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1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 0-5610
PAXAR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-5670050
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
105 CORPORATE PARK DRIVE, WHITE PLAINS, NEW YORK 10604
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
914-697-6800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, PAR VALUE $.10 PER SHARE NEW YORK STOCK EXCHANGE, INC.
- -------------------------------------- ---------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
2
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the Registrant as of March 24, 2000 was approximately
$412,565,669. On such date, the closing price of the Registrant's Common Stock,
as quoted on the New York Stock Exchange, was $10.0625.
The Registrant had 46,535,867 shares of Common Stock outstanding as of
March 24, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K is herein incorporated by
reference from the Registrant's Definitive Proxy Statement to be filed with the
Securities and Exchange Commission with respect to the Registrant's Annual
Meeting of Shareholders scheduled to be held on May 4, 2000.
================================================================================
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PART I
ITEM 1: BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Paxar Corporation ("Paxar" or the "Company") is a global leader in
providing innovative, value-added identification and tracking solutions to
retailers, apparel manufacturers and selected markets where Paxar has
significant capabilities. Paxar's global manufacturing operations, worldwide
distribution network, one-stop-shopping approach and brand recognition enable
the Company to expand its leading position in apparel identification and
labeling solutions to the retail supply chain. The Company markets and
distributes its products in more than 75 countries.
The Company's Apparel Identification operations manufacture products for
and provide services specifically to retailers and apparel manufacturers.
The Company's products are manufactured and distributed globally to service
offshore apparel producers. Fabric label systems include electronic printers and
related supplies used for in-plant label printing. Additionally, the Company's
products include labels and tags for sheets, towels, pillowcases and other white
goods.
The Company's Labeling Solutions operations market and distribute (1)
electronic bar code printers, which are used in a wide range of retail and
industrial applications, including inventory management and distribution
systems, and (2) hand-held mechanical labeling devices that print
pressure-sensitive (i.e., adhesive-backed) price and other identification
labels and affix them onto merchandise for retailers. In addition, the Company
manufactures and markets supplies used in both its mechanical labelers and bar
code printers and provides comprehensive service to its installed base of
machines.
ACQUISITIONS
ENGLAND, HONG KONG, CHINA AND SRI LANKA:
On February 2, 1999, the Company acquired the apparel identification
business of Ferguson International PLC ("Ferguson"). The acquisition price was
approximately $20.5 million. The acquisition involved the purchase of certain
assets in the U.K. and the purchase of 100% of the shares of Ferguson Asia
Limited and 90% of the shares of Ferguson Lanka (Private) Limited.
Assets acquired in the U.K. include manufacturing and sales facilities for
printed and woven labels and for graphic tags and labels primarily for the
apparel market. Ferguson Asia Limited has production and sales facilities in
Hong Kong, China and Malaysia for all of its fabric and paper products. Ferguson
Lanka (Private) Limited operates a new state-of-the-art manufacturing facility
in Sri Lanka. Ferguson Lanka has subsequently changed its name to Paxar Lanka
(Private) Limited.
The acquisition of Ferguson's apparel identification business enables the
Company to offer its full line of products to customers in Europe and Asia in
line with the Company's strategy to be a worldwide one-stop-shop for
identification and tracking in the retail supply chain.
TURKEY:
In February 1998, the Company acquired a 70% interest in Teslo Tekstil
Urunleri Sanayii ve Ticaret A.S. ("Teslo"), a Turkish company, with an option to
acquire the remaining 30% from the minority shareholders. Teslo offers a
comprehensive range of apparel identification products to European and U.S.
customers, and its facilities include manufacturing and service bureau
operations in addition to sales and marketing. The Company believes that the
acquisition of Teslo will help it to expand rapidly into this strategically
important market where garment manufacturing is large and growing, serving both
European and American retailers, and to provide a base for further expansion in
the region.
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IIMAK:
On October 28, 1997, the Company completed the acquisition of
International Imaging Materials, Inc. ("IIMAK"). IIMAK is the largest
manufacturer in North America of thermal trsnfer ribbons for numerous diverse
applications. These thermal transfer ribbons are used in bar code printers to
print single-color and full-color tags and labels for use in manufacturing and
factory automation systems, shipping and distribution systems, retail price
tag, packaging and medical applications. The acquisition was accounted for as a
pooling of interests. In connection with the merger, each outstanding share of
IIMAK common stock was converted into 1.5 shares of the Company's common stock
and all existing IIMAK warrants and options were converted into warrants and
options to purchase the Company's common stock.
MONARCH:
On June 29, 1995, the Company acquired a 49% interest in Monarch Marking
Systems, Inc. ("Monarch"). Monarch manufactures, markets and distributes
mechanical labelers, bar code printers and related supplies. It also
manufactures and markets supplies used in both its mechanical labelers and bar
code printers and provides extensive service to its installed base of machines.
Monarch is a leading manufacturer and marketer of retail price marking
equipment and supplies in the United States. The Company accounted for the
acquisition using the equity method. On March 3, 1997, the Company acquired the
remaining 51% of Monarch for a total purchase price of $132. The Company
acquired the 49% equity interest of Odyssey Partners, L.P. for $94.1 in cash, a
promissory note in the amount of $5.9 at an annual interest rate of 4.88%
payable on January 2, 1998, and five year warrants to purchase (a) 1,250,000
shares of the Company's common stock, par value $0.10, at an exercise price of
$14.00 per share and (b) 250,000 shares of the Company's common stock at an
exercise price of $17.50 per share. Upon completion of the acquisition, the
Chairman and the President of Monarch each received 156,536 shares of the
Company's common stock valued at $15.20 per share, in exchange for the shares
of Monarch common stock owned by each of them. Additionally, the management of
Monarch received incentive stock options to purchase an aggregate of 1,244,469
shares of the Company's common stock pursuant to the Company's 1990 Employee
Stock Option Plan in exchange for outstanding options to purchase Monarch
common stock.
RECENT EVENTS
SALE OF IIMAK:
In February 2000, the Company announced it had entered into an agreement
to sell 92.5% of IIMAK for a total consideration of $127.5 million, which
includes $120 million in cash and $7.5 million of IIMAK preferred stock. The
transaction was closed and payment was received on March 9, 2000. As part of
the agreement, the Company has entered into a Supply Contract with IIMAK,
whereby the Company will purchase substantially all of its thermal transfer
ribbon supplies from IIMAK for a three-year term, with one-year extensions,
unless terminated by either party.
PRESIDENT AND CHIEF OPERATING OFFICER:
Paul Griswold, age 48, joined the Company as its President and Chief
Operating Officer on February 28, 2000. Prior to joining the Company, Mr.
Griswold was Senior Vice President - Protective Packaging and International
Operations at Pactiv Corporation, formerly Tenneco Packaging. Prior to joining
Tenneco in 1994, he was Vice President of Packaging Development and Procurement
for Pepsi International.
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STOCK REPURCHASES:
On July 30, 1998, the Company announced a plan to purchase, from time to
time, up to $25 million of the Company's common stock as conditions warrant. As
of December 31, 1998, the Company had repurchased 1,434,400 shares at an average
price of $9.10 per share. On February 12, 1999, the Company announced it had
increased the stock repurchase plan from the initial $25 million to $40 million.
During and subsequent to the quarter ended September 30, 1999, the Company
canceled the treasury stock purchased under the stock repurchase plan. Since
July 30, 1998, the Company has repurchased 3,265,100 shares at an average price
of $8.86 per share. On February 10, 2000, the Company announced it had increased
the stock repurchase plan from $40 million to $70 million.
BORNEMANN & BICK LETTER OF INTENT:
On December 28, 1999, the Company announced that it signed a letter of
intent to acquire the Bornemann & Bick ("B&B") group of companies in an all-cash
transaction. B&B a leading manufacturer of woven labels and other apparel
identification products, has wholly-owned operations in Germany, Hong Kong,
China, Turkey and Poland. It has joint ventures in Italy, Spain and India.
During 1999, the wholly owned companies had sales of approximately $55 million.
Completion of the transaction is subject to a definitive agreement and is
expected to close during the second quarter of 2000.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The information required by this Item is incorporated by reference to the
Company's Financial Statements included elsewhere in this report. (See Part IV,
Item 14, Note 13.)
DESCRIPTION OF BUSINESS
PRODUCTS AND SERVICES
The Company manufactures and distributes its products and services
worldwide. It operates in two segments: Apparel Identification and Labeling
Solutions.
APPAREL IDENTIFICATION PRODUCTS AND SERVICES:
The Company's Apparel Identification operations are vertically integrated
into its major product lines, which permits it to:
- better serve its customers
- develop innovative products
- control quality
- reduce costs
- speed delivery of products and services
The Company designs and builds most of its systems equipment and develops
most of the operating software and all of the application software for its
systems. The Apparel Identification operations also:
- formulate coatings and inks
- coat fabrics
- weave labels
- weave narrow label fabrics
- dye and finish fabrics
- design and print tags and labels
TAG AND LABEL SYSTEMS. The tag and label systems consist primarily of bar
code systems and fabric label systems. These systems include complete hardware
and software packages that enable customers to print, cut and batch large
volumes of labels and tags in their plants. The sale of a system to a customer
generally results in ongoing sales of inks, fabrics, tags and other supplies to
the customer.
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BAR CODE SYSTEMS. The bar code industry has experienced substantial growth
in recent years. Bar code systems, consisting of electronic printers and related
supplies and services, are used by customers to print data on labels and tags to
provide accurate product, inventory and point-of- sale information for
integration with sophisticated data systems. Apparel retailers require bar coded
tags on their products to permit more accurate tracking of the products in
stores, which, in turn, allows retailers to better monitor consumer demand and
more effectively control inventories. The Company's bar code systems enable
manufacturers to accommodate retailers' demands in a rapid and cost-effective
manner. The Company has introduced innovative systems that provide manufacturers
and retailers with the capability to place permanent bar codes in apparel
utilizing specialty fabrics and inks.
Bar codes consist of a series of lines or bars printed on a contrasting
background. By varying the width of the bars and the spaces between bars, the
bar code is encoded with information to identify an item, which enables the
user's data system to provide relevant information about that item, such as its
location, cost, selling price and manufacturer. Bar codes are read by a fixed or
hand-held scanning device, which transmits information to data collection
systems, including computers, electronic cash registers and portable data
collection devices. The Company has specialized in producing clearly readable
and accurate tags, from which a variety of bar code readers can capture accurate
data.
The Company's bar code systems and supplies include:
- electronic bar code printers
- thermal inks
- pre-printed tag stock and specialty fabrics
- supporting software
The printers are controlled by computers and print variable information such as
garment identification numbers and size in either readable or bar code form.
Data can be input to the bar code printer through simple stand-alone keyboards
with a built-in display, through personal computers with the Company's
application software or by downloading from the manufacturer's central computer.
FABRIC LABEL SYSTEMS. Fabric label systems include printers, fabrics, inks
and printing accessories, which are used by manufacturers for in-plant printing
of care labels and labels that carry brand logo, size and other information for
the retail customer. Such systems provide manufacturers with the flexibility to
imprint labels quickly in response to production order specifications.
TAGS AND LABELS. Labels and tags are attached to apparel by manufacturers
and retailers to identify and promote their products, allow automated data
collection and provide brand identification and consumer information such as
country of origin, size, fabric content and care instructions. In addition, the
Company offers a variety of innovative labels and tags that incorporate security
features to protect in-store merchandise from theft and to protect branded
apparel from counterfeiters.
Fabric labels are attached early in the garment manufacturing process and
must withstand all production processes and remain legible through washing and
dry cleaning by the end user. Tags are attached when the garment is complete and
are primarily for point of sale promotion. The Company designs and produces tags
and woven and printed labels in its various manufacturing facilities around the
world. The Company's labels are printed on a wide range of fabrics and other
materials. Its woven labels consist of jacquard, multi-color labels woven on
broad looms and needle looms. They are primarily used to build brand
identification for apparel and to provide information to consumers. The
Company's multi-color printed labels are printed on coated fabrics and narrow
woven fabrics using various types of high-speed equipment and are used primarily
for product identification and consumer information on apparel. Merchandise tags
are multi-color printed tags and bar code price tags used primarily for
promotion, customer information and inventory control.
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LABELING SOLUTIONS PRODUCTS AND SERVICES:
Labeling Solutions products consist of mechanical labelers, bar code
printers and the related supplies for these systems, which are manufactured at
the Company's facility in Miamisburg, Ohio.
MECHANICAL LABELERS. The Company's handheld mechanical labelers print one
to three lines of alphanumeric information in a variety of print types,
languages and sizes. These products, which are made of highly durable molded
plastic parts, have multiple applications, including merchandise pricing,
promotional labeling and component identification. Such mechanical labelers
include models ranging from simple labelers that print one line of alphanumeric
text with few characters to larger labelers that print three lines of
alphanumeric text with more than thirty characters.
