<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 28, 1997
PAXAR CORPORATION
(Exact name of registrant as specified in its charter)
New York 0-5610 13-5670050
(State or Other Jurisdiction (Commission File Number)(IRS Employer Ident. No.)
Jurisdiction of Incorporation)
105 Corporate Park Drive, White Plains, New York 10604
(Address of Principal Executive Offices) (Zip Code)
(914)697-6800
Registrant's telephone number, including area code
<PAGE> 2
EXPLANATORY NOTE
This Amendment No. 1 on Form 8-K/A to the Current Report on Form 8-K
("Form 8-K") for October 28, 1997 of PAXAR Corporation, a New York corporation
(the "Registrant"), is submitted in order to provide the Financial Statements
called for under Item 7 of Form 8-K. Therefore, the Registrant hereby amends its
Form 8-K in accordance with Rule 12b-15 under the Securities Exchange Act of
1934.
2
<PAGE> 3
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Set forth below are the audited Consolidated Balance Sheets of
International Imaging Materials, Inc. ("IIMAK") and its subsidiaries for the
fiscal years ended March 31, 1997 and 1996, and the Consolidated Statements of
Income, Consolidated Statements of Cash Flows, and Consolidated Statements of
Stockholders' Equity of IIMAK and its subsidiaries for the fiscal years ended
March 31, 1997, 1996 and 1995.
3
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
International Imaging Materials, Inc.:
We have audited the accompanying consolidated balance sheets of
International Imaging Materials, Inc. and subsidiaries as of March 31, 1996 and
1997, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the years in the three-year period ended March 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
International Imaging Materials, Inc. and subsidiaries as of March 31, 1996 and
1997, and the results of their operations and their cash flows for each of the
years in the three-year ended March 31, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG PEAT MARWICK LLP
Buffalo, New York
April 23, 1997
4
<PAGE> 5
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
-------------------
1996 1997
---- ----
(In thousands, except share and
ASSETS per share amounts)
<S> <C> <C>
Current assets:
Cash $ 570 $ 444
Trade receivables 16,157 17,726
Inventories:
Raw materials 9,397 5,789
Work in process 3,627 4,602
Finished goods 4,839 5,478
--------- ---------
Total inventories 17,863 15,869
--------- ---------
Prepaid expenses 635 1,107
Deferred income taxes 1,467 1,176
--------- ---------
Total current assets 36,692 36,322
--------- ---------
Property, plant and equipment, at cost:
Land 1,163 1,170
Building and improvements 10,924 21,265
Equipment 64,362 82,702
Construction in progress 17,194 814
--------- ---------
93,643 105,951
Less accumulated depreciation 21,826 28,320
--------- ---------
Net property, plant and equipment 71,817 77,631
--------- ---------
Other assets 6,952 4,521
--------- ---------
$ 115,461 $ 118,474
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks 16,292 8,484
Current installments of long-term debt 1,674 1,143
Trade accounts payable 8,126 7,858
Other accrued liabilities 2,654 3,622
--------- ---------
Total current liabilities 28,746 21,107
Long-term debt, excluding current installments 2,259 1,111
Deferred income taxes 6,336 8,388
--------- ---------
Total liabilities 37,341 30,606
--------- ---------
Commitments (Note 8)
Stockholders' equity:
Preferred stock; $.01 par value; 5,000,000 shares
authorized; none issued -- --
Common stock; $.01 par value; 30,000,000 shares
authorized; 8,855,301 and 8,570,310 shares issued
as of March 31, 1996 and 1997, respectively 89 86
Additional paid-in capital 53,037 44,514
Unearned compensation - restricted stock awards (692) (385)
Notes receivable from exercise of stock options and warrants (1,219) (37)
Retained earnings 32,394 43,690
Treasury stock, 310,400 shares, at cost (5,489) --
Total stockholders' equity 78,120 87,868
--------- ---------
$ 115,461 $ 118,474
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenues $ 85,477 $ 88,448 $ 106,894
Cost of goods sold 59,968 62,253 75,737
--------- --------- ---------
Gross profit 25,509 26,195 31,157
--------- --------- ---------
Operating expenses:
Research and development 2,217 3,079 3,594
Selling 3,635 4,150 5,289
General and administrative 3,720 3,695 4,333
--------- --------- ---------
Total operating expenses 9,572 10,924 13,216
--------- --------- ---------
Operating income 15,937 15,271 17,941
Interest income (expense), net 143 (35) (562)
--------- --------- ---------
Income before income taxes 16,080 15,236 17,379
Income taxes 6,110 5,333 6,083
