<PAGE> 1
UNITED STATES
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 June 30, 1997 Commission file number 7088
----------------- ----
AMERICAN BUSINESS PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1030529
- --------------------------------------------------------------------------------
(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 16,414,904 shares
- ----------------------------- ------------------------------
(Class) (Outstanding at June 30, 1997)
Page 1 of 12
<PAGE> 2
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN BUSINESS PRODUCTS, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997 1996
- --------------------------- ------------ ------------
<S> <C> <C>
NET SALES $ 128,068 $ 157,394
------------ ------------
COST AND EXPENSES
Cost of goods sold 90,585 110,809
Selling and administrative expenses 27,938 35,571
Restructuring and other charges -- 643
------------ ------------
118,523 147,023
------------ ------------
OPERATING INCOME 9,545 10,371
OTHER INCOME (EXPENSE)
Interest expense (1,541) (1,762)
Miscellaneous - net 1,948 1,154
------------ ------------
407 (608)
------------ ------------
INCOME BEFORE INCOME TAXES 9,952 9,763
PROVISION FOR INCOME TAXES 3,882 3,868
------------ ------------
NET INCOME $ 6,070 $ 5,895
============ ============
EARNINGS PER COMMON SHARE $ 0.37 $ 0.36
DIVIDENDS PER COMMON SHARE $ 0.155 $ 0.145
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 16,413,429 16,393,480
<CAPTION>
Six Months Ended June 30, 1997 1996
- ------------------------- ------------ ------------
<S> <C> <C>
NET SALES $ 255,116 $ 314,401
------------ ------------
COST AND EXPENSES
Cost of goods sold 180,392 222,176
Selling and administrative expenses 56,341 70,345
Restructuring and other charges -- 4,301
------------ ------------
236,733 296,822
------------ ------------
OPERATING INCOME 18,383 17,579
OTHER INCOME (EXPENSE)
Interest expense (3,266) (3,678)
Miscellaneous - net 6,654 2,034
------------ ------------
3,388 (1,644)
------------ ------------
INCOME BEFORE INCOME TAXES 21,771 15,935
PROVISION FOR INCOME TAXES 8,326 6,141
------------ ------------
NET INCOME $ 13,445 $ 9,794
============ ============
EARNINGS PER COMMON SHARE $ 0.82 $ 0.60
DIVIDENDS PER COMMON SHARE $ 0.31 $ 0.29
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 16,411,456 16,389,416
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
2
<PAGE> 3
AMERICAN BUSINESS PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 39,749 $ 82,516
Short-term investments 35,537 --
Accounts receivable, less allowances of
$1,910 and $1,885 57,032 60,082
Inventories 34,905 38,911
Other 11,542 12,046
-------- --------
Total Current Assets 178,765 193,555
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 2,998 3,114
Buildings and improvements 42,166 37,476
Machinery, equipment and software 106,850 97,796
Construction in progress 8,149 10,952
-------- --------
160,163 149,338
Less accumulated depreciation 71,314 67,409
-------- --------
88,849 81,929
INTANGIBLE ASSETS FROM ACQUISITIONS
Goodwill, less amortization of $4,523 and $4,077 27,678 28,125
Other, less amortization of $4,771 and $4,586 1,176 1,362
-------- --------
28,854 29,487
DEFERRED INCOME TAXES 13,121 12,987
OTHER ASSETS 20,708 22,533
-------- --------
TOTAL ASSETS $330,297 $340,491
======== ========
CURRENT LIABILITIES
Accounts payable $ 37,343 $ 49,142
Salaries and wages 7,908 11,957
Profit sharing contributions 1,457 3,717
Current maturities of long-term debt 12,046 12,047
-------- --------
Total Current Liabilities 58,754 76,863
LONG-TERM DEBT 54,703 54,958
SUPPLEMENTAL RETIREMENT BENEFITS 17,951 18,492
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS 17,448 17,187
STOCKHOLDERS' EQUITY
Common stock - $2 par value; authorized 50,000,000 shares,
issued 16,633,550 and 16,620,848 shares 33,267 33,242
Additional paid-in capital 6,349 6,118
Retained earnings 144,362 136,003
Foreign currency translation adjustment 615 651
-------- --------
184,593 176,014
Less 218,646 and 213,256 shares of common
stock in treasury - at cost 3,152 3,023
-------- --------
181,441 172,991
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $330,297 $340,491
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
AMERICAN BUSINESS PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 13,445 $ 9,794
Depreciation and amortization 6,813 9,178
Changes in operating working capital (11,292) (4,342)
Other adjustments to reconcile net income
to net cash provided by operating activities (4,794) (1,018)
-------- --------
Net cash provided by operating activities 4,172 13,612
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investment (47,207) --
Proceeds from sale of short-term investments 12,780 --
Decrease in cash value of life insurance 1,891 751
Additions to plant and equipment (13,447) (14,637)
Other 4,259 1,517
-------- --------
Net cash used in investing activities (41,724) (12,369)
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in long-term debt (256) 5,900
Dividends paid (5,086) (4,753)
Other 127 155
-------- --------
Net cash (used in) provided by financing activities (5,215) 1,302
Net (decrease) increase in Cash and Cash Equivalents (42,767) 2,545
Cash and Cash Equivalents at Beginning of Period 82,516 29,023
-------- --------
Cash and Cash Equivalents at End of Period $ 39,749 $ 31,568
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
AMERICAN BUSINESS PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Unaudited Condensed 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 six month periods ended June 30,
1997 and 1996 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.