BAR CODE PRINTERS. The Company's family of bar code machines consists of
tabletop, handheld and portable thermal transfer and direct thermal printers.
Certain models of the Company's hand-held and portable printers incorporate
laser scanners and communicate using radio frequency. Thermal transfer printers
create an image by applying an electrically heated printhead onto a ribbon that
releases ink onto labeling stock. Thermal transfer printers produce excellent
image quality which can be used with a wide variety of papers and fabrics.
Direct thermal printers create an image by applying an electrically heated
printhead directly to specially treated paper that changes color when heated.
Direct thermal technology is preferable for smaller less expensive printing
systems where image durability is less critical.
SELF-ADHESIVE LABELS. The Company manufactures and distributes a broad
range of self-adhesive labels for use in connection with its mechanical labelers
and its bar code printers. Labels for use in the Company's mechanical labelers
are made pursuant to patent-protected specifications relating to the way in
which the labels are fed through the labelers. Labels for use in the Company's
bar code printers often are customized with store name, brand logo or other
information unique to a particular customer. The Company has developed and
introduced a linerless self-adhesive label material which expands the supply
capacity of its printers and allows customers to avoid having to dispose of the
usual backing material.
SERVICE. The Company provides its customers with comprehensive service for
its mechanical labelers and bar code printers. In addition to central service
facilities, the Company has a field service organization that provides
preventive maintenance and service at customers' locations.
SALES AND MARKETING
The Company employs salespersons who are compensated on a salary and bonus
basis. These salespersons are located in leased offices across the United
States, and at subsidiary companies in Canada, the U.K., France, Germany,
Belgium, Italy, Poland, Spain, Turkey, Mexico, Honduras, Dominican Republic,
Colombia, Australia, Hong Kong, Sri Lanka and Singapore. In addition, there are
non-exclusive manufacturers' representatives located throughout the United
States who sell the Company's products on a commission basis, as well as
international and export distributors and commission agents, located in Europe,
Africa, the Far East and Latin America. Sales promotion activities include:
- direct mail campaigns
- publication of catalogs and brochures
- participation in trade shows
- telemarketing
- advertising, principally in trade journals
The business of the Company is not highly seasonal in nature.
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CUSTOMERS
Apparel Identification customers include major manufacturers and retailers
around the globe. The Company has customers among discounters, specialty stores
and department stores. In general, the customers fall into two categories: those
with branded apparel sold nationally or internationally; and those retailers who
have developed private label lines of apparel.
Labeling Solutions operations have retail, distribution and manufacturing
customers. The Company has a significant market share in the retail segment with
special emphasis on price marking, merchandise identification, tracking and
promotional applications. Retail customers include many of the major retailers
in the United States and abroad. The Company has leveraged its leadership
position with retailers to expand beyond in-store item marking to in-store
logistics applications and distribution center automation programs.
As a greater number of retailers are requiring their vendors to apply bar
codes to merchandise before they ship it to stores, the Company is leveraging
its retail presence to become a supplier for vendors responding to retailers'
compliance marking programs. The Company has established complete compliance
marking solutions for suppliers to major retailers.
The Company has also focused resources on the distribution/shipping market
sector with growing success, broadening its presence in the supply chain.
No customer accounted for more than 10% of the Company's revenues in 1999.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company purchases fabrics, inks, chemicals, polyester film, plastic
resins, electronic components, adhesive-backed papers, yarns and other raw
materials from major suppliers located throughout the United States and abroad.
The Company believes that such materials are in good supply and are available
from multiple sources.
PATENTS, TRADEMARKS AND LICENSES
The Company relies upon trade secrets and confidentiality to protect the
proprietary nature of its technology. The Company also owns and controls
numerous patents and trademarks. Although no one patent or group of related
patents is material to the Company's business, the Company believes that, in the
aggregate, its patents are significant to its operations and its competitive
position.
WORKING CAPITAL PRACTICES
The Company does not engage in unusual practices regarding inventories,
receivables or other items of working capital.
BACKLOG
The Company's total backlog of orders at December 31, 1999 was
approximately $50 million, compared with $45 million at December 31, 1998.
Backlog is not a reliable indicator of future sales activity, because more than
80 percent of annual sales consist of orders that the Company typically fills
within one month of receipt. The balance of the orders are for products that
are ordered to individual customer specifications for delivery within two to
three months.
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COMPETITION
Apparel Identification operations compete in both the domestic and
international markets by means of price, product quality, innovation and
customer service. Competitors include a large number of independent, regional
companies and a division of a large corporation. The Company believes that it is
a market leader in worldwide sales of apparel identification products and
services.
The mechanical labeler business is very competitive both in terms of price
and product features. Mechanical labeling in the United States is a mature
market. The Company believes that it is a market leader in the United States.
These products are also distributed and sold outside the United States. The
Company's principal competitors are Checkpoint, Avery Dennison, Sato and Garvey.
Many companies are engaged in the design, manufacture and marketing of bar
code printing products. The Company considers its direct competition to be the
providers of direct thermal and thermal transfer printers and supplies. The
Company's principal competitors in the bar code printer business are Zebra,
Datamax and Unova. Competition in the Company's target markets is based on a
number of factors, including:
- quality
- reputation of the manufacturer and its products
- hardware innovations
- specifications
- price
- level of technical support
- applications support offered by the manufacturer
- available distribution channels
- rapid delivery
RESEARCH AND ENGINEERING
The Company believes that continuous product innovation helps the Company
maintain a competitive advantage in the markets in which it operates. Therefore,
the Company makes substantial annual research and product engineering
investments to develop new products to serve the needs of its customers. The
Company's research and engineering staff comprises 74 employees involved in the
development of, among other things:
- specialized tags and labels to meet particular customer requirements
- improved mechanical labeling and bar code printers
- new kinds of thermal transfer ribbons for unique applications
ENVIRONMENTAL COMPLIANCE
The Company is subject to various federal, state and local environmental
laws and regulations limiting or related to the use, emission, discharge,
storage, treatment, handling and disposal of hazardous substances. Federal laws
that are particularly applicable are:
- Water Pollution Control Act
- Clear Air Act of 1970 (as amended in 1990)
- Resource Conservation and Recovery Act (including amendments
relating to underground tanks)
The Company has been advised of various enforcement and clean-up actions
where it may be responsible. The Company believes, however, that none of those
actions, individually or collectively, is material.
EMPLOYEES
The Company has approximately 5,400 employees worldwide. Approximately 178
production employees of the Company in several locations in the United States
are covered by four different union contracts, which expire at various times
from June 2000 to October 2001. The Company has no recent history of material
labor disputes. The Company believes that it has good employee relations.
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CAUTIONARY STATEMENT PURSUANT TO "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information, the Company's reports to the Securities
and Exchange Commission on Form 10-K and Form 10-Q and periodic press releases,
as well as other public documents and statements, contain "forward-looking
statements" within the meaning of the federal securities laws. Forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by the statements,
regarding, among others:
- rate of migration of garment manufacturing industry moving from the
United States and Western Europe
- worldwide economic and other business conditions that could affect
demand for the Company's products in the United States or
international markets
- the mix of products sold and the profit margins thereon
- order cancellation or reduced bookings by customers or distributors
- competitive product offerings and pricing actions
- the availability and pricing of key raw materials
- productivity improvements in manufacturing
- dependence on key members of management
Readers are cautioned not to place undue reliance on forward-looking
statements. The Company undertakes no obligation to republish or revise
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrences of unanticipated events.
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FINANCIAL INFORMATION ABOUT OPERATIONS IN THE UNITED STATES AND OTHER COUNTRIES
The information required by this Item is incorporated by reference to the
Company's Financial Statements included elsewhere in this report. (See Part IV,
Item 14, Note 13.)
ITEM 2: PROPERTIES
The Company uses the following principal facilities in its operations:
SQUARE OWNED/ LEASE
LOCATION FOOTAGE LEASED EXPIRATION USED FOR
-------------------------------- -------- ----- ---------- --------
Miamisburg, Ohio................ 350,000 Owned Office, Manufacturing, and Warehouse
Lenoir, North Carolina.......... 127,000 Owned Administrative and Manufacturing
Huber Heights, Ohio............. 104,000 Owned Administrative and Manufacturing
Orangeburg, New York............ 60,000 Owned Manufacturing
Sayre, Pennsylvania............. 66,000 Owned Administrative and Manufacturing
Sayre, Pennsylvania............. 36,000 Leased Monthly Manufacturing
Rock Hill, South Carolina....... 56,000 Owned Manufacturing
Canton, North Carolina.......... 35,655 Owned Manufacturing
Hillsville, Virginia............ 33,108 Owned Manufacturing
Runcorn, England................ 37,237 Leased 2005 Administrative and Manufacturing
Runcorn, England................ 38,349 Leased 2011 Manufacturing
Runcorn, England 21,525 Leased 2005 Manufacturing
Harlow, England................. 66,000 Leased 2013 Administrative and Manufacturing
Nottingham, England............. 28,906 Owned Administrative and Manufacturing
Congleton, England 27,000 Owned Administrative and Manufacturing
Sileby, England 20,060 Owned Manufacturing
London, England 30,529 Leased 2003 Manufacturing
Ancarano, Italy................. 86,368 Owned Administrative and Manufacturing
Mexico City, Mexico............. 57,193 Owned Administrative and Manufacturing
Pickering, Ontario,
Canada........................ 67,032 Owned Administrative and Manufacturing
Hong Kong....................... 26,536 Leased 2000 Administrative and Manufacturing
Hong Kong....................... 12,542 Leased 2000 Administrative and Manufacturing
Hong Kong....................... 6,862 Leased 2000 Administrative and Manufacturing
Sri Lanka....................... 27,578 Owned Administrative and Manufacturing
Panyu, China.................... 55,519 Leased 2001 Manufacturing
In addition to the above facilities, the Company has other administrative
and manufacturing facilities and sales offices located throughout the world.
The Company believes that its facilities are adequate to maintain its
existing business activities.
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EXECUTIVE OFFICERS OF THE REGISTRANT :
Arthur Hershaft, 62, Chairman of the Board of Directors and Chief Executive
Officer since 1986.
Victor Hershaft, 57, Vice Chairman since December 1998 and President of the
Apparel Identification operations since January 1998. Prior to that time, he
served in various executive capacities with the Company since 1989.
Paul J. Griswold, 48, President and Chief Operating Officer since February 2000.
Prior to that time, he was Senior Vice President- Protective Packaging and
International Operations at Pactiv Corporation, formerly Tenneco Packaging. He
joined Tenneco in 1994.
Jack R. Plaxe, 58, Senior Vice President and Chief Financial Officer since
December 1997. He had been Vice President and Chief Financial Officer of the
Company from August 1993 through March 1997.
John J. Fitzgerald, 41, Vice President and Controller since November 1998. Prior
to that time, he was Controller at The Chanel Company Ltd., which he joined in
1995.
John P. Jordan, 54, Vice President and Treasurer, since August 1998. Prior to
that time, he was Vice President and Treasurer of Amscan Inc., which he joined
in 1987.
Peter B. Kennedy, 57, Vice President, Human Resources, since June 1999. Prior to
that time, he was Vice President, Human Resources for the Personal Systems Group
of IBM Corporation since 1993, having been an IBM employee since 1968.
Jack Proud, 51, President of Monarch Marking Systems, Inc. since September 1999.
Prior to that time, he held various executive positions with The Reynolds and
Reynolds Company since 1971.
Robert S. Stone, 62, Vice President, General Counsel and Secretary since
September 1999. Prior to that time, he was Of Counsel to the law firm of Jackson
Lewis Schnitzler & Krupman from May 1999 until joining the Company and prior to
that, was a member of the IBM Law Department since 1962.
James Wrigley, 46, President and Chief Executive Officer, Paxar UK Ltd., since
September 1996. Prior to that time, he was International Director of Pepe Group
PLC since 1991
ITEM 3: LEGAL PROCEEDINGS
The Company is involved in a number of pending or threatened legal
proceedings in the ordinary course of business. In the opinion of management,
there are no legal proceedings which will have a material adverse affect on the
financial position or operating results of the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange using
the symbol "PXR." The following table sets forth the 1999 and 1998 high and low
sales prices of the Company's common stock as reported on the New York Stock
Exchange for the periods indicated.
SALES PRICES
------------
CALENDAR YEAR 1999 HIGH LOW
------------------ ---- ---
First Quarter........................ $ 9 3/4 $ 7
Second Quarter....................... 10 1/2 6 3/4
Third Quarter........................ 10 8 1/4
Fourth Quarter....................... 11 1/2 8 1/16
CALENDAR YEAR 1998
------------------
First Quarter........................ $ 15 7/16 $ 13 1/8
Second Quarter....................... 14 7/8 10 7/8
Third Quarter........................ 11 9/16 7 13/16
Fourth Quarter....................... 11 9/16 8
As of March 24, 2000, there were approximately 1,300 record holders of the
Company's common stock.
