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 September 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
-----------------------------------------
September 30, December 31, September 30,
1994 1993 1993
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 899 $ 9,477 $ 540
Trade receivables, net 126,285 192,163 101,038
Inventories 197,742 125,138 190,564
Prepaid expenses 5,580 4,207 5,213
Prepaid income taxes 7,422 - -
Deferred income taxes 37,582 36,796 33,813
--------- --------- ---------
Total current assets 375,510 367,781 331,168
--------- --------- ---------
PLANT AND EQUIPMENT, net 124,083 116,900 117,850
NOTES RECEIVABLE, net 875 - -
OTHER ASSETS, net 115,708 86,924 79,552
--------- --------- ---------
$ 616,176 $ 571,605 $ 528,570
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Debt due within one year $ 96,608 $ 66,187 $ 41,962
Accounts payable 34,085 18,835 26,333
Income taxes payable - 13,071 3,941
Other current liabilities 101,080 60,479 55,289
--------- --------- ---------
Total current liabilities 231,773 158,572 127,525
--------- --------- ---------
DEFERRED INCOME TAXES (629) (854) 618
LONG-TERM DEBT 63,315 74,365 74,441
OTHER LIABILITIES 40,178 26,425 24,370
--------- --------- ---------
Total liabilities 334,637 258,508 226,954
--------- --------- ---------
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
16,530,067 shares issued,
respectively 166 165 165
Paid-in capital 46,057 45,209 45,089
Retained earnings 241,078 273,320 261,883
Foreign currency adjustment 178 291 367
--------- --------- ---------
287,479 318,985 307,504
Less treasury stock, at cost,
483,701, 473,344 and 473,344
shares, respectively 5,940 5,888 5,888
--------- --------- ---------
Total stockholders' equity 281,539 313,097 301,616
--------- --------- ---------
$ 616,176 $ 571,605 $ 528,570
========= ========= =========
</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 Nine Months Ended
September 30, September 30,
---------------------- ----------------------
Restated Restated
--------- ----------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 153,026 $ 142,296 $ 337,103 $ 311,167
Costs and expenses:
Cost of products sold 86,480 77,519 166,046 139,328
Selling, distribution and
administrative expenses 66,699 58,012 185,788 156,929
--------- --------- --------- ---------
Total operating
expenses 153,179 135,531 351,834 296,257
--------- --------- --------- ---------
Operating income (loss)
before financing and
derivative transaction
expenses (153) 6,765 (14,731) 14,910
Financing and derivative
transaction expenses:
Interest expense 2,656 1,945 6,685 5,362
Interest income (142) (127) (651) (894)
(Gain) loss on derivative
transactions, net (2,277) 3,866 13,247 4,913
--------- --------- --------- ---------
Total financing and
derivative transaction
expenses, net 237 5,684 19,281 9,381
--------- --------- --------- ---------
Income (loss) before
income taxes (390) 1,081 (34,012) 5,529
Income taxes (749) 826 (6,595) 3,304
--------- --------- --------- ---------
Net income (loss) $ 359 $ 255 $ (27,417) $ 2,225
========= ========= ========= =========
Net income (loss) per share $ .02 $ .02 $ (1.70) $ .14
========= ========= ========= =========
Dividends per share $ .10 $ .10 $ .30 $ .30
========= ========= ========= =========
</TABLE>
[FN]
See accompanying notes to condensed consolidated financial statements.
<TABLE>
GIBSON GREETINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
Restated
------------------------
1994 1993
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (27,417) $ 2,225
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and write-down of display fixtures 17,505 18,022
Loss on disposal of plant and equipment 4,703 3,556
Loss on derivative transactions, net 13,247 4,913
Deferred income taxes (561) (4,576)
Amortization of deferred costs and other
intangibles 15,901 15,617
Change in assets and liabilities:
Decrease in trade receivables, net 65,878 68,596
Increase in inventories (72,604) (63,583)
Increase in prepaid expenses (1,373) (720)
Increase in prepaid income taxes (7,422) -
Increase in notes receivable, net (875) -
Increase in other assets, net of amortization (44,685) (15,730)
Increase in accounts payable 15,250 10,077
Decrease in income taxes payable (13,071) (6,116)
Increase in other current liabilities 22,783 1,413
Increase (decrease) in other liabilities 18,324 (3,658)
All other, net (226) 174
---------- ----------
Total adjustments 32,774 27,985
---------- ----------
Net cash provided by operating activities 5,357 30,210
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (29,419) (24,673)
Proceeds from sale of plant and equipment 165 121
Acquisition of The Paper Factory of Wisconsin, Inc.,
net of cash acquired - (24,782)
---------- ----------
Net cash used in investing activities (29,254) (49,334)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings 23,180 7,950
Issuance of long-term debt - 8,075
Payments on long-term debt (3,833) (1,708)
Issuance of common stock 849 653
Acquisition of common stock for treasury (52) -
Dividends paid (4,825) (4,811)
---------- ----------
Net cash provided by financing activities 15,319 10,159
---------- ----------
NET DECREASE IN CASH AND EQUIVALENTS (8,578) (8,965)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 9,477 9,505
---------- ----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 899 $ 540
========== ==========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 5,202 $ 5,048
Income taxes 14,237 14,014
</TABLE>
[FN]
See accompanying notes to condensed consolidated financial statements.
