<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 MARCH 31, 1999
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. (March 31, 1999)
Common Stock, $0.10 par value: 47,159,455 shares
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
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, 1998.
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
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1999 1998
-------- --------
<S> <C> <C>
Sales $ 154.2 $ 149.4
Cost of sales 96.0 90.8
-------- --------
Gross profit 58.2 58.6
Selling, general and administrative expense 44.4 42.6
Amortization of intangibles 1.5 1.4
Restructuring and other special charges 3.3 -
-------- --------
Operating income 9.0 14.6
Interest expense, net 3.7 3.9
-------- --------
Income before taxes 5.3 10.7
Taxes on income 1.9 3.4
-------- --------
Net income $ 3.4 $ 7.3
======== ========
Average common shares outstanding:
Basic 47.6 48.5
======== ========
Diluted 47.9 49.9
======== ========
Basic earnings per common share $ 0.07 $ 0.15
======== ========
Diluted earnings per common share $ 0.07 $ 0.15
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 23.0 $ 14.8
Short-term investments 6.7 4.4
Receivables, less allowances of $5.6 in 1999 and $5.0 in 1998 113.3 99.6
Inventories 100.3 97.0
Other current assets 16.2 13.3
------ ------
Total current assets 259.5 229.1
Property, plant and equipment, at cost 333.6 300.4
Accumulated depreciation (129.9) (106.8)
------ ------
Net property, plant and equipment 203.7 193.6
Long-term investments 3.2 3.2
Goodwill 156.1 157.8
Other assets 8.5 9.5
------ ------
$631.0 $593.2
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to banks $ 41.7 $ 1.9
Current maturities of long-term debt 0.4 0.7
Accounts payable and accrued liabilities 91.3 82.8
Accrued taxes on income 4.6 4.5
------ ------
Total current liabilities 138.0 89.9
Long-term debt 202.7 204.5
Deferred income taxes 19.9 20.1
Other liabilities 5.2 5.3
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,
47,159,455 and 47,941,696 shares issued and outstanding in
1999 and 1998, respectively 5.0 4.9
Paid-in capital 118.1 116.9
Retained earnings 171.5 168.1
Accumulated other comprehensive loss (8.2) (3.4)
Treasury stock (21.2) (13.1)
------ ------
Total shareholders' equity 265.2 273.4
------ ------
$631.0 $593.2
====== ======
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
UNAUDITED
<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3.4 $ 7.3
------ ------
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 9.0 7.6
Deferred income taxes (0.2) 0.5
Changes in assets and liabilities, net of
businesses acquired:
Receivables (4.4) (1.4)
Inventories 2.5 (3.0)
Other current assets (2.6) (0.7)
Accounts payable and accrued liabilities (2.9) (4.0)
Taxes on income -- 2.4
Other (0.1) (0.3)
------ ------
1.3 1.1
------ ------
Net cash provided by operating activities 4.7 8.4
------ ------
INVESTING ACTIVITIES:
(Increase)in short-term investments (2.3) (1.3)
Purchases of property, plant and equipment (7.1) (6.7)
Acquisition net of cash acquired (24.3) --
Other 7.2 (0.6)
------ ------
Net cash used in investing activities (26.5) (8.6)
------ ------
FINANCING ACTIVITIES:
Increase/(decrease) in short-term debt 39.3 (6.1)
Additions to long-term debt 203.2 30.6
Reductions in long-term debt (205.0) (22.8)
Purchase of common stock (8.1) --
Exercise of stock options/Stock Purchase Plan 1.3 1.0
------ ------
Net cash provided by financing activities 30.7 2.7
------ ------
OTHER ACTIVITIES:
Effect of exchange rate changes on cash (0.7) (0.5)
------ ------
Increase in cash 8.2 2.0
Cash at beginning of year 14.8 13.7
------ ------
Cash at end of period $ 23.0 $ 15.7
====== ======
</TABLE>
See Notes to Consolidated Financial Statements
5
<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, 1998. Other than Balance Sheet amounts as of
December 31, 1998, 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 February 2, 1999, the Company acquired the apparel identification business of
Ferguson International PLC ("Ferguson"). The acquisition price was $24.3 and is
subject to a final price adjustment based upon the net assets of the business
acquired on the transaction date. The acquisition has been accounted for as a
purchase with assets and liabilities assumed recorded at their estimated fair
values at the date of acquisition.
