<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, 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 0-5610
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. (June 30, 1998)
Common Stock, $0.10 par value: 48,695,503 shares
<PAGE> 2
PART I. 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, 1997.
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.
<PAGE> 3
ITEM 1: FINANCIAL STATEMENTS
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales $ 156.9 $ 158.9 $ 306.3 $ 264.8
Costs and expenses:
Cost of products sold 96.1 96.1 186.4 161.5
Selling, general and administrative expense 39.7 38.3 79.9 61.8
Research and engineering expense 2.8 4.2 5.7 6.4
Amortization of intangibles 1.2 0.9 2.6 1.8
Integration/restructuring costs -- 2.1 -- 2.1
------- ------- ------- -------
Operating income 17.1 17.3 31.7 31.2
Interest expense, net 5.9 4.1 9.8 6.1
------- ------- ------- -------
Income before taxes 11.2 13.2 21.9 25.1
Taxes on income 4.0 4.6 7.4 8.3
------- ------- ------- -------
Income before extraordinary item 7.2 8.6 14.5 16.8
Extraordinary item, net of income taxes
of $5.1 -- (8.6) -- (8.6)
------- ------- ------- -------
Net income $ 7.2 -- $ 14.5 $ 8.2
======= ======= ======= =======
Average common shares outstanding:
Basic 48.6 48.1 48.5 47.8
======= ======= ======= =======
Diluted 48.7 49.6 48.8 49.1
======= ======= ======= =======
Basic earnings per common share:
Before extraordinary item $ 0.15 $ 0.18 $ 0.30 $ 0.35
Extraordinary item -- (0.18) -- (0.18)
------- ------- ------- -------
Net income $ 0.15 -- $ 0.30 $ 0.17
======= ======= ======= =======
Diluted earnings per common share:
Before extraordinary item $ 0.15 $ 0.17 $ 0.30 $ 0.34
Extraordinary item -- (0.17) -- (0.17)
------- ------- ------- -------
Net income $ 0.15 -- $ 0.30 $ 0.17
======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 4
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1998 DEC. 31, 1997
------------- -------------
(UNAUDITED)
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
ASSETS
Current assets:
<S> <C> <C>
Cash $ 16.7 $ 13.7
Short-term investments 3.5 2.2
Receivables, less allowance for doubtful accounts of $4.7
in 1998 and $4.4 in 1997 106.2 102.4
Inventories 98.2 97.4
Deferred income taxes 6.9 6.9
Other current assets 11.9 11.6
------ ------
Total current assets 243.4 234.2
Property, plant and equipment, at cost 289.7 273.2
Accumulated depreciation (100.1) (86.1)
------ ------
Net property, plant and equipment 189.6 187.1
Long-term investments 3.1 3.0
Goodwill 163.4 165.4
Other assets 10.7 8.7
------ ------
$610.2 $598.4
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to banks $ 0.2 $ 2.5
Notes payable -- 5.9
Current maturities of long-term debt 21.6 21.7
Accounts payable and accrued liabilities 83.8 82.8
Accrued taxes on income 4.3 --
------ ------
Total current liabilities 109.9 112.9
Long-term debt 208.8 211.4
Deferred income taxes 24.7 24.2
Other liabilities 5.4 6.1
Shareholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares
authorized, none issued and outstanding -- --
Common Stock, $0.10 par value, 200,000,000 shares authorized, 48,695,503 and
48,419,554 shares issued and outstanding, in 1998 and 1997, respectively
4.8 4.8
Paid-in capital 111.9 109.3
Retained earnings 149.0 134.5
Foreign currency translation adjustments (4.3) (4.8)
------ ------
Total shareholders' equity 261.4 243.8
------ ------
$610.2 $598.4
====== ======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 5
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
(IN MILLIONS)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 14.5 $ 8.2
------ ------
Adjustments to reconcile net income to net cash
