<PAGE> 1
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, 1998
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: 16,407,295 shares of
common stock, par value $.01, outstanding at May 8, 1998.
<PAGE> 2
PART I. ITEM 1. FINANCIAL STATEMENTS
GIBSON GREETINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
--------- ------------ ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $111,500 $114,267 $113,863
Trade receivables 30,569 30,325 30,521
Inventories 59,013 59,424 62,753
Prepaid expenses 4,350 4,435 2,676
Deferred income taxes 37,717 41,399 42,571
-------- -------- --------
Total current assets 243,149 249,850 252,384
PLANT AND EQUIPMENT, NET 71,231 85,376 90,246
DEFERRED INCOME TAXES 27,310 18,524 17,478
OTHER ASSETS, NET 92,617 89,572 89,950
-------- -------- --------
$434,307 $443,322 $450,058
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Debt due within one year $ 7,592 $ 7,890 $ 7,903
Accounts payable 16,100 11,810 12,915
Income taxes payable 5,041 14,502 12,632
Other current liabilities 70,783 68,443 77,308
-------- -------- --------
Total current liabilities 99,516 102,645 110,758
LONG-TERM DEBT 12,161 24,158 40,630
SALES AGREEMENT PAYMENTS DUE AFTER ONE YEAR 11,924 11,612 13,936
OTHER LIABILITIES 39,863 23,163 21,880
-------- -------- --------
Total liabilities 163,464 161,578 187,204
-------- -------- --------
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, 17,058,339, 17,023,306
and 16,763,607 shares issued, respectively 170 170 168
Paid-in capital 53,614 52,872 48,164
Retained earnings 226,438 235,353 219,828
Accumulated other comprehensive income 796 733 645
-------- -------- --------
281,018 289,128 268,805
Less treasury stock, at cost, 691,601,
556,601 and 494,601 shares,
respectively 10,175 7,384 5,951
-------- -------- --------
Total stockholders' equity 270,843 281,744 262,854
-------- -------- --------
$434,307 $443,322 $450,058
======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
GIBSON GREETINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1997
---- ----
<S> <C> <C>
REVENUES $101,749 $99,613
-------- -------
COST AND EXPENSES
Operating expenses:
Cost of products sold 39,606 36,214
Selling, distribution and administrative expenses 51,687 52,034
Restructuring charge 26,100 --
-------- -------
Total operating expenses 117,393 88,248
-------- -------
OPERATING INCOME (LOSS) (15,644) 11,365
-------- -------
Financing expenses:
Interest expense 1,175 2,254
Interest income (1,696) (1,448)
-------- -------
Total financing expenses, net (521) 806
-------- -------
INCOME (LOSS) BEFORE INCOME TAXES (15,123) 10,559
Income tax provision (benefit) (6,208) 4,486
-------- -------
NET INCOME (LOSS) $ (8,915) $ 6,073
======== =======
NET INCOME (LOSS) PER SHARE:
Basic $ (0.54) $ 0.37
======== =======
Diluted $ (0.54) $ 0.36
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
GIBSON GREETINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (8,915) $ 6,073
Adjustments to reconcile net income (loss) to net -------- --------
cash provided by operating activities:
Depreciation including write-down of display fixtures 5,630 5,517
Impairment of plant and equipment 12,967 --
Loss on disposal of plant and equipment 100 323
Deferred income taxes (5,104) 1,141
Amortization of deferred costs and intangibles 4,879 6,226
Change in assets and liabilities:
Trade receivables, net (244) 11,902
Inventories 411 2,316
Prepaid expenses 85 282
Other assets, net of amortization (7,924) (7,061)
Accounts payable 4,290 (505)
Income taxes payable (9,461) (3,184)
Other current liabilities 2,340 (4,130)
Other liabilities 4,972 46
All other, net 12 (11)
-------- --------
Total adjustments 12,953 12,862
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,038 18,935
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (4,514) (3,706)
Proceeds from sale of plant and equipment 13 54
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (4,501) (3,652)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt, net (255) (266)
Issuance of common stock 742 691
Acquisition of common stock for treasury (2,791) --
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,304) 425
-------- --------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (2,767) 15,708
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 114,267 98,155
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $111,500 $113,863
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,211 $ 78
Income taxes 8,401 6,528
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
GIBSON GREETINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND RESTRUCTURING PLAN
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, 1998, December 31, 1997 and March 31, 1997, the results of its
operations for the three months ended March 31, 1998 and 1997 and its cash flows
for the three months ended March 31, 1998 and 1997. 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, 1997.