NOTE 3: INVENTORIES
The components of inventories are set forth below:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Raw materials $ 46.7 $ 49.3
Work-in-Process 11.7 11.8
Finished goods 41.9 35.9
------ ------
$100.3 $ 97.0
====== ======
</TABLE>
NOTE 4: DUE TO BANKS
A summary of amounts due to banks is set forth below:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Bank overdrafts $ 3.5 $ 1.8
Uncommitted Credit Facility (a) 38.0 --
Other foreign 0.2 0.1
----- -----
$41.7 $ 1.9
===== =====
</TABLE>
(a) On March 12, 1999, the Company entered into an agreement with a bank under
which the bank provides an unsecured uncommitted facility for the Company to
borrow up to $50 at negotiated interest rates for defined periods. The
agreement requires the Company to have availability under its revolving credit
agreement equal to the amount borrowed under this facility. There was $38
outstanding under this facility at March 31, 1999, at 5.2% interest.
6
<PAGE> 7
NOTE 5: LONG TERM DEBT
A summary of long-term debt is set forth below:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
6.74% Senior Notes $150.0 $150.0
Unsecured bank credit facility 44.0 45.8
Economic Development Revenue Bonds due 2011 8.0 8.0
Other 1.1 1.4
------ ------
203.1 205.2
Less current maturities 0.4 0.7
------ ------
$202.7 $204.5
====== ======
</TABLE>
NOTE 6: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of accounts payable and accrued liabilities is set forth below:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Accounts payable $36.9 $34.8
Accrued payroll costs 17.8 19.2
Other accrued liabilities 36.6 28.8
----- -----
$91.3 $82.8
===== =====
</TABLE>
NOTE 7: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid (received) for interest and income taxes is set forth below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Interest $ 6.3 $ 4.3
Income Taxes $ (3.6) $ 1.2
</TABLE>
NOTE 8: COMPREHENSIVE INCOME/(LOSS)
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 non-owner 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 THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Net income $ 3.4 $ 7.3
Foreign currency translation adjustments (4.8) (0.5)
------- -------
Comprehensive income (loss) $ (1.4) $ 6.8
======= =======
</TABLE>
7
<PAGE> 8
NOTE 9: EARNINGS PER COMMON SHARE
The reconciliation of basic and diluted per-share computation is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Net income $ 3.4 $ 7.3
===== =====
Average common shares (basic) 47.6 48.5
Options and warrants 0.3 1.4
----- -----
Adjusted average common shares (diluted) 47.9 49.9
===== =====
Earnings per common share:
Basic $0.07 $0.15
===== =====
Diluted $0.07 $0.15
===== =====
</TABLE>
NOTE 10: BUSINESS SEGMENTS
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued effective for fiscal years ending after
December 15, 1998.
The Company operates the following business segments: Apparel
Identification, Printing Solutions, and International. The Company evaluates
performance based on operating income of its business segments before corporate
expenses, amortization, non-recurring charges, interest, income taxes and
extraordinary items.
The Company's Apparel Identification operations manufacture products for and
provide services specifically to the apparel and textile industries. A
significant portion of the Company's products are delivered to apparel
manufacturers located in Asia and Mexico whose products are sold in the U.S.
Label systems, consisting mainly of hot-stamp printers and related supplies and
services, are sold to Company customers for in-plant label printing. Bar code
systems, consisting of electronic printers and related supplies and services,
are used by customers to print data on labels and tags to provide accurate
product, inventory and point of sale information for integration with
sophisticated data systems. Labels and tags are attached to apparel by
manufacturers and retailers to identify and promote their products, allow
automated data collection and provide brand identification and consumer
information such as country of origin, size, fabric content and care
instructions. Labels are attached to garments early in the manufacturing process
and must withstand all production processes and remain legible through washing
and dry cleaning by the end user. The Company's products also include tags and
labels for sheets, towels, pillow cases and other white goods. The Company's
Apparel Identification operations are primarily located in North America and
Hong Kong.
The Company's Printing Solutions operations market and distribute (i)
electronic bar code printers, which are used in a wide range of retail and
industrial applications, including inventory management and distribution
systems, and (ii) hand-held, mechanical labeling devices that print
pressure-sensitive (i.e., adhesive-backed) price and other identification labels
and affix them onto merchandise for retailers. The Company is also the largest
manufacturer in North America of thermal transfer ribbons for numerous diverse
applications. These thermal transfer ribbons are used in bar code printers to
print single-color and multi-color tags and labels for use in manufacturing and
factory automation systems, shipping and distribution systems, retail price tag,
packaging and medical applications. In addition to thermal transfer ribbons, the
Company manufactures and markets other supplies used in both its mechanical
labelers and bar code printers and provides comprehensive service to its
installed base of machines.
