<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1996 Commission file number 17088
-------------------- -----
AMERICAN BUSINESS PRODUCTS, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1030529
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(State of Incorporation) (IRS Employer
Identification No.
2100 RiverEdge Parkway, Suite 1200, Atlanta, Georgia 30328
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 953-8300
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Common Stock, $2.00 par value 16,402,159 shares
----------------------------- -----------------------------------
(Class) (Outstanding at September 30, 1996)
Page 1 of 11
Exhibit Index on Page 11
1
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Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN BUSINESS PRODUCTS, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1996 1995
- -------------------------------- ---- ----
<S> <C> <C>
Net Sales $157,993 $157,169
-------- --------
Cost of Goods Sold 109,856 110,901
Selling and Administrative Expenses 35,686 34,309
Restructuring Expenses 1,498
-------- --------
147,040 145,210
-------- --------
Operating Income 10,953 11,959
Other Income (Expense)
Interest expense (1,774) (2,116)
Miscellaneous - net 1,471 269
-------- --------
(303) (1,847)
-------- --------
Income Before Income Taxes 10,650 10,112
Provision for Income Taxes 4,271 4,093
-------- --------
Net Income $ 6,379 $ 6,019
======== ========
Earnings per Common Share $ .39 $ .37
Dividends per Common Share $ .145 $ .14
Weighted Average Number of Common
Shares Outstanding 16,399,943 16,361,655
Nine Months Ended September 30, 1996 1995
- ------------------------------- ---- ----
Net Sales $472,394 $470,978
-------- --------
Cost of Goods Sold 332,032 331,733
Selling and Administrative Expenses 105,736 103,668
Restructuring Expenses 5,799
-------- --------
443,567 435,401
-------- --------
Operating Income 28,827 35,577
Other Income (Expense)
Interest expense (5,452) (6,474)
Miscellaneous - net 3,210 886
-------- --------
(2,242) (5,588)
-------- --------
Income Before Income Taxes 26,585 29,989
Provision for Income Taxes 10,412 12,084
-------- --------
Net Income $ 16,173 $ 17,905
======== ========
Earnings per Common Share $ .99 $ 1.11
Dividends per Common Share $ .435 $ .42
Weighted Average Number of Common
Shares Outstanding 16,392,705 16,137,287
</TABLE>
See accompanying notes to the condensed consolidated financial statements
2
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AMERICAN BUSINESS PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 41,012 $ 29,023
Accounts receivable, less allowances of
$2,363 and $2,837 78,568 85,978
Inventories 47,610 52,715
Other 4,573 1,103
-------- --------
Total Current Assets 171,763 168,819
Plant And Equipment - At Cost
Land 5,704 5,573
Buildings and improvements 59,537 53,718
Machinery and equipment 137,612 134,412
-------- --------
202,853 193,703
Less accumulated depreciation 107,490 104,709
-------- --------
95,363 88,994
Intangible Assets From Acquisitions
Goodwill, less amortization of $5,860
and $4,657 35,562 36,936
Other, less amortization of $4,965 and $4,671 1,461 1,755
-------- --------
37,023 38,691
Deferred Income Taxes 13,212 12,048
Other Assets 29,980 27,879
-------- --------
$347,341 $336,431
======== ========
Current Liabilities
Accounts payable $ 46,204 $ 45,686
Salaries and wages 12,440 12,839
Profit sharing contributions 5,075 5,924
Income taxes -0- 2,518
Current maturities of long-term debt 5,508 8,251
-------- --------
Total Current Liabilities 69,227 75,218
Long-Term Debt 67,743 61,761
Supplemental Retirement Benefits 17,942 16,465
Postretirement and Postemployment Benefits 22,014 22,114
Stockholders' Equity
Common stock - $2 par value; authorized
50,000,000 shares, issued 16,612,185 and
16,582,209 shares 33,224 33,164
Additional paid-in capital 6,025 5,701
Retained earnings 133,501 124,459
Foreign currency translation adjustment 616 365
-------- --------
173,366 163,689
Less 210,026 and 204,232 shares of Common
Stock in treasury - at cost 2,951 2,816
-------- --------
170,415 160,873
-------- --------
$347,341 $336,431
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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AMERICAN BUSINESS PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net income $16,173 $17,905
Depreciation and amortization 12,804 13,183
Changes in operating working capital 5,797 (14,352)
Other adjustments to reconcile net income
to net cash provided by operating activities (3,304) 1,001
------- ------
Net cash provided by operating activities 31,470 17,737
Cash Flows Used in Investing Activities
Acquisitions, net of cash acquired (9,357)
(Increase) decrease in cash value of life insurance (214) 383
Additions to plant and equipment (19,333) (10,470)
Other 3,709 847
------- -------
Net cash used in investing activities (15,838) (18,597)
Cash Flows Used in Financing Activities
Increase (decrease) in long-term debt 3,239 (8,693)
Dividends paid (7,131) (6,792)
Other 249 6,669
------- -------
Net cash used in financing activities (3,643) (8,816)
Net Increase (Decrease) in Cash and Cash Equivalents 11,989 (9,676)
Cash and Cash Equivalents at Beginning of Year 29,023 25,997
------- -------
Cash and Cash Equivalents at End of Period $41,012 $16,319
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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AMERICAN BUSINESS PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Unaudited Consolidated Financial Statements
The condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles which in certain
instances require the use of management's estimates. The information
contained in these condensed consolidated financial statements and notes
for the three and nine month periods ended September 30, 1996 and 1995 is
unaudited but, in the opinion of management, all adjustments necessary
for a fair presentation of such information have been made. All such
adjustments are of a normal recurring nature. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
omitted pursuant to applicable rules and regulations of the Securities
and Exchange Commission. The condensed consolidated financial statements
included herein should be read in conjunction with the audited financial
statements and notes thereto contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
2. Consolidation Policy
The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries, all of which are wholly-owned.
