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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 June 28, 1998
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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 _____________
Commission File #0-16148
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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
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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
--- ---
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 - 2,292,460 (as of August 03, 1998)
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PART 1. FINANCIAL INFORMATION
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Item 1. Financial Statements
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MULTI-COLOR CORPORATION
Statements of Operations
(Prepared Without Audit)
(Thousands except per share amounts)
Thirteen Weeks Ended
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June 28, 1998 June 29, 1997
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NET SALES $ 11,448 $ 11,484
COST OF GOODS SOLD 10,132 9,664
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Gross Profit 1,316 1,820
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,002 1,398
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Operating Income $ 314 $ 422
OTHER EXPENSE (INCOME) (158) (2)
INTEREST EXPENSE 280 267
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Income Before Taxes and Cumulative Effect of a Change in Accounting Principle $ 192 $ 157
Provision (Credit) for Taxes 0 0
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Income Before Cumulative Effect of a Change in Accounting Principle $ 192 $ 157
Cumulative Effect of Change in Accounting for Inventories, Net of Tax (224) 0
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NET INCOME $ 416 $ 157
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PREFERRED STOCK DIVIDENDS $ 70 $ 70
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NET EARNINGS PER SHARE COMMON SHARE
Basic earnings per share:
Income before Cumulative Effect $ 0.06 $ 0.04
Cumulative Effect of Change in Accounting for Inventories $ 0.10 -
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Net Income $ 0.16 $ 0.04
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Diluted earnings per share:
Income before Cumulative Effect $ 0.07 $ 0.04
Cumulative Effect of Change in Accounting for Inventories $ 0.08 -
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Net Income $ 0.15 $ 0.04
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AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 2,182 2,170
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Diluted 2,869 2,213
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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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June 28, 1998 March 29, 1998
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(Derived from
(Prepared Audited Financial
Without Audit) Statements)
CURRENT ASSETS
Cash and Cash Equivalents $ 15 $ 12
Accounts Receivable 4,572 4,682
Notes Receivable 133 130
Inventories
Raw Materials 1,185 1,720
Work in Progress 749 739
Finished Goods 2,735 2,564
Deferred Tax Benefit 476 476
Prepaid Expenses and Supplies 85 165
Refundable Income Taxes 30 30
Property Held for Sale 0 905
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Total Current Assets $ 9,980 $ 11,423
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SINKING FUND DEPOSITS $ 1,368 $ 621
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PROPERTY, PLANT, AND EQUIPMENT $ 28,981 $ 29,003
ACCUMULATED DEPRECIATION (10,868) (10,383)
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$ 18,113 $ 18,620
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DEFERRED CHARGES, net $ 114 $ 48
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NOTE RECEIVABLE $ 10 $ 42
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NOTES RECEIVABLE FROM OFFICERS/SHAREHOLDERS $ 100 $ 100
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TOTAL ASSETS $ 29,685 $ 30,854
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Debt $ 3,138 $ 3,664
Current Portion of Long-term Debt 1,017 1,024
Current Portion of Capital Lease Obligation 104 93
Accounts Payable 6,188 6,968
Accrued Expenses 1,315 1,500
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Total Current Liabilities $ 11,762 $ 13,249
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LONG-TERM DEBT, excluding current portion $ 11,000 $ 11,000
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CAPITAL LEASE OBLIGATION $ 175 $ 208
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DEFERRED TAXES $ 476 $ 476
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DEFERRED COMPENSATION $ 872 $ 854
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Total Liabilities $ 24,285 $ 25,787
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MINORITY INTEREST $ 389 $ 402
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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 9,192 9,192
Accumulated Deficit (7,347) (7,693)
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Total Shareholders' Investment $ 5,011 $ 4,665
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TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 29,685 $ 30,854
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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)
Thirteen Weeks Ended
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June 28, 1998 June 29, 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 416 $ 157
Adjustments to reconcile net income to net
cash provided by (used in) operating activities -
Depreciation and amortization 498 453
Minority interest in losses of subsidiary (13) (16)
Increase in deferred compensation 19 28
Decrease in notes receivable 29 26
Net (increase) decrease of accounts receivable,
inventories and prepaid expenses and supplies 543 (63)
Net increase (decrease) in accounts payable,
accrued liabilities, and preferred dividends (980) 302
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Net cash provided by operating activities $ 512 $ 887
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures, net $ (34) $(2,010)
Restricted cash (IRB Proceeds) 23 (561)
Proceeds from sale of property, plant and equipment 904 -
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Net cash provided by (used in) investing activities $ 893 $(2,571)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease of revolving loan including,
non-current portion, net $ (526) $ (833)
Cash Dividends - (70)
Sinking fund payments (770) (297)
Additions to long-term debt, including current portion - 3,000
Repayment of long-term debt, including current portion (8) -
Repayment of Capital Lease Obligations (23) (26)
Capitalized Bank Fees (75) (75)
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Net cash provided by (used in) financing activities $(1,402) $ 1,699
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Net increase in cash and cash equivalents $ 3 $ 15
CASH AND CASH EQUIVALENTS, beginning of period $ 12 $ 81
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CASH AND CASH EQUIVALENTS, end of period $ 15 $ 96
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 280 $ 267
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Income Taxes paid $ 0 $ 2
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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
--------------------
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.
