10-Q 1 e10-q.txt PAXAR CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ____________ to _____________ COMMISSION FILE NUMBER 0-5610 PAXAR CORPORATION (Exact name of registrant as specified in its charter) NEW YORK 13-5670050 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 105 CORPORATE PARK DRIVE, WHITE PLAINS, N.Y. 10604 (Address of principal executive offices) (914) 697-6800 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. (August 3, 2000) Common Stock, $0.10 par value: 43,903,101 shares 2 PART I. FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS The financial statements included herein have been prepared by Paxar Corporation (the "Company"), without audit pursuant to the rules and regulations of the Securities and Exchange Commission. While certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, the Company believes that the disclosures made herein are adequate to make the information presented not misleading. It is recommended that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. In the opinion of the Company, all adjustments, consisting only of normal recurring accruals and adjustments necessary to present fairly the financial information contained herein, have been included. 2 3 PAXAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Sales $ 167.7 $ 167.6 $ 327.9 $ 321.8 Cost of sales 103.0 102.3 202.1 198.3 -------- -------- -------- -------- Gross profit 64.7 65.3 125.8 123.5 Selling, general and administrative expense 46.6 44.1 91.1 88.5 Amortization of intangibles 1.5 1.5 2.8 3.0 Restructuring and other special charges -- 1.7 -- 5.0 -------- -------- -------- -------- Operating income 16.6 18.0 31.9 27.0 Gain on sale of IIMAK -- -- 50.3 -- Interest expense, net 2.0 3.8 4.9 7.5 -------- -------- -------- -------- Income before taxes 14.6 14.2 77.3 19.5 Taxes on income 4.8 5.0 18.9 6.9 -------- -------- -------- -------- Net income $ 9.8 $ 9.2 $ 58.4 $ 12.6 ======== ======== ======== ======== Average common shares outstanding: Basic 45.4 46.5 46.0 47.1 ======== ======== ======== ======== Diluted 45.9 46.9 46.5 47.4 ======== ======== ======== ======== Basic earnings per common share $ 0.22 $ 0.20 $ 1.27 $ 0.27 ======== ======== ======== ======== Diluted earnings per common share $ 0.21 $ 0.20 $ 1.26 $ 0.27 ======== ======== ======== ========
See Notes to Consolidated Financial Statements 3 4 PAXAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN MILLIONS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 43.7 $ 32.2 Receivables, less allowances of $7.8 in 2000 and $8.3 in 1999 122.4 121.1 Inventories 79.0 80.6 Other current assets 12.7 17.6 ------ ------ Total current assets 257.8 251.5 Property, plant and equipment, at cost 245.4 344.9 Accumulated depreciation (103.7) (139.6) ------ ------ Net property, plant and equipment 141.7 205.3 Goodwill 187.6 157.4 Other assets 24.6 7.7 ------ ------ $611.7 $621.9 ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Due to banks $ 2.0 $ 45.0 Current maturities of long-term debt 0.1 0.3 Accounts payable and accrued liabilities 97.2 104.2 Accrued taxes on income 24.8 8.4 ------ ------ Total current liabilities 124.1 157.9 Long-term debt 166.9 163.4 Deferred income taxes 3.0 14.1 Other liabilities 7.0 4.6 Shareholders' equity: Preferred Stock, $0.01 par value, 5,000,000 shares authorized, none issued and outstanding -- -- Common Stock, $0.10 par value, 200,000,000 shares authorized, 44,267,629 and 46,756,610 shares issued and outstanding in 2000 and 1999, respectively 4.4 4.7 Paid-in capital 67.6 93.2 Retained earnings 252.7 194.3 Accumulated other comprehensive loss (14.0) (10.3) ------ ------ Total shareholders' equity 310.7 281.9 ------ ------ $611.7 $621.9 ====== ======
See Notes to Consolidated Financial Statements 4 5 PAXAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS) UNAUDITED
SIX MONTHS ENDED ---------------- JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- OPERATING ACTIVITIES: Net income $ 58.4 $ 12.6 ------ ------ Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 15.9 18.1 Deferred income taxes (0.9) (0.3) Gain on sale of IIMAK, net of tax (40.3) -- Changes in assets and liabilities, net of businesses acquired or divested: Receivables (2.2) (7.3) Inventories (0.9) 10.0 Other current assets 2.1 (0.3) Accounts payable and accrued liabilities (12.1) (4.3) Taxes on income 5.3 0.5 Other 0.4 (0.3) ------ ------ (32.7) 16.1 ------ ------ Net cash provided by operating activities 25.7 28.7 ------ ------ INVESTING ACTIVITIES: Purchases of property, plant and equipment (11.6) (12.5) Acquisitions, net of cash acquired (54.8) (20.5) Proceeds from sale of business 120.0 -- Other 2.0 0.3 ------ ------ Net cash provided by/(used in) investing activities 55.6 (32.7) ------ ------ FINANCING ACTIVITIES: (Decrease)/increase in short-term debt (43.2) 50.7 Additions to long-term debt 23.5 285.6 Reductions in long-term debt (23.6) (309.0) Purchase of common stock (26.9) (15.9) Exercise of stock options/Stock Purchase Plan 1.1 3.3 ------ ------ Net cash (used in)/ provided by financing activities (69.1) 14.7 ------ ------ OTHER ACTIVITIES: Effect of exchange rate changes on cash (0.7) (1.0) ------ ------ Increase in cash 11.5 9.7 Cash and cash equivalents at beginning of year 32.2 19.2 ------ ------ Cash and cash equivalents at end of period $ 43.7 $ 28.9 ====== ======
See Notes to Consolidated Financial Statements 5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA) NOTE 1: GENERAL The accounting policies followed during interim periods are in conformity with generally accepted accounting principles and are consistent with those applied for annual periods as described in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Other than Balance Sheet amounts as of December 31, 1999, all amounts contained herein are unaudited. Reclassifications: Certain reclassifications have been made to prior year amounts to conform to the current year presentation. NOTE 2: CHANGE IN ACCOUNTING FOR INVENTORIES FROM LIFO TO FIFO During 2000, the Company changed its method of determining the cost of inventory for the Monarch U.S. business unit from LIFO to FIFO. The Company believes the FIFO method results in a closer matching of costs and revenue during periods of declining prices and it is the primary method used in the industry in which Monarch operates. This change has been applied by retroactively restating the accompanying consolidated financial statements. Although this change in method did not impact the 2000 or 1999 net income, the retained earnings balances for the periods ended June 30, 2000 and December 31, 1999 have been decreased by $7.2 to reflect the retroactive application of the new method of valuing inventories. NOTE 3: ACQUISITIONS On May 18, 2000, the Company acquired the Bornemann & Bick ("B&B") group of companies for approximately $54.8. The B&B companies manufacture apparel identification products. The acquisition has been accounted for as a purchase with assets and liabilities assumed recorded at their estimated fair values at the date of acquisition. The $32.1 excess of the purchase price and transaction costs over the fair value of net assets acquired was recorded as goodwill and is being amortized over 25 years. The fair value of assets acquired and liabilities assumed is as follows: Current assets $26.3 Property, plant and equipment 9.8 Other assets 3.4 Goodwill 32.1 Liabilities (16.8) ----- Net assets $54.8 =====
On February 2, 1999, the Company acquired the apparel identification business of Ferguson International PLC ("Ferguson") for approximately $20.5. The acquisition has been accounted for as a purchase with assets and liabilities assumed recorded at their estimated fair values at the date of acquisition. The $5.4 excess of the purchase price and transaction costs over the fair value of net assets acquired was recorded as goodwill and is being amortized over 20 years. The fair value of assets acquired and liabilities assumed is as follows: Current assets $15.1 Property, plant and equipment 13.5 Goodwill 5.4 Current liabilities (13.5) ----- Net assets $20.5 =====
6 7 NOTE 4: DIVESTITURE On March 9, 2000, the Company sold 92.5% of its International Imaging Materials, Inc. (IIMAK) subsidiary for a total consideration of $127.5, which included $120 in cash and $7.5 of IIMAK preferred stock. 7 8 NOTE 5: INVENTORIES The components of inventories are set forth below:
JUNE 30, 2000 DECEMBER 31, 1999 ------------- ----------------- Raw materials $30.9 $30.8 Work-in-Process 9.7 15.9 Finished goods 38.4 33.9 ----- ----- $79.0 $80.6 ===== =====
NOTE 6: DUE TO BANKS A summary of amounts due to banks is set forth below:
JUNE 30, 2000 DECEMBER 31, 1999 ------------- ----------------- Bank overdrafts $ 2.0 $ -- Uncommitted Credit -- 45.0 ----- ----- Facility (a) $ 2.0 $45.0 ===== =====
(a) On March 12, 1999, the Company entered into an agreement with a bank for an uncommitted facility permitting the Company to borrow up to $50.0 at negotiated interest rates for defined periods on an unsecured basis. The agreement requires the Company to have availability under its revolving credit agreement equal to the amount borrowed under this facility. There was $45.0 outstanding at December 31, 1999, at an interest rate of 7.23%. NOTE 7: LONG TERM DEBT A summary of long-term debt is set forth below:
