**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-Q**

 

**ý****        QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For theQuarterly Period Ended October 2, 2004**

 

**OR**

 

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

 

**Commissionfile number 333-112055**

 

**JOSTENS HOLDING CORP.**

(Exact name ofRegistrant as specified in its charter)

 
| **Delaware**                                                    | **90-0207875**                           |
|-----------------------------------------------------------------|------------------------------------------|
| (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         |

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports) and (2) has been subject to such filing requirement for the past90 days.    Yes ý     No o

 

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

 

As of November 15, 2004,the Registrant had outstanding 5,940,523 shares of Class A Common Stock, $.01par value per share, and one share of Class C Common Stock, $.01 par value pershare.

 

 

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**JOSTENS HOLDING CORP. AND SUBSIDIARIES**

**Index to Form 10-Q**

 
| **Part I.   FINANCIAL  INFORMATION** | ** **                                                                                                                                                                                                                                                                                                                                                        |
|-----------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
| Item 1.                                             | Financial Statements  (Unaudited)                                                                                                                                                                                                                                                                                                                                 |   |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
|                                                | Condensed  Consolidated Statements of Operations for the three months ended October 2,  2004, the period from July 30, 2003 to September 27, 2003 and the period from  June 29, 2003 to July 29, 2003 and for the nine months ended October 2, 2004,  the period from July 30, 2003 to September 27, 2003 and the period from  December 29, 2002 to July 29, 2003 |   |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
|                                                | Condensed  Consolidated Balance Sheets as of October 2, 2004, January 3, 2004 and  September 27, 2003                                                                                                                                                                                                                                                             |   |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
|                                                | Condensed  Consolidated Statements of Cash Flows for the nine months ended October 2,  2004, the period from July 30, 2003 to September 27, 2003 and the period from  December 29, 2002 to July 29, 2003                                                                                                                                                          |   |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
|                                                | Notes  to Condensed Consolidated Financial Statements                                                                                                                                                                                                                                                                                                             |   |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
| Item  2.                                            | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                                                                                                                                       |   |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
| Item  3.                                            | Quantitative  and Qualitative Disclosures about Market Risk                                                                                                                                                                                                                                                                                                       |   |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
| Item 4.                                             | Controls and  Procedures                                                                                                                                                                                                                                                                                                                                          |   |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
| **Part II.   OTHER  INFORMATION**    | ** **                                                                                                                                                                                                                                                                                                                                                        |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
| Item  1.                                            | Legal  Proceedings                                                                                                                                                                                                                                                                                                                                                |   |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
| Item  2.                                            | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                      |   |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
| Item 3.                                             | Defaults Upon  Senior Securities                                                                                                                                                                                                                                                                                                                                  |   |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
| Item  4.                                            | Submission  of Matters to a Vote of Security Holders                                                                                                                                                                                                                                                                                                              |   |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
| Item  5.                                            | Other  Information                                                                                                                                                                                                                                                                                                                                                |   |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
| Item 6.                                             | Exhibits                                                                                                                                                                                                                                                                                                                                                          |   |
|                                                |                                                                                                                                                                                                                                                                                                                                                              |   |
| Signatures                                          |                                                                                                                                                                                                                                                                                                                                                              |   |

 

----

 

##### **PART I.   FINANCIAL INFORMATION**

 

###### **ITEM 1.  FINANCIAL STATEMENTS**

 

**JOSTENS HOLDING CORP. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**

 
| ** **                                              | ** ** | **For the  periods**                     | ** **  | **For the  periods**                     | ** ** |
|---------------------------------------------------------|------------|------------------------------------------|-------------|------------------------------------------|------------|
| ** **                                              | ** ** | **Successor**                            | ** **  | **Predecessor**                          | ** ** | **Successor** | ** ** | **Predecessor** | ** ** |
| **In thousands**                                        | ** ** | **Three  months ended  October 2, 2004** | ** **  | **July 30,  2003 -  September 27, 2003** | ** ** | **June 29,  2003 -  July 29, 2003** | ** ** | **Nine  months ended  October 2, 2004** | ** ** | **July 30,  2003 -  September 27, 2003** | ** ** | **December  29, 2002 -  July 29, 2003** | ** ** |
| **Net sales**                                           | ** ** | **$**                                    | **105,296** | ** **                               | **$**      | **86,163** | ** ** | **$** | **7,598** | ** ** | **$** | **624,567** | ** ** | **$** | **86,163** | ** ** | **$** | **504,058** | ** ** |
| Cost of products  sold                                  |       | 66,357                                   |        | 73,492                                   |       | 6,844 |   | 324,004 |   | 73,492 |   | 218,594 |   |
| Gross profit                                            |       | 38,939                                   |        | 12,671                                   |       | 754 |   | 300,563 |   | 12,671 |   | 285,464 |   |
| Selling and  administrative expenses                    |       | 67,442                                   |        | 46,797                                   |       | 16,383 |   | 272,246 |   | 46,797 |   | 196,430 |   |
| Special charges                                         |       | 3,962                                    |        | —                                   |       | — |   | 3,962 |   | — |   | — |   |
| Transaction costs                                       |       | —                                   |        | —                                   |       | 30,960 |   | — |   | — |   | 30,960 |   |
| **Operating  (loss) income**                            | ** ** | **(32,465**                              | **)**       | **(34,126**                              | **)**      | **(46,589** | **)** | **24,355** | ** ** | **(34,126** | **)** | **58,074** | ** ** |
| Loss on  redemption of debt                             |       | —                                   |        | 99                                       |       | 13,878 |   | 420 |   | 99 |   | 13,878 |   |
| Net interest  expense                                   |       | 20,398                                   |        | 11,135                                   |       | 4,971 |   | 60,557 |   | 11,135 |   | 32,446 |   |
| (Loss) income  before income taxes                      |       | (52,863                                  | )           | (45,360                                  | )          | (65,438 | ) | (36,622 | ) | (45,360 | ) | 11,750 |   |
| (Benefit from)  provision for income taxes              |       | (12,687                                  | )           | (15,421                                  | )          | (23,384 | ) | (8,789 | ) | (15,421 | ) | 8,695 |   |
| (Loss) income  from operations                          |       | (40,176                                  | )           | (29,939                                  | )          | (42,054 | ) | (27,833 | ) | (29,939 | ) | 3,055 |   |
| Cumulative effect  of accounting change, net of tax     |       | —                                   |        | —                                   |       | 4,585 |   | — |   | — |   | 4,585 |   |
| **Net (loss)  income**                                  | ** ** | **(40,176**                              | **)**       | **(29,939**                              | **)**      | **(37,469** | **)** | **(27,833** | **)** | **(29,939** | **)** | **7,640** | ** ** |
| Dividends and  accretion on redeemable preferred stock  |       | —                                   |        | —                                   |       | — |   | — |   | — |   | (6,525 | ) |
| **Net  (loss) income available to common shareholders** | ** ** | **$**                                    | **(40,176** | **)**                                    | **$**      | **(29,939** | **)** | **$** | **(37,469** | **)** | **$** | **(27,833** | **)** | **$** | **(29,939** | **)** | **$** | **1,115** | ** ** |

 

*Theaccompanying notes are an integral part of the unaudited condensed consolidatedfinancial statements.*

 

1

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**JOSTENS HOLDING CORP. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS (UNAUDITED)**

 
| ** **                                                                                                   | ** ** | **Successor**       | ** **    |
|--------------------------------------------------------------------------------------------------------------|------------|---------------------|---------------|
| **In thousands, except share  amounts**                                                                      | ** ** | **October 2, 2004** | ** **    | **January 3, 2004** | ** ** | **September 27, 2003** | ** ** |
| **ASSETS**                                                                                                   | ** ** | ** **          | ** **    | ** ** | ** ** | ** ** | ** ** |
| Cash and cash  equivalents                                                                                   |       | $                   | 8,891         |   | $ | 24,752 |   | $ | 11,639 |   |
| Accounts  receivable, net                                                                                    |       | 49,623              |          | 57,018 |   | 48,863 |   |
| Inventories, net                                                                                             |       | 63,968              |          | 72,523 |   | 70,320 |   |
| Salespersons  overdrafts, net of allowance of $10,579, $10,953 and $9,422                                    |       | 37,205              |          | 30,062 |   | 33,640 |   |
| Prepaid expenses  and other current assets                                                                   |       | 5,850               |          | 10,446 |   | 4,256 |   |
| Deferred income  taxes                                                                                       |       | 12,434              |          | — |   | — |   |
| **Total  current assets**                                                                                    | ** ** | **177,971**         | ** **    | **194,801** | ** ** | **168,718** | ** ** |
| ** **                                                                                                   | ** ** | ** **          | ** **    | ** ** | ** ** | ** ** | ** ** |
| Property and  equipment                                                                                      |       | 136,585             |          | 119,506 |   | 112,751 |   |
| Less accumulated  depreciation                                                                               |       | (35,285             | )             | (13,913 | ) | (4,310 | ) |
| Property and  equipment, net                                                                                 |       | 101,300             |          | 105,593 |   | 108,441 |   |
| Goodwill                                                                                                     |       | 728,178             |          | 746,025 |   | 690,197 |   |
| Intangibles, net                                                                                             |       | 570,891             |          | 644,654 |   | 655,269 |   |
| Other assets                                                                                                 |       | 35,629              |          | 40,340 |   | 37,648 |   |
| ** **                                                                                                   | ** ** | **$**               | **1,613,969** | ** ** | **$** | **1,731,413** | ** ** | **$** | **1,660,273** | ** ** |
|                                                                                                         |       |                |          |   |   |   |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                | ** ** | ** **          | ** **    | ** ** | ** ** | ** ** | ** ** |
| Book overdrafts                                                                                              |       | $                   | 3,912         |   | $ | — |   | $ | 5,252 |   |
| Short-term  borrowings                                                                                       |       | 77,068              |          | 13,013 |   | 77,112 |   |
| Accounts payable                                                                                             |       | 13,009              |          | 17,483 |   | 13,168 |   |
| Commissions  payable                                                                                         |       | 7,023               |          | 16,736 |   | 6,459 |   |
| Customer  deposits                                                                                           |       | 43,699              |          | 149,809 |   | 44,424 |   |
| Income taxes  payable                                                                                        |       | 28,874              |          | 8,833 |   | 11,802 |   |
| Interest payable                                                                                             |       | 11,326              |          | 4,910 |   | 15,059 |   |
| Current portion  of long-term debt                                                                           |       | 150                 |          | — |   | 11,968 |   |
| Deferred income  taxes                                                                                       |       | —              |          | 4,283 |   | 8,841 |   |
| Other accrued  liabilities                                                                                   |       | 45,643              |          | 45,289 |   | 38,676 |   |
| **Total  current liabilities**                                                                               | ** ** | **230,704**         | ** **    | **260,356** | ** ** | **232,761** | ** ** |
|                                                                                                         |       |                |          |   |   |   |   |
| Long-term debt -  less current maturities                                                                    |       | 803,715             |          | 836,693 |   | 704,184 |   |
| Redeemable  preferred securities (liquidation preference: $109,820, $99,052 and $95,702)                     |       | 126,061             |          | 135,272 |   | 173,152 |   |
| Deferred income  taxes                                                                                       |       | 214,077             |          | 231,416 |   | 233,316 |   |
| Other noncurrent  liabilities                                                                                |       | 22,861              |          | 23,359 |   | 23,929 |   |
| **Total  liabilities**                                                                                       | ** ** | **1,397,418**       | ** **    | **1,487,096** | ** ** | **1,367,342** | ** ** |
|                                                                                                         |       |                |          |   |   |   |   |
| Commitments and  contingencies                                                                               |       |                |          |   |   |   |   |
|                                                                                                         |       |                |          |   |   |   |   |
| Common stock                                                                                                 |       |                |          |   |   |   |   |
| Class A $.01 par  value; authorized: 700,000 shares; issued and outstanding: 504,584 shares                  |       | 5                   |          | 5 |   | 5 |   |
| Class B $.01 par  value; non-voting; authorized: 4,050,000 shares; issued and outstanding: 2,724,759  shares |       | 27                  |          | 27 |   | 27 |   |
| Additional  paid-in-capital                                                                                  |       | 281,316             |          | 281,316 |   | 322,902 |   |
| Accumulated  deficit                                                                                         |       | (64,873             | )             | (37,040 | ) | (29,939 | ) |
| Accumulated  other comprehensive income (loss)                                                               |       | 76                  |          | 9 |   | (64 | ) |
| **Total  shareholders’ equity**                                                                         | ** ** | **216,551**         | ** **    | **244,317** | ** ** | **292,931** | ** ** |
| ** **                                                                                                   | ** ** | **$**               | **1,613,969** | ** ** | **$** | **1,731,413** | ** ** | **$** | **1,660,273** | ** ** |

