PAGE
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-11902
GIBSON GREETINGS, INC.
Incorporated under the laws IRS Employer
of the State of Delaware Identification No. 52-1242761
2100 Section Road, Cincinnati, Ohio 45237
Telephone Number: Area Code 513-841-6600
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 [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 16,089,829
shares of common stock, par value $.01, outstanding at May 8, 1995.
PAGE
<PAGE>
Part I., Item 1, Financial Statements
<TABLE>
GIBSON GREETINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
(Unaudited)
<CAPTION>
Restated
March 31, December 31, March 31,
1995 1994 1994
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ - $ 2,000 $ 30,199
Trade receivables, net 59,219 197,799 60,457
Inventories 153,888 127,460 156,592
Prepaid expenses 6,160 5,719 5,578
Prepaid income taxes - - 3,009
Deferred income taxes 47,509 48,775 34,949
--------- --------- ---------
Total current assets 266,776 381,753 290,784
PLANT AND EQUIPMENT, net 116,230 119,491 117,591
NOTES RECEIVABLE, net 110 301 1,126
DEFERRED INCOME TAXES 8,653 8,080 -
OTHER ASSETS, net 99,103 102,570 83,314
--------- --------- ---------
$ 490,872 $ 612,195 $ 492,815
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Debt due within one year $ 22,750 $ 117,114 $ 4,004
Accounts payable 17,174 21,779 18,454
Income taxes payable 3,183 4,742 -
Other current liabilities 67,678 86,990 52,709
--------- --------- ---------
Total current liabilities 110,785 230,625 75,167
DEFERRED INCOME TAXES - - 486
LONG-TERM DEBT 61,718 63,233 72,936
SALES AGREEMENT PAYMENTS DUE
AFTER ONE YEAR 20,598 21,107 9,467
OTHER LIABILITIES 20,585 19,730 33,715
--------- --------- ---------
Total liabilities 213,686 334,695 191,771
--------- --------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00;
5,000,000 shares authorized,
none issued - - -
Preferred stock, Series A, par
value $1.00; 300,000 shares
authorized, none issued - - -
Common stock, par value $.01;
50,000,000 shares authorized,
16,579,530, 16,579,530 and
16,561,530 shares issued, respectively 166 166 166
Paid-in capital 46,011 45,992 45,703
Retained earnings 238,553 238,282 260,871
Foreign currency adjustment (1,598) (1,000) 200
--------- --------- ---------
283,132 283,440 306,940
Less treasury stock, at cost,
489,701, 483,701 and 481,344
shares, respectively 5,946 5,940 5,896
--------- --------- ---------
Total stockholders' equity 277,186 277,500 301,044
--------- --------- ---------
$ 490,872 $ 612,195 $ 492,815
========= ========= =========
</TABLE>
[FN]
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
<TABLE>
GIBSON GREETINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
----------------------
Restated
1995 1994
--------- ---------
<S> <C> <C>
REVENUES $ 100,287 $ 93,429
COSTS AND EXPENSES:
Operating expenses:
Cost of products sold 39,168 36,028
Selling, distribution and
administrative expenses 56,774 57,852
--------- ---------
Total operating expenses 95,942 93,880
--------- ---------
OPERATING INCOME (LOSS) 4,345 (451)
Financing and derivative transaction expenses:
Interest expense, net of capitalized interest 3,131 1,974
Interest income (86) (321)
Loss on derivative transactions - 8,974
--------- ---------
Total financing and derivative
transaction expenses, net 3,045 10,267
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 1,300 (11,078)
Income taxes 1,029 (235)
--------- ---------
NET INCOME (LOSS) $ 271 $ (10,843)
========= =========
Net income (loss) per share $ .02 $ (.67)
========= =========
Dividends per share $ - $ .10
========= =========
</TABLE>
[FN]
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
<TABLE>
GIBSON GREETINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
----------------------
Restated
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 271 $ (10,843)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and write-down of display fixtures 5,865 5,670
Loss on disposal of plant and equipment 1,093 514
Loss on derivative transactions - 8,974
Deferred income taxes 693 3,187
Amortization and write-down of deferred
costs and other intangibles 5,652 5,249
Change in assets and liabilities:
Decrease in trade receivables, net 138,580 131,706
Increase (decrease) in inventories (26,428) (31,454)
Increase in prepaid expenses (441) (1,371)
Increase in prepaid income taxes - (3,009)
(Increase) decrease in notes receivable, net 191 (1,126)
Increase in other assets, net of amortization (2,185) (1,639)
Decrease in accounts payable (4,605) (381)
Decrease in income taxes payable (1,559) (13,071)
Decrease in other current liabilities (19,312) (7,770)
Increase in other liabilities 346 7,783
All other, net (358) 10
--------- ---------
Total adjustments 97,532 110,749
--------- ---------
Net cash provided by operating activities 97,803 92,429
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (4,026) (7,005)
Proceeds from sale of plant and equipment 97 37
--------- ---------
Net cash used in investing activities (3,929) (6,968)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term borrowings (94,450) (62,270)
Payments on long-term debt (1,437) (1,350)
Issuance of common stock 19 495
Acquisition of common stock for treasury (6) (8)
Dividends paid - (1,606)
--------- ---------
Net cash used in financing activities (95,874) (64,739)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (2,000) 20,722
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 2,000 9,477
--------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD $ - $ 30,199
========= =========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest, net of amounts capitalized $ 1,856 $ 929
Income taxes 1,895 12,632
</TABLE>
[FN]
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
GIBSON GREETINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1995 and 1994
(Amounts in thousands)
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include
the accounts of Gibson Greetings, Inc. and its subsidiaries (the Company).
