<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, 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)
<TABLE>
<S> <C>
NEW YORK 13-5670050
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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. (May 12, 2000)
Common Stock, $0.10 par value: 45,615,747 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.
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
2000 1999
---- ----
<S> <C> <C>
Sales $ 160.2 $ 154.2
Cost of sales 99.1 96.0
------- -------
Gross profit 61.1 58.2
Selling, general and administrative expense 44.5 44.4
Amortization of intangibles 1.3 1.5
Restructuring and other special charges - 3.3
------- -------
Operating income 15.3 9.0
Gain on sale of IIMAK (50.3) -
Interest expense, net 2.9 3.7
------- -------
Income before taxes 62.7 5.3
Taxes on income 14.1 1.9
------- -------
Net income $ 48.6 $ 3.4
======= =======
Basic earnings per common share
Net income $ 1.04 $ 0.07
======= =======
Diluted earnings per common share
Net income $ 1.03 $ 0.07
======= =======
Average common shares outstanding:
Basic 46.7 47.6
======= =======
Diluted 47.0 47.9
======= =======
</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,
2000 1999
-------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 106.2 $ 32.2
Receivables, less allowances of $7.8 in 2000 and $8.3 in
1999 105.2 121.1
Inventories 70.1 80.6
Other current assets 10.0 17.6
------- -------
Total current assets 291.5 251.5
Property, plant and equipment, at cost 229.3 344.9
Accumulated depreciation (96.5) (139.6)
------- -------
Net property, plant and equipment 132.8 205.3
Goodwill 155.9 157.4
Other assets 21.2 7.7
------- -------
$ 601.4 $ 621.9
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to banks $ - $ 45.0
Current maturities of long-term debt 0.1 0.3
Accounts payable and accrued liabilities 83.0 104.2
Accrued taxes on income 22.0 8.4
------- -------
Total current liabilities 105.1 157.9
Long-term debt 163.3 163.4
Deferred income taxes 2.9 14.1
Other liabilities 4.7 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;
Shares issued and outstanding 46,558,101 and 46,756,610 in
2000 and 1999, respectively 4.6 4.7
Paid-in capital 90.5 93.2
Retained earnings 242.9 194.3
Accumulated other comprehensive loss (12.6) (10.3)
------- -------
Total shareholders' equity 325.4 281.9
------- -------
$ 601.4 $ 621.9
======= =======
</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, 2000 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 48.6 $ 3.4
------ ------
Adjustments to reconcile net income to net cash provided by (used in) operations:
Depreciation and amortization 9.2 9.0
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 divested (in 2000) and
acquired (in 1999):
Receivables 3.0 (4.4)
Inventories (1.5) 2.5
Other current assets 0.1 (2.6)
Accounts payable and accrued liabilities (15.1) (2.9)
Taxes on income 3.6 -
Other (0.1) (0.1)
------ ------
(42.0) 1.3
------ ------
Net cash provided by operating activities 6.6 4.7
------ ------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5.1) (7.1)
Divestiture, (Acquisition, net of cash acquired) of businesses 120.0 (20.5)
Other 0.9 3.4
------ ------
Net cash provided by (used in) investing activities 115.8 (24.2)
------ ------
FINANCING ACTIVITIES:
(Decrease)/increase in short-term debt (45.1) 39.3
Additions to long-term debt 22.1 203.2
Reductions in long-term debt (22.2) (205.0)
Purchase of common stock (3.5) (8.1)
Proceeds exercise of stock options/Stock Purchase Plan 0.9 1.3
------ ------
Net cash (used in) provided by financing activities (47.8) 30.7
------ ------
OTHER ACTIVITIES:
Effect of exchange rate changes on cash (0.6) (0.7)
------ ------
Increase in cash 74.0 10.5
Cash and cash equivalents at beginning of year 32.2 19.2
------ ------
Cash and cash equivalents at end of period $106.2 $ 29.7
====== ======
</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
U.S. 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, with the exception of the change in
accounting principle described in Note 2. Other than Balance Sheet amounts as of
December 31, 1999, all other 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 Monarch 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
Monarch 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 March 31, 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: ACQUISITION
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 Imaging Materials, Inc. (IIMAK)
subsidiary for a total consideration of $127.5, which included $120 in cash and
$7.5 of IIMAK preferred stock.
NOTE 5: INVENTORIES
The components of inventories are set forth below:
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
Raw materials $ 27.5 $ 30.8
Work-in-Process 8.9 15.9
Finished goods 33.7 33.9
------ ------
$ 70.1 $ 80.6
====== ======
</TABLE>
6
<PAGE> 7
NOTE 6: DUE TO BANKS
A summary of amounts due to banks is set forth below:
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
Uncommitted Credit Facility (a) $ - $ 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 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. There was $45.0 outstanding at
December 31, 1999, at an interest rate of 7.23%.
