**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý****  QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|---------------------------------------------------------------------------------------------------------------------|
|                                                                                                                |
| **For the Quarterly Period Ended  April 3, 2004**                                                              |
|                                                                                                                |
| **OR**                                                                                                              |
|                                                                                                                |
| **o****  TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**     |

 

Commission file number **333-112055**

 

**JostensHolding Corp.**

(Exact name of Registrant as specified in itscharter)

 

| **Delaware**                                                   |   | **20-0049713**                           |
|----------------------------------------------------------------|--------|------------------------------------------|
| (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 mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject to suchfiling requirement for the past 90 days.  Yes  ý    No  o

 

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

 

Number of shares of the Registrant’s Common Stock outstanding as of May14, 2004:  3,229,343

 

 

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**Jostens Holding Corp. and Subsidiaries**

 
| **Part I Financial  Information** |                                                                                                                    |
|-----------------------------------|-------------------------------------------------------------------------------------------------------------------------|
|                              |                                                                                                                    |   |
| Item 1.                           | Financial Statements (Unaudited)                                                                                        |   |
|                              |                                                                                                                    |   |
|                              | Condensed Consolidated Statements of  Operations for the three months ended April 3, 2004 and March 29,  2003 |   |
|                              |                                                                                                                    |   |
|                              | Condensed Consolidated Balance Sheets as of  April 3, 2004, January 3, 2004 and March 29, 2003                     |   |
|                              |                                                                                                                    |   |
|                              | Condensed Consolidated Statements of Cash  Flows for the three months ended April 3, 2004 and March 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 6.                           | Exhibits  and Reports on Form 8-K                                                                                       |   |
|                              |                                                                                                                    |   |
| Signatures                        |                                                                                                                    |   |

 

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##### **PART I FINANCIALINFORMATION**

 

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

 

**JOSTENS HOLDING CORP. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OFOPERATIONS (UNAUDITED)**

 
|                                                   |   | **Three  months ended** |        |
|--------------------------------------------------------|--------|-------------------------|-------------|
| **In  thousands**                                      |   | **April 3,  2004** |        | **Predecessor  March 29, 2003** |   |
| **Net sales**                                          |   | $                       | 143,085     |   | $ | 121,524 |   |
| Cost of products sold                                  |   | 60,780                  |        | 50,745 |   |
| Gross profit                                           |   | 82,305                  |        | 70,779 |   |
| Selling and administrative expenses                    |   | 88,303                  |        | 71,458 |   |
| **Operating loss**                                     |   | (5,998                  | )           | (679 | ) |
| Loss on redemption of debt                             |   | 420                     |        | — |   |
| Net interest expense                                   |   | 19,763                  |        | 13,940 |   |
| Loss before income taxes                               |   | (26,181                 | )           | (14,619 | ) |
| Benefit from income taxes                              |   | (6,283                  | )           | (6,021 | ) |
| **Net loss**                                           |   | (19,898                 | )           | (8,598 | ) |
| Dividends and accretion on redeemable  preferred stock |   | —                  |        | (3,205 | ) |
| **Net loss available  to common shareholders**         |   | **$**                   | **(19,898** | **)** | **$** | **(11,803** | **)** |

 

*The accompanying notes are an integral part of theunaudited condensed consolidated financial statements.*

 

1

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**JOSTENS HOLDING CORP. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS****(UNAUDITED)**

 
| **In thousands, except share  amounts**                                                                     |   | **April 3,  2004** |          | **January 3,  2004** |       | **Predecessor  March 29,  2003** |       |
|-------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------------|---------------------------|------------|---------------------------------------|------------|
| **ASSETS**                                                                                                  |   |                    |          |                      |       |                                  |       |
| Cash and cash equivalents                                                                                   |   | $                       | 31,272        |                      | $          | 24,752                                |       | $ | 20,868 |   |
| Accounts receivable, net                                                                                    |   | 48,470                  |          | 57,018                    |       | 46,193                                |       |
| Inventories, net                                                                                            |   | 111,880                 |          | 72,523                    |       | 108,484                               |       |
| Salespersons overdrafts, net of allowance  of $11,144, $10,953 and 8,567                                    |   | 32,916                  |          | 30,062                    |       | 31,110                                |       |
| Prepaid expenses and other current assets                                                                   |   | 11,780                  |          | 10,446                    |       | 25,133                                |       |
| **Total current  assets**                                                                                   |   | **236,318**             | ** **    | **194,801**               | ** ** | **231,788**                           | ** ** |
|                                                                                                        |   |                    |          |                      |       |                                  |       |
| Property and equipment                                                                                      |   | 126,406                 |          | 119,506                   |       | 279,718                               |       |
| Less accumulated depreciation                                                                               |   | (20,515                 | )             | (13,913                   | )          | (215,783                              | )          |
| Property and equipment, net                                                                                 |   | 105,891                 |          | 105,593                   |       | 63,935                                |       |
| Goodwill                                                                                                    |   | 726,040                 |          | 746,025                   |       | 19,286                                |       |
| Intangibles, net                                                                                            |   | 633,216                 |          | 644,654                   |       | 689                                   |       |
| Other assets                                                                                                |   | 39,059                  |          | 40,340                    |       | 58,897                                |       |
|                                                                                                        |   | **$**                   | **1,740,524** |                      | **$**      | **1,731,413**                         | ** ** | **$** | **374,595** | ** ** |
|                                                                                                        |   |                    |          |                      |       |                                  |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                                     |   |                    |          |                      |       |                                  |       |
|                                                                                                        |   |                    |          |                      |       |                                  |       |
| Short-term borrowings                                                                                       |   | $                       | 9,163         |                      | $          | 13,013                                |       | $ | 9,520 |   |
| Commissions payable                                                                                         |   | 25,151                  |          | 16,736                    |       | 21,531                                |       |
| Customer deposits                                                                                           |   | 193,036                 |          | 149,809                   |       | 189,863                               |       |
| Income taxes payable                                                                                        |   | 8,331                   |          | 8,833                     |       | —                                |       |
| Interest payable                                                                                            |   | 11,298                  |          | 4,910                     |       | 16,579                                |       |
| Current portion of long-term debt                                                                           |   | —                  |          | —                    |       | 17,094                                |       |
| Other accrued liabilities, including  deferred tax liabilities of $3,852, $4,283 and $0                     |   | 62,889                  |          | 67,055                    |       | 59,140                                |       |
| **Total current  liabilities**                                                                              |   | **309,868**             | ** **    | **260,356**               | ** ** | **313,727**                           | ** ** |
|                                                                                                        |   |                    |          |                      |       |                                  |       |
| Long-term debt - less current maturities                                                                    |   | 838,372                 |          | 836,693                   |       | 563,666                               |       |
| Redeemable preferred securities  (liquidation preference: $102,519 and $99,052)                             |   | 118,913                 |          | 135,272                   |       | —                                |       |
| Deferred income taxes                                                                                       |   | 225,898                 |          | 231,416                   |       | 10,053                                |       |
| Other noncurrent liabilities                                                                                |   | 23,130                  |          | 23,359                    |       | 7,023                                 |       |
| **Total liabilities**                                                                                       |   | **1,516,181**           | ** **    | **1,487,096**             | ** ** | **894,469**                           | ** ** |
|                                                                                                        |   |                    |          |                      |       |                                  |       |
| Commitments and contingencies                                                                               |   |                    |          |                      |       |                                  |       |
|                                                                                                        |   |                    |          |                      |       |                                  |       |
| Redeemable preferred stock (liquidation  preference: $87,302)                                               |   | —                  |          | —                    |       | 73,995                                |       |
|                                                                                                        |   |                    |          |                      |       |                                  |       |
| Common stock                                                                                                |   |                    |          |                      |       |                                  |       |
| Class A $.01 par value; authorized: 700,000  shares; issued and outstanding: 504,584 shares                 |   |                    |          |                      |       |                                  |       |
| Class B $.01 par value; non-voting;  authorized: 4,050,000 shares; issued and outstanding: 2,724,759 shares |   | 32                      |          | 32                        |       | —                                |       |
| Common stock                                                                                                |   | —                  |          | —                    |       | 1,003                                 |       |
| Additional paid-in-capital                                                                                  |   | 281,316                 |          | 281,316                   |       | 20,964                                |       |
| Officer notes receivable                                                                                    |   | —                  |          | —                    |       | (1,647                                | )          |
| Accumulated deficit                                                                                         |   | (56,938                 | )             | (37,040                   | )          | (603,808                              | )          |
| Accumulated other comprehensive loss                                                                        |   | (67                     | )             | 9                         |       | (10,381                               | )          |
| **Total shareholders’  equity (deficit)**                                                              |   | **224,343**             | ** **    | **244,317**               | ** ** | **(593,869**                          | **)**      |
|                                                                                                        |   | **$**                   | **1,740,524** |                      | **$**      | **1,731,413**                         | ** ** | **$** | **374,595** | ** ** |

