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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
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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
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(Exact name of registrant as specified in its charter)
NEW YORK 13-5670050
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 CORPORATE PARK DRIVE, WHITE PLAINS, N.Y. 10604
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(Address of principal executive offices)
914-697-6800
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(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. (May 9, 2001)
Common Stock, $0.10 par value: 42,288,611 shares
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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, 2000.
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.
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PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
2001 2000
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Sales $ 155.3 $ 160.2
Cost of sales 96.5 99.1
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Gross profit 58.8 61.1
Selling, general and administrative expense 44.9 44.5
Amortization of goodwill 1.5 1.3
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Operating income 12.4 15.3
Gain on sale of IIMAK -- 50.3
Interest expense, net 2.4 2.9
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Income before taxes 10.0 62.7
Taxes on income 2.8 14.1
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Net income $ 7.2 $ 48.6
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Basic earnings per common share
Net income $ 0.17 $ 1.04
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Diluted earnings per common share
Net income $ 0.17 $ 1.03
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Average common shares outstanding:
Basic 42.1 46.7
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Diluted 42.6 47.0
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See Notes to Consolidated Financial Statements
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PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2001 2000
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(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 46.7 $ 44.3
Receivables, less allowances of $9.1 in 2001 and $9.6 in 2000 105.6 108.9
Inventories 76.6 80.2
Other current assets 19.9 10.1
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Total current assets 248.8 243.5
Property, plant and equipment, at cost 252.3 254.8
Accumulated depreciation (107.0) (104.6)
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Net property, plant and equipment 145.3 150.2
Goodwill 182.6 187.1
Other assets 23.3 22.6
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$600.0 $603.4
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to banks $ 1.0 $ 0.9
Current maturities of long-term debt 0.3 0.1
Accounts payable and accrued liabilities 88.8 96.2
Accrued taxes on income 24.2 22.7
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Total current liabilities 114.3 119.9
Long-term debt 165.3 165.8
Deferred income taxes 5.3 5.5
Other liabilities 8.2 8.9
Shareholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares authorized,
None issued and outstanding -- --
Common Stock, $0.10 par value, 200,000,000 shares authorized;
Shares issued and outstanding 42,216,740 and 42,079,920 in
2001 and 2000, respectively 4.3 4.2
Paid-in capital 46.2 45.2
Retained earnings 279.0 271.8
Accumulated other comprehensive loss (22.6) (17.9)
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Total shareholders' equity 306.9 303.3
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$600.0 $603.4
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See Notes to Consolidated Financial Statements
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PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
UNAUDITED
MARCH 31, 2001 MARCH 31, 2000
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OPERATING ACTIVITIES:
Net income $ 7.2 $ 48.6
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Adjustments to reconcile net income to net cash provided by (used in)
operations:
Depreciation and amortization 9.7 9.2
Deferred income taxes (0.1) (0.9)
Gain on sale of IIMAK, net of tax -- (40.3)
Changes in assets and liabilities, net of businesses acquired
and divested:
Receivables 3.4 3.0
Inventories 3.5 (1.5)
Other current assets (10.0) 0.1
Accounts payable and accrued liabilities (11.4) (15.1)
Taxes on income 1.5 3.6
Other (0.8) (0.1)
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(4.2) (42.0)
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Net cash provided by operating activities 3.0 6.6
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INVESTING ACTIVITIES:
Purchases of property, plant and equipment (4.8) (5.1)
Acquisition related, divestiture 1.3 120.0
Other 2.6 0.9
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Net cash (used in) provided by investing activities (0.9) 115.8
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FINANCING ACTIVITIES:
Increase/(decrease) in short-term debt 0.3 (45.1)
Additions to long-term debt -- 22.1
Reductions in long-term debt (0.5) (22.2)
Purchase of common stock -- (3.5)
Proceeds exercise of stock options/stock purchase plan 1.1 0.9
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Net cash provided by (used in) financing activities 0.9 (47.8)
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OTHER ACTIVITIES:
Effect of exchange rate changes on cash (0.6) (0.6)
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Increase in cash and cash equivalents 2.4 74.0
Cash and cash equivalents at beginning of year 44.3 32.2
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Cash and cash equivalents at end of period $ 46.7 $106.2
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See Notes to Consolidated Financial Statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 1: GENERAL
The accounting policies followed during interim periods are in conformity
with U.S. generally accepted accounting principles and are consistent with those
applied for annual periods as described in the Company's Annual Report on Form
10-K for the year ended December 31, 2000. Other than Balance Sheet amounts as
of December 31, 2000, all other amounts contained herein are unaudited.
Reclassifications:
Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.
