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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 June 30, 1997
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: 16,435,172 shares of common
stock, par value $.01, outstanding at August 8, 1997.
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Part I. Item 1. Financial Statements
<TABLE>
GIBSON GREETINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
(Unaudited)
<CAPTION>
June 30, December 31, June 30,
1997 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 106,033 $ 98,155 $ 64,291
Trade receivables, net 15,069 42,423 19,570
Inventories 71,461 65,069 73,377
Income taxes receivable - - 7,810
Prepaid expenses 2,974 2,958 3,196
Deferred income taxes 37,351 44,598 40,042
--------- --------- ---------
Total current assets 232,888 253,203 208,286
PLANT AND EQUIPMENT, net 89,641 92,649 91,441
DEFERRED INCOME TAXES 17,926 16,592 15,168
OTHER ASSETS, net 90,760 89,115 97,170
--------- --------- ---------
$ 431,215 $ 451,559 $ 412,065
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Debt due within one year $ 7,886 $ 7,901 $ 7,898
Accounts payable 12,624 13,420 8,883
Income taxes payable 5,540 15,816 -
Other current liabilities 74,799 81,438 71,529
--------- --------- ---------
Total current liabilities 100,849 118,575 88,310
LONG-TERM DEBT 24,379 40,898 41,139
SALES AGREEMENT PAYMENTS DUE
AFTER ONE YEAR 13,675 14,274 17,568
OTHER LIABILITIES 22,210 21,496 23,131
--------- --------- ---------
Total liabilities 161,113 195,243 170,148
--------- --------- ---------
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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,
16,900,773 shares issued at June 30,
1997, 16,708,059 shares issued at
December 31, 1996 and 16,602,528
shares issued at June 30, 1996 169 167 166
Paid-in capital 49,973 47,474 46,218
Retained earnings 225,179 213,755 203,254
Foreign currency adjustment 732 871 (1,770)
--------- --------- ---------
276,053 262,267 247,868
Less treasury stock, at cost,
494,601 shares 5,951 5,951 5,951
--------- --------- ---------
Total stockholders' equity 270,102 256,316 241,917
--------- --------- ---------
$ 431,215 $ 451,559 $ 412,065
========= ========= =========
</TABLE>
[FN]
See accompanying notes to condensed consolidated financial statements.
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<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,
---------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 92,663 $ 88,585 $ 192,276 $ 186,364
--------- --------- --------- ---------
Costs and expenses
Operating expenses:
Cost of products sold 31,072 31,106 67,286 65,444
Selling, distribution
and administrative
expenses 51,501 46,082 103,535 98,289
--------- --------- --------- ---------
Total operating
expenses 82,573 77,188 170,821 163,733
--------- --------- --------- ---------
Operating income 10,090 11,397 21,455 22,631
--------- --------- --------- ---------
Financing expenses:
Interest expense 2,382 1,835 4,636 3,982
Interest income (1,522) (745) (2,970) (1,403)
--------- --------- --------- ---------
Total financing
expenses, net 860 1,090 1,666 2,579
--------- --------- --------- ---------
Income before
income taxes 9,230 10,307 19,789 20,052
Income taxes 3,879 4,438 8,365 8,587
--------- --------- --------- ---------
Net income $ 5,351 $ 5,869 $ 11,424 $ 11,465
========= ========= ========= =========
Net income per share $ 0.32 $ 0.36 $ 0.68 $ 0.70
========= ========= ========= =========
Dividends per share $ - $ - $ - $ -
========= ========= ========= =========
</TABLE>
[FN]
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
GIBSON GREETINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,424 $ 11,465
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation including write-down of display
fixtures 11,049 10,867
Loss on disposal of plant and equipment 305 174
Deferred income taxes 5,913 4,546
Amortization of deferred costs and intangibles
and write-down of deferred costs 12,393 12,152
Change in assets and liabilities:
Decrease in trade receivables, net 27,354 27,050
Increase in inventories (6,392) (5,074)
Decrease in income taxes receivable - 2,888
(Increase) decrease in prepaid expenses (16) 858
Increase in other assets, net of amortization (14,038) (3,868)
Increase (decrease) in accounts payable (796) 888
Decrease in income taxes payable (10,276) -
Decrease in other current liabilities (6,639) (113)
Decrease in other liabilities 115 178
All other, net 2 30
--------- ---------
Total adjustments 18,974 50,576
--------- ---------
Net cash provided by operating activities 30,398 62,041
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (8,568) (11,863)
Proceeds from sale of plant and equipment 81 197
Collection of note receivable from sale of
Cleo, Inc. - 24,574
--------- ---------
Net cash provided by (used in)
investing activities (8,487) 12,908
--------- ---------
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term borrowings - (19,000)
Payments on long-term debt, net (16,534) (7,390)
Issuance of common stock 2,501 177
--------- ---------
Net cash used in financing
activities (14,033) (26,213)
--------- ---------
NET INCREASE IN CASH AND EQUIVALENTS 7,878 48,736
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 98,155 15,555
--------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD $ 106,033 $ 64,291
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,425 $ 2,021
Income taxes 12,729 1,154
</TABLE>
[FN]
See accompanying notes to condensed consolidated financial statements.
