-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S3lEQURKxgw+jHTpAwHQ1Kjk/AMo+4+J9UUrBJPh1vLypmfgyPrxF4nZJ7ubHe++ bxrvQw7L3mAhLzLsazxFuQ== 0000950123-00-002987.txt : 20000331 0000950123-00-002987.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950123-00-002987 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAXAR CORP CENTRAL INDEX KEY: 0000075681 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 135670050 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09493 FILM NUMBER: 585651 BUSINESS ADDRESS: STREET 1: 105 CORPORATE PARK DRIVE CITY: WHITE PLAINS STATE: NY ZIP: 10604 BUSINESS PHONE: 9146976800 FORMER COMPANY: FORMER CONFORMED NAME: PACKAGING SYSTEMS CORP DATE OF NAME CHANGE: 19870401 10-K 1 PAXAR CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 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 NUMBER) 105 CORPORATE PARK DRIVE, WHITE PLAINS, NEW YORK 10604 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 914-697-6800 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED COMMON STOCK, PAR VALUE $.10 PER SHARE NEW YORK STOCK EXCHANGE, INC. - -------------------------------------- ---------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None 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 for 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 [ ] 2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the registrant's Common Stock held by non-affiliates of the Registrant as of March 24, 2000 was approximately $412,565,669. On such date, the closing price of the Registrant's Common Stock, as quoted on the New York Stock Exchange, was $10.0625. The Registrant had 46,535,867 shares of Common Stock outstanding as of March 24, 2000. DOCUMENTS INCORPORATED BY REFERENCE Part III of this Annual Report on Form 10-K is herein incorporated by reference from the Registrant's Definitive Proxy Statement to be filed with the Securities and Exchange Commission with respect to the Registrant's Annual Meeting of Shareholders scheduled to be held on May 4, 2000. ================================================================================ 3 PART I ITEM 1: BUSINESS GENERAL DEVELOPMENT OF BUSINESS Paxar Corporation ("Paxar" or the "Company") is a global leader in providing innovative, value-added identification and tracking solutions to retailers, apparel manufacturers and selected markets where Paxar has significant capabilities. Paxar's global manufacturing operations, worldwide distribution network, one-stop-shopping approach and brand recognition enable the Company to expand its leading position in apparel identification and labeling solutions to the retail supply chain. The Company markets and distributes its products in more than 75 countries. The Company's Apparel Identification operations manufacture products for and provide services specifically to retailers and apparel manufacturers. The Company's products are manufactured and distributed globally to service offshore apparel producers. Fabric label systems include electronic printers and related supplies used for in-plant label printing. Additionally, the Company's products include labels and tags for sheets, towels, pillowcases and other white goods. 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. ACQUISITIONS ENGLAND, HONG KONG, CHINA AND SRI LANKA: On February 2, 1999, the Company acquired the apparel identification business of Ferguson International PLC ("Ferguson"). The acquisition price was approximately $20.5 million. The acquisition involved the purchase of certain assets in the U.K. and the purchase of 100% of the shares of Ferguson Asia Limited and 90% of the shares of Ferguson Lanka (Private) Limited. Assets acquired in the U.K. include manufacturing and sales facilities for printed and woven labels and for graphic tags and labels primarily for the apparel market. Ferguson Asia Limited has production and sales facilities in Hong Kong, China and Malaysia for all of its fabric and paper products. Ferguson Lanka (Private) Limited operates a new state-of-the-art manufacturing facility in Sri Lanka. Ferguson Lanka has subsequently changed its name to Paxar Lanka (Private) Limited. The acquisition of Ferguson's apparel identification business enables the Company to offer its full line of products to customers in Europe and Asia in line with the Company's strategy to be a worldwide one-stop-shop for identification and tracking in the retail supply chain. TURKEY: In February 1998, the Company acquired a 70% interest in Teslo Tekstil Urunleri Sanayii ve Ticaret A.S. ("Teslo"), a Turkish company, with an option to acquire the remaining 30% from the minority shareholders. Teslo offers a comprehensive range of apparel identification products to European and U.S. customers, and its facilities include manufacturing and service bureau operations in addition to sales and marketing. The Company believes that the acquisition of Teslo will help it to expand rapidly into this strategically important market where garment manufacturing is large and growing, serving both European and American retailers, and to provide a base for further expansion in the region. 1 4 IIMAK: On October 28, 1997, the Company completed the acquisition of International Imaging Materials, Inc. ("IIMAK"). IIMAK is the largest manufacturer in North America of thermal trsnfer ribbons for numerous diverse applications. These thermal transfer ribbons are used in bar code printers to print single-color and full-color tags and labels for use in manufacturing and factory automation systems, shipping and distribution systems, retail price tag, packaging and medical applications. The acquisition was accounted for as a pooling of interests. In connection with the merger, each outstanding share of IIMAK common stock was converted into 1.5 shares of the Company's common stock and all existing IIMAK warrants and options were converted into warrants and options to purchase the Company's common stock. MONARCH: On June 29, 1995, the Company acquired a 49% interest in Monarch Marking Systems, Inc. ("Monarch"). Monarch manufactures, markets and distributes mechanical labelers, bar code printers and related supplies. It also manufactures and markets supplies used in both its mechanical labelers and bar code printers and provides extensive service to its installed base of machines. Monarch is a leading manufacturer and marketer of retail price marking equipment and supplies in the United States. The Company accounted for the acquisition using the equity method. On March 3, 1997, the Company acquired the remaining 51% of Monarch for a total purchase price of $132. The Company acquired the 49% equity interest of Odyssey Partners, L.P. for $94.1 in cash, a promissory note in the amount of $5.9 at an annual interest rate of 4.88% payable on January 2, 1998, and five year warrants to purchase (a) 1,250,000 shares of the Company's common stock, par value $0.10, at an exercise price of $14.00 per share and (b) 250,000 shares of the Company's common stock at an exercise price of $17.50 per share. Upon completion of the acquisition, the Chairman and the President of Monarch each received 156,536 shares of the Company's common stock valued at $15.20 per share, in exchange for the shares of Monarch common stock owned by each of them. Additionally, the management of Monarch received incentive stock options to purchase an aggregate of 1,244,469 shares of the Company's common stock pursuant to the Company's 1990 Employee Stock Option Plan in exchange for outstanding options to purchase Monarch common stock. RECENT EVENTS SALE OF IIMAK: In February 2000, the Company announced it had entered into an agreement to sell 92.5% of IIMAK for a total consideration of $127.5 million, which includes $120 million in cash and $7.5 million of IIMAK preferred stock. The transaction was closed and payment was received on March 9, 2000. As part of the agreement, the Company has entered into a Supply Contract with IIMAK, whereby the Company will purchase substantially all of its thermal transfer ribbon supplies from IIMAK for a three-year term, with one-year extensions, unless terminated by either party. PRESIDENT AND CHIEF OPERATING OFFICER: Paul Griswold, age 48, joined the Company as its President and Chief Operating Officer on February 28, 2000. Prior to joining the Company, Mr. Griswold was Senior Vice President - Protective Packaging and International Operations at Pactiv Corporation, formerly Tenneco Packaging. Prior to joining Tenneco in 1994, he was Vice President of Packaging Development and Procurement for Pepsi International. 2 5 STOCK REPURCHASES: On July 30, 1998, the Company announced a plan to purchase, from time to time, up to $25 million of the Company's common stock as conditions warrant. As of December 31, 1998, the Company had repurchased 1,434,400 shares at an average price of $9.10 per share. On February 12, 1999, the Company announced it had increased the stock repurchase plan from the initial $25 million to $40 million. During and subsequent to the quarter ended September 30, 1999, the Company canceled the treasury stock purchased under the stock repurchase plan. Since July 30, 1998, the Company has repurchased 3,265,100 shares at an average price of $8.86 per share. On February 10, 2000, the Company announced it had increased the stock repurchase plan from $40 million to $70 million. BORNEMANN & BICK LETTER OF INTENT: On December 28, 1999, the Company announced that it signed a letter of intent to acquire the Bornemann & Bick ("B&B") group of companies in an all-cash transaction. B&B a leading manufacturer of woven labels and other apparel identification products, has wholly-owned operations in Germany, Hong Kong, China, Turkey and Poland. It has joint ventures in Italy, Spain and India. During 1999, the wholly owned companies had sales of approximately $55 million. Completion of the transaction is subject to a definitive agreement and is expected to close during the second quarter of 2000. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The information required by this Item is incorporated by reference to the Company's Financial Statements included elsewhere in this report. (See Part IV, Item 14, Note 13.) DESCRIPTION OF BUSINESS PRODUCTS AND SERVICES The Company manufactures and distributes its products and services worldwide. It operates in two segments: Apparel Identification and Labeling Solutions. APPAREL IDENTIFICATION PRODUCTS AND SERVICES: The Company's Apparel Identification operations are vertically integrated into its major product lines, which permits it to: - better serve its customers - develop innovative products - control quality - reduce costs - speed delivery of products and services The Company designs and builds most of its systems equipment and develops most of the operating software and all of the application software for its systems. The Apparel Identification operations also: - formulate coatings and inks - coat fabrics - weave labels - weave narrow label fabrics - dye and finish fabrics - design and print tags and labels TAG AND LABEL SYSTEMS. The tag and label systems consist primarily of bar code systems and fabric label systems. These systems include complete hardware and software packages that enable customers to print, cut and batch large volumes of labels and tags in their plants. The sale of a system to a customer generally results in ongoing sales of inks, fabrics, tags and other supplies to the customer. 3 6 BAR CODE SYSTEMS. The bar code industry has experienced substantial growth in recent years. 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. Apparel retailers require bar coded tags on their products to permit more accurate tracking of the products in stores, which, in turn, allows retailers to better monitor consumer demand and more effectively control inventories. The Company's bar code systems enable manufacturers to accommodate retailers' demands in a rapid and cost-effective manner. The Company has introduced innovative systems that provide manufacturers and retailers with the capability to place permanent bar codes in apparel utilizing specialty fabrics and inks. Bar codes consist of a series of lines or bars printed on a contrasting background. By varying the width of the bars and the spaces between bars, the bar code is encoded with information to identify an item, which enables the user's data system to provide relevant information about that item, such as its location, cost, selling price and manufacturer. Bar codes are read by a fixed or hand-held scanning device, which transmits information to data collection systems, including computers, electronic cash registers and portable data collection devices. The Company has specialized in producing clearly readable and accurate tags, from which a variety of bar code readers can capture accurate data. The Company's bar code systems and supplies include: - electronic bar code printers - thermal inks - pre-printed tag stock and specialty fabrics - supporting software The printers are controlled by computers and print variable information such as garment identification numbers and size in either readable or bar code form. Data can be input to the bar code printer through simple stand-alone keyboards with a built-in display, through personal computers with the Company's application software or by downloading from the manufacturer's central computer. FABRIC LABEL SYSTEMS. Fabric label systems include printers, fabrics, inks and printing accessories, which are used by manufacturers for in-plant printing of care labels and labels that carry brand logo, size and other information for the retail customer. Such systems provide manufacturers with the flexibility to imprint labels quickly in response to production order specifications. TAGS AND LABELS. 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. In addition, the Company offers a variety of innovative labels and tags that incorporate security features to protect in-store merchandise from theft and to protect branded apparel from counterfeiters. 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. The Company designs and produces tags and woven and printed labels in its various manufacturing facilities around the world. The Company's labels are printed on a wide range of fabrics and other materials. Its woven labels consist of jacquard, multi-color labels woven on broad looms and needle looms. They are primarily used to build brand identification for apparel and to provide information to consumers. The Company's multi-color printed labels are printed on coated fabrics and narrow woven fabrics using various types of high-speed equipment and are used primarily for product identification and consumer information on apparel. Merchandise tags are multi-color printed tags and bar code price tags used primarily for promotion, customer information and inventory control. 