<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
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 13-56700509
-------- ----------
(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. (November 7, 2000)
Common Stock, $0.10 par value: 42,173,990 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, 1999.
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.
1
<PAGE> 3
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $158.4 $166.6 $486.3 $488.4
Cost of sales 96.5 101.4 298.6 299.7
---- ----- ----- -----
Gross profit 61.9 65.2 187.7 188.7
Selling, general and administrative expense 44.9 44.8 136.0 133.3
Amortization of intangibles 1.5 1.7 4.3 4.7
Restructuring and other special charges - - - 5.0
---- ---- ---- ----
Operating income 15.5 18.7 47.4 45.7
Gain on sale of IIMAK - - 50.3 -
Interest expense, net 2.4 3.6 7.3 11.1
--- --- --- ----
Income before taxes 13.1 15.1 90.4 34.6
Taxes on income 3.4 5.3 22.3 12.2
--- --- ---- ----
Net income $9.7 $9.8 $68.1 $22.4
==== ==== ===== =====
Basic earnings per common share $0.22 $0.21 $1.50 $0.48
===== ===== ===== =====
Diluted earnings per common share $0.22 $0.21 $1.49 $0.47
===== ===== ===== =====
Average common shares outstanding:
Basic 43.4 46.3 45.3 46.8
==== ==== ==== ====
Diluted 43.9 46.6 45.7 47.3
==== ==== ==== ====
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 4
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $46.7 $32.2
Receivables, less allowances of $8.0 in 2000 and $8.3 in 1999 116.5 121.1
Inventories 81.1 80.6
Other current assets 11.3 17.6
---- ----
Total current assets 255.6 251.5
Property, plant and equipment, at cost 243.1 344.9
Accumulated depreciation (102.0) (139.6)
------- ------
Net property, plant and equipment 141.1 205.3
Goodwill 183.5 157.4
Other assets 24.9 7.7
---- ---
$605.1 $621.9
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to banks $12.0 $45.0
Current maturities of long-term debt 0.1 0.3
Accounts payable and accrued liabilities 94.1 104.2
Accrued taxes on income 26.6 8.4
---- ---
Total current liabilities 132.8 157.9
Long-term debt 167.9 163.4
Deferred income taxes 3.0 14.1
Other liabilities 7.0 4.6
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, 42,529,155 and 46,756,610 shares issued
and outstanding in 2000 and 1999, respectively 4.2 4.7
Paid-in capital 48.8 93.2
Retained earnings 262.4 194.3
Accumulated other comprehensive loss (21.0) (10.3)
------ ------
Total shareholders' equity 294.4 281.9
----- -----
$605.1 $621.9
====== ======
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 5
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $68.1 $22.4
----- -----
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 26.1 27.6
Deferred income taxes (0.9) (0.2)
Gain on sale of IIMAK, net of tax (40.3) --
Changes in assets and liabilities, net of
businesses acquired or divested:
Receivables 0.5 (11.9)
Inventories (4.0) 9.5
Other current assets 3.7 (0.9)
Accounts payable and accrued liabilities (19.9) 1.2
Taxes on income 7.4 3.7
Other 0.4 (0.2)
---- ----
(27.0) 28.8
---- ----
Net cash provided by operating activities 41.1 51.2
---- ----
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (18.9) (21.0)
Acquisition related (52.5) (20.5)
Proceeds from sale of business 119.8 --
Other 3.0 (3.1)
---- -----
Net cash provided by/(used in) investing activities 51.4 (44.6)
---- -----
FINANCING ACTIVITIES:
(Decrease)/increase in short-term debt (33.0) 46.8
Additions to long-term debt 35.8 363.3
Reductions in long-term debt (35.1) (392.2)
Purchase of common stock (46.5) (15.9)
Exercise of stock options/Stock Purchase Plan 1.7 4.5
---- ----
Net cash (used in)/ provided by financing activities (77.1) 6.5
---- ----
OTHER ACTIVITIES:
Effect of exchange rate changes on cash (0.9) (1.0)
---- -----
Increase in cash 14.5 12.1
Cash and cash equivalents at beginning of year 32.2 19.2
---- ----
Cash and cash equivalents at end of period $46.7 $31.3
===== =====
</TABLE>
See Notes to Consolidated Financial Statements
4
<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, 1999. Other than Balance Sheet amounts as of
December 31, 1999, 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: CHANGE IN ACCOUNTING FOR INVENTORIES FROM LIFO TO FIFO
During 2000, the Company changed its method of determining the cost of inventory
for the Labeling Solutions U.S. business unit from LIFO to FIFO. The Company
believes the FIFO method results in a closer matching of costs and revenue
during periods of declining prices and it is the primary method used in the
industry in which the Labeling Solutions U.S. business unit operates. This
change has been applied by retroactively restating the accompanying consolidated
financial statements. Although this change in method did not impact the 2000 or
1999 net income, the retained earnings balances for the periods ended September
30, 2000 and December 31, 1999 have been decreased by $7.2 to reflect the
retroactive application of the new method of valuing inventories.