 

*The accompanying notes are an integral part of the unauditedcondensed consolidated financial statements.*

 

2

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**JOSTENS HOLDING CORP. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

 
| ** **                                                                     | ** ** | **For the periods**                     | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                     | ** ** | **Successor**                           | ** ** | **Predecessor** | ** ** |
| **In thousands**                                                               | ** ** | **Nine months ended   October 2, 2004** | ** ** | **July 30, 2003 -  September 27, 2003** | ** ** | **December 29, 2002 -  July 29, 2003** | ** ** |
| Net (loss)  income                                                             |       | $                                       | (27,833    | ) | $ | (29,939 | ) | $ | 7,640 |   |
| Adjustments to  reconcile net income to net cash used for operating activities |       |                                    |       |   |   |   |   |
| Depreciation                                                                   |       | 21,436                                  |       | 3,862 |   | 12,649 |   |
| Amortization  included in interest expense                                     |       | 14,518                                  |       | (450 | ) | 2,900 |   |
| Other  amortization                                                            |       | 74,399                                  |       | 9,227 |   | 1,939 |   |
| Accrued interest  on redeemable preferred stock                                |       | 10,789                                  |       | 2,182 |   | 1,054 |   |
| Deferred income  taxes                                                         |       | (32,687                                 | )          | (14,632 | ) | (1,500 | ) |
| Other noncash  reconciling items                                               |       | 505                                     |       | 117 |   | 12,058 |   |
| Changes in  assets and liabilities                                             |       | (83,571                                 | )          | (19,350 | ) | (43,533 | ) |
| **Net  cash used for operating activities**                                    | ** ** | **(22,444**                             | **)**      | **(48,983** | **)** | **(6,793** | **)** |
| Acquisitions of  businesses, net of cash acquired                              |       | —                                  |       | (423,440 | ) | (5,008 | ) |
| Purchases of  property and equipment                                           |       | (17,747                                 | )          | (9,523 | ) | (6,129 | ) |
| Other investing  activities, net                                               |       | 29                                      |       | — |   | (738 | ) |
| **Net  cash used for investing activities**                                    | ** ** | **(17,718**                             | **)**      | **(432,963** | **)** | **(11,875** | **)** |
| Net short-term  borrowings                                                     |       | 63,470                                  |       | 65,195 |   | 1,500 |   |
| Net increase in  book overdrafts                                               |       | 3,912                                   |       | 5,252 |   | — |   |
| Principal  payments on long-term debt                                          |       | (41,116                                 | )          | — |   | (379,270 | ) |
| Redemption of  senior subordinated notes payable                               |       | (5,800                                  | )          | (3,550 | ) | — |   |
| Proceeds from  issuance of long-term debt                                      |       | 4,000                                   |       | 3,705 |   | 475,000 |   |
| Repurchases of  common stock and warrants                                      |       | —                                  |       | — |   | (471,044 | ) |
| Proceeds from  issuance of common shares                                       |       | —                                  |       | 322,934 |   | 417,934 |   |
| Proceeds from  issuance of preferred shares                                    |       | —                                  |       | 100,000 |   | — |   |
| Debt financing  costs                                                          |       | (175                                    | )          | — |   | (20,212 | ) |
| Merger costs                                                                   |       | —                                  |       | — |   | (12,608 | ) |
| Other financing  activities, net                                               |       | —                                  |       | — |   | 1,625 |   |
| **Net  cash provided by financing activities**                                 | ** ** | **24,291**                              | ** ** | **493,536** | ** ** | **12,925** | ** ** |
| Effect of  exchange rate changes on cash and cash equivalents                  |       | 10                                      |       | 49 |   | 236 |   |
| (Decrease)  increase in cash and cash equivalents                              | ** ** | **(15,861**                             | **)**      | **11,639** | ** ** | **(5,507** | **)** |
| Cash and cash  equivalents, beginning of period                                |       | 24,752                                  |       | — |   | 10,938 |   |
| **Cash  and cash equivalents, end of period**                                  | ** ** | **$**                                   | **8,891**  | ** ** | **$** | **11,639** | ** ** | **$** | **5,431** | ** ** |
|                                                                                |            |                                         |            |  |  |  |  |  |  |  |  |  |

 

*The accompanying notes are an integral part of the unauditedcondensed consolidated financial statements.*

 

3

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**Notes to Condensed Consolidated FinancialStatements (Unaudited)**

***Jostens Holding Corp. and Subsidiaries***

 

**1.****              SignificantAccounting Policies**

 

***Basisof Presentation***

*** ***

The accompanyingunaudited condensed consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesfor interim financial information and with the instructions to Form 10-Q andRule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotesrequired by accounting principles generally accepted in the United States forcomplete financial statements.  In theopinion of management, all adjustments (consisting of normal recurringadjustments) considered necessary for a fair presentation have beenincluded.  Operating results for theinterim periods presented are not necessarily indicative of the results thatmay be expected for the full year.  Forfurther information, refer to the consolidated financial statements andfootnotes included in our Form 10-K for the fiscal year ended January 3, 2004.

 

The preparation of ourfinancial statements in conformity with accounting principles generally acceptedin the United States requires us to make estimates and assumptions that affectthe amounts reported in the financial statements and accompanying notes.  Actual results could differ from thoseestimates.

 

The accompanyingunaudited condensed consolidated financial statements, after the elimination ofintercompany accounts and transactions, include the accounts of Jostens HoldingCorp. (“JHC”) and our wholly-owned subsidiary, Jostens IH Corp. (“JIHC”), andits wholly-owned subsidiary, Jostens, Inc. (“Jostens”), as of and for thethree- and nine-month periods ended October 2, 2004 and the period from July30, 2003 to September 27, 2003 (successor periods).  The accounts for the periods from June 29,2003 to July 29, 2003 and from December 29, 2002 to July 29, 2003 (predecessorperiods) relate to Jostens and its wholly-owned subsidiaries.  Our unaudited condensed consolidatedfinancial statements for the predecessor periods were prepared using thehistorical basis of accounting for Jostens. As a result of the 2003 merger transaction as discussed in Note 2, weapplied purchase accounting, and a new basis of accounting began on July 29,2003.  Accordingly, the results ofoperations for periods prior to the merger may not be comparable to periodsafter the merger.  JHC and JIHC had nooperating activities until the acquisition of Jostens.

 

Certain amounts in ourprior period financial statements and notes have been reclassified to conformto the current period presentation.

 

***Stock-Based Compensation***

 

We apply the intrinsic 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, no compensation cost has beenreflected in net income for these plans since all options are granted withexercise prices at or above fair value of the underlying stock on the date ofgrant.  The following table illustrates theeffect on net (loss) income if we had applied the fair value recognitionprovisions of Statement of Financial Accounting Standards (SFAS) 123, *“Accounting for Stock-Based Compensation”.*

 
| ** **                                                                                                                           | ** ** | **For the periods**                     | ** **  |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|-------------|
| ** **                                                                                                                           | ** ** | **Successor**                           | ** **  | **Predecessor** | ** ** |
| **In thousands**                                                                                                                     | ** ** | **Three months ended  October 2, 2004** | ** **  | **July 30, 2003 -  September 27, 2003** | ** ** | **June 29, 2003 -  July 29, 2003** | ** ** |
| **Net  loss available to common shareholders**                                                                                       |       |                                    |        |   |   |   |   |
| As reported                                                                                                                          |       | $                                       | (40,176     | ) | $ | (29,939 | ) | $ | (37,469 | ) |
| Add stock-based  employee compensation expense included in reported net loss 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 |       | (152                                    | )           | — |   | (1,872 | ) |
| Pro forma net  loss available to common shareholders                                                                                 | ** ** | **$**                                   | **(40,328** | **)** | **$** | **(29,939** | **)** | **$** | **(31,733** | **)** |

 

4

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** **

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited)**

***Jostens Holding Corp. and Subsidiaries***

 
| ** **                                                                                                                           | ** ** | **For the periods**                    | ** **  |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|-------------|
| ** **                                                                                                                           | ** ** | **Successor**                          | ** **  | **Predecessor** | ** ** |
| **In thousands**                                                                                                                     | ** ** | **Nine months ended  October 2, 2004** | ** **  | **July 30, 2003 -  September 27, 2003** | ** ** | **December 29, 2002 -  July 29, 2003** | ** ** |
| **Net  (loss) income available to common shareholders**                                                                              |       |                                   |        |   |   |   |   |
| As reported                                                                                                                          |       | $                                      | (27,833     | ) | $ | (29,939 | ) | $ | 1,115 |   |
| 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 |       | (456                                   | )           | — |   | (2,185 | ) |
| Pro forma net  (loss) income available to common shareholders                                                                        | ** ** | **$**                                  | **(28,289** | **)** | **$** | **(29,939** | **)** | **$** | **6,538** | ** ** |

 

***New Accounting Standards***

 

***FSP 106-2 –Accounting and Disclosure Requirements Related to the Medicare PrescriptionDrug Improvement and Modernization Act of 2003***

 

InMay 2004, the Financial Accounting Standards Board (FASB) issued Staff Position(FSP) 106-2, which was effective as of the first quarter beginning after June15, 2004.  The Medicare Prescription DrugImprovement and Modernization Act of 2003 (“the Act”) includes a prescriptiondrug benefit under Medicare Part D as well as a federal subsidy to sponsors ofretiree heath care benefit plans that provide a benefit that is at leastactuarially equivalent (as defined in the Act) to Medicare Part D.  The adoption of FSP 106-2 has not had amaterial effect on our financial condition or results of operations.