NOTE 7: LONG -TERM DEBT
A summary of long-term debt is set forth below:
<TABLE>
<CAPTION>
MARCH 31, 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 0.4 0.7
------- -------
163.4 163.7
Less current maturities 0.1 0.3
------- -------
$ 163.3 $ 163.4
======= =======
</TABLE>
NOTE 8: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of accounts payable and accrued liabilities is set forth below:
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
Accounts payable $ 30.6 $ 45.1
Accrued payroll costs 15.1 17.9
Other accrued liabilities 37.3 41.2
------ ------
$ 83.0 $104.2
====== ======
</TABLE>
NOTE 9: 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,
------------------------------------
2000 1999
---- ----
<S> <C> <C>
Interest, net $5.4 $6.3
Income taxes, net $0.5 ($3.6)
</TABLE>
7
<PAGE> 8
NOTE 10: COMPREHENSIVE INCOME/(LOSS)
Comprehensive income reflects 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,
------------------------------------
2000 1999
---- ----
<S> <C> <C>
Net income $48.6 $ 3.4
Foreign currency translation adjustments (2.3) (4.8)
----- -----
Comprehensive income (loss) $46.3 ($1.4)
===== =====
</TABLE>
NOTE 11: 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,
------------------------------------
2000 1999
---- ----
<S> <C> <C>
Average common shares (basic) 46.7 47.6
Options and warrants 0.3 0.3
----- -----
Adjusted average common shares (diluted) 47.0 47.9
===== =====
</TABLE>
NOTE 12: 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.
During the applicable periods, 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 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 United
States. Fabric label systems include electronic printers and related supplies
used 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. Fabric labels are attached early in the garment manufacturing
process and must withstand all production processes and remain legible through
washing and dry cleaning by the end user. Tags are attached when the garment is
complete and are primarily for point of sale promotion. Additionally, the
Company's products include labels and tags for sheets, towels, pillowcases and
other white goods.
8
<PAGE> 9
The Company's Labeling Solutions operations market and distribute
electronic bar code printers used in a wide range of retail and industrial
applications. Applications include inventory management and distribution
systems, 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, and supplies used in both its mechanical
labelers and bar code printers. This segment also provides comprehensive service
to its installed base of machines.
The Company's 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).
The following table set forth below shows the financial information of
the Company's business segments.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
2000 1999
---- ----
<S> <C> <C>
Sales to unaffiliated customers:
Apparel Identification $ 87.2 $ 75.1
Labeling Solutions 59.2 59.1
Thermal Transfer Ribbons 13.8 20.0
------ ------
Total $160.2 $154.2
====== ======
Inter-segment sales:
Thermal Transfer Ribbons $ 2.1 $ 3.4
====== ======
Segment operating income:
Apparel Identification $ 12.4 $ 7.3
Labeling Solutions 5.2 6.3
Thermal Transfer Ribbons 2.0 2.2
------ ------
19.6 15.8
Corporate expenses (3.0) (2.2)
Restructuring and other special charges - (3.3)
Amortization of goodwill (1.3) (1.3)
------ ------
Total $ 15.3 $ 9.0
====== ======
</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 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 Labeling Solutions business segment
reduced headcount by approximately 50 salaried positions.
9
<PAGE> 10
NOTE 14: ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
At March 31, 1999, the Company had interest rate 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 at March 31, 1999. There were no
interest rate derivatives in effect at March 31, 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.
Although the Company has not yet quantified the impact of adopting SFAS No. 133
on its financial statements and has not determined the timing or method of its
adoption of SFAS No. 133, the company anticipates that implementation of SFAS
No. 133 would not have a material impact on the Company's results of operations.
10
<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
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 61.9 62.3
----- -----
Gross profit 38.1 37.7
Selling, general and administrative expense 27.8 28.8
Amortization of intangibles 0.8 1.0
Restructuring and other special charges - 2.1
----- -----
Operating income 9.5 5.8
Gain on sale of IIMAK (31.4) -
Interest expense, net 1.8 2.4
----- -----
Income before taxes 39.1 3.4
Taxes on income 8.8 1.2
----- -----
Net Income 30.3% 2.2%
===== =====
</TABLE>
FIRST QUARTER 2000 COMPARED WITH 1999
Sales increased 4% to $160.2 for the three months ended March 31, 2000 compared
with the three months ended March 31, 1999. Sales from Apparel Identification
grew 16% while sales from Labeling Solutions were flat for the three months
ended March 31, 2000 compared with March 31, 1999. Sales growth was most
significant in Asia and in Mexico. 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 months ended March 31, 2000 increased to $99.1
compared with $96.0 for the three months ended March 31, 1999. As a percent of
sales, such costs decreased to 61.9% for March 31, 2000 compared with 62.3% for
March 31,1999.
Gross profit increased to $61.1 for the three months ended March 31, 2000
compared with $58.2 for the three months ended March 31, 1999. The gross profit
margin was 38.1% for the three months ended March 31, 2000 compared with 37.7%
for the three months ended March 31, 1999. Among other factors, the improvement
resulted from a turn around at the Company's apparel identification operation in
the United Kingdom following the restructuring and integration of the Ferguson
acquisition during 1999.
