useful Life**  | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Net** | ** ** |
| ** **              | ** ** | **In thousands** | ** ** |
| Customer  relationships |       |                  | 5 years    |   |   |   | $510 |   |   |   | $(51 | **)** |   | $459 |   |
| Other                   |       |                  | 3 years    |   |   |   | 24 |   |   |   | (4 | **)** |   | 20 |   |
|                    |       |                  |       |   | ** ** | ** ** | **$** | **534** |   | ** ** | ** ** | **$** | **(55** | **)** | ** ** | **$** | **479** | ** ** |
|                         |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Amortizationexpense was $20.3 million for the post-merger period in 2003 and $0.6 millionfor the pre-merger period in 2003. Amortization expense for 2002 and 2001 was$0.1 million and $0.5 million, respectively. Estimated amortization expense foreach of the five succeeding fiscal years based on intangible assets as of January 3,2004 is as follows:
| ** ** | ** ** | **In thousands** | ** ** |
|------------|------------|-----------------------|------------|
| 2004       |       |                  | $          | 87,901 |   |   |
| 2005       |       |                  | 41,051     |   |   |
| 2006       |       |                  | 38,769     |   |   |
| 2007       |       |                  | 35,470     |   |   |
| 2008       |       |                  | 34,473     |   |   |
| ** ** | ** ** | ** **            | **$**      | **237,664** |   |   |

 

The increase in goodwill and other intangible assetsis predominantly attributable to the effect of purchase accounting inconnection with the merger as discussed in Note 2. In addition, we acquired thenet assets of a photography business in January 2003 for $5.0 million incash. The purchase price allocation was $0.4 million to net tangible assets,$3.2 million to amortizable intangible assets and $1.4 million to goodwill. Wealso acquired the net assets of a printing business in September 2003 for$10.9 million in cash. The purchase price allocation was $0.7 million to nettangible assets, $4.5 million to amortizable intangible assets and $5.7 millionto goodwill.

Acquisitions are accounted for as purchases and,accordingly, have been included in our consolidated results of operations sincethe acquisition date. Purchase price allocations are subject to refinementuntil all pertinent information regarding the acquisition is obtained. Proformaresults of operations have not been presented since the effect of theseacquisitions on our financial position and results of operations is notmaterial.

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**7.**   Long-term Debt

As ofthe end of 2003 and 2002, long-term debt consists of the following:
| ** **                                                                                                                                                                                                                                                                        | ** ** | **Post-Merger**       | ** ** | **Pre-Merger** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|----------------|------------|
| ** **                                                                                                                                                                                                                                                                        | ** ** | **2003**              | ** ** | **2002**       | ** ** |
| ** **                                                                                                                                                                                                                                                                        | ** ** | **In thousands** | ** ** |
| Borrowings under senior  secured credit facility:                                                                                                                                                                                                                                 |       |                  |       |           |       |   |   |
| Term Loan, variable rate, 3.72 percent at January 3,  2004,with  semi-annual principal and interest payments throughJuly 2010                                                                                                                                           |       |                  | $          | 453,705        |       |   | $ | — |   |
| Term Loan A, variable rate, 3.65 percent at  December 28, 2002, paid in full July 2003                                                                                                                                                                                  |       |                  | —     |           |       | 58,602 |   |
| Term Loan C, variable rate, 4.15 percent at  December 28, 2002, paid in full July 2003                                                                                                                                                                                  |       |                  | —     |           |       | 320,669 |   |
| Senior  subordinated notes, 12.75 percent fixed rate, including premiumof $22,717 at  January 3, 2004, net of discount of $16,343 at December 28, 2002,  with semi-annual interest payments of $13.3 million, principal due and  payable at maturity—May 2010 |       |                  | 231,702    |           |       | 201,157 |   |
|                                                                                                                                                                                                                                                                              |       |                  | 685,407    |           |       | 580,428 |   |
| Less current  portion                                                                                                                                                                                                                                                             |       |                  | —     |           |       | 17,094 |   |
|                                                                                                                                                                                                                                                                              | ** ** | ** **            | **$**      | **685,407**    |       | ** ** | **$** | **563,334** | ** ** |

 

Maturitiesof long-term debt, excluding $22.7 million of premium on our seniorsubordinated notes, as of the end of 2003 are as follows:
| ** ** | ** ** | **In thousands** | ** ** |
|------------|------------|-----------------------|------------|
| 2004       |       |                  | $          | — |   |   |
| 2005       |       |                  | 29,849     |   |   |
| 2006       |       |                  | 41,789     |   |   |
| 2007       |       |                  | 47,758     |   |   |
| 2008       |       |                  | 59,698     |   |   |
| Thereafter |       |                  | 483,596    |   |   |
| ** ** | ** ** | ** **            | **$**      | **662,690** |   |   |

 

***Senior Secured Credit Facility***

In connection with the merger, we refinanced oursenior secured credit facility through the establishment of a new seniorsecured credit facility, which consists of: (i) a $475.0 million termloan; (ii) a $150.0 million revolving credit facility; and (iii) $3.7million drawn under an incremental $50.0 million change of control term loan,which was subsequently consolidated into the term loan. The proceeds of thechange of control term loan were used solely to fund certain change of controlpayments due to holders of our 12.75% senior subordinated notes due May 2010(the “notes”) who elected to tender their notes pursuant to the notes change ofcontrol offer that we commenced on July 30, 2003 (the “Notes Offer”).Commitment for the amounts not borrowed in respect of the $50.0 million changeof control term loan terminated following the consummation of the Notes Offerand is not available for our future use. Substantially all of the assets of ouroperations were used to secure the new senior secured credit facility.

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

The term loan bears a variable interest rate basedupon either the London Interbank Offered Rate (LIBOR) or an “alternative baserate”, which is based upon the greater of the federal funds effective rate plus0.5% or the prime rate, plus a fixed margin. Future mandatory principal paymentobligations under the term loan are due semi-annually beginning on July 2,2005 at an amount equal to 2.63% of the current outstanding balance of the termloan. Thereafter, semi-annual principal payments gradually increase through July 2009to an amount equal to 7.89% of the current outstanding balance of the termloan, with two final principal payments due in December 2009 and July 2010,each equal to 26.32% of the current outstanding balance of the term loan. Inthe post-merger period of 2003 and during 2002 and 2001, we voluntarily paiddown $25.0 million, $40.0 million and $24.0 million, respectively, of our termloans. Deferred financing fees related to these voluntary prepayments, whichare included in interest expense, totaled $0.6 million in the post-mergerperiod of 2003 and $1.2 million and $0.8 million in 2002 and 2001,respectively.

Under the $150.0 million revolving credit facility, wemay borrow funds and elect to pay interest under either LIBOR or the “alternativebase rate” plus applicable margins. The revolving credit facility contains asub-facility that allows our Canadian subsidiary to borrow funds not to exceed$20.0 million of the total $150.0 million facility. The revolving creditfacility expires on July 29, 2008. At the end of 2003, there was $13.0million outstanding in the form of short-term borrowings at our Canadiansubsidiary at a weighted average interest rate of 6.25% and an additional $12.8million outstanding in the form of letters of credit, leaving $124.2 millionavailable under this facility.

The senior secured creditfacility requires that we meet certain financial covenants, ratios and tests,including a maximum senior everage ratio, a maximum leverage ratio and aminimum interest coverage ratio. In addition, we are required to pay certainfees in connection with the senior secured credit facility, including letter ofcredit fees, agency fees and commitment fees. The senior secured creditfacility and the notes contain certain cross-default and cross-accelerationprovisions whereby default under or acceleration of one debt obligation would,consequently, cause a default or acceleration under the other debt obligation.At the end of 2003, we were in compliance with all covenants.

***Senior Subordinated Notes***

The notes are not collateralized and are subordinatein right of payment to the senior secured credit facility. The notes wereissued with detachable warrants valued at $10.7 million. During 2002, werepurchased 79,015 warrants to purchase 149,272 actual equivalent shares of commonstock for $2.7 million. In connection with the merger, all warrants that wereoutstanding immediately prior to the merger were cancelled and extinguished for$48.25 per equivalent common share, resulting in an aggregate payment of $13.3million.

The notes were issued with an original issuancediscount of $19.9 million. In accordance with purchase accounting, we recordedthe notes at fair value based on the quoted market price as of the merger date,giving rise to a premium in the amount of $24.4 million and eliminating theunamortized discount of $15.5 million. The resulting premium is being amortizedto interest expense through May 2010 and represents a $1.1 millionreduction to interest expense during the post-merger period in 2003. Thediscount was also being amortized to interest expense and during the pre-mergerperiod of 2003, 2002 and 2001, the amount of interest expense related to theamortization of discount on the notes was $0.8 million, $1.2 million and $1.1million, respectively.

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

During the post-merger period of 2003, we purchased$3.5 million principal amount of the notes pursuant to the Notes Offer andvoluntarily redeemed an additional $5.0 million principal amount of the notes.As a result of these transactions, we recognized a loss of $0.5 millionconsisting of $0.8 million of premium paid on redemption of the notes and a net$0.3 million credit to write-off unamortized premium, original issuancediscount and deferred financing costs.

During 2002, we voluntarily redeemed $7.5 millionprincipal amount of the notes and recognized a loss of $1.8 million consistingof $1.0 million of premium paid on redemption of the notes and $0.8 million towrite-off unamortized original issuance discount and deferred financing costs.

As of the end of 2003 and2002, the fair value of our debt, excluding the notes, approximated itscarrying value and is estimated based on quoted market prices for comparableinstruments. The fair value of the notes as of the end of 2003 and 2002 was$239.8 million and $242.2 million, respectively, and was estimated based on thequoted market price.

**8.**   RedeemablePreferred Stock

In May 2000, we issued redeemable,payment-in-kind, preferred shares, having an initial liquidation preference of$60.0 million. The redeemable preferred shares are entitled to receivedividends at 14.0% per annum, compounded quarterly and payable either in cashor in additional shares of the same series of preferred stock. The redeemablepreferred shares are subject to mandatory redemption by Jostens in May 2011for a total amount of $272.6 million.

We ascribed $14.0 million of the initial liquidationpreference value to detachable warrants to purchase 531,325 shares of our Class Ecommon stock at an exercise price of $0.01 per share. In addition, $3.0 millionof issuance costs were netted against the initial liquidation preference valueand reflected as a reduction to the carrying amount of the preferred stock.Prior to our adoption of SFAS 150 on June 29, 2003, the carrying value ofthe preferred stock was being accreted to full liquidation preference value,plus unpaid preferred stock dividends, over the eleven-year period throughcharges to retained earnings. Upon adoption of SFAS 150, we assessed the value of our redeemablepreferred stock at the present value of the settlement obligation using therate implicit at inception of the obligation, thus recognizing a discount of$19.7 million and a $4.6 million cumulative effect of a change in accountingprinciple. The redeemable preferred stock was reclassified to the liabilitiessection of our consolidated balance sheet and the preferred dividend andrelated discount amortization were subsequently recorded as interest expense inour results of operations rather than as a reduction to retained earnings.

In connection with the merger, all warrants that wereoutstanding immediately prior to the merger were cancelled and extinguished for$48.25 per equivalent common share, resulting in an aggregate payment of $25.6million. In accordance with purchase accounting, we recorded the redeemablepreferred stock at fair value as of the merger date based on a third partyappraisal, giving rise to a premium in the amount of $36.5 million andeliminating the unamortized discount of $19.6 million previously establishedwith the adoption of SFAS 150. The resulting premium is being amortized to interestexpense through 2011 and represents a $0.3 million reduction to interestexpense during the post-merger period in 2003. During the pre-merger period of2003, $0.1 million of discount was amortized to interest expense.

The aggregate liquidationpreference outstanding of our redeemable preferred stock as of the end of 2003and 2002 was $99.1 million and $86.3 million, respectively, including accrueddividends. We have 

45

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

4,000,000shares of preferred stock, $.01 par value, authorized. We had 96,793 and 84,350shares outstanding in the form of redeemable preferred stock as of the end of2003 and 2002, respectively.

**9.**   DerivativeFinancial Instruments and Hedging Activities

Our involvement with derivative financial instrumentsis limited principally to managing well-defined interest rate and foreigncurrency exchange risks. Forward foreign currency exchange contracts may beused to hedge the impact of currency fluctuations primarily on inventorypurchases denominated in euros.

We used an interest rateswap agreement to modify risk from interest rate risk fluctuations associatedwith a specific portion of our underlying debt. The interest rate swap wasdesignated as a cash flow hedge and was reflected at fair value in ourconsolidated balance sheets. Differences paid or received under the swapcontract were recognized over the life of the contract as adjustments tointerest expense. As the critical terms of the interest rate swap and thehedged debt matched, there was an assumption of no ineffectiveness for this hedge.At the end of 2002, the notional amount outstanding was $70.0 million and thefair value of the interest rate swap was a liability of $2.2 million ($1.3million net of tax). The contract matured in August of 2003 and was notrenewed.

**10.**   Commitments andContingencies

***Leases***

We lease buildings,equipment and vehicles under operating leases. Future minimum rentalcommitments under noncancellable operating leases are $3.5 million, $1.4million, $0.5 million and $0.1 million in 2004, 2005, 2006 and 2007,respectively. Rent expense was $1.7 million for the post-merger period and $2.4million for the pre-merger period in 2003. Rent expense for 2002 and 2001 was$4.0 million and $3.5 million, respectively.

