<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 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 0-5610
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 issuer's classes of
common stock, as of the latest practicable date. (June 30, 1997)
Common Stock, $0.10 par value: 28,587,573 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 SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
1997 1996 1997 1996
--------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales $ 134,341 $ 57,554 $ 214,796 $ 110,304
Cost of sales 79,470 36,257 127,742 69,513
--------- -------- --------- ---------
Gross profit 54,871 21,297 87,054 40,791
Selling, general and administrative expenses 39,124 14,133 61,480 27,636
Integration/restructuring costs 2,086 -- 2,086 --
--------- -------- --------- ---------
Operating income 13,661 7,164 23,488 13,155
Equity in net income of affiliate -- 1,014 -- 1,566
Interest expense, net (3,815) (478) (5,528) (990)
--------- -------- --------- ---------
Income before taxes 9,846 7,700 17,960 13,731
Taxes on income 3,515 2,087 5,927 3,775
--------- -------- --------- ---------
Income before extraordinary item 6,331 5,613 12,033 9,956
Extraordinary item - loss on early extinguishment of debt
(net of tax) (8,575) -- (8,575) --
--------- -------- --------- ---------
Net income (loss) ($ 2,244) $ 5,613 $ 3,458 $ 9,956
========= ======== ========= =========
Weighted average shares outstanding 29,718 28,399 29,320 28,310
========= ======== ========= =========
Earnings per common share:
Income before extraordinary item $ 0.21 $ 0.20 $ 0.41 $ 0.35
Extraordinary item (0.29) -- (0.29) --
--------- -------- --------- ---------
Net income per share ($ 0.08) $ 0.20 $ 0.12 $ 0.35
========= ======== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1997 DEC. 31, 1996
--------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<S> <C> <C>
Current assets:
Cash $ 14,010 $ 4,816
Short-term investments 3,063 1,857
Receivables, less allowance for doubtful accounts of $4,119
in 1997 and $751 in 1996
86,476 36,870
Inventories 82,348 30,681
Other current assets 10,779 3,478
Deferred income taxes 5,414 574
--------- ---------
Total current assets 202,090 78,276
--------- ---------
Property, plant and equipment, at cost 152,113 98,517
Accumulated depreciation (45,728) (38,860)
--------- ---------
Net property, plant and equipment 106,385 59,657
--------- ---------
Long-term investments 5,045 4,911
Investment in affiliate -- 20,129
Goodwill 168,878 18,412
Other assets 4,064 774
--------- ---------
$ 486,462 $ 182,159
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to banks $ 262 $ 1,699
Notes payable 5,908 --
Current maturities of long-term debt 578 612
Accounts payable and accrued liabilities 72,457 23,616
Accrued taxes on income 4,528 3,015
--------- ---------
Total current liabilities 83,733 28,942
--------- ---------
Long-term debt 233,304 19,937
Deferred income taxes 11,233 11,858
Other liabilities 6,596 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, 28,587,573 and 28,029,211 shares issued
and outstanding, in 1997 and 1996, respectively
2,859 2,803
Paid-in capital 69,940 38,312
Retained earnings 81,697 78,239
Foreign currency translation adjustments (2,900) 566
--------- ---------
Total shareholders' equity 151,596 119,920
--------- ---------
$ 486,462 $ 182,159
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 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 -- -- -- 9,956 --
Exercise of stock options 85,047 9 469 -- --
Employee stock purchase plan
24,259 2 370 -- --
Translation adjustments -- -- -- -- 242
---------- ---------- ---------- ---------- ----------
Balance, June 30, 1996 22,317,126 $ 2,232 $ 37,562 $ 66,958 $ (508)
========== ========== ========== ========== ==========
Balance, December 31, 1996 28,029,211 $ 2,803 $ 38,312 $ 78,239 $ 566
