<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Quarterly Period Ended September 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 0-5610
PAXAR Corporation
-----------------
(Exact name of registrant as specified in its charter)
New York 13-5670050
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Corporate Park Drive, White Plains, N.Y. 10604
--------------------------------------------------
(Address of principal executive offices)
914 697-6800
------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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 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 |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers's classes of
common stock, as of the latest practicable date. (October 28, 1997)
Common Stock, $0.10 par value: 48,260,198 shares
<PAGE> 2
PART 1. FINANCIAL INFORMATION
The financial statements included herein have been prepared by Paxar Corporation
(the "Company"), without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. While certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, the Company believes that the
disclosures made herein are adequate to make the information presented not
misleading. It is recommended that these condensed financial statements be read
in conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
In the opinion of the Company, all adjustments, consisting only of normal
recurring accruals and adjustments, necessary to present fairly the financial
information contained herein, have been included.
2
<PAGE> 3
Item 1: Financial Statements
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Sales $ 127,513 $ 51,940 $ 342,309 $ 162,244
Cost of sales 76,534 32,489 204,276 102,002
--------- -------- --------- ---------
Gross profit 50,979 19,451 138,033 60,242
Selling, general and administrative
expenses 37,510 13,230 98,990 40,866
Integration/restructuring costs -- -- 2,086 --
--------- -------- --------- ---------
Operating income 13,469 6,221 36,957 19,376
Equity in net income of affiliate -- 1,182 -- 2,748
Interest expense, net (3,450) (205) (8,978) (1,195)
--------- -------- --------- ---------
Income before taxes 10,019 7,198 27,979 20,929
Taxes on income 3,027 1,899 8,954 5,674
--------- -------- --------- ---------
Income before extraordinary item 6,992 5,299 19,025 15,255
Extraordinary item-loss on early
extinquishment of debt (net of tax) -- -- (8,575) --
--------- -------- --------- ---------
Net income $ 6,992 $ 5,299 $ 10,450 $ 15,255
========= ======== ========= =========
Weighted average shares outstanding 37,359 35,584 36,899 35,464
========= ======== ========= =========
Earnings per common share:
Income before extraordinary item $ 0.19 $ 0.15 $ 0.52 $ 0.43
Extraordinary item -- -- (0.24) --
========= ======== ========= =========
Earnings per share $ 0.19 $ 0.15 $ 0.28 $ 0.43
========= ======== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September December
30, 1997 31, 1996
--------- --------
(unaudited)
(in thousands, except share amounts)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 11,005 $ 4,816
Short-term investments 3,022 1,857
Receivables, less allowance for doubtful accounts of
$4,317 in 1997 and $751 in 1996 83,581 36,870
Inventories 87,026 30,681
Other current assets 11,252 3,478
Deferred income taxes 5,414 574
--------- ---------
Total current assets 201,300 78,276
--------- ---------
Property, plant and equipment, at cost 157,951 98,517
Accumulated depreciation (49,990) (38,860)
--------- ---------
Net property, plant and equipment 107,961 59,657
--------- ---------
Long-term investments 5,063 4,911
Investment in affiliate -- 20,129
Goodwill 166,995 18,412
Other assets 4,390 774
--------- ---------
$ 485,709 $ 182,159
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to banks $ 1,797 $ 1,699
Notes payable 5,908 --
Current maturities of long-term debt 588 612
Accounts payable and accrued liabilities 67,008 23,616
Accrued taxes on income 5,949 3,015
--------- ---------
Total current liabilities 81,250 28,942
--------- ---------
Long-term debt 227,914 19,937
Deferred income taxes 11,202 11,858
Other liabilities 6,617 1,502
Shareholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares
authorized, none issued and outstanding -- --
Common Stock, $0.10 par value, 100,000,000 shares
authorized, 35,828,441 and 28,029,211 shares issued
and outstanding, in 1997 and 1996, respectively 3,583 2,803
Paid-in capital 70,883 38,312
Retained earnings 87,963 78,239
Foreign currency translation adjustments (3,703) 566
--------- ---------
Total shareholders' equity 158,726 119,920
--------- ---------
$ 485,709 $ 182,159
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 1997 and 1996
(in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Foreign Currency
Common Stock Paid-in Retained Translation
Shares Amount Capital Earnings Adjustments
------ ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 22,207,820 $2,221 $36,723 $ 57,002 $ (750)
Net income -- -- -- 15,255 --
Stock split 5,581,905 558 -- (567) --