***Forward Purchase Contracts***

We are subject to market risk associated with changesin the price of gold. To mitigate our commodity price risk, we enter intoforward contracts to purchase gold based upon the estimated ounces needed tosatisfy projected customer demand. Our purchase commitment at the end of 2003was $7.5 million with delivery dates occurring throughout 2004. These forwardpurchase contracts are considered normal purchases and therefore not subject tothe requirements of SFAS 133. The fair market value of our open gold forwardcontracts at the end of 2003 was $8.3 million and was calculated by valuingeach contract at quoted futures prices.

Gains or losses on forwardcontracts used to purchase inventory for which we have firm purchasecommitments qualify as accounting hedges and are therefore deferred andrecognized in income when the inventory is sold. Counter parties expose us toloss in the event of nonperformance as measured by the unrealized gains on thecontracts. Exposure on our open gold forward contracts at the end of 2003 was $0.8million.

***Environmental***

Our operations are subject to a wide variety offederal, state, local and foreign laws and regulations governing emissions toair, discharges to waters, the generation, handling, storage, transportation,treatment and disposal of hazardous substances and other materials, andemployee health and safety 

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

matters. Also, as an ownerand operator of real property or a generator of hazardous substances, we may besubject to environmental cleanup liability, regardless of fault, pursuant tothe Comprehensive Environmental Response, Compensation and Liability Act. Aspart of our environmental management program, we are currently involved invarious environmental remediation activities. As sites are identified andassessed in this program, we determine potential environmental liabilities.Factors considered in assessing liability include, but are not limited to:whether we have been designated as a potentially responsible party, the numberof other potentially responsible parties designated at the site, the stage ofthe proceedings and available environmental technology.

In 1996, we assessed thelikelihood as probable that a loss had been incurred at one of our sites basedon findings included in remediation reports and from discussions with legalcounsel. Although we no longer own the site, we continue to manage theremediation project, which began in 2000. As of the end of 2003, we had madepayments totaling $7.3 million for remediation at this site and ourconsolidated balance sheet included $0.9 million in “other accrued liabilities”related to this site. During 2001, we received reimbursement from our insurancecarrier in the amount of $2.7 million, net of legal costs. While we may have anadditional right of contribution or reimbursement under insurance policies,amounts recoverable from other entities with respect to a particular site arenot considered until recoveries are deemed probable. We have not established areceivable for potential recoveries as of January 3. 2004. We believe the effecton our consolidated results of operations, cash flows and financial position,if any, for the disposition of this matter will not be material.

***Litigation***

A federal antitrust action was served on us on October 23,1998. The complainant, Epicenter Recognition, Inc. (Epicenter), allegedthat we attempted to monopolize the market of high school graduation productsin the state of California. Epicenter is a successor to a corporation formed byfour of our former independent sales representatives. The plaintiff claimeddamages of approximately $3.0 million to $10.0 million under various theoriesand differing sized relevant markets. Epicenter waived its right to a jury, sothe case was tried before a judge in U.S. District Court in Orange County,California. On June 18, 2002, the Court found, among other things, thatwhile our use of rebates, contributions and value-added programs are legitimatebusiness practices widely practiced in the industry and do not violateantitrust laws, our use of multi-year Total Service Program contracts violated Section 2of the Sherman Act because these agreements could “exclude competition bymaking it difficult for a new vendor to compete against Jostens.”

On July 12, 2002, the Court entered an initialorder providing, among other things, that Epicenter be awarded damages of$1.00, trebled pursuant to Section 15 of the Clayton Act, and that in thestate of California, Jostens was enjoined for a period of ten years fromutilizing any contract, including those for Total Service Programs, for aperiod which extends for more than one year (the “Initial Order”). The InitialOrder also provided for payment to Epicenter of reasonable attorneys fees andcosts. We made a motion to set aside the Initial Order. On August 23,2002, the Court entered its ruling on the motion, and granted, in part, ourmotion for relief from judgment, changing the Initial Order and enjoining usfor only five years, and allowing us to enter into multi-year agreements in thefollowing specific circumstances: (1) when a school requests a multi-yearagreement, in writing and on its own accord, or (2) in response to acompetitor’s offer to enter into a multi-year agreement. On August 23,2002, the Court entered an additional order granting Epicenter’s motion for attorneys’fees in the amount of $1.6 million plus $0.1 million in out-of-pocket expensesfor a total award of $1.7 million. On September 12, 2002, we filed a 

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Notice of Appeal to theNinth Circuit of the United States Court of Appeals. Payment of attorneys’ feesand costs were stayed pending appeal. In November 2002, we issued a letterof credit in the amount of $2.0 million to secure the judgment on attorneys’fees and costs. Our brief on appeal was filed with the Court on February 13,2003. Oral argument was scheduled by the Court and heard by a three-judge panelon October 7, 2003. On November 20, 2003, the Ninth Circuit panel completelyreversed the decision of the lower court, holding that we had not violatedantitrust laws because we did not possess a monopoly in the relevant market andthat the lower court had erred when it founded an injunction under theCalifornia unfair competition law. The Ninth Circuit panel also reversed thegrant of damages, costs, attorneys’ fees and the injunction. On January 6,2004, the Ninth Circuit panel denied a Petition for Rehearing and for RehearingEn Banc that had been filed by Epicenter on December 4, 2003. In responseto the appellate court’s reversal of the Initial Order, the trial court on March 19,2004, entered a revised judgment for Jostens and against Epicenter on allclaims. The case is now closed.

We are a party to otherlitigation arising in the normal course of business. We regularly analyzecurrent information and, as necessary, provide accruals for probableliabilities on the eventual disposition of these matters. We believe the effecton our consolidated results of operations, cash flows and financial position,if any, for the disposition of these matters, will not be material.

**11.**   Income Taxes

Thefollowing table summarizes the differences between income taxes computed at thefederal statutory rate and income taxes from continuing operations forfinancial reporting purposes:
| ** **                                                                | ** ** | **Post-Merger**            | ** ** | **Pre-Merger**              | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------|------------|-----------------------------|------------|
| ** **                                                                | ** ** | **Five Months  2003** | ** ** | **Seven Months  2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                | ** ** | **In thousands**      | ** ** |
| Federal statutory  income tax rate                                        |       |                       | 35         | %                           |       |   | 35 | % |   | 35 | % | 35 | % |
| Federal (benefit)  tax at statutory rate                                  |       |                       | $          | (17,975                     | )          |   |   | $ | 4,113 |   |   | $ | 22,569 |   | $ | 15,790 |   |
| State (benefit)  tax, net of federal tax benefit                          |       |                       | (2,420     | )                           |       |   | 873 |   |   | 2,394 |   | 1,655 |   |
| Foreign tax  credits used (generated), net                                |       |                       | 2,033      |                        |       |   | — |   |   | (16,240 | ) | — |   |
| Foreign earnings  repatriation, net                                       |       |                       | 933        |                        |       |   | — |   |   | 9,278 |   | — |   |
| Nondeductible  interest expense                                           |       |                       | 1,959      |                        |       |   | 295 |   |   | — |   | — |   |
| Nondeductible  transaction costs                                          |       |                       | —     |                        |       |   | 3,095 |   |   | — |   | — |   |
| Capital loss  resulting from IRS audit                                    |       |                       | —     |                        |       |   | — |   |   | (10,573 | ) | — |   |
| (Decrease)  increase in deferred tax valuation allowance                  |       |                       | (2,383     | )                           |       |   | — |   |   | 26,813 |   | — |   |
| Other  differences, net                                                   |       |                       | (102       | )                           |       |   | 319 |   |   | 1,973 |   | 1,130 |   |
| **(Benefit from) provision for  income taxes from continuing operations** | ** ** | ** **                 | **$**      | **(17,955**                 | **)**      | ** ** | ** ** | **$** | **8,695** |   | ** ** | **$** | **36,214** | ** ** | **$** | **18,575** | ** ** |

 

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

TheU.S. and foreign components of income from continuing operations before incometaxes and the (benefit from) provision for income taxes attributable toearnings from continuing operations were as follows:
| ** **                                                                | ** ** | **Post-Merger**            | ** ** | **Pre-Merger**              | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------|------------|-----------------------------|------------|
| ** **                                                                | ** ** | **Five Months  2003** | ** ** | **Seven Months  2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                | ** ** | **In thousands**      | ** ** |
| Domestic                                                                  |       |                       | $          | (55,969                     | )          |   |   | $ | 10,648 |   |   | $ | 57,436 |   | $ | 38,172 |   |
| Foreign                                                                   |       |                       | 4,612      | ** **                  |       |   | 1,102 |   |   | 7,047 |   | 6,943 |   |
| **(Loss)  Income from continuing operations before income taxes**         | ** ** | ** **                 | **$**      | **(51,357**                 | **)**      | ** ** | ** ** | **$** | **11,750** |   | ** ** | **$** | **64,483** | ** ** | **$** | **45,115** | ** ** |
| Federal                                                                   |       |                       | $          | 8                           | ** ** |   |   | $ | 7,977 |   |   | $ | 20,029 |   | $ | 8,144 |   |
| State                                                                     |       |                       | (320       | )                           |       |   | 1,609 |   |   | 2,289 |   | 1,592 |   |
| Foreign                                                                   |       |                       | 1,934      | ** **                  |       |   | 609 |   |   | 3,162 |   | 3,300 |   |
| Total current  income taxes                                               |       |                       | 1,622      | ** **                  |       |   | 10,195 |   |   | 25,480 |   | 13,036 |   |
| Deferred                                                                  |       |                       | (19,577    | )                           |       |   | (1,500 | ) |   | 10,734 |   | 5,539 |   |
| **(Benefit from) provision for  income taxes from continuing operations** | ** ** | ** **                 | **$**      | **(17,955**                 | **)**      | ** ** | ** ** | **$** | **8,695** |   | ** ** | **$** | **36,214** | ** ** | **$** | **18,575** | ** ** |

 

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Deferredincome taxes reflect the net tax effects of temporary differences between the carryingamounts of assets and liabilities for financial reporting purposes and theamounts used for income tax purposes. A net deferred tax asset representsmanagement’s best estimate of the tax benefits that will more likely than notbe realized in future years at each reporting date. Significant components ofthe deferred income tax liabilities and assets as of the end of 2003 and 2002consisted of:
| ** **                                                    | ** ** | **Post-Merger**       | ** ** | **Pre-Merger** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|----------------|------------|
| ** **                                                    | ** ** | **2003**              | ** ** | **2002**       | ** ** |
| ** **                                                    | ** ** | **In thousands** | ** ** |
| Tax depreciation  in excess of book                           |       | $                     | (7,043     | )              | $          | (4,471 | ) |
| Capitalized  software development costs                       |       | (2,324                | )          | (3,947         | )          |
| Tax on unremitted  non-U.S. earnings                          |       | (904                  | )          | (768           | )          |
| Pension benefits                                              |       | (21,976               | )          | (17,129        | )          |
| Basis difference  on property and equipment                   |       | (15,506               | )          | —         |       |
| Basis difference  on intangible assets                        |       | (251,978              | )          | —         |       |
| Other                                                         |       | (611                  | )          | (532           | )          |
| **Deferred  tax liabilities**                                 | ** ** | **(300,342**          | **)**      | **(26,847**    | **)**      |
| Reserves for  accounts receivable and salespersons overdrafts |       | 6,542                 |       | 5,828          |       |
| Reserves for  employee benefits                               |       | 16,867                |       | 15,424         |       |
| Other reserves  not recognized for tax purposes               |       | 3,341                 |       | 3,326          |       |
| Foreign tax  credit carryforwards                             |       | 14,392                |       | 16,425         |       |
| Capital loss  carryforwards                                   |       | 12,884                |       | 13,234         |       |
| Basis difference  on pension liabilities                      |       | 17,488                |       | —         |       |
| Basis difference  on long-term debt                           |       | 14,691                |       | —         |       |
| Other                                                         |       | 5,240                 |       | 6,232          |       |
| Deferred tax  assets                                          |       | 91,445                |       | 60,469         |       |
| Valuation  allowance                                          |       | (27,276               | )          | (29,659        | )          |
| **Deferred  tax assets, net**                                 | ** ** | **64,169**            | ** ** | **30,810**     | ** ** |
| Net deferred tax  (liability) asset                           |       | $                     | (236,173   | )              | $          | 3,963 |   |

 

As a result of the merger, Jostens, Inc. becamean indirect subsidiary of Jostens Holding Corp. effective July 29, 2003.Jostens Holding Corp. will file a consolidated federal income tax returnbeginning in 2004.

We recognized $258.2 million of net deferred taxliabilities in connection with the merger. This amount represents the taxeffect for temporary differences between the carrying amount of assets andliabilities resulting from the purchase price allocation and the related taxbases. At the end of 2003, the net deferred tax liability related to temporarydifferences arising from our merger accounting was $235.3 million.

During 2002, we agreed to certain adjustments proposedby the Internal Revenue Service (IRS) in connection with its audit of ourfederal income tax returns filed for years 1996 through 1998. As a result ofthe audit, we agreed to pay additional federal taxes of $11.3 million. Combinedwith additional state taxes and interest charges, the liability related tothese adjustments, which had previously been accrued, was approximately $17.0million. During 2003, we filed an appeal with the IRS concerning a furtherproposed adjustment of approximately $8.0 million. While the appeal process maytake up to two years to complete, we believe the outcome of this matter willnot have a material impact on our results of operations.