Selling, general and administrative expense ("SG&A") was $44.5 for the three
months ended March 31, 2000, compared with $44.4 for the three months ended
March 31, 1999. As a percent of sales, SG&A was 27.8% for March 31,2000 compared
with 28.8% for March 31, 1999.
In the first quarter of 1999 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 costs of $2.1 and $0.4 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 Labeling Solutions business segment
reduced headcount by approximately 50 salaried positions.
11
<PAGE> 12
Operating income increased to $15.3 for the three months ended March 31, 2000
compared with $9.0 for the three months ended March 31, 1999. The operating
margin increased from 5.8% in the three months ended March 31, 1999 to 9.5% in
the three months ended March 31, 2000.
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 $2.9 for the three months ended March 31,
2000 from $3.7 in three months ended March 31,1999. 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 increased to $62.7 (39.1% of sales) for the three months
ended March 31, 2000 as compared with $5.3 (3.4% of sales) for the three months
ended March 31, 1999.
The effective income tax rate was 22% for the three months ended March 31, 2000
compared with 36% for the three months ended March 31, 1999. Excluding taxes
provided for the gain on the sale of IIMAK in the amount of $10.0, the effective
tax rate is 33%.
Net income for the three months ended March 31, 2000 was $48.6 (30.3% of sales)
compared with $3.4 (2.2% of sales) for the three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents summary cash flow information for the periods
indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Net cash provided by operating activities $ 6.6 $ 4.7
Net cash provided by (used in) investing activities 115.8 (24.2)
Net cash (used in )provided by financing activities (47.8) 30.7
------ ------
Total change in cash (a) $ 74.6 $ 11.2
====== ======
</TABLE>
(a) Before exchange rate effects.
OPERATING ACTIVITIES
Cash provided by operating activities continues to be the Company's primary
source of funds to finance operating needs and internal growth opportunities.
The net cash provided by operating activities was $6.6 for the three months
ended March 31, 2000, compared with $4.7 in 1999.
Depreciation and amortization was $9.2 for the three months ended March 31, 2000
compared with $9.0 for the three months ended March 31, 1999.
INVESTING ACTIVITIES
During the first quarter of 2000 capital expenditures were $5.1 compared with
$7.1 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 $27 for the year ending December 31, 2000.
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.
12
<PAGE> 13
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 years indicated:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Due to banks $ - $ 45.0
Current maturities of long-term debt 0.1 0.3
Long-term debt 163.3 163.4
------ ------
Total debt $163.4 $208.7
Shareholders' equity 325.4 281.9
------ ------
Total capital $488.8 $490.6
====== ======
Total debt as a percent of total capital 33.4% 42.5 %
====== ======
</TABLE>
Total debt decreased to $163.4 at March 31, 2000, from $208.7 at December 31,
1999, due to repayments of the revolving debt with a portion of the proceeds
from the divestiture of IIMAK. At March 31, 2000, total debt as a percent of
total capital was 33.4% 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. On February 10,
2000 the Company increased the amount from $40 to $70. Since July 30, 1998, the
Company has repurchased 3,618,400 shares through March 31, 2000 at an average
price of $8.95 for a total of $32.4.
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
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.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit Index
18 Letter re: Change in Accounting Principles
27.1 Financial Data Schedule
b) Reports on Form 8-K
1) Current Report on Form 8-K, dated February 8, 2000, reporting
under Item 5 the execution of the Stock Purchase and Recapitalization Agreement
among the Registrant, Paxar Capital Corporation, International Imaging
Materials, Inc., Center Capital Investors III, L.P. and Related Partnerships.
2) Current Report on Form 8-K, dated March 9, 2000, reporting
under Item 2 the disposition by Paxar Capital Corporation of 92.5% of
International Imaging Materials, Inc. common stock pursuant to the Stock
Purchase and Recapitalization Agreement among the Registrant, Paxar Capital
Corporation, International Imaging Materials, Inc., Center Capital Investors
III, L.P. and Related Partnerships.
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 15, 2000
------------
Date
16
<PAGE> 1
Exhibit 18
May 12, 2000
Paxar Corporation
105 Corporate Park Drive
White Plains, NY 10604
Re: Form 10-Q Report for the quarter ended March 31, 2000.
Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
We have been informed that, as of January 1, 2000, the Company changed its
method of determining the cost of inventory for the Monarch U.S. business unit
from LIFO (Last In First Out) to FIFO (First In First Out). According to the
management of the Company, this change results in a closer matching of costs and
revenue as costs have been declining and it is the primary method used in the
industry in which Monarch operates.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial reporting,
in this particular case on a subjective basis, and our opinion stated below is
based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
We have not audited the application of this change to the financial statements
of any period. Further, we have not examined and do not express any opinion with
respect to your financial statements for the three months ended March 31, 2000.
Very truly yours,
Arthur Andersen LLP
17
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