PAGE
<PAGE>
GIBSON GREETINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 1994 and 1993
(Amounts in thousands except per share data)
(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 September 30, 1994, December 31, 1993 and September 30, 1993,
the results of its operations for the three and nine months ended September
30, 1994 and 1993 and its cash flows for the nine months ended September 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 condensed consolidated
financial statements have been amended and restated to reflect the correction
of such overstatement.
The Company determined that $1,400 of the $8,806 inventory and income before
income taxes overstatement related to the third quarter of 1993. Accordingly,
the September 30, 1993 condensed consolidated financial statements were
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 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, reduced the previously reported net income for the three
and nine months ended September 30, 1993 by $1,987 or $.12 per share and
$3,034 or $.19 per share, respectively, and reduced the net loss for the nine
months ended September 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 based on the projected
value of the transactions at maturity.
The Company's debt agreements contain certain covenants including limitations
on dividends based on a formula related to net income, stock sales and certain
restricted investments. At September 30, 1994, the amount of unrestricted
retained earnings available for dividends was $37,956.
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:
September 30, December 31, September 30,
1994 1993 1993
--------- --------- ---------
Trade receivables $ 162,440 $ 245,682 $ 139,280
Less reserve for returns,
allowances, cash discounts
and doubtful accounts 36,155 53,519 38,242
--------- --------- ---------
$ 126,285 $ 192,163 $ 101,038
========= ========= =========
PAGE
<PAGE>
Note 4 - Inventories
Inventories consist of the following:
September 30, December 31, September 30,
1994 1993 1993
--------- --------- ---------
Finished goods $ 142,732 $ 74,268 $ 137,762
Work-in-process 14,889 13,147 15,829
Raw materials and supplies 40,121 37,723 36,973
--------- --------- ---------
$ 197,742 $ 125,138 $ 190,564
========= ========= =========
Note 5 - Interest Expense
There was no capitalized interest for the three-month and nine-month periods
ended September 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 September 30, 16,107 16,121
========== ==========
Nine months ended September 30, 16,138 16,091
========== ==========
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 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 September 30, 1994 were
as follows:
Six-month LIBOR Band - 3.9% to 5.9% $16,188
Swap Spread 4,530
-------
$20,718
=======
PAGE
<PAGE>
Based on the stated maturity dates, the $20,718 accrual for loss is shown as
an Other Current 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 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.
At September 30, 1993, the Company had two interest rate derivative
transactions outstanding, different than those discussed above, that did not
qualify as hedges. The first attempted to limit the Company's exposure
against rising short-term rates on a notional amount of $60,000 through 1995.
The second position provided the Company with a maximum 1.0% annuity on
$30,000 through August 1994 predicated on short-term rates remaining in a
specified range. The estimated current market value of these two derivative
transactions, as determined by a financial institution based on a projected
future value of the transactions at maturity, was a loss of $2,990 at
September 30, 1993 and was accrued in the restated condensed consolidated
financial statements at September 30, 1993 and for the three and nine months
then ended. The Company received proceeds of approximately $1,111 relating to
certain derivative transactions, which also did not qualify as hedges and
which were either entered into or terminated during 1993. Such proceeds have
been reflected in the restated condensed consolidated statement of operations
for the three and nine months ended September 30, 1993 as a component of
"(Gain) loss on derivative transactions, net."
PAGE
<PAGE>
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.
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.
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 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 third quarter increased 7.5% to $153.0 million from the
previous year. This increase largely reflected increases in domestic and
international sales of greeting cards as well as increased sales by The Paper
Factory of Wisconsin, Inc. (The Paper Factory), partially offset by lower
sales of Cleo products combined with higher sales allowances reflecting
competitive pressure. Returns and allowances were 14.8% of sales for the
three months ended September 30, 1994 compared to 9.9% for the same period in
1993. For the nine months ended September 30, 1994, revenues increased 8.3%
to $337.2 million from 1993 reflecting the higher sales of greeting cards and
sales by The Paper Factory. Returns and allowances were 17.4% of sales for
the nine months ended September 30, 1994 compared to 16.0% for the same period
in 1993.
