1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 1997
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 #0-16148
Multi-Color Corporation
(Exact name of Registrant as specified in its charter)
OHIO
(State or other jurisdiction of 31-1125853
incorporation or organization) (IRS Employer
Identification No.)
205 W. Fourth Street, Suite 1140, Cincinnati, Ohio 45202
(Address of principal executive offices)
Registrant's telephone number - 513/381-1480
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 [ ]
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 - 2,279,220 (as of January 21, 1998)
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Continued)
MULTI-COLOR CORPORATION
Statements of Operations
(Prepared Without Audit)
(Thousands except per share amounts)
Thirteen Weeks Ended
---------------------------------------------------
December 28, 1997 December 29, 1996
------------------------ ------------------------
NET SALES $ 12,688 $ 11,975
COST OF GOODS SOLD 11,439 9,792
------------------------ ------------------------
Gross Profit $ 1,249 $ 2,183
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,464 1,433
RESTRUCTURING CHARGE - -
------------------------ ------------------------
Operating Income (Loss) $ (215) $ 750
OTHER EXPENSE (INCOME) (202) (13)
INTEREST EXPENSE 282 260
------------------------ ------------------------
Income (Loss) Before Taxes $ (295) $ 503
PROVISION (CREDIT) FOR TAXES - -
------------------------ ------------------------
NET INCOME (LOSS) $ (295) $ 503
======================== ========================
PREFERRED STOCK DIVIDENDS $ 70 $ 70
======================== ========================
NET EARNINGS(LOSS) PER COMMON SHARE
Basic $ (0.17) $ 0.20
======================== ========================
Diluted $ (0.17) $ 0.18
======================== ========================
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 2,170 2,168
======================== ========================
Diluted 2,170 2,866
======================== ========================
The accompanying notes are an integral part of this financial information.
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Continued)
MULTI-COLOR CORPORATION
Statements of Operations
(Prepared Without Audit)
(Thousands except per share amounts)
Thirty-Nine Weeks Ended
---------------------------------------------------
December 28, 1997 December 29, 1996
------------------------ ------------------------
NET SALES $ 35,964 $ 35,667
COST OF GOODS SOLD 30,943 29,722
------------------------ ------------------------
Gross Profit $ 5,021 $ 5,945
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,260 4,202
RESTRUCTURING CHARGE 310 -
------------------------ ------------------------
Operating Income $ 451 $ 1,743
OTHER EXPENSE (INCOME) (281) (25)
INTEREST EXPENSE 835 837
------------------------ ------------------------
Income (Loss) Before Taxes $ (103) $ 931
PROVISION (CREDIT) FOR TAXES - -
------------------------ ------------------------
NET INCOME (LOSS) $ (103) $ 931
======================== ========================
PREFERRED STOCK DIVIDENDS $ 210 $ 191
======================== ========================
NET EARNINGS PER COMMON SHARE
Basic $ (0.14) $ 0.34
======================== ========================
Diluted $ (0.14) $ 0.33
======================== ========================
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 2,170 2,170
======================== ========================
Diluted 2,170 2,809
======================== ========================
The accompanying notes are an integral part of this financial information.
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PART 1. FINANCIAL INFORMATION
MULTI-COLOR CORPORATION
Balance Sheets
(Thousands)
ASSETS
December 28, 1997 March 30, 1997
---------------------------- -------------------------
(Prepared Without Audit) (Derived from Audited
Financial Statements)
CURRENT ASSETS
Cash and Cash Equivalents $ 14 $ 81
Accounts Receivable 4,912 3,249
Notes Receivable 127 118
Inventories
Raw Materials 2,924 1,649
Work in Progress 1,043 641
Finished Goods 2,116 2,802
Deferred Tax Benefit 241 241
Prepaid Expenses and Supplies 167 92
Refundable Income Taxes 46 46
---------------------------- -------------------------
Total Current Assets $ 11,590 $ 8,919
---------------------------- -------------------------
RESTRICTED CASH (IRB PROCEEDS) $ 269 $ -
---------------------------- -------------------------
SINKING FUND DEPOSITS $ 171 $ 74
---------------------------- -------------------------
PROPERTY, PLANT, AND EQUIPMENT $ 34,422 $ 33,466
ACCUMULATED DEPRECIATION (14,015) (14,382)
---------------------------- -------------------------
$ 20,407 $ 19,084
---------------------------- -------------------------
PROPERTY, PLANT, AND EQUIPMENT HELD FOR SALE $ 1,221 $ 440
ACCUMULATED DEPRECIATION (941) (296)
---------------------------- -------------------------
$ 280 $ 144
---------------------------- -------------------------
DEFERRED CHARGES, net $ 57 $ 3
---------------------------- -------------------------