Service to the Company's customers requires the Company to manufacture its
goods and services globally. For this reason the Company offers the products of
its Apparel Identification and its Printing Solutions operations through its
International operation. The Company's International operation either
manufactures or offers for sale items manufactured by the other business
segments. Its customers are those in the apparel industry and the retail supply
chain principally in Europe.
8
<PAGE> 9
The following table shows the financial information of the Company's
business segments. "Corporate" represents amounts not attributable or allocated
to the business segments, including corporate administrative expenses,
amortization, and restructuring and other special charges.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Sales to unaffiliated customers:
Apparel Identification $50.5 $52.3
Printing Solutions 59.6 60.2
International 44.1 36.9
------ ------
Total $154.2 $149.4
====== ======
Inter-segment sales:
Apparel Identification $ 2.8 $ 3.0
Printing Solutions 5.4 4.5
International 0.7 0.3
------ ------
Total $ 8.9 $7.8
====== ======
Segment operating income:
Apparel Identification $ 7.7 $ 7.6
Printing Solutions 7.4 6.7
International 1.9 2.7
Corporate (8.0) (2.4)
------ ------
Total $9.0 $ 14.6
====== ======
</TABLE>
NOTE 11: RESTRUCTURING AND OTHER SPECIAL CHARGES
The Company adopted a plan to streamline its U.S. business segments.
During the three months ended March 31, 1999 the Company recorded $3.3 of
restructuring and other special charges. Included in the total charge is
severance of $2.1 and $0.4 of costs associated with the consolidation of
certain facilities. Substamtially all these costs had been paid as of March 31,
1999. The Apparel Identification business segment consolidated its woven and
printed label operations, which resulted in the elimination of approximately 20
managerial and administrative personnel. The Printing Solutions business
segment reduced headcount by approximately 50 salaried positions.
NOTE 12: ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
During 1998, the Company cancelled an interest rate hedge agreement with
notional value of $20. At March 31, 1999, the Company had hedge agreements with
notional value of $80. The fair value of those agreements, based on estimates
provided by financial institutions, was a loss of $1.1 and $1.5 at March 31,
1999 and December 31, 1998, respectively.
Since the notional value of the agreements exceeded the amount of
variable rate debt outstanding, the fair value of the hedge agreements related
to the excess of notional value of the agreements over variable rate debt is
reflected in earnings. As of December 31, 1998 and March 31, 1999 the amount of
loss reflected in earnings was $0.6.
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 or method of its adoption
of Statement 133. However, based on current interest rate levels, the income
statement treatment of derivative contracts would not have a material impact on
the Company's results of operations.
9
<PAGE> 10
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
The following table shows each element of the income statement as a percent of
sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 62.3 60.8
----- -----
Gross profit 37.7 39.2
Selling, general and
Administrative expense 28.8 28.5
Amortization of intangibles 1.0 0.9
Restructuring and other special charges 2.1 --
----- -----
Operating income 5.8 9.8
Interest expense, net 2.4 2.6
----- -----
Income before taxes 3.4 7.2
Taxes on income 1.2 2.3
----- -----
Net Income 2.2% 4.9%
===== =====
</TABLE>
FIRST QUARTER 1999 COMPARED WITH 1998
Sales for the three months ended March 31, 1999 increased to $154.2 compared
with $149.4 in the three months ended March 31, 1998. Sales by the Company's
Apparel Identification and Printing Solutions business segments were down
slightly for the three months ended March 31, 1999 compared with March 31, 1998,
while those of the International business segment increased by 20% for the three
months ended March 31, 1999 compared with March 31, 1998 (See Note 10 of Notes
to Consolidated Financial Statements). The increase was due primarily to the
acquisition of the apparel identification business of Ferguson International PLC
("Ferguson") (See Note 2 of Notes to Consolidated Financial Statements).
Cost of sales for the three months ended March 31, 1999 increased to $96.0
compared with $90.8 for the three months ended March 31, 1998. As a percent of
sales, such costs increased to 62.3% for March 31, 1999 compared with 60.8% for
March 31,1998.
Gross profit decreased to $58.2 for the three months ended March 31, 1999
compared with $58.6 for the three months ended March 31, 1998. The gross profit
margin was 37.7% for the three months ended March 31,1999 compared with 39.2%
for the three months ended March 31, 1998.
Selling, general and administrative expense ("SG&A") increased to $44.4 for the
three months ended March 31, 1999, compared with $42.6 for the three months
ended March 31, 1998. As a percent of sales, SG&A was 28.8% for March 31,1999
compared with 28.5% for March 31, 1998.