--------- --------- ---------
Net income $ 9,970 $ 9,903 $ 11,296
========= ========= =========
Net income per share of common stock $ 1.10 $ 1.07 $ 1.26
========= ========= =========
Weighted average common shares outstanding 9,093 9,224 8,967
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE> 7
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------------
1995 1996 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,970 $ 9,903 $ 11,296
-------- -------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,520 6,251 8,216
Deferred income taxes and other noncash expenses 2,482 2,804 2,972
Reduction in income taxes payable from the
exercise of options and warrants 1,969 1,464 1,477
Cash provided (used) by changes in:
Trade receivables (675) (4,418) (1,560)
Inventories (4,939) (2,256) 1,994
Prepaid expenses (236) 183 (472)
Other assets (7) 50 (310)
Trade accounts payable 2,956 (1,052) 1,018
Other accrued liabilities 2,845 (3,041) 968
-------- -------- --------
Total adjustments 8,915 (15) 14,303
-------- -------- --------
Net cash provided by operating activities 18,885 9,888 25,599
-------- -------- --------
Cash flows used in investing activities:
Capital expenditures (14,235) (17,477) (13,777)
Payments to acquire other assets -- (5,575) --
Purchases of securities (4,468) (22) --
Maturities of securities 1,000 3,490 --
-------- -------- --------
Net cash used in investing activities (17,703) (19,584) (13,777)
-------- -------- --------
Cash flows from financing activities:
Proceeds from employee stock purchase plan 83 102 79
Purchase of common stock -- (5,576) (2,484)
Exercise of stock options and warrants:
Proceeds 1,013 409 1,576
Notes received for related tax liabilities (1,996) (2,816) (1,632)
Proceeds from (repayments of) notes payable to banks -- 16,292 (7,808)
Repayments of long-term debt (1,712) (1,704) (1,679)
-------- -------- --------
Net cash provided by (used in) financing activities (2,612) 6,707 (11,948)
-------- -------- --------
Net decrease in cash (1,430) (2,989) (126)
Cash at beginning of year 4,989 3,559 570
-------- -------- --------
Cash at end of year $ 3,559 $ 570 $ 444
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest, net of amount capitalized 218 151 663
Income taxes $ 311 $ 3,044 $ 2,269
======== ======== ========
Supplemental disclosure of noncash investing and
financing activities:
Increase (decrease) in liabilities for capital expenditures 528 1,172 (1,286)
Notes received for exercise price of stock options and warrants 1,880 548 --
Common stock surrendered:
Payment of stock option exercise price -- 699 778
Repayments of notes by officers $ -- $ 4,210 $ 3,910
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE> 8
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Notes
Receivable
From
Exercise
Additional of Stock Total
Common Paid-in Unearned Options Retained Treasury Stockholders'
Stock Capital Compensation & Warrants Earnings Stock Equity
------- ----------- ------------- ----------- ---------- ---------- -------------
(In thousands, except share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994 $81 $47,442 $(830) $ --- $12,521 $ (104) $59,110
Exercise of options and warrants:
Shares issued, 630,566 6 2,887 2,893
Tax benefit 3,306 3,306
Notes received (1,880) (1,880)
Net income 9,970 9,970
Restricted stock awards and other 271 (85) 104 290
---- ---- ---- ---
Balance at March 31, 1995 87 53,906 (915) (1,880) 22,491 --- 73,689
Exercise of options and warrants:
Shares issued, 319,081 3 1,648 87 1,738
Tax benefit 2,116 2,116
Shares surrendered, 197,345 (1) (4,908) 1,209 (3,700)
Notes received (548) (548)
Purchase of 315,400 treasury shares (5,576) (5,576)
Net income 9,903 9,903
Restricted stock awards and other 275 223 498
---- ---- ---
Balance at March 31, 1996 89 53,037 (692) (1,219) 32,394 (5,489) 78,120
Exercise of options and warrants:
Shares issued, 373,045 (3,178) 5,489 2,311
Tax benefit 1,800 1,800
Shares surrendered, 208,807 (2) (4,686) 1,182 (3,506)
Purchase and retirement of 142,200 shares (1) (2,483) (2,484)
Net income 11,296 11,296
Restricted stock awards and other 24 307 331
--- ---- ---
Balance at March 31, 1997 $86 $44,514 $(385) $ (37) $43,690 $ --- $87,868
==== ======== ====== ======= ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements
8
<PAGE> 9
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
International Imaging Materials, Inc. and subsidiaries (the "Company")
manufactures and sells thermal transfer ribbons used in non-impact thermal
transfer printers. The Company's customers are primarily printer manufacturers
and distributors in North America.
