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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2003
--------------
or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _____________
Commission File Number: 0-5610
Paxar Corporation
(Exact name of registrant as specified in its charter)
New York 13-5670050
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Corporate Park Drive, White Plains, NY 10604
(Address of principal executive offices)
914-697-6800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal
year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes |_| No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). |X| Yes |_| No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $0.10 par value: 38,957,062 shares outstanding as of May 8, 2003
PART I. FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
The consolidated financial statements included herein have been prepared by
Paxar Corporation (the "Company"), without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. While certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to such rules and regulations, the
Company believes that the disclosures made herein are adequate to make the
information presented not misleading. It is recommended that these condensed
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2002.
In the opinion of the Company, all adjustments, consisting only of normal
recurring accruals and adjustments necessary to present fairly the financial
information contained herein, have been included.
1
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
(unaudited)
Three Months Ended
March 31,
2003 2002
------- --------
Sales.................................................. $ 163.0 $ 152.7
Cost of sales.......................................... 102.0 93.5
-------- --------
Gross profit...................................... 61.0 59.2
Selling, general and administrative expenses........... 53.2 46.6
Restructuring and other charges........................ 3.1 --
-------- --------
Operating income.................................. 4.7 12.6
Interest expense, net.................................. 2.9 2.5
-------- --------
Income before taxes............................... 1.8 10.1
Taxes on income........................................ 0.4 2.6
-------- --------
Net income........................................ $ 1.4 $ 7.5
======== ========
Basic earnings per share............................... $ 0.04 $ 0.19
======== ========
Diluted earnings per share............................. $ 0.03 $ 0.19
======== ========
Weighted average shares outstanding:
Basic................................................ 39.1 39.2
Diluted.............................................. 39.7 40.2
The accompanying notes are an integral part of the financial statements.
2
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)
March 31, December 31,
2003 2002
--------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 59.8 $ 49.6
Accounts receivable, net of allowances of $10.0 and $10.2 at
March 31, 2003 and December 31, 2002, respectively.............. 106.1 106.8
Inventories, net................................................... 88.5 83.8
Deferred income taxes.............................................. 10.4 10.5
Other current assets............................................... 16.6 14.3
-------- --------
Total current assets..................................... 281.4 265.0
-------- --------
Property, plant and equipment, net................................. 155.6 154.9
Goodwill and other intangibles, net................................ 198.6 197.7
Other assets....................................................... 21.9 22.0
-------- --------
Total assets....................................................... $ 657.5 $ 639.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to banks....................................................... $ 5.4 $ 2.1
Current maturities of long-term debt............................... 0.1 0.1
Accounts payable and accrued liabilities........................... 90.9 94.5
Accrued taxes on income............................................ 12.8 13.9
-------- --------
Total current liabilities................................ 109.2 110.6
-------- --------
Long-term debt..................................................... 179.8 164.5
Deferred income taxes.............................................. 12.4 12.1
Other liabilities.................................................. 15.0 14.8
Commitments and contingent liabilities
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,
38,854,865 and 39,230,384 shares issued and outstanding at
March 31, 2003 and December 31, 2002, respectively.............. 3.9 3.9
Paid-in capital.................................................... 7.1 11.2
Retained earnings.................................................. 332.3 330.9
Accumulated other comprehensive loss............................... (2.2) (8.4)
-------- --------
Total shareholders' equity............................... 341.1 337.6
-------- --------
Total liabilities and shareholders' equity......................... $ 657.5 $ 639.6
======== ========
The accompanying notes are an integral part of the financial statements.
3
PAXAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended
March 31,
2003 2002
-------- ------
OPERATING ACTIVITIES
Net income.................................................... $ 1.4 $ 7.5
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.............................. 6.7 6.4
Deferred income taxes...................................... 0.4 --
Write-off of property and equipment........................ 0.3 0.2
Post-employment benefit costs.............................. 0.3 --
Changes in assets and liabilities, net of businesses acquired:
Accounts receivable........................................ 0.7 (1.4)
Inventories................................................ (4.7) (1.5)
Other current assets....................................... (2.3) (2.8)
Accounts payable and accrued liabilities................... (3.8) (5.9)
Accrued taxes on income.................................... (1.1) 2.9
Other, net................................................. 4.6 (2.1)
-------- --------
Net cash provided by operating activities.................. 2.5 3.3
-------- --------
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................... (7.3) (3.5)
Acquisition, net of cash acquired............................. -- (18.0)
Other, net.................................................... -- 2.6
-------- --------
Net cash used in investing activities...................... (7.3) (18.9)
-------- --------
FINANCING ACTIVITIES
Net increase in short-term debt............................... 3.3 0.9
Additions to long-term debt................................... 46.2 27.5
Reductions in long-term debt.................................. (30.9) (18.1)
Purchase of common stock...................................... (5.1) --
Proceeds from common stock issued under employee
stock option and stock purchase plans....................... 1.0 5.4
-------- --------
Net cash provided by financing activities.................. 14.5 15.7
-------- --------
Effect of exchange rate changes on cash flows.................. 0.5 0.4
-------- --------
Increase in cash and cash equivalents...................... 10.2 0.5
Cash and cash equivalents at beginning of year................. 49.6 35.1
-------- --------
Cash and cash equivalents at end of period................. $ 59.8 $ 35.6
======== ========
The accompanying notes are an integral part of the financial statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except headcount and per share data)
NOTE 1: GENERAL
The accounting policies followed during interim periods are in conformity
with accounting principles generally accepted in the United States and are
consistent with those applied for annual periods as described in the Company's
Annual Report on Form 10-K for the year ended December 31, 2002.
