** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

# **Washington, D.C.20549**

# ** **

## **FORM 10-Q**

## ** **

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

 

**For theQuarterly Period Ended July 3, 2004**

 

**OR**

 

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

### ** **

**Commissionfile number 1-5064**

 

**JOSTENS, INC.**

(Exact name of Registrant as specified in its charter)

 
| **Minnesota**                                                  | ** ** | **41-0343440**                          |
|----------------------------------------------------------------|------------|-----------------------------------------|
| (State or other jurisdiction of incorporation or organization) |       | (I.R.S. employer identification number) |
| ** **                                                     | ** ** | ** **                              |
| **5501  American Boulevard West  Minneapolis, Minnesota**      | ** ** | **55437**                               |
| (Address of principal executive offices)                       |       | (Zip code)                              |
| ** **                                                     | ** ** | ** **                              |
| **Registrant’s telephone number:**  (952) 830-3300   | ** ** | ** **                              |

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirement for the past 90 days.    Yes ý   Noo

 

Indicate by check markwhether the Registrant is an accelerated filer (as defined in Rule 12b-2 of theAct).    Yes o   Noý

 

As of August 16,2004 there were 1,000 shares of Common Stock, $.01 par value, outstanding.

 

 

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**JOSTENS, INC. AND SUBSIDIARIES**

**Index to Form 10-Q**

** **
| **Part I.   FINANCIAL INFORMATION** |                                                                                                                          |
|-----------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------|
|                                          |                                                                                                                          |   |
| Item 1.                                       | Financial Statements  (Unaudited)                                                                                             |   |
|                                          |                                                                                                                          |   |
|                                          | Condensed  Consolidated Statements of Operations for the three and six months ended  July 3, 2004 and June 28, 2003 |   |
|                                          |                                                                                                                          |   |
|                                          | Condensed  Consolidated Balance Sheets as of July 3, 2004, January 3, 2004 and June  28, 2003                            |   |
|                                          |                                                                                                                          |   |
|                                          | Condensed  Consolidated Statements of Cash Flows for the three and six months ended  July 3, 2004 and June 28, 2003 |   |
|                                          |                                                                                                                          |   |
|                                          | Notes  to Condensed Consolidated Financial Statements                                                                         |   |
|                                          |                                                                                                                          |   |
| Item  2.                                      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                   |   |
|                                          |                                                                                                                          |   |
| Item  3.                                      | Quantitative  and Qualitative Disclosures about Market Risk                                                                   |   |
|                                          |                                                                                                                          |   |
| Item 4.                                       | Controls and  Procedures                                                                                                      |   |
|                                          |                                                                                                                          |   |
| **Part II.  OTHER INFORMATION**          | ** **                                                                                                                    |
|                                          |                                                                                                                          |   |
| Item 1.                                       | Legal Proceedings                                                                                                             |   |
|                                          |                                                                                                                          |   |
| Item 6.                                       | Exhibits  and Reports on Form 8-K                                                                                             |   |
|                                          |                                                                                                                          |   |
| Signatures                                    |                                                                                                                          |
|                                               |                                                                                                                               |  |  |

 

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

##### ** **

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

###### ** **

**JOSTENS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS (UNAUDITED)**

 
| ** **                                             | ** ** | **Three months ended**             | ** **  | ** ** | **Six months ended**               | ** ** |
|--------------------------------------------------------|------------|------------------------------------|-------------|------------|------------------------------------|------------|
| *In thousands*                                         | ** ** | **Post-Merger  July 3, 2004** | ** **  | ** ** | **Pre-Merger  June 28, 2003** | ** ** | ** ** | **Post-Merger  July 3, 2004** | ** ** | ** ** | **Pre-Merger  June 28, 2003** | ** ** |
| **Net sales**                                          |       | **$**                              | **376,186** | ** ** | ** **                         | **$**      | **374,936** | ** ** | ** ** | **$** | **519,271** | ** ** | ** ** | **$** | **496,460** |   |
| Cost  of products sold                                 |       | 196,867                            |        |       | 161,005                            |       |   | 257,647 |   |   | 211,750 |   |
| Gross  profit                                          |       | 179,319                            |        |       | 213,931                            |       |   | 261,624 |   |   | 284,710 |   |
| Selling  and administrative expenses                   |       | 116,470                            |        |       | 108,589                            |       |   | 204,695 |   |   | 180,047 |   |
| **Operating income**                                   | ** ** | **62,849**                         | ** **  | ** ** | **105,342**                        | ** ** | ** ** | **56,929** | ** ** | ** ** | **104,663** | ** ** |
| Loss  on redemption of debt                            |       | —                             |        |       | —                             |       |   | 420 |   |   | — |   |
| Net  interest expense                                  |       | 16,360                             |        |       | 13,535                             |       |   | 32,189 |   |   | 27,475 |   |
| Income  before income taxes                            |       | 46,489                             |        |       | 91,807                             |       |   | 24,320 |   |   | 77,188 |   |
| Provision  for income taxes                            |       | 4,649                              |        |       | 38,100                             |       |   | 2,432 |   |   | 32,079 |   |
| **Net income**                                         | ** ** | **41,840**                         | ** **  | ** ** | **53,707**                         | ** ** | ** ** | **21,888** | ** ** | ** ** | **45,109** | ** ** |
| Dividends  and accretion on redeemable preferred stock |       | —                             |        |       | (3,320                             | )          |   | — |   |   | (6,525 | ) |
| **Net income available to common shareholder(s)**      | ** ** | **$**                              | **41,840**  | ** ** | ** **                         | **$**      | **50,387** | ** ** | ** ** | **$** | **21,888** | ** ** | ** ** | **$** | **38,584** | ** ** |

 

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

 

1

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**JOSTENS,INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS (UNAUDITED)**

 
| ** **                                                                                                                                             | ** ** | **Post-Merger**       | ** **    | ** **               | **Pre-Merger** | ** **    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|---------------|--------------------------|----------------|---------------|
| *In thousands, except share  amounts*                                                                                                                  | ** ** | **July 3, 2004** | ** **    | **January 3, 2004** | ** **     | ** **    | **June 28, 2003** | ** ** |
| **ASSETS**                                                                                                                                             |       |
| Cash  and cash equivalents                                                                                                                             |       | $                     | 4,555         |                     | $              | 19,371        |   |   | $ | 22,940 |   |
| Accounts  receivable, net                                                                                                                              |       | 82,163                |          | 57,018                   |           |          | 87,860 |   |
| Inventories,  net                                                                                                                                      |       | 49,693                |          | 72,523                   |           |          | 45,528 |   |
| Salespersons  overdrafts, net of allowance of $10,510, $10,953 and $8,629                                                                              |       | 21,414                |          | 30,062                   |           |          | 17,701 |   |
| Prepaid  expenses and other current assets                                                                                                             |       | 6,237                 |          | 10,446                   |           |          | 5,398 |   |
| Deferred  income taxes                                                                                                                                 |       | 10,698                |          | —                   |           |          | 13,718 |   |
| **Total current assets**                                                                                                                               | ** ** | **174,760**           | ** **    | **189,420**              | ** **     | ** **    | **193,145** | ** ** |
|                                                                                                                                                   |       |                  |          |                     |           |          |   |   |
| Property  and equipment                                                                                                                                |       | 125,271               |          | 119,506                  |           |          | 277,452 |   |
| Less  accumulated depreciation                                                                                                                         |       | (27,902               | )             | (13,913                  | )              |          | (216,757 | ) |
| Property  and equipment, net                                                                                                                           |       | **97,369**            | ** **    | **105,593**              | ** **     | ** **    | **60,695** | ** ** |
| Goodwill                                                                                                                                               |       | 728,101               |          | 746,025                  |           |          | 16,095 |   |
| Intangibles,  net                                                                                                                                      |       | 589,539               |          | 644,654                  |           |          | 3,561 |   |
| Other  assets                                                                                                                                          |       | 31,367                |          | 34,666                   |           |          | 57,389 |   |
|                                                                                                                                                   |       | **$**                 | **1,621,136** | ** **               | **$**          | **1,720,358** | ** ** | ** ** | **$** | **330,885** | ** ** |
|                                                                                                                                                   |       |                  |          |                     |           |          |   |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                                                                               |       |
| Book  overdrafts                                                                                                                                       |       | $                     | 2,964         |                     | $              | —        |   |   | $ | — |   |
| Short-term  borrowings                                                                                                                                 |       | 9,675                 |          | 13,013                   |           |          | 8,880 |   |
| Accounts  payable                                                                                                                                      |       | 12,066                |          | 17,009                   |           |          | 10,792 |   |
| Commissions  payable                                                                                                                                   |       | 44,076                |          | 16,736                   |           |          | 42,453 |   |
| Customer  deposits                                                                                                                                     |       | 57,866                |          | 149,809                  |           |          | 58,583 |   |
| Income  taxes payable                                                                                                                                  |       | 30,616                |          | 8,840                    |           |          | 37,241 |   |
| Current  portion of long-term debt                                                                                                                     |       | 5,150                 |          | —                   |           |          | 18,411 |   |
| Deferred  income taxes                                                                                                                                 |       | —                |          | 4,283                    |           |          | — |   |
| Other  accrued liabilities                                                                                                                             |       | 45,626                |          | 50,199                   |           |          | 48,930 |   |
| **Total current liabilities**                                                                                                                          | ** ** | **208,039**           | ** **    | **259,889**              | ** **     | ** **    | **225,290** | ** ** |
|                                                                                                                                                   |       |                  |          |                     |           |          |   |   |
| Long-term  debt - less current maturities                                                                                                              |       | 637,419               |          | 685,407                  |           |          | 554,463 |   |
| Redeemable  preferred securities (liquidation preference: $106,107 and $99,052)                                                                        |       | 122,435               |          | 135,272                  |           |          | — |   |
| Deferred  income taxes                                                                                                                                 |       | 223,326               |          | 231,890                  |           |          | 10,533 |   |
| Other  noncurrent liabilities                                                                                                                          |       | 23,344                |          | 23,359                   |           |          | 6,362 |   |
| **Total liabilities**                                                                                                                                  | ** ** | **1,214,563**         | ** **    | **1,335,817**            | ** **     | ** **    | **796,648** | ** ** |
|                                                                                                                                                   |       |                  |          |                     |           |          |   |   |
| Commitments  and contingencies                                                                                                                         |       |                  |          |                     |           |          |   |   |
|                                                                                                                                                   |       |                  |          |                     |           |          |   |   |
| Redeemable  preferred stock (liquidation preference: $90,358)                                                                                          |       | —                |          | —                   |           |          | 77,316 |   |
|                                                                                                                                                   |       |                  |          |                     |           |          |   |   |
| Common  stock $.01 par value; authorized: 2,000,000 shares; issued and  outstanding:  1,000 shares at  July 3, 2004 and January 3, 2004 |       | —                |          | —                   |           |          | — |   |
| Common  stock                                                                                                                                          |       | —                |          | —                   |           |          | 1,003 |   |
| Additional  paid-in-capital                                                                                                                            |       | 417,934               |          | 417,934                  |           |          | 20,964 |   |
| Officer  notes receivable                                                                                                                              |       | —                |          | —                   |           |          | (1,670 | ) |
| Accumulated  deficit                                                                                                                                   |       | (11,514               | )             | (33,402                  | )              |          | (553,421 | ) |
| Accumulated  other comprehensive loss                                                                                                                  |       | 153                   |          | 9                        |           |          | (9,955 | ) |
| **Total shareholders’ equity (deficit)**                                                                                                          | ** ** | **406,573**           | ** **    | **384,541**              | ** **     | ** **    | **(543,079** | **)** |
| ** **                                                                                                                                             | ** ** | **$**                 | **1,621,136** | ** **               | **$**          | **1,720,358** | ** ** | ** ** | **$** | **330,885** | ** ** |

