Exhibit 13. Annual Report to Shareholders for the year ended June 30, 1995
Jostens
Annual Report 1995
With a period of restructuring behind it, Jostens is planning for the future.
A new, broader mission and business opportunities in several areas help provide
a sense of renewal and rejuvenation.
Jostens provides products and services that help people celebrate achievement,
reward performance, recognize service and commemorate experiences.
We provide these achievement and affiliation products in partnership with
the diverse organizations people belong to throughout their lives. As a partner,
we are committed to delivering value and quality that exceed the needs of the
people and the organizations we serve.
Jostens is a team of employees and independent business partners. Our aim is
to be the world leader in providing achievement and affiliation products and to
constantly deliver exceptional performance.
Financial Highlights
(Dollars in millions, except per-share data) Years ended June 30
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1995 1994
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Statement of operations
Net sales $ 665.1 $ 649.9
Income from continuing operations 55.9 28.0
Net income (loss) 50.4 (16.2)
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Balance sheet data
Working capital $ 206.3 $ 172.7
Current ratio 2.1 1.8
Total assets 548.0 569.8
Long-term debt 53.9 54.3
Shareholders' investment 270.6 256.6
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Common share data
Earnings per share from continuing operations $ 1.23 $ .61
Earnings (loss) per share 1.11 (.36)
Cash dividends .88 .88
Stock price high 21 5/8 20 7/8
low 15 3/4 15 1/8
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Return on Investment '91 '92 '93 '94 '95
[in %]
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19.6 16.9 -3.7 -5.7 19.1
Return on Sales '91 '92 '93 '94 '95
Continuing Operations [in $]
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7.1 7.1 1.3 4.3 8.4
Earnings per Share '91 '92 '93 '94 '95
Continuing Operations [in $]
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1.01 1.00 .19 .61 1.23
Letter to Shareholders 2
4 Refining the Focus
Jostens at a Glance 12
Management's Discussion & Analysis 14
Financial Statements 21
Notes to Financial Statements 26
Five-Year Financial Summary 39
To Our Fellow Shareholders
--------------------------
From Robert C. Buhrmaster, President and Chief Executive Officer [right]
and Robert P. Jensen, Chairman of the Board [below]
[Photo of Robert C. Buhrmaster appears here]
[Photo of Robert P. Jensen appears here]
Two years of effort to return our company to acceptable financial
performance began paying off for shareholders in fiscal 1995. We met our
primary objective for the year, which was to restore net income and earnings
per share to historical levels.
At the same time, we began preparing for the future. We completed the return
to our traditional businesses and continued to make the systems and
infrastructure investments necessary to support future growth.
In 1994 we embarked on a program to repair the foundation of our company. We
essentially completed those repairs in 1995 and began shifting from a "fix-it"
mode to a "build-it" mode. Some of our major accomplishments:
. We completed the sale of the Jostens Learning curriculum software unit.
Removing Jostens Learning from our portfolio was the last major step in
refocusing on our traditional business of recognizing achievement and
affiliation in schools and businesses.
. We realized about $11 million in cost savings from the first full year
of reengineering our business processes and streamlining the organization
through restructuring.
. We returned the Photography business to profitability through the
completion of a restructuring and plant consolidation program.
Business Update The School Products businesses delivered a second straight
year of earnings improvement following restructuring efforts.
Printing & Publishing, Jewelry and Graduation Products -- our three largest
businesses -- generated record profits in 1995. Record sales levels were reached
by Printing & Publishing and Graduation Products.
Sales in Photography declined as planned, as we cut unprofitable volume, while
Jostens Canada remained steadily profitable.
Although the Recognition segment slipped from 1994's record sales and
earnings, we are well along with a review of that business, an approach we've
taken with the rest of our businesses in the last two years. Recognition is an
essentially solid business that will benefit from a tighter focus on its
opportunities and strategies.
Shareholder Value The overall success of our efforts in 1995 led to tangible
value for shareholders. Our ongoing businesses generated earnings of $55.9
million, or $1.23 per share, compared with $28 million, or 61 cents per share,
in 1994. Return on investment from continuing operations was 21.2 percent, up
more than 11 percentage points from 1994. We also maintained an 88-cent
dividend, which yielded about 4 percent based on the year-end price of Jostens
stock. That compares with a dividend yield of about 2.6 percent for companies in
the S&P 500. The market recognized this improvement in performance by moving the
company's stock from $15.75 in July 1994 to $21.625 in June 1995, a 37 percent
increase. Combined with the dividend, our total return to shareholders exceeded
40 percent in fiscal 1995.
2
Share Repurchase In early fiscal 1996 we took a further step to deliver
value to shareholders by repurchasing 6.1 million shares of Jostens stock.
We chose to conduct this share repurchase program for two primary reasons:
. It is a fast and efficient way to return to shareholders cash generated
from the sale of businesses no longer related to our strategic direction; and
. It reflects our confidence in Jostens as a good investment.
We are unable to predict the impact of the repurchase on 1996 earnings.
However, had 6.1 million shares been retired as of the start of fiscal 1995,
earnings per share from continuing operations in 1995 would have been in the
range of $1.30.
The Next Objective With the divestiture of Jostens Learning and the share
repurchase program, we are closing the chapter on a period of fixing and
restructuring our ongoing businesses and of shedding businesses that don't fit
with our strategy going forward.
The foundation of Jostens is now formed by a solid cadre of healthy,
profitable businesses -- Printing & Publishing, Jewelry, Graduation Products,
Recognition, Photography and Jostens Canada.
Our ability to make that statement is a credit to the people of Jostens --
from employees to independent sales agents to the senior leadership team -- all
of whom successfully met many challenges in the last few years. Only through a
team effort could we make the changes necessary to put our company back on the
right track.
Now that we have begun delivering on our most pressing objective -- to
restore earnings to acceptable levels -- we are starting to address the next
objective: Generating sustainable, profitable sales growth. Our focus will be
twofold. First, reengineering and systems implementation will continue to help
improve our cost structure. Second, we will pursue a portfolio of sound
opportunities to generate new sales.
One of the keys to unlocking our opportunities involves taking a broader
view of what Jostens does and who our customers are.
On the inside front cover of this report is a new mission statement, which
reflects our belief that Jostens is an expert at helping people recognize
achievement and affiliation. The key to the mission is the phrase "throughout
their lives." Rather than focus on providing recognition symbols solely to
people in high school, college and business, we see opportunities to broaden
our scope to include people at other levels of education and through the
various groups and organizations people associate with from childhood through
adult life.
As you will read in the following pages, the course we're following involves
taking prudent steps that build on what we do best.
And so our company, having successfully made its way through a challenging
few years, is moving into the future with a renewed vigor and focus. Since the
current management team was put in place, we have taken things one step at a
time.
We'll continue that one-step-at-a-time approach in fiscal 1996, with an
emphasis on generating sustained, long-term benefits for shareholders.
/s/ Robert C. Buhrmaster
-------------------------------------
Robert C. Buhrmaster
President and Chief Executive Officer
/s/ Robert P. Jensen
-------------------------------------
Robert P. Jensen
Chairman of the Board
August 31, 1995
3
Refining the Focus
------------------
Jostens businesses share a common mission -- providing products that recognize
achievement and affiliation throughout life.
Through 1994 and 1995, Jostens underwent a period of intense transition and
change. Led by new management, the company embarked on a program to fix and
restructure its traditional businesses. It began investing in new systems and
reengineering unique and complex work processes.
At the same time, a new picture of opportunity emerged in the traditional
businesses, and as a result Jostens divested business lines unrelated to school
and business recognition products.
Today, Jostens is a collection of related businesses that are stronger and
more focused on a common mission and on generating increases in earnings and
sales.
In its traditional businesses, which serve customers in school and
business, Jostens will continue to expand with new products, programs and
services.
Beyond those traditional markets, Jostens sees an opportunity to provide
products and services to people through the various groups and organizations
they associate with throughout their lives.
The company's prospects fall into three primary areas -- involving market
segments, technology and new markets -- which are outlined on the following
pages. The shift from "fix-it" to "build-it" takes time, but the work has
begun, and it reflects the ability of a stronger Jostens to build a clear path
for the future.
Fundamental Strengths
---------------------
The company's prospects are underscored by some key trends and strengths:
Independent Sales Force Jostens customers receive personal, customized
service from a network of about 1,000 independent sales agents. The sales force
was a key factor in the company's 1995 success, and will be relied on as a
partner for the future.
Expanding Market Today, most of Jostens' customers are in high school. In
this important market segment, U.S. enrollments are expected to increase about
21 percent through 2006, affording Jostens a natural opportunity. The elementary
school, junior high and college market segments also expect enrollment growth.
In the U.S., where two-thirds of the companies offer employee service
recognition programs, the overall labor force is expected to climb by about 20
percent in the next decade.
Financial Condition The company is financially strong. With good cash flow
and a low debt-to-total-capitalization ratio, Jostens can make the investments
necessary to remain strong, pursue growth opportunities and generate
shareholder value.
Value-Added Programs Jostens delivers value beyond its products and
services. Jostens Renaissance is a program that joins students, parents,
administrators, teachers and the business community in recognizing and
rewarding academic achievement. Jostens also helps students develop marketable
skills through the Yeartech(R) desktop publishing system. Used by school
yearbook staffs, Yeartech can provide the basis for credit-bearing courses in
desktop publishing, a skill sought by many employers.
Industry Leadership For 98 years, Jostens has crafted products that
recognize achievement and affiliation. From yearbooks to class rings,
graduation products to school photos and other fine jewelry, Jostens is a
market leader in serving customers in schools and businesses. The Jostens name
is a symbol of quality products, backed by nearly a century of experience
creating memories from life's milestones.
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5
Focusing on Market Segments and Product Extensions
--------------------------------------------------
Products tailored to the needs of specific market segments enable Jostens to
build from its strong foundation.
Jostens' strongest presence is in the high school market, served through a
network of independent sales agents. During their high school years, about one
of every two U.S. students purchases at least one Jostens product.
However, not all high schools served by Jostens carry all major product
lines -- yearbooks, class rings, graduation products and photography. The
company is pursuing ways to extend more product lines into more schools, as
well as to increase the percentage of students in each school who purchase
Jostens products.
Efforts are underway. In fiscal 1995, Jostens piloted a simplified pricing
program for high school class rings. The successful test contributed to a
significant year-to-year ring unit increase, and led to lower ring prices for
the average high school customer. The new pricing program is being introduced
nationwide in 1996.
In Graduation Products, the company held the line on prices in 1995, which
contributed to higher student buy rates and an increase in dollars per order.
Printing & Publishing successfully gained market share in high school
yearbooks by using market research to target and win accounts from competitors.
The business continued the trend with new account wins in the selling season
leading into fiscal 1996.
But Jostens' strength doesn't come from products alone. Through its
Renaissance program, Jostens provides its school accounts with proven,
value-added methods to involve the community in promoting and recognizing
academic achievement. More than 5,000 schools nationwide have adopted principles
of Jostens Renaissance.