 

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

 

2

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**JOSTENSHOLDING CORP. AND SUBSIDIARIES**

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

 
|                                                                            |   | **Three  Months Ended** |       |
|---------------------------------------------------------------------------------|--------|-------------------------|------------|
| **In thousands**                                                                |   | **April 3,  2004** |       | **Predecessor  March 29, 2003** |   |
| Net loss                                                                        |   | $                       | (19,898    | ) | $ | (8,598 | ) |
| Adjustments to reconcile net loss to net cash  provided by operating activities |   |                    |       |   |   |
| Depreciation                                                                    |   | 7,000                   |       | 5,513 |   |
| Amortization of intangible assets                                               |   | 11,438                  |       | 140 |   |
| Amortization of debt discount, premium and deferred  financing costs            |   | 4,333                   |       | 1,316 |   |
| Other amortization                                                              |   | 212                     |       | 552 |   |
| Accrued interest on redeemable preferred stock                                  |   | 3,642                   |       | — |   |
| Deferred income taxes                                                           |   | (5,949                  | )          | — |   |
| Other                                                                           |   | 436                     |       | 118 |   |
| Changes in assets and liabilities:                                              |   |                    |       |   |   |
| Accounts receivable                                                             |   | 8,531                   |       | 12,843 |   |
| Inventories                                                                     |   | (39,337                 | )          | (39,032 | ) |
| Salespersons overdrafts                                                         |   | (2,847                  | )          | (5,525 | ) |
| Prepaid expenses and other current assets                                       |   | (1,631                  | )          | (2,888 | ) |
| Accrued employee compensation and related taxes                                 |   | (3,920                  | )          | (7,483 | ) |
| Commissions payable                                                             |   | 8,418                   |       | 5,837 |   |
| Customer deposits                                                               |   | 43,189                  |       | 55,948 |   |
| Income taxes payable                                                            |   | (508                    | )          | (7,404 | ) |
| Interest payable                                                                |   | 6,388                   |       | 5,790 |   |
| Other                                                                           |   | 52                      |       | 1,458 |   |
| **Net cash provided by operating  activities**                                  |   | **19,549**              | ** ** | **18,585** | ** ** |
| Acquisition of businesses, net of cash acquired                                 |   | —                  |       | (4,951 | ) |
| Purchases of property and equipment                                             |   | (7,388                  | )          | (3,541 | ) |
| Other investing activities, net                                                 |   | (14                     | )          | (163 | ) |
| **Net cash used for investing  activities**                                     |   | **(7,402**              | **)**      | **(8,655** | **)** |
| Net short-term borrowings                                                       |   | (3,840                  | )          | — |   |
| Redemption of senior subordinated notes payable                                 |   | (5,800                  | )          | — |   |
| Proceeds from issuance of long-term debt                                        |   | 4,000                   |       | — |   |
| **Net cash used for financing  activities**                                     |   | **(5,640**              | **)**      | **—** | ** ** |
| Effect of exchange rate changes on cash and cash  equivalents                   |   | 13                      |       | — |   |
| Increase in cash and cash equivalents                                           |   | 6,520                   |       | 9,930 |   |
| Cash and cash equivalents, beginning of period                                  |   | 24,752                  |       | 10,938 |   |
| **Cash and cash equivalents, end of  period**                                   |   | **$**                   | **31,272** | ** ** | **$** | **20,868** | ** ** |

 

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

 

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**Notes to Condensed Consolidated Fin****ancialStatements (Unaudited)**

***JostensHolding corp. and Subsidiaries***

 

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

 

***Basis of Presentation***

The accompanying unaudited condensed consolidated financial statementshave been prepared in accordance with accounting principles generally acceptedin the United States for interim financial information and with theinstructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements.  In the opinion of management, alladjustments (consisting of normal recurring adjustments) considered necessaryfor a fair presentation have been included. Operating results for the interim periods presented are not necessarilyindicative of the results that may be expected for the full year.  For further information, refer to theconsolidated financial statements and footnotes included in our Form 10-K forthe fiscal year ended January 3, 2004.

 

The preparation of our financial statements in conformity withaccounting principles generally accepted in the United States requires us tomake estimates and assumptions that affect the amounts reported in thefinancial statements and accompanying notes. Actual results could differ from those estimates.