A summary of significant accounting policies follows:
(a) Principles of Consolidation
The consolidated financial statements include the financial statements of
International Imaging Materials, Inc. and its two wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
(b) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(c) Depreciation and Amortization
Depreciation of plant and equipment is calculated using the straight-line
method over the estimated useful lives of the assets. Intangibles included in
other assets are amortized over the period of expected benefit.
(d) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
April 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have any impact on the Company's
financial position or results of operations.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The Company
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and restriction on the use of certain State investment tax
credits in assessing the realizability of deferred tax assets.
9
<PAGE> 10
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(f) Earnings Per Share
Weighted average common shares outstanding include common stock equivalents
which consist of the aggregate dilutive effect of unexercised stock options,
warrants and restricted stock awards.
(g) Stock-Based Compensation
Stock options and other stock-based compensation awards are accounted for
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations.
(h) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) INDEBTEDNESS
The Company maintains lines of credit with two banks totaling $40,000,000
which are due on demand and bear interest at either the LIBOR rate plus .20%,
the bank's cost of funds rate plus .50%, or the prime rate, as selected by the
Company. Advances under both lines of credit are at the sole discretion of the
banks and can be made for various periods of time not extending beyond September
30, 1997 under one of the lines of credit. There was $16,292,000 and $8,484,000
outstanding under the facilities at 5.60% and 5.81% at March 31, 1996 and 1997,
respectively.
A summary of long-term debt follows:
Interest
Rate at
March 31, March 31,
1997 1996 1997
---- ---- ----
(In thousands)
Term loans, due in:
1997 7.75% $631 $ 49
1998 7.75 2,562 1,630
2001 8.25 647 520
Other 2.50 93 55
-- --
Total long-term debt 3,933 2,254
Less current installments 1,674 1,143
----- -----
Long-term debt, excluding
current installments $2,259 $1,111
====== ======
The term loans, payable in monthly installments ranging from $11,000 to
$78,000, bear interest at variable rates based on the prime rate, are secured by
certain plant and equipment, require the maintenance of certain financial
ratios, limit the amount of capital expenditures and prohibit the payment of
cash dividends without the lenders' consent.
The aggregate annual installments due on long-term debt for each of the
next five years are: $1,143,000 in fiscal 1998, $846,000 in fiscal 1999,
$127,000 in fiscal 2000, $127,000 in fiscal 2001 and $11,000 in fiscal 2002.
10
<PAGE> 11
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In connection with the construction of new manufacturing facilities, the
Company capitalized interest as a component of the cost of plant and equipment
as follows:
Years Ended March 31,
-----------------------------
1995 1996 1997
---- ---- ----
(In thousands)
Interest cost capitalized $235 $612 $283
Interest cost charged to income 284 136 617
--- --- ---
Total interest cost incurred $519 $748 $900
==== ==== ====
The 2001 term loan and one of the lines of credit are with a bank that owns
warrants to purchase 50,000 shares of the Company's common stock.
The carrying amount of the Company's long-term debt instruments
approximates the fair value of such instruments based upon management's best
estimate of interest rates that would be available to the Company for similar
debt obligations at March 31, 1997.