The Company has never paid any cash dividends on its Common Stock and has
no present intention of doing so. The Company intends to retain all of its
earnings for use in its business.
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ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data as of and for the five-year period
ended December 31, 1999 has been derived from the Company's Consolidated
Financial Statements. These data should be read in conjunction with Consolidated
Financial Statements and related Notes for the year ended December 31, 1999, and
the Management's Discussion and Analysis of Financial Condition and Results of
Operations.
All data, except employee and per share data, are in millions.
1999 1998 1997 1996 1995
------------ ----------- ---------- ---------- --------
OPERATING RESULTS
Sales $ 661.8 $ 611.6 $ 567.2 $ 326.0 $ 289.4
Income before extraordinary item 33.4 33.6 24.4 33.1 25.6
Net income 33.4 33.6 15.8 33.1 25.6
Basic earnings per share (a)
Income before extraordinary item 0.72 0.69 0.51 0.69 0.54
Net income 0.72 0.69 0.33 0.69 0.54
Diluted earnings per share (a)
Income before extraordinary item (b) 0.71 0.68 0.49 0.68 0.52
Net income 0.71 0.68 0.32 0.68 0.52
EBITDA (c) 107.3 95.3 94.0 62.4 52.9
FINANCIAL CONDITION
Working capital (d) $ 105.4 $ 139.2 $ 121.3 $ 64.6 $ 54.6
Current ratio(d) 1.7 2.5 2.1 2.3 2.0
Property, plant and equipment, net 205.3 193.6 187.1 137.3 125.7
Total assets 633.7 593.2 598.4 299.8 272.6
Total debt 208.7 207.1 241.5 33.0 46.9
Shareholders' equity 289.1 273.4 243.8 207.8 173.4
Total debt as percent of total capital 41.9% 43.1% 49.8% 13.7% 21.3%
FINANCIAL STATISTICS
EBITDA as a percent of sales 16.2% 15.6% 16.6% 19.1% 18.3%
Income before extraordinary items as a percent
of sales 5.0% 5.5% 4.3% 10.1% 8.9%
Net income as a percent of sales 5.0% 5.5% 2.8% 10.1% 8.9%
Effective income tax rate 32.9% 30.0% 35.6% 28.8% 31.4%
Return on average shareholders' equity (e) 11.9% 13.0% 7.0% 17.4% 15.8%
OTHER DATA
Operating cash flow $ 72.7 $ 68.5 $ 29.3 $ 51.3 $ 32.9
Capital expenditures 31.9 35.7 30.3 27.6 29.8
Depreciation and amortization 38.3 32.7 27.1 18.1 14.5
Stock dividends None None 25% 25% 25%
Cash dividends None None None None None
Number of employees at year end 5,861 4,949 4,786 2,785 2,531
Weighted average shares outstanding, diluted
(a) 47.2 49.4 49.7 49.0 48.8
Shares outstanding (a) 46.7 47.9 48.4 47.5 47.1
Book value per share (a) $ 6.19 $ 5.71 $ 5.04 $ 4.38 $ 3.68
- ----------
(a) Retroactively adjusted to reflect stock dividends.
(b) $0.78 in 1999 and $0.74 in 1997 before non-recurring charges.
(c) Earnings before interest, taxes, depreciation and amortization and, in 1999
and 1997, before non-recurring charges.
(d) Includes bank indebtedness of $45.0 in 1999.
(e) 13.0 % in 1999 and 15.5% in 1997 before non-recurring and extraordinary
items.
12
15
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All amounts in the following discussion are stated in millions, except
share and per share data.
OPERATING RESULTS
The following table shows each element of the income statement as a percent
of sales for the years indicated:
1999 1998 1997
------ ------ ------
Sales 100.0% 100.0% 100.0%
Cost of sales 61.5 61.4 61.3
------ ----- -----
Gross profit 38.5 38.6 38.7
Selling, general and administrative expense 27.1 27.5 25.9
Amortization of intangibles 0.9 0.9 1.0
Acquisition-related costs -- -- 1.5
Integration/restructuring and other costs 0.8 -- 1.2
------ ----- -----
Operating income 9.7 10.2 9.1
Interest expense, net (2.2) (2.4) (2.4)
------- ----- -----
Income before taxes 7.5 7.8 6.7
Taxes on income 2.5 2.3 2.4
------ ----- -----
Income before extraordinary item 5.0 5.5 4.3
Extraordinary item, net -- -- (1.5)
------ ----- -----
Net income 5.0% 5.5% 2.8%
====== ====== =====
Sales increased 8% from 1998 to 1999 to $661.8. By segment, Apparel
Identification increased 22% primarily due to the Ferguson acquisition (See
Notes 2 and 13 of Notes to Consolidated Financial Statements); while Labeling
Solutions declined 3% due to lower volumes of bar code printers and supplies;
and Thermal Transfer Ribbons decreased slightly due to lower average prices.
(See Note 13 of Notes to Consolidated Financial Statements.) Sales in 1998
increased to $611.6 from $567.2 in 1997. By segment, sales growth was achieved
by both Apparel Identification and Labeling Solutions, while sales growth in
Thermal Transfer Ribbons was limited by significant price competition during
1998.
Gross profit in 1999 was $254.6 compared with $236.3 in 1998 and $219.6 in
1997. The gross margin decreased slightly in 1999 to 38.5% from 38.6% in 1998
and 38.7% in 1997. Gross margin in 1999 was unfavorably impacted by
approximately 0.8% by the acquisition of the Ferguson business in the U.K. (See
Note 2 of Notes to Consolidated Financial Statements), which required
restructuring.
Selling, general and administrative expense ("SG&A") in 1999 was $179.5
compared with $168.3 in 1998 and $146.6 in 1997. The increase in 1999 was due
primarily to the Ferguson acquisition, while the increase in 1998 compared with
1997 was due to the Monarch acquisition consolidated for ten months of 1997
compared with twelve months of 1998. As a percent of sales, SG&A was 27.1% in
1999, 27.5% in 1998 and 25.9% in 1997.
Acquisition related costs of $8.3 (pre-tax) in 1997 were one-time costs
related to the acquisition of IIMAK. These costs include $5 of fees and expenses
specifically related to the acquisition and $3.3 related to the termination and
severance of certain IIMAK employees pursuant to pre-existing agreements.
During 1999, the Company recorded a $5 (pre-tax) integration/restructuring
and other charge pertaining to costs of consolidating and streamlining certain
U.S. and U.K. facilities, the severance of personnel and other costs. In 1997,
the Company recorded a restructuring charge of $6.9 (pre-tax) related to the
integration of Monarch into the Company's operations, specifically the
consolidation of certain facilities, severance of personnel and other costs. The
largest component of the 1997 costs related to the severance of 132 people from
the Miamisburg, Ohio, operation. During 1998, the Company paid $4.5 representing
costs associated with the severance plan. Substantially all costs relating to
the restructuring plans had been paid by December 31, 1999.
Operating income was $64.0 in 1999, $62.6 in 1998 and $51.7 in 1997. As a
percent of sales, operating income was 9.7% in 1999, 10.2% in 1998 and 9.1% in
1997. The decline in 1999 was attributable to the Ferguson acquisition in
February 1999 and the integration/restructuring and other costs.
13
16
Interest expense, net, was $14.2 in 1999, $14.6 in 1998 and $13.8 in 1997.
The increase from 1997 to 1998 was caused by several factors. Interest expense,
net, in 1998 included a $2.2 non-recurring charge resulting from unauthorized
interest rate speculation and $3.3 of interest income resulting from settlement
of the dispute with Pitney Bowes regarding the original purchase price and other
disputed amounts related to the Monarch acquisition. Interest expense, net of
those non-recurring items increased to $15.7 in 1998 from $13.8 in 1997. The
increase in 1998 resulted from interest expense associated with the additional
borrowings related to the Monarch purchase, $0.7 cost related to the change in
fair value of interest rate derivatives and increased cost related to fixed rate
borrowings under the $150, 6.74% Senior Notes issued in August 1998, offset
somewhat by lower borrowing levels and lower interest rates related to variable
rate borrowings in 1998. The decrease to $14.2 in 1999 was attributable to lower
interest rates related to variable rate borrowing in 1999, offset somewhat by
the increased cost related to fixed rate borrowings under the $150 Senior Notes
issued in August 1998.
The effective tax rate was 32.9% in 1999, 30.0% in 1998 and 35.6% in 1997.
During 1998 the Company reassessed potential tax liabilities and recorded a
one-time reduction in the tax provision, resulting in a lower effective tax rate
as compared with 1999. The 1997 tax rate was slightly above the U.S. statutory
federal income tax rate of 35% due, in part, to certain acquisition costs, which
are capitalized for tax purposes. The overall effective tax rate is impacted by
many other factors including different statutory rates on foreign income,
particularly in Asia. Special tax abatement incentives for Italian companies
acquired in 1994 expired by the end of 1999. The expiration of these incentives
is not expected to have a material effect on future effective tax rates.
Income before extraordinary item was $33.4 in 1999, $33.6 in 1998 and $24.4
in 1997.
The extraordinary item of $8.6 in 1997 (net of income taxes $5.1) resulted
from the redemption of Monarch's 12 1/2% Senior Notes due July 1, 2003. (See
Note 3 of Notes to Consolidated Financial Statements.)
Net income was $33.4 in 1999, $33.6 in 1998 and $15.8 in 1997. As a percent
of sales, net income was 5.0% in 1999, $5.5% in 1998 and 2.8% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents summary cash flow information for the years
indicated:
1999 1998 1997
---------- ---------- --------
Net cash provided by operating activities $ 72.7 $ 68.5 $ 29.3
Net cash used by investing activities (50.0) (28.2) (109.8)
Net cash (used in) provided by financing activities (12.0) (39.8) 89.6
-------- ------- --------
Total change in cash (a) $ 10.7 $ 0.5 $ 9.1
======== ======= ========
- ----------
(a) Before exchange rate effects.
OPERATING ACTIVITIES
Cash provided by operating activities continues to be the Company's primary
source of funds to finance operating needs and internal growth opportunities.
The net cash provided by operating activities was $72.7 in 1999, compared with
$68.5 in 1998 and $29.3 in 1997, including depreciation and amortization of
$38.3 in 1999, $32.7 in 1998, and $27.1 in 1997.
INVESTING ACTIVITIES
In 1999, capital expenditures were $31.9 compared with $35.7 in 1998 and
$30.3 in 1997. All capital projects are carefully analyzed and are required to
fit the Company's strategies and generate an advantageous internal rate of
return on invested capital, improve safety or have a favorable environment
benefit.
On February 2, 1999, the Company completed the acquisition of the apparel
identification business of Ferguson International PLC for approximately $20.5.
The acquisition has been accounted for as a purchase with assets and liabilities
assumed recorded at their estimated fair values at the date of acquisition. The
excess of the purchase price and transaction costs over the fair value of net
assets acquired was recorded as goodwill. The resulting goodwill of $5.4 is
being amortized over 20 years.
14
17
On February 25, 1998, the Company acquired a 70% interest in the business
of Teslo Tekstil Urunleri Sanayii ve Ticaret A.S., located in Istanbul, Turkey,
for approximately $1.5. The Company has an option to acquire the remaining 30%
interest in Teslo from the minority shareholders.
On March 3, 1997, the Company acquired the remaining 51% of Monarch for a
total purchase price of $132, consisting of cash, notes, stock, options and
warrants. The acquisition was accounted for as a purchase with assets acquired
and liabilities assumed recorded at their estimated fair values at the date of
acquisition. The Company financed the cash portion of the purchase price with
the proceeds of the term loan under a $280 credit facility with Fleet Bank, N.A.
and Wachovia Bank of Georgia, N.A. as lead lenders.
The Company will continue acquisitions of complementary businesses.
MATERIAL COMMITMENTS
Rental expense for all operating leases amounted to $6.4 in 1999, $7.3 in
1998 and $6.7 in 1997. Minimum rental commitments for all non-cancelable
operating leases for the years 2000-2004 are $5.9, $4.5, $3.3, $2.5 and $2.1,
respectively. The minimum total rental commitment for all years subsequent to
2004 is $6.4. (See Note 17 of Notes to Consolidated Financial Statements).