 

**2.****              2003 Merger**

 

On June 17, 2003, weentered into a merger agreement with Jostens and Ring Acquisition Corp., anentity organized by us for the sole purpose of effecting an acquisition ofJostens.  On July 29, 2003, RingAcquisition Corp. merged with and into Jostens with Jostens surviving as anindirect subsidiary of JHC, which we refer to as the 2003 merger.

 

JHC was capitalized inJuly 2003 through the issuance of common stock to DLJ Merchant Banking PartnersIII, L.P. and certain of its affiliated funds (collectively, the “DLJMB Funds”)and members of our management, and received proceeds of $322.9 million.  JHC, in turn, established a wholly-ownedsubsidiary, JIHC, and capitalized it through the purchase of common stock for$317.9 million.  JIHC used the $317.9million, along with $100.0 million of proceeds from the issuance of redeemablepreferred stock to the DLJMB Funds, to make a capital contribution of $417.9million to Jostens.  Jostens, in turn,used the proceeds from the capital contribution along with incrementalborrowings under its senior secured credit facility to repurchase allpreviously outstanding common stock and warrants.  Jostens paid $471.0 million to holders of itscommon stock and warrants representing a cash payment of $48.25 per share.

 

We accounted for the 2003merger as a purchase in accordance with the provisions of SFAS 141, “*Business Combinations*”.  The price paid to holders of common stock andwarrants of $471.0 million, excluding certain capitalized transaction costs,was allocated to the tangible and intangible assets acquired and liabilitiesassumed, based upon their relative fair values as of the date of the merger.

 

5

----

** **

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited)**

***Jostens Holding Corp. and Subsidiaries***

 

Our allocation of thepurchase price was as follows:

 
| **In thousands**            | ** ** | ** ** | ** **  |
|-----------------------------|------------|------------|-------------|
| Current assets              |       | $          | 165,280     |   |
| Property and  equipment     |       | 101,389    |        |
| Intangible  assets          |       | 660,399    |        |
| Goodwill                    |       | 709,724    |        |
| Other assets                |       | 18,622     |        |
| Current  liabilities        |       | (202,635   | )           |
| Long-term debt              |       | (594,494   | )           |
| Redeemable  preferred stock |       | (106,511   | )           |
| Deferred income  taxes      |       | (252,209   | )           |
| Other liabilities           |       | (28,521    | )           |
| ** **                  | ** ** | **$**      | **471,044** | ** ** |

 

**3.****              Comprehensive (Loss)Income**

 

Comprehensive (loss) income and its components, netof tax, are presented below:

 
| ** **                                            | ** ** | **For the periods**    | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|
| ** **                                            | ** ** | **Successor**          | ** ** | **Predecessor** | ** ** |
| ** **                                            | ** ** | **Three months ended** | ** ** | **July 30, 2003 -** | ** ** | **June 29, 2003 -** | ** ** |
| **In thousands**                                      | ** ** | **October 2, 2004**    | ** ** | **September 27, 2003** | ** ** | **July 29, 2003** | ** ** |
| Net loss                                              |       | $                      | (40,176    | ) | $ | (29,939 | ) | $ | (37,469 | ) |
| Change in  cumulative translation adjustment          |       | (80                    | )          | (64 | ) | (103 | ) |
| Change in fair  value of foreign currency hedge       |       | 3                      |       | — |   | — |   |
| Change in fair value  of interest rate swap agreement |       | —                 |       | — |   | 692 |   |
| Comprehensive  loss                                   |       | $                      | (40,253    | ) | $ | (30,003 | ) | $ | (36,880 | ) |
|                                                  |       |                   |       |   |   |   |   |
| ** **                                            | ** ** | **For the periods**    | ** ** |
| ** **                                            | ** ** | **Successor**          | ** ** | **Predecessor** | ** ** |
| ** **                                            | ** ** | **Nine months ended**  | ** ** | **July 30, 2003 -** | ** ** | **December 29, 2002 -** | ** ** |
| **In thousands**                                      | ** ** | **October 2, 2004**    | ** ** | **September 27, 2003** | ** ** | **July 29, 2003** | ** ** |
| Net (loss)  income                                    |       | $                      | (27,833    | ) | $ | (29,939 | ) | $ | 7,640 |   |
| Change in  cumulative translation adjustment          |       | (28                    | )          | (64 | ) | (278 | ) |
| Change in fair  value of foreign currency hedge       |       | 95                     |       | — |   | — |   |
| Change in fair  value of interest rate swap agreement |       | —                 |       | — |   | 1,293 |   |
| Comprehensive  (loss) income                          |       | $                      | (27,766    | ) | $ | (30,003 | ) | $ | 8,655 |   |

 

6

----

** **

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited)**

***Jostens Holding Corp. and Subsidiaries***

 

**4.****              Accounts Receivableand Inventories**

 

Net accounts receivablewere comprised of the following:

 
| ** **                       | ** ** | **Successor**       | ** ** |
|----------------------------------|------------|---------------------|------------|
| **In thousands**                 | ** ** | **October 2, 2004** | ** ** | **January 3, 2004** | ** ** | **September 27, 2003** | ** ** |
| Trade  receivables               |       | $                   | 56,943     |   | $ | 64,993 |   | $ | 55,673 |   |
| Allowance for  doubtful accounts |       | (2,432              | )          | (2,184 | ) | (3,023 | ) |
| Allowance for  sales returns     |       | (4,888              | )          | (5,791 | ) | (3,787 | ) |
| Accounts  receivable, net        |       | $                   | 49,623     |   | $ | 57,018 |   | $ | 48,863 |   |

 

Net inventories werecomprised of the following:

 
| ** **                 | ** ** | **Successor**       | ** ** |
|----------------------------|------------|---------------------|------------|
| **In thousands**           | ** ** | **October 2, 2004** | ** ** | **January 3, 2004** | ** ** | **September 27, 2003** | ** ** |
| Raw material and  supplies |       | $                   | 15,364     |   | $ | 11,416 |   | $ | 15,026 |   |
| Work-in-process            |       | 17,362              |       | 28,084 |   | 22,734 |   |
| Finished goods             |       | 33,229              |       | 34,713 |   | 34,716 |   |
| Reserve for  obsolescence  |       | (1,987              | )          | (1,690 | ) | (2,156 | ) |
| Inventories, net           |       | $                   | 63,968     |   | $ | 72,523 |   | $ | 70,320 |   |

 

**5.****             ****Goodwill and Other Intangible Assets**

 

The changes in the net carrying amount of goodwillwere as follows:

 
| ** **                           | ** ** | **For the periods**                     | ** **  |
|--------------------------------------|------------|-----------------------------------------|-------------|
| ** **                           | ** ** | **Successor**                           | ** **  | **Predecessor** | ** ** |
| **In thousands**                     | ** ** | **Nine months ended   October 2, 2004** | ** **  | **July 30, 2003 -  September 27, 2003** | ** ** | **December 29, 2002 -  July 29, 2003** | ** ** |
| Balance at  beginning of period      |       | $                                       | 746,025     |   | $ | 679,231 |   | $ | 14,450 |   |
| Goodwill  acquired during the period |       | 32                                      |        | 10,937 |   | 667,945 |   |
| Purchase price  adjustments          |       | (17,909                                 | )           | — |   | (3,277 | ) |
| Currency  translation                |       | 30                                      |        | 29 |   | 113 |   |
| Balance at end  of period            | ** ** | **$**                                   | **728,178** | ** ** | **$** | **690,197** | ** ** | **$** | **679,231** | ** ** |

 

Duringthe nine months ended October 2, 2004, we recorded purchase price adjustmentsthrough goodwill to reduce the fair value of our redeemable preferred stock andour property and equipment in the amounts of $20.0 million and $0.6 million,respectively, and established a $2.9 million purchase accounting liability, aswell as its deferred tax impact, related to the closure of our manufacturingfacility located in Red Wing, Minnesota.

