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 27, 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
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Commission File #0-16148
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 - 2,305,460 (as of February 4, 1999)
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
MULTI-COLOR CORPORATION
Statements of Operations
(Prepared Without Audit)
(Thousands except per share amounts)
Thirteen Weeks Ended
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December 27, 1998 December 28, 1997
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NET SALES $12,897 $12,688
COST OF GOODS SOLD 10,925 11,439
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Gross Profit $ 1,972 $ 1,249
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,030 1,464
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Operating Income (loss) $ 942 $ (215)
OTHER EXPENSE (INCOME) (111) (202)
INTEREST EXPENSE 295 282
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Income (loss) Before Taxes $ 758 $ (295)
Provision (Credit) for Taxes - -
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NET INCOME (LOSS) $ 758 $ (295)
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PREFERRED STOCK DIVIDENDS $ 68 $ 70
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NET EARNINGS PER COMMON SHARE
Basic earnings (loss) per common share $ 0.30 $ (0.17)
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Diluted earnings (loss) per common share $ 0.25 $ (0.17)
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AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 2,303 2,170
======= =======
Diluted 2,995 2,170
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The accompanying notes are an integral part of this financial information.
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
MULTI-COLOR CORPORATION
Statements of Operations
(Prepared Without Audit)
(Thousands except per share amounts)
Thirty-Nine Weeks Ended
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December 27, 1998 December 28, 1997
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NET SALES $36,640 $35,964
COST OF GOODS SOLD 31,526 30,943
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Gross Profit $ 5,114 $ 5,021
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,727 4,260
RESTRUCTURING CHARGE - 310
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Operating Income (loss) $ 1,387 $ 451
OTHER EXPENSE (INCOME) (144) (281)
INTEREST EXPENSE 858 835
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Income (loss) Before Taxes and Cumulative Effect of a
Change in Accounting Principle $ 673 $ (103)
Provision (Credit) for Taxes - -
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Income (loss) Before Cumulative Effect of a Change in Accounting Principle $ 673 $ (103)
Cumulative Effect of Change in Accounting for Inventories, Net of Tax (224) -
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NET INCOME (LOSS) $ 897 $ (103)
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PREFERRED STOCK DIVIDENDS $ 207 $ 210
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NET EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share:
Income (loss) before Cumulative Effect $ 0.21 $ (0.14)
Cumulative Effect of Change in Accounting for Inventories $ 0.10 -
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Net Income (loss) $ 0.31 $ (0.14)
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Diluted earnings (loss) per common share:
Income (loss) before Cumulative Effect $ 0.21 $ (0.14)
Cumulative Effect of Change in Accounting for Inventories $ 0.09 -
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Net Income (loss) $ 0.30 $ (0.14)
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AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 2,256 2,170
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Diluted 2,411 2,170
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The accompanying notes are an integral part of this financial information.
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Item 1. Financial Statements (Continued)
MULTI-COLOR CORPORATION
Balance Sheets
(Thousands)
ASSETS
December 27, 1998 March 29, 1998
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(Derived from
(Prepared Audited Financial
Without Audit) Statements)
CURRENT ASSETS
Cash and Cash Equivalents $ 13 $ 12
Accounts Receivable 4,540 4,682
Notes Receivable 94 130
Inventories
Raw Materials 1,250 1,720
Work in Progress 1,207 739
Finished Goods 2,106 2,564
Deferred Tax Benefit 476 476
Prepaid Expenses and Supplies 105 165
Refundable Income Taxes 23 30
Property Held for Sale - 905
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Total Current Assets $ 9,814 $ 11,423
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SINKING FUND DEPOSITS $ 1,969 $ 621
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PROPERTY, PLANT, AND EQUIPMENT $ 29,388 $ 29,003
ACCUMULATED DEPRECIATION (11,845) (10,383)
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$ 17,543 $ 18,620
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DEFERRED CHARGES, net $ 115 $ 48
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NOTE RECEIVABLE $ - $ 42
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NOTES RECEIVABLE FROM OFFICERS/SHAREHOLDERS $ 100 $ 100
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TOTAL ASSETS $ 29,541 $ 30,854
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Debt $ 1,995 $ 3,664
Current Portion of Long-term Debt 1,005 1,024
Current Portion of Capital Lease Obligation 105 93
Accounts Payable 6,004 6,968
Accrued Expenses 2,056 1,500
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Total Current Liabilities $ 11,165 $ 13,249
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LONG-TERM DEBT, excluding current portion $ 11,000 $ 11,000
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CAPITAL LEASE OBLIGATION $ 126 $ 208
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DEFERRED TAXES $ 476 $ 476
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DEFERRED COMPENSATION $ 913 $ 854
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Total Liabilities $ 23,680 $ 25,787
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MINORITY INTEREST $ 369 $ 402
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SHAREHOLDERS' INVESTMENT
Preferred Stock Series B, no par value $ 477 $ 530
Preferred Stock Series A, no par value 2,418 2,418
Common Stock, no par value 220 218
Paid-in Capital 9,380 9,192
Accumulated Deficit (7,003) (7,693)
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Total Shareholders' Investment $ 5,492 $ 4,665
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TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 29,541 $ 30,854
======== ========
The accompanying notes are an integral part of this financial information.