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GIBSON GREETINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1997 and 1996
(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, 1997, December 31, 1996 and June 30, 1996, the results
of its operations for the three and six months ended June 30, 1997 and 1996
and its cash flows for the six months ended June 30, 1997 and 1996. The
accompanying financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128 - "Earnings Per Share," which is effective for
financial statements for both interim and annual periods ending after December
15, 1997. Early adoption of the statement is not permitted. The Company has
applied this statement on a pro forma basis to the 1996 second quarter, six
months and annual results and to the 1997 second quarter and six months
results and determined that the adoption of this statement would not have had
a material impact on the earnings per share calculations for these periods.
The Financial Accounting Standards Board has issued Statements of Financial
Accounting Standards (SFAS) No. 129 - "Disclosure of Information about Capital
Structure," No. 130 - "Reporting Comprehensive Income" and No. 131 -
"Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 129, which must be adopted in the fourth quarter of 1997, will have no
effect on the Company's financial position or results of operations. SFAS No.
130, which must be adopted in the first quarter of 1998, and SFAS No. 131,
which must be adopted in the fourth quarter of 1998, will also have no effect
on the Company's financial position. However, SFAS No. 130 will require the
Company to report comprehensive income, a measure of performance that includes
all non-owner sources of changes in equity. In addition to net income
reported in these financial statements, comprehensive income would include
unrealized gains and losses on securities available for sale and foreign
currency translation adjustments. Management does not expect SFAS No. 131 to
require the Company to change the reportable business segments included in its
1996 Annual Report on Form 10-K or to present additional information,
including presenting additional information, including presenting certain
business segment information in its quarterly financial statements.
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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,
1997 1996 1996
--------- ----------- ---------
Trade receivables $ 53,660 $ 101,712 $ 66,190
Less reserve for returns,
allowances, cash discounts
and doubtful accounts 38,591 59,289 46,620
--------- --------- ---------
$ 15,069 $ 42,423 $ 19,570
========= ========= =========
Note 4 - Inventories
Inventories consist of the following:
June 30, December 31, June 30,
1997 1996 1996
--------- --------- ---------
Finished goods $ 49,132 $ 47,666 $ 52,083
Work-in-process 14,312 11,710 13,995
Raw materials and supplies 8,017 5,693 7,299
--------- --------- ---------
$ 71,461 $ 65,069 $ 73,377
========= ========= =========
Note 5 - Net Income Per Share
The weighted average number of shares of common stock and equivalents
outstanding used in computing net income per share is as follows:
1997 1996
---------- ----------
Three months ended June 30, 16,940 16,243
========== ==========
Six months ended June 30, 16,913 16,264
========== ==========
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Note 6 - Legal Matters
In July 1994, immediately following the Company's announcement of an inventory
misstatement at 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 then
Chairman, President and Chief Executive Officer, its then 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 August 1996, the Court
reconsidered its prior rulings and certified the case as a class action.