 

7

----

** **

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited)**

***Jostens Holding Corp. and Subsidiaries***

 

The following table presents the gross carryingamount and accumulated amortization for each major class of other intangibleassets as of the dates indicated:

 
| ** **                      | ** ** | **Successor**               | ** ** |
|---------------------------------|------------|-----------------------------|------------|
| ** **                      | ** ** | **October 2, 2004**         | ** ** |
| **In thousands**                | ** ** | **Estimated   Useful Life** | ** ** | **Gross   Carrying   Amount** | ** ** | **Accumulated   Amortization** | ** ** | **Net** | ** ** |
| School  relationships           |       | 10 years                    |       | $ | 330,000 |   | $ | (39,195 | ) | $ | 290,805 |   |
| Order backlog                   |       | 1.5 years                   |       | 48,700 |   | (44,910 | ) | 3,790 |   |
| Internally  developed software  |       | 2 to 5 years                |       | 12,200 |   | (4,051 | ) | 8,149 |   |
| Patented/unpatented  technology |       | 3 years                     |       | 11,000 |   | (4,344 | ) | 6,656 |   |
| Customer  relationships         |       | 4 to 8 years                |       | 8,666 |   | (2,181 | ) | 6,485 |   |
| Other                           |       | 3 years                     |       | 24 |   | (18 | ) | 6 |   |
|                            |       |                        |       | 410,590 |   | (94,699 | ) | 315,891 |   |
| Trademarks                      |       | Indefinite                  |       | 255,000 |   | — |   | 255,000 |   |
| ** **                      | ** ** | ** **                  | ** ** | **$** | **665,590** | ** ** | **$** | **(94,699** | **)** | **$** | **570,891** | ** ** |
| ** **                      | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                      | ** ** | **Successor**               | ** ** |
| ** **                      | ** ** | **September 27, 2003**      | ** ** |
| **In thousands**                | ** ** | **Estimated   Useful Life** | ** ** | **Gross   Carrying   Amount** | ** ** | **Accumulated   Amortization** | ** ** | **Net** | ** ** |
| School  relationships           |       | 10 years                    |       | $ | 330,000 |   | $ | (5,712 | ) | $ | 324,288 |   |
| Order backlog                   |       | 1.5 years                   |       | 52,500 |   | (2,010 | ) | 50,490 |   |
| Internally  developed software  |       | 2 to 5 years                |       | 12,200 |   | (449 | ) | 11,751 |   |
| Patented/unpatented  technology |       | 3 years                     |       | 11,000 |   | (635 | ) | 10,365 |   |
| Customer  relationships         |       | 4 to 8 years                |       | 4,146 |   | (785 | ) | 3,361 |   |
| Other                           |       | 3 years                     |       | 24 |   | (10 | ) | 14 |   |
|                            |       |                        |       | 409,870 |   | (9,601 | ) | 400,269 |   |
| Trademarks                      |       | Indefinite                  |       | 255,000 |   | — |   | 255,000 |   |
| ** **                      | ** ** | ** **                  | ** ** | **$** | **664,870** | ** ** | **$** | **(9,601** | **)** | **$** | **655,269** | ** ** |

 

Amortization expense related to other intangibleassets was $18.6 million and $73.8 million for the three and nine months endedOctober 2, 2004.  Amortization expensewas $8.9 million for the successor period from July 30, 2003 to September 27,2003 and $0.6 million for the predecessor period from December 29, 2002 to July29, 2003.

 

8

----

** **

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited)**

***Jostens Holding Corp. and Subsidiaries***

 

**6.****              Long-Term Debt**

 

Long-termdebt consists of the following:

 
| ** **                                                                                                                                                                                                                                                                                                                 | ** ** | **Successor**       | ** **  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|-------------|
| **In thousands**                                                                                                                                                                                                                                                                                                           | ** ** | **October 2, 2004** | ** **  | **January 3, 2004** | ** ** | **September 27, 2003** | ** ** |
| Borrowings under  senior secured credit facility:                                                                                                                                                                                                                                                                          |       |                |        |   |   |   |   |
| Term Loan, variable  rate, 6.25 percent at October 2, 2004, 3.72 percent at January 3, 2004 and  3.61 percent at September 27, 2003, with semi-annual principal and interest  payments through July 2010                                                                                                                   |       | $                   | 412,705     |   | $ | 453,705 |   | $ | 478,705 |   |
| Senior  subordinated notes, 12.75 percent fixed rate, including premium of $20,217 at  October 2, 2004, $22,717 at January 3, 2004 and $23,462 at September 27,  2003, with semi-annual interest payments of $13.3 million, principal due and  payable at maturity - May 2010                                              |       | 224,202             |        | 231,702 |   | 237,447 |   |
| Senior discount  notes, 10.25 percent fixed rate, net of discount of $84,126 at October 2,  2004 and $95,914 at January 3, 2004, with semi-annual interest accretion  through December 1, 2008, thereafter semi-annual interest payments of $12.7  million, accreted principal due and payable at maturity - December 2013 |       | 163,074             |        | 151,286 |   | — |   |
| Promissory note,  4.19 percent at October 2, 2004, with monthly principal and interest payments  through maturity - March 2009                                                                                                                                                                                             |       | 3,884               |        | — |   | — |   |
|                                                                                                                                                                                                                                                                                                                       |       | 803,865             |        | 836,693 |   | 716,152 |   |
| Less current  portion                                                                                                                                                                                                                                                                                                      |       | 150                 |        | — |   | 11,968 |   |
| ** **                                                                                                                                                                                                                                                                                                                 | ** ** | **$**               | **803,715** | ** ** | **$** | **836,693** | ** ** | **$** | **704,184** | ** ** |

 

As of October 2, 2004,there was $77.1 million outstanding in the form of short-term borrowings,including $15.2 million at our Canadian subsidiary, at a weighted averageinterest rate of 6.1% and an additional $10.8 million outstanding in the formof letters of credit, leaving $62.1 million available under our revolvingcredit facility.

 

As of October 2, 2004,the fair value of the senior subordinated notes and the senior discount noteswas $228.3 million and $170.0 million, respectively, based on quoted marketprices.  The fair value of borrowingsunder the senior secured credit agreement approximated its carrying value.

 

In conjunction with theTransactions as explained in Note 13 – Subsequent Event, borrowings under oursenior secured credit facility and senior subordinated notes were paid in full.

 

**7.****              Redeemable PreferredStock**

 

On June 29, 2003, weadopted SFAS 150, *“Accounting for CertainFinancial Instruments with Characteristics of both Liabilities and Equity”.*  In accordance with SFAS 150, we reclassifiedJostens’ redeemable preferred stock to the liabilities section of our condensedconsolidated balance sheet and began reporting the preferred dividend as interestexpense in our results of operations rather than as a reduction to retainedearnings.  We also recognized $4.6million cumulative effect of a change in accounting principle.  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.  Had SFAS 150 been effective since thebeginning of 2003, net income available to common shareholders for thepredecessor period December 29, 2002 to July 29, 2003 would have increased $1.0million due to the pro forma effects of eliminating  $6.5 million of dividends and accretiondeducted from net earnings and including $5.5 million of additional interestexpense.

 

During the first quarterof 2004, we refined our estimate of the fair value of Jostens’ redeemablepreferred stock as of the merger date from $130.0 million to $110.0million.  The aggregate liquidation preference of the redeemable preferred stock asof October 2, 2004, January 3, 2004 and September 27, 2003 was $109.8 million,$99.1 million

 

9

----

** **

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited)**

***Jostens Holding Corp. and Subsidiaries***

 

and $95.7 million, respectively, includingaccrued dividends.  Jostens has 4,000,000shares of preferred stock, $.01 par value, authorized.  There were 106,107,  96,793 and 93,520 shares of redeemablepreferred stock outstanding as of October 2, 2004, January 3, 2004 andSeptember 27, 2003, respectively.

 

In conjunction with theTransactions as explained in Note 13 – Subsequent Event, all outstanding sharesof our redeemable preferred stock, together with accrued dividends, wereredeemed in full.

 

**8.****              Derivative FinancialInstruments and Hedging Activities**

 

Weuse forward foreign currency exchange contracts to hedge the impact of currencyfluctuations primarily on inventory purchases denominated in euros.  The effective portion of the change in fairvalue for these contracts, which have been designated as a cash flow hedge, isreported in “accumulated other comprehensive income” (AOCI) and reclassifiedinto earnings in the same financial statement line item and in the same periodor periods during which the hedged transaction affects earnings.  Any ineffective portion of the change in fairvalue of these instruments is immediately recognized in earnings.  The amount of contracts outstanding atOctober 2, 2004 was $2.2 million.  Therewere no forward foreign currency exchange contracts outstanding at January 3,2004 or September 27, 2003.  Thesecontracts will mature over the remainder of the current fiscal year, the periodin which all amounts included in AOCI will be reclassified into earnings.

 

**9.****              Commitments**

 

Weare subject to market risk associated with changes in the price of preciousmetal.  To mitigate our commodity pricerisk, we enter into forward contracts to purchase gold, platinum and silverbased upon the estimated ounces needed to satisfy projected customerdemand.  Our purchase commitment atOctober 2, 2004 was $6.1 million with delivery dates occurring throughout2004.  These forward purchase contractsare considered normal purchases and therefore subject to a scope exclusion ofthe requirements of SFAS 133, *“Accountingfor Derivative Instruments and Hedging Activities”. *The fair market value of our openprecious metal forward contracts as of October 2, 2004 was $6.4 million and wascalculated by valuing each contract at quoted futures prices.

 

**10.****       Income Taxes**

 

Consistent with the provisionsof APB 28, *“Interim Financial Reporting”,*we have provided an income tax provision based on our best estimate of theconsolidated effective tax rate applicable for the entire year.  Our estimate did not take into account theimpact of the Transactions as explained in Note 13 – Subsequent Event, whichclosed in the fourth quarter, because the impact is not presentlyestimable.  Based on those estimates, weprovided an income tax provision at a consolidated effective rate of 24% forthe nine months ended October 2, 2004. We review our tax rate estimates on a quarterly basis and make revisionsas necessary.

 

Our consolidatedeffective tax rate is less than the federal statutory rate because weanticipate a loss for the entire year and the rate of tax benefit on that lossis negatively impacted by the effect of nondeductible interest expenseassociated with the redeemable preferred stock of Jostens.  In addition, the rate of tax benefit recordedfor the amortization of purchase accounting adjustments is based on the changein deferred tax liability balances attributable to net taxable temporarydifferences recorded in connection with the purchase price allocation of the2003 merger transaction.