 

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

 

2

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**JOSTENS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS (UNAUDITED)**

 
| ** **                                                                        | ** ** | **Six months ended**               | ** ** |
|-----------------------------------------------------------------------------------|------------|------------------------------------|------------|
| *In thousands*                                                                    | ** ** | **Post-Merger  July 3, 2004** | ** ** | ** ** | **Pre-Merger  June 28, 2003** | ** ** |
| Net income                                                                        |       | $                                  | 21,888     |   |   | $ | 45,109 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities |       |                               |       |   |   |   |
| Depreciation                                                                      |       | 14,095                             |       |   | 10,941 |   |
| Amortization included in interest expense                                         |       | 1,891                              |       |   | 2,664 |   |
| Other amortization                                                                |       | 55,539                             |       |   | 1,687 |   |
| Accrued interest on redeemable preferred stock                                    |       | 7,163                              |       |   | — |   |
| Deferred income taxes                                                             |       | (22,177                            | )          |   | — |   |
| Other noncash reconciling items                                                   |       | 463                                |       |   | 95 |   |
| Changes in assets and liabilities                                                 |       | (45,052                            | )          |   | (28,343 | ) |
| **Net cash provided by operating  activities**                                    | ** ** | **33,810**                         | ** ** | ** ** | **32,153** | ** ** |
| Acquisition of business, net of cash acquired                                     |       | —                             |       |   | (5,008 | ) |
| Purchases of property and equipment                                               |       | (6,656                             | )          |   | (5,369 | ) |
| Other investing activities, net                                                   |       | 18                                 |       |   | (407 | ) |
| **Net cash used for investing  activities**                                       | ** ** | **(6,638**                         | **)**      | ** ** | **(10,784** | **)** |
| Principal payments on long-term debt                                              |       | (36,000                            | )          |   | (8,218 | ) |
| Redemption of senior subordinated notes payable                                   |       | (5,800                             | )          |   | — |   |
| Other financing activities, net                                                   |       | (126                               | )          |   | (1,420 | ) |
| **Net cash used for financing  activities**                                       | ** ** | **(41,926**                        | **)**      | ** ** | **(9,638** | **)** |
| Effect of exchange rate changes on cash and cash  equivalents                     |       | (62                                | )          |   | 271 |   |
| (Decrease) increase in cash and cash equivalents                                  |       | (14,816                            | )          |   | 12,002 |   |
| Cash and cash equivalents, beginning of period                                    |       | 19,371                             |       |   | 10,938 |   |
| **Cash and cash equivalents, end of  period**                                     | ** ** | **$**                              | **4,555**  | ** ** | ** ** | **$** | **22,940** | ** ** |

 

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

 

3

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

***Jostens, Inc. and Subsidiaries***

 

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

 

***Basis of Presentation***

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

 

The preparation of ourfinancial statements in conformity with accounting principles generallyaccepted in the United States requires us to make estimates and assumptionsthat affect the amounts reported in the financial statements and accompanyingnotes.  Actual results could differ fromthose estimates.

 

Our unaudited condensedconsolidated financial statements as of and for the three- and six-monthperiods ended June 28, 2003, were prepared using our historical basis ofaccounting.  As a result of the 2003merger transaction as discussed in Note 3, we applied purchase accounting and anew basis of accounting began on July 29, 2003.  The three- and six-month periods endedJune 28, 2003 are pre-merger periods and the three and six-month periodsended July 3, 2004 are post-merger periods.

 

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

 

***Stock-Based Compensation***

We apply the intrinsicmethod prescribed by Accounting Principles Board Opinion (APB) 25, *“Accounting for Stock Issued to Employees,”*andrelated interpretations in accounting for stock options granted to employeesand non-employee directors.  Accordingly,no compensation cost has been reflected in net income for these plans since alloptions are granted with exercise prices at or above fair value of theunderlying stock on the date of grant. The following table illustrates the effect on net income and earningsper share if we had applied the fair value recognition provisions of SFAS 123, *“Accounting for Stock-Based Compensation”*tooptions granted to employees and directors, including those granted subsequentto the merger by our indirect parent, Jostens Holding Corp., on our behalf.

 
| ** **                                                                                                                           | ** ** | **Three months ended**             | ** ** | ** ** | **Six months ended**               | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|------------|------------------------------------|------------|
| *In thousands*                                                                                                                       | ** ** | **Post-Merger  July 3, 2004** | ** ** | ** ** | **Pre-Merger  June 28, 2003** | ** ** | ** ** | **Post-Merger  July 3, 2004** | ** ** | ** ** | **Pre-Merger  June 28, 2003** | ** ** |
| **Net income available to common shareholder(s)**                                                                                    | ** ** | ** **                         | ** ** | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| As  reported                                                                                                                         |       | $                                  | 41,840     |       |                               | $          | 50,387 |   |   | $ | 21,888 |   |   | $ | 38,584 |   |
| Deduct  total stock-based employee compensation expense determined under fair  value-based method for all awards, net of tax effects |       | (152                               | )          |       | (157                               | )          |   | (304 | ) |   | (313 | ) |
| Pro  forma net income available to common shareholder(s)                                                                             |       | **$**                              | **41,688** | ** ** | ** **                         | **$**      | **50,230** | ** ** | ** ** | **$** | **21,584** | ** ** | ** ** | **$** | **38,271** | ** ** |

 

***New Accounting Standards***

 

***FSP 106-1 –Accounting and Disclosure Requirements Related to the Medicare PrescriptionDrug Improvement and Modernization Act of 2003***

OnDecember 8, 2003, the Medicare Prescription Drug, Improvement andModernization Act of 2003 (the “Act”) was signed into law.  The Act will provide plan sponsors a federalsubsidy for certain qualifying prescription drug benefits covered under thesponsor’s postretirement health care plans. In accordance with Financial Accounting Standards Board (FASB) StaffPosition (FSP) 106-1, all amounts are presented without reflecting anypotential effects of the Act.   On May19, 2004, the FASB issued FSP 106-2, which requires measures of the accumulated

 

4

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**Notesto Condensed Consolidated Financial Statements (Unaudited)**

***Jostens, Inc. and Subsidiaries***

 

postretirement benefitobligation and net periodic postretirement benefit cost to reflect the effectsof the Act in the first interim period beginning after June 15, 2004.  We do not expect the adoption of the Act tohave a material impact on our consolidated financial statements.

