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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________
Commission File Number 0-16148
MULTI-COLOR CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-1125853
- ------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
205 WEST FOURTH STREET, CINCINNATI, OHIO 45202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 381-1480
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of voting stock based on a closing price of $8.00 per
share held by nonaffiliates of the registrant is $19,532,320 as of June 16,
2000.
As of June 16, 2000, 2,441,540 shares of common stock, no par value, were issued
and outstanding.
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INDEX TO ANNUAL REPORT ON FORM 10-K
PART I Page
Item 1 - Business 2
Item 2 - Properties 5
Item 3 - Legal Proceedings 5
Item 4 - Submission of Matters to a Vote of Security Holders 5
PART II
Item 5 - Market for the Registrant's Common Stock and Related Stockholder 6
Matters
Item 6 - Selected Financial Data 7
Item 7 - Management's Discussion and Analysis of Financial Condition and 8
Results of Operations
Item 7A - Quantitative and Qualitative Disclosures About Market Risk 10
Item 8 - Financial Statements and Supplementary Data 10
Item 9 - Changes in and Disagreements with Accountants on Accounting and 26
Financial Disclosure
PART III Part III (except for certain information relating to Executive Officers included in 26
Part I) is omitted. The Company intends to file with the Securities and Exchange
Commission within 120 days of the close of the fiscal year ended March 31, 2000 a
definitive proxy statement containing such information pursuant to Regulation 14A of
the Securities Exchange Act of 1934 and such information shall be deemed to be
incorporated herein by reference from the date of filing such document.
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K 26
The Company believes 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 by the Company 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; the
ability to successfully integrate new acquisitions; 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; and increases in general interest rate levels affecting
the Company's interest costs. 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 I
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ITEM 1. BUSINESS
GENERAL
Multi-Color is a leading U.S. manufacturer of specialty labels for
major global consumer-product companies for liquid detergents, laundry-care
products, household cleaners, beverages and health and beauty aids. The Company
offers in-mold labels (IML), specialty gravure-printed labels and recently began
offering, through acquisitions completed in December 1999 and June 2000,
pressure-sensitive and heat-shrink labels. In addition to the Company's label
offerings, the Company also produces gravure cylinders for use in the Company's
printing processes as well as for sale to outside customers.
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The Company believes that it is the world leader in producing IML
labels, based on its share of the IML market. IML labels are complex and
technologically demanding products. IML labels are labels that are affixed to
blow-molded plastic containers as the containers are being molded. The finished
IML product is a finely detailed, strikingly attractive label that performs
consistently well for plastic container manufacturers and adds marketing value
and product security for consumer product companies. The Company sells its
labels in the United States, Mexico and South America. Multi-Color currently
produces labels for approximately 40 customers.
The Company's executive offices are located at 205 West Fourth Street,
Cincinnati, Ohio 45202, and its telephone number is (513)381-1480. Unless the
context otherwise requires, the "Company" and "Multi-Color" refer to Multi-Color
Corporation.
PRODUCTS
The Company's predecessors began producing paper labels in 1918 and the
Company has maintained customer relationships that have existed since that time.
Multi-Color provides printed labels to consumer product companies. These labels
are used to wrap products or are affixed to finished product containers. The
labels are printed for liquid detergents, laundry-care products, household
cleaners, juices and health and beauty aids. The Company produces gift wrap as
well and also sells unprinted substrates to other label printing companies.
In-Mold Labels (IML):
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In 1980, Multi-Color developed the in-mold label in response to the
increasing use of blow-molded plastic containers. Working in conjunction with a
customer, the Company and a leading supplier of blow-molded plastic containers
developed the in-mold label process which applies a label to a plastic container
as the container is being formed in the mold cavity. Multi-Color developed the
label and the method of applying the heat-activated adhesive to the label. The
in-mold label solves many of the quality problems associated with conventional
labels and produces a more attractive labeled container.
The in-mold label is a technologically demanding product. Each
component of the label producing process, starting with subtrates (the base
material for the label) and the laser-exposed gravure cylinder to the printing
with up to eight colors - along with over-coats and adhesives - requires a
special expertise for success. The Company believes that its strength lies in
several areas, two of which are the substrates used in the printing process and
the production of the gravure cylinder.
Multi-Color has developed proprietary substrates that the Company uses
in its printing process and also sell to other printers, both in the United
States and abroad. There are several critical characteristics of a successful
substrate. The material needs a proper coefficient of friction so that the
finished label is easily and consistently picked up and applied to the
blow-molded container. A second is the ability to hold the label's inks,
including metallics and flourescents, overlay varnishes and adhesives. Still
another, is the ability to lay smoothly, without wrinkle or bulge, when applied
to a very hot, just molded plastic container that will quickly shrink, along
with the label, as its temperature falls.