 

10

----

** **

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited)**

***Jostens Holding Corp. and Subsidiaries***

 

**11.****       Pension and OtherPostretirement Benefit Plans**

 

Net periodic benefit cost for our pension plans is presented below:

 
| ** **                               | ** ** | **For the periods**                     | ** ** |
|------------------------------------------|------------|-----------------------------------------|------------|
| ** **                               | ** ** | **Successor**                           | ** ** | **Predecessor** | ** ** |
| **In thousands**                         | ** ** | **Three months ended  October 2, 2004** | ** ** | **July 30, 2003 -  September 27, 2003** | ** ** | **June 29, 2003 -  July 29, 2003** | ** ** |
| Service cost                             |       | $                                       | 1,618      |   | $ | 393 |   | $ | 1,938 |   |
| Interest cost                            |       | 3,068                                   |       | 844 |   | 4,070 |   |
| Expected return  on plan assets          |       | (4,497                                  | )          | (1,180 | ) | (6,789 | ) |
| Amortization of  prior year service cost |       | —                                  |       | — |   | 619 |   |
| Amortization of  transition amount       |       | —                                  |       | — |   | (184 | ) |
| Amortization of  net actuarial loss      |       | —                                  |       | — |   | 175 |   |
| Net periodic  benefit expense (income)   | ** ** | **$**                                   | **189**    | ** ** | **$** | **57** | ** ** | **$** | **(171** | **)** |
|                                     |       |                                    |       |   |   |   |   |
| ** **                               | ** ** | **For the periods**                     | ** ** |
| ** **                               | ** ** | **Successor**                           | ** ** | **Predecessor** | ** ** |
| **In thousands**                         | ** ** | **Nine months ended  October 2, 2004**  | ** ** | **July 30, 2003 -  September 27, 2003** | ** ** | **December 29, 2002 -  July 29, 2003** | ** ** |
| Service cost                             |       | $                                       | 4,854      |   | $ | 393 |   | $ | 4,846 |   |
| Interest cost                            |       | 9,204                                   |       | 844 |   | 10,176 |   |
| Expected return  on plan assets          |       | (13,491                                 | )          | (1,180 | ) | (16,973 | ) |
| Amortization of  prior year service cost |       | —                                  |       | — |   | 1,548 |   |
| Amortization of  transition amount       |       | —                                  |       | — |   | (461 | ) |
| Amortization of  net actuarial loss      |       | —                                  |       | — |   | 439 |   |
| Net periodic  benefit expense (income)   | ** ** | **$**                                   | **567**    | ** ** | **$** | **57** | ** ** | **$** | **(425** | **)** |

 

Net periodic benefit cost for our other postretirement benefit plans ispresented below:

 
| ** **                               | ** ** | **For the periods**                     | ** ** |
|------------------------------------------|------------|-----------------------------------------|------------|
| ** **                               | ** ** | **Successor**                           | ** ** | **Predecessor** | ** ** |
| **In thousands**                         | ** ** | **Three months ended  October 2, 2004** | ** ** | **July 30, 2003 -  September 27, 2003** | ** ** | **June 29, 2003 -  July 29, 2003** | ** ** |
| Service cost                             |       | $                                       | 10         |   | $ | 2 |   | $ | 19 |   |
| Interest cost                            |       | 78                                      |       | 24 |   | 117 |   |
| Amortization of  prior year service cost |       | —                                  |       | — |   | (5 | ) |
| Amortization of  net actuarial loss      |       | —                                  |       | — |   | 70 |   |
| Net periodic  benefit expense            | ** ** | **$**                                   | **88**     | ** ** | **$** | **26** | ** ** | **$** | **201** | ** ** |
|                                     |       |                                    |       |   |   |   |   |
| ** **                               | ** ** | **For the periods**                     | ** ** |
| ** **                               | ** ** | **Successor**                           | ** ** | **Predecessor** | ** ** |
| **In thousands**                         | ** ** | **Nine months ended  October 2, 2004**  | ** ** | **July 30, 2003 -  September 27, 2003** | ** ** | **December 29, 2002 -  July 29, 2003** | ** ** |
| Service cost                             |       | $                                       | 30         |   | $ | 2 |   | $ | 65 |   |
| Interest cost                            |       | 264                                     |       | 24 |   | 388 |   |
| Amortization of  prior year service cost |       | —                                  |       | — |   | (16 | ) |
| Amortization of  net actuarial loss      |       | —                                  |       | — |   | 232 |   |
| Net periodic  benefit expense            | ** ** | **$**                                   | **294**    | ** ** | **$** | **26** | ** ** | **$** | **669** | ** ** |

 

11

----

** **

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited)**

***Jostens Holding Corp. and Subsidiaries***

 

**12.****       Discontinued Operations**

 

In conjunction with exiting our Recognition business in December 2001,we recorded a $27.4 million pre-tax loss on disposal for discontinuedoperations.  The pre-tax loss on disposalconsisted of a non-cash charge of $11.1 million to write off certain net assetsof the Recognition business plus a $16.3 million charge for accrued costsrelated to exiting the Recognition business. Components of the accrued exit costs are as follows:

 
| **In thousands**                                         | ** ** | **Initial** | ** **  | **Prior**  | ** **      | **Net**    | ** ** | **Utilization** | ** ** | **Balance** | ** **          |
|----------------------------------------------------------|------------|-------------|-------------|------------|-----------------|------------|------------|-----------------|------------|-------------|---------------------|
| ** **                                               | **charge** | ** **  | **accrual** | ** ** | **adjustments** | ** ** | **Prior**  | ** **      | **2004**   | ** **  | **October 2, 2004** | ** ** |
| Employee  separation benefits and other related costs    |       | $           | 6,164       |       | $               | —     |       | $               | (442       | )           | $                   | (5,265 | ) | $ | (66 | ) | $ | 391 |   |
| Phase-out costs  of exiting the Recognition business     |       | 4,255       |        | —     |            | (1,203     | )          | (2,670          | )          | 37          |                | 419 |   |
| Salesperson  transition benefits                         |       | 2,855       |        | 1,236      |            | (191       | )          | (1,707          | )          | (226        | )                   | 1,967 |   |
| Other costs  related to exiting the Recognition business |       | 3,018       |        | 1,434      |            | (228       | )          | (4,224          | )          | —      |                | — |   |
| ** **                                               | ** ** | **$**       | **16,292**  | ** ** | **$**           | **2,670**  | ** ** | **$**           | **(2,064** | **)**       | **$**               | **(13,866** | **)** | **$** | **(255** | **)** | **$** | **2,777** | ** ** |

 

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 contractual obligation.

 

**13.****       Subsequent Event**

 

On October 4, 2004, weconsummated the transactions (the “Transactions”) contemplated by theContribution Agreement dated July 21, 2004 (the “Contribution Agreement”),between us and Fusion Acquisition LLC (“Fusion”), an entity affiliated withKohlberg Kravis & Roberts Co. L.P. (“KKR”), pursuant to which Fusioncontributed to JHC all of the capital stock of each of Von Hoffmann HoldingsInc. (“Von Hoffmann”) and AHC I Acquisition Corp. (“Arcade”), which capitalstock Fusion acquired immediately prior to such contribution pursuant to twoseparate mergers involving an aggregate investment by Fusion of $256.0million.  We issued an aggregate of2,664,356 shares of Class A Common Stock and one share of Class C Common Stockto Fusion in exchange for the stock of Von Hoffmann and Arcade.  Subsequent to the contribution, we caused allof the stock of Von Hoffmann and Arcade held by us to be contributed to ourdirect subsidiary, Jostens Secondary Holdings Corp., and from Jostens SecondaryHoldings Corp., it was contributed to its direct subsidiary, JIHC.

 

Prior to the Transactions,Von Hoffmann and Arcade were each controlled by affiliates of DLJ MerchantBanking Partners II, L.P., and the DLJMB Funds, who collectively ownedapproximately 82.5% of our outstanding equity, with the remainder held by otherco-investors and certain members of management. Upon the consummation of the Transactions, affiliates of KKR were issuedequity interest representing approximately 49.6% of our voting interest and 45%of our economic interest, and affiliates of DLJ Merchant Banking Partners III,L.P. hold equity interest representing approximately 41% of our voting interestand 45% of our economic interest, with the remainder held by other co-investorsand certain members of management.

 

In connection with theTransactions, JIHC incurred approximately $1.6 billion of new indebtedness,which was used, among other things, to repurchase, repay and redeem certainoutstanding indebtedness of Jostens, Inc., Von Hoffmann Corporation, VonHoffmann, Arcade and AKI, Inc., including our senior secured credit facility,senior subordinated notes and the redeemable preferred stock of Jostens.  Specifically, we concluded tender offers torepurchase any and all of the outstanding 12 3/4% Senior Subordinated Notes Due2010 of Jostens, Inc., 10 1/4% Senior Notes Due 2009 and 10 3/8% SeniorSubordinated Notes Due 2007 of Von Hoffmann Corporation, 13 1/2% SubordinatedExchange Debentures Due 2009 of Von Hoffmann and 10 1/2% Senior Notes Due 2008of AKI, Inc. and received the requisite consents of the holders of those notesto amend the respective indentures governing the notes to eliminatesubstantially all of the restrictive covenants and effect certain otheramendments to the indentures.  Inaccordance with the Contribution Agreement, we discharged the indenturesgoverning the 12 3/4% Senior Subordinated Notes Due 2010 of Jostens, Inc. andthe 10 1/4% Senior Notes Due 2009 of Von Hoffmann Corporation and redeemed allother notes 

 

12

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** **

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited)**

***Jostens Holding Corp. and Subsidiaries***

 

not tendered inconnection with the tender offers.  Inaddition, in connection with the Transactions, Jostens, Inc.’s 14% SeniorRedeemable Payment-in-Kind Preferred Stock was redeemed.

 

13

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**ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

** **

*The following discussion addresses the results of operationsfor Jostens, Inc. for the period from June 29, 2003 to July 29, 2003 and forthe period December 29, 2002 to July 29, 2003 and the combined results ofoperations for Jostens, Inc. and Jostens Holding Corp. for the period from July30, 2003 to September 27, 2003 and for the three- and nine-month periods endedOctober 2, 2004.  Jostens Holding Corp.is a holding company and has no significant business operations.*

 

**GENERAL**

 

Jostens Holding Corp. and its subsidiaries (“we,” “our,” “us,” “JHC” or “theCompany”) is a leading provider of school-related affinity products andservices in three major product categories: yearbooks, class rings andgraduation products, which includes diplomas, graduation regalia such as capsand gowns, accessories and fine paper announcements.  We also are a leading provider of schoolphotography products and services in Canada and have a small but growingpresence in the United States.

 

On October 4, 2004, wecompleted a series of transactions (the “Transactions”), pursuant to which AHCI Acquisition Corp. (“Arcade”) and Von Hoffmann Holdings Inc. (“Von Hoffmann”)became our indirect, wholly-owned subsidiaries. As a result of these transactions, affiliates of Kohlberg Kravis Roberts& Co. L.P. own approximately 49.6% of our voting interest and 45% of oureconomic interest, and affiliates of DLJ Merchant Banking Partners III, L.P. (“DLJMBPIII”) own approximately 41% of our voting interest and 45% of our economicinterest, with the remainder held by other co-investors and certain members ofmanagement.