 

**2.****              Pending Transaction**

 

On July 21,2004, Jostens Holding Corp. (“JHC”), our indirect parent company, entered intoa contribution agreement (the “Contribution Agreement”) with Fusion AcquisitionLLC (“AcquisitionCo”), a newly-formed entity owned by investment funds ofKohlberg Kravis & Roberts Co. L.P. (“KKR”), pursuant to which JHC shallissue common stock of JHC to AcquisitionCo and AcquisitionCo shall contributeto JHC the capital stock of each of (i) Von Hoffmann Holdings Inc. (“Von Hoffmann”),a leading printer of educational textbooks, supplemental materials, bookcomponents and direct marketing print services, and (ii) AHC I AcquisitionCorp. (“Arcade”), a leading manufacturer of sampling products for thefragrance, cosmetics, consumer products and food and beverage industries.  AcquisitionCo will acquire each of VonHoffmann and Arcade immediately prior to consummation of the ContributionAgreement pursuant to separate merger agreements entered into betweenAcquisitionCo and Von Hoffmann and Arcade, respectively.  The transactions are expected to close latein the third quarter or early in the fourth quarter of 2004.

 

Von Hoffmann and Arcadeare each currently controlled by DLJ Merchant Banking Partners II, L.P. andcertain of its affiliated funds.  DLJMerchant Banking Partners III, L.P. and certain of its affiliated funds(collectively, the “DLJMB III Funds”) currently beneficially own approximately82.5% of JHC’s outstanding voting securities. Upon the closing of the transactions contemplated by the ContributionAgreement, KKR will be issued equity interests representing approximately 45%of the economic interests and 50% of the voting interests of JHC, and the DLJMBIII Funds will own equity interests representing approximately 45% of theeconomic interests and approximately 41% of the voting interests of JHC.  Upon the closing of the ContributionAgreement, the Board of Directors of JHC is expected to consist of ninedirectors, four of whom will be appointed by KKR, four of whom will beappointed by the DLJMB III Funds and one of whom will be the Chief ExecutiveOfficer of JHC, initially Marc Reisch.

 

In connection with thetransactions, Jostens IH Corp., our parent company, has received a commitmentfrom Credit Suisse First Boston for new senior secured credit facilitiesconsisting of:  (i) two senior securedterm loan facilities in an aggregate principal amount of up to $1,020.0 millionand (ii) a senior secured revolving credit facility in an aggregate principalamount of $250.0 million (the “Credit Facilities”) and a $500.0 millionincreasing rate bridge loan facility (the “Bridge Facility”).  Jostens IH Corp. expects to use a portion ofthe proceeds from the Credit Facilities and the Bridge Facility (or anyoffering of notes that may be issued in lieu of the Bridge Facility) to fundcertain tender payments due to holders of Jostens’ 12.75% Senior Subordinated Notes due 2010who elect to tender their notes pursuant to a tender offer and consentsolicitation expected to be commenced in August 2004 and to satisfy anddischarge the indenture with respect to the notes that are not tenderedpursuant to such tender offer.  Inconnection with the transactions, Von Hoffmann and Arcade are each expected totender for certain of their own existing indebtedness and redeem suchindebtedness not so tendered, or defease or satisfy and discharge theindentures governing such indebtedness. Concurrently with the consummation of the transactions contemplated bythe Contribution Agreement, we intend to repurchase all issued and outstandingshares of our 14% Senior Redeemable Payment-in-Kind Preferred Stock.  JHC’s 10.25% Senior Discount Notes areexpected to remain outstanding.

 

**3.****              2003 Merger**

 

On July 29, 2003, wewere acquired by DLJ Merchant Banking Partners III, L.P. and certain of itsaffiliated funds through a merger in which Jostens, Inc. became the survivingcompany and an indirect subsidiary of Jostens Holding Corp.  We paid $471.0 million to holders of ourcommon stock and warrants representing a cash payment of $48.25 per share.  We accounted for the merger using thepurchase method of accounting.  The pricepaid to holders of

 

5

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**Notesto Condensed Consolidated Financial Statements (Unaudited)**

***Jostens, Inc. and Subsidiaries***

 

common stock and warrantsof $471.0 million, excluding certain capitalized transaction costs, wasallocated to the tangible and intangible assets acquired and liabilitiesassumed, based upon their relative fair values as of the date of themerger.  As of July 3, 2004, ourpreliminary allocation of the purchase price was as follows:

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

 

We have estimated thefair value of our assets and liabilities as of the merger date utilizinginformation available at the time that our condensed consolidated financialstatements were prepared.  Theseestimates are subject to refinement until all pertinent information has beenobtained.  During the six months ended July 3, 2004, we recorded purchase priceadjustments through goodwill to reduce the fair value of our redeemablepreferred stock and our property and equipment in the amounts of $20.0 millionand $0.6 million, respectively, and established a $2.9 million purchaseaccounting liability.  The $2.9 millionliability is for severance and other personnel costs related to the involuntarytermination or relocation of employees associated with management’s plans, asof the merger date, to cease production at our Red Wing, MN manufacturingfacility.  Production and customerservice of graduation diplomas will be transferred to facilities in Owatonna,MN, Shelbyville, TN and Topeka, KS.  The decisionto close the Red Wing facility was based on improving customer service andoverall efficiency of Jostens.  OnJune 22, 2004, we formally communicated the termination of employment toapproximately 180 full-time and seasonal plant and administrative employees.  We anticipate that the majority of these exitcosts will be paid during 2004.

 

**4.****              Comprehensive Income**

 

Comprehensive income and its components, net of tax,are presented below:

 
| ** **                                            | ** ** | **Three months ended**             | ** ** | ** ** | **Six months ended**               | ** ** |
|-------------------------------------------------------|------------|------------------------------------|------------|------------|------------------------------------|------------|
| *In thousands*                                        | ** ** | **Post-Merger  July 3, 2004** | ** ** | ** ** | **Pre-Merger  June 28, 2003** | ** ** | ** ** | **Post-Merger  July 3, 2004** | ** ** | ** ** | **Pre-Merger  June 28, 2003** | ** ** |
| Net  income                                           |       | $                                  | 41,840     |       |                               | $          | 53,707 |   |   | $ | 21,888 |   |   | $ | 45,109 |   |
| Change  in cumulative translation adjustment          |       | 128                                |       |       | (175                               | )          |   | 52 |   |   | (327 | ) |
| Change  in fair value of foreign currency hedge       |       | 92                                 |       |       | —                             |       |   | 92 |   |   | — |   |
| Change  in fair value of interest rate swap agreement |       | —                             |       |       | 601                                |       |   | — |   |   | 1,189 |   |
| Comprehensive  income                                 |       | $                                  | 42,060     |       |                               | $          | 54,133 |   |   | $ | 22,032 |   |   | $ | 45,971 |   |

 

6

----

 

**Notesto Condensed Consolidated Financial Statements (Unaudited)**

***Jostens, Inc. and Subsidiaries***

 

**5.****              Accounts Receivableand Inventories**

 

Net accounts receivablewere comprised of the following:

 
| ** **                       | ** ** | **Post-Merger**       | ** ** | ** **               | **Pre-Merger** | ** ** |
|----------------------------------|------------|-----------------------|------------|--------------------------|----------------|------------|
| ***In thousands***               | ** ** | **July 3, 2004** | ** ** | **January 3, 2004** | ** **     | ** ** | **June 28, 2003** | ** ** |
| Trade  receivables               |       | $                     | 94,799     |                     | $              | 64,993     |   |   | $ | 100,014 |   |
| Allowance  for doubtful accounts |       | (2,422                | )          | (2,184                   | )              |       | (2,569 | ) |
| Allowance  for sales returns     |       | (10,214               | )          | (5,791                   | )              |       | (9,585 | ) |
| Accounts  receivable, net        |       | $                     | 82,163     |                     | $              | 57,018     |   |   | $ | 87,860 |   |

 

Net inventorieswere comprised of the following:

 
| ** **                 | ** ** | **Post-Merger**       | ** ** | ** **               | **Pre-Merger** | ** ** |
|----------------------------|------------|-----------------------|------------|--------------------------|----------------|------------|
| *In thousands*             | ** ** | **July 3, 2004** | ** ** | **January 3, 2004** | ** **     | ** ** | **June 28, 2003** | ** ** |
| Raw  material and supplies |       | $                     | 13,687     |                     | $              | 11,416     |   |   | $ | 11,262 |   |
| Work-in-process            |       | 22,935                |       | 28,084                   |           |       | 22,753 |   |
| Finished  goods            |       | 15,034                |       | 34,713                   |           |       | 13,511 |   |
| Reserve  for obsolescence  |       | (1,963                | )          | (1,690                   | )              |       | (1,998 | ) |
| Inventories,  net          |       | $                     | 49,693     |                     | $              | 72,523     |   |   | $ | 45,528 |   |

 

**6.****              Goodwilland Other Intangible Assets**

 

The increase in goodwill and other intangible assetsas of July 3, 2004 compared to the period ended June 28, 2003 waspredominantly attributable to the effect of purchase accounting in connectionwith the July 29, 2003 merger.