JUNE 30, 2000 DECEMBER 31, 1999 ------------- ----------------- 6.74% Senior Notes $150.0 $150.0 Economic Development Revenue Bonds due 2011 and 2019 13.0 13.0 Other 4.0 0.7 ------ ------ 167.0 163.7 Less current maturities 0.1 0.3 ------ ------ $166.9 $163.4 ====== ======
NOTE 8: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES A summary of accounts payable and accrued liabilities is set forth below:
JUNE 30, 2000 DECEMBER 31, 1999 ------------- ----------------- Accounts payable $38.4 $45.1 Accrued payroll costs 16.8 17.9 Other accrued liabilities 42.0 41.2 ----- ------ $97.2 $104.2 ===== ======
NOTE 9: SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and income taxes is set forth below:
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 ---- ---- Interest $4.9 $8.0 Income Taxes $3.7 $0.4
8 9 NOTE 10: COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, effective in 1998, requires the disclosure of comprehensive income to reflect changes in equity that result from transactions and economic events from non-owner sources. Comprehensive income for the periods presented below includes foreign currency translation items. There was no tax expense or tax benefit associated with the foreign currency translation items.
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 ---- ---- Net income $58.4 $12.6 Foreign currency translation adjustments (3.7) (6.5) ----- ----- Comprehensive income $54.7 $ 6.1 ===== =====
NOTE 11: EARNINGS PER COMMON SHARE The reconciliation of basic and diluted per-share computation is as follows:
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 ---- ---- Average common shares (basic) 46.0 47.1 Options and warrants 0.5 0.3 ---- ---- Adjusted average common shares (diluted) 46.5 47.4 ==== ====
NOTE 12: BUSINESS SEGMENTS In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," was issued effective for fiscal years ending after December 15, 1998. The Company operated the following business segments: Apparel Identification, Labeling Solutions and Thermal Transfer Ribbons. Inter-segment sales prices are based on cost plus a mark-up to allow the selling segment to make a reasonable profit. The Company evaluates performance on operating income of its business segments before corporate expenses, amortization of goodwill, non-recurring charges, interest, income taxes and extraordinary items. The Company's Apparel Identification operations design, develop, market and manufacture products and services specifically to the apparel and textile industries, including white goods. A significant portion of such products is delivered to apparel manufacturers located in Asia and Mexico which products are sold in the United States. Apparel Identification products include Fabric label systems and Bar code systems. Fabric label systems products include supplies printed in the company's factories as well as fabric and printers used for in-plant label printing. 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. Such labels normally provide consumer information such as country of origin, size, fabric content and care instructions. Bar code systems, consisting of electronic printer and related supplies and services used by customers to print data on labels and tags in order to provide accurate product, inventory and point of sale information for integration with sophisticated data systems. These labels and tags are attached to completed apparel items by manufacturers and retailers to identify and promote their products, allow automated data collection and provide brand identification. 9 10 The Company's Labeling Solutions operations market and distribute (1) electronic bar code printers, which are used in a wide range of retail and industrial applications including inventory management and distribution systems and (2) hand-held mechanical labeling devices that print pressure-sensitive (i.e., adhesive-backed) price and other identification labels and affix them onto merchandise for retailers. In addition, the Company manufactures and markets supplies used in both its mechanical labelers and bar code printers and provides comprehensive service to its installed base of machines. Thermal transfer ribbons are used in bar code printers to print single-color and multi-color tags and labels for use in manufacturing and factory automation systems, shipping and distributions systems, retail price tag, packaging and medical applications. The Company sold 92.5% of IIMAK, its Thermal Transfer Ribbons business, on March 9, 2000 (see Note 4). The following table shows the financial information of the Company's business segments.