Tax benefit from exercise of
stock options -- -- 57 -- --
Exercise of stock options 96,942 10 511 -- --
Employee Stock Purchase Plan 33,752 3 529 -- --
Translation adjustments -- -- -- -- 453
---------- ------ ------- -------- -------
Balance, September 30, 1996 27,920,419 $2,792 $37,820 $ 71,690 $ (297)
========== ====== ======= ======== =======
Balance, December 31, 1996 28,029,211 $2,803 $38,312 $ 78,239 $ 566
Net income -- -- -- 10,450 --
Stock split 7,164,894 716 -- (726) --
Exercise of stock options 348,039 35 1,419 -- --
Employee Stock Purchase plan 35,839 4 679 -- --
Stock issued - acquisitions 250,458 25 4,734 -- --
Warrants and options
issued - acquisitions -- -- 25,739 -- --
Translation adjustments -- -- -- -- (4,269)
---------- ------ ------- -------- -------
Balance, September 30, 1997 35,828,441 $3,583 $70,883 $ 87,963 $(3,703)
========== ====== ======= ======== =======
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 10,450 $ 15,255
--------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary item - loss on early extinguishment of
debt (net of tax) 8,575 --
Depreciation and amortization 15,347 7,089
Deferred income taxes (363) 45
Equity in net income of affiliate -- (2,748)
Change in assets and liabilities, net of business acquired:
Receivables (6,491) (2,750)
Inventories (13,915) (3,705)
Other current assets (3,760) (994)
Accounts payable and accrued liabilities (2,733) 4,866
Taxes on income 532 2,703
Other liabilities (163) (1,962)
--------- --------
(2,971) 2,544
--------- --------
Net cash provided by operating activities 7,479 17,799
--------- --------
INVESTING ACTIVITIES:
(Increase)/decrease of short-term investments (1,165) 1,196
Purchases of property, plant and equipment (17,032) (9,843)
Purchase of long-term investments (152) (4,005)
Acquisitions, net of cash acquired (81,574) (4,613)
Other 3,396 14
--------- --------
Net cash used in investing activities (96,527) (17,251)
--------- --------
FINANCING ACTIVITIES:
(Increase)/decrease in short-term debt 74 (2,473)
Additions to long-term debt 151,000 20,954
Reductions in long-term debt (57,454) (20,167)
Exercise of stock options/Stock Purchase Plan 2,136 1,110
Cash paid in lieu of fractional shares (10) (9)
--------- --------
Net cash provided by (used in) financing activities 95,746 (585)
--------- --------
OTHER ACTIVITIES:
Effect of exchange rate changes on cash (509) 113
--------- --------
Increase (decrease) in cash 6,189 76
Cash, at beginning of year 4,816 3,466
--------- --------
Cash at end of period $ 11,005 $ 3,542
========= ========
</TABLE>
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE> 7
Dollars in thousands, except share data.
NOTE 1: GENERAL
The accounting policies followed during interim periods are in conformity with
generally accepted accounting principles and are consistent with those applied
for annual periods as described in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996. Other than Balance Sheet amounts as of
December 31, 1995 and 1996, all amounts contained herein are unaudited.
Reclassifications:
Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.
NOTE 2: BUSINESS ACQUISITION
On June 29, 1995, the Company acquired a 49% interest in Monarch Holdings, Inc.
("Holdings"), which had been accounted for using the equity method. On March 3,
1997, the Company acquired the remaining 51% of Holdings for a total purchase
price of approximately $130 million. The Company acquired the 49% equity
interest of Odyssey Partners, L.P. in Holdings for $94.1 million in cash, a
promissory note in the amount of $5.9 million at an annual interest rate of
4.88% payable on January 2, 1998, and five year warrants to purchase (a)
1,250,000 shares of the Company's common stock, par value $0.10, at an exercise
price of $14.00 per share and (b) 250,000 shares of the Company's common stock
at an exercise price of $17.50 per share. The warrants have been recorded at a
fair value of approximately $9.7 million at the date of acquisition. Immediately
following the closing of the acquisition, the Company caused Holdings to merge
with and into the Company. Upon completion of such merger, the Chairman of
Holdings and the President and Chief Executive Officer of Holdings each received
156,536 shares of the Company's common stock valued at $15.20 per share, in
exchange for the shares of Holdings common stock owned by each of them. In the
merger, employees of Holdings received incentive stock options to purchase an
aggregate of 1,244,469 shares of the Company's Common Stock pursuant to the
Company's 1990 Employee Stock Option Plan in exchange for outstanding options to
purchase Holdings common stock. The options have been recorded at a fair value
of approximately $16 million at the date of acquisition. The number of warrants,
options and shares issued in connection with the foregoing acquisition and the
exercise prices of warrants have been adjusted to reflect the Company's
subsequent stock split effected in the form of a stock dividend.