NOTE 2: CHANGE IN ACCOUNTING FOR INVENTORIES FROM LIFO TO FIFO
During 2000, the Company changed its method of determining the cost of
inventory for the U.S. Labeling Solutions 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 this unit operates. This change has been applied by
retroactively restating the accompanying consolidated financial statements.
Although this change in method did not impact the 2000 net income, the retained
earnings balances for the period ended December 31, 2000 has been decreased by
$7.2 to reflect the retroactive application of the new method of valuing
inventories.
NOTE 3: FINANCIAL INSTRUMENTS
The Company adopted the provisions of Statements of Financial Accounting
Standards ("SFAS") Nos. 133 - Accounting for Derivative Instruments and Hedging
Activities and 138 - Accounting for Certain Derivative Instruments and Certain
Hedging Activities - on January 1, 2001. These standards establish new
accounting and disclosure requirements for most derivative instruments and hedge
transactions involving derivatives. The cumulative effects of adopting these
standards on net income and other comprehensive income were not material to net
income and other comprehensive income for the three months ended March 31, 2001
and stockholders' equity at January 1, 2001.
All financial instruments of the Company with the exception of hedge
agreements are carried at cost, which approximates fair value.
The Company's policy and objective is to manage exposure to variations in
foreign currency rates by entering into hedge agreements when appropriate,
specifically nondeliverable and for-delivery forward contracts. Hedge agreements
are used to offset the effects of currency variations on net investment in
foreign subsidiaries and transactional gains and losses arising from foreign
currency monetary assets and liabilities. The Company formally designates and
documents the hedging relationship and risk management objective and strategy
for undertaking the hedge. The documentation also includes identification of the
hedging instrument, the item being hedged, the nature of the risk being hedged,
as well as how the hedging instrument's effectiveness in offsetting the exposure
to changes in the hedged item's fair value attributable to the hedged risk will
be assessed.
The Company's policy is to record changes in fair value of hedges of net
investments in foreign subsidiaries in the Currency Translation Account as a
component of stockholders equity to offset the concurrent gains and losses
recorded in the Currency Translation Account associated with the underlying
investment. Changes in fair value associated with hedges of foreign currency
monetary obligations are recorded in income during the reporting period, when
gains and losses associated with the hedged item are also recorded.
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All derivatives have high correlation with the underlying exposure and are
highly effective in offsetting underlying currency movements. Accordingly,
changes in derivative fair values are expected to be offset by changes in value
of the underlying exposures. Gains or losses associated with settlement of
derivative positions when the underlying transaction occurs are recognized in
the income statement or recorded as part of the underlying asset or liability,
as appropriate in the circumstances.
The fair value of outstanding foreign exchange contracts at March 31, 2001
and January 1, 2001 for delivery of various currencies at various future dates
during the next year, the changes in fair value during the quarter recorded in
income and the amounts recorded in Currency Translation Account at March 31,
2001 and January 1, 2001 were not material.
NOTE 4: ACQUISITION
On May 18, 2000, the Company acquired the Bornemann & Bick ("B&B") group
of companies for approximately $51.2. The B&B companies manufacture apparel
identification products. The acquisition has been accounted for as a purchase
with assets acquired and liabilities assumed recorded at their estimated fair
values at the date of acquisition. The preliminary allocation of the $31.7
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 $ 22.4
Property, plant and equipment 11.1
Other assets 3.4
Goodwill 31.7
Liabilities (17.4)
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Net assets $ 51.2
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NOTE 5: 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.
NOTE 6: INVENTORIES
The components of inventories are set forth below:
MARCH 31, 2001 DECEMBER 31, 2000
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Raw materials $35.6 $35.2
Work-in-Process 8.2 8.7
Finished goods 32.8 36.3
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$76.6 $80.2
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NOTE 7: LONG-TERM DEBT
A summary of long-term debt is set forth below:
MARCH 31, 2001 DECEMBER 31, 2000
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6.74% Senior Notes $150.0 $150.0
Economic Development Revenue Bonds
due 2011 and 2019 13.0 13.0
Other 2.6 2.9
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165.6 165.9
Less current maturities 0.3 0.1
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$165.3 $165.8
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NOTE 8: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of accounts payable and accrued liabilities is set forth below:
MARCH 31, 2001 DECEMBER 31, 2000
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Accounts payable $30.0 $34.2
Accrued payroll costs 17.3 20.9
Other accrued liabilities 41.5 41.1
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$88.8 $96.2
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NOTE 9: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes is set forth below:
FOR THE THREE MONTHS ENDED MARCH 31,
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2001 2000
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Interest, net $ 4.9 $ 5.4
Income taxes, net $ 0.6 $ 0.5
NOTE 10: COMPREHENSIVE INCOME/(LOSS)
Comprehensive income reflects changes in equity that result from transactions
and economic events from non-owner sources. Comprehensive income for the periods
presented below includes foreign currency translation items. There was no tax
expense or tax benefit associated with the foreign currency translation items.
