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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 March 31, 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: 16,283,272 shares of common
stock, par value $.01, outstanding at April 30, 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>
March 31, December 31, March 31,
1997 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 113,863 $ 98,155 $ 48,910
Trade receivables, net 30,521 42,423 32,469
Inventories 62,753 65,069 69,012
Income taxes receivable - - 10,309
Prepaid expenses 2,676 2,958 3,667
Deferred income taxes 42,571 44,598 41,597
--------- --------- ---------
Total current assets 252,384 253,203 205,964
PLANT AND EQUIPMENT, net 90,246 92,649 89,573
DEFERRED INCOME TAXES 17,478 16,592 14,986
OTHER ASSETS, net 89,950 89,115 100,004
--------- --------- ---------
$ 450,058 $ 451,559 $ 410,527
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Debt due within one year $ 7,903 $ 7,901 $ 9,896
Accounts payable 12,915 13,420 9,597
Income taxes payable 12,632 15,816 -
Other current liabilities 77,308 81,438 69,415
--------- --------- ---------
Total current liabilities 110,758 118,575 88,908
LONG-TERM DEBT 40,630 40,898 46,275
SALES AGREEMENT PAYMENTS DUE
AFTER ONE YEAR 13,936 14,274 17,299
OTHER LIABILITIES 21,880 21,496 22,224
--------- --------- ---------
Total liabilities 187,204 195,243 174,706
--------- --------- ---------
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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,
16,763,607 shares issued at March 31,
1997, 16,708,059 shares issued at
December 31, 1996 and 16,585,130
shares issued at March 31, 1996 168 167 166
Paid-in capital 48,164 47,474 46,050
Retained earnings 219,828 213,755 197,385
Foreign currency adjustment 645 871 (1,829)
--------- --------- ---------
268,805 262,267 241,772
Less treasury stock, at cost,
494,601 shares 5,951 5,951 5,951
--------- --------- ---------
Total stockholders' equity 262,854 256,316 235,821
--------- --------- ---------
$ 450,058 $ 451,559 $ 410,527
========= ========= =========
</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
March 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
REVENUES $ 99,613 $ 97,779
--------- ---------
COSTS AND EXPENSES
Operating expenses:
Cost of products sold 36,214 34,338
Selling, distribution and
administrative expenses 52,034 52,207
--------- ---------
Total operating expenses 88,248 86,545
--------- ---------
OPERATING INCOME 11,365 11,234
--------- ---------
Financing expenses, net:
Interest expense 2,254 2,147
Interest income (1,448) (658)
--------- ---------
Total financing expenses, net 806 1,489
--------- ---------
INCOME BEFORE INCOME TAXES 10,559 9,745
Income tax provision 4,486 4,149
--------- ---------
NET INCOME $ 6,073 $ 5,596
========= =========
Net income per share $ 0.36 $ 0.34
========= =========
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>
Three Months Ended
March 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,073 $ 5,596
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation including write-down of display
fixtures 5,517 5,482
Loss on disposal of plant and equipment 323 337
Deferred income taxes 1,141 3,173
Amortization of deferred costs and intangibles
and write-down of deferred costs 6,226 6,295
Change in assets and liabilities:
Decrease in trade receivables, net 11,902 14,151
(Increase) decrease in inventories 2,316 (709)
Decrease in income tax receivable - 389
Decrease in prepaid expenses 282 387
Increase in other assets, net of amortization (7,061) (845)
Increase (decrease) in accounts payable (505) 1,602
Decrease in income taxes payable (3,184) -
Decrease in other current liabilities (4,130) (2,227)
Increase (decrease) in other liabilities 46 (998)
All other, net (11) 34
--------- ---------
Total adjustments 12,862 27,071
--------- ---------
Net cash provided by operating activities 18,935 32,667
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (3,706) (4,722)
Proceeds from sale of plant and equipment 54 83
Collection of note receivable from sale of
Cleo, Inc. - 24,574
--------- ---------
Net cash provided by (used in)
investing activities (3,652) 19,935
--------- ---------
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term borrowings - (18,998)
Payments on long-term debt (266) (258)
Issuance of common stock 691 9
--------- ---------
Net cash provided by (used in)
financing activities 425 (19,247)
--------- ---------
NET INCREASE IN CASH AND EQUIVALENTS 15,708 33,355
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 98,155 15,555
--------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD $ 113,863 $ 48,910
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 78 $ 203
Income taxes 6,528 588
</TABLE>
[FN]
See accompanying notes to condensed consolidated financial statements.
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GIBSON GREETINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 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 March 31, 1997, December 31, 1996 and March 31, 1996, the
results of its operations for the three months ended March 31, 1997 and 1996
and its cash flows for the three months ended March 31, 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 recently 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 first
quarter and annual results and to the 1997 first quarter 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.
Note 2 - Seasonal Nature of Business
Because of the seasonal nature of the Company's business, results of
operations for interim periods are not necessarily indicative of results for
the full year.
Note 3 - Trade Receivables
Trade receivables consist of the following:
March 31, December 31, March 31,
1997 1996 1996
--------- ----------- ---------
Trade receivables $ 84,094 $ 101,712 $ 84,320
Less reserve for returns,
allowances, cash discounts
and doubtful accounts 53,573 59,289 51,851
--------- --------- ---------
$ 30,521 $ 42,423 $ 32,469
========= ========= =========
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Note 4 - Inventories
Inventories consist of the following:
March 31, December 31, March 31,
1997 1996 1996
--------- --------- ---------
Finished goods $ 46,196 $ 47,666 $ 51,328
Work-in-process 9,696 11,710 10,329
Raw materials and supplies 6,861 5,693 7,355
--------- --------- ---------
$ 62,753 $ 65,069 $ 69,012
========= ========= =========
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 March 31, 16,745 16,285
========== ==========
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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. 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 case currently
is scheduled to be tried in June 1997.
