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SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File #0-16148
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Multi-Color Corporation
(Exact name of Registrant as specified in its charter)
OHIO 31-1125853
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
205 W. Fourth Street, Suite 1140, Cincinnati, Ohio 45202
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(Address of principal executive offices)
Registrant's telephone number - 513/381-1480
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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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Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date.
Common shares, no par value - 2,276,429 (as of October 22, 1996)
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PART 1. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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MULTI-COLOR CORPORATION
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Statements of Operations
(Prepared Without Audit)
(Thousands except per share amounts)
Thirteen Weeks Ended
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September 29, 1996 October 1, 1995
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NET SALES $ 12,125 $ 13,158
COST OF GOODS SOLD 10,109 11,406
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Gross Profit 2,016 1,752
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,439 1,272
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Operating Income $ 577 $ 480
OTHER EXPENSE (INCOME) (6) 25
INTEREST EXPENSE 278 337
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Income Before Taxes $ 305 $ 118
PROVISION (CREDIT) FOR TAXES - -
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NET INCOME $ 305 $ 118
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NET EARNINGS PER SHARE $ 0.11 $ 0.05
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AVERAGE NUMBER OF SHARES OUTSTANDING 2,207 2,173
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PREFERRED STOCK DIVIDENDS $ 70 -
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The accompanying notes are an integral part of this financial information.
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PART 1. FINANCIAL INFORMATION
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Item 1. Financial Statements (Continued)
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MULTI-COLOR CORPORATION
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Statements of Operations
(Prepared Without Audit)
(Thousands except per share amounts)
Twenty-Six Weeks Ended
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September 29, 1996 October 1, 1995
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NET SALES $ 23,692 $28,665
COST OF GOODS SOLD 19,930 24,845
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Gross Profit 3,762 3,820
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,769 2,775
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Operating Income $ 993 $ 1,045
OTHER EXPENSE (INCOME) (12) -
INTEREST EXPENSE 577 714
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Income Before Taxes $ 428 $ 331
PROVISION (CREDIT) FOR TAXES - -
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NET INCOME $ 428 $ 331
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NET EARNINGS PER SHARE $ 0.14 $ 0.15
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AVERAGE NUMBER OF SHARES OUTSTANDING 2,218 2,173
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PREFERRED STOCK DIVIDENDS $ 121 -
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The accompanying notes are an integral part of this financial information.
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Item 1. Financial Statements (Continued)
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MULTI-COLOR CORPORATION
Balance Sheets
(Thousands)
ASSETS
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September 29, 1996 March 31, 1996
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(Derived from
(Prepared Audited Financial
Without Audit) Statements)
CURRENT ASSETS
Cash and Cash Equivalents $ 15 $ 40
Accounts Receivable 5,270 4,476
Notes Receivable 113 108
Inventories
Raw Materials 1,360 1,453
Work in Progress 849 909
Finished Goods 2,441 2,383
Deferred Tax Benefit 256 256
Prepaid Expenses and Supplies 40 23
Refundable Income Taxes 33 33
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Total Current Assets $ 10,377 $ 9,681
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SINKING FUND DEPOSITS $ 1,763 $ 2,237
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PROPERTY, PLANT, AND EQUIPMENT $ 30,599 $ 31,381
ACCUMULATED DEPRECIATION (13,075) (13,273)
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$ 17,524 $ 18,108
PROPERTY, PLANT, AND EQUIPMENT HELD FOR SALE $ 1,424 -
ACCUMULATED DEPRECIATION (1,000) -
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$ 424 -
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DEFERRED CHARGES, net $ 25 $ 55
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NOTE RECEIVABLE $ 219 $ 273
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NOTES RECEIVABLE FROM OFFICERS/SHAREHOLDERS $ 100 $ 100
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TOTAL ASSETS $ 30,432 $ 30,454
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
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CURRENT LIABILITIES:
Short-Term Debt $ 2,403 $ 1,892
Current portion of long-term debt 1,003 953
Current Portion of Capital Lease Obligation 62 58
Accounts Payable 4,369 5,251
Accrued Expenses 1,333 1,531
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Total Current Liabilities $ 9,170 $ 9,685
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LONG-TERM DEBT, excluding current portion $ 12,301 $ 14,552
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CAPITAL LEASE OBLIGATION $ 286 $ 321
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DEFERRED TAXES $ 256 $ 256
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DEFERRED COMPENSATION $ 655 $ 603
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PENSION LIABILITY $ 117 $ 117
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Total Liabilities $ 22,785 $ 25,534
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SHAREHOLDERS' INVESTMENT
Preferred Stock Series B, no par value $ 530 $ 530
Preferred Stock Series A, no par value 2,625 -
Common Stock, no par value 218 217
Paid-in Capital 8,978 9,140
Accumulated Deficit (4,401) (4,709)
Treasury Stock (45) -
Excess of Additional Pension Liability Over
Unrecognized Prior Service Cost (258) (258)
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Total Shareholders' Investment $ 7,647 $ 4,920
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TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 30,432 $ 30,454
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The accompanying notes are an integral part of this financial information.