FOR THE THREE MONTHS ENDED MARCH 31,
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2001 2000
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Net income $ 7.2 $48.6
Foreign currency translation adjustments (4.7) (2.3)
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Comprehensive income (loss) $ 2.5 $46.3
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NOTE 11: EARNINGS PER COMMON SHARE
The reconciliation of basic and diluted share computation is as follows:
FOR THE THREE MONTHS ENDED MARCH 31,
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2001 2000
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Average common shares (basic) 42.1 46.7
Options and warrants 0.5 0.3
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Adjusted average common shares (diluted) 42.6 47.0
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NOTE 12: BUSINESS SEGMENTS
The Company operated the following business segments: Apparel Identification,
Labeling Solutions, and Thermal Transfer Ribbons. Inter-segment sales prices are
based on cost plus a mark-up to allow the selling segment to make a reasonable
profit. The Company evaluates performance 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 Apparel Identification segment concentrates almost exclusively on labels
and tags for retail apparel. It manufactures and markets bar code systems and
fabric label systems that combine data distribution software, electronic
printers and related supplies to give domestic and offshore customers in-plant
label printing capabilities. It also produces and markets woven and printed
labels and tags, for subsequent application to garments during their
manufacture.
The Labeling Solutions segment focuses on price, promotion and tracking label
applications for retail stores, discount stores, distribution centers, and other
smaller, market niches. The Company manufactures labeling equipment and supplies
and provides service for the equipment. Labeling Solutions also offers customers
consultative systems integration, delivering function-specific packages of
hardware and software for in-store, warehouse and remote-transmission
applications.
The Company's Thermal Transfer Ribbons were 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, and retail price
tag, packaging and medical applications. (See Note 5: Divestiture.)
The following table set forth below shows the financial information of the
Company's business segments.
FOR THE THREE MONTHS ENDED MARCH 31,
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2001 2000
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Sales to unaffiliated customers:
Apparel Identification $ 96.0 $ 87.2
Labeling Solutions 59.3 59.2
Thermal Transfer Ribbons -- 13.8
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Total $155.3 $160.2
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Inter-segment sales:
Thermal Transfer Ribbons $ -- $ 2.1
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Segment operating income:
Apparel Identification $ 12.1 $ 12.4
Labeling Solutions 4.9 5.2
Thermal Transfer Ribbons -- 2.0
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17.0 19.6
Corporate expenses (3.1) (3.0)
Amortization of goodwill (1.5) (1.3)
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Total $ 12.4 $ 15.3
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NOTE 13: RESTRUCTURING AND OTHER SPECIAL CHARGES
During 2000, the Company recorded a $1.0 (pre-tax) integration/restructuring
and other charge pertaining to severance for 9 selling and administrative
personnel and 30 manufacturing positions and other costs associated with the
discontinuance of supplies manufacturing in Canada, which was announced in
December 2000. Of this amount, $0.5 of severance was unpaid at March 31, 2001,
to be paid during the remainder of 2001.
BEGINNING BALANCE ENDING BALANCE
JANUARY 1, 2001 EXPENSES PAYMENTS MARCH 31, 2001
----------------- -------- -------- --------------
Severance $0.7 $- $0.2 $0.5
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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
March 31, 2001 March 31, 2000
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Sales 100.0% 100.0%
Cost of sales 62.1 61.9
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Gross profit 37.9 38.1
Selling, general and administrative expense 28.9 27.8
Amortization of intangibles 1.0 0.8
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Operating income 8.0 9.5
Gain on sale of IIMAK -- 31.4
Interest expense, net 1.6 1.8
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Income before taxes 6.4 39.1
Taxes on income 1.8 8.8
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Net Income 4.6% 30.3%
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FIRST QUARTER 2001 COMPARED WITH 2000
Sales were $155.3 for the three months ended March 31, 2001 compared with $160.2
for the three months ended March 31, 2000. Excluding the sales from the Thermal
Transfer Ribbons segment, which was sold in March 2000, sales increased 6% from
$146.4. Sales from Apparel Identification grew 10% while sales from Labeling
Solutions were flat for the three months ended March 31, 2001 compared with the
three months ended March 31, 2000. Sales growth was most significant in Asia and
Europe.
Cost of sales for the three months ended March 31, 2001 was $96.5 compared with
$99.1 for the three months ended March 31, 2000. As a percent of sales, such
costs were 62.1% for March 31, 2001 compared with 61.9% for March 31, 2000.