Technology for the gravure cylinder is another key competitive
advantage for the Company. At the Company's Laser Graphic Systems plant in
Erlanger, Kentucky, the Company employs laser-exposing and chemical-engraving
technology developed by Think Laboratories of Japan to produce gravure
cylinders. Currently, Multi-Color is the only cylinder manufacturer in the
United States with this technology. The Think process has several advantages. It
is quicker and it is less costly than other engraving processes. Equally
important, this technology creates cells with fineness of depth and surface size
to eliminate the stairstep edges that have limited the application of gravure
printing. It creates smooth and feathered patterns of color. It also gives clear
definition to ever smaller type sizes required as companies add more information
and more languages to their labels. The Company also uses a copper ballard shell
technology that cuts cost and time from cylinder production.
Pressure-sensitive labels:
- --------------------------
In December 1999, Multi-Color began offering pressure-sensitive labels
to customers in conjunction with the acquisition of Buriot International, Inc.
("Buriot"). In this acquisition, the Company acquired a two year old
manufacturing facility which is equipped with an offset press and a flexographic
press. Both presses are equipped with interstation ultraviolet (UV) drying
equipment. The flexographic press is also equipped for hot foil stamping and
rotary screen capabilities.
Heat-shrink labels:
- -------------------
In June 2000, Multi-Color began offering heat-shrink labels and
tamper-evident bands in conjunction with the acquisition of Uniflex Corporation
("Uniflex"). In this acquisition, the Company acquired a manufacturing facility
which is equipped with a gravure press and finishing equipment. Heat-shrink
labels are form-fitting labels which can provide for 360 degree printing,
enabling customers to cover the complete circumference of a bottle with colorful
images.
These acquisitions allow the Company to become a "one-stop-shop" for a
customer's label requirements, offering a variety of label applications.
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SALES AND MARKETING
Multi-Color receives annual or quarterly requirements for labels from
its customers and ships against orders received, except in certain cases where
the Company has agreements with minimum purchase requirements.
The Company's marketing efforts are directed toward obtaining new
customers and increasing the Company's share of existing customers' overall
label requirements by meeting their specialized and technical label needs. The
Company's marketing strategy is to emphasize those sectors where Multi-Color's
equipment and expertise distinguish the Company from other label producers. The
Company maintains a marketing and technical support staff of 15 people who are
responsible for developing innovative solutions, including new labels, for
customers' label needs.
Approximately 63% of the Company's total sales in fiscal 2000 were to
three customers: The Procter & Gamble Company, 39% (divided among six product
categories and three separate purchasing groups), Alvin Press, 13% (Alvin Press
is a long-standing supplier to the Unilever Corporation) and Wm. Wrigley Jr.
Company, 11%. The loss or substantial reduction of the business of any of the
major customers in a particular year could have a material adverse effect on
the Company.
ACQUISITIONS
The Company is pursuing acquisitions in order to contribute to the
Company's growth. The Company believes that acquisitions are one method of
increasing its presence in existing markets, expanding into new markets, gaining
new product offerings and improving operating efficiencies through economies of
scale. The printing industry is highly fragmented and offers many opportunities
for acquisitions. During fiscal 2000, the Company completed its first
acquisition. In December 1999, the Company, through its wholly-owned subsidiary
MCC-Batavia, LLC, acquired the assets of Buriot, a Batavia, Ohio label printing
company. Total consideration consisted of the assumption of $6,250,000 of
industrial revenue bond debt and the assumption of certain operating
liabilities. Assets acquired included property, plant and equipment, inventory,
accounts receivable and net cash of approximately $2,078,000.
Recently, in June 2000, the Company completed its second acquisition.
The Company, through its wholly owned subsidiary, MCC-Uniflex, LLC, acquired the
assets and assumed certain liabilities of Uniflex Corporation, a heat-shrink
label printing company with a production facility in Las Vegas, Nevada and
offices in Anaheim Hills, California. Total consideration paid was $7,000,000
cash, less cash received of $800,000.
The Company continually seeks to identify and evaluate potential
acquisition candidates and from time to time, engages in discussions with such
candidates. Presently management has not entered into any agreements relating to
new acquisitions and future acquisitions may not occur.