The acquisition is being accounted for as a purchase with assets acquired and
liabilities assumed recorded at their estimated fair values at the date of
acquisition. The excess of the purchase price and transaction costs over the
fair value of net assets acquired is recorded as goodwill. The purchase price
allocation is not complete and adjustments to goodwill may be necessary.
The operating results of Monarch Marking Systems, Inc., which became a
wholly-owned subsidiary of the Company as a result of the merger of Holdings
into the Company, are included in the accompanying consolidated statements of
income beginning March 3, 1997. The following unaudited pro forma results of
operations assume the acquisition occurred as of January 1, 1996. These pro
forma results do not purport to be indicative of the results of operations which
may result in the future.
Unaudited
7
<PAGE> 8
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Sales $381,988 $354,854
-------- --------
Income before extraordinary item $ 17,577 $ 14,092
-------- --------
Earnings per share before extraordinary item $ 0.48 $ 0.40
-------- --------
</TABLE>
NOTE 3: INVENTORIES
The components of inventories are set forth below:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Raw materials $52,004 $17,359
Work-in-Process 4,469 3,589
Finished goods 30,553 9,733
------- -------
$87,026 $30,681
======= =======
</TABLE>
NOTE 4: LONG-TERM DEBT
An analysis of long-term debt is set forth below:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Unsecured revolving bank facility (a) $218,800 $10,233
Economic Development Revenue Bond 8,000 8,000
Secured and unsecured loans on foreign property,
plant and machinery 1,414 1,950
Other 288 366
-------- -------
228,502 20,549
Less current maturities 588 612
-------- -------
$227,914 $19,937
======== =======
</TABLE>
(a) On March 3, 1997, the Company entered into a six-year, $280 million
credit facility with Fleet Bank, N.A. and Wachovia Bank of Georgia,
N.A., as lead lenders, consisting of a $140 million term loan facility
and a $140 million revolving credit facility. Borrowings under the term
loan and revolving credit facilities bear interest at rates referenced
to the LIBOR rate (with applicable margins varying in accordance with
the Company's attainment of specified financial tests) or the Prime
Rate (as defined) and are guaranteed by the domestic subsidiaries of
the Company. As of September 30, 1997, borrowings under the term loan
and revolving credit facilities were $140.0 and $78.8 million,
respectively, and the amount available was $61.2 million.
NOTE 5: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of accounts payable and accrued liabilities is set forth below:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Accounts payable $24,554 $11,977
Accrued payroll costs 10,378 4,403
Other accrued liabilities 32,076 7,236
------- -------
$67,008 $23,616
======= =======
</TABLE>
NOTE 6: SUPPLEMENTAL CASH FLOW INFORMATION
8
<PAGE> 9
Cash paid for interest and income taxes is set forth below:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Interest $5,990 $1,360
Income Taxes $3,405 $2,893
</TABLE>
Cash paid for business acquisitions and the fair value of assets acquired and
liabilities assumed is set forth below:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Estimated fair value of assets
acquired, including goodwill $ 241,970 $ 5,807
Liabilities assumed (160,396) (1,194)
--------- -------
Cash paid $ 81,574 $ 4,613
========= =======
</TABLE>
NOTE 7: NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128" or the
"Statement"), Earnings Per Share ("EPS"), which establishes standards for
computing and presenting EPS, is effective for both interim and annual periods
ending after December 15, 1997. The statement does not permit early application
of its provisions. The statement replaces the presentation of primary EPS with a
presentation of basic EPS, as defined. It also requires dual presentation of
basic and diluted EPS on the face of the statement of income for entities with a
complex capital structure. Had EPS been determined in accordance with SFAS No.