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.
Three lawsuits in the New Castle County, Delaware Court of Chancery (Crandon
Capital Partners v. Cooney, et al., Weiss v. Lindberg, et al. and Krim, et al.
v. Pezzillo, et al.), disclosed in previous filings (see the Company's annual
report on Form 10-K for the year ended December 31, 1996), all have been
dismissed without prejudice. No consideration was paid by the Company or any
of the other defendants.
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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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 first quarter of 1996, but are not
material to the consolidated results of operations.
Results of Operations - Three Months Ended March 31, 1997 Compared with Three
Months Ended March 31, 1996
Revenues in the first quarter of 1997 increased 1.9% to $99.6 million from
revenues of $97.8 million in the first quarter of 1996 reflecting growth at
The Paper Factory of Wisconsin, Inc. (The Paper Factory) and increased
international card sales partially offset by a decline in domestic greeting
card net sales. The decline in domestic card sales reflects a volume decrease
due to previously announced losses of greeting card customers and higher
returns and allowances, partially offset by new rooftops and increased selling
prices. Overall, returns and allowances were 21.8% of sales for the three
months ended March 31, 1997 compared to returns and allowances of 21.3% for
the comparable period in 1996 reflecting increased seasonal and everyday
return and allowance provisions for domestic and international greeting card
sales. The Company continues to face strong competitive pressures with regard
to both price and terms of sale.
Total operating expenses were $88.2 million in the first quarter of 1997
representing a 2.0% increase from the total operating expenses of $86.5
million in the first quarter of 1996. Cost of products sold as a percent of
revenues was 36.4% for the first quarter of 1997 versus cost of product sold
as a percent of revenues of 35.1% for the first quarter of 1996. The increase
was primarily due to the sales mix between operating units combined with
higher costs at The Paper Factory. Selling, distribution and administrative
expenses as a percent of revenues were 52.2% for the first quarter of 1997
versus 53.4% for the first quarter of 1996 primarily due to the accrual of
certain one-time contractual termination costs and related expenses for the
Company's former Chief Executive Officer in the first quarter of 1996 and
reduced bad debt expense at the Card Division for the first quarter of 1997.
These were offset by increased selling and marketing expenses related to new
products in both domestic and international operations and growth at The Paper
Factory.
Interest expense, net reflected increased interest income on invested balances
in the first quarter of 1997 compared to the first quarter of 1996.
Pretax income for the first quarter of 1997 was $10.6 million compared to
pretax income for the first quarter of 1996 of $9.7 million. The effective
income tax rate was 42.5% for the first quarter of 1997 compared to an
effective income tax rate of 42.6% for the first quarter of 1996.
Net income for the first quarter of 1997 was $6.1 million compared with net
income of $5.6 million for the comparable period in 1996.
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Liquidity and Capital Resources
Cash provided by operating activities for the first three months of 1997 was
$18.9 million compared to $32.7 million for the comparable period in 1996.
The decrease from 1996 reflected a reduction in trade receivables outstanding
at the beginning of the year, payments to customers under sales agreements and
payment of income taxes, partially offset by a decrease in inventory levels.
Cash used in investing activities in the first quarter of 1997 was $3.7
million compared to cash provided by investing activities of $19.9 million in
the first quarter of 1996. Cash used in investing activities represents
capital expenditures for the first quarter of 1997. The reduction in capital
expenditures for the first quarter 1997 compared to the first quarter of 1996
represents the timing of capital projects. Capital expenditures for 1997 are
expected to be comparable to 1996 levels. Cash provided by investing
activities for the first quarter 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 provided by financing activities for the three months ended March 31,
1997 was $.4 million compared to cash used by financing activities of $19.2
million in the comparable period of 1996. The change reflects no short-term
borrowings at December 31, 1996 compared to the repayment of short-term
borrowings outstanding at December 31, 1995.
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 replaces the previous agreement that was
due to expire in late April 1997.
Under the terms of its Senior Note Agreement, the Company provided notice to
the Noteholders on April 29, 1997 that it will prepay $7.1 million in
principal, without premium, on June 2, 1997. This payment is in addition to
the $7.1 million principal amount the Company is required to pay under the
Note Agreement. As a result of these payments and prior retirements of Notes,
all Notes will be repaid no later than June 1999.
In early May 1997, the Company decided to seek a buyer for The Paper Factory
chain of retail outlets. The decision 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 the 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. Other than the Senior Note
prepayment 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.
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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
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27 Financial Data Schedule (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: May 9, 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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<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 quarter ended March 31,
1997, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 113863
<SECURITIES> 0
<RECEIVABLES> 84094
<ALLOWANCES> 53573
<INVENTORY> 62753
<CURRENT-ASSETS> 252384
<PP&E> 183134
<DEPRECIATION> 92888
<TOTAL-ASSETS> 450058
<CURRENT-LIABILITIES> 110758
<BONDS> 0
<COMMON> 168
0
0
<OTHER-SE> 262686
<TOTAL-LIABILITY-AND-EQUITY> 450058
<SALES> 99613
<TOTAL-REVENUES> 99613
<CGS> 36214
<TOTAL-COSTS> 88248
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2254
<INCOME-PRETAX> 10559
<INCOME-TAX> 4486
<INCOME-CONTINUING> 6073
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6073
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
