American Banknote Corporation

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American Banknote Corporation

200 Park Ave., 49th Fl.
New York, New York 10166-4999
U.S.A.
(212) 557-9100
Fax: (212) 338-0740

Public Company
Founded: 1795 as American Bank Note Company
Employees: 3,390
Sales: $336.6 million (1997)
Stock Exchanges: New York
Ticker Symbol: ABN
NAIC: 323110 Commercial Lithographic Printing; 323119 Credit & Identification Card Imprinting, Embossing, & Encoding

American Banknote Corporation is a holding company with subsidiaries in the United States, Brazil, Australia, New Zealand, and France. Through these, it helps make cashless shopping, banking, and electronic commerce easier and more secure with its transaction cards and systems such as “smart” cards, stored value cards, and credit cards. The company is also one of the world’s largest printers of security documents including checks, passports, stock certificates, food stamps, and foreign currency, and it provides printing and storage services for government and private sector organizations. Nearly 75 percent of its sales occur in foreign markets.

In the Beginning: 1795–1968

The two companies that merged to create American Banknote Corporation in 1990, International Banknote and U.S. Banknote Company L.P., could each trace its roots to an early printing company. When the United States was established, the individual states and private banks were responsible for printing currency and stamps. American Bank Note Company, founded in New York in 1795, printed bank notes and stamps for many of the states as well as for private banks. It was not until 1862 that the federal government took over the job of producing money, and American Bank Note soon was printing U.S. currency in denominations of ones, tens, twenties, fifties, and hundreds.

When the United States began printing its own money, American Bank Note had to find other customers. By the end of the century, the company was supplying bank notes for 48 countries, and was also printing stock certificates, bonds, and checks, including the new “traveler’s checks” introduced by American Express Company in 1891. The second early predecessor, U.S. Banknote, was founded in New York in 1884, and was soon printing similar types of products.

American Bank Note is credited with introducing a now familiar term to the paper industry. It bought most of its paper for certificates and bonds from Crane & Co., Inc., and liking the texture of the latter, sent Crane an order for “more of that bond paper,” to use for its letterhead.

International Banknote on the Scene: 1968–88

In 1968 another player entered the picture. That year, Edward Weitzen became president of B.T. Babbitt, Inc., a nearly bankrupt conglomerate with more than 15 different parts. Incorporated in 1925, B.T. Babbitt had begun as a seller of cleaning products. Weitzen changed the company’s name to B.T.B. Corp. and decided to focus on specialty printing. A year later, he acquired American Bank Note Company.

In 1972 Weitzen changed the company’s name again, to International Banknote Company Inc., with American Bank Note as its principal subsidiary. He undertook a $55 million capital spending program and by 1981 he had cut long-term debt nearly in half. Its 15 printing plants produced currency for some 70 countries, as well as food stamps for the U.S. government, traveler’s checks, airline tickets, stock and bond certificates, driver’s licenses, and birth certificates.

The company was also conducting research and development to deter counterfeiting, something it first got involved with in the 19th century when it pioneered using green ink in the printing of money to foil counterfeiters who began using black and white photography.

This time, the company was experimenting with holography, using a technique that created 3-D images by aiming separate laser beams at an object. In the mid-1980s International established American Bank Note Holographies Inc. as a subsidiary of American Bank Note. Its first customers included Visa and Mastercard, Hallmark, and National Geographic, with the company producing a 3-D eagle for the cover of the March 1984 issue. The picture, only 300 millionths of a centimeter thick, was the first holograph to appear in a national periodical. By 1988, ABN Holographies represented almost 30 percent of the company’s revenues of $81 million, helping the company move into the black after a net loss of $6.7 million in 1987.

United States Banknote: 1970s–88

U.S. Banknote Company’s history followed a somewhat similar pattern. By the mid-1970s, it was a subsidiary of GIT Industries, formerly GIT Realty & Mortgage Investors. Partners Morris Weissman and Stanley Kreitman took GIT private, and in 1981, they and another partner bought the whole company. U.S. Banknote continued engraving and printing stock and bond certificates, added food stamps for the U.S. Department of Agriculture, and received a patent for a new way to place tax stamps on cigarette packs in a carton.

The company also experimented with holography, developing the Holoprint in 1982. U.S. Banknote claimed their technique retained more of the image’s color and clarity under poor light, and was better than conventional 3-D holographic images.