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

In connection with the aforementioned audit, the IRSrecharacterized as a capital loss approximately $27.0 million of notes thatwere written off in 1998. The notes were received in connection with the 1995sale of a subsidiary. Since capital losses may only be used to offset futurecapital gains, we have provided a valuation allowance for the entire relateddeferred tax asset because the tax benefit related to our capital losses maynot be realized. At the end of 2003, we have capital loss carryforwards totalingapproximately $32.6 million of which $27.0 million expire in 2004, $4.0 millionexpire in 2006 and $1.6 million expire in 2007.

During 2003 and 2002, werepatriated $3.0 million and $32.1 million, respectively, of earnings from ourCanadian subsidiary. We were unable to fully utilize all foreign tax creditsgenerated in connection with the distributions. During 2003, we reduced ourdeferred tax asset balance and related valuation allowance by $2.4 million toreflect foreign tax credit carryforwards as reported on our 2002 income taxreturn. At the end of 2003, we have foreign tax credit carryforwards totaling$14.4 million of which approximately $13.5 million expire in 2007 and $0.9million expire in 2008. We have provided a valuation allowance for the entirerelated deferred tax asset because the tax benefit related to the foreign taxcredits may not be realized. During 2003 and 2002, we provided deferred incometaxes of $0.1 million and $0.8 million on approximately $0.5 million and $4.0million, respectively, of unremitted Canadian earnings that are no longerconsidered permanently invested.

**12.**   Benefit Plans

***Pension and Other Postretirement Benefits***

We have noncontributory defined-benefit pension plansthat cover nearly all employees. The benefits provided under the plans arebased on years of service, age eligibility and employee compensation. We havefunded the benefits for our qualified pension plans through pension trusts, theobjective being to accumulate sufficient funds to provide for future benefits.In addition to our qualified pension plans, we have unfunded, non-qualifiedpension plans covering certain employees, which provide for benefits inaddition to those provided by the qualified plans. We also provide certainmedical and life insurance benefits for eligible retirees, including theirspouses and dependents. Generally, the postretirement benefits requirecontributions from retirees.

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Thefollowing tables present the benefit obligations, plan assets and funded statusof the plans for our qualified and non-qualified plans in aggregate and for ourpostretirement benefits at the respective period end based on a measurementdate of September 30:
| ** **                                    | ** ** | **Pension benefits**  | ** ** | **Postretirement benefits** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|----------------------------------|------------|
| ** **                                    | ** ** | **Post-Merger**            | ** ** | **Pre-Merger**                   | ** ** | **Post-Merger** | ** ** | **Pre-Merger** | ** ** |
| ** **                                    | ** ** | **Five Months  2003** | ** ** | **Seven Months  2003**      | ** ** | **2002** | ** ** | **Five Months  2003** | ** ** | **Seven Months  2003** | ** ** | **2002** | ** ** |
| ** **                                    | ** ** | **In thousands**      | ** ** |
| ***Change  in benefit obligation***           |       |                       |       | ** **                       |       |   |   | ** ** |   |   |   |   |   | ** ** |   |   |   | ** ** |   |   |   |
| Benefit obligation beginning of period        |       |                       | $          | 201,857                          | ** ** |   |   | $ | 185,388 | ** ** |   | $ | 165,676 |   |   | $ | 6,309 | ** ** |   |   | $ | 8,942 | ** ** |   | $ | 6,392 |   |
| Service cost                                  |       |                       | 983        | ** **                       |       |   | 4,846 | ** ** |   | 4,944 |   |   | 6 | ** ** |   |   | 65 | ** ** |   | 89 |   |
| Interest cost                                 |       |                       | 2,109      | ** **                       |       |   | 10,176 | ** ** |   | 11,705 |   |   | 60 | ** ** |   |   | 388 | ** ** |   | 438 |   |
| Plan amendments                               |       |                       | —     | ** **                       |       |   | — | ** ** |   | 477 |   |   | — | ** ** |   |   | — | ** ** |   | (129 | ) |
| Actuarial loss (gain)                         |       |                       | 5,792      | ** **                       |       |   | 8,935 | ** ** |   | 11,282 |   |   | 313 | ** ** |   |   | (2,170 | ) |   | 2,997 |   |
| Benefits paid                                 |       |                       | (1,488     | )                                |       |   | (7,488 | ) |   | (8,696 | ) |   | (135 | ) |   |   | (916 | ) |   | (845 | ) |
| **Benefit obligation end of period**          | ** ** | ** **                 | **$**      | **209,253**                      | ** ** | ** ** | ** ** | **$** | **201,857** | ** ** | ** ** | **$** | **185,388** | ** ** | ** ** | **$** | **6,553** |   | ** ** | ** ** | **$** | **6,309** |   | ** ** | **$** | **8,942** | ** ** |
| ***Change in plan assets***                   |       |                       |       | ** **                       |       |   |   | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair value of plan assets beginning of period |       |                       | $          | 189,923                          | ** ** |   |   | $ | 165,929 | ** ** |   | $ | 189,823 |   |   | $ | — |   |   |   | $ | — |   |   | $ | — |   |
| Actual return (loss) on plan assets           |       |                       | 4,428      | ** **                       |       |   | 29,975 | ** ** |   | (17,011 | ) |   | — |   |   |   | — |   |   | — |   |
| Company contributions                         |       |                       | 294        | ** **                       |       |   | 1,507 |   |   | 1,813 |   |   | 135 |   |   |   | 916 |   |   | 845 |   |
| Benefits paid                                 |       |                       | (1,488     | )                                |       |   | (7,488 | ) |   | (8,696 | ) |   | (135 | ) |   |   | (916 | ) |   | (845 | ) |
| **Fair value of plan assets end of period**   | ** ** | ** **                 | **$**      | **193,157**                      | ** ** | ** ** | ** ** | **$** | **189,923** |   | ** ** | **$** | **165,929** | ** ** | ** ** | **$** | **—** |   | ** ** | ** ** | **$** | **—** |   | ** ** | **$** | **—** | ** ** |
| ***Funded status***                           |       |                       |       | ** **                       |       |   |   | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Funded status end of period(1)                |       |                       | $          | 8,733                            |       |   |   |   |   |   | $ | 4,668 |   |   | $ | — |   |   |   |   |   |   | $ | — |   |
| Unfunded status end of period(2)              |       |                       | (24,829    | )                                |       |   |   |   |   | (24,127 | ) |   | (6,553 | ) |   |   |   |   |   | (8,943 | ) |
| Net unfunded status end of period             |       |                       | (16,096    | )                                |       |   |   |   |   | (19,459 | ) |   | (6,553 | ) |   |   |   |   |   | (8,943 | ) |
| Unrecognized cost:                            |       |                       |       |                             |       |   |   | ** ** |   |   |   |   |   |   |   |   |   | ** ** |   |   |   |
| Net actuarial loss                            |       |                       | 4,314      | ** **                       |       |   |   | ** ** |   | 47,449 |   |   | 312 |   |   |   |   | ** ** |   | 5,709 |   |
| Transition amount                             |       |                       | —     | ** **                       |       |   |   | ** ** |   | (830 | ) |   | — | ** ** |   |   |   | ** ** |   | — |   |
| Prior service cost                            |       |                       | —     | ** **                       |       |   |   | ** ** |   | 3,319 |   |   | — | ** ** |   |   |   | ** ** |   | (157 | ) |
| **Net amount recognized**                     | ** ** | ** **                 | **$**      | **(11,782**                      | **)**      | ** ** | ** ** | ** ** | ** ** | ** ** | **$** | **30,479** | ** ** | ** ** | **$** | **(6,241** | **)** | ** ** | ** ** | ** ** | ** ** | ** ** | **$** | **(3,391** | **)** |
| ***Amounts recognized in the  consolidated*** |       |                       |       | ** **                       |       |   |   | ** ** |   |   |   |   |   | ** ** |   |   |   | ** ** |   |   |   |
| ***balance sheets consist of:***              |       |                       |       | ** **                       |       |   |   | ** ** |   |   |   |   |   | ** ** |   |   |   | ** ** |   |   |   |
| Prepaid benefit cost                          |       |                       | $          | 12,579                           | ** ** |   |   |   | ** ** |   | $ | 47,239 |   |   | $ | — | ** ** |   |   |   | ** ** |   | $ | — |   |
| Accrued benefit cost                          |       |                       | (24,361    | **)**                            |       |   |   | ** ** |   | (22,549 | ) |   | (6,241 | ) |   |   |   | ** ** |   | (3,391 | ) |
| Intangible asset                              |       |                       | —     | ** **                       |       |   |   | ** ** |   | 341 |   |   | — |   |   |   |   | ** ** |   | — |   |
| Accumulated conprehensive income—pre-tax |       |                       | —     | ** **                       |       |   |   | ** ** |   | 5,448 |   |   | — | ** ** |   |   |   | ** ** |   | — |   |
| **Net  amount recognized**                    | ** ** | ** **                 | **$**      | **(11,782**                      | **)**      | ** ** | ** ** | ** ** | ** ** | ** ** | **$** | **30,479** | ** ** | ** ** | **$** | **(6,241** | **)** | ** ** | ** ** | ** ** | ** ** | ** ** | **$** | **(3,391** | **)** |

----

(1)   Relates to all qualified pension plans

(2)   Relatesto all non-qualified pension and postretirement benefit plans

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

During 2003, interest rates had not returned to thelevels of prior years, which required us to change the discount rate assumptionfrom 6.75% to 6.00% for the pension and postretirement plans. This increasedthe year-end benefit obligations and accounts for the majority of the amountsshown as 2003 actuarial loss.

In accordance with purchase accounting, we recognizedthe funding status of our pension and postretirement benefit plans as of July 29,2003. At the end of 2003, the unrecognized net actuarial loss for pensionbenefits was $4.3 million.

The accumulated benefit obligation (ABO) for alldefined benefit pension plans was $197.1 million and $174.1 million at the endof 2003 and 2002, respectively. The ABO differs from the benefit obligationshown in the table in that it includes no assumption about future compensationlevels.

Non-qualifiedpension plans, included in the tables above, with obligations in excess of planassets were as follows:
| ** **                      | ** ** | **Post-Merger**       | ** ** | **Pre-Merger** | ** ** |
|---------------------------------|------------|-----------------------|------------|----------------|------------|
| ** **                      | ** ** | **2003**              | ** ** | **2002**       | ** ** |
| ** **                      | ** ** | **In thousands** | ** ** |
| Projected benefit  obligation   |       |                  | $          | 24,829         |       |   |   | $ | 24,127 |   |   |
| Accumulated  benefit obligation |       |                  | 23,578     |           |       |   | 22,549 |   |   |
| Fair value of plan  assets      |       |                  | —     |           |       |   | — |   |   |

 

The projected benefit obligation, accumulated benefitobligation and fair value of plan assets for one qualified plan withobligations in excess of plan assets at the end of 2002 were $88.1 million,$78.4 million and $87.3 million, respectively.

Netperiodic benefit expense (income) of the pension and other postretirementbenefit plans included the following components:
| ** **                                 | ** ** | **Pension benefits**  | ** ** |
|--------------------------------------------|------------|----------------------------|------------|
| ** **                                 | ** ** | **Post-Merger**            | ** ** | **Pre-Merger** | ** ** |
| ** **                                 | ** ** | **Five Months  2003** | ** ** | **Seven Months  2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                 | ** ** | **In thousands**      | ** ** |
| Service cost                               |       |                       | $          | 983 |   |   |   | $ | 4,846 | ** ** |   | $ | 4,944 |   | $ | 4,690 |   |
| Interest cost                              |       |                       | 2,109      |   |   |   | 10,176 | ** ** |   | 11,705 |   | 10,900 |   |
| Expected return  on plan assets            |       |                       | (2,950     | ) |   |   | (16,973 | ) |   | (21,569 | ) | (19,838 | ) |
| Amortization of  prior year service cost   |       |                       | —     |   |   |   | 1,548 | ** ** |   | 1,837 |   | 1,868 |   |
| Amortization of  transition amount         |       |                       | —     |   |   |   | (461 | ) |   | (714 | ) | (875 | ) |
| Amortization of  net actuarial loss (gain) |       |                       | —     |   |   |   | 439 | ** ** |   | (1,626 | ) | (2,518 | ) |
| Net periodic benefit  expense (income)     | ** ** | ** **                 | **$**      | **142** |   | ** ** | ** ** | **$** | **(425** | **)** | ** ** | **$** | **(5,423** | **)** | **$** | **(5,773** | **)** |

 

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 
| ** **                               | ** ** | **Postretirement benefits** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|
| ** **                               | ** ** | **Post-Merger**                  | ** ** | **Pre-Merger** | ** ** |
| ** **                               | ** ** | **Five Months  2003**       | ** ** | **Seven Months  2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                               | ** ** | **In thousands**            | ** ** |
| Service cost                             |       |                             | $          | 6 |   |   |   | $ | 65 |   |   | $ | 89 |   | $ | 66 |   |
| Interest cost                            |       |                             | 60         |   |   |   | 388 |   |   | 438 |   | 372 |   |
| Amortization of  prior year service cost |       |                             | —     |   |   |   | (16 | ) |   | (7 | ) | (7 | ) |
| Amortization of  net actuarial loss      |       |                             | —     |   |   |   | 232 |   |   | 186 |   | — |   |
| Net periodic benefit  expense            | ** ** | ** **                       | **$**      | **66** |   | ** ** | ** ** | **$** | **669** |   | ** ** | **$** | **706** | ** ** | **$** | **431** | ** ** |

 