Effective March 30, 1998, the Company elected to change its method of
inventory valuation to encompass a more complete absorption of overhead
costs in inventory. The Company believes the new method is preferable
for matching the full cost of the inventory with the revenues
generated. The cumulative effect of this accounting change as of March
30, 1998 was to increase income $224,000 ($.08 per diluted common
share) and has been separately identified on the Statement of
Operations for the thirteen weeks ended June 28, 1998. Information is
not available to determine the effect of the change on income for the
quarter ended June 29, 1997.
The following is a reconciliation of the number of shares used in the
basic EPS and diluted EPS computations:
Quarter Ended Quarter Ended
June 28, 1998 June 29, 1997
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Per Share Per Share
Shares Amounts Shares Amounts
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Basic EPS before cumulative effect 2,182,060 $ .06 2,169,619 $.04
Cumulative effect of change in
accounting for inventories 2,182,060 $ .10 - -
Effect of dilutive stock options 29,166 - 43,237 -
Convertible shares 657,420 $(.01) - -
Diluted EPS 2,868,646 $ .15 2,212,856 $.04
Preferred stock dividends of $69,852 for the quarters ended June 28,
1998 and June 29, 1997 have been deducted from the net income
generated to arrive at the income available to common stockholders for
the calculation of basic EPS. Common stock equivalents of
approximately 657,420 shares, resulting from convertible shares, were
excluded from the June 29, 1997 fiscal quarter computation of diluted
EPS because to do so would have been antidilutive.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Results of Operations
Thirteen Weeks Ended June 28, 1998 Compared to the Thirteen Weeks Ended June 29,
1997
Net sales decreased $36,000, or .3%, in the first quarter as compared
to the same quarter of the previous year. In-mold and cylinder sales
increased 1.5% while prime label sales decreased 8% in the first
quarter as compared to the same period in the prior year.
Gross profit decreased $504,000 as compared to the same period in the
prior year. The decrease in gross profit was attributable to higher
cost product produced in the fiscal 1998 fourth quarter and sold
during the first quarter and the reclassification of plant
administration expenses to cost of goods sold, offset by improved
efficiencies and waste reduction realized at Scottsburg during the
first quarter of fiscal 1999.
Selling, general, and administrative expenses decreased $396,000 as
compared to the same prior year period. The decrease was attributable
to cost reductions made in administrative overhead, expense control,
and the reclassification of plant administration expenses to cost of
goods sold.
Other income increased $156,000 compared to the same prior year
period. The increase was attributable to a $303,000 refund of worker's
compensation premiums offset by $134,000 of one-time expenses related
to the closing of the Cincinnati plant.
Interest expense increased $13,000 as compared to the same period in
the prior year and was the result of higher average borrowings against
the short-term revolving credit line.
Effective March 30, 1998, the Company elected to change its method of
inventory valuation to encompass a more complete absorption of
overhead costs in inventory. The Company believes the new method is
preferable for matching the full cost of the inventory with the
revenues generated. The cumulative effect of this accounting change as
of March 30, 1998 was to increase income $224,000 ($.08 per diluted
common share) and has been separately identified on the Statement of
Operations for the thirteen weeks ended June 28, 1998.
The net income for the period was $416,000 ($.16 per share after the
accrual of preferred stock dividends) as compared to net income of
$157,000 ($.04 per share after payment of preferred stock dividends)
in the same prior year period.