4 7 LABELING SOLUTIONS PRODUCTS AND SERVICES: Labeling Solutions products consist of mechanical labelers, bar code printers and the related supplies for these systems, which are manufactured at the Company's facility in Miamisburg, Ohio. MECHANICAL LABELERS. The Company's handheld mechanical labelers print one to three lines of alphanumeric information in a variety of print types, languages and sizes. These products, which are made of highly durable molded plastic parts, have multiple applications, including merchandise pricing, promotional labeling and component identification. Such mechanical labelers include models ranging from simple labelers that print one line of alphanumeric text with few characters to larger labelers that print three lines of alphanumeric text with more than thirty characters. BAR CODE PRINTERS. The Company's family of bar code machines consists of tabletop, handheld and portable thermal transfer and direct thermal printers. Certain models of the Company's hand-held and portable printers incorporate laser scanners and communicate using radio frequency. Thermal transfer printers create an image by applying an electrically heated printhead onto a ribbon that releases ink onto labeling stock. Thermal transfer printers produce excellent image quality which can be used with a wide variety of papers and fabrics. Direct thermal printers create an image by applying an electrically heated printhead directly to specially treated paper that changes color when heated. Direct thermal technology is preferable for smaller less expensive printing systems where image durability is less critical. SELF-ADHESIVE LABELS. The Company manufactures and distributes a broad range of self-adhesive labels for use in connection with its mechanical labelers and its bar code printers. Labels for use in the Company's mechanical labelers are made pursuant to patent-protected specifications relating to the way in which the labels are fed through the labelers. Labels for use in the Company's bar code printers often are customized with store name, brand logo or other information unique to a particular customer. The Company has developed and introduced a linerless self-adhesive label material which expands the supply capacity of its printers and allows customers to avoid having to dispose of the usual backing material. SERVICE. The Company provides its customers with comprehensive service for its mechanical labelers and bar code printers. In addition to central service facilities, the Company has a field service organization that provides preventive maintenance and service at customers' locations. SALES AND MARKETING The Company employs salespersons who are compensated on a salary and bonus basis. These salespersons are located in leased offices across the United States, and at subsidiary companies in Canada, the U.K., France, Germany, Belgium, Italy, Poland, Spain, Turkey, Mexico, Honduras, Dominican Republic, Colombia, Australia, Hong Kong, Sri Lanka and Singapore. In addition, there are non-exclusive manufacturers' representatives located throughout the United States who sell the Company's products on a commission basis, as well as international and export distributors and commission agents, located in Europe, Africa, the Far East and Latin America. Sales promotion activities include: - direct mail campaigns - publication of catalogs and brochures - participation in trade shows - telemarketing - advertising, principally in trade journals The business of the Company is not highly seasonal in nature. 5 8 CUSTOMERS Apparel Identification customers include major manufacturers and retailers around the globe. The Company has customers among discounters, specialty stores and department stores. In general, the customers fall into two categories: those with branded apparel sold nationally or internationally; and those retailers who have developed private label lines of apparel. Labeling Solutions operations have retail, distribution and manufacturing customers. The Company has a significant market share in the retail segment with special emphasis on price marking, merchandise identification, tracking and promotional applications. Retail customers include many of the major retailers in the United States and abroad. The Company has leveraged its leadership position with retailers to expand beyond in-store item marking to in-store logistics applications and distribution center automation programs. As a greater number of retailers are requiring their vendors to apply bar codes to merchandise before they ship it to stores, the Company is leveraging its retail presence to become a supplier for vendors responding to retailers' compliance marking programs. The Company has established complete compliance marking solutions for suppliers to major retailers. The Company has also focused resources on the distribution/shipping market sector with growing success, broadening its presence in the supply chain. No customer accounted for more than 10% of the Company's revenues in 1999. SOURCES AND AVAILABILITY OF RAW MATERIALS The Company purchases fabrics, inks, chemicals, polyester film, plastic resins, electronic components, adhesive-backed papers, yarns and other raw materials from major suppliers located throughout the United States and abroad. The Company believes that such materials are in good supply and are available from multiple sources. PATENTS, TRADEMARKS AND LICENSES The Company relies upon trade secrets and confidentiality to protect the proprietary nature of its technology. The Company also owns and controls numerous patents and trademarks. Although no one patent or group of related patents is material to the Company's business, the Company believes that, in the aggregate, its patents are significant to its operations and its competitive position. WORKING CAPITAL PRACTICES The Company does not engage in unusual practices regarding inventories, receivables or other items of working capital. BACKLOG The Company's total backlog of orders at December 31, 1999 was approximately $50 million, compared with $45 million at December 31, 1998. Backlog is not a reliable indicator of future sales activity, because more than 80 percent of annual sales consist of orders that the Company typically fills within one month of receipt. The balance of the orders are for products that are ordered to individual customer specifications for delivery within two to three months. 6 9 COMPETITION Apparel Identification operations compete in both the domestic and international markets by means of price, product quality, innovation and customer service. Competitors include a large number of independent, regional companies and a division of a large corporation. The Company believes that it is a market leader in worldwide sales of apparel identification products and services. The mechanical labeler business is very competitive both in terms of price and product features. Mechanical labeling in the United States is a mature market. The Company believes that it is a market leader in the United States. These products are also distributed and sold outside the United States. The Company's principal competitors are Checkpoint, Avery Dennison, Sato and Garvey. Many companies are engaged in the design, manufacture and marketing of bar code printing products. The Company considers its direct competition to be the providers of direct thermal and thermal transfer printers and supplies. The Company's principal competitors in the bar code printer business are Zebra, Datamax and Unova. Competition in the Company's target markets is based on a number of factors, including: - quality - reputation of the manufacturer and its products - hardware innovations - specifications - price - level of technical support - applications support offered by the manufacturer - available distribution channels - rapid delivery RESEARCH AND ENGINEERING The Company believes that continuous product innovation helps the Company maintain a competitive advantage in the markets in which it operates. Therefore, the Company makes substantial annual research and product engineering investments to develop new products to serve the needs of its customers. The Company's research and engineering staff comprises 74 employees involved in the development of, among other things: - specialized tags and labels to meet particular customer requirements - improved mechanical labeling and bar code printers - new kinds of thermal transfer ribbons for unique applications ENVIRONMENTAL COMPLIANCE The Company is subject to various federal, state and local environmental laws and regulations limiting or related to the use, emission, discharge, storage, treatment, handling and disposal of hazardous substances. Federal laws that are particularly applicable are: - Water Pollution Control Act - Clear Air Act of 1970 (as amended in 1990) - Resource Conservation and Recovery Act (including amendments relating to underground tanks) The Company has been advised of various enforcement and clean-up actions where it may be responsible. The Company believes, however, that none of those actions, individually or collectively, is material. EMPLOYEES The Company has approximately 5,400 employees worldwide. Approximately 178 production employees of the Company in several locations in the United States are covered by four different union contracts, which expire at various times from June 2000 to October 2001. The Company has no recent history of material labor disputes. The Company believes that it has good employee relations. 7 10 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 - dependence on key members of management Readers are cautioned not to place undue reliance on forward-looking statements. The Company undertakes no obligation to republish or revise forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events. 8 11 FINANCIAL INFORMATION ABOUT OPERATIONS IN THE UNITED STATES AND OTHER COUNTRIES The information required by this Item is incorporated by reference to the Company's Financial Statements included elsewhere in this report. (See Part IV, Item 14, Note 13.) ITEM 2: PROPERTIES The Company uses the following principal facilities in its operations:
SQUARE OWNED/ LEASE LOCATION FOOTAGE LEASED EXPIRATION USED FOR -------------------------------- -------- ----- ---------- -------- Miamisburg, Ohio................ 350,000 Owned Office, Manufacturing, and Warehouse Lenoir, North Carolina.......... 127,000 Owned Administrative and Manufacturing Huber Heights, Ohio............. 104,000 Owned Administrative and Manufacturing Orangeburg, New York............ 60,000 Owned Manufacturing Sayre, Pennsylvania............. 66,000 Owned Administrative and Manufacturing Sayre, Pennsylvania............. 36,000 Leased Monthly Manufacturing Rock Hill, South Carolina....... 56,000 Owned Manufacturing Canton, North Carolina.......... 35,655 Owned Manufacturing Hillsville, Virginia............ 33,108 Owned Manufacturing Runcorn, England................ 37,237 Leased 2005 Administrative and Manufacturing Runcorn, England................ 38,349 Leased 2011 Manufacturing Runcorn, England 21,525 Leased 2005 Manufacturing Harlow, England................. 66,000 Leased 2013 Administrative and Manufacturing Nottingham, England............. 28,906 Owned Administrative and Manufacturing Congleton, England 27,000 Owned Administrative and Manufacturing Sileby, England 20,060 Owned Manufacturing London, England 30,529 Leased 2003 Manufacturing Ancarano, Italy................. 86,368 Owned Administrative and Manufacturing Mexico City, Mexico............. 57,193 Owned Administrative and Manufacturing Pickering, Ontario, Canada........................ 67,032 Owned Administrative and Manufacturing Hong Kong....................... 26,536 Leased 2000 Administrative and Manufacturing Hong Kong....................... 12,542 Leased 2000 Administrative and Manufacturing Hong Kong....................... 6,862 Leased 2000 Administrative and Manufacturing Sri Lanka....................... 27,578 Owned Administrative and Manufacturing Panyu, China.................... 55,519 Leased 2001 Manufacturing
In addition to the above facilities, the Company has other administrative and manufacturing facilities and sales offices located throughout the world. The Company believes that its facilities are adequate to maintain its existing business activities. 9 12 EXECUTIVE OFFICERS OF THE REGISTRANT : Arthur Hershaft, 62, Chairman of the Board of Directors and Chief Executive Officer since 1986. Victor Hershaft, 57, Vice Chairman since December 1998 and President of the Apparel Identification operations since January 1998. Prior to that time, he served in various executive capacities with the Company since 1989. Paul J. Griswold, 48, President and Chief Operating Officer since February 2000. Prior to that time, he was Senior Vice President- Protective Packaging and International Operations at Pactiv Corporation, formerly Tenneco Packaging. He joined Tenneco in 1994. Jack R. Plaxe, 58, Senior Vice President and Chief Financial Officer since December 1997. He had been Vice President and Chief Financial Officer of the Company from August 1993 through March 1997. John J. Fitzgerald, 41, Vice President and Controller since November 1998. Prior to that time, he was Controller at The Chanel Company Ltd., which he joined in 1995. John P. Jordan, 54, Vice President and Treasurer, since August 1998. Prior to that time, he was Vice President and Treasurer of Amscan Inc., which he joined in 1987. Peter B. Kennedy, 57, Vice President, Human Resources, since June 1999. Prior to that time, he was Vice President, Human Resources for the Personal Systems Group of IBM Corporation since 1993, having been an IBM employee since 1968. Jack Proud, 51, President of Monarch Marking Systems, Inc. since September 1999. Prior to that time, he held various executive positions with The Reynolds and Reynolds Company since 1971. Robert S. Stone, 62, Vice President, General Counsel and Secretary since September 1999. Prior to that time, he was Of Counsel to the law firm of Jackson Lewis Schnitzler & Krupman from May 1999 until joining the Company and prior to that, was a member of the IBM Law Department since 1962. James Wrigley, 46, President and Chief Executive Officer, Paxar UK Ltd., since September 1996. Prior to that time, he was International Director of Pepe Group PLC since 1991 ITEM 3: LEGAL PROCEEDINGS The Company is involved in a number of pending or threatened legal proceedings in the ordinary course of business. In the opinion of management, there are no legal proceedings which will have a material adverse affect on the financial position or operating results of the Company. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 10 13 PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's common stock is traded on the New York Stock Exchange using the symbol "PXR." The following table sets forth the 1999 and 1998 high and low sales prices of the Company's common stock as reported on the New York Stock Exchange for the periods indicated.
SALES PRICES ------------ CALENDAR YEAR 1999 HIGH LOW ------------------ ---- --- First Quarter........................ $ 9 3/4 $ 7 Second Quarter....................... 10 1/2 6 3/4 Third Quarter........................ 10 8 1/4 Fourth Quarter....................... 11 1/2 8 1/16 CALENDAR YEAR 1998 ------------------ First Quarter........................ $ 15 7/16 $ 13 1/8 Second Quarter....................... 14 7/8 10 7/8 Third Quarter........................ 11 9/16 7 13/16 Fourth Quarter....................... 11 9/16 8
As of March 24, 2000, there were approximately 1,300 record holders of the Company's common stock. The Company has never paid any cash dividends on its Common Stock and has no present intention of doing so. The Company intends to retain all of its earnings for use in its business. 11 14 ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data as of and for the five-year period ended December 31, 1999 has been derived from the Company's Consolidated Financial Statements. These data should be read in conjunction with Consolidated Financial Statements and related Notes for the year ended December 31, 1999, and the Management's Discussion and Analysis of Financial Condition and Results of Operations. All data, except employee and per share data, are in millions.