128, the Company's basic EPS and diluted EPS for the three-month and nine-month
periods ended September 30, 1997 and 1996 would have been the following pro
forma amounts:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pro forma basic EPS before
extraordinary item $0.20 $0.15 $0.53 $0.44
Pro forma basic EPS $0.20 $0.15 $0.29 $0.44
Pro forma diluted EPS before
extraordinary item $0.19 $0.15 $0.52 $0.43
Pro forma diluted EPS $0.19 $0.15 $0.28 $0.43
</TABLE>
NOTE 8: INTEGRATION/RESTRUCTURING CHARGE
During the second quarter ended June 30, 1997, the Company implemented an
integration and restructuring program associated with the acquisition of Monarch
which reduced operating income by $2.0 million. The charges include costs to
consolidate certain facilities, severance and other costs. Additional charges
may be incurred during the remainder of 1997. These charges are not expected to
be material to the annual results of operations.
NOTE 9: EXTRAORDINARY ITEM-LOSS ON EARLY EXTINGUISHMENT OF DEBT
9
<PAGE> 10
On April 11, 1997, Monarch Marking Systems, Inc. ("Monarch"), a wholly-owned
subsidiary of the Company, completed the purchase of $100 million of principal
amount of Monarch's 12-1/2% Senior Notes due July 1, 2003 (the "Notes"), which
accounted for all of the issued and outstanding Notes. On April 11, 1997, the
payment date, Monarch paid $120.2 million, consisting of $100 million of
principal, $3.5 million of accrued interest, a $13.7 million premium, and a
consent payment of $3.0 million. Upon payment, all of the outstanding Notes were
canceled and the indenture under which they were issued was terminated. The
early redemption of the Notes resulted in a extraordinary charge of $8.6 million
net of tax of $5.1 million.
NOTE 10: MERGER OF INTERNATIONAL IMAGING MATERIALS, INC. (IIMAK)
On October 28, 1997, the Company completed the acquisition of International
Imaging Materials, Inc. (IIMAK), which will be accounted for as a pooling of
interests. In connection with the merger, each outstanding share of IIMAK Common
Stock was converted into 1.5 shares of the Company's Common Stock and all
existing IIMAK warrants and options were converted into warrants and options to
purchase the Company's common stock. As a result of the merger, shares of IIMAK
Common Stock were converted to approximately 12.4 million shares of the
Company's Common Stock and IIMAK options and warrants were converted to
approximately 1.9 million of the Company's options and warrants. Had the merger
occurred at the beginning of the period, the results would have been as follows:
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended September 30, 1997
Sales Net Income Earnings Per Share
----- ---------- ------------------
<S> <C> <C> <C>
Paxar $342,309 $10,450 $ 0.28
IIMAK 71,202 6,938 $ 0.82
-------- -------
Combined $413,511 $17,388 $ 0.35
======== =======
</TABLE>
10
<PAGE> 11
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
OPERATING RESULTS:
The following table shows each element of the income statement as a percent of
sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 60.0 62.6 59.7 62.9
----- ----- ----- -----
Gross Profit 40.0 37.4 40.3 37.1
Selling, general and administrative
expenses 29.4 25.5 28.9 25.2
Integration/restructuring costs -- -- 0.6 --
----- ----- ----- -----
Operating income 10.6 12.0 10.8 11.9
Equity in net income of affiliate -- 2.3 -- 1.7
Interest expense, net (2.7) (0.4) (2.6) (0.7)
----- ----- ----- -----
Income before taxes 7.9 13.9 8.2 12.9
Taxes on income 2.4 3.7 2.6 3.5
----- ----- ----- -----
Income before extraordinary 5.5 10.2 5.6 9.4
Extraordinary item -- -- 2.5 --
----- ----- ----- -----
Net income 5.5% 10.2% 3.1% 9.4%
===== ===== ===== =====
</TABLE>
Third Quarter 1997 compared to 1996
Sales increased to $127.5 million for the three months ended September 30, 1997,
compared to $51.9 million for the three months ended September 30, 1996.
Foreign-based and export sales increased from $20.2 million for the three months
ended September 30, 1996 to $48.4 million for the three months ended September
30, 1997. Sales from the Company's apparel identification business grew 13% in
the three months ended September 30, 1997 compared with the three months ended
September 30, 1996. On March 3, 1997, the Company acquired the remaining 51% of
Monarch Holdings, Inc. ("Holdings") that it did not own (see Note 2 of Notes to
Consolidated Financial Statements). During the three months ended September 30,
1997 Monarch Marking Systems, Inc. ("Monarch"), which became a wholly-owned
subsidiary of the Company upon the merger of Holdings into the Company,
contributed $68.8 million in sales.