Operating expenses totaled $153.2 million in the third quarter of 1994 versus
$135.5 million in the corresponding quarter in 1993. Cost of products sold,
as a percent of revenues, was 56.5% versus 54.5% for the third quarter of
1993. The increase was primarily due to increases at Cleo and competitive
pricing pressure and increases in sales allowances at the Company's greeting
card division. In addition, 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 September 30, 1994, the Company expected Cleo to incur a loss
for the full twelve months ended December 31, 1994. Selling, distribution and
administrative expenses, as a percent of revenues, increased to 43.6% from
40.8% primarily due to 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.
PAGE
<PAGE>
Operating expenses totaled $351.8 million for the nine months ended September
30, 1994 representing an 18.8% increase over 1993. Cost of products sold, as
a percent of revenues, was 49.3% versus 44.8% in 1993 reflecting the full
impact of The Paper Factory in 1994, 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 55.1% from
50.4% 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 September 30, 1994, the Company recorded a
reduction in the loss of $2.3 million on two derivative transactions
outstanding at September 30, 1994, which did not qualify as hedges. For the
nine months ended September 30, 1994, the Company recorded a net loss on
derivative transactions which did not qualify as hedges of $13.2 million
consisting of a $3.0 million minimum loss to be paid upon maturity, an
additional $10.3 million unrealized loss based on the fair market value of the
transactions on that date and the recognition of a $0.1 million gain. For the
three and nine months ended September 30, 1993 the Company recorded a net loss
on derivative transactions of $3.9 million and $4.9 million, respectively.
The market values of derivative transactions outstanding at September 30, 1994
and September 30, 1993 were determined by a financial institution 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).
Third quarter pretax loss was $0.4 million compared with pretax income for
1993 of $1.1 million. Pretax loss for the nine months ended September 30,
1994 was $34.0 million compared with 1993 pretax income of $5.5 million.
The effective tax 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
differ from the statutory rates in part due to the goodwill associated with
The Paper Factory acquisition and allowances provided against tax benefits
related to derivative transactions.
Net income for the third quarter of 1994 was $0.4 million compared with 1993
net income of $0.3 million. For the nine months ended September 30, 1994, net
loss was $27.4 million compared with 1993 net income of $2.2 million.
Financing and Derivative Transaction Expenses
The Company had two interest rate derivative transactions outstanding at
September 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
September 30, 1994, except for these 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.
PAGE
<PAGE>
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 uncapped 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 $20.7 million loss, representing the termination value
at September 30, 1994, had no cash flow impact in the first nine months of
1994.
Certain of the derivative transactions executed during the first nine 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 nine
months ended September 30, 1993. Additionally, the estimated current market
value of two derivative transactions outstanding at September 30, 1993, which
likewise did not qualify as effective interest rate hedges, was a loss of $3.0
million which was accrued in the restated condensed consolidated financial
statements at September 30, 1993.
Liquidity and Capital Resources
Cash flows from operating activities for the first nine months of 1994
provided $5.4 million in cash compared to $30.2 million for the same period in
1993. The decline from 1993 reflected the net loss from operations, excluding
the non-cash charge related to the loss on derivative transactions; higher
increases in other assets, net of amortization and inventories; and larger
decreases in income taxes payable partially offset by a larger increase in
other current liabilities and other liabilities. The increase in other assets
reflected higher prepaid amounts on new sales agreements.
PAGE
<PAGE>
Other current liabilities increased $45.8 million from the same period in 1993
primarily due to the loss on derivative transactions of $20.7 million and the
timing of other payments. Other liabilities increased $15.8 million from the
same period in 1993 primarily due to an increase in the noncurrent portion of
amounts due on sales agreements reflecting new and renewed sales agreements in
1994.
Net cash used in investing activities totaled $29.3 million in the nine months
ended September 30, 1994 compared with $49.3 million in the nine months ended
September 30, 1993. Cash used in investing activities for plant and equipment
purchases in 1994 was $29.4 million compared to $24.7 million in 1993. The
increase in capital expenditures was largely due to an increase in fixture
purchases. Prior year reflected the acquisition of The Paper Factory which
was financed with cash and $8.1 million of long-term debt issued to the former
shareholders of The Paper Factory.
Cash provided by financing activities in the first nine months of 1994 was
$15.3 million compared to $10.2 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 September 30, 1994 was
$96.6 million versus $42.0 million at September 30, 1993 reflecting increased
cash requirements by certain domestic operations.