While the company continues to develop the high school market, it is also
building strategies and programs to attract customers in different areas of
education as well as in business.
Colleges and Universities Established as a stand-alone market unit,
Colleges and Universities is working on ways to improve student buy rates and
expand the number of schools covered by Jostens.
Market research and pilots conducted in 1995 suggest opportunities to
increase business in this segment. One program that has demonstrated early
success is Senior Salutes -- one-stop resource fairs where students can find the
information they need for graduation, from cap and gown fitting to hotel
availability for the family, from alumni association information to credit card
applications. With Senior Salutes, Jostens partners with the university's
administration to generate enthusiasm and make it easy for busy students to
take care of important details so that graduation day is a smooth celebration.
Junior High/Middle School Jostens has also established a presence in the
junior high segment with a yearbook product that in 1995 reached into more than
3,000 schools.
Working from that experience and from market research conducted in 1995,
Jostens plans to expand its junior high product line in 1996.
Business Recognition From corner store to global conglomerate, most U.S.
companies offer employee service recognition programs. Jostens, currently the
second-largest service award provider, sees opportunities to expand by
tailoring products and services to meet the specific needs of small, midsize
and large companies. In addition, Jostens also offers performance recognition
products, achievement symbols awarded for meeting business objectives. In 1996,
the company expects to create and implement strategies for both the service and
performance recognition markets.
6
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7
Utilizing Technologies
Investments in technology are designed to provide
Jostens' customers with better service, more products and great value.
The tool of technology is an important one in helping Jostens shape its
future. New systems based on proven technology are being tested and installed
to, over time, help improve manufacturing efficiency and provide better service
and information to customers. The company is also exploring potential new
products based on advancing technology.
In manufacturing, the Printing & Publishing and Photography businesses are
beginning to utilize digital scanning technology to improve costs, cycle times
and customer value. In fiscal 1995, the Printing & Publishing business tested
the use of scanners to digitize school yearbook photos, rather than prepare them
for the press through traditional methods. Experience with an initial scanning
unit installed in 1995 in the Topeka plant is leading to the installation of
scanners in the company's four other printing facilities -- an expansion plan
that emphasizes standardized processes and training.
Looking to the future, digital technology will enable Jostens to efficiently
receive and handle yearbooks as more and more customers, who now prepare pages
on the Jostens Yeartech desktop publishing system, take the next step and
electronically transmit yearbook pages directly to printing plants.
In Photography, scanners are being introduced to digitize rolls of film
rather than process them through traditional chemical methods.
More importantly, the emergence of digital imaging technology is forging a
link between the Printing & Publishing and Photography businesses. In 1995, the
two units tested a coordinated yearbook-photo approach to attract new business
in selected cities -- an effort that increased photography volume in the test
areas. Further tests between the businesses are planned.
Technology is also being put to work helping Jostens' sales representatives
deliver better customer service. A program to put sales representatives
"on-line" was piloted to a group in the yearbook business in 1995, with
encouraging results. The ability to provide customers with real-time status
reports on their yearbook pages enables more effective deadline management,
allows plants to more accurately plan production and helps forestall problems
caused by a lack of information.
Over time, sales force automation will provide a direct line of information
to reps throughout the enterprise, providing information to better understand
and meet customer needs.
In 1996, automation will continue to be introduced to sales reps in the
yearbook and other businesses.
Fiscal 1995 was also a developmental year for new product concepts based on
digital imaging. Products such as electronic student databases and digital
student identification cards were tested in more than two dozen Canadian
schools last year. Based on input from that test, the products are being
refined for further testing in 1996.
In these and other ways, technology forms a strategic plank in the company's
foundation for the future.
8
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9
Exploring new Markets
Prudent steps into new areas will help open doors
of opportunity for Jostens in the future.
As a provider of ways to recognize achievement and affinity throughout
people's lives, the company is beginning to explore new markets and channels as
avenues of future growth.
Affinity The concept of achievement and affinity isn't limited to school or
business; people reach important milestones and affiliate with various groups
and organizations at different times of their lives -- from youth athletic clubs
to senior citizen community groups.
To reach those potential customers, Jostens is taking steps in developing
the affinity market. The company has already gained some experience in this
area through its direct-mail business. For example, two Star Trek(R) affinity
rings have been successfully marketed in the last few years to fans of the
popular television and movie series. Other successful direct-mail programs have
identified areas of particular potential for affinity products -- experience
that provides a foundation for further research and planning to reach customers
through the organizations they're involved with.
Retail A significant number of class rings are sold at retail by mass
merchandisers, jewelry chains and local jewelers, and Jostens plans to play a
larger role in the retail market.
Although it will continue to emphasize its in-school presence and the higher
level of service and selection that in-school customers receive, the company
believes it is important to participate in the retail market.
Jostens has established a presence in the retail market through a separately
branded product line, Studio One(R). Studio One rings are professionally but
simply designed, with far fewer customizing options than Jostens' in-school
rings.
With Studio One, the company has entered two areas of the retail market,
building relationships with jewelry chains and mass merchandisers.
International Jostens believes that remaining competitive will require a
broader international presence, and it is beginning to explore business
opportunities in other countries.
Today, Jostens is strong in Canada and conducts business in a number of
local schools in the United Kingdom, Puerto Rico and Mexico. The company also
serves U.S. military installations and American schools abroad. Wherever
possible, the company intends to build on that presence.
In 1995, Jostens conducted initial research into the market potential of
several countries, with some encouraging signs.
Through 1996, Jostens will prudently pursue the opportunities that make
sense, with an eye toward long-term development of a solid international
business presence.
10
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11
Jostens at a Glance
A look at Jostens
by Segments and Businesses.
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School Products Segment
-----------------------
The businesses in this segment provide products and services primarily to
students and schools. Customers are served through a network of about 900
independent sales representatives and associates in the United States and
Canada, as well as in international locations serving American schools and
military installations. In fiscal 1995, School Products sales were $565 million
(including $556.5 million from five major lines of business and $8.5 million in
other sales), compared with $546.2 million in 1994. Operating profit improved
to a record $107.1 million, from $73.5 million in 1994.
Printing and Publishing Products: Yearbooks, memory books and desktop
publishing kits for students in high school, college, junior high and elementary
school throughout the United States. The business also provides commercial
printing services.
Sales: $203.1 million in 1995, a record for the business and a 6 percent
increase from $191.7 million in 1994.
Business Developments: Gained market share in both high school and junior high
yearbook segments; successfully tested an automation system to provide sales
reps with real-time updates for each yearbook account; introduced digital
scanning modules to two of five printing facilities.
Jewelry Products: Class rings and athletic rings to students in junior
high, high school and college.
Sales: $154.5 million in 1995, up 3.6 percent from $149.1 million in 1994.
Business Developments: Class ring unit volume increased significantly in
both the high school and college markets; Jostens won the class ring accounts
of all four U.S. military academies for the first time this decade.
12
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Graduation Products Products: Announcements and related products, caps,
gowns, diplomas and accessories for high school and college students.
Sales: A record $133 million in 1995, up 6.4 percent from $125 million in
1994.
Business Developments: New marketing initiatives led to an increase in the
percentage of students purchasing products in 1995; average sales per customer
increased from year-earlier levels.
Photography Products: Class and individual school pictures to students in
elementary, junior high and high school; high school senior portrait
photography; and photography for proms and other special events.
Sales: $24.2 million in 1995, a planned reduction from $27.7 million in
1994.
Business Developments: Successfully completed a restructuring program to
return the business to profitability; consolidated the number of photo
processing facilities from five to two; began pilot project with Printing &
Publishing to earn new accounts.
Jostens Canada Products: Yearbooks, class rings, graduation products and
school photography to schools throughout Canada.
Sales: $41.7 million in 1995, compared with $42.3 million in 1994. The
decline resulted primarily from the effects of translating the unit's results
from Canadian dollars to U.S. dollars.
Business Developments: Following successful testing in 1994, introduced the
new Expressions(TM) class-ring line, resulting in higher buy rates; absorbed
additional U.S. photo processing volume through the Photography plant
consolidation program; signed 10 percent of its high school account base to
multiyear, multiproduct agreements.
Recognition Segment
-------------------
The Recognition segment is a single-business unit that provides awards
recognizing employee service longevity and performance achievement in companies
of all sizes. Customers are served through about 100 independent sales
representatives. Sales in Recognition were $100.1 million in 1995, down from a
record $103.7 million in 1994. Operating profit was $4.7 million, compared with
$9.5 million in 1994, a record year.
Business Developments: A study of the Recognition business and its markets
is expected to bring a clearer focus on the strengths and market opportunities
for this business; 1995 account wins included Thrifty Payless.
13
Management's Discussion and Analysis
Introduction
------------
This discussion summarizes significant factors that affected the
consolidated operating results, financial condition and liquidity of Jostens
Inc. in the three years ended June 30, 1995. Material in this section reflects
the June 1995 sale of the company's Jostens Learning Corp. (JLC) subsidiary,
the anticipated sale of the Wicat Systems business and the January 1994 sale of
the Sportswear business, all of which are treated as discontinued operations in
the financial statements presented in this report.
Results of Operations
---------------------
Overall Jostens' sales from continuing operations increased 2 percent in
fiscal 1995, to $665.1 million from $649.9 million in fiscal 1994. Sales in
1994 increased 2 percent from $634.8 million in 1993. The 1995 sales increase
was driven by gains in the company's three largest business lines -- Printing &
Publishing, Jewelry and Graduation Products. Prices for the company's products
increased 1 percent from 1994 to 1995 and 3 percent from 1993 to 1994,
reflecting a continued effort to minimize price increases. Gross margins in
1995 were 52 percent, up from 51.7 percent in 1994 and 51.1 percent in fiscal
1993. The margin improvement resulted from manufacturing efficiencies and cycle-
time gains in the School Products segment. Selling and administrative expenses
decreased to $251.4 million from $274.1 million in 1994 and $259.4 million in
1993. As a percentage of sales, these expenses were 37.8 percent in 1995, 42.2
percent in 1994 and 40.9 percent in 1993. The 1995 decrease was primarily due to
cost improvements realized through the company's reengineering efforts. The
increase from 1993 to 1994 was primarily due to changes in accounting estimates
of $7.7 million for receivables and $6 million for overdrafts recorded in 1994.
The company's strong cash position at June 30, 1994, eliminated the need for
short-term borrowing to meet operational needs. The result was a decrease in
interest expense of $1.4 million from 1994 and $2.3 million from 1993. In
addition, interest income increased $2.9 million and $2.6 million over 1994 and
1993, respectively, because the company maintained higher cash balances and
benefited from higher short-term interest rates in 1995.