 

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

 
| ** **                           | ** ** | **Post-Merger**       | ** **  | ** ** | **Pre-Merger**         | ** ** |
|--------------------------------------|------------|-----------------------|-------------|------------|------------------------|------------|
| *In thousands*                       | ** ** | **July 3, 2004** | ** **  | ** ** | **June 28, 2003** | ** ** |
| Balance  at beginning of year        |       | $                     | 746,025     |       |                   | $          | 14,450 |   |
| Goodwill  acquired during the period |       | 15                    |        |       | 4,781                  |       |
| Purchase  price adjustments          |       | (17,909               | )           |       | (3,277                 | )          |
| Currency  translation                |       | (30                   | )           |       | 141                    |       |
| Balance  at end of period            | ** ** | **$**                 | **728,101** | ** ** | ** **             | **$**      | **16,095** |   |

 

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

 

7

----

 

**Notesto Condensed Consolidated Financial Statements (Unaudited)**

***Jostens, Inc. and Subsidiaries***

 
| ** **                      | ** ** | **Post-Merger  July 3, 2004** | ** ** |
|---------------------------------|------------|------------------------------------|------------|
| *In thousands*                  | ** ** | **Estimated  Useful Life**         | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| School  relationships           |       | 10 years                           |       | $ | 330,000 |   | $ | (30,977 | ) | $ | 299,023 |   |
| Order  backlog                  |       | 1.5 years                          |       | 48,700 |   | (36,610 | ) | 12,090 |   |
| Internally  developed software  |       | 2 to 5 years                       |       | 12,200 |   | (3,183 | ) | 9,017 |   |
| Patented/unpatented  technology |       | 3 years                            |       | 11,000 |   | (3,433 | ) | 7,567 |   |
| Customer  relationships         |       | 4 to 8 years                       |       | 8,666 |   | (1,832 | ) | 6,834 |   |
| Other                           |       | 3 years                            |       | 24 |   | (16 | ) | 8 |   |
|                            |       |                               |       | 410,590 |   | (76,051 | ) | 334,539 |   |
| Trademarks                      |       | Indefinite                         |       | 255,000 |   | — |   | 255,000 |   |
| ** **                      | ** ** | ** **                         | ** ** | **$** | **665,590** | ** ** | **$** | **(76,051** | **)** | **$** | **589,539** | ** ** |
|                            |       |                               |       |   |   |   |   |   |   |
| ** **                      | ** ** | **Pre-Merger  June 28, 2003** | ** ** |
| *In thousand***s**              | ** ** | **Estimated  Useful Life**         | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Customer  relationships         |       | 4 to 5 years                       |       | 4,146 |   | (601 | ) | 3,545 |   |
| Other                           |       | 3 years                            |       | 24 |   | (8 | ) | 16 |   |
| ** **                      | ** ** | ** **                         | ** ** | **$** | **4,170** | ** ** | **$** | **(609** | **)** | **$** | **3,561** | ** ** |

 

Amortization expense related to other intangibleassets was $43.7 million and $55.1 million for the three and six months endedJuly 3, 2004 compared to $0.4 million and $0.6 million for the three andsix months ended June 28, 2003.

 

**7.****              Long-term Debt**

 

Long-termdebt consists of the following:

 
| ** **                                                                                                                                                                                                                                                                                              | ** ** | **Post-Merger**       | ** **  | ** **               | **Pre-Merger** | ** **  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|-------------|--------------------------|----------------|-------------|
| *In thousands*                                                                                                                                                                                                                                                                                          | ** ** | **July 3, 2004** | ** **  | **January 3, 2004** | ** **     | ** **  | **June 28, 2003** | ** ** |
| Borrowings  under senior secured credit facility:                                                                                                                                                                                                                                                       |       |                  |        |                     |           |        |   |   |
| Term  Loan, variable rate, 3.86 percent at July 3, 2004 and 3.72 percent at  January 3, 2004, with semi-annual principal and interest payments  through July 2010                                                                                                                        |       | $                     | 417,704     |                     | $              | 453,705     |   |   | $ | — |   |
| Term  Loan A, variable rate, 3.36 percent at June 28, 2003, paid in full  July 2003                                                                                                                                                                                                           |       | —                |        | —                   |           |        | 51,359 |   |
| Term  Loan C, variable rate, 3.86 percent at June 28, 2003, paid in full  July 2003                                                                                                                                                                                                           |       | —                |        | —                   |           |        | 319,694 |   |
| Senior  subordinated notes, 12.75 percent fixed rate, including premium of $20,880 at  July 3, 2004 and $22,717 at January 3, 2004, net of discount of  $15,679 at June 28, 2003, with semi-annual interest payments of $13.3  million, principal due and payable at maturity - May 2010 |       | 224,865               |        | 231,702                  |           |        | 201,821 |   |
|                                                                                                                                                                                                                                                                                                    |       | 642,569               |        | 685,407                  |           |        | 572,874 |   |
| Less  current portion                                                                                                                                                                                                                                                                                   |       | 5,150                 |        | —                   |           |        | 18,411 |   |
| ** **                                                                                                                                                                                                                                                                                              | ** ** | **$**                 | **637,419** | ** **               | **$**          | **685,407** | ** ** | ** ** | **$** | **554,463** | ** ** |

 

8

----

 

**Notesto Condensed Consolidated Financial Statements (Unaudited)**

***Jostens, Inc. and Subsidiaries***

 

During the three months ended July 3, 2004, wevoluntarily prepaid $36.0 million on our senior secured credit facility.  In addition, during the first quarter of2004, we voluntarily redeemed $5.0 million principal amount of our senior subordinatednotes and recognized a loss of $0.4 million consisting of $0.8 million ofpremium paid on redemption of the notes and a net $0.4 million credit resultingfrom the write-off of related unamortized premium, original issuance discountand deferred financing costs.

 

As of July 3, 2004,there was $9.7 million outstanding in the form of short-term borrowings at ourCanadian subsidiary, at a weighted average interest rate of 5.5% and anadditional $10.8 million outstanding in the form of letters of credit, leaving$129.6 million available under our revolving credit facility.

 

The senior secured creditfacility and the senior subordinated notes contain certain cross-default andcross-acceleration provisions whereby default under or acceleration of one debtobligation would, consequently, cause a default or acceleration under the otherdebt obligation.  As of July 3,2004, we were in compliance with all covenants.

 

As of July 3, 2004,January 3, 2004 and June 28, 2003, the fair value of our debt,excluding the senior subordinated notes, approximated its carrying value.  The fair value of the senior subordinatednotes as of July 3, 2004, January 3, 2004 and June 28, 2003 was$227.4 million, $239.8 million and $256.7 million, respectively, based on thequoted market price.

 

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

 

On June 29, 2003, weadopted SFAS 150, *“Accounting for CertainFinancial Instruments with Characteristics of both Liabilities and Equity”.*  In accordance with SFAS 150, we reclassifiedour redeemable preferred stock to the liabilities section of our condensedconsolidated balance sheet and began reporting the preferred dividend asinterest expense in our results of operations rather than as a reduction toretained earnings.  We also recognized$4.6 million cumulative effect of a change in accounting principle.  We did not provide any tax benefit inconnection with the cumulative effect adjustment because payment of the relatedpreferred dividend and the discount amortization are not tax deductible.  Pro forma amounts assuming the change inaccounting principle had been in effect since the beginning of 2003 are asfollows:

 
| ** **                                                                  | ** ** | **Three months ended**             | ** ** | ** ** | **Six months ended**               | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------------|------------|------------|------------------------------------|------------|
| *In thousands*                                                              | ** ** | **Post-Merger  July 3, 2004** | ** ** | ** ** | **Pre-Merger  June 28, 2003** | ** ** | ** ** | **Post-Merger  July 3, 2004** | ** ** | ** ** | **Pre-Merger  June 28, 2003** | ** ** |
| **Net income available to common shareholder(s)**                           |       |                               |       |       |                               |       |   |   |   |   |   |   |
| As  reported                                                                |       | $                                  | 41,840     |       |                               | $          | 50,387 |   |   | $ | 21,888 |   |   | $ | 38,584 |   |
| Dividends  and accretion on redeemable preferred shares previously reported |       | —                             |       |       | 3,320                              |       |   | — |   |   | 6,525 |   |
| Pro  forma interest expense                                                 |       | —                             |       |       | (2,927                             | )          |   | — |   |   | (5,527 | ) |
| Pro  forma net income available to common shareholder(s)                    |       | $                                  | 41,840     |       |                               | $          | 50,780 |   |   | $ | 21,888 |   |   | $ | 39,582 |   |

 

During the first quarterof 2004, we refined our estimate of the fair value of the redeemable preferredstock as of the merger date from $130.0 million to $110.0 million.  Theaggregate liquidation preference of our redeemable preferred stock as ofJuly 3, 2004, January 3, 2004 and June 28, 2003 was $106.1million, $99.1 million and $92.5 million, respectively, including accrueddividends.  We have 4,000,000 shares ofpreferred stock, $.01 par value, authorized. There were 103,687,  96,793 and90,358 shares of redeemable preferred stock outstanding as of July 3,2004, January 3, 2004 and June 28, 2003, respectively.