(3) STOCKHOLDERS' EQUITY
The Company has three stock plans under which non-qualified stock options
and restricted stock have been granted to employees and directors. The plans
authorize grants of up to 3,150,000 shares. All options were granted at the fair
market value of the Company's common stock on the grant date, vest over five
years, and expire ten years and one day after grant. The following table
summarizes option activity under these plans:
Weighted Average
Options Exercise Price
------- --------------
Outstanding at March 31, 1994 1,663,270 $ 8.09
Granted 290,946 26.26
Exercised (388,942) 4.31
Forfeited (4,000) 18.57
---------
Outstanding at March 31, 1995 1,561,274 12.39
Granted 589,610 21.55
Exercised (301,881) 5.39
Forfeited (241,000) 26.51
---------
Outstanding at March 31, 1996 1,608,003 14.95
Granted 315,294 20.35
Exercised (320,605) 6.11
Forfeited (116,750) 23.37
---------
Outstanding at March 31, 1997 1,485,942 17.34
=========
Exercisable at March 31
1995 893,617 6.23
1996 708,501 8.42
1997 666,064 13.70
Included in options granted and options forfeited in the table above are
236,000 options which were repriced from a weighted average exercise price of
$26.53 per share to $17.75 per share in fiscal 1996 and 52,000 options repriced
from an exercise price of $26.50 per share to $17.75 per share in fiscal 1997.
In exchange for the repricing of these options, the
11
<PAGE> 12
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
recipients agreed to forego any payments at or below the target level under the
Company's incentive bonus compensation program for fiscal 1997.
The following table summarizes information about stock options outstanding
at March 31, 1997:
<TABLE>
<CAPTION>
Exercisable Options Outstanding Options
- ----------- ------------------------------------ -----------------
Range of Weighted Average Weighted Average Weighted Average
Exercise Prices Options Remaining Life Exercise Price Options Exercise Price
--------------- ------- -------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$ 5 - $14 348,784 4.4 years $ 6.23 290,429 $ 5.74
$16 - $22 825,823 8.2 years $19.44 308,334 $18.92
$22 - $27 311,335 8.3 years $24.17 67,301 $24.19
</TABLE>
In addition, the Company granted directors 2,400 shares of restricted
stock at a grant-date fair value of $24.00 per share in fiscal 1996 and 2,100
shares at a grant-date fair value of $21.69 per share in fiscal 1997.
Compensation cost of restricted stock awards charged to earnings was $281,000 in
fiscal 1996 and $274,000 in fiscal 1997.
The Company also has an employee stock purchase plan which allows employees
to purchase up to 200,000 shares of the Company's common stock at 85% of the
fair market value of the shares at the time of purchase. As of March 31, 1996
and 1997, 9,055 and 13,626 shares, respectively, had been issued under this
plan.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock plans, and accordingly, no compensation cost has been
recognized for its stock options in the consolidated financial statements. Had
the Company determined compensation cost for its stock options under the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net income and net income per share of common stock would have been
reduced to the pro forma amounts indicated below:
Years Ended March 31,
---------------------
1996 1997
---- ----
(In thousands, except per share amounts)
Net income As reported $9,903 $11,296
Pro forma 9,415 10,200
Net income per share As reported 1.07 1.26
Pro forma 1.03 1.17
For purposes of this pro forma disclosure, the weighted average fair market
value of options granted in fiscal 1996 and fiscal 1997 of $9.42 and $9.06,
respectively, were calculated using the Black-Scholes option pricing model. The
weighted average assumptions used in the model were: volatility of 48.1%,
expected life of 6 years, no dividend yield, and risk-free interest rate of 6.0%
and 6.4% for fiscal 1996 and fiscal 1997, respectively.
Pro forma net income reflects only options granted in fiscal 1996 and 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options vesting
period and compensation cost for options granted prior to April 1, 1995 is not
considered.
12
<PAGE> 13
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Additionally, the Company has warrants outstanding as follows:
Years Ended March 31,
---------------------
1995 1996 1997
---- ---- ----
Warrants outstanding 119,640 102,440 50,000
======= ======= ======
Warrants exercisable 79,640 82,440 50,000
====== ====== ======
Exercise price range $5.00 - 10.00 $5.00 - 10.00 $10.00
============= ============= ======
During fiscal 1996, the Company loaned $548,000 to certain officers to fund
the exercise price of stock options and $2,816,000 to pay their personal income
tax liabilities related to the exercise. The Company also loaned $1,632,000 to
officers for their stock option related income tax liabilities in fiscal 1997.
