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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1997 Commission file number 17088
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AMERICAN BUSINESS PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1030529
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(State of Incorporation) (IRS Employer
Identification No.
2100 RiverEdge Parkway, Suite 1200, Atlanta, Georgia 30328
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 953-8300
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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
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Common Stock, $2.00 par value 16,408,617 shares
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(Class) (Outstanding at March 31, 1997)
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Exhibit Index on Page 11
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Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN BUSINESS PRODUCTS, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(Dollars in thousands except share data)
1997 1996
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NET SALES $ 127,048 $ 157,007
COST AND EXPENSES
Cost of goods sold 89,807 111,367
Selling and administrative expenses 28,403 34,774
Restructuring and other charges 3,658
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118,210 149,799
OPERATING INCOME 8,838 7,208
OTHER INCOME (EXPENSE)
Interest expense (1,725) (1,916)
Miscellaneous - net 4,706 880
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INCOME BEFORE INCOME TAXES 11,819 6,172
PROVISION FOR INCOME TAXES 4,444 2,273
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NET INCOME $ 7,375 $ 3,899
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EARNINGS PER COMMON SHARE $ 0.45 $ 0.24
DIVIDENDS PER COMMON SHARE $ 0.155 $ 0.145
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 16,408,622 16,384,612
See accompanying notes to the condensed consolidated financial statements.
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AMERICAN BUSINESS PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
1997 1996
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(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 28,424 $ 82,516
Short-term investments 47,819
Accounts receivable, less allowances of
$1,835 and $1,885 59,558 60,082
Inventories 36,487 38,911
Other 8,612 12,046
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Total Current Assets 180,900 193,555
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 3,100 3,114
Buildings and improvements 39,261 37,476
Machinery, equipment and software 98,463 97,796
Construction in progress 15,870 10,952
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156,694 149,338
Less accumulated depreciation 69,066 67,409
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87,628 81,929
INTANGIBLE ASSETS FROM ACQUISITIONS
Goodwill, less amortization of $4,300
and $4,077 27,902 28,125
Other, less amortization of $4,679 and $4,586 1,269 1,362
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29,171 29,487
DEFERRED INCOME TAXES 12,961 12,987
OTHER ASSETS 20,257 22,533
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TOTAL ASSETS $330,917 $340,491
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CURRENT LIABILITIES
Accounts payable $ 41,153 $ 49,142
Salaries and wages 8,388 11,957
Profit sharing contributions 711 3,717
Current maturities of long-term debt 12,046 12,047
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Total Current Liabilities 62,298 76,863
LONG-TERM DEBT 54,803 54,958
SUPPLEMENTAL RETIREMENT BENEFITS 18,623 18,492
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS 17,278 17,187
STOCKHOLDERS' EQUITY
Common stock - $2 par value; authorized
50,000,000 shares, issued 16,622,648 and
16,620,848 shares 33,245 33,242
Additional paid-in capital 6,225 6,118
Retained earnings 140,835 136,003
Foreign currency translation adjustment 652 651
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180,957 176,014
Less 214,031 and 213,256 shares of common
stock in treasury - at cost 3,042 3,023
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177,915 172,991
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $330,917 $340,491
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See accompanying notes to condensed consolidated financial statements.
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AMERICAN BUSINESS PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(Dollars in thousands)
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,375 $ 3,899
Depreciation and amortization 3,328 4,250
Changes in operating working capital (10,102) (4,185)
Other adjustments to reconcile net income
to net cash provided by operating activities (2,792) 434
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Net cash provided by operating activities (2,191) 4,398
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of short-term investment (47,207)
Decrease in cash value of life insurance 2,282 1,223
Additions to plant and equipment (8,872) (5,921)
Other 4,504 324
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Net cash used in investing activities (49,293) (4,374)
CASH FLOWS USED IN FINANCING ACTIVITIES
Decrease in long-term debt (156) (281)
Dividends paid (2,543) (2,377)
Other 91 155
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Net cash used in financing activities (2,608) (2,503)
Net Decrease in Cash and Cash Equivalents (54,092) (2,479)
Cash and Cash Equivalents at Beginning of Year 82,516 29,023
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Cash and Cash Equivalents at End of Period $ 28,424 $ 26,544
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See accompanying notes to condensed consolidated financial statements.