NOTE 2: STOCK-BASED COMPENSATION EFFECT ON NET INCOME
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," provides for a fair-value based method of
accounting for employee options and measures compensation expense using an
option valuation model that takes into account, as of the grant date, the
exercise price and expected life of the option, the current price of the
underlying stock and its expected volatility, expected dividends on the stock,
and the risk-free interest rate for the expected term of the option. The Company
has elected to continue accounting for employee stock-based compensation under
Accounting Principles Board ("APB") No. 25. Under APB No. 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized. The compensation expense under SFAS No. 123 for the stock-based
compensation plans would have been $3.7 and $3.2 for the three months ended
March 31, 2003 and 2002, respectively. The following table presents pro forma
net income (loss) and earnings (loss) per share had the Company elected to adopt
SFAS No. 123:
Three Months Ended
March 31,
2003 2002
-------- -------
Net income (loss):
As reported..................................................... $ 1.4 $ 7.5
Pro forma....................................................... $ (2.3) $ 4.3
Basic earnings (loss) per share:
As reported..................................................... $ 0.04 $ 0.19
Pro forma....................................................... $ (0.06) $ 0.11
Diluted earnings (loss) per share:
As reported..................................................... $ 0.03 $ 0.19
Pro forma....................................................... $ (0.06) $ 0.11
NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN No. 45 expands the disclosures to be made by a guarantor in its
financial statements about its obligations under certain guarantees and requires
the guarantor to recognize a liability for the fair value of an obligation
assumed under a guarantee. It clarifies the requirements of SFAS No. 5,
"Accounting for Contingencies," relating to guarantees. In general, FIN No. 45
applies to contracts or indemnification agreements that contingently require the
guarantor to make payments to the guaranteed party based on changes in an
underlying that is related to an asset, liability, or equity security of the
guaranteed party. It requires disclosure of the nature of the guarantee, the
maximum potential amount of future payments that the guarantor could be required
to make under the guarantee, and the current amount of the liability, if any,
for the guarantor's obligations under the guarantee. The recognition
requirements of FIN No. 45 are to be applied prospectively to guarantees issued
or modified after December 31, 2002. The Company determined that the recognition
requirements of FIN No. 45 did not have a material impact on its results of
operations or financial position.
5
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." SFAS No. 148 provides guidance on how
to transition from the intrinsic value method of accounting for stock-based
employee compensation under APB No. 25 to the fair value method of accounting
under SFAS No. 123, if a company so elects. The Company believes that the
adoption of SFAS No. 148 will not have a material impact on its results of
operations or financial position.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN No. 46 provides guidance on how to identify a variable
interest entity ("VIE") and determine when the assets, liabilities and
non-controlling interests, and results of operations of a VIE need to be
included in a company's consolidated financial statements. A company that holds
variable interests in an entity will need to consolidate the entity if the
company's interest in the VIE is such that the company will absorb a majority of
the VIE's expected losses and/or receive a majority of the entity's expected
residual returns, if they occur. FIN No. 46 also requires additional disclosures
by primary beneficiaries and other significant variable interest holders. The
provisions of FIN No. 46 became effective upon issuance. The Company determined
that FIN No. 46 did not have a material impact on its results of operations or
financial position.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 149 requires that contracts with comparable
characteristics be accounted for similarly. In particular, SFAS No. 149 (1)
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS No.
133, (2) clarifies when a derivative contains a financing component, (3) amends
the definition of an underlying to conform it to language used in FIN No. 45,
and (4) amends certain other exiting pronouncements. The provisions of SFAS No.
149 are effective for contracts entered into or modified after June 30, 2003.
The Company believes that the adoption of SFAS No. 149 will not have a material
impact on its results of operations or financial position.
NOTE 4: FINANCIAL INSTRUMENTS
The Company adopted the provisions of SFAS No. 133, as amended by SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of SFAS No. 133," and SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," on January 1, 2001.
These statements outline the accounting treatment for all derivative activities
and require that an entity recognize all derivative instruments as either assets
or liabilities on its balance sheet at their fair value. Gains and losses
resulting from changes in the fair value of derivatives are recorded each period
in current or comprehensive earnings, depending on whether a derivative is
designated as part of an effective hedge transaction and the resulting type of
hedge transaction. Gains and losses on derivative instruments reported in
comprehensive earnings will be reclassified to earnings in the period in which
earnings are affected by the hedged item. The cumulative effect on net income
and other comprehensive income of adopting these standards was not material to
net income and other comprehensive income for the three months ended March 31,
2003 and shareholders' equity at January 1, 2003.
The Company manages a foreign currency hedging program intended to reduce
the Company's risk in foreign currency-denominated transactions by entering into
forward foreign exchange contracts.
The Company formally designates and documents the hedging relationship and
risk management objective for undertaking the hedge. The documentation describes
the hedging instrument, the item being hedged, the nature of the risk being
hedged and the Company's assessment of the hedging instrument's effectiveness in
offsetting the exposure to changes in the hedged item's fair value.
The fair value of outstanding forward foreign exchange contracts at January
1, 2003 and March 31, 2003 for delivery of various currencies at various future
dates and the changes in fair value recorded in income during the three months
ended March 31, 2003 were not material.
6
All financial instruments of the Company with the exception of hedge
instruments are carried at cost, which approximates fair value.
NOTE 5: INVENTORIES, NET
Inventories are stated at lower of cost or market. The value of net
inventories determined using the last-in, first-out method was $15.3 and $12.9
as of March 31, 2003 and December 31, 2002, respectively. The value of all other
net inventories determined using the first-in, first-out method was $73.2 and
$70.9 as of March 31, 2003 and December 31, 2002, respectively.