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Item 1. Financial Statements (Continued)
MULTI-COLOR CORPORATION
Statements of Cash Flows
(Prepared Without Audit)
(Thousands)
Thirty-Nine Weeks Ended
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December 27, 1998 December 28, 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 897 $ (103)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities -
Depreciation and amortization 1,480 1,504
Issuance of stock options below FMV 97
Minority interest in losses of subsidiary (33) (70)
Increase in deferred compensation 59 150
Decrease in notes receivable 78 81
Net (increase) decrease of accounts receivable,
inventories and prepaid expenses and supplies 694 (2,729)
Net increase (decrease) in accounts payable,
accrued liabilities, and preferred dividends (353) 2,912
Increase in restructuring changes - 310
Payment of restructuring changes - (277)
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Net cash provided by operating activities $ 2,919 $ 1,778
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures, net $ (475) $(3,474)
Restricted cash (IRB Proceeds) 23 (269)
Proceeds from sale of property, plant and equipment 939 532
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Net cash provided by (used in) investing activities $ 487 $(3,211)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) of revolving loan including,
non-current portion, net $(1,669) $ 424
Cash Dividends/Accrued Dividends (207) (210)
Sinking fund payments (1,372) (96)
Additions to long-term debt, including current portion - 1,406
Proceeds from issuance of common stock 40
Repayment of long-term debt, including current portion (19)
Repayment of Capital Lease Obligations (69) (82)
Capitalized Bank Fees (109) (75)
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Net cash provided by (used in) financing activities $(3,405) $ 1,367
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Net increase in cash and cash equivalents $ 1 $ (66)
CASH AND CASH EQUIVALENTS, beginning of period $ 12 $ 80
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CASH AND CASH EQUIVALENTS, end of period $ 13 $ 14
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 858 $ 835
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Income Taxes paid $ 4 $ 19
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Restructuring Charge $ - $ 310
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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 (Continued)
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 and the Form 10-Q for the quarters ended June 28, 1998 and
September 27, 1998.
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 thirty-nine weeks ended December 27, 1998.
Information is not available to determine the effect of the change on
income for the quarter ended December 27, 1998.
The following is a reconciliation of the number of shares used in the
basic earnings per share (EPS) and diluted EPS computations:
Quarter Ended Quarter Ended
December 27, 1998 December 28, 1997
-------------------------------- --------------------------------
Per Share Per Share
Shares Amounts Shares Amounts
-------------- -------------- -------------- -------------
Basic EPS before cumulative effect 2,302,768 $ .30 2,169,679 $(.17)
Effect of dilutive stock options 47,691 - - -
Convertible shares 644,180 $(.05) - -
Diluted EPS 2,994,639 $ .25 2,169,679 $(.17)
Thirty-Nine Weeks Ended Thirty-Nine Weeks Ended
December 27, 1998 December 28, 1997
-------------------------------- --------------------------------
Per Share Per Share
Shares Amounts Shares Amounts
-------------- -------------- -------------- -------------
Basic EPS before cumulative effect 2,255,844 $ .21 2,169,639 $(.14)
Cumulative effect of change in
accounting for inventories 2,255,844 $ .10 - -
Effect of dilutive stock options 36,475 - - -
Convertible shares 119,160 $(.01) - -
Diluted EPS 2,411,479 $ .30 2,169,639 $(.14)
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Preferred stock dividends of $68,445 and $69,852 for the quarters ended
December 27, 1998 and December 28, 1997 and $206,742 and $209,556 for
the thirty-nine weeks ended December 27, 1998 and December 27, 1997,
respectively, have been deducted from the net income (loss) generated
to arrive at the income (loss) available to common stockholders for the
calculation of basic and diluted EPS.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Thirteen Weeks Ended December 27, 1998 Compared to the Thirteen Weeks Ended
December 28, 1997
Net sales increased $209,000, or 1.6%, in the third quarter as compared
to the same quarter of the previous year. In-mold and cylinder sales
increased 8% while prime label sales decreased 24% in the third quarter
as compared to the same period in the prior year.
