<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 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
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(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 16,392,643 shares
----------------------------- ----------------------------------
(Class) (Outstanding at March 31, 1996)
Page 1 of 12
Exhibit Index on Page 10
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Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN BUSINESS PRODUCTS, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net Sales $ 157,007 $ 157,384
----------- -----------
Cost of Goods Sold 111,367 110,368
Selling and Administrative Expenses 34,652 34,924
Restructuring Expenses 3,658
----------- -----------
149,677 145,292
----------- -----------
Operating Income 7,330 12,092
Other Income (Expense)
Interest expense -1,916 -2,161
Miscellaneous - net 758 97
----------- -----------
Income Before Income Taxes 6,172 10,028
Provision for Income Taxes 2,273 4,079
----------- -----------
Net Income $ 3,899 $ 5,949
=========== ===========
Earnings per Common Share $ .24 $ .37
Dividends per Common Share $ .145 $ .14
Average Number of Common Shares Outstanding 16,384,612 15,994,224
</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>
March 31, December 31,
1996 1995
-------- ---------
(Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 26,544 $ 29,023
Accounts receivable, less allowances of
$2,820 and $2,837 81,551 85,978
Inventories 49,533 52,715
Other 1,959 1,103
-------- --------
Total Current Assets $159,587 $168,819
Plant and Equipment - At Cost
Land 5,928 5,573
Buildings and improvements 54,017 53,718
Machinery and equipment 135,632 134,412
-------- --------
195,577 193,703
Less accumulated depreciation 105,254 104,709
-------- --------
90,323 88,994
Intangible Assets from Acquisitions
Goodwill, less amortization of $5,066
and $4,657 36,527 36,936
Other, less amortization of $4,769 and $4,671 1,657 1,755
-------- --------
38,184 38,691
Deferred Income Taxes 12,436 12,048
Other Assets 26,896 27,879
-------- --------
$327,426 $336,431
======== ========
Current Liabilities
Accounts payable $ 42,720 $ 45,686
Salaries and wages 10,064 12,839
Profit sharing contributions 1,666 5,924
Income taxes 1,679 2,518
Current maturities of long-term debt 8,151 8,251
-------- --------
Total Current Liabilities 64,280 75,218
Long-Term Debt 61,581 61,761
Supplemental Retirement Benefits 16,991 16,465
Postretirement and Postemployment Benefits 22,024 22,114
Stockholders' Equity
Common stock - $2 par value; authorized
50,000,000 shares, issued 16,600,119 and
16,582,209 shares 33,200 33,164
Additional paid-in capital 5,901 5,701
Retained earnings 125,731 124,459
Foreign currency translation adjustment 616 365
-------- --------
165,448 163,689
Less 207,476 and 204,232 shares of Common
Stock in treasury - at cost 2,898 2,816
-------- --------
162,550 160,873
-------- --------
$327,426 $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 THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 3,899 $ 5,949
Depreciation and amortization 4,250 4,474
Changes in operating working capital -4,185 -10,806
Other adjustments to reconcile net income
to net cash provided by operating activities -121 885
------- -------
Net cash provided by operating activities 3,843 502
Cash Flows Used in Investing Activities
Decrease in cash value of life insurance 1,223 1,274
Additions to plant and equipment -5,366 -4,134
Other 324 3
------- -------
Net cash used in investing activities -3,819 -2,857
Cash Flows Used in Financing Activities
Decrease in long-term debt -281 -422
Dividends paid -2,377 -2,246
Other 155 5
------- -------
Net cash used in financing activities -2,503 -2,663
Net Decrease in Cash and Cash Equivalents -2,479 -5,018
Cash and Cash Equivalents at Beginning of Year 29,023 25,997
------- -------
Cash and Cash Equivalents at End of Period $26,544 $20,979
======= =======
</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 month periods ended March 31, 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.
4. Net Income Per Share
Net income per common share is based upon the weighted average number of
shares outstanding during each period: 16,384,612 and 15,994,224 for the
three month periods ended March 31, 1996 and 1995, respectively.
5
<PAGE> 6
5. Inventories ($000's)
Inventories consisted of the following at the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Products finished or in process $27,325 $27,557
Raw materials 21,576 24,438
Supplies 632 720
------- -------
Total $49,533 $52,715
======= =======
</TABLE>
6. 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.
7. Restructuring Plan
During the first quarter of 1996 the Company announced a restructuring
plan to reduce operating costs. The Company plans to close 13 plants in
1996 and will transfer production to other, larger facilities. As a
result the Company recorded a restructuring charge which reduced net
income by $2.2 million ($.13 per common share) in the quarter. The
pretax components of this charge are as follows (in millions):
<TABLE>
<S> <C>
Severance and employee related costs $2.5
Fixed asset write-down costs 0.8
Other miscellaneous costs 0.4
----
$3.7
====
</TABLE>
The restructuring charge consists of an accrual against which cash
expenditures of $0.9 million were made during the quarter. Personnel
termination benefits included in the charge aggregated $2.3 million and
related to approximately 450 employees, primarily production and
administrative personnel located at the closing plants. Of these, 137
employees' employment terminated in the first quarter of 1996, during
which cash expenditures of $0.3 million were made for personnel
termination benefits. The Company anticipates the restructuring will
reduce its employee numbers by approximately 160 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
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anticipates incurring an estimated $4.4 million (before taxes) in
additional restructuring charges over the remainder of 1996, primarily as
a result of temporary workforce duplication and other 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 March 31, 1996, from 2.2 to 1
at December 31, 1995.
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.
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 first quarter of 1996 were virtually unchanged versus
the same period in 1995, declining by 0.2%.