PRINTING OPERATIONS
Multi-Color's printing equipment consists of four gravure printing
presses in its Scottsburg plant, an offset press and a flexographic press in
its Batavia plant and a gravure printing press in its Las Vegas plant. All of
the Company's presses are capable of multi-color, high-speed and high-quality
graphic printing. The Company also has a wide variety of cutting and finishing
equipment used to process printed material. The wide range of capabilities and
versatility provided by the Company's equipment permits it to respond rapidly
to changing customer needs, including the development of new products. The
Company believes it has sufficient capacity to meet any expected growth of its
products. At March 31, 2000 and March 28, 1999, the label backlog was
approximately $2,300,000 and $3,000,000, respectively. All backlog is expected
to be completed in the next fiscal year.
RESEARCH AND DEVELOPMENT
Multi-Color believes research and development of new products helps it
maintain its leading position in the in-mold label business. While the process
for making in-mold labels is not patented, Multi-Color believes its experience
and expertise related to the production of in-mold labels have enabled it to
maintain its leadership in the in-mold label and substrate market.
The Company's emphasis is to develop and market new products for
applications where superior technical characteristics are required. Multi-Color
developed and is successfully marketing a range of plastic in-mold labels for
applications in which plastic containers are subjected to more demanding
physical requirements. Also, the Company works closely with container
manufacturers developing improved label products that result in increased
efficiencies and lower waste which translates to lower cost for its consumer
products customers.
Multi-Color's research and development expenditures totaled $320,000 in
fiscal 2000, $340,000 in fiscal 1999 and $447,000 in fiscal 1998.
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RAW MATERIALS
Multi-Color purchases proprietary products from a number of printing
suppliers which is common in the printing industry. To prevent potential
disruptions to its manufacturing facilities, Multi-Color has developed
relationships with more than one supply source for each of its critical raw
materials. Additionally, its raw material suppliers are major corporations, each
demonstrating successful historical performance. Although this should prevent
any long term business interruption due to the inability of obtaining raw
materials, there could be short term manufacturing disruptions during the
customer qualification period for any new raw material source.
COMPETITION
The Company has a large number of competitors in its traditional and
pressure sensitive label business and three principal competitors in the in-mold
label and substrate business. Some of these competitors in the traditional and
pressure sensitive label business have greater financial and other resources
than the Company. The three competitors in the in-mold label and substrate
business are either private companies or subsidiaries of public companies and
the Company cannot access the financial resources of these organizations.
Multi-Color could be adversely affected should a competitor develop labels
similar or technologically superior to the Company's in-mold label. Although
price is an important competitive factor in the Company's business, the Company
believes competition is principally dependent upon quality, service, and
technical expertise and experience. Customer service, quality and qualification
requirements present barriers to new entrants into Multi-Color's markets.
EMPLOYEES
As of March 31, 2000, the Company had 277 employees. Multi-Color
considers its labor relations to be good and has not experienced any work
stoppages during the previous ten years.
REGULATION
The Company operations are subject to regulation by federal and state
environmental protection agencies. To insure ongoing compliance with federal
and state environmental protection agency requirements, the Company implemented
improved plans of control and environmental compliance procedures throughout
fiscal 1999 and 2000. An outside environmental consultant was retained by the
Company to monitor environmental compliance. Additionally, the Company made
capital investments of approximately $659,000 during fiscal 2000 and 1999 to
maintain compliance with federal and state environmental requirements and to
improve its existing equipment as part of its ongoing environmental compliance
strategy.
The United States Food and Drug Administration regulates the raw
materials used in labels for food products. These regulations apply to the
consumer products companies for which Multi-Color produces labels. Multi-Color
uses materials specified by the consumer products companies in producing labels
for food products.
ITEM 2. PROPERTIES
Multi-Color operates four production facilities. The Scottsburg,
Indiana plant has 112,300 square feet and is situated on 14 acres, 30 miles
north of Louisville, Kentucky. The Erlanger, Kentucky facility, housing its
Laser Graphic Systems division has approximately 12,000 square feet and is
located on approximately 3 acres, 10 miles south of Cincinnati. The Batavia,
Ohio plant has approximately 29,000 square feet and is situated on approximately
6 acres, 15 miles northeast of Cincinnati. The Las Vegas, Nevada plant has
approximately 41,000 square feet and is located within a business park facility.