provided by operations:
Extraordinary item -- 8.6
Depreciation and amortization 16.8 13.2
Deferred income taxes 0.5 0.9
Other -- 1.9
Changes in assets and liabilities, net of
businesses acquired:
Receivables (3.7) (8.9)
Inventories (0.8) (10.5)
Other current assets (0.2) (3.6)
Accounts payable and accrued liabilities 1.6 2.8
Taxes on income 4.3 (1.3)
Other (0.7) (1.2)
------ ------
17.8 1.9
------ ------
Net cash provided by operating activities 32.3 10.1
------ ------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (16.9) (14.2)
Increase of short-term investments (1.4) (1.3)
Acquisition net of cash acquired -- (81.6)
Other (2.5) 3.2
------ ------
Net cash used in investing activities (20.8) (93.9)
------ ------
FINANCING ACTIVITIES:
(Decrease)/increase in short-term debt (8.3) 4.5
Additions to long-term debt 47.6 133.6
Reductions in long-term debt (50.2) (35.4)
Purchase of common stock -- (9.8)
Exercise of stock options/Stock Purchase Plan 2.6 1.4
Other -- (1.3)
------ ------
Net cash (used in)/provided by financing
activities (8.3) 93.0
------ ------
OTHER ACTIVITIES:
Effect of exchange rate changes on cash (0.2) (0.5)
------ ------
Increase in cash 3.0 8.7
Cash at beginning of year 13.7 5.3
------ ------
Cash at end of period $ 16.7 $ 14.0
====== ======
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AND PER 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, 1997. Other than Balance Sheet amounts as of
December 31, 1997, 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 ACQUISITIONS
Monarch:
On June 29, 1995, the Company acquired a 49% interest in Monarch Marking
Systems, Inc. ("Monarch"), which had been accounted for using the equity method.
On March 3, 1997, the Company acquired the remaining 51% of Monarch for a total
purchase price of $132, comprising of cash, notes, stock , options and warrants.
The acquisition was 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 was recorded as goodwill. The resulting
goodwill of $148.5 (including $13.5 related to the initial 1995 investment) is
being amortized over 40 years.
The fair value of assets acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Current assets $ 96.2
Property, plant and equipment 44.1
Goodwill 148.5
Other assets 11.8
Current liabilities (37.6)
Long-term debt (105.8)
Other (5.1)
------
Net assets 152.1
Initial investment (June 1995) (20.1)
------
$132.0
======
</TABLE>
The purchase price allocation is not complete and adjustments to goodwill may be
necessary, reflecting the outcome of pending litigation with Pitney Bowes, Inc.
(the former owner of Monarch). The litigation relates to a purchase price
adjustment to which the Company believes it is entitled. It is expected that the
matter will be finalized by the end of 1998.
The operating results of Monarch 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 1,1997.
These pro forma results do not purport to be indicative of the results of
operations which may result in the future.
<PAGE> 7
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
<S> <C>
Sales $ 304.5
-------
Income before extraordinary item $ 15.4
-------
Net income $ 6.8
-------
Basic earnings per share:
Before extraordinary item $ 0.32
Extraordinary item (0.18)
-------
Net income $ 0.14
-------
Diluted earnings per share:
Before extraordinary item $ 0.31
Extraordinary item (0.17)
-------
Net Income $ 0.14
-------
</TABLE>
IIMAK:
On October 28, 1997 the Company completed the acquisition of International
Imaging Materials, Inc. ("IIMAK"), which was accounted for as a pooling of
interests. As such, the financial statements have been restated to include the
results of IIMAK for all periods presented.