Net income -- -- -- 3,458 --
Exercise of stock options 282,599 28 681 -- --
Employee stock purchase plan
25,305 3 474 -- --
Stock issued-acquisitions 250,458 25 4,734 -- --
Warrants and options
issued-acquisitions -- -- 25,739 -- --
Translation adjustments -- -- -- -- (3,466)
---------- ---------- ---------- ---------- ----------
Balance, June 30, 1997 28,587,573 $ 2,859 $ 69,940 $ 81,697 ($ 2,900)
========== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
1997 1996
--------- ---------
(IN THOUSANDS)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 3,458 $ 9,956
--------- ---------
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 8,811 4,505
Deferred income taxes (332) 37
Equity in net income of affiliate -- (1,566)
Change in assets and liabilities, net of businesses
acquired:
Receivables (9,386) (7,794)
Inventories (9,237) (1,472)
Other current assets (3,287) (917)
Accounts payable and accrued liabilities 3,474 6,387
Taxes on income (889) 1,448
Other liabilities (184) (1,997)
--------- ---------
(2,455) (1,369)
--------- ---------
Net cash provided by operating
activities 1,003 8,587
--------- ---------
INVESTING ACTIVITIES:
Decrease (increase) of short-term investments (1,206) 1,570
Purchases of property, plant and equipment (10,299) (6,481)
Purchase of long-term investments (134) (4,005)
Acquisitions, net of cash acquired (81,574) (4,613)
Other 3,218 7
--------- ---------
Net cash used in investing activities (89,995) (13,522)
--------- ---------
FINANCING ACTIVITIES:
Decrease of short-term debt (1,471) (1,116)
Additions of long-term debt 133,644 18,854
Reductions of long-term debt (34,708) (13,977)
Exercise of stock options/stock purchase plan 1,185 850
--------- ---------
Net cash provided by financing activities 98,650 4,611
--------- ---------
OTHER ACTIVITIES:
Effect of exchange rate changes on cash (464) 79
--------- ---------
Increase (decrease) in cash 9,194 (245)
Cash, at beginning of year 4,816 3,466
--------- ---------
Cash at end of period $ 14,010 $ 3,221
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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)
1,000,000 shares of the Company's common stock, par value $0.10, at an exercise
price of $17.50 per share and (b) 200,000 shares of the Company's common stock
at an exercise price of $21.875 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
125,229 shares of the Company's common stock valued at $19.00 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 995,575 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 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.
<TABLE>
<CAPTION>
Unaudited
Six Months Ended
June 30, 1997 June 30, 1996
-------- --------
<S> <C> <C>
Sales $254,475 $237,655
-------- --------
Income before extraordinary item $ 10,585 $ 8,892
-------- --------
Earnings per share before extraordinary item $ 0.36 $ 0.31
-------- --------
</TABLE>
7
<PAGE> 8
NOTE 3: INVENTORIES
The components of inventories are set forth below:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------- -------
<S> <C> <C>
Raw materials $50,239 $17,359
Work-in-Process 4,641 3,589
Finished goods 27,468 9,733
------- -------
$82,348 $30,681
======= =======
</TABLE>
NOTE 4: LONG-TERM DEBT
An analysis of long-term debt is set forth below:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
-------- -------
<S> <C> <C>
Unsecured revolving bank facility(a) $224,000 $ 10,233
Economic Development Revenue Bond 8,000 8,000
Secured and unsecured loans on foreign property,
plant and machinery 1,582 1,950
Other 300 366
-------- -------
233,882 20,549
Less current maturities 578 612
-------- -------
$233,304 $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 June 30, 1997, borrowings under the term loan and
revolving credit facilities were $140.0 and $84.0 million, respectively,
and the amount available was $56.0 million.
