PAGE
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
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 June 12, 1995.
PAGE
<PAGE>
<TABLE>
Part I., Item 1, Financial Statements
GIBSON GREETINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
(Unaudited)
<CAPTION>
Restated
-------------------------------------
June 30, December 31, June 30,
1994 1993 1993
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 5,957 $ 9,477 $ 15,234
Trade receivables, net 50,584 192,163 34,365
Inventories 192,427 125,138 185,527
Prepaid expenses 5,814 4,207 4,675
Prepaid income taxes 8,702 - -
Deferred income taxes 36,333 36,796 29,255
--------- --------- ---------
Total current assets 299,817 367,781 269,056
--------- --------- ---------
PLANT AND EQUIPMENT, net 122,087 116,900 118,117
NOTES RECEIVABLE, net 1,075 - -
OTHER ASSETS, net 85,553 86,924 79,722
--------- --------- ---------
$ 508,532 $ 571,605 $ 466,895
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Debt due within one year $ 33,102 $ 66,187 $ 1,887
Accounts payable 22,512 18,835 17,553
Income taxes payable - 13,071 177
Other current liabilities 70,682 60,479 47,278
--------- --------- ---------
Total current liabilities 126,296 158,572 66,895
--------- --------- ---------
DEFERRED INCOME TAXES 423 (854) 1,365
LONG-TERM DEBT 63,695 74,365 76,835
OTHER LIABILITIES 35,352 26,425 19,311
--------- --------- ---------
Total liabilities 225,766 258,508 164,406
--------- --------- ---------
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, 16,533,267 and
16,508,469 shares issued,
respectively 166 165 165
Paid-in capital 46,019 45,209 44,615
Retained earnings 242,328 273,320 263,232
Foreign currency adjustment 193 291 365
--------- --------- ---------
288,706 318,985 308,377
Less treasury stock, at cost,
483,701, 473,344 and 473,344
shares, respectively 5,940 5,888 5,888
--------- --------- ---------
Total stockholders' equity 282,766 313,097 302,489
--------- --------- ---------
$ 508,532 $ 571,605 $ 466,895
========= ========= =========
</TABLE>
[FN]
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
<TABLE>
GIBSON GREETINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
Restated Restated
---------------------- ----------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 90,648 $ 83,964 $ 184,077 $ 168,871
Costs and expenses:
Operating expenses:
Cost of products sold 43,538 30,813 79,566 61,809
Selling, distribution
and administrative
expenses 61,237 49,256 119,089 98,917
--------- --------- --------- ---------
Total operating
expenses 104,775 80,069 198,655 160,726
--------- --------- --------- ---------
Operating income (loss)
before financing and
derivative transaction
expenses (14,127) 3,895 (14,578) 8,145
Financing and derivative
transaction expenses:
Interest expense, net of
capitalized interest 2,055 1,761 4,029 3,417
Interest income (188) (338) (509) (767)
Loss on derivative
transactions, net 6,550 (394) 15,524 1,047
--------- --------- --------- ---------
Total financing and
derivative transaction
expenses, net 8,417 1,029 19,044 3,697
--------- --------- --------- ---------
Income (loss) before
income taxes (22,544) 2,866 (33,622) 4,448
Income taxes (5,611) 1,257 (5,846) 2,478
--------- --------- --------- ---------
Net income (loss) $ (16,933) $ 1,609 $ (27,776) $ 1,970
========= ========= ========= =========
Net income (loss) per share $ (1.05) $ .10 $ (1.72) $ .12
========= ========= ========= =========
Dividends per share $ .10 $ .10 $ .20 $ .20
========= ========= ========= =========
</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>
Six Months Ended
June 30,
------------------------
Restated
------------------------
1994 1993
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (27,776) $ 1,970
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and write-down of display fixtures 11,449 11,085
Loss on disposal of plant and equipment 2,818 2,420
Loss on derivative transactions, net 15,524 1,047
Deferred income taxes 1,740 729
Amortization of deferred costs and other
intangibles 10,546 7,543
Change in assets and liabilities:
Decrease in trade receivables, net 141,579 135,269
Increase in inventories (67,289) (58,546)
Increase in prepaid expenses (1,607) (182)
Increase in prepaid income taxes (8,702) -
Increase in notes receivable, net (1,075) -
Increase in other assets, net of amortization (9,175) (6,793)
Increase in accounts payable 3,677 1,297
Decrease in income taxes payable (13,071) (9,880)
Increase (decrease) in other current
liabilities 10,203 (6,632)
Increase (decrease) in other liabilities (6,597) 3,258
All other, net (125) 155
---------- ----------
Total adjustments 89,895 80,770
---------- ----------
Net cash provided by operating activities 62,119 82,740
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (19,467) (16,809)
Proceeds from sale of plant and equipment 56 80
Acquisition of The Paper Factory of Wisconsin, Inc.,
net of cash acquired - (24,782)
---------- ----------
Net cash used in investing activities (19,411) (41,511)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term borrowings (40,320) (39,208)
Issuance of long-term debt - 8,075
