**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

 

----

 

## **FORM 10-Q**

 

**ý****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For theQuarterly Period Ended April 2, 2005**

 

**or**

 

**o****      TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 
| **Commission****File Number** | ** ** | **Registrant, State of  Incorporation****Address and Telephone Number**                                                         | ** ** | **I.R.S.  Employer****Identification  Number** |
|-------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|
|                          |       |                                                                                                                            |       |                                           |
| **333-112055**                | ** ** | **VISANT HOLDING CORP.**                                                                                                        | ** ** | **90-0207875**                                 |
|                          |       | **(Incorporated  in Delaware)****One Byram Brook Place, Suite 202****Armonk, New York 10504****Telephone: (914) 595-8200** |       |                                           |
|                          |       |                                                                                                                            |       |                                           |
| **333-120386**                | ** ** | **VISANT CORPORATION**                                                                                                          | ** ** | **90-0207604**                                 |
|                          |       | **(Incorporated  in Delaware)  One Byram Brook Place, Suite 202  Armonk, New York 10504  Telephone: (914) 595-8200**       |       |                                           |

 

**Securities Registered Pursuant to Section 12(b) ofthe Act:**None

 

Securities Registered Pursuantto Section 12(g) of the Act: **None**

 

Indicate by check mark whether each registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports) and (2) has beensubject to such filing requirement for the past 90 days.  Yes ý   No o

 

Indicate by check mark whether any of the registrants is an acceleratedfiler (as defined in Rule 12b-2 of the Act).

Yes o    No ý

 

As of May 13, 2005, there were 5,971,577 shares of Class ACommon Stock, par value $.01 per share, and one share of Class C Common Stock,par value $.01 per share, of Visant Holding Corp. outstanding and 1,000 sharesof common stock, par value $.01 per share, of Visant Corporation outstanding(all of which are owned beneficially by Visant Holding Corp.).

 

Visant Corporation meets the conditions set forth in GeneralInstruction (H)(1)(a) and (b) of the Form 10-Q and istherefore filing this Form 10-Q with the reduced disclosure formatspecified in General Instruction (H)(2) to such Form 10-Q.

 

**FILING FORMAT**

 

This Quarterly Report on Form 10-Q is a combined reportbeing filed separately by two registrants: Visant Holding Corp. (“Holdings”) and Visant Corporation, a wholly ownedsubsidiary of Holdings (“Visant”).  Unlessthe context indicates otherwise, any references in this report to the“Company,” “we,” “our,” “us” or “Holdings” refers to Visant Holding Corp.,together with Visant Corporation and its consolidated subsidiaries.  

 

 

----

 

 

**TABLE OF CONTENTS**

 
| **PART I – FINANCIAL INFORMATION** |
|----------------------------------------------|
|                                         |   |   |
| ITEM 1.                                      | Financial Statements (Unaudited) |   |
|                                         |   |   |
|                                         | **Visant Holding Corp. and subsidiaries:** |   |
|                                         |   |   |
|                                         | Condensed Consolidated Statements of  Operations for the three months ended April 2, 2005 and April 3,  2004 |   |
|                                         |   |   |
|                                         | Condensed Consolidated Balance Sheets as of  April 2, 2005, April 3, 2004 and January 1, 2005 |   |
|                                         |   |   |
|                                         | Condensed Consolidated Statements of Cash  Flows for the three months ended April 2, 2005 and April 3, 2004 |   |
|                                         |   |   |
|                                         | **Visant Corporation and subsidiaries:** |   |
|                                         |   |   |
|                                         | Condensed Consolidated Statements of  Operations for the three months ended April 2, 2005 and April 3,  2004 |   |
|                                         |   |   |
|                                         | Condensed Consolidated Balance Sheets as of April 2, 2005, April 3,  2004 and January 1, 2005 |   |
|                                         |   |   |
|                                         | Condensed Consolidated Statements of Cash Flows for the three months  ended April 2, 2005 and April 3, 2004 |   |
|                                         |   |   |
|                                         | 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**

 

**VISANTHOLDING****CORP.AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS****OF OPERATIONS (UNAUDITED)**

 
| ** **                           | ** ** | **Three months ended** | ** **  |
|--------------------------------------|------------|------------------------|-------------|
| ** **                           | ** ** | **April 2,**      | ** **  | **April 3,** | ** ** |
| **In thousands**                     | ** ** | **2005**               | ** **  | **2004** | ** ** |
| **Net  sales**                       | ** ** | **$**                  | **309,120** | ** ** | **$** | **310,084** | ** ** |
| Cost of  products sold               |       | 189,514                |        | 192,322 |   |
| Gross profit                         | ** ** | **119,606**            | ** **  | **117,762** | ** ** |
| Selling and  administrative expenses |       | 103,177                |        | 107,273 |   |
| Transaction  costs                   |       | 884                    |        | — |   |
| Special  charges                     |       | 2,952                  |        | 690 |   |
| **Operating  income**                | ** ** | **12,593**             | ** **  | **9,799** | ** ** |
| Loss on  redemption of debt          |       | —                 |        | 420 |   |
| Interest  expense, net               |       | 30,568                 |        | 42,537 |   |
| Loss before  income taxes            | ** ** | **(17,975**            | **)**       | **(33,158** | **)** |
| Benefit from  income taxes           |       | (7,446                 | )           | (5,612 | ) |
| **Net loss**                         | ** ** | **$**                  | **(10,529** | **)** | **$** | **(27,546** | **)** |

 

*See accompanying Notes to theCondensed Consolidating Financial Statements.*

 

1

----

 

**VISANTHOLDING CORP. AND SUBSIDIARIES**

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

 
| ** **                                                                                                                                                                                                     | ** ** | **April 2,** | ** **    | **April 3,** | ** ** | **January 1,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|---------------|-------------------|------------|---------------------|------------|
| **In thousands, except share amounts**                                                                                                                                                                         | ** ** | **2005**          | ** **    | **2004**          | ** ** | **2005**            | ** ** |
| **ASSETS**                                                                                                                                                                                                     |       |              |          |              |       |                |       |
| Cash and  cash equivalents                                                                                                                                                                                     |       | $                 | 27,893        |              | $          | 57,536              |       | $ | 84,964 |   |
| Accounts  receivable, net                                                                                                                                                                                      |       | 167,219           |          | 155,391           |       | 158,243             |       |
| Inventories,  net                                                                                                                                                                                              |       | 169,862           |          | 154,522           |       | 129,450             |       |
| Salespersons  overdrafts, net of allowance of $13,258, $11,144 and $12,722, respectively                                                                                                                       |       | 39,494            |          | 32,916            |       | 35,415              |       |
| Prepaid  expenses and other current assets                                                                                                                                                                     |       | 16,479            |          | 17,835            |       | 13,639              |       |
| Deferred  income taxes                                                                                                                                                                                         |       | 60,600            |          | 3,679             |       | 58,892              |       |
| **Total  current assets**                                                                                                                                                                                      | ** ** | **481,547**       | ** **    | **421,879**       | ** ** | **480,603**         | ** ** |
| Property,  plant and equipment                                                                                                                                                                                 |       | 536,039           |          | 502,805           |       | 521,284             |       |
| Less  accumulated depreciation                                                                                                                                                                                 |       | (295,024          | )             | (236,800          | )          | (280,161            | )          |
| Property,  plant and equipment, net                                                                                                                                                                            | ** ** | **241,015**       | ** **    | **266,005**       | ** ** | **241,123**         | ** ** |
| Goodwill                                                                                                                                                                                                       |       | 1,108,462         |          | 1,118,678         |       | 1,108,445           |       |
| Intangibles,  net                                                                                                                                                                                              |       | 595,445           |          | 688,035           |       | 606,195             |       |
| Deferred  financing costs, net                                                                                                                                                                                 |       | 60,200            |          | 42,582            |       | 64,127              |       |
| Other assets                                                                                                                                                                                                   |       | 11,039            |          | 10,999            |       | 10,904              |       |
| **Total  assets**                                                                                                                                                                                              | ** ** | **$**             | **2,497,708** | ** **        | **$**      | **2,548,178**       | ** ** | **$** | **2,511,397** | ** ** |
|                                                                                                                                                                                                           |       |              |          |              |       |                |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                 |       |              |          |              |       |                |       |
| Short-term  borrowings                                                                                                                                                                                         |       | $                 | 9,130         |              | $          | 51,963              |       | $ | 8,300 |   |
| Accounts  payable                                                                                                                                                                                              |       | 54,405            |          | 52,632            |       | 53,505              |       |
| Accrued  employee compensation and related taxes                                                                                                                                                               |       | 43,355            |          | 37,052            |       | 46,860              |       |
| Commissions  payable                                                                                                                                                                                           |       | 24,570            |          | 26,105            |       | 16,694              |       |
| Customer  deposits                                                                                                                                                                                             |       | 213,231           |          | 193,036           |       | 156,511             |       |
| Current  portion of long-term debt                                                                                                                                                                             |       | —            |          | 2,063             |       | 19,950              |       |
| Deferred  income taxes                                                                                                                                                                                         |       | —            |          | 3,852             |       | —              |       |
| Other  accrued liabilities                                                                                                                                                                                     |       | 37,862            |          | 60,447            |       | 44,486              |       |
| **Total  current liabilities**                                                                                                                                                                                 | ** ** | **382,553**       | ** **    | **427,150**       | ** ** | **346,306**         | ** ** |
|                                                                                                                                                                                                           |       |              |          |              |       |                |       |
| Long-term  debt - less current maturities                                                                                                                                                                      |       | 1,627,827         |          | 1,436,885         |       | 1,667,231           |       |
| Redeemable  preferred stock                                                                                                                                                                                    |       | —            |          | 247,059           |       | —              |       |
| Deferred  income taxes                                                                                                                                                                                         |       | 245,928           |          | 255,337           |       | 252,414             |       |
| Pension  liabilities, net                                                                                                                                                                                      |       | 27,094            |          | 29,279            |       | 27,489              |       |
| Other  noncurrent liabilities                                                                                                                                                                                  |       | 6,799             |          | 5,947             |       | 5,643               |       |
| **Total  liabilities**                                                                                                                                                                                         | ** ** | **2,290,201**     | ** **    | **2,401,657**     | ** ** | **2,299,083**       | ** ** |
|                                                                                                                                                                                                           |       |              |          |              |       |                |       |
| Commitments  and contingencies                                                                                                                                                                                 |       |              |          |              |       |                |       |
|                                                                                                                                                                                                           |       |              |          |              |       |                |       |
| Common  stock:                                                                                                                                                                                                 |       |              |          |              |       |                |       |
| Class A  $.01 par value; authorized 7,000,000 shares; issued and outstanding:  5,971,577 shares at April 2, 2005; 504,584 shares at April 3, 2004  and 5,909,844 shares at January 1, 2005 |       |              |          |              |       |                |       |
| Class B  $.01 par value; non-voting; authorized 2,724,759 shares; issued and  outstanding: none at April 2, 2005 and January 1, 2005; 2,724,759  shares at April 3, 2004                   |       |              |          |              |       |                |       |
| Class C  $.01 par value; authorized 1 share; issued and outstanding: 1 share at April 2,  2005 and January 1, 2005; none at April 3, 2004                                                  |       | 60                |          | 32                |       | 59                  |       |
| Additional  paid-in-capital                                                                                                                                                                                    |       | 524,359           |          | 380,377           |       | 518,413             |       |
| Accumulated  deficit                                                                                                                                                                                           |       | (318,146          | )             | (234,465          | )          | (307,617            | )          |
| Accumulated  other comprehensive income                                                                                                                                                                        |       | 1,234             |          | 1,117             |       | 1,459               |       |
| Officer  notes receivable                                                                                                                                                                                      |       | —            |          | (540              | )          | —              |       |
| **Total  stockholders’ equity**                                                                                                                                                                           | ** ** | **207,507**       | ** **    | **146,521**       | ** ** | **212,314**         | ** ** |
| **Total  liabilities and stockholders’ equity**                                                                                                                                                           | ** ** | **$**             | **2,497,708** | ** **        | **$**      | **2,548,178**       | ** ** | **$** | **2,511,397** | ** ** |

 

*See accompanying Notes to the CondensedConsolidated Financial Statements.*

 

2

----

 

**VISANTHOLDING CORP. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH****FLOWS (UNAUDITED)**

 
| ** **                                                                       | ** ** | **Three months ended** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                       | ** ** | **April 2,**      | ** ** | **April 3,** | ** ** |
| **In thousands**                                                                 | ** ** | **2005**               | ** ** | **2004** | ** ** |
| Net loss                                                                         |       | $                      | (10,529    | ) | $ | (27,546 | ) |
| Adjustments  to reconcile net loss to net cash provided by operating activities: |       |                   |       |   |   |
| Depreciation                                                                     |       | 15,192                 |       | 16,233 |   |
| Amortization  of intangible assets                                               |       | 11,760                 |       | 12,191 |   |
| Amortization  of debt discount, premium and deferred financing costs             |       | 8,305                  |       | 5,187 |   |
| Other  amortization                                                              |       | 193                    |       | 212 |   |
| Accrued  interest on redeemable preferred stock                                  |       | —                 |       | 11,922 |   |
| Deferred  income taxes                                                           |       | (8,194                 | )          | (5,093 | ) |
| Loss on  redemption of debt                                                      |       | —                 |       | 420 |   |
| Other                                                                            |       | (162                   | )          | 271 |   |
| Changes in  assets and liabilities:                                              |       |                   |       |   |   |
| Accounts  receivable                                                             |       | (9,329                 | )          | (13,683 | ) |
| Inventories                                                                      |       | (40,378                | )          | (42,540 | ) |
| Accounts  payable and accrued expenses                                           |       | 5,598                  |       | 11,778 |   |
| Customer  deposits                                                               |       | 56,668                 |       | 43,189 |   |
| Other                                                                            |       | (13,040                | )          | (960 | ) |
| **Net cash  provided by operating activities**                                   | ** ** | **16,084**             | ** ** | **11,581** | ** ** |
| Purchases of  property, plant and equipment                                      |       | (15,345                | )          | (10,300 | ) |
| Other  investing activities, net                                                 |       | (862                   | )          | (50 | ) |
| **Net cash  used in investing activities**                                       | ** ** | **(16,207**            | **)**      | **(10,350** | **)** |
| Net  short-term borrowings                                                       |       | 800                    |       | 9,722 |   |
| Principal  payments on long-term debt                                            |       | (63,600                | )          | (500 | ) |
| Redemption  of senior subordinated notes                                         |       | —                 |       | (5,800 | ) |
| Proceeds  from issuance of long-term debt                                        |       | —                 |       | 4,000 |   |
| Net proceeds  from issuance of common stock                                      |       | 5,946                  |       | — |   |
| Other                                                                            |       | (134                   | )          | (242 | ) |
| **Net cash  (used in) provided by financing activities**                         | ** ** | **(56,988**            | **)**      | **7,180** | ** ** |
| Effect of  exchange rate changes on cash and cash equivalents                    |       | 40                     |       | 13 |   |
| (Decrease)  increase in cash and cash equivalents                                |       | (57,071                | )          | 8,424 |   |
| Cash and  cash equivalents, beginning of period                                  |       | 84,964                 |       | 49,112 |   |
| **Cash and  cash equivalents, end of period**                                    | ** ** | **$**                  | **27,893** | ** ** | **$** | **57,536** | ** ** |