Intercompany transactions and balances have been eliminated in consolidation.
The unaudited condensed consolidated financial statements have been prepared
in accordance with Article 10-01 of Regulation S-X of the Securities and
Exchange Commission and, as such, do not include all information required by
generally accepted accounting principles. However, in the opinion of the
Company, these financial statements contain all adjustments, consisting of
only normal recurring adjustments, necessary to present fairly the financial
position as of March 31, 1995, December 31, 1994 and March 31, 1994, the
results of its operations for the three months ended March 31, 1995 and 1994
and its cash flows for the three months ended March 31, 1995 and 1994.
The Company suggests that these financial statements be read in conjunction
with the consolidated financial statements and notes included in the Company's
1994 Annual Report on Form 10-K.
Interest rate swap and derivative transactions that do not qualify as hedges
are recorded at their fair market value which is the estimated amount that the
Company would receive or pay to terminate the transactions at the reporting
date.
In an institution and settlement of administrative proceedings dated December
22, 1994 against Bankers Trust (the Bankers Trust Order), the SEC alleged that
Bankers Trust misled the Company about the value of the Company's derivative
positions by providing the Company with fair values that were significantly
different from the values determined by Bankers Trust's computer model and
recorded on Bankers Trust's financial records, which difference resulted in a
significant understatement of the magnitude of the Company's fiscal year 1993
losses. In late March 1995, the SEC advised the Company that it believed that
the Company should restate its 1993 consolidated financial statements.
The Company has restated the 1993 year-end consolidated financial statements
to reflect derivative values based on Bankers Trust's computer model as set
forth in the Bankers Trust Order. Such restatement resulted in a $4,571
reduction in previously reported 1993 consolidated net income and a
corresponding decrease in 1994 consolidated net loss. This restatement, which
was reflected in the accompanying Condensed Consolidated Financial Statements,
reduced the previously reported net loss for the first quarter of 1994 by
$7,477 or $.46 per share.
As a result of the Third Party Complaint against the Company's former auditors
discussed in Note 7, the former auditors are unable to update their report on
the 1993 consolidated financial statements for the effects of the restatement
referred to in the preceding paragraphs. The Company's current auditors are
in the process of auditing the 1993 statements. Covenants contained in the
Company's debt agreement require the Company to deliver to its lenders audited
comparative 1994 and 1993 consolidated financial statements by April 30, 1995.
The Company has obtained waivers dated April 25 and 28, 1995 from the lenders
extending the delivery of required financial statements until June 8, 1995.
PAGE
<PAGE>
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the 1995 presentation.
Note 2 - Seasonal Nature of Business
Because of the seasonal nature of the Company's business, results of
operations for interim periods are not necessarily indicative of results for
the full year.