Use of Estimates -
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
Comprehensive Income -
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (SFAS) No. 130 - "Reporting Comprehensive Income" in June
1997. The Company adopted SFAS No. 130 in the first quarter of 1998.
Comprehensive income (loss) was $(8,852) and $5,847 for the quarters ended March
31, 1998 and 1997, respectively, and includes foreign currency translation
adjustments, net of taxes, of $63 and $(226).
Restructuring Plan -
On March 31, 1998, the Company announced a restructuring plan (the Plan) under
which the Company will outsource its principal manufacturing operations
currently performed at its Cincinnati, Ohio headquarters. Implementation of the
Plan will begin in the second quarter of 1998 and is expected to be
substantially complete by the end of the fourth quarter of 1998. The total cost
of the Plan is expected to be $26,100 before income taxes and has been
recognized as a separate component of operating expenses in the first quarter of
1998. In addition, the Company will invest an estimated $30,000 to $35,000 over
the next 30 months to significantly upgrade or replace its existing business
information systems. The investment in business information systems will be
expensed as incurred or capitalized as appropriate in accordance with the
recently issued AICPA Statement of Position 98-1 - "Accounting for the Costs of
Software Developed or Obtained for Internal Use." Management believes these
plans will enhance the Company's flexibility and operating efficiency while
lowering fixed costs and improving customer service.
The Company has recognized within the total restructuring cost approximately
$17,100 representing costs related to the facility, $5,800 related to
involuntary employee severance, and $3,200 in other costs. The facility costs of
$17,100 include an adjustment of $12,967 to write-off the capitalized lease
asset, leasehold improvements, and certain furniture and equipment (included in
plant and equipment) associated with the Cincinnati manufacturing operations;
and a reserve of $4,133 included in other liabilities representing the amount by
which total future lease commitments and related operating costs of the
Cincinnati facility exceed the recorded lease obligation and estimated sublease
income over the remaining term of the lease. The recorded lease obligation,
representing the portion of the capital lease obligation (see Note 5) associated
with the Cincinnati facility of $12,040 has been reclassified from debt to other
liabilities. Involuntary employee severance costs and other costs are included
in other current liabilities. As a result of the restructuring and the
information systems plans, approximately 480 employees will be terminated,
consisting of approximately 415 plant operations and manufacturing personnel and
approximately 65 employees from various support and administrative functions
within the Company. The involuntary severance package which was communicated to
employees on March 31, 1998 includes salary continuation, subsidized medical
coverage during the salary continuation period, professional outplacement
assistance and career counseling. The termination of these employees will result
in the curtailment of a defined benefit pension plan. The curtailment is
expected to result in a gain of approximately $3,900 before income taxes, as
estimated by an actuary, which will be recognized as positions are eliminated.
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.
5
<PAGE> 6
NOTE 3 - TRADE RECEIVABLES
Trade receivables consist of the following:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Trade receivables $75,915 $85,537 $84,094
Less reserves for returns, allowances,
cash discounts and doubtful accounts 45,346 55,212 53,573
------- ------- -------
$30,569 $30,325 $30,521
======= ======= =======
</TABLE>
NOTE 4 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Finished goods $42,003 $43,098 $46,196
Work-in-process 10,100 10,082 9,696
Raw materials and supplies 6,910 6,244 6,861
------- ------- -------
$59,013 $59,424 $62,753
======= ======= =======
</TABLE>
NOTE 5 - DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Senior notes bearing interest at 9.33%,
with annual serial maturities through
1999 $11,428 $11,428 $25,714
Notes payable to former shareholders of
The Paper Factory bearing interest
at 5.01%, payable in annual installments
of $2,019 -- -- 2,019
Industrial revenue bonds bearing interest at
9.25%, payable in semi-annual installments
of $300, secured by plant and equipment 300 600 900
Other notes bearing interest at a weighted
average rate of 5.20%, payable in quarterly
installments, secured by the same assets
securing the industrial revenue bonds 265 301 406
------- ------- -------
11,993 12,329 29,039
Capital lease obligation payable in monthly
installments through 2013, net of $12,040
included in other liabilities at March
31, 1998 7,760 19,719 19,494
------- ------- -------
19,753 32,048 48,533
Less debt due within one year 7,592 7,890 7,903
------- ------- -------
$12,161 $24,158 $40,630
======= ======= =======
</TABLE>
6
<PAGE> 7
Effective April 24, 1998, the Company entered into a $30,000, 364-day revolving
credit agreement that will provide for borrowings in an amount adequate for the
Company's needs over the term of the facility. This facility replaced a 364-day
revolving credit agreement providing $40,000 which expired in late April 1998.