The Company adopted a plan to streamline its U.S. business segments.
During the three months ended March 31, 1999, the Company recorded $3.3 of
restructuring and other special charges. Included in the total charge is
severance of $2.1 and $0.4 of costs associated with the consolidation of
certain facilities. Substantially, all these costs had been paid as of March
31, 1999. The Apparel Identification business segment consolidated its woven
and printed label operations, which resulted in the elimination of
approximately 20 managerial and administrative personnel. The Printing
Solutions business segment reduced headcount by approximately 50 salaried
positions.
10
<PAGE> 11
Operating income decreased to $9.0 for the three months ended March 31, 1999
compared with $14.6 for the three months ended March 31, 1998. The operating
margin declined from 9.8% in the three months ended March 31, 1998 to 5.8% in
the three months ended March 31, 1999.
Interest expense, net, decreased to $3.7 for the three months ended March 31,
1999 from $3.9 in three months ended March 31,1998. The decrease resulted from
lower borrowing levels and lower interest rates related to variable rate
borrowings in 1999, offset somewhat by increased cost related to fixed rate
borrowings under the $150, 6.74% Senior Notes issued in August 1998.
Income before taxes decreased to $5.3 (3.4% of sales) for the three months ended
March 31, 1999 as compared with $10.7 (7.2% of sales) for the three months ended
March 31, 1998.
The effective income tax rate was 35% for the three months ended March 31, 1999
compared with 32% for the three months ended March 31, 1998. The overall
effective tax rate was impacted by many factors including the expiration of tax
incentives in Italy through 1999.
Net income for the three months ended March 31, 1999 was $3.4 (2.2% of sales)
compared with $7.3 (4.9% of sales) for the three months ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents summary cash flow information for the periods
indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Net cash provided by operating activities $ 4.7 $ 8.4
Net cash used by investing activities (26.5) (8.6)
Net cash provided by financing activities 30.7 2.7
----- -----
Total change in cash (a) $ 8.9 $2.5
===== =====
</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 $4.7 for the three months
ended March 31, 1999, compared with $8.4 in 1998.
Depreciation and amortization was $9.0 for the three months ended March 31, 1999
compared with $7.6 for the three months ended March 31, 1998.
INVESTING ACTIVITIES
During the first quarter of 1999 capital expenditures were $7.1 compared with
$6.7 in 1998. 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 $31 for the year ending December 31, 1999.
On February 2, 1999, the Company acquired the apparel identification business of
Ferguson International PLC ("Ferguson"). The acquisition price was $24.3 and is
subject to a final price adjustment based upon the net assets of the business
acquired on the transaction date. The acquisition has been accounted for as a
purchase with assets and liabilities assumed recorded at their estimated fair
values at the date of acquisition.
11
<PAGE> 12
The Company intends to continue its growth, in part by acquisitions of other
complementary or related businesses, and believes that further acquisitions
would be of important strategic value.
FINANCING ACTIVITIES
The table below shows the components of total capital for the years indicated:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Due to banks $ 41.7 $ 1.9
Current maturities of long-term debt 0.4 0.7
Long-term debt 202.7 204.5
------ ------
Total debt $244.8 $207.1
Shareholders' equity 265.2 273.4
------ ------
Total capital $510.0 $480.5
====== ======
Total debt as a percent of total capital 48.0% 43.1%
====== ======
</TABLE>
Total debt increased to $244.8 at March 31, 1999, from $207.1 at December 31,
1998, primarily attributable to the acquisition of Ferguson and the repurchase
of shares under the Company's stock repurchase plan. At March 31, 1999, total
debt as a percent of total capital was 48.0% compared with 43.1% at December 31,
1998.
On March 12, 1999, the Company entered into an agreement with a bank
under which the bank provides an unsecured uncommitted facility for the Company
to borrow up to $50 at negotiated interest rates for defined periods. The
agreement requires the Company to maintain availability under its revolving
credit agreement equal to the amount borrowed under this facility. There was
$38 outstanding under this facility at March 31, 1999, at 5.2% in interest.
OTHER MATTERS
STOCK REPURCHASE
On July 30, 1998, the Company announced a plan to purchase, from time to time,
up to $25 of the Company's common stock as conditions warrant. The repurchased
shares will be available for issuance under the employee stock option and
purchase plans and other financing activities. On February 12, 1999, the Company
announced it had increased the stock repurchase plan from the initial $25 to
$40. During the three months ended March 31, 1999 the Company repurchased an
additional 942,500 shares at an average price of $8.69.