NOTE 3: ACQUISITIONS
On May 18, 2000, the Company acquired the Bornemann & Bick ("B&B") group of
companies for approximately $52.5. The B&B companies manufacture apparel
identification products. 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. The $31.5 excess of the purchase price and transaction
costs over the fair value of net assets acquired was recorded as goodwill and is
being amortized over 25 years. The fair value of assets acquired and liabilities
assumed is as follows:
<TABLE>
<S> <C>
Current assets $22.4
Property, plant and equipment 9.8
Other assets 3.4
Goodwill 31.5
Liabilities (14.6)
-----
Net assets $52.5
=====
</TABLE>
On February 2, 1999, the Company acquired the apparel identification business of
Ferguson International PLC ("Ferguson") for approximately $20.5. 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. The $5.4
excess of the purchase price and transaction costs over the fair value of net
assets acquired was recorded as goodwill and is being amortized over 20 years.
The fair value of assets acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Current assets $15.1
Property, plant and equipment 13.5
Goodwill 5.4
Current liabilities (13.5)
-----
Net assets $20.5
=====
</TABLE>
NOTE 4: DIVESTITURE
On March 9, 2000, the Company sold 92.5% of its International Imaging Materials,
Inc. (IIMAK) subsidiary for a total consideration of $127.5, which included $120
in cash and $7.5 of IIMAK preferred stock.
5
<PAGE> 7
NOTE 5: INVENTORIES
The components of inventories are set forth below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Raw materials $35.7 $30.8
Work-in-Process 10.0 15.9
Finished goods 35.4 33.9
---- ----
$81.1 $80.6
===== =====
</TABLE>
NOTE 6: DUE TO BANKS
A summary of amounts due to banks is set forth below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Bank overdrafts $1.0 $-
Uncommitted Credit Facility (a) 11.0 45.0
---- ----
$12.0 $45.0
===== =====
</TABLE>
(a) On March 12, 1999, the Company entered into an agreement with a bank for an
uncommitted facility permitting the Company to borrow up to $50.0 at negotiated
interest rates for defined periods on an unsecured basis. The agreement requires
the Company to have availability under its revolving credit agreement equal to
the amount borrowed under this facility. There was $11.0 outstanding at
September 30, 2000 and $45.0 outstanding at December 31, 1999, at interest rates
of 6.93% and 7.23%, respectively.
NOTE 7: LONG TERM DEBT
A summary of long-term debt is set forth below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
6.74% Senior Notes $150.0 $150.0
Economic Development Revenue Bonds due 2011
and 2019 13.0 13.0
Other 5.0 0.7
--- ---
168.0 163.7
Less current maturities 0.1 0.3
--- ---
$167.9 $163.4
====== ======
</TABLE>
NOTE 8: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of accounts payable and accrued liabilities is set forth below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Accounts payable $35.6 $45.1
Accrued payroll costs 18.4 17.9
Other accrued liabilities 40.1 41.2
---- ----
$94.1 $104.2
===== ======
</TABLE>
NOTE 9: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes is set forth below:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
<S> <C> <C>
Interest $9.4 $14.1
Income Taxes $3.9 $2.6
</TABLE>
6
<PAGE> 8
NOTE 10: 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 non-owner sources. Comprehensive
income for the periods presented below includes foreign currency translation
items. There was no tax expense or tax benefit associated with the foreign
currency translation items.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Net income $68.1 $22.4
Foreign currency translation adjustments (10.7) (4.9)
------ -----
Comprehensive income $57.4 $17.5
===== =====
</TABLE>
NOTE 11: EARNINGS PER COMMON SHARE
The reconciliation of basic and diluted per-share computation is as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Average common shares (basic) 45.3 46.8
Options and warrants 0.4 0.5
--- ---
Adjusted average common shares (diluted) 45.7 47.3
==== ====
</TABLE>
NOTE 12: BUSINESS SEGMENTS
The Company operated the following business segments: Apparel Identification,
Labeling Solutions and Thermal Transfer Ribbons. Inter-segment sales prices are
based on cost plus a mark-up to allow the selling segment to make a reasonable
profit. The Company evaluates performance on operating income of its business
segments before corporate expenses, amortization of goodwill, non-recurring
charges, interest, income taxes and extraordinary items.