NOTE RECEIVABLE $ 74 $ 163
---------------------------- -------------------------
NOTE RECEIVABLE FROM OFFICERS/SHAREHOLDERS $ 100 $ 100
---------------------------- -------------------------
TOTAL ASSETS $ 32,948 $ 28,487
============================ =========================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Debt $ 2,718 $ 2,294
Current Portion of Long-term debt 1,009 1,003
Current Portion of Capital Lease Obligation 107 114
Accounts Payable 7,037 3,632
Accrued Expenses 721 1,215
Restructuring Charge 33 -
---------------------------- -------------------------
Total Current Liabilities $ 11,625 $ 8,258
---------------------------- -------------------------
LONG-TERM DEBT, excluding current portion $ 11,000 $ 9,600
---------------------------- -------------------------
CAPITAL LEASE OBLIGATION $ 227 $ 302
---------------------------- -------------------------
DEFERRED TAXES $ 241 $ 241
---------------------------- -------------------------
DEFERRED COMPENSATION $ 842 $ 692
---------------------------- -------------------------
PENSION LIABILITY $ 1 $ 1
---------------------------- -------------------------
Total Liabilities $ 23,936 $ 19,094
---------------------------- -------------------------
MINORITY INTEREST $ 417 $ 486
---------------------------- -------------------------
SHAREHOLDERS' INVESTMENT
Preferred Stock Series B, no par value $ 530 $ 530
Preferred Stock Series A, no par value 2,418 2,418
Common Stock, no par value 218 218
Paid-in Capital 9,175 9,175
Accumulated Deficit (3,655) (3,343)
Treasury Stock (45) (45)
Excess of Additional Pension Liability Over
Unrecognized Prior Service Cost (46) (46)
---------------------------- -------------------------
Total Shareholders' Investment $ 8,595 $ 8,907
---------------------------- -------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 32,948 $ 28,487
============================ =========================
The accompanying notes are an integral part of this financial information.
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PART 1. FINANCIAL INFORMATION
MULTI-COLOR CORPORATION
Statements of Cash Flows
(Prepared Without Audit)
(Thousands)
Thirty-Nine Weeks Ended
-----------------------
December 28, 1997 December 29, 1996
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ (103) $ 931
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 1,504 1,389
Minority interest in losses of subsidiary (70) -
Common stock issued for awards - 32
Increase in deferred compensation 150 72
Decrease in notes receivable 81 74
Net increase in accounts receivable,
inventories and prepaid expenses and supplies (2,729) (643)
Net increase (decrease) in accounts payable and
accrued liabilities 2,912 (870)
Increase in restructuring charges 310 -
Payment of restructuring liabilities (277) -
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Net cash provided by operating activities $ 1,778 $ 985
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures, net $ (3,474) $ (1,492)
Restricted cash (IRB Proceeds) (269) -
Proceeds from Investment in Joint Venture - 500
Proceeds from sale of assets 532 324
----------- -----------
Net cash used in investing activities $ (3,211) $ (668)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease of revolving loan including
non-current portion, net $ 424 $ 185
Cash Dividends (210) (191)
Sinking fund payments (96) (2,377)
Proceeds from issuance of preferred stock - 2,432
Additions (reductions) to long-term debt, including current portion 1,406 (2)
Treasury Stock, net - (45)
Repayment of Capital Lease Obligations (82) (47)
Capitalized Bank Fees (75) -
----------- -----------
Net cash provided by (used in) financing activities $ 1,367 $ (45)
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Net increase (decrease) in cash and cash equivalents $ (66) $ 272
CASH AND CASH EQUIVALENTS, beginning of period $ 80 $ 40
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 14 $ 312
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 835 $ 837
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Income Taxes paid $ 19 $ 4
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Restructuring Charge $ 310 $ -
----------- -----------
The accompanying notes are an integral part of this financial information.
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Item 1. Financial Statements (continued)
Multi-Color Corporation
Notes to Financial Information
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 Results
of Operations
Results of Operations
Thirteen Weeks Ended December 28, 1997 Compared to the Thirteen Weeks Ended
December 29, 1996
Net sales increased $713,000, or 6%, in the third quarter as compared to
the same quarter of the previous year. The increase in sales was primarily
volume related and was attributable to an increase of $911,000 or 11% in
in-mold sales and an increase of $90,000 or 14% in cylinder sales. Prime
label sales decreased $288,000 or 9.7% in the third quarter as compared to
the same prior period.