No borrowings were outstanding under the former agreement at March 31, 1998.
The annual principal payments due on long-term debt (excluding capital lease
obligation) are $7,592 and $4,401 for the years ended March 31, 1999 and 2000,
respectively. Under the terms of its Senior Note Agreement, the Company provided
notice to the Noteholders on April 28, 1998 that it will prepay $4,285 in
principal, without premium, on June 1, 1998. This payment is in addition to the
$7,143 principal amount the Company is required to pay under the Note Agreement.
As a result of these payments and prior retirements, all Senior Notes will be
repaid in their entirety.
In connection with the sale of Cleo Inc. (Cleo), a former wholly-owned
subsidiary, the Company renegotiated its long-term lease agreement for certain
of its principal facilities. The initial lease term of this amended agreement
runs through November 30, 2013, with one 10-year renewal option available. The
basic rent under the lease contains scheduled rent increases every five years,
including the renewal period. The lease contains a purchase option in 2005 (and
again in 2010) at the fair market value of the properties at the date of
exercise. As a condition of the lease, all property taxes, insurance costs and
operating expenses are to be paid by the Company. For accounting purposes, this
lease has been treated as a capital lease.
Minimum rental commitments under noncancelable capital lease obligation,
including the amount recorded in other liabilities, as of March 31, 1998 are as
follows:
Capital
Year Ending March 31, Lease
----------------------------- -------
1999 $ 3,100
2000 3,100
2001 3,358
2002 3,720
2003 3,720
Thereafter 48,001
-------
Net minimum commitments 64,999
Less amount representing interest 45,199
-------
Present value of net minimum lease commitments $19,800
=======
NOTE 6 - COMPUTATION OF NET INCOME (LOSS) PER SHARE
The Company adopted SFAS No. 128 - "Earnings per Share" in the fourth quarter of
1997. All previously reported earnings per share (EPS) amounts have been
restated to conform to the new presentation. The effect on EPS assuming the
exercise of contracts to issue common stock was antidilutive in the first
quarter of 1998, therefore such exercises were not considered.
The following table reconciles basic weighted average shares outstanding to
diluted weighted average shares outstanding for the three months ended March 31,
1998 and 1997. There are no adjustments to net income (loss) for the basic or
diluted EPS computations:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Basic weighted average shares outstanding 16,380,622 16,235,914
Effect of dilutive securities - stock options held by employees - 473,266
---------- ----------
Diluted weighted average shares outstanding 16,380,622 16,709,180
========== ==========
</TABLE>
NOTE 7 - 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
certified the case as a class action. The Court subsequently concluded that
7
<PAGE> 8
the certified class representative could represent only those class members who
purchased Gibson stock after April 19, 1994 and before July 1, 1994. All other
claims have been dismissed. 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. In April 1998,
the Court granted motions for summary judgment filed by the Company, by its
former Chairman, President and Chief Executive Officer and by its former Chief
Financial Officer, leaving in the case only a claim against Cleo's former
President and Chief Executive Officer, a claim against the Company as
responsible for the actions of Cleo's former President and Chief Executive
Officer and a Third Party claim by the Company against its former auditor for
contribution against any judgment adverse to the Company. Motions to reconsider
the Court's recent decision have been filed. Discovery has closed; however, no
trial date has been set. The Company is continuing to defend the suit
vigorously.
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.
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.