 

*Seeaccompanying Notes to the Condensed Consolidated Financial Statements.*

 

3

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**VISANT CORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS****(UNAUDITED)**

 
| ** **                           | ** ** | **Three months ended** | ** **  |
|--------------------------------------|------------|------------------------|-------------|
| ** **                           | ** ** | **April 2,**      | ** **  | **April 3,** | ** ** |
| **In thousands**                     | ** ** | **2005**               | ** **  | **2004** | ** ** |
| **Net  sales**                       | ** ** | **$**                  | **309,120** | ** ** | **$** | **310,084** | ** ** |
| Cost of  products sold               |       | 189,514                |        | 192,322 |   |
| Gross profit                         | ** ** | **119,606**            | ** **  | **117,762** | ** ** |
| Selling and  administrative expenses |       | 103,133                |        | 107,195 |   |
| Transaction  costs                   |       | 884                    |        | — |   |
| Special  charges                     |       | 2,952                  |        | 690 |   |
| **Operating  income**                | ** ** | **12,637**             | ** **  | **9,877** | ** ** |
| Loss on  redemption of debt          |       | —                 |        | 420 |   |
| Interest  expense, net               |       | 26,233                 |        | 38,603 |   |
| Loss before  income taxes            | ** ** | **(13,596**            | **)**       | **(29,146** | **)** |
| Benefit from  income taxes           |       | (5,507                 | )           | (1,546 | ) |
| **Net loss**                         | ** ** | **$**                  | **(8,089**  | **)** | **$** | **(27,600** | **)** |

 

*See accompanying Notes to the CondensedConsolidating Financial Statements.*

 

4

----

 

**VISANTCORPORATION AND SUBSIDIARIES**

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

 
| ** **                                                                                        | ** ** | **April 2,** | ** **    | **April 3,** | ** ** | **January 1,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------|---------------|-------------------|------------|---------------------|------------|
| **In thousands, except share  amounts**                                                           | ** ** | **2005**          | ** **    | **2004**          | ** ** | **2005**            | ** ** |
| **ASSETS**                                                                                        |       |              |          |              |       |                |       |
| Cash and  cash equivalents                                                                        |       | $                 | 18,235        |              | $          | 53,576              |       | $ | 82,269 |   |
| Accounts  receivable, net                                                                         |       | 167,219           |          | 155,391           |       | 158,243             |       |
| Inventories,  net                                                                                 |       | 169,862           |          | 154,522           |       | 129,450             |       |
| Salespersons  overdrafts, net of allowance of $13,258, $11,144 and $12,722, respectively          |       | 39,494            |          | 32,916            |       | 35,415              |       |
| Prepaid  expenses and other current assets                                                        |       | 16,479            |          | 17,835            |       | 13,639              |       |
| Deferred  income taxes                                                                            |       | 60,600            |          | 3,679             |       | 58,892              |       |
| **Total  current assets**                                                                         | ** ** | **471,889**       | ** **    | **417,919**       | ** ** | **477,908**         | ** ** |
| Property,  plant and equipment                                                                    |       | 536,039           |          | 497,905           |       | 521,284             |       |
| Less  accumulated depreciation                                                                    |       | (295,024          | )             | (236,780          | )          | (280,161            | )          |
| Property,  plant and equipment, net                                                               | ** ** | **241,015**       | ** **    | **261,125**       | ** ** | **241,123**         | ** ** |
| Goodwill                                                                                          |       | 1,108,462         |          | 1,118,678         |       | 1,108,445           |       |
| Intangibles,  net                                                                                 |       | 595,445           |          | 688,035           |       | 606,195             |       |
| Deferred  financing costs, net                                                                    |       | 54,859            |          | 36,841            |       | 58,679              |       |
| Other assets                                                                                      |       | 11,039            |          | 11,091            |       | 10,904              |       |
| **Total  assets**                                                                                 | ** ** | **$**             | **2,482,709** | ** **        | **$**      | **2,533,689**       | ** ** | **$** | **2,503,254** | ** ** |
|                                                                                              |       |              |          |              |       |                |       |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY**                                                    |       |              |          |              |       |                |       |
| Short-term  borrowings                                                                            |       | $                 | 9,130         |              | $          | 51,963              |       | $ | 8,300 |   |
| Accounts  payable                                                                                 |       | 54,401            |          | 52,555            |       | 53,505              |       |
| Accrued  employee compensation and related taxes                                                  |       | 43,355            |          | 37,052            |       | 46,860              |       |
| Commissions  payable                                                                              |       | 24,570            |          | 26,105            |       | 16,694              |       |
| Customer  deposits                                                                                |       | 213,231           |          | 193,036           |       | 156,511             |       |
| Current  portion of long-term debt                                                                |       | —            |          | 2,063             |       | 19,950              |       |
| Deferred  income taxes                                                                            |       | —            |          | 3,852             |       | —              |       |
| Other  accrued liabilities                                                                        |       | 38,400            |          | 63,098            |       | 45,707              |       |
| **Total  current liabilities**                                                                    | ** ** | **383,087**       | ** **    | **429,724**       | ** ** | **347,527**         | ** ** |
|                                                                                              |       |              |          |              |       |                |       |
| Long-term  debt - less current maturities                                                         |       | 1,456,400         |          | 1,277,757         |       | 1,500,050           |       |
| Redeemable  preferred stock                                                                       |       | —            |          | 247,059           |       | —              |       |
| Deferred  income taxes                                                                            |       | 253,854           |          | 257,232           |       | 258,769             |       |
| Pension  liabilities, net                                                                         |       | 27,094            |          | 29,279            |       | 27,489              |       |
| Other  noncurrent liabilities                                                                     |       | 6,799             |          | 5,947             |       | 5,643               |       |
| **Total  liabilities**                                                                            | ** ** | **2,127,234**     | ** **    | **2,246,998**     | ** ** | **2,139,478**       | ** ** |
|                                                                                              |       |              |          |              |       |                |       |
| Commitments  and contingencies                                                                    |       |              |          |              |       |                |       |
|                                                                                              |       |              |          |              |       |                |       |
| Common stock  $.01 par value; authorized: 2,000,000 shares; issued and outstanding: 1,000  shares |       | —            |          | —            |       | —              |       |
| Additional  paid-in-capital                                                                       |       | 658,839           |          | 516,995           |       | 658,826             |       |
| Accumulated  deficit                                                                              |       | (304,598          | )             | (230,881          | )          | (296,509            | )          |
| Accumulated  other comprehensive income                                                           |       | 1,234             |          | 1,117             |       | 1,459               |       |
| Officer  notes receivable                                                                         |       | —            |          | (540              | )          | —              |       |
| **Total  stockholder’s equity**                                                              | ** ** | **355,475**       | ** **    | **286,691**       | ** ** | **363,776**         | ** ** |
| **Total  liabilities and stockholder’s equity**                                              | ** ** | **$**             | **2,482,709** | ** **        | **$**      | **2,533,689**       | ** ** | **$** | **2,503,254** | ** ** |

 

*See accompanying Notes to the CondensedConsolidated Financial Statements.*

 

5

----

 

**VISANT CORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

 
| ** **                                                                       | ** ** | **Three months ended**  | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------------|------------|
| **In thousands**                                                                 | ** ** | **April 2,  2005** | ** ** | **April 3,  2004** | ** ** |
| Net loss                                                                         |       | $                       | (8,089     | ) | $ | (27,600 | ) |
| Adjustments to reconcile  net loss to net cash provided by operating activities: |       |                    |       |   |   |
| Depreciation                                                                     |       | 15,192                  |       | 16,213 |   |
| Amortization of intangible  assets                                               |       | 11,760                  |       | 12,191 |   |
| Amortization of debt  discount, premium and deferred financing costs             |       | 3,951                   |       | 1,412 |   |
| Other amortization                                                               |       | 193                     |       | 212 |   |
| Accrued interest on  redeemable preferred stock                                  |       | —                  |       | 11,922 |   |
| Deferred income taxes                                                            |       | (6,623                  | )          | (3,672 | ) |
| Loss on redemption of debt                                                       |       | —                  |       | 420 |   |
| Other                                                                            |       | (162                    | )          | 271 |   |
| Changes in assets and  liabilities:                                              |       |                    |       |   |   |
| Accounts receivable                                                              |       | (9,329                  | )          | (13,683 | ) |
| Inventories                                                                      |       | (40,378                 | )          | (42,540 | ) |
| Accounts payable and  accrued expenses                                           |       | 4,538                   |       | 12,083 |   |
| Customer deposits                                                                |       | 56,668                  |       | 43,189 |   |
| Other                                                                            |       | (12,667                 | )          | 1,684 |   |
| **Net cash provided by operating  activities**                                   |       | **15,054**              | ** ** | **12,102** |   |
| Purchases of property,  plant and equipment                                      |       | (15,345                 | )          | (5,400 | ) |
| Other investing activities,  net                                                 |       | (862                    | )          | (50 | ) |
| **Net cash used in investing  activities**                                       |       | **(16,207**             | **)**      | **(5,450** | **)** |
| Net short-term borrowings                                                        |       | 800                     |       | 9,722 |   |
| Principal payments on  long-term debt                                            |       | (63,600                 | )          | (500 | ) |
| Redemption of senior  subordinated notes                                         |       | —                  |       | (5,800 | ) |
| Other                                                                            |       | (121                    | )          | (242 | ) |
| **Net cash (used in) provided by  financing activities**                         |       | **(62,921**             | **)**      | **3,180** |   |
| Effect of exchange rate  changes on cash and cash equivalents                    |       | 40                      |       | 13 |   |
| (Decrease) increase in cash  and cash equivalents                                |       | (64,034                 | )          | 9,845 |   |
| Cash and cash equivalents,  beginning of period                                  |       | 82,269                  |       | 43,731 |   |
| **Cash and cash equivalents, end  of period**                                    |       | **$**                   | **18,235** | ** ** | **$** | **53,576** |   |

 

*See accompanying Notes to the Condensed ConsolidatedFinancial Statements.*

 

6

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**Notes****to Condensed Consolidated Financial Statements (Unaudited)**

***Visant Holding Corp. and subsidiaries***

 

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

 

***Basis of Presentation***

The unaudited condensed consolidated financial statements includedherein are those of:

 

•                  VisantHolding Corp. and its wholly-owned subsidiaries (“Holdings”) which includeVisant Corporation (“Visant”); and

•                  Visantand its wholly-owned subsidiaries.

 

All significant intercompany balances and transactions have beeneliminated in consolidation.

 

As a result of the 2004 Transactions as discussed in Note 2, thecondensed consolidated financial statements include the consolidation ofJostens, Inc. (“Jostens”), Von Hoffmann Holdings, Inc. (“Von Hoffmann”)and AHC I Acquisition Corp. (“Arcade”), entities under common control since July 30,2003.

 

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 RegulationS-X.  Accordingly, they do not includeall of the information and footnotes required by accounting principlesgenerally accepted in the United States for complete financial statements.  In the opinion of management, all adjustments(consisting of normal recurring adjustments) considered necessary for a fairpresentation have been included. Operating results for the interim periods presented are not necessarilyindicative of the results that may be expected for the full year.  These financial statements should be read inconjunction with the consolidated financial statements and footnotes includedin our Form 10-K for the fiscal year ended January 1, 2005 (“2004Form 10-K”).

 

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.

 

Certain amounts in our prior period financial statements and notes havebeen reclassified to conform to the current period presentation.

 

***Stock-BasedCompensation***

We apply the intrinsic method prescribed byAccounting Principles Board Opinion (“APB”) 25, *Accounting for Stock Issued to Employees,*and relatedinterpretations in accounting for stock options granted to employees andnon-employee directors.  Accordingly,since all options are granted at or above fair value, no compensation cost istypically reflected in net income (loss) for these plans.  Our pro forma net loss incorporating theamortization of the stock-based compensation expense determined under the fairvalue recognition provisions of Statement of Financial Accounting Standards (“SFAS”)123, *Accounting for Stock-BasedCompensation,*would not have been materially different from thereported net loss.

 

***Recent Accounting Pronouncements***

 

***SFAS 123R – Statement of Accounting Standards No. 123(revised 2004) Share-Based Payment***

In December 2004, the Financial Accounting Standards Board (“FASB”)issued a revision of SFAS 123.  Thisstatement eliminates the alternative to use the intrinsic value method ofaccounting that was permitted in SFAS 123 as originally issued and will requirerecognition of compensation expense related to all equity awards granted afterthe required effective date and to awards modified, repurchased, or cancelledafter that date based on the grant date fair values of the awards.  This statement is effective for us as of thefirst interim or annual reporting period that commences after December 15,2005.  We have not yet determined theimpact of adopting this statement on our consolidated financial position,results of operations or cash flows.