Gross profit increased $723,000 as compared to the same period in the
prior year. The increase in gross profit was primarily attributable to
improved efficiencies and waste reduction realized at the Company's
Scottsburg plant during the third quarter of fiscal 1999 offset by the
reclassification of plant administration expenses, ($225,000), to cost
of goods sold.
Selling, general, and administrative expenses decreased $434,000 as
compared to the same prior year period. The decrease in selling,
general and administrative expenses is primarily due to the previously
mentioned reclassification of plant administrative expenses ($225,000)
to cost of goods sold, cost reductions made in administrative overhead,
and expense control.
Other income decreased $91,000 compared to the same prior year period.
Prior year other income was positively impacted by the gain on the sale
of assets, $207,000, from closing 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 under
the revolving credit line combined with higher short-term borrowing
rates.
The net profit for the period was $758,000 [$0.25 per share after the
accrual of preferred stock dividends] as compared to net loss of
$295,000 [($0.17) per share after payment of preferred stock dividends]
in the same prior year period. The prior year results were negatively
impacted by a $310,000 restructuring charge for severance and benefit
obligations associated with the closing of the Cincinnati plant.
Thirty-Nine Weeks Ended December 27, 1998 Compared to the Thirty-Nine Weeks
Ended December 28, 1997
Net sales increased $676,000, or 1.9%, in the first nine months as
compared to the same period of the previous year. In-mold and cylinder
sales increased 8% while prime label sales decreased 24% in the first
nine months as compared to the same period in the prior year.
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Gross profit increased $93,000 as compared to the same period in the
prior year. The increase in gross profit was primarily attributable to
improved efficiencies and waste reduction realized at Scottsburg during
the first nine months of fiscal 1999 offset by the reclassification of
plant administration expenses ($675,000), to cost of goods sold and
higher cost product produced in the fiscal 1998 fourth quarter and sold
in the first quarter of fiscal 1999.
Selling, general, and administrative expenses decreased $533,000 as
compared to the same prior year period. The decrease in selling,
general and administrative expenses is primarily due to the previously
mentioned reclassification of plant administrative expenses ($675,000)
to cost of goods sold, cost reductions made in administrative overhead,
and expense control offset in part by the Company changing its accrual
for environmental matters. As previously disclosed, the Company
voluntarily notified officials in Indiana that environmental compliance
issues existed at the Scottsburg plant. The Company subsequently
announced that the Indiana Department of Environmental Management
("IDEM") had made an initial proposal for an administrative settlement
to resolve the compliance issues which included a settlement of claims
for penalties in the amount of $1,277,000 and associated costs. The
Company reached an agreement with IDEM to resolve these matters during
the fiscal 1998 second quarter. In light of those developments and
certain developments in Ohio, the Company increased its' environmental
reserve by $544,000 during the fiscal 1998 second quarter. Except for
the previously mentioned reclassification of plant administrative
expenses ($675,000) to cost of goods sold, the environmental accrual,
and an accrual of $182,000 for workers' compensation matters (which
were resolved subsequent to the end of the fiscal second quarter),
selling, general and administrative expenses decreased by $584,000 from
the prior year.
Other income decreased $137,000 compared to the same prior year period.
The decrease was attributable to one-time expenses of $134,000 relating
to the closing of the Cincinnati plant, and a $89,000 expense incurred
by the Company for the sale of stock and issuance of stock options
below fair market value, offset by a $303,000 refund of worker's
compensation premiums. Additionally, prior year other income was
positively impacted by the gain on sale of assets, $398,000, from
closing the Cincinnati plant.
Interest expense increased $23,000 as compared to the same period in
the prior year and was the result of higher average borrowings under
the revolving credit line combined with higher short-term borrowing
rates.
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 thirty-nine weeks ended December 27, 1998.
The net income for the period was $897,000 [$0.30 per share after the
accrual of preferred stock dividends] as compared to net loss of
$103,000 [($0.14) per share after payment of preferred stock dividends]
in the same prior year period. The prior year results were negatively
impacted by a $310,000 restructuring charge for severance and benefit
obligations associated with the closing of the Cincinnati plant.
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Liquidity and Capital Resources
The Company is dependent on availability under its Revolving Credit
Agreement, approximately $3,000,000 at December 27, 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 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 up to $3,500,000 of capital expenditures,
including an expansion program for a new facility in Scottsburg. 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 use of these funds for the expansion project. 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 $276,587 at December 27, 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.