Payments on long-term debt (3,451) (1,339)
Issuance of common stock 811 179
Acquisition of common stock for treasury (52) -
Dividends paid (3,216) (3,207)
---------- ----------
Net cash used in
financing activities (46,228) (35,500)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (3,520) 5,729
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 9,477 9,505
---------- ----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 5,957 $ 15,234
========== ==========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest, net of amounts capitalized $ 3,975 $ 4,050
Income taxes 14,039 11,624
</TABLE>
[FN]
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
GIBSON GREETINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1994 and 1993
(Dollars in thousands except per share amounts)
(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 June 30, 1994, December 31, 1993 and June 30, 1993, the results
of its operations for the six months ended June 30, 1994 and 1993 and its cash
flows for the six months ended June 30, 1994 and 1993. The accompanying
financial statements should be read in conjunction with the consolidated
financial statements and notes included in the Company's Annual Report on Form
10-K/A (Amendment No. 2) for the year ended December 31, 1993.
On July 1, 1994, the Company announced that it had determined that the
inventory of Cleo, Inc. (Cleo), a wholly-owned subsidiary at December 31,
1993 had been overstated, resulting in an overstatement of the Company's 1993
consolidated net income. The overstatement of inventory and income before
income taxes was $8,806 and the effect on net income was $5,346 at December
31, 1993 and for the year then ended. The accompanying 1993 condensed
consolidated financial statements have been amended and restated to reflect
the correction of such overstatement.
At March 31, 1994, the Cleo inventories remained overstated by $8,806.
Accordingly, the March 31, 1994 condensed consolidated financial statements
were amended and restated to reflect the correction of such overstatement.
The correction had no impact on loss before income taxes, net loss or net loss
per share for the three months ended March 31, 1994.
In an institution and settlement of administrative proceedings dated December
22, 1994 against Bankers Trust (the Bankers Trust Order), the Securities and
Exchange Commission (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.
PAGE
<PAGE>
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 annual consolidated net income and a
corresponding decrease in 1994 annual consolidated net loss. This
restatement, which was reflected in the accompanying condensed consolidated
financial statements, increased the previously reported net income for the
three months ended June 30, 1993 by $394 or $.02 per share; increased the
previously reported net loss for the three months ended June 30, 1994 by
$3,255 or $.20 per share; reduced the previously reported net income for the
six months ended June 30, 1993 by $1,047 or $.07 per share; and reduced the
previously reported net loss for the six months ended June 30, 1994 by $4,222
or $.26 per share.
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 as determined by a financial institution's valuation model
based on the projected value of the transactions at maturity.
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the 1994 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:
June 30, December 31, June 30,
1994 1993 1993
--------- --------- ---------
Trade receivables $ 88,060 $ 245,682 $ 74,737
Less reserve for returns,
allowances, cash discounts
and doubtful accounts 37,476 53,519 40,372
--------- --------- ---------
$ 50,584 $ 192,163 $ 34,365
========= ========= =========
PAGE
<PAGE>
Note 4 - Inventories
Inventories consist of the following:
June 30, December 31, June 30,
1994 1993 1993
--------- --------- ---------
Finished goods $ 125,076 $ 74,268 $ 120,971
Work-in-process 19,907 13,147 15,202
Raw materials and supplies 47,444 37,723 49,354
--------- --------- ---------
$ 192,427 $ 125,138 $ 185,527
========= ========= =========
Note 5 - Interest Expense
There was no capitalized interest for the three-months and six-month periods
ended June 30, 1994 and 1993.
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:
1994 1993
---------- ----------
Three months ended June 30, 16,111 16,708
========== ==========
Six months ended June 30, 16,154 16,076
========== ==========
Note 7 - Derivative Transactions
The Company periodically has entered into interest rate swap or derivative
transactions with the intent to manage the interest rate sensitivity of
portions of its debt. On March 4, 1994, the Company felt compelled to enter
into two interest rate derivative transactions to cap its exposure on two
prior interest interest rate derivative transactions that had a negative
market value, on that date, of $17,500. These two new transactions had caps
on the Company's total exposure and replaced the previous uncapped positions
that were entered into subsequent to December 31, 1993 in an attempt to limit
the Company's exposure against rising short-term interest rates.