 

7

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***FSP 109-2 – Accounting and Disclosure Guidance for theForeign Earnings Repatriation Provision within the American Jobs Creation Actof 2004.***

In October 2004, the American Jobs Creation Actof 2004 (the “AJC Act”) was signed into law. This legislation creates, among other things, a temporary incentive forU.S. multinational companies to repatriate accumulated income earned outsidethe U.S. at a favorable rate of tax.  TheU.S. Treasury Department has not completed its release of guidelines forapplying the repatriation provisions of the AJC Act.  In December 2004, the FASB issued StaffPosition (FSP) 109-2, which provides accounting and disclosure guidancefor the repatriation provision.  Although weintend to repatriate earnings from our Canadian subsidiary in an amount thatcould range from $8 million to $13 million, we have not completed our analysisof the tax effect of such a distribution because we need additional guidancefrom the U.S. Treasury Department clarifying key elements of the AJC Act.  We anticipate that our analysis of the taxbenefit of repatriation will be completed by the fourth quarter of 2005 andthat the effect on the Company’s effective annual rate will be recorded at thattime.

 

**2.****              2004 Transactions**

 

OnOctober 4, 2004, an affiliate of Kohlberg Kravis Roberts & Co.L.P. (“KKR”) and affiliates of DLJ Merchant Banking Partners completedtransactions (collectively, the “2004 Transactions”) which created a specialtyprinting, marketing and school-related affinity products and servicesorganization comprised of the operations of Jostens, Von Hoffmann, includingVon Hoffmann’s subsidiary, The Lehigh Press, Inc., and Arcade.

 

Prior to the 2004 Transactions, Von Hoffmann and Arcade were eachcontrolled by affiliates of DLJ Merchant BankingPartners II, L.P. (“DLJMBP II”), and DLJ Merchant BankingPartners III, L.P. (“DLJMBP III”) owned approximately 82.5% of Holdings’outstanding equity, with the remainder held by other co-investors and certainmembers of management.  Upon consummationof the 2004 Transactions, an affiliate of KKR invested $256.1 million and wasissued equity interests representing approximately 49.6% of Holdings’ votinginterest and 45% of Holdings’ economic interest.   Approximately $175.6 million of the proceedswere distributed to certain shareholders, and certain treasury stock held byVon Hoffmann was redeemed.  As a resultof the 2004 Transactions, affiliates of DLJMBP III held equity interestsrepresenting approximately 41% of our voting interest and 45% of our economicinterest, with the remainder held by other co-investors and certain members ofmanagement.  After giving effect to theissuance of equity to additional members of management, as of May 13, 2005affiliates of KKR and DLJMBP III hold approximately 49.1% and 41%,respectively, of the voting interests of Holdings, while each continues to holdapproximately 45% of Holdings’ economic interest.

 

In connection with the 2004 Transactions, Visant entered into newsenior secured credit facilities, providing for an aggregate amount of $1,270million, including a $250 million revolving credit facility, and issued$500 million aggregate principal amount of 75/8%senior subordinated notes.   Also inconnection with the 2004 Transactions, Jostens, Von Hoffmann and Arcade repaidtheir existing indebtedness having an aggregate face value of $1,392.6 millionincluding redemption value of certain remaining redeemable preferred stock.

 

**3.****              Comprehensive Loss**

 

The following amounts were included in determining comprehensive lossfor Holdings:

 
| ** **                                   | ** ** | **Three months ended**  | ** ** |
|----------------------------------------------|------------|-------------------------|------------|
| **In thousands**                             | ** ** | **April 2,  2005** | ** ** | **April 3,  2004** | ** ** |
| Net loss                                     |       | $                       | (10,529    | ) | $ | (27,546 | ) |
| Change in  cumulative translation adjustment |       | (225                    | )          | 212 |   |
| Comprehensive  loss                          |       | $                       | (10,754    | ) | $ | (27,334 | ) |

 

8

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The followingamounts were included in determining comprehensive loss for Visant:

 
| ** **                                   | ** ** | **Three months ended**  | ** ** |
|----------------------------------------------|------------|-------------------------|------------|
| **In thousands**                             | ** ** | **April 2,  2005** | ** ** | **April 3,  2004** | ** ** |
| Net loss                                     |       | $                       | (8,089     | ) | $ | (27,600 | ) |
| Change in  cumulative translation adjustment |       | (225                    | )          | 212 |   |
| Comprehensive  loss                          |       | $                       | (8,314     | ) | $ | (27,388 | ) |

 

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

 

Accounts receivable, net were comprised of the following:

 
| **In thousands**                 | ** ** | **April 2,  2005** | ** **  | **April 3,  2004** | ** ** | **January 1,  2005** | ** ** |
|----------------------------------|------------|-------------------------|-------------|-------------------------|------------|---------------------------|------------|
| Trade  receivables               |       | $                       | 179,685     |                    | $          | 168,176                   |       | $ | 167,663 |   |
| Allowance  for doubtful accounts |       | (3,852                  | )           | (3,945                  | )          | (3,621                    | )          |
| Allowance  for sales returns     |       | (8,614                  | )           | (8,840                  | )          | (5,799                    | )          |
| Accounts  receivable, net        |       | **$**                   | **167,219** | ** **              | **$**      | **155,391**               | ** ** | **$** | **158,243** | ** ** |

 

Netinventories were comprised of the following

 
| **In thousands**            | ** ** | **April 2,  2005** | ** **  | **April 3,  2004** | ** ** | **January 1,  2005** | ** ** |
|-----------------------------|------------|-------------------------|-------------|-------------------------|------------|---------------------------|------------|
| Raw materials  and supplies |       | $                       | 47,223      |                    | $          | 37,460                    |       | $ | 44,989 |   |
| Work-in-process             |       | 82,104                  |        | 76,337                  |       | 47,695                    |       |
| Finished  goods             |       | 42,707                  |        | 41,959                  |       | 38,938                    |       |
|                        |       | 172,034                 |        | 155,756                 |       | 131,622                   |       |
| LIFO reserve                |       | (2,172                  | )           | (1,234                  | )          | (2,172                    | )          |
| Inventories,  net           |       | **$**                   | **169,862** | ** **              | **$**      | **154,522**               | ** ** | **$** | **129,450** |   |

 

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

 

The changes in the carrying amount of goodwill wereas follows:

 
| ** **                           | ** ** | **Three months ended**  | ** **    |
|--------------------------------------|------------|-------------------------|---------------|
| **In thousands**                     | ** ** | **April 2,  2005** | ** **    | **April 3,  2004** | ** ** |
| Balance at  beginning of year        |       | $                       | 1,108,445     |   | $ | 1,138,664 |   |
| Goodwill  acquired during the period |       | 17                      |          | 14 |   |
| Purchase  price adjustments          |       | —                  |          | (20,000 | ) |
| Balance at  end of period            |       | **$**                   | **1,108,462** | ** ** | **$** | **1,118,678** |   |

 

9

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As of April 2, 2005, $717.3 million and $391.2 million of goodwillhas been allocated to Jostens and the Print Group, respectively.

 

During the first quarter of 2004, purchase price adjustments primarilyrelate to Jostens and consist of a reduction to the fair value of Jostens’redeemable preferred stock in the amount of $20.0 million.

 

Information regarding our other intangible assets, net as of the datesindicated is as follows:

 
| ** **                      | ** ** | ** **      | ** ** | **April 2, 2005** | ** **  | **April 3, 2004** | ** ** |
|---------------------------------|------------|-----------------|------------|------------------------|-------------|------------------------|------------|
| ** **                      | ** ** | ** **      | ** ** | **Gross**              | ** **  | ** **             | ** ** | ** ** | ** ** | **Gross** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                      | ** ** | **Estimated**   | ** ** | **carrying**           | ** **  | **Accumulated**        | ** ** | ** ** | ** ** | **carrying** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| **In thousands**                | ** ** | **useful life** | ** ** | **amount**             | ** **  | **amortization**       | ** ** | **Net** | ** ** | **amount** | ** ** | **amortization** | ** ** | **Net** | ** ** |
| School  relationships           |       | 10 years        |       | $                      | 330,000     |                   | $          | (55,632 | ) | $ | 274,368 |   | $ | 330,000 |   | $ | (22,759 | ) | $ | 307,241 |   |
| Order  backlog                  |       | 1.5 years       |       | 48,700                 |        | (48,700                | )          | — |   | 49,394 |   | (3,928 | ) | 45,466 |   |
| Internally  developed software  |       | 2 to 5 years    |       | 12,200                 |        | (5,786                 | )          | 6,414 |   | 12,200 |   | (2,315 | ) | 9,885 |   |
| Patented/unpatented  technology |       | 3 years         |       | 19,668                 |        | (8,868                 | )          | 10,800 |   | 19,548 |   | (4,416 | ) | 15,132 |   |
| Customer  relationships         |       | 4 to 40  years  |       | 36,455                 |        | (8,521                 | )          | 27,934 |   | 35,455 |   | (5,877 | ) | 29,578 |   |
| Other                           |       | 3 years         |       | 16,619                 |        | (5,270                 | )          | 11,349 |   | 17,619 |   | (1,466 | ) | 16,153 |   |
|                            |       |            |       | 463,642                |        | (132,777               | )          | 330,865 |   | 464,216 |   | (40,761 | ) | 423,455 |   |
| Trademarks                      |       | Indefinite      |       | 264,580                |        | —                 |       | 264,580 |   | 264,580 |   | — |   | 264,580 |   |
| ** **                      | ** ** | ** **      | ** ** | **$**                  | **728,222** | ** **             | **$**      | **(132,777** | **)** | **$** | **595,445** | ** ** | **$** | **728,796** | ** ** | **$** | **(40,761** | **)** | **$** | **688,035** | ** ** |
|                                 |            |                 |            |                        |             |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Amortization expense related to other intangible assets was $11.8million and $12.2 million for the three months ended April 2, 2005 and April 3,2004, respectively.  Based on intangibleassets in service as of April 2, 2005, estimated amortization expense forthe remainder of 2005 and each of the five succeeding fiscal years is $34.8million, $44.4 million, $40.6 million, $38.8 million, $34.9 million and $33.5million, respectively.

 

**6.****              Special Charges**

 

During the first quarter of 2005, we recorded$3.0 million of special charges, including $2.2 million related to severancepayments and related benefits associated with the reduction in headcount of 25Jostens employees.  We also recordedseverance of $0.4 million related to Print Group personnel as well as $0.3million of costs related to a withdrawal liability under a union retirementplan that is payable in connection with the consolidation of certainoperations.

 

Restructuring accruals of $6.1 million as of April 2, 2005 and$8.1 million as of January 1, 2005 are included in other accruedliabilities in the condensed consolidated balance sheets.  The accruals as of January 1, 2005include amounts provided for severance related to reductions in corporate andadministrative employees as well as the consolidation of our Print Group’s one-and two-color print operations.

 

On a cumulative basis through April 2,2005, we incurred $13.4 million of employee severance costs related toinitiatives begun in 2004 (“2004 initiatives”), which affected 310employees.  To date, we have paid $9.9million in cash related to these initiatives.

 

10

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Changes in the restructuring accruals duringthe first quarter of 2005 were as follows:

 
| ** **                       | ** ** | **2004 Initiatives** | ** ** | **2005 Initiatives** | ** ** | **Total**  | ** ** |
|----------------------------------|------------|----------------------|------------|----------------------|------------|------------|------------|
| ** **                       | ** ** | ** **           | ** ** | **No. of**      | ** ** | ** ** | ** ** | **No. of** | ** ** | ** ** | ** ** | **No. of** | ** ** |
| ** **                       | ** ** | ** **           | ** ** | **employees**        | ** ** | ** ** | ** ** | **employees** | ** ** | ** ** | ** ** | **employees** | ** ** |
| **In thousands**                 | ** ** | **Amount**           | ** ** | **affected**         | ** ** | **Amount** | ** ** | **affected** | ** ** | **Amount** | ** ** | **affected** | ** ** |
| Balance at January 1,  2005 |       | $                    | 8,121      |                 | 162        |       | $          | — |   | — |   | $ | 8,121 |   | 162 |   |
| Restructuring  charges           |       | —               |       | —               |       | 2,632      |       | 25 |   | 2,632 |   | 25 |   |
| Severance  paid                  |       | (4,665               | )          | (162                 | )          | (31        | )          | (20 | ) | (4,696 | ) | (182 | ) |
| Balance at April 2,  2005   | ** ** | **$**                | **3,456**  | ** **           | **—** | ** ** | **$**      | **2,601** | ** ** | **5** | ** ** | **$** | **6,057** | ** ** | **5** | ** ** |

 

We expect the majority of the remainingseverance payments to be paid during 2005.