***Assumptions***

Weighted-averageassumptions used to determine end of year benefit obligations are as follows:
| ** **                     | ** ** | **Pension benefits**        | ** ** | **Postretirement benefits** | ** ** |
|--------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                     | ** ** | **  2003  ** | ** ** | **  2002  ** | ** ** | **    2003    ** | ** ** | **    2002    ** | ** ** |
| Discount rate                  |       |                             | 6.00       | %                                |       |   | 6.75 | % |   |   | 6.00 | % |   |   | 6.75 |   |   |
| Rate of compensation  increase |       |                             | 6.30       | %                                |       |   | 6.30 | % |   |   | — |   |   |   | — |   |   |

 

Weighted-averageassumptions used to determine net periodic benefit cost for the year are asfollows:
| ** **                                        | ** ** | **Pension benefits**        | ** ** | **Postretirement benefits** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                        | ** ** | **  2003  ** | ** ** | **  2002  ** | ** ** | **    2003    ** | ** ** | **    2002    ** | ** ** |
| Discount rate                                     |       |                             | 6.75       | %                                |       | 7.25 | % |   | 6.75 | % |   |   | 7.25 | % |   |
| Expected  long-term rate of return on plan assets |       |                             | 9.50       | %                                |       | 10.00 | % |   | — |   |   |   | — |   |   |
| Rate of compensation  increase                    |       |                             | 6.30       | %                                |       | 6.30 | % |   | — |   |   |   | — |   |   |

 

Assumedhealth care cost trend rates are as follows:
| ** **                                                                         | ** ** | **Postretirement benefits**                         | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **    2003    ** | ** ** | **    2002    ** | ** ** |
| Health care cost  trend rate assumed for next year                                 |       |                                                     | 9.00       | % |   |   | 10.00 | % |   |
| 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 |   |   |

 

We employ a building block approach in determining thelong-term rate of return for plan assets. Historical markets are studied andlong-term historical relationships between equities and fixed income arepreserved congruent with the widely accepted capital market principle thatassets with higher volatility generate a greater return over the long run.Current market factors such as inflation and interest rates are evaluatedbefore long-term capital market assumptions are determined. The long-termportfolio return is established via a building block approach and properconsideration of diversification and rebalancing. Peer data and historical returnsare reviewed to check for reasonability and appropriateness.

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Assumedhealth care cost trend rates have a significant effect on the amounts reportedfor health care plans. For 2003, a one percentage point change in the assumedhealth care cost trend rates would have the following effects:
| ** **                                               | ** ** | **1%  Increase**      | ** ** | **1%  Decrease** | ** ** |
|----------------------------------------------------------|------------|-----------------------|------------|------------------|------------|
| ** **                                               | ** ** | **In thousands** | ** ** |
| Effect on total  of service and interest cost components |       |                  | $          | 32               |       |   |   | $ | 29 |   |   |
| Effect on postretirement  benefit obligation             |       |                  | $          | 374              |       |   |   | $ | 341 |   |   |

 

***Plan Assets***

Ourweighted-average asset allocations for our pension plans as of the measurementdate of 2003 and 2002, by asset category, are as follows:
| **Asset Category** | ** ** | ** ** | ** ** | **2003**  | ** ** | **2002**  | ** ** | **Target** | ** ** |
|-------------------------|------------|------------|------------|-----------|------------|-----------|------------|------------|------------|
| Equity securities       |       | 78.0       | %          | 63.4      | %          | 80.0      | %          |
| Debt securities         |       | 21.2       | %          | 35.7      | %          | 20.0      | %          |
| Real estate             |       | —     |       | —    |       | —    |       |
| Other                   |       | 0.8        | %          | 0.9       | %          | —    |       |
|                    | ** ** | **100.0**  | **%**      | **100.0** | **%**      | **100.0** | **%**      |

 

We employ a total returninvestment approach whereby a mix of equities and fixed income investments areused to maximize the long-term return of plan assets for a prudent level ofrisk. The intent of this strategy is to minimize plan expenses by outperformingplan liabilities over the long run. Risk tolerance is established throughcareful consideration of plan liabilities, plan funded status, and corporatefinancial condition. The investment portfolio contains a diversified blend ofequity and fixed income investments. Furthermore, equity investments arediversified across U.S. and non-U.S. stocks as well as growth, value, and smalland large capitalizations. Derivatives may be used to gain market exposure inan efficient and timely manner; however, derivatives may not be used toleverage the portfolio beyond the market value of the underlying investments.Investment risk is measured and monitored on an ongoing basis through annualliability measurements, periodic asset/liability studies and quarterlyinvestment portfolio reviews.

***Contributions***

Our projectedcontributions include $1.8 million to our non-qualified pension plans and $0.8million to our postretirement benefit plans in 2004. The actual amount ofcontributions is dependent upon the actual return on plan assets.

***401(k) Plans***

We have 401(k) savingsplans, which cover substantially all salaried and hourly employees who have metthe plans’ eligibility requirements. We provide a matching contribution onamounts contributed by employees, limited to a specific amount of compensationthat varies among the plans. Our contribution was $1.6 million for thepost-merger period in 2003, $2.7 million for the pre-merger period in 2003 and$4.4 million and $4.3 million in 2002 and 2001, respectively, which represents50% of eligible employee contributions.

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**13.**   Shareholder’sDeficit

Prior to the merger on July 29, 2003, our commonstock consisted of Class A through Class E common stock as well asundesignated common stock. Holders of Class A common stock were entitledto one vote per share, whereas holders of Class D common stock wereentitled to 306.55 votes per share. Holders of Class B common stock, Class Ccommon stock and Class E common stock had no voting rights.

Thepar value and number of authorized, issued and outstanding shares as of the endof 2002 for each class of common stock is set forth below:
| ** **   | ** ** | **Par  value**                                         | ** **  | **Authorized  shares** | ** ** | **Issued and  outstanding  shares** | ** ** |
|--------------|------------|--------------------------------------------------------|-------------|------------------------|------------|------------------------------------------|------------|
| ** **   | ** ** | **In thousands, except par value** | ** **  |
| Class A |       | $                                                      | .331¤3 |                   |       | 4,200                                    |       |   |   | 2,825 |   |   |
| Class B |       | $                                                      | .01         |                   |       | 5,300                                    |       |   |   | 5,300 |   |   |
| Class C |       | $                                                      | .01         |                   |       | 2,500                                    |       |   |   | 811 |   |   |
| Class D |       | $                                                      | .01         |                   |       | 20                                       |       |   |   | 20 |   |   |
| Class E |       | $                                                      | .01         |                   |       | 1,900                                    |       |   |   | — |   |   |
| Undesignated |       | $                                                      | .01         |                   |       | 12,020                                   |       |   |   | — |   |   |
|         |       |                                                   | ** **  | ** **             | **25,940** |                                     | ** ** | ** ** | **8,956** |   |   |

 

**14.**   Stock Plans

***Stock Options***

In connection with the merger, all options to purchaseour common stock that were outstanding immediately prior to the merger werecancelled and extinguished in consideration for an amount equal to thedifference between the per- share merger consideration and the exercise price,resulting in an aggregate payment of $12.6 million included in “transactioncosts” in the pre-merger period of 2003.

We didnot grant any stock options in 2003. The weighted average fair value of optionsgranted in 2002 and 2001 was $8.03 and $7.66 per option, respectively. Weestimated the fair values using the Black-Scholes option-pricing model,modified for dividends and using the following assumptions:
| ** **                                                                    | ** ** | **2002** | ** ** | **2001** | ** ** |
|-------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Risk-free rate                                                                |       | 2.7      | %          | 4.8      | %          |
| Dividend yield                                                                |       | —   |       | —   |       |
| Volatility factor  of the expected market price of Jostens’ common stock |       | 20       | %          | 20       | %          |
| Expected life of the  award (years)                                           |       | 7.0      |       | 7.0      |       |

 

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Thefollowing table summarizes stock option activity:
| ** **                                 | ** ** | **Shares**                        | ** ** | **Weighted-  average  exercise price** | ** ** |
|--------------------------------------------|------------|-----------------------------------|------------|---------------------------------------------|------------|
| ** **                                 | ** ** | **Shares in thousands** | ** ** |
| Outstanding at  December 30, 2000     |       |                              | 531        |                                        |       |   | $ | 25.25 |   |   |
| Granted                                    |       |                              | 73         |                                        |       |   | 25.25 |   |   |
| Cancelled                                  |       |                              | (52        | )                                           |       |   | 25.25 |   |   |
| **Outstanding  at December 29, 2001** | ** ** | ** **                        | **552**    |                                        | ** ** | ** ** | **25.25** |   |   |
| Granted                                    |       |                              | 45         |                                        |       |   | 28.50 |   |   |
| Cancelled                                  |       |                              | (41        | )                                           |       |   | 25.29 |   |   |
| **Outstanding  at December 28, 2002** | ** ** | ** **                        | **556**    |                                        | ** ** | ** ** | **25.51** |   |   |
| Cancelled                                  |       |                              | (2         | )                                           |       |   | 25.25 |   |   |
| Settled for cash  in the merger            |       |                              | (554       | )                                           |       |   | 25.51 |   |   |
| **Outstanding at July 29,  2003**     | ** ** | ** **                        | **—** |                                        | ** ** | ** ** | **$** | **—** |   |   |

 

At the end of 2002, theweighted average remaining contractual life of the options was approximately4.7 years and 111,570 options were exercisable.

***Stock Loan Programs***

In connection with themerger, the remaining stock loans issued in May 2000 to certain members ofsenior management to purchase shares of common stock were repaid together withaccumulated interest. At the end of 2002, the outstanding balance of theseloans was $1.6 million including accumulated interest and was classified as areduction in shareholders’ equity (deficit) in our consolidated balance sheet.

**15.**   Business Segments

We manage our business on the basis of one reportablesegment: the development, manufacturing and distribution of school-relatedaffinity products.

Revenues are reported in the geographic area where thefinal sales to customers are made, rather than where the transactionoriginates. No single customer accounted for more than 10% of revenue in thepost-merger and pre-merger periods of 2003 or in fiscal years 2002 or 2001.

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Thefollowing tables present net sales by class of similar products and certaingeographic information:
| ** **                                                                    | ** ** | **Post-Merger**       | ** ** | **Pre-Merger**        | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                    | ** ** | **Five Months**  | ** ** | **Seven Months** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                    | ** ** | **2003**              | ** ** | **2003**              | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                    | ** ** | **In thousands** | ** ** |
| ***Net  sales by classes of similar products:***                              | ** ** | ** **            | ** ** |                  | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| Yearbooks                                                                     |       | $                     | 94,429     |                  |       | $ | 229,041 | ** ** |   | $ | 318,451 |   | $ | 299,856 |   |
| Class rings                                                              |       | 113,010               |       |                  | 90,785     | ** ** |   | 204,148 |   | 204,243 |   |
| Graduation  products                                                          |       | 31,528                |       |                  | 163,535    | ** ** |   | 179,713 |   | 181,885 |   |
| Photography                                                                   |       | 45,204                |       |                  | 20,697     | ** ** |   | 53,672 |   | 50,576 |   |
| **Consolidated**                                                              |       | $                     | 284,171    |                  |       | $ | 504,058 | ** ** |   | $ | 755,984 |   | $ | 736,560 |   |
| ***Net sales by geographic area:***                                           | ** ** | ** **            | ** ** |                  | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |
| United States                                                                 |       | $                     | 256,758    |                  |       | $ | 484,460 | ** ** |   | $ | 716,110 |   | $ | 697,484 |   |
| Other, primarily  Canada                                                      |       | 27,413                |       |                  | 19,598     | ** ** |   | 39,874 |   | 39,076 |   |
| **Consolidated**                                                              |       | $                     | 284,171    |                  |       | $ | 504,058 | ** ** |   | $ | 755,984 |   | $ | 736,560 |   |
| ***Net property and equipment and intangible    assets by geographic area:*** |       |                  |       |                  |       | ** ** |   |   |   |   |   |
| United States                                                                 |       | $                     | 1,490,666  |                  |       |   | ** ** |   | $ | 77,217 |   | $ | 78,394 |   |
| Other, primarily  Canada                                                      |       | 5,606                 |       |                  |       | ** ** |   | 3,160 |   | 3,556 |   |
| **Consolidated**                                                              |       | $                     | 1,496,272  |                  |       |   | ** ** |   | $ | 80,377 |   | $ | 81,950 |   |

 

**16.**   DiscontinuedOperations

In December 2001, our Board of Directors approveda plan to exit our former Recognition business in order to focus our resourceson our core school-related affinity products business. Prior to the end of 2001and in connection with our exit, we sold certain assets of the Recognitionbusiness to a supplier who manufactures awards and trophies. We received cashproceeds in the amount of $2.5 million and non-cash proceeds of $0.8 million inthe form of a promissory note that was paid in 2002. The results of theRecognition business are reflected as discontinued operations in ourconsolidated statement of operations for all periods presented.