 

In connection with theTransactions, JIHC incurred approximately $1.6 billion of new indebtedness,which was used, among other things, to repurchase, repay and redeem certainoutstanding indebtedness of Jostens, Inc., Von Hoffmann Corporation, VonHoffmann, Arcade and AKI, Inc., including our senior secured credit facility,senior subordinated notes and the redeemable preferred stock of Jostens.  Specifically, we concluded tender offers torepurchase any and all of the outstanding 12 3/4% Senior Subordinated Notes Due2010 of Jostens, Inc., 10 1/4% Senior Notes Due 2009 and 10 3/8% SeniorSubordinated Notes Due 2007 of Von Hoffmann Corporation, 13 1/2% SubordinatedExchange Debentures Due 2009 of Von Hoffmann and 10 1/2% Senior Notes Due 2008of AKI, Inc. and received the requisite consents of the holders of those notesto amend the respective indentures governing the notes to eliminatesubstantially all of the restrictive covenants and effect certain otheramendments to the indentures.  Inaccordance with the Contribution Agreement dated July 21, 2004, we dischargedthe indentures governing the 12 3/4% Senior Subordinated Notes Due 2010 ofJostens, Inc. and the 10 1/4% Senior Notes Due 2009 of Von Hoffmann Corporationand redeemed all other notes not tendered in connection with the tenderoffers.  In addition, in connection withthe Transactions, Jostens, Inc.’s 14% Senior Redeemable Payment-in-KindPreferred Stock was redeemed.  Theresults of the Transactions are not reflected in this discussion.

 

In July 2003, JHCentered into a merger agreement pursuant to which it was capitalized throughthe issuance of common stock to DLJMBP III and certain of its affiliated funds(collectively, the “DLJMB Funds”) and members of our management, and receivedproceeds of $322.9 million (the “2003 merger”). JHC, in turn, capitalized Jostens IH Corp. (“JIHC”), its wholly-ownedsubsidiary, through the purchase of common stock for $317.9 million.  JIHC used the $317.9 million, along with$100.0 million of proceeds from the issuance of redeemable preferred stockto  the DLJMBP Funds, to make a capitalcontribution of $417.9 million to Jostens, Inc. Jostens, Inc., in turn, used the proceeds from the capital contributionalong with incremental borrowings under its senior secured credit facility torepurchase all previously outstanding common stock and warrants.  Jostens, Inc. paid $471.0 million to holdersof its common stock and warrants representing a cash payment of $48.25 pershare.

 

We accounted for the 2003 merger using the purchase method ofaccounting.  The price paidto holders of common stock and warrants of $471.0 million, excluding certaincapitalized transaction costs, wasallocated to the tangible and intangible assets acquired and liabilitiesassumed, based upon their relative fair values as of the date of the 2003merger.  Accordingly, the results ofoperations for periods prior to the 2003 merger may not be comparable toperiods after the 2003 merger.  As aresult of the 2003 merger, the periods ended July 29, 2003 are predecessorperiods and the periods since July 30, 2003 are successor periods.

 

14

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Our business is affectedby seasonality of sales, buy rates, the prices of its products and services,the maintenance and addition of accounts and trends in consumer purchasingdemands or consumer preferences. We believe that our success in theschool-related affinity products and services industry depends on our abilityto effectively address the degree of seasonality in our industry and the highlyspecific needs of our customers, who require personalized, timely service.

 

**RESULTS OF OPERATIONS**

 

Ourunaudited condensed consolidated financial statements for the predecessorperiods ended July 29, 2003, were prepared using the historical basis ofaccounting for Jostens, Inc.  Although anew basis of accounting began on July 30, 2003, we have presented combinedthree- and nine- month results for 2003 as we believe this presentationfacilitates the comparison of our results with the corresponding periods in2004.

 

**Three Months Ended October 2,2004 Compared to the Three Months Ended September 27, 2003**

 

The following table setsforth selected information from our condensed consolidated statements ofoperations for the three-month period ended October 2, 2004 (successor), theperiod from July 30, 2003 to September 27, 2003 (successor) and the period fromJune 29, 2003 to July 29, 2003 (predecessor). In the text below, amounts and percentages have been rounded and arebased on the financial statement amounts.

 

 
| **Dollars in thousands**                | ** ** | **(Successor)  Three Months  Ended  October 2, 2004** | ** ** | **(Successor)  July 30, 2003 -  September 27, 2003** | ** ** | **(Predecessor)  June 29, 2003 -  July 29, 2003** | ** ** | **(Combined)  Three Months  Ended  September 27, 2003** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
|-----------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------|------------|-------------------|------------|--------------|------------|
| Net sales                               |       | $                                                     | 105,296    |                                                 | $          | 86,163                                            |       | $                                                       | 7,598      |              | $          | 93,761       |       | $ | 11,535 |   | 12.3 | % |
| Cost of products  sold                  |       | 66,357                                                |       | 73,492                                               |       | 6,844                                             |       | 80,336                                                  |       | (13,979           | )          | (17.4        | )%         |
| Gross profit                            |       | 38,939                                                |       | 12,671                                               |       | 754                                               |       | 13,425                                                  |       | 25,514            |       | 190.0        | %          |
| Selling and  administrative expenses    |       | 67,442                                                |       | 46,797                                               |       | 16,383                                            |       | 63,180                                                  |       | 4,262             |       | 6.7          | %          |
| Special charges                         |       | 3,962                                                 |       | —                                               |       | —                                            |       | —                                                  |       | 3,962             |       | NM           |       |
| Transaction costs                       |       | —                                                |       | —                                               |       | 30,960                                            |       | 30,960                                                  |       | (30,960           | )          | NM           |       |
| Operating loss                          |       | (32,465                                               | )          | (34,126                                              | )          | (46,589                                           | )          | (80,715                                                 | )          | 48,250            |       | 59.8         | %          |
| Loss on  redemption of debt             |       | —                                                |       | 99                                                   |       | 13,878                                            |       | 13,977                                                  |       | (13,977           | )          | NM           |       |
| Net interest  expense                   |       | 20,398                                                |       | 11,135                                               |       | 4,971                                             |       | 16,106                                                  |       | 4,292             |       | 26.6         | %          |
| Loss before  income taxes               |       | (52,863                                               | )          | (45,360                                              | )          | (65,438                                           | )          | (110,798                                                | )          | 57,935            |       | 52.3         | %          |
| Benefit from  income taxes              |       | (12,687                                               | )          | (15,421                                              | )          | (23,384                                           | )          | (38,805                                                 | )          | 26,118            |       | 67.3         | %          |
| Loss from  operations                   |       | (40,176                                               | )          | (29,939                                              | )          | (42,054                                           | )          | (71,993                                                 | )          | 31,817            |       | 44.2         | %          |
| Cumulative effect  of accounting change |       | —                                                |       | —                                               |       | 4,585                                             |       | 4,585                                                   |       | (4,585            | )          | NM           |       |
| Net loss                                |       | $                                                     | (40,176    | )                                                    | $          | (29,939                                           | )          | $                                                       | (37,469    | )                 | $          | (67,408      | )          | $ | 27,232 |   | 40.4 | % |

 

----

NM    Not meaningful

 

***NetSales***

 

Net sales increased $11.5million, or 12.3%, to $105.3 million for the three months ended October 2, 2004from $93.8 million for the same prior year period.  The results were favorably impacted by modestprice increases and higher overall sales volume, which was driven primarily bythe timing of deliveries between the third and fourth quarters compared to lastyear.  Specific factors contributing tothe volume fluctuation included:

 

•                  increasedsales volume for class rings and yearbooks due to a shift in order receipts anddeliveries from the fourth quarter to the third quarter coinciding with anincrease in the number of school days in our third quarter compared to the sameprior year period;

 

•                  increasedsales volume for photography due to earlier shoots and package deliveriescompared to last year;

 

•                  increasedsales volume for yearbooks associated with our acquisition of a yearbookbusiness in the latter part of fiscal 2003; and

 

•                  decreasedsales volume due to lower same school buy rates for high school class rings.

 

15

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***GrossProfit***

 

Gross profit increased$25.5 million, or 190.0%, to $38.9 million for the three months ended October2, 2004 from $13.4 million for the same prior year period.  As a percentage of net sales, gross profitmargin increased 22.7 percentage points to 37.0% for the current three-monthperiod from 14.3% for the same period last year.  Excluding costs associated with purchaseaccounting related to the 2003 merger ($10.3 million of amortization anddepreciation expense in 2004 and $31.1 million of inventory costs andamortization expense in 2003), gross profit increased $4.7 million and ourgross profit margin declined 0.7 percentage points.

 

Gross profit in thecurrent period was favorably impacted by the sales fluctuations discussedabove.  Conversely, gross profit marginwas negatively impacted by increased costs for precious raw materials comparedto last year as well as period costs associated with the facility closure andrelocation of our graduation diploma customer service and productionoperations.

 

***Sellingand Administrative Expenses***

 

Selling andadministrative expenses increased $4.3 million, or 6.7%, to $67.4 million forthe three months ended October 2, 2004 from $63.2 million for the same prioryear period.  As a percentage of netsales, selling and administrative expenses decreased 3.4 percentage points to64.0% for the current three-month period from 67.4% for the same period lastyear.  Excluding costs associated withpurchase accounting related to the 2003 merger ($10.4 million of amortizationand depreciation expense in 2004 and $6.8 million of amortization expense in2003), selling and administrative expenses increased $0.7 million, but sellingand administrative expenses as a percentage of net sales declined 5.9percentage points.  The $0.7 millionincrease was primarily due to higher commission expense as a result ofincreased sales offset by lower marketing and information systems expense.

 

***SpecialCharges***

 

During the three months ended October 2, 2004, weincurred special charges totaling $4.0 million for severance and related separationbenefits in connection with the departure of two senior executives.  The remaining liability of $3.0 million isclassified in “other accrued liabilities” in our condensed consolidated balancesheet and consists of amounts that will be paid out over the next three yearsas specified under the separation agreements.

 

***TransactionCosts***

 

During the predecessor period in 2003, we incurred $31.0 million oftransaction costs in connection with the 2003 merger consisting primarily ofinvestment banking fees, legal and accounting fees, compensation expenserelated to stock option payments and a charge to write off prepaid managementfees.

 

***NetInterest Expense***

 

Net interest expenseincreased $4.3 million, or 26.6%, to $20.4 million for the three months endedOctober 2, 2004 as compared to $16.1 million for the same prior yearperiod.  The increase was primarily dueto $4.0 million of additional interest expense on our 10.25% senior discountnotes.

 

***(Benefitfrom) Provision for Income Taxes***

 

The effective rate of taxpresented for results of operations for the 2004 three-month period is based onour estimated consolidated effective rate for the entire year.  The estimated 24% effective rate applied toour results of operations for the 2004 three-month period is less than thefederal statutory rate because we anticipate a loss for the entire year and therate of tax benefit on that loss is negatively impacted by the effect ofnondeductible interest expense associated with the redeemable preferred stockof Jostens, Inc.  The effective rateapplied to our results of operations for the comparable prior year period was35% and was affected by the 2003 merger transaction.