Reclassifications of certain 1996 amounts have been made to conform
with the 1997 presentation. 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,
1996.
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. New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS No. 128"). This Statement establishes new standards for
computing and presenting earnings per share ("EPS") information. SFAS
No. 128 simplifies the computation of earnings per share currently
required by ABP Opinion No. 15 and its related interpretations. The new
Statement replaces the presentation of "primary" (and when required
"fully diluted") earnings per share with "basic" and "diluted" earnings
per share. This Statement is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods;
earlier application is not permitted. The Company's computation of
basic EPS under SFAS No. 128 for 1997, 1996, and 1995 will not be
materially different than EPS previously reported.
4. Nature of Operations
The Company markets envelope products, business forms, labels and other
supplies for business and industry and, except for business forms,
manufactures such supplies; manufactures and distributes hardcover and
softcover books for the publishing industry; and extrusion coats and
laminates papers, films, and nonwoven fabrics for use in medical,
industrial and consumer packaging applications. The markets for these
products are located principally throughout the continental United
States.
5. Net Income Per Share
Net income per common share is based upon the weighted average number
of shares outstanding during each period: 16,413,429 and 16,393,480 for
the three month periods ended June 30, 1997 and 1996 respectively, and
16,411,456 and 16,389,416 for the six month periods ended June 30, 1997
and 1996 respectively.
5
<PAGE> 6
6. Short-Term Investments
Short-term investments consist of Federal Agency notes with original
maturities at date of purchase of less than one year but greater than
90 days. These investments are readily purchased or sold using
established markets. Such short-term investments are stated at cost
plus accrued income, which approximates fair value.
7. Inventories ($000's)
Inventories consisted of the following at the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Products finished or in process $16,328 $15,825
Raw materials 18,455 22,413
Supplies 122 673
------- -------
Total $34,905 $38,911
======= =======
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
1. Liquidity and Capital Resources
The current ratio increased to 3.0 to 1 at June 30, 1997, from 2.5 to 1
at December 31, 1996.
The Company believes its liquid current assets, internal cash flows and
short term investment balances and, to the extent necessary, external
financing will provide sufficient funds to meet the Company's needs for
the foreseeable future. During the quarter the Company's Credit
Agreement with a bank, under which the Company may borrow to $35.0
million, was extended to April 22, 2000.
2. Results of Operations
Sales during the second quarter and first half of 1997 declined 18.6%
and 18.9%,respectively, versus the same periods in 1996. The decline is
due primarily to the Company's sale, effective December 31, 1996 of the
assets of its former business forms manufacturing business (the "Vanier
Sale").
Cost of goods sold, expressed as a percentage of sales, increased
slightly to 70.7% from 70.4% for the second quarter and remained at
70.7% for the first half compared to the same periods in the prior
year. Selling and administrative expenses decreased to 21.8% of sales
from 22.6% for the second quarter and decreased to 22.1% from 22.4% for
the first half compared to the same periods in the prior year.