Note 3 - Trade Receivables
Trade receivables consist of the following:
March 31, December 31, March 31,
1995 1994 1994
--------- --------- ---------
Trade receivables $ 116,373 $ 265,194 $ 105,480
Less reserve for returns,
allowances, cash discounts
and doubtful accounts 57,154 67,395 45,023
--------- --------- ---------
$ 59,219 $ 197,799 $ 60,457
========= ========= =========
Note 4 - Inventories
Inventories consist of the following:
March 31, December 31, March 31,
1995 1994 1994
--------- --------- ---------
Finished goods $ 92,451 $ 73,881 $ 95,227
Work-in-process 16,879 15,623 13,845
Raw materials and supplies 44,558 37,956 47,520
--------- --------- ---------
$ 153,888 $ 127,460 $ 156,592
========= ========= =========
Note 5 - Interest Expense
There was no capitalized interest for the three months ended March 31, 1995
and 1994.
PAGE
<PAGE>
Note 6 - Net Income (Loss) Per Share
The weighted average number of shares of common stock and equivalents
outstanding used in computing net income (loss) per share is as follows:
1995 1994
---------- ----------
Three months ended March 31, 16,090 16,198
========== ==========
Note 7 - Legal Matters
In July 1994, immediately following the Company's announcement of an inventory
misstatement at the Company's subsidiary Cleo, Inc. ("Cleo"), which resulted
in an overstatement of the Company's previously reported 1993 consolidated net
income, five purported class actions were commenced by certain stockholders.
These suits were consolidated and a Consolidated Amended Class Action
Complaint against the Company, its Chairman, President and Chief Executive
Officer, its Chief Financial Officer and the former President and Chief
Executive Officer of Cleo was filed in October 1994 in the United States
District Court for the Southern District of Ohio (In Re Gibson Securities
Litigation). In December 1994 the Court ruled that neither of the two named
plaintiffs qualified as a class representative. Plaintiffs have filed an
Amended Complaint naming a proposed substitute class representative. Like its
predecessors in this litigation, the most recent complaint alleges violations
of the federal securities laws and seeks unspecified damages for an asserted
public disclosure of false information regarding the Company's earnings. The
Company intends to defend the suit vigorously and has filed an Answer denying
any wrongdoing, a Third Party Complaint against its former auditor for
contribution against any judgement adverse to the Company and a motion to
dismiss one count of the Complaint.
On April 10, 1995, two purported class action lawsuits were commenced against
the Company, its Chairman, President and Chief Executive Officer and its Chief
Financial Officer in the United States District Court for the Southern
District of Ohio (Kurtz v. Gibson Greetings, Inc., et al. and Romine v. Gibson
Greetings, Inc., et al.) The Complaints allege violations of the federal
securities law for an asserted failure to disclose allegedly material
information regarding the Company's financial performance. The Company
intends to defend the suits vigorously.
The litigation described above is in early stages of proceedings.
Accordingly, management is unable to predict their likely effect upon the
Company's net worth, total cash flows or operating results.
The SEC is conducting a private investigation to determine whether the Company
or certain former officers engaged in conduct in violation of certain
provisions of the Securities Exchange Act of 1934 and the rules and
regulations thereunder. The investigation is focused on the Company's
derivative transactions and its public statements and accounting with respect
thereto. The Company is cooperating in such investigation.
PAGE
<PAGE>
In 1989, unfair labor practice charges were filed against the Company as an
outgrowth of a strike at its Berea, Kentucky facility. Remedies sought
include back pay from August 8, 1989 and reinstatement of employment for
approximately 200 employees. In February 1990, the General Counsel of the
National Labor Relations Board (NLRB) issued a complaint based on certain of
the allegations of these charges (In the Matter of Gibson Greetings, Inc. and
International Brotherhood of Firemen and Oilers, AFL-CIO Cases 9-CA-26706,
27660, 26875). On December 18, 1991, an Administrative Law Judge of the NLRB
issued a recommended order, which included reinstatements and back pay
affecting approximately 160 strikers, based on findings that the Company had
violated certain provisions of the National Labor Relations Act. On May 7,
1993, the NLRB upheld the Administrative Law Judge's decision in some
respects, and enlarged the number of strikers entitled to back pay to
approximately 240. An appeal was filed in the United States Court of Appeals
for the District of Columbia Circuit. The Company believes it has substantial
defenses to the charges, and these defenses were presented in briefs and in
appellate oral argument which was heard on September 14, 1994. A decision is
expected in 1995. Management does not believe that an adverse outcome as to
this matter would have a material adverse effect on the Company's net worth or
total cash flows; however, the impact on the statement of operations in a
given year could be material.
In addition, the Company is a defendant in certain other routine litigation
which is not expected to result in a material adverse effect on the Company's
net worth, total cash flows or operating results.