 

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

 

Weuse forward foreign currency exchange contracts to hedge the impact of currencyfluctuations primarily on inventory purchases denominated in euros.  The effective portion of the change in fairvalue for these contracts, which have been designated as a cash flow hedge, isreported in “accumulated other comprehensive loss” (AOCL)

 

9

----

 

**Notesto Condensed Consolidated Financial Statements (Unaudited)**

***Jostens, Inc. and Subsidiaries***

 

andreclassified into earnings in the same financial statement line item and in thesame period or periods during which the hedged transaction affectsearnings.  Any ineffective portion of thechange in fair value of these instruments is immediately recognized inearnings.  The amount of contractsoutstanding at July 3, 2004 was $2.7 million.  There were no forward foreign currency exchangecontracts outstanding at January 3, 2004 and June 28, 2003.  These contracts will mature over theremainder of the current fiscal year, the period in which all amounts includedin AOCL will be reclassified into earnings.

 

**10.****       Commitments**

 

Weare subject to market risk associated with changes in the price of preciousmetal.  To mitigate our commodity pricerisk, we enter into forward contracts to purchase gold, platinum and silverbased upon the estimated ounces needed to satisfy projected customerdemand.  Our purchase commitment at July 3,2004 was $7.3 million with delivery dates occurring throughout 2004.  These forward purchase contracts areconsidered normal purchases and therefore not subject to the requirements ofSFAS 133, *“Accounting for DerivativeInstruments and Hedging Activities”. *Thefair market value of our open precious metal forward contracts as ofJuly 3, 2004 was $7.3 million and was calculated by valuing each contractat quoted futures prices.

 

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

 

Consistent with theprovisions of APB 28, *“Interim FinancialReporting”,* we have provided an income tax provision based on ourbest estimate of the consolidated effective tax rate applicable for the entireyear.  Based on those estimates, weprovided an income tax provision at a consolidated effective rate of 10% forthe six months ended July 3, 2004 compared to 41.6% in the comparableprior year period.  We review our taxrate estimates on a quarterly basis and make revisions as necessary.

 

Our consolidatedeffective tax rate is less than the federal statutory rate because weanticipate a consolidated tax loss for the entire year and the rate of taxbenefit is negatively impacted by the effect of nondeductible interest expenseassociated with our redeemable preferred stock. Furthermore, the rate of tax benefit recorded for purchase accountingadjustments is based on the change in deferred tax liability balancesattributable to net taxable temporary differences recorded in connection withthe purchase price allocation of the prior year merger transaction.

 

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

 

Net periodic benefit cost for our pension and other postretirementbenefit plans for the three and six months ended July 3, 2004 andJune 28, 2003 consists of the following:

 

10

----

 

**Notesto Condensed Consolidated Financial Statements (Unaudited)**

***Jostens, Inc. and Subsidiaries***

 
| ** **                               | ** ** | **Pension benefits**               | ** ** |
|------------------------------------------|------------|------------------------------------|------------|
| ** **                               | ** ** | **Three months ended**             | ** ** | **Six months ended** | ** ** |
| *In thousands*                           | ** ** | **Post-Merger  July 3, 2004** | ** ** | ** ** | **Pre-Merger  June 28, 2003** | ** ** | ** ** | **Post-Merger  July 3, 2004** | ** ** | ** ** | **Pre-Merger  June 28, 2003** | ** ** |
| Service  cost                            |       | $                                  | 1,618      |   |   | $ | 1,454 |   |   | $ | 3,236 |   |   | $ | 2,908 |   |
| Interest  cost                           |       | 3,068                              |       |   | 3,053 |   |   | 6,136 |   |   | 6,106 |   |
| Expected  return on plan assets          |       | (4,497                             | )          |   | (5,092 | ) |   | (8,994 | ) |   | (10,184 | ) |
| Amortization  of prior year service cost |       | —                             |       |   | 465 |   |   | — |   |   | 929 |   |
| Amortization  of transition amount       |       | —                             |       |   | (139 | ) |   | — |   |   | (277 | ) |
| Amortization  of net actuarial loss      |       | —                             |       |   | 132 |   |   | — |   |   | 264 |   |
| Net  periodic benefit expense (income)   | ** ** | **$**                              | **189**    | ** ** | ** ** | **$** | **(127** | **)** | ** ** | **$** | **378** | ** ** | ** ** | **$** | **(254** | **)** |
|                                     |       |                               |       |   |   |   |   |   |   |   |   |   |
| ** **                               | ** ** | **Postretirement benefits**        | ** ** |
| ** **                               | ** ** | **Three months ended**             | ** ** | **Six months ended** | ** ** |
| *In thousands*                           | ** ** | **Post-Merger  July 3, 2004** | ** ** | ** ** | **Pre-Merger  June 28, 2003** | ** ** | ** ** | **Post-Merger  July 3, 2004** | ** ** | ** ** | **Pre-Merger  June 28, 2003** | ** ** |
| Service  cost                            |       | $                                  | 10         |   |   | $ | 19 |   |   | $ | 20 |   |   | $ | 39 |   |
| Interest  cost                           |       | 93                                 |       |   | 117 |   |   | 186 |   |   | 233 |   |
| Amortization  of prior year service cost |       | —                             |       |   | (5 | ) |   | — |   |   | (10 | ) |
| Amortization  of net actuarial loss      |       | —                             |       |   | 70 |   |   | — |   |   | 140 |   |
| Net  periodic benefit expense            | ** ** | **$**                              | **103**    | ** ** | ** ** | **$** | **201** | ** ** | ** ** | **$** | **206** | ** ** | ** ** | **$** | **402** | ** ** |

 

**13.****       Discontinued Operations**

 

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

 
| *In thousands*                                           | ** ** | **Initial  charge** | ** ** | **Prior  accrual** | ** ** | **Net  adjustments** | ** ** | **Utilization** | ** ** | **Balance  July 3, 2004** | ** ** |
|----------------------------------------------------------|------------|---------------------|------------|--------------------|------------|----------------------|------------|-----------------|------------|--------------------------------|------------|
| **Prior**                                                | ** ** | **2004**            |
| Employee  separation benefits and other related costs    |       | $                   | 6,164      |               | $          | —               |       | $               | (442       | )                              | $          | (5,265 | ) | $ | (66 | ) | $ | 391 |   |
| Phase-out  costs of exiting the Recognition business     |       | 4,255               |       | —             |       | (1,203               | )          | (2,670          | )          | 20                             |       | 402 |   |
| Salesperson  transition benefits                         |       | 2,855               |       | 1,236              |       | (191                 | )          | (1,707          | )          | (219                           | )          | 1,974 |   |
| Other  costs related to exiting the Recognition business |       | 3,018               |       | 1,434              |       | (228                 | )          | (4,224          | )          | —                         |       | — |   |
| ** **                                               | ** ** | **$**               | **16,292** | ** **         | **$**      | **2,670**            | ** ** | **$**           | **(2,064** | **)**                          | **$**      | **(13,866** | **)** | **$** | **(265** | **)** | **$** | **2,767** | ** ** |

 

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

 

11

----

 

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

** **

**GENERAL**

 

Jostens, Inc. and its subsidiaries (“we,” “our,” “us,” or “the Company”)is a leading provider of school-related affinity products and services in threemajor product categories:  yearbooks,class rings and graduation products, which includes diplomas, graduationregalia such as caps and gowns, accessories and fine paper announcements.  We also are a leading provider of schoolphotography products and services in Canada and have a small but growingpresence in the United States.

 

On July 29, 2003, we were acquired by DLJ Merchant Banking PartnersIII, L.P. and certain of its affiliated funds through a merger in whichJostens, Inc. became the surviving company and an indirect subsidiary ofJostens Holding Corp.  We paid $471.0million to holders of our common stock and warrants representing a cash paymentof $48.25 per share.  We accounted forthe merger using the purchase method of accounting.  The price paid to holders of common stock andwarrants of $471.0 million, excluding certain capitalized transaction costs,was allocated to the tangible and intangible assets acquired and liabilitiesassumed, based upon their relative fair values as of the date of themerger.  As a result of the merger, theperiods ended June 28, 2003 are pre-merger periods and the periods ended July3, 2004 are post-merger periods.

 

**RESULTS OF OPERATIONS**

 

Ourunaudited condensed consolidated financial statements for the three- andsix-month pre-merger periods ended June 28, 2003, were prepared using ourhistorical basis of accounting.  Althougha new basis of accounting began on July 29, 2003, we have adjusted ouroperating results for the three- and six-month post-merger periods ended July 3,2004 to exclude the impact of purchase accounting. The adjusted operatingresults may not reflect the actual results we would have achieved absent theadjustments and may not be predictive of future results of operations.  We present this information because we use itto monitor and evaluate our ongoing operating results and trends, and believeit provides investors an understanding of our operating performance overcomparative periods.  Except whereotherwise indicated, our discussion below is based on the adjusted operatingresults for the post-merger periods.