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Item 1. Financial Statements (Continued)
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MULTI-COLOR CORPORATION
Statements of Cash Flows
(Prepared Without Audit)
(Thousands)
Twenty-Six Weeks Ended
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September 29, 1996 October 1, 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 428 $ 331
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 919 1,275
Common stock issued for awards 32 --
Increase in deferred compensation 52 --
Decrease in notes receivable 49 31
Net (increase) decrease of accounts receivable,
inventories and prepaid expenses and supplies (730) 4,643
Net decrease in accounts payable and
accrued liabilities (1,080) (2,891)
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Net cash provided by (used in) operating activities $( 330) $ 3,389
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures, net $( 765) $( 703)
Marketable Securities sold, net -- 13
Proceeds from sale of assets 50 414
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Net cash used in investing activities $( 715) $( 276)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) of revolving loan including,
non-current portion, net $ 511 $(2,320)
Cash Dividends (121) --
Sinking fund payments (1,726) (637)
Proceeds from issuance of preferred stock 2,432 --
Reductions to long term debt, including current portion (1) (156)
Treasury Stock, net (45) --
Repayment of Capital Lease Obligations (31) --
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Net cash provided by (used in) financing activities $ 1,019 $(3,113)
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Net increase (decrease) in cash and cash equivalents $( 26) --
CASH AND CASH EQUIVALENTS, beginning of period $ 40 $ 16
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CASH AND CASH EQUIVALENTS, end of period $ 14 $ 16
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 577 $ 713
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Income Taxes (refunded) paid $ 2 $ 11
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The accompanying notes are an integral part of this financial information.
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MULTI-COLOR CORPORATION
Notes to Financial Information
Item 1. Financial Statements
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The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Although certain information
and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such rules and regulations,
the Company believes that the disclosures are adequate to make the
information presented not misleading. These condensed financial
statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's latest Annual Report on
Form 10-K.
The information furnished in these financial statements reflects all
estimates and adjustments which are, in the opinion of management,
necessary to present fairly the results for the interim periods
reported, and all adjustments and estimates are of a normal recurring
nature.
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Results of Operations
Thirteen Weeks Ended September 29, 1996 Compared to the Thirteen Weeks Ended
October 1, 1995
Net sales decreased $1,033,000, or 8%, in the second quarter as
compared to the same quarter of the previous year. The decrease in
sales was due primarily to a 45% ($1,497,000) decrease in conventional
label business. A portion of the decline in conventional label business
was the result of the Company eliminating some unprofitable
conventional label activities and was expected by management. The
Company continues to take steps to improve the profitability of its
conventional label business and may experience further sales declines
as a result of these efforts. During the quarter in conjunction with
the above strategy, the Company experienced the loss of volume with a
major conventional label customer as the profitability did not meet the
expected returns established by management. The Company is continuing
its relationship with this customer and is presently bidding on new
business.
In-mold label sales increased 3% ($199,000) and cylinder sales
increased 59% ($265,000) in the second quarter as compared to the same
quarter of the previous year. The growth in the in-mold label and
cylinder sales is expected to continue.
Gross profit increased by $264,000 as compared to the previous year
with lower sales volumes. Additionally, the gross profit as a
percentage of sales increased from 13.3% to 16.6% on a comparative
basis reflecting management's commitment to lower the Company's cost
structure. The increase in gross profit on a comparative basis is
significant considering that the prior years gross profit results
benefited from a $300,000 "out of period" supplier claim settlement.
Selling, general, and administrative expenses increased $167,000 as
compared to the same prior year period. The increase was attributable
to additional staffing to handle the Scottsburg plant expansion plan
and the hiring of additional in-mold label sales personnel to assist in
the expected growth of in-mold label sales.
Interest expense decreased $59,000 as compared to the same prior year
period and was the result of lower borrowings against the Industrial
Revenue Bonds (IRB's).
The net income for the period was $305,000 [$.11 per share] as compared
to net income of $118,000 [$.05 per share] in the same prior year
period. It should be noted that prior years results benefited from a
$300,000, or $.14 per share, "out of period" supplier claim settlement.