8
<PAGE> 9
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
On March 31, 1998, the Company announced a restructuring plan (the Plan) and
recorded an expected total cost of $26.1 million for the Plan in the results of
operations of the first quarter of 1998. The Plan is designed to enhance the
Company's flexibility and operating efficiency, lower fixed costs and improve
customer service. In connection with the Plan, the Company will outsource all
card, gift wrap and other manufacturing operations currently performed at its
Cincinnati, Ohio headquarters. Implementation of the Plan will begin in the
second quarter of 1998 and is expected to be substantially complete by the end
of the fourth quarter of 1998. In addition, the Company announced and has
initiated a significant investment in business information systems. The Company
expects these plans to generate annual savings of approximately $10.0 million
before income taxes by the year 2000 and to be accretive to earnings beginning
in 1999.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
Revenues in the first quarter of 1998 increased 2.1% to $101.7 million from
revenues of $99.6 million in the first quarter of 1997. The increase in revenues
reflects increased shipments from Gibson Greetings International Limited, the
Company's subsidiary based in the United Kingdom, and lower return and allowance
provisions partially offset by lower shipments for domestic operations. Lower
domestic shipments reflect a decline in seasonal product shipments and the
impact of lost accounts partially offset by increased shipments of new products.
Overall, returns and allowances were 19.6% of shipments for the three months
ended March 31, 1998 compared to 21.8% for the comparable period in 1997
reflecting decreased seasonal and everyday return provisions and lower customer
allowances. The Company continues to face strong competitive pressures with
regard to both price and terms of sale.
Total operating expenses were $117.4 million in the first quarter of 1998
compared to total operating expenses of $88.2 million in the first quarter of
1997. Included in the first quarter of 1998 is the restructuring charge of $26.1
million. Total operating expenses without the restructuring charge were $91.3
million for the first quarter of 1998. Cost of products sold as a percent of
revenues was 38.9% for the first quarter of 1998 versus cost of products sold as
a percent of revenues of 36.4% for the first quarter of 1997. The increase was
primarily due to a change in product sales mix and higher product costs
associated with the development of new products. Selling, distribution and
administrative expenses as a percent of revenues were 50.8% for the first
quarter of 1998 versus 52.2% for the first quarter of 1997 primarily due to a
reduction in administrative costs and reduced bad debt expense. These reductions
were partially offset by increased selling and marketing expenses.
Interest income, net of $0.5 million was recorded in the first quarter of 1998
compared to interest expense, net of $0.8 million recorded in the first quarter
of 1997. The improvement resulted from higher interest income on invested cash
balances and lower interest expense on interest-bearing obligations.
Pretax loss for the first quarter of 1998 was $15.1 million compared to pretax
income for the first quarter of 1997 of $10.6 million. The pretax loss in the
first quarter of 1998 resulted from the $26.1 million restructuring charge.
Without the restructuring charge, pretax income would have been $11.0 million
for the first quarter of 1998. The effective income tax rate was 41.1% for the
first quarter of 1998 compared to an effective income tax rate of 42.5% for the
first quarter of 1997.
Net loss for the first quarter of 1998 was $8.9 million compared with net income
of $6.1 million for the comparable period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the first three months of 1998 was
$4.0 million compared to $18.9 million for the comparable period in 1997. During
the first quarter of 1998, accounts receivable increased $0.2 million compared
to a decrease of $11.9 million during the comparable period in 1997.
Cash used in investing activities in the first quarter of 1998 was $4.5 million
compared to $3.7 million in the first quarter of 1997. The increase represents
higher capital expenditures for the purchase of plant and equipment, primarily
display fixtures for customers. Capital expenditures for 1998 are expected to be
$25.0 to $30.0 million higher than the 1997 level. The projected increase
represents higher expenditures on business information systems.
The Company will invest an estimated $30.0 to $35.0 million over the next 30
months to significantly upgrade or replace its existing business information
systems. Management has analyzed its computer hardware and software in
connection with the Company's need for improved information systems as well as
the potential dating problems that may arise with the Year 2000. Management has
9
<PAGE> 10
decided to replace core business applications which support sales and customer
services, procurement and distribution, and finance and accounting with
Enterprise Resource Planning (ERP) software. The primary purpose of the ERP
software is to add functionality and efficiency to the business processes of the
Company as well as address the Year 2000 issue. In addition, the Company will
upgrade software systems not addressed by the ERP software to correct potential
problems associated with the Year 2000. Although the ability of third parties,
with whom the Company transacts business, to address adequately their Year 2000
issues is outside the Company's control, the Company intends to discuss with its
vendors and customers the possibility of any interface difficulties which may
affect the Company. Although the systems project will extend beyond December 31,
1999, management believes substantially all Year 2000 issues will be addressed
prior to that date.