 

**Three Months Ended July 3,2004 Compared to the Three Months Ended June 28, 2003**

 

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

 

12

----

 
| *Dollars in thousands*               | ** ** | **Post-Merger  Three Months  Ended  July 3, 2004** | ** ** | **Adjusted  Three Months  Ended  July 3, 2004** | ** ** | **Pre-Merger  Three Months  Ended  June 28, 2003** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
|--------------------------------------|------------|---------------------------------------------------------|------------|------------------------------------------------------|------------|---------------------------------------------------------|------------|-------------------|------------|--------------|------------|
| Net  sales                           |       | $                                                       | 376,186    |                                                 | $          | 376,186                                                 |       | $                 | 374,936    |         | $          | 1,250 |   | 0.3*%* |   |
| *% of net sales*                     | * *   | *100.0%*                                                | * *   | *100.0%*                                             | * *   | *100.0%*                                                |       |              |       |         |       |
|                                 |       |                                                    |       |                                                 |       |                                                    |       |              |       |         |       |
| Cost of products sold                |       | 196,867                                                 |       | 161,558                                              | (1)        | 161,005                                                 |       | 553               |       | 0.3*%*       |       |
| *% of net sales*                     | * *   | *52.3%*                                                 | * *   | *42.9%*                                              | * *   | *42.9%*                                                 |       |              |       |         |       |
|                                 |       |                                                    |       |                                                 |       |                                                    |       |              |       |         |       |
| Gross  profit                        |       | 179,319                                                 |       | 214,628                                              |       | 213,931                                                 |       | 697               |       | 0.3*%*       |       |
| *% of net sales*                     | * *   | *47.7%*                                                 | * *   | *57.1%*                                              | * *   | *57.1%*                                                 |       |              |       |         |       |
|                                 |       |                                                    |       |                                                 |       |                                                    |       |              |       |         |       |
| Selling  and administrative expenses |       | 116,470                                                 |       | 106,100                                              | (2)        | 108,589                                                 |       | (2,489            | )          | (2.3%        | )          |
| *% of net sales*                     | * *   | *31.0%*                                                 | * *   | *28.2%*                                              | * *   | *29.0%*                                                 |       |              |       |         |       |
|                                 |       |                                                    |       |                                                 |       |                                                    |       |              |       |         |       |
| Operating  income                    |       | 62,849                                                  |       | 108,528                                              |       | 105,342                                                 |       | 3,186             |       | 3.0*%*       |       |
| *% of net sales*                     | * *   | *16.7%*                                                 | * *   | *28.8%*                                              | * *   | *28.1%*                                                 |       |              |       |         |       |
|                                 |       |                                                    |       |                                                 |       |                                                    |       |              |       |         |       |
| Net  interest expense                |       | 16,360                                                  |       | 17,481                                               | (3)        | 13,535                                                  |       | 3,946             |       | 29.2*%*      |       |
| *% of net sales*                     |       | *4.3%*                                                  | * *   | *4.6%*                                               | * *   | *3.6%*                                                  |       |              |       |         |       |
|                                 |       |                                                    |       |                                                 |       |                                                    |       |              |       |         |       |
| Income  before income taxes          |       | 46,489                                                  |       | 91,047                                               |       | 91,807                                                  |       | (760              | )          | (0.8%        | )          |
| *% of net sales*                     | * *   | *12.4%*                                                 | * *   | *24.2%*                                              | * *   | *24.5%*                                                 |       |              |       |         |       |
|                                 |       |                                                    |       |                                                 |       |                                                    |       |              |       |         |       |
| Provision  for income taxes          |       | 4,649                                                   |       | 22,298                                               | (4)        | 38,100                                                  |       | (15,802           | )          | (41.5%       | )          |
| *% of net sales*                     |       | *1.2%*                                                  | * *   | *5.9%*                                               | * *   | *10.2%*                                                 |       |              |       |         |       |
|                                 |       |                                                    |       |                                                 |       |                                                    |       |              |       |         |       |
| Net  income                          |       | $                                                       | 41,840     |                                                 | $          | 68,749                                                  |       | $                 | 53,707     |         | $          | 15,042 |   | 28.0*%* |   |
| *% of net sales*                     | * *   | *11.1%*                                                 | * *   | *18.3%*                                              | * *   | *14.3%*                                                 | * *   | * *          | * *   | * *     | * *   |

 

----

(1)   Adjusted to reverse $33.3 million of amortization expensefor excess purchase price allocated to an intangible asset for order backlogand $2.0 million of depreciation expense for excess purchase price allocated toproperty and equipment.

 

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

 

(3)   Adjusted to reverse $1.1 million of amortization for excesspurchase price allocated to premiums on the senior subordinated notes andredeemable preferred stock.

 

(4)   Adjusted to reflect reversal of $17.6million of income tax benefit from the adjusted items above.

 

***NetSales***

Net sales increased $1.3million, or 0.3%, to $376.2 million for the three months ended July 3, 2004from $374.9 million for the same period last year.  The results were favorably impacted by modestprice increases and improved jewelry metal mix back to historical levels.  The results were unfavorably impacted bylower overall sales volume, which was driven primarily by the timing ofdeliveries between the first and second quarters compared to last year.  Specific factors contributing to the volumefluctuation included:

 

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

•                  increasedjewelry orders for professional championship rings and an emerging specialtymarket;

•                  increasedorders for graduation regalia products attributable to net account growth, anincrease in sales of accessory items and an increase in collegiate regaliaunits per school;

•                  anincrease in the number of color pages per yearbook;

•                  decreasedsales volume due to a shift in deliveries from the second quarter to the firstquarter in 2004 for graduation products, thus reflecting more characteristicdelivery patterns; and

•                  lowersame school buy rates for high school class rings.

 

13

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***GrossProfit***

Gross profit increased$0.7 million, or 0.3%, to $214.6 million for the three months endedJuly 3, 2004 from $213.9 million for the same prior year period.  As a percentage of net sales, gross profitmargin of 57.1% was consistent with the same period last year.

 

Gross profit in 2004 wasmainly impacted by the sales fluctuations discussed above.  Gross profit was also impacted by highercosts for precious raw materials compared to last year as well as slight shiftsin product mix.  This was partiallyoffset by the effect of prior year non-recurring costs associated with thedifficulties we encountered in connection with the ERP systemimplementation.  Our efforts to resolvethose difficulties and to continue to provide timely delivery of our productsrequired us to incur additional production costs, as well as certain sellingand administrative expenses in the prior year. Although these efforts minimized the impact to our customers, theassociated costs negatively affected our margins in 2003.

 

***Sellingand Administrative Expenses***

Selling and administrativeexpenses decreased $2.5 million, or 2.3%, to $106.1 million for the threemonths ended July 3, 2004 from $108.6 million for the same prior yearperiod.  As a percentage of net sales,selling and administrative expenses decreased 0.8 percentage points to 28.2%for the current three-month period from 29.0% for the same period last year.

 

The $2.5 million decreasewas due to the impact of prior year non-recurring costs associated with thedifficulties encountered with the ERP system implementation, lower commissionexpense associated with product mix within the quarter and lower informationsystems expense due to the timing of costs associated with maintenancecontracts as well as the elimination of depreciation expense related to fullyamortized software.  The decrease waspartially offset by increased spending on marketing activities.

 

***OperatingIncome***

Operating income increased $3.2 million to $108.5million for the three months ended July 3, 2004 from $105.3 million forthe same prior year period driven by slightly higher net sales and reducedselling and administrative expenses.

 

***NetInterest Expense***

Net interest expenseincreased $3.9 million, or 29.2%, to $17.5 million for the three months endedJuly 3, 2004 as compared to $13.5 million for the same prior yearperiod.  The increase was primarily dueto reclassification of $3.5 million of dividends on our redeemable preferredstock in connection with the prior year change in accounting principle.

 

***Provisionfor Income Taxes***

The effective rate of taxpresented for results of operations for the 2004 three-month period is acomponent of our consolidated effective rate for the entire year.  Applying a 10% estimated annual effectiverate to our results of operations for the 2004 three-month period produces alower income tax expense, as adjusted to exclude the impact of purchaseaccounting, that is not intended to be comparable with income tax expenserecorded in the same prior year period.

 

We anticipate that thecomparable tax rate for the entire fiscal year, excluding the impact ofpurchase accounting, will be between 45% and 50%.  This rate is more than the federal statutorytax rate primarily due to the effect of nondeductible interest expenseassociated with our redeemable preferred stock and the effect of state incometaxes.

 

***NetIncome***

As a result of theaforementioned items, net income increased $15.0 million, or 28.0%, to $68.7million for the three months ended July 3, 2004 from $53.7 million for thesame prior year period.

