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UNITED STATES
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,
1995
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 1-3410
AMERICAN BANKNOTE CORPORATION
A Delaware Corporation I.R.S. Employee ID
No. 13-0460520
200 Park Avenue, New York, New York 10166
Telephone number: (212) 557-9100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common Stock, par value $.01 per share New York Stock Exchange
Preferred Stock Purchase Rights N/A
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 and
(2) has been subject to such filing for the past 90 days.
Yes X No
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. [ ]
At March 26, 1996, the aggregate market value of the voting stock
held by non-affiliates was $34,120,000.
At March 26, 1996, 19,497,380 shares of Common Stock were
outstanding.
Documents incorporated by reference: Portions of the
Company's definitive proxy statement for the 1996 Annual Meeting of
Shareholders are incorporated by reference into Part III.
PART I
ITEM 1. Business
GENERAL
American Banknote Corporation is a holding company whose
subsidiaries operate the largest private-sector security printing
business in North and South America and the world's leading
security hologram manufacturer.
American Bank Note Company ("ABN"), the Company's United
States security printing subsidiary, produces counterfeit-resistant
documents of value using special paper, ink, elaborate steel-engraved
designs and intaglio printing. ABN also uses special
lithographic printing techniques for document security. ABN's
manufacturing, storage and distribution facilities employ high
levels of plant security through the use of guards, alarms,
monitoring activities and extensive accountability controls. ABN
is a major producer of government security documents including food
coupons, social security cards and treasury checks for the United
States government, currency and passports for foreign governments
and motor vehicle titles and birth certificates for state and local
governments. ABN's commercial products include travelers cheques,
stock and bond certificates, gift certificates, certificates of
deposit and bank checks. ABN and its predecessors have printed
security documents for over 150 years.
American Bank Note Company Grafica e Servicos Ltda. ("ABNB")
is the Company's 77.5% owned Brazilian subsidiary. ABNB is the
largest private-sector security printer in Brazil. In addition to
government and commercial security documents, ABNB produces
personalized checks, financial cards, such as MasterCardTM, VISATM,
and American Express cards, and drivers licenses. ABNB is a
leading supplier of pre-paid telephone stored-value cards for
Telebras, Brazil's national telephone company. ABNB was acquired
June 23, 1993 and was a wholly-owned subsidiary until July 1, 1995
when ABNB acquired the printing business and operations of Grafica
Bradesco Ltda. ("GB"), from Banco Bradesco, S.A., Brazil's largest
private bank.
American Bank Note Holographics, Inc. ("ABNH") produces
holograms primarily for security and anti-counterfeiting purposes.
A hologram is a laser generated, three-dimensional image that can
be permanently applied to a product, such as a credit card or
identification document. ABNH's holograms are used on credit
cards, identification cards, videocassette packages, computer
software packages, clothing tags, tickets and other products. ABNH
is the principal producer of holograms for MasterCardTM, VISATM,
EuroPay and Discover financial cards and ABNH's holograms have been
used for national identification cards and drivers licenses.
The Company continues to focus its efforts on international
expansion through joint ventures, acquisitions and foreign agent
representations and on new product introductions. In 1995, 1994,
and 1993 the Company's sales in foreign markets (principally South
America) accounted for approximately 55%, 40% and 26%,
respectively, of consolidated sales.
The Company was incorporated in 1993 in Delaware as United
States Banknote Corporation and changed its name on July 1, 1995 to
American Banknote Corporation. During 1993, 1994 and 1995 the
Company undertook a series of consolidation and restructuring
actions affecting the former Jeffries Banknote facility in Los
Angeles, California and the Bedford Park, Illinois facility. The
Company also has significantly downsized its New York corporate
headquarters after a reorganization of its operating subsidiaries
to establish greater autonomy for each subsidiary. The Company's
domestic workforce is expected to be reduced by approximately 27%
from prior levels. The Company's principal executive offices are
located at 200 Park Avenue, New York, New York 10166, and its
telephone number is (212) 557-9100.
Product Lines
The following table presents the Company's sales and the
percentage of sales by product line for each of the three years
ended December 31, 1995, 1994 and 1993, respectively (dollars in
millions).
1995(2) 1994 1993(1)
Corporate and Commercial
Products . . . . . . $129.8 63.0% $121.1 58.2% $ 93.0 46.5%
Government Products . 48.5 23.5 65.0 31.2 82.5 41.2
Holographic Products. 27.9 13.5 22.0 10.6 24.6 12.3
$206.2 100.0% $208.1 100.0% $200.1 100.0%
(1) Includes sales of ABNB from June 23, 1993.
(2) Includes sales of Grafica Bradesco S.A. from July 1, 1995.
CORPORATE AND COMMERCIAL PRODUCTS
The Company produces a variety of security documents for
corporate and commercial (non-government) customers including
travelers cheques, domestic and foreign stock and bond
certificates, pre-paid telephone cards, personalized checks and
direct mail and fulfillment services.
Travelers Cheques
ABN believes that it is one of the largest printers and
distributors of travelers cheques in the world, whose customer's
include American Express, Citicorp, MasterCardTM, VISATM and their
issuing banks.
Stock and Bond Certificates
Stock and bond printing accounted for in excess of 10% of the
Company's consolidated sales in 1995, 1994 and 1993. Stock and
bond certificate sales is a function of the volume of trading
activity, the number and size of public offerings, the mix of debt
and equity security issuances and regulatory considerations.
Although the number of new issues may vary substantially from year
to year, reprints of existing publicly traded securities provide
the Company with a continuing base of revenues. The New York Stock
Exchange (the "NYSE") requires certificates of listed companies to
be intaglio printed with unique border designs and vignettes. The
Company's library of engravings includes the plates containing the
border designs and vignettes for substantially all NYSE listed
companies.
The Company's sales of stock and bond certificates declined in
1995 primarily as a result of reduced sales in foreign markets. The
elimination of printed certificates continues to be advocated by
various banking and securities firms who favor the use of book-entry
systems for recording security ownership. The complete
elimination of or substantial reduction in the domestic use of
certificates would have a material adverse effect on the sales and
earnings of the Company. The growth of institutional investors and
shortened settlement periods has reduced demand for printed
certificates.
Telephone Cards and Payment Cards
The Company is one of the largest producers of pre-paid
telephone cards in Brazil. Through its contracts with Telebras,
Brazil's national telephone company, the Company's Brazil
subsidiary has supplied embedded circuitry stored-value' cards to
the Brazilian market since 1993 while Telebras continues converting
the public telephones in Brazil from coin to card operation. ABNB
is currently supplying cards under a $105 million contract over a
15 month period which commenced October 1995 and ABNB has added
substantial new production capacity. Sales to Telebras were in
excess of 10% of consolidated sales during 1995.
ABNB is one of the largest producers of financial payment cards
supplying approximately 30 customers in Brazil and several other
South American countries. These cards include ATM, credit and
debit cards for financial institutions, including those issued for
American Express, VISATM and MasterCardTM. The Company believes that
the continuing progress of Brazil's Real Economic Plan could lead
to expansion of consumer credit and increasing demand for financial
payment cards in Brazil.
During early 1996 the Company acquired a 25% interest in
Ordacard HiTech Industries (1995) Ltd., a financial payment and
identification card company which produces both traditional
financial cards and smart cards.
Personalized Checks and Other Products
ABNB is the leading private sector supplier of personalized
checks in Brazil, serving major banks as customers, some of which
are among the largest in Brazil. ABNB's acquisition of the in-house
printing operations of Brazil's largest (non-government)
private bank, Banco Bradesco, S.A.,in exchange for 22.5% of ABNB
has resulted in ABNB becoming the print supplier to Brazil's
largest private bank under a multi-year contract for checks, check
personalization, continuous forms, deposit slips, financial cards,
insurance policies, and a wide array of additional printed
products. As a result of this combination, ABNB has acquired the
assets and taken over the operations and facilities of Banco
Bradesco's printing plant in Osasco, Sao Paulo, Brazil. Management
of the Company believes that Brazilian banks will continue to seek
to outsource their check printing requirements and additional
opportunities to expand ABNB's business in this manner are expected
to continue.
Secure Commercial Products
Recent technological advancements in color copying, desktop
publishing and laser scanning and printing have resulted in more
companies requiring security in documents such as commercial paper,
certificates of deposit, bank checks and other financial
instruments, gift certificates and redemption coupons. The Company
believes that the intaglio printing process and other secure
printing methods greatly reduce the risk of copying and
counterfeiting of such documents. ABN believes it is the largest
producer of intaglio printed secure gift certificates in the United
States including those for K-mart, Bloomingdale's and Saks Fifth
Avenue. The Company has recently begun to sell and market gift
certificates in foreign countries and has increased its sales
efforts for non-intaglio printed commercial products and
processing, packaging and distribution services.
GOVERNMENT PRODUCTS
Government Products include a variety of security documents
printed for the United States government, numerous state and local
governments and foreign governments, including food coupons,
treasury checks, passports and currency.
Food Coupons
The United States Department of Agriculture ("USDA") is ABN's
largest government customer. Through 1995, the Company and its
predecessors had collectively printed the food coupon requirements
for the USDA since the printing of food coupons was fully
privatized more than 20 years ago. Food coupons are intaglio
printed documents that are accepted by food stores in lieu of
currency for the purchase of food. Sales of food coupons were in
excess of 10% of consolidated sales and were approximately $23.8
million, $46.0 million, and $40.6 million in 1995, 1994 and 1993,
respectively.
In September 1995, the food coupon production contract under
which the Company has produced food coupons expired and bids for
food coupon production have been solicited under a competitive bid
which is presently pending. The food coupon contract is expected
to be awarded during the second quarter of 1996 and the Company
believes the award will be for substantially lower volumes than
prior awards. See "Business - Competition". In June 1995 ABN was
awarded a three-year contract with USDA to store and distribute
food coupons to state and local government agencies that administer
the food coupon program.
Food coupon production and distribution constitutes a
significant component of the Company's consolidated sales and
earnings. Although the Company's food coupon production has
increased during recent years, implementation of electronic
card-based systems, proposed benefit reforms and high levels of food
coupon inventory are expected to reduce the Company's volume of
food coupon production for 1996 and in future years. Card-based
programs have had a negative impact on the Company's printing of
food coupons and are expected to continue to have a negative
effect.
The USDA is promoting the issuance of electronic card-based food
coupon benefits and nationwide implementation is being pursued and
by 1996, eight states had begun implementation (although only
Maryland, Texas and South Carolina are statewide). The Company
believes that twenty-one additional states recently awarded or are
in the process of awarding contracts to perform similar services.
The elimination or a substantial reduction in the use of paper food
coupons or changes in federal benefit programs could have a
material adverse effect on the sales and earnings of the Company.
See "Management's Discussion and Analysis - Liquidity and Capital
Resources."
During 1994 and 1993, the Company believes that increases in the
number of eligible recipients as well as the USDA's increasing
inventory of food coupons, increased food coupon sales. Neither of
these factors are continuing.
Other Government Products
ABN prints all official United States government checks under a
contract with the United States Government Printing Office and
Social Security cards under a contract through January 1996. From
time to time, ABN has manufactured visas, currency, passports, gas
rationing coupons and similar products for government and similar
customers, such as NATO. ABN also manufactures motor vehicle title
certificates, as well as birth certificates and other vital
documents for various state and local governments. The Company
believes it is the largest supplier of such intaglio documents in
the United States.
ABN presently prints American Commemorative Postage Stamp Panels
for the United States Postal Service ("USPS") under a three-year
contract with two one-year options. ABN's sales to the USPS
declined in 1994 following an award of a competitively bid contract
to print postage stamps. ABN's sales to the USPS were
approximately $1.3 million, $2.5 million and $23.5 million in 1995,
1994 and 1993, respectively.
Sales of Government Products, particularly to the United States
government and state and local governments, is principally
dependent on successful competitive bids. Competitive bids are
generally awarded on the basis of price, but may also consider
other factors. Multiple awards and requirements contract
provisions can affect the level of Government sales. Many of the
Company's contracts are re-bid annually or on a multiple year
basis. There can be no assurance that any particular bid by the
Company will be successful. Government sales are generally subject
to provisions which allow termination for the convenience of the
Government, and upon such termination, to reduce payment to the
contractor.
ABN competes directly with foreign security printing companies
and certain government-owned printing operations. Highly
specialized equipment is necessary for much of ABN's printing and
ABN believes that it is the only private sector company in the
United States with a Super Giori intaglio printing press. Special
equipment, such as a Giori intaglio press, is necessary for the
efficient printing of certain currencies.
ABNB produces a wide variety of lithographic and intaglio
documents for governmental customers in Brazil including motor
vehicle registrations, drivers licenses, fiscal stamps, identity
cards and transportation passes.
HOLOGRAPHIC PRODUCTS
Holographic Products include holograms with security and
anticounterfeiting features for products such as credit cards and
identification cards and product authentication labels. ABNH's
security hologram sales are made primarily to the credit card
industry. To date, ABNH has produced and sold over 4 billion
holograms for use on bank credit cards. ABNH is the principal
producer of holograms for MasterCard , VISA , Europay and
Discover credit cards in use around the world. Holograms
manufactured by ABNH have been used as security labels to
authenticate computer equipment, computer software, video
cassettes, transit passes and auto parts with many
leading brand-name products. The Company's see-through holographic
laminates have been used for national identification cards and
for drivers licenses in the United States and abroad.
Part of ABNH's growth strategy focuses attention on markets in
the Pacific Rim and ABNH has entered into various third-party
distribution arrangements in Japan, Hong Kong, Taiwan, Malaysia,
Indonesia, Korea and Thailand.
OTHER ACTIVITIES
In 1992, the Company and Thomson-CSF ("Thomson"), a leading
French electronics and defense company, concluded a joint venture
agreement to combine their respective identification systems
businesses. In 1995, Thomson purchased the Company's interest in
the joint venture for approximately $4.7 million. Revenues
generated were not material in relation to the Company's total
revenues.
FOREIGN OPERATIONS AND EXPORT SALES
Information with respect to the Company's foreign operations and
export sales is disclosed in Note A to "Notes to Consolidated
Financial Statements."
COMPETITION
Competition in the Company's product markets is based upon
price, service, quality, and reliability. Each of the Company's
subsidiaries conduct their businesses in highly competitive
markets. In certain markets, the Company's competitors have
greater financial resources than the Company. In the United
States, ABN competes with other printers as well as companies
engaged in businesses unrelated to printing that provide goods or
services which could replace or substantially reduce demand for
certain of the Company's printed products, including food coupons.
The market for holographic products is highly fragmented with no
dominant competitor to ABNH. ABNH believes it is the largest
producer of secure holographic products in the United States and
that it competes with various smaller, less technologically
advanced holographers and with companies producing non-holographic
optical devices. ABNB competes in Brazil with other printers who
offer various secure alternatives to ABNB's secure printed
products. Internationally, ABN and ABNB primarily compete with
private security printers located in the United Kingdom, Germany,
France and Canada, as well as various government printers.
PATENTS
ABN and ABNH presently hold, or are licensed under, numerous
United States and foreign patents. The Company continues to pursue
patent protection when patent protection can be obtained or
expanded in strategic markets. Patents held by the Company will
expire over the next several years and may be challenged or
ultimately declared invalid whenever the Company seeks to enforce
its patents in judicial proceedings. The Company has also granted
licenses to third parties for certain patents. Licensing and the
loss of patent protection may allow additional competition to
develop, particularly with respect to the business of ABNH. The
Company believes, however, that its patent rights are of less
significance to sales in the holography industry than factors such
as innovation and technological expertise. In addition, there can
be no assurance that others will not independently develop
substantially equivalent technology or obtain access to the
Company's trade secrets or technology.
BACKLOG
At December 31, 1995 and 1994, the Company had an overall
backlog of approximately $138 million and $81 million,
respectively.
1994 backlog included $23 million of firm orders for food
coupons and distribution with the USDA and 1995 includes none.
1995 backlog principally consists of orders relating to Telebras
pre-paid telephone cards, personal checks, travelers checks and
financial payment cards. The Company believes that substantially
all of its backlog will be produced and shipped in 1996.
RAW MATERIALS
The Company is not materially dependent upon any one supplier
for raw materials used in its businesses. Certain raw materials
used are available from a limited number or only a single source
supplier and certain other products, particularly for national
governments, require domestic content which limits potential
suppliers. The Company regards its relationships with its primary
suppliers as reliable.
ENVIRONMENT
In connection with the Company's business, the Company engages
in the use or disposal of substances that may be considered to be
toxic or hazardous substances under applicable environmental laws.
The Company believes that its compliance with such laws has not had
and will not have a material effect on the capital expenditures,
earnings or competitive position of the Company.
EMPLOYEES
At December 31, 1995, the Company had approximately 2,380
employees consisting of 2,120 employees engaged in manufacturing,
230 engaged in plant administration and sales and 30 in executive,
corporate and administrative functions. Approximately 66% of the
Company's domestic employees and all of ABNB's employees are
represented by labor unions. The Company has multi-year contracts
with labor unions covering a substantial number of employees of
ABN, several of which were renegotiated during 1995. The Company's
future profitability will be dependent, in part, upon its ability
to maintain satisfactory relationships with labor unions and
employees and in avoiding strikes and work stoppages.