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 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) Exhibits Employment Agreement between Gibson Greetings, Inc.
and Ralph J. Olson, dated June 24, 1994.
b) Reports on Form 8-K
The Company filed a Form 8-K with the Securities and
Exchange Commission on July 1, 1994 (date of report:
July 1, 1994) attaching the Company's press release dated
July 1, 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
PAGE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 899
<SECURITIES> 0
<RECEIVABLES> 126285
<ALLOWANCES> 36155
<INVENTORY> 197742
<CURRENT-ASSETS> 375510
<PP&E> 124083
<DEPRECIATION> 17505
<TOTAL-ASSETS> 616176
<CURRENT-LIABILITIES> 231773
<BONDS> 63315
<COMMON> 166
0
0
<OTHER-SE> 281373
<TOTAL-LIABILITY-AND-EQUITY> 616176
<SALES> 337103
<TOTAL-REVENUES> 337103
<CGS> 166046
<TOTAL-COSTS> 351834
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3177
<INTEREST-EXPENSE> 6685
<INCOME-PRETAX> (34012)
<INCOME-TAX> (6595)
<INCOME-CONTINUING> (27417)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27417)
<EPS-PRIMARY> (1.70)
<EPS-DILUTED> (1.70)
</TABLE>
PAGE
<PAGE>
EXHIBIT 10(A)
June 24, 1994
Mr. Ralph J. Olson
President and Chief Operating Officer
Gibson Card Division
Gibson Greetings, Inc.
2100 Section Road
Cincinnati, OH 45237
Dear Ralph:
Gibson Greetings, Inc. and I are very pleased that you have
agreed to continue to serve as President and Chief Operating
Officer of the Gibson Card Division and as a Vice President of
Gibson Greetings, Inc. ("the Company"). As President and Chief
Operating Officer of the Gibson Card Division, you will continue
to report directly to the Company's Chief Executive Officer. It
is understood that, during the term of this agreement, you may
receive additional assignments or be reassigned to such other
senior executive positions in which you are willing to serve the
Company. The following terms and conditions will govern your
service to the Company.
1. You will serve the Company on a full-time basis as a senior
executive employee, and the Company will employ you as such,
at an annual salary of $288,000, which amount will be
adjusted from time to time by the Company throughout the
term of this Agreement in accordance with the Company's
salary administration program. The term of this Agreement
shall extend indefinitely until it is terminated by the
Company upon giving you one (1) year advance written notice
or until it is terminated pursuant to Paragraph 11 or 12.
This Agreement and your employment shall at all times remain
subject to earlier termination for cause as defined in
Paragraph 4 hereof.
2. As a participant in the Company's Executive Bonus Plan, you
will be eligible for a bonus for the remaining term of this
Agreement.
3. On June 25, 1991, you were granted 10,000 restricted shares
of the Company's common stock. The restrictions lapsed as
to two thousand such shares on each of April 5, 1993 and
April 5, 1994 and shall lapse as to an additional two
PAGE
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Mr. Ralph Olson
June 24, 1994
Page 2
thousand such shares on April 5 of each of the following
three years. Lapsing of restrictions on each such date
shall be conditioned upon your continued employment by the
Company. If any person becomes the beneficial owner of
fifty percent (50%) or more of the voting power of the
Company's securities, or if any person becomes owner of all
or substantially all of the Company's assets, or if the
Company participates in a merger or reorganization in which
it is not the surviving corporation, the lapsing of
restrictions on all such shares shall be immediate.
4. In the event your employment is terminated by the Company
either during the term of this Agreement, or within eighteen
months subsequent to the termination of the Agreement, for
reasons other than cause or disability, and other than as
provided under Paragraph 5 hereof, you will be paid within
thirty days of such termination a lump sum severance payment
equal to one and one-half times the total of the salary and
the most recent annual Executive Bonus Plan payment paid to
you during the twelve months immediately prior to your
termination. Executive outplacement services, including
reimbursement for miscellaneous and telephone expenses for
up to six months, will be provided at no cost to you if you
are terminated by the Company for other than cause or
disability. As used in this Agreement, "cause" shall mean
dishonesty, gross negligence or willful misconduct in the
performance of your duties or a willful and material breach
of this Agreement. The severance payment noted above will
be grossed up for excise taxes, if applicable.
5. In the event any person becomes the beneficial owner of
fifty percent (50%) or more of the voting power of the
Company's securities, and you are not retained by that
person in substantially the same capacity and salary as
contemplated herein for at least eighteen months from the
date of said change in beneficial ownership, then upon your
termination under this Paragraph, you will be paid, in a
lump sum within thirty days of your termination, an amount
equal to three times the total of the salary and the most
recent annual Executive Bonus Plan payment paid to you
during the twelve months immediately prior to your
termination. This termination payment is in lieu of any
payments to which you may otherwise be entitled under
Paragraph 4 hereof and will be grossed up for excise taxes,
if applicable.