The gross profit was $51.0 million in the three months ended September 30, 1997,
compared to $19.5 million in the comparable period of 1996. The gross profit
margin was 40.0% for the current period, compared to 37.4% for the three months
ended September 30, 1996.
Selling, general and administrative (SG&A) expenses were $37.5 million for the
three months ended September 30, 1997, compared to $13.2 million for the
comparable period of 1996. As a percentage of sales, SG&A expenses were 29.4%
for the three months ended September 30, 1997, compared to 25.5% for the
comparable period in 1996. The increase in SG&A was due primarily to the
acquisition of Monarch, including increased amortization of goodwill from the
acquisition.
Operating income was $13.5 million or 10.6% of sales for the three months ended
September 30, 1997, compared to $6.2 million or 12.0% of sales for the three
months ended September 30, 1996.
Equity in net income of affiliate was $1.2 million for the three months ended
September 30, 1996.
11
<PAGE> 12
Interest expense, net, was $3.5 million for the three months ended September 30,
1997 compared to $0.2 million for September 30, 1996. The increase was primarily
due to debt incurred in connection with the acquisition of Monarch.
Income before taxes was $10.0 million (7.9% of sales) for the three months ended
September 30, 1997, as compared to $7.2 million (13.9% of sales) for the three
months ended September 30, 1996.
The effective income tax rate was 30.2% for the three months ended September 30,
1997, compared to 26.4% for the three months ended September 30, 1996. The
increase is primarily due to the acquisition of Monarch. The overall effective
tax rate is impacted by many factors including different statutory rates on
foreign income. The tax rate is below the U.S. statutory federal income tax rate
of 35% due to lower rates on income derived from foreign sources, particularly
from Hong Kong and in Italy where the companies acquired in 1994 receive special
tax abatement incentives which expire through 1999.
Net income for the three months ended September 30, 1997 increased 32% to $7.0
million (5.5% of sales) from $5.3 million (10.2% of sales) in the 1996 period.
Net income per share was $0.19 for the three months ended September 30, 1997
from $0.15 for the three months ended September 30, 1996.
Nine Months 1997 compared to 1996
Sales increased to $342.3 million for the nine months ended September 30, 1997,
compared to $162.2 million for the nine months ended September 30, 1996.
Foreign-based and export sales increased from $64.4 million for the nine months
ended September 30, 1996 to $135.5 million for the nine months ended September
30, 1997. Sales from the Company's apparel identification business grew 13% in
the nine months ended September 30, 1997, as compared with the nine months ended
September 30, 1996. On March 3, 1997, the Company acquired the remaining 51% of
Monarch Holdings, Inc. ("Holdings") that it did not own (see Note 2 of Notes to
Consolidated Financial Statements). Since March 3, 1997, Monarch Marking
Systems, Inc. ("Monarch"), which became a wholly-owned subsidiary of the Company
upon the merger of Holdings into the Company, contributed $159.1 million in
sales.
The gross profit was $138.0 million in the nine months ended September 30, 1997,
compared to $60.2 million in the comparable period of 1996. The gross profit
margin was 40.3% for the current period compared to 37.1% for the nine months
ended September 30, 1996.
Selling, general and administrative (SG&A) expenses were $99.0 million for the
nine months ended September 30, 1997, compared to $40.9 million for the
comparable period of 1996. As a percentage of sales, SG&A expenses were 28.9%
for the nine months ended September 30, 1997, compared to 25.2% for the
comparable period in 1996. The increase in SG&A was primarily due to the
acquisition of Monarch, including increased amortization of goodwill.
During the second quarter ended June 30, 1997, the Company implemented an
integration and restructuring program associated with the acquisition of Monarch
which reduced operating income by $2.0 million. These charges include costs to
consolidate certain facilities, severance and other costs. Additional charges
may be incurred during the remainder of 1997. These charges are not expected to
be material to the annual results of operations.
Operating income was $37.0 million or 10.8% of sales for the nine months ended
September 30, 1997, compared to $19.4 or 11.9% of sales for the nine months
ended September 30, 1996.
Equity in net income of affiliate was $2.8 million for the nine months ended
September 30, 1996.
12
<PAGE> 13
Interest expense, net, was $9.0 million for the nine months ended September 30,
1997, compared to $1.2 million for September 30, 1996. The increase was due
primarily to debt incurred in connection with the acquisition of Monarch.