The negative market values of these two positions at June 30, 1994 are as
follows:
Six-month LIBOR Band - 3.9% to 5.9% $15,035
Swap Spread 7,960
-------
$22,995
=======
PAGE
<PAGE>
Based on the stated maturity dates, the $15,035 accrual for loss is shown as
an Other Current Liability while the $7,960 accrual is shown as an Other
Liability in the accompanying condensed consolidated balance sheet. As
required by SFAS No. 109, the Company has recorded the tax benefit from the
loss on these derivative transactions and an offsetting valuation allowance
for the full amount of the estimated tax benefit due to current uncertainties
surrounding the amount, timing and characteristics of the loss.
On September 12, 1994 the Company filed suit against Bankers Trust Company and
its affiliate BT Securities in the United States District Court for the
Southern District of Ohio (Gibson Greetings, Inc. v. Bankers Trust Company and
BT Securities Corporation) alleging that in connection with the sale of
derivatives to the Company they had breached fiduciary duties, made fraudulent
misrepresentations, and failed to make adequate disclosures, in violation of
common law and statutory obligations to the Company. The suit sought damages
and asked that the court declare the Company's existing derivative
transactions with Bankers Trust to be unenforceable. Bankers Trust filed an
Answer denying the allegations and a counterclaim seeking enforcement of the
existing derivative transactions. On November 23, 1994 the Company settled
its claims against Bankers Trust. As part of the settlement, the Company paid
Bankers Trust $6,180, which included the reimbursement of approximately $3,344
of cash payments previously made to the Company by Bankers Trust and recorded
as income in 1993. In return, the remaining transactions were terminated with
no further liability to the Company.
Note 8 - 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 overstatment 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 and a Third Party Complaint against its former auditor for
contribution against any judgment adverse to the Company.
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.
PAGE
<PAGE>
The litigation described in the two preceding paragraphs is in the early
stages of proceedings. Accordingly, the Company presently is unable to
predict the effect of the ultimate resolutions of these matters upon the
Company's results of operations and cash flows; as of this date, however,
Managment does not expect that such resolutions would result in a material
adverse effect upon the Company's total net worth, although a substantially
unfavorable outcome could be material to such net worth.
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 the Company's reporting and accounting with
respect thereto. The Company is cooperating in such investigation.
As noted in Note 7, on September 12, 1994 the Company filed suit against
Bankers Trust Company and its affiliate BT Securities in the United States
District Court for the Southern District of Ohio (Gibson Greetings, Inc. v.
Bankers Trust Company and BT Securities Corporation) alleging that in
connection with the sale of derivatives to the Company they had breached
fiduciary duties, made fraudulent misrepresentations, and failed to make
adequate disclosures, in violation of common law and statutory obligations to
the Company.
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 and, on May 19, 1995, a unanimous panel
of that Court reversed the NLRB's finding. The Court found that the strike
was not an unfair labor practice strike and that a significant number of
strikers had been permanently replaced and thus were not entitled to
reinstatement or back pay. The Court remanded the case to the NLRB for a
factual determination on the issue of permanency with respect to approximately
52 replacements hired after June 29, 1989. The Company did not contest the
reinstatement of six employees terminated for alleged striker violence and the
Court ordered reinstatement of four others in the same category. Management
does not believe that the outcome of this matter will result in a material
adverse effect on the Company's total net worth, cash flows or operating
results.
In addition, the Company is a defendent 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
Introduction
As announced on July 1, 1994, the Company determined that the inventory of its
Cleo, Inc. gift wrap subsidiary (Cleo) had been overstated, resulting in an
overstatement of the Company's previously reported 1993 consolidated net
income. As a result of this overstatement, as well as the accrual of an
unrealized market value net loss on certain derivative transactions which did
not qualify as hedges, it was necessary for the Company to amend and restate
its consolidated financial statements for the third quarter ended September
30, 1993, the fourth quarter ended December 31, 1993, the twelve months ended
December 31, 1993 and for the first quarter ended March 31, 1994.
Additionally, the Company has complied with the Securities and Exchange
Commission (SEC) request that the Company restate its 1993 consolidated
financial statements due to the SEC's allegation that Bankers Trust caused the
Company to materially understate its unrealized losses related to certain
derivative transactions during 1993. The adjustments made are described in
Note 1 of the Notes to Condensed Consolidated Financial Statements included in
this report, and should be reviewed in conjunction with the discussion of
"Results of Operations" and "Liquidity and Capital Resources" presented below.