In fiscal 1996 and 1997, $4,210,000 and $4,016,000, respectively, of such loans
were repaid through the surrender of shares of the Company's common stock and
cash. The Company intends to allow repayment of these demand notes, which are
collateralized by all of the personal assets of the respective officers, beyond
March 31, 1998.
(4) INCOME TAXES
Income tax expense consists of the following:
Years Ended March 31,
---------------------
1995 1996 1997
------ ------ ------
(In thousands)
Current:
Federal $3,411 $2,662 $3,040
State 527 313 333
------ ------ ------
3,938 2,975 3,373
Deferred - Federal 2,172 2,358 2,710
------ ------ ------
Total income tax expense $6,110 $5,333 $6,083
====== ====== ======
Income tax expense differs from the expected amount (computed by applying
the 34% statutory rate to income before income taxes) due principally to the
effects of the Company's foreign sales corporation, state income taxes and
changes in the valuation allowance for deferred tax assets.
The tax effects of temporary differences that give rise to the deferred tax
assets and liability at March 31, 1996 and 1997 were as follows:
March 31,
---------
1996 1997
---- ----
(In thousands)
Deferred tax assets:
Investment tax and other
credit carryforwards $ 3,384 $4,706
Alternative minimum tax credit
carryforwards 3,781 3,503
Capitalized inventory costs 581 493
Other 672 237
---- ---
Total gross deferred tax asset 8,418 8,939
13
<PAGE> 14
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Valuation allowance (2,695) (3,648)
-------- --------
Net deferred tax asset 5,723 5,291
plant and equipment (10,592) (12,503)
-------- --------
Net deferred tax liability $ (4,869) $ (7,212)
======== ========
The above net deferred tax liability is reflected in the balance sheets
as follows:
March 31,
---------
1996 1997
---- ----
(In thousands)
Current deferred tax asset $ 1,467 $ 1,176
Noncurrent deferred tax liability (6,336) (8,388)
------- -------
Net deferred tax liability $(4,869) $(7,212)
======= =======
In fiscal 1995, 1996 and 1997, 630,566, 319,081 and 373,045 shares of
common stock, respectively, were issued through the exercise of non-qualified
stock options and compensatory warrants. In addition, in fiscal 1996 and 1997,
restrictions lapsed on 41,900 and 10,300 shares of common stock, respectively.
The total tax benefit to the Company from these transactions, which is credited
to additional paid-in capital, rather than recognized as a reduction of income
tax expense, was $3,306,000, $2,313,000 and $1,844,000 in fiscal 1995, 1996 and
1997, respectively. Those benefits were recognized in the balance sheets as
follows:
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------
1995 1996 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Reduction in:
Income taxes payable $1,969 $1,464 $1,477
Deferred income taxes 1,337 849 367
----- --- ---
Credit to additional paid-in capital $3,306 $2,313 $1,844
====== ====== ======
</TABLE>
At March 31, 1997, the Company's investment tax and other credits
($316,000 Federal and $6,651,000 State) expire from 2001 to 2013. The Company
also has $3,349,000 of Federal and $233,000 of State alternative minimum tax
credit carryforwards available with no expiration date.
(5) OTHER ASSETS
In fiscal 1996 $5,575,000 was paid to QMS, Inc. for the rights to sell
thermal transfer supplies directly to the customers of QMS, Inc. under the QMS,
Inc. brand name. The purchase price was allocated to the various service and
consulting arrangements, customer records and other agreements acquired in this
transaction. Amortization of the cost of the acquired assets was $655,000 and
$1,539,000 in fiscal 1996 and 1997, respectively.
(6) RELATIONSHIP WITH FUJICOPIAN CO., LTD.
The Company manufactures thermal transfer ribbons pursuant to a license
agreement with Fujicopian Co., Ltd. which expires in 2008. Royalty expenses
under the agreement totaled $2,627,000, $2,681,000 and $2,680,000 in fiscal
1995, 1996 and 1997, respectively. The Company also purchased certain materials
from Fujicopian which totaled $4,579,000, $3,040,000 and $2,586,000 in fiscal
1995, 1996 and 1997, respectively. The Company believes that the costs of such
purchases are
14
<PAGE> 15
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
competitive with alternative sources of supply. Other accrued expenses includes
$1,184,000 and $1,020,000 payable to Fujicopian Co., Ltd. as of March 31, 1996
and 1997, respectively.