 

The accompanying condensed consolidated financial statements, after theelimination of intercompany accounts and transactions, include the accounts ofJostens Holding Corp. (“Jostens Holdings”) and our wholly-owned subsidiary,Jostens IH Corp. (“JIHC”), and its wholly-owned subsidiary, Jostens, Inc.(“Jostens”), for the period ended April 3, 2004 (successor period).  The accounts for the period endedMarch 29, 2003 (predecessor period) relate to Jostens and its wholly-ownedsubsidiaries.  Our condensedconsolidated financial statements for the predecessor period were preparedusing the historical basis of accounting for Jostens.  As a result of the 2003 merger transaction as discussed in Note2, we applied purchase accounting and a new basis of accounting began onJuly 29, 2003.  Jostens Holdingsand JIHC had no operating activities until the acquisition of Jostens.

 

Certain amounts in our prior period financial statements and notes havebeen reclassified to conform to 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 at orabove fair value of the underlying stock on the date of grant.  The following table illustrates the effecton net income and earnings per share if we had applied the fair valuerecognition provisions of SFAS 123, *“Accountingfor Stock-Based Compensation”.*

 
|                                                                                                                                 |   | **Three  Months Ended** |        |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-------------|
| **In thousands**                                                                                                                     |   | **April 3,  2004** |        | **Predecessor  March 29, 2003** |   |
| **Net loss available  to common shareholders**                                                                                       |   |                    |        |   |   |
| As reported                                                                                                                          |   | $                       | (19,898     | ) | $ | (11,803 | ) |
| Deduct total stock-based employee  compensation expense determined under fair value-based method for all awards,  net of tax effects |   | (152                    | )           | (116 | ) |
| Pro forma  net loss available to common shareholders                                                                                 |   | **$**                   | **(20,050** | **)** | **$** | **(11,919** | **)** |

 

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

 

On June 17, 2003, we entered into a merger agreement with Jostensand Ring Acquisition Corp., an entity organized by us for the sole purpose ofeffecting an acquisition of Jostens.  OnJuly 29, 2003, Ring Acquisition Corp. merged

 

4

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with and into Jostens with Jostens surviving as an indirect subsidiaryof Jostens Holdings, which we refer to as the merger.

 

Jostens Holdings was capitalized in July 2003 through the issuanceof common stock to DLJ Merchant Banking Partners III, L.P. and certain of itsaffiliated funds (collectively, the “DLJMB Funds”) and members of ourmanagement, and received proceeds of $322.9 million.  Jostens Holdings, in turn, established a wholly-owned subsidiary,JIHC, and capitalized it through the purchase of common stock for $317.9million.  JIHC used the $317.9 million,along with $100.0 million of proceeds from the issuance of redeemable preferredstock to the DLJMB Funds, to make a capital contribution of $417.9 million toJostens.  Jostens, in turn, used theproceeds from the capital contribution along with incremental borrowings underits senior secured credit facility to repurchase all previously outstandingcommon stock and warrants.  Jostens paid$471.0 million to holders of its common stock and warrants representing a cashpayment of $48.25 per share.

 

We accounted for the merger using the purchase method ofaccounting.  The aggregate purchaseprice of $471.0 million, excluding certain capitalized transaction costs, wasallocated to the tangible and intangible assets acquired and liabilitiesassumed, based upon their relative fair values as of the date of themerger.  As of April 3, 2004, ourpreliminary allocation of the purchase price is as follows:

 
| **In thousands**           |   |     |        |
|----------------------------|--------|----------|-------------|
| Current assets             |   | $        | 165,280     |   |
| Property and equipment     |   | 101,989  |        |
| Intangible assets          |   | 660,399  |        |
| Goodwill                   |   | 707,633  |        |
| Other assets               |   | 18,622   |        |
| Current liabilities        |   | (199,776 | )           |
| Long-term debt             |   | (594,494 | )           |
| Redeemable preferred stock |   | (106,511 | )           |
| Deferred income taxes      |   | (253,577 | )           |
| Other liabilities          |   | (28,521  | )           |
|                       |   | **$**    | **471,044** |   |

 

We have estimated the fair value of our assets and liabilities as ofthe merger date utilizing information available at the time that our condensedconsolidated financial statements were prepared.  These estimates are subject to refinement until all pertinentinformation has been obtained.  During the quarter ended April 3, 2004,we refined our estimate of the fair value of our redeemable preferred stock asof the merger date from $130.0 million to $110.0 million, thus recording apurchase price adjustment of $20.0 million through goodwill.

 

**3.****     New Accounting Standards**

 

***FSP106-1 – Accounting and Disclosure Requirements Related to the MedicarePrescription Drug Improvement and Modernization Act of 2003***

In January 2004, the Financial Accounting Standards Board (FASB)issued FASB Staff Position (FSP) 106-1 with an effective date for fiscal yearsending after December 7, 2003.  FSP 106-1 relates to the Medicare Prescription Drug, Improvement andModernization Act of 2003 (the “Act”) signed into law on December 8,2003.  The Act introduced a prescriptiondrug benefit under Medicare, as well as a federal subsidy to sponsors ofretiree health care benefit plans that provide a benefit that is at leastactuarially equivalent to Medicare.  Aspermitted by FSP 106-1, we made a one-time election to defer accounting for theeffect of the Act until specific authoritative guidance is issued.  Therefore, in accordance with FSP 106-1, thenet periodic postretirement benefit cost included in our financial statementsand accompanying notes does not reflect the effects of the Act on ourplans.  Specific authoritative guidanceon the accounting for the federal subsidy is pending and that guidance, whenissued, could require us to

 

5

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change previously reported information.  We do not expect the adoption of FSP 106-1, when finalized, tohave a material impact on our financial statements.

 

**4.****     IncomeTaxes**

 

Consistent with the provisions of APB 18, *“Interim Financial Reporting”,* we have provided an incometax benefit based on our best estimate of the consolidated effective tax rateapplicable for the entire year.  Based onthose estimates, we provided an income tax benefit at a consolidated effectiverate of 24% for the three months ended April 3, 2004 compared to 41% inthe comparable prior year period.  Wereview our tax rate estimates on a quarterly basis and make revisions asnecessary.

 

Our consolidated effective rate of tax benefit is less than the federalstatutory rate of tax primarily due to the effect of nondeductible interestexpense associated with the redeemable preferred stock of Jostens.  Furthermore, the rate of tax benefitrecorded for purchase accounting adjustments is based on the change in deferredtax liability balances attributable to net taxable temporary differencesrecorded in connection with the purchase price allocation of the prior yearmerger transaction.