ITEM 2. Properties
The following table describes the Company's facilities:
Size (in
Location square feet) Owned or Leased Operations
Corporate Headquarters
200 Park Avenue 12,500 Lease expiring Executive, administration
New York, New York in 1998 and sales offices (1)
Printing/Engraving Operations
Bedford Park, 156,000 Lease expiring Printing (2)
Illinois in 2009, with
purchase option
Columbia, 50,000 Leasing expiring Printing
Tennessee in 1999, with
purchase option
Elmsford, 59,000 Lease expiring Administration and
New York in 2007, with sales offices,
renewal option research and development
and hologram production
Horsham, 111,000 Owned Administration and
Pennsylvania sales offices; printing
Huntingdon Valley, 30,000 Lease expiring Hologram production
Pennsylvania in 1996, with
renewal option
Barueri, Sao Paulo 290,000 Leased, under Future consolidation of
Brazil construction Osasco, Brazil facility
with purchase
option
Osasco, Sao Paulo 280,000 Leased Checks, financial cards
Brazil bank forms and
publications
Rio de Janeiro, RJ 140,000 Owned Checks, financial and
Brazil telephone cards,
intaglio documents
and vouchers
Alphaville, Sao Paulo 27,000 Owned Personalization of
Brazil checks
Size (in
Location square feet) Owned or Leased Operations
Other Facilities
Forest Park, 60,000 Lease expiring Storage
Illinois in 1997, with
renewal and
purchase option
Los Angeles, 148,000 Lease expiring Facility closed (3)
California in 2000
New York, 30,000 Lease expiring (1)
New York in 1997
Philadelphia, 104,000 Owned Product distribution
Pennsylvania (Caroline Road) and storage(4)
Philadelphia, 95,000 Owned Ink manufacturing and
Pennsylvania (55th Street) storage(4)
_____________________
(1) In connection with a new long-term lease for 22,000 square feet for
corporate offices entered in 1993, the landlord assumed the cost of
maintaining the Company's former headquarters lease through its expiration
in 1997. In 1996, as part of the Company's restructuring, the Company
terminated the 1993 lease and vacated those facilities in March 1996 to
move to smaller corporate offices. Notwithstanding termination of the
1993 lease, the landlord will continue to make the payments required under
the old lease through expiration of its term.
(2) The plant is to cease production in 1996 and the facility will be closed.
(3) In 1994 the Company decided to completely vacate its Los Angeles facility
and is seeking to sublease or otherwise terminate this lease.
(4) These former production or administration facilities are currently used for
storage of files, excess equipment and materials.
ITEM 3. Legal Proceedings
In January 1994, Vladimir v. United States Banknote Corporation,
et al., and in February 1994, Sinay v. United States Banknote
Corporation, et al. were filed in the United States District Court
for the Southern District of New York on behalf of a purported
class of purchasers of Common Stock between April 1, 1993 and
January 6, 1994. Also, in January 1994, Atencio v. Morris
Weissman, et al. was filed in the Court of Chancery for the State
of Delaware, New Castle County, against various directors and/or
officers of the Company, on behalf of a purported class and also
derivatively on behalf of the Company which was named as a nominal
defendant. In February 1994, Rosenberg v. Morris Weissman, et al.
was filed in the same court as Atencio, alleging similar claims to
Atencio, but not on behalf of a class of plaintiffs.
The complaints in these four actions allege, among other things,
that the Company and the individual defendants knowingly or
recklessly caused the market price of its Common Stock to be
inflated artificially by making misleading statements and/or
omissions of material fact concerning the risk of loss of the
Company's stamp printing contracts with the USPS. The Vladimir and
Sinay actions seek unspecified damages. The Atencio and Rosenberg
actions also assert claims for breach of fiduciary duty by the
individual defendants, and allege that certain of the defendants
sold Common Stock while in possession of material non-public
information and seek recapture of the profits earned by the
defendants who purportedly traded, the repayment by the defendants
of their 1993 salaries, damages for the costs to the Company of
defending the Vladimir and Sinay actions and the annulment of the
1993 election of directors.
On June 16, 1995, the court granted plaintiff's motion for class
certification in Vladmir and defined the class to include persons
(other than defendants and related persons) who purchased the
Company's stock from April 1, 1993 through January 6, 1994. On
February 28, 1996, the Sinay action was voluntarily dismissed. The
Atencio and Rosenberg actions have been stayed pending the outcome
of the Vladimir action.
On November 1, 1994, the Company filed an action against De La
Rue, AG ("DLR")and its parent, De La Rue Plc in New York State
Supreme Court. The complaint alleges breach of contract in
connection with the 1993 purchase of the Company's Brazilian
subsidiary from DLR and seeks in excess of $1.5 million in damages.
In December 1994, the action was removed by the defendants to the
United States District Court for the Southern District of New York.
Defendants have filed an answer denying liability and asserting
counterclaims. Discovery is presently underway. On November 2,
1994, an action was commenced against the Company and certain of
its directors and officers entitled Thomas De La Rue AG v. United
States Banknote Corporation, et al. in the United States District
Court for the Southern District of New York. The complaint, as
amended, alleges, among other things, breach of contract by the
Company in connection with the Brazil purchase agreement and common
law fraud based on the alleged failure to disclose the risk of loss
of the Company's stamp printing contracts with the USPS and the
alleged failure to register the Common Stock paid to DLR
expeditiously with the SEC. The complaint seeks unspecified
damages as well as $6.8 million for the Common Stock received by
DLR in the transaction. On November 20, 1995, plaintiff amended
its complaint and eliminated all of its federal securities law
claims and the individual defendants following dismissal of certain
of DLR's securities law claims by the court. Discovery is
presently underway.
The adverse determination of the above-described litigations
could have a material adverse effect on the financial condition or
results of operations of the Company in the event that the
Company's insurance was not available to cover such claims or an
award materially in excess of insurance coverage was made. The
Company believes, however, that it has good and meritorious
defenses to the litigations and intends to vigorously defend
against such actions. The Company maintains insurance coverage
which presently covers a majority of the expenses of defense of the
class action suits and, until November 1995, the DLR suit. In
addition to the foregoing, the Company is party to legal
proceedings that are considered to be either ordinary, routine
litigation incidental to its business or not material to the
Company's consolidated financial position.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders in
the fourth quarter of 1995.
ITEM 10. Directors and Executive Officers of the Company
The following table sets forth certain information regarding the
current executive officers of the Company.
Positions and Offices Office Held
Name Age With the Company Since
Morris Weissman* . . . . . 54 Chairman of the Board and (1)
Chief Executive Officer
Bette B. Anderson . . . . 67 Director June 1994
Dr. Oscar Arias. . . . . . 56 Director July 1995
C. Gerald Goldsmith . . . 67 Director July 1990
Ira J. Hechler. . . . . . 76 Director February 1990
David S. Rowe-Beddoe. . . 57 Director July 1990
John T. Gorman*. . . . . . 51 Executive Vice President (1)
and Chief Financial Officer
Harvey J. Kesner*. . . . . 38 Senior Vice President, June 1991(1)
General Counsel and
Secretary
Robert K. Wilcox*. . . . . 49 Senior Vice President - (1)
Manufacturing, General
Manager ABN
Sidney Levy. . . . . . . . 39 Managing Director of February 1994
ABNB
Paul Amatucci. . . . . . . 49 Executive Vice President, (1)
ABN
Josh Cantor. . . . . . . . 36 Executive Vice President, (1)
General Manager ABNH
Sheldon Cantor . . . . . . 62 Vice President - Corporate (1)
Services and Assistant
Secretary
Patrick D. Reddy . . . . . 54 Vice President and Assistant (1)
Secretary
Ward A.W. Urban. . . . . . 35 Vice President, Treasurer and
Assistant Secretary (1)
Patrick J. Gentile . . . . 37 Vice President and Corporate (1)
Comptroller
___________________
* "Executive Officer" under the Securities Exchange Act of 1934, as amended.
(1) See below.
Morris Weissman. Mr. Weissman has served as Chairman of the
Board and Chief Executive Officer of the Company since July 1990
and as a Director of the Company since February 1990. Mr. Weissman
assumed the additional duties of Chief Operating Officer in July
1995. Mr. Weissman was Chairman and Chief Executive Officer of
United States Banknote Company, L.P. ("USBC") a predecessor of the
Company, from April 1986 to July 1990 and Vice Chairman and
Director of USBC's predecessor from 1976 to 1986. Mr. Weissman is
a Director of the Convenience and Safety Corporation and a Trustee
of the Jackie Robinson Foundation and the Business Council for the
United Nations.
Bette B. Anderson. Ms. Anderson has served as a Director of the
Company since June 1994. She has served as President of Kelly,
Anderson, Pethick & Associates, Inc., financial and corporate
consultants, since 1989. Ms. Anderson served as Undersecretary of
the Treasury from 1977 to 1981 and held various Washington, D.C.
consulting posts from 1981 to 1991. Ms. Anderson is a Director and
Chairperson of the Compensation Committee of Manville Corporation,
a Director of ITT Corporation, a Director of ITT Financial
Corporation, a Director and Chairperson of the Compensation
Committee of Riverwood International Corporation, Chairperson of
the U.S. Treasury Historical Association, a member of the Council
for the Miller Foundation, University of Virginia, and a member of
the Advisory Council of the Girl Scouts of America.
C. Gerald Goldsmith. Mr. Goldsmith is a private investor. He
has served as a Director of the Company since July 1990. He is a
Director of Palm Beach National Bank and Trust, and since June
1993, a Director of Nine West Group, Inc.
Ira J. Hechler. Mr. Hechler is a private investor. He has
served as a Director of the Company since February 1990. He is a
Director of Leslie Fay Companies, Inc. and Concord Camera Corp.
David S. Rowe-Beddoe. Mr. Rowe-Beddoe has served as a Director
of the Company since July 1990. He has been Chairman of the Board
of Welsh Development Agency since 1993 and Chairman of the
Development Board of Rural Wales since 1994. Mr. Rowe-Beddoe is
also a Director of Cavendish Services Ltd. and Development
Securities plc. Mr. Rowe-Beddoe previously held various senior
management positions, including at Revlon Inc. and De La Rue plc,
where he was an Executive Director.
John T. Gorman. Mr. Gorman has served as Executive Vice
President and Chief Financial Officer of the Company since July
1990 and as Vice President of the Company from February 1990 to
July 1990. Mr. Gorman was Executive Vice President and Chief
Financial Officer of USBC from January 1983 to July 1990 and Senior
Vice President of Finance of USBC's predecessor from 1978 to 1983.
Harvey J. Kesner, Esq. Mr. Kesner has served as Senior Vice
President, General Counsel and Secretary of the Company since June
1994 and as Vice President, General Counsel and Secretary of the
Company from 1991 to 1994. Mr. Kesner was an attorney in private
practice for more than five years prior thereto.
Robert K. Wilcox. Mr. Wilcox has served as Senior Vice President
Manufacturing of the Company since August 1995 and as Executive
Vice President - Operations and General Manager of ABN since
November 1995. Mr. Wilcox was Vice President of US Operations for
Transcontinental Printing and previously held senior positions at
the Bureau of Engraving and Printing as well as Gowe Printing,
Arcata Graphics and C.P.Y. Jeffries Banknote Co.
Sidney Levy. Mr. Levy has served as Managing Director of ABNB
since February 1994. Prior to joining ABNB, Mr. Levy was employed
as Managing Director of De La Rue Lerchundi in Spain since 1991 and
prior thereto was employed by Thomas De La Rue Grafica e Servicos
Ltda. in Brazil, serving in various management capacities.
Paul Amatucci. Mr. Amatucci has served as Executive Vice
President of ABN since September 1994. Mr. Amatucci was Vice
President - Sales of ABN for more than five years prior thereto.
Josh Cantor. Mr. Cantor has served as Executive Vice President
and General Manager of ABNH since November 1995 and Executive Vice
President of ABN since September 1994. Mr. Cantor was Vice
President - Sales of ABN for more than five years prior thereto.
Sheldon Cantor. Mr. Cantor has served as Vice President-Corporate
Services of the Company since August 1993. Mr. Cantor
was Treasurer of the Company from July 1990 to August 1993, and
Vice President and Assistant Secretary from February 1990. Mr.
Cantor was Treasurer of USBC and its predecessor from January 1983
to July 1990.
Patrick D. Reddy. Mr. Reddy has served as Vice President and
Assistant Secretary of the Company since July 1990 and as Vice
President, Treasurer and Secretary from February 1990 to July 1990.
Mr. Reddy had been a continuous employee of the Company's
predecessors since 1969 and has held many positions during that
period, including Comptroller, Secretary and Treasurer.
Ward A.W. Urban. Mr. Urban has served as Treasurer of the
Company since August 1993 and as Vice President and Assistant
Secretary since June 1995. Mr. Urban was employed as an Assistant
Vice President in the leveraged finance department of Citibank,
N.A. since August 1988.
Patrick J. Gentile. Mr. Gentile has served as Vice President of
the Company since June 1995 and as Comptroller since 1989 and has
been a continuous employee of the Company's predecessors since
1986.
PART II
ITEM 5. Market Price for the Company's Common Stock and Related
Matters
The Company's Common Stock is traded on the New York Stock
Exchange. The following table sets forth, for the periods
indicated, the high and low sales price per share of the Company's
Common Stock.
1995 1994
High Low High Low
First Quarter $2 1/2 $1 1/2 $6 1/2 $3 1/4
Second Quarter $2 1/2 $1 3/4 $4 $3
Third Quarter $2 3/8 $1 5/8 $3 5/8 $2 1/2
Fourth Quarter $2 1/8 $1 1/4 $2 7/8 $1 3/4
During the first quarter of 1996 through March 25, 1996 the
high and low sales prices of the Company's stock was $2 and $1 1/4,
respectively.
No cash dividends have been paid during the two most recent
fiscal years on the Common Stock. The Company is restricted from
paying cash dividends on the Common Stock by the terms of the
Company's 10-3/8% Senior Notes due June 1, 2002 (the"10-3/8% Senior
Notes"), the 11-5/8% Senior Notes due August 1, 2002 (the"11-5/8%
Senior Notes") and the credit agreement with Chemical Bank. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -Liquidity and Capital Resources." The
Company does not expect to pay cash dividends on the Common Stock
in the foreseeable future.
There were 2,976 holders of record of the Company's Common
Stock at the close of business on March 26, 1996.
ITEM 6. Selected Financial Data
The selected financial data presented below is derived from
the Company's consolidated financial statements, and should be read
in conjunction with the Company's consolidated financial
statements, including the notes thereto, appearing elsewhere
herein.
The historical financial data presented below reflects the
results of operations of ABNB from June 23, 1993, the date of its
acquisition by the Company and the acquisition of Grafica Bradesco
since July 1, 1995.
Year Ended December 31
1995 1994 1993 1992 1991
(Dollars in thousands, except share data)
INCOME STATEMENT DATA:
Sales. . . . . . . . . . . . . $206,164 $208,133 $200,079 $171,877 $161,192
Restructuring costs (1). . . . 14,304 5,000 12,000 -- --
Provision for idle equipment (2) -- 2,000 -- -- --
Depreciation and amortization 14,824 13,094 11,180 8,438 6,653
Operating income (loss). . . . . (11,850) 18,176 25,688 25,646 23,554
Interest expense . . . . . . . (23,147) (21,057) (14,605) (14,609) (16,768)
Foreign exchange losses, net (3) (38) (7,037) (5,161) -- --
Other income, net. . . . . . . 2,824 1,816 222 811 432
Income (loss) before
minority interest. . . . . . (20,852) (5,701) 1,855 6,481 5,607
Income (loss) before
extraordinary item (4) . . . . (22,415) (5,701) 1,593 5,684 4,758
Preferred stock dividend
requirements . . . . . . . . -- -- (20) (484) (1,557)
Weighted average common and
common equivalent shares . . . 19,095 19,000 19,200 16,690 12,358
Income (loss) per share
from operations . . . . $(1.17) $(0.30) $0.08 $0.31 $0.26
At December 31
1995 1994 1993 1992 1991
(Dollars in thousands)
BALANCE SHEET DATA:
Cash and cash equivalents. . . .$ 23,525 $ 31,658 $ 15,437 $ 21,319 $ 5,579
Working capital. . . . . . . . 54,973 65,887 50,351 54,973 20,513
Total assets . . . . . . . . . 379,402 382,950 357,212 300,349 213,609
Long-term debt, excluding
current portion . . . . . . 194,156 191,192 167,782 128,272 113,193
Cumulative Preferred Stock . . -- -- -- -- 4,101
Stockholders' equity . . . . . 40,353 62,777 68,330 61,827 44,783
Notes to Selected Financial Data
(1) Restructuring costs represent provisions principally for the consolidation
during 1995 of ABN's Chicago plant and its Los Angeles plant in 1994 and
1993. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(2) Consists primarily of charges for leases and equipment that will not be
utilized in the Company's business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(3) Results from the Company's translation of Brazilian local currency into
dollars in accordance with Statement of Financial Accounting Standards
("SFAS") No. 52, "Foreign Currency Translation." See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(4) 1995 includes a $2.8 million benefit and 1993 includes a $1.5 million
charge for adjustment of deferred tax assets and liabilities pursuant
to SFAS No. 109 for changes in enacted tax rates. The 1995 amount
pertained to decreases in ABNB local tax rates and the 1993 amount
pertained to increases in the US federal corporate tax rate.
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
The Company's growth during the past three years has been
generated principally by the acquisition of ABNB in June 1993,
increases in ABNB's major product lines and the acquisition of
Grafica Bradesco in July 1995. Operating income and operating
margins before restructuring charges were lower in 1995 due to
decreased domestic sales by ABN and changes in product mix and
start-up of new production capacity in Brazil for telephone cards
during the first half of 1995.