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------- --------------------- 2000 1999 2000 1999 ------ ------ ------ ------ Sales to unaffiliated customers: Apparel Identification $107.4 $ 89.9 $194.6 $165.0 Identification and Bar Code Solutions 60.3 57.5 119.5 116.6 Thermal Transfer Ribbons -- 20.2 13.8 40.2 ------ ------ ------ ------ Total $167.7 $167.6 $327.9 $321.8 ====== ====== ====== ====== Inter-segment sales: Thermal Transfer Ribbons $ -- $ 2.7 $ 2.1 $ 6.1 ====== ====== ====== ====== Segment operating income: Apparel Identification $ 13.7 $ 14.4 $ 26.1 $ 21.7 Identification and Bar Code Solutions 7.5 6.5 12.7 12.8 Thermal Transfer Ribbons -- 2.4 2.0 4.6 ------ ------ ------ ------ 21.2 23.3 40.8 39.1 Corporate and other (3.1) (2.4) (6.1) (4.6) Restructuring and other special charges -- (1.7) -- (5.0) Amortization of goodwill (1.5) (1.2) (2.8) (2.5) ------ ------ ------ ------ Total $ 16.6 $ 18.0 $ 31.9 $ 27.0 ====== ====== ====== ======
NOTE 13: RESTRUCTURING AND OTHER SPECIAL CHARGES In the first quarter 1999, the Company adopted a plan to streamline its U.S. business segments. During the six months ended June 30, 1999 the Company recorded $5.0 of restructuring and other special charges. Included in the total charge is severance of $3.3 and $1.1 of costs associated with the consolidation of certain facilities. Substantially all these costs had been paid as of June 30, 1999. The Apparel Identification business segment consolidated its woven and printed label operations, which resulted in the elimination of approximately 20 managerial and administrative personnel. The Labeling Solutions business segment reduced headcount by approximately 50 salaried positions. 10 11 NOTE 14: ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES At March 31, 1999, the Company had interest rate hedge agreements with notional value of $80. The fair value of those agreements, based on estimates provided by financial institutions, was a loss of $0.6 at June 30, 1999. There were no interest rate derivatives in effect at June 30, 2000 or December 31, 1999. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. The statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. Although the Company has not yet quantified the impact of adopting SFAS No. 133 on its financial statements and has not determined the timing or method of its adoption of SFAS No. 133, the company anticipates that implementation of SFAS No. 133 would not have a material impact on the Company's results of operations. 11 12 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ALL AMOUNTS IN THE FOLLOWING DISCUSSION ARE STATED IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA. OPERATING RESULTS The following table shows each element of the income statement as a percent of sales for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 ----- ----- ----- ----- Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 61.4 61.0 61.7 61.6 ----- ----- ----- ----- Gross profit 38.6 39.0 38.3 38.4 Selling, general and administrative expense 27.8 26.3 27.8 27.5 Amortization of intangibles 0.9 1.0 0.8 1.0 Restructuring and other special charges -- 1.0 -- 1.6 ----- ----- ----- ----- Operating income 9.9 10.7 9.7 8.3 Gain on sale of IIAMK -- -- 15.4 -- Interest expense, net 1.2 2.3 1.5 2.3 ----- ----- ----- ----- Income before taxes 8.7 8.4 23.6 6.0 Taxes on income 2.9 3.0 5.8 2.1 ----- ----- ----- ----- Net income 5.8% 5.4% 17.8% 3.9% ===== ===== ===== =====