Net income for 1995 was $50.4 million, compared with losses of $16.2 million
in 1994 and $12.7 million in 1993. Included in the 1994 and 1993 income from
continuing operations were after-tax restructuring charges of $5.1 million and
$25.3 million, respectively. Included in the 1993 net loss was an after-tax
charge of $4.2 million associated with the early adoption of Statement of
Financial Accounting Standards (SFAS) No. 106 for postretirement benefits. In
addition, net income in 1995 included an after-tax charge of $.6 million
associated with the adoption of SFAS No. 112, Employers' Accounting for
Postemployment Benefits, and a net after-tax loss on discontinued operations of
$4.9 million, compared with net after-tax losses of $44.1 million and $17
million in 1994 and 1993, respectively.
Earnings per share were $1.11 in 1995, compared with losses per share of 36
cents in 1994 and 28 cents in 1993. Earnings per share from continuing
operations prior to the change in accounting principle, discontinued operations
and restructuring charges were $1.23 in 1995, compared with 73 cents in 1994
and 75 cents in 1993.
The earnings improvement in 1995 reflected the success of efforts to refocus
on core businesses, streamline operations and position the company for future
growth, all of which were objectives of restructuring programs initiated in
1993 and 1994.
14
School Products Segment Sales in this segment increased 3 percent to $565
million in fiscal 1995, compared with $546.2 million in 1994 and $540.7 million
in 1993. Record sales were recorded in the Printing & Publishing ($203.1
million) and Graduation Products ($133 million) businesses, while Jewelry sales
($154.5 million) were just shy of a record.
Growth in Printing & Publishing stemmed from successful market research and
programs targeted to win new accounts, primarily in high school yearbooks. In
Graduation Products, the percentage of students per school who purchased
products (buy rates) improved, and the average dollar amount of products
purchased by each student increased. In Jewelry, new marketing and pricing
initiatives led to increased sales of high school and college class rings.
Photography sales declined to $24.2 million from $27.7 million in 1994 and
$30.6 million in 1993. The planned reduction was part of the 1993 restructuring
program that included eliminating under-performing dealers and unprofitable
accounts, as well as consolidating processing operations from five plants into
two.
Jostens Canada sales declined slightly to $41.7 million from $42.3 million in
1994. Canadian dollar sales volume was essentially flat with 1994 levels, with
currency exchange rate fluctuations accounting for most of the decline. The
business remained steady despite organizational changes and increases in photo
processing volume, resulting from the plant consolidation program in the
Photography business.
The School Products segment generated stronger operating profit in 1995
through a combination of sales growth and cost improvements. Operating
profit was $107.1 million, up 45.7 percent from $73.5 million in 1994, which
included changes in estimates of $16.4 million related to inventory, accounts
receivable and overdraft reserves. Fiscal 1994 operating profit increased 84
percent from 1993, which included restructuring costs of $36.5 million. The cost
improvements in Printing & Publishing resulted from reduced cycle times in
preparing page proofs for customers. This business has also successfully tested
page and photo scanning capability, which is expected to help reduce costs. Both
the Jewelry and Graduation Products facilities have improved the production
cycle times for their products, enabling them to better meet customer needs,
reduce costs and provide additional plant capacity.
Recognition Segment Sales declined 3 percent to $100.1 million from record
1994 levels due primarily to smaller orders per account. Fiscal 1994 sales
increased 10 percent from 1993.
Operating profit was $4.7 million in 1995, compared with a record $9.5
million in 1994 and $8.6 million in 1993. The 1995 decrease in operating
profit resulted from some erosion in product mix and margins, as well as
charges to establish an environmental reserve ($.6 million) and to abandon a
unique computer information system ($1.1 million). The company is currently
performing a review of this business and is focusing on improving internal
efficiency and more closely evaluating market opportunities.
15
Financial Position
------------------
Net working capital at June 30, 1995, was $206.3 million, reflecting a
current ratio of 2.1 to 1. Cash and short-term investments were $173.5 million,
up from $107.8 million at year-end 1994. The increase resulted from cash
received from the sale of JLC and from the company's continued emphasis on cash
management.
Accounts receivable decreased to $124.4 million from $149.2 million in 1994.
The decrease was due to the sale of JLC ($39.6 million), offset in part by an
increase in receivables as a result of a strong fourth quarter in the School
Products segment.
Inventories decreased to $71.4 million in 1995 from $82.6 million in 1994.
The decrease resulted from an inventory reduction effort in School Products, as
well as from the sale of JLC, which had an inventory balance of $7.6 million at
June 30, 1994.
Intangibles decreased to $30.9 million in 1995 from $47.7 million in 1994,
primarily because of the JLC sale ($13.5 million), as well as a decrease in
intangible assets related to additional minimum pension liability requirements
of $2.7 million and amortization of $1.5 million.
Prepaid expenses, other assets, software development costs, accounts payable
and deferred revenue all decreased from their 1994 balances. Reductions in all
categories were primarily due to the sale of JLC.
Salaries, wages and commissions payable were $52.5 million in 1995, compared
with $68.4 million in 1994. The decrease was due to the JLC sale ($14.8
million) as well as to payments related to restructuring reserves.
Income taxes payable increased to $35.4 million from $14.7 million in 1994,
due to higher earnings.
Accrued pension costs decreased to $12.6 million from $19.3 million in 1994
due to a higher than expected return on pension plan assets and an increase in
the discount rate to reflect current prevailing interest rates.
Generally, the company's cash requirements have been met with internally
generated funds and through short-term borrowings. Because most of the
company's sales volume occurs in the second and fourth quarters of each year,
Jostens usually requires interim financing of inventories and receivables.
Average short-term borrowing was $28.6 million in 1994 and $42.6 million in
1993, with highs of $87 million in 1994 and $83.3 million in 1993. In 1995, the
company's strong cash position eliminated the need for short-term borrowing.
Because of the company's plan to return cash to shareholders through a share
repurchase tender offer in early fiscal 1996, Jostens will again require
seasonal financing in 1996. Those needs will be covered by utilizing short-term
financing comparable with past years.
Shareholders' investment increased 5 percent to $270.6 million from $256.6
million in 1994. The increase was primarily attributable to net income of $50.4
million, partially offset by dividends paid. Book value at June 30, 1995, was
$5.95 per share, compared with $5.64 a year earlier. Long-term debt, as a
percentage of total capitalization, was 16.6 percent on June 30, 1995.
Capital Expenditures and Product Development
--------------------------------------------
The company invested $19.1 million in capital expenditures in 1995, compared
with $15.2 million in 1994. The largest investments were made in the School
Products segment, with $8.5 million spent to update manufacturing equipment and
processes with current technology. Corporate, Recognition and JLC expended $6.7
million, $1.4 million and $2.5 million, respectively. About $20 million in
capital projects are planned for 1996, including upgrading presses and other
yearbook printing equipment, improving photo processing and field camera
equipment, and enhancing certain management information and communication
systems. The projects are expected to be funded internally.
16
Dividends
---------
The company paid $40 million in cash dividends to shareholders in fiscal
1995. The annual dividend was 88 cents per share in 1995, 1994 and 1993.
Restructurings
--------------
Fiscal 1994 The company recorded an $8.5 million restructuring charge ($5.1
million after tax, or 12 cents per share) related to continuing operations in
the fourth quarter of 1994, covering headcount reductions in the general and
administrative functions. As a result of a study of corporate overhead costs in
1994, the company eliminated approximately 125 positions to achieve the desired
management organization. The 1994 restructuring accrual decreased by $7 million
in fiscal 1995 to $.9 million at June 30, 1995, due to payments of $6.2 million
and noncash items of $.8 million.
Fiscal 1993 The company recorded a $40.2 million ($25.3 million after tax,
or 56 cents per share) restructuring charge related to continuing operations in
the fourth quarter of 1993. The charge included $26.7 million for restructuring
the Photography business, of which $7.9 million related to goodwill write-offs
($5.6 million relating to the Portrait World acquisition in 1989 and $2.3
million in various smaller Photography intangibles), $12.8 million related to
plant shutdowns and $6 million related primarily to write-offs of abandoned
receivables from independent sales representatives and dealers. The remaining
$13.5 million of restructuring charges included $4.8 million primarily for
headcount reductions and relocation expenses, and $8.7 million primarily for
sales force restructuring and policy changes, including write-offs of abandoned
receivables from terminated independent sales representatives. The accounts
receivable balances, which would have ordinarily been collectible in the
absence of the changes in the sales force, were abandoned as part of the
territory consolidations and sales force terminations resulting from the sales
force restructuring. The 1993 restructuring accrual decreased by $6.4 million in
1995 to $4.6 million at June 30, 1995, due to payments of $4.9 million and
noncash items of $1.5 million.
The 1994 and 1993 restructuring accruals are expected to be reduced by $1.1
million of noncash items in 1996. The future cash outlay is estimated to be
$2.9 million in 1996 and $1.5 million in 1997 and beyond. The company estimates
that the 1994 and 1993 restructurings have reduced annual operating costs by $7
million to $12 million. See Discontinued Operations for further discussion of
restructuring items related to discontinued operations.
Environmental
-------------
As part of its continuing environmental management program, Jostens is
involved in various environmental improvement activities. As sites are
identified and assessed in this program, the company determines potential
environmental liability. Factors considered in assessing this liability
include, among others, the following: whether the company has been designated
as a potentially responsible party, the number of other potentially responsible
parties designated at the site, the stage of the proceedings, and available
environmental technology. When the potential liability amounts are probable and
reasonably estimable, Jostens accrues the best estimate available. For specific
sites where only a range of liability is probable and reasonably estimable and
no amount in the range is a better estimate than another, the company has
accrued the low end of that range. While Jostens may have a right of
contribution or reimbursement under insurance policies, amounts that may be
recoverable from other entities by the company with respect to a
particular site are not considered until recoveries are deemed to be probable.
No assets for potential recoveries have been established as of June 30, 1995.
17
Jostens also assesses reasonably possible environmental liability beyond
that which has been accrued. This liability is not probable, but is more likely
than remote. As of June 30, 1995, the company identified four sites requiring
further investigation. The potential liability cannot be fully assessed, since
the sites are in the early stages of investigation. In addition, two other
sites nearing completion did not require any accruals as of June 30, 1995. The
amount of environmental liability identified that is reasonably possible is in
the range of $.6 million to $4.6 million. As of June 30, 1995, the company has
not been designated as a potentially responsible party at any
site. The amount accrued during fiscal 1995 with respect to potential
liability is $.6 million and is recorded as part of "other accrued
liabilities." The company does not expect to incur liabilities at
the higher end of the range, based on the limited information currently
available.
Discontinued Operations
-----------------------
The statements of consolidated operations presented have been reclassified
to reflect the company's JLC business (including the Wicat Systems
computer-based aviation training division, which Jostens retains but intends to
sell in fiscal 1996) as discontinued operations along with the company's
previously discontinued Sportswear business.