The Company has been consolidating its domestic facilities
to improve its competitive position. During 1994, the Company
closed its Los Angeles facility and consolidated its operations
in its remaining two domestic facilities. During 1995 and 1996,
the Company further consolidated domestic activities in ABN's
Horsham, Pennsylvania facility, and significantly downsized the
its corporate offices. The Company's domestic workforce is
expected to be reduced by approximately 27% from prior levels.
During the consolidation and downsizing, the Company expects
a short-term negative impact on operating margins, cash flow and
cash position while redundancies in fixed and other costs are
eliminated through 1996. The Company, in the fourth quarter of
1995, established a reserve for charges in connection with the
downsizing, consolidation and restructuring activities. See,
"Liquidity and Capital Resources." As a result of the
consolidation program described above, the Company believes it
has increased the overall productivity and efficiency of ABN's
operations which should begin to benefit the Company by the
second half of 1996 and thereafter.
The Company has experienced increasing competition in many
of the markets in which it competes. ABN and ABNB compete with
other printers, as well as companies engaged in businesses
unrelated to printing that provide goods or services which could
replace or substantially reduce demand for certain of the
Company's printed products. In addition, certain of ABN's
domestic product lines are mature.
The Company's business strategy includes continuing its
growth by increasing its presence in selected foreign markets,
particularly Latin America and Asia, through strategic alliances,
selective acquisitions and expanded selling efforts. These
activities, particularly the Company's acquisitions, could
require the Company to commit portions of its cash balances in
order to consummate a transaction and to commit a portion, or
all, of the cash flow of any acquisition or similar transaction
for an indefinite period to debt service for such acquisition.
As part of this strategic plan, the Company acquired ABNB in June
1993 and in July 1995 ABNB acquired the printing operations and
business of Grafica Bradesco. Prior to the acquisition of ABNB,
the Company did not have any substantial foreign manufacturing
operations. The Company's financial condition could be adversely
affected if the Company cannot successfully integrate any
acquired business into its existing operations or if the Company
is required to materially increase the amount of its financial
commitment to such acquisitions, investments or joint ventures.
ABNB currently operates in a changing economic environment which
may cause volatility in the Company's financial results from time
to time. In addition, cash dividends from ABNB to the Company
have historically been subject to a 15% Brazilian withholding tax
and could be subject to government restrictions in the future,
including restrictions or prohibitions on the repatriation of
funds. As a result of recent legislation enacted by the
Brazilian government, effective for tax years beginning in 1996,
the 15% withholding tax on post-1995 repatriated earnings was
eliminated. In 1994, the Brazilian government introduced an
economic stabilization program designed to reduce the country's
hyperinflation. See "Impact of Inflation" for additional
information.
Recent Developments
In connection with the consolidation and restructuring, the
Company announced plans to close its Bedford Park, Illinois
facilities. The Company expects a substantial downsizing in its
domestic workforce to be completed during the first half of 1996
as the Company reduces operations, closes its Bedford Park,
Illinois facility and downsizes its corporate headquarters.
During February 1996, ABN leased a 50,000 square foot
facility in Columbia, Tennessee and expects to be operational in
this new facility during the second quarter of 1996. The Company
expects the additional costs associated with start-up of this
facility to negatively affect operating margins and operating
income during 1996.
Results of Operations
General
On June 23, 1993, the Company acquired all of the
outstanding shares of ABNB and as of July 1, 1995, ABNB acquired
Grafica Bradesco in exchange for a 22.5% minority interest in
ABNB. The acquisitions were accounted for as a purchase
transactions and operations of the companies have been included
in the consolidated operations since the acquisition dates. The
acquisitions of ABNB in the third quarter of 1993 and Grafica
Bradesco in the third quarter of 1995, have had a significant
impact on the operations of the Company.
Comparison of Results of Operations 1995 with 1994
Sales in 1995 decreased by $2.0 million (1.0%) from 1994.
Corporate and Commercial and Holographic sales increased $8.7
million and $5.9 million, respectively. Government sales
decreased $16.5 million. The increase in Corporate and
Commercial sales is primarily due to increases in sales as a
result of the Grafica Bradesco acquisition ($25.4 million) and
increases in prepaid telephone cards ($19.0 million) offset by
decreases in sales of stocks and bonds ($5.7 million), foreign
security products ($15.1 million), personalized checks ($6.9
million), commercial products ($4.8 million), and other products
($3.2 million). The increase in holographic sales is primarily
attributable to holograms for credit cards. The decrease in
Government sales is primarily due to a decrease in food coupons
($22.5 million) and US Postal ($1.2 million) sales, partially
offset by increases in currency ($2.4 million) and automobile
vouchers, driver licenses and other product sales ($4.8 million).
The reduction in food coupon sales reflects a trend resulting in
a present level of sales that is not expected to increase and
which may experience further declines. See "Liquidity and
Capital Resources." The change in various components of sales
may be affected by the timing of contract awards and delivery
requirements of customers.
Cost of goods sold increased $18.1 million (13.9%) from 1994
and as a percentage of sales was 72.3% in 1995 as compared to
62.9% in 1994. Cost of goods sold increased as a result of the
Grafica Bradesco acquisition in the third quarter of 1995, which
resulted in a change in product mix and, in the second quarter of
1995, the write-off of inventory related to work for an overseas
customer that went out of business and manufacturing losses on
certain other orders. The Company does not expect to incur
additional charges from these inventory and manufacturing losses
in the future. Manufacturing margins are expected to be
negatively affected while the Company continues to consolidate
ABN's operations and downsize, particularly in connection with
the closure of the Bedford Park, Illinois plant and the start-up
of the new Columbia, Tennessee facility. The cost of sales
percentage also was impacted by reduced margins in Brazil since
margins in the prior year were higher as sales included
inflationary price adjustments which have now been eliminated as
part of the Brazil economic stabilization program. While margins
were lower due to this stabilization program, earnings were
favorably impacted by the virtual elimination of translation
losses. The Company expects ABNB's margins to continue to be
affected by these factors. New prepaid telephone card production
lines in Brazil increased fixed manufacturing costs which was
offset, in part, by lower domestic fixed manufacturing cost. The
product mix in any given period is not indicative of the expected
product mix which can be expected in future periods.
Selling and administrative expenses increased by $0.9
million from 1994 (2.3%) primarily as a result of the settlement
of an executive severance agreement and increased selling and
administrative expenses in Brazil due principally to the Grafica
Bradesco acquisition and increased sales. As a percentage of
sales, selling and administrative expenses increased to 19.3%
from 18.7% in 1994.
Depreciation expense increased $1.7 million in 1995, as a
result of the Grafica Bradesco acquisition ($0.7 million) and
other fixed asset additions.
Interest expense increased $2.1 million in 1995 primarily
due to the issuance in May 1994 of the $65 million 11-5/8% Senior
Notes at a higher rate of interest than the $40 million of bank
debt it replaced. In addition, under its interest rate swap
agreements, the Company incurred net interest expense ($0.3
million) in 1995 versus income ($0.3 million) in 1994.
Foreign exchange losses, net, is a result of the Company's
translation of Brazilian local currency financial statements into
dollars in accordance with SFAS No. 52 "Foreign Currency
Translation." As a result, the translation adjustment is
recorded as a period item. Improving economic conditions in
Brazil stemming from the country's July 1994 economic
stabilization program resulted in a $7.0 million reduction in
foreign exchange loss. See "Impact of Inflation."
Other income, net, increased $1.0 million principally due to
an unrealized gain in marketable securities.
Income taxes reflect a benefit in 1995 as a result of
losses. The benefit rate was lower than the 1994 effective tax
rate, principally due to limitations on deducting certain
expenses for state tax purposes. As a result of changes in
enacted tax rates in 1995 ABNB realized a reduction in the net
deferred tax liability of $2.8 million.
The minority interest represents Banco Bradesco's 22.5%
interest in ABNB's operations since the July 1, 1995 acquisition
of Grafica Bradesco by ABNB.
Comparison of Results of Operations 1994 with 1993
Sales in 1994 increased by $8.0 million (4.0%) from 1993.
The inclusion of ABNB for an entire year in 1994 represented
$24.5 million of increased sales. Corporate and Commercial
Products sales increased ($28.1 million), offset by decreased
Government Products sales ($17.5 million), and Holographic
Products sales ($2.6 million). The increase in Corporate and
Commercial Product sales is primarily due to the inclusion of
ABNB sales for an entire year ($20.4 million) and other sales,
principally stock and bonds ($7.7 million). The net decrease in
Government Product sales of $17.5 million is primarily due to the
loss of USPS postage stamp business ($21.0 million) and decreased
currency sales ($7.5 million) offset by ABNB government sales
($4.1 million) and increased food coupon and other government
sales ($6.9 million). The decrease in Holographic Product sales
($2.6 million) was due to lower commercial and product
authentication sales ($4.2 million) offset in part by increased
credit card sales ($1.6 million). The change in various
components of sales, particularly Government Product sales is
affected by the timing of contract awards and delivery
requirements of customers. Increased sales of food coupons, a
major component of Government Product sales during 1994 was due
to an increase in the number of eligible recipients receiving
food coupon benefits and increased USDA inventory of food
coupons. ABNB's sales volume for the second half of 1994 was
reduced due to discontinuation of inflationary price increases
resulting from the country's economic stabilization plan begun in
July 1994 and the reduction in price increases reduced sales. In
addition, many contracts required re-negotiation and in certain
instances, selling prices were lowered due to the re-negotiations.
Cost of goods sold for 1994 increased $13.7 million (11.7%)
from 1993 and as a percentage of sales was 62.9% in 1994 as
compared to 58.6% in 1993. The increase in cost of goods sold in
absolute dollars and as a percentage of sales is due to several
factors. First, higher sales and product mix contributed to the
increase. Second, ABNB experienced lower margins in the second
half of the year due to a change in product mix and manufacturing
difficulties encountered in manufacturing the pre-paid telephone
card for Telebras. Third, fixed expenses were not immediately
reduced in line with the reduction in postage stamp business.
The product mix in any given period is not indicative of the
expected product mix for future periods.
Selling and administrative expenses in 1994 increased by
$5.0 million from 1993 (14.7%). As a percentage of sales,
selling and administrative expenses increased to 18.7% from
17.0%. The inclusion of ABNB for an entire year in 1994
represented $5.6 million of the increase. This increase was
offset by a decrease of $0.6 million in domestic costs, primarily
due to reduced sales volume in certain product areas.
In the fourth quarter of 1994, the Company made a decision
to completely vacate ABN's leased facility in Los Angeles and is
currently negotiating a final settlement with the landlord which,
if consummated, would eliminate any further liability for rental
and other payments under the lease. Accordingly, the Company
incurred an additional restructuring charge of $5 million in
1994, which included a provision for the remaining termination or
exit costs.
In prior years, the Company made investments in capital
equipment intended for use in connection with the products and
services supplied to the USPS. As a result of the loss of this
business, the Company re-evaluated the net carrying value of
capitalized equipment and the cost of operating leases used for
postage stamp production and recorded in the fourth quarter of
1994 a $2 million provision for the write-down of idle postal
equipment.
Depreciation and amortization expense increased by $1.9
million in 1994, primarily as a result of the inclusion of ABNB's
operations for a full year ($2.3 million). This increase was
partially offset by a $0.4 million reduction in domestic
depreciation as a result of the Los Angeles plant closing.
Interest expense increased $6.4 million in 1994 primarily
due to increased borrowings resulting from the $65 million 11-5/8%
Senior Note private placement on May 5, 1994 at a higher
rate of interest than the $40 million of bank debt it replaced.
The bank debt was incurred to acquire ABNB in June 1993. In
addition, as a result of an increase in interest rates, the
Company incurred a net expense ($0.1 million) from its interest
rate swap agreements, which is included in interest expense.
The foreign exchange loss is a result of the Company's
translation of Brazilian local currency financial statements into
dollars in accordance with SFAS No. 52 "Foreign Currency
Translation." As a result, the translation adjustment is
recorded as a period item. During 1994, the Company experienced
a greater translation loss than anticipated due to the higher
inflation rate prior to the change in the monetary system in
Brazil. See "Impact of Inflation."
Other income increased by a net $1.6 million principally due
to increased interest income resulting from higher invested cash
balances and the inclusion of ABNB for a full year.
Income taxes reflect a benefit in 1994 as a result of
losses. The benefit rate was lower than the 1993 effective tax
rate, principally due to limitations on deducting certain
expenses for state tax purposes.
The 1994 extraordinary item of $0.1 million represents the
write off of deferred debt expenses, net of tax benefits
(approximately $0.1 million) related to the early extinguishment
of the Company's $40.0 million bank indebtedness.
Restructuring
In 1993, the Company decided to cease manufacturing
operations at ABN's Los Angeles plant after considering its high
manufacturing and overhead costs. The Company incurred a $12
million restructuring charge which anticipated subleasing a
portion of the facility and retaining a portion for use by the
Company. The Company, in 1994, re-evaluated the Los Angeles real
estate market and decided that it would vacate the entire
facility, which resulted in an additional provision of $5.0
million. The net annual pre-tax cash flow savings were estimated
to be $3.9 million after allowing for the carrying cost of the
plant. This estimate was based on assumptions and estimates
which are subject to uncertainties and unforeseen events and may
not be indicative of the actual savings realized. However,
during the first year following the plant closure, the cash flow
benefit was approximately $2.5 million after allowing for moving
costs, leasehold improvements required at other plants to
accommodate increased volume and certain other non-recurring
closing costs. The remaining obligations under this
restructuring relate to lease commitments.
In 1995, the Company recorded a pre-tax restructuring charge
of approximately $14.3 million pursuant to a restructuring plan
developed by management for the Company's domestic security
printing operations and the relocation and downsizing of its
corporate offices. The plan is expected to be substantially
completed by the second quarter of 1996.
The 1995 restructuring charge provided for those reasonably
estimable costs resulting from the plan including costs that are:
(i) associated with and will not benefit activities that will
continue or generate future revenue and are incremental as a
result of the plan (ii) incurred under contractual agreements
(i.e. leases and employment agreements) that existed prior to the
commitment date that provide no future economic benefit; or (iii)
related to asset impairments and writedowns resulting directly
from the plan. The Company has estimated that the pre-tax annual
cost savings would be approximately $6.5 million, of which
approximately $5.3 million are manufacturing related fixed costs.
The realization of the cost savings is expected to commence
during the second quarter of 1996. Under the plan, the Company
plans to reduce the domestic workforce by approximately 27
percent from prior levels and has provided a $2.9 million reserve
for severance and related costs.
Asset re-valuations and writedowns accounted for $5.0 million
of the charge which reduced certain assets to their net realizable
value and primarily relates to leasehold improvements.
Lease and other facility obligations accounted for $6.4
million of the charge for the facilities to be closed in 1996.
Liquidity and Capital Resources
For the year ended December 31, 1995, the Company's net cash
used by operating activities totaled approximately $4.5 million.
The net loss of $22.4 million was adjusted by $17.9 million net
to reconcile to the cash used by operating activities. The
adjustments consisted primarily of adding back $17.7 million of
depreciation and amortization, $1.6 million of minority interest
and $14.2 of restructuring costs and by subtracting $16.7 million
of deferred taxes and $1.1 million in unrealized gain in
marketable securities. In addition, the decrease in accounts and
other receivables of $5.5 million, inventory of $1.7 million and
other net of $2.4 million provided cash during the year. The
increase in prepaid expenses of $2.5 million, marketable
securities of $1.3 million and the decrease in accounts payable
and accrued expenses of $3.8 million required the use of cash
during the year.
Significant increases in certain balance sheet amounts at
December 31, 1995 compared to December 31, 1994 were due
principally to the acquisition of the business and certain
operating assets of Grafica Bradesco in 1995 by ABNB in exchange
for a 22.5% minority interest in ABNB. As a result of the
acquisition, the following balance sheet accounts increased:
inventories $5.2 million, prepaid expenses and other current
assets $1.6 million, property plant and equipment $17.7 million,
net excess cost of investment in subsidiaries over net assets
acquired $2.3 million, accounts payable and accrued expenses $2.0
million, deferred income tax liabilities $7.7 million and
minority interest $17.2 million.
Net cash used in investing activities totaled $6.1 million,
as a result of $10.4 million of capital expenditures for new
equipment, primarily at ABNB and an investment in an affiliate of
$0.6 million, offset by the proceeds from the sale of a joint
venture of $4.7 million and sale of assets $0.2 million.
During the same period, consolidated net cash provided from
financing activities amounted to $3.0 million primarily on
proceeds from borrowings $3.4 million, offset by other payments
$0.4 million.
The Company's cash interest obligations under the 11-5/8%
Senior Notes and the 10-3/8% Senior Notes are approximately $7.6
million and $13.1 million per year, respectively. The Company
invests in short term investment grade obligations which
currently bear interest at approximately 5.25% and certain
marketable securities.
At December 31, 1995, the Company had approximately $23.5
million in cash and cash equivalents, $3.0 in marketable
securities, $126.5 million of 10-3/8% Senior Notes outstanding,
$65.0 million principal amount of 11-5/8% Senior Notes
outstanding, and approximately $3.3 million for outstanding
letters of credit.
On January 26, 1996, the Company's subsidiaries, ABN and
ABNH (the "Borrowers") as co-borrowers, entered into a three-year,
$20 million revolving credit facility with Chemical Bank
(the "Credit Agreement"). The Credit Agreement is a committed
facility and replaces the former Citibank agreement. The Credit
Agreement is available for general working capital purposes and
letters of credit and expires on October 30, 1998.