The Company's Apparel Identification operations design, develop, market and
manufacture products and services specifically to the apparel and textile
industries, including white goods such as towels and sheets. In general, such
products and services can be classified as follows: bar code systems; fabric
label systems; and tags and labels.
Bar code systems enable manufacturers to accommodate retailers' demands in a
rapid and cost-effective manner. The Company's bar code systems and supplies
include electronic printers and supporting software, thermal inks and
pre-printed tag stock and specialty fabrics. Fabric label systems include
printers, fabrics, inks and printing accessories, which are used by apparel
manufacturers for in-plant printing of care labels and labels that carry brand
name, logo, size and other information for the retail customer. 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 customer information such as origin, size, fabric content and care
instructions.
The Company's Labeling Solutions operations market and distribute (1) electronic
bar code printers, which are used in a wide range of retail and industrial
applications including inventory management and distribution systems and (2)
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. In addition, the Company manufactures and markets
supplies used in both its mechanical labelers and bar code printers and provides
comprehensive service to its installed base of machines.
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 distributions systems, retail price tag, packaging and
medical applications. The Company sold 92.5% of IIMAK, its Thermal Transfer
Ribbons business, on March 9, 2000 (see Note 4).
7
<PAGE> 9
The following table shows the financial information of the Company's business
segments.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales to unaffiliated customers:
Apparel Identification $97.2 $83.1 $291.7 $248.1
Identification and Bar Code Solutions 61.2 63.5 180.8 180.1
Thermal Transfer Ribbons -- 20.0 13.8 60.2
------ ------ ------ ------
Total $158.4 $166.6 $486.3 $488.4
====== ====== ====== ======
Inter-segment sales:
Thermal Transfer Ribbons $ -- $ 3.7 $ 2.1 $ 9.8
====== ====== ====== ======
Segment operating income:
Apparel Identification $ 12.8 $ 10.7 $ 38.8 $ 32.4
Identification and Bar Code Solutions 7.2 9.1 20.0 21.9
Thermal Transfer Ribbons -- 2.8 2.0 7.4
------ ------ ------ ------
20.0 22.6 60.8 61.7
Corporate and other (3.0) (2.6) (9.1) (7.2)
Restructuring and other special charges -- -- -- (5.0)
Amortization of goodwill (1.5) (1.3) (4.3) (3.8)
----- ----- ----- -----
Total $15.5 $18.7 $47.4 $45.7
===== ===== ===== =====
</TABLE>
NOTE 13: RESTRUCTURING AND OTHER SPECIAL CHARGES
In the first quarter 1999, the Company adopted a plan to streamline its U.S.
business segments. During the nine months ended September 30, 1999 the Company
recorded $5.0 of restructuring and other special charges. Included in the total
charge is severance of $3.3 and $1.1 of costs associated with the consolidation
of certain facilities. Substantially all these costs had been paid as of
September 30, 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 Labeling Solutions
business segment reduced headcount by approximately 50 salaried positions.
8
<PAGE> 10
NOTE 14: ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
At September 30, 1999, the Company had an interest rate derivative instrument
with notional value of $65. The fair value of that agreement, based on estimates
provided by financial institutions, was a loss of $0.6 at September 30, 1999,
for which the Company had made full provision in the accounts. There were no
interest rate derivatives in effect at September 30, 2000 or December 31, 1999.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 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. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000.
The Company anticipates that implementation of SFAS No. 133 would not have a
material impact on the Company's results of operations.