However, on August 11, 1997, the Court entered a new order requiring the
Plaintiff to show cause why the Class now should not be decertified. The
latest 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 motions to dismiss and for summary judgement on the
latest complaint and a Third Party Complaint against its former auditor for
contribution against any judgment adverse to the Company. The Court vacated a
previously scheduled trial date, and no new date has been set.
The Company presently is unable to predict the effect of the ultimate
resolution of the matter described above upon the Company's results of
operations and cash flows; as of this date, however, Management does not
expect that such resolution 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.
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.
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<PAGE>
Part I. Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Effective August 31, 1996, the Company liquidated its Mexican subsidiary,
Gibson de Mexico, S.A. de C.V. (Gibson de Mexico). The operating results for
Gibson de Mexico are included in the three and six months ended June 30, 1996,
but were not material to the consolidated results of operations.
Results of Operations - Three Months Ended June 30, 1997 Compared with Three
Months Ended June 30, 1996
Revenues in the second quarter of 1997 increased 4.6% to $92.7 million from
revenues of $88.6 million in the second quarter of 1996 reflecting growth at
The Paper Factory of Wisconsin, Inc. (The Paper Factory) and increased
international greeting card sales. Revenues also increased at Gibson's Card
Division resulting from lower returns and allowances. Overall, returns and
allowances were 12.5% of sales for the three months ended June 30, 1997
compared to returns and allowances of 18.0% for the comparable period in 1996
reflecting decreased seasonal and everyday return and allowance provisions for
domestic greeting card sales. The Company continues to face strong
competitive pressures with regard to both price and terms of sale.
Total operating expenses were $82.6 million in the second quarter of 1997
representing a 7.0% increase from total operating expenses of $77.2 million in
the second quarter of 1996. Cost of products sold as a percent of revenues
was 33.5% for the second quarter of 1997 versus 35.1% for the second quarter
of 1996. The decrease was primarily due to favorable product mix resulting in
lower product costs. Selling, distribution and administrative expenses as a
percent of revenues were 55.6% for the second quarter of 1997 versus 52.0% for
the second quarter of 1996 primarily due to increased selling and marketing
expenses related to new product programs and business activities and
international operations, a $1.1 million pretax charge for workforce reduction
costs at the Card Division, and growth at The Paper Factory, partially offset
by reduced bad debt expense at the Card Division. In addition, the second
quarter of 1996 included a one-time cancellation payment from a former Card
Division customer of $2.5 million partially offset by $.5 million in
non-recurring costs.
Interest expense, net reflected increased interest income on invested balances
in the second quarter of 1997 compared to the second quarter of 1996.
Pretax income for the second quarter of 1997 was $9.2 million compared to
pretax income for the second quarter of 1996 of $10.3 million. The effective
income tax rate was 42.0% for the second quarter of 1997 compared to an
effective income tax rate of 43.1% for the second quarter of 1996.
Net income for the second quarter of 1997 was $5.4 million compared with net
income of $5.9 million for the comparable period in 1996.
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<PAGE>
Results of Operations - Six Months Ended June 30, 1997 Compared with Six
Months Ended June 30, 1996
Revenues for the six months ended June 30, 1997 increased 3.2% to $192.3
million from revenues of $186.4 million for the six months ended June 30, 1996
reflecting growth at The Paper Factory and increased international card sales.
Revenues for Gibson's Card Division for the six months ended June 30, 1997
were flat in comparison to the comparable period in 1996 reflecting lower
shipments offset by lower returns and allowances. Overall, returns and
allowances were 17.6% of sales for the six months ended June 30, 1997 compared
to returns and allowances of 19.8% for the comparable period in 1996
reflecting decreased seasonal and everyday return and allowance provisions for
domestic greeting card sales.