Under the Credit Agreement: (i) interest is based upon the
lender's Alternate Base Loan Rate (as defined) plus 1.00%, or at
the Company's option, LIBOR plus 2.50% (these margins will
automatically reduce to 0.50% and 2.00% respectively once the
Borrowers (ABN and ABNH) demonstrate compliance with the
financial covenants); and (ii) certain covenants apply to ABN and
ABNH's borrowings, including, but not limited to, interest
coverage ratios for both the consolidated Company and Borrowers,
EBITDA minimums for both ABN and ABNH, limitations on
indebtedness, capital expenditures, sales of assets and
acquisitions and restrictions on the payment of cash dividends.
The Credit Agreement is an asset-based facility secured by
accounts receivable and inventory of the Borrowers. Borrowings
under the Credit Agreement are restricted to a permissible amount
relating to the receivables and inventory borrowing base. At
December 31, 1995, the Borrowers would have had available
approximately $10 million under the Credit Agreement.
In 1994, the Company amended its 10-3/8% Senior Notes to:
(i) permit the sale or issuance of up to 35% of the equity
interests of ABNB in certain circumstances; (ii) permit the
release of up to 35% of the voting interests of ABNB from their
pledge as security for the obligations of the Company under the
10-3/8% Senior Notes; and (iii) exclude from the definition of
Major Asset Sales any permitted issuances by ABNB of its capital
stock. In 1995, 35% of the equity interest of ABNB was released
from the pledge.
For the year ended December 31, 1995, the Company had made
all required interest payments and was in compliance with the
covenants of the 10-3/8% Senior Notes and the 11-5/8% Senior
Notes. Pursuant to the indentures, the Company and its
subsidiaries are restricted from incurring additional
indebtedness without consent, except for borrowings under certain
bank borrowing agreements, lease financings in the normal course
of business, intercompany indebtedness and other obligations
entered into in the ordinary course of business. Additionally,
the Company and its subsidiaries are restricted from declaring or
paying a cash dividend or making any distributions on its capital
stock, purchasing or redeeming any equity interests or making
investments, with certain exceptions.
The Company and its subsidiaries are highly leveraged. At
December 31, 1995, total consolidated long-term debt, excluding
the current portion, was approximately $194.2 million
(representing approximately 83% of total capitalization) and the
Company had approximately $23.5 million in cash and cash
equivalents and $3.0 million in marketable securities.
The high level of the Company's indebtedness, as well as any
acquisition debt permitted to be incurred in connection with any
of the Company's permitted acquisitions, poses certain risks to
holders of the Company's senior indebtedness, including the risk
that the Company might not generate sufficient cash flow to
service the Company's obligations and the risk that the Company's
capacity to respond to market conditions, extraordinary capital
needs and other factors could be adversely affected. The
Company's ability to service its debt depends upon the future
performance of the Company's subsidiaries, which will be subject
to prevailing economic and competitive conditions and to other
factors, including the continued ability to generate cash at the
Company's operating subsidiaries, to distribute that cash to the
Company for debt service and to repatriate funds from foreign
subsidiaries, particularly ABNB. Other future acquisitions and
joint ventures in which the Company does not maintain 100%
ownership, foreign legal and tax requirements and the terms of
any acquisition debt incurred may further restrict the ability of
newly acquired subsidiaries and joint venture investments to
declare and pay dividends or make distributions.
The Company expects to seek to refinance the 11-5/8% Senior
Notes and the 10-3/8% Senior Notes at or before their respective
maturities; however, no assurance can be given as to the
Company's ability to refinance such obligations, that the
Company's revolving credit facility will be available when
required or that prevailing interest rates will be advantageous
to the Company. In the event that the Company is unable to
refinance its indebtedness as it matures or raise funds through
asset sales, sales of equity or otherwise, its ability to pay
principal of or interest on the 10-3/8% Senior Notes, the 11-5/8%
Senior Notes and other long-term indebtedness of the Company
would be adversely affected.
In December 1995, the existing interest rate swap and
interest rate cap agreements based upon a $60 million notional
amount were terminated at an approximate break-even cost. The
Company has no contingent liability under these agreements.
Certain states have adopted electronic programs which
replace the traditional methods of distribution of public
assistance benefits to recipients, including replacing food
coupons with debit-type cards. Several state-wide programs have
been implemented, while others have recently awarded contracts.
Other states are evaluating such programs. While sales of food
coupons have increased in recent years, proposed benefit reforms
as well as electronic programs will reduce the Company's volume
of food coupon production in 1996 and future years. It is not
anticipated that the USDA will maintain past levels of orders.
During the next two years, the Company may make aggregate
capital expenditures, including maintenance of existing equipment
and capital expenditures for new business, of up to $25 million,
principally to acquire modernized printing equipment and to
increase production capacity for pre-paid telephone cards in
Brazil. Such capital expenditures include amounts that will be
financed through equipment leasing and other financing
arrangements. The portion of capital expenditures not financed
through such leases will be financed with working capital.
Management of the Company believes that cash flows from
operations of the Company, together with its existing cash
balances and available borrowings and leasing arrangements, will
be sufficient to service its working capital and debt service
requirements for the foreseeable future and to fund the capital
expenditures referred to above.
The future cash outlays for the remaining restructuring
reserve of $12.0 million (principally related to leases) at
December 31, 1995 are anticipated to be $5.1 million in 1996,
$2.1 million in 1997, $1.3 million in 1998 and $3.5 million
thereafter to 2009.
Tax Law Changes
As a result of Brazilian tax legislation, beginning in 1996
income tax rates have been reduced from approximately 48% to 31%.
Effective for tax years beginning in 1996, the 15% withholding
tax on post-1995 repatriated earnings was eliminated.
New Accounting Standards
In March 1995, SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", was issued. Management estimates that the adoption will not
have a material effect on the Company's financial statements and
will be adopted in 1996.
In November 1995, SFAS No. 123 "Stock Based Compensation"
was issued. Management is evaluating the effect of the adoption
of this Standard on the Company's financial statements which
Standard will be adopted in 1996.
Impact of Inflation
On July 1, 1994 the Brazilian government introduced a new
currency, the "Real" as part of the government's economic
stabilization program designed to reduce the country's
hyperinflation. Prior to the introduction of the Real, the
Brazilian government created a new monetary unit (the "URV") as a
transition mechanism. During this period prices were
re-negotiated in URV's. From April 1 to June 30, 1994 inflation
increased over pre-URV levels resulting in higher than
anticipated translation losses. However, the annual inflation
rate has decreased substantially to approximately 23% for 1995 as
compared to 941% for 1994. The Company cannot predict what
impact, if any, such initiatives will have on the Brazilian
economy or on ABNB's consolidated results of operations
The Company's domestic operations are not significantly
affected by inflation. ABNB sales for 1995 contributed a
significant portion of consolidated sales of the Company (48%).
The Company's foreign exchange exposure policy generally calls
for selling its domestic manufactured product in US dollars and,
in the case of ABNB, selling in Brazilian national currency, in
order to minimize transactions occurring in currencies other than
those of the originating country. The Company has not engaged in
material hedging activities. In addition, the Company's
accounting policies require translation of local currency into US
dollars in accordance with SFAS No. 52, which provides for
appropriate accounting treatment where exchange rates are most
volatile. Any translation adjustments resulting from converting
ABNB's balance sheet and income statements into US dollars are
recorded as period costs in accordance with SFAS No. 52.
Currently, repatriation of earnings from ABNB is permitted,
subject to certain regulatory approvals. As a result of tax
legislation in Brazil in 1995, cash dividends from ABNB to the
Company from earnings after 1996 are not subject to the dividend
withholding tax. Dividends or distributions from Brazil could be
subject to government restrictions in the future. The Company
has not received any dividends from ABNB to date and the Company
may reinvest excess cash from ABNB and other activities outside
the United States.
Earnings on foreign investments, including operations and
earnings of foreign companies in which the Company may invest or
rely upon for sales, are generally subject to a number of risks,
including high rates of inflation, currency exchange rate
fluctuations, trade barriers, exchange controls, government
expropriation and political instability and other risks. These
factors may affect the results of operations of companies in
selected markets included in the Company's growth strategy, such
as in Latin America (including ABNB) and Asia. The Company's
financial performance on a dollar-denominated basis can be
significantly affected by changes in currency exchange rates and
inflation. The Company's cash balances and borrowings in foreign
currency can mitigate the effect of fluctuating currency exchange
rates; however, borrowings and investments in foreign currency
and markets may not be available or practical and may face local
interest rate and principal risks. In addition, adverse changes
in foreign interest and exchange rates could adversely affect the
Company's ability to meet its interest and principal obligations
as well as applicable financial covenants with respect to its
dollar-denominated debt, including the 10-3/8% Senior Notes, the
11-5/8% Senior Notes and other indebtedness of the Company.
Prior to the acquisition of ABNB, the Company did not have
any substantial foreign domicile operations. See Note A of
"Notes to Consolidated Financial Statements" for the disclosure
of certain financial information relating to foreign operations.
Earnings of foreign subsidiaries are subject to foreign
income taxes that reduce cash flow available to meet required
debt service and other obligations of the Company. The ability
to utilize foreign taxes paid, as credits against US tax
liability, is based upon the determination of foreign source
income. In computing allowable foreign source income, certain
consolidated expenses are allocated which limit the utilization
of foreign tax credits.
The Company has from time to time reorganized and
restructured, and may in the future reorganize and restructure,
its foreign operations based on certain assumptions about the
various tax laws (including capital gains and withholding tax),
foreign currency exchange and capital repatriation laws and other
relevant laws of a variety of foreign jurisdictions. While
management believes that such assumptions are correct, there can
be no assurance that foreign taxing or other authorities will
reach the same conclusion. If such assumptions are incorrect, or
if such foreign jurisdictions were to change or modify such laws,
the Company may suffer adverse tax and other financial
consequences which could impair the Company's ability to meet its
payment obligations on the 10-3/8% Senior Notes, 11-5/8% Senior
Notes and other indebtedness of the Company.
ITEM 8. Financial Statements and Supplementary Data
The following consolidated financial statements of the Company and its
subsidiaries for the year ended December 31, 1995 are set forth herein:
Independent Auditors' Report
Consolidated Statements of Operations - Years Ended
December 31, 1995, 1994 and 1993
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statement of Stockholders' Equity - Three Years
Ended December 31, 1995
Consolidated Statements of Cash Flows - Years Ended
December 31, 1995 1994 and 1993
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
American Banknote Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of American
Banknote Corporation (formerly named United States Banknote Corporation) and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the 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, such consolidated financial statements present fairly,
in all material respects, the financial position of American Banknote
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
February 21, 1996
New York, New York
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Year Ended December 31
1995 1994 1993
Sales . . . . . . . . . . . . . . . . $206,164 $208,133 $200,079
Costs and expenses:
Cost of goods sold. . . . . . . . . . 149,035 130,889 117,200
Selling and administrative. . . . . . 39,851 38,974 34,011
Restructuring costs. 14,304 5,000 12,000
Provision for idle equipment. . . . . - 2,000 -
Depreciation and amortization . . . . 14,824 13,094 11,180
218,014 189,957 174,391
(11,850) 18,176 25,688
Other (expense) income:
Interest expense. . . . . . . . . . . (23,147) (21,057) (14,605)
Foreign exchange losses, net . . . . (38) (7,037) (5,161)
Other, net 2,824 1,816 222
(20,361) (26,278) (19,544)
Income (loss) before provision
for income taxes and
minority interest. . . . . . . . (32,211) (8,102) 6,144
Provision for income taxes:
Taxes (benefits) based on income. . . . (8,522) (2,401) 2,789
Effect of changes in income tax rates (2,837) - 1,500
(11,359) (2,401) 4,289
Income (loss) before minority
interest. . . . . . . . . (20,852) (5,701) 1,855
Minority interest. . . . . . . . . . 1,563 - 262
Income (loss) before
extraordinary item . . . . . . (22,415) (5,701) 1,593
Extraordinary item . . . . . . . . . . - (114) -
Net income (loss) . . . . . . . . . $(22,415) $ (5,815) $1,593
Income (loss) per share:
Operations. . . . . . . . . . . . . $ (1.17) $ (.30) $ .08
Extraordinary item. . . . . . . . . . - (.01) -
Net income (loss) per share . . . $ (1.17) $ (.31) $ .08
See Notes to Consolidated Financial Statements.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for per share data)
December 31
1995 1994
ASSETS
Current assets
Cash and cash equivalents $ 23,525 $ 31,658
Marketable securities - at market 2,952 637
Accounts receivable, net of allowance for
doubtful accounts of $816 and $471 32,058 43,783
Other receivables 7,772 4,767
Inventories 23,243 20,497
Deferred income tax benefits 5,983 5,685
Prepaid expenses 4,755 2,334
Total current assets 100,288 109,361
Property, plant and equipment, at cost, net of
accumulated depreciation and amortization 225,974 215,859
Other assets 18,342 23,985
Excess of cost of investment in subsidiaries
over net assets acquired, net of accumulated
amortization of $3,119 and $1,851 34,798 33,745
$379,402 $382,950
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portions of long-term debt $ 332 $ 359
Accounts payable and accrued expenses 44,983 43,115
Total current liabilities 45,315 43,474
Long-term debt, net of unamortized
discount of $1,120 and $1,221 194,156 191,192
Other liabilities 20,181 16,188
Deferred income taxes 60,579 69,319
Minority interest 18,818 -
339,049 320,173
Commitments and Contingencies
Stockholders' equity
Preferred Stock, authorized 5,000,000 shares,
no shares issued or outstanding - -
Common Stock, par value $.01 per share,
authorized 50,000,000 shares; issued
19,391,763 shares and 19,289,888 shares 194 193
Capital surplus 67,091 66,883
Retained-earnings (deficit) (25,461) (3,046)
Treasury stock, at cost (281,000 shares
in both years) (1,253) (1,253)
Pension liability adjustment (218) -
Total stockholders' equity 40,353 62,777
$379,402 $382,950
See Notes to Consolidated Financial Statements.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1995
Convertible Retained Pension
Preference Stock Common Stock Capital Earnings Treasury Liability Total
Shares Amount Shares Amount Surplus (Deficit) Stock Adjustment Equity
(Amounts in thousands)
Balance -
January 1, 1993 126 $126 18,009 $180 $60,564 $1,196 $(239) $61,827
Issuance in connection
with acquisition of
subsidiary 945 10 6,821 6,831
Exercise of warrants 31 -
Convertible Preference
Stock Conversions (30) (30) 15 (102) (132)
Dividends
($.21 per share) (20) (20)
Redemption (96) (96) (864) (960)
Purchase of
87,500 common
treasury shares (582) (582)
Issuances in connection
with option plans
and other 102 1 185 186
Pension liability
adjustment $(413) (413)
Net income 1,593 1,593
Balance -
December 31, 1993 - - 19,102 191 66,604 2,769 (821) (413) 68,330
Dividend of
Preferred Stock
Purchase Rights - -
Exercise of warrants 43 -
Purchase of 143,500
common treasury shares (432) (432)
Issuance in connection
with option plans
and other 145 2 279 281
Pension liability
adjustment 413 413
Net loss (5,815) (5,815)
Balance -
December 31, 1994 - - 19,290 193 66,883 (3,046) (1,253) - 62,777
Issuance in connection
with option plans 102 1 208 209
Net loss (22,415) (22,415)
Pension liability
adjustment (218) (218)
Balance -
December 31, 1995 - $ - 19,392 $194 $67,091 $(25,461) $(1,253) $(218) $40,353
See Notes to Consolidated Financial Statements.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
(Dollars in thousands)
1995 1994 1993
Operating Activities:
Income (loss) before extraordinary item
Adjustments to reconcile income (loss) to
net cash provided by operating activities: $(22,415) $ (5,701) $ 1,593
Depreciation and amortization 17,742 13,656 11,576
Unrealized gain on marketable securities (1,061) (104)
Extraordinary item - (215) -
Deferred taxes (16,650) (3,057) 724
Minority interest 1,563 - 262
Loss on writedown of idle equipment and sale
of assets, net - 1,966 244
Restructuring costs 14,223 4,109 4,382
Foreign exchange losses, net 38 7,037 5,161
Changes in operating assets and liabilities,
net of effects from acquisitions
Marketable securities (1,253) (533)
Accounts and other receivables 5,522 (11,171) (12,791)
Inventories 1,734 (4,676) 1,853
Prepaid expenses (2,487) 102 53
Accounts payable and accrued expenses (3,839) 7,447 2,459
Debt related costs - (3,939) -
Other 2,432 (2,670) (3,011)
Net cash (used in) provided by
operating activities (4,451) 2,251 12,505
Investing Activities:
Acquisition of subsidiary, net of
cash acquired - - (38,115)
Repurchase of minority interest shares
in subsidiary - - (15,000)
Investment in affiliate (650)
Proceeds from sale of joint venture 4,718 - -
Proceeds from sale of assets 211 1,694 22
Capital expenditures (10,378) (10,084) (4,263)
Repayment of loan - minority interest - - 1,325
Other - - (586)
Net cash used in investing activities (6,099) (8,390) (56,617)
Financing Activities:
Proceeds from 11-5/8% Senior Notes - 63,718 -
(Repayment) proceeds of bank financings - (40,000) 40,000
Redemption of Convertible Preference Stock - - (960)
Conversion of Convertible Preference Stock - - (132)
Proceeds from Common Stock and warrants 20 126 186
Proceeds from borrowings 3,415 - -
Acquisition of treasury stock - (432) (582)
Payment of other long-term obligations (451) (537) (588)
Net cash provided by financing activities 2,984 22,875 37,924
Effect of foreign currency exchange rate
changes on cash and cash equivalents (567) (515) 306
Increase (decrease) in cash and cash equivalents (8,133) 16,221 (5,882)
Cash and cash equivalents - beginning of year 31,658 15,437 21,319
Cash and cash equivalents - end of year $ 23,525 $ 31,658 $ 15,437
See Notes to Consolidated Financial Statements.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation and Summary of Significant
Accounting Policies
American Banknote Corporation is a holding company whose
subsidiaries operate the largest private-sector security printing
business in North and South America and the world's leading
security hologram manufacturer.