Income before taxes was $28.0 million (8.2% of sales) for the nine months ended
September 30, 1997, as compared to $20.9 million (12.9% of sales) for the nine
months ended September 30, 1996. The increase in pretax profit for the nine
months ended September 30, 1997 compared to September 30, 1996 is summarized as
follows:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
Sales increase $ 72.6
Increase in SG&A (60.2)
Improvement in gross margin 5.2
Equity in net income of affiliate (2.8)
Increased interest expense, net (7.8)
-------
Net increase $ 7.0
-------
</TABLE>
13
<PAGE> 14
The effective income tax rate was 32% for the nine months ended September 30,
1997, compared to 27% for the nine months ended September 30, 1996. The increase
is primarily due to the acquisition of Monarch. The overall effective tax rate
is impacted by many factors including different statutory rates on foreign
income. The tax rate is below the U.S. statutory federal income tax rate of 35%
due to lower rates on income derived from foreign sources, particularly from
Hong Kong and in Italy where the companies acquired in 1994 receive special tax
abatement incentives which expire through 1999.
Income before extraordinary item for the nine months ended September 30, 1997
increased to $19.0 million from $15.3 million in the 1996 period. Income per
share before extraordinary item was $0.52 for the nine months ended September
30, 1997 from $0.43 for the nine months ended September 30, 1996.
The extraordinary item of $8.6 million (net of tax of $5.1 million) was the
result of the early redemption of Monarch's 12-1/2% Senior Notes due July 1,
2003 (see Note 9 of Notes to Consolidated Financial Statements).
Net income for the nine months ended September 30, 1997 was $10.5 million
compared to $15.3 million in the 1996 period. Net income per share was $0.28 for
the nine months ended September 30, 1997 from $0.43 for the nine months ended
September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES:
The table below presents the summary of cash flow for the periods indicated:
<TABLE>
<CAPTION>
(in millions)
Nine Months Ended September 30,
1997 1996
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 7.5 $ 17.8
Net cash used in investing activities (96.5) (17.3)
Net cash provided by financing activities 95.8 (0.6)
------- -------
Total change in cash (a) $ 6.8 $ (0.1)
======= =======
</TABLE>
(a) Before exchange rate effects
Operating Activities
Cash provided by operating activities continues to be the Company's primary
source of funds to finance operating needs and capital expenditures. Cash
provided by operating activities as of September 30, 1997 was $7.5 million
compared with $17.8 million at September 30, 1996. Depreciation and amortization
was $15.3 million during the nine months of 1997, compared to $7.1 million in
the comparable period of 1996.
Investing Activities
During the first nine months of 1997 capital expenditures were $17.0 million,
compared to $9.8 million during the first nine months of 1996. Other than
projects for employee safety and environmental improvement, all new capital
projects are carefully analyzed and are required to make a positive contribution
on a net present value basis, generating an attractive internal rate of return
on invested capital. The Company currently anticipates capital expenditures of
$28 million for the year ended December 31, 1997.
14
<PAGE> 15
On March 3, 1997, the Company acquired the 49% equity interest of Odyssey
Partners, L.P. in Holdings for (i) $94,083,750 in cash, (ii) a promissory note
in the amount of $5,907,559 at an annual interest rate of 4.88% payable on
January 2, 1998 secured by a letter of credit issued by Fleet Bank, N.A. and
(iii) five year warrants (the "Warrants") to purchase (A) 1,250,000 shares of
the Company's common stock, par value $0.10 (the "Common Stock"), at an exercise
price of $14.00 per and (B) 250,000 shares of the Company's Common Stock at an
exercise price of $17.50 per share. Share amounts and exercise prices have been
adjusted for a subsequent stock split. The Company financed the cash portion of
the purchase price with the proceeds of the term loan under a $280 million
credit facility with Fleet Bank, N.A. and Wachovia Bank of Georgia, N.A., as
lead lenders. Immediately following the closing of the acquisition, the Company
caused Holdings to be merged with and into the Company, and as a result of the
merger, Monarch became a wholly-owned subsidiary of the Company.