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 made and
sold in the U.S., it is also creating opportunities for increased sales in the
Pacific Rim by Company subsidiaries located in that region. On the whole, the
Company does not expect the current economic situation in Asia to have a
material adverse impact upon its future operations.
YEAR 2000
The Company is actively addressing the Year 2000 ("Y2K") compliance issue,
which stems from the inability of certain computer programs and embedded
computer micro-controllers to distinguish between the year 1900 and the year
2000 and recognize the Year 2000 as a leap year. Each operating entity within
the Company has designated an individual under the general supervision of the
Company President, to ensure that each unit achieves timely Y2K readiness. The
Company's Audit Committee of the Board of Directors reviews progress quarterly.
STATE OF READINESS. The Company began its internal Y2K assessments and upgrades
in 1997. The Company expects nearly all its information technology ("IT")
systems to be compliant during the first half of 1999. The Company will devote
the remainder of 1999 to testing the readiness of its systems and its major
vendors.
The Company has also assessed non-IT systems in the products it sells and
the products it uses in its own
12
<PAGE> 13
manufacturing processes. Non-IT systems are those with embedded technology such
as micro controllers. Non-IT systems in products the Company sells are Y2K
compliant. Manufacturing equipment used by the Company that contains embedded
systems has also been assessed, and the Company expects all equipment to be Y2K
compliant by the end of the first half of 1999.
COST TO ADDRESS Y2K ISSUES. The Company continues to resolve its Y2K issues
principally through hardware and software system upgrades and the installation
of new computer systems that are Y2K compliant. These upgrades and new systems
were the result of scheduled purchases that the Company has made in the ordinary
course of business to meet its expanding business needs. These upgrades and new
systems have either been expensed or capitalized and the impact of such costs
are currently reflected in the Company's operating results. The Company believes
that costs specifically relating to Y2K compliance will be less than $0.5 and
such costs are not deemed material.
RISKS TO THE COMPANY AND CONTINGENCY PLANS. The Company is conducting inquiries
regarding Y2K compliance programs of its key customers and suppliers, including
power and telecommunications utilities. No assurance can be given at this time
that the Company's customers and suppliers will be Y2K compliant. However, the
Company has a contingency plan to qualify alternative vendors, including their
Y2K readiness, for those key vendors who cannot demonstrate Y2K readiness. The
Company is also developing contingency plans relating to its ability to
communicate with its customers. The Company will rely on its existing business
continuity plans as a contingency plan for its internal information processing
systems.
EURO CONVERSION
As part of the European Economic Monetary Union (EMU), a single currency
("Euro") will replace the national currencies of most of the European countries
in which the Company conducts business. The conversion rates between the Euro
and the participating nations' currencies were fixed as of January 1, 1999, with
the participating national currencies being removed from circulation over the
next three years. During this transition period, the Euro and the local currency
will jointly circulate. The Company's European operations are preparing to be
fully Euro compliant by the end of calendar year 1999, well in advance of the
conversion date of January 1, 2002. To the extent that certain customers request
Euro invoices, before the full phase-in of the Company's Euro compliant system,
these individual requests may be accommodated by the Company under its existing
IT system. The cost to convert the Company's software and business processes to
become Euro compliant is not expected to be material.
13
<PAGE> 14
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 10-K and Form 10-Q 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,
regarding, among others:
- rate of migration of garment manufacturing industry moving
from the United States and Western Europe
- worldwide 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
- the current economic situation in Asia
- completion dates of Y2K compliance activity
- the ability of the Company to complete the upgrades of its IT
systems
- the ability of suppliers and customers to be Y2K compliant
- the accuracy of Y2K information provided by suppliers and
customers
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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company experiences market risk relative to interest rates. A 10% change in
interest rates affecting the Company's floating rate debt instruments would have
an insignificant impact on the Company's pretax earnings and cash flows over the
next fiscal year. Such a move in interest rates would have no effect on the fair
value of the Company's floating rate debt instruments. A 10% increase in
interest rates over the life of the interest rate derivatives would cause the
fair value of the derivatives to decrease from a liability of $1.1 to $0.6. A
10% decrease would cause the fair value to increase from a liability of $1.1 to
$1.6.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit Index
27.1 Financial Data Schedule
b) Reports on Form 8-K
None
15
<PAGE> 16
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
By: /s/ John Fitzgerald
--------------------------
John Fitzgerald
Vice President and Controller
(Principal Accounting Officer)
May 14, 1999
Date
16
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