The components of net inventories are as follows:
March 31, December 31,
2003 2002
------------- -----------
Raw materials...................................................... $ 36.0 $ 34.7
Work-in-process.................................................... 8.9 8.1
Finished goods..................................................... 55.9 52.4
----------- -----------
100.8 95.2
Less allowance for obsolescence.................................... (12.3) (11.4)
----------- -----------
$ 88.5 $ 83.8
=========== ===========
NOTE 6: GOODWILL AND OTHER INTANGIBLES, NET
On June 29, 2001, the FASB issued two new statements, SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets."
SFAS No. 141 requires that the purchase method be used for business
combinations initiated after June 30, 2001 and eliminates the use of the
pooling-of-interests method. SFAS No. 141 also expands the definition of
intangible assets acquired in a purchase transaction. As a result, the purchase
price allocation of future business combinations may be different from the
allocation that would have resulted under the old rules.
SFAS No. 142 changed the method by which companies may recognize intangible
assets in purchase business combinations and generally requires that
identifiable intangible assets be recognized separately from goodwill. In
addition, it stipulates that goodwill and certain intangible assets will no
longer be amortized. Accordingly, the amortization of goodwill for previous
acquisitions ceased upon the Company's adoption of SFAS No. 142 on January 1,
2002.
Under SFAS No. 142, the Company is required to test goodwill for impairment
on an annual basis or if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying
amount. Accordingly, the Company completed its annual goodwill impairment
assessment in 2002, and based on a comparison of the fair values of its
reporting units with their carrying amounts, including goodwill, the Company has
determined that the goodwill of the reporting units has not been impaired.
The changes in the carrying amounts of goodwill for the three months ended
March 31, 2003, are as follows:
Foreign Currency
Beginning Balance Translation Ending Balance
January 1, 2003 Adjustments March 31, 2003
------------------- ----------------- ----------------
Americas....................... $ 111.0 $ -- $ 111.0
EMEA........................... 67.4 1.0 68.4
Asia Pacific................... 17.3 -- 17.3
------- ------ -------
Total..................... $ 195.7 $ 1.0 $ 196.7
======= ====== =======
Net other intangibles as of March 31, 2003, and December 31, 2002,
consisted of a noncompete agreement of $1.3 and $1.4, respectively, and
post-employment benefit obligation adjustments of $0.6 and $0.6, respectively.
7
NOTE 7: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of accounts payable and accrued liabilities is as follows:
March 31, December 31,
2003 2002
------------- ------------
Accounts payable..................................................... $ 37.6 $ 44.1
Accrued payroll costs................................................ 15.5 17.1
Other accrued liabilities............................................ 37.8 33.3
----------- -----------
$ 90.9 $ 94.5
=========== ===========
NOTE 8: LONG-TERM DEBT
A summary of long-term debt is as follows:
March 31, December 31,
2003 2002
------------- ------------
6.74% Senior Notes................................................. $ 150.0 $ 150.0
Economic Development Revenue Bonds due 2011 and 2019............... 13.0 13.0
Revolver........................................................... 16.7 --
Other.............................................................. 0.2 1.6
----------- -----------
179.9 164.6
Less current maturities............................................ 0.1 0.1
----------- -----------
$ 179.8 $ 164.5
=========== ===========
NOTE 9: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes is as follows:
Three Months Ended
March 31,
2003 2002
-------- --------
Interest........................................................... $ 5.4 $ 5.3
======== ========
Income taxes....................................................... $ 0.8 $ 0.6
======== ========
NOTE 10: COMPREHENSIVE INCOME
Comprehensive income reflects changes in equity that result from
transactions and economic events from non-owner sources. Comprehensive income
for the periods presented below includes foreign currency translation items.
There was no tax expense or tax benefit associated with the foreign currency
translation items.
Three Months Ended
March 31,
2003 2002
-------- -------
Net income........................................................... $ 1.4 $ 7.5
Foreign currency translation adjustments............................. 6.2 (2.1)
-------- --------
Comprehensive income................................................. $ 7.6 $ 5.4
======== ========
8
NOTE 11: EARNINGS PER SHARE
The reconciliation of basic and diluted weighted average common shares
outstanding is as follows:
Three Months Ended
March 31,
2003 2002
-------- -------
Weighted average common shares (basic)............................... 39.1 39.2
Options and warrants................................................. 0.6 1.0
-------- --------
Adjusted weighted average common shares (diluted).................... 39.7 40.2
========= ========
NOTE 12: SEGMENT INFORMATION
The Company develops, manufactures and markets bar code systems, apparel
systems, fabric labels, graphic tags, and identification and pricing solutions
products to customers primarily in the retail and apparel manufacturing
industries. In addition, the sales of the Company's products usually result in
the ongoing sale of supplies, replacement parts and services. The Company's
printers and labelers are sold worldwide through a direct sales force, through
non-exclusive manufacturers' representatives in the US and through international
and export distributors and commission agents in Europe, Africa, Central and
South America, and the Asia Pacific region.
The Company's operations have been classified into three geographic
segments consisting of North, Central and South America ("Americas"), Europe,
the Middle East and Africa ("EMEA"), and the Asia Pacific region ("Asia
Pacific"). Each of the three geographic segments develops, manufactures and
markets the Company's products and services. The results from the three
geographic segments are regularly reviewed by the Company's Chief Executive
Officer and Chief Financial Officer to make decisions about resources to be
allocated to each geographic segment and assess performance of each segment.