NOTE 5: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of accounts payable and accrued liabilities is set forth below:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------- -------
<S> <C> <C>
Accounts payable $28,899 $11,977
Accrued payroll costs 10,485 4,403
Other accrued liabilities 33,073 7,236
------- -------
$72,457 $23,616
======= =======
</TABLE>
8
<PAGE> 9
NOTE 6: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes is set forth below:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997 June 30, 1996
------------- --------------
<S> <C> <C>
Interest $2,312 $ 978
Income taxes $2,204 $2,137
</TABLE>
Cash paid for business acquisitions and the fair value of assets acquired and
liabilities assumed is set forth below:
<TABLE>
<CAPTION>
June 30, 1997 June 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 six month
periods ended June 30, 1997 and 1996 would have been the following pro forma
amounts:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pro forma basic EPS before
extraordinary item $ 0.22 $ 0.20 $ 0.42 $ 0.36
Pro forma basic EPS ($ 0.08) $ 0.20 $ 0.12 $ 0.36
Pro forma diluted EPS before
extraordinary item $ 0.21 $ 0.20 $ 0.41 $ 0.35
Pro forma diluted EPS ($ 0.08) $ 0.20 $ 0.12 $ 0.35
</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. These charges reduced net income
for the quarter ended June 30, 1997 by $1.4 million or $0.05 per share. The
charges include costs to consolidate certain facilities, severance and other
costs. Approximately $1.0 million of these costs have been paid as of June 30,
1997. Additional charges may be incurred during the remainder of 1997. These
charges are not expected to be material to the annual results of operations.
9
<PAGE> 10
NOTE 9: EXTRAORDINARY ITEM-LOSS ON EARLY EXTINGUISHMENT OF DEBT
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: SUBSEQUENT EVENT
On July 15, 1997, the Company entered into an Agreement and Plan of Merger with
International Imaging Materials, Inc. ("IIMAK"). The Company will acquire IIMAK
for approximately $200 million in stock. The merger will close early in the
fourth quarter of 1997. The transaction is to be accounted for as a pooling of
interest.
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 June 30 Six Months Ended June 30
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 59.2 63.0 59.5 63.0
----- ----- ----- -----
Gross Profit 40.8 37.0 40.5 37.0
Selling, general and administrative
expenses 29.1 24.6 28.6 25.1
Integration/restructuring costs 1.5 -- 1.0 --
----- ----- ----- -----
Operating income 10.2 12.4 10.9 11.9
Equity in net income of affiliate -- 1.8 -- 1.4
Interest expense, net (2.9) (0.8) (2.6) (0.9)
----- ----- ----- -----
Income before taxes 7.3 13.4 8.3 12.4
Taxes on income 2.6 3.6 2.7 3.4
----- ----- ----- -----
Income before extraordinary
item 4.7 9.8 5.6 9.0
Extraordinary item (6.4) -- (4.0) --
----- ----- ----- -----
Net income (1.7)% 9.8% 1.6% 9.0%
===== ===== ===== =====
</TABLE>
SECOND QUARTER 1997 COMPARED TO 1996
Sales increased to $134.3 million for the three months ended June 30, 1997
compared to $57.6 million for the three months ended June 30, 1996.
Foreign-based and export sales increased from $23.3 million for the three months
ended June 30, 1996 to $55.1 million for the comparable period in 1997. Sales
from the Company's apparel identification business grew 16% in the three months
ended June 30, 1997 compared with the three months ended June 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 June 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 $67.9 million in
sales.
The gross profit was $54.9 million in the three months ended June 30, 1997
compared to $21.3 million in the comparable period of 1996. The gross profit
margin was 40.8% for the current period compared to 37.0% for the three months
ended June 30, 1996.
Selling, general and administrative (SG&A) expenses were $39.1 million for the
three months ended June 30, 1997 compared to $14.1 million for the comparable
period of 1996. As a percentage of sales, SG&A expenses were 29.1% for the three
months ended June 30, 1997 compared to 24.6% for the comparable period in 1996.
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 reduced net income
for the quarter ended June 30, 1997 by $1.4 million or $0.05 per share. The
charges include costs to consolidate certain facilities, severance and other
costs. Approximately $1.0 million of these costs have been paid as of June 30,
1997. 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 $13.7 million or 10.2% of sales for the three months ended
June 30, 1997 compared to $7.2 million or 12.4% of sales for the three months
ended June 30, 1996.
11
<PAGE> 12
Equity in net income of affiliate was $1.0 million for the three months ended
June 30, 1996 (see Note 2 of Notes to Consolidated Financial Statements).
Interest expense, net was $3.8 million for the three months ended June 30, 1997
compared to $0.5 million for June 30, 1996. The increase was primarily due to
debt incurred in connection with the acquisition of Monarch.