Gross profit decreased $934,000 as compared to the previous year. The
decrease in gross profit was caused by a delay in the start-up of new
presses at the Scottsburg, Indiana plant and the resulting continuing
operation of the Cincinnati plant which was scheduled to be shut down
during the latter part of the second quarter. These two events combined to
increase expenses and contributed to the reduction of gross profit.
The Company is committed to closing the Cincinnati plant by March 29, 1998,
the end of fiscal year 1998, and will experience more non-cash
restructuring charges relating to the Cincinnati plant closing. These
charges could be significant and contribute to a loss for the fiscal year.
Selling, general, and administrative expenses increased $31,000 as compared
to the same prior year period. The increase was attributable to the
increased selling effort required in support of growing in-mold label
sales.
Interest expense increased $22,000 as compared to the same prior year
period and was the result of higher borrowings against the short-term
revolver and long-term debt.
The net loss for the period was $295,000 ([$.17] per share after payment of
preferred stock dividends) as compared to net income of $503,000 ($.20 per
share after payment of preferred stock dividends) in the same prior year
period.
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Thirty-Nine Weeks Ended December 28, 1997 Compared to the Thirty-Nine Weeks
Ended December 29, 1996
Net sales increased $297,000, or 1%, in the first nine months as compared
to the same prior year period. The increase in sales was primarily volume
related and was attributable to an increase of $2,203,000 or 9.1% in
in-mold sales and an increase of $344,000 or 16% in cylinder sales. Prime
label sales decreased $2,250,000 or 23.8% in the first nine months as
compared to the same prior period.
Gross profit decreased $924,000 as compared to the prior year period. The
decrease in gross profit was caused by a delay in the start-up of new
presses at the Scottsburg, Indiana plant and the resulting continuing
operation of the Cincinnati plant which was scheduled to be shut down
during the latter part of the second quarter. These two events combined to
increase expenses and contributed to the reduction of gross profit.
The Company is committed to closing the Cincinnati plant by March 29, 1998,
the end of fiscal year 1998, and will experience more non-cash
restructuring charges relating to the Cincinnati plant closing. These
charges could be significant and contribute to a loss for the fiscal year.
Selling, general, and administrative expenses increased $58,000 as compared
to the prior year period. The increase was a combination of the increased
selling effort required in support of growing in-mold label sales offset by
lower administrative costs at Cincinnati due to the plant closing.
During the second quarter, the Company accrued a restructuring charge of
$310,000 for the previously announced closing of the Cincinnati printing
plant to handle severance and benefit obligations associated with the plant
closing.
Interest expense decreased $2,000 as compared to the same prior year period
and has approached prior year levels due to higher short-term borrowings.
The net loss for the period was $103,000 ([$.14] per share after payment of
preferred stock dividends) as compared to net income of $931,000 ($.34 per
share after payment of preferred stock dividends) in the same prior year
period.
Recent Developments
In January 1998, Multi-Color identified various environmental compliance
problems associated with the operation of two presses at its Scottsburg,
Indiana plant. The Company has notified the Indiana Department of
Environmental Management of these problems, and has curtailed production on
the two presses until these problems are resolved. While the Company is
working to resolve these compliance problems with the State of Indiana,
these compliance problems may result in an adverse regulatory action by the
State of Indiana against Multi-Color, which could adversely affect the
earnings and financial condition of the Company.
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 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 to provide
for 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,
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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 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 $2,418,000 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 restated loan
agreement provided 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 allowed for annual capital
expenditures not to exceed $1,500,000.
With the infusion of equity, the Company expanded the Scottsburg division
during 1997 by adding additional 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
acquisitions associated with the Scottsburg expansion. This amendment
allowed 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.
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 started a
new entity with Think Laboratory Co. Inc. of Kashiwa, Japan, through a
corporation owned 80% by the Company and entitled Laser Graphic Systems,
Incorporated, 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 subsidiary, 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 new company. 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.