9
<PAGE> 11
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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 60.9 60.9 61.4 61.4
----- ----- ----- -----
Gross profit 39.1 39.1 38.6 38.6
Selling, general and administrative expense 28.3 26.9 28.0 27.3
expense
Amortization of intangibles 1.0 1.0 0.9 1.0
Restructuring and other special charges -- -- -- 1.0
----- ----- ----- -----
Operating income 9.8 11.2 9.7 9.3
Gain on sale of IIMAK -- -- 10.4 --
Interest expense, net 1.5 2.1 1.5 2.2
----- ----- ----- -----
Income before taxes 8.3 9.1 18.6 7.1
Taxes on income 2.2 3.2 4.6 2.5
----- ----- ----- -----
Net income 6.1% 5.9% 14.0% 4.6%
===== ===== ===== =====
</TABLE>
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1999
Sales were $158.4 and $486.3 for the three and nine months ended September 30,
2000 compared with $166.6 and $488.4 for the three and nine months ended
September 30, 1999. Sales from Apparel Identification grew 17% to $97.2 for the
three months ended September 30, 2000 and 18% to $291.7 for the nine months
ended September 30, 2000. Sales growth was most significant in Asia and in
Mexico. On May 18, 2000 the Company acquired the Bornemann & Bick ("B&B") group
of companies, with operations in Germany, Hong Kong, China, Turkey, Poland,
India and Spain (see Note 3 of Notes to the Consolidated Financial Statements).
B&B contributed $21.3 in sales for the months May through September 2000. The
Thermal Transfer Ribbons segment was sold in March 2000 (see Note 4 of Notes to
the Consolidated Financial Statements).
Cost of sales for the three and nine months ended September 30, 2000 were $96.5
and $298.6 compared with $101.4 and $299.7 for the three and nine months ended
September 30, 1999. As a percent of sales, such costs were 60.9% and 61.4% for
the three and nine months ended September 30, 2000 and the three and nine months
ended September 30, 1999.
Gross profit was $61.9 for the three months ended September 30, 2000 compared
with $65.2 for the three months ended September 30, 1999. The gross profit
margin was 39.1% for the three months ended September 30, 2000 and the three
months ended September 30, 1999. During the nine months ended September 30, 2000
gross profit was $187.7 compared with $188.7 for the nine months ended September
30, 1999. The gross profit margin was 38.6% for the nine months ended September
30, 2000 and the nine months ended September 30, 1999. During the nine months
ended September 30, 2000 the gross profit was impacted by $2.5 due to the
recording of the B&B inventories acquired at fair value. Excluding this impact
the gross profit for the nine months ended September 30, 2000 would have been
39.1%.
10
<PAGE> 12
Selling, general and administrative expense ("SG&A") was $44.9 and $136.0 for
the three and nine months ended September 30, 2000, compared with $44.8 and
$133.3 for the three and nine months ended September 30, 1999. As a percent of
sales, SG&A was 28.3% and 28.0% the three and nine months ended September 30,
2000 compared with 26.9% and 27.3% for the three and nine months ended September
30, 1999.
In the first quarter of 1999 the Company adopted a plan to streamline its U.S.
business segments. During the nine months ended September 30, 1999, the Company
recorded $5.0 of restructuring and other special charges. Included in the total
charge are severance costs of $3.3 and $1.1 associated with the consolidation of
certain facilities. Substantially all these costs had been paid as of September
30, 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 Labeling Solutions business segment
reduced headcount by approximately 50 salaried positions.
Operating income was $15.5 and $47.4 for the three and nine months ended
September 30, 2000 compared with $18.7 and $45.7 for the three and nine months
ended September 30, 1999. The operating margins were 9.8% and 9.7% in the three
and nine months ended September 30, 2000 compared with 11.2% and 9.3% in the
three and nine months ended September 30, 1999.
On March 9, 2000 the Company sold 92.5% of International Imaging Materials,
Inc., its Thermal Transfer Ribbons business, for a total consideration of
$127.5, which included $120.0 in cash and $7.5 of IIMAK preferred stock. The
sale resulted in a gain of $50.3 ($40.3 net of taxes).
Interest expense, net, decreased to $2.4 and $7.3 for the three and nine months
ended September 30, 2000 from $3.6 and $11.1 in the three and nine months ended
September 30,1999. The decrease was the result of reduced variable rate
borrowings under the revolving credit facility and interest income on the
proceeds from the sale of IIMAK.
Income before taxes was $13.1 and $90.4 (8.3% and 18.6% of sales) for the three
and nine months ended September 30, 2000 compared with $15.1 and $34.6 (9.1% and
7.1% of sales) for the three and nine months ended September 30, 1999.