 

**5.****     ComprehensiveLoss**

 

Comprehensiveloss and its components, net of tax are presented below:

 
|                                                  |   | **Three  Months Ended** |    |
|-------------------------------------------------------|--------|-------------------------|---------|
| **In thousands**                                      |   | **April 3,  2004** |    | **Predecessor  March 29, 2003** |   |
| Net loss                                              |   | $                       | (19,898 | ) | $ | (8,598 | ) |
| Change in cumulative translation adjustment           |   | (76                     | )       | (152 | ) |
| Change in fair value of interest rate swap  agreement |   | —                  |    | 588 |   |
| Comprehensive loss                                    |   | $                       | (19,974 | ) | $ | (8,162 | ) |

 

**6.****     AccountsReceivable and Inventories**

 

Net accounts receivable were comprised of the following:

 
|                            |   |                    |   |                      |   | **Predecessor**          |   |
|---------------------------------|--------|-------------------------|--------|---------------------------|--------|--------------------------|--------|
| **In thousands**                |   | **April 3,  2004** |   | **January 3,  2004** |   | **March 29,  2003** |   |
| Trade receivables               |   | $                       | 59,836 |                      | $      | 64,993                   |   | $ | 56,496 |   |
| Allowance for doubtful accounts |   | (2,526                  | )      | (2,184                    | )      | (2,718                   | )      |
| Allowance for sales returns     |   | (8,840                  | )      | (5,791                    | )      | (7,585                   | )      |
| Total accounts receivable, net  |   | $                       | 48,470 |                      | $      | 57,018                   |   | $ | 46,193 |   |

 

Net inventorieswere comprised of the following:

 
|                      |   |                    |    |                      |   | **Predecessor**          |   |
|---------------------------|--------|-------------------------|---------|---------------------------|--------|--------------------------|--------|
| **In thousands**          |   | **April 3,  2004** |    | **January 3,  2004** |   | **March 29,  2003** |   |
| Raw material and supplies |   | $                       | 13,288  |                      | $      | 11,416                   |   | $ | 13,031 |   |
| Work-in-process           |   | 59,556                  |    | 28,084                    |   | 60,018                   |   |
| Finished goods            |   | 41,959                  |    | 34,713                    |   | 37,877                   |   |
| Reserve for obsolescence  |   | (2,923                  | )       | (1,690                    | )      | (2,442                   | )      |
| Total inventories, net    |   | $                       | 111,880 |                      | $      | 72,523                   |   | $ | 108,484 |   |

 

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**7.****     Goodwilland Other Intangible Assets**

 

The increase in goodwill and other intangibleassets as of April 3, 2004 compared to the period ended March 29,2003 is predominantly attributable to the effect of purchase accounting inconnection with the July 29, 2003 merger.

 

The changes in the net carrying amount ofgoodwill were as follows:

 
|                                |   |                    |        | **Predecessor**          |   |
|-------------------------------------|--------|-------------------------|-------------|--------------------------|--------|
| **In thousands**                    |   | **April 3,  2004** |        | **March 29,  2003** |   |
| Balance at beginning of period      |   | $                       | 746,025     |                     | $      | 14,450 |   |
| Goodwill acquired during the period |   | 15                      |        | 4,781                    |   |
| Purchase price adjustments          |   | (20,000                 | )           | —                   |   |
| Currency translation                |   | —                  |        | 55                       |   |
| Balance at  end of period           |   | **$**                   | **726,040** | ** **               | **$**  | **19,286** | ** ** |

 

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

 
|                           |   | **April 3,  2004**    |   |
|--------------------------------|--------|----------------------------|--------|
| **In thousands**               |   | **Estimated  Useful Life** |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   | **Net** |   |
| School relationships           |   | 10 years                   |   | $ | 330,000 |   | $ | (22,759 | ) | $ | 307,241 |   |
| Order backlog                  |   | 1.5 years                  |   | 48,700 |   | (3,280 | ) | 45,420 |   |
| Internally developed software  |   | 2 to 5 years               |   | 12,200 |   | (2,315 | ) | 9,885 |   |
| Patented/unpatented technology |   | 3 years                    |   | 11,000 |   | (2,523 | ) | 8,477 |   |
| Customer relationships         |   | 4 to 8 years               |   | 8,666 |   | (1,483 | ) | 7,183 |   |
| Other                          |   | 3 years                    |   | 24 |   | (14 | ) | 10 |   |
|                           |   |                       |   | 410,590 |   | (32,374 | ) | 378,216 |   |
| Trademarks                     |   | Indefinite                 |   | 255,000 |   | — |   | 255,000 |   |
|                           |   |                       |   | **$** | **665,590** |   | **$** | **(32,374** | **)** | **$** | **633,216** | ** ** |

 
|                   |   | **Predecessor  March 29, 2003** | ** ** |
|------------------------|--------|--------------------------------------|------------|
| **In thousands**       |   | **Estimated  Useful Life**           | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Customer relationships |   | 4 to 5 years                         |       | 860 |   | (189 | ) | 671 |   |
| Other                  |   | 3 years                              |       | 24 |   | (6 | ) | 18 |   |
|                   |   |                                 |       | **$** | **884** |   | **$** | **(195** | **)** | **$** | **689** | ** ** |
|                        |        |                                      |            |  |  |  |  |  |  |  |  |  |

 

Amortization expense related to other intangibleassets was $11.4 million and $0.1 million for the quarters ended April 3,2004 and March 29, 2003, respectively.

 

7

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**8.****     Long-termDebt**

 

Long-termdebt consists of the following:

 
|                                                                                                                                                                                                                                                                                                                                                            |   |                    |        |                        |   | **Predecessor**          |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-------------|-----------------------------|--------|--------------------------|------------|
| **In thousands**                                                                                                                                                                                                                                                                                                                                                |   | **April 3,  2004** |        | **January 3,****2004** |   | **March 29,  2003** |       |
| Borrowings under senior secured credit  facility:                                                                                                                                                                                                                                                                                                               |   |                    |        |                        |   |                     |       |
| Term Loan, variable rate, 3.67 percent at  April 3, 2004, with semi-annual principal and interest payments through  July 2010                                                                                                                                                                                                                         |   | $                       | 453,705     |                        | $      | 453,705                  |       | $ | — |   |
| Term Loan A, variable rate, 3.54 percent at  March 29, 2003, paid in full July 2003                                                                                                                                                                                                                                                                   |   | —                  |        | —                      |   | 58,602                   |       |
| Term Loan C, variable rate, 4.04 percent at  March 29, 2003, paid in full July 2003                                                                                                                                                                                                                                                                   |   | —                  |        | —                      |   | 320,669                  |       |
| Senior subordinated notes, 12.75 percent  fixed rate, including premium of $21,554 at April 3, 2004 and $22,717 at  January 3, 2004, net of discount of $16,011 at March 29, 2003, with  semi-annual interest payments of $13.3 million, principal due and payable at  maturity - May 2010                                                       |   | 225,539                 |        | 231,702                     |   | 201,489                  |       |
| Senior discount notes, 10.25 percent fixed  rate, net of discount of $92,072 at April 3, 2004 and $95,914 at  January 3, 2004, with semi-annual interest accretion of $12.7 million,  through December 1, 2008, thereafter semi-annual interest payments of  $12.7 million, accreted principal due and payable at maturity -  December 2013 |   | 155,128                 |        | 151,286                     |   | —                   |       |
| Promissory note, 3.52 percent at  April 3, 2004, with monthly principal and interest payments through  maturity - March 2009                                                                                                                                                                                                                          |   | 4,000                   |        | —                      |   | —                   |       |
|                                                                                                                                                                                                                                                                                                                                                            |   | 838,372                 |        | 836,693                     |   | 580,760                  |       |
| Less current portion                                                                                                                                                                                                                                                                                                                                            |   | —                  |        | —                      |   | 17,094                   |       |
|                                                                                                                                                                                                                                                                                                                                                            |   | **$**                   | **838,372** |                        | **$**  | **836,693**              | ** ** | **$** | **563,666** | ** ** |

 

During the quarter ended April 3, 2004,Jostens voluntarily redeemed $5.0 million principal amount of its seniorsubordinated notes and recognized a loss of $0.4 million, including the impactof purchase accounting, consisting of $0.8 million of premium paid onredemption of the notes and a net $0.4 million credit resulting from thewrite-off of related unamortized premium, original issuance discount anddeferred financing costs.

 

As of April 3, 2004, there was $9.2 million outstanding in theform of short-term borrowings at our Canadian subsidiary, at a weighted averageinterest rate of 5.75% and an additional $10.8 million outstanding in the formof letters of credit, leaving $130.0 million available under our revolvingcredit facility.

 

The senior secured credit facility and the senior subordinated notescontain certain cross-default provisions whereby a violation of a covenantunder one debt obligation would, consequently, violate covenants under theother debt obligation.  As ofApril 3, 2004, we were in compliance with all covenants.

 

As of April 3, 2004, January 3, 2004 and March 29, 2003,the fair value of our debt, excluding the senior subordinated notes and thesenior discount notes, approximated its carrying value.  The fair value of the aggregate notes as ofApril 3, 2004, January 3, 2004 and March 29, 2003 was $396.1million, $394.9 million and $242.3 million, respectively, based on the quotedmarket price.

 

**9.****     RedeemablePreferred Stock**

 

On June 29, 2003, we adopted SFAS 150, *“Accounting for Certain Financial Instruments with Characteristics ofboth Liabilities and Equity”.* In accordance with SFAS 150, we reclassified Jostens’ redeemablepreferred stock to

 

8

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the liabilities section of our condensed consolidated balancesheet and began reporting the preferred dividend as interest expense in ourresults of operations rather than as a reduction to retained earnings.  We also recognized $4.6 million cumulativeeffect of a change in accounting principle. We did not provide any tax benefit in connection with the cumulativeeffect adjustment because payment of the related preferred dividend and thediscount amortization are not tax deductible. Pro forma amounts assuming the change in accounting principle had beenin effect since the beginning of 2003 are as follows:

 
|                                                                        |   | **Three  Months Ended** |    |
|-----------------------------------------------------------------------------|--------|-------------------------|---------|
| **In thousands**                                                            |   | **April 3,  2004** |    | **Predecessor  March 29, 2003** |   |
| **Net loss available  to common shareholders**                              |   |                    |    |   |   |
| As reported                                                                 |   | $                       | (19,898 | ) | $ | (11,803 | ) |
| Dividends and accretion on redeemable  preferred shares previously reported |   | —                  |    | 3,205 |   |
| Pro forma interest expense                                                  |   | —                  |    | (2,600 | ) |
| Pro forma net loss available to common  shareholders                        |   | $                       | (19,898 | ) | $ | (11,198 | ) |

 

During the quarter ended April 3, 2004, we refined our estimate ofthe fair value of Jostens’ redeemable preferred stock as of the merger datefrom $130.0 million to $110.0 million.  Liquidation preference of the redeemablepreferred stock as of April 3, 2004, January 3, 2004 andMarch 29, 2003 was $102.5 million, $99.1 million and $89.3 million,respectively, including accrued dividends. Jostens has 4,000,000 shares of preferred stock, $.01 par value,authorized.  Jostens had 100,181, 96,793and 87,302 shares outstanding in the form of redeemable preferred stock as ofApril 3, 2004, January 3, 2004 and March 29, 2003, respectively.

 

**10.****  Pensionand Other Postretirement Benefit Plans**

 

Net periodic benefit cost for our pension and other postretirementbenefit plans for the three months ended April 3, 2004 and March 29,2003 consists of the following:

 
|                                      |   | **Pension  benefits**   |    | **Postretirement  benefits**         |   |
|-------------------------------------------|--------|-------------------------|---------|--------------------------------------|--------|
| **In thousands**                          |   | **April 3,  2004** |    | **Predecessor  March 29, 2003** |   | **April 3,  2004** |   | **Predecessor  March 29, 2003** |   |
| Service cost                              |   | $                       | 1,618   |                                 | $      | 1,454 |   | $ | 10 |   | $ | 20 |   |
| Interest cost                             |   | 3,068                   |    | 3,053                                |   | 93 |   | 116 |   |
| Expected return on plan assets            |   | (4,497                  | )       | (5,092                               | )      | — |   | (5 | ) |
| Amortization of prior year service cost   |   | —                  |    | 464                                  |   | — |   | — |   |
| Amortization of transition amount         |   | —                  |    | (138                                 | )      | — |   | 70 |   |
| Amortization of net actuarial loss (gain) |   | —                  |    | 132                                  |   | — |   | — |   |
| Net  periodic benefit expense (income)    |   | **$**                   | **189** | ** **                           | **$**  | **(127** | **)** | **$** | **103** | ** ** | **$** | **201** |   |

 

**11.****  Commitments**

 

We are subject to market risk associated withchanges in the price of gold.  Tomitigate our commodity price risk, we enter into forward contracts to purchasegold based upon the estimated ounces needed to satisfy projected customerdemand.  Our purchase commitment atApril 3, 2004 was $10.5 million with delivery dates occurring throughout2004.  These forward purchase contractsare considered normal purchases and therefore not subject to the requirementsof SFAS 133, *“Accounting for DerivativeInstruments and Hedging Activities”. *Thefair market value of our open gold forward contracts as of April 3, 2004was $11.0 million and was calculated by valuing each contract at quoted futuresprices.