 

11

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**7.****              Long-Term Debt**

 

Long-term debt consists of the following:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                   | ** ** | **April 2,** | ** **    | **April 3,** | ** ** | **January 1,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|---------------|-------------------|------------|---------------------|------------|
| **In thousands**                                                                                                                                                                                                                                                                                                                                                             | ** ** | **2005**          | ** **    | **2004**          | ** ** | **2005**            | ** ** |
| **Visant:**                                                                                                                                                                                                                                                                                                                                                                  | ** ** | ** **        | ** **    | ** **        | ** ** | ** **          | ** ** |
| Borrowings  under our senior secured credit facility:                                                                                                                                                                                                                                                                                                                        |       |              |          |              |       |                |       |
| Term Loan A,  variable rate, 5.62 percent at April 2, 2005 and 4.90 percent at January 1,  2005 with semi-annual principal and interest payments through October 2010                                                                                                                                                                                         |       | $                 | 112,500       |              | $          | —              |       | $ | 150,000 |   |
| Term Loan C,  variable rate, 5.37 percent at April 2, 2005 and 4.65 percent at January 1,  2005 with semi-annual principal and interest payments through October 2011                                                                                                                                                                                         |       | 843,900           |          | —            |       | 870,000             |       |
| Senior  subordinated notes, 7.625 percent fixed rate, with semi-annual interest  payments of $19.1 million, principal due and payable at maturity - October 2012                                                                                                                                                                                                        |       | 500,000           |          | —            |       | 500,000             |       |
| Term loan -  Jostens, variable rate, 3.67 percent at April 3, 2004, paid in full October 2004                                                                                                                                                                                                                                                                      |       | —            |          | 453,705           |       | —              |       |
| Senior  subordinated notes - Jostens, 12.75 percent fixed rate, including premium of  $21,554 at April 3, 2004, paid in full October 2004                                                                                                                                                                                                                          |       | —            |          | 225,539           |       | —              |       |
| Senior notes  - Von Hoffmann, 10.25 percent fixed rate, including premium of $2,617 at April 3,  2004, paid in full October 2004                                                                                                                                                                                                                                   |       | —            |          | 277,617           |       | —              |       |
| Senior  subordinated notes - Von Hoffmann, 10.375 percent fixed rate, paid in full October 2004                                                                                                                                                                                                                                                                         |       | —            |          | 100,000           |       | —              |       |
| Subordinated  exchange debentures - Von Hoffmann, 13.5 percent fixed rate, paid in full October 2004                                                                                                                                                                                                                                                                    |       | —            |          | 42,651            |       | —              |       |
| Term loan -  Arcade, variable rate, 4.75 percent at April 3, 2004, paid in full October 2004                                                                                                                                                                                                                                                                       |       | —            |          | 6,750             |       | —              |       |
| Senior notes  - Arcade, 10.5 percent fixed rate, paid in full October 2004                                                                                                                                                                                                                                                                                              |       | —            |          | 103,510           |       | —              |       |
| Amended and  restated notes - Arcade, 16.0 percent fixed rate, net of discount of $495 at April 3,  2004, paid in full October 2004                                                                                                                                                                                                                                |       | —            |          | 70,048            |       | —              |       |
| ** **                                                                                                                                                                                                                                                                                                                                                                   | ** ** | **1,456,400**     | ** **    | **1,279,820**     | ** ** | **1,520,000**       | ** ** |
| Less current  portion                                                                                                                                                                                                                                                                                                                                                        |       | —            |          | 2,063             |       | 19,950              |       |
| ** **                                                                                                                                                                                                                                                                                                                                                                   | ** ** | **1,456,400**     | ** **    | **1,277,757**     | ** ** | **1,500,050**       | ** ** |
|                                                                                                                                                                                                                                                                                                                                                                         |       |              |          |              |       |                |       |
| **Holdings:**                                                                                                                                                                                                                                                                                                                                                                |       |              |          |              |       |                |       |
| Senior  discount notes, 10.25 percent fixed rate, net of discount of $75,773 at April 2,  2005, $92,072 at April 3, 2004 and $80,019 at January 1, 2005, with  semi-annual interest accretion through December 1, 2008, thereafter  semi-annual interest payments of $12.7 million, accreted principal due and  payable at maturity - December 2013 |       | 171,427           |          | 155,128           |       | 167,181             |       |
| Promissory  note, variable rate, 3.52 percent at April 3, 2004, paid in full December 2004                                                                                                                                                                                                                                                                         |       | —            |          | 4,000             |       | —              |       |
| ** **                                                                                                                                                                                                                                                                                                                                                                   | ** ** | **$**             | **1,627,827** | ** **        | **$**      | **1,436,885**       | ** ** | **$** | **1,667,231** | ** ** |

 

During the three months ended April 2,2005, Visant voluntarily prepaid $63.6 million of principal due under the termloans including all principal payments due in 2005 through 2007.  As of April 2, 2005, there was $9.1million outstanding in the form of short-term borrowings at our Canadiansubsidiary at a weighted average interest rate of 5.24% and an additional $15.8million outstanding in the form of letters of credit, leaving $225.1 millionavailable under Visant’s revolving credit facility.

 

12

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In conjunction with the 2004 Transactions asdescribed in Note 2, we repaid the existing indebtedness of Jostens, VonHoffmann and Arcade in full.

 

Visant’sobligations under the senior secured credit facilities are unconditionally andirrevocably guaranteed jointly and severally by Visant Secondary HoldingsCorp., a direct wholly-owned subsidiary of Holdings and the direct parent ofVisant, and by Visant’s material current and future domestic subsidiaries.  The obligations of Visant’s principal Canadianoperating subsidiary under the senior secured credit facilities areunconditionally and irrevocably guaranteed jointly and severally by VisantSecondary Holdings Corp., by Visant, by Visant’s material current and futuredomestic subsidiaries and by Visant’s other current and future Canadiansubsidiaries.  Visant’s obligations underthe senior secured credit facilities, and the guarantees of those obligations,are secured by substantially all of Visant’s assets and substantially all ofthe assets of Visant Secondary Holdings Corp. and Visant’s material current andfuture domestic subsidiaries, including but not limited to:

 

•                  all ofVisant’s capital stock and the capital stock of each of Visant’s existing andfuture direct and indirect subsidiaries, except that with respect to foreignsubsidiaries such lien and pledge is limited to 65% of the capital stock of “first-tier”foreign subsidiaries; and

•                  substantiallyall of Visant’s material existing and future domestic subsidiaries’ tangibleand intangible assets.

 

Theobligations of Jostens Canada Ltd. under the senior secured credit facilities,and the guarantees of those obligations, are secured by the collateral referredto in the prior paragraph and substantially all of the tangible and intangibleassets of Jostens Canada Ltd. and each of Visant’s other current and futureCanadian subsidiaries.

 

The senior secured credit facilities require us to meet a maximum totalleverage ratio, a minimum interest coverage ratio and a maximum capitalexpenditures limitation.  In addition,the senior secured credit facilities contain certain restrictive covenantswhich will, among other things, limit our ability to incur additional indebtedness,pay dividends, prepay subordinated debt, make investments, merge orconsolidate, change our business, amend the terms of our subordinated debt andengage in certain other activities customarily restricted in suchagreements.  It also contains certaincustomary events of default, subject to grace periods, as appropriate.

 

Theindentures governing the Visant senior subordinated notes and the Holdingssenior discount notes also contain numerous covenants including, among otherthings, restrictions on our ability to: incur or guarantee additional indebtedness or issue disqualified orpreferred stock; pay dividends or make other equity distributions; repurchaseor redeem capital stock; make investments or other restricted payments; sellassets or consolidate or merge with or into other companies; create limitationson the ability of our restricted subsidiaries to make dividends ordistributions to us; engage in transactions with affiliates; and create liens.

 

Asof April 2, 2005, we were in compliance with all covenants.

 

**8.****              Redeemable PreferredStock**

 

Inconjunction with the 2004 Transactions as described in Note 2, all outstandingshares of redeemable preferred stock of Jostens and Arcade, together withaccrued dividends, were redeemed in full.

 

**9.****              Derivative FinancialInstruments and Hedging Activities**

 

Our involvement with derivative financialinstruments is limited principally to managing well-defined interest rate andforeign currency exchange risks.  Forwardforeign currency exchange contracts may be used to hedge the impact of currencyfluctuations primarily on inventory purchases denominated in euros.  The amount of contracts outstanding at April 2,2005 was $1.5 million.  These contractswill mature over the remainder of the current fiscal year.

 

13

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**10.****       Commitments**

 

We are subject to market risk associated withchanges in the price of precious metals. To mitigate our commodity price risk, we enter into forward contracts topurchase gold, platinum and silver based upon the estimated ounces needed tosatisfy projected customer demand.  Ourpurchase commitment at April 2, 2005 was $14.8 million with delivery datesoccurring throughout 2005.  These forwardpurchase contracts are considered normal purchases and therefore subject to ascope exclusion of the requirements of SFAS 133, *Accounting for Derivative Instruments and Hedging Activities. *The fair market value of our openprecious metal forward contracts as of April 2, 2005 was $15.1 million andwas calculated by valuing each contract at quoted futures prices.

 

**11.****       Income Taxes**

 

Consistentwith the provisions of APB 28, *InterimFinancial Reporting*, we have provided an income tax benefit based onour best estimate of the consolidated effective tax rate applicable for theentire year.  Based on those estimates,for the three months ended April 2, 2005, we provided an income taxbenefit at a consolidated effective rate of 41.4% and 40.5% for Holdings andVisant, respectively.  The annualeffective tax rate does not include any anticipated benefit attributable to thedividend repatriation provisions under the American Jobs Creation Act of 2004as discussed in Note 1.  Our preliminaryevaluation indicates that the benefit of the repatriation would result in an effectivetax rate for the year between 39% and 40%.

 

For the comparable three-month period ended April 3, 2004, theeffective rate of income tax benefit for Holdings and Visant was 16.9% and5.3%, respectively.  These tax ratesreflect the combined effect of separately reported effective tax rates forHoldings and our acquired companies prior to the 2004 Transactions.   Accordingly, these tax rates are notintended to reflect a combined effective tax rate that would have been reportedif the 2004 Transactions had occurred at the beginning of the 2004 fiscalperiod.  The combined effective annualtax rates are less than the Federal statutory tax rate primarily due to theunfavorable effect of non-deductible interest expense.

 

**12.****       Pension and OtherPostretirement Benefit Plans**

 

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

 
| ** **                               | ** ** | **Pension benefits**    | ** ** | **Postretirement benefits** | ** ** |
|------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **Three months ended**  | ** ** | **Three months ended**      | ** ** |
| **In thousands**                         | ** ** | **April 2,  2005** | ** ** | **April 3,  2004**     | ** ** | **April 2,  2005** | ** ** | **April 3,  2004** | ** ** |
| Service cost                             |       | $                       | 1,753      |                        | $          | 1,920 |   | $ | 10 |   | $ | 10 |   |
| Interest  cost                           |       | 3,357                   |       | 3,540                       |       | 78 |   | 87 |   |
| Expected  return on plan assets          |       | (5,314                  | )          | (4,914                      | )          | — |   | — |   |
| Administrative  expenses                 |       | 179                     |       | —                      |       | — |   | — |   |
| Amortization  of prior year service cost |       | 13                      |       | 12                          |       | — |   | — |   |
| Net periodic  benefit expense (income)   | ** ** | **$**                   | **(12**    | **)**                       | **$**      | **558** | ** ** | **$** | **88** | ** ** | **$** | **97** | ** ** |

 

Duringthe quarter ended April 2, 2005, we made a $0.5 million contribution toone of the qualified pension plans.  Thisis consistent with our projected contributions for 2005 of $2.7 million to thepension plans and $0.7 million to the postretirement benefit plans as disclosedin our 2004 Form 10-K.

 

**13.****       Business Segments**

 

Our reportable segments consist of Jostensand our Print Group.  The Print Groupincludes the operations of Von Hoffmann, Lehigh Lithographers, Arcade andLehigh Direct.

 

14

----

 

The following tables present information ofHoldings by business segment.

 
| ** **                       | ** ** | **Three months ended April 2,  2005** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|
| **In thousands**                 | ** ** | **Jostens**                                | ** ** | **Print  Group** | ** ** | **Intersegment  Eliminations** | ** ** | **Consolidated  Totals** | ** ** |
| Net sales to  external customers |       | $                                          | 139,738    |   | $ | 169,382 |   | $ | — |   | $ | 309,120 |   |
| Intergroup  net sales            |       | —                                     |       | 396 |   | (396 | ) | — |   |
| Operating  (loss) income         |       | (9,930                                     | )          | 22,523 |   | — |   | 12,593 |   |
| Depreciation  and amortization   |       | 18,800                                     |       | 8,345 |   | — |   | 27,145 |   |
|                                  |            |                                            |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                       | ** ** | **Three months ended April 3,  2004** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|
| **In thousands**                 | ** ** | **Jostens**                                | ** ** | **Print  Group** | ** ** | **Intersegment  Eliminations** | ** ** | **Consolidated  Totals** | ** ** |
| Net sales to  external customers |       | $                                          | 143,085    |   | $ | 166,999 |   | $ | — |   | $ | 310,084 |   |
| Operating  (loss) income         |       | (5,956                                     | )          | 15,755 |   | — |   | 9,799 |   |
| Depreciation  and amortization   |       | 18,639                                     |       | 9,997 |   | — |   | 28,636 |   |
|                                  |            |                                            |            |  |  |  |  |  |  |  |  |  |  |

 

**14.****       Condensed ConsolidatingGuarantor Information**

 

As discussed in Note 7, Visant’s obligationsunder the senior secured credit facilities and the 75/8 %senior subordinated notes are guaranteed by certain of its wholly-ownedsubsidiaries on a full unconditional and joint and several basis.  The following tables present condensedconsolidating financial information for Visant, as issuer, and its guarantorsubsidiaries.