NOTE 3: INVENTORIES
The components of inventories are set forth below:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Raw materials $ 49.8 $ 56.3
Work-in-Process 12.1 8.6
Finished goods 36.3 32.5
----------- -----------
$ 98.2 $ 97.4
=========== ===========
</TABLE>
NOTE 4: LONG TERM DEBT
A summary of long-term debt is set forth below:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Bank credit facility $ 220.4 $ 222.2
Economic Development
Revenue Bonds due 2011 8.0 8.0
Other 2.0 2.9
----------- -----------
230.4 233.1
Less current maturities 21.6 21.7
----------- -----------
$ 208.8 $ 211.4
=========== ===========
</TABLE>
NOTE 5: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of accounts payable and accrued liabilities is set forth below:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Accounts payable $ 34.7 $ 31.9
Accrued payroll costs 16.9 11.9
Other accrued liabilities 32.2 39.0
----------- -----------
$ 83.8 $ 82.8
=========== ===========
</TABLE>
In December 1997, the Company approved a plan to sever 132 people from the
Monarch, Miamisburg, Ohio operation as part of the integration/restructuring
program. At December 31, 1997
<PAGE> 8
other accrued liabilities included $4.6 of accrued severance costs. During the
six months ended June 30, 1998 $3.0 had been paid, representing costs associated
with the severance of 117 people.
NOTE 6: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes is set forth below:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30
1998 1997
---- ----
<S> <C> <C>
Interest $8.5 $2.8
Income Taxes $1.7 $2.4
</TABLE>
NOTE 7: COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, effective in 1998, requires
the disclosure of comprehensive income to reflect changes in equity that result
from transactions and economic events from nonowner sources. Comprehensive
income for the periods presented below include foreign currency translation
items. There was no tax expense or tax benefit associated with the foreign
currency translation items.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Net income $14.5 $8.2
Foreign currency translation adjustments 0.5 (3.5)
----- ----
Comprehensive income $15.0 $4.7
===== ====
</TABLE>
NOTE 8: EARNINGS PER COMMON SHARE
The reconciliation of basic and diluted per-share computation is as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30
--------------------------------
1998 1997
-------- --------
<S> <C> <C>
Net income $ 14.5 $ 8.2
======== ========
Average common shares (basic) 48.5 47.8
Options and warrants 0.3 1.3
-------- --------
Adjusted average common shares (diluted) 48.8 49.1
======== ========
Earnings per common share:
Basic $ 0.30 $ 0.17
======== ========
Diluted $ 0.30 $ 0.17
======== ========
</TABLE>
NOTE 9: ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Statement 133 is
effective for fiscal years beginning after June 15, 1999.
The Company has not yet quantified the impacts of adopting Statement 133 on the
financial statements and has not determined the timing of or method of its
adoption of Statement 133. However, based on current interest rate levels, the
income statement impact of derivative contracts would not have a material impact
on the Company's results of operations.
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ALL AMOUNTS IN THE FOLLOWING DISCUSSION ARE STATED IN MILLIONS, EXCEPT SHARE AND
PER SHARE DATA.
OPERATING RESULTS
On March 3, 1997, the Company acquired the remaining 51% of Monarch Marking
Systems, Inc. ("Monarch") that it did not previously own. The acquisition has
been accounted for as a purchase, and, accordingly, the results of operations
include the results of Monarch since the date of acquisition. On October 28,
1997, the Company acquired International Imaging Materials, Inc. ("IIMAK"),
which has been accounted for as a pooling of interests. As required with a
pooling of interests, historical financial information has been restated to
combine the financial statements of the Company and IIMAK for all periods.
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
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales 100% 100% 100% 100%
Cost of products sold 61 60 61 61
Selling, general and
Administrative expense 25 24 26 23
Research and engineering
Expense 2 3 2 2
Amortization of intangibles 1 1 1 1
Integration/restructuring costs -- 1 -- 1
---- ---- ---- ----
Operating income 11 11 10 12
Interest expense, net 4 3 3 3
---- ---- ---- ----
Income before taxes 7 8 7 9
Taxes on income 2 3 2 3
---- ---- ---- ----
Income before extraordinary item 5 5 5 6
Extraordinary item -- (5) -- (3)
---- ---- ---- ----
Net income 5% 0% 5% 3%
---- ---- ---- ----
</TABLE>
THREE MONTHS ENDED JUNE 30,1998 COMPARED WITH JUNE 30,1997
Sales in the second quarter 1998 were $157 compared to $159 in 1997, a decline
of 1%. Domestic sales were $96 compared to $98 in the second quarter 1997.