1999 1998 1997 1996 1995 ------------ ----------- ---------- ---------- -------- OPERATING RESULTS Sales $ 661.8 $ 611.6 $ 567.2 $ 326.0 $ 289.4 Income before extraordinary item 33.4 33.6 24.4 33.1 25.6 Net income 33.4 33.6 15.8 33.1 25.6 Basic earnings per share (a) Income before extraordinary item 0.72 0.69 0.51 0.69 0.54 Net income 0.72 0.69 0.33 0.69 0.54 Diluted earnings per share (a) Income before extraordinary item (b) 0.71 0.68 0.49 0.68 0.52 Net income 0.71 0.68 0.32 0.68 0.52 EBITDA (c) 107.3 95.3 94.0 62.4 52.9 FINANCIAL CONDITION Working capital (d) $ 105.4 $ 139.2 $ 121.3 $ 64.6 $ 54.6 Current ratio(d) 1.7 2.5 2.1 2.3 2.0 Property, plant and equipment, net 205.3 193.6 187.1 137.3 125.7 Total assets 633.7 593.2 598.4 299.8 272.6 Total debt 208.7 207.1 241.5 33.0 46.9 Shareholders' equity 289.1 273.4 243.8 207.8 173.4 Total debt as percent of total capital 41.9% 43.1% 49.8% 13.7% 21.3% FINANCIAL STATISTICS EBITDA as a percent of sales 16.2% 15.6% 16.6% 19.1% 18.3% Income before extraordinary items as a percent of sales 5.0% 5.5% 4.3% 10.1% 8.9% Net income as a percent of sales 5.0% 5.5% 2.8% 10.1% 8.9% Effective income tax rate 32.9% 30.0% 35.6% 28.8% 31.4% Return on average shareholders' equity (e) 11.9% 13.0% 7.0% 17.4% 15.8% OTHER DATA Operating cash flow $ 72.7 $ 68.5 $ 29.3 $ 51.3 $ 32.9 Capital expenditures 31.9 35.7 30.3 27.6 29.8 Depreciation and amortization 38.3 32.7 27.1 18.1 14.5 Stock dividends None None 25% 25% 25% Cash dividends None None None None None Number of employees at year end 5,861 4,949 4,786 2,785 2,531 Weighted average shares outstanding, diluted (a) 47.2 49.4 49.7 49.0 48.8 Shares outstanding (a) 46.7 47.9 48.4 47.5 47.1 Book value per share (a) $ 6.19 $ 5.71 $ 5.04 $ 4.38 $ 3.68
- ---------- (a) Retroactively adjusted to reflect stock dividends. (b) $0.78 in 1999 and $0.74 in 1997 before non-recurring charges. (c) Earnings before interest, taxes, depreciation and amortization and, in 1999 and 1997, before non-recurring charges. (d) Includes bank indebtedness of $45.0 in 1999. (e) 13.0 % in 1999 and 15.5% in 1997 before non-recurring and extraordinary items. 12 15 ITEM 7: 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 years indicated:
1999 1998 1997 ------ ------ ------ Sales 100.0% 100.0% 100.0% Cost of sales 61.5 61.4 61.3 ------ ----- ----- Gross profit 38.5 38.6 38.7 Selling, general and administrative expense 27.1 27.5 25.9 Amortization of intangibles 0.9 0.9 1.0 Acquisition-related costs -- -- 1.5 Integration/restructuring and other costs 0.8 -- 1.2 ------ ----- ----- Operating income 9.7 10.2 9.1 Interest expense, net (2.2) (2.4) (2.4) ------- ----- ----- Income before taxes 7.5 7.8 6.7 Taxes on income 2.5 2.3 2.4 ------ ----- ----- Income before extraordinary item 5.0 5.5 4.3 Extraordinary item, net -- -- (1.5) ------ ----- ----- Net income 5.0% 5.5% 2.8% ====== ====== =====
Sales increased 8% from 1998 to 1999 to $661.8. By segment, Apparel Identification increased 22% primarily due to the Ferguson acquisition (See Notes 2 and 13 of Notes to Consolidated Financial Statements); while Labeling Solutions declined 3% due to lower volumes of bar code printers and supplies; and Thermal Transfer Ribbons decreased slightly due to lower average prices. (See Note 13 of Notes to Consolidated Financial Statements.) Sales in 1998 increased to $611.6 from $567.2 in 1997. By segment, sales growth was achieved by both Apparel Identification and Labeling Solutions, while sales growth in Thermal Transfer Ribbons was limited by significant price competition during 1998. Gross profit in 1999 was $254.6 compared with $236.3 in 1998 and $219.6 in 1997. The gross margin decreased slightly in 1999 to 38.5% from 38.6% in 1998 and 38.7% in 1997. Gross margin in 1999 was unfavorably impacted by approximately 0.8% by the acquisition of the Ferguson business in the U.K. (See Note 2 of Notes to Consolidated Financial Statements), which required restructuring. Selling, general and administrative expense ("SG&A") in 1999 was $179.5 compared with $168.3 in 1998 and $146.6 in 1997. The increase in 1999 was due primarily to the Ferguson acquisition, while the increase in 1998 compared with 1997 was due to the Monarch acquisition consolidated for ten months of 1997 compared with twelve months of 1998. As a percent of sales, SG&A was 27.1% in 1999, 27.5% in 1998 and 25.9% in 1997. Acquisition related costs of $8.3 (pre-tax) in 1997 were one-time costs related to the acquisition of IIMAK. These costs include $5 of fees and expenses specifically related to the acquisition and $3.3 related to the termination and severance of certain IIMAK employees pursuant to pre-existing agreements. During 1999, the Company recorded a $5 (pre-tax) integration/restructuring and other charge pertaining to costs of consolidating and streamlining certain U.S. and U.K. facilities, the severance of personnel and other costs. In 1997, the Company recorded a restructuring charge of $6.9 (pre-tax) related to the integration of Monarch into the Company's operations, specifically the consolidation of certain facilities, severance of personnel and other costs. The largest component of the 1997 costs related to the severance of 132 people from the Miamisburg, Ohio, operation. During 1998, the Company paid $4.5 representing costs associated with the severance plan. Substantially all costs relating to the restructuring plans had been paid by December 31, 1999. Operating income was $64.0 in 1999, $62.6 in 1998 and $51.7 in 1997. As a percent of sales, operating income was 9.7% in 1999, 10.2% in 1998 and 9.1% in 1997. The decline in 1999 was attributable to the Ferguson acquisition in February 1999 and the integration/restructuring and other costs. 13 16 Interest expense, net, was $14.2 in 1999, $14.6 in 1998 and $13.8 in 1997. The increase from 1997 to 1998 was caused by several factors. Interest expense, net, in 1998 included a $2.2 non-recurring charge resulting from unauthorized interest rate speculation and $3.3 of interest income resulting from settlement of the dispute with Pitney Bowes regarding the original purchase price and other disputed amounts related to the Monarch acquisition. Interest expense, net of those non-recurring items increased to $15.7 in 1998 from $13.8 in 1997. The increase in 1998 resulted from interest expense associated with the additional borrowings related to the Monarch purchase, $0.7 cost related to the change in fair value of interest rate derivatives and increased cost related to fixed rate borrowings under the $150, 6.74% Senior Notes issued in August 1998, offset somewhat by lower borrowing levels and lower interest rates related to variable rate borrowings in 1998. The decrease to $14.2 in 1999 was attributable to lower interest rates related to variable rate borrowing in 1999, offset somewhat by the increased cost related to fixed rate borrowings under the $150 Senior Notes issued in August 1998. The effective tax rate was 32.9% in 1999, 30.0% in 1998 and 35.6% in 1997. During 1998 the Company reassessed potential tax liabilities and recorded a one-time reduction in the tax provision, resulting in a lower effective tax rate as compared with 1999. The 1997 tax rate was slightly above the U.S. statutory federal income tax rate of 35% due, in part, to certain acquisition costs, which are capitalized for tax purposes. The overall effective tax rate is impacted by many other factors including different statutory rates on foreign income, particularly in Asia. Special tax abatement incentives for Italian companies acquired in 1994 expired by the end of 1999. The expiration of these incentives is not expected to have a material effect on future effective tax rates. Income before extraordinary item was $33.4 in 1999, $33.6 in 1998 and $24.4 in 1997. The extraordinary item of $8.6 in 1997 (net of income taxes $5.1) resulted from the redemption of Monarch's 12 1/2% Senior Notes due July 1, 2003. (See Note 3 of Notes to Consolidated Financial Statements.) Net income was $33.4 in 1999, $33.6 in 1998 and $15.8 in 1997. As a percent of sales, net income was 5.0% in 1999, $5.5% in 1998 and 2.8% in 1997. LIQUIDITY AND CAPITAL RESOURCES The table below presents summary cash flow information for the years indicated:
1999 1998 1997 ---------- ---------- -------- Net cash provided by operating activities $ 72.7 $ 68.5 $ 29.3 Net cash used by investing activities (50.0) (28.2) (109.8) Net cash (used in) provided by financing activities (12.0) (39.8) 89.6 -------- ------- -------- Total change in cash (a) $ 10.7 $ 0.5 $ 9.1 ======== ======= ========
- ---------- (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 $72.7 in 1999, compared with $68.5 in 1998 and $29.3 in 1997, including depreciation and amortization of $38.3 in 1999, $32.7 in 1998, and $27.1 in 1997. INVESTING ACTIVITIES In 1999, capital expenditures were $31.9 compared with $35.7 in 1998 and $30.3 in 1997. All capital projects are carefully analyzed and are required to fit the Company's strategies and generate an advantageous internal rate of return on invested capital, improve safety or have a favorable environment benefit. On February 2, 1999, the Company completed the acquisition of the apparel identification business of Ferguson International PLC 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 excess of the purchase price and transaction costs over the fair value of net assets acquired was recorded as goodwill. The resulting goodwill of $5.4 is being amortized over 20 years. 14 17 On February 25, 1998, the Company acquired a 70% interest in the business of Teslo Tekstil Urunleri Sanayii ve Ticaret A.S., located in Istanbul, Turkey, for approximately $1.5. The Company has an option to acquire the remaining 30% interest in Teslo from the minority shareholders. On March 3, 1997, the Company acquired the remaining 51% of Monarch for a total purchase price of $132, consisting of cash, notes, stock, options and warrants. The acquisition was accounted for as a purchase with assets acquired and liabilities assumed recorded at their estimated fair values at the date of acquisition. The Company financed the cash portion of the purchase price with the proceeds of the term loan under a $280 credit facility with Fleet Bank, N.A. and Wachovia Bank of Georgia, N.A. as lead lenders. The Company will continue acquisitions of complementary businesses. MATERIAL COMMITMENTS Rental expense for all operating leases amounted to $6.4 in 1999, $7.3 in 1998 and $6.7 in 1997. Minimum rental commitments for all non-cancelable operating leases for the years 2000-2004 are $5.9, $4.5, $3.3, $2.5 and $2.1, respectively. The minimum total rental commitment for all years subsequent to 2004 is $6.4. (See Note 17 of Notes to Consolidated Financial Statements). FINANCING ACTIVITIES The table below shows the components of total capital for the years indicated:
1999 1998 1997 ----------- ---------- --------- Due to banks $ 45.0 $ 1.9 $ 2.5 Notes payable -- -- 5.9 Current maturities of long-term debt 0.3 0.7 21.7 Long-term debt 163.4 204.5 211.4 ------- ------- ------- Total debt $ 208.7 $ 207.1 $ 241.5 Shareholders' equity 289.1 273.4 243.8 ------- ------- ------- Total capital $ 497.8 $ 480.5 $ 485.3 ======= ======= ======= Total debt as a percent of total capital 41.9% 43.1% 49.8% ======= ======= =======
The increase in total debt to $208.7 at December 31, 1999 from $207.1 at December 31, 1998 arose from the acquisition of the Ferguson assets and stock repurchases under the Company's stock repurchase plan during 1999, offset by cash generated by operations. On March 12, 1999, the Company entered into an agreement with a bank under which the bank provides an unsecured, uncommitted short-term 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. Average borrowings under the agreement since inception in 1999 were $50 at an average interest rate of 5.46%. There was $45 outstanding under this facility at December 31, 1999, at an interest rate of 7.23%. On August 11, 1998, the Company entered into unsecured ten-year $150 Senior Note agreements with institutional lenders, primarily insurance companies. The Senior Notes bear interest at 6.74%, payable semi-annually. The proceeds were used to repay the term loan and a portion of the indebtedness outstanding under the revolving credit facility before it was amended. 15 18 OTHER MATTERS SALE OF IIMAK In February 2000, the Company announced it had entered into an agreement to sell 92.5% of its International Imaging Materials, Inc. (IIMAK) subsidiary for a total consideration of $127.5, which includes $120 in cash and $7.5 of IIMAK preferred stock. The transaction was closed and payment received on March 9, 2000. As part of the agreement, the Company has entered into a Supply Contract with IIMAK, whereby the Company will purchase substantially all of its thermal transfer ribbon supplies from IIMAK for a three-year term, with one-year extensions, unless terminated by either party. 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. As of December 31, 1998, the Company had repurchased 1,434,400 shares at an average price of $9.10 per share. On February 12, 1999, the Company announced it had increased the stock repurchase plan from the initial $25 to $40. During and subsequent to the quarter ended September 30, 1999, the Company canceled the treasury stock purchased under the stock repurchase plan. Since July 30, 1998, the Company has repurchased 3,265,100 shares at an average price of $8.86 per share. On February 10, 2000, the Company announced it had increased the stock repurchase plan from $40 to $70. YEAR 2000 The Year 2000 compliance issue refers to the inability of some 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. During the previous three years, the Company carried out a comprehensive program to identify and remediate all non-compliant hardware and software in its information technology systems and imbedded technology in its manufacturing systems and the products it sells. The Company also reviewed and tested the ability of its vendors and customers to deal with the Y2K transition. The Company completed all required remediations during 1999. No failures related to Year 2000 issues were encountered in the transition to the Year 2000, none have occurred since, and the Company is confident that its systems will experience no deleterious consequences related to the Year 2000 issue. The Company has also not experienced any disruption of its supply chain related to vendors' lack of Y2K readiness. The Company did not experience any artificially high orders or shipments as a consequence of the Company's or customers' attempts to accelerate deliveries and stockpile product in anticipation of Y2K related difficulties. Nor had the Company observed deferrals of purchases related to customers' apprehensions associated with Y2K issues. The Company estimates that costs related to Y2K compliance were less than $0.5 (unchanged from previous estimates), and such costs are not deemed to be material. 16 19 ITEM 7A: 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. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial information required by Item 8 is included elsewhere in this report. (See Part IV, Item 14.) ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND ON FINANCIAL DISCLOSURE None. 17 20 PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference to the Company's Definitive Proxy Statement with respect to the Company's Annual Meeting of Shareholders scheduled to be held on May 4, 2000. Also refer to Item 2 entitled "Executive Officers of the Registrant" in Part I of this Form. ITEM 11: EXECUTIVE COMPENSATION Incorporated herein by reference to the Company's Definitive Proxy Statement with respect to the Company's Annual Meeting of Shareholders scheduled to be held on May 4, 2000. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to the Company's Definitive Proxy Statement with respect to the Company's Annual Meeting of Shareholders scheduled to be held on May 4, 2000. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference to the Company's Definitive Proxy Statement with respect to the Company's Annual Meeting of Shareholders scheduled to be held on May 4, 2000. 18 21 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) DOCUMENTS 1. FINANCIAL STATEMENTS - Report of Independent Public Accountants......................................................... F - 1 Consolidated Balance Sheets December 31, 1999 and 1998........................................... F - 2 Consolidated Statements of Income Years ended December 31, 1999, 1998 and 1997........................................................................................... F - 3 Consolidated Statements of Shareholders' Equity Years ended December 31, 1999, 1998 and 1997.................................................................................. F - 4 Consolidated Statements of Cash Flows Years ended December 31, 1999, 1998 and 1997........................................................................................... F - 5 Notes to Consolidated Financial Statements....................................................... F - 6 to F -18 2. FINANCIAL STATEMENT SCHEDULE - Schedule II -- Valuation and Qualifying Accounts................................................. F - 19