 

9

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**12.****  DiscontinuedOperations**

 

In conjunction withexiting our Recognition business in December 2001, we recorded a $27.4million pre-tax loss on disposal for discontinued operations.  The pre-tax loss on disposal consisted of anon-cash charge of $11.1 million to write off certain net assets of theRecognition business plus a $16.3 million charge for accrued costs related toexiting the Recognition business.  Componentsof the accrued exit costs are as follows:

 
|                                                     |   | **Initial** |       | **Prior**   |   | **Net**         |       | **Utilization** |       | **Balance** |   |
|----------------------------------------------------------|--------|-------------|------------|-------------|--------|-----------------|------------|-----------------|------------|-------------|--------|
| **In thousands**                                         |   | **charge**  |       | **accrual** |   | **adjustments** |       | **Prior**       |       | **2004**    |   | **April 3,  2004** |   |
| Employee separation benefits and other  related costs    |   | $           | 6,164      |        | $      | —          |       | $               | (442       | )           | $      | (5,265 | ) | $ | (7 | ) | $ | 450 |   |
| Phase-out costs of exiting the Recognition  business     |   | 4,255       |       | —      |   | (1,203          | )          | (2,670          | )          | 20          |   | 402 |   |
| Salesperson transition benefits                          |   | 2,855       |       | 1,236       |   | (191            | )          | (1,707          | )          | (211        | )      | 1,982 |   |
| Other costs related to exiting the  Recognition business |   | 3,018       |       | 1,434       |   | (228            | )          | (4,224          | )          | —      |   | — |   |
|                                                     |   | **$**       | **16,292** |        | **$**  | **2,670**       | ** ** | **$**           | **(2,064** | **)**       | **$**  | **(13,866** | **)** | **$** | **(198** | **)** | **$** | **2,834** | ** ** |

 

Our obligation for separation benefits continues through 2004 over thebenefit period as specified under our severance plan, and transition benefitswill continue to be paid through the period of our contractual obligation.

 

10

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**ITEM 2.**  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

*Thefollowing discussion addresses the results of operations for Jostens, Inc. forthe three-month period ended March 29, 2003 and the combined results ofoperations for Jostens, Inc. and Jostens Holding Corp. for the three-monthperiod ended April 3, 2004. Jostens Holding Corp. is a holding company and has no significantbusiness operations.*

 

**GENERAL**

 

Jostens Holding Corp. and its subsidiaries (“we,” “our,” “us,” “JostensHoldings” or “the Company”) is a leading provider of school-related affinityproducts and services in three major product categories:  yearbooks, class rings and graduationproducts, which includes diplomas, graduation regalia, such as caps and gowns,accessories and fine paper announcements. We also are a leading provider of school photography products andservices in Canada and have a small but growing presence in the United States.

 

On June 17, 2003, we entered into a merger agreement with Jostensand Ring Acquisition Corp., an entity organized by us for the sole purpose ofeffecting an acquisition of Jostens, Inc. (“Jostens”).  On July 29, 2003, Ring AcquisitionCorp. merged with and into Jostens with Jostens surviving as an indirectsubsidiary of Jostens Holdings, which we refer to as the merger.

 

Jostens Holdings was capitalized in July 2003 through the issuanceof common stock to DLJ Merchant Banking Partners III, L.P. and certain of itsaffiliated funds (collectively, the “DLJMB Funds”) and members of ourmanagement, and received proceeds of $322.9 million.  Jostens Holdings, in turn, established a wholly-owned subsidiary,Jostens IH Corp. (“JIHC”), and capitalized it through the purchase of commonstock for $317.9 million.  JIHC used the$317.9 million, along with $100.0 million of proceeds from the issuance ofredeemable preferred stock to the DLJMB Funds, to make a capital contributionof $417.9 million 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 its common stock andwarrants representing a cash payment of $48.25 per share.

 

We accounted forthe merger using the purchase method of accounting.  The aggregate purchase price of $471.0 million, excluding certaincapitalized transaction costs, was allocated to the tangible and intangibleassets acquired and liabilities assumed, based upon their relative fair valuesas of the date of the merger.

 

As a result of the merger, the three months ended March 29, 2003 area predecessor period and the three months ended April 3, 2004 are asuccessor period.

 

**RESULTS OF OPERATIONS**

 

Ourunaudited condensed consolidated financial statements for the three-monthpredecessor period ended March 29, 2003, were prepared using thehistorical basis of accounting for Jostens, Inc.  Although a new basis of accounting began on July 29, 2003,we have adjusted our operating results for the three-month successor periodended April 3, 2004 to exclude the impact of purchase accounting. Theadjusted operating results may not reflect the actual results we would haveachieved absent the adjustments and may not be predictive of future results ofoperations.  We present this informationbecause we use it to monitor and evaluate our ongoing operating results andtrends, and believe it provides investors an understanding of our operatingperformance over comparative periods.

 

**Three Months Ended April 3, 2004 Compared to the ThreeMonths Ended March 29, 2003**

 

The following table setsforth selected information from our condensed consolidated statements ofoperations expressed as a percentage of net sales.  In the text below, amounts and percentages have been rounded andare based on the financial statement amounts.