Cash used in financing activities for the first three months of 1998 was $2.3
million compared to cash provided by financing activities of $0.4 million in the
comparable period of 1997. The change reflects the Company's repurchase of
common stock to be held as treasury stock as part of its stock repurchase
program announced on July 30, 1997. During the first quarter of 1998, the
Company repurchased 135,000 shares under this program.
Effective April 24, 1998, the Company entered into a $30.0 million, 364-day
revolving credit agreement that will be utilized, if needed, for working capital
purposes. This credit line replaced the previous agreement that expired in late
April 1998.
Under the terms of its Senior Note Agreement, the Company provided notice to the
Noteholders on April 28, 1998 that it will prepay $4.3 million in principal,
without premium, on June 1, 1998. 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, all Senior Notes
will be repaid in their entirety.
In accordance with the Plan, announced on March 31, 1998, approximately $5.8
million will be spent on involuntary employee severance and outplacement costs
and approximately $2.0 million on related expenses during the next twelve
months, with most of the expenditures projected to occur in 1998.
The Company is carrying significant cash balances. Other than the capital
expenditures, Senior Note prepayment and the Plan discussed above, there
currently are no commitments for the use of this cash; however, management is
evaluating various alternatives, including strategic acquisitions. 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 Note 7 of Notes to
Condensed Consolidated Financial Statements)
Management does not believe that there are any trends, events, commitments or
uncertainties, except for the plans discussed above and for previously disclosed
items (see Notes 1 and 7 of Notes to Condensed Consolidated Financial
Statements), and aside from normal seasonal fluctuations and general industry
competitive conditions, that should be expected to have a material effect on the
results of operations, financial condition, liquidity or capital resources of
the Company. However, except for the historical information contained herein,
the matters discussed are forward-looking statements which involve risks and
uncertainties. There are numerous important factors that could adversely affect
the Company, including but not limited to competitive pressures with regard to
price and terms of sale, unforeseen financial difficulties of significant
customers, lack of market acceptance of the Company's new products and other
economic, competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and prices. Because of these,
as well as other factors, historical information should not be relied upon as an
indicator of future financial performance.
PART I. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information presented in Note 7 of Notes to Condensed Consolidated Financial
Statements (Part I. Item 1.) is incorporated by reference in response to this
item.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 Financial Data Schedule (contained in EDGAR filing
only).
b) Reports on Form 8-K The Company filed a Form 8-K with the Securities
and Exchange Commission on January 29, 1998 (date
of report: January 26, 1998) attaching the
Company's press release, dated January 26, 1998.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Gibson
Greetings, Inc. has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GIBSON GREETINGS, INC.
Date: May 15, 1998
By: /s/ JAMES T. WILSON
----------------------------
James T. Wilson
Executive Vice President-
Finance and Operations and
Chief Financial Officer
(principal financial officer)
By: /s/ PAUL W. FARLEY
----------------------------
Paul W. Farley
Vice President - Controller and
Assistant Treasurer
(principal accounting officer)
12
<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, 1998, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 111,500
<SECURITIES> 0
<RECEIVABLES> 75,915
<ALLOWANCES> 45,346
<INVENTORY> 59,013
<CURRENT-ASSETS> 243,149
<PP&E> 171,165
<DEPRECIATION> 99,934
<TOTAL-ASSETS> 434,307
<CURRENT-LIABILITIES> 99,516
<BONDS> 0
0
0
<COMMON> 170
<OTHER-SE> 270,673
<TOTAL-LIABILITY-AND-EQUITY> 434,307
<SALES> 101,749
<TOTAL-REVENUES> 101,749
<CGS> 39,606
<TOTAL-COSTS> 117,393
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,175
<INCOME-PRETAX> (15,123)
<INCOME-TAX> (6,208)
<INCOME-CONTINUING> (8,915)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,915)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