Foreign-based and export sales were $61 in both the 1998 and 1997 second
quarters.
Cost of products sold for the three months ended June 30, 1998 and June 30, 1997
were $96.1. As a percent of sales, such costs were 61% for June 30, 1998
compared to 60% for June 30,1997.
Selling, general and administrative expense ("SG&A") increased 3.7% to $39.7 for
the three months ended June 30, 1998, from $38.3 for the three months ended June
30, 1997. As a percent of sales, SG&A were 25% for June 30,1998 compared to 24%
for June 30, 1997.
Research and engineering expense ("R&E") decreased 33% from $4.2 for the three
months ended June 30, 1997 to $2.8 for the three months ended June 30, 1998 due
to personnel reductions driven by the elimination of non-strategic initiatives.
As a percent of sales, R&E was 2% for the June 30, 1998 and 3% for June 30,
1997 three-month period.
Amortization of intangibles increased to $1.2 for the three months ended June
30, 1998 compared to $0.9 for the three months ended June 30, 1997.
<PAGE> 10
Operating income for the three months ended June 30, 1998 was $17.1 compared to
$17.3 for the three months ended June 30, 1997. The operating margin for the
three months ended June 30, 1998 and 1997 was 11%.
Interest expense, net, increased to $5.9 for the three months ended June 30,
1998 from $4.1 in three months ended June 30,1997. Included in interest expense
for the second quarter of 1998 was a $2.2 non-recurring charge resulting from
the unauthorized interest rate speculation by an employee whose employment was
subsequently terminated. The non-recurring charge occurred when interest rate
hedges supporting the $150 of Senior Notes to be issued in August 1998 were not
closed in a timely manner.
Income before taxes decreased to $11.2 (7% of sales) for the three months ended
June 30, 1998 as compared with $13.2 (8% of sales) for the three months ended
June 30, 1997.
The effective income tax rate was 36% for the three months ended June 30, 1998
compared to 35% for the three months ended June 30, 1997. The overall effective
tax rate was impacted by many factors including different statutory rates on
foreign income.
Income before extraordinary item was $7.2 in the second quarter June 30, 1998
compared to $8.6 in the second quarter June 30, 1997.
The extraordinary item of $8.6 (net of income taxes $5.1) resulted from the
early redemption of Monarch's 12 -1/2% Senior Notes during the three months
ended June 30, 1997.
Net income for the three months ended June 30, 1998 was $7.2 (5% of sales).
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH JUNE 30,1997
Sales for the six months ended June 30, 1998 reached $306 compared to $265 in
1997. Domestic sales were $188 compared to $168 in the six months ended June 30,
1997. Foreign-based and export sales were $118 compared to $97 in the six
months ended June 30, 1997. Had Monarch been consolidated from January 1, 1997
the pro forma sales for the six months ended would have been $305.
Cost of products sold for the six months ended June 30, 1998 were $186.4
compared to $161.5. As a percent of sales, such costs were 61% for the six
months ended June 30, 1998 and June 30,1997.
SG&A was $79.9 for the six months ended June 30, 1998, compared to $61.8 for the
six months ended June 30, 1997 period. The six months ended June 30, 1997
reflects the consolidation of Monarch from the date of acquisition, March 3,
1997. As a percent of sales, SG&A was 26% for June 30,1998 compared to 23% for
June 30, 1997.
R&E decreased from $6.4 for the six months ended June 30, 1997 to $5.7 for the
six months ended June 30, 1998. The six months ended June 30, 1997 reflects the
consolidation of Monarch from the date of acquisition, March 3, 1997. As a
percent of sales, R&E was 2% for the June 30, 1998 and June 30, 1997 six-month
period.