 

**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)**

**Three months ended April 2, 2005**

 
| **In thousands**                                  | ** ** | **Visant** | ** **  | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|---------------------------------------------------|------------|------------|-------------|----------------|------------|----------------------|------------|------------------|------------|------------|------------|
| **Net  sales**                                    |       | $          | —      | ** **     | **$**      | **299,051**          | ** ** | **$**            | **13,871** | ** ** | **$**      | **(3,802** | **)** | **$** | **309,120** | ** ** |
| Cost of  products sold                            |       | —     |        | 186,577        |       | 6,741                |       | (3,804           | )          | 189,514    |       |
| Gross profit                                      |       | —     |        | 112,474        |       | 7,130                |       | 2                |       | 119,606    |       |
| Selling and  administrative expenses              |       | (452       | )           | 97,102         |       | 6,483                |       | —           |       | 103,133    |       |
| Transaction  costs                                |       | 99         |        | 785            |       | —               |       | —           |       | 884        |       |
| Restructuring  charges                            |       | —     |        | 2,694          |       | 258                  |       | —           |       | 2,952      |       |
| **Operating  income**                             | ** ** | **353**    | ** **  | **11,893**     | ** ** | **389**              | ** ** | **2**            | ** ** | **12,637** | ** ** |
| Net interest  expense                             |       | 25,625     |        | 26,479         |       | 191                  |       | (26,062          | )          | 26,233     |       |
| Equity loss  (earnings) in subsidiary, net of tax |       | 8,650      |        | (149           | )          | —               |       | (8,501           | )          | —     |       |
| (Loss)  income before income taxes                |       | (33,922    | )           | (14,437        | )          | 198                  |       | 34,565           |       | (13,596    | )          |
| (Benefit  from) provision for income taxes        |       | (10,235    | )           | (5,787         | )          | 49                   |       | 10,466           |       | (5,507     | )          |
| **Net  (loss) income**                            | ** ** | **$**      | **(23,687** | **)**          | **$**      | **(8,650**           | **)**      | **$**            | **149**    | ** ** | **$**      | **24,099** | ** ** | **$** | **(8,089** | **)** |

 

15

----

 

**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)**

**Three months ended April 3, 2004**

 
| **In thousands**                                  | ** ** | **Visant** | ** **  | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|---------------------------------------------------|------------|------------|-------------|----------------|------------|----------------------|------------|------------------|------------|------------|------------|
| **Net  sales**                                    | ** ** | **$**      | **—**  | ** **     | **$**      | **300,089**          | ** ** | **$**            | **12,645** | ** ** | **$**      | **(2,650** | **)** | **$** | **310,084** | ** ** |
| Cost of  products sold                            |       | —     |        | 188,758        |       | 6,150                |       | (2,586           | )          | 192,322    |       |
| Gross profit                                      |       | —     |        | 111,331        |       | 6,495                |       | (64              | )          | 117,762    |       |
| Selling and  administrative expenses              |       | —     |        | 100,759        |       | 6,436                |       | —           |       | 107,195    |       |
| Restructuring  charges                            |       | —     |        | 690            |       | —               |       | —           |       | 690        |       |
| **Operating  income (loss)**                      | ** ** | **—** | ** **  | **9,882**      | ** ** | **59**               | ** ** | **(64**          | **)**      | **9,877**  | ** ** |
| Loss on  redemption of debt                       |       | —     |        | 420            |       | —               |       | —           |       | 420        |       |
| Net interest  expense                             |       | —     |        | 38,336         |       | 267                  |       | —           |       | 38,603     |       |
| Equity loss  (earnings) in subsidiary, net of tax |       | 27,457     |        | 126            |       | —               |       | (27,583          | )          | —     |       |
| (Loss)  income before income taxes                |       | (27,457    | )           | (29,000        | )          | (208                 | )          | 27,519           |       | (29,146    | )          |
| (Benefit  from) provision for income taxes        |       | —     |        | (1,543         | )          | (82                  | )          | 79               |       | (1,546     | )          |
| **Net  (loss) income**                            | ** ** | **$**      | **(27,457** | **)**          | **$**      | **(27,457**          | **)**      | **$**            | **(126**   | **)**      | **$**      | **27,440** | ** ** | **$** | **(27,600** | **)** |

 

16

----

 

**CONDENSEDCONSOLIDATING BALANCE SHEET (UNAUDITED)**

**April 2, 2005**

 
| **In thousands**                                     | ** ** | **Visant**  | ** **  | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** **  | **Total**     | ** ** |
|------------------------------------------------------|------------|-------------|-------------|----------------|------------|----------------------|------------|------------------|-------------|---------------|------------|
| **ASSETS**                                           |       |        |        |           |       |                 |       |             |        |          |       |
| Cash and  cash equivalents                           |       | $           | 16,180      |           | $          | (4,178               | )          | $                | 6,233       |          | $          | — |   | $ | 18,235 |   |
| Accounts  receivable, net                            |       | 175         |        | 156,798        |       | 10,246               |       | —           |        | 167,219       |       |
| Inventories,  net                                    |       | —      |        | 165,186        |       | 4,703                |       | (27              | )           | 169,862       |       |
| Salespersons  overdrafts, net                        |       | —      |        | 30,652         |       | 8,842                |       | —           |        | 39,494        |       |
| Prepaid  expenses and other current assets           |       | 1,103       |        | 14,557         |       | 819                  |       | —           |        | 16,479        |       |
| Deferred  income taxes                               |       | —      |        | 60,525         |       | 75                   |       | —           |        | 60,600        |       |
| **Total  current assets**                            | ** ** | **17,458**  | ** **  | **423,540**    | ** ** | **30,918**           | ** ** | **(27**          | **)**       | **471,889**   | ** ** |
| Property,  plant, and equipment, net                 |       | 184         |        | 237,013        |       | 3,818                |       | —           |        | 241,015       |       |
| Goodwill                                             |       | —      |        | 1,066,407      |       | 42,055               |       | —           |        | 1,108,462     |       |
| Intangibles,  net                                    |       | —      |        | 574,535        |       | 20,910               |       | —           |        | 595,445       |       |
| Deferred  financing costs, net                       |       | 54,859      |        | —         |       | —               |       | —           |        | 54,859        |       |
| Intercompany  (payable) receivable                   |       | (42,209     | )           | 41,674         |       | 535                  |       | —           |        | —        |       |
| Other assets                                         |       | —      |        | 10,657         |       | 2,094                |       | (1,712           | )           | 11,039        |       |
| Investment  in subsidiaries                          |       | 366,140     |        | 63,896         |       | —               |       | (430,036         | )           | —        |       |
| **Total  assets**                                    | ** ** | **$**       | **396,432** | ** **     | **$**      | **2,417,722**        | ** ** | **$**            | **100,330** | ** **    | **$**      | **(431,775** | **)** | **$** | **2,482,709** | ** ** |
|                                                 |       |        |        |           |       |                 |       |             |        |          |       |
| **LIABILITIES AND STOCKHOLDER’S EQUITY**        |       |        |        |           |       |                 |       |             |        |
| Short-term  borrowings                               |       | $           | —      |           | $          | —               |       | $                | 9,130       |          | $          | — |   | $ | 9,130 |   |
| Accounts  payable                                    |       | 1,080       |        | 51,186         |       | 2,135                |       | —           |        | 54,401        |       |
| Accrued  employee compensation                       |       | 6,357       |        | 34,539         |       | 2,459                |       | —           |        | 43,355        |       |
| Commissions  payable                                 |       | —      |        | 21,977         |       | 2,593                |       | —           |        | 24,570        |       |
| Customer  deposits                                   |       | —      |        | 205,122        |       | 8,109                |       | —           |        | 213,231       |       |
| Intercompany  (receivable) payable                   |       | 58,986      |        | (26,907        | )          | 359                  |       | (32,438          | )           | —        |       |
| Other  accrued liabilities                           |       | 5,243       |        | 30,292         |       | 2,875                |       | (10              | )           | 38,400        |       |
| **Total  current liabilities**                       | ** ** | **71,666**  | ** **  | **316,209**    | ** ** | **27,660**           | ** ** | **(32,448**      | **)**       | **383,087**   | ** ** |
| Long-term  debt, less current maturities             |       | 1,456,400   |        | —         |       | —               |       | —           |        | 1,456,400     |       |
| Intercompany  (receivable) payable                   |       | (1,456,400  | )           | 1,456,400      |       | —               |       | —           |        | —        |       |
| Deferred  income taxes                               |       | —      |        | 245,205        |       | 8,649                |       | —           |        | 253,854       |       |
| Pension  liabilities, net                            |       | —      |        | 27,094         |       | —               |       | —           |        | 27,094        |       |
| Other  noncurrent liabilities                        |       | —      |        | 6,674          |       | 125                  |       | —           |        | 6,799         |       |
| **Total  liabilities**                               | ** ** | **71,666**  | ** **  | **2,051,582**  | ** ** | **36,434**           | ** ** | **(32,448**      | **)**       | **2,127,234** | ** ** |
| **Stockholder’s  equity**                       | ** ** | **324,766** | ** **  | **366,140**    | ** ** | **63,896**           | ** ** | **(399,327**     | **)**       | **355,475**   | ** ** |
| **Total  liabilities and stockholder’s equity** | ** ** | **$**       | **396,432** | ** **     | **$**      | **2,417,722**        | ** ** | **$**            | **100,330** | ** **    | **$**      | **(431,775** | **)** | **$** | **2,482,709** | ** ** |

 

17

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**CONDENSEDCONSOLIDATING BALANCE SHEET (UNAUDITED)**

**April 3, 2004**

 
| **In thousands**                                     | ** ** | **Visant**  | ** **  | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Total**     | ** ** |
|------------------------------------------------------|------------|-------------|-------------|----------------|------------|----------------------|------------|------------------|------------|---------------|------------|
| **ASSETS**                                           |       |        |        |           |       |                 |       |             |       |          |       |
| Cash and  cash equivalents                           |       | $           | —      |           | $          | 47,004               |       | $                | 6,572      |          | $          | — |   | $ | 53,576 |   |
| Accounts  receivable, net                            |       | —      |        | 145,899        |       | 9,492                |       | —           |       | 155,391       |       |
| Inventories,  net                                    |       | —      |        | 149,846        |       | 4,759                |       | (83              | )          | 154,522       |       |
| Salespersons  overdrafts, net                        |       | —      |        | 24,515         |       | 8,401                |       | —           |       | 32,916        |       |
| Prepaid  expenses and other current assets           |       | —      |        | 16,861         |       | 974                  |       | —           |       | 17,835        |       |
| Deferred  income taxes                               |       | —      |        | 3,604          |       | 75                   |       | —           |       | 3,679         |       |
| **Total  current assets**                            | ** ** | **—**  | ** **  | **387,729**    | ** ** | **30,273**           | ** ** | **(83**          | **)**      | **417,919**   | ** ** |
| Property,  plant, and equipment, net                 |       | —      |        | 256,882        |       | 4,243                |       | —           |       | 261,125       |       |
| Goodwill                                             |       | —      |        | 1,097,768      |       | 20,910               |       | —           |       | 1,118,678     |       |
| Intangibles,  net                                    |       | —      |        | 645,754        |       | 42,281               |       | —           |       | 688,035       |       |
| Deferred  financing costs, net                       |       | —      |        | 35,961         |       | 880                  |       | —           |       | 36,841        |       |
| Other assets                                         |       | —      |        | 13,166         |       | (364                 | )          | (1,711           | )          | 11,091        |       |
| Investment  in subsidiaries                          |       | 285,026     |        | 59,656         |       | —               |       | (344,682         | )          | —        |       |
| **Total  assets**                                    | ** ** | **$**       | **285,026** | ** **     | **$**      | **2,496,916**        | ** ** | **$**            | **98,223** | ** **    | **$**      | **(346,476** | **)** | **$** | **2,533,689** | ** ** |
|                                                 |       |        |        |           |       |                 |       |             |       |          |       |
| **LIABILITIES AND STOCKHOLDER’S EQUITY**        |       |        |        |           |       |                 |       |             |       |
| Short-term  borrowings                               |       | $           | —      |           | $          | 42,800               |       | $                | 9,163      |          | $          | — |   | $ | 51,963 |   |
| Accounts  payable                                    |       | —      |        | 49,146         |       | 3,409                |       | —           |       | 52,555        |       |
| Accrued  employee compensation                       |       | —      |        | 34,956         |       | 2,096                |       | —           |       | 37,052        |       |
| Commissions  payable                                 |       | —      |        | 23,424         |       | 2,681                |       | —           |       | 26,105        |       |
| Customer  deposits                                   |       | —      |        | 185,224        |       | 7,812                |       | —           |       | 193,036       |       |
| Current  portion of long-term debt                   |       | —      |        | 2,063          |       | —               |       | —           |       | 2,063         |       |
| Deferred  income taxes                               |       | —      |        | 3,852          |       | —               |       | —           |       | 3,852         |       |
| Intercompany  (receivable) payable                   |       | (6,197      | )           | 3,403          |       | 24                   |       | 2,770            |       | —        |       |
| Other  accrued liabilities                           |       | —      |        | 58,732         |       | 4,398                |       | (32              | )          | 63,098        |       |
| **Total  current liabilities**                       | ** ** | **(6,197**  | **)**       | **403,600**    | ** ** | **29,583**           | ** ** | **2,738**        | ** ** | **429,724**   | ** ** |
| Long-term  debt, less current maturities             |       | —      |        | 1,277,757      |       | —               |       | —           |       | 1,277,757     |       |
| Redeemable  preferred stock                          |       | —      |        | 247,059        |       | —               |       | —           |       | 247,059       |       |
| Deferred  income taxes                               |       | —      |        | 248,369        |       | 8,863                |       | —           |       | 257,232       |       |
| Pension  liabilities, net                            |       | —      |        | 29,279         |       | —               |       | —           |       | 29,279        |       |
| Other  noncurrent liabilities                        |       | —      |        | 5,826          |       | 121                  |       | —           |       | 5,947         |       |
| **Total  liabilities**                               | ** ** | **(6,197**  | **)**       | **2,211,890**  | ** ** | **38,567**           | ** ** | **2,738**        | ** ** | **2,246,998** | ** ** |
| **Stockholder’s  equity**                       | ** ** | **291,223** | ** **  | **285,026**    | ** ** | **59,656**           | ** ** | **(349,214**     | **)**      | **286,691**   | ** ** |
| **Total  liabilities and stockholder’s equity** | ** ** | **$**       | **285,026** | ** **     | **$**      | **2,496,916**        | ** ** | **$**            | **98,223** | ** **    | **$**      | **(346,476** | **)** | **$** | **2,533,689** | ** ** |

 