FINANCING ACTIVITIES
The table below shows the components of total capital for the years
indicated:
1999 1998 1997
----------- ---------- ---------
Due to banks $ 45.0 $ 1.9 $ 2.5
Notes payable -- -- 5.9
Current maturities of long-term debt 0.3 0.7 21.7
Long-term debt 163.4 204.5 211.4
------- ------- -------
Total debt $ 208.7 $ 207.1 $ 241.5
Shareholders' equity 289.1 273.4 243.8
------- ------- -------
Total capital $ 497.8 $ 480.5 $ 485.3
======= ======= =======
Total debt as a percent of total capital 41.9% 43.1% 49.8%
======= ======= =======
The increase in total debt to $208.7 at December 31, 1999 from $207.1 at
December 31, 1998 arose from the acquisition of the Ferguson assets and stock
repurchases under the Company's stock repurchase plan during 1999, offset by
cash generated by operations.
On March 12, 1999, the Company entered into an agreement with a bank under
which the bank provides an unsecured, uncommitted short-term facility for the
Company to borrow up to $50 at negotiated interest rates for defined periods.
The agreement requires the Company to have availability under its revolving
credit agreement equal to the amount borrowed under this facility. Average
borrowings under the agreement since inception in 1999 were $50 at an average
interest rate of 5.46%. There was $45 outstanding under this facility at
December 31, 1999, at an interest rate of 7.23%.
On August 11, 1998, the Company entered into unsecured ten-year $150 Senior
Note agreements with institutional lenders, primarily insurance companies. The
Senior Notes bear interest at 6.74%, payable semi-annually. The proceeds were
used to repay the term loan and a portion of the indebtedness outstanding under
the revolving credit facility before it was amended.
15
18
OTHER MATTERS
SALE OF IIMAK
In February 2000, the Company announced it had entered into an agreement to
sell 92.5% of its International Imaging Materials, Inc. (IIMAK) subsidiary for
a total consideration of $127.5, which includes $120 in cash and $7.5 of IIMAK
preferred stock. The transaction was closed and payment received on March 9,
2000. As part of the agreement, the Company has entered into a Supply Contract
with IIMAK, whereby the Company will purchase substantially all of its thermal
transfer ribbon supplies from IIMAK for a three-year term, with one-year
extensions, unless terminated by either party.
STOCK REPURCHASE
On July 30, 1998, the Company announced a plan to purchase, from time to
time, up to $25 of the Company's common stock as conditions warrant. As of
December 31, 1998, the Company had repurchased 1,434,400 shares at an average
price of $9.10 per share. On February 12, 1999, the Company announced it had
increased the stock repurchase plan from the initial $25 to $40. During and
subsequent to the quarter ended September 30, 1999, the Company canceled the
treasury stock purchased under the stock repurchase plan. Since July 30, 1998,
the Company has repurchased 3,265,100 shares at an average price of $8.86 per
share. On February 10, 2000, the Company announced it had increased the stock
repurchase plan from $40 to $70.
YEAR 2000
The Year 2000 compliance issue refers to the inability of some computer
programs and embedded computer micro-controllers to distinguish between the year
1900 and the year 2000 and recognize the year 2000 as a leap year.
During the previous three years, the Company carried out a comprehensive
program to identify and remediate all non-compliant hardware and software in its
information technology systems and imbedded technology in its manufacturing
systems and the products it sells. The Company also reviewed and tested the
ability of its vendors and customers to deal with the Y2K transition.
The Company completed all required remediations during 1999. No failures
related to Year 2000 issues were encountered in the transition to the Year 2000,
none have occurred since, and the Company is confident that its systems will
experience no deleterious consequences related to the Year 2000 issue. The
Company has also not experienced any disruption of its supply chain related to
vendors' lack of Y2K readiness.
The Company did not experience any artificially high orders or shipments as
a consequence of the Company's or customers' attempts to accelerate deliveries
and stockpile product in anticipation of Y2K related difficulties. Nor had the
Company observed deferrals of purchases related to customers' apprehensions
associated with Y2K issues.
The Company estimates that costs related to Y2K compliance were less than
$0.5 (unchanged from previous estimates), and such costs are not deemed to be
material.
16
19
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company experiences market risk relative to interest rates. A 10%
change in interest rates affecting the Company's floating rate debt instruments
would have an insignificant impact on the Company's pretax earnings and cash
flows over the next fiscal year. Such a move in interest rates would have no
effect on the fair value of the Company's floating rate debt instruments.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is included elsewhere in this
report. (See Part IV, Item 14.)
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND ON
FINANCIAL DISCLOSURE
None.
17
20
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to the Company's Definitive Proxy
Statement with respect to the Company's Annual Meeting of Shareholders scheduled
to be held on May 4, 2000. Also refer to Item 2 entitled "Executive Officers of
the Registrant" in Part I of this Form.
ITEM 11: EXECUTIVE COMPENSATION
Incorporated herein by reference to the Company's Definitive Proxy
Statement with respect to the Company's Annual Meeting of Shareholders scheduled
to be held on May 4, 2000.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the Company's Definitive Proxy
Statement with respect to the Company's Annual Meeting of Shareholders scheduled
to be held on May 4, 2000.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the Company's Definitive Proxy
Statement with respect to the Company's Annual Meeting of Shareholders scheduled
to be held on May 4, 2000.
18
21
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS
1. FINANCIAL STATEMENTS -
Report of Independent Public Accountants......................................................... F - 1
Consolidated Balance Sheets December 31, 1999 and 1998........................................... F - 2
Consolidated Statements of Income Years ended December 31, 1999, 1998 and
1997........................................................................................... F - 3
Consolidated Statements of Shareholders' Equity Years ended December 31, 1999,
1998 and 1997.................................................................................. F - 4
Consolidated Statements of Cash Flows Years ended December 31, 1999, 1998 and
1997........................................................................................... F - 5
Notes to Consolidated Financial Statements....................................................... F - 6 to F -18
2. FINANCIAL STATEMENT SCHEDULE -
Schedule II -- Valuation and Qualifying Accounts................................................. F - 19
Notes
All other schedules called for under Regulation S-X are not submitted because
they are not applicable or not required, or because the required information is
included in the financial statements or notes thereto.
Separate financial statements of the Registrant have been omitted because the
Registrant is primarily an operating company. All subsidiaries included in the
consolidated financial statements are majority owned, and none of the
subsidiaries have indebtedness which is not guaranteed by the Registrant.
3. EXHIBITS
3.1 Amended and Restated Certificate of Incorporation. (G)
3.2 Amendment to Amended and Restated Certificate of Incorporation. (M)
3.3 By-Laws (A)
4.1 Warrant Agreement for "A" Warrants between the Registrant and Odyssey Partners,
L.P. dated March 3, 1997. (J)
4.2 Odyssey Partners, L.P. Certificate for 1,000,000 Warrants dated March 3, 1997.
(J)
4.3 Warrant Agreement for "B" Warrants between the Registrant and Odyssey Partners,
L.P. dated March 3, 1997. (J)
4.4 Odyssey Partners, L.P. Certificate for 200,000 Warrants dated March 3, 1997. (J)
10.2 Employment Agreement, dated as of December 16, 1986, between Registrant and
Arthur Hershaft. (C)
10.3 Employment Agreement, dated February 13, 1989, between Registrant and Victor
Hershaft. (D)
10.4 Amendment dated as of October 1, 1998 to the Employment Agreement, dated as of February 13, 1989
between Registrant and Victor Hershaft. (Q)
10.5 Employment Agreement dated as of February 28, 2000 between Registrant and Paul J. Griswold.
10.6 Change of Control Employment Agreement dated as of April 20, 1999, between the Registrant
and Jack Plaxe. (R)
10.7 Registrant's 1990 Employee Stock Option Plan. (F)
10.8 Registrant's 1997 Incentive Stock Option Plan. (N)
10.9 Registrant's 2000 Long-Term Performance and Incentive Plan. (T)
10.10 Deferred Compensation Plan for Directors. (O)
10.11 Omnibus Purchase and Sale Agreement dated June 6, 1995 by and between Pitney
Bowes Inc., Monarch Marking Systems, Inc., Pitney Bowes Marking Systems Ltd.,
Pitney Bowes International Holdings Inc., Pitney Bowes France S.A. and Monarch
Acquisition Corp. (H)
10.12 Stock Purchase Agreement dated as of December 20, 1996 between the Registrant and
Odyssey Partners, L.P. (I)
10.13 Amendment No. 1 to Stock Purchase Agreement dated as of March 3, 1997 between the
Registrant and Odyssey Partners, L.P. (I)
10.14 Agreement and Plan of Merger dated as of March 3, 1997 by and among the
Registrant, Monarch Holdings, Inc., Thomas Loemker and John W. Paxton. (J)
10.15 Registration Rights Agreement dated as of March 3, 1997 between the Registrant
and Odyssey Partners, L.P. (J)
10.16 Credit Agreement dated March 3, 1997. (K)
19
22
10.17 Agreement and Plan of Merger dated as of July 15, 1997, among the Registrant,
Ribbon Manufacturing, Inc., and International Imaging Materials, Inc. (L)
10.18 Amended and Restated Credit Agreement dated as of August 11, 1998.(P)
10.19 Note Purchase Agreement dated as of August 4, 1998.(P)
10.20 Uncommitted Credit Facility (R)
10.21 Omitted Exhibit to Uncommitted Credit Facility (R)
10.22 Promissory Note from Registrant to Centric Capital Corporation (R)
10.23 Agreement, dated as of February 8, 2000, among the Registrant, Paxar Capital Corporation,
Internatioanal Imaging Material, Inc., Center Capital Investors III, L.P. and Related
Partnerships. (S)
10.24 Amendment No.1, dated March 9, 2000 to the Stock Purchase and Recapitalization Agreement, dated as of
February 8, 2000, among the Registrant, Paxar Capital Corporation, International Imaging Materials, Inc.,
Centre Capital Investors III, L.P., and related partnerships. (S)
21.1 Subsidiaries of Registrant.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule
- ----------
(A) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1980.
(B) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1985.
(C) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1987.
(D) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1988.
(E) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989.
(F) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990.
(G) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992.
(H) Incorporated herein by reference from Exhibits to Registrant's Current
Report on Form 8-K dated June 29, 1995.
(I) Incorporated herein by reference from Exhibits to Registrant's Current
Report on Form 8-K dated December 20, 1996.
(J) Incorporated herein by reference from Exhibits to Registrant's Current
Report on Form 8-K dated March 3, 1997.
(K) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996.
(L) Incorporated herein by reference from Exhibits to Registrant's Current
Report on Form 8-K dated July 15, 1997.
(M) Incorporated herein by reference from Annex D to the Joint Proxy
Statement/Prospectus included in the Registrant's Registration
Statement on Form S-4 (File No. 333-36283), filed on September 24,
1997.
(N) Incorporated herein by reference from Exhibits to the Registrant's
Registration Statement on Form S-8 (File No. 333-38923), filed on
October 28, 1997.
(O) Incorporated herein by reference from Annex A to Registrant's
preliminary proxy statement dated March 31, 1998.
(P) Incorporated herein by reference from Exhibits to Registrant's Form
8-K filed on August 26, 1998.
(Q) Incorporated herein by reference from Exhibits to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998.
(R) Incorporated herein by reference from Exhibits to Registrant's Form
10-Q filed on August 11, 1999.
(S) Incorporated herein by reference from Exhibits to Registrant's Form
8-K dated March 9, 2000.
20
23
(T) Incorporated herein by reference from Appendix B and C to Registrant's
definitive proxy statement dated March 31, 2000.
(b) Reports on Form 8-K
1. Current Report on Form 8-K, dated December 28, 1999, reporting under
Item 5 the execution of a letter of intent between the Registrant and
Bornemann & Bick group of companies.
2. Current Report on Form 8-K, dated February 8, 2000, reporting under
Item 5 the execution of the Stock Purchase and Recapitalization
Agreement among the Registrant, Paxar Capital Corporation,
International Imaging Materials, Inc. Center Capital Investors III,
L.P. and Related Partnerships.
3. Current Report on Form 8-K, dated March 9, 2000, reporting under Item
2 the disposition by Paxar Capital Corporation of 92.5% of
International Imaging Materials, Inc. common stock pursuant to the
Stock Purchase and Recapitalization Agreement among the Registrant,
Paxar Capital Corporation, International Imaging Materials, Inc.,
Center Capital Investors III, L.P. and Related Partnerships.