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Twenty-Six Weeks Ended September 29, 1996 Compared to the Twenty-Six Weeks Ended
October 1, 1995
Net sales decreased $4,973,000 or 17%, in the first six months as
compared to the same prior year period. The decrease in sales was due
primarily to a 36% ($3,647,000) decrease in conventional label
business. The decline in conventional label business was the result of
the Company eliminating some unprofitable conventional label activities
and was expected by management. The Company continues to take steps to
improve the profitability of its conventional label business and may
experience further sales declines as a result of these efforts. During
the second quarter in conjunction with the above strategy, the Company
experienced the loss of volume with a major conventional label customer
as the existing profitability did not meet the expected returns
established by management. The Company is continuing its relationship
with this customer and is presently bidding on new business.
In-mold label sales decreased 9.6% ($1,681,000) and cylinder sales
increased 32% ($355,000) in the first six months as compared to the
same prior period. The decline in in-mold label sales occurred in the
first quarter and was considered a temporary phenomenon tied to
industry inventory conditions. The increase in cylinder sales is
directly attributable to the improved efficiency of the Graphics
division allowing the Company to manufacture more cylinders internally
for its customers. In-mold label and cylinder sales are projected to
grow in future periods.
Although the gross profit decreased by $58,000 as compared to the
previous year, the percentage gross profit increased from 13.3% to
15.9% on a comparative basis with significantly lower sales volumes,
supporting management's commitment to lower the Company's cost
structure. The increase in gross profit percentage on a comparative
basis is significant considering that the prior years gross profit
results benefited from a $300,000 "out of period" supplier claim
settlement.
Selling, general, and administrative expenses decreased $6,000 as
compared to the same prior year period. The decrease was attributable
to the Company no longer using an outside consulting firm to assist
with its financing during 1996 offset by additional staffing to handle
the Scottsburg plant expansion plan and the hiring of additional
in-mold label sales personnel during 1997 to assist with the expected
growth of in-mold label sales.
Interest expense decreased $137,000 as compared to the same prior year
period and was the result of lower borrowings on the Company's IRB's.
The net income for the period was $428,000 [$.14 per share] as compared
to net income of $331,000 [$.15 per share] in the same prior year
period. Prior year net income benefited from a $300,000, or $.14 per
share, "out of period" supplier claim settlement.
Hourly employees at the Company's Cincinnati plant, approximately 22%
of the Company's total workforce, are covered under a union contract
which expired on July 15, 1996. The Company reached a tentative
agreement with the union during the second quarter; however, the
tentative agreement was rejected by the union members on October 20,
1996. The union contacted the Company to continue negotiations on
October 21, 1996 and the Company believes that it will be successful in
renegotiating the contract.
Liquidity and Capital Resources
In July 1994, the Company entered into a new Credit Agreement with PNC
Bank, Ohio, National Association, and Star Bank, National Association
extending through July 1997. This agreement was designed to provide
available borrowings under the revolving line of credit of up to a
maximum of $5,000,000 subject to certain borrowing base limitations,
and up to an additional $1,400,000 of long-term financing for capital
expenditures. During 1995, the Company was in violation of certain of
its financial covenants and received waivers from its lenders with
respect to these violations until April 2, 1995. In connection with the
waivers, the Credit Agreement was amended to restrict the borrowing
base, increase the interest rate and fees applicable to the borrowings
under the Credit Agreement, and restrict the $1,400,000 term loan and
lease lines. The Company remained in violation of the cashflow coverage
ratio, the leverage ratio, and the current ratio covenants until
February 23, 1996, at which time, the Credit Agreement was restated. As
the Company was in violation of
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certain covenants that gave the lenders the right to accelerate the due
dates of their loans, the 1995 annual report was issued with the
otherwise long-term debt classified as short-term. This resulted in a
significant deterioration in the Company's working capital position.
During 1996, management launched a three tiered initiative designed to
overcome the Company's financial difficulties. First was a plan to
restore the Cincinnati operations to profitability as measured on an
Earnings Before Interest, Taxes, Depreciation, and Amortization
(EBITDA) basis. Second was a strategy to continue growing the in-mold
label business while improving gross margins in this area. This
strategy called for consolidating all the gravure in-mold label
manufacturing in the Scottsburg facility thereby increasing operating
efficiencies and operating leverage. The third aspect of the initiative
called for the Company to raise approximately $3,000,000 in equity to
strengthen the capital structure of the Company. The Company was
successful in its efforts as four consecutive quarters of profitability
resulted during 1996 each having EBITDA exceeding $1,000,000.