THREE AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 Sales were up slightly to $167.7 and $327.9 for the three and six months ended June 30, 2000 compared with the three and six months ended June 30, 1999. Sales from Apparel Identification grew 19% to $107.4 for the three months ended June 30, 2000 and 18% to $194.6 for the six months ended June 30, 2000. Sales from Labeling Solutions grew 5% to $60.3 for the three months ended June 30, 2000 compared with June 30, 1999 and 2% to $119.5 for the six months ended June 30, 2000. Sales growth was most significant in Asia and in Mexico. On May 18, 2000 the Company acquired the Bornemann & Bick ("B&B") group of companies, with operations in Germany, Hong Kong, China, Turkey, Poland, India and Spain (see Note 3 of Notes to the Consolidated Financial Statements). B&B contributed $9.6 in sales for the months of May and June 2000. The Thermal Transfer Ribbons segment was sold in March 2000 (see Note 4 of Notes to the Consolidated Financial Statements). Cost of sales for the three and six months ended June 30, 2000 increased to $103.0 and $202.1 compared with $102.3 and $198.3 for the three and six months ended June 30, 1999. As a percent of sales, such costs increased slightly to 61.4% and 61.7% for the three and six months ended June 30, 2000 compared with 61.0% and 61.6% for three and six months end June 30,1999. Gross profit was $64.7 for the three months ended June 30, 2000 compared with $65.3 for the three months ended June 30, 1999. The gross profit margin was 38.6% for the three months ended June 30, 2000 compared with 39.0% for the three months ended June 30, 1999. During the six months ended June 30, 2000 gross profit increased to $125.8 compared with $123.5 for the six months ended June 30, 1999. The gross profit margin was 38.3% for the six months ended June 30, 2000 compared with 38.4% for the six months ended June 30, 1999. During the three and six months ended June 30, 2000 the gross profit was impacted by $2.5 due to the recording of the B&B inventories acquired at fair value. Excluding this impact the gross profit for the three and six months ended June 30, 2000 would have been 40% and 39%. 12 13 Selling, general and administrative expense ("SG&A") was $46.6 and $91.1 for the three and six months ended June 30, 2000, compared with $44.1 and $88.5 for the three and six months ended June 30, 1999. As a percent of sales, SG&A was 27.8% for both the three and six months ended June 30, 2000 compared with 26.3% and 27.5% for the three and six months ended June 30, 1999. In the first quarter of 1999 the Company adopted a plan to streamline its U.S. business segments. During the six months ended June 30, 1999, the Company recorded $5.0 of restructuring and other special charges. Included in the total charge are severance costs of $3.3 and $1.1 associated with the consolidation of certain facilities. Substantially all these costs had been paid as of June 30, 1999. The Apparel Identification business segment consolidated its woven and printed label operations, which resulted in the elimination of approximately 20 managerial and administrative personnel. The Labeling Solutions business segment reduced headcount by approximately 50 salaried positions. Operating income was $16.6 and $31.9 for the three and six months ended June 30, 2000 compared with $18.0 and $27.0 for the three and six months ended June 30, 1999. The operating margins were 9.9% and 9.7% in the three and six months ended June 30, 2000 compared with 10.7% and 8.3% in the three and six months ended June 30, 1999. On March 9, 2000 the Company sold 92.5% of International Imaging Materials, Inc., its thermal transfer ribbons business, for a total consideration of $127.5, which included $120.0 in cash and $7.5 of IIMAK preferred stock. The sale resulted in a gain of $50.3 ($40.3 net of taxes). Interest expense, net, decreased to $2.0 and $4.9 for the three and six months ended June 30, 2000 from $3.8 and $7.5 in the three and six months ended June 30, 1999. The decrease was the result of reduced variable rate borrowings under the revolving credit facility and interest income on the proceeds from the sale of IIMAK. Income before taxes increased to $14.6 and $77.3 (8.7% and 23.6% of sales) for the three and six months ended June 30, 2000 compared with $14.2 and $19.5 (8.4% and 6.0% of sales) for the three and six months ended June 30, 1999. The effective income tax rate was 33% and 24% for the three and six months ended June 30, 2000 compared with 35% for both the three and six months ended June 30, 1999. Excluding the net gain on the sale of IIMAK in the amount of $40.3 the effective tax rate for the six months ended June 30, 2000, would have been 33%. Net income for the three and six months ended June 30, 2000 was $9.8 and $58.4 (5.8% and 17.8% of sales) compared with $9.2 and $12.6 (5.4% and 3.9% of sales) for the three and six months ended June 30, 1999. LIQUIDITY AND CAPITAL RESOURCES The table below presents summary cash flow information for the periods indicated:
Six Months Ended --------------------------------- June 30, 2000 June 30, 1999 ------------- ------------- Net cash provided by operating activities $25.7 $28.7 Net cash provided by/(used in) investing activities 55.6 (32.7) Net cash (used in)/provided by financing activities (69.1) 14.7 ----- ----- Total change in cash (a) $12.2 $10.7 ===== =====
(a) Before exchange rate effects. OPERATING ACTIVITIES 13 14 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 $25.7 for the six months ended June 30, 2000, compared with $28.7 in 1999. 14 15 Depreciation and amortization was $15.9 for the six months ended June 30, 2000 compared with $18.1 for the six months ended June 30, 1999. INVESTING ACTIVITIES During the first half of 2000 capital expenditures were $11.6 compared with $12.5 in 1999. All new capital projects are carefully analyzed and, other than projects for employee safety and environmental improvement, are required to make a positive contribution on a net present value basis, generating an advantageous internal rate of return on invested capital. The Company currently anticipates capital expenditures of approximately $29 for the year ending December 31, 2000. On May 18, 2000, the Company acquired the Bornemann & Bick ("B&B") group of companies for approximately $54.8. The B&B companies manufacture apparel identification products. The acquisition has been accounted for as a purchase with assets and liabilities assumed recorded at their estimated fair values at the date of acquisition. The $32.1 excess of the purchase price and transaction cost over the fair value of net assets acquired was recorded as goodwill and is being amortized over 25 years. On March 9, 2000 the Company sold 92.5% of International Imaging Materials, Inc., its thermal transfer ribbons business, for a total consideration of $127.5, which included $120.0 in cash and $7.5 of IIMAK preferred stock. On February 2, 1999, the Company acquired the apparel identification business of Ferguson International PLC ("Ferguson") for approximately $20.5. The acquisition has been accounted for as a purchase with assets and liabilities assumed recorded at their estimated fair values at the date of acquisition. The $5.4 excess of the purchase price and transaction costs over the fair value of net assets acquired was recorded as goodwill and is being amortized over 20 years. The Company intends to continue its growth, in part by acquisitions of other complementary or related businesses, and believes that further acquisitions would be of important strategic value. FINANCING ACTIVITIES The table below shows the components of total capital for the periods indicated:
June 30, 2000 December 31, 1999 ------------- ----------------- Due to banks $ 2.0 $ 45.0 Current maturities of long-term debt 0.1 0.3 Long-term debt 166.9 163.4 ------ ------ Total debt $169.0 $208.7 Shareholders' equity 310.7 281.9 ------ ------ Total capital $479.7 $490.6 ====== ====== Total debt as a percent of total capital 35.2% 42.5% ====== ======