Liquidity and Capital Resources
The Company is dependent on availability under its Revolving Credit
Agreement, approximately $1,500,000 at August 3, 1998, and its
operations to provide for cash needs. The Company entered into a new
credit agreement with PNC Bank, Ohio, National Association and
Comerica Bank on June 22, 1998 which is a restatement of its prior
credit agreements. The earlier credit agreements were amended several
times between 1994 and 1998 to reflect, among other things, the
Company's inability to meet certain financial covenants, including
cash flow coverage ratios, leverage ratios and current ratios, and to
reflect equity infusions and changes in the Company's results of
operations during that time period. The new credit agreement provides
for available
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borrowings under a revolving line of credit up to a maximum of
$5,000,000, subject to certain borrowing base limitations. The new
credit agreement also allows $3,500,000 of capital expenditures,
including an expansion program for a new facility in Scottsburg once
certain performance criteria are met. Under the terms of the new
credit agreement, the Company is subject to a number of financial
covenants. Additionally, the Company is prohibited from paying
deferred dividends on its outstanding preferred stock and is limited
in its ability to borrow other funds until certain performance
criteria are met. The amount of accrued but unpaid preferred dividends
was $162,519 at August 3, 1998. The new credit agreement also requires
the Company to continue to place $1,000,000 per year into the sinking
fund to be available to retire other debt. The existing sinking fund
balance, plus fifty percent of the fiscal 1999 sinking fund
contributions, will provide the Company with the funds for the
Scottsburg expansion if the Company satisfies the performance criteria
allowing it to begin the expansion project.
Through the first quarter ended June 28, 1998, net cash provided by
operating activities was $512,000 as compared to net cash provided by
operating activities of $887,000 through the first quarter ended June
29, 1997. Net cash provided by operating activities was positively
impacted by an increase in net income offset by a decrease in supplier
accounts payable.
At June 28, 1998, the Company's net working capital and current ratio
were $(1,782,000) and .85 to 1, respectively, as compared to net
working capital of $1,276,000 and current ratio of 1.17 to 1 at June
29, 1997. The decrease in working capital was primarily attributable
to an increase in accounts payable and accrued liabilities and higher
borrowings under the Company's revolving loan. At June 28, 1998, the
Company was in compliance with its loan covenants and current in its
principal and interest payments on all debt.
Forward Looking Statements
Certain statements contained in this report that are not historical
facts constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, and are intended to
be covered by the safe harbors created by that Act. Reliance should
not be placed on forward-looking statements because they involve known
and unknown risks, uncertainties and other factors which may cause
actual results, performance or achievements to differ materially from
those expressed or implied. Any forward-looking statement speaks only
as of the date made. The Company undertakes no obligation to update
any forward-looking statements to reflect events or circumstances
after the date on which they are made.
Statements concerning expected financial performance, on-going
business strategies, and possible future action which the Company
intends to pursue in order to achieve strategic objectives constitute
forward-looking information. Implementation of these strategies and
the achievement of such financial performance are each subject to
numerous conditions, uncertainties and risk factors. Factors which
could cause actual performance to differ materially from these forward
looking statements include, without limitation, factors discussed in
conjunction with a forward-looking statement; changes in general
economic conditions; the success of its significant customers;
acceptance of new product offerings; changes in business strategy or
plans; quality of management; availability, terms and development of
capital; availability of raw materials; business abilities and
judgment of personnel; changes in, or the failure to comply with,
government regulations; competition; the ability to achieve cost
reductions; the ability to dispose of certain assets at favorable
prices; increases in general interest rates levels affecting the
company's interest costs (most of which are tied to general interest
rate levels); the ability to refinance outstanding debt on favorable
terms; the ability to obtain favorable outcomes with respect to
threatened legal proceedings; and the ability to reduce or defer
certain capital expenditures. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
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Part II. Other Information
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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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18 Letter Regarding Change in Accounting Principle
27 Financial Data Schedule
10.26 Separation Agreement with Mutual Releases -
John C. Court dated July 7, 1998
10.27 Separation Agreement with Mutual Releases -
John D. Littlehale dated July 15, 1998
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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: August 12, 1998 By: /s/ William R. Cochran
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William R. Cochran
Vice President, Chief Financial
Officer
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