18

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**CONDENSEDCONSOLIDATING BALANCE SHEET (UNAUDITED)**

**January 1, 2005**

 
| ** **                                           | ** ** | **Visant**  | ** **  | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Total**     | ** ** |
|------------------------------------------------------|------------|-------------|-------------|----------------|------------|----------------------|------------|------------------|------------|---------------|------------|
| **ASSETS**                                           |       |        |        |           |       |                 |       |             |       |          |       |
| Cash and  cash equivalents                           |       | $           | 80,933      |           | $          | (2,241               | )          | $                | 3,577      |          | $          | — |   | $ | 82,269 |   |
| Accounts receivable,  net                            |       | —      |        | 147,262        |       | 10,981               |       | —           |       | 158,243       |       |
| Inventories,  net                                    |       | —      |        | 127,036        |       | 2,443                |       | (29              | )          | 129,450       |       |
| Salespersons  overdrafts, net                        |       | —      |        | 27,541         |       | 7,874                |       | —           |       | 35,415        |       |
| Prepaid  expenses and other current assets           |       | 530         |        | 12,648         |       | 461                  |       | —           |       | 13,639        |       |
| Intercompany  (payable) receivable                   |       | (85,221     | )           | 85,221         |       | —               |       | —           |       | —        |       |
| Deferred  income taxes                               |       | —      |        | 58,817         |       | 75                   |       | —           |       | 58,892        |       |
| **Total  current assets**                            | ** ** | **(3,758**  | **)**       | **456,284**    | ** ** | **25,411**           | ** ** | **(29**          | **)**      | **477,908**   | ** ** |
| Property,  plant, and equipment, net                 |       | 62          |        | 236,714        |       | 4,347                |       | —           |       | 241,123       |       |
| Goodwill                                             |       | —      |        | 1,066,320      |       | 42,125               |       | —           |       | 1,108,445     |       |
| Intangibles,  net                                    |       | —      |        | 585,285        |       | 20,910               |       | —           |       | 606,195       |       |
| Deferred  financing costs, net                       |       | 58,679      |        | —         |       | —               |       | —           |       | 58,679        |       |
| Intercompany  (payable) receivable                   |       | (58,679     | )           | 58,114         |       | 565                  |       | —           |       | —        |       |
| Other assets                                         |       | —      |        | 10,425         |       | 2,191                |       | (1,712           | )          | 10,904        |       |
| Investment  in subsidiaries                          |       | 375,015     |        | 63,747         |       | —               |       | (438,762         | )          | —        |       |
| **Total  assets**                                    | ** ** | **$**       | **371,319** | ** **     | **$**      | **2,476,889**        | ** ** | **$**            | **95,549** | ** **    | **$**      | **(440,503** | **)** | **$** | **2,503,254** | ** ** |
|                                                 |       |        |        |           |       |                 |       |             |       |          |       |
| **LIABILITIES AND STOCKHOLDER’S EQUITY**        |       |        |        |           |       |                 |       |             |       |
| Short-term  borrowings                               |       | $           | —      |           | $          | —               |       | $                | 8,300      |          | $          | — |   | $ | 8,300 |   |
| Accounts  payable                                    |       | 2,508       |        | 49,278         |       | 1,719                |       | —           |       | 53,505        |       |
| Accrued  employee compensation                       |       | 308         |        | 44,487         |       | 2,065                |       | —           |       | 46,860        |       |
| Commissions  payable                                 |       | —      |        | 14,173         |       | 2,521                |       | —           |       | 16,694        |       |
| Customer deposits                                    |       | —      |        | 151,103        |       | 5,408                |       | —           |       | 156,511       |       |
| Current  portion of long-term debt                   |       | 19,950      |        | —         |       | —               |       | —           |       | 19,950        |       |
| Intercompany  (receivable) payable                   |       | (9,707      | )           | 26,073         |       | 475                  |       | (16,841          | )          | —        |       |
| Other  accrued liabilities                           |       | 9,595       |        | 33,512         |       | 2,611                |       | (11              | )          | 45,707        |       |
| **Total  current liabilities**                       | ** ** | **22,654**  | ** **  | **318,626**    | ** ** | **23,099**           | ** ** | **(16,852**      | **)**      | **347,527**   | ** ** |
| Long-term  debt, less current maturities             |       | 1,500,050   |        | —         |       | —               |       | —           |       | 1,500,050     |       |
| Intercompany  (receivable) payable                   |       | (1,500,050  | )           | 1,500,050      |       | —               |       | —           |       | —        |       |
| Deferred  income taxes                               |       | —      |        | 250,066        |       | 8,703                |       | —           |       | 258,769       |       |
| Pension  liabilities, net                            |       | —      |        | 27,489         |       | —               |       | —           |       | 27,489        |       |
| Other  noncurrent liabilities                        |       | —      |        | 5,643          |       | —               |       | —           |       | 5,643         |       |
| **Total  liabilities**                               | ** ** | **22,654**  | ** **  | **2,101,874**  | ** ** | **31,802**           | ** ** | **(16,852**      | **)**      | **2,139,478** | ** ** |
| **Stockholder’s  equity**                       | ** ** | **348,665** | ** **  | **375,015**    | ** ** | **63,747**           | ** ** | **(423,651**     | **)**      | **363,776**   | ** ** |
| **Total  liabilities and stockholder’s equity** | ** ** | **$**       | **371,319** | ** **     | **$**      | **2,476,889**        | ** ** | **$**            | **95,549** | ** **    | **$**      | **(440,503** | **)** | **$** | **2,503,254** | ** ** |

 

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**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS (UNUADITED)**

**Three months ended April 2, 2005**

 
| **In thousands**                                              | ** ** | **Visant**  | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Total**   | ** ** |
|---------------------------------------------------------------|------------|-------------|------------|----------------|------------|----------------------|------------|------------------|------------|-------------|------------|
| Net (loss)  income                                            |       | $           | (23,687    | )              | $          | (8,650               | )          | $                | 149        |        | $          | 24,099 |   | $ | (8,089 | ) |
| Other cash  provided by operating activities                  |       | 34,071      |       | 11,488         |       | 1,683                |       | (24,099          | )          | 23,143      |       |
| **Net cash  provided by operating activities**                | ** ** | **10,384**  | ** ** | **2,838**      | ** ** | **1,832**            | ** ** | **—**       | ** ** | **15,054**  | ** ** |
| Purchases of  property, plant, and equipment                  |       | (122        | )          | (15,223        | )          | —               |       | —           |       | (15,345     | )          |
| Other  investing activities, net                              |       | —      |       | (846           | )          | (16                  | )          | —           |       | (862        | )          |
| **Net cash  used in investing activities**                    | ** ** | **(122**    | **)**      | **(16,069**    | **)**      | **(16**              | **)**      | **—**       | ** ** | **(16,207** | **)**      |
| Net  short-term borrowings                                    |       | —      |       | —         |       | 800                  |       | —           |       | 800         |       |
| Principal  payments on long-term debt                         |       | (63,600     | )          | —         |       | —               |       | —           |       | (63,600     | )          |
| Intercompany  (receivable) payable                            |       | (11,294     | )          | 11,294         |       | —               |       | —           |       | —      |       |
| Other  financing activities, net                              |       | (121        | )          | —         |       | —               |       | —           |       | (121        | )          |
| **Net cash  (used in) provided by financing activities**      | ** ** | **(75,015** | **)**      | **11,294**     | ** ** | **800**              | ** ** | **—**       | ** ** | **(62,921** | **)**      |
| Effect of  exchange rate changes on cash and cash equivalents |       | —      |       | —         |       | 40                   |       | —           |       | 40          |       |
| (Decrease)  increase in cash and cash equivalents             |       | (64,753     | )          | (1,937         | )          | 2,656                |       | —           |       | (64,034     | )          |
| Cash and  cash equivalents, beginning of period               |       | 80,933      |       | (2,241         | )          | 3,577                |       | —           |       | 82,269      |       |
| **Cash and  cash equivalents, end of period**                 | ** ** | **$**       | **16,180** | ** **     | **$**      | **(4,178**           | **)**      | **$**            | **6,233**  | ** **  | **$**      | **—** | ** ** | **$** | **18,235** | ** ** |

 

 

**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS (UNUADITED)**

**Three months ended April 3, 2004**

 
| **In thousands**                                              | ** ** | **Visant** | ** ** | **Guarantors** | ** ** | **Non-  Guarantors** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|---------------------------------------------------------------|------------|------------|------------|----------------|------------|----------------------|------------|------------------|------------|------------|------------|
| Net (loss)  income                                            |       | $          | (27,457    | )              | $          | (27,457              | )          | $                | (126       | )          | $          | 27,440 |   | $ | (27,600 | ) |
| Other cash  provided by (used in) operating activities        |       | 27,457     |       | 35,753         |       | 3,932                |       | (27,440          | )          | 39,702     |       |
| **Net cash  provided by operating activities**                | ** ** | **—** | ** ** | **8,296**      | ** ** | **3,806**            | ** ** | **—**       | ** ** | **12,102** | ** ** |
| Purchases of  property, plant, and equipment                  |       | —     |       | (5,376         | )          | (24                  | )          | —           |       | (5,400     | )          |
| Other  investing activities, net                              |       | —     |       | (36            | )          | (14                  | )          | —           |       | (50        | )          |
| **Net cash  used in investing activities**                    | ** ** | **—** | ** ** | **(5,412**     | **)**      | **(38**              | **)**      | **—**       | ** ** | **(5,450** | **)**      |
| Net  short-term borrowings (repayments)                       |       | —     |       | 13,562         |       | (3,840               | )          | —           |       | 9,722      |       |
| Principal  payments on long-term debt                         |       | —     |       | (500           | )          | —               |       | —           |       | (500       | )          |
| Redemption  of senior subordinated notes                      |       | —     |       | (5,800         | )          | —               |       | —           |       | (5,800     | )          |
| Other  financing activities, net                              |       | —     |       | (242           | )          | —               |       | —           |       | (242       | )          |
| **Net cash  provided by (used in) financing activities**      | ** ** | **—** | ** ** | **7,020**      | ** ** | **(3,840**           | **)**      | **—**       | ** ** | **3,180**  | ** ** |
| Effect of  exchange rate changes on cash and cash equivalents |       | —     |       | —         |       | 13                   |       | —           |       | 13         |       |
| Increase  (decrease) in cash and cash equivalents             |       | —     |       | 9,904          |       | (59                  | )          | —           |       | 9,845      |       |
| Cash and  cash equivalents, beginning of period               |       | —     |       | 37,100         |       | 6,631                |       | —           |       | 43,731     |       |
| **Cash and  cash equivalents, end of period**                 | ** ** | **$**      | **—** | ** **     | **$**      | **47,004**           | ** ** | **$**            | **6,572**  | ** ** | **$**      | **—** | ** ** | **$** | **53,576** | ** ** |

 

20

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**ITEM2.**                        MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

** **

Except where otherwise indicated, management’s discussion and analysis offinancial condition and results of operations is provided with respect toHoldings, which are materially the same as the financial condition and resultsof operations of Visant, and should be read in conjunction with our condensedconsolidated financial statements and notes thereto.

 

**CAUTIONARY NOTE REGARDING FORWARD-LOOKINGSTATEMENTS**

 

This report maycontain “forward-looking statements.” The Private Securities Litigation Reform Act of 1995 provides a “safeharbor” for certain forward-looking statements so long as such information isidentified as forward-looking and is accompanied by meaningful cautionarystatements identifying important factors that could cause actual results todiffer materially from those projected in the information.  Forward-looking statements are based on ourcurrent expectations or forecasts of future events.  Forward-looking statements generally can beidentified by the use of forward-looking terminology such as “may”, “might”, “will”,“should”, “estimate”, “project”, “plan”, “anticipate”, “expect”, “intend”, “outlook”,“continue”, “believe”, or the negative thereof or other similar expressions,which are intended to identify forward-looking statements and information.  Such forward-looking statements involve knownand unknown risks, uncertainties and other important factors that could causethe actual results, performance or achievements of the Company, or industryresults, to differ materially from historical results, any future results,performance or achievements expressed or implied by such forward-lookingstatements.  These forward-lookingstatements are based on estimates and assumptions by our management that,although we believe are reasonable, are inherently uncertain and subject to anumber of risks and uncertainties and you should not place undue reliance onthem.

 

Such risks anduncertainties include, but are not limited to, the following: our substantialindebtedness; our inability to implement our business strategy and achieveanticipated cost savings in a timely and effective manner; competition fromother companies; the seasonality of our businesses; the loss of significantcustomers or customer relationships; fluctuations in raw material prices; ourreliance on a limited number of suppliers; our reliance on numerous complexinformation systems; the reliance of our businesses on limited productionfacilities; the amount of capital expenditures required at our businesses;labor disturbances; environmental regulations; foreign currency fluctuationsand foreign exchange rates; the outcome of litigation; control by ourcontrolling stockholders; the dependency on the sale of school textbooks; thetextbook adoption cycle and levels of government funding for educationspending; Jostens’ reliance on independent sales representatives; and thefailure of Arcade’s sampling systems to comply with U.S. postalregulations.  These factors could causeactual results to differ materially from historical results or thoseanticipated or predicted by the forward-looking information.

 

We caution that the foregoing list ofimportant factors is not exclusive. Forward-looking statements speak only as of the date they are made andwe undertake no obligation to update publicly or revise any of them in light ofnew information, future events or otherwise, except as required by law.

 

**GENERAL**

 

We generate a significant portion of our net salesthrough the sale of specialty printing and marketing products to the NorthAmerican education sector.  Our printingand marketing products include, among others, yearbooks, educational materials,diplomas, announcements, direct marketing materials and commercialprinting.  We also manufacture anddistribute non-print school-related affinity products and services, such asclass rings, caps and gowns and school photography.  We sell our products and services to endcustomers through different sales channels including independent salesrepresentatives and dedicated sales forces. Our sales and results of operations are impacted by general economicconditions, seasonality, costs of raw materials, school population trends,product quality and service and price.

 

Our reportable segments consist of Jostensand the Print Group.  Jostensis a leading provider of school-related affinity products and services thathelp people celebrate important moments, recognize achievements and buildaffiliation.

 

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Jostens’ products include class rings and graduation products (together“scholastic products”), yearbooks and school photography.  Graduation products include diplomas,graduation regalia such as caps and gowns, accessories and fine paperannouncements.