In June 1995, Jostens sold its JLC curriculum software subsidiary to a group
led by Bain Capital, Inc. for $50 million in cash; a $36 million unsecured,
subordinated note maturing in eight years with a stated interest rate of 11
percent; and a separate $4 million note with a stated interest rate of 8.3
percent convertible into 19 percent of the equity of Jostens Learning, subject
to dilution in certain events. The notes were recorded at fair value, using an
estimated 20 percent discount rate on the $36 million note, resulting in a
discount of $9.9 million. The transaction gain of $11.1 million ($5.8 million
after tax) was deferred in accordance with Securities and Exchange Commission
Staff Accounting Bulletin No. 81, Gain Recognition on the Sale of a Business or
Operating Assets to a Highly Leveraged Entity. The gain will be deferred until
cash flows from the operating activities of JLC are sufficient to fund debt
service, dividend or any other covenant requirements. As part of the
transaction, Jostens also agreed to pay $13 million over two years to fund
certain JLC existing liabilities.
18
In 1994, Jostens also recorded a restructuring charge of $60.9 million ($40.2
million after tax, or 88 cents per share) related to JLC, which has been
reclassified as part of discontinued operations. The restructuring charge
relating to JLC included $39.1 million to focus its product development, $7.3
million to exit both direct and indirect investments in three ancillary lines of
business, $4.1 million to exit the hardware sales and service business, and
$10.4 million for work-force reductions. The company also recorded in 1993 a
restructuring charge of $10.4 million ($8.3 million after tax, or 18 cents per
share) related to JLC, which has been reclassified as part of discontinued
operations. The restructuring charge included $5 million for the write-off of
certain software development costs, as well as $5.4 million for work-force
reductions. Jostens Learning retained all remaining accruals related to the
restructurings after the sale except for $3.1 million related to the Wicat
Systems business.
In January 1994, Jostens sold its Sportswear business to a subsidiary of
Fruit of the Loom for $46.7 million in cash. Jostens recognized an $18.5
million gain ($11 million after tax) on the sale, primarily because the
Sportswear business had been written down by $15 million to its estimated net
realizable value in the fiscal 1993 restructuring.
Changes in Accounting Estimates
-------------------------------
As a result of certain changes in business conditions, the company conducted
a review that concluded at the end of the third quarter of fiscal 1994. That
review led the company to increase reserves for inventories, receivables and
overdrafts from independent sales representatives to reflect amounts estimated
not to be recoverable, based upon current facts and circumstances. The revised
estimates reduced pretax income for 1994 by $16.9 million ($10.1 million after
tax, or 22 cents per share).
Share Repurchase
----------------
In August 1995, Jostens offered to repurchase up to 6.1 million of its
common shares through a Modified Dutch Auction tender offer. Under the offer,
which is expected to close in early September, shareholders have the option to
tender shares at a price range of $21.50 to $24.50 per share. The repurchase
will be funded from the company's cash and short-term investment balance, as
well as short-term borrowings.
19
Report of Management
--------------------
The management of Jostens is responsible for the integrity and objectivity
of the financial information presented in this report. The financial statements
have been prepared in accordance with generally accepted accounting principles
and include certain amounts based on management's best estimates and judgment.
Management is also responsible for establishing and maintaining the
company's accounting systems and related internal controls, which are designed
to provide reasonable assurance that assets are safeguarded and transactions
are properly recorded. These systems and controls are reviewed by the internal
auditors. In addition, the company's code of conduct states that its affairs
are to be conducted under the highest ethical standards.
The independent auditors provide an independent review of the financial
statements and the fairness of the information presented therein. The Audit
Committee of the Board of Directors, comprised solely of outside directors,
meets regularly with management, the company's internal auditors and its
independent auditors to review audit activities, internal controls and other
accounting, reporting and financial matters. Both the independent auditors and
internal auditors have unrestricted access to the Audit Committee.
/s/ TRUDY A. RAUTIO
---------------
Trudy A. Rautio, Senior Vice President and
Chief Financial Officer
/s/ ROBERT C. BUHRMASTER
--------------------
Robert C. Buhrmaster, President and
Chief Executive Officer
Minneapolis, Minnesota,
August 4, 1995
Report of Independent Auditors
------------------------------
To the Stockholders of Jostens Inc.: We have audited the accompanying
consolidated balance sheets of Jostens Inc. and subsidiaries as of June 30,
1995 and 1994, and the related consolidated statements of operations, changes
in shareholders' investment and cash flows for each of the three years in the
period ended June 30, 1995. These financial statements are the responsibility
of the company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Jostens Inc.
and subsidiaries at June 30, 1995 and 1994, and the consolidated results of
their operations and cash flows for each of the three years in the period ended
June 30, 1995, in conformity with generally accepted accounting principles.
As discussed in the notes to the financial statements, the company changed
its method of accounting for postemployment benefits in 1995 and postretirement
benefits other than pensions in 1993.
/s/ ERNST & YOUNG LLP
-----------------
Ernst & Young LLP
Minneapolis, Minnesota
August 4, 1995
20
STATEMENTS OF CONSOLIDATED OPERATIONS
-------------------------------------
JOSTENS INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA) YEARS ENDED JUNE 30
-------------------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------------------
Net sales $665,099 $649,869 $634,797
Cost of products sold 319,065 313,755 310,417
-------------------------------------------------------------------------------
346,034 336,114 324,380
Selling and administrative expenses 251,416 274,140 259,423
Restructuring charges -- 8,500 40,153
-------------------------------------------------------------------------------
Operating income 94,618 53,474 24,804
Interest income 4,727 1,823 2,094
Interest expense (5,452) (6,803) (7,746)
-------------------------------------------------------------------------------
Income from continuing operations before income
taxes 93,893 48,494 19,152
Income taxes 38,027 20,540 10,655
-------------------------------------------------------------------------------
Income from continuing operations 55,866 27,954 8,497
Discontinued operations:
Loss from operations, net of tax (4,864) (55,110) (17,019)
Gain on sale, net of tax -- 10,987 --
Cumulative effect of changes in accounting
principle, net of tax (634) -- (4,150)
-------------------------------------------------------------------------------
Net income (loss) $ 50,368 $(16,169) $(12,672)
===============================================================================
Earnings (loss) per common share
Continuing operations $ 1.23 $ .61 $ .19
Loss from discontinued operations (0.11) (1.21) (.38)
Gain on sale of discontinued operations -- .24 --
Cumulative effect of changes in accounting
principle (.01) -- (.09)
-------------------------------------------------------------------------------
Net income (loss) $ 1.11 $ (.36) $ (.28)
================================================================================
See notes to consolidated financial statements
21
CONSOLIDATED BALANCE SHEETS
---------------------------
JOSTENS INC. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER-SHARE DATA) JUNE 30
-------------------------------------------------------------------------------
1995 1994
-------------------------------------------------------------------------------
Assets
Current assets
Cash and short-term investments $173,469 $107,827
Accounts receivable, net of allowance of $9,049 and
$13,749, respectively 124,392 149,206
Inventories Finished products 17,079 28,026
Work-in-process 26,928 23,879
Materials and supplies 27,387 30,733
-------------------------------------------------------------------------------
71,394 82,638
Deferred income taxes 17,845 39,985
Prepaid expenses 2,869 6,123
Other receivables 12,399 10,338
-------------------------------------------------------------------------------
Total current assets 402,368 396,117
-------------------------------------------------------------------------------
Other assets
Intangibles 30,915 47,737
Software development costs -- 29,356
Note receivable, net of $9,900 discount and $11,131
deferred gain 18,969 --
Noncurrent deferred income taxes 15,590 --
Other 12,301 20,850
-------------------------------------------------------------------------------
Total other assets 77,775 97,943
-------------------------------------------------------------------------------
Property and equipment
Land 5,260 5,277
Buildings 38,253 38,131
Machinery and equipment 141,043 164,233
-------------------------------------------------------------------------------
184,556 207,641
Accumulated depreciation (116,731) (131,870)
-------------------------------------------------------------------------------
Total property and equipment 67,825 75,771
-------------------------------------------------------------------------------
$547,968 $569,831
===============================================================================
22 See notes to consolidated financial statements
June 30
-----------------------------------------------------------------
1995 1994
-----------------------------------------------------------------
Liabilities and shareholders' investment
Current liabilities
Accounts payable $ 17,624 $ 33,192
Salaries, wages and commissions 52,544 68,394
Customer deposits 36,367 36,080
Other accrued liabilities 43,820 48,749
Dividends payable 10,005 10,001
Deferred revenue -- 11,820
Income taxes 35,372 14,663
Current maturities on long-term debt 355 495
-----------------------------------------------------------------
Total current liabilities 196,087 223,394
Long-term debt -- less current maturities 53,899 54,267
Deferred income taxes -- 5,943
Accrued pension costs 12,578 19,291
Other noncurrent liabilities 14,791 10,355
Commitments and contingencies -- --
Shareholders' investment
Preferred shares, $1.00 par value:
authorized 4,000 shares, none issued -- --
Common shares, $.33 1/3 par value:
authorized 100,000 shares
Issued 1995 -- 45,482; 1994 -- 45,482 15,160 15,160
Capital surplus 154,410 152,996
Retained earnings 105,213 92,855
Foreign currency translation adjustment (4,170) (4,430)
-----------------------------------------------------------------
Total shareholders' investment 270,613 256,581
-----------------------------------------------------------------
$547,968 $569,831
=================================================================
23
Statements of Consolidated Cash Flows
Jostens Inc. and Subsidiaries
(Dollars in thousands) Years ended June 30
----------------------------------------------------------------------------------
1995 1994 1993
----------------------------------------------------------------------------------
Operating activities
Net income (loss) $ 50,368 $(16,169) $(12,672)
Depreciation and amortization 28,339 38,927 34,896
Noncash restructuring charges -- 27,333 10,624
Deferred income taxes 607 (21,254) (14,427)
Gain on sale of discontinued operations -- (10,987) --
Changes in assets and liabilities, net of
effects from sale of discontinued operations:
Accounts receivable (1,303) 37,000 15,470
Inventories 2,436 26,333 (13,325)
Prepaid expenses 434 4,577 (3,562)
Accounts payable (11,009) (19,396) 5,596
Other 11,070 58,747 41,796
----------------------------------------------------------------------------------
80,942 125,111 64,396
----------------------------------------------------------------------------------
Investing activities
Capital expenditures (19,142) (15,202) (20,900)
Software development costs (9,560) (19,437) (27,515)
Other 4,074 (144) (1,824)
Net proceeds from sale of discontinued operations 49,471 43,808 --
----------------------------------------------------------------------------------
24,843 9,025 (50,239)
----------------------------------------------------------------------------------
Financing activities
Cash dividends (40,000) (39,999) (40,798)
Exercise of stock options 225 702 5,721
Reduction in long-term notes (368) (576) (24,126)
----------------------------------------------------------------------------------
(40,143) (39,873) (59,203)
----------------------------------------------------------------------------------
Change in cash and short-term investments 65,642 94,263 (45,046)
Cash and short-term investments, beginning of year 107,827 13,564 58,610
----------------------------------------------------------------------------------
Cash and short-term investments, end of year $173,469 $107,827 $ 13,564
==================================================================================
See notes to consolidated financial statements
24
Statements of Consolidated Changes in Shareholders' Investment
Jostens Inc. and Subsidiaries
Common Shares Cumulative
------------------ Capital Retained Translation
(In thousands, except per-share data) Number Amount Surplus Earnings Adjustment
---------------------------------------------------------------------------------------------------------
Balance -- June 30, 1992 45,033 $15,010 $146,070 $204,483 $ (838)
Stock options exercised -- net 194 65 3,217
Transactions of pooled company 198 67 2,372
Net loss (12,672)
Cash dividends of $.88 per share (40,798)
Tax benefit of stock options 653
Change in cumulative translation adjustment (1,911)
---------------------------------------------------------------------------------------------------------
Balance -- June 30, 1993 45,425 15,142 152,312 151,013 (2,749)
Stock options and restricted stock -- net 57 18 684
Net loss (16,169)
Cash dividends of $.88 per share (39,999)
Change in cumulative translation adjustment (1,681)
Adjustment in minimum pension liability (1,990)
---------------------------------------------------------------------------------------------------------
Balance -- June 30, 1994 45,482 15,160 152,996 92,855 (4,430)
Stock options and restricted stock -- net 1,414
Net income 50,368
Cash dividends of $.88 per share (40,000)
Change in cumulative translation adjustment 260
Adjustment in minimum pension liability 1,990
---------------------------------------------------------------------------------------------------------
Balance -- June 30, 1995 45,482 $15,160 $154,410 $105,213 $(4,170)
=========================================================================================================
See notes to consolidated financial statements 25
Notes to Consolidated Financial Statements
Jostens Inc. and Subsidiaries
Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation The consolidated financial statements include
the accounts of the company and its subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Cash, Short-term Investments and Cash Flows For purposes of reporting cash
flows, cash and short-term investments include cash on hand, time deposits and
commercial paper. SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities, was adopted in fiscal 1995. The implementation of this
statement did not have a material impact on the results of operations.