At March 31, 1997, Fujicopian owned 260,000 shares of the Company's
common stock.
(7) RETIREMENT SAVINGS PLAN
The Company has a defined contribution retirement savings plan qualified
under Section 401(k) of the Internal Revenue Code. Pursuant to the plan,
employees make voluntary contributions which are partially matched by the
Company. Expenses under the plan were $555,000, $639,000 and $852,000 in fiscal
1995, 1996 and 1997, respectively.
(8) COMMITMENTS
Rent expense under operating leases for certain buildings and equipment
was $253,000, $270,000 and $304,000 in fiscal 1995, 1996 and 1997, respectively.
Minimum annual payments due under these leases are $202,000 in fiscal 1998,
$189,000 in fiscal 1999, $191,000 in fiscal 2000 and 2001, $142,000 in fiscal
2002 and a total of $427,000 thereafter.
(9) SIGNIFICANT CUSTOMERS
Sales to significant customers were: $10,282,000, $11,859,000 and
$15,660,000 to one customer in fiscal 1995, 1996 and 1997, respectively and
$9,599,000 and $14,842,000 to another customer in fiscal 1996 and 1997,
respectively. In addition, export sales in the aggregate were $9,576,000,
$9,753,000 and $19,452,000 in fiscal 1995, 1996 and 1997, respectively.
(10) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
Year Ended March 31, 1996
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $19,001 $21,223 $24,018 $24,206
Gross profit 5,417 6,209 7,306 7,263
Net income $ 1,831 $ 2,213 $ 2,865 $ 2,994
======= ======= ======= =======
Net income per share of common stock $ .20 $ .24 $ .31 $ .34
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, 1997
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $25,003 $26,851 $27,730 $27,310
Gross profit 7,524 7,838 8,231 7,564
Net income $ 2,831 $ 2,870 $ 3,040 $ 2,555
======= ======= ======= =======
Net income per share of common stock $ .32 $ .32 $ .34 $ .29
===== ===== ===== =====
</TABLE>
15
<PAGE> 16
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) ACCOUNTING PRONOUNCEMENTS
The Company is required to adopt Statement of Financial Accounting
Standards No. 128 (Earnings per Share) in fiscal 1998. The Company does not
believe that the adoption of this standard will have a material effect on the
consolidated financial statements.
16
<PAGE> 17
(b) Pro Forma Financial Information (unaudited)
Set forth below are the unaudited Pro Forma Statements of Income of the
Registrant and IIMAK for the nine months ended September 30, 1997, and the three
years ended December 31, 1996, 1995, and 1994 and the unaudited Pro Forma
Condensed Combined Balance Sheet of the Registrant and IIMAK as at September
30,1997.
17
<PAGE> 18
PAXAR CORPORATION AND IIMAK
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------
PAXAR PRO FORMA
12/31/96 IIMAK ADJUSTMENTS PROFORMA
(3) 3/31/97 (1C) COMBINED
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Sales $479,073 $106,894 $(7,341) $578,626
Cost of sales 285,606 75,737 (7,220) 354,123
- ------------------------------------------------------------------------------------------------------------------
Gross profit 193,467 31,157 (121) 224,503
Selling, general & administrative 143,639 13,216 156,855
- ------------------------------------------------------------------------------------------------------------------
Operating income 49,828 17,941 (121) 67,648
Interest expense, net 20,529 562 21,091
- ------------------------------------------------------------------------------------------------------------------
Income before Income taxes 29,299 17,379 (121) 46,557
Taxes on income 9,607 6,083 (40) 15,650
- ------------------------------------------------------------------------------------------------------------------
Net income $19,692 $11,296 $(81) $30,907
==================================================================================================================
Weighted average shares outstanding 36,736 8,967 50,187
Earnings per share $0.54 $1.26 $0.62
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------
PRO FORMA
PAXAR IIMAK ADJUSTMENTS PROFORMA
12/31/95 3/31/96 (1C) COMBINED
--------- -------- ------------ --------
<S> <C> <C> <C> <C>
Sales $201,436 $88,448 $(513) $289,371
Cost of sales 128,412 62,253 (513) 190,152
- ---------------------------------------------------------------------------------------------------------------
Gross profit 73,024 26,195 99,219
Selling, general & administrative 49,887 10,924 60,811
- ---------------------------------------------------------------------------------------------------------------
Operating income 23,137 15,271 38,408
Equity in net income of affiliate (592) 0 (592)
Interest expense, net 1,628 35 1,663