The Company owns the real estate constituting the Erlanger and Batavia
facilities. The Scottsburg plant is leased under a 20 year lease agreement. The
Las Vegas plant is leased under an agreement expiring in 2003. The land and
buildings of all the plant sites with the exception of the Las Vegas plant, are
encumbered by mortgages in favor of the lenders under the Company's credit
facility. The Company's executive offices are located at 205 West Fourth Street,
Cincinnati, Ohio in approximately 5,000 square feet of leased office space. The
Company's properties are in good condition, are well-maintained, and are
adequate for the Company's intended uses. During April, 1998, the Company sold
its 300,000 square foot building located in Cincinnati. The Company leased
approximately 50,000 square feet of the Cincinnati plant for warehouse purposes
until March 28, 1999.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of the fiscal year ending March 31,
2000.
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EXECUTIVE OFFICERS
Francis D. Gerace, 47, was promoted to President and appointed a
Director on May 18, 1999 and was elected Chief Executive Officer in August,
1999. Prior to that time Mr. Gerace served as the Company's Vice President of
Operations from April 1998 to May 1999. Mr. Gerace held various operating
positions and was Director of Strategic Business Systems for Fort James
Corporation's Packaging Business from 1993 to 1998. From 1974 to 1993, Mr.
Gerace held various general management positions with Conagra, Inc. and
Beatrice Foods Company.
Steven G. Mulch, 50, was promoted to Senior Vice President of Sales
and Marketing of the Company in April of 2000. He previously held the position
of Vice President of Corporate Sales and business Development with the company
from April 1998 to April 2000. Prior to joining Multi-Color, Mr. Mulch was Vice
President and General Manager of a four plant division of Fort James
Corporation's Packaging Business from 1991 to 1998. From 1972 to 1991, Mr. Mulch
held various positions with Tenneco, Inc. including general manager of the
offset carton converting plant in Grand Rapids, Michigan.
Dawn H. Bertsche, 43, was appointed Vice President of Finance, Chief
Financial Officer and Secretary of the Company in August 1999. Prior to joining
Multi-Color, Ms. Bertsche was Chief Financial Officer for Hill Top Research,
Inc from 1997 to 1999 and held the position of Vice President and
Controller and other financial positions, for Clopay Corporation from 1987 to
1997. From 1977 to 1987, Ms. Bertsche held various financial management
positions with LSI Lighting Systems, Inc. and Price Waterhouse.
John R. Voelker, 57, was appointed Vice President of Sales and
Marketing of the Company in June of 1995. Prior to that time Mr. Voelker served
as the Company's Vice President National Accounts from 1992 to 1995 and Vice
President Multi-Color Graphics from 1989 to 1992.
Thomas J. Vogt, 51, was appointed Vice President of Specialty Labels in
December of 1999. Prior to joining Multi-Color, Mr. Vogt was Vice President of
Sales at Gar Doc, Inc. from 1994 to 1999. From 1970 to 1994, Mr. Vogt held
various officer and stock ownership positions in companies that he formed in the
color separation, computer design and label printing industries.
John P. McKeough, 33, was promoted to Vice President of Operations in
June, 2000. Prior to that time he served as Plant Manager of the Company's
Scottsburg, Indiana facility. Before joining the Company, he held various
production management positions at Fort James Corporation's Packaging Business
from 1992 to 1999.
M. John Yamasaki, 58, was appointed Vice President of Sales and Product
Development, Heat-Shrink Labels in June, 2000. Prior to joining Multi-Color, he
was Chief Executive Officer for Uniflex Corporation from 1987 to 2000.
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's shares trade in the over-the-counter market under the
NASDAQ-NMS symbol LABL. The following table sets forth the high and low sales
prices of the Company's common stock ("Common Stock") as reported in the NASDAQ
National Market System during fiscal year 1999 and 2000. The Company's stock is
thinly traded. Accordingly, the prices below may not be indicative of prices at
which a large number of shares can be traded or reflective of prices that would
prevail in a more active market.
High Low
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March 30, 1998 to June 28, 1998 $7.50 $6.25
June 29, 1998 to September 27, 1998 $7.50 $5.38
September 28, 1998 to December 27, 1998 $7.63 $6.00
December 28, 1998 to March 28, 1999 $7.75 $6.25
March 29, 1999 to June 30, 1999 $6.88 $4.88
July 1, 1999 to September 30, 1999 $8.13 $5.63
October 1, 1999 to December 31, 1999 $7.00 $5.38
January 1, 2000 to March 31, 2000 $7.50 $5.50
As of June 16, 2000, there were approximately 410 shareholders of
record of the Common Stock.