Short-term investments have an original maturity of three months or less and
are considered cash equivalents. All investments in debt securities have an
original maturity of three months or less and are considered to be held to
maturity. The short-term securities are carried at amortized cost, which
approximates fair value, and totaled $161.1 million and $99.2 million at June
30, 1995 and 1994, respectively. Total cash payments for income taxes and
interest, respectively, were $15.1 million and $4.2 million in 1995, $8.9
million and $5.9 million in 1994, and $24.2 million and $7.5 million
in 1993.
Inventories Gold and certain other inventories aggregating $2.6 million at
June 30, 1995, and $4.1 million at June 30, 1994, are stated at the lower of
last-in, first-out (LIFO) cost or market, and are $14.8 million and $13.8
million lower in the respective years than such inventories determined under
the lower of first-in, first-out (FIFO) cost or market. All other inventories
are stated at the lower of FIFO cost or market.
Inventory Obsolescence The company's policy is to employ a systematic
methodology that includes quarterly evaluations of inventory, based upon
business trends, to specifically identify obsolete, slow-moving and nonsalable
inventory. Inventory reserves are evaluated quarterly to ensure they
continually reflect the current business environment and trends.
Intangibles Intangibles primarily represent the excess of the purchase price
over the fair value of the net tangible assets of acquired businesses and are
amortized over various periods of up to 40 years. Accumulated amortization at
June 30, 1995 and 1994, was $14.5 million and $23.2 million, respectively. The
carrying value of intangible assets is assessed annually and/or when factors
indicating an impairment are present. The company employs an undiscounted cash
flow method of assessment for these assets. The intangible balance also includes
the intangible asset related to additional minimum pension liability of $2.7
million and $5.5 million at June 30, 1995 and 1994, respectively.
Depreciation Property and equipment are carried at cost. Depreciation on
buildings, machinery and equipment is provided principally on the straight-line
method for financial reporting purposes over their estimated useful lives:
buildings, 15 to 40 years; machinery and equipment, three to 10 years.
Depreciation expense charged to continuing operations was $13.6 million, $13.3
million and $14.6 million in 1995, 1994 and 1993, respectively. The carrying
value of property and equipment is assessed annually and/or when factors
indicating an impairment is present.
26
Income Taxes The company records income taxes in accordance with SFAS No.
109, Accounting for Income Taxes. This statement requires the use of the asset
and liability method of accounting for income taxes. Deferred taxes are
recognized for the estimated taxes ultimately payable or recoverable based on
enacted tax law. Changes in enacted tax rates are reflected in the tax
provision as they occur.
Sales Returns and Warranty Costs Provisions for sales returns and warranty
costs are recorded at the time of sale based on historical information adjusted
for current trends.
Foreign Currency The company enters into foreign currency forward contracts
to hedge purchases of inventory in foreign currency. The purpose of these
hedging activities is to protect the company from the risk that inventory
purchases denominated in foreign currency will be adversely affected by changes
in foreign currency rates. All contracts the company had at June 30, 1995,
mature within one year and are held for purposes other than trading. The amount
of contracts outstanding at June 30, 1995 and 1994, were $.1 million and $3.2
million, respectively. The company is exposed to credit loss in the event of
nonperformance by counterparties on foreign exchange forward contracts. Jostens
does not anticipate nonperformance by any of these counterparties. The amount
of this credit exposure is generally limited to unrealized gains on the
contracts. At June 30, 1995 and 1994, there were no material unrealized gains
or losses on outstanding foreign currency forward contracts.
Assets and liabilities denominated in foreign currency are translated at the
current exchange rate as of the balance sheet date, and income statement
amounts are translated at the average monthly exchange rate. Translation
adjustments resulting from fluctuations in exchange rates are recorded in a
separate component of equity. Realized and unrealized gains and losses on
foreign currency forward contracts used to purchase inventory with no firm
purchase commitments are recognized currently in net income because they do not
qualify as hedges for accounting purposes. Realized and unrealized gains and
losses on forward contracts used to purchase inventory for which the company
has firm purchase commitments qualify as accounting hedges and therefore are
deferred and recognized in income when the inventory is sold.
Earnings Per Common Share Earnings per share have been computed by dividing
net income by the average number of common shares outstanding. The impact of
any additional shares issuable upon the exercise of dilutive stock options is
not material.
Postemployment Benefits In the first quarter of fiscal 1995, the company
adopted SFAS No. 112, Employers' Accounting for Postemployment Benefits.
Adopting this statement resulted in a $1.1 million ($.6 million after tax)
charge to operations.
Reclassification Certain 1994 and 1993 balances have been reclassified to
conform to the fiscal 1995 presentation.
27
Discontinued Operations
-----------------------
The statements of consolidated operations presented have been reclassified
to reflect the company's JLC business (including the Wicat Systems
computer-based aviation training division, which Jostens retains but intends to
sell in fiscal 1996) as discontinued operations along with the company's
previously discontinued Sportswear business.
In June 1995, Jostens sold its JLC curriculum software subsidiary to a
group led by Bain Capital, Inc. for $50 million in cash; a $36 million
unsecured, subordinated note maturing in eight years with a stated interest
rate of 11 percent; and a separate $4 million note with a stated interest rate
of 8.3 percent convertible into 19 percent of the equity of Jostens Learning,
subject to dilution in certain events. The notes were recorded at fair value,
using an estimated 20 percent discount rate on the $36 million note, resulting
in a discount of $9.9 million. The transaction gain of $11.1 million ($5.8
million after tax) was deferred in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 81, Gain Recognition on the Sale of a
Business or Operating Assets to a Highly Leveraged Entity. The gain will be
deferred until cash flows from the operating activities of JLC are sufficient
to fund debt service, dividend or any other covenant requirements. As part of
the transaction Jostens also agreed to pay $13 million over two years to fund
certain JLC existing liabilities.
In 1994, the company also recorded a restructuring charge of $60.9 million
($40.2 million after tax, or 88 cents per share) related to JLC, which has been
reclassified as part of discontinued operations. The restructuring charge
relating to JLC included $39.1 million to focus its product development, $7.3
million to exit both direct and indirect investments in three ancillary lines of
business, $4.1 million to exit the hardware sales and service business, and
$10.4 million for work-force reduction. The company also recorded in 1993 a
restructuring charge of $10.4 million ($8.3 million after tax, or 18 cents per
share) related to JLC, which has been reclassified as part of discontinued
operations. The restructuring charge included $5 million for the write-off of
certain software development costs, as well as $5.4 million for headcount
reductions. Jostens Learning retained all remaining accruals related to the
restructurings after the sale except for $3.1 million related to the Wicat
Systems business.
Significant accounting policies relevant to discontinued operations included
those related to capitalization of software development costs and software
revenue recognition. JLC capitalized software development costs when the project
reached technological feasibility and ceased capitalization when the product was
ready for release. Research and development costs related to software
development that had not reached technological feasibility were expensed as
incurred. Software development costs were amortized on the straight-line method
over a maximum of five years or the expected life of the product, whichever was
less. JLC recognized revenue for hardware and software upon shipment of the
product, provided that no significant vendor or postcontract obligations
remained outstanding and collection of the resulting receivable was deemed
probable. Revenue generated from service contracts and postcontract customer
support on software was recognized ratably over the period of the contract. The
revenue recognition for instruction and user training was part of the service
contract recognized ratably over the life of the contract. For insignificant
vendor and postcontract obligations remaining at the time of shipment, the
company's policy was to accrue all such obligations. Deferred revenue comprised
payments received in advance of revenue recognized on contracts.
In January 1994, Jostens sold its Sportswear business to a subsidiary of Fruit
of the Loom for $46.7 million in cash. Jostens recognized an $18.5 million gain
($11 million after tax) on the sale, primarily because the Sportswear business
had been written down by $15 million to its estimated net realizable value in
the fiscal 1993 restructuring.
28
Revenue and income data related to discontinued operations are as follows:
JLC/Wicat Systems 1995 1994 1993
--------------------------------------------------------
Revenue $108.6 $177.5 $201.6
Restructuring charges -- 60.9 10.4
Income tax benefit 2.5 28.0 6.0
Loss from operations $ 4.9 $ 54.3 $ 9.0
Sportswear 1995 1994 1993
--------------------------------------------------------
Revenue $ -- $ 52.1 $ 82.8
Restructuring charges -- -- 15.0
Income tax benefit -- .5 4.9
Loss from operations -- .8 8.0
Gain on sale, net of tax $ -- $ 11.0 $ --
Long-Term Debt and Other Borrowings
-----------------------------------
Long-term debt consisted of the following:
June 30
-----------------
(Dollars in thousands) 1995 1994
--------------------------------------------------------
Medium-term notes, due in
August 1996, plus interest
at 8.02% $50,000 $50,000
6.75% revenue bonds,
covering general offices,
due in January 2004 3,600 3,600
Other 654 1,162
--------------------------------------------------------
54,254 54,762
Less current maturities 355 495
--------------------------------------------------------
$53,899 $54,267
========================================================
Annual maturities on long-term debt are $50 million in fiscal 1997, zero in
1998, zero in 1999, zero in 2000 and $3.9 million thereafter. The fair value of
long-term debt at June 30, 1995 and 1994, approximated the carrying value.