- ---------------------------------------------------------------------------------------------------------------
Income before Income taxes 22,101 15,236 37,337
Taxes on income 6,392 5,333 11,725
- ---------------------------------------------------------------------------------------------------------------
Net income $15,709 $9,903 $25,612
===============================================================================================================
Weighted average shares outstanding 35,035 9,224 48,871
Earnings per share $0.45 $1.07 $0.52
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
18
<PAGE> 19
PAXAR CORPORATION AND IIMAK
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------
PRO FORMA PROFORMA
PAXAR IIMAK ADJUSTMENTS COMBINED
12/31/94 3/31/95 (1C)
-------- ------- ----------- ----------
<S> <C> <C> <C> <C>
Sales $166,612 $85,477 $(424) $251,665
Cost of sales 107,393 59,968 (424) 166,937
- ---------------------------------------------------------------------------------------------------------------
Gross profit 59,219 25,509 84,728
Selling, general & administrative 41,238 9,572 50,810
- ---------------------------------------------------------------------------------------------------------------
Operating income 17,981 15,937 33,918
Interest expense, net 921 (143) 778
- ---------------------------------------------------------------------------------------------------------------
Income before Income taxes 17,060 16,080 33,140
Taxes on income 5,459 6,110 11,569
- ---------------------------------------------------------------------------------------------------------------
Net income 11,601 9,970 21,571
===============================================================================================================
Weighted average shares outstanding 34,279 9,093 47,918
Earnings per share $0.34 $1.10 $0.45
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
19
<PAGE> 20
PAXAR CORPORATION AND IIMAK
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------------------------
PRO FORMA
PAXAR ADJUSTMENTS PROFORMA
(3) (4) IIMAK (1C) COMBINED
------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Sales $381,988 $77,455 $(6,253) $453,190
Cost of sales 227,410 55,611 (6,014) 277,007
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit 154,578 21,844 (239) 176,183
Selling, general & administrative 116,325 10,938 127,263
- -------------------------------------------------------------------------------------------------------------------------------
Operating income 38,253 10,906 (239) 48,920
Interest expense, net 11,965 620 12,585
- -------------------------------------------------------------------------------------------------------------------------------
Income before Income taxes 26,288 10,286 (239) 36,335
Taxes on income 8,711 3,283 (81) 11,913
- -------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 17,577 7,003 (158) 24,422
Extraordinary item net of tax (8,575) 0 (8,575)
- -------------------------------------------------------------------------------------------------------------------------------
Net income $9,002 $7,003 $(158) $15,847
===============================================================================================================================
Weighted average shares outstanding 36,899 8,443 49,564
Earnings per Common Share:
Income before extraordinary item $0.48 $0.83 $0.49
Extraordinary item ($0.24) - $(0.17)
---------- ---------- ----------
Net income per share $0.24 $0.83 $0.32
========== ========== ==========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
20
<PAGE> 21
PAXAR CORPORATION AND IIMAK
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET
SEPTEMBER 30,1997
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PAXAR IIMAK PRO-FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $11,005 $2 $(4,000)(1B) $7,007
Short-term investments 3,022 0 3,022
Receivables - net 83,581 15,739 (1,134)(1C) 98,186
Inventories - net 87,026 17,796 104,822
Other current assets 11,252 1,721 12,973
Deferred income taxes 5,414 1,508 $6,922
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 201,300 36,766 (5,134) 232,932
- ------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment - net 107,961 76,427 184,388
Long term investment 5,063 0 5,063
Goodwill 166,995 0 166,995
Other assets 4,390 3,079 7,469
- ------------------------------------------------------------------------------------------------------------------------
$485,709 $116,272 $(5,134) $596,847
========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to banks $1,797 $11,000 12,797
Notes Payable 5,908 0 5,908
Current maturities of long-term debt 588 1,088 1,676