21
24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Paxar Corporation:
We have audited the accompanying consolidated balance sheets of Paxar
Corporation (a New York corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Paxar Corporation and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Stamford, Connecticut
February 8, 2000
F-1
25
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
1999 1998
----------------- --------------
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
ASSETS
Current assets:
Cash $ 23.9 $ 14.8
Short-term investments 8.3 4.4
Receivables, less allowances of $8.3 in 1999 and $5.0 in 1998 121.1 99.6
Inventories 92.4 97.0
Deferred income taxes 1.7 --
Other current assets 15.9 13.3
---------- --------
Total current assets 263.3 229.1
---------- ------------
Property, plant and equipment, at cost 344.9 300.4
Accumulated depreciation (139.6) (106.8)
---------- ---------
Net property, plant and equipment 205.3 193.6
---------- ------------
Goodwill 157.4 157.8
Other assets 7.7 12.7
---------- --------
$ 633.7 $ 593.2
========== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to banks $ 45.0 $ 1.9
Current maturities of long-term debt 0.3 0.7
Accounts payable and accrued liabilities 104.2 82.8
Accrued taxes on income 8.4 4.5
---------- --------
Total current liabilities 157.9 89.9
Long-term debt 163.4 204.5
Deferred income taxes 18.7 20.1
Other liabilities 4.6 5.3
Shareholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares authorized, none
issued and outstanding -- --
Common Stock, $0.10 par value, 200,000,000 shares authorized,
46,756,610 and 47,941,696 shares issued and outstanding in 1999 and
1998, respectively 4.7 4.9
Paid-in capital 93.2 116.9
Retained earnings 201.5 168.1
Accumulated other comprehensive loss (10.3) (3.4)
Treasury stock 1,434,400 shares in 1998 -- (13.1)
---------- --------
Total shareholders' equity 289.1 273.4
---------- --------
$ 633.7 $ 593.2
========== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
26
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1999 1998 1997
--------- ------- -------
Sales $ 661.8 $ 611.6 $ 567.2
Cost of sales 407.2 375.3 347.6
--------- ------- -------
Gross profit 254.6 236.3 219.6
Selling, general and administrative expense 179.5 168.3 146.6
Amortization of intangibles 6.1 5.4 6.1
Acquisition-related costs -- -- 8.3
Integration/restructuring and other costs 5.0 -- 6.9
--------- ------- -------
Operating income 64.0 62.6 51.7
Interest expense, net (14.2) (14.6) (13.8)
---------- ------- -------
Income before taxes 49.8 48.0 37.9
Taxes on income 16.4 14.4 13.5
--------- ------- -------
Income before extraordinary item 33.4 33.6 24.4
Extraordinary item, net of income taxes of $5.1 -- -- (8.6)
--------- ------- -------
Net income $ 33.4 $ 33.6 $ 15.8
========= ======= =======
Basic earnings per common share:
Income before extraordinary item $ 0.72 $ 0.69 $ 0.51
Extraordinary item -- -- (0.18)
-------- ------- -------
Net income $ 0.72 $ 0.69 $ 0.33
======== ======= =======
Diluted earnings per common share:
Income before extraordinary item $ 0.71 $ 0.68 $ 0.49
Extraordinary item -- -- (0.17)
-------- ------- -------
Net income $ 0.71 $ 0.68 $ 0.32
======== ======= =======
Average common shares outstanding:
Basic 46.7 48.4 48.1
Diluted 47.2 49.4 49.7
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
27
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN MILLIONS)
ACCUMU-
LATED
OTHER
COMMON STOCK UNEARNED COMPRE- COMPRE-
------------------ PAID-IN COMPEN- TREASURY RETAINED HENSIVE HENSIVE
SHARES AMOUNT CAPITAL SATION STOCK EARNINGS INCOME/(LOSS) INCOME
------ ------ -------- -------- --------- -------- ------------- ------
Balance, December 31, 1996 41.3 $ 4.1 $ 81.6 ($ 0.4) $ -- $ 121.9 $ 0.6 $ --
Comprehensive income
Net income -- -- -- -- -- 15.8 -- 15.8
Other comprehensive income(loss) :
Translation adjustments -- -- -- -- -- -- (5.4) (5.4)
--------
Comprehensive income $ 10.4
========
Stock split 7.1 0.7 -- -- -- (0.7) --
Shares surrendered (0.9) -- (9.5) -- -- -- --
Shares issued-various plans 0.6 -- 5.4 -- -- -- --
Tax benefit from exercise of
Stock options -- -- 1.3 -- -- -- --
Shares
Issued - acquisitions 0.3 -- 4.7 -- -- -- --
Warrants and options issued -
Acquisitions -- -- 25.7 -- -- -- --
Restricted stock awards -- -- 0.1 0.4 -- -- --
IIMAK pooling adjustment -- -- -- -- -- (2.5) --
---- ----- ----- ------ -------- -------- ------
Balance, December 31, 1997 48.4 4.8 109.3 -- -- 134.5 (4.8)
Comprehensive income
Net income -- -- -- -- -- 33.6 -- 33.6
Other comprehensive income:
Translation adjustments -- -- -- -- -- -- 1.4 1.4
--------
Comprehensive income -- -- -- -- -- -- -- $ 35.0
========
Shares issued-various plans 1.0 0.1 5.7 -- -- -- --
Purchase of common shares -- -- -- (13.1) -- --
Tax benefit from exercise of
Stock options -- -- 1.9 -- -- -- --
---- ------ ----- ------ -------- -------- ------
Balance, December 31, 1998 49.4 4.9 116.9 -- (13.1) 168.1 (3.4)
Comprehensive income
Net income -- -- -- -- -- 33.4 -- 33.4
Other comprehensive income (loss) :
Translation adjustments -- -- -- -- -- -- (6.9) (6.9)
--------
Comprehensive income -- -- -- -- -- -- -- $ 26.5
========
Shares issued-various plans 0.6 0.1 4.9 -- -- -- --
Purchase of common shares -- -- -- -- (15.8) -- --
Retirement of treasury shares (3.3) (0.3) (28.6) -- 28.9 -- --
---- ------ ----- ------ -------- -------- ------
Balance, December 31, 1999 46.7 $ 4.7 $ 93.2 $ -- $ -- $ 201.5 ($ 10.3)
==== ====== ===== ====== ======== ======== =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
28
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
( IN MILLIONS)
1999 1998 1997
----------- ----------- --------
OPERATING ACTIVITIES:
Net income $ 33.4 $ 33.6 $ 15.8
--------- -------- --------
Adjustments to reconcile net income to net
cash provided by operations:
Extraordinary item -- -- 8.6
Depreciation and amortization 38.3 32.7 27.1
Deferred income taxes (3.1) 2.8 4.0
Other -- -- (2.5)
Changes in assets and liabilities, net of
businesses acquired:
Receivables (12.2) 0.7 (8.4)
Inventories 9.9 0.4 (8.5)
Other current assets (2.1) (1.7) (3.0)
Accounts payable and accrued liabilities 7.0 0.8 1.4
Taxes on income 2.2 -- (5.4)
Other (0.7) (0.8) 0.2
--------- -------- --------
39.3 34.9 13.5
--------- -------- --------
Net cash provided by operating activities 72.7 68.5 29.3
--------- -------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (31.9) (35.7) (30.3)
Acquisition related (20.5) 11.2 (81.6)
(Increase) of short-term investments (3.9) (2.2) (0.3)
Other 6.3 (1.5) 2.4
--------- -------- --------
Net cash used in investing activities (50.0) (28.2) (109.8)
--------- -------- --------
FINANCING ACTIVITIES:
Increase (decrease) in short-term debt 42.5 (27.5) 12.2
Additions to long-term debt 442.7 458.3 286.7
Reductions in long-term debt (486.4) (465.2) (210.8)
Exercise of stock options/stock purchase plan 5.0 7.7 2.3
Purchase of common stock ( 15.8) (13.1) --
Other -- -- (0.8)
--------- -------- --------
Net cash (used in) provided by financing activities (12.0) (39.8) 89.6
--------- -------- --------
Effect of exchange rate changes on cash (1.6) 0.6 (0.7)
--------- -------- --------
Increase in cash 9.1 1.1 8.4
Cash, at beginning of year 14.8 13.7 5.3
--------- -------- --------
Cash, at end of year $ 23.9 $ 14.8 $ 13.7
========= ========= ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include those of Paxar Corporation
(the "Company") and its majority-owned subsidiaries. The effects of all
significant inter-company transactions have been eliminated.
SHORT-TERM INVESTMENTS:
Short-term investments consist of foreign lending institution and
government bonds pledged as collateral against foreign debt, as well as certain
other foreign financial institution commercial paper.
INVENTORIES:
Inventories are stated at the lower of cost or market. The value of
inventories determined using the last-in, first-out (LIFO) method was $45.8 and
$55.6 as of December 31, 1999 and 1998, respectively. The value of all other
inventories, determined using the first-in, first-out (FIFO) method, was $46.6
and $41.4 as of December 31, 1999 and 1998, respectively. The value includes
approximately $11.8 as of December 31, 1999 and 1998, related to the fair value
write up of the inventory at the date of the Monarch acquisition.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost and depreciated by the
straight-line method over the estimated useful lives of the assets. Upon
retirement or other disposition, the cost and accumulated depreciation are
removed from the asset and accumulated depreciation accounts, and the net gain
or loss is reflected in income. Expenditures for maintenance and repairs are
charged against income as incurred. Significant expenditures for betterments and
renewals are capitalized.
INCOME TAXES:
Deferred tax assets and liabilities are established for temporary
differences between financial and tax reporting bases and are subsequently
adjusted to reflect changes in tax rates. A valuation allowance is established
for any deferred tax asset for which realization is not likely. The
classification of deferred tax assets and liabilities corresponds with the
classification of the underlying assets and liabilities giving rise to the
temporary difference.
REVENUE RECOGNITION:
Revenue is recognized when title to the product passes to the customer,
generally upon shipment.
EARNINGS PER COMMON SHARE:
In December 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Under
SFAS No. 128, basic earnings per common share is computed by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding during the year. Diluted earnings per share reflect the potential
dilution that could occur if options and warrants were exercised resulting in
the issuance of common stock.
STOCK DIVIDEND:
During 1999 and 1998, no stock dividends were declared. On August 7, 1997,
the Board of Directors declared a 25% stock split, effected in the form of a
stock dividend. All per share information presented in the accompanying
financial statements has been adjusted to reflect the stock dividend.
F-6
30
FINANCIAL INSTRUMENTS:
All financial instruments of the Company with the exception of interest
rate hedge agreements are carried at cost, which approximates fair value.
The Company's policy is to manage exposure to variations in interest rates
on its revolving credit facility by entering into interest rate hedge agreements
when appropriate. The transactions generally involve the exchange of fixed and
floating interest payment obligations without the exchange of debt instruments.
Interest differentials under these agreements are reflected in the results of
operations as adjustments to interest expense when they are paid or received.
The fair value (i.e., the cost or benefit from terminating the agreements)
related to underlying debt is deferred. The Company also recognizes gains or
losses on these agreements as an adjustment of interest expense when the related
variable rate debt is less than the notional amount of the hedges. Since the
agreements are negotiated with creditworthy counter-parties, the Company
considers the risk of their nonperformance to be remote.
At December 31, 1998, the Company had hedge agreements with notional value
of $80. The fair value of the interest rate hedge agreements, based on estimates
provided by financial institutions, was a loss of $1.5 at December 31, 1998. The
notional value of the interest rate hedge agreements exceeded the amount of
variable rate debt outstanding at December 31, 1998 by $34. The fair value of
the agreements related to underlying variable rate debt that had been deferred
at December 31, 1998 was $0.9. The fair value related to the notional value of
the agreements not having related variable rate debt reflected in earnings for
the year ended December 31, 1998 was a loss of $0.7. There were no interest rate
derivatives in effect at December 31, 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000.
Although, the Company has not yet quantified the impacts of adopting SFAS
No. 133 on its financial statements and has not determined the timing or method
of its adoption of SFAS No. 133, the Company anticipates that implementation of
SFAS No. 133 would not have a material impact on the Company's results of
operations.
GOODWILL:
Goodwill represents the excess of the cost of acquired companies over the
sum of identifiable net assets. Goodwill is being amortized on a straight-line
basis over periods of up to forty years. Subsequent to acquiring goodwill, the
Company evaluates whether events and circumstances, including anticipated future
operating results, indicate the remaining estimated useful life of goodwill may
warrant revision. Based upon its most recent analysis, the Company believes that
no impairment of goodwill exists at December 31, 1999.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of the Company's foreign subsidiaries are translated
into U.S. dollars using the exchange rate in effect at the balance sheet date.
Results of operations are translated using the average exchange rate prevailing
throughout the period. The effects of exchange rate fluctuations from
translating foreign currency assets and liabilities into U.S. dollars are
included in shareholders' equity as translation adjustments. Gains and losses
resulting from foreign currency transactions are included in net income and were
not significant in the past three years.
USE OF ESTIMATES:
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management to use certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-7
31
RECLASSIFICATIONS:
Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.
NOTE 2: BUSINESS ACQUISITIONS
FERGUSON:
On February 2, 1999 the Company completed the acquisition of the apparel
identification business of Ferguson International PLC for approximately $20.5.