Information regarding the operations of the Company in different geographic
segments is as follows:
Three Months Ended
March 31,
2003 2002
------ ------
Sales to unaffiliated
customers:
Americas.................... $ 77.6 $ 80.5
EMEA........................ 46.6 40.2
Asia Pacific................ 38.8 32.0
-------- --------
Total............. $ 163.0 $ 152.7
======== ========
Intersegment sales:
Americas.................... $ 15.1 $ 15.3
EMEA........................ 8.9 10.4
Asia Pacific................ 2.7 2.1
Eliminations................ (26.7) (27.8)
-------- --------
Total............. $ -- $ --
======== ========
Operating income:
Americas (a)................ $ 0.6 $ 6.1
EMEA........................ 1.0 3.6
Asia Pacific................ 8.0 6.6
-------- --------
9.6 16.3
Corporate expenses (a)...... (4.8) (3.7)
Amortization of intangibles. (0.1) --
-------- --------
Total............. $ 4.7 $ 12.6
======== ========
(a) For the three months ended March 31,
2003, Americas and Corporate expenses
included $2.9 and $0.2, respectively, of
restructuring and other charges.
Depreciation and
amortization:
Americas.................... $ 3.3 $ 3.6
EMEA........................ 2.1 1.8
Asia Pacific................ 1.0 0.8
-------- --------
6.4 6.2
Corporate................... 0.3 0.2
-------- --------
Total............. $ 6.7 $ 6.4
======== ========
9
Three Months Ended
March 31,
2003 2002
---- ----
Capital expenditures:
Americas.................... $ 3.1 $ 1.3
EMEA........................ 2.5 1.5
Asia Pacific................ 1.6 0.6
-------- --------
7.2 3.4
Corporate................... 0.1 0.1
-------- --------
Total............. $ 7.3 $ 3.5
======== ========
March 31, Dec. 31,
2003 2002
------ ------
Long-lived assets:
Americas.................... $ 195.3 $ 193.9
EMEA........................ 114.7 115.2
Asia Pacific................ 38.1 37.2
-------- --------
348.1 346.3
Corporate................... 6.1 6.3
-------- --------
Total............. $ 354.2 $ 352.6
======== ========
Total assets:
Americas.................... $ 293.0 $ 292.1
EMEA........................ 219.6 207.6
Asia Pacific................ 92.8 91.1
-------- --------
605.4 590.8
Corporate................... 52.1 48.8
-------- --------
Total............. $ 657.5 $ 639.6
======== ========
NOTE 13: RESTRUCTURING AND OTHER CHARGES
As of January 1, 2003, the Company had total unpaid severance of $0.2
recorded in connection with the Company's strategic initiatives implemented
during 2001.
During the first quarter of 2003, the Company implemented specific
initiatives to reduce the cost of the Company's infrastructure and improve
operating efficiency. As a result, the Company recorded a pre-tax charge of $3.1
primarily pertaining to: (1) consolidation of certain manufacturing facilities
as the Company closed one manufacturing location in the US and (2) headcount
reductions, which resulted in severance for 90 factory positions and 30
managerial and administrative positions in North America and China.
The following table presents the changes in severance accrual for the three
months ended March 31, 2003:
Beginning Balance Ending Balance
January 1, 2003 Expenses Payments March 31, 2003
------------------- ----------- --------- --------------
Severance.......................... $ 0.2 $ 2.7 $ (1.0) $ 1.9
NOTE 14: SUBSEQUENT EVENT
On May 13, 2003, the Company announced that effective immediately, its
Chief Executive Officer, who is also a director and President of the Company,
has resigned. The Company is currently negotiating the final severance package
and expects resolution during the second quarter of 2003.
10
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Three Months Ended March 31, 2003
All amounts in the following discussion are stated in millions, except
headcount, share and per share data.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management has identified the following policies and estimates as critical
to the Company's business operations and the understanding of the Company's
results of operations. Note that the preparation of this Quarterly Report on
Form 10-Q requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the Company's financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual results may
differ from those estimates.
Revenue Recognition
The Securities and Exchange Commission issued Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition in Financial Statements," in December
1999. The Company adopted SAB No. 101, as amended, in the fourth quarter of
2000. SAB No. 101 requires that four basic criteria be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or services have been rendered; (3) the fee is fixed or determinable;
and (4) collectibility is reasonably assured. Determination of criteria (3) and
(4) are based on management's judgments regarding the fixed nature of the fee
charged for products delivered and services rendered and the collectibility of
those fees. Should changes in conditions cause management to determine that
these criteria are not met for certain future transactions, revenue recognized
for any reporting period could be adversely affected.
Sales Returns and Allowances and Allowance for Doubtful Accounts
Management must make estimates of potential future product returns related
to current period product revenues. Management analyzes historical returns,
current economic trends, and changes in customer demand and acceptance of the
Company's products when evaluating the adequacy of the sales returns and
allowances. Significant management judgments and estimates must be made and used
in connection with establishing the sales returns and allowances in any
accounting period. Material differences could result in the amount and timing of
the Company's revenue for any period if management had made different judgments
or utilized different estimates. Similarly, management must make estimates of
the uncollectibility of the Company's accounts receivable. Management
specifically analyzes accounts receivable, historical bad debt, customer
concentrations, customer creditworthiness and current trends when evaluating the
adequacy of the allowance for doubtful accounts. The Company's accounts
receivable balances were $106.1, net of allowances of $10.0, at March 31, 2003,
and $106.8, net of allowances of $10.2, at December 31, 2002.