Through the third quarter ended December 27, 1998, net cash provided by
operating activities was $2,919,000 as compared to net cash provided by
operating activities of $1,778,000 through the third quarter ended
December 28, 1997. Net cash provided by operating activities was
positively impacted by a decrease in accounts receivable and inventory
and an increase in accrued expenses due to the Company changing its
accrual for environmental matters.
At December 27, 1998, the Company's net working capital and current
ratio were $(1,351,000) and .88 to 1, respectively, as compared to net
working capital of $(35,000) and current ratio of .99 to 1 at December
28, 1997. The decrease in working capital was primarily attributable to
a decrease in accounts receivable and inventory and an increase in
accrued liabilities. At December 27, 1998, the Company was in
compliance with its loan covenants and current in its principal and
interest payments on all debt. The Company believes cash from
operations and availability under the line of credit will satisfy the
Company's cash needs, including debt service, capital expenditures and
settlement payments, through December 31, 1999.
Computer Systems - Year 2000 Impact
State of Readiness: The Company has implemented a Year 2000 compliance
program designed to ensure that the Company's computer systems and
applications will function properly beyond 1999. The program
implementation involves employees from all areas of the Company. The
Company believes it has identified all the systems which need testing,
including, but not limited to, its traditional information systems, as
well as those systems containing embedded chip technology,
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commonly found in the Company's presses and buildings and equipment
connected with the buildings' infrastructure such as heating,
refrigeration and air conditioning systems. The majority of testing to
determine if the systems are Year 2000 compliant is complete. The
majority of the remediation phase is complete and currently in use. The
remainder of the remediation phase is projected to be completed by the
end of the September, 1999. In some cases, purchased software will be
the basis for modifying non-compliant systems.
Costs: The total expected cost of the Company's Year 2000 compliance
program is projected to be less then $300,000, consisting primarily of
the installation of a new computer system and internal salaries, of
which approximately $275,000 has been spent. All costs are either
capitalized or expensed as incurred. The Company expects funding for
these costs to come from working capital and, if necessary, from its
line of credit.
Risk: Although the full consequences are unknown, the failure of one of
the Company's critical systems or the failure of an outside system,
such as that of the Federal Reserve or electrical utilities, may result
in interruption of the Company's business which may result in a
materially adverse effect on the operations or financial condition of
the Company. With particular respect to raw materials purchased for
processing from the Company's key vendors, the Company does not expect
that any vendor's or small group of vendor's Year 2000 problems would
have a long-term negative effect on the Company since the Company does
not believe that any of its competitors would be in a position to sell
competitive products either. Notwithstanding the foregoing, the loss of
revenue for an extended period of time would likely have a materially
adverse effect on the Company. The Company has contacted its
significant customers and vendors with respect to their ability to
comply with the Year 2000. Despite the relative lack of problems
encountered in these discussions, the Company has no direct
confirmation or control of Year 2000 remediation efforts by its
customers and suppliers and therefore, there can be no assurance that
system failures that cause materially adverse results to customers or
vendors would not have an adverse effect on the Company.
Contingency Plans: The Company is in the process of developing
contingency plans for those areas which might be affected by the Year
2000 problems; however, there can be no assurance that a contingency
plan will exist for all situations. Further, until the Company has
received information from most of its suppliers and customers, any
contingency plan would be preliminary.
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
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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; vendor and customer
Year 2000 compliance; 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 rate 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; 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.
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 October 15,
1998. Each of the following matters was voted upon and approved by the
Company's shareholders as indicated below:
1. Election of the following directors:
Gordon B. Bonfield, 1,805,390 votes for and 9,050 withheld.
Charles B. Connolly, 1,805,390 votes for and 9,050 withheld.
Lorrence T. Kellar, 1,805,390 votes for and 9,050 withheld.
Burton D. Morgan, 1,802,105 votes for and 12,425 withheld.
David H. Pease, Jr., 1,802,105 votes for and 12,425 withheld.
Louis M. Perlman, 1,805,390 votes for and 9,050 withheld.
2. Approval of a Non-Employee Director Option Plan, 1,673,946 votes for,
136,564 votes against, 3,930 abstentions.
3. Ratification of the appointment of Grant Thornton LLP as the Company's
independent public accountants for fiscal 1999, 1,808,990 votes for
4,950 votes against, 500 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
Exhibit Number Description
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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: February 9, 1999 By: /s/ WILLIAM R. COCHRAN
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William R. Cochran
Vice President, Chief Financial Officer
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