The acquisition has been accounted for as a purchase with assets and liabilities
assumed recorded at their estimated fair values at the date of acquisition. The
$5.4 excess of the purchase price and transaction costs over the fair value of
net assets acquired was recorded as goodwill and is being amortized over 20
years. The fair value of assets acquired and liabilities assumed is as follows:
Current assets $ 15.1
Property, plant and equipment 13.5
Goodwill 5.4
Current liabilities (13.5)
--------
Net assets $ 20.5
========
The operating results of Ferguson are included in the accompanying
consolidated statements of income beginning February 2, 1999. The following
unaudited pro forma results of operations assume the acquisition occurred as of
January 1, 1998. These pro forma results do not purport to be indicative of the
results of operations, which may result in the future.
YEARS ENDED DECEMBER 31, 1999 1998
------------------------ ------- -------
Sales $ 666.1 $ 676.1
------- -------
Income before extraordinary item $ 33.1 $ 32.6
======= ======
Net income $ 33.1 $ 32.6
======= ======
Basic earnings per common share:
Before extraordinary item $ 0.71 $ 0.67
Extraordinary item - -
------- -------
Net income $ 0.71 $ 0.67
======= ======
Diluted earnings per common share:
Before extraordinary item $ 0.70 $ 0.66
Extraordinary item - -
------- -------
Net income $ 0.70 $ 0.66
======= ======
IIMAK:
On October 28, 1997, the Company completed the acquisition of International
Imaging Materials, Inc. ("IIMAK"), which was accounted for as a pooling of
interests. In connection with the merger, each outstanding share of IIMAK common
stock was converted into 1.5 shares of the Company's common stock and all
existing IIMAK warrants and options were converted into warrants and options to
purchase the Company's common stock. As a result of the merger, the shares of
IIMAK common stock were converted into 12,431,757 shares of the Company's common
stock, and the IIMAK options and warrants were converted into 1,937,055 of the
Company's options and warrants.
As the merger was accounted for as a pooling of interests, the financial
statements have been restated to include the results of IIMAK for all periods
presented.
No adjustments were required to conform the accounting policies of the
companies.
The Company recognized acquisition related costs of $8.3 in the fourth
quarter of 1997. Included in these costs were $5 of fees and expenses
specifically related to the merger and $3.3 related to the termination and
severance of certain members of IIMAK management pursuant to pre-existing IIMAK
agreements.
See Note 18: Subsequent Event.
F-8
32
MONARCH:
On June 29, 1995, the Company acquired a 49% interest in Monarch Marking
Systems, Inc. ("Monarch"), which had been accounted for using the equity method.
On March 3, 1997, the Company acquired the remaining 51% of Monarch for a total
purchase price of $132. The Company acquired the 49% equity interest of Odyssey
Partners, L.P. for $94.1 in cash, a promissory note in the amount of $5.9 at an
annual interest rate of 4.88% payable on January 2, 1998, and five year warrants
to purchase (a) 1,250,000 shares of the Company's common stock, par value $0.10,
at an exercise price of $14.00 per share and (b) 250,000 shares of the Company's
common stock at an exercise price of $17.50 per share. The warrants were
recorded at the fair value of approximately $9.7 at the date of acquisition.
Upon completion of the acquisition, the Chairman and the President of Monarch
each received 156,536 shares of the Company's common stock valued at $15.20 per
share, in exchange for the shares of Monarch common stock owned by each of them.
Additionally, the management of Monarch received incentive stock options to
purchase an aggregate of 1,244,469 shares of the Company's common stock pursuant
to the Company's 1990 Employee Stock Option Plan in exchange for outstanding
options to purchase Monarch common stock. The options were recorded at the fair
value of approximately $16 at the date of acquisition.
The acquisition was accounted for as a purchase with assets acquired and
liabilities assumed recorded at their estimated fair values at the date of
acquisition. The excess of the purchase price and transaction costs over the
fair value of net assets acquired was recorded as goodwill. The resulting
goodwill of $143.9 (including $13.5 related to the initial 1995 investment) is
being amortized over 40 years.
The fair value of assets acquired and liabilities assumed is as follows:
Current assets $ 96.2
Property, plant and equipment 44.1
Goodwill 143.9
Other assets 11.8
Current liabilities (37.6)
Long-term debt (105.8)
Other (5.1)
--------
Net assets 147.5
Initial investment (June 1995) (20.1)
--------
$ 127.4
========
In September 1998, the Company received $14.5, including interest of $3.3,
from Pitney Bowes (the former owner of Monarch) resulting from litigation
regarding the original purchase price and other disputed amounts. This resulted
in a reduction, net of income tax, in goodwill in the amount of $4.6.
The operating results of Monarch are included in the accompanying
consolidated statements of income beginning March 3, 1997. The following
unaudited pro forma results of operations for 1997 assume the acquisition
occurred as of January 1, 1997. These pro forma results do not purport to be
indicative of the results of operations, which may result in the future.
YEAR ENDED DECEMBER 31, 1997
----------------------- -------
Sales $ 606.8
-------
Income before extraordinary item $ 22.8
-------
Net income $ 14.2
-------
Basic earnings per common share:
Before extraordinary item $ 0.47
Extraordinary item (0.18)
-------
Net income $ 0.29
=======
Diluted earnings per common share:
Before extraordinary item $ 0.46
Extraordinary item (0.17)
-------
Net income $ 0.29
=======
NOTE 3: EXTRAORDINARY ITEM -- LOSS ON EARLY EXTINGUISHMENT OF DEBT
On April 11, 1997, Monarch completed the purchase of $100 of principal
amount of its 12 -1/2 % Senior Notes due July 1, 2003 (the "Notes"). Monarch
paid $120.2, consisting of $100 of principal, $3.5 of accrued interest, a $13.7
premium, and a consent payment of $3. Upon payment, all of the outstanding Notes
were canceled, and the indenture under which they were issued was terminated.
The early redemption of the Notes resulted in an extraordinary charge of $8.6,
net of income taxes of $5.1.
F-9
33
NOTE 4: INVENTORIES
The components of inventories are set forth below:
AT DECEMBER 31, 1999 1998
---------------- -------- ------
Raw materials $ 36.7 $ 49.3
Work-in-Process 15.9 11.8
Finished goods 39.8 35.9
------- ------
$ 92.4 $ 97.0
======= ======
If all inventories were reported on a FIFO basis, inventories would be
approximately $2.0 and $2.2 higher at December 31, 1999 and 1998 respectively.
NOTE 5: OTHER CURRENT ASSETS
A summary of other current assets is set forth below:
AT DECEMBER 31, 1999 1998
---------------- -------- ------
Loans to officers $ 0.3 $ 0.3
Prepayments 5.3 8.8
Other 10.3 4.2
------- ------
$ 15.9 $ 13.3
====== =====
NOTE 6: PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is set forth below:
AT DECEMBER 31, 1999 1998
--------------- --------- ---------
Machinery and equipment $ 261.9 $ 213.6
Buildings and building improvements 76.2 80.2
Land 6.8 6.6
--------- ---------
344.9 300.4
Accumulated depreciation (139.6) (106.8)
--------- ---------
$ 205.3 $ 193.6
========= =========
YEARS
Estimated useful lives are principally: -----
Buildings and building improvements 5 to 40
Machinery and equipment 3 to 10
NOTE 7: DUE TO BANKS
A summary of amounts due to banks is set forth below:
AT DECEMBER 31 1999 1998
-------------- ------ ------
Bank overdrafts $ - $ 1.8
Uncommitted Credit Facility (a) 45.0 -
Other foreign - 0.1
------ ------
$ 45.0 $ 1.9
====== ======
(a) On March 12, 1999, the Company entered into an agreement with a bank under
which the bank provides an unsecured, uncommitted short-term facility for
the Company to borrow up to $50 at negotiated interest rates for defined
periods. The agreement requires the Company to have availability under its
revolving credit agreement equal to the amount borrowed under this
facility. Average borrowings under the agreement since inception in 1999
were $50 at an average interest rate of 5.46%. There was $45 outstanding
under this facility at December 31, 1999, at an interest rate of 7.23%.
F-10
34
NOTE 8: LONG TERM DEBT
A summary of long-term debt is set forth below:
AT DECEMBER 31 1999 1998
-------------- --------- -------
6.74% Senior Notes (a) $ 150.0 $ 150.0
Unsecured bank credit facility (b) - 45.8
Economic Development Revenue Bonds due 2011 and 2019 (c) 13.0 8.0
Other 0.7 1.4
-------- -------
163.7 205.2
Less current maturities 0.3 0.7
-------- -------
$ 163.4 $ 204.5
======== =======
Maturities of long-term debt for the five years subsequent to December 31, 1999
are $ 0.3, $0.2, $0.1, $0.1, and $0.
- ----------
(a) On August 11, 1998, the Company entered into unsecured ten-year $150
Senior Note agreements with institutional lenders, primarily insurance
companies. The Senior Notes bear interest at 6.74%, payable semi-annually.
The proceeds were used to repay the term loan and a portion of the
indebtedness outstanding under the Company's revolving credit facility
before it was amended. The Notes contain covenants requiring the Company,
among other things, to maintain a minimum net worth. The Company is in
compliance with all covenants as of December 31, 1999 and 1998,
respectively.
(b) On March 3, 1997, the Company entered into an unsecured six-year, $280
credit agreement ($140 term loan, $140 revolving credit facility) with
Fleet Bank, N.A. and other participating banks. On August 11, 1998, the
Company and the banks amended and restated the credit agreement to provide
a $200 unsecured revolving credit facility for five years from the date of
the amendment. Under the agreement, the Company pays a facility fee
determined by reference to certain financial ratios (0.15% at December 31,
1999.)
Borrowings under the agreement bear interest at rates referenced to the
London Interbank Offered Rate (LIBOR) with applicable margins varying in
accordance with the Company's attainment of specified financial thresholds
or, at the Company's option, rates competitively bid among the
participating banks or the Prime Rate, as defined (8.5% and 7.75% at
December 31, 1999 and 1998, respectively), and are guaranteed by certain
domestic subsidiaries of the Company.
The agreement contains covenants requiring the Company, among other things,
to maintain certain financial ratios and minimum net worth. The Company was
in compliance with all covenants as of December 31, 1999 and 1998.
Average borrowings under the agreement during 1999 and 1998 were $50.4 and
$160.8, at average interest rates of 5.62% and 6.36%, respectively. The
amounts outstanding at December 31, 1999 and 1998 were $0 and $45.8,
respectively. The weighted average interest rate for borrowings under the
agreement at December 31, 1998 was 6.1%
(c) Economic Development Revenue Bond financed facilities have been accounted
for as plant and equipment, and the related bonds are recorded as
long-term debt. The variable rate bonds for the years ended December 31,
1999 and 1998 had a weighted average interest rate of 3.4% and 3.57%,
respectively.
F-11
35
NOTE 9: INCOME TAXES
The provision for income taxes contains the following:
AT DECEMBER 31, 1999 1998 1997
--------------- -------- -------- -------
Federal Current $ 13.6 $ 8.0 $ 3.1
Deferred (2.9) 0.4 5.7
Foreign Current 4.4 1.8 6.1
Deferred (0.3) 2.4 (2.3)
State 1.6 1.8 0.9
-------- -------- -------
$ 16.4 $ 14.4 $ 13.5
======= ======== =======
The cumulative amounts of each temporary difference that comprise the net
deferred tax liability are as follows:
AT DECEMBER 31, 1999 1998 1997
--------------- ----------- ----------- --------
Deferred tax assets:
Alternative minimum and investment tax credit carry-forwards $ 4.5 $ 4.4 $ 4.3
Costs capitalized to inventory 1.0 1.2 1.2
Accrued integration/restructuring -- -- 1.4
Other accrued liabilities and allowances 8.4 6.1 9.0
Other 3.2 1.3 1.2
--------- -------- --------
Total gross deferred tax asset 17.1 13.0 17.1
Valuation allowance (0.7) (0.5) --
--------- -------- --------
Net deferred tax asset 16.4 12.5 17.1
Deferred tax liability:
Depreciation and other property basis differences (33.4) (32.6) (34.4)
--------- -------- --------
Net deferred tax liability $ (17.0) ($20.1) ($17.3)
========= ======== ========
The valuation allowances relate to certain capital transactions subject to
restriction for tax purposes.
An analysis of the differences between the federal statutory income tax rate and
the effective tax rate is set forth below:
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ------------------------ -------- -------- ------
Federal statutory tax rate 35.0% 35.0% 35.0%
State income tax, net of federal income tax benefit 2.0 2.4 1.5
Foreign taxes less than federal rate (6.9) (7.6) (7.5)
Non-deductible merger costs -- -- 4.3
Reserves no longer required -- (2.8) --
All other, net 2.8 3.0 2.3
------ ------ ------
32.9% 30.0% 35.6%
====== ====== ======
During 1998, the Company reviewed the status of ongoing tax examinations
and adjusted the tax reserves to conform to the status of those examinations.