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AMERICAN BUSINESS PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Unaudited Consolidated Financial Statements
The condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles which in
certain instances require the use of management's estimates. The
information contained in these condensed consolidated financial
statements and notes for the three month period ended March 31, 1997
and 1996 is unaudited but, in the opinion of management, all
adjustments necessary for a fair presentation of such information have
been made. All such adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to applicable rules
and regulations of the Securities and Exchange Commission. The
condensed consolidated financial statements included herein should be
read in conjunction with the audited financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996,
2. Consolidation Policy
The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries, all of which are wholly-owned.
Intercompany balances and transactions have been eliminated.
3. New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS No. 128"). This Statement establishes new standards for
computing and presenting earnings per share ("EPS") information. SFAS
No. 128 simplifies the computation of earnings per share currently
required by APB Opinion No. 15 and its related interpretations. The new
Statement replaces the presentation of "primary" (and when required
"fully diluted") earnings per share with "basic" and "diluted" earnings
per share. This Statement is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods;
earlier application is not permitted. The Company's computation of
basic EPS under SFAS No. 128 for 1997, 1996, and 1995 will not be
materially different than EPS previously reported.
4. Nature of Operations
The Company markets envelope products, business forms, labels and other
supplies for business and industry and, except for business forms,
manufactures such supplies; manufactures and distributes hardcover and
softcover books for the publishing industry; and
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markets extrusion coating and laminating of papers, films, and nonwoven
fabrics for use in medical, industrial and consumer packaging. The
markets for these products are located principally throughout the
continental United States.
5. Net Income Per Share
Net income per common share is based upon the weighted average number
of shares outstanding during each period: 16,408,622 and 16,384,612 for
the three month periods ended March 31, 1997 and 1996 respectively.
6. Short-Term Investments
Short-term investments consist of Federal Agency notes with original
maturities at date of purchase of approximately 99 days. Such
short-term investments are carried at cost plus accrued interest, which
approximates fair value.
7. Inventories ($000's)
Inventories consisted of the following at the dates indicated:
March 31, December 31,
1997 1996
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Products finished or in process $17,312 $15,825
Raw materials 18,938 22,413
Supplies 237 673
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Total $36,487 $38,911
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1. Liquidity and Capital Resources
The current ratio increased to 2.9 to 1 at March 31, 1997, from 2.5 to
1 at December 31, 1996.
The Company believes its liquid current assets, internal cash flows and
short term investment balances and, to the extent necessary, external
financing will provide sufficient funds to meet the Company's needs for
the forseeable future.
2. Results of Operations
Sales during the first quarter of 1997 declined 19.1% versus the same
period in 1996, due primarily to the Company's sale, effective December
31, 1996, of the assets of its former business forms manufacturing
business (the "Vanier Sale").
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Cost of goods sold, expressed as a percentage of sales, decreased
slightly to 70.7% in 1997 from 70.9% in 1996. Selling and
administrative expenses increased slightly to 22.4% of sales in 1997
compared to 22.1% in 1996.
During the first quarter of 1996 the Company recorded a restructuring
charge of $3.7 million (before income taxes) related to the Company's
plant consolidation program. While the Company did not record a
restructuring charge during the first quarter of 1997, the final
planned plant closing in the Company's plant consolidation program
occurred during that quarter and costs and processing bottlenecks
related to the program had an adverse impact on the Company's revenues
and income during the quarter. Although the Company's plant
consolidation program includes actions intended to reduce these
adverse impacts, to improve customer service, to reduce costs, and to
realize upon the value of realty rendered redundant by the plant
consolidation program, the timing and magnitude of the effects of
these actions is subject to uncertainty.
Other income increased to $3.0 million for the first quarter of 1997
from an expense of $1.0 million in 1996 due primarily to increased
miscellaneous income in 1997 versus the prior year. The increase in
miscellaneous income resulted primarily from increased income from
disposals of realty rendered redundant to operating needs by the
Company's plant consolidation program and from investments.