Intercompany balances and transactions have been eliminated.
3. Nature of Operations
The Company manufactures and markets envelope products, business forms,
labels and other supplies for business and industry; manufactures and
distributes hardcover and softcover books for the publishing industry;
and markets extrusion coating and laminating of papers, films, and
nonwoven fabrics for use in medical, industrial and consumer packaging.
The markets for these products are located principally throughout the
continental United States.
5
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4. Inventories ($000's)
Inventories consisted of the following at the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C> <C>
Products finished or in process $26,281 $ 27,557
Raw materials 20,640 24,438
Supplies 689 720
------- -------
Total $47,610 $52,715
======= =======
</TABLE>
5. Credit Facility
The Company has entered into an unsecured committed revolving credit
agreement with a bank under which the Company may borrow up to $35
million through April 22, 1999. The agreement provides for borrowing at
rates related to prime and Eurocurrency rates. Currently, the Company
has no outstanding borrowings under the credit agreement. The Company
has borrowed approximately $6.5 million through a variable interest rate
industrial revenue bond due May 1, 2031. The bond is supported by the
bank's letter of credit which commensurately reduces the balance
available to the Company under the credit agreement.
6. Restructuring Plan
To reduce operating costs the Company plans to close 14 plants and
transfer production to other, larger facilities. As of September 30,
1996, the Company had closed 12 of these plants. A 13th plant is planned
to be closed in the fourth quarter of 1996 and the 14th plant in either
the fourth quarter of 1996 or the first quarter of 1997. As a result of
the planned plant closings the Company recorded a restructuring charge
which had an after tax effect of $0.9 million ($.05 per common share) in
the third quarter and $3.4 million ($.21 per common share) during the
first three quarters of 1996. The pretax components of this charge for
the first three quarters are as follows (in millions):
<TABLE>
<S> <C>
Severance and employee related costs $4.1
Fixed asset write-down costs 0.8
Other miscellaneous costs 0.9
----
$5.8
====
</TABLE>
Cash expenditures of $4.4 million were made against the restructuring
accrual during the first three quarters. Severance costs relates to
approximately 487 employees, primarily production and administrative
personnel located at the closing plants. Of these, 448 employees'
employment terminated in the first three quarters of 1996, during which
cash expenditures of
6
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$1.7 million were made for severance related benefits. The Company
anticipates the restructuring will reduce its employee numbers by
approximately 246 persons net of new employee hiring at plants where
production will continue.
The Company's restructuring plan will continue to be implemented during
the remainder of 1996 and the Company anticipates incurring an estimated
$1.2 million (before taxes) in additional restructuring expenses over the
remainder of 1996, primarily as a result of incremental employee costs of
transferring production from closing to continuing plants.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
1. Liquidity and Capital Resources
The current ratio increased to 2.5 to 1 at September 30, 1996, from 2.2
to 1 at December 31, 1995.
As more fully described in Note 5 to the Financial Statements in Item 1
of this report, the Company has entered into a revolving credit agreement
with a bank and has borrowed funds through an industrial revenue bond.
The Company believes its internal cash flows and, to the extent
necessary, external financing will provide sufficient funds to meet the
Company's needs for the foreseeable future.
2. Results of Operations
Sales during the third quarter and first three quarters of 1996 were
virtually unchanged versus the same periods in 1995, increasing by 0.5%
for the third quarter and 0.3% for the first three quarters.
Cost of goods sold, expressed as a percentage of sales, decreased to
69.5% from 70.6% for the third quarter and decreased slightly to 70.3%
from 70.4% for the first three quarters compared to the same periods in
the prior year. Selling and administrative expenses increased to 22.6%
of sales from 21.8% for the third quarter and increased to 22.4% from
22.0% for the first three quarters compared to the same periods in the
prior year.