The Company's Collitex and Orvac subsidiaries benefited from tax incentives in
Italy, which significantly reduced the Company's effective tax rate. These
incentives expired at the end of 1999.
United States income taxes have not been provided on undistributed foreign
earnings of $66.5 since the Company intends to permanently reinvest such
earnings in expanding foreign operations. The unrecognized U.S. tax liability on
the undistributed earnings was approximately $16.9 at December 31, 1999. Total
foreign based pre-tax income was approximately $25, $23, and $21 for 1999, 1998
and 1997, respectively.
NOTE 10: RELATIONSHIP WITH FUJICOPIAN CO., LTD.
IIMAK manufactures thermal transfer ribbons pursuant to a license agreement
with Fujicopian Co., Ltd., which expires in 2008. Royalty expenses under the
agreement totaled $1.5 in 1999, $2.1 in 1998, and $2.6 in 1997. See Note 18:
Subsequent Event.
F-12
36
NOTE 11: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of accounts payable and accrued liabilities is set forth below:
AT DECEMBER 31, 1999 1998
- ---------------- -------- ------
Accounts payable $ 45.1 $ 34.8
Accrued payroll costs 17.9 19.2
Other accrued liabilities 41.2 28.8
-------- ------
$ 104.2 $ 82.8
======== ======
NOTE 12: EMPLOYEE SAVINGS PLANS
The Company maintains three voluntary employee savings plans adopted
pursuant to Section 401(k) of the Internal Revenue Code. The Company's
contribution under the Plans was $3.6, $3.6, and $3.3 during 1999, 1998 and
1997, respectively.
NOTE 13: BUSINESS SEGMENTS
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," was issued effective for fiscal years ending after
December 15, 1998. The information for 1997 and 1998 has been restated from the
prior years' presentations in order to conform to the 1999 presentation.
The Company operates the following business segments: Apparel
Identification, Labeling Solutions, and Thermal Transfer Ribbons. The
accounting policies of the segments are the same as those described in Note 1:
Summary of Significant Accounting Policies. Inter-segment sales prices are
based on cost plus a mark-up to allow the selling segment to make a reasonable
profit. The Company evaluates performance based on operating income of its
business segments before corporate expenses, amortization of goodwill,
non-recurring charges, interest, income taxes and extraordinary items. Balance
sheet information is not captured by business segment. Depreciation expense has
been allocated as a percent of sales, except where specific identification is
available.
The Company's Apparel Identification operations manufacture products for
and provide services specifically to the apparel and textile industries. A
significant portion of the Company's products are delivered to apparel
manufacturers located in Asia and Mexico whose products are sold in the United
States. Fabric label systems include electronic printers and related supplies
used for in-plant label printing. Bar code systems, consisting of electronic
printers and related supplies and services, are used by customers to print data
on labels and tags to provide accurate product, inventory and point of sale
information for integration with sophisticated data systems. Labels and tags are
attached to apparel by manufacturers and retailers to identify and promote their
products, allow automated data collection and provide brand identification and
consumer information such as country of origin, size, fabric content and care
instructions. Fabric labels are attached early in the garment manufacturing
process and must withstand all production processes and remain legible through
washing and dry cleaning by the end user. Tags are attached when the garment is
complete and are primarily for point of sale promotion. Additionally, the
Company's products include labels and tags for sheets, towels, pillowcases and
other white goods.
The Company's Labeling Solutions operations market and distribute
electronic bar code printers used in a wide range of retail and industrial
applications. Applications include inventory management and distribution
systems, hand-held, mechanical labeling devices that print pressure-sensitive
(i.e., adhesive-backed) price and other identification labels and affix them
onto merchandise for retailers, and supplies used in both its mechanical
labelers and bar code printers. This segment also provides comprehensive service
to its installed base of machines.
The Company's Thermal Transfer Ribbons are used in bar code printers to
print single-color and multi-color tags and labels for use in manufacturing and
factory automation systems, shipping and distribution systems, retail price tag,
packaging and medical applications. See Note 18: Subsequent event.
F-13
37
The following table shows the financial information of the Company's
business segments.
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ------------------------ --------- --------- ---------
Sales to unaffiliated customers:
Apparel Identification $ 335.8 $ 275.8 $ 256.4
Labeling Solutions 245.2 253.0 218.8
Thermal Transfer Ribbons 80.8 82.8 92.0
--------- --------- ---------
Total $ 661.8 $ 611.6 $ 567.2
========= ========= =========
Inter-segment sales:
Thermal Transfer Ribbons $ 13.9 $ 11.8 $ 8.7
========= ========= =========
Segment operating income:
Apparel Identification $ 41.8 $ 38.3 $ 38.7
Labeling Solutions 30.3 30.4 27.0
Thermal Transfer Ribbons 11.6 7.5 14.7
--------- --------- ---------
83.7 76.2 80.4
Corporate (9.6) (9.5) (8.8)
Restructuring,acquisition related, and other
costs (5.0) - (15.2)
Amortization of goodwill (5.1) (4.1) (4.7)
--------- --------- ---------
Total $ 64.0 $ 62.6 $ 51.7
========= ========= =========
Depreciation and amortization expense:
Apparel Identification $ 13.3 $ 10.5 $ 9.2
Labeling Solutions 8.9 9.2 4.3
Thermal Transfer Ribbons 9.0 9.0 8.7
Corporate 7.1 4.0 4.9
--------- --------- ---------
Total $ 38.3 $ 32.7 $ 27.1
========= ========= =========
Geographic Information:
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ------------------------ --------- --------- -------
Sales to unaffiliated customers:
North America:
United States $ 391.3 $ 403.9 $ 387.3
Canada 15.8 16.7 14.8
Mexico 12.8 12.0 11.6
---------- ---------- --------
Total North America 419.9 432.6 413.7
Asia 78.4 51.8 44.0
Europe 150.3 113.1 102.1
Other 13.2 14.1 7.4
---------- ---------- --------
Total $ 661.8 $ 611.6 $ 567.2
========== ========== ========
Long lived assets:
North America:
United States $ 250.2 $ 256.5 $ 260.0
Canada 4.8 4.8 5.2
Mexico 10.9 10.7 11.1
---------- --------- --------
Total North America 265.9 272.0 276.3
Asia 21.7 16.9 16.9
Europe 70.4 57.0 54.6
Other 4.7 5.5 4.7
---------- --------- --------
Total $ 362.7 $ 351.4 $ 352.5
========== ========= ========
Assets:
North America:
United States $ 326.1 $ 395.4 $ 405.1
Canada 6.9 5.4 4.9
Mexico 14.2 13.4 16.1
---------- --------- --------
Total North America 347.2 414.2 426.1
Asia 103.5 57.5 56.6
Europe 172.3 114.4 109.2
Other 10.7 7.1 6.5
---------- --------- --------
Total $ 633.7 $ 593.2 $ 598.4
========== ========= ========
Capital Expenditures:
North America $ 20.0 $ 24.5 $ 27.4
Asia 2.8 1.9 0.4
Europe 8.7 8.5 2.0
Other 0.4 0.8 0.5
---------- --------- --------
Total $ 31.9 $ 35.7 $ 30.3
========== ========= ========
No one customer accounted for more than 10% of the Company's revenues in 1999,
1998 or 1997.
F-14
38
NOTE 14: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes is set forth below:
YEARS ENDED DECEMBER 31, 1999 1998 1997
------------------------ -------- -------- ------
Interest $ 14.9 $ 10.7 $ 10.8
Income Taxes $ 8.6 $ 12.8 $ 6.0
NOTE 15: SHAREHOLDERS' EQUITY
The Company has various stock-based compensation plans including stock
options and an Employee Stock Purchase Plan.
On April 25, 1997, the Company's shareholders approved the 1997 Incentive
Stock Option Plan under which shares of common stock are reserved for issuance
upon the exercise of options to be granted to key employees and directors. On
October 28, 1997, the Company's shareholders approved an increase in the number
of shares of common stock reserved for issuance under the 1997 Employee Stock
Option Plan from 1,875,000 shares to 5,000,000 shares of common stock. In
addition, the 1990 Employee Stock Option Plan approved by the Company's
shareholders on April 24, 1990 has 1,210,102 shares of common stock, as adjusted
for subsequent stock dividends, reserved for issuance upon the exercise of
options granted to key employees and directors.
The plans provide for issuances in the form of incentive stock options,
non-qualified stock options and stock appreciation rights, which may be granted
in tandem with non-qualified stock options. The option price per share of
incentive stock options cannot be less than 100% of the market value at the date
of grant. The option price per share of non-qualified stock options and stock
appreciation rights are determined by the Board of Directors at its sole
discretion.
The options vest over periods of up to four years. Options granted prior to
1994 are for a period of five years, and those granted subsequently are for a
period of ten years.
The following is a summary of outstanding stock options:
NUMBER OF SHARES
(IN MILLIONS) WEIGHTED AVERAGE EXERCISE PRICE
----------------- -------------------------------
1997
Outstanding at beginning of year 3.1 $ 9.59
Granted 1.8 $ 7.53
IIMAK grants in first quarter (0.1) $ 11.22
Exercised (0.7) $ 5.61
IIMAK exercised in first quarter 0.2 $ 3.33
Canceled/forfeited (0.1) $ 8.19
--------
Outstanding at end of year 4.2 $ 9.79
1998
Granted 1.0 $ 13.41
Exercised (0.7) $ 3.99
Canceled/forfeited -- --
--------
Outstanding at end of year 4.5 $ 11.41
1999
Granted 0.6 $ 9.18
Exercised (0.4) $ 7.07
Canceled/forfeited (1.1) $ 12.60
--------
Outstanding at end of year 3.6 $ 11.22
========
In connection with the acquisition of Monarch, 1,244,469 stock options were
issued, at equivalent intrinsic value, to replace stock options to purchase
Monarch common stock.
F-15
39
The following table summarizes information about stock options outstanding as of
December 31, 1999:
WEIGHTED AVERAGE
OPTIONS OUTSTANDING WEIGHTED AVERAGE REMAINING
RANGE OF EXERCISE PRICES (IN MILLIONS) EXERCISE PRICE CONTRACTUAL LIFE
- ----------------------- ------------------ ------------------ ----------------
Options Outstanding
$1.00-$ 6.00 0.5 $ 4.79 3.1
$6.00-$10.00 1.1 $ 8.56 7.4
$10.00-$18.00 2.0 $14.36 6.6
---
3.6 $11.22 6.4
===
Options Exercisable
$1.00-$ 6.00 0.5 $ 4.79
$6.00-$10.00 0.5 $ 8.04
$10.00-$18.00 1.3 $14.09
---
2.3 $10.79
===
The Company accounts for stock options under Accounting Principles Board
Opinion No. 25, pursuant to which no compensation cost has been recognized for
the options granted. The following table reflects pro forma net income and
earnings per share had the Company elected to adopt the fair value approach of
SFAS No.123:
YEARS ENDED DECEMBER 31, 1999 1998 1997
------------------------ -------- -------- ------
Net income:
As reported $ 33.4 $ 33.6 $ 15.8
Pro forma $ 32.5 $ 31.7 $ 14.1
Basic earnings per share:
As reported $ 0.72 $ 0.69 $0.33
Pro forma $ 0.70 $ 0.65 $0.29
Diluted earnings per share:
As reported $ 0.71 $ 0.68 $0.32
Pro forma $ 0.69 $ 0.64 $0.28
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years.
The estimated fair value of each option granted is calculated using the
Black-Scholes option-pricing model. The following summarizes the assumptions
used in the model:
1999 1998 1997
-------- -------- ------
Risk-free interest rate 6.5% 5.0% 6.0%
Expected years until exercise 7.0 7.2 7.5
Expected stock volatility 38.1% 35.5% 38.4%
EMPLOYEE STOCK PURCHASE PLAN:
The Company maintains an Employee Stock Purchase Plan, which allows
employees to purchase a certain amount of stock at a discount of 20% to the
market price. The Company may sell up to 818,847 shares under this plan and, as
of December 31, 1999, 87,885 shares were available for future purchases. The
average fair value of shares sold in 1999 was $8.30. The total number of shares
issued under this plan was 213,132, 232,602, and 71,343 in 1999, 1998, and 1997,
respectively. Total compensation expense recognized for stock-based compensation
for 1999, 1998, and 1997 was $0.4, $0.5, and $0.5, respectively.