Results of Operations
Revenues in the second quarter increased 8.0% to $90.6 million from the
previous year. This was principally due to sales by The Paper Factory of
Wisconsin, Inc. (The Paper Factory) which was acquired June 1, 1993.
Increases in domestic and international sales of greeting cards were offset by
higher sales allowances reflecting competitive pressure. Returns and
allowances were 17.5% of sales for the three months ended June 30, 1994
compared to 16.4% for the same period in 1993. For the six months ended June
30, 1994, revenues increased 9.0% to $184.1 million from 1993 reflecting The
Paper Factory's sales. Returns and allowances were 19.5% of sales for the six
months ended June 30, 1994 compared to 20.5% for the same period in 1993.
PAGE
<PAGE>
Operating expenses totaled $104.8 million in the second quarter of 1994
representing a 30.9% increase over the corresponding quarter in 1993. Cost of
products sold, as a percent of revenues, was 48.0% versus 36.7% for the second
quarter of 1993. The increase was primarily due to the impact of the
acquisition of The Paper Factory combined with an increase at Cleo. The Paper
Factory is a highly seasonal business which traditionally posts most of its
revenues and profits in the third and fourth quarters. The change in product
mix, pricing pressures and customer discounts which had adversely affected
gross margins from Cleo's sales of gift wrap and paper products in 1993, as
discussed in the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1993, continued in 1994 and at June 30, 1994, the Company
expected Cleo to incur a loss for the full twelve months ended December 31,
1994. The second quarter 1994 results reflect an obsolescence charge
resulting from an extensive review of Cleo's inventory as well as additional
charges for sales returns and allowances for customer discounts at Cleo.
Selling, distribution and administrative expenses, as a percent of revenues,
increased to 67.6% from 58.7% primarily due to the impact of the acquisition
of The Paper Factory combined with increased expenditures for programs
implemented by the Company to improve customer service and to increase sales
and marketing efforts primarily with respect to the Company's greeting card
division.
Operating expenses totaled $198.7 million for the six months ended June 30,
1994 representing a 23.6% increase over 1993. Cost of products sold, as a
percent of revenues, was 43.2% versus 36.6% in 1993 reflecting the full impact
of The Paper Factory in 1994 and the obsolescence charges at Cleo and the
change in product mix, pricing pressures and customer discounts at Cleo which
were expected to continue throughout 1994. Selling, distribution and
administrative expenses, as a percent of revenues, increased to 64.7% from
58.6% primarily due to the acquisition of The Paper Factory combined with
costs associated with programs to improve customer service and to increase
selling and marketing efforts primarily with respect to the Company's greeting
card division.
For the three months ended June 30, 1994, the Company recorded an unrealized
market value loss of $6.6 million on two derivative transactions outstanding
at June 30, 1994, which did not qualify as hedges. For the six months ended
June 30, 1994, the Company recorded a net loss on derivative transactions of
$15.5 million consisting of an unrealized market value loss of $15.6 million
and the recognition of a $0.1 million gain, all from derivative transactions
which did not qualify as hedges. The market value of derivative transactions
outstanding at June 30, 1994 was determined by a financial institution model
based on the projected future value of the transactions at maturity. These
positions were reported at current fair market value until they were closed
out. (See "Financing and Derivative Transaction Expenses" below).
Second quarter pretax loss of $22.5 million compared with pretax income for
1993 of $2.9 million. Pretax loss for the six months ended June 30, 1994 was
$33.6 million compared with 1993 pretax income of $4.4 million.
PAGE
<PAGE>
Effective tax rates for the three months and six months ended June 30, 1994
were 24.9% and 17.4%, respectively compared with 43.9% and 55.7% for the same
periods in 1993. The effective rates at which the 1994 loss was benefitted
differs from the statutory rates due principally to allowances provided
against tax benefits related to the derivative transactions as realization of
such tax benefits in the carryforward period is not assured. The tax rates
for the 1993 period exceeded the statutory rates in part due to the goodwill
associated with The Paper Factory acquisition.
Net loss for the second quarter of 1994 was $16.9 million compared with 1993
net income of $1.6 million. For the six months ended June 30, 1994, net loss
was $27.8 million compared with 1993 net income of $2.0 million.
Financing and Derivative Transaction Expenses
The company had two interest rate derivative transactions outstanding at June
30, 1994, which were recorded at fair market value. These two transactions
had caps on the Company's total exposure and replaced previous uncapped
positions that were entered into subsequent to December 31, 1993. At June 30,
1994, except for the two positions described below and two relatively minor
($3.0 million notional value) interest rate swaps on industrial revenue bonds,
the Company had discontinued trading in any swap/derivative positions.