Notes All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required, or because the required information is included in the financial statements or notes thereto. Separate financial statements of the Registrant have been omitted because the Registrant is primarily an operating company. All subsidiaries included in the consolidated financial statements are majority owned, and none of the subsidiaries have indebtedness which is not guaranteed by the Registrant. 3. EXHIBITS
3.1 Amended and Restated Certificate of Incorporation. (G) 3.2 Amendment to Amended and Restated Certificate of Incorporation. (M) 3.3 By-Laws (A) 4.1 Warrant Agreement for "A" Warrants between the Registrant and Odyssey Partners, L.P. dated March 3, 1997. (J) 4.2 Odyssey Partners, L.P. Certificate for 1,000,000 Warrants dated March 3, 1997. (J) 4.3 Warrant Agreement for "B" Warrants between the Registrant and Odyssey Partners, L.P. dated March 3, 1997. (J) 4.4 Odyssey Partners, L.P. Certificate for 200,000 Warrants dated March 3, 1997. (J) 10.2 Employment Agreement, dated as of December 16, 1986, between Registrant and Arthur Hershaft. (C) 10.3 Employment Agreement, dated February 13, 1989, between Registrant and Victor Hershaft. (D) 10.4 Amendment dated as of October 1, 1998 to the Employment Agreement, dated as of February 13, 1989 between Registrant and Victor Hershaft. (Q) 10.5 Employment Agreement dated as of February 28, 2000 between Registrant and Paul J. Griswold. 10.6 Change of Control Employment Agreement dated as of April 20, 1999, between the Registrant and Jack Plaxe. (R) 10.7 Registrant's 1990 Employee Stock Option Plan. (F) 10.8 Registrant's 1997 Incentive Stock Option Plan. (N) 10.9 Registrant's 2000 Long-Term Performance and Incentive Plan. (T) 10.10 Deferred Compensation Plan for Directors. (O) 10.11 Omnibus Purchase and Sale Agreement dated June 6, 1995 by and between Pitney Bowes Inc., Monarch Marking Systems, Inc., Pitney Bowes Marking Systems Ltd., Pitney Bowes International Holdings Inc., Pitney Bowes France S.A. and Monarch Acquisition Corp. (H) 10.12 Stock Purchase Agreement dated as of December 20, 1996 between the Registrant and Odyssey Partners, L.P. (I) 10.13 Amendment No. 1 to Stock Purchase Agreement dated as of March 3, 1997 between the Registrant and Odyssey Partners, L.P. (I) 10.14 Agreement and Plan of Merger dated as of March 3, 1997 by and among the Registrant, Monarch Holdings, Inc., Thomas Loemker and John W. Paxton. (J) 10.15 Registration Rights Agreement dated as of March 3, 1997 between the Registrant and Odyssey Partners, L.P. (J) 10.16 Credit Agreement dated March 3, 1997. (K)
19 22 10.17 Agreement and Plan of Merger dated as of July 15, 1997, among the Registrant, Ribbon Manufacturing, Inc., and International Imaging Materials, Inc. (L) 10.18 Amended and Restated Credit Agreement dated as of August 11, 1998.(P) 10.19 Note Purchase Agreement dated as of August 4, 1998.(P) 10.20 Uncommitted Credit Facility (R) 10.21 Omitted Exhibit to Uncommitted Credit Facility (R) 10.22 Promissory Note from Registrant to Centric Capital Corporation (R) 10.23 Agreement, dated as of February 8, 2000, among the Registrant, Paxar Capital Corporation, Internatioanal Imaging Material, Inc., Center Capital Investors III, L.P. and Related Partnerships. (S) 10.24 Amendment No.1, dated March 9, 2000 to the Stock Purchase and Recapitalization Agreement, dated as of February 8, 2000, among the Registrant, Paxar Capital Corporation, International Imaging Materials, Inc., Centre Capital Investors III, L.P., and related partnerships. (S) 21.1 Subsidiaries of Registrant. 23.1 Consent of Arthur Andersen LLP. 27.1 Financial Data Schedule
- ---------- (A) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1980. (B) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1985. (C) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987. (D) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988. (E) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989. (F) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. (G) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. (H) Incorporated herein by reference from Exhibits to Registrant's Current Report on Form 8-K dated June 29, 1995. (I) Incorporated herein by reference from Exhibits to Registrant's Current Report on Form 8-K dated December 20, 1996. (J) Incorporated herein by reference from Exhibits to Registrant's Current Report on Form 8-K dated March 3, 1997. (K) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. (L) Incorporated herein by reference from Exhibits to Registrant's Current Report on Form 8-K dated July 15, 1997. (M) Incorporated herein by reference from Annex D to the Joint Proxy Statement/Prospectus included in the Registrant's Registration Statement on Form S-4 (File No. 333-36283), filed on September 24, 1997. (N) Incorporated herein by reference from Exhibits to the Registrant's Registration Statement on Form S-8 (File No. 333-38923), filed on October 28, 1997. (O) Incorporated herein by reference from Annex A to Registrant's preliminary proxy statement dated March 31, 1998. (P) Incorporated herein by reference from Exhibits to Registrant's Form 8-K filed on August 26, 1998. (Q) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. (R) Incorporated herein by reference from Exhibits to Registrant's Form 10-Q filed on August 11, 1999. (S) Incorporated herein by reference from Exhibits to Registrant's Form 8-K dated March 9, 2000. 20 23 (T) Incorporated herein by reference from Appendix B and C to Registrant's definitive proxy statement dated March 31, 2000. (b) Reports on Form 8-K 1. Current Report on Form 8-K, dated December 28, 1999, reporting under Item 5 the execution of a letter of intent between the Registrant and Bornemann & Bick group of companies. 2. 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. 3. 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. 21 24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Paxar Corporation: We have audited the accompanying consolidated balance sheets of Paxar Corporation (a New York corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Paxar Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Stamford, Connecticut February 8, 2000 F-1 25 PAXAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, 1999 1998 ----------------- -------------- (IN MILLIONS, EXCEPT SHARE AMOUNTS) ASSETS Current assets: Cash $ 23.9 $ 14.8 Short-term investments 8.3 4.4 Receivables, less allowances of $8.3 in 1999 and $5.0 in 1998 121.1 99.6 Inventories 92.4 97.0 Deferred income taxes 1.7 -- Other current assets 15.9 13.3 ---------- -------- Total current assets 263.3 229.1 ---------- ------------ Property, plant and equipment, at cost 344.9 300.4 Accumulated depreciation (139.6) (106.8) ---------- --------- Net property, plant and equipment 205.3 193.6 ---------- ------------ Goodwill 157.4 157.8 Other assets 7.7 12.7 ---------- -------- $ 633.7 $ 593.2 ========== ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Due to banks $ 45.0 $ 1.9 Current maturities of long-term debt 0.3 0.7 Accounts payable and accrued liabilities 104.2 82.8 Accrued taxes on income 8.4 4.5 ---------- -------- Total current liabilities 157.9 89.9 Long-term debt 163.4 204.5 Deferred income taxes 18.7 20.1 Other liabilities 4.6 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, 46,756,610 and 47,941,696 shares issued and outstanding in 1999 and 1998, respectively 4.7 4.9 Paid-in capital 93.2 116.9 Retained earnings 201.5 168.1 Accumulated other comprehensive loss (10.3) (3.4) Treasury stock 1,434,400 shares in 1998 -- (13.1) ---------- -------- Total shareholders' equity 289.1 273.4 ---------- -------- $ 633.7 $ 593.2 ========== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-2 26 PAXAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1999 1998 1997 --------- ------- ------- Sales $ 661.8 $ 611.6 $ 567.2 Cost of sales 407.2 375.3 347.6 --------- ------- ------- Gross profit 254.6 236.3 219.6 Selling, general and administrative expense 179.5 168.3 146.6 Amortization of intangibles 6.1 5.4 6.1 Acquisition-related costs -- -- 8.3 Integration/restructuring and other costs 5.0 -- 6.9 --------- ------- ------- Operating income 64.0 62.6 51.7 Interest expense, net (14.2) (14.6) (13.8) ---------- ------- ------- Income before taxes 49.8 48.0 37.9 Taxes on income 16.4 14.4 13.5 --------- ------- ------- Income before extraordinary item 33.4 33.6 24.4 Extraordinary item, net of income taxes of $5.1 -- -- (8.6) --------- ------- ------- Net income $ 33.4 $ 33.6 $ 15.8 ========= ======= ======= Basic earnings per common share: Income before extraordinary item $ 0.72 $ 0.69 $ 0.51 Extraordinary item -- -- (0.18) -------- ------- ------- Net income $ 0.72 $ 0.69 $ 0.33 ======== ======= ======= Diluted earnings per common share: Income before extraordinary item $ 0.71 $ 0.68 $ 0.49 Extraordinary item -- -- (0.17) -------- ------- ------- Net income $ 0.71 $ 0.68 $ 0.32 ======== ======= ======= Average common shares outstanding: Basic 46.7 48.4 48.1 Diluted 47.2 49.4 49.7
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-3 27 PAXAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN MILLIONS)
ACCUMU- LATED OTHER COMMON STOCK UNEARNED COMPRE- COMPRE- ------------------ PAID-IN COMPEN- TREASURY RETAINED HENSIVE HENSIVE SHARES AMOUNT CAPITAL SATION STOCK EARNINGS INCOME/(LOSS) INCOME ------ ------ -------- -------- --------- -------- ------------- ------ Balance, December 31, 1996 41.3 $ 4.1 $ 81.6 ($ 0.4) $ -- $ 121.9 $ 0.6 $ -- Comprehensive income Net income -- -- -- -- -- 15.8 -- 15.8 Other comprehensive income(loss) : Translation adjustments -- -- -- -- -- -- (5.4) (5.4) -------- Comprehensive income $ 10.4 ======== Stock split 7.1 0.7 -- -- -- (0.7) -- Shares surrendered (0.9) -- (9.5) -- -- -- -- Shares issued-various plans 0.6 -- 5.4 -- -- -- -- Tax benefit from exercise of Stock options -- -- 1.3 -- -- -- -- Shares Issued - acquisitions 0.3 -- 4.7 -- -- -- -- Warrants and options issued - Acquisitions -- -- 25.7 -- -- -- -- Restricted stock awards -- -- 0.1 0.4 -- -- -- IIMAK pooling adjustment -- -- -- -- -- (2.5) -- ---- ----- ----- ------ -------- -------- ------ Balance, December 31, 1997 48.4 4.8 109.3 -- -- 134.5 (4.8) Comprehensive income Net income -- -- -- -- -- 33.6 -- 33.6 Other comprehensive income: Translation adjustments -- -- -- -- -- -- 1.4 1.4 -------- Comprehensive income -- -- -- -- -- -- -- $ 35.0 ======== Shares issued-various plans 1.0 0.1 5.7 -- -- -- -- Purchase of common shares -- -- -- (13.1) -- -- Tax benefit from exercise of Stock options -- -- 1.9 -- -- -- -- ---- ------ ----- ------ -------- -------- ------ Balance, December 31, 1998 49.4 4.9 116.9 -- (13.1) 168.1 (3.4) Comprehensive income Net income -- -- -- -- -- 33.4 -- 33.4 Other comprehensive income (loss) : Translation adjustments -- -- -- -- -- -- (6.9) (6.9) -------- Comprehensive income -- -- -- -- -- -- -- $ 26.5 ======== Shares issued-various plans 0.6 0.1 4.9 -- -- -- -- Purchase of common shares -- -- -- -- (15.8) -- -- Retirement of treasury shares (3.3) (0.3) (28.6) -- 28.9 -- -- ---- ------ ----- ------ -------- -------- ------ Balance, December 31, 1999 46.7 $ 4.7 $ 93.2 $ -- $ -- $ 201.5 ($ 10.3) ==== ====== ===== ====== ======== ======== =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-4 28 PAXAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ( IN MILLIONS)