On June 23, 1993, American Banknote Corporation (the "Company")
acquired 100% of the outstanding shares of Thomas De La Rue Grafica
e Servicos Ltda. (renamed American Bank Note Company Grafica e
Servicos Ltda.("ABNB"), a company engaged in the manufacturing and
printing of security documents, prepaid telephone cards and credit
cards in Brazil, for approximately $45 million. The purchase price
consisted of approximately $38.1 million in cash and 944,538 shares
of the Company's Common Stock, valued at approximately $6.9
million. The acquisition was accounted for as a purchase
transaction in accordance with Accounting Principles Board Opinion
("APB") No. 16, "Business Combinations," and the Company recorded
approximately $26 million as the cost in excess of the fair value
of the underlying net assets, which cost is being amortized over 30
years. The fair value of the assets acquired net of cash was
approximately $34 million and the fair value of the liabilities
assumed was approximately $15 million.
The Company acquired the remaining 20% minority interest in its
subsidiary, American Bank Note Holographics, Inc. ("ABNH") for a
net cash payment of $15 million. The acquisition has been accounted
for as a purchase transaction in accordance with APB No. 16. At
the June 23, 1993 acquisition date, the excess of cost of the
investment exceeded the fair value of the underlying net assets
acquired by approximately $10 million. Such amount is being
amortized over 30 years. Included in this transaction was the sale
by the Company of its 20% interest in a holography affiliate, which
was carried and sold at a nominal amount. The sale of this
interest had no impact on the Company's cash flows or operations.
As of July 1, 1995, ABNB acquired the printing business and
operations of Grafica Bradesco Ltda. ("Grafica Bradesco") from
Banco Bradesco S.A. (Brazil) ("Banco Bradesco"). Under the terms
of the acquisition agreement Banco Bradesco became a holder of
22.5% of ABNB in exchange for the business and certain operating
assets of Grafica Bradesco valued at approximately $17 million.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Grafica Bradesco's business includes check printing, and other
forms for financial institutions. The acquisition was accounted
for as a purchase and approximately $2.3 million was recorded as
the cost in excess of the fair market value of the underlying net
assets acquired, which cost is being amortized over 20 years.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations as if Grafica Bradesco had been
acquired as of the beginning of the periods presented, after
including the impact of certain adjustments, such as amortization
of intangibles, increased minority interest and the related income
tax effects (dollars in thousands, except per share amounts):
1995 1994
(Unaudited)
Sales $224,662 $242,803
Net income (loss) (20,177) 1,171
Net income (loss) per share ($1.06) $0.06
The unaudited pro forma financial information is presented for
informational purposes only and does not purport to represent what
the Company's result of operations would have been had the
transaction described actually occurred at the beginning of the
periods indicated or to project the Company's results of operations
for any future date or period. The pro forma adjustments are based
upon available information which the Company believes is reasonable
in the circumstances.
1. Principles of Consolidation: The accompanying consolidated
financial statements include the accounts of the Company and its
subsidiaries all of which are wholly-owned, except ABNB which is
77.5% owned. Certain reclassifications have been made to the 1994
balances in order to conform to 1995 presentation. All significant
intercompany items have been eliminated.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Pervasiveness of Estimates - The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make 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
form those estimates.
3. Inventories and Profit Recognition on Long-Term Contracts:
Inventories are stated at the lower of cost or market with cost
being determined on the first-in, first-out (FIFO) method. Profit
is generally recognized when goods are shipped. However, pursuant
to contract terms with certain customers, completed items are
sometimes stored at the Company's premises and, in those instances,
profit is recognized when the goods are transferred to the on-site
storage location.
4. Depreciation and Amortization: Depreciation and amortization
of property, plant and equipment is computed principally on the
straight-line method over the estimated useful life of the asset as
follows:
Buildings 25 to 40 years
Rolls and dies 40 years
Machinery, equipment and fixtures 5 to 22 years
Amortization of improvements to leased properties is computed
using the straight-line method based upon the remaining term of the
applicable lease or the estimated useful life of the asset,
whichever is shorter.
5. Intangible Assets: Patents and other intangibles are
amortized over their useful lives. The excess cost of investment
in subsidiaries acquired is being amortized over a 30 year period
with the exception of Grafica Bradesco which is being amortized
over 20 years. These costs are amortized using the straight-line
method.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Income (Loss) Per Share: Income (loss) per share has been
computed based on the weighted average number of common shares and
common equivalent shares (in 1993) outstanding during the year
(approximately 19.1 million in 1995, 19.0 million in 1994 and 19.2
million in 1993). Primary and fully diluted income (loss) per
share are the same.
7. Research and Development: Research and development costs are
expensed as incurred (1995 - $0.4 million, 1994 - $1.6 million and
1993 - $0.9 million).
8. Deferred Debt Costs: Expenses incurred in connection with
debt financings are capitalized and amortized over the respective
loan terms ($6.3 million and $6.9 million at December 31, 1995 and
December 31, 1994, respectively, included in other assets). In
connection with certain early extinguishments of indebtedness in
1994, the Company wrote off related deferred debt expense and
unamortized discounts as a net extraordinary charge to income of
$0.1 million
9. Industry Information: The Company's principal business
activity consists of financial payments and prepaid telephone
cards, holograms, and engraving and printing of corporate and
government securities and other secure documents. Sales to the
United States government were 15%, 26% and 34% of consolidated
sales for the years ended December 31, 1995, 1994 and 1993,
respectively. Sales to a customer in Brazil (national telephone
company) were 13% of consolidated sales for the year ended December
31, 1995.
10. Supplemental Cash Flow Information: Cash tax payments, for
the year ended December 31, 1995, 1994 and 1993 amounted to
approximately $3.7 million, $1.6 million and $3.5 million,,
respectively. Cash interest payments for the years ended December
31, 1995, 1994 and 1993, amounted to approximately $21.9 million,
$16.2 million and $13.8 million, respectively. As a result of the
beneficial effects of an interest rate swap agreement that was
entered into in July 1992, net cash interest payments of $0.9
million and $1.3 million were received, in the years ended December
31, 1994 and 1993, respectively, however, in 1995 net cash payments
of $0.6 million were made. The interest rate swap agreements were
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
terminated in December 1995 at an approximately break-even cost to
the Company.
11. Cash and Cash Equivalents: All highly liquid investments with
a maturity of three months or less, when purchased, are considered
to be cash equivalents.
12. Marketable Securities: Such current investments are held for
trading purposes and changes in the market value are reflected in
earnings.
13. Foreign Exchange Losses, Net: ABNB's financial statements are
translated into dollars from the local currency. The foreign
exchange translation loss represents the Company's translation of
local currency into U.S. dollars in accordance with SFAS No. 52,
"Foreign Currency Translation," which provides for appropriate
accounting treatment of ABNB's exchange rate volatility in a
hyper-inflationary economy. As a result, the translation
adjustment is recorded as a period cost in accordance with SFAS No. 52.
14. Condensed Financial Information and Geographic Area Data:
The 10-3/8% Senior Notes are secured by a pledge of all issued
capital stock of its wholly-owned subsidiaries ABN and ABNH, and by
a pledge of 65% of ABNB. ABN, ABNH and the 77.5% interest owned in
ABNB constitutes substantially all the assets of the Company (see
Note F - Long-Term Debt). ABNB is domiciled in Brazil, and all
other subsidiaries of the Company are domiciled in the United States.
The following condensed consolidating financial information
illustrates the composition of the pledged subsidiaries and
provides additional material information which is useful in
assessing the financial composition of the pledged subsidiaries.
Investments in subsidiaries are accounted for by the parent on the
equity method for purposes of the condensed consolidating financial
information. Earnings of subsidiaries are therefore reflected in
the parent's investment accounts and earnings. Intercompany
investments and transactions are eliminated in consolidations.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following are the condensed financial statements (amounts
in millions):
Condensed Balance Sheets
Domestic Foreign Elim. Consol.
As at December 31, 1995
Cash and cash equivalents $16.5 $7.0 $23.5
Marketable securities 3.0 3.0
Accounts receivable, net 18.0 14.0 32.0
Other receivables 6.6 1.2 7.8
Inventories 12.3 10.9 23.2
Deferred income tax benefits 5.7 0.3 6.0
Prepaid expenses 3.3 1.5 4.8
Property, plant and equipment, net 176.6 49.4 226.0
Other assets 72.9 8.8 ($63.4) 18.3
Goodwill 9.5 25.3 . 34.8
Total assets $324.4 $118.4 ($63.4) $379.4
Total current liabilities $24.5 $20.8 $45.3
Senior debt, net of discounts 191.1 3.0 194.1
Other non-current liabilities 14.5 5.7 20.2
Deferred income taxes 53.9 6.7 60.6
Minority interest 18.8 18.8
Total stockholders' equity 40.4 63.4 ($63.4) 40.4
Total liabilities and stockholders'
equity $324.4 $118.4 ($63.4) $379.4
As at December 31, 1994
Cash and cash equivalents $29.7 $2.0 $31.7
Marketable securities 0.6 0.6
Accounts receivable, net 37.2 6.6 43.8
Other receivables 3.9 0.9 4.8
Inventories 13.1 7.4 20.5
Deferred income tax benefits 5.3 0.4 5.7
Prepaid expenses 2.3 0.1 2.4
Property, plant and equipment, net 188.9 26.9 215.8
Other assets 73.8 7.2 ($57.0) 24.0
Goodwill 9.8 23.9 . 33.7
Total assets $364.6 $75.4 ($57.0) $383.0
Total current liabilities $32.1 $11.4 $43.5
Senior debt, net of discounts 191.2 191.2
Other non-current liabilities 11.3 4.9 16.2
Deferred income taxes 67.2 2.1 69.3
Total stockholders' equity 62.8 57.0 ($57.0) 62.8
Total liabilities and stockholders'
equity $364.6 $75.4 ($57.0) $383.0
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Statements of Operations
Domestic Foreign Elim's Consol.
Year Ended December 31, 1995
Sales * $108.1 $ 98.1 $206.2
Cost of goods sold 76.5 72.5 149.0
Selling and administrative 30.0 9.9 39.9
Restructuring costs 14.3 14.3
Depreciation and amortization 9.3 5.6 14.9
130.1 88.0 218.1
(22.0) 10.1 (11.9)
Interest expense (23.1) (23.1)
Foreign exchange gain (loss), net - -
Other income (expense), net 8.5 .2 $(5.9) 2.8
Income (loss) before provision for
income taxes and
minority interest (36.6) 10.3 (5.9) (32.2)
Provision for income taxes (14.2) 2.8 . (11.4)
Income (loss) before
minority interest (22.4) 7.5 (5.9) (20.8)
Minority interest . 1.6 . 1.6
Net income (loss) $(22.4) $ 5.9 $(5.9) $(22.4)
Year Ended December 31, 1994
Sales * $150.0 $ 58.1 $208.1
Cost of goods sold 94.9 36.0 130.9
Selling and administrative 29.8 9.2 39.0
Restructuring costs and other costs 7.0 7.0
Depreciation and amortization 9.3 3.8 13.1
141.0 49.0 190.0
9.0 9.1 18.1
Interest expense (21.0) (21.0)
Foreign exchange (loss), net (7.0) (7.0)
Other income (expense), net 3.9 .2 $ (2.3) 1.8
Income (loss) before provision for income
taxes and extraordinary item (8.1) 2.3 (2.3) (8.1)
Provision for income taxes (2.4) . . (2.4)
Income (loss) before
extraordinary item (5.7) 2.3 (2.3) (5.7)
Extraordinary item (.1) . . (.1)
Net income (loss) $ (5.8) $ 2.3 $ (2.3) $ (5.8)
Year Ended December 31, 1993
Sales * $166.5 $ 33.6 $200.1
Cost of goods sold 103.6 13.6 117.2
Selling and administrative 29.5 4.5 34.0
Restructuring costs 12.0 12.0
Depreciation and amortization 9.6 1.6 11.2
154.7 19.7 174.4
11.8 13.9 25.7
Interest expense (14.6) (14.6)
Foreign exchange loss, net (5.2) (5.2)
Other income (expense), net 6.6 .2 $ (6.6) .2
Income before provision for income
taxes and minority interest 3.8 8.9 (6.6) 6.1
Provision for income taxes 2.0 2.3 . 4.3
Income before minority interest 1.8 6.6 (6.6) 1.8
Minority interest .2 . . .2
Net income $ 1.6 $ 6.6 $ (6.6) $ 1.6
* Represents sales to unaffiliated customers. Foreign
subsidiaries sales are to customers in South America.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Statements of Cash Flows
Domestic Foreign Elim's Consol.
Year Ended December 31, 1995
Net cash- operating activities $ (15.9) $ 11.4 $ . $ (4.5)
Investing activities
Investment in affiliates (.6) (.6)
Proceeds from sales of assets 4.9 4.9
Capital expenditures (1.2) (9.2) . (10.4)
Net cash - investing activities 3.1 (9.2) . (6.1)
Financing activities
Proceeds from bank financings 3.4 3.4
Other (0.4) . . (0.4)
Net cash - financing activities (0.4) 3.4 . 3.0
Effect of foreign currency exchange rate
changes on cash and cash equivalents . (0.6) . (0.6)
Net increase (decrease) (13.2) 5.0 (8.2)
Cash and cash equivalents:
Beginning of period 29.7 2.0 . 31.7
End of period $ 16.5 $ 7.0 $ . $ 23.5
Year Ended December 31, 1994
Net cash - operating activities $ (3.5) $ 5.8 $ . $ 2.3
Investing activities
Proceeds from sale of assets 1.7 1.7
Capital expenditures (3.2) (6.9) . (10.1)
Net cash - investing activities (1.5) (6.9) . (8.4)
Financing activities
Proceeds from 11 5/8% Senior Notes 63.7 63.7
(Repayment) proceeds from bank
financings (40.0) (40.0)
Other (0.8) . . (0.8)
Net cash - financing activities 22.9 . . 22.9
Effect of foreign currency exchange
rate changes on cash and
cash equivalents . (0.5) . (0.5)
Net increase (decrease) 17.9 (1.6) 16.3
Cash and cash equivalents:
Beginning of period 11.8 3.6 . 15.4
End of period $ 29.7 $ 2.0 $ . $31.7
Year Ended December 31, 1993
Net cash - operating activities $ 9.8 $ 2.7 $ . $12.5
Investing activities
Acquisition of subsidiary (38.1) (38.1)
Investment in subsidiary (40.0) 40.0
Repurchase of minority interest (15.0) (15.0)
Capital expenditures (3.0) (1.2) (4.2)
Repayment of loans and other 0.7 . . 0.7
Net cash - investing activities (57.3) (1.2) 1.9 (56.6)
Financing activities
Proceeds from bank financings 40.0 40.0
Other (2.0) (0.1) . (2.1)
Net cash - financing activities 38.0 (0.1) . 37.9
Effect of foreign currency exchange rate
changes on cash and cash equivalents . 0.3 . 0.3
Net increase (decrease) (9.5) 1.7 1.9 (5.9)
Cash and cash equivalents:
Beginning of period 21.3 1.9 (1.9) 21.3
End of period $ 11.8 $ 3.6 $ . $15.4
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Export Sales: US Export sales were 7%, 12% and 10% of
consolidated sales for the years ended December 31, 1995, 1994 and
1993, respectively.
Note B - Inventories
Inventories consist of the following (in thousands):
December 31
1995 1994
Work in process $ 15,874 $ 12,963
Raw materials and supplies 7,369 7,534
$ 23,243 $ 20,497
Note C - Property, Plant and Equipment
Property, plant and equipment consist of the following (in
thousands):
December 31
1995 1994
Land $ 2,727 $ 2,727
Buildings and improvements 20,858 19,090
Rolls and dies 177,154 177,300
Machinery, equipment
and fixtures 70,368 54,196
Leasehold improvements 1,522 3,335
Construction in progress 260 3,728
272,889 260,376
Accumulated depreciation
and amortization 46,915 44,517
$225,974 $215,859
Note D - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in
thousands):
December 31
1995 1994
Accounts payable - trade $ 11,335 $ 10,633
Accrued expenses 2,893 9,924
Customers' advances 7,026 6,656
Salaries and wages 5,666 5,645
Restructuring and merger-
related accruals 8,838 4,202
Interest payable 4,291 3,550
Other 4,934 2,505
$ 44,983 $ 43,115
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E - Income Taxes
The Company complies with SFAS No. 109 "Accounting for Income
Taxes" which requires the asset and liability approach to
accounting for income taxes and that deferred tax liabilities and
assets be adjusted in the period of enactment for the effect of a
change in tax laws or rates. Deferred income taxes arise from
temporary differences between the tax basis of assets and
liabilities, and their reported amounts in the financial
statements.