Revenueand loss from discontinued operations were as follows:
| ** **                                                                       | ** ** | **2002**              | ** ** | **2001**   | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------|------------|------------|------------|
| ** **                                                                       | ** ** | **In thousands** | ** ** |
| Revenue from  external customers                                                 |       | $                     | —     |       | $          | 55,913 |   |
| Pre-tax loss from  operations of discontinued operations before measurement date |       | —                |       | (9,036     | )          |
| Pre-tax gain  (loss) on disposal                                                 |       | 2,708                 |       | (27,449    | )          |
| Income tax  (expense) benefit                                                    |       | (1,071                | )          | 14,045     |       |
| Gain (loss) on  discontinued operations                                          | ** ** | **$**                 | **1,637**  | ** ** | **$**      | **(22,440** | **)** |

 

During 2001, the results of discontinued operationsencompassed the period through the December 3, 2001 measurement date. The$27.4 million pre-tax loss on disposal of the discontinued business consisted 

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**JOSTENS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

of a non-cash charge of$11.1 million to write off certain net assets of the Recognition business plusa $16.3 million charge for accrued costs related to exiting the Recognitionbusiness.

During2002, we reversed $2.3 million of the accrued charges based on our revisedestimates for employee separation costs and phase-out costs. Of the totaladjustment, $0.5 million resulted from modifying our anticipated workforcereduction from 150 to 130 full-time positions and $1.8 million resulted fromlower information systems, customer service and internal support costs and lowerreceivable write-offs than originally anticipated. In addition, we reversed$0.4 million in other liabilities for a total pre-tax gain on discontinuedoperations of $2.7 million ($1.6 million net of tax). Components of the accrueddisposal costs, which are included in “current liabilities of discontinuedoperations” in our consolidated balance sheet, are as follows:
| ** **                                               | ** ** | ** **            | ** ** | ** **         | ** ** | ** **           | ** ** | **Utilization**    | ** ** | **Balance**          | ** ** |
|----------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|----------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                               | ** ** | **Initial  charge**   | ** ** | **Prior  accrual** | ** ** | **Net  adjustments** | ** ** | **Prior  periods** | ** ** | **Pre-Merger  2003** | ** ** | **Post-Merger  2003** | ** ** | **end of  2003** | ** ** |
| ** **                                               | ** ** | **In thousands** | ** ** |
| Employee  separation benefits and other related costs    |       | $                     | 6,164      |               | $          | —               |       |               | $          | (523                 | )          |   | $ | (5,109 | ) |   | $ | (156 | ) |   |   | $ | — |   |   | $ | 376 |   |
| Phase-out costs  of exiting the Recognition business     |       | 4,255                 |       | —             |       |                 | (1,365     | )                  |       | (2,591               | )          |   | (72 | ) |   |   | (7 | ) |   | 220 |   |
| Salesperson  transition benefits                         |       | 2,855                 |       | 1,236              |       |                 | (191       | )                  |       | (767                 | )          |   | (688 | ) |   |   | (252 | ) |   | 2,193 |   |
| Other costs  related to exiting the Recognition business |       | 3,018                 |       | 1,434              |       |                 | (228       | )                  |       | (4,224               | )          |   | — |   |   |   | — |   |   | — |   |
|                                                     | ** ** | **$**                 | **16,292** | ** **         | **$**      | **2,670**            | ** ** | ** **         | **$**      | **(2,307**           | **)**      | ** ** | **$** | **(12,691** | **)** | ** ** | **$** | **(916** | **)** | ** ** | ** ** | **$** | **(259** | **)** | ** ** | **$** | **2,789** | ** ** |

 

Our obligation forseparation benefits continues through 2004 over the benefit period as specifiedunder our severance plan, and transition benefits will continue to be paidthrough the period of our statutory obligations.

**17.**   Special Charges

During 2001, we recorded special charges totaling $2.5million. We incurred costs of $2.1 million for severance and related separationbenefits in connection with the departure of a senior executive and two othermanagement personnel. In addition, we elected to terminate our joint ventureoperations in Mexico City, Mexico and took a charge of $0.4 million, primarilyto write off the net investment. We utilized $2.3 million of the aggregatespecial charge in 2001, less than $0.1 million in 2002 and the remainingbalance in the post-merger period of 2003.

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**ITEM 9.**   CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

In October 2003, we engaged Ernst &Young LLP (“E&Y”) as our new independent accountants, and dismissedPricewaterhouseCoopers LLP (“PwC”), which had previously served as ourindependent accountants. The Board of Directors participated in and approvedthe decision to change independent accountants.

The reports of PwC on the consolidated financialstatements as of and for the fiscal years ended December 28, 2002 and December 29,2001 contained no adverse opinion or disclaimer of opinion nor were theyqualified or modified as to uncertainty, audit scope or accounting principles.In connection with its audits as of and for the aforementioned periods, therehave been no disagreements with PwC on any matter of accounting principles orpractices, financial statement disclosure, or auditing scope or procedure,which disagreements, if not resolved to the satisfaction of PwC, would havecaused them to make reference to the subject matter in connection with theirreports on the consolidated financial statements for such years, other thanthose described in the next paragraph.

On March 1, 2001, PwC communicated to the AuditCommittee disagreements with management concerning the application ofaccounting principles to our consolidated financial statements. Thesedisagreements related to (i) the methods of accounting for, and recordingof, losses related to an investment in another entity and (ii) theapplication of Staff Accounting Bulletin (SAB) 101 to certain product sales.These disagreements were satisfactorily resolved.

During the fiscal years ended December 28, 2002and December 29, 2001, and through October 13, 2003, the date that weengaged E&Y, there were no “reportable events” as defined in Item 304(a)(1)(v) ofRegulation S-K other than those described in the next paragraph.

On March 1, 2001, PwC communicated to the AuditCommittee and to management a significant deficiency in our internal controlsystems, attributable primarily to our process for establishing the initialaccounting methodology used for our investments in other entities as well asour process for our on-going analysis of the accounting for such investments,including accounting for our share of any losses generated by these entities.This deficiency was corrected.

The Audit Committee has discussed the exceptionsindicated above with PwC and we have authorized PwC to respond fully to anyinquiries from E&Y concerning these matters.

We provided PwC with a copy of the disclosures in thepreceding paragraphs. A letter from PwC to the Securities and ExchangeCommission dated October 15, 2003 stating its agreement with thesestatements was attached to a Form 8-K, which we filed on October 20,2003 to disclose our change in certifying accountants.

During the fiscal yearsended December 28, 2002 and December 29, 2001, and through October 13,2003, we did not consult E&Y with respect to the application of accountingprinciples to a specified transaction, either completed or proposed, or thetype of audit opinion that might be rendered on our consolidated financialstatements, or any other matters or reportable events as set forth in Item 304(a)(2)(i) and(ii) of Regulation S-K.

**ITEM 9A.**   CONTROLS ANDPROCEDURES

As of the end of the period covered by this report,management, under the supervision of our Chief Executive Officer and ChiefFinancial Officer, evaluated the effectiveness of the design and operation ofour disclosure controls and procedures that are designed to ensure thatinformation that is required to be disclosed in our annual report is recorded,processed and summarized within time periods specified in the Securities andExchange Commission’s rules and regulations and that such information isaccumulated and 

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communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate to allow timely decisions regarding required disclosures. Basedupon that evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that these disclosure controls and procedures are effective, in allmaterial respects, in timely alerting them to material information relating toJostens required to be included in our periodic reports filed under theSecurities Exchange Act of 1934, as amended.

There have been nosignificant changes in our internal controls or in other factors subsequent tothe date of the evaluation that could significantly affect these controls.

**PART III**

**ITEM 10.**   DIRECTORS ANDEXECUTIVE OFFICERS OF THE REGISTRANT

Executiveofficers and directors of Jostens as of February 29, 2004 are as follows:
| **Name**              | ** ** | ** ** | ** ** | **Age**                                                  | ** ** | **Title** | ** ** |
|-----------------------|------------|------------|------------|----------------------------------------------------------|------------|-----------|------------|
| Robert C.  Buhrmaster |       | 56         |       | Chairman  of the Board and Chief Executive Officer       |       |
| Michael L. Bailey     |       | 48         |       | President                                                |       |
| John L. Larsen        |       | 46         |       | Senior  Vice President of Operations                     |       |
| David A. Tayeh        |       | 37         |       | Senior  Vice President and Chief Financial Officer       |       |
| Andrew W. Black       |       | 41         |       | Vice  President and Chief Information Officer            |       |
| Steven A. Tighe       |       | 52         |       | Vice  President—Human Resources                     |       |
| Paula R. Johnson      |       | 56         |       | Vice  President, General Counsel and Corporate Secretary |       |
| Marjorie J. Brown     |       | 49         |       | Vice  President and Treasurer                            |       |
| Timothy M. Wolfe      |       | 43         |       | Vice  President of Sales                                 |       |
| Timothy M. Larson     |       | 30         |       | Vice  President of Marketing                             |       |
| Carl H. Blowers       |       | 64         |       | Director                                                 |       |
| David F.  Burgstahler |       | 35         |       | Director                                                 |       |
| John W. Castro        |       | 55         |       | Director                                                 |       |
| Thomas R. Nides       |       | 43         |       | Director                                                 |       |
| James A. Quella       |       | 54         |       | Director                                                 |       |
| Marc L. Reisch        |       | 48         |       | Director                                                 |       |
| Lawrence M.  Schloss  |       | 49         |       | Director                                                 |       |
| David M. Wittels      |       | 39         |       | Director                                                 |       |

 

***Robert C.Buhrmaster****** ***joinedJostens in December 1992 as Executive Vice President and Chief StaffOfficer. He was named President and Chief Operating Officer in June 1993;was named Chief Executive Officer in March 1994; and was named Chairman inFebruary 1998. Prior to joining Jostens, Mr. Buhrmaster worked forCorning, Inc. for 18 years, most recently as Senior Vice President. He isalso a director of The Toro Company.

***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 andSenior Vice President—Jostens School Solutions. He was appointed to his currentposition in February 2003.

***John L. Larsen****** ***joined Jostens in January 1998as Director of Corporate Development. He was named to his current position in September 2003.From June 1994 to December 1997, Mr. Larsen was a director in theCorporate Finance group with Arthur Andersen LLP in Minneapolis.

***David A. Tayeh****** ***joined Jostens in November 2003 in his current position. Mr. Tayehwas an executive of Investcorp S.A. or one or more of its wholly ownedsubsidiaries from February 1999 to November 2003. 

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Prior to joiningInvestcorp, Mr. Tayeh was a Vice President in investment banking atDonaldson, Lufkin & Jenrette.

***Andrew W. Black****** ***joined Jostens in September 2000in his current position. Prior to joining Jostens, Mr. Black spent sixyears with Target Corporation where his most recent position was InformationSystems Director.

***Steven A. Tighe****** ***joined Jostens in September 2000in his current position. From January to September 2000, Mr. Tighewas Vice President of Human Resources at RealNetworks. From June 1997 to January 2000,Mr. Tighe was Senior Vice President of Human Resources, Communications &Corporate Services at Fortis Health.

***Paula R. Johnson****** ***joined Jostens in September 2001in her current position. Prior to joining Jostens, Ms. Johnson spent 20years with Honeywell Inc. in a variety of positions of increasingresponsibility. Ms. Johnson was named a Vice President of Honeywell in1994, and most recently was Vice President and Associate General Counsel—HomeBuilding Control.

***Marjorie J. Brown****** ***joined Jostens in January 1998.She served as Business Controller until December 2000 when she becameDivision Vice President/Controller. She was appointed to her current positionin September 2003.

***Timothy M. Wolfe****** ***joined Jostens in October 1995.He served as Manager-Division Sales from October 1995 to March 2000.From March 2000 to September 2003, Mr. Wolfe served as DivisionVice President—Sales. He was appointed to his current position in October 2003.

***Timothy M. Larson****** ***joined Jostens in July 1996.He has held a variety of marketing positions including Director of Marketing,Vice President of E-Commerce, and Division Vice President—Marketing. He wasappointed to his current position in October 2003.

***Carl H. Blowers****** ***has been one of ourdirectors since January 2003. Mr. Blowers joined Jostens in May 1996as an independent consultant serving as Division Vice President—Manufacturing &Engineering and was hired as an employee in 1997. He was appointed to SeniorVice President—Manufacturing in February 1998, appointed as Vice Chairmanfor Operations and Technology in February 2003 and retired from Jostens inSeptember 2003.

***David F.Burgstahler****** ***hasbeen one of our directors since June 2003. Mr. Burgstahler is aDirector of Credit Suisse First Boston LLC (“CSFB”) and Principal of DLJMerchant Banking. Mr. Burgstahler joined CSFB in 2000 when it merged withDLJ, where he was a Vice President of DLJ Merchant Banking from 1999 to 2001and an associate from 1995 to 1999. Mr. Burgstahler also serves as adirector of Focus Technologies, Inc., Von Hoffmann Corporation and WRCMedia, Inc.

***John W. Castro****** ***has been one of ourdirectors since November 2003. Mr. Castro has been the President andChief Executive Officer of Merrill Corporation since 1984 and a member of theBoard of Directors since 1981. Mr. Castro also serves as a director ofMinnesota Life Insurance Company.

***Thomas R. Nides****** ***has been one of ourdirectors since July 2003. Mr. Nides currently serves as ChiefAdministrative Officer of CSFB and he is a member of the Executive Board andOperating Committee. Mr. Nides joined CSFB in August 2001 from FannieMae, a large non-bank financial services company where he was a Senior VicePresident. Mr. Nides took a leave of absence to become campaign managerfor Vice Presidential nominee Senator Joseph Lieberman. Prior to Fannie Mae, Mr. Nideswas employed as a principal with Morgan Stanley.