In 1986 Weissman and Kreitman liquidated and dissolved GIT and concentrated on security printing. U.S. Banknote Company L.P. became a separate entity, which the two men privately owned and managed. They continued to move the company into related markets, including the annual printing of 700 million federal government payroll checks, and the printing of currency for the Dominican Republic and the Seychelles. With the 1989 purchase of the Los Angeles-based Security Printing Division of Jeffries Banknote Company, U.S. Banknote owned four printing facilities and was the largest security printer in North America, with 1988 revenues of $60 million.

New Company Emerging: 1989–90

In 1989 a proxy fight for control of International Banknote’s board was averted when International agreed to merge with U.S. Banknote for $104 million. To avoid an antitrust challenge, U.S. Banknote created Banknote Corp. of America, Inc., which it sold to the French security printing firm Francois-Charles Oberthur Group. This move gave Oberthur entry into the U.S. market, providing some competition for the new giant.

The merger was completed in 1990, creating the United States Banknote Corporation, the second largest security printer in the world, and the only publicly held one in the United States.

Weissman became chairman and CEO of the new company and Kreitman served as president and COO. The stock traded on the American Stock Exchange under the symbol UBK. The new company had manufacturing plants in New York, Philadelphia, Chicago, Los Angeles, and Singapore, and offices in San Francisco, St. Louis, Pittsburgh, Atlanta, Dallas, Cleveland, Boston, and London, England. It dominated the domestic market for travelers checks and food and postage stamps, and produced all the 3-D holograms for Visa, Master Card, and Euro-Card credit cards. Internationally, it also printed currency for several countries, including Malaysia, Haiti, and Venezuela.

Expanding Internationally: 1991–94

In the United States, companies were shifting from stock and bond certificates to computerized ownership records. To counter the resulting annual loss of six to seven percent of Banknote’s business, Weissman and Kreitman looked to diversify, particularly with holograms, and by increasing the company’s international business. The breakup of the Soviet Union in 1991, and the resulting start-up stock exchanges, offered Banknote new opportunities. The company quickly signed a contract with Lithuania to print 300 million bank notes, followed by a similar agreement with Estonia, and contracts to print stock certificates for the Central Moscow and Kazakhstan stock exchanges.

Banknote also increased its business with the U.S. government, which was contracting out more of its operations. The company was the sole contractor for food coupons, signed a new five-year contract to print U.S. Treasury checks, and won the job of printing the Elvis postage stamp.

Printing foreign currency and certificates was not the only way Banknote expanded internationally. In 1993 the company bought Brazilian security printer Thaomas De La Rue Grafica e Services Ltda., for $45 million. The new subsidiary (ABN-Brazil) was Brazil’s largest private check printer and the country’s top manufacturer of credit and telephone cards. By the end of 1993, Banknote had reincorporated in Delaware and moved from the American Stock Exchange to the New York Stock Exchange.

Meanwhile, its subsidiary American Banknote Holographies was producing more than 500 million holograms per year for its credit card customers, as well as security applications for customers ranging from Microsoft and Lotus (software packaging) to the state of California (drivers’ licenses) to Warner Bros. Inc. and D.C. Comics (Batman products) to the People’s Republic of China (national identification cards).

In 1994 the company lost its contract to print postage stamps for the U.S. Postal Service, worth about $24 million, as the Postal Service split up its competitively bid stamp procurement contract among a number of companies. However, a month later, Banknote won a new 20-month contract with the U.S. Department of Agriculture worth $83.7 million to continue to print food stamps coupon books and to develop a new food stamp watermark. In April Ronald Glover, from Dun & Bradstreet Information Services and former head of American Express’s traveler’s check division, was named president and COO. In May, the company completed a private $65 million bond offering, using the proceeds to repay debt and for capital expenditures, acquisitions, and general corporate purposes.

The company had been working with MasterCard International and Visa International to create a holographic magnetic stripe, and that year it introduced its Holomagnetics technology. The patented system featured an optical magnetic strip containing 3-D images of currency signs. Its first use was on Visa International’s new “TravelMoney” card pilot. The card allowed users to obtain cash in worldwide currencies from more than 200,000 Visa/PLUS ATMs. Banknote’s revenues for 1994 rose to $208 million, but the company was in the red.

An “Old” Name and New Businesses: 1995–97

In June 1995, its bicentennial year, U.S. Banknote changed its name to American Banknote Corporation. “The new name is in recognition of the sweeping changes taking place at the company,” Chairman Weissman said, “changes that reflect the fact that we operate under the name American Bank Note throughout the world.”