 

The Transactions asexplained above, which closed in the fourth quarter, will have an impact on oureffective rate for the entire year.  Itis not possible at the present time to quantify the specific impact.

 

***Net Loss***

 

As a result of theaforementioned items, net loss decreased $27.2 million, or 40.4%, to $40.2million for the three months ended October 2, 2004 from $67.4 million for thesame prior year period.

 

**Nine Months Ended October 2, 2004Compared to the Nine Months Ended September 27, 2003**

 

The following table setsforth selected information from our condensed consolidated statements ofoperations for the nine-month period ended October 2, 2004 (successor), theperiod from July 30, 2003 to September 27, 2003 (successor) and the period fromDecember 29, 2002 to July 29, 2003 (predecessor).  In the text below, amounts and percentageshave been rounded and are based on the financial statement amounts.

 

16

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| **Dollars in thousands**                   | ** ** | **(Successor)  Nine Months  Ended  October 2, 2004** | ** ** | **(Successor)  July 30, 2003 -  September 27, 2003** | ** ** | **(Predecessor)  December 29, 2002 -  July 29, 2003** | ** ** | **(Combined)  Nine Months  Ended  September 27, 2003** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
|--------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------|------------|--------------|------------|
| Net sales                                  |       | $                                                    | 624,567    |                                                 | $          | 86,163                                                |       | $                                                      | 504,058    |              | $          | 590,221      |       | $ | 34,346 |   | 5.8 | % |
| Cost of products  sold                     |       | 324,004                                              |       | 73,492                                               |       | 218,594                                               |       | 292,086                                                |       | 31,918            |       | 10.9         | %          |
| Gross profit                               |       | 300,563                                              |       | 12,671                                               |       | 285,464                                               |       | 298,135                                                |       | 2,428             |       | 0.8          | %          |
| Selling and  administrative expenses       |       | 272,246                                              |       | 46,797                                               |       | 196,430                                               |       | 243,227                                                |       | 29,019            |       | 11.9         | %          |
| Special charges                            |       | 3,962                                                |       | —                                               |       | —                                                |       | —                                                 |       | 3,962             |       | NM           |       |
| Transaction costs                          |       | —                                               |       | —                                               |       | 30,960                                                |       | 30,960                                                 |       | (30,960           | )          | NM           |       |
| Operating income  (loss)                   |       | 24,355                                               |       | (34,126                                              | )          | 58,074                                                |       | 23,948                                                 |       | 407               |       | 1.7          | %          |
| Loss on  redemption of debt                |       | 420                                                  |       | 99                                                   |       | 13,878                                                |       | 13,977                                                 |       | (13,557           | )          | NM           |       |
| Net interest  expense                      |       | 60,557                                               |       | 11,135                                               |       | 32,446                                                |       | 43,581                                                 |       | 16,976            |       | 39.0         | %          |
| (Loss) income  before income taxes         |       | (36,622                                              | )          | (45,360                                              | )          | 11,750                                                |       | (33,610                                                | )          | (3,012            | )          | (9.0         | )%         |
| (Benefit from)  provision for income taxes |       | (8,789                                               | )          | (15,421                                              | )          | 8,695                                                 |       | (6,726                                                 | )          | (2,063            | )          | (30.7        | )%         |
| (Loss) income  from operations             |       | (27,833                                              | )          | (29,939                                              | )          | 3,055                                                 |       | (26,884                                                | )          | (949              | )          | (3.5         | )%         |
| Cumulative effect  of accounting change    |       | —                                               |       | —                                               |       | 4,585                                                 |       | 4,585                                                  |       | (4,585            | )          | NM           |       |
| Net (loss) income                          |       | $                                                    | (27,833    | )                                                    | $          | (29,939                                               | )          | $                                                      | 7,640      |              | $          | (22,299      | )          | $ | (5,534 | ) | (24.8 | )% |

 

----

NM    Not meaningful

 

***NetSales***

 

Net sales increased $34.3million, or 5.8%, to $624.6 million for the nine months ended October 2, 2004from $590.2 million for the same prior year period.  The results were attributable to higheroverall volume, modest price increases and improved jewelry metal mix back tohistorical levels.  Specific factorscontributing to the volume fluctuation included:

 

•                  increasedsales volume for yearbooks associated with modest net account growth and ouracquisition of a yearbook business in the latter part of fiscal 2003;

 

•                  increasedsales volume for graduation regalia products attributable to net accountgrowth, an increase in sales of accessory items and an increase in collegiateregalia units per school;

 

•                  increasedsales volume for class rings and yearbooks due to a shift in deliveries fromthe fourth quarter to the third quarter coinciding with an increase in thenumber of school days in our third quarter compared to the same prior yearperiod;

 

•                  anincrease in the number of color pages per yearbook;

 

•                  increasedjewelry orders for college rings and professional championship rings;

 

•                  increasedsales volume for photography due to earlier shoots and package deliveriescompared to last year; and

 

•                  decreasedsales volume due to lower same school buy rates for high school class rings.

 

***GrossProfit***

 

Gross profit increased$2.4 million, or 0.8%, to $300.6 million for the nine months ended October 2,2004 from $298.1 million for the same prior year period.  As a percentage of net sales, gross profitmargin decreased 2.4 percentage points to 48.1% for the current nine-monthperiod from 50.5% for the same period last year.  Excluding costs associated with purchaseaccounting related to the 2003 merger ($48.6 million of amortization anddepreciation expense in 2004 and $31.1 million of inventory costs andamortization expense in 2003), gross profit increased $19.9 million resultingin a relatively flat gross profit margin compared to the prior year period.

 

Gross profit in thecurrent period was favorably impacted by the sales fluctuations discussed aboveas well as the absence of prior year costs associated with difficulties weencountered in connection with an ERP system implementation.  In 2003, we incurred additional productioncosts, as well as certain selling and administrative expenses, in order toresolve those difficulties while continuing to provide timely delivery of ourproducts.  Although our efforts minimizedthe impact to our customers, the associated costs negatively impacted ourmargins in the prior year.  We resolvedour production issues related to the ERP system implementation, which favorablyimpacted our gross profit margin in 2004.

 

17

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Conversely, gross profitin the current period was negatively impacted by increased costs for preciousraw materials compared to last year as well as period costs associated with thefacility closure and relocation of our graduation diploma customer service andproduction operations.

 

***Sellingand Administrative Expenses***

 

Selling andadministrative expenses increased $29.0 million, or 11.9%, to $272.2 millionfor the nine months ended October 2, 2004 from $243.2 million for the sameprior year period.  As a percentage ofnet sales, selling and administrative expenses increased 2.4 percentage pointsto 43.6% for the current nine-month period from 41.2% for the same period lastyear.  Excluding costs associated withpurchase accounting related to the 2003 merger ($31.1 million of amortizationand depreciation expense in 2004 and $6.8 million of amortization expense in2003), selling and administrative expenses increased $4.7 million, but sellingand administrative expenses as a percentage of net sales declined 1.5percentage points.

 

The $4.7 million increasewas primarily due to higher commission expense as a result of increased salesand additional investment in customer service. These increases were partially offset by the following:

 

•                  theabsence of prior year costs associated with the difficulties encountered withthe ERP system implementation;

 

•                  theabsence of prior year costs for severance, a legal settlement and acquisitionrelated items; and

 

•                  lowerinformation systems expense due to the timing of costs associated withmaintenance contracts and the elimination of depreciation expense related tofully amortized software.

 

***SpecialCharges***

 

During the nine months ended October 2, 2004, weincurred special charges totaling $4.0 million for severance and relatedseparation benefits in connection with the departure of two seniorexecutives.  The remaining liability of$3.0 million is classified in “other accrued liabilities” in our condensedconsolidated balance sheet and consists of amounts that will be paid out overthe next three years as specified under the separation agreements.

 

***TransactionCosts***

 

During the predecessor period in 2003, we incurred $31.0 million oftransaction costs in connection with the 2003 merger consisting primarily ofinvestment banking fees, legal and accounting fees, compensation expenserelated to stock option payments and a charge to write off prepaid managementfees.

 

***Losson Redemption of Debt***

 

During the nine months ended October 2, 2004, wevoluntarily redeemed $5.0 million principal amount of Jostens’ seniorsubordinated notes, recognizing a loss of $0.4 million.  The loss consisted of $0.8 million of premiumpaid on redemption of the notes and a net $0.4 million credit resulting fromthe write-off of related unamortized premium, original issuance discount anddeferred financing costs.

 

***NetInterest Expense***

 

Net interest expenseincreased $17.0 million, or 39.0%, to $60.6 million for the nine months endedOctober 2, 2004 as compared to $43.6 million for the same prior yearperiod.  The increase was primarily dueto $11.8 million of additional interest expense on our 10.25% senior discountnotes and recognition of $7.6 million of incremental dividends on Jostens’redeemable preferred stock as interest expense. These increases were offset by $3.1 million of premium amortizationassociated with purchase accounting related to the 2003 merger.

 

***(Benefitfrom) Provision for Income Taxes***

 

The effective rate of taxpresented for results of operations for the current nine-month period is basedon our estimated consolidated effective rate for the entire year.  The estimated 24% effective rate applied to ourresults of operations for the 2004 nine-month period is less than the federalstatutory rate because we anticipate a loss for the entire year and the rate oftax benefit on that loss is negatively impacted by the effect of nondeductibleinterest expense associated with the redeemable preferred stock of Jostens,Inc.  The effective rate applied to ourresults of operations for the comparable prior year period was 20% and wasaffected by the 2003 merger transaction.

 

The Transactions asexplained above, which closed in the fourth quarter, will have an impact on oureffective rate for the entire year.  Itis not possible at the present time to quantify the specific impact.

 

18

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***Net Loss***

 

As a result of theaforementioned items, net loss increased $5.5 million, or 24.8%, to $27.8million for the nine months ended October 2, 2004 from $22.3 million for thesame prior year period.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

During our third quarter,we typically spend a considerable amount of time on non-revenue generatingactivities in preparation for the upcoming school year.  As a result, our third quarter normallyreflects modest sales and significant usage of cash.

 

Net cash used foroperating activities for the nine months ended October 2, 2004 was $22.4million compared to $55.8 million for the same prior year period.  The improvement in operating cash flow waslargely due to $31.0 million of transaction related expenses incurred in theprior year.  Borrowings under ourrevolving credit facility funded the shortfall in operating cash flow that ischaracteristic for our third quarter. Also during the nine months ended October 2, 2004, we incurred $17.7million of capital expenditures, voluntarily prepaid $41.0 million on oursenior secured credit facility and redeemed $5.0 million principal amount ofthe Jostens, Inc. senior subordinated notes for total consideration paid of$5.8 million.