 

14

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**Six Months Ended July 3,2004 Compared to the Six Months Ended June 28, 2003**

 

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

 
| *Dollars in thousands*               | ** ** | **Post-Merger  Six Months  Ended  July 3, 2004** | ** ** | **Adjusted  Six Months  Ended  July 3, 2004** | ** ** | **Pre-Merger  Six Months  Ended  June 28, 2003** | ** ** | **$ **** Change** | ** ** | **%****Change** | ** ** |
|--------------------------------------|------------|-------------------------------------------------------|------------|----------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------|------------|-----------------|------------|
| Net  sales                           |       | $                                                     | 519,271    |                                               | $          | 519,271                                               |       | $                           | 496,460    |            | $          | 22,811 |   | 4.6*%* |   |
| *% of net sales*                     | * *   | *100.0%*                                              | * *   | *100.0%*                                           | * *   | *100.0%*                                              |       |                        |       |            |       |
|                                 |       |                                                  |       |                                               |       |                                                  |       |                        |       |            |       |
| Cost  of products sold               |       | 257,647                                               |       | 219,369                                            | (1)        | 211,750                                               |       | 7,619                       |       | 3.6*%*          |       |
| *% of net sales*                     | * *   | *49.6%*                                               | * *   | *42.2%*                                            | * *   | *42.7%*                                               |       |                        |       |            |       |
|                                 |       |                                                  |       |                                               |       |                                                  |       |                        |       |            |       |
| Gross  profit                        |       | 261,624                                               |       | 299,902                                            |       | 284,710                                               |       | 15,192                      |       | 5.3*%*          |       |
| *% of net sales*                     | * *   | *50.4%*                                               | * *   | *57.8%*                                            | * *   | *57.3%*                                               |       |                        |       |            |       |
|                                 |       |                                                  |       |                                               |       |                                                  |       |                        |       |            |       |
| Selling  and administrative expenses |       | 204,695                                               |       | 183,957                                            | (2)        | 180,047                                               |       | 3,910                       |       | 2.2*%*          |       |
| *% of net sales*                     | * *   | *39.4%*                                               | * *   | *35.4%*                                            | * *   | *36.3%*                                               |       |                        |       |            |       |
|                                 |       |                                                  |       |                                               |       |                                                  |       |                        |       |            |       |
| Operating  income                    |       | 56,929                                                |       | 115,945                                            |       | 104,663                                               |       | 11,282                      |       | 10.8*%*         |       |
| *% of net sales*                     | * *   | *11.0%*                                               | * *   | *22.3%*                                            | * *   | *21.1%*                                               |       |                        |       |            |       |
|                                 |       |                                                  |       |                                               |       |                                                  |       |                        |       |            |       |
| Loss  on redemption of debt          |       | 420                                                   |       | 1,276                                              | (3)        | —                                                |       | 1,276                       |       | NM              |       |
| *% of net sales*                     | * *   | *0.1%*                                                | * *   | *0.2%*                                             | * *   | *0.0%*                                                |       |                        |       |            |       |
|                                 |       |                                                  |       |                                               |       |                                                  |       |                        |       |            |       |
| Net  interest expense                |       | 32,189                                                |       | 34,167                                             | (4)        | 27,475                                                |       | 6,692                       |       | 24.4*%*         |       |
| *% of net sales*                     | * *   | *6.2%*                                                | * *   | *6.6%*                                             | * *   | *5.5%*                                                |       |                        |       |            |       |
|                                 |       |                                                  |       |                                               |       |                                                  |       |                        |       |            |       |
| Income  before income taxes          |       | 24,320                                                |       | 80,502                                             |       | 77,188                                                |       | 3,314                       |       | 4.3*%*          |       |
| *% of net sales*                     | * *   | *4.7%*                                                | * *   | *15.5%*                                            | * *   | *15.5%*                                               |       |                        |       |            |       |
|                                 |       |                                                  |       |                                               |       |                                                  |       |                        |       |            |       |
| Provision  for income taxes          |       | 2,432                                                 |       | 24,609                                             | (5)        | 32,079                                                |       | (7,470                      | )          | (23.3%          | )          |
| *% of net sales*                     | * *   | *0.5%*                                                | * *   | *4.7%*                                             | * *   | *6.5%*                                                |       |                        |       |            |       |
|                                 |       |                                                  |       |                                               |       |                                                  |       |                        |       |            |       |
| Net  income                          |       | $                                                     | 21,888     |                                               | $          | 55,893                                                |       | $                           | 45,109     |            | $          | 10,784 |   | 23.9*%* |   |
| *% of net sales*                     | * *   | *4.2%*                                                | * *   | *10.8%*                                            | * *   | *9.1%*                                                | * *   | * *                    | * *   | * *        | * *   |

 

----

NM = percentagenot meaningful

 

(1)   Adjusted to reverse $34.4million of amortization expense for excess purchase price allocated to anintangible asset for order backlog and $3.9 million of depreciation expense forexcess purchase price allocated to property and equipment.

 

(2)   Adjusted to reverse $20.0million of amortization expense for excess purchase price allocated to variousintangible assets and $0.7 million of depreciation expense for excess purchaseprice allocated to property and equipment.

 

(3)   In connection with the partialredemption of the senior subordinated notes, adjusted to reverse $0.9 millionof accelerated amortization for excess purchase price allocated to a premium onthe notes.

 

(4)   Adjusted to reverse $2.0million of amortization for excess purchase price allocated to premiums on thesenior subordinated notes and redeemable preferred stock.

 

(5)   Adjustedto reflect reversal of $22.2 million of income tax benefit from the adjusteditems above.

 

***NetSales***

Net sales increased $22.8million, or 4.6%, to $519.3 million for the six months ended July 3, 2004from $496.5 million for the same period last year.  The results were attributable to higheroverall volume, modest price increases and improved jewelry metal mix back tohistorical levels.  Specific factorscontributing to the increase in volume included:

 

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

 

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•                  increasedorders for graduation regalia products attributable to net account growth, anincrease in sales of accessory items and an increase in collegiate regaliaunits per school;

•                  aslight shift in customer demand for Spring rather than Fall deliveries ofyearbooks;

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

•                  increasedjewelry orders for professional championship rings and an emerging specialtymarket.

 

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

 

***GrossProfit***

Gross profit increased$15.2 million, or 5.3%, to $299.9 million for the six months ended July 3,2004 from $284.7 million for the same prior year period.  As a percentage of net sales, gross profitmargin increased 0.5 percentage points to 57.8% for the current six-monthperiod from 57.3% for the same period last year.

 

The increase in grossprofit was attributable to the sales fluctuations discussed above as well asthe impact of prior year non-recurring costs associated with the difficultiesencountered with the ERP system implementation. Our gross profit in the current period was negatively impacted by highercosts for precious raw materials compared to last year.

 

***Sellingand Administrative Expenses***

Selling andadministrative expenses increased $3.9 million, or 2.2%, to $184.0 million forthe six months ended July 3, 2004 from $180.0 million for the same prioryear period.  As a percentage of netsales, selling and administrative expenses decreased 0.9 percentage points to35.4% for the current six-month period from 36.3% for the same period lastyear.

 

The $3.9 million increasewas primarily due to higher commission expense as a result of increased sales,additional investment in customer service and increased spending on marketingactivities.

 

These increases werepartially offset by the following:

 

•                  theimpact of prior year non-recurring costs associated with the difficultiesencountered with the ERP system implementation;

•                  theimpact of prior year non-recurring costs for severance, a legal settlement andacquisition related items; and

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

 

***OperatingIncome***

Operating income increased $11.3 million to $115.9million for the six months ended July 3, 2004 from $104.7 million for thesame prior year period driven by higher net sales, improved gross profit marginand improved cost control.

 

***Losson Redemption of Debt***

During the six months ended July 3, 2004, wevoluntarily redeemed $5.0 million principal amount of our senior subordinatednotes and recognized a loss of $0.4 million, including the impact of purchaseaccounting, consisting of $0.8 million of premium paid on redemption of thenotes and a net $0.4 million credit resulting from the write-off of relatedunamortized premium, original issuance discount and deferred financing costs.

 

***NetInterest Expense***

Net interest expenseincreased $6.7 million, or 24.4%, to $34.2 million for the six months endedJuly 3, 2004 as compared to $27.5 million for the same prior yearperiod.  The increase was primarily dueto reclassification of $7.2 million of dividends on our redeemable preferredstock in connection with the prior year change in accounting principle.

 

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***Provisionfor Income Taxes***

The effective rate of taxpresented for results of operations for the current six-month period is acomponent of our consolidated effective rate for the entire year.  Applying a 10% estimated annual effectiverate to our consolidated results of operations for the 2004 six-month periodproduces a lower income tax expense, as adjusted to exclude the impact ofpurchase accounting, that is not intended to be comparable with income taxexpense recorded in the same prior year period.

 

We anticipate that thecomparable tax rate for the entire fiscal year, excluding the impact ofpurchase accounting, will be between 45% and 50%.  This rate is more than the federal statutorytax rate primarily due to the effect of nondeductible interest expenseassociated with our redeemable preferred stock and the effect of state incometaxes.