Income before taxes was $9.8 million (7.3% of sales) for the three months ended
June 30, 1997 as compared to $7.7 million (13.4% of sales) for the three months
ended June 30, 1996.
The effective income tax rate was 35.7% for the three months ended June 30, 1997
compared to 27.1% for the three months ended June 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 lower tax rate in 1996 is attributable to the addition of equity in the net
income of affiliate and 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 three months ended June 30, 1997
increased to $6.3 million (4.7% of sales) from $5.6 million (9.8% of sales) in
the 1996 period. Income before extraordinary item per share was $0.21 for the
three months ended June 30, 1997 compared to $0.20 for the three months ended
June 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 loss for the three months ended June 30, 1997 was $2.2 million compared to
net income of $5.6 million in the 1996 period. Net loss per share was $0.08 for
the three months ended June 30, 1997 compared to net income per share of $0.20
for the three months ended June 30, 1996.
SIX MONTHS 1997 COMPARED TO 1996
Sales increased to $214.8 million for the six months ended June 30, 1997
compared to $110.3 million for the six months ended June 30, 1996. Foreign-based
and export sales increased from $44.2 million for the six months ended June 30,
1996 to $87.1 million for the comparable period of 1997. The Company's apparel
identification business grew 13% in the six months ended June 30, 1997 compared
with the six months ended June 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 $90.3 million in sales.
The gross profit was $87.1 million in the six months ended June 30, 1997
compared to $40.8 million in the comparable period of 1996. The gross profit
margin was 40.5% for the current period compared to 37.0% for the six months
ended June 30, 1996.
Selling, general and administrative (SG&A) expenses were $61.5 million for the
six months ended June 30, 1997 compared to $27.7 million for the comparable
period of 1996. As a percentage of sales, SG&A expenses were 28.6% for the six
months ended June 30, 1997 compared to 25.1% for the comparable period in 1996.
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 reduced net income
for the quarter ended June 30, 1997 by $1.4 million or $0.05 per share. The
charges include costs to consolidate certain facilities, severance and other
costs. Approximately $1.0 million of these costs have been paid as of June 30,
1997. Additional charges may be incurred during the remainder of 1997. These
charges are not expected to be material to the annual results of operations.
12
<PAGE> 13
Operating income was $23.5 million or 10.9% of sales for the six months ended
June 30, 1997 compared to $13.2 million or 11.9% of sales for the six months
ended June 30, 1996.
Equity in net income of affiliate was $1.6 million for the six months ended June
30, 1996 (see Note 2 of Notes to Consolidated Financial Statements).
Interest expense, net was $5.5 million for the six months ended June 30, 1997
compared to $1.0 million for June 30, 1996. The increase was due primarily to
debt incurred in connection with the acquisition of Monarch.
Income before taxes was $18.0 million (8.3% of sales) for the six months ended
June 30, 1997 as compared to $13.7 million (12.4% of sales) for the six months
ended June 30, 1996. The increase in pretax profit for the six months ended June
30, 1997 compared to June 30, 1996 is summarized as follows:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
Sales increase $ 42.3
Increase in SG&A (35.9)
Improvement in gross margin 3.9
Equity in net income of affiliate (1.6)
Increased interest expense, net (4.5)
-------
Net increase $ 4.2
=======
</TABLE>
The effective income tax rate was 33.0% for the six months ended June 30, 1997
compared to 27.5% for the six months ended June 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 lower tax rate in 1996 is attributable to the addition of equity in the net
income of affiliate. 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 six months ended June 30, 1997
increased to $12.0 million (5.6% of sales) from $9.9 million (9.0% of sales ) in
the 1996 period. Income before extraordinary per share was $0.41 for the six
months ended June 30, 1997 from $0.35 for the six months ended June 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 six months ended June 30, 1997 was $3.5 million (1.6% of
sales) compared to $9.9 million (9.0% of sales) in the 1996 period. Net income
per share was $0.12 for the six months ended June 30, 1997 from $0.35 for the
six months ended June 30, 1996.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES:
The table below presents the summary of cash flow for the periods indicated:
<TABLE>
<CAPTION>
(in millions)
Six Months Ended June 30
1997 1996
------- -------
<S> <C> <C>
Net cash provided by operating activities $ 1.0 $ 8.6
Net cash used in investing activities (90.0) (13.5)
Net cash provided by financing activities 98.6 4.6
------- -------
Total change in cash(a) $ 9.6 $ (0.3)
======= =======
</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 June 30, 1997 was $1.0 million. Cash
provided by operating activities as of June 30, 1996 was $8.6 million.