***James A. Quella****** ***has been one of ourdirectors since July 2003. Mr. Quella joined the Private Equity Groupof CSFB in July 2000 as a Managing Director and Senior Operating Partner.Immediately prior to joining CSFB, he was a Managing Director of GH VenturePartners. From 1990 to 1999, Mr. Quella 

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worked at MercerManagement Consulting, where he served as a senior consultant and became ViceChairman in 1997. Mr. Quella was also a director of Mercer ConsultingGroup. Mr. Quella currently serves as a director of Advanstar, Inc.,Advanstar Communications, Inc., DeCrane Aircraft Holdings, Inc.,DeCrane Holdings, Co., Merrill Corporation and Von Hoffman Press, Inc. In March 2004,Mr. Quella resigned as one of our directors. We have no immediate plans toreplace him.

***Marc L. Reisch****** ***has been one of ourdirectors since November 2003. Mr. Reisch is a Senior Advisor toKohlberg Kravis Roberts & Co. and was appointed Chairman of the Boardof Yellow Pages Group Co. in December 2002. Prior to his currentposition, Mr. Reisch was Chairman and Chief Executive Officer of QuebecorWorld North America between August 1999 and September 2002. Prior toholding that position, he held the position of President of World Color Press, Inc.since November 1998 and Group President since 1996. Mr. Reisch alsoserves on the board of directors of FIND/SVP, Inc.

***Lawrence M. Schloss****** ***has been one of ourdirectors since July 2003. Mr. Schloss has been the Global Head ofPrivate Equity for CSFB since CSFB’s merger with DLJ in the Fall of 2000. Priorto that time and since 1985, upon the formation of DLJ’s Merchant BankingGroup, Mr. Schloss was Managing Director of DLJ. Mr. Schloss becamethe head of the Merchant Banking Group in 1995 and the chairman in 1998, inwhich capacity he served until DLJ’s merger with CSFB. Mr. Schloss alsoserves as Chairman of the Board of Directors of Merrill Corporation. In March 2004,Mr. Schloss resigned as one of our directors. We have no immediate plansto replace him.

***David M. Wittels****** ***has been one of ourdirectors since June 2003. Mr. Wittels, a Managing Director at CSFB,joined DLJ in 1986, where he served in various capacities with DLJ MerchantBanking, and joined CSFB following the merger between CSFB and DLJ in 2000. Mr. Wittelsserves on the board of directors of Advanstar, Inc., AdvanstarCommunications Inc., AKI Holding Corp., AKI Inc., Mueller Holdings (N.A.) Inc.,and Ziff Davis Holdings Inc.

**AuditCommittee**

The Audit Committee of ourBoard of Directors is comprised of Messrs. Reisch, Burgstahler andWittels. The Board of Directors has determined that Mr. Reisch qualifiesas an audit committee financial expert. Our Board of Directors has furtherdetermined that Mr. Reisch qualifies as an independent director as thatterm is used in Schedule 14A of the Securities Exchange Act of 1934, asamended.

**Codeof Ethics**

We have a general code ofethics, which has been in effect for many years, that applies to all of ouremployees, including the Chief Executive Officer and Chief Financial Officer,as well as our independent sales representatives and vendors. It was updated in2003. We regularly review our code of ethics and amend it as necessary to be incompliance with current law. You may obtain a copy of our code of ethics freeof charge by writing to us at the address set forth on the cover page ofthis annual report on Form 10-K.

**SECTION 16(a) BENEFICIAL OWNERSHIP REPORTINGCOMPLIANCE**

Officers and directors ofJostens are not subject to Section 16(a) reporting requirements.

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**ITEM 11.**   EXECUTIVECOMPENSATION

**Summary Compensation Table**

Thefollowing table sets forth the cash and non-cash compensation for 2003, 2002and 2001 awarded to or earned by the Chief Executive Officer, four other mosthighly compensated executive officers and one former executive officer ofJostens.
| ** **                                     | ** ** | ** ** | ** ** | ** **                   | ** ** | ** ** | ** ** | **Long-term  Compensation** | ** ** | ** **                          | ** ** |
|------------------------------------------------|------------|------------|------------|------------------------------|------------|------------|------------|-----------------------------|------------|-------------------------------------|------------|
| ** **                                     | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | **Awards** | ** ** | **Payouts**                 | ** ** | ** **                          | ** ** |
| **Name and principal position** | ** ** | ** ** | ** ** | **Year**                     | ** ** | **Salary** | ** ** | **Bonus(1)**                | ** ** | **Securities  underlying  options** | ** ** | **LTIP  payouts(2)** | ** ** | **All other  compensation(3)** | ** ** |
| Robert C. Buhrmaster,                          |       | 2003       |       | $                            | 650,942    |       | $          | 270,270                     |       |                                | —     |   |   | $ | — |   |   | $ | 6,671,480 |   |   |
| Chairman of the Board                          |       | 2002       |       | 611,711                      |       | 381,542    |       |                        | —     |                                |       | — |   |   | — |   |   |
| and Chief Executive Officer                    |       | 2001       |       | 593,654                      |       | 264,040    |       |                        | —     |                                |       | — |   |   | — |   |   |
| Michael L. Bailey,                             |       | 2003       |       | $                            | 327,859    |       | $          | 109,800                     |       |                                | —     |   |   | $ | — |   |   | $ | 1,831,640 |   |   |
| President                                      |       | 2002       |       | 283,346                      |       | 159,787    |       |                        | —     |                                |       | — |   |   | 64,628 |   |   |
|                                           |       | 2001       |       | 277,633                      |       | 100,828    |       |                        | —     |                                |       | — |   |   | — |   |   |
| David A. Tayeh,                                |       | 2003       |       | $                            | 31,848     |       | $          | 443,342                     |       |                                | —     |   |   | $ | — |   |   | $ | — |   |   |
| Senior Vice President                          |       | 2002       |       | —                       |       | —     |       |                        | —     |                                |       | — |   |   | — |   |   |
| and Chief Financial Officer(4)                 |       | 2001       |       | —                       |       | —     |       |                        | —     |                                |       | — |   |   | — |   |   |
| Steven A. Tighe,                               |       | 2003       |       | $                            | 219,122    |       | $          | 58,670                      |       |                                | —     |   |   | $ | — |   |   | $ | 346,112 |   |   |
| Vice President—Human Resources            |       | 2002       |       | 209,002                      |       | 86,192     |       |                        | 5,000      |                                |       | 60,000 |   |   | 60,942 |   |   |
|                                           |       | 2001       |       | 204,039                      |       | 53,559     |       |                        | 6,000      |                                |       | — |   |   | 31,994 |   |   |
| Andrew W. Black,                               |       | 2003       |       | $                            | 219,109    |       | $          | 56,202                      |       |                                | —     |   |   | $ | — |   |   | $ | 350,026 |   |   |
| Vice President                                 |       | 2002       |       | 209,002                      |       | 86,044     |       |                        | 5,000      |                                |       | 120,000 |   |   | 45,292 |   |   |
| and Chief Information Officer                  |       | 2001       |       | 204,039                      |       | 53,559     |       |                        | 6,000      |                                |       | — |   |   | — |   |   |
| Carl H. Blowers                                |       | 2003       |       | $                            | 258,558    |       | $          | 81,156                      |       |                                | —     |   |   | $ | — |   |   | $ | 1,111,925 |   |   |
| Vice Chairman—Operations                  |       | 2002       |       | 345,998                      |       | 191,636    |       |                        | —     |                                |       | — |   |   | — |   |   |
| and Technology(5)                              |       | 2001       |       | 332,448                      |       | 126,031    |       |                        | —     |                                |       | — |   |   | — |   |   |
|                                                |            |            |            |                              |            |            |            |                             |            |                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Amounts in 2003 includepayments under the Management Incentive bonus program as follows: Mr. Buhrmaster:$270,270; Mr. Bailey: $101,170; Mr. Tayeh: $142,500; Mr. Tighe:$52,902; Mr. Black: $50,420; and Mr. Blowers: $73,365. Amount in 2003for Mr. Tayeh also includes a signing bonus of $300,000. Amounts in 2002include payments under the Management Incentive bonus program as follows: Mr. Buhrmaster:$381,542; Mr. Bailey: $145,223; Mr. Tighe: $75,449; Mr. Black:$75,301 and Mr. Blowers: $173,852. Amounts in 2001 include payments underthe Management Incentive bonus program as follows: Mr. Buhrmaster: $264,040;Mr. Bailey: $92,777; Mr. Tighe: $47,642; Mr. Black: $47,642 and Mr. Blowers:$116,390.

(2)          Amounts in 2002 includepayments upon termination of a long-term incentive plan.

(3)          Amounts in 2003 includecancellation of stock options in connection with the merger for considerationof $48.25 per share as follows: Mr. Buhrmaster: $6,671,480; Mr. Bailey:$1,779,066; Mr. Tighe: $298,808; Mr. Black: $298,808; and Mr. Blowers:$1,111,925. Amounts in 2003 also include miscellaneous perquisites includinguse of the corporate jet as follows: Mr. Bailey: $28,780; Mr. Tighe:$21,752 and Mr. Black: $28,006; and automobile reimbursement as follows: Mr. Tighe:$13,073; and Mr. Black: $13,075. Amounts in 2002 include miscellaneousperquisites including use of the corporate jet as follows: Mr. Bailey$41,737; Mr. Tighe: $37,274 and Mr. Black: $24,070. In 2002, Mr. Blackalso 

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received $13,075 forautomobile reimbursement. In 2001, Mr. Tighe received miscellaneousperquisites, including $12,608 for automobile reimbursement.

(4)          Mr. Tayeh joinedJostens in his current position in November 2003.

(5)          Mr. Blowersresigned as an officer of Jostens in September 2003.

**Report of the Compensation Committee**

We have a CompensationCommittee consisting of Messrs. Buhrmaster, Castro and Wittels. Thiscommittee is responsible for making recommendations to the Board of Directorsconcerning executive compensation. The Compensation Committee takes intoconsideration a number of factors in setting compensation, including theoverall performance of the company, individual achievements made by eachofficer and comparable wages in the industry.

**Option Grants in the Last Fiscal Year**

The Management Stock Incentive Plan established in May 2000,was terminated in July 2003. No options were granted under this planduring 2003. In connection with the merger, all options to purchase Jostens’common stock that were outstanding immediately prior to the merger werecancelled and extinguished in consideration for an amount equal to thedifference between the per share merger consideration and the exercise price.

The Board of Directors ofJostens Holding Corp. has approved the 2003 Stock Incentive Plan. The planallows for a total of 298,023 options for shares of Jostens Holding Corp. Class BNon-Voting Stock to be granted at the current market value. No options weregranted under this plan during 2003.

**Compensation Committee Interlocks and InsiderParticipation**

Of the three members ofour Compensation Committee, only Mr. Buhrmaster served as an officer ofJostens during 2003.

**Management Employment Arrangements**

***Management Bonus Arrangements***

We maintain a ManagementShareholder Bonus Plan providing for an annual bonus to be paid to the namedexecutive officers based upon achievements of specific operating targets. Mr. Buhrmasteris entitled to a standard bonus as determined by the Compensation Committee. Nobonus shall be paid to Mr. Buhrmaster if Jostens fails to achievespecified performance levels. Messrs. Bailey, Tayeh, Tighe and Black areentitled to a standard bonus as determined by the Chief Executive Officer andapproved by the Board of Directors. Similarly, no bonus shall be paid to themif Jostens fails to achieve specified minimum performance levels.

 

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***Executive Severance Pay Plan***

In 1999, we implementedthe Jostens’ Executive Severance Pay Plan, which was amended effective February 2003and entitled the Jostens, Inc. Executive Severance Pay Plan—2003 Revision(the “Plan”). The primary purpose of the Plan is to provide severance benefitsfor our Chief Executive Officer and other members of management or highlycompensated employees that are selected by our Chief Executive Officer, whoseemployment is terminated pursuant to a qualifying termination (as defined inthe Plan). The amount of severance benefits received by a particular employeeis based upon the employee’s position in Jostens. The range of severancebenefits is from nine months to thirty months of salary and would be paid in alump sum upon termination. Plan participants are also eligible to receive theirannual incentive award on a pro-rated basis provided that the participant’stermination date is after the fourth month of our fiscal year end. In addition,participants are eligible to receive reimbursement for COBRA premiums andcontinuation of their perquisites.

**RetirementPlans**

We maintain a non-contributory pension plan, PensionPlan D (“Plan D”), which provides benefits for substantially all salariedemployees. Retirement income benefits are based upon a participant’s highestaverage annual cash compensation (base salary plus annual bonus, if any) duringany five consecutive calendar years, years of credited service (to a maximum of35 years) and the Social Security-covered compensation table in effect attermination.

We also maintain an unfunded supplemental retirementplan that gives additional credit under Plan D for years of service as aJostens sales representative to those salespersons who were hired as employeesof Jostens prior to October 1, 1991. In addition, benefits specified inPlan D may exceed the level of benefits that may be paid from a tax-qualifiedplan under the Internal Revenue Code of 1986, as amended. The benefits up toIRS limits are paid from Plan D and benefits in excess, to the extent theycould have been earned in Plan D, are paid from the unfunded supplemental plan.