7
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The Company recorded a restructuring charge of $1.5 million (before
income taxes) in the third quarter and $5.8 million for the first three
quarters, which is more fully discussed under Plant Consolidations below
and in Note 6 to the financial statements in Item 1 of this report.
Other expense decreased to $0.3 million from $1.8 million for the third
quarter and to $2.2 million from $5.6 million for the first three
quarters compared with the same periods in the prior year. The decreases
were due both to lower interest expense and increased miscellaneous
income. The increased miscellaneous income is due primarily to profits
recognized upon disposal of real property rendered redudant by the
Company's plant consolidation program, as more fully discussed under
Plant Consolidations below.
The effective income tax rate decreased to 40.1% from 40.5% for the third
quarter and decreased to 39.2% from 40.3% for the first three quarters
compared to the same periods in the prior year as a result of several
factors including, principally in the first quarter of 1996, increased
levels of non-taxable income, decreased provisions for state income
taxes, and the restructuring charge which reduced income subject to tax
at rates higher than the Company's effective rate.
3. Plant Consolidations
To reduce operating costs, the Company plans to close 14 plants and
reconfigure business supplies production to a smaller number of larger,
more efficient facilities. The Company's plan is discussed in Note 6 to
the Financial Statements in Item 1 of this report. The reconfiguration
is expected to result in higher equipment utilization, improved employee
productivity and other scale economies.
As a result of the restructuring, the Company expects to record a
restructuring charge of approximately $7.0 million (before taxes) in
1996. Proceeds from the sale of real estate associated with the plant
closings are expected to be several million dollars higher than the $5.5
million carrying value of such real estate. The Company recorded gains
upon disposal of a portion of such real estate of $1.1 million, (before
taxes) in the third quarter and $1.4 million, (before taxes) in the first
three quarters of 1996. Further expected gains on disposals of the
remaining redundant real estate will be recognized as the facilities are
sold.
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4. Risks and Uncertainties
Except for historical information contained herein, the matters set forth
in this report including statements regarding the Company's expectations,
hopes, intentions or strategies regarding the future, are forward looking
statements that involve certain risks and uncertainties that could cause
actual results to differ materially from those in the forward looking
statements. The Company's expectations respecting future sales and
profits assume, among other things, reasonable continued growth in the
general economy which affects demand for the Company's products, and
reasonable stability in raw materials pricing, changes in which affect
customer purchasing decisions as well as the Company's prices and
margins. The costs and benefits of the Company's plant consolidation plan
and a related redesign of order processing may vary from the Company's
expectations due to various factors such as: higher or lower than
anticipated rates of relocation or resignation of employees who otherwise
would receive termination payments; the extent of management's ability to
control duplication of costs, inefficiencies, overheads and operational
bottlenecks during the period of transferring production from closing to
continuing plants; the speed at which requisite numbers of new employees
can be hired, trained and deployed productively at the Company's new and
enlarged continuing manufacturing plants; sale prices realized upon
future disposal of redundant assets, particularly real property which is
subject to future supply and demand conditions in various local real
estate markets; and the difficulties inherent in forecasting the
operating results of an operating mode different from that which exists
at the time the forecast is made.
9
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Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits attached hereto:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27 Financial Data Schedules for Third Quarter
1996 10-Q (for SEC use only)
</TABLE>
b. Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN BUSINESS PRODUCTS, INC.
--------------------------------
(Registrant)
DATE: November 8, 1996 /s/ Richard G. Smith
-------------------------------------
Richard G. Smith
Vice President-Finance
and Chief Financial Officer
/s/ Michael C. Deniken
------------------------------------
Michael C. Deniken
Treasurer and
Chief Accounting Officer
10
<PAGE> 11
AMERICAN BUSINESS PRODUCTS, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Number Description
- ----- -----------
<S> <C>
27 Financial Data Schedules for Third Quarter
1996 10-Q (for SEC use only)
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN BUSINESS PRODUCTS, INC. FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 41,012
<SECURITIES> 0
<RECEIVABLES> 80,931
<ALLOWANCES> 2,363
<INVENTORY> 47,610
<CURRENT-ASSETS> 171,763
<PP&E> 202,853
<DEPRECIATION> 107,490
<TOTAL-ASSETS> 347,341
<CURRENT-LIABILITIES> 69,227
<BONDS> 0
0
0
<COMMON> 33,224
<OTHER-SE> 137,191
<TOTAL-LIABILITY-AND-EQUITY> 347,341
<SALES> 472,394
<TOTAL-REVENUES> 472,394
<CGS> 332,032
<TOTAL-COSTS> 437,768
<OTHER-EXPENSES> 2,589
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,452
<INCOME-PRETAX> 26,585
<INCOME-TAX> 10,412
<INCOME-CONTINUING> 16,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,173
<EPS-PRIMARY> .99
<EPS-DILUTED> 0
</TABLE>