During fiscal 1995, Jostens had unsecured lines of credit with four banks
totaling $60 million, under which the company could either borrow on a short-
term basis or use the bank's credit to support the issuance of short-term
commercial paper. In addition, the company had unsecured demand facilities with
two banks totaling $55 million. Such credit arrangements are renegotiated
periodically based on the anticipated seasonal needs for short-term financing.
In compensation for its credit arrangements, the company incurred certain
commitment fees, which were not significant. The company had no short-term
borrowings outstanding at June 30, 1995 or 1994.
Income Taxes
------------
Income from continuing operations before taxes, discontinued operations and
changes in accounting principle was as follows:
(Dollars in thousands) 1995 1994 1993
--------------------------------------------------------
Domestic $87,009 $42,095 $10,534
Foreign 6,884 6,399 8,618
--------------------------------------------------------
$93,893 $48,494 $19,152
========================================================
The components of the provision for income taxes attributable to earnings
from continuing operations were as follows:
(Dollars in thousands) 1995 1994 1993
--------------------------------------------------------
Federal $23,272 $18,710 $17,490
State 5,198 3,883 2,775
Foreign 3,518 2,603 3,688
--------------------------------------------------------
31,988 25,196 23,953
Deferred 6,039 (4,656) (13,298)
--------------------------------------------------------
$38,027 $20,540 $10,655
========================================================
29
The following summarizes the differences between income taxes computed at
the U.S. statutory rate and income tax expense from continuing operations for
financial reporting purposes:
(Dollars in thousands) 1995 1994 1993
-------------------------------------------------
Tax at U.S.
statutory rate $32,862 $16,973 $ 6,512
State income taxes,
net of federal income
tax benefit 3,682 2,455 1,637
Nondeductible
restructuring charges -- -- 1,354
All other, net 1,483 1,112 1,152
-------------------------------------------------
$38,027 $20,540 $10,655
=================================================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the deferred income tax liabilities and assets as of June 30, 1995 and 1994,
were as follows:
(Dollars in thousands) 1995 1994
---------------------------------------------------
Deferred tax liabilities
Capitalized software
development costs $ -- $ 11,596
Tax over book depreciation 4,119 3,869
Other, net 5,869 5,549
---------------------------------------------------
Net deferred tax liabilities 9,988 21,014
Deferred tax assets
Restructuring charges 3,694 18,689
Net operating loss and tax
credit carryforwards of
acquired companies 6,412 10,356
Allowance for doubtful accounts 4,657 7,063
Sales representatives'
overdraft reserve 2,389 3,657
Sales returns and allowances 2,929 3,401
Postretirement benefits 3,200 2,933
Pension plans 5,403 4,994
Deferred gain on sale of
Jostens Learning 5,330 --
Discount on note receivable 3,950 --
Reserves for discontinued
operations 2,156 --
Other, net 5,420 7,605
---------------------------------------------------
45,540 58,698
Valuation allowance (2,117) (3,642)
---------------------------------------------------
Net deferred tax assets 43,423 55,056
---------------------------------------------------
Net deferred tax (asset) $(33,435) $(34,042)
---------------------------------------------------
At June 30, 1995, the company had net operating loss carryforwards from
business acquisitions of $15.1 million for federal income tax purposes that
expire in the years 1998 through 2004. The company also had investment tax
credit and research and experimentation tax credit carryforwards of $1.1
million that expire in the years 1998 through 2004. The decrease in the
valuation allowance from June 30, 1994, to June 30, 1995, was due to
utilization of net operating loss carryforwards and tax credit carryforwards
related to the sale of JLC. This benefit was deferred and will be recognized in
income when the deferred gain on the sale is recognized.
30
Benefit Plans
The company's noncontributory pension plans cover substantially all
employees. The defined benefits provided under the plans are based on years of
service and/or compensation levels. Annually, the company funds the actuarially
determined costs of these plans, including the amortization of prior service
costs over 30 years. Service cost represents the present value of the increase
in future benefits resulting from the current year's service. The projected
benefit obligation is the present value of benefits, assuming future
compensation levels, for services rendered to date. During fiscal 1995, the
company reduced by $6 million the minimum pension liability as required by the
SFAS No. 87, Employers' Accounting for Pensions. The adjustment, which had no
effect on 1995 income, was offset by a reduction of $2.7 million in intangible
assets recorded in the previous year and an increase in shareholders'
investment of $2 million after tax.
The components of pension cost and the funded status were as follows:
(Dollars in thousands) 1995 1994 1993
--------------------------------------------------------------------------
Service cost $ 3,366 $ 3,254 $ 3,209
Interest on projected
benefit obligation 7,447 6,925 6,083
Return on assets --
actual loss (gain) (7,556) 326 (6,164)
deferred (262) (6,978) 93
Amortization 243 (359) (527)
--------------------------------------------------------------------------
Pension cost $ 3,238 $ 3,168 $ 2,694
==========================================================================
June 30, 1995
--------------------------------
Plans whose Plans whose
assets exceed accrued benefits
accrued benefits exceed assets
-----------------------------------------------------------------------
Vested benefit obligation $ 64,047 $ 24,661
Accumulated benefit
obligation 67,818 25,869
Projected benefit obligation 75,285 27,425
Fair value of plan assets 81,635 9,777
Plan assets in excess of
(less than) projected
benefit obligation $ 6,350 $ (17,648)
Unrecognized net (gain) loss (5,460) 1,339
Unrecognized prior service cost 9,486 3,348
Unrecognized net (asset)
at transition (6,796) (513)
Adjustment required to
recognize minimum liability -- (2,684)
-----------------------------------------------------------------------
Net pension asset (liability) in
consolidated balance sheets $ 3,580 $ (16,158)
=======================================================================
June 30, 1994
--------------------------------
Plans whose Plans whose
assets exceed accrued benefits
accrued benefits exceed assets
-----------------------------------------------------------------------
Vested benefit obligation $ 34,743 $ 52,664
Accumulated benefit
obligation 37,795 54,467
Projected benefit obligation 45,736 55,839
Fair value of plan assets 49,304 36,069
Plan assets in excess of
(less than) projected
benefit obligation $ 3,568 $ (19,770)
Unrecognized net (gain) loss (6,951) 7,075
Unrecognized prior service cost 8,094 5,680
Unrecognized net (asset)
at transition (5,679) (2,523)
Adjustment required to
recognize minimum liability -- (8,785)
-----------------------------------------------------------------------
Net pension (liability) in
consolidated balance sheets $ (968) $ (18,323)
=======================================================================
31
Plan assets consist primarily of corporate equity, including $4.2 million
of the company's common stock, as well as corporate and U.S. government debt,
and real estate.
The assumptions used in determining the components of pension cost and the
funded status were as follows:
1995 1994 1993
-----------------------------------------------------------------------
Weighted average
discount rates 8.00% 7.50% 8.00%
Rates of increase in
compensation 5.00% 5.00% 6.00%
Expected rate of return
on assets 8.75% 8.00% 8.00%
In conjunction with the 1994 divestiture of Sportswear, accrued benefits
under the applicable defined-benefit pension plans were frozen and active
participants became fully vested. The plans' trustee will continue to maintain
and invest plan assets and will administer benefit payments. In accordance with
SFAS No. 88, Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans, a curtailment loss of $.7 million was included in the
gain on the sale of Sportswear.
The company's retirement savings plan, which covers substantially all
nonunion employees, provides for a matching contribution by the company on
amounts, limited to 6 percent of compensation, contributed by employees. The
company's contribution for the years ended June 30, 1995, 1994 and 1993, was
$2.4 million, $2.4 million and $1.8 million, respectively, representing 50
percent of eligible employee contributions in 1995, 50 percent in 1994 and 33.3
percent in 1993.
Postretirement Benefits other than Pensions
-------------------------------------------
Jostens provides medical insurance benefits for substantially all retirees.
Employees who retired prior to June 30, 1993, pay medical contributions at an
amount either frozen at retirement or at a fixed percentage of the plan costs
prior to age 65. Employees retiring after that date receive only a fixed dollar
contribution toward coverage prior to age 65. The fixed dollar contribution is
based on vested service at retirement and is not projected to increase in the
future. In fiscal 1993, Jostens adopted SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. This statement requires the accrual
of postretirement benefit costs during the years an employee provides services.
The unfunded obligation of $6.7 million ($4.2 million after tax) was charged
against earnings, effective as of the beginning of the year.
The components of the postretirement costs and the benefit obligation
reported in the consolidated balance sheets under SFAS No. 106 were as follows:
(Dollars in thousands) 1995 1994
------------------------------------------------------------
Service cost of benefits earned $ 75 $ 77
Interest cost of benefit obligation 463 466
Amortization of net (gain)
from earlier periods (471) --
Amortization of unrecognized
prior service cost (7) (7)
------------------------------------------------------------
Postretirement benefit cost $ 60 $ 536
============================================================
(Dollars in thousands) 1995 1994
------------------------------------------------------------
Retirees $ 5,009 $ 5,594
Fully eligible active participants 82 97
Other active participants 959 1,140
------------------------------------------------------------
6,050 6,831
Unrecognized prior service cost 84 92
Unrecognized net gain 884 503
------------------------------------------------------------
Accumulated postretirement
benefit obligations $ 7,018 $ 7,426
============================================================
32
The assumptions used in determining the benefit obligation in 1995 included
a medical plan cost trend rate of 13.4 percent, declining to 7.9 percent in the
year 2000, and a weighted average discount rate of 8 percent. Fiscal 1994
assumptions included a medical plan cost trend rate of 14.5 percent, declining
to 7.9 percent in the year 2000, and a weighted average discount rate of 7.5
percent. A one-percentage-point increase in the assumed health care cost trend
rates for each future year increases the accumulated postretirement benefit
obligation for health care benefits by approximately $.4 million with minimal
impact on interest cost and no impact on service cost, since benefits for future
retirees are defined-dollar benefits unrelated to health care benefits.
Commitments and Contingencies
-----------------------------
The company's noncancelable minimum rental commitments for facilities and
equipment are $4.7 million in fiscal 1996, $3.3 million in 1997, $1 million in
1998, $.6 million in 1999, $.5 million in 2000 and $2.5 million thereafter.
Operating lease rental expenses were $6.3 million in 1995, $6 million in 1994
and $6.2 million in 1993. Jostens has forward contracts of $27.7 million for
commitments to purchase 70,557 ounces of gold that mature at various times in
1996 with prices ranging from $385 to $407 per ounce. Jostens is a party to
litigation arising in the normal course of business. Management regularly
analyzes current information and, as necessary, provides accruals for probable
liabilities on the eventual disposition of these matters. Management believes
that the effect on the company's results of operations and financial position,
if any, for the disposition of these matters will not be material.