The effective income tax rate was 26% and 25% for the three and nine months
ended September 30, 2000 compared with 35% for both the three and nine months
ended September 30, 1999. Excluding the net gain on the sale of IIMAK in the
amount of $40.3 the effective tax rate for the nine months ended September 30,
2000, would have been 31%.
Net income for the three and nine months ended September 30, 2000 was $9.7 and
$68.1 (6.1% and 14.0% of sales) compared with $9.8 and $22.4 (5.9% and 4.6% of
sales) for the three and nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents summary cash flow information for the periods
indicated:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 2000 September 30, 1999
<S> <C> <C>
Net cash provided by operating activities $41.1 $51.2
Net cash provided by/(used in) investing activities 51.4 (44.6)
Net cash (used in)/provided by financing activities (77.1) 6.5
----- -----
Total change in cash (a) $15.4 $13.1
===== =====
</TABLE>
(a) Before exchange rate effects.
OPERATING ACTIVITIES
Cash provided by operating activities continues to be the Company's primary
source of funds to finance operating needs and internal growth opportunities.
The net cash provided by operating activities was $41.1 for the nine months
ended September 30, 2000, compared with $51.2 in 1999.
11
<PAGE> 13
Depreciation and amortization was $26.1 for the nine months ended September 30,
2000 compared with $27.6 for the nine months ended September 30, 1999.
INVESTING ACTIVITIES
During the first nine months of 2000 capital expenditures were $18.9 compared
with $21.0 in 1999. 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 $28 for the year ending
December 31, 2000.
On May 18, 2000, the Company acquired the Bornemann & Bick ("B&B") group of
companies for approximately $52.5. The B&B companies manufacture apparel
identification products. 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. The $31.5 excess of the purchase price and transaction
cost over the fair value of net assets acquired was recorded as goodwill and is
being amortized over 25 years.
On March 9, 2000 the Company sold 92.5% of International Imaging Materials,
Inc., its thermal transfer ribbons business, for a total consideration of
$127.5, which included $120.0 in cash and $7.5 of IIMAK preferred stock.
On February 2, 1999, the Company acquired the apparel identification business of
Ferguson International PLC ("Ferguson") for approximately $20.5. 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. The $5.4
excess of the purchase price and transaction costs over the fair value of net
assets acquired was recorded as goodwill and is being amortized over 20 years.
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 periods indicated:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Due to banks $12.0 $45.0
Current maturities of long-term debt 0.1 0.3
Long-term debt 167.9 163.4
----- -----
Total debt $180.0 $208.7
Shareholders' equity 294.4 281.9
----- -----
Total capital $474.4 $490.6
====== ======
Total debt as a percent of total capital 37.9% 42.5%
===== =====
</TABLE>
Total debt decreased to $180.0 at September 30, 2000, from $208.7 at December
31, 1999, due to repayments of revolving debt with a portion of the proceeds
from the divestiture of IIMAK. At September 30, 2000, total debt as a percent of
total capital was 37.9% compared with 42.5% at December 31, 1999.
On March 12, 1999, the Company entered into an agreement with a bank for an
uncommitted facility permitting the Company to borrow up to $50 at negotiated
interest rates for defined periods on an unsecured basis. The agreement requires
the Company to have availability under its committed revolving credit agreement
equal to the amount borrowed under this facility.
OTHER MATTERS
STOCK REPURCHASE
On July 30, 1998, the Company announced a stock repurchase plan with an
authorization to buy-back $25 of its shares. The Company subsequently increased
the program to $40 in February 1999, to $70 in February 2000 and up to $100 in
August 2000. Since July 30, 1998, the Company has repurchased 7,726,500 shares
through September
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<PAGE> 14
30, 2000 at an average price of $9.76 for a total of $75.4.
ACQUISITION
On October 13, 2000 the Company announced it had completed the purchase of the
57% of Bornemann Barata, S.A., which it did not own previously. The Company
acquired 43% of the Barcelona-based company in May 2000 in connection with the
purchase of Bornemann & Bick KG.
13
<PAGE> 15
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
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.
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<PAGE> 16
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> 17
PAXAR CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Paxar Corporation
Registrant
By: /s/ John Fitzgerald
John Fitzgerald
Vice President and Controller
(Principal Accounting Officer)
November 14, 2000
Date
16