On January 9, 1997, the Company and its lenders, PNC Bank, Ohio, National
Association, and Star Bank, National Association, entered into a Credit
Agreement extending its revolving line of credit through July 31,1998. The
loan agreement also provides for a $2,000,000 non-revolving credit
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facility expiring August 25, 1997. Borrowings under the revolving line of
credit are limited to $4,500,000 and a $500,000 standby letter of credit to
purchase raw materials is included as a sub-limit to the revolving credit
facility. The agreement also allowed the Company to make capital
expenditures of $3,200,000 during fiscal year 1997, $2,600,000 during
fiscal year 1998, and $1,800,000 during fiscal year 1999 in support of its
capital expansion program. Unexpended amounts during one fiscal year can be
accumulated and carried over to the next fiscal year. For fiscal year 1997,
capital expenditures totalled $2,600,000. Additionally, the new agreement
allows the Company an annual exposure of $600,000 for rental payments under
all lease agreements on real and personal property. The new agreement also
reduces the fee structure of the Company's loan portfolio and establishes
reduced interest rates if certain performance targets are accomplished. No
borrowing beyond the existing credit facilities is anticipated.
Subsequent to the signing of the January 9, 1997 loan agreement, the
Company entered into a consignment agreement with one of its customers. In
support of this arrangement, the banks issued the first amendment to the
January 9, 1997 loan agreement on February 25, 1997 in support of this
program whereby the Company was allowed to borrow against the consigned
inventory.
To finance the expansion of the Scottsburg, Indiana, plant, the Company was
successful in obtaining Variable Rate Demand Industrial Development Revenue
Bonds from the City of Scottsburg in the principal amount of $3,000,000 on
April 1, 1997. In support of this financing, the banks issued the second
amendment to the January 9, 1997 loan agreement on April 1, 1997 whereby
the appropriate Letters of Credit were issued in support of the financing.
Additionally, commencing June 30, 1998, the sinking fund quarterly deposits
will increase to $330,000 versus $250,000 required in the January 9, 1997
loan agreement.
In support of the closing of the Cincinnati plant, the banks approved the
third amendment to the January 9, 1997 loan agreement on September 1, 1997.
The third amendment modified the cashflow coverage ratio from 1.1 to 1 to 1
to 1. This modification was necessary to handle the cash outflow associated
with the restructuring charge taken in the second quarter of fiscal 1998.
Due to the later than anticipated shut-down of the Cincinnati plant and the
delayed start-up of the presses at the Scottsburg, Indiana plant negatively
impacting earnings and cashflow during the third quarter, the Company was
in violation of the cashflow coverage ratio at December 28, 1997. A
cashflow coverage ratio of .77 to 1 resulted versus the requirement of 1 to
1. The Company is negotiating waivers of this covenant and expects it will
receive a waiver.
Through the third quarter ended December 28, 1997, net cash provided by
operating activities was $1,778,000 as compared to $985,000 of net cash
provided by operating activities through the third quarter ended December
29, 1996. Net cash provided by operating activities was positively impacted
by an increase in supplier accounts payable.
At December 28, 1997, the Company's net working capital and current ratio
were $(35,000) and .99 to 1 respectively, as compared to net working
capital of $661,000 and current ratio of 1.08 to 1 at March 30, 1997. The
decrease in working capital was primarily attributable to higher borrowings
under the Company's revolving loan and higher accounts payable.
At December 28, 1997, except for the cashflow coverage ratio described
above, the Company was in compliance with its loan covenants and current in
its principal and interest payments on all debt. As of January 20, 1998,
approximately $1,200,000 was available under the revolving line of credit.
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Part II. Other Information
Item 4. Submissions of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on August 14,
1997. 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, 2,173,395 votes for and 17,199 withheld.
(b) Lorrence T. Kellar, 2,175,270 votes for and 15,324
withheld.
(c) John D. Littlehale, 2,173,895 votes for and 16,699
withheld.
(d) Burton D. Morgan, 2,075,405 votes for and 115,189
withheld.
(e) David H. Pease, Jr. 2,175,270 votes for and 15,324
withheld.
(f) Louis M. Perlman, 2,175,270 votes for and 15,324 withheld.
2. Approval of a Stock Option Plan, 1,358,194 votes for,
202,057 votes against, 6,300 abstentions, 624,043 broker
non-votes.
3. Ratification of the appointment of Grant Thornton LLP as the
Company's independent public accountants for fiscal 1998,
2,181,455 votes for, 6,974 votes against, 2,165 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
Exhibit Number Description
-------------- -----------
10.41 Third Amendment to January 9, 1997 Credit Agreement,
effective as of September 1, 1997
27 Financial Data Schedule
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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.
Multi-Color Corporation
(Registrant)
Date: January 27, 1998 By:
------------------------------------
William R. Cochran
Vice President, Chief Financial Officer
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