 

***NetIncome***

As a result of theaforementioned items, net income increased $10.8 million, or 23.9%, to $55.9million for the six months ended July 3, 2004 from $45.1 million for thesame prior year period.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Net cash provided byoperating activities for the six months ended July 3, 2004 was $33.8million compared to $32.2 million for the same prior year period.  The cash provided by operating activitiesfunded $6.7 million in capital expenditures. Also during the six months ended July 3, 2004, we voluntarilyprepaid $36.0 million on our senior secured credit facility and redeemed $5.0million principal amount of senior subordinated notes for total considerationpaid of $5.8 million.

 

Our principal sources ofliquidity are cash flows from operating activities and borrowings under oursenior secured credit facility, which included $129.6 million available underour revolving credit facility as of July 3, 2004.  We use our cash primarily for debt serviceobligations, capital expenditures and to fund working capitalrequirements.  We believe that cashgenerated from operations and available cash, together with availableborrowings under the senior secured credit facility, will be adequate to meetour anticipated requirements for working capital, planned capital expendituresand scheduled payments of principal and interest on our indebtedness for thenext twelve months.

 

The senior secured creditfacility and the senior subordinated notes contain certain cross-default andcross-acceleration provisions whereby default under or acceleration of one debtobligation would, consequently, cause a default or acceleration under the otherdebt obligation.  As of July 3, 2004, wewere in compliance with all covenants.

 

**OTHERMATTERS**

 

***Facility Closure***

OnJune 22, 2004, we announced our decision to close our graduation diplomacustomer service and production operations at our Red Wing, MN manufacturingfacility, and to relocate these operations to facilities in Owatonna, MN,Shelbyville, TN and Topeka, KS.  Duringthe three months ended July 3, 2004, we established a $2.9 millionpurchase accounting liability for severance and other personnel costs relatedto the involuntary termination or relocation of employees associated with theseplans.  The decision to close the RedWing facility was based on improving customer service and overall efficiency ofJostens.  On June 22, 2004, weformally communicated the termination of employment to approximately 180full-time and seasonal plant and administrative employees.  We anticipate that the majority of these exitcosts will be paid during 2004.

 

Inaddition to the exit costs, during the remainder of 2004, we expect to incur$1.3 million of capital expenditures related to moving these operations as wellas approximately $2.2 million of period costs to transfer equipment, developinformation systems and train employees.

 

***Pending Transaction***

On July 21,2004, Jostens Holding Corp. (“JHC”), our indirect parent company, entered intoa contribution agreement (the “Contribution Agreement”) with Fusion AcquisitionLLC (“AcquisitionCo”), a newly-formed entity owned by investment funds ofKohlberg Kravis & Roberts Co. L.P. (“KKR”), pursuant to which JHC shallissue common stock of JHC to AcquisitionCo and AcquisitionCo shall contributeto JHC the capital stock of each of (i) Von Hoffmann Holdings Inc. (“VonHoffmann”), a leading printer of educational textbooks, supplemental materials,book components and direct marketing print services, and (ii) AHC IAcquisition Corp. (“Arcade”), a leading manufacturer of sampling products forthe fragrance, cosmetics, consumer products and food and beverageindustries.  AcquisitionCo will acquireeach of Von Hoffmann and Arcade immediately prior to consummation of theContribution Agreement pursuant to separate merger agreements entered intobetween AcquisitionCo and Von

 

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Hoffmann andArcade, respectively.  The transactionsare expected to close late in the third quarter or early in the fourth quarterof 2004.

 

Von Hoffmann and Arcadeare each currently controlled by DLJ Merchant Banking Partners II, L.P. andcertain of its affiliated funds.  DLJMerchant Banking Partners III, L.P. and certain of its affiliated funds (collectively,the “DLJMB III Funds”) currently beneficially own approximately 82.5% of JHC’soutstanding voting securities.  Upon theclosing of the transactions contemplated by the Contribution Agreement, KKRwill be issued equity interests representing approximately 45% of the economicinterests and 50% of the voting interests of JHC, and the DLJMB III Funds willown equity interests representing approximately 45% of the economic interestsand approximately 41% of the voting interests of JHC.  Upon the closing of the Contribution Agreement,the Board of Directors of JHC is expected to consist of nine directors, four ofwhom will be appointed by KKR, four of whom will be appointed by the DLJMB IIIFunds and one of whom will be the Chief Executive Officer of JHC, initiallyMarc Reisch.

 

In connection with thetransactions, Jostens IH Corp., our parent company, has received a commitmentfrom Credit Suisse First Boston for new senior secured credit facilitiesconsisting of:  (i) two senior securedterm loan facilities in an aggregate principal amount of up to $1,020.0 millionand (ii) a senior secured revolving credit facility in an aggregate principalamount of $250.0 million (the “Credit Facilities”) and a $500.0 millionincreasing rate bridge loan facility (the “Bridge Facility”).  Jostens IH Corp. expects to use a portion ofthe proceeds from the Credit Facilities and the Bridge Facility (or anyoffering of notes that may be issued in lieu of the Bridge Facility) to fundcertain tender payments due to holders of Jostens’ 12.75% Senior Subordinated Notes due 2010who elect to tender their notes pursuant to a tender offer and consentsolicitation expected to be commenced in August 2004 and to satisfy anddischarge the indenture with respect to the notes that are not tenderedpursuant to such tender offer.  Inconnection with the transactions, Von Hoffmann and Arcade are each expected totender for certain of their own existing indebtedness and redeem suchindebtedness not so tendered, or defease or satisfy and discharge theindentures governing such indebtedness. Concurrently with the consummation of the transactions contemplated bythe Contribution Agreement, we intend to repurchase all issued and outstandingshares of our 14% Senior Redeemable Payment-in-Kind Preferred Stock.  JHC’s 10.25% Senior Discount Notes areexpected to remain outstanding.

 

**CRITICALACCOUNTING POLICIES**

 

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

 

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

 

**CAUTIONARYNOTE REGARDING FORWARD-LOOKING STATEMENTS**

 

This report may contain“forward-looking statements.” Forward-looking statements are based on our current expectations orforecasts of future events. Forward-looking statements generally can be identified by the use offorward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,”“anticipate,” “believe,” “project,” or “continue,” or the negative thereof orsimilar words.  We base theseforward-looking statements on assumptions that we believe are reasonable;however, these assumptions may prove incorrect or be affected by known orunknown risks or uncertainties.  As aresult, actual results may vary materially from those set forth in ourforward-looking statements.  Investorsare cautioned not to place undue reliance on any forward-looking statements.

 

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These risks anduncertainties that would cause our actual results to differ include, but arenot limited to the following: our ability to satisfy our debt obligations,including related covenants; the seasonality of our sales and operating income;our relationship with our independent sales representatives and employees; thefluctuating prices of raw materials, primarily gold; our dependence on a keysupplier for our precious, semiprecious and synthetic stones; our dependence onnumerous complex information systems for operational and financial information;fashion, consumer preferences and demographic trends; the competitiveenvironment; general economic conditions; litigation cases, if decided againstus, that could adversely affect our financial results; and environmentalregulations that could impose substantial costs upon us adversely affecting ourfinancial results.

 

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

 

#### **ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

#### ** **

There have been nomaterial changes in our exposure to market risk during the quarter endedJuly 3, 2004.  For additionalinformation, refer to Item 7A of our 2003 Form 10-K.

 

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

#### ** **

As of the end of theperiod covered by this report, management, under the supervision of our ChiefExecutive Officer and Chief Financial Officer, evaluated the effectiveness ofthe design and operation of our disclosure controls and procedures that aredesigned to ensure that information that is required to be disclosed in ourquarterly report is recorded, processed and summarized within time periodsspecified in the Securities and Exchange Commission’s rules and regulations andthat such information is accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosures.  Based upon that evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that these disclosurecontrols and procedures are effective, in all material respects, in timelyalerting them to material information relating to Jostens, Inc. required to beincluded in our periodic reports filed under the Securities Exchange Act of1934, as amended.

 

There have been nosignificant changes in our internal controls or in other factors subsequent tothe date of the evaluation that have materially affected, or are reasonablylikely to materially affect, these controls.

 

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**PARTII.  OTHER INFORMATION**

 

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

#### ** **

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

 

#### **ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K**

#### ** **

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

 

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

 

31.2                           Certificationof Chief Financial Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002

 

**(b)****          **Reportson Form 8-K during the quarter ended July 3, 2004

 

AForm 8-K was filed on May 6, 2004, furnishing our press release reportingresults for the quarter ended April 3, 2004.

 

AForm 8-K was filed on June 23, 2004, announcing our decision to move ourgraduation diploma customer service and production operations and close our RedWing, MN manufacturing facility.

 

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**SIGNATURES**

 

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

 

 
| ** **                       | **JOSTENS,  INC.**             |
|----------------------------------|--------------------------------|
|                             |                           |
|                             |                           |
| Date:  August 16, 2004 | /s/Michael L.  Bailey          |   |
|                             | Michael L.  Bailey             |   |
| * *                         | *Chief  Executive Officer*     | * * |
|                             |                           |   |
|                             |                           |   |
| Date:  August 16, 2004 | /s/David A.  Tayeh             |   |
|                             | David A. Tayeh                 |   |
| * *                         | *Sr.  Vice President*          | * * |
| * *                         | *and  Chief Financial Officer* | * * |

 

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