The effective income tax rate for the first quarter of 1997 increased
to 37.6% compared to 36.8% in the first quarter of 1996 as a result of
several factors including the absence of 1996's restructuring charge
which reduced income subject to tax at rates higher than the Company's
effective rate in 1996.
3. Pro Forma Financial Information
The accompanying unaudited pro forma condensed consolidated financial
statements give effect to the Vanier Sale as if the transaction
occurred on December 31, 1995, and before giving effect to the
Company's restructuring charge and gains upon sale of realty rendered
redundant to operating needs by the restructuring. The pro forma
condensed consolidated financial statements of the Company are
presented for informational purposes only and their inclusion in this
report is not intended to intimate that the pro forma information is a
more meaningful indicator of the results of operations than the
Company's reported financial results. Further, the pro forma
information may not reflect the Company's future results of operations
or what the results of operations of the Company would have been had
the Vanier Sale occurred at the date indicated, the restructuring
charge not been incurred and the related realty gains not realized.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Dollars in thousands, except per share data)
1997 1996
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NET SALES $ 127,048 $ 123,370
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COST AND EXPENSES
Cost of goods sold 89,807 87,286
Selling and administrative
expenses 28,403 26,837
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118,210 114,123
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OPERATING INCOME 8,838 9,247
OTHER INCOME (EXPENSES)
Interest expense (1,725) (1,817)
Miscellaneous-net 2,381 1,270 (1)
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INCOME BEFORE INCOME TAXES 9,494 8,700
PROVISION FOR INCOME TAXES 3,514 3,220
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NET INCOME $ 5,980 $ 5,480
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EARNINGS PER COMMON SHARE 0.36 0.33
(1) Assumes net proceeds of the Vanier Sale had been invested in money
market instruments.
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4. Risks and Uncertainties
Except for historical information contained herein, the matters set
forth in this report including statements regarding the Company's
expectations, hopes, intentions or strategies regarding the future, are
forward looking statements that involve certain risks and uncertainties
that could cause actual results to differ materially from those in the
forward looking statements. The Company assumes no obligation to update
any such forward looking statements. The Company's expectations
respecting future sales and profits assume, among other things
reasonable continued growth in the general economy which affects demand
for the Company's products. The costs and benefits of the Company's
plant consolidation plan and a related redesign of order processing my
vary from the Company's expectations due to factors such as: the extent
of management's ability to control and ultimately eliminate duplication
of costs, inefficiencies, overheads, and operational bottlenecks
associated with transferring production from closing to continuing
plants; the speed with which requisite numbers of new employees can be
hired, trained and deployed productively at the Company's new and
enlarged continuing manufacturing plants; sale prices realized upon
future disposal of redundant assets, particularly real property which
is subject to future supply and demand conditions in various local real
estate markets; the Company's ability to implement its order processing
automation project within expected time and cost constraints; and the
difficulties inherent in forecasting the operating results of an
operating mode different from that which exists at the time the
forecast is made.
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Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits attached hereto:
NUMBER DESCRIPTION
3.2 Restated bylaws as amended and restated on April 23, 1997
27 Financial Data Schedules for First Quarter 1997 10-Q
(for SEC use only)
b. Reports on Form 8-K.
A Form 8-K was filed January 7, 1997 to report the disposition of
assets of the Company's wholly owned subsidiary, Vanier Graphics
Corporation.
SIGNATURES
Pursuant to the requirements 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.
AMERICAN BUSINESS PRODUCTS, INC.
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(Registrant)
DATE: May 2, 1997 /s/ Richard G. Smith
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Richard G. Smith
Vice President-Finance
and Chief Financial Officer
/s/ Michael C. Deniken
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Michael C. Deniken
Treasurer and
Chief Accounting Officer
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AMERICAN BUSINESS PRODUCTS, INC.
INDEX OF EXHIBITS
Number Description
3.2 Restated bylaws as amended and restated on April 23, 1997
27 Financial Data Schedules for First Quarter 1997 10-Q
(for SEC use only)
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