In 1995 and 1993 the Company adjusted its deferred tax assets and
liabilities for the estimated effect of a decrease in Brazil's tax
rates enacted in the fourth quarter of 1995 and an increase in the
US federal corporate tax rates enacted in the third quarter of
1993. The effect of these non-cash items was to decrease deferred
income taxes in 1995 and increase deferred income taxes in 1993.
Accordingly, the net loss decreased by $2.8 million or $.15 per
share in 1995 and net income decreased by $1.5 million or $.08 per
share in 1993.
As a result of Brazilian tax legislation, effective for tax years
after 1995, the 15% dividend withholding tax on post 1995 earnings
was eliminated. The unrepatriated earnings of ABNB at December 31,
1995 is approximately $16.7 million. Approximately $11.2 million
of such earnings have already been subject to US tax. The
remainder is subject to US tax when repatriated and may be
partially offset by US foreign tax credits when repatriated.
Pre-tax income from foreign operations in 1995, 1994 and 1993 was
$10.3 million, $2.3 million and $8.9 million, respectively.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company files a US corporate consolidated federal income tax
return which includes its subsidiaries. The provision for income
taxes, for the years ended December 31, follows (in thousands):
1995 1994 1993
Current
Federal $ - $ - $ 748
Foreign 4,755 - 2,131
State and local 536 656 1,324
Total current portion 5,291 656 4,203
Deferred
Federal (14,209) (2,892) (833)
Adjustments due to rate changes (2,837) - 1,500
Foreign 844 (31) 124
State and local (448) (134) (705)
Total deferred portion (16,650) (3,057) 86
Total provision for income taxes $(11,359) $(2,401) $ 4,289
A reconciliation of the provisions for income taxes recorded and
the amount computed by applying the federal income tax statutory
rate follows (in thousands):
1995 1994 1993
Pre-tax income (loss) $(32,211) $ (8,102) $ 6,144
Statutory tax on pre-tax income $(10,952) $ (2,755) $ 2,089
Adjustments due to rate changes (2,837) - 1,500
Difference between federal and
Brazilian statutory rates 1,390 - -
Non-deductible goodwill 601
State and local income taxes, net of
federal benefit 58 345 409
Other 381 9 291
Income tax provision $(11,359) $ (2,401) $ 4,289
The Company generated approximately $2.1 million of foreign tax
credits in 1993, of which $1.3 million was utilized in 1993. A
valuation allowance of $0.8 million was established for the
remaining amount. In 1995 and 1994, there were no foreign taxes
creditable against federal taxes. In 1993, the Company was taxed
under the alternative minimum tax method. The Company has an
alternative minimum tax credit carry forward of approximately $0.8
million, which is available to offset future taxable income
pursuant to the US federal tax laws. In addition, in 1995 and
1994, the Company generated net operating loss carry forwards of
approximately $21.4 million and $2.8 million, respectively which
are scheduled to expire in the years 2010 and 2009 respectively.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of the items comprising the Company's deferred
income tax assets and liabilities are as follows (in thousands):
December 31
1995 1994
Current deferred tax assets:
Accrued expenses deductible when paid $ 2,945 $ 1,753
Tax benefit of operating loss carry
forwards and tax credits - 2,930
Other temporary differences 3,038 1,002
Total current deferred tax assets $ 5,983 $ 5,685
Non-current deferred tax assets $16,176 $ 5,680
Deferred tax liabilities:
Difference between book and tax basis of assets
acquired in acquisitions and mergers $ 68,837 $66,535
Excess tax over book depreciation 5,882 5,185
Other temporary differences 2,036 3,279
Total deferred tax liabilities 76,755 74,999
Non-current deferred tax assets:
Tax benefit of operating loss carry
forwards and tax credits (8,929) -
Restructuring expenses
deductible when paid (3,205) -
Other temporary differences (4,042) (5,680)
Total non-current deferred tax assets 16,176) (5,680)
Net deferred tax liabilities $ 60,579 $69,319
Note F - Long-Term Debt
Long-term debt consists of the following (in thousands):
December 31
1995 1994
Senior Debt:
10-3/8% Senior Notes, due June 1, 2002 $126,500 $126,500
11-5/8% Senior Notes, due August 1, 2002,
net of unamortized original issue
discount of $1,120 and $1,221 63,880 63,779
Other long-term obligations 4,108 1,272
Less current portions (332) (359)
Net long-term debt $194,156 $191,192
The 10-3/8% Senior Notes due June 1, 2002 (the "10 3/8 Senior
Notes") are redeemable at the option of the Company, in whole or in
part, at any time on or after June 1, 1997, at stated redemption
prices. Equal mandatory sinking fund payments on June 1, 2000 and
June 1, 2001 are calculated to retire an aggregate of 50% of the
original principal amount of the 10-3/8% Senior Notes.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 10-3/8% Senior Notes are senior indebtedness of the Company and
rank equally in right of payment, on a pari passu basis, with all
existing and future senior indebtedness of the Company. The
10-3/8% Senior Notes are secured by a pledge on all the issued and
outstanding shares of capital stock of the Company's wholly-owned
subsidiaries, ABN and ABNH, and by a pledge of 65% of the shares of
ABNB. ABN, ABNH and the 77.5% interest owned in ABNB constitute
substantially all of the assets of the Company. The 10-3/8% Senior
Notes' covenants restrict, among other things, incurrence of
additional debt by the Company and its subsidiaries, cash dividends
on and redemptions of capital stock of the Company and its
subsidiaries, mergers, sales of assets, sale and leaseback
transactions, liens, transactions with affiliates and issuance of
preferred stock by subsidiaries and prohibit certain limitations on
distributions from subsidiaries of the Company.
To allow the Company greater flexibility in tax planning
strategies, the Company amended its 10 3/8% Senior Notes in 1994 to
allow the release of 35% of ABNB's capital stock from the pledge.
In 1995, these shares were released from the pledge.
In May, 1994, the Company completed a private placement of $65
million principal amount of 11-5/8% Senior Notes due August 1, 2002
(the "11-5/8% Senior Notes"). A portion of the proceeds was used
to prepay all outstanding bank borrowings.
The 11-5/8% Senior Notes were issued at 98.028% of par and are
redeemable at the Company's option, in whole or in part, on and
after August 1, 1998, at stated redemption prices with accrued
interest. The 11-5/8% Senior Notes are unsecured senior
indebtedness of the Company and rank equally in right of payment,
on a pari passu basis, with all existing and future senior
indebtedness of the Company. The 11-5/8% Senior Notes restrict,
among other things, incurrence of additional debt, cash dividends
on and redemptions of capital stock, mergers, sales of assets, sale
and leaseback transactions, liens, and transactions with
affiliates, and prohibit certain limitations on distributions from
subsidiaries of the Company.
In connection with the above 1994 prepayment of all outstanding
bank borrowings, the Company wrote off as an extraordinary charge
to income, $0.1 million of existing deferred debt expense and
unamortized discounts net of associated tax benefits.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 11-5/8% Senior Notes are effectively subordinated to the
10-3/8% Senior Notes to the extent of the value of the above
collateral pledged to secure the 10-3/8% Senior Notes, which
constitutes substantially all the assets of the Company.
At December 31, 1995, the Company had made all required interest
payments and was in compliance with the covenants of the 10-3/8%
Senior Notes and the 11-5/8% Senior Notes.
The fair value of the 10-3/8% Senior Notes and the 11-5/8% Senior
Notes based on market quotes at December 31, 1995 was approximately
$84.8 million and $39.0 million, respectively and at December 31,
1994 was approximately $107.5 million and $57.2 million,
respectively. The fair value of all other debt approximates its
carrying value. The market values are not necessarily indicative
of the price at which the Company could acquire this indebtedness.
On January 26, 1996, the Company's subsidiaries, ABN and ABNH
("Borrowers"), entered into a three-year $20 million revolving
credit facility with Chemical Bank, N.A. (the "Credit Agreement")
as co-borrowers. The Credit Agreement is a committed facility and
replaces a credit facility which expired in October 1995. The
Credit Agreement is available for general working capital purposes
and letters of credit and expires on October 30, 1998.
Under the Credit Agreement interest is based upon the lenders
Alternate Base Loan Rate (as defined) plus 1.00%, or at the
Company's option, LIBOR plus 2.50% and certain covenants apply
which include but are not limited to, interest coverage ratios,
EBITDA minimums, limitations on indebtedness, capital expenditures,
sales of assets and acquisitions and restrictions on the payment of
cash dividends. The Credit Agreement is an asset-based facility
secured by accounts receivable and inventory of the Borrowers and
the borrowings are subject to a borrowing base. At December 31,
1995, the Company would have had available approximately $10.0
million under the Credit Agreement.
Principal maturities of long-term debt follow: 1996 - $0.3 million,
1997 - $1.7 million, 1998 - $1.4 million, 1999 - $0.1 million, 2000
- - $48.0 million, 2001 and thereafter - $144.1 million.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 1995, the existing interest rate swap and interest rate
cap agreements based upon a $60 million notional amount were
terminated at no cost to the Company. The Company has no
contingent liability under these agreements. The effect of these
agreements increased interest expense in 1995 and 1994 by
approximately $0.3 million and $0.1 million, respectively, and
reduced 1993 interest expense by approximately $1.3 million. The
Company does not expect to enter into any new agreements.
Note G - Capital Stock
The Company is authorized to issue 5,000,000 shares of Preferred
Stock, with such terms as the Board of Directors may determine.
In 1994, the Board of Directors adopted a Preferred Stock Purchase
Rights Plan pursuant to which it declared a dividend of one
Preferred Stock Purchase Right (the "Rights") for each outstanding
share of Common Stock on March 24, 1994. Each Right entitles the
registered holder to purchase from the Company one one-hundredth
(1/100) of a share of preferred stock of the Company, designated as
Series A Junior Preferred Stock, at a price of $15.50. The rights
will become exercisable only in the event, with certain exceptions,
an acquiring party accumulates 15 percent or more of the Company's
voting stock or if a party announces an offer to acquire 30 percent
or more of the voting stock. The Rights will expire on March 24,
2004. Upon the occurrence of certain events, holders of the Rights
will be entitled to purchase either the Company's stock or shares
in an "acquiring entity" at half of market value. The Company will
generally be entitled to redeem the Rights at $.01 per right at any
time until the tenth day following the acquisition of 15 percent of
its voting stock by an acquirer. The Rights are not exercisable if
redeemed by the Board of Directors.
In 1993, the Company issued to the operating management of the
Company warrants expiring in 2000 ("Performance Warrants") for the
purchase of 250,000 shares of Common Stock. In 1994 and 1993,
Performance Warrants for 43,000 and 30,500 common shares were
exercised at $.011 per share. At December 31, 1995, Performance
Warrants for 176,500 common shares are outstanding and exercisable.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1995, the Board of Directors issued warrants to purchase 200,000
shares of Common Stock over a three year period at an exercise
price of $2.213 which was the market price at the date of grant.
At December 31, 1995, the warrants for 200,000 common shares are
outstanding and exercisable.
In 1993, all outstanding shares of Convertible Preference Stock
(the "Preference Stock") were redeemed and in 1993 prior to
redemption, 29,557 shares were converted into approximately 13,700
shares of Common Stock and cash.
In 1994 and 1993, pursuant to a Common Stock repurchase program,
the Company purchased 143,500 shares and 87,500 shares,
respectively.
At December 31, 1995, approximately 4,755,000 shares of Common
Stock were reserved for warrants, performance plans, deferred stock
and compensation plans and stock options.
Note H - Stock Option Plans
Under the Company's Long-Term Performance Plan for officers and
other key employees (the "LTP Plan"), the Compensation Committee
(the "Committee") may grant to key employees awards up to a maximum
of 1,500,000 shares of Common Stock, as stock options, stock
appreciation rights, restricted stock, performance shares, or other
stock based awards. The maximum grant to any one participant is
limited to no more than 250,000 shares. Options are granted at not
less than the market price on the date of grant and become
exercisable in equal amounts over a three year period from the date
of grant. In 1994, the Committee authorized the issuance of 90,000
shares of restricted stock under the LTP Plan that become fully
vested to the employees after three years. The market value of the
shares on its date of grant was approximately $2.87 per share and
the cost of the grant based on the market price is being amortized
evenly over the vesting period. At December 31, 1995, 993,500
shares were available for awards under the LTP Plan.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of changes in options issued pursuant to the above plan
is as follows:
Outstanding at December 31, 1993 - - -
Granted in 1994 144,500 $2.94
Canceled (4,000) $2.94
Outstanding at December 31, 1994 140,500 $2.94
Granted in 1995 285,000 $2.19 - $2.25
Canceled (9,000) $2.94
Outstanding at December 31, 1995 416,500 $2.19 - $2.94
At December 31, 1995, options for 43,839 shares were exercisable.
Under the Company's Executive Incentive Plan, for Executive
Officers (the "Executive Incentive Plan") the Committee may grant
awards up to a maximum of 900,000 shares of Common Stock. In 1995,
an award for 91,875 shares was issued in lieu of a cash bonus and
the shares vest evenly over a three year period. At December 31,
1995, approximately 808,125 shares were available for the granting
of awards and no shares were vested at December 31, 1995.
Under the Deferred Stock and Compensation Plan for Non-Employee
Directors (the "Directors Plan") 200,000 shares of Common Stock may
be issued. Under the Directors Plan, each director is to receive
rights to the equivalent of 1,300 shares of Common Stock annually
following election to the Board of Directors. In 1995 and 1994, an
aggregate of 5,850 and 5,200 common share equivalents,
respectively, were granted. The market values of the equivalent
shares on the date of grant was approximately $2.19 and $3.69,
respectively, per share. The aggregate cost is charged to income.
At December 31, 1995, 188,950 shares were available under the plan.
The 1990 Employee Stock Option Plan (the "Plan") provides that
options to purchase shares of Common Stock may be granted at a
price determined by the Stock Option Committee of the Board of
Directors (the "Option Committee"); the exercise period may be
fixed by the Option Committee, but not to exceed ten years; and
only employees of the Company and its subsidiaries may be granted
options under the Plan. The options generally become exercisable
in equal amounts over three years from the date of grant.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The maximum number of shares available for grant pursuant to the
Plan, as amended, is 11% of the number of shares of the Company's
Common Stock authorized and issued or approximately 2,116,000
shares. At December 31, 1995, approximately 675,000 shares were
available for the granting of options under the Plan.
A summary of changes in options issued pursuant to the above plan
is as follows:
Outstanding at December 31, 1992 1,380,750 $1.81 - 6.19
Granted in 1993 312,500 $6.31 - 6.63
Canceled (3,000) $6.00
Exercised (84,967) $1.81 - 3.94
Outstanding at December 31, 1993 1,605,283 $1.81 - 6.63
Granted in 1994 275,000 $3.38 - 8.44
Canceled (233,000) $4.38 - 6.31
Exercised (61,000) $1.88 - 2.11
Outstanding at December 31, 1994 1,586,283 $1.81 - 8.44
Canceled in 1995 (336,000) $1.88 - 8.44
Exercised (10,000) $1.81
Outstanding at December 31, 1995 1,240,283 $1.81 - 6.63
At December 31, 1995, options for 1,140,784 shares were exercisable.
During 1993 and 1992 options were granted under the Non-Employee
Directors Plan to purchase 20,000 and 40,000 shares at a per share
exercise price of $7.44 and $6.13, respectively, and are
exercisable in equal amounts over three years from the date of
grant. In 1994, options for 15,000 shares at an exercise price of
$7.44 were canceled. At December 31, 1995, options for 43,334
shares were exercisable. No further options may be granted
pursuant to the Non-Employee Directors Plan.
Note I - Employee Benefits Plans
Postretirement Health Care and Life Insurance Plans. The Company
provides certain health care and life insurance benefits for
eligible retired employees. The Company's employees, including
employees subject to certain collective bargaining agreements, may
become eligible for these benefits if they reach normal retirement
age, with certain service requirements, while working for the
Company.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1993, the Company adopted SFAS No. 106. This Statement requires
the accrual of the estimated cost of retiree benefit payments other
than pensions during the years an employee provides services. The
cost of these benefits, which are principally health care and life
insurance, were previously expensed as incurred, although
approximately $3.6 million was recorded in connection with the
acquisition of ABN in 1990. The plan is not being funded; thus
there are no assets or expected return on assets. The Company has
elected to record the previously unrecognized obligation of
approximately $4.2 million over a twenty year period. Benefits for
active and retired employees are provided for through insured and
self-funded plans.
The following table sets forth the status of this obligation:
December 31
1995 1994
Accumulated postretirement benefit obligation
(in thousands):
Retirees $ 7,329 $ 6,295
Eligible active plan participants 419 568
Other active plan participants 1,812 2,054
Accumulated postretirement benefit
obligation 9,560 8,917
Unrecognized transition obligation (3,119) (3,758)
Unrecognized net loss (1,018) (627)
Accrued postretirement benefit obligation $ 5,423 $ 4,532
Net postretirement benefit cost consisted of the following
components (in thousands):
1995 1994
Service cost-benefits earned $ 154 $ 190
Interest cost on accumulated postretirement
benefit obligation 715 627
Partial plan termination (1) 430 -
Amortization of transition obligation 209 209
Net postretirement benefit cost $ 1,508 $ 1,026
(1) In connection with the 1995 restructuring, a portion of
the previously unrecognized transition obligation was charged to
the restructuring reserve.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation, as of January 1,
1995, was 12.00% for 1995 decreasing each successive year until it
reaches 6.0%, after which it remains constant. A
one-percentage-point increase in the assumed health care cost trend
rate for each year would increase service cost plus interest on the
accumulated postretirement benefit obligation by approximately
14.1%. The assumed discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% at December
31, 1995 and 8.5% at December 31, 1994.