6
<PAGE> 7
During the second quarter and first half of 1996 the Company recorded
restructuring charges of $0.6 million and $4.3 million respectively
(before income taxes) related to the Company's plant consolidation
program. While the Company did not record restructuring charges during
the first half of 1997, the final planned plant closing in the
Company's plant consolidation program occurred during the first quarter
of 1997 and costs and processing bottlenecks related to the program had
an adverse impact on the Company's revenues and income during the
second quarter and the first half. Although the Company's plant
consolidation program includes actions intended to reduce these adverse
impacts, to improve customer service, to reduce costs, and to realize
the value of realty rendered redundant by the plant consolidation
program, the timing and magnitude of the effects of these actions is
subject to uncertainty.
Other income increased to $0.4 million for the second quarter from an
expense of $0.6 million and to $3.4 million of income from an expense
of $1.6 million for the first half compared with the same periods in
the prior year. The increases in other income resulted primarily from
increased income from disposals of redundant realty and from
investments.
The effective tax rate decreased to 39.0% from 39.6% for the second
quarter and decreased to 38.2% from 38.5% for the first half compared
to the same periods in the prior year. The decrease is a result of
several factors including the absence of 1996's restructuring charge
which reduced income subject to tax at rates higher than the Company's
effective rate in 1996.
3. Pro Forma Financial Information
The accompanying unaudited pro forma condensed consolidated financial
statements give effect to the Vanier Sale as if the transaction
occurred on December 31, 1995. The pro forma condensed consolidated
financial statements of the Company are presented for informational
purposes only and their inclusion in this report is not intended to
intimate that the pro forma information is a more meaningful indicator
of the results of operations than the Company's reported financial
results. Further, the pro forma information may not reflect the
Company's future results of operations or what the results of
operations of the Company would have been had the Vanier Sale occurred
at the date indicated.
7
<PAGE> 8
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997 1996
- --------------------------- ------------ ------------
<S> <C> <C>
NET SALES $ 128,068 $ 124,507
------------ ------------
COST AND EXPENSES
Cost of goods sold 90,585 87,188
Selling and administrative expenses 27,938 27,775
Restructuring and other charges -- 330
------------ ------------
118,523 115,293
------------ ------------
OPERATING INCOME 9,545 9,214
OTHER INCOME (EXPENSES)
Interest expense (1,541) (1,658)
Miscellaneous-net 1,948 714 (1)
------------ ------------
407 (944)
------------ ------------
INCOME BEFORE INCOME TAXES 9,952 8,270
PROVISION FOR INCOME TAXES 3,882 3,186
------------ ------------
NET INCOME $ 6,070 $ 5,084
============ ============
EARNINGS PER COMMON SHARE $ 0.37 $ 0.31
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 16,413,429 16,393,480
<CAPTION>
Six Months Ended June 30, 1997 1996
- ------------------------- ------------ ------------
<S> <C> <C>
NET SALES $ 255,116 $ 247,877
------------ ------------
COST AND EXPENSES
Cost of goods sold 180,392 174,474
Selling and administrative expenses 56,341 54,612
Restructuring and other charges -- 3,343
------------ ------------
236,733 232,429
------------ ------------
OPERATING INCOME 18,383 15,448
OTHER INCOME (EXPENSES)
Interest expense (3,266) (3,475)
Miscellaneous-net 6,654 1,458 (1)
------------ ------------
3,388 (2,017)
------------ ------------
INCOME BEFORE INCOME TAXES 21,771 13,431
PROVISION FOR INCOME TAXES 8,326 5,096
------------ ------------
NET INCOME $ 13,445 $ 8,335
============ ============
EARNINGS PER COMMON SHARE $ 0.82 $ 0.51
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 16,411,456 16,389,416
</TABLE>
8
<PAGE> 9
(1) Does not include interest income of approximately $526 and
$1,024 for the three and six months ended June 30, 1996,
respectively, which the Company would have received had the
net proceeds of the Vanier Sale been invested in money market
instruments throughout the first and second quarters of 1996.
Results for the first six months of 1997 include after tax gains of
$1.4 million, or $0.09 per share, on the disposal of realty rendered
redundant to operating needs by the Company's plant consolidation
program which commenced in the first quarter of 1996 and concluded with
the final planned plant closing in the first quarter of 1997. Without
the realty gains, the Company would have shown net income of $12.1
million, or $0.74 per share for the first six months.