1999 1998 1997 ----------- ----------- -------- OPERATING ACTIVITIES: Net income $ 33.4 $ 33.6 $ 15.8 --------- -------- -------- Adjustments to reconcile net income to net cash provided by operations: Extraordinary item -- -- 8.6 Depreciation and amortization 38.3 32.7 27.1 Deferred income taxes (3.1) 2.8 4.0 Other -- -- (2.5) Changes in assets and liabilities, net of businesses acquired: Receivables (12.2) 0.7 (8.4) Inventories 9.9 0.4 (8.5) Other current assets (2.1) (1.7) (3.0) Accounts payable and accrued liabilities 7.0 0.8 1.4 Taxes on income 2.2 -- (5.4) Other (0.7) (0.8) 0.2 --------- -------- -------- 39.3 34.9 13.5 --------- -------- -------- Net cash provided by operating activities 72.7 68.5 29.3 --------- -------- -------- INVESTING ACTIVITIES: Purchases of property, plant and equipment (31.9) (35.7) (30.3) Acquisition related (20.5) 11.2 (81.6) (Increase) of short-term investments (3.9) (2.2) (0.3) Other 6.3 (1.5) 2.4 --------- -------- -------- Net cash used in investing activities (50.0) (28.2) (109.8) --------- -------- -------- FINANCING ACTIVITIES: Increase (decrease) in short-term debt 42.5 (27.5) 12.2 Additions to long-term debt 442.7 458.3 286.7 Reductions in long-term debt (486.4) (465.2) (210.8) Exercise of stock options/stock purchase plan 5.0 7.7 2.3 Purchase of common stock ( 15.8) (13.1) -- Other -- -- (0.8) --------- -------- -------- Net cash (used in) provided by financing activities (12.0) (39.8) 89.6 --------- -------- -------- Effect of exchange rate changes on cash (1.6) 0.6 (0.7) --------- -------- -------- Increase in cash 9.1 1.1 8.4 Cash, at beginning of year 14.8 13.7 5.3 --------- -------- -------- Cash, at end of year $ 23.9 $ 14.8 $ 13.7 ========= ========= ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-5 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include those of Paxar Corporation (the "Company") and its majority-owned subsidiaries. The effects of all significant inter-company transactions have been eliminated. SHORT-TERM INVESTMENTS: Short-term investments consist of foreign lending institution and government bonds pledged as collateral against foreign debt, as well as certain other foreign financial institution commercial paper. INVENTORIES: Inventories are stated at the lower of cost or market. The value of inventories determined using the last-in, first-out (LIFO) method was $45.8 and $55.6 as of December 31, 1999 and 1998, respectively. The value of all other inventories, determined using the first-in, first-out (FIFO) method, was $46.6 and $41.4 as of December 31, 1999 and 1998, respectively. The value includes approximately $11.8 as of December 31, 1999 and 1998, related to the fair value write up of the inventory at the date of the Monarch acquisition. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost and depreciated by the straight-line method over the estimated useful lives of the assets. Upon retirement or other disposition, the cost and accumulated depreciation are removed from the asset and accumulated depreciation accounts, and the net gain or loss is reflected in income. Expenditures for maintenance and repairs are charged against income as incurred. Significant expenditures for betterments and renewals are capitalized. INCOME TAXES: Deferred tax assets and liabilities are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates. A valuation allowance is established for any deferred tax asset for which realization is not likely. The classification of deferred tax assets and liabilities corresponds with the classification of the underlying assets and liabilities giving rise to the temporary difference. REVENUE RECOGNITION: Revenue is recognized when title to the product passes to the customer, generally upon shipment. EARNINGS PER COMMON SHARE: In December 1997, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Under SFAS No. 128, basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share reflect the potential dilution that could occur if options and warrants were exercised resulting in the issuance of common stock. STOCK DIVIDEND: During 1999 and 1998, no stock dividends were declared. On August 7, 1997, the Board of Directors declared a 25% stock split, effected in the form of a stock dividend. All per share information presented in the accompanying financial statements has been adjusted to reflect the stock dividend. F-6 30 FINANCIAL INSTRUMENTS: All financial instruments of the Company with the exception of interest rate hedge agreements are carried at cost, which approximates fair value. The Company's policy is to manage exposure to variations in interest rates on its revolving credit facility by entering into interest rate hedge agreements when appropriate. The transactions generally involve the exchange of fixed and floating interest payment obligations without the exchange of debt instruments. Interest differentials under these agreements are reflected in the results of operations as adjustments to interest expense when they are paid or received. The fair value (i.e., the cost or benefit from terminating the agreements) related to underlying debt is deferred. The Company also recognizes gains or losses on these agreements as an adjustment of interest expense when the related variable rate debt is less than the notional amount of the hedges. Since the agreements are negotiated with creditworthy counter-parties, the Company considers the risk of their nonperformance to be remote. At December 31, 1998, the Company had hedge agreements with notional value of $80. The fair value of the interest rate hedge agreements, based on estimates provided by financial institutions, was a loss of $1.5 at December 31, 1998. The notional value of the interest rate hedge agreements exceeded the amount of variable rate debt outstanding at December 31, 1998 by $34. The fair value of the agreements related to underlying variable rate debt that had been deferred at December 31, 1998 was $0.9. The fair value related to the notional value of the agreements not having related variable rate debt reflected in earnings for the year ended December 31, 1998 was a loss of $0.7. There were no interest rate derivatives in effect at December 31, 1999. In June 1998, the Financial Accounting Standards Board issued 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 impacts 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. GOODWILL: Goodwill represents the excess of the cost of acquired companies over the sum of identifiable net assets. Goodwill is being amortized on a straight-line basis over periods of up to forty years. Subsequent to acquiring goodwill, the Company evaluates whether events and circumstances, including anticipated future operating results, indicate the remaining estimated useful life of goodwill may warrant revision. Based upon its most recent analysis, the Company believes that no impairment of goodwill exists at December 31, 1999. FOREIGN CURRENCY TRANSLATION: Assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars using the exchange rate in effect at the balance sheet date. Results of operations are translated using the average exchange rate prevailing throughout the period. The effects of exchange rate fluctuations from translating foreign currency assets and liabilities into U.S. dollars are included in shareholders' equity as translation adjustments. Gains and losses resulting from foreign currency transactions are included in net income and were not significant in the past three years. USE OF ESTIMATES: The preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires management to use certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-7 31 RECLASSIFICATIONS: Certain reclassifications have been made to prior year amounts to conform to the current year presentation. NOTE 2: BUSINESS ACQUISITIONS FERGUSON: On February 2, 1999 the Company completed the acquisition of the apparel identification business of Ferguson International PLC 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:
Current assets $ 15.1 Property, plant and equipment 13.5 Goodwill 5.4 Current liabilities (13.5) -------- Net assets $ 20.5 ========
The operating results of Ferguson are included in the accompanying consolidated statements of income beginning February 2, 1999. The following unaudited pro forma results of operations assume the acquisition occurred as of January 1, 1998. These pro forma results do not purport to be indicative of the results of operations, which may result in the future.
YEARS ENDED DECEMBER 31, 1999 1998 ------------------------ ------- ------- Sales $ 666.1 $ 676.1 ------- ------- Income before extraordinary item $ 33.1 $ 32.6 ======= ====== Net income $ 33.1 $ 32.6 ======= ====== Basic earnings per common share: Before extraordinary item $ 0.71 $ 0.67 Extraordinary item - - ------- ------- Net income $ 0.71 $ 0.67 ======= ====== Diluted earnings per common share: Before extraordinary item $ 0.70 $ 0.66 Extraordinary item - - ------- ------- Net income $ 0.70 $ 0.66 ======= ======
IIMAK: On October 28, 1997, the Company completed the acquisition of International Imaging Materials, Inc. ("IIMAK"), which was accounted for as a pooling of interests. In connection with the merger, each outstanding share of IIMAK common stock was converted into 1.5 shares of the Company's common stock and all existing IIMAK warrants and options were converted into warrants and options to purchase the Company's common stock. As a result of the merger, the shares of IIMAK common stock were converted into 12,431,757 shares of the Company's common stock, and the IIMAK options and warrants were converted into 1,937,055 of the Company's options and warrants. As the merger was accounted for as a pooling of interests, the financial statements have been restated to include the results of IIMAK for all periods presented. No adjustments were required to conform the accounting policies of the companies. The Company recognized acquisition related costs of $8.3 in the fourth quarter of 1997. Included in these costs were $5 of fees and expenses specifically related to the merger and $3.3 related to the termination and severance of certain members of IIMAK management pursuant to pre-existing IIMAK agreements. See Note 18: Subsequent Event. F-8 32 MONARCH: On June 29, 1995, the Company acquired a 49% interest in Monarch Marking Systems, Inc. ("Monarch"), which had been accounted for using the equity method. On March 3, 1997, the Company acquired the remaining 51% of Monarch for a total purchase price of $132. The Company acquired the 49% equity interest of Odyssey Partners, L.P. for $94.1 in cash, a promissory note in the amount of $5.9 at an annual interest rate of 4.88% payable on January 2, 1998, and five year warrants to purchase (a) 1,250,000 shares of the Company's common stock, par value $0.10, at an exercise price of $14.00 per share and (b) 250,000 shares of the Company's common stock at an exercise price of $17.50 per share. The warrants were recorded at the fair value of approximately $9.7 at the date of acquisition. Upon completion of the acquisition, the Chairman and the President of Monarch each received 156,536 shares of the Company's common stock valued at $15.20 per share, in exchange for the shares of Monarch common stock owned by each of them. Additionally, the management of Monarch received incentive stock options to purchase an aggregate of 1,244,469 shares of the Company's common stock pursuant to the Company's 1990 Employee Stock Option Plan in exchange for outstanding options to purchase Monarch common stock. The options were recorded at the fair value of approximately $16 at the date of acquisition. The acquisition was accounted for as a purchase with assets acquired and liabilities assumed recorded at their estimated fair values at the date of acquisition. The excess of the purchase price and transaction costs over the fair value of net assets acquired was recorded as goodwill. The resulting goodwill of $143.9 (including $13.5 related to the initial 1995 investment) is being amortized over 40 years. The fair value of assets acquired and liabilities assumed is as follows:
Current assets $ 96.2 Property, plant and equipment 44.1 Goodwill 143.9 Other assets 11.8 Current liabilities (37.6) Long-term debt (105.8) Other (5.1) -------- Net assets 147.5 Initial investment (June 1995) (20.1) -------- $ 127.4 ========
In September 1998, the Company received $14.5, including interest of $3.3, from Pitney Bowes (the former owner of Monarch) resulting from litigation regarding the original purchase price and other disputed amounts. This resulted in a reduction, net of income tax, in goodwill in the amount of $4.6. The operating results of Monarch are included in the accompanying consolidated statements of income beginning March 3, 1997. The following unaudited pro forma results of operations for 1997 assume the acquisition occurred as of January 1, 1997. These pro forma results do not purport to be indicative of the results of operations, which may result in the future.
YEAR ENDED DECEMBER 31, 1997 ----------------------- ------- Sales $ 606.8 ------- Income before extraordinary item $ 22.8 ------- Net income $ 14.2 ------- Basic earnings per common share: Before extraordinary item $ 0.47 Extraordinary item (0.18) ------- Net income $ 0.29 ======= Diluted earnings per common share: Before extraordinary item $ 0.46 Extraordinary item (0.17) ------- Net income $ 0.29 =======
NOTE 3: EXTRAORDINARY ITEM -- LOSS ON EARLY EXTINGUISHMENT OF DEBT On April 11, 1997, Monarch completed the purchase of $100 of principal amount of its 12 -1/2 % Senior Notes due July 1, 2003 (the "Notes"). Monarch paid $120.2, consisting of $100 of principal, $3.5 of accrued interest, a $13.7 premium, and a consent payment of $3. Upon payment, all of the outstanding Notes were canceled, and the indenture under which they were issued was terminated. The early redemption of the Notes resulted in an extraordinary charge of $8.6, net of income taxes of $5.1. F-9 33 NOTE 4: INVENTORIES The components of inventories are set forth below:
AT DECEMBER 31, 1999 1998 ---------------- -------- ------ Raw materials $ 36.7 $ 49.3 Work-in-Process 15.9 11.8 Finished goods 39.8 35.9 ------- ------ $ 92.4 $ 97.0 ======= ======
If all inventories were reported on a FIFO basis, inventories would be approximately $2.0 and $2.2 higher at December 31, 1999 and 1998 respectively. NOTE 5: OTHER CURRENT ASSETS A summary of other current assets is set forth below:
AT DECEMBER 31, 1999 1998 ---------------- -------- ------ Loans to officers $ 0.3 $ 0.3 Prepayments 5.3 8.8 Other 10.3 4.2 ------- ------ $ 15.9 $ 13.3 ====== =====
NOTE 6: PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment is set forth below:
AT DECEMBER 31, 1999 1998 --------------- --------- --------- Machinery and equipment $ 261.9 $ 213.6 Buildings and building improvements 76.2 80.2 Land 6.8 6.6 --------- --------- 344.9 300.4 Accumulated depreciation (139.6) (106.8) --------- --------- $ 205.3 $ 193.6 ========= ========= YEARS Estimated useful lives are principally: ----- Buildings and building improvements 5 to 40 Machinery and equipment 3 to 10
NOTE 7: DUE TO BANKS A summary of amounts due to banks is set forth below:
AT DECEMBER 31 1999 1998 -------------- ------ ------ Bank overdrafts $ - $ 1.8 Uncommitted Credit Facility (a) 45.0 - Other foreign - 0.1 ------ ------ $ 45.0 $ 1.9 ====== ======
(a) On March 12, 1999, the Company entered into an agreement with a bank under which the bank provides an unsecured, uncommitted short-term 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. Average borrowings under the agreement since inception in 1999 were $50 at an average interest rate of 5.46%. There was $45 outstanding under this facility at December 31, 1999, at an interest rate of 7.23%. F-10 34 NOTE 8: LONG TERM DEBT A summary of long-term debt is set forth below:
AT DECEMBER 31 1999 1998 -------------- --------- ------- 6.74% Senior Notes (a) $ 150.0 $ 150.0 Unsecured bank credit facility (b) - 45.8 Economic Development Revenue Bonds due 2011 and 2019 (c) 13.0 8.0 Other 0.7 1.4 -------- ------- 163.7 205.2 Less current maturities 0.3 0.7 -------- ------- $ 163.4 $ 204.5 ======== =======