Additionally, the Company was successful in raising $500,000 in equity
prior to year-end 1996 and $2,432,000 during the first quarter of 1997,
supporting its commitment to strengthen its overall financial
structure.
Regaining profitability during 1996 coupled with significant
improvements in cashflow and debt reduction enabled the Company to
restate its loan agreement with its lenders on February 23, 1996. The
Company is in compliance with all covenants. The restated loan
agreement provides available borrowings under the revolving line of
credit of up to $3,750,000 and a $500,000 standby letter of credit to
purchase raw materials included as a sub-limit to the revolving credit
facility. Additionally, the restated agreement allows for annual
capital expenditures not to exceed $1,500,000.
With the infusion of equity, the Company plans to expand the Scottsburg
division during 1997 by adding capacity. Recognizing the importance of
this expansion program to the overall success of the Company, the
lenders amended the restated loan agreement on May 2, 1996 permitting
the equipment acquisitions and building expansion associated with the
Scottsburg plant expansion. This amendment allows total capital
expenditures of $3,500,000 for 1997. Additionally, the associated
covenants impacted by the increased capital expenditures were
appropriately amended and the Company remains in compliance with the
revised covenant requirements.
Management believes that the additional equity acquired, coupled with
the expected cash to be generated from operations, will allow it to
support operations and the anticipated capital expenditures of
$3,500,000 in fiscal 1997. No borrowing beyond the existing credit
facilities is anticipated. As of September 29, 1996, approximately
$1,300,000 was available for borrowing under the revolving line of
credit.
On July 22, 1996, the February 23, 1996 restated loan agreement was
amended to improve the borrowing base calculation, reduce the annual
agency fees, and improve the reporting requirements of the Borrowing
Base Certificate to a monthly versus weekly requirement. Additionally,
the Company entered into a joint venture with Think Laboratories, Inc.
of Kashiwa, Japan during the second quarter to develop the market for
engraving services in the United States. Although the banks previously
had verbally consented to the creation of this joint venture, the loan
agreement required written consent. Therefore, the third amendment and
waiver to the February 23, 1996 restated loan agreement was signed on
October 31, 1996 whereby the lenders consented to the joint venture.
The third amendment also increased the annual lease lines by $200,000
allowing the Company an annual exposure of $600,000 for rental payments
under all lease agreements on real and personal property in support of
the Company's Scottsburg plant expansion plans.
Through the second quarter ended September 29, 1996, net cash used in
operating activities was $330,000 as compared to $3,389,000 of net cash
provided by operating activities through the second quarter ended
October 1, 1995. Net cash used in operating activities was impacted by
a significant reduction in supplier accounts payable.
At September 29, 1996, the Company's net working capital and current
ratio were $1,207,000 and 1.13 to 1, respectively, as compared to net
working capital of zero and current ratio of 1 to 1 at March 31, 1996.
The improvement in working capital was primarily attributable to the
equity infusion which was primarily used to reduce supplier and bank
debt.
At September 29, 1996, the Company was in compliance with its loan
covenants and current in its principal and interest payments on all
debt.
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Part II. Other Information
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Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Shareholders was held on August 12,
1996. Each of the following matters was voted upon and approved by the
Company's shareholders as indicated below:
1. Election of the following directors:
(a) John C. Court, 2,087,114 votes for and 8,965 withheld.
(b) Lorrence T. Kellar, 2,087,124 votes for and 8,955 withheld.
(c) John D. Littlehale, 2,087,114 votes for and 8,965 withheld.
(d) Burton D. Morgan, 1,484,613 votes for and 611,466 withheld.
(e) David H. Pease, Jr. 2,086,624 votes for and 9,455 withheld.
(f) Louis M. Perlman, 2,087,124 votes for and 8,955 withheld.
2. Ratification of the appointment of Grant Thorton LLP as the
Company's independent public accountants for fiscal 1997,
2,083,936 votes for, 6,630 votes against, 5,513 abstentions.
Item 6. Exhibits and Reports on Form 8-K
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(a) List of Exhibits
Description
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Exhibit Number
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10 Third Amendment Dated October 31, 1996 to the
Amended and Restated Credit, Reimbursement and
Security Agreement Dated February 23, 1996.
27 Financial Data Schedule
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Signatures
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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.
Multi-Color Corporation
(Registrant)
Date: November 7, 1996 By: /s/ William R. Cochran
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William R. Cochran
Vice President, Chief Financial Officer
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