Valuation of Long-Lived and Intangible Assets and Goodwill
Management assesses the impairment of long-lived assets, identifiable
intangibles and related goodwill whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors management
considers important which could trigger an impairment include the following: (1)
significant under-performance relative to expected historical or projected
future operating results; (2) significant changes in the manner of the Company's
use of the acquired assets or the strategy for the Company's overall business;
(3) significant negative industry or economic trends; (4) significant decline in
the Company's stock price for a sustained period; and (5) the Company's market
capitalization relative to net book value.
If management determines that the carrying value of long-lived assets and
intangibles and related goodwill may not be recoverable based on the existence
of one or more of the above indicators of impairment, management assesses the
existence of an impairment by comparing the carrying value of the underlying
assets with the estimated undiscounted future operating cash flows. If such
impairment is found to exist, management measures it based on a projected
discounted cash flow method using a discount rate determined by management to be
commensurate with the risk inherent in the Company's current business model.
Long-lived assets, net intangible assets and goodwill amounted to $354.2 as of
March 31, 2003 and $352.6 as of December 31, 2002.
11
On January 1, 2002, Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets," became effective and as a
result, the Company no longer amortizes goodwill.
Under SFAS No. 142, the Company is required to test goodwill for impairment
on an annual basis or if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying
amount. Accordingly, the Company completed its annual goodwill impairment
assessment in 2002, and based on a comparison of the fair values of its
reporting units with their carrying amounts, including goodwill, the Company has
determined that the goodwill of the reporting units has not been impaired.
In 2002, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," also became effective. SFAS No. 144 provides guidance for
the development of one accounting model based on the framework established in
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and addresses significant implementation
issues. The Company has adopted SFAS No. 144 in the first quarter of 2002 and
determined that SFAS No. 144 did not have a material adverse impact on its
results of operations or financial position.
RESULTS OF OPERATIONS
Overview
In order to better serve a customer base consisting of retailers and
apparel manufacturers, the Company during the second half of 2001 completed a
strategic realignment of its core businesses into three geographic segments
consisting of North, Central and South America ("Americas"), Europe, the Middle
East and Africa ("EMEA"), and the Asia Pacific region ("Asia Pacific").
Structurally, the Company is now aligned in a geographic orientation across all
product lines representing a significant change from the former single product,
single region view. Management initiated this effort in direct response to a
number of major forces impacting the Company's customer base including: (1)
globalization, as manufacturers continue to move production outside the US and
Western Europe and require greater product consistency and systems coordination;
(2) global retail consolidation and the strengthening of private label retail
brands; and (3) complexity fueled by a lengthening supply chain and the need to
increase the speed to market. The Company believes that managing the business in
a consistent manner across three geographic regions and presenting a single face
globally make it easier for customers to conduct business with the Company.
The Company's results of operations for the three months ended March 31,
2003 and 2002, respectively, in dollars and as a percent of sales are presented
below:
Three Months Ended
---------------------------------------------
March 31, 2003 March 31, 2002
-------------------- --------------------
Sales............................................. $ 163.0 100.0% $ 152.7 100.0%
Cost of sales..................................... 102.0 62.6 93.5 61.2
-------- ------- -------- -------
Gross profit.................................. 61.0 37.4 59.2 38.8
Selling, general and administrative expenses...... 53.2 32.6 46.6 30.5
Restructuring and other charges................... 3.1 1.9 -- --
-------- ------- ------- ------
Operating income.............................. 4.7 2.9 12.6 8.3
Interest expense, net............................. 2.9 1.8 2.5 1.7
-------- ------- -------- -------
Income before taxes........................... 1.8 1.1 10.1 6.6
Taxes on income................................... 0.4 0.2 2.6 1.7
-------- ------- -------- -------
Net income.................................... $ 1.4 0.9% $ 7.5 4.9%
======== ======= ======== =======
As the Company entered 2003, management was cautious about worldwide
economic conditions and did not expect significant improvement in retail and
apparel markets. Despite the difficult environment, the Company's sales
12
increased $10.3, or 6.7%, to $163.0 for the three months ended March 31, 2003
from $152.7 for the three months ended March 31, 2002. The sales increase is
attributable to increased customer demand for the existing range of the
Company's products ("organic sales growth") of $1.7, favorable impact of changes
in foreign exchange rates of $6.8, and acquisitions made during 2002 of $1.8.
Management believes that the Company was able to increase sales over the prior
year period through its continued focus on providing its customers with
value-added products and solutions, outstanding service, consistent quality and
on-time deliveries. In addition, management believes that the Company's
investments in new product development, upgraded manufacturing equipment, new
technology and sales and marketing initiatives have positioned the Company to
compete successfully. Nonetheless, there can be no assurance as to the extent or
duration of the current sluggish economic environment or as to its future impact
on the Company. Operating income was $4.7 or 2.9% of sales for the three months
ended March 31, 2003 compared with $12.6 or 8.3% of sales for the three months
ended March 31, 2002. The operating results for the three months ended March 31,
2003 included restructuring and other charges of $3.1 recorded in connection
with the consolidation of operations and headcount reductions (see Note 13 of
the Notes to Consolidated Financial Statements).
Management believes that acquisitions will continue to be a fundamental
element of the Company's growth. In July 2002, the Company acquired 100% of the
equity of NTP Gandrudbakken AS, a manufacturer of heat transfer labels located
in Norway. In addition, in February 2002, the Company acquired the business and
manufacturing assets of Disenos de Coleccion, a leading manufacturer of
merchandising labels and tags for Mexican retailers and apparel manufacturers.
During the first quarter of 2003, the Company continued to integrate and
assimilate the operations of its prior acquisitions.