Postretirement Plans. The Company is obligated to make regular
defined contributions to several multi-employer plans and
contributions to one single employer defined benefit pension fund,
under the terms of various union contracts. The aggregate
contribution to such multi-employer plans for retirement and
welfare benefits was approximately $1.7 million, $1.8 million, and
$1.9 million for the years ended December 31, 1995, 1994 and 1993,
respectively. Retirement benefits are also provided by the
Company, to eligible union and nonunion employees, through defined
contributions to an employees' retirement plan; the aggregate
contribution to such plan and charged to operations was $1.2
million, $1.5 million, and $1.7 million for the years ended
December 31, 1995, 1994 and 1993, respectively.
The Company has a trusteed, noncontributory defined benefit pension
plan which covered substantially all employees of a company
acquired in 1990. As of December 31, 1990, the plan was frozen for
the nonunion employees and in 1992 for union employees who became
participants in the Company's defined contribution employees'
retirement plan. Benefits under the noncontributory defined
benefit plan were based on years of service and average final
compensation. The funding policy is to pay at least the minimum
amounts required by the Employee Retirement Income Security Act of
1974. The net pension expense for the Company's defined benefit
pension plan was approximately $0.2 million, $0.1 million, and $0.1
million in 1995, 1994 and 1993, respectively.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the 1995 and 1994 funded status and
amounts recognized for the Company's defined benefit pension plan
in the consolidated balance sheet (in thousands):
1995 1994
Actuarial present value of accumulated
plan benefits, including vested
benefits of $8,798 and $7,058 $ 8,862 $ 7,157
Projected benefit obligation for service
rendered to date $ 8,862 $ 7,157
Plan assets at fair value, primarily equity
securities . 7,612 6,113
Accrued pension liability $ 1,250 $ 1,044
The weighted average discount rate used in determining the
actuarial present value of the projected benefit obligation was
7.0% and 8.5% as of December 31, 1995 and 1994. The expected
long-term rate of return was 8.5% in 1995 and in 1994.
The Company adopted, as of April 1, 1994, a noncontributory
supplemental executive retirement plan ("SERP") for certain senior
management employees. Benefits under the noncontributory plan are
based on years of service and average final compensation. The plan
is unfunded and benefits will be paid from the assets of the
Company.
The following table sets forth at the status of this obligation at:
December 31
1995 1994
Accumulated benefit $ 1,501 $ 1,072
Projected benefit obligation (equals funded $ 2,706 $2,249
Prior service cost (1,558) (1,689)
Unrecognized net loss (362) (253)
Preliminary accrued pension costs 786 307
Additional minimum liability* 1,116 765
Accrued pension cost for financial statements $ 1,902 $ 1,072
*There is an intangible asset equal to the additional minimum
liability reported.
Net periodic pension cost consisted of the following components (in
thousands):
1995 1994
Service cost-benefits earned $ 185 $ 124
Interest cost on projected benefit obligation 191 106
Amortization of prior service cost 103 77
Net periodic pension cost $ 479 $ 307
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average discount rate used in determining the
actuarial present value of the projected benefit obligation was 7%
and 8.5% as of December 31, 1995 and 1994. The expected long-term
rate of return is not applicable as benefits are not funded. The
above is from the adoption date.
Note J - Restructuring Costs
In 1995, the Company recorded a pre-tax restructuring charge of
approximately $14.3 million pursuant to a restructuring plan
developed by management for the Company's domestic security
printing operations, including the relocation and downsizing of its
corporate offices.
The restructuring charge provided for those reasonably estimable
costs resulting from the plan including costs that are: (i)
associated with and will not benefit activities that will continue
or generate future revenue and are incremental as a result of the
plan (ii) incurred under contractual agreements (i.e. leases and
employment agreements) that existed prior to the commitment date
that provide no future economic benefit; or (iii) related to asset
impairments and writedowns resulting directly from the plan. The
plan is expected to be substantially completed in the second
quarter of 1996.
Under the plan, the Company will reduce the domestic workforce by
27 percent and has provided a $2.9 million reserve for severance
and related costs.
Asset valuations and writedowns accounted for $5.0 million of the
charge which reduced certain assets to their net realizable value
and primarily relates to equipment not being relocated and
leasehold improvements.
Lease and other facility obligations accounted for $6.4 million of
the charge for the facilities to be closed in 1996.
Restructuring activities in 1994 and 1993 relate primarily to the
closing of ABN's Los Angeles plant. Remaining obligations under
this restructuring relate to lease commitments.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following represents the Company's restructuring activities for
the periods indicated (in millions):
Severance Asset Leases
and Related Revaluations and other
Costs and Writedowns Obligations Total
Restructuring charge 1993 $ 2.4 $ 2.7 $ 6.9 $12.0
Noncash items (1.0) (1.0)
Cash payments (2.1) (1.7) (2.8) (6.6)
Balance at
December 31, 1993 0.3 - 4.1 4.4
Restructuring charge - - 5.0 5.0
Imputed interest 0.3 0.3
Cash payments (0.3) -. (3.7) (4.0)
Balance at
December 31, 1994 - - 5.7 5.7
Restructuring charge 2.9 5.0 6.4 14.3
Imputed interest 0.3 0.3
Noncash items (1.8) (5.0) - (6.8)
Cash payments (0.1) -. (1.4) (1.5)
Balance at
December 31, 1995 $ 1.0 $ -. $11.0 $12.0
Future cash outlays for the remaining restructuring reserve of
$12.0 million at December 31, 1995 are anticipated to be $5.1
million in 1996, $2.1 million in 1997, $1.3 million in 1998 and
$3.5 million thereafter to 2009.
Note K - Provision for Idle Equipment
In January 1994, the Company was notified that it was not awarded
any portion of a contract by the United States Postal Service
("USPS") in response to a competitive bid for postage stamp
production. In prior years, the Company made investments in
capital equipment intended for use in connection with the products
and services supplied to the USPS. As a result of the loss of the
business, the Company re-evaluated the net carrying value of
capitalized equipment and the cost of operating leases used for
postage stamp production and recorded a $2 million provision for
the write-down of idle postal equipment.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note L - Commitments and Contingencies
In January 1994, Vladimir v. United States Banknote Corporation, et
al., and in February 1994, Sinay v. United States Banknote
Corporation, et al. were filed in the United States District Court
for the Southern District of New York on behalf of a purported
class of purchasers of Common Stock between April 1, 1993 and
January 6, 1994. Also, in January 1994, Atencio v. Morris
Weissman, et al. was filed in the Court of Chancery for the State
of Delaware, New Castle County, against various directors and/or
officers of the Company, on behalf of a purported class and also
derivatively on behalf of the Company which was named as a nominal
defendant. In February 1994, Rosenberg v. Morris Weissman, et al.
was filed in the same court as Atencio, alleging similar claims to
Atencio, but not on behalf of a class of plaintiffs.
The complaints in these four actions allege, among other things,
that the Company and the individual defendants knowingly or
recklessly caused the market price of its Common Stock to be
inflated artificially by making misleading statements and/or
omissions of material fact concerning the risk of loss of the
Company's stamp printing contracts with the USPS. The Vladimir and
Sinay actions seek unspecified damages. The Atencio and Rosenberg
actions also assert claims for breach of fiduciary duty by the
individual defendants, and allege that certain of the defendants
sold Common Stock while in possession of material non-public
information and seek recapture of the profits earned by the
defendants who purportedly traded, the repayment by the defendants
of their 1993 sala7.0% and 8.5% as of December 31, 1995 and 1994. The expected
long-term rate of return was 8.5% in 1995 and in 1994.
The Company adopted, as of April 1, 1994, a noncontributory
supplemental executive retirement plan ("SERP") for certain senior
management employees. Benefits under the noncontributory plan are
ated persons) who purchased the
Company's stock from April 1, 1993 through January 6, 1994. On
February 28, 1996, the Sinay action was voluntarily dismissed. The
Atencio and Rosenberg actions have been stayed pending the outcome
of the Vladimir action.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 1, 1994, the Company filed an action against De La Rue,
and its parent, De La Rue Plc in New York State Supreme
Court. The complaint alleges breach of contract in connection with
the 1993 purchase of the Company's Brazilian subsidiary from DLR
and seeks in excess of $1.5 million in damages. In December 1994,
the action was removed by the defendants to the United States
District Court for the Southern District of New York. Defendants
have filed an answer denying liability and asserting counterclaims.
Discovery is presently underway.
On November 2, 1994, an action was commenced against the Company
and certain of its directors and officers entitled Thomas De La Rue
AG v. United States Banknote Corporation, et al. in the United
States District Court for the Southern District of New York. The
complaint, as amended, alleges, among other things, breach of
contract by the Company in connection with the Brazil purchase
agreement and common law fraud based on the alleged failure to
disclose the risk of loss of the Company's stamp printing contracts
with the USPS and the alleged failure to register the Common Stock
paid to DLR expeditiously with the SEC. The complaint seeks
unspecified damages as well as $6.8 million for the Common Stock
received by DLR in the transaction. On November 20, 1995,
plaintiff amended its complaint and eliminated all of its federal
securities law claims and the individual defendants following
dismissal of certain of DLR's securities law claims by the court.
Discovery is presently underway.
The adverse determination of the above-described litigations could
have a material adverse effect on the financial condition or
results of operations of the Company in the event that the
Company's insurance was not available to cover such claims or an
award materially in excess of insurance coverage was made. The
Company believes, however, that it has good and meritorious
defenses to the litigations and intends to vigorously defend
against such actions. The Company maintains insurance coverage
which presently covers a majority of the expenses of defense of the
class action suits and, until November 1995, the DLR suit. In
addition to the foregoing, the Company is party to legal
proceedings that are considered to be either ordinary, routine
litigation incidental to its business or not material to the
Company's consolidated financial position.
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1995, the Company had approximately $3.3 million
of outstanding letters of credit cash collateralized.
The Company has long-term operating leases for offices,
manufacturing facilities and equipment which expire through 2013.
The Company has renewal options on some locations, which provide
for renewal rents based upon increases tied to the consumer price
index.
At December 31, 1995, future minimum lease payments under
noncancelable operating leases are as follows: $6.6 million in
1996; $7.0 million in 1997; $6.6 million in 1998; $5.7 million in
1999; $5.7 million in 2000; and $10.0 million thereafter.
Net rental expense was $8.0 million, $8.1 million, and $7.0 million
for the years ended December 31, 1995, 1994 and 1993, respectively
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note M - Quarterly Results of Operations - unaudited
The following is a summary of the quarterly results of operations
for the years ended December 31, 1995 and 1994 (in thousands,
except per share data):
1995 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
(1)
Sales $49,068 $47,591 $56,783 $ 52,722
Cost of sales 31,949 38,149 39,414 39,523
Net income (loss) $ (797) $(9,608) $ 53 $(12,063)
Per share net income (loss) $(.04) $(.50) $ .00 $(.63)
(1) In the fourth quarter pre-tax income was charged an aggregate
of $14.3 million of restructuring charges (See Note J). The
after-tax charge was approximately $11.1 million.
1994 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
(2)
Sales $43,614 $52,688 $52,890 $58,941
Cost of sales 24,967 32,174 33,517 40,231
Income (loss) from operations (969) (465) 561 (4,828)
Extraordinary item (1) - (114) - -
Net income (loss) $ (969) $ (579) $ 561 $(4,828)
Per share net income (loss)
Operations $ (.05) $ (.02) $ .03 $ (.25)
Extraordinary item - (.01) - -
Net Income (loss) $ (.05) $(.03) $ .03 $ (.25)
(1) In connection with the early extinguishment of indebtedness.
(See Note A 8)
(2) In the fourth quarter, pre-tax income was charged $7.0 million
of restructuring charges (See Note J) and $2.0 million for idle
equipment (See Note K). The after-tax charge was approximately
$5.2 million.
ITEM 9. Disagreements on Accounting and Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Company
See Item 13
ITEM 11. Executive Compensation
See Item 13
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management
See Item 13
ITEM 13. Certain Relationships and Related Transactions
Information required for Items 10, 11, 12 and 13 will be set
forth either (I) in the Company's definitive Proxy Statement for
the 1996 Annual Meeting of Stockholders, or (ii) in an amendment to
this Report on Form 10-K/A, which in either case will be filed with
the Securities and Exchange Commission not later than 120 days
after December 31, 1995, and which information is incorporated
herein by reference. In addition, reference is made to Item 10 in
Part I of this Report.
PART IV
ITEM 14. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K
(a)(1) List of Financial Statements.
The following consolidated financial statements of American
Banknote Corporation and subsidiaries are included in Item 8:
Consolidated Statements of Operations - Years Ended
December 31, 1995, 1994 and 1993
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statement of Stockholders' Equity -
Three Years Ended December 31, 1995
Consolidated Statements of Cash Flows - Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(a)(2) List of Financial Statement Schedules.
The following schedules of American Banknote
Corporation and subsidiaries are included in Item 14(d): None
All schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable, and therefore have been omitted.
(a)(3) List of Executive Compensation Plans and
Arrangements.
Second Amended and Restated Employment Agreement
dated as of October 1, 1993, between the Company, American Bank
Note Company and Morris Weissman is hereby incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form
10-K (as amended) for the year ended December 31, 1993 (the"1993
10-K").
Severance Agreement effective as of July 19, 1995 is
hereby incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995
(the "June 30, 1995 10-Q").
Employment Agreement dated July 24, 1990 between the
Company and John T. Gorman is hereby incorporated by reference to
Exhibit (c)(32) to Amendment No. 3 to the Company's Rule 13E-3
Transaction Statement on Schedule 13E-3 dated July 31, 1990 (the
"Schedule 13E-3").
Amendment dated August 31, 1992 to Employment
Agreement dated July 24, 1990, between the Company and John T.
Gorman is hereby incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1992 (the "1992 10-K").
Employment Letter effective August 18, 1995 between
Robert Wilcox and the Company is hereby incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 (the "September 30, 1995 10-Q").
Form of Performance Warrants dated July 25, 1990,
issued to Morris Weissman, John T. Gorman and Sheldon Cantor is
hereby incorporated by reference to Exhibit (c)(29) to the
Company's Rule 13E-3 Transaction Statement on Schedule 13E-3 dated
April 18, 1990.
Amended and Restated 1990 Employee Stock Option Plan
dated as of February 19, 1992 is hereby incorporated by reference
to Exhibit 10.37 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991 (the "1991 10-K").
Amendment dated September 23, 1993 to Amended and
Restated 1990 Employee Stock Option Plan dated as of February 19,
1992 is hereby incorporated by reference to Exhibit 10.13 to the
1993 10-K.
1992 Non-Employee Directors Stock Option Plan dated
as of February 19, 1992 is hereby incorporated by reference to
Exhibit 10.38 to the 1991 10-K.
Amendment dated as of June 11, 1992 to the 1992
Non-Employee Directors Stock Option Plan dated as of February 19,
1992 is hereby incorporated by reference to Exhibit 10.16 to the
1992 10-K.
Supplemental Executive Retirement Plan of the
Company effective as of April 1, 1994, is hereby incorporated by
reference to Exhibit 10.22 to Amendment No. 2 to the Company's
Registration Statement on Form S-4 (File No. 33-79726) filed July
18, 1994.
Amendments to SERP effective April 1, 1994.*
Form of severance agreement for designated officers
is hereby incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1994 (the "1994 10-K").
Long-Term Performance Plan for key employees is
hereby incorporated by reference to Exhibit 10.26 to the 1994 10-K.
Executive Incentive Plan for executive officers, as
amended, is hereby incorporated by reference to Exhibit 10.27 to
the 1994 10-K.
Deferred Stock and Compensation Plan for
Non-employee Directors is hereby incorporated by reference to
Exhibit 10.28 of the 1994 10-K.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the
last quarter of the period covered by this Report.
(c) Exhibits.
2.1 Agreement of Plan of Merger and Certificate of Merger of
United States Banknote Corporation (a New York corporation)
("USBN-NY") and United States Banknote Corporation (a Delaware
corporation) dated as of June 29, 1993 are hereby incorporated by
reference to Exhibits 2.1 and 2.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1993 (the "June 30,
1993 10-Q").
2.2 Certificate of Ownership and Merger of USBN-NY into the
Company dated as of July 14, 1994 is hereby incorporated by
reference to Exhibit 3.1 to the Company's Registration of Successor
Issuer on Form 8-B filed September 30, 1993 (the "Form 8-B").
2.3 Certificate of Merger of USBN-NY into the Company dated
as of July 14, 1994 is hereby incorporated by reference to Exhibit
3.2 to the Form 8-B.
2.4 Certificate of merger of USBC Acquisition, Inc. with and
into USBN-NY is hereby incorporated by reference to Exhibit 4(b) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1990.
3.1 Certificate of Incorporation of the Company including
Amendment No. 1 thereto is hereby incorporated by reference to
Exhibit 3.1 to the June 30, 1995 10-Q.
3.2 Certificate of Designation of the Company authorizing
Preferred Stock as Series A is hereby incorporated by reference to
Exhibit 4 to the Company's Report on Form 8-A filed April 6, 1994.
3.3 By-Laws of the Company including amendments thereto are
hereby incorporated by reference to Exhibit 3.2 to the June 30,
1995 10-Q.