 

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| **Dollars in thousands**                  |   | **Three  Months  Ended  April 3, 2004** |    | **Adjusted  Three Months  Ended  April 3, 2004** |   | **Predecessor  Three Months  Ended  March 29, 2003** |   | **$ Change** |     | **% Change** |     |
|-------------------------------------------|--------|----------------------------------------------|---------|-------------------------------------------------------|--------|-----------------------------------------------------------|--------|--------------|----------|--------------|----------|
| Net sales                                 |   | $                                            | 143,085 |                                                  | $      | 143,085                                                   |   | $            | 121,524  |         | $        | 21,561 |   | 17.7 | % |
| *% of net sales*                          |   | *100.0*                                      | *%*     | *100.0*                                               | *%*    | *100.0*                                                   | %      |         |     |         |     |
| Cost of products sold                     |   | 60,780                                       |    | 57,811                                                | (1)    | 50,745                                                    |   | 7,066        |     | 13.9         | %        |
| *% of net sales*                          |   | *42.5*                                       | *%*     | *40.4*                                                | *%*    | *41.8*                                                    | %      |         |     |         |     |
| Gross profit                              |   | 82,305                                       |    | 85,274                                                |   | 70,779                                                    |   | 14,495       |     | 20.5         | %        |
| *% of net sales*                          |   | *57.5*                                       | *%*     | *59.6*                                                | *%*    | *58.2*                                                    | %      |         |     |         |     |
| Selling and administrative expenses       |   | 88,303                                       |    | 77,935                                                | (2)    | 71,458                                                    |   | 6,477        |     | 9.1          | %        |
| *% of net sales*                          |   | *61.7*                                       | *%*     | *54.5*                                                | *%*    | *58.8*                                                    | %      |         |     |         |     |
| Operating (loss) income                   |   | (5,998                                       | )       | 7,339                                                 |   | (679                                                      | )      | 8,018        |     | 1180.9       | %        |
| *% of net sales*                          |   | *-4.2*                                       | *%*     | *5.1*                                                 | *%*    | *-0.6*                                                    | %      |         |     |         |     |
| Loss on redemption of debt                |   | 420                                          |    | 1,276                                                 | (3)    | —                                                    |   | 1,276        |     | NM           |     |
| *% of net sales*                          |   | *0.3*                                        | *%*     | *0.9*                                                 | *%*    | *0.0*                                                     | %      |         |     |         |     |
| Net interest expense                      |   | 19,763                                       |    | 20,620                                                | (4)    | 13,940                                                    |   | 6,680        |     | 47.9         | %        |
| *% of net sales*                          |   | *13.8*                                       | *%*     | *14.4*                                                | *%*    | *11.5*                                                    | %      |         |     |         |     |
| Loss before income taxes                  |   | (26,181                                      | )       | (14,557                                               | )      | (14,619                                                   | )      | 62           |     | 0.4          | %        |
| *% of net sales*                          |   | *-18.3*                                      | *%*     | *-10.2*                                               | *%*    | *-12.0*                                                   | %      |         |     |         |     |
| (Benefit from) provision for income taxes |   | (6,283                                       | )       | (1,755                                                | )(5)   | (6,021                                                    | )      | 4,266        |     | 70.9         | %        |
| *% of net sales*                          |   | *-4.4*                                       | *%*     | *-1.2*                                                | *%*    | *-5.0*                                                    | %      |         |     |         |     |
| Net Loss                                  |   | $                                            | (19,898 | )                                                     | $      | (12,802                                                   | )      | $            | (8,598   | )            | $        | (4,204 | ) | (48.9 | )% |
| *% of net sales*                          |   | *-13.9*                                      | *%*     | *-8.9*                                                | *%*    | *-7.1*                                                    | *%*    |         | * * |         | * * |

 

NM = percentage not meaningful

 

----

(1)   Adjusted to reverse $1.1 million of amortizationexpense for excess purchase price allocated to an intangible asset for orderbacklog and $1.9 million of depreciation expense for excess purchase priceallocated to property and equipment.

 

(2)   Adjusted to reverse $10.0 million of amortizationexpense for excess purchase price allocated to various intangible assets and$0.4 million of depreciation expense for excess purchase price allocated toproperty and equipment.

 

(3)   In connection with the partial redemption of thesenior subordinated notes, adjusted to reverse $0.9 million of acceleratedamortization for excess purchase price allocated to a premium on the notes

 

(4)   Adjusted to reverse $0.9 million of amortization forexcess purchase price allocated to a premium on the senior subordinated notes.

 

(5)   Reflects $4.5 million of income tax benefit on theadjusted items above.

 

12

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***Net Sales***

Net sales increased $21.6million, or 17.7%, to $143.1 million for the three months ended April 3,2004 from $121.5 million for the same period last year.  The majority of the increase is due tohigher sales volume, driven primarily by the timing of deliveries between thefirst and second quarters compared to last year.  Net sales also increased as a result of improved jewelry metalmix and modest price increases. Specific factors contributing to the increase in volume include:

 

•      the return of graduation product deliveries tomore typical patterns before the delivery issues we experienced last year inconnection with the implementation of an ERP system in this product line;

•      increased orders for graduation regalia productsattributable to net account growth, an increase in unit sales per school and anincrease in sales of accessory items;

•      timing of deliveries of high school class ringscompared to last year; and

•      increased jewelry orders associated withcollegiate class rings, high school and collegiate championship rings and anemerging specialty market.

 

These increases wereoffset by lower commercial printing volume and continued lower same school buyrates for high school class rings.

 

***Gross Profit***

Gross profit increased$14.5 million, or 20.5%, to $85.3 million for the three months endedApril 3, 2004 from $70.8 million for the same prior year period.  As a percentage of net sales, gross profitmargin increased 1.4 percentage points to 59.6% for the current three-monthperiod from 58.2% for the same period last year.

 

The increase in grossprofit margin is primarily attributable to the impact of the shift in salesvolume for higher margin graduation products between the first and secondquarters as discussed above.  In theprior year, our efforts to rectify the difficulties we encountered inconnection with the implementation of the ERP system and to continue to providetimely delivery of our products required us to incur additional productioncosts, as well as certain selling and administrative expenses.  Although these efforts minimized the impactto our customers, the associated costs negatively affected our margins.  We believe we have resolved most of themanufacturing challenges connected with the systems implementation.  The increase in gross profit margin in thecurrent period is also due to the general price increases and incremental salesvolume discussed above offset by higher costs for precious raw materialscompared to last year.

 

***Selling and Administrative Expenses***

Selling andadministrative expenses increased $6.5 million, or 9.1%, to $77.9 million forthe three months ended April 3, 2004 from $71.5 million for the same prioryear period.  As a percentage of netsales, selling and administrative expenses decreased 4.3 percentage points to54.5% for the current three-month period from 58.8% for the same period lastyear.

 

The $6.5 million increaseis primarily due to higher commission expense as a result of increased salesand additional investment in customer service and support.

 

These increases wereoffset by the following:

 

•      elimination of prior year non-recurring costsassociated with the difficulties encountered with the ERP systemimplementation;

•      the impact of prior year non-recurring costs forseverance, a legal settlement and acquisition related items; and

•      lower information systems expense due to thetiming of costs associated with maintenance contracts and the elimination ofdepreciation expense related to fully amortized software.

 

***Operating Income/(Loss)***

Operating income increased $8.0 million to $7.3million for the three months ended April 3, 2004 from a loss of $0.7million for the same prior year period primarily driven by the higher salesvolume achieved.