Sales
The following table presents sales by geographic operating segment:
Three Months Ended
---------------------------------------------
March 31, 2003 March 31, 2002
-------------------- --------------------
Sales to unaffiliated customers:
Americas.......................................... $ 77.6 47.6% $ 80.5 52.7%
EMEA.............................................. 46.6 28.6 40.2 26.3
Asia Pacific...................................... 38.8 23.8 32.0 21.0
-------- ------- -------- -------
Total......................................... $ 163.0 100.0% $ 152.7 100.0%
======== ======= ======== =======
Americas sales include sales delivered through Company operations in North
(primarily in the US), Central and South America. Sales declined $2.9 or 3.6% to
$77.6 for the three months ended March 31, 2003 compared with $80.5 for the
three months ended March 31, 2002. Management attributes the sales decline to
challenging economic and retail conditions that resulted in fewer orders and
smaller average transaction size and generally reduced customer demand for the
entire range of the Company's products. Management also points to a sales
migration trend that continued into 2003. Many of the Company's customers have
steadily moved their production facilities outside the US where they have
realized labor and cost efficiencies. This has resulted in a shift in sales mix
primarily to Central and South America, and the Asia Pacific region.
EMEA's sales, which include sales delivered through Company operations in
eleven European countries, the Middle East and Africa, increased $6.4, or 15.9%,
to $46.6 for the three months ended March 31, 2003 compared with $40.2 for the
three months ended March 31, 2002. The increase is attributable to favorable
impact of changes in foreign exchange rates of $6.5 and an acquisition of $1.5,
offset by $1.6 decline in organic sales. Management believes that weakness in
economic and retail conditions in EMEA and uncertainties surrounding global
economic environment continued to dampen overall customer demand level, which in
turn put pressure on EMEA's sales during the first quarter of 2003. The overall
decline in organic sales was somewhat offset by significant sales growth in
Turkey. In addition, the Company experienced sales migration to Asia Pacific as
manufacturers sought to maximize production efficiencies.
Asia Pacific consists of the Company's operations in Hong Kong, China,
Singapore, Sri Lanka, Korea, Bangladesh, Indonesia, Australia and India. Sales
increased $6.8, or 21.3%, to $38.8 for the three months ended March 31, 2003
compared with $32.0 for the three months ended March 31, 2002. The increase is
attributable to organic sales growth of $6.6 and favorable impact of a foreign
exchange rate of $0.2. The Company's operations in this region have benefited
significantly from the steady and continued migration of the Company's customers
who have moved their production facilities outside the US and Western Europe to
maximize labor cost and operating performance efficiencies. In addition, the
Company continued to gain market share in Asia Pacific.
13
Gross Profit
Gross profit, as a percent of sales, decreased to 37.4% for the three
months ended March 31, 2003 from 38.8% for the three months ended March 31,
2002. The decrease is primarily attributable to under-utilization of certain
production capacity, production inefficiencies at certain manufacturing
facilities and more frequent and costly production runs on smaller orders. Since
2001, management's ongoing strategy has included implementing process
improvements to reduce costs in all of its manufacturing facilities, efficiently
re-deploying assets to manage production capacity and transferring production to
new and emerging markets in order to maximize labor and cost efficiencies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A"), as a percent of
sales, increased to 32.6% for the three months ended March 31, 2003 from 30.5%
for the three months ended March 31, 2002. The increase is primarily
attributable to incremental staffing and other fixed costs necessary to support
the Company's global expansion and certain incremental expenses associated with
the Company's re-branding initiatives and prior acquisitions.
Restructuring and Other Charges
During the first quarter of 2003, the Company implemented specific
initiatives to reduce the cost of the Company's infrastructure and improve
operating efficiency. As a result, the Company recorded a pre-tax charge of $3.1
primarily pertaining to: (1) consolidation of certain manufacturing facilities
as the Company closed one manufacturing location in the US and (2) headcount
reductions, which resulted in severance for 90 factory positions and 30
managerial and administrative positions in North America and China.
Operating Income
Operating income was $4.7 for the three months ended March 31, 2003
compared with $12.6 for the three months ended March 31, 2002. As a percent of
sales, operating income was 2.9% for the three months ended March 31, 2003 and
8.3% for the three months ended March 31, 2002. The operating results for the
three months ended March 31, 2003 included restructuring and other charges of
$3.1. On a reportable operating segment basis, exclusive of certain corporate
allocations, operating income, as a percent of sales, was as follows: Americas
was 0.8% and 7.6% for the three months ended March 31, 2003 and 2002,
respectively; EMEA was 2.1% and 9.0% for the three months ended March 31, 2003
and 2002, respectively; and Asia Pacific was 20.6% and 20.6% for the three
months ended March 31, 2003 and 2002, respectively. For the three months ended
March 31, 2003, Americas included restructuring and other charges of $2.9 or
3.7% of sales.
Interest Expense, Net
Interest expense, net of interest income on invested cash, increased to
$2.9 for the three months ended March 31, 2003 compared with $2.5 for the three
months ended March 31, 2002. The increase is attributable to lower rates of
return available on invested cash and higher average borrowings.
Taxes on Income
The effective tax rates for the three months ended March 31, 2003 and 2002
were 23.0% and 25.7%, respectively. The decrease in the effective tax rate
reflects a shift in the geographic business mix toward lower tax rate
jurisdictions.
14
Liquidity and Capital Resources
The following table presents summary cash flow information for the periods
indicated:
Three Months Ended
March 31,
2003 2002
-------- --------
Net cash provided by operating activities............. $ 2.5 $ 3.3
Net cash used in investing activities................. (7.3) (18.9)
Net cash provided by financing activities............. 14.5 15.7
-------- --------
Total change in cash and cash equivalents (a) $ 9.7 $ 0.1
======== ========
- ----------
(a) Before the effect of exchange rate changes on cash flows.