4.1 Indenture dated as of May 15, 1992 between the Company
and Chemical Bank, as Trustee, relating to the 10-3/8% Senior Notes
due June 1, 2002 is hereby incorporated by reference to Exhibit 4.2
to the Company's Current Report on Form 8-K dated May 26, 1992 (the
"May 26, 1992 8-K").
4.2 Pledge Agreement, as amended, dated as of May 26, 1992
between the Company and Chemical Bank, as Trustee, relating to the
Company's 10-3/8% Senior Notes due June 1, 2002 is hereby
incorporated by reference to Exhibit 4.3 to the May 26, 1992 8-K.
4.3 First Amendment to the Pledge Agreement dated as of May
26, 1992 between the Company and Chemical Bank, N.A., dated as of
May 23, 1994 is hereby incorporated by reference to Exhibit 4.2 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994 (the "June 30, 1994 10-Q").
4.4 First Supplemental Indenture relating to 10-3/8% Senior
Notes due June 1, 2002 between the Company and Chemical Bank, N.A.,
dated as of May 23, 1994 is hereby incorporated by reference to the
June 30, 1994 10-Q.
4.5 Pledged Share Amendment dated as of July 31, 1995 between
the Company and Chemical Bank, as Trustee, relating to the 10-3/8%
Senior Notes due June 1, 2002.*
4.6 Indenture dated as of May 1, 1994 between the Company and
The First National Bank of Boston as Trustee, relating to the
11-5/8% Senior Notes Due August 1, 1002, Series B, of the Company
and Form of Series B Note, is hereby incorporated by reference to
Exhibit 4.1 and 4.3 to the Company's Registration Statement on Form
S-4 dated August 5, 1994.
4.7 Rights Agreement dated as of March 24, 1994 between the
Company and Chemical Bank as Rights Agent including the form of
Rights Certificate and form of Certificate of Designation is hereby
incorporated by reference to Exhibit 1 to the Company's Current
Report on Form 8-K dated March 24, 1994.
4.8 Credit Agreement dated as of January 29, 1996, among
American Bank Note Company and American Bank Note Holographics,
Inc., American Banknote Corporation and Chemical Bank, as Agent.*
4.9 Security Agreement dated as of January 29, 1996, among
American Bank Note Company and American Bank Note Holographics,
Inc. and Chemical Bank, as Agent.*
10.1 Second Amended and Restated Employment Agreement dated as
of October 1, 1993, between the Company, American Bank Note Company
and Morris Weissman is hereby incorporated by reference to Exhibit
10.1 to the 1993 10-K.
10.2 Severance Agreement effective July 19, 1995 is hereby
incorporated by reference to Exhibit 10.1 to the June 30, 1995
10-Q.
10.3 Employment Agreement dated July 24, 1990 between the
Company and John T. Gorman is hereby incorporated by reference to
Exhibit (c)(32) to the Schedule 13E-3.
10.4 Amendment dated August 31, 1992 to Employment Agreement
dated July 24, 1990, between the Company and John T. Gorman is
hereby incorporated by reference to Exhibit 10.3 to the 1992 10-K.
10.5 Employment Letter effective August 18, 1995 between
Robert Wilcox and the Company is hereby incorporated by reference
to the September 30, 1995 10-Q.
10.6 Form of Performance Warrants dated July 25, 1990, issued
to Morris Weissman, John T. Gorman and Sheldon Cantor is hereby
incorporated by reference to Exhibit (c)(29) to the Company's Rule
13E-3 Transaction Statement on Schedule 13E-3 dated April 18, 1990.
10.7 Amended and Restated 1990 Employee Stock Option Plan
dated as of February 19, 1992 is hereby incorporated by reference
to Exhibit 10.37 to the 1991 10-K.
10.8 Amendment dated September 23, 1993 to Amended and
Restated 1990 Employee Stock Option Plan dated as of February 19,
1992, is hereby incorporated by reference to Exhibit 10.13 to the
1993 10-K.
10.9 1992 Non-Employee Directors Stock Option Plan dated as of
February 19, 1992 is hereby incorporated by reference to Exhibit
10.38 to the 1991 10-K.
10.10 Amendment dated as of June 11, 1992 to the 1992
Non-Employee Directors Stock Option Plan dated as of February 19,
1992 is hereby incorporated by reference to Exhibit 10.16 to the
1992 10-K.
10.11 Supplemental Executive Retirement Plan ("SERP") of
the Company effective as of April 1, 1994, is hereby incorporated
by reference to Exhibit 10.22 to Amendment No. 2 to the Company's
Registration Statement on Form S-4 (File No. 33-79726) filed July
18, 1994.
10.12 Amendments to SERP effective April 1, 1994.*
10.13 Form of severance agreement for designated officers
is hereby incorporated by reference to Exhibit 10.25 to the 1994
10-K.
10.14 Long-Term Performance Plan for Key employees is
hereby incorporated by reference to Exhibit 10.26 to the 1994 10-K.
10.15 Executive Incentive Plan for executive officers, as
amended, is hereby incorporated by reference to Exhibit 10.27 to
the 1994 10-K.
10.16 Deferred Stock and Compensation Plan for
Non-employee Directors is hereby incorporated by reference to
Exhibit 10.26 to the 1994 10-K.
10.17 Sublease dated January 31, 1996 between Grow Group,
Inc. and the Company for the Company's headquarters at 200 Park
Avenue, New York.*
10.18 Real Estate Rental Agreement, dated February 29,
1996, between Walter Torre Junior LTDA. And American Bank Note
Company Grafica E Servicos Ltda for property located in Barueri,
Sao Paulo, Brazil.*
10.19 Agreement of Lease, dated as of July 23, 1992,
between Robert Martin Company and American Banknote Holographics,
Inc. is hereby incorporated by reference to Exhibit 10.17 to the
1992 10-K.
10.20 Stock Purchase Agreement dated as of June 7, 1993,
between the Company and Thomas De La Rue AG, relating to the
acquisition of Thomas De La Rue Grafica e Servicos Ltda is hereby
incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated June 23, 1993 (the "June 23, 1993 8-K").
10.21 Stock Purchase Agreement dated as of June 7, 1993,
by and among American Bank Note Holographics, Inc., the Company and
Thomas De La Rue, Inc. is hereby incorporated by reference to
Exhibit 10.2 to the June 23, 1993 8-K.
10.22 Stock Purchase Agreement dated as of June 7, 1993,
by and among De La Rue Holographics Limited (Amblehurst Limited),
De La Rue plc and the Company is hereby incorporate by reference to
Exhibit 10.3 to the June 23, 1993 8-K.
10.23 Non-Exclusive Patent License Agreement between
American Bank Note Holographics, Inc. and De La Rue Holographics
Limited dated June 23, 1993, is hereby incorporated by reference to
Exhibit 10.4 to the June 23, 1993 8-K.
10.24 Subscription Agreement dated June 2, 1995 regarding
Grafica Bradesco Ltda. and ABN-Brazil is hereby incorporated by
reference to the Company's Current Report on Form 8-K/A (Amendment
No. 1) dated July 10, 1995 (the "July 10, 1995 8-K").
10.25 By-Laws of ABN-Brazil, as amended, are hereby
incorporated by reference to the July 10, 1995 8-K.
10.26 Contract dated September 4, 1995 with
Telecomunicacoes Brasileiras S/A - Telebras for production of
telephone cards.*
10.27 Agreement for Services, effective October 1, 1995
between Kelly, Anderson, Pethick & Associates, Inc. and the Company
is hereby incorporated by reference to Exhibit 10.2 to the
September 30, 1995 10-Q.
11 Computation of per share income (loss).*
21 Subsidiaries of the Registrant.*
23 Independent Auditors' Consent.*
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICAN BANKNOTE CORPORATION
Registrant
By: s/ Morris Weissman
Morris Weissman
Chairman and Chief Executive Officer
March 29, 1996
By: s/ John T. Gorman
John T. Gorman
Executive Vice President,
Chief Financial Officer
and Chief Accounting Officer
March 29, 1996
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 Company and in the capacities and on the dates
indicated:
s/ Morris Weissman s/ C. Gerald Goldsmith
Morris Weissman C. Gerald Goldsmith
Director, Chairman and Director
Chief Executive Officer March 29, 1996
March 29, 1996
s/ Bette B. Anderson s/ Ira J. Hechler
Bette B. Anderson Ira J. Hechler
Director Director
March 29, 1996 March 29, 1996
s/ David S. Rowe-Beddoe
Dr. Oscar Arias S David S. Rowe-Beddoe
Director Director
March , 1996 March 29, 1996
EXHIBIT INDEX
Page No. in
Manually
Exhibit No. Signed Report
2.1 Agreement of Plan of Merger and Certificate of Merger
of United States Banknote Corporation (a New York
corporation) ("USBN-NY") and United States Banknote
Corporation (a Delaware corporation) dated as of June
29, 1993 are hereby incorporated by reference to
Exhibits 2.1 and 2.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1993 (the "June 30, 1993 10-Q").
2.2 Certificate of Ownership and Merger of USBN-NY into
the Company dated as of July 14, 1994 is hereby
incorporated by reference to Exhibit 3.1 to the
Company's Registration of Successor Issuer on
Form 8-B filed September 30, 1993 (the "Form 8-B").
2.3 Certificate of Merger of USBN-NY into the Company
dated as of July 14, 1994 is hereby incorporated by
reference to Exhibit 3.2 to the Form 8-B.
2.4 Certificate of merger of USBC Acquisition, Inc. with
and into USBN-NY is hereby incorporated by reference
to Exhibit 4(b) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1990.
3.1 Certificate of Incorporation of the Company including
Amendment No. 1 thereto is hereby incorporated by
reference to Exhibit 3.1 to the June 30, 1995 10-Q.
3.2 Certificate of Designation of the Company authorizing
Preferred Stock as Series A is hereby incorporated by
reference to Exhibit 4 to the Company's Report on Form
8-A filed April 6, 1994.
3.3 By-Laws of the Company including amendments thereto
are hereby incorporated by reference to Exhibit 3.2
to the June 30, 1995 10-Q.
4.1 Indenture dated as of May 15, 1992 between the
Company and Chemical Bank, as Trustee, relating to
the 10-3/8% Senior Notes due June 1, 2002 is hereby
incorporated by reference to Exhibit 4.2 to the
Company's Current Report on Form 8-K dated May 26,
1992 (the "May 26, 1992 8-K").
4.2 Pledge Agreement, as amended, dated as of May 26,
1992 between the Company and Chemical Bank, as
Trustee, relating to the Company's 10-3/8% Senior
Notes due June 1, 2002 is hereby incorporated by
reference to Exhibit 4.3 to the May 26, 1992 8-K.
4.3 First Amendment to the Pledge Agreement dated as of
May 26, 1992 between the Company and Chemical Bank,
N.A., dated as of May 23, 1994 is hereby incorporated
by reference to Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994 (the "June 30, 1994 10-Q").
4.4 First Supplemental Indenture relating to 10-3/8%
Senior Notes due June 1, 2002 between the Company and
Chemical Bank, N.A., dated as of May 23, 1994 is
hereby incorporated by reference to the June 30, 1994
10-Q.
4.5 Pledged Share Amendment dated as of July 31, 1995
between the Company and Chemical Bank, as Trustee,
relating to the 10-3/8% Senior Notes due June 1, 2002.*
4.6 Indenture dated as of May 1, 1994 between the Company
and The First National Bank of Boston as Trustee,
relating to the 11-5/8% Senior Notes Due August 1,
1002, Series B, of the Company and Form of Series B
Note, is hereby incorporated by reference to Exhibit
4.1 and 4.3 to the Company's Registration Statement
on Form S-4 dated August 5, 1994.
4.7 Rights Agreement dated as of March 24, 1994 between
the Company and Chemical Bank as Rights Agent
including the form of Rights Certificate and form of
Certificate of Designation is hereby incorporated by
reference to Exhibit 1 to the Company's Current
Report on Form 8-K dated March 24, 1994.
4.8 Credit Agreement dated as of January 29, 1996, among
American Bank Note Company and American Bank Note
Holographics, Inc., American Banknote Corporation and
Chemical Bank, as Agent.*
4.9 Security Agreement dated as of January 29, 1996, among
American Bank Note Company and American Bank Note
Holographics, Inc. and Chemical Bank, as Agent.*
10.1 Second Amended and Restated Employment Agreement
dated as of October 1, 1993, between the Company,
American Bank Note Company and Morris Weissman is
hereby incorporated by reference to Exhibit 10.1 to
the 1993 10-K.
10.2 Severance Agreement effective July 19, 1995 is hereby
incorporated by reference to Exhibit 10.1 to the June
30, 1995 10-Q.
10.3 Employment Agreement dated July 24, 1990 between the
Company and John T. Gorman is hereby incorporated by
reference to Exhibit (c)(32) to the Schedule 13E-3.
10.4 Amendment dated August 31, 1992 to Employment
Agreement dated July 24, 1990, between the Company
and John T. Gorman is hereby incorporated by
reference to Exhibit 10.3 to the 1992 10-K.
10.5 Employment Letter effective August 18, 1995 between
Robert Wilcox and the Company is hereby incorporated by
reference to the September 30, 1995 10-Q.
10.6 Form of Performance Warrants dated July 25, 1990,
issued to Morris Weissman, John T. Gorman and Sheldon
Cantor is hereby incorporated by reference to Exhibit
(c)(29) to the Company's Rule 13E-3 Transaction
Statement on Schedule 13E-3 dated April 18, 1990.
10.7 Amended and Restated 1990 Employee Stock Option Plan
dated as of February 19, 1992 is hereby incorporated
by reference to Exhibit 10.37 to the 1991 10-K.
10.8 Amendment dated September 23, 1993 to Amended and
Restated 1990 Employee Stock Option Plan dated as of
February 19, 1992, is hereby incorporated by
reference to Exhibit 10.13 to the 1993 10-K.
10.9 1992 Non-Employee Directors Stock Option Plan dated
as of February 19, 1992 is hereby incorporated by
reference to Exhibit 10.38 to the 1991 10-K.
10.10 Amendment dated as of June 11, 1992 to the 1992
Non-Employee Directors Stock Option Plan dated as of
February 19, 1992 is hereby incorporated by reference
to Exhibit 10.16 to the 1992 10-K.
10.11 Supplemental Executive Retirement Plan ("SERP") of
the Company effective as of April 1, 1994, is hereby
incorporated by reference to Exhibit 10.22 to
Amendment No. 2 to the Company's Registration
Statement on Form S-4 (File No. 33-79726) filed July
18, 1994.
10.12 Amendments to SERP effective April 1, 1994.*
10.13 Form of severance agreement for designated officers is
hereby incorporated by reference to Exhibit 10.25 to
the 1994 10-K.
10.14 Long-Term Performance Plan for Key employees is hereby
incorporated by reference to Exhibit 10.26 to the 1994
10-K.
10.15 Executive Incentive Plan for executive officers, as
amended, is hereby incorporated by reference to Exhibit
10.27 to the 1994 10-K.
10.16 Deferred Stock and Compensation Plan for Non-employee
Directors is hereby incorporated by reference to
Exhibit 10.26 to the 1994 10-K.
10.17 Sublease dated January 31, 1996 between Grow Group,
Inc. and the Company for the Company's headquarters at
200 Park Avenue, New York.*
10.18 Real Estate Rental Agreement, dated February 29, 1996,
between Walter Torre Junior LTDA. And American Bank
Note Company Grafica E Servicos Ltda for property
located in Barueri, Sao Paulo, Brazil.*
10.19 Agreement of Lease, dated as of July 23, 1992,
between Robert Martin Company and American Banknote
Holographics, Inc. is hereby incorporated by
reference to Exhibit 10.17 to the 1992 10-K.
10.20 Stock Purchase Agreement dated as of June 7, 1993,
between the Company and Thomas De La Rue AG, relating
to the acquisition of Thomas De La Rue Grafica e
Servicos Ltda is hereby incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form
8-K dated June 23, 1993 (the "June 23, 1993 8-K").
10.21 Stock Purchase Agreement dated as of June 7, 1993, by
and among American Bank Note Holographics, Inc., the
Company and Thomas De La Rue, Inc. is hereby
incorporated by reference to Exhibit 10.2 to the June
23, 1993 8-K.
10.22 Stock Purchase Agreement dated as of June 7, 1993, by
and among De La Rue Holographics Limited (Amblehurst
Limited), De La Rue plc and the Company is hereby
incorporate by reference to Exhibit 10.3 to the June
23, 1993 8-K.
10.23 Non-Exclusive Patent License Agreement between American
Bank Note Holographics, Inc. and De La Rue Holographics
Limited dated June 23, 1993, is hereby incorporated by
reference to Exhibit 10.4 to the June 23, 1993 8-K.
10.24 Subscription Agreement dated June 2, 1995 regarding
Grafica Bradesco Ltda. and ABN-Brazil is hereby
incorporated by reference to the Company's Current
Report on Form 8-K/A (Amendment No. 1) dated July 10,
1995 (the "July 10, 1995 8-K").
10.25 By-Laws of ABN-Brazil, as amended, are hereby
incorporated by reference to the July 10, 1995 8-K.
10.26 Contract dated September 4, 1995 with Telecomunicacoes
Brasileiras S/A - Telebras for production of telephone
cards.*
10.27 Agreement for Services, effective October 1, 1995
between Kelly, Anderson, Pethick & Associates, Inc. and
the Company is hereby incorporated by reference to
Exhibit 10.2 to the September 30, 1995 10-Q.
11 Computation of per share income (loss).*
21 Subsidiaries of the Registrant.*
23 Independent Auditors' Consent.*
* Filed herewith