Amortization of intangibles increased to $2.6 for the six months ended June 30,
1998 compared to $1.8 for the six months ended June 30, 1997 due to the
additional goodwill arising from the acquisition of Monarch.
Operating income for the six months ended June 30, 1998 was $31.7 compared to
$31.2 for the six months ended June 30, 1997. The operating margin for the six
months ended June 30, 1998 was 10% compared to 12% for the six months ended June
30, 1997.
Interest expense, net, increased to $9.8 for the six months ended June 30, 1998
from $6.1 for the six months ended June 30,1997. Included in interest expense
for the six months ended June 30, 1998 was a $2.2 non-recurring charge
<PAGE> 11
resulting from the unauthorized interest rate speculation by an employee whose
employment was subsequently terminated. The non-recurring charge occurred when
interest rate hedges supporting the $150 of Senior Notes to be issued in August
1998 were not closed in a timely manner.
Income before taxes was $21.9 (7% of sales) for the six months ended June 30,
1998 compared with $25.1 (9% of sales) for the six months ended June 30, 1997.
The effective income tax rate was 34% for the six months ended June 30, 1998
compared with 33% for the six months ended June 30, 1997. The overall effective
tax rate was impacted by many factors including different statutory rates on
foreign income.
Income before extraordinary item was $14.5 for the six months ended June 30,
1998 compared to $16.8 for the six months ended June 30, 1997.
The extraordinary item of $8.6 (net of income taxes $5.1) resulted from the
early redemption of Monarch's 12 -1/2% Senior Notes during the three months
ended June 30, 1997.
Net income for the six months ended June 30, 1998 was $14.5 (5% of sales)
compared to $8.2 (3% of sales) for the six months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents summary cash flow information for the periods
indicated:
<TABLE>
<CAPTION>
(in millions)
Six Months Ended
----------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $32.3 $10.1
Net cash used by investing activities (20.8) (93.9)
Net cash (used in) provided by financing activities (8.3) 93.0
----- -----
Total change in cash (a) $ 3.2 $ 9.2
===== =====
</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 internal growth
opportunities. The net cash provided by operating activities was $32.3 for the
six months ended June 30, 1998 compared to $10.1 in 1997.
Depreciation and amortization was $16.8 for the six months ended June 30, 1998
compared to $13.2 for the six months ended June 30, 1997. The increase is due
mainly to the acquisition of Monarch, which resulted in increases to
depreciation and goodwill amortization.
INVESTING ACTIVITIES
During the first six months of 1998 capital expenditures were $16.9 compared to
$14.2 in 1997. All new capital projects are carefully analyzed and other than
projects for employee safety and environmental improvement, are required to make
a positive contribution on a net present value basis, generating an advantageous
internal rate of return on invested capital. The Company currently anticipates
capital expenditures of approximately $32.0 for the year ending December 31,
1998.
On March 3, 1997, the Company acquired the remaining 51% of Monarch for a total
purchase price of $132, comprising of cash, notes, stock, options and warrants.
The acquisition was accounted for as a purchase with assets acquired and
liabilities assumed recorded at their estimated fair values at the date of
acquisition. The
<PAGE> 12
Company financed the cash portion of the purchase price with the proceeds of the
term loan under a $280 credit facility with Fleet Bank, N.A. and Wachovia Bank
of Georgia, N.A. as lead lenders.
On February 25, 1998, the Company acquired a 70% interest in the business of
Teslo Tekstil Urunleri Sanayii ve Ticaret A.S., located in Istanbul, Turkey, for
approximately $1.5. The Company has an option to acquire the remaining 30%
interest in Teslo from the minority shareholders.
The Company intends to augment its growth rate by the acquisition of
complementary or related businesses.