Maturities of long-term debt for the five years subsequent to December 31, 1999 are $ 0.3, $0.2, $0.1, $0.1, and $0. - ---------- (a) On August 11, 1998, the Company entered into unsecured ten-year $150 Senior Note agreements with institutional lenders, primarily insurance companies. The Senior Notes bear interest at 6.74%, payable semi-annually. The proceeds were used to repay the term loan and a portion of the indebtedness outstanding under the Company's revolving credit facility before it was amended. The Notes contain covenants requiring the Company, among other things, to maintain a minimum net worth. The Company is in compliance with all covenants as of December 31, 1999 and 1998, respectively. (b) On March 3, 1997, the Company entered into an unsecured six-year, $280 credit agreement ($140 term loan, $140 revolving credit facility) with Fleet Bank, N.A. and other participating banks. On August 11, 1998, the Company and the banks amended and restated the credit agreement to provide a $200 unsecured revolving credit facility for five years from the date of the amendment. Under the agreement, the Company pays a facility fee determined by reference to certain financial ratios (0.15% at December 31, 1999.) Borrowings under the agreement bear interest at rates referenced to the London Interbank Offered Rate (LIBOR) with applicable margins varying in accordance with the Company's attainment of specified financial thresholds or, at the Company's option, rates competitively bid among the participating banks or the Prime Rate, as defined (8.5% and 7.75% at December 31, 1999 and 1998, respectively), and are guaranteed by certain domestic subsidiaries of the Company. The agreement contains covenants requiring the Company, among other things, to maintain certain financial ratios and minimum net worth. The Company was in compliance with all covenants as of December 31, 1999 and 1998. Average borrowings under the agreement during 1999 and 1998 were $50.4 and $160.8, at average interest rates of 5.62% and 6.36%, respectively. The amounts outstanding at December 31, 1999 and 1998 were $0 and $45.8, respectively. The weighted average interest rate for borrowings under the agreement at December 31, 1998 was 6.1% (c) Economic Development Revenue Bond financed facilities have been accounted for as plant and equipment, and the related bonds are recorded as long-term debt. The variable rate bonds for the years ended December 31, 1999 and 1998 had a weighted average interest rate of 3.4% and 3.57%, respectively. F-11 35 NOTE 9: INCOME TAXES The provision for income taxes contains the following:
AT DECEMBER 31, 1999 1998 1997 --------------- -------- -------- ------- Federal Current $ 13.6 $ 8.0 $ 3.1 Deferred (2.9) 0.4 5.7 Foreign Current 4.4 1.8 6.1 Deferred (0.3) 2.4 (2.3) State 1.6 1.8 0.9 -------- -------- ------- $ 16.4 $ 14.4 $ 13.5 ======= ======== =======
The cumulative amounts of each temporary difference that comprise the net deferred tax liability are as follows:
AT DECEMBER 31, 1999 1998 1997 --------------- ----------- ----------- -------- Deferred tax assets: Alternative minimum and investment tax credit carry-forwards $ 4.5 $ 4.4 $ 4.3 Costs capitalized to inventory 1.0 1.2 1.2 Accrued integration/restructuring -- -- 1.4 Other accrued liabilities and allowances 8.4 6.1 9.0 Other 3.2 1.3 1.2 --------- -------- -------- Total gross deferred tax asset 17.1 13.0 17.1 Valuation allowance (0.7) (0.5) -- --------- -------- -------- Net deferred tax asset 16.4 12.5 17.1 Deferred tax liability: Depreciation and other property basis differences (33.4) (32.6) (34.4) --------- -------- -------- Net deferred tax liability $ (17.0) ($20.1) ($17.3) ========= ======== ========
The valuation allowances relate to certain capital transactions subject to restriction for tax purposes. An analysis of the differences between the federal statutory income tax rate and the effective tax rate is set forth below:
YEARS ENDED DECEMBER 31, 1999 1998 1997 - ------------------------ -------- -------- ------ Federal statutory tax rate 35.0% 35.0% 35.0% State income tax, net of federal income tax benefit 2.0 2.4 1.5 Foreign taxes less than federal rate (6.9) (7.6) (7.5) Non-deductible merger costs -- -- 4.3 Reserves no longer required -- (2.8) -- All other, net 2.8 3.0 2.3 ------ ------ ------ 32.9% 30.0% 35.6% ====== ====== ======
During 1998, the Company reviewed the status of ongoing tax examinations and adjusted the tax reserves to conform to the status of those examinations. The Company's Collitex and Orvac subsidiaries benefited from tax incentives in Italy, which significantly reduced the Company's effective tax rate. These incentives expired at the end of 1999. United States income taxes have not been provided on undistributed foreign earnings of $66.5 since the Company intends to permanently reinvest such earnings in expanding foreign operations. The unrecognized U.S. tax liability on the undistributed earnings was approximately $16.9 at December 31, 1999. Total foreign based pre-tax income was approximately $25, $23, and $21 for 1999, 1998 and 1997, respectively. NOTE 10: RELATIONSHIP WITH FUJICOPIAN CO., LTD. IIMAK manufactures thermal transfer ribbons pursuant to a license agreement with Fujicopian Co., Ltd., which expires in 2008. Royalty expenses under the agreement totaled $1.5 in 1999, $2.1 in 1998, and $2.6 in 1997. See Note 18: Subsequent Event. F-12 36 NOTE 11: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES A summary of accounts payable and accrued liabilities is set forth below:
AT DECEMBER 31, 1999 1998 - ---------------- -------- ------ Accounts payable $ 45.1 $ 34.8 Accrued payroll costs 17.9 19.2 Other accrued liabilities 41.2 28.8 -------- ------ $ 104.2 $ 82.8 ======== ======
NOTE 12: EMPLOYEE SAVINGS PLANS The Company maintains three voluntary employee savings plans adopted pursuant to Section 401(k) of the Internal Revenue Code. The Company's contribution under the Plans was $3.6, $3.6, and $3.3 during 1999, 1998 and 1997, respectively. NOTE 13: 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 information for 1997 and 1998 has been restated from the prior years' presentations in order to conform to the 1999 presentation. The Company operates the following business segments: Apparel Identification, Labeling Solutions, and Thermal Transfer Ribbons. The accounting policies of the segments are the same as those described in Note 1: Summary of Significant Accounting Policies. 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 based on operating income of its business segments before corporate expenses, amortization of goodwill, non-recurring charges, interest, income taxes and extraordinary items. Balance sheet information is not captured by business segment. Depreciation expense has been allocated as a percent of sales, except where specific identification is available. 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. 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 distribution systems, retail price tag, packaging and medical applications. See Note 18: Subsequent event. F-13 37 The following table shows the financial information of the Company's business segments.
YEARS ENDED DECEMBER 31, 1999 1998 1997 - ------------------------ --------- --------- --------- Sales to unaffiliated customers: Apparel Identification $ 335.8 $ 275.8 $ 256.4 Labeling Solutions 245.2 253.0 218.8 Thermal Transfer Ribbons 80.8 82.8 92.0 --------- --------- --------- Total $ 661.8 $ 611.6 $ 567.2 ========= ========= ========= Inter-segment sales: Thermal Transfer Ribbons $ 13.9 $ 11.8 $ 8.7 ========= ========= ========= Segment operating income: Apparel Identification $ 41.8 $ 38.3 $ 38.7 Labeling Solutions 30.3 30.4 27.0 Thermal Transfer Ribbons 11.6 7.5 14.7 --------- --------- --------- 83.7 76.2 80.4 Corporate (9.6) (9.5) (8.8) Restructuring,acquisition related, and other costs (5.0) - (15.2) Amortization of goodwill (5.1) (4.1) (4.7) --------- --------- --------- Total $ 64.0 $ 62.6 $ 51.7 ========= ========= ========= Depreciation and amortization expense: Apparel Identification $ 13.3 $ 10.5 $ 9.2 Labeling Solutions 8.9 9.2 4.3 Thermal Transfer Ribbons 9.0 9.0 8.7 Corporate 7.1 4.0 4.9 --------- --------- --------- Total $ 38.3 $ 32.7 $ 27.1 ========= ========= =========
Geographic Information:
YEARS ENDED DECEMBER 31, 1999 1998 1997 - ------------------------ --------- --------- ------- Sales to unaffiliated customers: North America: United States $ 391.3 $ 403.9 $ 387.3 Canada 15.8 16.7 14.8 Mexico 12.8 12.0 11.6 ---------- ---------- -------- Total North America 419.9 432.6 413.7 Asia 78.4 51.8 44.0 Europe 150.3 113.1 102.1 Other 13.2 14.1 7.4 ---------- ---------- -------- Total $ 661.8 $ 611.6 $ 567.2 ========== ========== ======== Long lived assets: North America: United States $ 250.2 $ 256.5 $ 260.0 Canada 4.8 4.8 5.2 Mexico 10.9 10.7 11.1 ---------- --------- -------- Total North America 265.9 272.0 276.3 Asia 21.7 16.9 16.9 Europe 70.4 57.0 54.6 Other 4.7 5.5 4.7 ---------- --------- -------- Total $ 362.7 $ 351.4 $ 352.5 ========== ========= ======== Assets: North America: United States $ 326.1 $ 395.4 $ 405.1 Canada 6.9 5.4 4.9 Mexico 14.2 13.4 16.1 ---------- --------- -------- Total North America 347.2 414.2 426.1 Asia 103.5 57.5 56.6 Europe 172.3 114.4 109.2 Other 10.7 7.1 6.5 ---------- --------- -------- Total $ 633.7 $ 593.2 $ 598.4 ========== ========= ======== Capital Expenditures: North America $ 20.0 $ 24.5 $ 27.4 Asia 2.8 1.9 0.4 Europe 8.7 8.5 2.0 Other 0.4 0.8 0.5 ---------- --------- -------- Total $ 31.9 $ 35.7 $ 30.3 ========== ========= ========
No one customer accounted for more than 10% of the Company's revenues in 1999, 1998 or 1997. F-14 38 NOTE 14: SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and income taxes is set forth below:
YEARS ENDED DECEMBER 31, 1999 1998 1997 ------------------------ -------- -------- ------ Interest $ 14.9 $ 10.7 $ 10.8 Income Taxes $ 8.6 $ 12.8 $ 6.0
NOTE 15: SHAREHOLDERS' EQUITY The Company has various stock-based compensation plans including stock options and an Employee Stock Purchase Plan. On April 25, 1997, the Company's shareholders approved the 1997 Incentive Stock Option Plan under which shares of common stock are reserved for issuance upon the exercise of options to be granted to key employees and directors. On October 28, 1997, the Company's shareholders approved an increase in the number of shares of common stock reserved for issuance under the 1997 Employee Stock Option Plan from 1,875,000 shares to 5,000,000 shares of common stock. In addition, the 1990 Employee Stock Option Plan approved by the Company's shareholders on April 24, 1990 has 1,210,102 shares of common stock, as adjusted for subsequent stock dividends, reserved for issuance upon the exercise of options granted to key employees and directors. The plans provide for issuances in the form of incentive stock options, non-qualified stock options and stock appreciation rights, which may be granted in tandem with non-qualified stock options. The option price per share of incentive stock options cannot be less than 100% of the market value at the date of grant. The option price per share of non-qualified stock options and stock appreciation rights are determined by the Board of Directors at its sole discretion. The options vest over periods of up to four years. Options granted prior to 1994 are for a period of five years, and those granted subsequently are for a period of ten years. The following is a summary of outstanding stock options:
NUMBER OF SHARES (IN MILLIONS) WEIGHTED AVERAGE EXERCISE PRICE ----------------- ------------------------------- 1997 Outstanding at beginning of year 3.1 $ 9.59 Granted 1.8 $ 7.53 IIMAK grants in first quarter (0.1) $ 11.22 Exercised (0.7) $ 5.61 IIMAK exercised in first quarter 0.2 $ 3.33 Canceled/forfeited (0.1) $ 8.19 -------- Outstanding at end of year 4.2 $ 9.79 1998 Granted 1.0 $ 13.41 Exercised (0.7) $ 3.99 Canceled/forfeited -- -- -------- Outstanding at end of year 4.5 $ 11.41 1999 Granted 0.6 $ 9.18 Exercised (0.4) $ 7.07 Canceled/forfeited (1.1) $ 12.60 -------- Outstanding at end of year 3.6 $ 11.22 ========
In connection with the acquisition of Monarch, 1,244,469 stock options were issued, at equivalent intrinsic value, to replace stock options to purchase Monarch common stock. F-15 39 The following table summarizes information about stock options outstanding as of December 31, 1999:
WEIGHTED AVERAGE OPTIONS OUTSTANDING WEIGHTED AVERAGE REMAINING RANGE OF EXERCISE PRICES (IN MILLIONS) EXERCISE PRICE CONTRACTUAL LIFE - ----------------------- ------------------ ------------------ ---------------- Options Outstanding $1.00-$ 6.00 0.5 $ 4.79 3.1 $6.00-$10.00 1.1 $ 8.56 7.4 $10.00-$18.00 2.0 $14.36 6.6 --- 3.6 $11.22 6.4 === Options Exercisable $1.00-$ 6.00 0.5 $ 4.79 $6.00-$10.00 0.5 $ 8.04 $10.00-$18.00 1.3 $14.09 --- 2.3 $10.79 ===
The Company accounts for stock options under Accounting Principles Board Opinion No. 25, pursuant to which no compensation cost has been recognized for the options granted. The following table reflects pro forma net income and earnings per share had the Company elected to adopt the fair value approach of SFAS No.123:
YEARS ENDED DECEMBER 31, 1999 1998 1997 ------------------------ -------- -------- ------ Net income: As reported $ 33.4 $ 33.6 $ 15.8 Pro forma $ 32.5 $ 31.7 $ 14.1 Basic earnings per share: As reported $ 0.72 $ 0.69 $0.33 Pro forma $ 0.70 $ 0.65 $0.29 Diluted earnings per share: As reported $ 0.71 $ 0.68 $0.32 Pro forma $ 0.69 $ 0.64 $0.28
These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years. The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. The following summarizes the assumptions used in the model:
1999 1998 1997 -------- -------- ------ Risk-free interest rate 6.5% 5.0% 6.0% Expected years until exercise 7.0 7.2 7.5 Expected stock volatility 38.1% 35.5% 38.4%
EMPLOYEE STOCK PURCHASE PLAN: The Company maintains an Employee Stock Purchase Plan, which allows employees to purchase a certain amount of stock at a discount of 20% to the market price. The Company may sell up to 818,847 shares under this plan and, as of December 31, 1999, 87,885 shares were available for future purchases. The average fair value of shares sold in 1999 was $8.30. The total number of shares issued under this plan was 213,132, 232,602, and 71,343 in 1999, 1998, and 1997, respectively. Total compensation expense recognized for stock-based compensation for 1999, 1998, and 1997 was $0.4, $0.5, and $0.5, respectively. WARRANTS: As discussed in Note 2, warrants were granted to certain parties in connection with the acquisition of Monarch. Exercise prices of outstanding warrants at December 31, 1999 were as follows:
1999 ---- Warrants outstanding 1,500,000 Warrants exercisable 1,500,000 Exercise price of exercisable warrants $14.00 and $17.50
F-16 40 LOANS TO OFFICERS: During 1997, IIMAK made loans to certain officers for the purpose of exercising options and paying the related income tax liability. Such loans were repaid through the surrender of Company stock. The following analyzes the activity in relation to these loans:
1997 ----- Loans made in connection with exercise of stock options $ 0.8 Loans made in connection with income tax liabilities $ 0.8 Surrender of shares to repay loans $ 2.3
No loans from officers were outstanding at December 31, 1999 and 1998 for the purpose of exercising options. TREASURY STOCK: 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. As of December 31, 1998, the Company had repurchased 1,434,400 shares at an average price of $9.10. On February 12, 1999, the Company announced it had increased the stock repurchase plan from the initial $25 to $40. During the quarter ended September 30, 1999, the Company canceled the treasury stock purchased under the stock repurchase plan. Since July 30, 1998, the Company repurchased 3,265,100 shares at an average price of $8.86 per share. NOTE 16: EARNINGS PER COMMON SHARE The reconciliation of basic and diluted per-share computation is as follows:
YEARS ENDED DECEMBER 31, 1999 1998 1997 - ------------------------ -------- -------- ------- Average common shares (basic) 46.7 48.4 48.1 Options and warrants 0.5 1.0 1.6 ------- ------ ------- Adjusted average common shares (diluted) 47.2 49.4 49.7 ======= ====== =======