On March 4, 1994, the Company felt compelled to enter into the two outstanding
interest rate derivative transactions in order to replace and to cap its
exposure on two prior interest rate derivative transactions that had a
negative market value, on that date, of $17.5 million.
On September 12, 1994 the Company filed suit against Bankers Trust Company and
its affiliate BT Securities in the United States District Court for the
Southern District of Ohio (Gibson Greetings, Inc. v. Bankers Trust Company and
BT Securities Corporation) alleging that in connection with the sale of
derivatives to the Company they had breached fiduciary duties, made fraudulent
misrepresentations, and failed to make adequate disclosures, in violation of
common law and statutory obligations to the Company. The suit sought damages
and asked that the court declare the Company's existing derivative
transactions with Bankers Trust to be unenforceable. Bankers Trust filed an
Answer denying the allegations and a counterclaim seeking enforcement of the
existing derivative transactions. On November 23, 1994 the Company settled
its claims against Bankers Trust. As part of the settlement, the Company paid
Bankers Trust $6.2 million which included the reimbursement of approximately
$3.4 million of cash payments previously made to the Company by Bankers Trust
and recorded as income in 1993. In return, the remaining transactions were
terminated with no further liability to the Company.
The full amount of the $23.0 million loss, representing the termination value
at June 30, 1994 had no cash flow impact in the first six months of 1994.
PAGE
<PAGE>
Certain of the derivative transactions executed during the first six months of
1993 did not qualify as effective interest rate hedges and, accordingly, the
proceeds realized from such transactions (approximately $1.1 million) were
recognized as a component of the loss on derivative transactions, net in the
restated condensed consolidated statement of income for the three and six
months ended June 30, 1993. Additionally, the estimated current market value
of three derivative transactions outstanding at June 30, 1993, which likewise
did not qualify as effective interest rate hedges, was a loss of $2.0 million
which was accrued in the restated condensed consolidated financial statements
at June 30, 1993.
Liquidity and Capital Resources
Cash flows from operating activities for the first six months of 1994 provided
$62.1 million in cash compared to $82.7 million for the same period in 1993.
The decline from 1993 reflected the net loss, excluding the non-cash charge
related to the loss on derivative transactions, partially offset by increased
collection of trade receivables from the previous year-end.
Cash used in investing activities for plant and equipment purchases in 1994
was $19.5 million compared to $16.8 million in 1993. The increase in capital
expenditures was largely due to an increase in fixture purchases.
Cash used in financing activities in the first half of 1994 was $46.2 million
compared to $35.5 million in 1993. Prior year included the issuance of $8.1
million of long-term debt issued to the former shareholders of The Paper
Factory.
Debt due within one year at June 30, 1994 was $33.1 million versus $1.9
million at June 30, 1993 reflecting increased cash requirements by certain
domestic operations.
Other current liabilities increased $23.4 million from the same period in 1993
primarily due to the current portion of the loss on derivative transactions of
$15.0 million and the timing of other payments. Other liabilities increased
$16.0 million from the same period in 1993 reflecting the $8.0 million
noncurrent portion of the loss on derivative transactions as well as an
increase in the noncurrent portion of amounts due on sales agreements. The
latter increase reflected new sales agreements and renewed agreements in 1994.
Covenants contained in the Company's debt agreement required the Company to
deliver to its lenders audited comparative 1994 and 1993 consolidated
financial statements by April 30, 1995. The Company obtained waivers dated
April 25 and 28, 1995 from the lenders extending the delivery of required
financial statements until June 8, 1995. These statements were delivered on
that date.
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 8 of Notes to Condensed Consolidated
Financial Statement (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
The Annual Meeting of Shareholders of the Company was held April 21, 1994 for
the following purposes:
To elect two directors;
The results of the matters voted on are as follows:
Against
or Broker
For Withheld Abstentions Non-Votes
---------- -------- ----------- ---------
Election of Directors:
Frank Stanton 13,664,125 80,429 - -
Roger T. Staubach 13,656,757 87,797 - -
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits None
b) Reports on Form 8-K
The Company filed a Form 8-K with the
Securities and Exchange Commission on
April 19, 1994 attaching the Company's
press release dated April 19, 1994.
No financial statements were required
to be filed in connection with the
report.
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Gibson
Greetings, Inc. has duly caused this amended report to be signed on its behalf
by the undersigned thereunto duly authorized.
GIBSON GREETINGS, INC.
Date June 19, 1995
By:/s/ William L. Flaherty
------------------------
William L. Flaherty
Vice President-Finance
Principal Financial
and Accounting Officer
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