Total operating expenses were $170.8 million for the six months ended June 30,
1997 representing a 4.3% increase from the total operating expenses of $163.7
million for the six months ended June 30, 1996. Cost of products sold as a
percent of revenues was 35.0% for the six months ended June 30, 1997 versus
35.1% for the six months ended June 30, 1996. The decrease was primarily due
to the sales mix offset by slightly higher costs at The Paper Factory and
international card sales. Selling, distribution and administrative expenses
as a percent of revenues were 53.8% for the six months ended June 30, 1997
versus 52.7% for the six months ended June 30, 1996 primarily due to increased
selling and marketing expenses related to new product programs and business
activities and international operations, growth at The Paper Factory,
increased professional fees and a $1.4 million pretax charge for workforce
reduction costs at the Card Division. These were offset by reduced bad debt
expense and the one-time cancellation payment from a former customer in the
second quarter of 1996 at the Card Division.
Interest expense, net reflected increased interest income on invested balances
for the six months ended June 30, 1997 compared to the six months ended June
30, 1996.
Pretax income for the six months ended June 30, 1997 was $19.8 million
compared to pretax income for the six months ended June 30, 1996 of $20.1
million. The effective income tax rate was 42.3% for the six months ended
June 30, 1997 compared to an effective income tax rate of 42.8% for the six
months ended June 30, 1996.
Net income for the six months ended June 30, 1997 was $11.4 million compared
with net income of $11.5 million for the comparable period in 1996.
Liquidity and Capital Resources
Cash provided by operating activities for the first six months of 1997 was
$30.4 million compared to $62.0 million for the comparable period in 1996.
The decrease from 1996 primarily results from up front payments on renewals of
sales agreements with existing customers and payment of income taxes as
opposed to the receipt of income tax refunds in the prior year.
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Cash used in investing activities in the first six months of 1997 was $8.5
million compared to cash provided by investing activities of $12.9 million in
the first six months of 1996. Cash used in investing activities represents
capital expenditures for the first six months of 1997. The reduction in
capital expenditures for the first six months of 1997 compared to the first
six months of 1996 represents the timing of certain capital projects. Cash
provided by investing activities for the first six months of 1996 included the
collection of the note receivable of $24.6 million from the sale of Cleo,
Inc., a former subsidiary of the Company, which was sold in mid-November 1995.
Cash used in financing activities for the six months ended June 30, 1997 was
$14.0 million compared to cash used in financing activities of $26.2 million
in the comparable period of 1996. The change reflects no short-term
borrowings at December 31, 1996 or June 30, 1997 compared to the repayment of
short-term borrowings outstanding at December 31, 1995 during the six months
ended June 30, 1996. On June 2, 1997, the Company prepaid $7.1 million in
principal, without premium, on its Senior Notes. This payment was in addition
to the $7.1 million principal amount the Company was scheduled to pay under
the Note Agreement. As a result of these payments and prior retirements of
the Senior Notes, all Senior Notes will be repaid no later than June 1999.
Effective April 22, 1997, the Company entered into a $40.0 million, 364-day
revolving bank credit line that will be utilized, if needed, for working
capital purposes. This credit line replaced the previous agreement that was
due to expire in late April 1997.
The Company continues to pursue the sale of The Paper Factory chain of retail
outlets. The decision to pursue the sale of The Paper Factory is a strategic
one and is based on the determination that the Company should focus on its
core business of greeting cards and related products. One desired condition
of a sale is that the Company receive a long-term contract to supply The Paper
Factory stores with product. A final decision to proceed with any sale will
depend on whether a suitable price and terms of sale can be agreed upon with
any potential buyer.
The Company is carrying significant cash balances. On July 30, 1997, the
Company announced a stock repurchase program of up to one million shares of
its common stock over the next twelve months. The repurchases will be made on
the open market or in privately negotiated transactions, at prevailing market
prices. The times and amounts of the repurchases will be determined by market
conditions. The stock acquired will be held as treasury stock and used in the
future in the Company's stock option plans and for general corporate purposes.
Other than the scheduled debt payments and the stock repurchase program
discussed above, there currently are no commitments for the use of this cash,
however, Management is evaluating various alternatives, including strategic
acquisitions related to its core business.
On July 17, 1997, Woolworth Corporation announced that it will be closing more
than 400 F. W. Woolworth stores. The Company does not anticipate any material
adverse effect in 1997 related to this announcement and is currently
evaluating the potential impact going forward.