Gross profit was $58.8 for the three months ended March 31, 2001 compared with
$61.1 for the three months ended March 31, 2000. The gross margin was 37.9% for
the three months ended March 31, 2001 compare with 38.1% for the three months
ended March 31, 2000. The margin was impacted on the Labeling Solutions segment
by a shift in product mix, from the higher margin IPS price marking systems to
bar code products. The Apparel Identification segment was impacted by lower
sales in the volume sensitive printed label business.
Selling, general and administrative expense ("SG&A") was $44.9 for the three
months ended March 31, 2001, compared with $44.5 for the three months ended
March 31, 2000. As a percent of sales, SG&A was 28.9% for March 31, 2001
compared with 27.8% for March 31, 2000.
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Operating income was $12.4 for the three months ended March 31, 2001 compared
with $15.3 for the three months ended March 31, 2000. The operating margin was
8.0% for the three months ended March 31, 2001 compared with 9.5% for the three
months ended March 31, 2000.
On March 9, 2000 the Company sold 92.5% of International Imaging Materials,
Inc., its thermal transfer ribbons business, for a total consideration of
$127.5, which included $120.0 in cash and $7.5 of IIMAK preferred stock. The
sale resulted in a gain of $50.3 ($40.3 net of taxes).
Interest expense, net, decreased to $2.4 for the three months ended March 31,
2001 from $2.9 in three months ended March 31, 2000.
Income before taxes was $10.0 (6.4% of sales) for the three months ended March
31, 2001 as compared with $62.7 (39.1% of sales) for the three months ended
March 31, 2000.
The effective income tax rate was 28% for the three months ended March 31, 2001
compared with 22% for the three months ended March 31, 2000. Excluding taxes
provided on the gain of the sale of IIMAK in the amount of $10.0 the effective
tax rate for the three months ended March 31, 2000 was 33%.
Net income for the three months ended March 31, 2001 was $7.2 (4.6% of sales)
compared with $48.6 (30.3% of sales) for the three months ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents summary cash flow information for the periods
indicated:
Three Months Ended
March 31, 2001 March 31, 2000
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Net cash provided by operating activities $ 3.0 $ 6.6
Net cash (used in) provided by investing activities (0.9) 115.8
Net cash provided by (used in ) financing activities 0.9 (47.8)
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Total change in cash (a) $ 3.0 $ 74.6
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(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 $3.0 for the three months
ended March 31, 2001 compared with $6.6 for the three months ended March 31,
2000.
Depreciation and amortization was $9.7 for the three months ended March 31, 2001
compared with $9.2 for the three months ended March 31, 2000.
INVESTING ACTIVITIES
During the first quarter of 2001 capital expenditures was $4.8 compared with
$5.1 in the first quarter 2000. 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 $25 for the
year ending December 31, 2001.
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.
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The Company is continuing to evaluate complementary businesses and intends to
make strategic acquisitions as deemed appropriate.
FINANCING ACTIVITIES
The table below shows the components of total capital for the periods indicated:
March 31, 2001 December 31, 2000
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Due to banks $ 1.0 $ 0.9
Current maturities of long-term debt 0.3 0.1
Long-term debt 165.3 165.8
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Total debt $166.6 $166.8
Shareholders' equity 306.9 303.3
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Total capital $473.5 $470.1
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Total debt as a percent of total capital 35.2% 35.5%
====== ======
Total debt decreased to $166.6 at March 31, 2001, from $166.8 at December 31,
2000. At March 31, 2001, total debt as a percent of total capital was 35.2%
compared with 35.5% at December 31, 2000.
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CAUTIONARY STATEMENT PURSUANT TO "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
Except for historical information, the Company's reports to the Securities
and Exchange Commission on Form 10-K and Form 10-Q and periodic press releases,
as well as other public documents and statements, contain "forward-looking
statements" within the meaning of the federal securities laws. Forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by the statements,
regarding, among others:
- rate of migration of garment manufacturing industry moving from the
United States and Western Europe
- worldwide economic and other business conditions that could affect
demand for the Company's products in the United States or
international markets
- the mix of products sold and the profit margins thereon
- order cancellation or reduced bookings by customers or distributors
- competitive product offerings and pricing actions
- the availability and pricing of key raw materials
- productivity improvements in manufacturing
Readers are cautioned not to place undue reliance on forward-looking
statements. The Company undertakes no obligation to republish or revise
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrences of unanticipated events.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company experiences market risk relative to interest rates. A 10% change in
interest rates affecting the Company's floating rate debt instruments would have
an insignificant impact on the Company's pretax earnings and cash flows over the
next fiscal year. Such a move in interest rates would have no effect on the fair
value of the Company's floating rate debt instruments.
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PART II. OTHER INFORMATION
ITEM 6. REPORTS ON FORM 8-K
None
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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
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Registrant
By: /s/ Jack Plaxe
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Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
May 15, 2001
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Date
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