NOTE 17: COMMITMENTS AND CONTINGENT LIABILITIES A manufacturing facility in Sayre, Pennsylvania, owned beneficially by principal shareholders of the Company, was leased at an annual rental of $0.1 through 1999. Total rental expense for all operating leases amounted to $6.4 in 1999, $7.3 in 1998, and $6.7 in 1997. Minimum rental commitments for all non-cancelable operating leases for the years 2000-2004 are $5.9, $4.5, $3.3, $2.5 and $2.1, respectively. The minimum total rental commitment for all years subsequent to 2004 is $6.4. The Company accrues severance expense for employees of its Italian subsidiaries, as required by Italian statute, and these amounts are included in other liabilities in the accompanying consolidated financial statements. The Company has been named a potentially responsible party relating to contamination that occurred at certain superfund sites. Management does not expect the ultimate outcome of settling these contingencies to be material. In the ordinary course of business, the Company and its subsidiaries are involved in certain disputes and litigation, none of which will, in the opinion of management, have a material adverse effect on the Company's financial position or results of operations. F-17 41 NOTE 18: SUBSEQUENT EVENT IIMAK: In February 2000, the Company announced it had entered into an agreement to sell 92.5% of its International Imaging Materials, Inc. (IIMAK) subsidiary for a total consideration of $127.5, which includes $120 in cash and $7.5 of IIMAK preferred stock. The transaction was closed and payment received on March 9, 2000. As part of the agreement, the Company has entered into a Supply Contract with IIMAK, whereby the Company will purchase substantially all of its thermal transfer ribbon supplies from IIMAK for a three-year term, with one-year extensions, unless terminated by either party. The operating results of IIMAK are included in the accompanying consolidated statements of income and in Note 13 as the "Thermal Transfer Ribbons" business segment. The following unaudited proforma results of operations set forth the IIMAK operations separately from the consolidated results:
YEAR ENDED DECEMBER 31, 1999 PAXAR IIMAK CONSOLIDATED - ----------------------------- ----- ----- ------------ Sales $ 581.0 $ 80.8 $ 661.8 -------- ------- --------- Income before extraordinary item $ 25.4 $ 8.0 $ 33.4 -------- ------- --------- Net income $ 25.4 $ 8.0 $ 33.4 -------- ------- --------- Basic earnings per common share: Before extraordinary item $ 0.55 $ 0.17 $ 0.72 Extraordinary item - - - -------- ------- ------- Net income $ 0.55 $ 0.17 $ 0.72 ======== ======= ======= Diluted earnings per common share: Before extraordinary item $ 0.54 $ 0.17 $ 0.71 Extraordinary item - - - -------- ------- ------- Net income $ 0.54 $ 0.17 $ 0.71 ======== ======= =======
NOTE 19: CONDENSED QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER ------------- -------------- ------------- -------------- 1999 Sales $ 154.2 $ 167.6 $ 166.6 $ 173.4 Operating income 9.0 18.0 18.7 18.3 Net income 3.4 9.2 9.8 11.0 Basic earnings per common share: Net income 0.07 0.20 0.21 0.24 Diluted earnings per common share: Net income 0.07 0.20 0.21 0.24 1998 Sales $ 149.4 $ 156.9 $ 153.8 $ 151.5 Operating income 14.6 17.1 16.7 14.2 Net income 7.3 7.2 11.0 8.1 Basic earnings per common share: Net income 0.15 0.15 0.23 0.17 Diluted earnings per common share: Net income 0.15 0.14 0.22 0.17
F-18 42 PAXAR CORPORATION AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN MILLIONS)
ADDITIONS CHARGED BALANCE AT TO COSTS BEGINNING OF AND BALANCE AT DESCRIPTION YEAR EXPENSES OTHER(1) DEDUCTIONS(2) END OF YEAR - ----------- ---------------- ------------ ----------- ----------------- -------------- Year ended December 31, 1999 Allowance for doubtful Accounts..................... $ 5.0 $ 4.7 $ 0.8 $ 2.2 $ 8.3 Year ended December 31, 1998 Allowance for doubtful Accounts.................. $ 4.4 $ 1.8 -- $ 1.2 $ 5.0 Year ended December 31, 1997 Allowance for doubtful Accounts.................. $ 1.0 $ 0.9 $ 3.7 $ 1.2 $ 4.4
- ---------- (1) Allowance related to acquisition. (2) Write-off of uncollectible accounts, net of recoveries and other. F-19 43 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Paxar Corporation By: /s/ JACK PLAXE ------------------------------------------------- Jack Plaxe Senior Vice President and Chief Financial Officer Dated: March 30, 2000 22 44 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. By: /s/ ARTHUR HERSHAFT By: /s/ Jack Plaxe --------------------------------- ------------------------ Arthur Hershaft Jack Plaxe Chairman of the Board of Directors Senior Vice President and Chief Executive Officer Chief Financial Officer (Principal Executive Officer) (Principal Financial Officer) Dated: March 30, 2000 Dated: March 30, 2000 By: /s/ VICTOR HERSHAFT --------------------------------- Victor Hershaft Vice Chairman Director Dated: March 30, 2000 By: /s/ JACK BECKER --------------------------------- Jack Becker Director Dated: March 30, 2000 By: /s/ LEO BENATAR --------------------------------- Leo Benatar Director Dated: March 30, 2000 By: /s/ THOMAS R. LOEMKER --------------------------------- Thomas R. Loemker Director Dated: March 30, 2000 By: /s/ JAMES C. MCGRODDY --------------------------------- James C. McGroddy Director Dated: March 30, 2000 By: /s/ DAVID E. MCKINNEY --------------------------------- David E. McKinney Director Dated: March 30, 2000 By: /s/ WALTER W. WILLIAMS --------------------------------- Walter W. Williams Director Dated: March 30, 2000 23 45 EXHIBIT INDEX
3.1 Amended and Restated Certificate of Incorporation. (G) 3.2 Amendment to Amended and Restated Certificate of Incorporation. (M) 3.3 By-Laws (A) 4.1 Warrant Agreement for "A" Warrants between the Registrant and Odyssey Partners, L.P. dated March 3, 1997. (J) 4.2 Odyssey Partners, L.P. Certificate for 1,000,000 Warrants dated March 3, 1997. (J) 4.3 Warrant Agreement for "B" Warrants between the Registrant and Odyssey Partners, L.P. dated March 3, 1997. (J) 4.4 Odyssey Partners, L.P. Certificate for 200,000 Warrants dated March 3, 1997. (J) 10.2 Employment Agreement, dated as of December 16, 1986, between Registrant and Arthur Hershaft. (C) 10.3 Employment Agreement, dated February 13, 1989, between Registrant and Victor Hershaft. (D) 10.4 Amendment dated as of October 1, 1998 to the Employment Agreement, dated as of February 13, 1989 between Registrant and Victor Hershaft. (Q) 10.5 Employment Agreement dated as of February 28, 2000 between Registrant and Paul J. Griswold. 10.6 Change of Control Employment Agreement dated as of April 20, 1999, between the Registrant and Jack Plaxe. (R) 10.7 Registrant's 1990 Employee Stock Option Plan. (F) 10.8 Registrant's 1997 Incentive Stock Option Plan. (N) 10.9 Registrant's 2000 Long-Term Performance and IncentivePlan. (T) 10.10 Deferred Compensation Plan for Directors. (O) 10.11 Omnibus Purchase and Sale Agreement dated June 6, 1995 by and between Pitney Bowes Inc., Monarch Marking Systems, Inc., Pitney Bowes Marking Systems Ltd., Pitney Bowes International Holdings Inc., Pitney Bowes France S.A. and Monarch Acquisition Corp. (H) 10.12 Stock Purchase Agreement dated as of December 20, 1996 between the Registrant and Odyssey Partners, L.P. (I) 10.13 Amendment No. 1 to Stock Purchase Agreement dated as of March 3, 1997 between the Registrant and Odyssey Partners, L.P. (I) 10.14 Agreement and Plan of Merger dated as of March 3, 1997 by and among the Registrant, Monarch Holdings, Inc., Thomas Loemker and John W. Paxton. (J) 10.15 Registration Rights Agreement dated as of March 3, 1997 between the Registrant and Odyssey Partners, L.P. (J) 10.16 Credit Agreement dated March 3, 1997. (K) 10.17 Agreement and Plan of Merger dated as of July 15, 1997, among the Registrant, Ribbon Manufacturing, Inc., and International Imaging Materials, Inc. (L) 10.18 Amended and Restated Credit Agreement dated as of August 11, 1998.(P) 10.19 Note Purchase Agreement dated as of August 4, 1998.(P) 10.20 Uncommitted Credit Facility (R) 10.21 Omitted Exhibit to Uncommitted Credit Facility (R) 10.22 Promissory Note from Registrant to Centric Capital Corporation (R) 10.23 Agreement, dated as of February 8, 2000, among the Registrant, Paxar Capital Corporation, Internatioanal Imaging Material, Inc., Center Capital Investors III, L.P. and Related Partnerships. (S) 10.24 Amendment No. 1, dated March 9, 2000 to the Stock Purchse Agreement, dated as of February 8, 2000, among the Registrant, Paxar Capital Corporation, International Imaging Materials, Inc., Centre Capital Investors III, L.P. and related partnerships. (S) 21.1 Subsidiaries of Registrant. 23.1 Consent of Arthur Andersen LLP. 27.1 Financial Data Schedule
- ---------- (A) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1980. (B) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1985. (C) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987. (D) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988. (E) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989. 24 46 (F) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. (G) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. (H) Incorporated herein by reference from Exhibits to Registrant's Current Report on Form 8-K dated June 29, 1995. (I) Incorporated herein by reference from Exhibits to Registrant's Current Report on Form 8-K dated December 20, 1996. (J) Incorporated herein by reference from Exhibits to Registrant's Current Report on Form 8-K dated March 3, 1997. (K) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. (L) Incorporated herein by reference from Exhibits to Registrant's Current Report on Form 8-K dated July 15, 1997. (M) Incorporated herein by reference from Annex D to the Joint Proxy Statement/Prospectus included in the Registrant's Registration Statement on Form S-4 (File No. 333-36283), filed on September 24, 1997. (N) Incorporated herein by reference from Exhibits to the Registrant's Registration Statement on Form S-8 (File No. 333-38923), filed on October 28, 1997. (O) Incorporated herein by reference from Annex A to Registrant's preliminary proxy statement dated March 31, 1998. (P) Incorporated herein by reference from Exhibits to Registrant's Form 8-K filed on August 26, 1998. (Q) Incorporated herein by reference from Exhibits to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. (R) Incorporated herein by reference from Exhibits to Registrant's Form 10-Q filed on August 11, 1999. (S) Incorporated herein by reference from Exhibits to Registrant's Form 8-K dated March 9, 2000. (T) Incorporated herein by reference from Appendix B and C to Registrant's definitive proxy statement dated March 31, 2000. 25 EX-10.5 2 EMPLOYMENT AGREEMENT WITH GRISWOLD 1 EXHIBIT 10.5 EMPLOYMENT AGREEMENT Paxar Corporation, 105 Corporate Park Drive, White Plains, New York 10604 (the "Company"), and Paul J. Griswold, 11 Pembroke Drive, Lake Forest, Illinois, 60045 (the "Executive") hereby agree to enter into this EMPLOYMENT AGREEMENT (the "Agreement") as of the 28th day of February 2000. 1. EMPLOYMENT. The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed by the Company upon the terms and subject to the conditions set forth in this Agreement. 2. TERM OF EMPLOYMENT. The period of Executive's employment under this Agreement shall begin as of February 28, 2000 and shall continue until terminated in accordance with Section 5 below (the "Employment Term"). 3. DUTIES AND RESPONSIBILITIES. (a) The Company will employ Executive as its Chief Operating Officer. In such capacity, Executive shall perform the customary duties and have the customary responsibilities of such positions, as enumerated in Attachment A to this Agreement, and shall perform such other duties as may be assigned to Executive from time to time by the Company's Board of Directors and its Chief Executive Officer. (b) Executive agrees to faithfully serve the Company, devote his full working time, attention and energies to the business of the Company, its subsidiaries and affiliated entities, and perform the duties under this Agreement to the best of his abilities, in compliance with all applicable laws, rules and regulations; as well as the Company's rules, procedures, policies, requirements, and directions. (c) The Company and Executive agree that Executive is expected to become Chief Executive Officer of the Company in not longer than 18 months from the commencement of the Employment Term. That date may be accelerated upon the recommendation of the Company's present Chief Executive Officer and approval by its Board of Directors. 26 2 (d) Executive shall be nominated to the Company's Board of Directors and serve as a Director when elected, and when subsequently nominated and elected to successive terms, during the Employment Term. 4. COMPENSATION AND BENEFITS. (a) BASE SALARY. During the Employment Term, the Company shall pay Executive a base salary at the annual rate of $450,000.00 per year or such higher rate as may be determined from time to time by the Company ("Base Salary"). Such Base Salary shall be paid in accordance with the Company's standard payroll practice for senior executives. (d) INCENTIVE COMPENSATION AND STOCK AWARDS. Executive's initial incentive and stock compensation shall be as set forth in Attachment B to this Agreement. (c) BENEFITS APPLICABLE TO COMMENCEMENT OF EMPLOYMENT. Executive shall also receive those benefits listed in Attachment C to this Agreement in recognition of his resigning his present employment and becoming an employee of the Company. (d) BENEFIT PLANS, FRINGE BENEFITS AND VACATIONS. In addition to Executive's benefits set forth in Attachments B&C, Executive shall be eligible to participate in or receive benefits under, all savings, deferred compensation, health, insurance, disability and similar plans made available to the Company's other executives and employees, in accordance with the eligibility requirements of such plans. (e) EXPENSE REIMBURSEMENT. The Company shall advance or promptly reimburse Executive for the ordinary and necessary business expenses incurred by Executive in the performance of the duties under this Agreement in accordance with the Company's customary practices applicable to senior executives, provided that such expenses are incurred and accounted for in accordance with the Company's policy. 5. TERMINATION OF EMPLOYMENT. Upon termination of Executive's employment under this Agreement under any of the circumstances set forth in this Section 5, Executive (beneficiary or estate) shall be entitled to receive the compensation and benefits described in Section 6, below. (a) DEATH OR TOTAL DISABILITY. Executive's employment shall terminate upon Executive's death or upon Executive's becoming "Totally Disabled." For purposes of this Agreement, Executive shall be Totally Disabled if, in the opinion of the Board of Directors of the Company, based upon appropriate medical evidence, Executive is physically or mentally incapable of performing his usual and customary duties under this Agreement. 