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On August 4, 1997, the Teamsters Union began a strike against the United
Parcel Service of America, Inc. (UPS), which handles a majority of the
Company's domestic shipments. A prolonged strike against UPS could adversely
impact the Company's operating results in the third and fourth quarters as a
result of reduced shipments and added costs of transportation; however, the
Company is unable to determine the amount of the impact at this time.
Management believes that its cash flow 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 Note
6 of Notes to Condensed Consolidated Financial Statements)
Except for the historical information contained herein, the matters discussed
in this report are forward-looking statements which involve risks and
uncertainties, including but not limited to economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices.
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Part II. Other Information
Item 1. Legal Proceedings
The information presented in Note 6 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
In accordance with the Company's 1996 Nonemployee Director Stock Plan, on
April 24, 1997 the Company issued 461 shares of common stock to each of the
nonemployee directors: G. M. Gibson, C. D. Lindberg, A. L. Pezzillo, C. St.
Martin, F. Stanton and C. A. Wainwright. The shares were issued in lieu of
cash consideration for approximately one-half of the directors' annual
retainer fees. These issuances were exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held April 24, 1997
for the following purposes:
1) To elect two directors;
2) To approve the Gibson Greetings, Inc. 1991 Stock Incentive Plan as amended
and restated.
The results of the matters voted on are as follows:
Against
or Broker
For Withheld Abstentions Non-Votes
---------- -------- ----------- ---------
Election of Directors:
George M. Gibson 14,334,265 1,102,527 - -
Frank Stanton 14,331,258 1,105,534 - -
The 1991 Stock Incentive
Plan, as amended and
restated 9,876,988 3,696,586 518,130 345,088
Item 5. Other Information
Not applicable.
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Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 10(a) Amendment No. 1 and Restatement dated April 4,
1997 to Form of Credit Agreement dated April 26,
1996 by and among Gibson Greetings, Inc., The
Lenders Party Thereto and The Bank of New York, as
Agent
Exhibit 10(b) Employment Agreement between Gibson Greetings,
Inc. and K. L. Kemp, dated May 13, 1997.
a) Exhibit 27 Financial Data Schedule (contained in EDGAR filing
only).
b) Reports on Form 8-K None.
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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: August 14, 1997 By:/s/ Frank J. O'Connell
-----------------------
Frank J. O'Connell
Chairman, President and
Chief Executive Officer
By:/s/ Paul W. Farly
-----------------------
Paul W. Farley
Vice President - Controller and
Assistant Treasurer
Principal Accounting Officer
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Exhibit 10(a)
AMENDMENT NO. 1 AND RESTATEMENT
AMENDMENT NO. 1 AND RESTATEMENT (this "Amendment"), dated as of April 4,
1997, to the Credit Agreement, dated as of April 26, 1996 (the "Credit
Agreement"), by and among Gibson Greetings, Inc., a Delaware corporation (the
"Borrower"), the lenders party thereto from time to time (each a "Lender" and,
collectively, the "Lenders"), and The Bank of New York, as agent for the
Lenders (in such capacity, the "Agent").
RECITALS
I. Capitalized terms used herein which are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Credit Agreement.
II. The Borrower has requested that the Agent agree to amend and restate
the Credit Agreement upon the terms and conditions contained herein, and the
Agent is willing so to agree.
Accordingly, in consideration of the Recitals and the covenants and
conditions hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Borrower and the Agent hereby agree that the Credit Agreement is hereby
amended in accordance with the following and, immediately thereafter, shall be
deemed to be restated in its entirety:
1. The definition of "Commitment Termination Date" in Section 1.1 of the
Credit Agreement is amended by deleting the date, "April 24, 1997" therefrom,
and substituting therefor the date, "April 24, 1998".
2. The definition of "Interest Coverage" in Section 1.1 of the Credit
Agreement is amended by inserting the phrase "minus interest income"
immediately following the term "Interest Expense" appearing therein.