WARRANTS:
As discussed in Note 2, warrants were granted to certain parties in
connection with the acquisition of Monarch. Exercise prices of outstanding
warrants at December 31, 1999 were as follows:
1999
----
Warrants outstanding 1,500,000
Warrants exercisable 1,500,000
Exercise price of exercisable warrants $14.00 and $17.50
F-16
40
LOANS TO OFFICERS:
During 1997, IIMAK made loans to certain officers for the purpose of
exercising options and paying the related income tax liability. Such loans were
repaid through the surrender of Company stock. The following analyzes the
activity in relation to these loans:
1997
-----
Loans made in connection with exercise of stock options $ 0.8
Loans made in connection with income tax liabilities $ 0.8
Surrender of shares to repay loans $ 2.3
No loans from officers were outstanding at December 31, 1999 and 1998 for the
purpose of exercising options.
TREASURY STOCK:
On July 30, 1998, the Company announced a plan to purchase, from time to
time, up to $25 of the Company's common stock as conditions warrant. As of
December 31, 1998, the Company had repurchased 1,434,400 shares at an average
price of $9.10. On February 12, 1999, the Company announced it had increased the
stock repurchase plan from the initial $25 to $40. During the quarter ended
September 30, 1999, the Company canceled the treasury stock purchased under the
stock repurchase plan. Since July 30, 1998, the Company repurchased 3,265,100
shares at an average price of $8.86 per share.
NOTE 16: EARNINGS PER COMMON SHARE
The reconciliation of basic and diluted per-share computation is as follows:
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ------------------------ -------- -------- -------
Average common shares (basic) 46.7 48.4 48.1
Options and warrants 0.5 1.0 1.6
------- ------ -------
Adjusted average common shares (diluted) 47.2 49.4 49.7
======= ====== =======
NOTE 17: COMMITMENTS AND CONTINGENT LIABILITIES
A manufacturing facility in Sayre, Pennsylvania, owned beneficially by
principal shareholders of the Company, was leased at an annual rental of $0.1
through 1999.
Total rental expense for all operating leases amounted to $6.4 in 1999,
$7.3 in 1998, and $6.7 in 1997. Minimum rental commitments for all
non-cancelable operating leases for the years 2000-2004 are $5.9, $4.5, $3.3,
$2.5 and $2.1, respectively. The minimum total rental commitment for all years
subsequent to 2004 is $6.4.
The Company accrues severance expense for employees of its Italian
subsidiaries, as required by Italian statute, and these amounts are included in
other liabilities in the accompanying consolidated financial statements.
The Company has been named a potentially responsible party relating to
contamination that occurred at certain superfund sites. Management does not
expect the ultimate outcome of settling these contingencies to be material.
In the ordinary course of business, the Company and its subsidiaries are
involved in certain disputes and litigation, none of which will, in the opinion
of management, have a material adverse effect on the Company's financial
position or results of operations.
F-17
41
NOTE 18: SUBSEQUENT EVENT
IIMAK:
In February 2000, the Company announced it had entered into an agreement to
sell 92.5% of its International Imaging Materials, Inc. (IIMAK) subsidiary for
a total consideration of $127.5, which includes $120 in cash and $7.5 of IIMAK
preferred stock. The transaction was closed and payment received on March 9,
2000. As part of the agreement, the Company has entered into a Supply Contract
with IIMAK, whereby the Company will purchase substantially all of its thermal
transfer ribbon supplies from IIMAK for a three-year term, with one-year
extensions, unless terminated by either party.
The operating results of IIMAK are included in the accompanying
consolidated statements of income and in Note 13 as the "Thermal Transfer
Ribbons" business segment. The following unaudited proforma results of
operations set forth the IIMAK operations separately from the consolidated
results:
YEAR ENDED DECEMBER 31, 1999 PAXAR IIMAK CONSOLIDATED
- ----------------------------- ----- ----- ------------
Sales $ 581.0 $ 80.8 $ 661.8
-------- ------- ---------
Income before extraordinary item $ 25.4 $ 8.0 $ 33.4
-------- ------- ---------
Net income $ 25.4 $ 8.0 $ 33.4
-------- ------- ---------
Basic earnings per common share:
Before extraordinary item $ 0.55 $ 0.17 $ 0.72
Extraordinary item - - -
-------- ------- -------
Net income $ 0.55 $ 0.17 $ 0.72
======== ======= =======
Diluted earnings per common share:
Before extraordinary item $ 0.54 $ 0.17 $ 0.71
Extraordinary item - - -
-------- ------- -------
Net income $ 0.54 $ 0.17 $ 0.71
======== ======= =======
NOTE 19: CONDENSED QUARTERLY FINANCIAL DATA
(UNAUDITED)
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
1999
Sales $ 154.2 $ 167.6 $ 166.6 $ 173.4
Operating income 9.0 18.0 18.7 18.3
Net income 3.4 9.2 9.8 11.0
Basic earnings per common share:
Net income 0.07 0.20 0.21 0.24
Diluted earnings per common share:
Net income 0.07 0.20 0.21 0.24
1998
Sales $ 149.4 $ 156.9 $ 153.8 $ 151.5
Operating income 14.6 17.1 16.7 14.2
Net income 7.3 7.2 11.0 8.1
Basic earnings per common share:
Net income 0.15 0.15 0.23 0.17
Diluted earnings per common share:
Net income 0.15 0.14 0.22 0.17
F-18
42
PAXAR CORPORATION AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN MILLIONS)
ADDITIONS
CHARGED
BALANCE AT TO COSTS
BEGINNING OF AND BALANCE AT
DESCRIPTION YEAR EXPENSES OTHER(1) DEDUCTIONS(2) END OF YEAR
- ----------- ---------------- ------------ ----------- ----------------- --------------
Year ended December 31, 1999
Allowance for doubtful
Accounts..................... $ 5.0 $ 4.7 $ 0.8 $ 2.2 $ 8.3
Year ended December 31, 1998
Allowance for doubtful
Accounts.................. $ 4.4 $ 1.8 -- $ 1.2 $ 5.0
Year ended December 31, 1997
Allowance for doubtful
Accounts.................. $ 1.0 $ 0.9 $ 3.7 $ 1.2 $ 4.4
- ----------
(1) Allowance related to acquisition.
(2) Write-off of uncollectible accounts, net of recoveries and other.
F-19
43
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Paxar Corporation
By: /s/ JACK PLAXE
-------------------------------------------------
Jack Plaxe
Senior Vice President and Chief Financial Officer
Dated: March 30, 2000
22
44
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
By: /s/ ARTHUR HERSHAFT By: /s/ Jack Plaxe
--------------------------------- ------------------------
Arthur Hershaft Jack Plaxe
Chairman of the Board of Directors Senior Vice President
and Chief Executive Officer Chief Financial Officer
(Principal Executive Officer) (Principal Financial Officer)
Dated: March 30, 2000 Dated: March 30, 2000
By: /s/ VICTOR HERSHAFT
---------------------------------
Victor Hershaft
Vice Chairman
Director
Dated: March 30, 2000
By: /s/ JACK BECKER
---------------------------------
Jack Becker
Director
Dated: March 30, 2000
By: /s/ LEO BENATAR
---------------------------------
Leo Benatar
Director
Dated: March 30, 2000
By: /s/ THOMAS R. LOEMKER
---------------------------------
Thomas R. Loemker
Director
Dated: March 30, 2000
By: /s/ JAMES C. MCGRODDY
---------------------------------
James C. McGroddy
Director
Dated: March 30, 2000
By: /s/ DAVID E. MCKINNEY
---------------------------------
David E. McKinney
Director
Dated: March 30, 2000
By: /s/ WALTER W. WILLIAMS
---------------------------------
Walter W. Williams
Director
Dated: March 30, 2000
23
45
EXHIBIT INDEX
3.1 Amended and Restated Certificate of Incorporation. (G)
3.2 Amendment to Amended and Restated Certificate of Incorporation. (M)
3.3 By-Laws (A)
4.1 Warrant Agreement for "A" Warrants between the Registrant and Odyssey Partners,
L.P. dated March 3, 1997. (J)
4.2 Odyssey Partners, L.P. Certificate for 1,000,000 Warrants dated March 3, 1997.
(J)
4.3 Warrant Agreement for "B" Warrants between the Registrant and Odyssey Partners,
L.P. dated March 3, 1997. (J)
4.4 Odyssey Partners, L.P. Certificate for 200,000 Warrants dated March 3, 1997. (J)
10.2 Employment Agreement, dated as of December 16, 1986, between Registrant and
Arthur Hershaft. (C)
10.3 Employment Agreement, dated February 13, 1989, between Registrant and Victor
Hershaft. (D)
10.4 Amendment dated as of October 1, 1998 to the Employment Agreement,
dated as of February 13, 1989 between Registrant and Victor Hershaft. (Q)
10.5 Employment Agreement dated as of February 28, 2000 between Registrant and Paul J. Griswold.
10.6 Change of Control Employment Agreement dated as of April 20, 1999, between the Registrant and Jack
Plaxe. (R)
10.7 Registrant's 1990 Employee Stock Option Plan. (F)
10.8 Registrant's 1997 Incentive Stock Option Plan. (N)
10.9 Registrant's 2000 Long-Term Performance and IncentivePlan. (T)
10.10 Deferred Compensation Plan for Directors. (O)
10.11 Omnibus Purchase and Sale Agreement dated June 6, 1995 by and between Pitney
Bowes Inc., Monarch Marking Systems, Inc., Pitney Bowes Marking Systems Ltd.,
Pitney Bowes International Holdings Inc., Pitney Bowes France S.A. and Monarch
Acquisition Corp. (H)
10.12 Stock Purchase Agreement dated as of December 20, 1996 between the Registrant and
Odyssey Partners, L.P. (I)
10.13 Amendment No. 1 to Stock Purchase Agreement dated as of March 3, 1997 between the
Registrant and Odyssey Partners, L.P. (I)
10.14 Agreement and Plan of Merger dated as of March 3, 1997 by and among the
Registrant, Monarch Holdings, Inc., Thomas Loemker and John W. Paxton. (J)
10.15 Registration Rights Agreement dated as of March 3, 1997 between the Registrant
and Odyssey Partners, L.P. (J)
10.16 Credit Agreement dated March 3, 1997. (K)
10.17 Agreement and Plan of Merger dated as of July 15, 1997, among the Registrant,
Ribbon Manufacturing, Inc., and International Imaging Materials, Inc. (L)
10.18 Amended and Restated Credit Agreement dated as of August 11, 1998.(P)
10.19 Note Purchase Agreement dated as of August 4, 1998.(P)
10.20 Uncommitted Credit Facility (R)
10.21 Omitted Exhibit to Uncommitted Credit Facility (R)
10.22 Promissory Note from Registrant to Centric Capital Corporation (R)
10.23 Agreement, dated as of February 8, 2000, among the Registrant, Paxar Capital Corporation,
Internatioanal Imaging Material, Inc., Center Capital Investors III, L.P. and Related
Partnerships. (S)
10.24 Amendment No. 1, dated March 9, 2000 to the Stock Purchse Agreement, dated as of February 8, 2000,
among the Registrant, Paxar Capital Corporation, International Imaging Materials, Inc., Centre Capital
Investors III, L.P. and related partnerships. (S)
21.1 Subsidiaries of Registrant.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule
- ----------
(A) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1980.
(B) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1985.
(C) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1987.
(D) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1988.
(E) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989.
24
46
(F) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990.
(G) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992.
(H) Incorporated herein by reference from Exhibits to Registrant's Current
Report on Form 8-K dated June 29, 1995.
(I) Incorporated herein by reference from Exhibits to Registrant's Current
Report on Form 8-K dated December 20, 1996.
(J) Incorporated herein by reference from Exhibits to Registrant's Current
Report on Form 8-K dated March 3, 1997.
(K) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996.
(L) Incorporated herein by reference from Exhibits to Registrant's Current
Report on Form 8-K dated July 15, 1997.
(M) Incorporated herein by reference from Annex D to the Joint Proxy
Statement/Prospectus included in the Registrant's Registration
Statement on Form S-4 (File No. 333-36283), filed on September 24,
1997.
(N) Incorporated herein by reference from Exhibits to the Registrant's
Registration Statement on Form S-8 (File No. 333-38923), filed on
October 28, 1997.
(O) Incorporated herein by reference from Annex A to Registrant's
preliminary proxy statement dated March 31, 1998.
(P) Incorporated herein by reference from Exhibits to Registrant's Form
8-K filed on August 26, 1998.
(Q) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998.
(R) Incorporated herein by reference from Exhibits to Registrant's Form
10-Q filed on August 11, 1999.
(S) Incorporated herein by reference from Exhibits to Registrant's Form
8-K dated March 9, 2000.
(T) Incorporated herein by reference from Appendix B and C to Registrant's
definitive proxy statement dated March 31, 2000.
25