 

13

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***Loss on Redemption of Debt***

During the quarter ended April 3, 2004,Jostens voluntarily redeemed $5.0 million principal amount of its seniorsubordinated notes and recognized a loss of $0.4 million, including the impactof purchase accounting, consisting of $0.8 million of premium paid onredemption of the notes and a net $0.4 million credit resulting from thewrite-off of related unamortized premium, original issuance discount anddeferred financing costs.

 

***Net Interest Expense***

Net interest expenseincreased $6.7 million, or 47.9%, to $20.6 million for the three months endedApril 3, 2004 as compared to $13.9 million for the same prior yearperiod.  The increase was primarily dueto $3.8 million of additional interest expense on our 10.25% senior discountnotes and reclassification of $3.6 million of dividends on Jostens’ redeemablepreferred stock in connection with the prior year change in accountingprinciple.

 

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

The effective rate of taxpresented for results of operations excluding the impact of purchase accountingis not a meaningful rate because it is a component of our consolidatedeffective rate for the entire year that is affected by the seasonality of ourquarterly results.  We anticipate thatthe effective rate of tax for the entire fiscal year, excluding the impact ofpurchase accounting, will be between 48% and 53%.

 

Consistent with theprovisions of APB 18, *“Interim FinancialReporting”,* we have provided an income tax benefit based on our bestestimate of the consolidated effective tax rate applicable for the entireyear.  Based on those estimates, weprovided an income tax benefit at a consolidated effective rate of 24% for thethree months ended April 3, 2004, including the impact of purchaseaccounting, compared to 41% in the comparable prior year period.  We review our tax rate estimates on aquarterly basis and make revisions as necessary.

 

Our consolidatedeffective rate of tax benefit is less than the federal statutory rate of taxprimarily due to the effect of nondeductible interest expense associated withthe redeemable preferred stock of Jostens. Furthermore, the rate of tax benefit recorded for purchase accountingadjustments is based on the change in deferred tax liability balancesattributable to net taxable temporary differences recorded in connection withthe purchase price allocation of the prior year merger transaction.

 

***Net Loss***

As a result of theaforementioned items, net loss increased $4.2 million, or 48.9%, to $12.8million for the three months ended April 3, 2004 from $8.6 million for thesame prior year period.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Net cash provided byoperating activities for the three months ended April 3, 2004 was $19.5million compared to $18.6 million for the same prior year period.

 

Our principal sources ofliquidity are cash flows from operating activities and borrowings under oursenior secured credit facility, which includes $130.0 million available underour revolving credit facility as of April 3, 2004.  Our cash is primarily used for debt serviceobligations, capital expenditures and to fund working capitalrequirements.  We believe that cashgenerated from operations and available cash, together with availableborrowings under the senior secured credit facility, will be adequate to meetour anticipated requirements for working capital, planned capital expendituresand scheduled payments of principal and interest on our indebtedness for thenext twelve months.

 

**CAUTIONARYNOTE REGARDING FORWARD-LOOKING STATEMENTS**

 

Our disclosure andanalysis in this report may contain “forward-looking statements.”  Forward-looking statements give our currentexpectations or forecasts of future events. Forward-looking statements generally can be identified by the use offorward-looking terminology such as “may,” “will,” “expect,” “intend,”“estimate,” “anticipate,” “believe,” “project,” or “continue,” or the negativethereof or similar words.  From time totime, we also may provide oral or written forward-looking statements in othermaterials we release to the public.  Webase these forward-looking statements on assumptions that we believe arereasonable; however, these assumptions may prove incorrect

 

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and may 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.

 

These risks anduncertainties include the following: our ability to satisfy our debtobligations, including related covenants; the seasonality of our sales andoperating income; our relationship with our independent sales representativesand employees; the fluctuating prices of raw materials, primarily gold; ourdependence on a key supplier for our precious, semiprecious and syntheticstones; our dependence on numerous complex information systems for operationaland financial information; fashion, consumer preferences and demographictrends; the competitive environment; general economic conditions; litigationcases, if decided against us, that could adversely affect our financialresults; and environmental regulations that could impose substantial costs uponus adversely affecting our financial results.

 

The foregoing factors are not exhaustive, and new factors may emerge orchanges to the foregoing factors may occur that could impact our business.  Except to the extent required by law, weundertake no obligation to publicly update or revise any forward-lookingstatements.

 

#### **ITEM3.**  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK

 

There have been no material changes in our exposures to market riskduring the quarter ended April 3, 2004. For additional information, refer to Item 7A of our 2003 Form 10-K.

 

#### **ITEM4.**  CONTROLS AND PROCEDURES

 

As of the end of theperiod covered by this report, management, under the supervision of our ChiefExecutive Officer and Chief Financial Officer, 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 Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosures.  Based upon that evaluation, our ChiefExecutive Officer and Chief Financial Officer 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 has materially affected, or is reasonablylikely to materially affect, these controls.

 

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**PART II OTHER INFORMATION**

 

#### **ITEM 1.**  LEGAL PROCEEDINGS

 

We are a party to litigation arising in the normal course ofbusiness.  We regularly analyze currentinformation and, as necessary, provide accruals for probable liabilities on theeventual disposition of these matters. We believe the effect on our consolidated results of operations, cashflows and financial position, if any, for the disposition of these matters willnot be material.

 

#### **ITEM6**.  EXHIBITS ANDREPORTS ON FORM 8-K

 

**(a)****          **Exhibits

 

12            Computation of Ratioof Earnings to Fixed Charges

 

31.1         Certification of ChiefExecutive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002

 

31.2         Certification of ChiefFinancial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002

 

32.1         Certifications of ChiefExecutive Officer and Chief Financial Officer pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002.

 

**(b)****          **Reports on Form 8-K during the quarter endedApril 3, 2004

 

A Form 8-K was filed on March 5, 2004,announcing an extension of the exchange offer related to Jostens Holding Corp.10.25% senior discount notes due 2013.

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|                     | **JOSTENS HOLDING CORP.**                            |   |
|--------------------------|------------------------------------------------------|--------|
|                     |                                                 |   |
|                     |                                                 |   |
| Date:  May 14, 2004 | /s/   Robert C. Buhrmaster                      |   |
|                     | Robert C. Buhrmaster                                 |   |
|                     | *Chairman of the Board  and Chief Executive Officer* |   |
|                     |                                                 |   |
|                     |                                                 |   |
| Date:  May 14, 2004 | /s/   David A. Tayeh                            |   |
|                     | David A. Tayeh                                       |   |
|                     | *Sr. Vice President  and Chief Financial Officer*    |   |

 

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