3. Subsection (a) of Section 3.4 of the Credit Agreement is amended by
deleting the term, "1.00%" therefrom, and substituting therefor the following:
(i) at any time when Leverage is less than 20% and Interest Coverage is
greater than 425% based on the financial statements most recently
delivered pursuant to Section 7.7(a) or Section 7.7(c), 0.875%, and (ii)
at any other time, 1.00%.
4. Section 3.11 of the Credit Agreement is amended by deleting the term,
"0.375%" therefrom, and substituting therefor the following:
(x) at any time when Leverage is less than 20% and Interest Coverage is
greater than 425% based on the financial statements most recently
delivered pursuant to Section 7.7(a) or Section 7.7(c), 0.300%, and (y) at
any other time, 0.375%.
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5. Paragraphs 1 - 4 of this Amendment shall not be effective until such
date as each of the following conditions shall have been satisfied:
(a) The Agent shall have received counterparts of this Amendment
executed by the Borrower, the Guarantors and each of the Lenders.
(b) The Agent shall have received an opinion of counsel to the
Borrower and the Guarantors in form and substance reasonably satisfactory
to the Agent.
(c) The Agent shall have received a certificate, in all respects
satisfactory to the Agent, of the Secretary of each of the Borrower and
each Guarantor (i) attaching a true and complete copy of the resolutions
of its Board of Directors and of all documents evidencing other necessary
corporate action (in form and substance satisfactory to the Agent) taken
by it to authorize the execution and delivery of this Amendment and the
transactions contemplated hereby, and (ii) setting forth the incumbency of
its officer or officers who may sign this Amendment, including therein a
signature specimen of such officer or officers.
(d) The Borrower shall have paid the reasonable fees and
disbursements of counsel to the Agent which shall have accrued up to the
date hereof.
(e) On and as of the date hereof, there shall exist no Event of
Default or any event or condition which, with the giving of notice, the
lapse of time, or any other condition, would, unless cured or waived,
become an Event of Default, and all of the representations and warranties
of the Borrower and the Guarantors contained in the Loan Documents shall
be true and correct with the same effect as though such representations
and warranties had been made on the date hereof.
(f) The Agent shall have received such other documents, each in
form and substance reasonably satisfactory to the Agent, as the Agent
shall reasonably require in connection with this Amendment.
(g) All legal matters incident to the execution and delivery of
this Amendment shall be reasonably satisfactory to Special Counsel.
6. On the date hereof the Borrower hereby (a) reaffirms and admits the
validity and enforceability of the Loan Documents and all of its obligations
thereunder, (b) agrees and admits that it has no defenses to or offsets
against any such obligation, (c) represents and warrants that no Event of
Default, or event or condition which, with the giving of notice, the lapse of
time, or any other condition, would, unless cured or waived, become an Event
of Default, has occurred and is continuing, and that each of the
representations and warranties made by it in the Loan Documents is true and
correct with the same effect as though such representation and warranty had
been made on such date, and (d) certifies that no amendment, supplement, or
modification to the certificate of incorporation or bylaws of the Borrower has
been made since April 26, 1996.
7. In all other respects, the Loan Documents shall remain in full force
and effect, and no amendment in respect of any term or condition of any Loan
Document contained herein shall be deemed to be an amendment in respect of any
other term or condition contained in any Loan Document.
-19-
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<PAGE>
8. This Amendment may be executed in any number of counterparts all of
which, taken together, shall constitute one Amendment. In making proof of
this Amendment, it shall only be necessary to produce the counterpart executed
and delivered by the party to be charged.
9. THIS AMENDMENT IS BEING EXECUTED AND DELIVERED IN, AND IS INTENDED TO
BE PERFORMED IN, THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCEABLE
IN ACCORDANCE WITH, AND BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Amendment to be
executed on its behalf.
GIBSON GREETINGS, INC.
By: /s/Paul W. Farley
--------------------------------
Name: Paul W. Farley
Title: Assistant Treasurer
THE BANK OF NEW YORK, in its
capacity as a Lender and in
its capacity as the Agent
By: /s/Edward J. Dougherty III
--------------------------------
Name: Edward J. Dougherty III
Title: Vice President
Each of the following Lenders consents to the execution and delivery of this
Amendment by the Agent and agrees to all of the terms and conditions hereof:
FIFTH THIRD BANK
By: /s/Andrew K. Hauck
--------------------------------
Name: Andrew K. Hauck
Title: Vice President
HARRIS TRUST AND SAVINGS BANK
By: /s/William A. McDonnell
--------------------------------
Name: William A. McDonnell
Title: Vice President
-20-
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<PAGE>
NBD BANK, N.A.