PAGE
<PAGE>
Mr. Ralph Olson
June 24, 1994
Page 3
6. You will be covered by the Company's programs for executives
which include: executive physical examinations, life
insurance, tax preparation and financial planning
assistance.
7. You will be a participant in the Company's Supplemental
Executive Retirement Plan (SERP).
8. You will be covered by the Company's group insurance plan,
which presently includes medical, dental and life insurance.
The amount of your life insurance shall be $600,000.
9. Every three years, you will be provided a new automobile of
the Cadillac or Lincoln class, which automobile will be
owned or leased by the Company. The Company will provide
adequate insurance for the automobile and occupants and will
pay all required maintenance and operating expenses. You
will have the right to purchase such automobile at its
depreciated net book value upon expiration of this Agreement
or any renewal hereof.
10. You will be eligible for four weeks of paid vacation during
each year this Agreement remains in effect.
11. In the event you are unable to perform your duties hereunder
due to illness or other incapacity, which incapacity
continues for more than six consecutive or nonconsecutive
months in any twelve-month period, the Company shall have
the right, on not less than 30 days' written notice to you,
to terminate this Agreement. In the event of your death
during your employment hereunder, your salary shall cease as
of the last day of the sixth full calendar month following
the month in which your death occurs. Except for such
salary continuation rights and except for certain stock
option rights, this Agreement shall terminate as of the date
of death and you shall be entitled to no additional
compensation under the other provisions of this Agreement.
12. In the event you voluntarily terminate your employment
during the term of this Agreement, or if the Company
terminates this Agreement and your employment for cause,
your right to all compensation hereunder shall cease as of
the date of termination. Termination of employment shall
terminate this Agreement with the exception of the
provisions of Paragraphs 13, 14 and 17.
13. Also in the event you voluntarily terminate your employment
hereunder or retire, or if the Company terminates this
PAGE
<PAGE>
Mr. Ralph Olson
June 24, 1994
Page 4
Agreement and your employment for cause, you agree that for
a period of one and one-half years after such termination,
you will not compete, directly or indirectly, with the
Company or with any division, subsidiary or affiliate of the
Company or participate as a director, officer, employee,
consultant, advisor, partner or joint venturer in any
business engaged in the manufacture or sale of greeting
cards, gift wrap or other products produced or sold by the
Company, or by any division, subsidiary or affiliate of the
Company, without the Company's prior written consent.
14. In connection with this Agreement, you agree to receive
confidential information of the Company in confidence, and
not to disclose to others, assist others in the application
of, or use for your own gain, such information, or any part
thereof, unless and until it has become public knowledge or
has come into the possession of others by legal and
equitable means. You further agree that, upon termination
of employment with the Company, all documents, records,
notebooks, and similar writings, including copies thereof,
then in your possession, whether prepared by you or by
others, will be left with or returned promptly to the
Company. For purposes of this Paragraph 14, "confidential
information" means information concerning Company's
finances, plans, sales, products, processes and services, or
those of Company's subsidiaries, divisions or affiliates,
which is disclosed to you or known by you as a consequence
of or through your employment with the Company, and which is
not generally known in the industry in which the Company or
its subsidiaries, divisions or affiliates are or may become
engaged.
15. Nothing herein is intended to be granted to you in lieu of
any rights or privileges to which you may be entitled as an
executive employee of the Company under any retirement,
insurance, hospitalization, or other plan which may now or
hereafter be in effect.
16. This Agreement sets forth the entire understanding between
the parties with respect to the subject matter hereof and
may not be modified or amended except by a writing signed by
the party to be charged.
17. This Agreement shall inure to the benefit of and be binding
upon you and your legal representatives as well as the
Company, its successors and assigns including, without
limitation, any person, partnership, corporation or other
PAGE
<PAGE>
Mr. Ralph Olson
June 24, 1994
Page 5
entity which may acquire all, or substantially all, of the
Company's assets and business.
To indicate your acceptance of and willingness to be bound by
this Agreement, please sign and return one duplicate original of
this letter.
Sincerely,
GIBSON GREETINGS, INC.
/s/Benjamin J. Sottile
Benjamin J. Sottile
Chairman of the Board,
President and
Chief Executive Officer
BJS/HLC/dk
ACCEPTED AND AGREED TO:
/s/Ralph J. Olson
Ralph J. Olson
Date:June 24, 1994