Accounts payable and accrued liabilities 67,008 9,130 (1,134)(1C) 75,004
Accrued taxes on income 5,949 0 5,949
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 81,250 21,218 (1,134) 101,334
- ------------------------------------------------------------------------------------------------------------------------
Long term debt 227,914 478 228,392
Deferred income taxes 11,202 9,103 20,305
Other liabilities 6,617 0 0 6,617
Shareholders' equity:
Preferred stock 0 0 0
Common stock 3,583 83 1,160 (1A) 4,826
Paid-in capital 70,883 37,253 (1,160)(1A) 106,976
Retained earnings 87,963 48,137 (4,000)(1B) 132,100
Foreign currency translation adjustments (3,703) 0 (3,703)
- ------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 158,726 85,473 (4,000) 240,199
- ------------------------------------------------------------------------------------------------------------------------
$485,709 $116,272 $(5,134) $596,847
========================================================================================================================
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
21
<PAGE> 22
PAXAR CORPORATION AND INTERNATIONAL IMAGING MATERIALS INC. ("IIMAK")
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(in thousands, except share information)
NOTE 1: PRO FORMA ADJUSTMENTS
(A) The shareholders' equity accounts of PAXAR and IIMAK as of September
30, 1997, have been adjusted to reflect the issuance of approximately 12.4
million shares of PAXAR Common Stock issued in connection with the Merger.
(B) Direct costs of the Merger are estimated at approximately $4,000. The
pro forma balance sheet gives effect to direct costs of the Merger as if they
had been incurred as of September 30, 1997, but the pro forma combined condensed
statements of income do not give effect to such expenses.
(C) The pro forma adjustment reflects the elimination of intercompany
receivables and payables on the pro forma balance sheet as of September 30,
1997, and the elimination of intercompany sales and gross profit in inventory,
net of taxes as applicable in the pro forma combined statements of income.
NOTE 2: PRO FORMA EARNINGS PER SHARE
The pro forma earnings per share have been adjusted to reflect the
issuance of approximately 12.4 million shares of PAXAR Common Stock in
connection with the Merger.
NOTE 3: PAXAR - ACQUISITION OF MONARCH
On March 3, 1997, PAXAR acquired the 51% of Monarch Marking Systems,
Inc. ("Monarch") it did not already own. The pro forma statements of income for
the year ended December 31, 1996, and for the nine months ended September 30,
1997, reflect this acquisition as if had occurred on January 1, 1996. The
revenues of Monarch for the year ended December 31, 1996 and the two months
ended February 28, 1997, were $260,000 and $40,000, respectively. The 1996 and
1997 results of PAXAR have been adjusted to reflect the pro forma interest
expense on debt incurred in connection with the acquisition and the amortization
of goodwill that arose in connection therewith.
NOTE 4: PAXAR-INTEGRATION/RESTRUCTURING COST AND EXTRAORDINARY ITEM, NET OF TAX
During the quarter ended June 30, 1997, PAXAR implemented an
integration and restructuring program associated with the acquisition of Monarch
which reduced operating income by $2,086. These costs have been included in
selling, general and administrative expenses.
The extraordinary item of $8,575 net of tax of $5,100 is the
result of the early extinguishment of Monarch's 12-1/2% Senior Notes due July 1,
2003.
22
<PAGE> 23
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
23.1 Consent of KMPG Peat Marwick L.L.P.
</TABLE>
SIGNATURE
Pursuant to the requirements of the Securities 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
Dated: January 12, 1998 By: /s/ Jack Plaxe
--------------------------------
Jack Plaxe
Chief Financial Officer
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
23.1 Consent of KPMG Peat Marwick LLP.
</TABLE>
24
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
International Imaging Materials, Inc.:
We consent to the incorporation by reference in the registration statements
(No. 33-42685, 33-44299 and 333-38923) on Form S-8 of Paxar Corporation of our
report dated April 23, 1997, with respect to the consolidated balance sheets of
International Imaging Materials, Inc. and subsidiaries as of March 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the years in the three-year period ended March 31,
1997, which report appears in the Form 8-K/A of Paxar Corporation dated January
12, 1998.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Buffalo, New York
January 9, 1998