By: /s/Christopher M. Caniff
--------------------------------
Name: Christopher M. Caniff
Title: Vice President
THE SANWA BANK, LIMITED,
CHICAGO BRANCH
By: /s/Martin H. McGinty
--------------------------------
Name: Martin H. McGinty
Title: Associate
THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By: /s/Hiroyuki Iwami
--------------------------------
Name: Hiroyuki Iwami
Title: Joint General Manager
Each of the Guarantors consents to the execution and delivery of this
Amendment by the Agent and Borrower and by signing below, indicates its
reaffirmation of its obligations under the Subsidiary Guaranty:
THE PAPER FACTORY OF WISCONSIN, INC.
By: /s/William B. Heeter
--------------------------------
Name: William B. Heeter
Title: President
-21-
PAGE
<PAGE>
Exhibit 10(b)
May 13, 1997
Ms. Karen L. Kemp
115 Curley Drive
Orchard Park, NY 14127
Dear Karen:
Gibson Greetings, Inc. and I are very pleased that you have agreed to serve as
Senior Vice President, Human Resources of Gibson Greetings, Inc. ("the
Company"). As Senior Vice President, Human Resources, you will report
directly to me. 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, commencing April 22,
1997. This Agreement will extend indefinitely until terminated by the
Company, or by you upon thirty days' advance written notice to the
Company. In the event that this Agreement and your employment are
terminated by the Company other than for cause, you will be entitled to
receive in a lump sum from the Company in lieu of all other monies or
benefits provided under this Agreement, and in lieu of severance pay
pursuant to Company policy, an amount equal to your base salary for a
period of one year or to severance pay in an amount equal to 24 months'
salary. The amount of said severance pay shall, during your first year of
employment, reduce by one month for each month you are employed. This
Agreement will at all times remain subject to earlier termination for
cause.
2. Your annual salary will be $175,000, which amount will be reviewed every
fifteen months and which may be adjusted from time to time by the Company
in accordance with the Company's salary administration program.
3. A signing bonus in the amount of $30,000 will be paid to you at the time
you close on the home you will purchase in Cincinnati.
4. Every three years, you will be provided a new automobile of such class as
may be set forth in the Company's then current automobile program, which
automobile will be owned or leased by the Company.
-22-
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<PAGE>
5. As a participant in the Company's Management Bonus Plan, you will be
eligible for an annual bonus for 1997 and for each calendar year during
the term of this Agreement up to a maximum of 112.5% of your base salary,
subject to the terms and conditions of the Management Bonus Plan in effect
for each such year.
6. As additional consideration for this Agreement, and contingent upon
approval by the Compensation Committee, you will be granted a stock option
for 30,000 shares of the common stock of the Company at the closing market
price of the stock on the official grant date. One third of such options
shall become vested on each of the first three anniversaries of the grant.
Such vesting shall be conditioned upon your continuing to be employed by
the Company on each such date.
7. The Company will reimburse you in accordance with the terms of the
Company's Executive Relocation and Moving Expense policy for your
reasonable expenses of moving from Orchard Park, New York to Cincinnati,
Ohio, including, but not limited to: household moving costs; your travel
expenses for house-hunting trips as approved in advance by the Company;
and, realtor fees and transfer taxes on the sale of your present home in
Orchard Park. The Company will reimburse you for loss (if any) on the
sale of your home in Orchard Park, New York as follows: 100% of the first
$25,000 of loss and 50% of any additional loss up to a maximum of $75,000
of loss. "Loss" as used hereunder shall mean the purchase price actually
paid by you for your home in Orchard Park plus the cost of documented
capital improvements less the sales price received by you. The amount
reimbursed to you by the Company shall be grossed up for income taxes owed
by you on said amount.