FINANCING ACTIVITIES
The table below shows the components of total capital for the periods indicated:
<TABLE>
<CAPTION>
(in millions)
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Long-term debt $208.8 $211.4
Shareholders' equity 261.4 243.8
------ ------
Total capital $470.2 $455.2
====== ======
Debt as a percent of total capital 44% 46%
</TABLE>
Long-term debt decreased to $208.8 at June 30, 1998, from $211.4 at December 31,
1997. At June 30, 1998 long-term debt as a percent of total capital was 44%
compared to 46% at December 31, 1997.
On March 3, 1997, the Company entered into an unsecured six-year, $280 credit
agreement with Fleet Bank, N.A. and other participating banks, consisting of a
term loan and revolving credit facility. On August 11, 1998, the Company and the
banks amended and restated their credit agreement to provide a $200 revolving
credit facility for five years from the date of the amendment. Borrowings under
the agreement bear interest at rates referenced to the London Interbank Offered
Rate (with applicable margins varying in accordance with the Company's
attainment of specified financial thresholds) or the Prime Rate (as defined),
and are guaranteed by certain domestic subsidiaries of the Company.
On August 11, 1998, the Company entered into unsecured ten-year $150 Senior
Note agreements with institutional lenders, primarily insurance companies. The
Senior Notes bear interest at 6.74%, payable semi-annually. The proceeds were
used to repay the term loan and a portion of the additional indebtedness
outstanding under the credit facility before it was amended.
OTHER
Stock Repurchase:
On July 30, 1998, the Company announced a plan to purchase up to $25 of the
Company's common stock on the open market as conditions warrant. The repurchased
shares will be available for use under employee stock plans and other general
corporate purposes.
Asian Currency and Economic Situation:
The Company has worldwide operations, including operations in Asia. While the
currency situation is causing some pricing pressure on products sold in the
U.S. it is also creating opportunities for increased sales in Asia itself. On
the whole, the current economic situation in Asia is not expected to have a
material adverse impact upon the operations of the Company.
<PAGE> 13
CAUTIONARY STATEMENT PURSUANT TO "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
Except for historical information, the Company's reports to the Securities and
Exchange Commission on Form 10K and 10Q and periodic press releases, as well as
other public documents and statements, contain "forward-looking statements"
within the meaning of the federal securities laws. Forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those expressed or implied by the statements, including, among
others:
- - Economic and other business conditions that could affect demand for the
Company's products in the United States or international markets.
- - The mix of products sold and the profit margins thereon.
- - Order cancellation or reduced bookings by customers or distributors.
- - Competitive product offerings and pricing actions
- - The availability and pricing of key raw materials.
- - Productivity improvements in manufacturing.
- - Dependence on key members of management.
Readers are cautioned not to place undue reliance on forward-looking statements.
The Company undertakes no obligation to republish or revise forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrences of unanticipated events.
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As a result of the June 29, 1995 acquisition of Monarch Marking Systems from
Pitney Bowes Inc., a dispute arose over the calculation of the purchase price.
In accordance with the terms of the Purchase Agreement, the parties submitted
the dispute to binding arbitration. On September 6, 1996, the arbitrator
determined that, the purchase price should be reduced by $11.2. The New York
Supreme Court, New York County, upheld the arbitrator's decision, and a judgment
in the amount of $12.8 (including interest) was entered on March 11, 1997.
Pitney Bowes appealed the Order and Judgement to the New York Supreme Court,
Appellate Division. On May 14, 1998, a four member panel of the Appellate
Division, New York Supreme Court, unanimously affirmed the trial court's
decision. The amount owing on the judgment, including post-judgement interest
(which accrues at a 9% statutory rate) is approximately $14.1 million. Pitney
Bowes has sought leave to appeal to New York State's highest court, The New York
State Court of Appeals. The Company has filed its opposition to this motion.