Cost of goods sold, expressed as a percentage of sales, increased to
70.9% in 1996 from 70.1% in 1995 due primarily to lower absorption of
fixed costs. Selling and administrative expenses were virtually
unchanged versus the prior year, decreasing to 22.1% of sales in 1996
compared to 22.2% in 1995.
During the first quarter of 1996 the Company recorded a restructuring
charge of $3.7 million (before income taxes) which is more fully
discussed under Plant Consolidations below and in Note 7 to the financial
statements in Item 1 of this report.
Other expense decreased to $1.2 million for the first quarter of 1996
from $2.1 million in 1995 due primarily to increased miscellaneous income
in 1996 versus the prior year.
The effective income tax rate for the first quarter of 1996 decreased to
36.8% compared to 40.7% in the first quarter of 1995 as a result of
several factors including
7
<PAGE> 8
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
In February 1996, the Company announced a restructuring plan to reduce
operating costs. The Company plans to close 13 plants in 1996 and
reconfigure business supplies production to a smaller number of larger,
more efficient facilities. The reconfiguration is expected to result in
higher equipment utilization, improved employee productivity and other
scale economies. All planned closings are expected to be completed in
1996.
As a result of the restructuring, the Company expects to record a
restructuring charge of approximately $8.1 million in 1996. Proceeds
from the sale of real estate associated with the plant closings are
expected to be several million dollars higher than the $4.4 million
carrying value of such real estate. Expected gains on disposals of the
real estate will be recognized as each facility is sold.
4. Risks and Uncertainties
Except for historical information contained herein, the matters set
forth in this report 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 the 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 and overheads during the period of transferring
production from closing to continuing 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.
8
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PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits attached hereto:
Number Description
------ -----------
10.1 Executive Compensation Plans and Arrangements:
(a) First Amendment to the Deferred Compensation Plan
for Directors.
27 Financial Data Schedules for First Quarter 1996 10-Q
(for SEC use only)
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: May 9, 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
9
<PAGE> 10
AMERICAN BUSINESS PRODUCTS, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Number Description Page
------ ----------- ----
<S> <C> <C>
10.1 Executive Compensation Plans and Page 11-12
Arrangements
(a) First Amendment to the
Deferred Compensation Plan for
Directors.
27 Financial Data Schedules for First Quarter
1995 10-Q (for SEC use only)
</TABLE>
10
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO
THE AMERICAN BUSINESS PRODUCTS, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
WHEREAS, American Business Products, Inc. (the "Company") previously has
established and is currently maintaining the American Business Products, Inc.
Deferred Compensation Plan for Directors (the "Plan"); and
WHEREAS, paragraph 15 of the Plan grants to the Board of Directors of the
Company (the "Board") the right to amend the Plan at any time so long as the
amendment will not, without the consent of a Participant in the Plan, adversely
affect the Participant's rights with respect to amounts accrued under the Plan
to the date of the amendment; and
WHEREAS, the Board now wishes to amend the Plan as set forth herein;
NOW, THEREFORE, the Board does hereby amend the Plan as follows, effective as
of April 1, 1994:
I.
Paragraph 6 of the Plan is amended to read as follows:
6. Investment of Deferred Compensation. Director Fees deferred under the
plan or under the Former Plan shall be deemed to accrue earnings during the
period of deferral as set forth below:
(a) Earnings Prior to April 1, 1994. Earnings for the period prior to
April 1, 1994, on Director Fees deferred under the terms of the Plan shall be
determined under either the Cash Deferral Program (described in paragraph 9
hereof) or the Phantom Stock Program (described in paragraph 8 hereof), as the
Participant shall elect. All Director Fees deferred in a calendar quarter may
not be invested partially in the Cash Deferral Program and partially in the
Phantom Stock Program. A Participant who elects to invest deferred Director
Fees under one Program may change his election to the other Program prior to
the beginning of any subsequent calendar quarter; provided, the change in
investment options shall apply only with respect to Director Fees payable for
service on the board on and after the first day of the calendar quarter
following the change in election.
(b) Earnings On and After April 1, 1994. Earnings for the period on and
after April 1, 1994, on Director Fees deferred under the terms of the Plan
shall be determined under the Cash Deferral Program.
11
<PAGE> 2
(c) Special Rule for Deferrals Under Former Plan. Notwithstanding the
preceding provisions of this paragraph 6, earnings on all Director Fees which
were deferred under the Former Plan (i.e., prior to July 26, 1989) shall be
determined under the Cash Deferral Program.
II.
All other provisions of the Plan not inconsistent herewith are hereby
confirmed and ratified.
IN WITNESS WHEREOF, the Company has executed this First Amendment, this
4th day of January, 1994.
AMERICAN BUSINESS PRODUCTS, INC.
BY: /s/ Thomas R. Carmody
----------------------------
Thomas R. Carmody
Title: President
---------
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN BUSINESS PRODUCTS, INC. FOR THE QUARTER ENDED
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 26,544
<SECURITIES> 0
<RECEIVABLES> 84,371
<ALLOWANCES> 2,820
<INVENTORY> 49,533
<CURRENT-ASSETS> 159,587
<PP&E> 195,577
<DEPRECIATION> 105,254
<TOTAL-ASSETS> 327,426
<CURRENT-LIABILITIES> 64,280
<BONDS> 0
0
0
<COMMON> 33,200
<OTHER-SE> 129,350
<TOTAL-LIABILITY-AND-EQUITY> 327,426
<SALES> 157,007
<TOTAL-REVENUES> 157,007
<CGS> 111,367
<TOTAL-COSTS> 146,019
<OTHER-EXPENSES> 2,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,916
<INCOME-PRETAX> 6,172
<INCOME-TAX> 2,273
<INCOME-CONTINUING> 3,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,899
<EPS-PRIMARY> .24
<EPS-DILUTED> 0
</TABLE>