8. You will be covered by the Company's special benefit programs for
executives which include: executive physical examinations, life
insurance, tax preparation and estate planning assistance. The amount of
your life insurance shall be three (3) times your annual salary, not to
exceed $600,000.
9. Upon approval of the Compensation Committee, you will be named a
participant in the Company's ERISA Makeup Plan and its Supplemental
Executive Retirement Plan (SERP).
10. You will be eligible for participation in all other benefit plans
available to the employees of the Company, in accordance with the terms of
those plans, including participation in the Voluntary Deferred
Compensation Plan, the 401(k) Plan, the Retirement Income Plan and health
insurance.
11. You will be eligible for four weeks of paid vacation during each year this
Agreement remains in effect.
-23-
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<PAGE>
12. Your employment and this agreement shall terminate automatically upon your
disability or death. All other benefits due you following termination of
your employment and this agreement for disability or death shall be
determined in accordance with the plans, policies and practices of the
Company.
13. 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. As used in this Agreement, "cause" shall
mean fraud, gross negligence, or willful misconduct in the performance of
your duties or a willful and material breach of this Agreement.
Termination of employment shall terminate this Agreement with the
exception of the provisions of Paragraphs 14, 15 and 16.
14. Also in the event you voluntarily terminate your employment hereunder or
retire, or if the Company terminates this Agreement and your employment
for cause, you agree that for a period of one year 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 and/or sale at
wholesale 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. If the Company
chooses to terminate this Agreement and you continue to be employed by the
Company as an employee, agent, consultant or otherwise, you agree that
this paragraph shall continue to bind you for a period of one (1) year
after your separation from the Company as an employee, agent, consultant
or otherwise.
15. In the event that your employment with the Company is terminated for any
reason, by you or the Company, you agree that, for a period of one year
following such termination of employment, you shall not in any way solicit
or recruit any employee of the Company, its affiliates or subsidiaries,
for any employment, consulting or other arrangement for your benefit or
that of any third party.
-24-
PAGE
<PAGE>
16. In connection with this Agreement, you may receive confidential
information of the Company. You agree, both during the term of this
Agreement and after termination, 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, "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. You agree that this paragraph will continue to
bind you notwithstanding the termination of this Agreement or your
employment for any reason whatsoever. If the Company chooses to terminate
this Agreement and you continue to be employed by the Company as an
employee, agent, consultant or otherwise, you agree that this paragraph
will continue to bind you after your separation from the Company as an
employee, agent or consultant.
17. Other than as set forth in Paragraph 1, 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.
18. This Agreement will 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 entity which may acquire all, or substantially all,
of the Company's assets and business.
19. If any provision of this Agreement is later deemed to be void, that
provision may be stricken and the remaining portions of this Agreement
enforced as if the provision so stricken had never been included herein.
-25-
PAGE
<PAGE>
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/ Frank J. O'Connell
Frank J. O'Connell
President and
Chief Executive Officer
FJO/HLC/dk
ACCEPTED AND AGREED TO:
/s/ Karen L. Kemp
- --------------------------
Karen L. Kemp
Date: May 13, 1997
-------------
employ\kemp.agt
-26-
PAGE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Gibson
Greeting, Inc.'s Quarterly Report on Form 10-Q for the six months ended June
30, 1997, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 106033
<SECURITIES> 0
<RECEIVABLES> 53660
<ALLOWANCES> 38591
<INVENTORY> 71461
<CURRENT-ASSETS> 232888
<PP&E> 185760
<DEPRECIATION> 96119
<TOTAL-ASSETS> 431215
<CURRENT-LIABILITIES> 100849
<BONDS> 0
<COMMON> 169
0
0
<OTHER-SE> 269933
<TOTAL-LIABILITY-AND-EQUITY> 431215
<SALES> 192276
<TOTAL-REVENUES> 192276
<CGS> 67286
<TOTAL-COSTS> 170821
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4636
<INCOME-PRETAX> 19789
<INCOME-TAX> 8365
<INCOME-CONTINUING> 11424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11424
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
</TABLE>