During the appeal process, Pitney Bowes' bond will remain in place and interest
will continue to accrue on the judgement at the statutory rate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 1, 1998 the Company held an Annual Meeting of Shareholders to elect four
Directors, each to serve for a term of two years and until their successors are
duly elected and qualified, to approve the adoption of the Company's Deferred
Compensation Plan for Directors, to approve an amendment to the Company's
Certificate of Incorporation to make a technical change of the Company's name
from "PAXAR Corporation" to "Paxar Corporation", and to ratify the appointment
of Arthur Andersen LLP as the Company's independent public accounts for the
year ending December 31, 1998. The nominees for election to the Board of
Directors received the following votes cast:
<TABLE>
<CAPTION>
For Election Withholding Authority
------------ ---------------------
<S> <C> <C>
Arthur Hershaft 42,632,096 152,230
Thomas R. Loemker 42,614,505 169,821
Walter W. Williams 42,647,438 136,888
James C. McGroddy 42,646,813 137,513
</TABLE>
41,871,595 shares were voted for the adoption of the Company's Deferred
Compensation Plan for Directors, 745,914 were voted against the adoption and
there were 166,817 abstentions.
42,504,376 shares were voted for the amendment to the Company's Certificate of
Incorporation to make a technical change to the Company's name from "PAXAR
Corporation" to "Paxar Corporation", 169,124 were voted against and there were
110,826 abstentions.
42,582,605 shares were voted for the ratification of Arthur Andersen LLP as the
Company's independent public accountants for the year ending December 31, 1998,
138,271 were voted against and there were 63,450 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit Index
3.1 Certificate of Amendment of the
Certificate of Incorporation
27.1 Financial Data Schedule
b) Reports on Form 8-K
None
<PAGE> 15
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
------------------------
Signature
Jack R. Plaxe
Full Name of Signing Officer
Senior Vice President and
Chief Financial Officer
Title of Signing Officer
August 14, 1998
Date
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- -------------------------------------------------------- ----
3.1 Certificate of Amendment of the Certificate of
Incorporation of Paxar Corporation
27 Financial Data Schedule
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF AMENDMENT OF THE CERTIFICATE
OF INCORPORATION OF
PAXAR CORPORATION
Under Section 805 of the Business Corporation Law
1. The name of the Corporation is PAXAR Corporation. The Corporation
was formed under the name Vatco Fabric Label Corporation.
2. The Certificate of Incorporation of the Corporation was filed by the
Department of State on February 21, 1946.
3. The Amendment of the Certificate of Incorporation effected by this
Certificate of Amendment is to change the case in the first word of the name of
the Corporation from "PAXAR Corporation" to "Paxar Corporation".
4. To accomplish the foregoing, Article First of the Certificate of
Incorporation which refers to the name of the Corporation is hereby amended as
follows:
FIRST: The name of the Corporation is Paxar Corporation.
5. The Amendment to the Certificate of Incorporation was authorized by
vote of the board of directors, followed by vote of the holders of a majority of
all outstanding shares entitled to vote thereon at a meeting of shareholders.
IN WITNESS WHEREOF, this Certificate was subscribed the 1st day of May,
1998 by the undersigned who affirm that the statements made herein are true
under penalty of perjury.
/s/ Arthur Hershaft
-----------------------
Arthur Hershaft
Chief Executive Officer
/s/ Daniel S. Bishop
-----------------------
Daniel S. Bishop
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000075681
<NAME> PAXAR CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 16,700
<SECURITIES> 0
<RECEIVABLES> 106,200
<ALLOWANCES> 0
<INVENTORY> 98,200
<CURRENT-ASSETS> 243,400
<PP&E> 289,700
<DEPRECIATION> 100,100
<TOTAL-ASSETS> 610,200
<CURRENT-LIABILITIES> 109,900
<BONDS> 0
0
0
<COMMON> 4,800
<OTHER-SE> 256,600
<TOTAL-LIABILITY-AND-EQUITY> 610,200
<SALES> 306,300
<TOTAL-REVENUES> 306,300
<CGS> 186,400
<TOTAL-COSTS> 186,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,800
<INCOME-PRETAX> 21,900
<INCOME-TAX> 7,400
<INCOME-CONTINUING> 14,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,500
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.30
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