Theexecutive officers participate in pension plans maintained by us for certainemployees. The following table shows estimated annual retirement benefitspayable for life at age 65 for various levels of compensation and service underthese plans. The table does not take into account transition rule provisionsof the plan for employees who were participants on June 30, 1988.
| **Average** final     | ** ** | **Years of service at retirement(1)** | ** ** |
|----------------------------|------------|-----------------------------------------------------------|------------|
| **compensation**           | ** ** | **15**                                                    | ** ** | **20** | ** ** | **25** | ** ** | **30** | ** ** | **35** | ** ** |
| $   200,000 |       | $                                                         | 37,900     |   | $ | 50,500 |   | $ | 63,100 |   | $ | 75,700 |   | $ | 88,300 |   |
| 250,000                    |       | 49,100                                                    |       | 65,500 |   | 81,900 |   | 98,200 |   | 114,600 |   |
| 300,000                    |       | 60,400                                                    |       | 80,500 |   | 100,600 |   | 120,700 |   | 140,800 |   |
| 400,000                    |       | 82,900                                                    |       | 110,500 |   | 138,100 |   | 165,700 |   | 193,300 |   |
| 500,000                    |       | 105,400                                                   |       | 140,500 |   | 175,600 |   | 210,700 |   | 245,800 |   |
| 600,000                    |       | 127,900                                                   |       | 170,500 |   | 213,100 |   | 255,700 |   | 298,300 |   |
| 700,000                    |       | 150,400                                                   |       | 200,500 |   | 250,600 |   | 300,700 |   | 350,800 |   |
| 800,000                    |       | 172,900                                                   |       | 230,500 |   | 288,100 |   | 345,700 |   | 403,300 |   |
| 900,000                    |       | 195,400                                                   |       | 260,500 |   | 325,600 |   | 390,700 |   | 455,800 |   |
| 1,000,000                  |       | 217,900                                                   |       | 290,500 |   | 363,100 |   | 435,700 |   | 508,300 |   |
| 1,100,000                  |       | 240,400                                                   |       | 320,500 |   | 400,600 |   | 480,700 |   | 560,800 |   |
| 1,200,000                  |       | 262,900                                                   |       | 350,500 |   | 438,100 |   | 525,700 |   | 613,300 |   |
| 1,250,000                  |       | 274,100                                                   |       | 365,500 |   | 456,900 |   | 548,200 |   | 639,600 |   |
|                            |            |                                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)   The following individuals named in the SummaryCompensation Table have the respective number of years of service under Plan D:Mr. Buhrmaster, 11.1 years; Mr. Bailey, 25.5 years including salesservice of 6.5 years; Mr. Tayeh, 0.2 years; Mr. Tighe, 3.3 years and Mr. Black,3.3 years.

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We also maintain anon-contributory supplemental pension plan for corporate vice presidents. Underthe plan, vice presidents who retire after age 55 with at least seven full calendaryears of service as a corporate vice president are eligible for a benefit equalto 1% of final base salary for each full calendar year of service, up to amaximum of 30%. Only service after age 30 is recognized in the plan. Thecalculation of benefits is frozen at the levels reached at age 60. Inconnection with the merger, vesting in this plan was accelerated for Messrs. Bailey,Tighe and Black. At their current levels of compensation, and if they retire atage 60, the estimated total annual pension amounts from this plan for Messrs. Buhrmaster,Bailey, Tighe and Black would be $95,875, $59,272, $24,117 and $48,117,respectively. If Mr. Tayeh continues in his current position at hiscurrent level of compensation and retires at age 60, the estimated total annualpension amounts from this plan would be $69,113.

**DirectorsFees**

Three non-employeedirectors, Messrs. Blowers, Reisch and Castro, receive annual directorsfees of $75,000, $50,000 and $25,000, respectively. We do not pay anyremuneration to our other directors for serving as directors.

**ITEM 12.**   SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

We are authorized to issue shares of one class ofcommon stock, with a par value of $.01 per share. All of the outstanding sharesof Jostens, Inc. are owned by Jostens IH Corp.

Ourindirect parent company, Jostens Holding Corp., is authorized to issue twoclasses of common stock, consisting of Class A Voting Common Stock and Class BNon-Voting Common Stock, each with a par value of $0.01 per share. Thefollowing table sets forth certain information regarding the beneficialownership of Jostens Holding Corp. Class A Voting Common Stock and Class BNon-Voting Common Stock:
| ** **                                       | ** ** | **Common stock  beneficially  owned** | ** ** | **Percentage  of class  outstanding** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| **Class A Voting Common  Stock**            | ** ** |                                       | ** ** | ** **                                 |       |   | ** ** |   |   |
| DLJ Merchant Banking Partners III, L.P.          |       |                                       | 416,305    | ** **                                 |       |   | 82.5 | % |   |
| Robert C.  Buhmaster                             |       |                                       | 3,125      | ** **                                 |       |   | 0.6 | % |   |
| Carl H. Blowers                                  |       |                                       | 781        | ** **                                 |       |   | 0.2 | % |   |
| Michael L. Bailey                                |       |                                       | 678        | ** **                                 |       |   | 0.1 | % |   |
| All directors and  executive officers as a group |       |                                       | 4,584      | ** **                                 |       |   | 0.9 | % |   |
| **Class B Non-Voting Common  Stock**        | ** ** |                                       | ** ** | ** **                                 |       |   | ** ** |   |   |
| DLJ Merchant Banking Partners III, L.P.          |       |                                       | 2,248,052  | ** **                                 |       |   | 82.5 | % |   |
| Robert C.  Buhmaster                             |       |                                       | 16,875     | ** **                                 |       |   | 0.6 | % |   |
| Carl H. Blowers                                  |       |                                       | 4,219      | ** **                                 |       |   | 0.2 | % |   |
| Michael L. Bailey                                |       |                                       | 3,665      | ** **                                 |       |   | 0.1 | % |   |
| All directors and  executive officers as a group |       |                                       | 24,759     | ** **                                 |       |   | 0.9 | % |   |

 

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**ITEM 13.**   CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS

**Stockholders’ Agreement**

On July 29,2003, Jostens Holding Corp., the DLJMB Funds and members of management who ownstock of Jostens Holding Corp. entered into a stockholders’ agreement that setsforth certain rights and restrictions relating to the ownership of JostensHolding Corp. common stock, and agreements among those parties as to thegovernance of Jostens Holding Corp. and, indirectly, of Jostens, Inc.

The agreement contains provisions which, among otherthings and subject to certain exceptions: (i) restrict the ability of themanagement stockholders to transfer their respective ownership interests; (ii) grantpro rata tag-along rights to management stockholders for the DLJMB Funds salesabove 10% of the DLJMB Funds’ initial ownership; (iii) grant certaindrag-along rights to the DLJMB Funds to require the management stockholders tosell their shares, *pro rata*,alongside the DLJMB Funds, if the DLJMB Funds sell more than 50% of the numberof shares of Jostens Holding Corp.’s common stock held by the DLJMB Funds as ofthe date of the agreement; and (iv) grant to management stockholderscertain preemptive rights and piggyback registration rights.

Jostens Holding Corp. orits designee has the right to repurchase all shares owned by any managementstockholder upon the termination of such management stockholder’s employmentwith Jostens Holding Corp. Additionally, the DLJMB Funds were granted demandregistration rights. This agreement was negotiated on an arm’s length basis.

**Stock Purchase and Stockholders’ Agreement**

On September 3, 2003, Jostens Holding Corp.,JIHC, the DLJMB Funds and certain of its co-investors entered into a stockpurchase and stockholders’ agreement pursuant to which the DLJMB Funds sold tosuch co-investors shares of: (i) Jostens Holding Corp. Class A VotingCommon Stock, (ii) Jostens Holding Corp. Class B Non-Voting CommonStock and (iii) JIHC’s 8% Senior Redeemable Preferred Stock, which hassince been repurchased.

The stock purchase andstockholders’ agreement contains provision which, among other things andsubject to certain exceptions: (i) restrict the ability of theco-investors to transfer their respective ownership interest; (ii) grantpro rata tag-along rights to co-investors for the DLJMB Funds sales above 10%of the DLJMB Funds’ initial ownership; (iii) grant certain drag-alongrights to the DLJMB Funds to require the co-investors to sell their shares, *pro rata*, alongside the DLJMB Funds, ifthe DLJMB Funds sell more than 50% of the number of shares of Jostens HoldingCorp.’s or JIHC’s stock held by the DLJMB Funds as of the date of theagreement, and (iv) grant the co-investors certain preemptive rights andpiggyback registration rights.

**AdvisoryAgreements**

On July 28, 2003, Ring Acquisition Corp. (“Mergerco”),which merged with and into Jostens on July 29, 2003, entered into a letteragreement with DLJ Merchant Banking III, Inc. (“DLJ”), an affiliate of theDLJMB Funds, in which Mergerco agreed to pay DLJ a fee of $9.0 million, subjectto the consummation of the merger, for services provided by DLJ to Mergerco,including assisting Mergerco in its financial and structural analyses, duediligence investigations and negotiation of the merger and related debt financing.

On July 28, 2003,Mergerco entered into a letter agreement with CSFB in which Mergerco agreed topay CSFB a fee of $1.0 million, payable upon consummation of the merger, forfinancial advisory services provided by CSFB to Mergerco, including evaluatingMergerco’s capital structure, analyzing financing strategies and developing anoverall financing package, including a potential restructuring of its long-termdebt and possible strategic alternatives.

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**LeaseAgreements**

We have entered into an aircraft lease agreement withJostens Holding Corp., our indirect parent, pursuant to which we shall payJostens Holding Corp. an aggregate of $449,400 per year, plus the cost ofoperation, for use of a Citation CJ2 aircraft owned by Jostens Holding Corp. Wehave also entered into a time-sharing agreement with each of DLJ MerchantBanking III, Inc. and Mr. Buhrmaster, pursuant to which they willrespectively, from time to time sublease the Citation CJ2 from us at a rateequal to twice our cost of fuel plus incidentals.

KA Rentals, an entitywholly owned by Mr. Buhrmaster, our Chief Executive Officer, has agreed tomake the aircraft that it owns available to us for lease when our principalaircraft is not available. We paid KA Rentals an aggregate of $82,843 during 2003for use of the aircraft under this lease arrangement. We believe that the leasearrangement with KA Rentals is on terms at least as favorable to us as couldhave been obtained from an unaffiliated third party.

**Financial Monitoring Agreements**

As of July 29, 2003, we entered into a financialadvisory agreement with CSFB, which we terminated on March 24, 2004.Pursuant to this agreement, CSFB had been retained to act as financial advisorfor a five-year period, unless terminated earlier. Under this agreement, CSFB,among other things, was to assist us in (i) analyzing our operations andhistorical performance; (ii) analyzing future prospects; and (iii) preparinga strategic plan for the company. For its services, CSFB was entitled toreceive an annual financial advisory retainer of $0.5 million, payable ininstallments at the beginning of each calendar quarter. As contemplated by theagreement, we agreed to indemnify CSFB against specified losses or liabilityarising out of, or in connection with, advice and services rendered under theagreement.

As of July 29, 2003,we entered into a financial advisory agreement with DLJ, which was furtheramended as of March 24, 2004. Pursuant to this agreement, DLJ has beenretained to act as financial advisor for a five-year period, unless terminatedearlier. Under this agreement, DLJ, among other things, shall provide us withcertain monitoring services. For its services, DLJ is entitled to receive anannual financial advisory retainer of $1.0 million, payable in installments, atthe beginning of each calendar quarter. DLJ shall further receive an annualcredit to be used solely to offset amounts payable by DLJ to us pursuant to thetime-sharing agreement in an amount of up to $0.5 million. As contemplated bythe agreement, we have agreed to indemnify DLJ against specified losses orliability arising out of, or in connection with, advice and services renderedunder the agreement.

***Other***

An affiliate of CSFB is the administrative agent underthe new senior secured credit facility for which it has received and willreceive in the future certain customary fees and expenses.

Pursuant to an agreement with Jostens Holdings Corp., Messrs. Buhrmaster,Bailey and Blowers exchanged shares in Jostens, Inc. for shares of JostensHolding Corp.

In connection with themerger, the remaining stock loans issued in May 2000 to certain members ofsenior management to purchase shares of common stock were repaid together withaccumulated interest.

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**ITEM 14.**   PRINCIPALACCOUNTANTS FEES AND SERVICES

***Audit Fees***

Ernst & Young LLP(“E&Y”) has been engaged as our independent accountant since October 13,2003. The aggregate fees billed to us by E&Y during 2003 were $259,725.Prior to October 13, 2003, PricewaterhouseCoopers LLP (“PwC”) was engagedas our independent accountant. The aggregate fees billed to us by PwC during2003 and 2002 were $32,000 and $229,730, respectively. Such fees representaudits of our annual consolidated financial statements and reviews of ourquarterly consolidated financial statements.

***Audit-Related Fees***

The aggregate fees billedto us by E&Y for audit-related services during 2003 were $925, relatedprimarily to accounting and financial reporting consultation. The aggregatefees billed to us by PwC for audit-related services during 2003 and 2002 were$968,838 and $56,261, respectively, related primarily to audits of pension andother employee benefit plan financial statements and professional advisory feesin connection with the merger.

***Tax Fees***

The aggregate fees billedto us by E&Y for tax services rendered during 2003 and 2002 were $1,090,933and $997,595, respectively, related primarily to tax compliance, including thepreparation of and assistance with federal, state and local income tax returns,sales and use tax filings, foreign and other tax compliance. The aggregate feesbilled to us by PwC for tax services rendered during 2003 and 2002 were $76,410and $338,142, respectively, related primarily to domestic and foreign tax planningand other consulting services.

***All Other Fees***

The aggregate fees billedto us by E&Y for all other services rendered during 2003 and 2002 were$2,000 and $7,925, respectively. The aggregate fees billed to us by PwC for allother services rendered during 2003 and 2002 were $20,200 and $26,000,respectively. These fees were for other professional research and consultationservices.