 

The Print Groupincludes the operations of Von Hoffmann, Lehigh Lithographers, Arcade andLehigh Direct.  Effective immediatelyupon the close of the 2004 Transactions (as defined below), we initiatedactions to operate and manage these operations as an integrated businessspecializing in the production of printed materials.  Von Hoffmann is a leading manufacturer offour-color case bound and soft-cover educational textbooks, standardized testmaterials and related components for major educational publishers in the UnitedStates.  Von Hoffmann also providescommercial printing services to non-educational customers, including business-to-businesscatalogers.  Lehigh Lithographers is aleading manufacturer of decorative textbook covers and book components in theinstructional materials market.  Arcade isa leading global marketer and manufacturer of multi-sensory and interactiveadvertising sampling systems for the fragrance, cosmetics and personal caremarkets as well as other consumer product markets, including household productsand the food and beverage industries. Lehigh Direct provides a range of innovative printing products andservices to the direct marketing sector.

 

**2004Transactions**

 

OnOctober 4, 2004, an affiliate of Kohlberg Kravis Roberts & Co.L.P. (“KKR”) and affiliates of DLJ Merchant Banking Partners completedtransactions (collectively, the “2004 Transactions”) which created a specialtyprinting, marketing and school-related affinity products and servicesorganization comprised of the operations of Jostens, Von Hoffmann, includingVon Hoffmann’s subsidiary, The Lehigh Press, Inc., and Arcade.

 

Prior to the 2004 Transactions, Von Hoffmann and Arcade were eachcontrolled by affiliates of DLJ Merchant BankingPartners II, L.P. (“DLJMBP II”), and DLJ Merchant BankingPartners III, L.P. (“DLJMBP III”) owned approximately 82.5% of Holdings’outstanding equity, with the remainder held by other co-investors and certainmembers of management.  Upon consummationof the 2004 Transactions, an affiliate of KKR invested $256.1 million and wasissued equity interests representing approximately 49.6% of Holdings’ votinginterest and 45% of Holdings’ economic interest.  Approximately $175.6 million of the proceedswere distributed to certain shareholders, and certain treasury stock held byVon Hoffmann was redeemed.  As a resultof the 2004 Transactions, affiliates of DLJMBP III held equity interestsrepresenting approximately 41% of our voting interest and 45% of our economicinterest, with the remainder held by other co-investors and certain members ofmanagement.  After giving effect to theissuance of equity to additional members of management, as of May 13, 2005affiliates of KKR and DLJMBP III hold approximately 49.1% and 41%,respectively, of the voting interests of Holdings, while each continues to holdapproximately 45% of Holdings’ economic interest.

 

Inconnection with the 2004 Transactions, Visant entered into new senior securedcredit facilities, providing for an aggregate amount of $1,270 million,including a $250 million revolving credit facility, and issued$500 million aggregate principal amount of 75/8%senior subordinated notes.  Also inconnection with the 2004 Transactions, Jostens, Von Hoffmann and Arcade repaidtheir existing indebtedness having an aggregate face value of $1,392.6 millionincluding redemption value of certain remaining redeemable preferred stock.

 

**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 our estimatesare significant, we modify our estimate of the annual effective tax rate andmake 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 1,2005 (“2004 Form 10-K”).

 

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**RecentAccounting Pronouncements**

 

***SFAS 123R – Statement of Accounting Standards No. 123(revised 2004) Share-Based Payment***

In December 2004, the Financial Accounting Standards Board (“FASB”)issued a revision of SFAS 123.  Thisstatement eliminates the alternative to use the intrinsic value method ofaccounting that was permitted in SFAS 123 as originally issued and will requirerecognition of compensation expense related to all equity awards granted afterthe required effective date and to awards modified, repurchased, or cancelledafter that date based on the grant date fair values of the awards.  This statement is effective for us as of thefirst interim or annual reporting period that commences after December 15,2005.  We have not yet determined theimpact of adopting this statement on our consolidated financial position,results of operations or cash flows.

 

***FSP 109-2 – Accounting and Disclosure Guidance for theForeign Earnings Repatriation Provision within the American Jobs Creation Actof 2004.***

In October 2004, the American Jobs Creation Actof 2004 (the “AJC Act”) was signed into law. This legislation creates, among other things, a temporary incentive forU.S. multinational companies to repatriate accumulated income earned outsidethe U.S. at a favorable rate of tax.  TheU.S. Treasury Department has not completed its release of guidelines forapplying the repatriation provisions of the AJC Act.  In December 2004, the FASB issued StaffPosition (FSP) 109-2, which provides accounting and disclosure guidancefor the repatriation provision.  Although weintend to repatriate earnings from our Canadian subsidiary in an amount thatcould range from $8 million to $13 million, we have not completed our analysisof the tax effect of such a distribution because we need additional guidancefrom the U.S. Treasury Department clarifying key elements of the AJC Act.  We anticipate that our analysis of the taxbenefit of repatriation will be completed by the fourth quarter of 2005 andthat the effect on the Company’s effective annual rate will be recorded at thattime.

 

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**RESULTS OF OPERATIONS**

 

**ThreeMonths Ended April 2, 2005 Compared to the Three Months Ended April 3,2004**

 

The followingtable sets forth selected information derived from Holdings’ condensedconsolidated statements of operations for the three-month periods ended April 2,2005 and April 3, 2004.  In the textbelow, amounts and percentages have been rounded and are based on the financialstatement amounts.

 
| ** **                           | ** **   | **Three months ended**  | ** **   | ** **              | ** **   | ** **        | ** **   |
|--------------------------------------|--------------|-------------------------|--------------|-------------------------|--------------|-------------------|--------------|
| **In thousands**                     | ** **   | **April 2,  2005** | ** **   | **April 3,  2004** | ** **   | **$ Change** | ** **   | **% Change** | ** ** |
| Net sales                            |         | $                       | 309,120      |                    | $            | 310,084           |         | $ | (964 | ) | (0.3 | )% |
| Cost of  products sold               |         | 189,514                 |         | 192,322                 |         | (2,808            | )            | (1.5 | )% |
| Gross profit                         |         | 119,606                 |         | 117,762                 |         | 1,844             |         | 1.6 | % |
| *% of net  sales*                    | *** *** | ***38.7***              | ***%***      | ***38.0***              | %            |              |         |   |   |
|                                 |         |                    |         |                    |         |              |         |   |   |
| Selling and  administrative expenses |         | 103,177                 |         | 107,273                 |         | (4,096            | )            | (3.8 | )% |
| *% of net  sales*                    | *** *** | ***33.4***              | ***%***      | ***34.6***              | ***%***      | *** ***      | *** *** | *** *** | *** *** |
| *** ***                         | *** *** | *** ***            | *** *** | *** ***            | *** *** | *** ***      | *** *** | *** *** | *** *** |
| Transaction  costs                   |         | 884                     |         | —                  |         | 884               |         | NM |   |
| Special  charges                     |         | 2,952                   |         | 690                     |         | 2,262             |         | NM |   |
| Operating  income                    |         | 12,593                  |         | 9,799                   |         | 2,794             |         | 28.5 | % |
| *% of net  sales*                    | *** *** | ***4.1***               | ***%***      | ***3.2***               | ***%***      | *** ***      | *** *** | *** *** | *** *** |
| *** ***                         | *** *** | *** ***            | *** *** | *** ***            | *** *** | *** ***      | *** *** | *** *** | *** *** |
| Loss on  redemption of debt          |         | —                  |         | 420                     |         | (420              | )            | NM |   |
| Interest  expense, net               |         | 30,568                  |         | 42,537                  |         | (11,969           | )            | (28.1 | )% |
| Loss before  income taxes            |         | (17,975                 | )            | (33,158                 | )            | 15,183            |         |   |   |
| Benefit from  income taxes           |         | (7,446                  | )            | (5,612                  | )            | (1,834            | )            | 32.7 | % |
| Net loss                             |         | $                       | (10,529      | )                       | $            | (27,546           | )            | $ | 17,017 |   | (61.8 | )% |

 

NM = Not meaningful

 

The followingtable sets forth selected segment information derived from Holdings’ condensedconsolidated statements of operations for the three-month periods ended April 2,2005 and April 3, 2004.  Foradditional financial information about our operating segments, see Note 13 ofthe Notes to Condensed Consolidated Financial Statements.

 
| ** **               | ** ** | **Three months ended**  | ** ** | ** **              | ** ** | ** **        | ** ** |
|--------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------|------------|
| **In thousands**         | ** ** | **April 2,  2005** | ** ** | **April 3,  2004** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Net sales                |       |                    |       |                    |       |              |       |   |   |
| Jostens                  |       | $                       | 139,738    |                    | $          | 143,085           |       | $ | (3,347 | ) | (2.3 | )% |
| Print Group              |       | 169,382                 |       | 166,999                 |       | 2,383             |       | 1.4 | % |
|                     |       | $                       | 309,120    |                    | $          | 310,084           |       | $ | (964 | ) | (0.3 | )% |
| Operating  income (loss) |       |                    |       |                    |       |              |       |   |   |
| Jostens                  |       | $                       | (9,930     | )                       | $          | (5,956            | )          | $ | (3,974 | ) | 66.7 | % |
| Print Group              |       | 22,523                  |       | 15,755                  |       | 6,768             |       | 43.0 | % |
|                     |       | $                       | 12,593     |                    | $          | 9,799             |       | $ | 2,794 |   | 28.5 | % |

 

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***NetSales***

Consolidated netsales decreased $1.0 million, or 0.3%, to $309.1 million for the three monthsended April 2, 2005 from $310.1 million for the same prior year period.

 

Jostens’ net salesdecreased $3.3 million, or 2.3%, to $139.7 million for the current periodcompared to $143.1 million for the same prior year period.  The decrease in Jostens’ net sales wasprimarily attributable to lower volume associated with the timing of deliveriesof graduation announcements and diplomas from the first quarter to the secondquarter relative to last year.  Asignificant portion of annual sales related to graduation products typicallyoccurs over the first half of our fiscal year, however, it is common for us toexperience delivery shifts between the first and second quarters.  Part of the timing difference this year,however, was due to manufacturing inefficiencies that occurred in connectionwith the relocation of Jostens’ diploma production operations.  Jostens is committed to minimizing the impactto our customers and, as a result, we anticipate that Jostens will incuradditional costs this season to assure customer satisfaction and to addressdiploma manufacturing issues.  Thisvolume decline was partially offset by general price increases across theproduct lines and growth in graduation regalia accounts.

 

Print Group netsales increased $2.4 million, or 1.4%, to $169.4 million for the current periodcompared to $167.0 million for the same prior year period.  The increase in Print Group net sales was theresult of growth in sampling and direct marketing production as well asincreased volume in educational printing partially offset by a reduction inpaper sales to customers.

 

***GrossProfit***

Gross profitincreased $1.8 million, or 1.6%, to $119.6 million for the three months ended April 2,2005 from $117.8 million for the same prior year period.  As a percentage of net sales, gross profitmargin increased 70 basis points to 38.7% for the current three-month periodfrom 38.0% for the same period last year.

 

Gross profitmargin in the current period was impacted by a favorable mix of sales withinthe Print Group as a result of increased volume from higher margin markets anddecreased volume from lower margin paper sales. Partially offsetting this increase, gross profit margin was negativelyimpacted by an unfavorable mix of sales within Jostens as a result of thevolume shift between first quarter and second quarter for higher margingraduation products as well as increased costs for precious metals compared tolast year and manufacturing inefficiencies related to Jostens’ diplomaproduction operations discussed above.

 

***Sellingand Administrative Expenses***

Selling and administrativeexpenses decreased $4.1 million, or 3.8%, to $103.2 million for the threemonths ended April 2, 2005 from $107.3 million for the same prior yearperiod.  As a percentage of net sales,selling and administrative expenses decreased 1.2 percentage points to 33.4%for the current three-month period from 34.6% for the same period lastyear.  The $4.1 million decrease wasprimarily due to lower commission expense related to the timing of Jostenssales and the impact of cost reduction initiatives.

 

***SpecialCharges***

During the first quarter of 2005, we recorded$3.0 million of special charges, including $2.2 million related to severancepayments and related benefits associated with the reduction in headcount of 25Jostens employees.  We also recordedseverance of $0.4 million related to Print Group personnel as well as $0.3million of costs related to a withdrawal liability under a union retirementplan that is payable in connection with the consolidation of certainoperations.

 

***Operating Income***

Consolidatedoperating income increased $2.8 million, or 28.5%, to $12.6 million for thethree months ended April 2, 2005 from $9.8 million for the same prior yearperiod.  As a percentage of net sales,operating income increased 90 basis points to 4.1% for the current three-monthperiod from 3.2% for the same period last year.

 

Jostens incurredan operating loss in both periods, which increased $4.0 million, or 66.7%, to$9.9 million for the current three-month period compared to $6.0 million forthe same period last year.  The increasein Jostens’ operating loss was the result of a volume shift between firstquarter and second quarter for higher margin graduation

 

25

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products relativeto last year, the unfavorable effect of manufacturing inefficiencies related toits diploma production operations and a $2.2 million increase in restructuringcharges related to this segment

 

Print Groupoperating income increased $6.8 million, or 43.0%, to $22.5 million for thethree months ended April 2, 2005 from $15.8 million for the same prioryear period primarily as a result of increased sales and favorable product mix.