27 3 (b) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate Executive's employment for "Cause." Such termination shall be effective as of the date specified in the written Notice of Termination provided to Executive. For purposes of this Agreement: (i) Cause shall mean any of the following: (A) conviction of a crime (including a nolo contendere plea) involving the commission by Executive of a felony or any other criminal act involving fraud, dishonesty, or moral turpitude but excluding any conviction that results solely from Executive's title or position with the Company and is not based on personal conduct; (B) deliberate and continual refusal to perform employment duties reasonably requested by the Company after 30 days written notice by certified mail of such failure to perform; (C) gross misconduct or gross negligence in connection with the business of the Company; or (D) breach of any of the covenants set forth in Section 7 hereof. (ii) Any determination of Cause under this Agreement shall be made by resolution adopted by unanimous vote of the Board of Directors at a meeting called and held for that purpose. Executive shall be provided with reasonable notice of such meeting and Executive shall be given opportunity to be heard before such vote is taken by the Board. (c) TERMINATION BY THE EXECUTIVE FOR CAUSE. (i) If after a Change in Control as set forth in the policy adopted by the Company's Board of Directors on August 12, 1998, or any subsequent Change of Control policy adopted by the Board, if Executive has "good reason," Executive has Cause to terminate employment and receive benefits under the policy then in effect upon giving written Notice of Termination to the Company. (ii) If Executive does not become the Company's Chief Executive Officer within 18 months from the beginning of the Employment Term, Executive has Cause to, and may, terminate employment upon giving written Notice of Termination to the Company. (d) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate Executive's employment under this Agreement "Without Cause" after providing Notice of Termination to Executive. (e) TERMINATION BY EXECUTIVE WITHOUT CAUSE. Executive may terminate his employment under this Agreement "Without Cause" after providing Notice of Termination to the Company. 6. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT. (a) In the event that Executive's employment is terminated by Death; by the Company by reason of Total Disability as determined in accordance with Section 5(a); with Cause pursuant to Section 5(b); or by the Executive voluntarily pursuant to Section 5(e), the Company shall continue to pay Executive the compensation and benefits set forth in Section 4 that would have been payable to him if he had continued to perform his normal duties and responsibilities on a full-time basis until the end of the month in which such termination occurs; plus any accrued but unpaid base salary, expenses, and vacation. In any such event of termination under this Section 6 (a), Executive shall not be entitled to separation pay benefits under the Company's applicable plans and policies, but will be entitled benefits, if any, under the plans, policies and arrangements referred to in Section 4 (d), determined and paid in accordance with the terms of such plans, policies and arrangements. 28 4 (b) In the event that Executive's employment is terminated by the Executive pursuant to Section 5(c) (i) or (c) (ii), or by the Company pursuant to Section 5 (d), and Executive executes a Separation Agreement and Release on or after the Termination Date, the Company shall: (i) Pay Executive an amount that equals the amount to which he would have been entitled under the Change in Control practices approved by the Company's Board on August 12, 1998, or as subsequently superseded and approved by the Board, had a Change in Control occurred and payment been triggered, but in no event shall the amount be less than 2.99 Executive's then current Base Salary plus 2.99 times the average of the last three years' bonus awards (prorated for less than three years of service), and (ii) Provide continued coverage under all Company health insurance plans pursuant to the then current change in control policy, to be offset by any other primary coverage subsequently available to Executive from a successor employer. 7. RESTRICTIVE COVENANTS. (a) PROTECTED INFORMATION. Executive recognizes and acknowledges that, as the Company's Chief Operating Officer, Executive will have access to various confidential or proprietary information concerning the Company. Therefore, Executive covenants and agrees while employed by the Company or afterwards, not to knowingly make any independent use of, or knowingly disclose to any other person or organization (except as authorized by the Company) any of the Protected Information. (b) COMPETITIVE ACTIVITY. Executive agrees that at all times while employed by the Company and for one year after the date of termination of employment (whether such termination is voluntary or involuntary, or otherwise) or after cessation of payments under Section 6, if any, whichever is later, Executive will not directly or indirectly: (i) Engage in, assist, or have any active interest or involvement whether as an employee, agent, consultant, creditor, advisor, officer, director, stockholder (excluding holding of less than 1% of the stock of a public company), partner, proprietor or any type of principal whatsoever in any person, firm, or business entity which, directly or indirectly, is engaged in the same business as that conducted and carried on by the Company, without the Company's specific written consent to do so, which consent will not be unreasonably withheld; (ii) Recruit, solicit, hire, or cause to be hired, any individual who is then, or who has been within the preceding 90 days, an employee of the Company; (iii) Disparage, or make any remarks that would tend to or be construed to tend to defame the Company, any of its employees, or members of its Board. (c) Executive shall promptly deliver to the Company upon termination of employment, or at any other time as the Company may so request, all lists of customers, leads and customer pricing, data processing programs and documentation, employee information, memoranda, notes, records, reports, tapes, manuals, drawings, blueprints, programs, and any other documents and other materials (and all copies thereof) relating to the Company's business or that of its customers, and all property associated therewith, which Executive may then possess or which may then be under the Executive's control. 29 5 (d) Executive acknowledges that a breach of the covenants set forth in this Section 7 above will cause irreparable damage to the Company with respect to which the Company's remedy at law for damages will be inadequate. Therefore, in the event of breach or anticipatory breach of the covenants set forth in this section by Executive, Executive and the Company agree that the Company shall be entitled to the following particular forms of relief, in addition to remedies otherwise available to it at law or equity: (i) injunctions, both preliminary and permanent, enjoining or retraining such breach or anticipatory breach and Executive hereby consents to the issuance thereof forthwith and without bond by any court of competent jurisdiction; and (ii) recovery of all reasonable sums expended and costs, including reasonable attorney's fees, incurred by the Company to enforce the covenants set forth in this Section 7. (e) In the event a court shall hold unenforceable any of the separate covenants deemed included herein, then such unenforceable covenant or covenants shall be deemed eliminated from the provisions of this Agreement for the purpose of such proceeding to the extent necessary to permit the remaining separate covenants to be enforced in such proceeding. 8. WITHHOLDING OF TAXES. The Company shall withhold from any compensation and benefits payable under this Agreement and the Attachments hereto all applicable federal, state, local, or other taxes. 9. ARBITRATION OF DISPUTES AND WAIVER OF JURY TRIAL. Except as provided in Section 7, above, any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its National Rules for the Resolution of Employment Disputes and judgment upon the award rendered by the arbitrator(s) may be entered by any court having jurisdiction thereof. Any such arbitration shall take place in the State of New York, County of Westchester. In the event any controversy or claim arising out of Executive's employment or the termination of Executive's employment is found by a court of competent jurisdiction not to be subject to final and binding arbitration, Executive and the Company agree to try such claim or controversy to the Court, without use of a jury or advisory jury. 10. ENTIRE AGREEMENT; AMENDMENT; GOVERNING LAW. This Agreement shall supersede any and all existing oral or written agreements, between Executive and the Company relating to the terms of Executive's employment and may be amended only by a written agreement signed by both parties. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 11. NOTICES. Any notice, or other communication, including a Notice of Termination, made or given in connection with this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by registered or certified mail, return receipt requested, or by facsimile or by hand delivery, to those listed below at their following respective addresses or at such other address as each may specify by notice to the others: 30 6 To the Company: Paxar Corporation 105 Corporate Park Drive White Plains, New York 10604 Attention: General Counsel To Executive: Mr. Paul J. Griswold 11 Pembroke Drive Lake Forest, Illinois 60045 The terms of this Agreement are hereby accepted and agreed to for: PAXAR CORPORATION EXECUTIVE By: /s/ Arthur Hershaft By: /s/ Paul J. Giswold ------------------ ----------------------- Arthur Hershaft Paul J. Griswold Title: Chairman & Chief Executive Officer Date: February 17, 2000 ----------------- Date: February 7, 2000 ---------------- 31 7 ATTACHMENT A As Chief Operating Officer, the Executive, working in conjunction with the Chief Executive Officer, will design, implement and execute a market-driven strategy that will emphasize revenue and profit growth. The Chief Operating Officer will be responsible for the Company's Sales, Manufacturing, Technology, Marketing, Administration, and Finance functions, with all line and staff organizations heads reporting to the Executive. In selected situations mutually agreed to by the Chief Executive Officer and Chief Operating Officer, some staff heads may report to both of them. 32 8 ATTACHMENT B Incentive Compensation and Stock Awards 1. Target Incentive is 65% of Base Salary, guaranteed at $292,500.00 for 2000, prorated on months of service. 2. 300,000 stock options granted effective the first day of employment. 3. A long-term incentive of 75% of Base Salary, payable in Stock Options, Performance Shares, and/or other types of stock awards. 4. A grant of 50,000 restricted shares, 16,335 of which vest on the first and second anniversaries of the first day of employment and the remainder on the third anniversary. 5. Change in Control provisions as now in effect for the COO as authorized by the Company's Board of Directors at its August 12, 1998 meeting. Note:Awards pursuant to Items 3 and 4 above are subject to adoption by stockholders at the Company's May 4, 2000 Annual Meeting of the proposed Paxar Long-Term Performance and Incentive Plan. If not adopted, equivalent incentives, as authorized by the Company's Compensation Committee, will be provided. 33 9 ATTACHMENT C 1. $1,350,000 of term life insurance, payable to your designated beneficiary or an amount of coverage equal to three times the current Base Salary, whichever is greater. 2. An annual income of $150,000 per year for 10 years, starting at age 65, provided you are employed by the Company for a minimum of five years. 3. A sign on bonus of $200,000, payable in a lump sum within 10 days after your first day of employment. 4. A car allowance of $700.00 per month. 34 EX-21.1 3 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 PAXAR CORPORATION SUBSIDIARIES
COMPANY JURISDICTION OF ORGANIZATION ------- -------------------------------- Paxar International, Inc........................................... U. S. Virgin Islands Paxar Capital Corporation.......................................... New York Paxar do Brasil, Ltda.............................................. Brazil Paxar U.K. Ltd..................................................... United Kingdom Paxar Iberia S.A................................................... Spain Paxa Italia S.r.l.................................................. Italy Paxar Deutschland, GmbH............................................ Germany Paxar Polska Sp.zo.o............................................... Poland Paxar Far East Ltd................................................. Hong Kong Paxar (Singapore) Pte. Ltd......................................... Singapore Paxar de Colombia.................................................. Colombia T.I.E. S.r.l....................................................... Italy Astria S.r.l....................................................... Italy Collitex S.R.l. ................................................... Italy Orvac S.r.l........................................................ Italy Orvac Sud S.r.l.................................................... Italy Paxar Benelux BvbA................................................. Belgium Paxar B.V.......................................................... Netherlands Paxar Graphics Limited............................................. United Kingdom Monarch Marking Systems, Inc....................................... Delaware Paxar International Holdings, Inc.................................. Delaware Monarch Marking Systems (S.E.A.) Pte. Ltd. (Singapore)............. Singapore Paxar France, S.A.................................................. France Monarch Marking Systems Deutschland Gmbh........................... Germany Paxar Canada, Inc.................................................. Canada Paxar Australia Pty. Limited....................................... Australia Paxar de Mexico S.A. de C.V........................................ Mexico Monarch Marking Systems Holdings Limited........................... United Kingdom Paxar Holdings France, S.A......................................... France Monarch Marking Systems Malaysia SDN BHD........................... Malaysia Teslo Tekstil Urunleri Sanayii ve Ticaret A.S...................... Turkey Edmond Printing (PANYU) Limited.................................... China Ferguson Asia Limited.............................................. Hong Kong Paxar Lanka (Private) Limited...................................... Sri Lanka Paxar Honduras S.A. ............................................... Honduras Paxar Dominicana S.A. ............................................. Dominican Republic Paxar New Zealand Ltd. ............................................ New Zealand
35 EX-23.1 4 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report, dated February 8, 2000, on the consolidated financial statements and schedule of Paxar Corporation included in this Form 10-K, into the Company's previously filed Registration Statements File Nos. 33-42685, 33-44299 and 333-38923. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Stamford, Connecticut March 30, 2000 36 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1999 DEC-31-1999 23,900 8,300 121,100 0 92,400 263,300 344,900 139,600 633,700 157,900 0 0 0 4,700 284,400 633,700 661,800 661,800 407,200 407,200 0 0 14,200 49,800 16,400 33,400 0 0 0 33,400 0 0.71
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