***Audit Committee***

The Audit Committee makesrecommendations concerning the engagement of independent public accountants,reviews with the independent public accountants the scope and results of theaudit engagement, approves professional services provided by the independentaccountants, reviews the independence of the independent public accountants,considers the range of audit and non-audit fees and reviews the adequacy of ourinternal accounting controls.

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**PART IV**

**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** |
|       |                                                 | Report of Independent  Auditors |
|       |                                                 | Consolidated  Statements of Operations for the period from July 30, 2003 to  January 3, 2004 (post-merger, five months), the period from  December 29, 2002 to July 29, 2003 (pre-merger, seven months) and  the fiscal years ended December 28, 2002 and December 29, 2001 |
|       |                                                 | Consolidated Balance  Sheets as of January 3, 2004 and December 28, 2002 |
|       |                                                 | Consolidated Statements  of Cash Flows for the period from July 30, 2003 to January 3, 2004  (post-merger, five months), the period from December 29, 2002 to  July 29, 2003 (pre-merger, seven months) and the fiscal years ended  December 28, 2002 and December 29, 2001 |
|       |                                                 | Consolidated Statements  of Changes in Shareholders’ Equity (Deficit) for the period from  July 30, 2003 to January 3, 2004 (post-merger, five months), the  period from December 29, 2002 to July 29, 2003 (pre-merger, seven  months) and the fiscal years ended December 28, 2002 and  December 29, 2001 |
|       |                                                 | Notes to Consolidated  Financial Statements |
|       | **(2)**                                              | **Financial Statement Schedules** |
|       |                                                 | Report of Independent  Auditors |
|       |                                                 | 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** |
|       |                                                 | 2.1 | Agreement and Plan of  Merger by and among Ring Holding Corp., Ring Acquisition Corp. and  Jostens, Inc., dated as of June 17, 2003, incorporated by reference  to Jostens’ Report on Form 8-K filed June 30, 2003. |
|       |                                                 | 3.1 | Form of Amended and  Restated Articles of Incorporation of Jostens, Inc., incorporated by  reference to Exhibit 3.1 contained in Jostens’ Report on Form 10-Q  for the quarterly period ended September 27, 2003. |
|       |                                                 | 3.2 | Certificate of  Designation, effective May 10, 2000, of the Powers, Preferences and  Rights of the 14% Senior Redeemable Payment-In-Kind Preferred Stock, and  Qualifications, Limitations and Restrictions Thereof, incorporated by  reference to Exhibit 4.3 contained in Jostens’ Report on Form 8-K  filed May 25, 2000. |
|       |                                                 | 3.3 | Bylaws of  Jostens, Inc. incorporated by reference to Exhibit 3.2 contained in  Jostens’ Report on Form 10-Q for the quarterly period ended  July 3, 1999. |
|       |                                                 | 4.1 | Indenture, dated as of  May 10, 2000, including therein the form of Note, between  Jostens, Inc. and The Bank of New York, as Trustee, providing for 12.75%  Senior Subordinated Notes due 2010, incorporated by reference to  Exhibit 4.1 contained in Jostens’ Report on Form 8-K filed  May 25, 2000. |

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|   |   | 10.1  | Credit Agreement, dated  as of July 29, 2003 by and among Ring Acquisition Corp. and Jostens  Canada Ltd. as borrowers, Jostens IH Corp. as guarantor, the Lenders party  thereto, Credit Suisse First Boston Toronto Branch as Canadian Administrative  Agent, and Credit Suisse First Boston as Administrative Agent, incorporated  by reference to Exhibit 10.1 contained in Jostens Report on Form 10-Q  for the quarterly period ended September 27, 2003. |
|--------|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | 10.2  | Stockholders’ Agreement,  dated as of July 29, 2003, among Jostens Holding Corp. and the  stockholders party thereto incorporated by reference to Exhibit 10.2  contained in Jostens Report on Form 10-Q for the quarterly period  ended September 27, 2003.                                                                                                                                                                                               |
|   |   | 10.3  | Purchase Agreement,  dated May 10, 2000, for 14% Senior Redeemable Payment-In-Kind Preferred  Stock with Warrants to Purchase Shares of Class E Common Stock, between  Jostens, Inc. and DB Capital Investors, L.P., incorporated by reference  to Exhibit 4.6 contained in Jostens’ Report on Form 8-K filed  May 25, 2000.                                                                                                                     |
|   |   | 10.4  | Jostens Holding Corp.  2003 Stock Incentive Plan, effective October 30, 2003.*                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   | 10.5  | Management Shareholder  Bonus Plan established by Credit Agreement incorporated by reference to  Exhibit 10.26 contained in Jostens’ registration statement on  Form S-4 filed April 7, 2000.*                                                                                                                                                                                                                                                                  |
|   |   | 10.6  | Jostens, Inc.  Executive Change in Control Severance Pay Plan, effective January 1,  1999, incorporated by reference to Exhibit 10.8 contained in Jostens’  Annual Report on From 10-K for 1998.*                                                                                                                                                                                                                                                               |
|   |   | 10.7  | Jostens, Inc.  Executive Change in Control Severance Pay Plan First Declaration of  Amendment, effective August 1, 1999, incorporated by reference to  Exhibit 10.10 contained in Jostens’ Report on Form 10-Q for  the quarterly period ended October 2, 1999.*                                                                                                                                                                                      |
|   |   | 10.8  | Form of Contract  entered into with respect to Executive Supplemental Retirement Plan  incorporated by reference to Jostens’ registration statement on Form 8  dated May 2, 1991.*                                                                                                                                                                                                                                                                              |
|   |   | 10.9  | Jostens, Inc.  Executive Severance Pay Plan—2003 Revision, effective February 26,  2003.*                                                                                                                                                                                                                                                                                                                                                                            |
|   |   | 10.10 | Aircraft Lease Agreement  between Jostens Holding Corp. and Jostens, Inc., effective  March 15, 2004.                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | 10.11 | Time-Sharing Agreement  between Jostens, Inc. and DLJ Merchant Banking III, Inc., effective  March 15, 2004.                                                                                                                                                                                                                                                                                                                                                         |
|   |   | 10.12 | Time-Sharing Agreement  between Jostens, Inc. and Robert C. Buhrmaster, effective March 15,  2004.                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | 10.13 | Financial Advisory  Agreement, as amended, between Jostens, Inc. and DLJ Merchant Banking III,  Inc. dated as of March 24, 2004.                                                                                                                                                                                                                                                                                                                                                    |
|   |   | 12    | Computation of Ratio of  Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | 21    | List of Jostens’  subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   | 31.1  | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                                                                                                                                                                                                                          |

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|    |                         | 31.2                                                                                                                                                                | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002. |
|---------|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------|
| **(b)** | **Reports on Form 8-K** |
|    |                         | A Form 8-K  was filed on October 20, 2003 reporting a change in our certifying  accountant.                                                               |
|    |                         | A Form 8-K  was filed on November 13, 2003, furnishing our press release reporting  results for the three and nine months ended September 27, 2003.  |
|    |                         | A Form 8-K  was filed on November 21, 2003 announcing the commencement of a private  placement of senior discount notes due 2013 of Jostens Holding Corp. |

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*                    Managementcontract or compensatory plan or arrangement required to be filed as an exhibitto Form 10-K pursuant to Item 15(c) of this annual report

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
| ** **                 | **Jostens, Inc.**                                    |
|----------------------------|------------------------------------------------------|
| Date: March 31,  2004 | By  /s/  Robert C. Buhrmaster    |
|                       | Robert C.  Buhrmaster                                |
|                       | *Chairman  of the Board and Chief Executive Officer* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on March 31, 2004 on behalf ofthe registrant in the capacities indicated.
| ** **                          | **Signature** | ** **                                         | ** ** | ** ** | **Title** | ** ** |
|-------------------------------------|---------------|----------------------------------------------------|------------|------------|-----------|------------|
| /s/  Robert C. Buhrmaster |          | Chairman of the Board  and Chief Executive Officer |
| Robert C.  Buhrmaster               |          | (Principal  Executive Officer)                     |
| /s/  David A. Tayeh       |          | Senior Vice President  and Chief Financial Officer |
| David A. Tayeh                      |          | (Principal  Financial and Accounting Officer)      |
| /s/  Carl H. Blowers      |          | Director                                           |
| Carl H. Blowers                     |          |                                               |
| /s/  David F. Burgstahler |          | Director                                           |
| David F.  Burgstahler               |          |                                               |
| /s/  John W. Castro       |          | Director                                           |
| John W. Castro                      |          |                                               |
| /s/  Thomas R. Nides      |          | Director                                           |
| Thomas R. Nides                     |          |                                               |
| /s/  Marc L. Reisch       |          | Director                                           |
| Marc L. Reisch                      |          |                                               |
| /s/  David M. Wittels     |          | Director                                           |
| David M. Wittels                    |          |                                               |

 

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**FINANCIAL STATEMENT SCHEDULES**

**Report of Independent Auditors on Financial StatementSchedule**

To the Shareholder and Board of DirectorsJostens, Inc.Minneapolis, Minnesota

We have audited the consolidated financial statementsof Jostens Inc. as of January 3, 2004, and for the period from July 30,2003 to January 3, 2004 (post-merger) and the period from December 29,2002 to July 29, 2003 (pre-merger), and have issued our report thereondated February 12, 2004 (included elsewhere in this Form 10-K). Ouraudit also included the financial statement schedule listed in Item 15(a)(2) ofthis Form 10-K. This schedule is the responsibility of the Company’smanagement. Our responsibility is to express an opinion based on our audit.

In our opinion, the financial statement schedulereferred to above, when considered in relation to the basic financialstatements taken as a whole, presents fairly in all material respects theinformation set forth therein.

Minneapolis, MinnesotaFebruary 12, 2004

**Report of Independent Auditors on Financial StatementSchedule**

*To the Shareholderand Board of Directors of Jostens, Inc.:*

Our audits of the consolidated financial statements asof December 28, 2002, and for each of the two fiscal years in the periodended December 28, 2002, referred to in our report dated February 12,2003 appearing in the Annual Report on Form 10-K for the fiscal year endedJanuary 3, 2004 also included an audit as of December 28, 2002 and December 29,2001 and for each of the two fiscal years in the period 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 allmaterial respects, the information set forth therein as of December 28,2002 and December 29, 2001, and for each of the two fiscal years in theperiod ended December 28, 2002, when read in conjunction with the relatedconsolidated financial statements.

PricewaterhouseCoopers LLPMinneapolis, MinnesotaFebruary 12, 2003

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**ScheduleII—Valuation and Qualifying Accounts**

***Jostens, Inc.and subsidiaries***
| ** **                                                  | ** ** | **Balance**           | ** ** | **Charged to** | ** ** | **Charged to** | ** ** | ** **     | ** ** | **Balance**     | ** ** |
|-------------------------------------------------------------|------------|-----------------------|------------|---------------------|------------|---------------------|------------|----------------|------------|-----------------|------------|
| ** **                                                  | ** ** | **beginning**         | ** ** | **costs and**  | ** ** | **other**           | ** ** | ** **     | ** ** | **end of** | ** ** |
| ** **                                                  | ** ** | **of period**    | ** ** | **expenses**        | ** ** | **accounts**        | ** ** | **Deductions** | ** ** | **period**      | ** ** |
| ** **                                                  | ** ** | **In thousands** | ** ** |
| ***Reserves  and allowances deducted from asset accounts*** |       |                  |       |                |       |                |       |           |       |            |       |   |   |   |   |   |   |   |   |
| **Allowances  for uncollectible accounts**                  |       |                  |       |                |       |                |       |           |       |            |       |   |   |   |   |   |   |   |   |
| July 30, 2003 through January 3, 2004             |       |                  | $          | 2,569               |       |                |       | $              | 14         |            |       |   | $ | — |   |   |   | $ | 399 | (2) |   | $ | 2,184 |   |
| 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 |   |
| Year ended December 29, 2001                           |       |                  | 4,361      |                |       |                | 1,677      |           |       |            | (295       | )(1) |   |   | 2,086 | (2) |   | 3,657 |   |
| **Allowances  for sales returns**                           |       |                  |       |                |       |                |       |           |       |            |       |   |   |   |   |   |   |   |   |
| July 30, 2003 through January 3, 2004             |       |                  | 9,585      |                |       |                | 7,950      |           |       |            | —     |   |   |   | 11,744 | (3) |   | 5,791 |   |
| 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 |   |
| Year ended December 29, 2001                           |       |                  | 6,360      |                |       |                | 17,832     |           |       |            | (110       | )(1) |   |   | 18,355 | (3) |   | 5,727 |   |
| **Salesperson  overdraft reserves**                         |       |                  |       |                |       |                |       |           |       |            |       |   |   |   |   |   |   |   |   |
| July 30, 2003 through January 3, 2004             |       |                  | 8,629      |                |       |                | 2,204      |           |       |            | —     |   |   |   | (120 | )(2) |   | 10,953 |   |
| 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 |   |
| Year ended  December 29, 2001                          |       |                  | 5,568      |                |       |                | 3,046      |           |       |            | (549       | )(1) |   |   | 1,168 | (2) |   | 6,897 |   |
|                                                             |            |                       |            |                     |            |                     |            |                |            |                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Effects of reclassifyingJostens Recognition business as discontinued operations.

(2)          Uncollectible accountswritten off, net of recoveries.

(3)          Returns processedagainst reserve.

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