PAGE
<PAGE>
Part I., Item 2., Management's Discussion and Analysis of Results of
Operations and Financial Condition
Three Months Ended March 31, 1995 and 1994 Revenues increased 7.3% to $100.3
million in the first quarter of 1995 from $93.4 million in the first quarter
of 1994. This increase reflects higher sales of domestic and international
greeting cards combined with higher retail sales by The Paper Factory of
Wisconsin, Inc. (The Paper Factory). Returns and allowances were 21.5% of
sales for the three months ended March 31, 1995 compared to 21.3% for the same
period in 1994. This increase reflects the continuing strong competitive
pressures within the industry. Operating expenses totaled $95.9 million in
the first quarter of 1995 representing a 2.2% increase over the corresponding
quarter in 1994. Cost of products sold, as a percent of revenues, increased
due to the sales mix of product as well as liquidation of certain inventory by
Cleo, Inc. (Cleo). Selling, distribution and administrative expenses
decreased in 1995 over 1994 as a result of cost reduction programs implemented
at the Card Division and Cleo which were partially offset by higher expenses
at The Paper Factory associated with an increase in the number of stores from
a year ago. Cleo continued to operate at a pretax loss.
Interest expense, net reflected higher average short-term borrowings in the
first quarter of 1995 compared to the same quarter in 1994 combined with
higher short-term interest rates. Additionally, the decline in interest
income reflects lower average investment levels partially offset by higher
interest rates.
Income before income taxes of $1.3 million in the first quarter of 1995
compared with a loss before income taxes of $11.1 million in the same quarter
of 1994. The first quarter 1994 results included an unrealized loss of $9.0
million on two derivative transactions which were subsequently settled in late
1994.
While certain previously implemented cost cutting and other initiatives
continue to have a positive impact on the Company's performance going forward,
management expects to incur a modest loss for the second quarter and first
half of 1995. The Company continues to face strong competitive pressures with
regard to pricing and other terms of sale.
As previously announced, the Company has engaged CS First Boston to develop
strategies for noncore assets. Initially, the Company has decided to identify
prospective buyers for Cleo. The implementation of any such strategies could
result in a substantial charge to 1995 results.
Liquidity and Capital Resources Cash flows from operating activities for the
first three months of 1995 provided $97.8 million in cash compared to $92.4
million for the same period in 1994. The increase from 1994 reflected
increased collection of trade receivable balances outstanding at year end
combined with lower inventory levels. Included in 1994 was a non-cash charge
of $9.0 million related to unrealized losses on derivative transactions.
Cash used in investing activities for plant and equipment purchases in 1995
was $3.9 million compared to $7.0 million in 1994. Capital expenditures for
1995 are expected to be lower than those in 1994.
PAGE
<PAGE>
Cash used in financing activities in the first quarter of 1995 was $95.9
million compared to $64.7 million in 1994. The increase reflects the
repayment of higher short-term borrowing levels at December 31, 1994 compared
to December 31, 1993.
Management believes that its cash flows from operations and credit sources
will provide adequate funds, both on a short-term and on a long-term basis,
for currently foreseeable debt payments, lease commitments and payments under
existing customer agreements, as well as for financing existing operations,
currently projected capital expenditures, anticipated long-term sales
agreements consistent with industry trends and other contingencies. See Part
II, Item 1.
PAGE
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The information presented in Note 7 of Notes to Condensed Consolidated
Financial Statements (Part I, Item 1) is incorporated by reference in response
to this Item.
Item 2. Changes In Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K None
PAGE
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Gibson
Greetings, Inc. has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GIBSON GREETINGS, INC.
Date May 15, 1995
By:/s/ William L. Flaherty
------------------------
William L. Flaherty
Vice President-Finance
Principal Financial
and Accounting Officer
PAGE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 116373
<ALLOWANCES> 57154
<INVENTORY> 153888
<CURRENT-ASSETS> 266776
<PP&E> 116230
<DEPRECIATION> 5865
<TOTAL-ASSETS> 490872
<CURRENT-LIABILITIES> 110785
<BONDS> 0
<COMMON> 166
0
0
<OTHER-SE> 277020
<TOTAL-LIABILITY-AND-EQUITY> 490872
<SALES> 110287
<TOTAL-REVENUES> 110287
<CGS> 39168
<TOTAL-COSTS> 95942
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3131
<INCOME-PRETAX> 1300
<INCOME-TAX> 1029
<INCOME-CONTINUING> 271
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 271
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