Operating Activities
Cash provided by operating activities is a primary source of funds to
finance operating needs and growth opportunities. The Company's revolving credit
agreement provides additional liquidity for seasonal and specific-purpose
expenditures. Net cash provided by operating activities was $2.5 for the three
months ended March 31, 2003 compared with $3.3 for the three months ended March
31, 2002. Management believes that the Company will continue to generate cash
from its operating activities for the foreseeable future supplemented by
availability under its revolving credit agreement to fund its working capital
needs, strengthen its balance sheet and support its growth strategy of expanding
its geographic reach and product offerings.
Working capital and the corresponding current ratio were $172.2 and 2.6:1
and $154.4 and 2.4:1 at March 31, 2003 and December 31, 2002, respectively. The
increase in working capital resulted primarily from increases in cash and cash
equivalents, inventories and other current assets and decreases in accounts
payable, accrued liabilities and accrued taxes on income, offset by increase in
amounts due to banks.
Investing Activities
During the first quarter of 2003, the Company continued to upgrade
production machinery, proceed with its Enterprise Resource Planning ("ERP")
system conversions, and grow and expand the Company's operations in the emerging
markets of Central and South America, EMEA and Asia Pacific.
Investing activities for the three months ended March 31, 2002 consisted of
an acquisition of the business and manufacturing assets of Disenos de Coleccion,
a leading manufacturer of merchandising labels and tags for Mexican retailers
and apparel manufacturers, continued production machinery upgrades and the ERP
system conversions, and the costs associated with growth and expansion of the
Company's operations in Central and South America, EMEA and Asia Pacific
markets.
Financing Activities
The components of total capital as of March 31, 2003 and December 31, 2002,
respectively, are presented below:
March 31, December 31,
2003 2002
------------ -----------
Due to banks....................................................... $ 5.4 $ 2.1
Current maturities of long-term debt............................... 0.1 0.1
Long-term debt..................................................... 179.8 164.5
----------- -----------
Total debt......................................................... 185.3 166.7
Shareholders' equity............................................... 341.1 337.6
----------- -----------
Total capital...................................................... $ 526.4 $ 504.3
=========== ===========
Total debt as a percent of total capital........................... 35.2% 33.1%
=========== ===========
15
Management believes that the borrowings available under the Company's
revolving credit agreement provide sufficient liquidity to supplement the
Company's operating cash flow to support the Company's planned business
activities and seasonal and specific-purpose expenditures. For the three months
ended March 31, 2003 and 2002, net borrowings of the Company's outstanding debt
were $18.6 and $10.3, respectively.
The Company has various stock-based compensation plans, including two stock
option plans, a long-term incentive plan, and an employee stock purchase plan.
For the three months ended March 31, 2003 and 2002, the Company received
proceeds of $1.0 and $5.4, respectively, from common stock issued under its
employee stock option and stock purchase plans.
The Company has a stock repurchase plan with an authorization to use up to
$150 in total for the repurchase of its shares. The shares may be purchased from
time to time at prevailing prices in the open-market, by block purchases, or in
privately-negotiated transactions. For the three months ended March 31, 2003,
the Company repurchased 469,000 shares for an aggregate price of $5.1, or $10.80
per share. Since the inception of the stock repurchase program, the Company
repurchased 12,293,000 of its shares for an aggregate price of $122.0, or $9.92
per share. The Company immediately retired the repurchased shares. As of March
31, 2003, the Company had $28.0 available under its $150 stock repurchase
program authorization. The Company may continue to repurchase its shares under
the existing authorization, depending on market conditions. The Company believes
that funds from future operating cash flows and funds available under its
revolving credit agreement are adequate to allow it to continue to repurchase
its shares under the stock repurchase plan.
Financing Arrangement - Amended and Restated Credit Agreement
In September 2002, the Company entered into a three-year, $150 revolving
credit agreement with a group of five domestic and international banks. The
agreement amended and restated the Company's previous revolving credit facility,
which would have expired on August 11, 2003. Under the credit agreement, the
Company pays a facility fee determined by reference to the debt to EBITDA ratio.
The applicable percentage for the facility fee at March 31, 2003 was 0.30%.
Borrowings under the credit agreement bear interest at rates referenced to the
London Interbank Offered Rate 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 (4.25% at March 31, 2003 and December 31, 2002), and are guaranteed
by certain domestic subsidiaries of the Company.
The credit facility, among other things, limits the Company's ability to
change the nature of its businesses, incur indebtedness, create liens, sell
assets, engage in mergers and make investments in certain subsidiaries. The
credit facility contains certain customary events of default, which generally
give the banks the right to accelerate payments of outstanding debt. Under the
credit facility, these events include:
- - failure to maintain required financial covenant ratios, as described below;
- - failure to make a payment of principal, interest or fees within two days of
its due date;
- - default, beyond any applicable grace period, on any aggregate indebtedness
of the Company exceeding $0.5;
- - judgment or order involving a liability in excess of $0.5; and
- - occurrence of certain events constituting a change of control of the
Company.
The Company does not anticipate the occurrence of any of these default
events.
Under the most restrictive debt covenants in the Company's revolving credit
agreement, the Company must maintain at all times an excess of consolidated
total assets over total liabilities of not less than the sum of $274 plus 35% of
consolidated net income for the period after July 1, 2002 plus 100% of the net
cash proceeds received by the Company from the sale or issuance of its capital
stock on and after July 1, 2002. The Company's maximum allowable debt to EBITDA
ratio, as defined, is 3.0 to 1 and minimum allowable fixed charge coverage
ratio, as defined, is 1.5 to 1.