That year, ABN-Brazil acquired Grafica Bradesco, a security printer whose customers included several major banks in Brazil and signed a $105 million contract with Telebras, Brazil’s national telephone company, to continue to produce more than 220 million telephone cards.

Banknote also entered the growing electronic benefit transfer business with the purchase of a 24.5 percent share in TransFirst, Inc., which designed and operated Electronic Benefit Transfer (EBT) and Electronic Parent Locator Network (EPLN) systems. EBT allowed people receiving government benefits to get their payments through automated teller machines using special cards. Banknote also acquired 5.5 percent of the outstanding shares of International Verifact Inc., which had more than a 60 percent share of the Canadian electronic debit payment market. Revenues for 1995 dropped slightly to $206 million, and the company was in the red for a second year.

The company continued making international purchases, buying the Leigh-Mardon Security Group, Australia’s oldest and largest security printer, for some $95 million. The new acquisition, with 17 locations in Australia and New Zealand, was seen as providing a base for further expansion into the Pacific Rim markets. The company also won a $13 million, three-year contract from Telstra, Australia’s national telephone company, to produce smart cards. One potential customer in the region was a consortium of Japanese companies for which American Banknote Holographies was developing cash value cards and the machines to read them to help prevent counterfeit prepaid cards in the pachinko business in Japan. A popular pinball-like game, pachinko was played in some 18,000 parlors, with players using a card to play a game and win money. Meanwhile, ABN-Brazil purchased Menno, that country’s second largest manufacturer of credit cards, and paid $8 million for the printing works of Banco Itau. Banknote also moved into France, with the purchase of Sati, a credit card and check personalization company, for $11.6 million.

Bondholders appeared nervous about the company’s diversification into various financial services and its concentration on expansion in Brazil, which accounted for 43 percent of sales. When Banknote attempted to restructure its financing in 1997 with a sale of $225 million in bonds, the sale was first postponed and then reduced to about $155 million, since the market showed little interest.

Banknote’s huge domestic debt burden was the problem. Its international operations, which brought in nearly 75 percent of revenue, provided higher margins, good growth opportunities, and the cash flow to service the debt. But those same operations also were subject to greater economic and exchange rate volatility, especially in Brazil.

Trying to Raise Money: 1998

According to Grain’s New York Business, “interest, depreciation and amortization expenses caused losses of $5.3 million in the first quarter of this year and $6.4 million in the last quarter of 1997.” Although Banknote continued its international purchases with the acquisition of two card and check personalization companies in France, its big move in 1998 was the sale of American Bank Note Holographies.

Banknote raised $116 million, less than the $120 million it had hoped to make, which it used for debt reduction. Banknote also sold $70 million in notes. “With this successful tender,” Weissman stated, “we are de-leveraging the Company, as planned, and continue to take the necessary steps towards enhancing shareholder value, while emphasizing globally our two primary businesses, transaction cards and printing services.” That emphasis was underscored as the company expanded its transaction card business in France with the purchase of two companies, which became part of Sati.

1999 to the Present

Early in 1999, the company announced joint ventures with Gemplus of France to make smart cards and the acquisition of Transtex, the leading supplier of transaction cards in Argentina, Chile, Uruguay, and Paraguay. But new problems soon overtook the company’s good news. Banknote and Holographies announced they each would have to restate earnings for portions of 1998 (before and after Holographies’ IPO) because of questions regarding overstatement of revenues and net income by Holographies.

The disclosure led to at least 20 class-action suits and delayed the filing of annual SEC reports. The two companies were being investigated by independent auditors, the SEC, and the U.S. Attorney’s office in New York. Standard & Poor’s put Banknote on watch when it failed to meet interest payments to its creditors.

Holographies got a new president, and Weissman was out as chairman and CEO there, although he kept those positions at Banknote. Securities analysts essentially wrote off both companies. The primary question was whether fraud was involved: were the financial statements deliberately inflated to boost the amount of cash generated through the IPO? By June Banknote indicated the problems could go back as far as 1996, long before the spinoff. In August, the New York Stock Exchange suspended trading in shares of both Banknote and Holographies and indicated it would seek to delist the shares of both companies for failure to meet certain listing standards. Banknote continued discussions with its noteholders regarding a restructuring that would convert 85 percent of the company debt to equity.