Depreciation and amortization was $8.8 million for the six months ended June 30,
1997 compared to $4.5 million for the six months ended June 30, 1996.
INVESTING ACTIVITIES
During the first six months of 1997, capital expenditures were $10.3 million,
compared to $6.5 million during the first six 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
$29.2 million for the year ending December 31, 1997.
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) 1,000,000 shares of
the Company's common stock, par value $0.10 (the "Common Stock"), at an exercise
price of $17.50 per share and (B) 200,000 shares of the Company's Common Stock
at an exercise price of $21.875 per share. The Company financed the cash portion
of the purchase price with the proceeds of a 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
source of 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.
The Company intends to continue its growth, in part by acquisitions of other
complementary or related businesses, and believes that further acquisitions
outside the United States would be of important strategic value.
14
<PAGE> 15
FINANCING ACTIVITIES
The table below shows the components of total capital at:
<TABLE>
<CAPTION>
(in millions)
June 30, 1997 December 31, 1996
-------- --------
<S> <C> <C>
Long-term debt $ 233.3 $ 19.9
Shareholders' equity 151.6 119.9
-------- --------
Total capital $ 384.9 $ 139.8
======== ========
Long-term debt as a percent of total capital
60.6% 14.3%
-------- --------
</TABLE>
Long-term debt increased to $233.3 million at June 30, 1997 from $19.9 million
at December 31, 1996. At June 30, 1997, long-term debt as a percent of total
capital was 60.6% 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 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 June 30, 1997, borrowings under the
term loan and revolving credit facilities were $140.0 and $84.0 million,
respectively, and the amount available was $56.0 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 the 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, copies of which are available from the SEC or may be obtained upon
request from the Company.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 24, 1997 the Company held an Annual Meeting of Shareholders to elect
six Directors, each to serve for a term of two years and until their successors
are fully elected and qualified, to approve the adoption of the Company's 1997
Incentive Stock Option Plan and to ratify the appointment of Arthur Andersen
LLP, as the Company's independent public accountants for the year ended December
31, 1997. The nominees for election to the Board of Directors received the
following votes cast:
<TABLE>
<CAPTION>
For Election Withholding Authority
------------ ---------------------
<S> <C> <C>
Victor Hershaft 25,097,940 45,384
Jack Becker 25,097,940 45,384
Robert Laidlaw 25,097,122 46,202
David E. McKinney 25,096,874 46,450
Leo Benatar 25,097,126 46,198
John W. Paxton 25,097,940 45,384
</TABLE>
17,482,255 shares were voted in favor of approving the adoption of the Company's
1997 Incentive Stock Option Plan. 2,050,611 shares were voted against the
adoption, and there were 5,610,458 abstentions and broker non-votes on such
matter.
25,097,476 shares were voted in favor of the ratification of the appointment of
Arthur Andersen LLP. 13,454 shares were voted against such ratification, and
there were 32,394 abstentions and broker non-votes on such matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit Index
Exhibit 27.1 Financial Data Schedule
b) Reports on Form 8-K
On May 19, 1997, the Registrant filed a Report on Form 8-K/A,
Amendment No. 1 to Current Report on Form 8-K for March 3, 1997 in order to
provide the Financial Statements called for under Item 7 of Form 8-K.
16
<PAGE> 17
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
August 13, 1997
---------------
Date
* Mr. Fetzner has signed this Report in the dual capacity of duly authorized
officer and Controller.
17
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000075681
<NAME> PAXAR CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 14,010
<SECURITIES> 0
<RECEIVABLES> 86,476
<ALLOWANCES> 0
<INVENTORY> 82,348
<CURRENT-ASSETS> 202,090
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0
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<CGS> 127,742
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</TABLE>