On March 13, 1997, Monarch commenced a cash tender offer for its $100,000,000
principal amount 12-1/2% Senior Notes due 2003 (the "Monarch Notes"). The
redemption price was $1,137.50 for each $1,000 of principal of the Monarch
Notes, and the Company paid a consent payment of $30 per $1,000 of principal of
the Monarch Notes to each holder that consented to certain amendments to the
Indenture under which the Monarch Notes were issued. On April 11, 1997, the
payment date, Monarch paid $120.2 million to the holders of all of the
outstanding Monarch Notes. Upon payment, all of the outstanding Monarch Notes
were canceled and the indenture under which they were issued was terminated. The
$120.2 million payment was provided under the $280 million credit facility with
Fleet Bank, N.A. and Wachovia Bank of Georgia, N.A., as lead lenders.
On October 28, 1997, the Company completed the acquisition of International
Imaging Materials, Inc. (IIMAK), which will be accounted for as a pooling of
interests. In connection with the merger, each outstanding share of IIMAK Common
Stock was converted into 1.5 shares of the Company's Common Stock and all
existing IIMAK warrants and options were converted into warrants and options to
purchase the Company's common stock. As a result of the merger, shares of IIMAK
Common Stock were converted to approximately 12.4 million shares of the
Company's Common Stock and IIMAK options and warrants were converted to
approximately 1.9 million of the Company's options and warrants.
The Company intends to continue its growth, in part by acquisitions of other
complementary or related businesses, and believes that further acquisitions
would be of important strategic value.
15
<PAGE> 16
Financing Activities
The table below shows the components of total capital at:
<TABLE>
<CAPTION>
(in millions)
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Long-term debt $227.9 $ 19.9
Shareholders' equity 158.7 119.9
------ ------
Total capital $386.6 $139.8
====== ======
Long-term debt as a percent of total
capital 59.0% 14.3%
------ ------
</TABLE>
Long-term debt increased to $227.9 million at September 30, 1997, from $19.9
million at December 31, 1996. At September 30, 1997, long-term debt as a percent
of total capital was 59.0% compared to 14.3% at December 31, 1996.
On March 3, 1997, the Company entered into a six-year, $280 million credit
facility with Fleet Bank, N.A. and Wachovia Bank of Georgia, N.A., as lead
lenders, consisting of a $140 million term loan facility and a $140 million
revolving credit facility. Borrowings under the term loan and revolving credit
facilities bear interest a rates referenced to the LIBOR rate (with applicable
margins varying in accordance with the Company's attainment of specified
financial tests) or the Prime Rate (as defined) and are guaranteed by the
domestic subsidiaries of the Company. As of September 30, 1997, borrowings under
the term loan and revolving credit facilities were $140.0 and $78.8 million
respectively, and the amount available was $61.2 million.
Except for historical information contained herein, certain statements above are
forward-looking statements that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve known and unknown risks and uncertainties that may cause the
Company's actual results in the future periods to differ materially from
forecasted results. Factors that could cause actual results to differ materially
include, but are not limited to, the following: economic and other business
conditions that may affect demand in the U.S. and European markets; the mix of
products sold and profit margins thereon; order cancellations or reduced
bookings by customers or distributors; and discounting necessitated by price
competition. Those and other risks are described in the Company's filings with
the Securities and Exchange Commission (the "SEC") over the last 12 months,
including the Company's Annual Report on Form 10-K for the year ended December
31, 1996 and its 1997 Quarterly Reports on Form 10-Q, copies of which are
available from the SEC or may be obtained upon request from the Company.
16
<PAGE> 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit Index.
27.1 Financial Data Schedule
b) Reports on Form 8-K.
Current Report on Form 8-K, dated July 15, 1997, was filed to report
under Item 5 that the Company had entered into an Agreement and Plan of
Merger, dated as of July 15, 1997, with International Imaging
Materials, Inc., a Delaware corporation ("IIMAK"), pursuant to which
IIMAK had agreed to merge with a wholly-owned subsidiary of the
Company.
17
<PAGE> 18
PAXAR CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Paxar Corporation
-----------------
Registrant
/s/ Joseph Fetzner
------------------
Signature
Joseph Fetzner
--------------
Full Name of Signing Officer
Vice President and
------------------
Controller*
-----------
Title of Signing Officer
November 13, 1997
-----------------
Date
* Mr. Fetzner has signed this Report in the dual capacity of duly authorized
officer and Controller.
18
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000075681
<NAME> PAXAR CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 11,005
<SECURITIES> 0
<RECEIVABLES> 83,581
<ALLOWANCES> 0
<INVENTORY> 87,026
<CURRENT-ASSETS> 201,300
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<CURRENT-LIABILITIES> 81,250
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0
0
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<OTHER-EXPENSES> 0
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</TABLE>