 

On October 2, 2004, wehad cash and cash equivalents of approximately $8.9 million, which was used topartially fund the Transactions.  Ourprincipal sources of liquidity are cash flows from operating activities andborrowings under our senior secured credit facility.  We use our cash primarily for debt serviceobligations and capital expenditures and to fund working capitalrequirements.   On October 4, 2004, werepaid all of our outstanding indebtedness in connection with theTransactions.  JIHC issued $500.0 millionaggregate principal amount of 7 5/8% Senior Subordinated Notes Due 2012 andentered into new senior secured credit facilities consisting of a six-year$150.0 million Term Loan A facility, a seven-year $870.0 million Term Loan Bfacility and a $250.0 million five-year revolving credit facility.  We drew approximately $70.0 million under ourrevolving credit facility in connection with the Transactions.  Except for approximately $15.0 million ofoutstanding indebtedness under the Canadian portion of JIHC’s new revolvingcredit facility, we expect to repay the entire outstanding portion of our newrevolving credit facility during the fourth quarter of 2004 with cash flowsfrom operations.  We believe that cashgenerated from operations and available cash, together with availableborrowings under the new senior secured credit facilities, will be adequate tomeet our anticipated requirements for working capital, planned capitalexpenditures and scheduled payments of principal and interest on ourindebtedness for the next twelve months.

 

**CRITICALACCOUNTING POLICIES**

 

The preparation ofinterim financial statements involves the use of certain estimates that differfrom those used in the preparation of the annual financial statements, the mostsignificant of which relates to income taxes. For purposes of preparing our interim financial statements, we utilizean estimated annual effective tax rate based on estimates of the componentsthat impact the tax rate.  Thosecomponents are re-evaluated each interim period and, if changes in ourestimates are significant, we modify our estimate of the annual effective taxrate and make any required adjustments in the interim period.

 

There have been nomaterial changes to our critical accounting policies and estimates as describedin Item 7 of our Form 10-K for the fiscal year ended January 3, 2004 (“2003Form 10-K”).

 

**CAUTIONARYNOTE REGARDING FORWARD-LOOKING STATEMENTS**

 

This report may contain “forward-lookingstatements.”  Forward-looking statementsare based on our current expectations or forecasts of future events.  Forward-looking statements generally can beidentified by the use of forward-looking terminology such as “may,” “will,” “expect,”“intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue,” or thenegative thereof or similar words.  Webase these forward-looking statements on assumptions that we believe arereasonable; however, these assumptions may prove incorrect or be affected byknown or unknown risks or uncertainties. As a result, actual results may vary materially from those set forth inour forward-looking statements. Investors are cautioned not to place undue reliance on anyforward-looking statements.

 

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On October 4, 2004, wecompleted a series of transactions, pursuant to which AHC I Acquisition Corp.and Von Hoffmann Holdings, Inc. became our indirect wholly-ownedsubsidiaries.  The risks anduncertainties that would cause our actual results to differ include, but arenot limited to, the following: our substantial indebtedness following theconsummation of the Transactions; our inability to implement our businessstrategy and achieve anticipated cost savings in a timely and effective manner;competition from other companies; the seasonality of our businesses; loss ofsignificant customers or customer relationships; fluctuations of raw materialprices and our reliance on a limited number of suppliers; Jostens, Inc.’sreliance on independent sales representatives; our reliance on numerous complexinformation systems; Von Hoffmann Holdings Inc.’s dependency on the sale ofschool textbooks; the textbook adoption cycle and levels of government fundingfor education spending; the reliance of our businesses on limited productionfacilities; the amount of capital expenditures required at our businesses; thefailure of AHC I Acquisition Corp.’s sampling systems to comply with U.S.postal regulations; labor disturbances; environmental regulations; foreigncurrency fluctuations and foreign exchange rates; the outcome of litigation;and control by our controlling shareholders.

 

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 topublicly update or revise any forward-looking statements.

 

#### **ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

#### ** **

There have been nomaterial changes in our exposure to market risk during the quarter endedOctober 2, 2004.  For additionalinformation, refer to Item 7A of our 2003 Form 10-K.

 

#### **ITEM 4.     CONTROLS AND PROCEDURES**

#### ** **

As of the end of theperiod covered by this report, management, under the supervision of our ChiefExecutive Officer and Vice President, Finance, evaluated the effectiveness ofthe design and operation of our disclosure controls and procedures that aredesigned to ensure that information that is required to be disclosed in ourquarterly report is recorded, processed and summarized within time periodsspecified in the Securities and Exchange Commission’s rules and regulations andthat such information is accumulated and communicated to our management,including our Chief Executive Officer and Vice President, Finance, asappropriate to allow timely decisions regarding required disclosures.  Based upon that evaluation, our ChiefExecutive Officer and Vice President, Finance concluded that these disclosurecontrols and procedures are effective, in all material respects, in timelyalerting them to material information relating to Jostens Holding Corp.required to be included in our periodic reports filed under the SecuritiesExchange 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 have materially affected, or are reasonablylikely to materially affect these controls.

 

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**PARTII.  OTHER INFORMATION**

 

**ITEM 1.        LEGALPROCEEDINGS**

#### ** **

On February 11, 2004,plaintiff Christian Pocino filed a complaint against Jostens, Inc. in the SuperiorCourt of California for the County of Los Angeles for alleged breach of expresswarranty (Cal. Comm. Code Section 2313), and for alleged violation ofCalifornia’s false advertising and unfair competition laws (Cal. Bus. &Prof. Code Sections 17500 and 17200). Plaintiff alleged that Jostens, Inc. violated these laws by purportedlyviolating Federal Trade Commission “guides” with regard to the marketing andsale of jewelry.  Specifically, plaintiffcontended that: (1) Jostens, Inc. failed to comply with the FTC guide thatevery use of the word “stone” be immediately preceded by the word “imitation”, “synthetic”or a similar term; and (2) Jostens, Inc. failed to comply with a separate FTCguide relating to use of the word silver in connection with Jostens, Inc.’sSilverElite® with platinum alloy. Plaintiff sought equitable relief and unspecified monetary damages onbehalf of himself and a purported class of similarly-situated consumers.

 

Jostens, Inc. brought ademurrer and motion to strike the plaintiff’s complaint on June 25, 2004,challenging the legal sufficiency of plaintiff’s allegations on the basis,inter alia, that the FTC guides are nonbinding and that plaintiff’s allegationsgenerally failed to state a claim on which relief could be granted.  On August 13, 2004, the Superior Courtsustained Jostens, Inc.’s demurrer with leave to amend.

 

On August 25, 2004, theplaintiff filed an amended complaint which contains substantially the sameallegations regarding “stones” while dropping the claims regarding SilverElite®with platinum.  On September 29, 2004,Jostens, Inc. filed another demurrer/motion to strike, challenging the legalsufficiency of plaintiff’s amended complaint.

 

We are also a party tolitigation arising in the normal course of business.  We regularly analyze current information and,as necessary, provide accruals for probable liabilities on the eventualdisposition of these matters.  We believethe effect on our consolidated results of operations, cash flows and financialposition, if any, for the disposition of these matters will not be material.

 

**ITEM 2.        UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

#### ** **

None

 

**ITEM 3.        DEFAULTSUPON SENIOR SECURITIES**

#### ** **

None

 

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

#### ** **

By action taken bywritten consent in lieu of a meeting of the stockholders of Jostens HoldingsCorp. on July 19, 2004, the stockholders executing the written consent,representing approximately 82% of our stockholders, approved our Second Amendedand Restated Certificate of Incorporation and the filing of such with theSecretary of the State of Delaware.

 

**ITEM 5.        OTHERINFORMATION**

#### ** **

None

 

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**ITEM 6.        EXHIBITS**

 
| **(a)** |   | Exhibits |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|---------|--------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |   | 2.1      | Amendment No. 1 to Contribution Agreement, dated as of September 30,  2004, between Jostens Holding Corp. and Fusion Acquisition LLC. Incorporated  by reference to Exhibit 2.4 contained in Jostens Holding Corp.’s Form S-4  filed on November 12, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    |   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |   | 3.1      | Second Amended and Restated Certificate of Incorporation of Jostens  Holding Corp. Incorporated by reference to Exhibit 3.1 contained in Jostens  Holding Corp.’s Form S-4 filed on November 12, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    |   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |   | 10.1     | Separation Agreement, dated as of July 14, 2004 by and among Jostens  Holding Corp., Jostens, Inc. and Mr. Robert C. Buhrmaster.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |   | 10.2     | Separation Agreement, dated as of September 17, 2004 by and among  Jostens Holding Corp., Jostens, Inc. and Mr. Steven A. Tighe.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |   | 10.3     | Credit Agreement, dated as of October 4, 2004, among Jostens IH Corp.,  as Borrower, Jostens Canada Ltd., as Canadian Borrower, Jostens Secondary  Holdings Corp., as Guarantor, Credit Suisse First Boston, as Administrative  Agent, Credit Suisse First Boston Toronto Branch, as Canadian Administrative  Agent, Credit Suisse First Boston, as Sole Lead Arranger and Sole Bookrunner,  Deutsche Bank Securities Inc. and Banc of America Securities LLC, as  Co-Arrangers and Co-Syndication Agents, and certain other lending  institutions from time to time parties thereto. Incorporated by reference to  Exhibit 10.1 contained in Jostens IH Corp.’s Form S-4 filed on November 12,  2004. |
|    |   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |   | 31.1     | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |   | 31.2     | Certification of Vice President, Finance pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |   | 32.1     | Certification of Chief Executive Officer and Vice  President, Finance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
| ** **              | **JOSTENS  HOLDING CORP.**        | ** ** |
|-------------------------|-----------------------------------|------------|
|                    |                              |       |
|                    |                              |       |
| Date: November 15, 2004 | /s/   Marc  L. Reisch   |       |
|                    | Marc L. Reisch                    |       |
| * *                | *President  and*                  | * *   |
| * *                | *Chief  Executive Officer*        | * *   |
|                    |                              |       |
|                    |                              |       |
| Date: November 15, 2004 | /s/   Paul  B. Carousso |       |
|                    | Paul B. Carousso                  |       |
| * *                | *Vice  President, Finance*        | * *   |
| * *                | *(Chief  Accounting Officer)*     | * *   |

 

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