16
The Company is in compliance with the financial covenants of its financing
arrangements. The Company discloses the details of the compliance calculation to
its banks and certain other lending institutions in a timely manner.
Off Balance Sheet Arrangements
The Company has no material transactions, arrangements, obligations
(including contingent obligations), or other relationships with unconsolidated
entities or other persons, that have or are reasonably likely to have a material
current or future impact on its financial position, changes in financial
position, results of operations, liquidity, capital expenditures, capital
resources, or significant components of revenues or expenses.
Market Risk
In the normal course of business, the Company is exposed to interest rate
and foreign currency exchange rate risks that could impact its results of
operations. The Company may reduce its market risk exposures by creating
offsetting positions through the use of derivative financial instruments. The
Company does not use derivative financial instruments for trading purposes.
A 10% change in interest rates affecting the Company's floating rate debt
instruments would have an insignificant impact on the Company's pre-tax 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. In addition, all of the Company's derivatives have high correlation
with the underlying exposure and are highly effective in offsetting underlying
currency movements. Accordingly, changes in derivative fair values are expected
to be offset by changes in value of the underlying exposures.
The Company sells its products in many countries and a substantial portion
of its net sales and costs and expenses are denominated in foreign currencies. A
significant portion of the Company's sales for the three months ended March 31,
2003 was derived from customers located outside the US, principally in EMEA and
Asia Pacific, where the Company also manufactures its products. This exposes the
Company to risks associated with changes in foreign currency that can adversely
impact revenues, net income and cash flows. In addition, the Company is
potentially subject to concentrations of credit risk, principally in accounts
receivable. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company's major customers are
retailers and global apparel manufacturers that have historically paid their
accounts payable balances with the Company.
17
Cautionary Statement pursuant to "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995.
This document contains certain "forward-looking statements" concerning the
Company's objectives and expectations with respect to gross profit, expenses,
inventory performance, capital expenditures and cash flows. In addition,
management makes other forward-looking statements from time to time concerning
objectives and expectations. The Company's success in achieving the objectives
and expectations is somewhat dependent upon economic conditions, competitive
developments and consumer attitudes. However, certain assumptions are specific
to the Company and/or the markets in which it operates.
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.
Among others the risks and uncertainties include:
- - Worldwide economic and other business conditions that could affect demand
for the Company's products in the US or international markets
- - Impact of Severe Acute Respiratory Syndrome (SARS) on the Company's
production capabilities in the Asia Pacific region
- - Rate of migration of garment manufacturing industry moving from the US and
Western Europe
- - The mix of products sold and the profit margins thereon
- - Order cancellation or a reduction in orders from customers
- - Competitive product offerings and pricing actions
- - The availability and pricing of key raw materials
- - The level of manufacturing productivity
- - 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.
Item 3: Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
The information called for by this item is set forth under the heading
"Market Risk" in Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in Item 2 above, which information is hereby
incorporated by reference.
Item 4: Controls and Procedures
-----------------------
a) Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of a date within 90 days of the filing date of
this report, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that the Company's disclosure controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the
"Exchange Act")) are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the Securities Exchange Commission rules and forms.
18
b) Changes in Internal Controls
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect the disclosure controls
subsequent to the Chief Executive Officer's and Chief Financial Officer's most
recent evaluation, and there have been no corrective actions with regard to
significant deficiencies and material weaknesses in such controls.
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits.
(1) Exhibit 99.1 Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(2) Exhibit 99.2 Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
b) Report on Form 8-K
Current Report on Form 8-K, dated January 30, 2003, reporting under Item 9
that James R. Painter was appointed to fill a vacancy on the Registrant's Board
of Directors.
19
PAXAR CORPORATION AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Paxar Corporation
--------------------------------
Registrant
By: /s/ Larry M. Segall
--------------------------------
Vice President and Controller
(Chief Accounting Officer)
May 14, 2003
--------------------------------
Date
20
PAXAR CORPORATION AND SUBSIDIARIES
CERTIFICATION
I, Arthur Hershaft, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Paxar Corporation
(the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of and for the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal control; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Arthur Hershaft
- -------------------------
Chairman, President and
Chief Executive Officer
May 14, 2003
- -------------------------
Date
21
PAXAR CORPORATION AND SUBSIDIARIES
CERTIFICATION
I, Jack R. Plaxe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Paxar Corporation
(the "registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of and for the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal control; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Jack R. Plaxe
- ------------------------------
Senior Vice President and
Chief Financial Officer
May 14, 2003
- ------------------------------
Date
22
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Paxar Corporation (the
"Company") on Form 10-Q for the period ended March 31, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Arthur
Hershaft, Chairman, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Arthur Hershaft
- -----------------------------
Chairman, President and
Chief Executive Officer
May 14, 2003
- ------------------------------
Date
A signed original of this written statement required by Section 906 has been
provided to Paxar Corporation and will be retained by Paxar Corporation and
furnished to the Securities and Exchange Commission or its staff upon request.
23
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Paxar Corporation (the "Company") on
Form 10-Q for the period ended March 31, 2003, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Jack R. Plaxe, Senior
Vice President and Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Jack R. Plaxe
- ------------------------------
Senior Vice President and
Chief Financial Officer
May 14, 2003
- ------------------------------
Date
A signed original of this written statement required by Section 906 has been
provided to Paxar Corporation and will be retained by Paxar Corporation and
furnished to the Securities and Exchange Commission or its staff upon request.
24
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