 

***NetInterest Expense***

Net interestexpense is comprised of the following:

 
| ** **                                                                                        | ** ** | **Three months ended**  | ** ** | ** **              | ** ** | ** **        | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------|------------|
| **In thousands**                                                                                  | ** ** | **April 2,  2005** | ** ** | **April 3,  2004** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Visant:**                                                                                       |       |                    |       |                    |       |              |       |   |   |
| Interest  expense                                                                                 |       | $                       | 22,857     |                    | $          | 25,358            |       | $ | (2,501 | ) | (9.9 | )% |
| Accrued  interest on mandatorily redeemable preferred stock and subordinated exchange  debentures |       | —                  |       | 11,922                  |       | (11,922           | )          | NM |   |
| Amortization  of debt discount, premium and deferred financing costs                              |       | 3,951                   |       | 1,412                   |       | 2,539             |       | 179.8 | % |
| Interest  income                                                                                  |       | (575                    | )          | (89                     | )          | (486              | )          | NM |   |
| ** **                                                                                        | ** ** | **26,233**              | ** ** | **38,603**              | ** ** | **(12,370**       | **)**      | (32.0 | )% |
| **Holdings:**                                                                                     |       |                    |       |                    |       |              |       |   |   |
| Interest  expense                                                                                 |       | —                  |       | 167                     |       | (167              | )          | NM |   |
| Amortization  of debt discount, premium and deferred financing costs                              |       | 4,354                   |       | 3,775                   |       | 579               |       | 15.3 | % |
| Interest  income                                                                                  |       | (19                     | )          | (8                      | )          | (11               | )          | NM |   |
| ** **                                                                                        | ** ** | **4,335**               | ** ** | **3,934**               | ** ** | **401**           |       | 10.2 | % |
| ** **                                                                                        | ** ** | **$**                   | **30,568** | ** **              | **$**      | **42,537**        | ** ** | **$** | **(11,969** | **)** | (28.1 | )% |

 

NM = Not meaningful

 

Net interestexpense decreased $12.0 million, or 28.1%, to $30.6 million for the threemonths ended April 2, 2005 as compared to $42.5 million for the same prioryear period.  The decrease was the resultof our new debt structure at lower interest rates upon the consummation of the2004 Transactions.

 

***Benefitfrom Income Taxes***

Consistentwith the provisions of APB 28, *InterimFinancial Reporting*, we have provided an income tax benefit based onour best estimate of the consolidated effective tax rate applicable for theentire year.  Based on those estimates,for the three months ended April 2, 2005, we provided an income taxbenefit at a consolidated effective rate of 41.4% and 40.5% for Holdings andVisant, respectively.  The annualeffective tax rate does not include any anticipated benefit attributable to thedividend repatriation provisions under the American Jobs Creation Act of2004.  Our preliminary evaluationindicates that the benefit of the repatriation would result in an effective taxrate for the year between 39% and 40%.

 

For the comparable three-month period ended April 3, 2004, theeffective rate of income tax benefit for Holdings and Visant was 16.9% and5.3%, respectively.  These tax ratesreflect the combined effect of separately reported effective tax rates for Holdingsand our acquired companies prior to the 2004 Transactions.  Accordingly, these tax rates are not intendedto reflect a combined effective tax rate that would have been reported if the2004 Transactions had occurred at the beginning of the 2004 fiscal period.  The combined effective annual tax rates areless than the Federal statutory tax rate primarily due to the unfavorableeffect of non-deductible interest expense.

 

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***Net Loss***

As a result of theaforementioned items, net loss decreased $17.0 million, or 61.8%, to $10.5million for the three months ended April 2, 2005 from $27.5 million forthe same prior year period.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

The followingtable presents cash flow activity of Holdings for the first three months offiscal 2005 and 2004 and should be read in conjunction with our condensedconsolidated statements of cash flows.

 
| ** **                                           | ** ** | **Three months ended**  | ** **  |
|------------------------------------------------------|------------|-------------------------|-------------|
| **In thousands**                                     | ** ** | **April 2,  2005** | ** **  | **April 3,  2004** | ** ** |
| Net cash  provided by operating activities           |       | $                       | 16,084      |   | $ | 11,581 |   |
| Net cash  used in investing activities               |       | (16,207                 | )           | (10,350 | ) |
| Net cash  (used in) provided by financing activities |       | (56,988                 | )           | 7,180 |   |
| Effect of  exchange rate change on cash              |       | 40                      |        | 13 |   |
| Net change  in cash and cash equivalents             | ** ** | **$**                   | **(57,071** | **)** | **$** | **8,424** | ** ** |

 

Operatingactivities generated cash of $16.1 million during the three months ended April 2,2005 million compared with $11.6 million for the same prior year period.  Of the $4.5 million increase in operatingcash flow, approximately $1.7 million was attributable to increased cashgenerated from the reduction of working capital.  The cash provided by operating activities wasused to fund $15.3 million in capital expenditures.  Also during the quarter ended April 2,2005, Visant voluntarily prepaid $63.6 million of scheduled payments under theterm loan facilities including all principal payments due in 2005 through 2007.

 

As of April 2,2005, we had cash and cash equivalents of $27.9 million.  Our principal sources of liquidity are cash flowsfrom operating activities and borrowings under Visant’s senior secured creditfacilities, which included $225.1 million available under Visant’s revolvingcredit facility as of April 2, 2005. We use cash primarily for debt service obligations, capital expendituresand to fund working capital requirements. We intend to fund ongoing operations through cash generated byoperations and borrowings under the revolving credit facility.

 

Our ability to make scheduled payments of principal, or to pay the intereston, or to refinance our indebtedness, or to fund planned capital expenditureswill depend on our future performance, which, to a certain extent, is subjectto general economic, financial, competitive, legislative, regulatory and otherfactors that are beyond our control. Based upon the current level of operations, we believe that cash flowfrom operations, available cash and short-term investments, together withborrowings available under Visant’s senior secured credit facilities, areadequate to meet our future liquidity needs for the next twelve months.  Our assumptions with respect to future costsmay not be correct, and funds available to us may not be sufficient to enableus to service our indebtedness, including the notes, or cover any shortfall infunding for any unanticipated expenses. In addition, to the extent we make future acquisitions, we may requirenew sources of funding including additional debt or equity financing or somecombination thereof.  We may not be ableto secure additional sources of funding on favorable terms.

 

#### **ITEM 3.**                             QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

#### ** **

There have been no material changes in our exposure to market riskduring the quarter ended April 2, 2005. For additional information, refer to Item 7A of our 2004 Form 10-K.

 

#### **ITEM 4.**                             CONTROLSAND PROCEDURES

#### ** **

As of the end ofthe period covered by this report, management, under the supervision of ourChief Executive Officer and Vice President, Finance, evaluated theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures that are designed to ensure that information that is required tobe disclosed in our quarterly

 

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report isrecorded, processed and summarized within time periods specified in theSecurities and Exchange Commission’s rules and regulations and that suchinformation is accumulated and communicated to our management, including ourChief Executive Officer and Vice President, Finance, as appropriate to allowtimely decisions regarding required disclosures.  Any controls and procedures, no matter howwell designed and operated, can provide only reasonable assurance of achievingthe desired control objectives.  Basedupon that evaluation, our Chief Executive Officer and Vice President, Financeconcluded that these disclosure controls and procedures are effective, in allmaterial respects, in timely alerting them to material information relating tothe Company required to be included in our periodic reports filed under theSecurities Exchange Act of 1934, as amended.

 

During the Company’sfiscal quarter ended April 2, 2005, there were no significant changes inthe Company’s internal controls over financial reporting in connection with theabove described evaluation that materially affected, or are reasonably likelyto materially affect, these controls.

 

**PART II. OTHER INFORMATION**

 

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

#### ** **

On February 11, 2004, plaintiff Christian Pocino filed a complaintagainst Jostens in the Superior Court of California for the County of LosAngeles for alleged breach of express warranty (Cal. Comm. Code Section 2313),and for alleged violation of California’s false advertising and unfaircompetition laws (Cal. Bus. & Prof. Code Sections 17500 and17200).  Plaintiff alleged that Jostensviolated these laws by purportedly violating Federal Trade Commission “guides”with regard to the marketing and sale of jewelry.  Specifically, plaintiff contended that: (1) Jostensfailed to comply with the FTC guide that every use of the word “stone” beimmediately preceded by the word “imitation”, “synthetic” or a similar term;and (2) Jostens failed to comply with a separate FTC guide relating to useof the word silver in connection with Jostens’ SilverElite® with platinum alloy.  Plaintiff sought equitable relief andunspecified monetary damages on behalf of himself and a purported class ofsimilarly-situated consumers.

 

Jostens brought a demurrer and motion to strike the plaintiff’scomplaint on June 25, 2004, challenging the legal sufficiency of plaintiff’sallegations on the basis, inter alia, that the FTC guides are nonbinding andthat plaintiff’s allegations generally failed to state a claim on which reliefcould be granted.  On August 13,2004, the Superior Court sustained Jostens’ demurrer with leave to amend.

 

On August 25, 2004, the plaintiff filed an amended complaint whichcontained substantially the same allegations regarding “stones” while droppingthe claims regarding SilverElite® with platinum.  On September 29, 2004, Jostens filedanother demurrer/motion to strike, challenging the legal sufficiency ofplaintiff’s amended complaint.  On November 24,2004, the Superior Court again sustained Jostens’ demurrer with leave to amend.  The plaintiff filed a second amendedcomplaint dated December 16, 2004. The court dismissed the action on January 26, 2005.  The plaintiff has appealed the court’sdecision.  It is anticipated that theappeal will be fully briefed by the fourth quarter of 2005 and that argumentswill occur thereafter.

 

In communications with U.S. Customs and Border Protection (“Customs”),the Company learned of an alleged inaccuracy of the tariff classification forcertain of Jostens’ imports from Mexico.  Jostens promptly filed with Customs avoluntary disclosure to limit its monetary exposure.  The effect of these alleged tariffclassification errors is that back duties and fees (or “loss of revenue”) maybe owed on imports dating back five years. Additionally, Customs may impose interest on the loss of revenue.  No formal notice of, or demand for, anyalleged loss of revenue has yet been issued by Customs.  A review of Jostens’ import practices hasrevealed that during the relevant five-year period, Jostens’ merchandisequalified for duty-free tariff treatment under the North American Free TradeAgreement (“NAFTA”), in which case there should be no loss of revenue orinterest payment owed Customs.  However,Customs allegations indicate that Jostens committed a technical oversight inclaiming the preferential tariff treatment. Through its prior disclosure to Customs, Jostens has addressed thistechnical oversight and asserted that the merchandise did in fact qualify forduty-free tariff treatment under NAFTA and that there is no associated loss of

 

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revenue.  Jostens is in the earlystages of administrative review of this matter, and it is not clear whatCustoms’ position will be with respect to the alleged tariff classificationerrors or that Jostens will not be foreclosed under statute from makingpost-entry NAFTA claims for those imports made prior to 2004.  Jostens intends to vigorously defend itsposition and has recorded no accrual for any potential liability.  However, we cannot assure you that Jostens willbe successful in its defense or that the disposition of this matter will nothave a material effect on our business, financial condition and results ofoperations.

 

Weare also a party to other 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 business, financial condition and resultsof operations, if any, for the disposition of these matters will not bematerial, however, there can be no assurance in this regard.

 

#### **ITEM2.**     UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS

#### ** **

Our equity securities are not registered pursuant to Section 12 ofthe Exchange Act.  For the quarter ended April 2,2005, we did not issue or sell securities pursuant to offerings that were notregistered under the Securities Act of 1933, as amended (the “Securities Act”),except that on March 17, 2005 (a) Holdings sold 61,733 shares of its Class AVoting Stock (the “Class A Common Stock”) to certain members of seniormanagement and an entity affiliated with Capstone Consulting (which providesVisant and its subsidiaries with professional consulting services) for anaggregate purchase price of approximately $5.9 million (or $96.10401 per share)and (b) Holdings issued to our non-management directors, certain membersof management and an entity affilitated with Capstone Consulting an aggregateof 185,481 options to purchase Class A Common Stock with an exercise priceof $96.10401 per share in each case in an offering and sale made underRegulation D of the Securities Act of 1933, as amended.  On March 30, 2005, we completed an offerto exchange $500 million in aggregate principal amount of 75/8% senior subordinated notes (the “Visant notes”) due2012, that had been sold in a private placement under Rule 144A andRegulation S under the Securities Act to a limited number of qualifiedinstitutional buyers, for an equal amount of notes with substantially identicalterms that have been registered under the Securities Act.

 

#### **ITEM3.**     DEFAULTS UPON SENIORSECURITIES

#### ** **

None

 

#### **ITEM4.**     SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS

#### ** **

By Action of Stockholders Taken by Written Consent on January 6,2005, the stockholders approved the Amended and Restated Stock Option Plan forKey Employees of Visant Holding Corp. and its Subsidiaries.

 

By Action of Stockholders Taken by Written Consent on February 5,2005, the stockholders approved the amendment changing the name of JostensHolding Corp. to Visant Holding Corp.

 

By Action of Stockholders Taken by Written Consent on March 15,2005, the stockholders approved the Second Amended and Restated Stock OptionPlan for Key Employees of Visant Holding Corp. and its Subsidiaries.

 

#### **ITEM 5.**     OTHER INFORMATION

#### ** **

None

 

#### **ITEM 6.**     EXHIBITS

#### ** **

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

 

31.1                           Certificationof Chief Executive Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002

 

31.2                           Certificationof Vice President, Finance pursuant to Section 302 of the Sarbanes-OxleyAct of 2002

 

32.1                           Certificationof Chief Executive Officer pursuant to Section 906 of the Sarbanes-OxleyAct of 2002

 

32.2                           Certification of Vice President, Financepursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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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.

 

 
| ** ** | **VISANT HOLDING CORP.**     | ** ** |
|------------|------------------------------|------------|
| ** ** | **VISANT CORPORATION**       | ** ** |
|       |                         |       |
|       |                         |       |
| Date:      | May 17, 2005                 |       | /s/ Marc L.  Reisch |   |
|       |                         |       | Marc L.  Reisch |   |
|       | * *                     | * *   | *President and* | * * |
|       | * *                     | * *   | *Chief Executive Officer* | * * |
|       |                         |       |   |   |
|       |                         |       |   |   |
| Date:      | May 17, 2005                 |       | /s/ Paul B.  Carousso |   |
|       | Paul B.  Carousso            |       |
| * *   | *Vice President, Finance*    | * *   |
| * *   | *(Chief Accounting Officer)* | * *   |
| * *   | * *                     | * *   |

 

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