Total debt decreased to $169.0 at June 30, 2000, from $208.7 at December 31, 1999, due to repayments of revolving debt with a portion of the proceeds from the divestiture of IIMAK. At June 30, 2000, total debt as a percent of total capital was 35.2% compared with 42.5% at December 31, 1999. On March 12, 1999, the Company entered into an agreement with a bank for an uncommitted facility permitting the Company to borrow up to $50 at negotiated interest rates for defined periods on an unsecured basis. The agreement requires the Company to have availability under its committed revolving credit agreement equal to the amount borrowed under this facility. OTHER MATTERS STOCK REPURCHASE On July 30, 1998, the Company announced a stock repurchase plan. On February 10, 2000 the Company increased the amount from $40 to $70. Since July 30, 1998, the Company has repurchased 5,947,700 15 16 shares through June 30, 2000 at an average price of $9.42 for a total of $56.0. 16 17 CAUTIONARY STATEMENT PURSUANT TO "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Except for historical information, the Company's reports to the Securities and Exchange Commission on Form 10-K and Form 10-Q and periodic press releases, as well as other public documents and statements, contain "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the statements, regarding, among others: - rate of migration of garment manufacturing industry moving from the United States and Western Europe - worldwide economic and other business conditions that could affect demand for the Company's products in the United States or international markets - the mix of products sold and the profit margins thereon - order cancellation or reduced bookings by customers or distributors - competitive product offerings and pricing actions - the availability and pricing of key raw materials - productivity improvements in manufacturing Readers are cautioned not to place undue reliance on forward-looking statements. The Company undertakes no obligation to republish or revise forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company experiences market risk relative to interest rates. A 10% change in interest rates affecting the Company's floating rate debt instruments would have an insignificant impact on the Company's pretax earnings and cash flows over the next fiscal year. Such a move in interest rates would have no effect on the fair value of the Company's floating rate debt instruments. 17 18 PART II. OTHER INFORMATION ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 4, 2000 the Company held its Annual Meeting of Shareholders to elect five Directors to serve a two-year term and one Director to serve for a one-year term; to increase the shares authorized for issuance under the Paxar Employee Stock Purchase Plan by an additional 1,000,000 shares; to approve and adopt the Paxar 2000 Long-Term Performance and Incentive Plan; and to ratify the appointment of Arthur Andersen LLP as its independent public accountants for the year ending December 31, 2000. The nominees for election to the Board of Directors received the following votes cast:
FOR ELECTION WITHHOLDING AUTHORITY ------------ --------------------- Arthur Hershaft 42,039,950 230,258 Paul J. Griswold 42,058,594 211,614 Thomas L. Loemker 42,047,335 222,873 Walter W. Williams 42,037,120 233,088 James C. McGroddy 42,045,209 224,939 Warren Flick 42,047,459 222,749
Holders of 26,740,557 shares voted to increase the shares authorized for issuance under the Paxar Employee Stock Purchase Plan by an additional 1,000,000 shares, 6,597,829 were voted against, and there were 239,278 abstentions. Holders of 31,044,323 shares voted to approve and adopt the Paxar 2000 Long-Term Performance and Incentive Plan, 2,207,151 were voted against, and there were 326,190 abstentions. Holders of 42,097,658 shares voted for the ratification of Arthur Andersen LLP as the Company's independent public accountants for the year ending December 31, 2000, 49,520 were voted against, and there were 123,030 abstentions. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibit Index 27.1 Financial Data Schedule b) Reports on Form 8-K 1) Current Report on Form 8-K, dated May 18, 2000 as amended by Form 8-K/A, Amendment No.1, reporting under Item 2 the acquisition by the Registrant of the Bornemann & Bick group of companies. 18 19 PAXAR CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Paxar Corporation ----------------- Registrant By: /s/ John Fitzgerald ------------------- John Fitzgerald Vice President and Controller (Principal Accounting Officer) August 11, 2000 --------------- Date 19