Jostens also assesses reasonably possible environmental liability beyond
that which has been accrued. This liability is not probable, but is more likely
than remote. As of June 30, 1995, the company identified four sites requiring
further investigation. The potential liability cannot be fully assessed, since
the sites are in the early stages of investigation. In addition, two other
sites nearing completion did not require any accruals as of June 30, 1995. The
amount of environmental liability identified that is reasonably possible is in
the range of $.6 million to $4.6 million. As of June 30, 1995, the company has
not been designated as a potentially responsible party at any site. The amount
accrued during 1995 with respect to potential liability is $.6 million and is
recorded as part of the "other accrued liabilities." The company does not
expect to incur liabilities at the higher end of the range, based on the
limited information currently available.
Stock Options and Restricted Stock
----------------------------------
Under stock option plans, Jostens has granted options to key employees to
purchase common shares of the company at 100 percent of the market price on the
dates the options are granted. The following summarizes the changes in stock
options outstanding:
Options Outstanding
-------------------------------------
(In thousands) 1995 1994 1993
--------------------------------------------------------------------------
Beginning of year 2,400 2,446 2,181
Granted 1,106 463 521
Exercised (28) (26) (200)
Canceled (223) (483) (56)
--------------------------------------------------------------------------
End of year 3,255 2,400 2,446
==========================================================================
33
The options exercised during fiscal 1995 ranged in price from $1.21 to
$17.88 per share. At June 30, 1995, the exercise price on outstanding options
ranged from $1.21 to $34.19 per share, and 1.6 million options were exercisable
under stock option plans. Approximately .7 million and 1.1 million common shares
were reserved for future grants under the stock option plans at June 30, 1995
and 1994, respectively.
Jostens maintains a stock incentive plan, which provides for the grant of
restricted stock awards and performance share units. Shares of restricted stock
issued under the plan are subject to transfer restrictions based on the
continuous employment of the employee, other than retirement, and/or
performance criteria. Participants have voting, liquidation and other rights
with respect to shares of common stock issued to the participant as a
restricted stock award. Restricted stock awards based solely on continuous
employment of the employee granted as of June 30, 1995, totaled 8,500 shares.
Holders of these restricted stock awards receive dividends paid on the common
stock. During fiscal 1995, certain members of the Jostens senior management
team were granted performance share units as part of Jostens' long-term
management incentive plan. Performance share units are tied directly to
attaining specific financial performance targets. If all or a portion of
performance units are awarded, the units are converted into a restricted stock
award, which is subject to transfer and vesting restrictions based upon
continuous employment of the recipient. Performance share units granted as of
June 30, 1995, totaled 171,573. Effective June 30, 1995, a total of 56,182
restricted shares were awarded as a result of achieving fiscal 1995 performance
share unit targets, resulting in $1.2 million in expense.
Shareholder Rights Plan
-----------------------
In August 1988, the Board of Directors declared a distribution to shareholders
of one common share purchase right for each outstanding common share. Each right
entitles the holder to purchase one common share at an exercise price of $60.
The rights become exercisable if a person acquires 20 percent or more, or
announces a tender offer for 25 percent or more, of the company's common shares.
If a person acquires at least 25 percent of the company's outstanding shares,
each right will entitle the holder to purchase the company's common shares
having a market value of twice the exercise price of the right. If the company
is acquired in a merger or other business combination, each right will entitle
the holder to purchase common stock of the acquiring company at a similar 50
percent discount. The rights, which expire in August 1998, may be redeemed by
the company at a price of 1 cent per right at any time prior to the 30th day
after a person has acquired at least 20 percent of the company's outstanding
shares.
Business Segment Information
----------------------------
The company's operations are classified into two business segments:
school-based recognition products and services (School Products) and longevity
and performance recognition products and services for businesses (Recognition).
The School Products segment manufactures and sells products and services
including yearbooks, class rings, graduation products and student photography
packages, as well as customized products for university alumni.
34
Operations within the Recognition segment include the manufacture and sale
of customized sales, service and business achievement awards.
Operating income from continuing operations by business segment is defined
as sales less operating costs and expenses. Income and expense not allocated to
business segments include investment income, interest expense and corporate
administrative costs.
Identifiable assets are assets used exclusively in the operations of each
business segment and are reflected after eliminating intercompany balances.
Corporate assets principally comprise cash, short-term investments, deferred
income tax assets, notes receivable and certain property and equipment.
Financial information by reportable business segment is included in the
following summary:
(Dollars in thousands) 1995 1994 1993
------------------------------------------------------------
Net Sales
School Products $565,033 $546,191 $540,691
Recognition 100,066 103,678 94,106
------------------------------------------------------------
Consolidated $665,099 $649,869 $634,797
============================================================
Income from
continuing operations
School Products $107,071 $ 73,463 $ 40,042
Recognition 4,727 9,489 8,582
Corporate items
and eliminations (17,180) (29,478) (23,820)
------------------------------------------------------------
Consolidated 94,618 53,474 24,804
Net interest expense (725) (4,980) (5,652)
Income from continuing
operations before
income taxes $ 93,893 $ 48,494 $ 19,152
============================================================
(Dollars in thousands) 1995 1994 1993
------------------------------------------------------------
Identifiable Assets
School Products $236,424 $225,249 $260,927
Recognition 45,177 47,315 48,068
Discontinued
operations 6,165 119,999 246,792
Corporate items and
eliminations 260,202 177,268 57,663
------------------------------------------------------------
Consolidated $547,968 $569,831 $613,450
============================================================
Depreciation and
amortization
School Products $ 10,951 $ 11,700 $ 12,634
Recognition 2,111 1,775 2,267
Discontinued
operations 13,179 24,013 18,780
Corporate items 2,098 1,439 1,215
------------------------------------------------------------
Consolidated $ 28,339 $ 38,927 $ 34,896
============================================================
Capital Expenditures
School Products $ 8,540 $ 6,252 $ 9,769
Recognition 1,369 1,054 1,550
Discontinued
operations 2,559 3,994 8,589
Corporate items 6,674 3,902 992
------------------------------------------------------------
Consolidated $ 19,142 $ 15,202 $ 20,900
============================================================
Corporate recorded restructuring charges of $8.5 million in 1994 and $3.7
million in 1993. School Products recorded restructuring charges of $36.5
million in 1993. Income from continuing operations for School Products in 1994
included $16.4 million of provisions for revised estimates of inventories,
receivables and overdrafts. Income from continuing operations for Recognition
in 1994 included $.5 million for revised inventory estimates.
35
Restructurings
--------------
Fiscal 1994 The company recorded an $8.5 million restructuring charge ($5.1
million after tax, or 12 cents per share) related to continuing operations in
the fourth quarter of 1994, covering headcount reductions in the general and
administrative functions. As a result of a study of corporate overhead costs in
1994, the company eliminated approximately 125 positions to achieve the desired
management organization. The 1994 restructuring accrual decreased by $7 million
in fiscal 1995 to $.9 million at June 30, 1995, due to payments of $6.2 million
and noncash items of $.8 million.
Fiscal 1993 The company recorded a $40.2 million ($25.3 million after tax,
or 56 cents per share) restructuring charge related to continuing operations in
the fourth quarter of 1993. The charge included $26.7 million for restructuring
the Photography business, of which $7.9 million related to goodwill write-offs
($5.6 million relating to the Portrait World acquisition in 1989 and $2.3
million in various smaller Photography intangibles), $12.8 million related to
plant shutdowns and $6 million related primarily to write-offs of abandoned
receivables from independent sales representatives and dealers. The remaining
$13.5 million of restructuring charges included $4.8 million primarily for
headcount reductions and relocation expenses, and $8.7 million primarily for
sales force restructuring and policy changes, including write-offs of abandoned
receivables from terminated independent sales representatives. The accounts
receivable balances, which would have ordinarily been collectible in the absence
of the changes in the sales force, were abandoned as part of the territory
consolidations and sales force terminations resulting from the sales force
restructuring. The 1993 restructuring accrual decreased by $6.4 million in
fiscal 1995 to $4.6 million at June 30, 1995, due to payments of $4.9 million
and noncash items of $1.5 million.
Changes in Accounting Estimates
-------------------------------
As a result of certain changes in business conditions, the company conducted
a review that concluded at the end of the third quarter of fiscal 1994. That
review led the company to increase reserves for inventories, receivables and
overdrafts from independent sales representatives to reflect amounts estimated
not to be recoverable, based upon current facts and circumstances. The revised
estimates reduced pretax income for 1994 by $16.9 million ($10.1 million after
tax, or 22 cents per share).
Subsequent Event
----------------
In August 1995, Jostens offered to repurchase up to 6.1 million of its common
shares through a Modified Dutch Auction tender offer. Under the offer, which is
expected to close in early September, shareholders have the option to tender
shares at a price range of $21.50 to $24.50 per share. The repurchase will be
funded from the company's cash and short-term investment balance, as well as
short-term borrowings.
36
Unaudited Quarterly Financial Data
----------------------------------
Jostens Inc. and Subsidiaries
Fiscal 1995 Income Earnings Per Share
from ------------------ Stock Price Dividends
(Dollars in thousands, Net Gross Continuing Net Continuing Net ---------------- Per
except per-share data) Sales Margin Operations Income Operations Income High Low Share
----------------------------------------------------------------------------------------------------------------------
First
Previously reported $131,557 $ 65,461 $ 1,950 $ 1,316 $ .04 $ .03
Discontinued operations (33,534) (12,326) 1,639 -- .04 --
----------------------------------------------------------------------------------------------------------------------
$ 98,023 $ 53,135 $ 3,589 $ 1,316 $ .08 $ .03 $18 3/4 $15 3/4 $.22
----------------------------------------------------------------------------------------------------------------------
Second
Previously reported $189,890 $ 96,353 $11,707 $11,707 $ .26 $ .26
Discontinued operations (32,267) (11,463) 660 -- .01 --
----------------------------------------------------------------------------------------------------------------------
$157,623 $ 84,890 $12,367 $11,707 $ .27 $ .26 $19 3/8 $16 7/8 $.22
----------------------------------------------------------------------------------------------------------------------
Third
Previously reported $163,120 $ 81,715 $ 8,511 $ 8,511 $ .18 $ .18
Discontinued operations (24,082) (9,411) 926 -- .03 --
----------------------------------------------------------------------------------------------------------------------
$139,038 $ 72,304 $ 9,437 $ 8,511 $ .21 $ .18 $21 1/4 $17 3/4 $.22
----------------------------------------------------------------------------------------------------------------------
Fourth $270,415 $135,705 $30,473 $28,834 $ .67 $ .64 $21 5/8 $18 7/8 $.22
----------------------------------------------------------------------------------------------------------------------
Total year $665,099 $346,034 $55,866 $50,368 $1.23 $1.11 $21 5/8 $15 3/4 $.88
======================================================================================================================
The quarterly financial data above includes the effects of reclassifying
Jostens Learning and Wicat Systems as discontinued operations.