Actual results for the second quarter of 1996 included an after tax
restructuring charge of $0.4 million or $0.02 per share and an after
tax realty gain of $0.2 million or $0.01 per share, related to the
Company's plant consolidation program. For the first half of 1996, the
restructuring charge was $2.6 million after tax, or $0.16 per share,
and realty gains of $0.2 million after tax or $0.01 per share. Also,
from the Company's former business forms manufacturing business, which
the company sold on December 31, 1996, were revenues of $32.9 and $66.5
million for the second quarter and first six months of 1996,
respectively. After tax contributions for the second quarter and first
half of 1996 (net of interest income that would have been earned had
the sale proceeds instead been invested in money market instruments
throughout the quarter and half) were $0.5 million, or $0.03 per share
and $1.1 million, or $0.07 per share, respectively. Without the
restructuring charge, the related realty gain and the business forms
manufacturing business' revenue and earnings contribution, the second
quarter and first half of 1996 would have shown revenues of $124.5 and
$247.9 million and net income of $5.6 and $11.1 million or earnings per
share of $0.34 and $0.68, respectively.
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 assumes no obligation to update
any such 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. The costs and benefits of the Company's
plant consolidation and order processing redesign programs may vary
from the Company's expectations due to factors such as: the extent of
management's ability to control and ultimately eliminate duplication of
costs, inefficiencies, overheads, and operational bottlenecks
associated with transferring production from closing to continuing
plants; the speed with 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; the Company's ability to implement its order processing
redesign programs within expected time and cost constraints; 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
<PAGE> 10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders
The 1997 Annual Meeting of Shareholders of the Company was held on April 23,
1997, and proxies were solicited under Regulation 14A of the securities Exchange
Act of 1934.
The following nominees for director were elected to serve as director until the
2000 Annual Meeting of Shareholders:
<TABLE>
<CAPTION>
DIRECTOR VOTED FOR WITHELD
-------- --------- -------
<S> <C> <C>
F. Duane Ackerman 14,229,579 57,427
Thomas F. Keller 14,253,665 33,341
Daniel W. McGlaughlin 14,250,068 36,938
</TABLE>
The following directors continued in office as directors after the 1997 Annual
Meeting for the Following terms:
<TABLE>
<CAPTION>
DIRECTORS TERM EXPIRES
--------- ------------
<S> <C>
Thomas R. Carmody 1998
Robert W. Gundeck 1998
Hollis L. Harris 1998
W. Stell Huie 1998
W. Joseph Biggers 1999
Henry Curtis VII 1999
C. Douglas Miller 1999
G. Harold Northrop 1999
</TABLE>
The shareholders also voted upon and approved an amendment to the Company's
Bylaws to provide expanded indemnification to directors and officers.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
14,067,562 147,785 71,659
</TABLE>
Another matter which was voted upon and approved during the 1997 Annual Meeting
was a proposal to ratify the appointment of Deloitte & Touche LLP as independent
accountants of the Company for the 1997 fiscal year.
<TABLE>
<CAPTION>
AFFIRMATIVE NEGATIVE ABSTENTIONS
----------- -------- -----------
<S> <C> <C>
14,171,275 74,499 41,232
</TABLE>
10
<PAGE> 11
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits attached hereto:
NUMBER DESCRIPTION
27 Financial Data Schedules for Second Quarter 1997 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: August 1, 1997 /s/ Richard G. Smith
---------------------
Richard G. Smith
Vice President - Finance
and Chief Financial Officer
(duly authorized officer and
principal financial officer)
11
<PAGE> 12
AMERICAN BUSINESS PRODUCTS, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
27 Financial Data Schedules for Second Quarter 1997 10-Q
(for SEC use only)
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN BUSINESS PRODUCTS, INC. FOR SIX MONTHS ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 39,749
<SECURITIES> 35,537
<RECEIVABLES> 58,942
<ALLOWANCES> 1,910
<INVENTORY> 34,905
<CURRENT-ASSETS> 178,765
<PP&E> 160,163
<DEPRECIATION> 71,314
<TOTAL-ASSETS> 330,297
<CURRENT-LIABILITIES> 58,754
<BONDS> 0
0
0
<COMMON> 33,267
<OTHER-SE> 148,174
<TOTAL-LIABILITY-AND-EQUITY> 330,297
<SALES> 255,116
<TOTAL-REVENUES> 255,116
<CGS> 180,392
<TOTAL-COSTS> 236,733
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,266)
<INCOME-PRETAX> 21,771
<INCOME-TAX> 8,326
<INCOME-CONTINUING> 13,445
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,445
<EPS-PRIMARY> .82
<EPS-DILUTED> 0
</TABLE>