37
Unaudited Quarterly Financial Data
----------------------------------
Jostens Inc. and Subsidiaries
Earnings (Loss)
Fiscal 1994 Per Share
----------- Income ----------------
(Loss) from Net Net Stock Price Dividends
(Dollars in thousands, Net Gross Continuing Income Continuing Income ------------- Per
except per-share data) Sales Margin Operations (Loss) Operations (Loss) High Low Share
-------------------------------------------------------------------------------------------------------------------
First
Previously reported $148,738 $ 69,431 $ 1,451 $ 2,478 $ .03 $ .05
Discontinued operations (46,787) (14,611) 458 -- .01 --
-------------------------------------------------------------------------------------------------------------------
$101,951 $ 54,820 $ 1,909 $ 2,478 $ .04 $ .05 $20 7/8 $18 $.22
-------------------------------------------------------------------------------------------------------------------
Second
Previously reported $197,968 $ 96,600 $ 5,709 $ 3,872 $ .13 $ .09
Discontinued operations (36,346) (8,851) 5,020 -- .11 --
-------------------------------------------------------------------------------------------------------------------
$161,622 $ 87,749 $ 10,729 $ 3,872 $ .24 $ .09 $20 5/8 $17 1/2 $.22
-------------------------------------------------------------------------------------------------------------------
Third
Previously reported $158,726 $ 75,761 $ (9,247) $ 1,740 $(.20) $ .04
Discontinued operations (32,189) (8,391) 4,126 -- .09 --
-------------------------------------------------------------------------------------------------------------------
$126,537 $ 67,370 $ (5,121) $ 1,740 $(.11) $ .04 $20 $16 5/8 $.22
-------------------------------------------------------------------------------------------------------------------
Fourth
Previously reported $321,906 $159,064 $(24,259) $(24,259) $(.54) $(.54)
Discontinued operations (62,147) (32,889) 44,696 -- .98 --
-------------------------------------------------------------------------------------------------------------------
$259,759 $126,175 $ 20,437 $(24,259) $ .44 $(.54) $17 1/2 $15 1/8 $.22
-------------------------------------------------------------------------------------------------------------------
Total year $649,869 $336,114 $ 27,954 $(16,169) $ .61 $(.36) $20 7/8 $15 1/8 $.88
===================================================================================================================
The quarterly financial data above includes the effects of reclassifying
Jostens Learning and Wicat Systems as discontinued operations. Sportswear was
previously reclassified as a discontinued operation and included a
third-quarter gain of $18.5 million ($11 million after tax). In the third
quarter of fiscal 1994, $16.9 million was recorded for provisions related to
revised estimates of reserves for inventories, receivables and overdrafts.
Restructuring charges totaling $8.5 million from continuing operations and $60.9
million from discontinued operations were recorded in the fourth quarter of
1994.
38
Five-Year Financial Summary
Jostens Inc. and Subsidiaries
(Dollars in millions, except per-share data)
-------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------------------------------------------------
Statement of operations
Net Sales $665.1 $649.9 $634.8 $639.2 $632.1
Cost of products sold 319.1 313.8 310.4 314.0 311.3
Net interest expense .7 5.0 5.7 8.7 10.2
Income taxes 38.0 20.5 10.7 29.8 27.5
Income -- continuing operations 55.9 28.0 8.5 45.2 45.0
Return on sales -- continuing operations 8.4% 4.3% 1.3% 7.1% 7.1%
Net income (loss) 50.4 (16.2) (12.7) 59.2 61.6
Return on investment 19.1% (5.7%) (3.7%) 16.9% 19.6%
-------------------------------------------------------------------------------------
Balance sheet data
Current assets $402.4 $396.1 $401.6 $436.3 $389.4
Working capital 206.3 172.7 185.3 232.2 167.7
Current ratio 2.1 1.8 1.9 2.2 1.8
Property and equipment 184.6 207.6 218.9 207.4 192.3
Total assets 548.0 569.8 613.5 643.3 596.4
Long-term debt 53.9 54.3 54.8 55.5 31.9
Shareholders' investment 270.6 256.6 315.7 364.7 333.6
-------------------------------------------------------------------------------------
Common share data
EPS -- continuing operations $ 1.23 $ .61 $ .19 $ 1.00 $ 1.01
EPS -- net income (loss) 1.11 (.36) (.28) 1.32 1.38
Cash dividends .88 .88 .88 .84 .80
Book value 5.95 5.64 6.95 8.10 7.46
Common shares (in millions) 45.5 45.5 45.4 45.0 44.7
Stock price high 21 5/8 20 7/8 31 1/4 37 3/8 38 5/8
Stock price low 15 3/4 15 1/8 16 1/2 24 1/8 23 1/2
-------------------------------------------------------------------------------------
The financial information above reflects Jostens Learning, Wicat Systems and
Sportswear as discontinued operations. Restructuring charges totaling $8.5
million and $40.2 million were recorded in continuing operations and $60.9
million and $25.4 million in discontinued operations in the fourth quarters of
1994 and 1993, respectively. In 1994, $16.9 million was recorded for provisions
related to revised estimates of reserves for inventories, receivables and
overdrafts. Fiscal 1993 net income reflects the cumulative effect of adopting
SFAS No. 106 of $6.7 million ($4.2 million after tax, or 9 cents per share).
39
Board of Directors
------------------
Lilyan H. Affinito Former Vice Chairman of the Board, Maxxam Group Inc.;
Director, Caterpillar Inc., Chrysler Corp., New York Telephone Co. and New
England Telephone and Telegraph Co., Tambrands Inc., Lillian Vernon Corp.,
Kmart Corp. (Member, Audit Committee, Compensation Committee and Executive
Committee)
William A. Andres Retired Chairman of the Board and Chief Executive
Officer, Dayton Hudson Corp.; Director, International Multifoods, Scott Paper
Co., Lowe's Companies Inc., Hannaford Bros. Co., The St. Paul Companies.
(Member, Audit Committee, Compensation Committee and Executive Committee)
Robert C. Buhrmaster President and Chief Executive Officer, Jostens Inc.;
Director, Marietta Corp. (Member, Executive Committee)
Mannie L. Jackson Majority Owner, Chairman of the Board and Chief Executive
Officer, Harlem Globetrotters International; Former Senior Vice
President-Corporate Marketing and Administration, Honeywell Inc.; Director,
Ashland Oil Corp., Stanley Products, Martech Controls-South Africa. (Member,
Audit Committee and Executive Committee)
Robert P. Jensen Chairman of the Board, Jostens Inc.; Private Investor;
Former Chairman and Chief Executive Officer, GK Technologies Inc., Tiger
International Inc., EF Hutton LBO Inc. (Member, Audit Committee and Executive
Committee)
John W. Stodder Vice Chairman of the Board and Audit Committee Chairman,
Jostens Inc.; Independent Corporate Finance Consultant; Director, Tally
Industries Inc., Stevens International Inc., TransLeasing International Inc.
(Member, Audit Committee, Compensation Committee and Executive Committee)
Corporate Management
--------------------
Robert C. Buhrmaster, 48, President and Chief Executive Officer, an employee
since 1992.
Charles W. Schmid, 52, Executive Vice President and General
Manager-Scholastic and Recognition, an employee since 1994.
Orville E. Fisher Jr., 51, Senior Vice President, General Counsel and
Secretary, an employee since 1975.
John L. Jones, 58, Senior Vice President-Human Resources, an employee since
1992.
Trudy A. Rautio, 42, Senior Vice President and Chief Financial Officer, an
employee since 1993.
G. Nichols Simonds, 56, Senior Vice President and Chief Information Officer,
an employee since 1993.
Jack Thornton, 42, Senior Vice President and General Manager-Printing &
Publishing/Photography/Jostens Canada, an employee since 1978.
Greg S. Lea, 43, Vice President and General Manager-Colleges and Universities,
an employee since 1993.
Guy M. Marsala, 44, Vice President and General Manager-Scholastic, an
employee since 1995.
Lee U. McGrath, 39, Vice President and Treasurer, an employee since 1995.
40
Shareholder Information
-----------------------
Annual Meeting of Shareholders The annual meeting of Jostens shareholders
will be held at 10 a.m. Thursday, October 26, 1995, in the Jostens auditorium,
5501 Norman Center Drive, Minneapolis, Minnesota. All shareholders are invited
to attend.
Shareholder Inquiries Requests for information about Jostens, including
annual and quarterly reports, Form 10-K reports and other company financial
communications, may be directed to: Investor Relations, Jostens Inc., 5501
Norman Center Drive, Minneapolis, Minnesota 55437-1088. Telephone: (612)
830-3398.
Dividend Reinvestment Jostens' automatic dividend reinvestment service is a
convenient way for shareholders to increase their investment in the company.
Approximately 40 percent of Jostens' registered shareholders use this service,
which applies quarterly dividends and optional cash deposits to the purchase of
additional Jostens shares. Shareholders interested in this service can obtain a
brochure by writing the Jostens investor relations department.
Transfer Agent and Registrar Shareholders with questions about
stockholdings, dividend checks, transfer requirements and address changes
should contact: Norwest Bank Minnesota, N.A., 161 North Concord Exchange, P.O.
Box 738, South St. Paul, Minnesota 55075-0738. Telephone: (612) 450-4064
Stock Exchange Listing Jostens common stock is traded on the New York Stock
Exchange (symbol: JOS). There were approximately 9,400 shareholders of record
as of June 30, 1995.
Annual Report of Corporate Responsibility The Jostens Annual Report of
Corporate Responsibility is available by writing: The Jostens Foundation, 5501
Norman Center Drive, Minneapolis, Minnesota 55437-1088.
Facilities
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United States Porterville and Visalia, California; Princeton, Illinois;
Topeka, Kansas; Attleboro, Massachusetts; Burnsville, Edina, Minneapolis,
Owatonna and Red Wing, Minnesota; Webster, New York; Winston-Salem, North
Carolina; State College, Pennsylvania; Laurens, South Carolina; Clarksville,
Memphis and Shelbyville, Tennessee; Denton, Texas; Lindon, Utah.
Canada Winnipeg, Manitoba; Toronto, Ontario; Montreal and Sherbrooke,
Quebec.
United Kingdom Surrey, England.
[Recycled Logo] This report was printed by the Jostens commercial printing
facility in Winston-Salem, North Carolina, on recycled (and recyclable) paper,
50% total recovered fiber, minimum 10% post-consumer fiber.
Star Trek(R) is a trademark of Paramount Pictures Corporation.
For more information
about products and services from
JOSTENS
please contact us. Our address is
5501 Norman Center Drive, Minneapolis, MN 55437,
or you may reach us by calling (612) 830-3300.