Multi-Color currently intends to retain its earnings to fund the growth
of its business and does not anticipate paying any cash dividends on Common
Stock in the foreseeable future. The Company's financing agreements currently
prohibit the payment of Common Stock cash dividends.
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ITEM 6. SELECTED FINANCIAL DATA
Fiscal Year Ended (1)
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MARCH 31 March 28 March 29 March 30 March 31
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2000 (3) 1999 1998 (2) 1997 1996
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(In thousands, except per share amounts)
Net sales $ 53,331 $ 49,786 $ 47,576 $ 48,143 $ 55,375
Gross profit 9,014 6,929 4,840 8,267 8,508
Operating income (loss) 4,280 2,165 (2,455) 2,579 2,631
Income (loss) before Cumulative effect of
a change in accounting Principle 5,626 1,259 (4,071) 1,627 1,191
Cumulative effect of a change in accounting
Principle -- 224 -- -- --
Net Income (loss) 5,626 1,484 (4,071) 1,627 1,191
Diluted earnings (loss) per share 2.01 0.50 2.00) 0.58 0.55
Weighted average shares outstanding - diluted 2,804 2,949 2,172 2,821 2,178
Preferred dividends 177 275 279 261 --
Working Capital (281) (1,869) (1,827) 661 (3)
Total assets 37,151 29,781 30,854 28,487 30,454
Short-term debt 5,143 4,369 4,782 3,411 2,902
Long-term debt 17,292 11,086 11,208 9,902 14,873
Shareholders' investment 9,136 6,010 4,665 8,907 4,920
- --------------------------------------------------------------------------------------------------------------------
(1) Multi-Color maintained a fiscal year of 52 or 53 weeks beginning on the
Monday nearest to March 31 through March 28, 1999. Beginning with fiscal
2000, the Company now ends all fiscal years on March 31.
(2) Fiscal 1998 results include a restructuring charge of $315, a write down of
$438 on certain property, and a $668 loss on sale of assets.
(3) Fiscal 2000 results include a write down of $779 on certain property and a
tax benefit of $2,553.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and notes thereto appearing
elsewhere herein.
RESULTS OF OPERATIONS
The following table shows, for the periods indicated, certain
components of the Company's consolidated statements of operations as a
percentage of net sales and the percentage changes in the dollar amounts of such
components compared to the indicated prior period.
Percentage of Net Sales
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2000 1999 1998
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Net Sales 100.0% 100.0% 100.0%
Cost of Goods Sold 83.1% 86.1% 89.8%
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Gross Profit 16.9% 13.9% 10.2%
Selling, General & Administrative Expenses 7.4% 9.6% 13.8%
Restructuring Charge -- -- .7%
Impairment Loss on Long-Lived Assets 1.5% -- 1.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 8.0% 4.3% (5.3%)
Interest Expense 2.4% 2.2% 2.1%
Other (.2%) (.4%) 1.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes and Cumulative Effect of a Change in Accounting Principle 5.8% 2.5% (8.6%)
Income taxes (benefit) (4.8%) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) Before Cumulative Effect of a Change in Accounting Principle 10.6% 2.5% (8.6%)
Cumulative Effect of Change in Accounting for Inventories, Net of Tax -- (.5%) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (Loss) 10.6% 3.0% (8.6%)
==================================================================================================================================
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 2000 AND MARCH 28, 1999
Net sales increased $3,545,514 or 7.1% to $53,331,400 in 2000 from
$49,785,886 in 1999. The increase in net sales is attributed to an increase in
in-mold sales of 7% as well as the acquisition of Buriot in December 1999. Net
sales related to the acquisition were approximately $1.4 million for 2000. The
Company has been focusing efforts on growing the in-mold label sales while
exiting the prime label sales. Prime label sales tend to be a commodity and
price intensive sale while in-mold label sales, although price sensitive,
involve a much higher degree of technically demanding applications.
Gross profit increased $2,085,013 or 30.1% to $9,014,099 in 2000 from
$6,929,086 in 1999. In 2000, gross profit as a percentage of sales was 16.9% as
compared to 13.9% in 1999. The increased margins are a direct result of the
Company increasing its efficiencies in the production process. By following
strict process plans of control, the Company has been able to reduce waste,
increase press utilization and reduce raw material costs. Also, during 2000, a
61,000 square foot expansion was completed at the Company's Scottsburg plant.
This expansion enabled the Company to locate all of the Scottsburg plant
operations in one location. Previously, the Scottsburg location had to rent
additional space at other warehouses in order to provide adequate space for all
operations and inventory at Scottsburg.
Selling, general and administrative expenses decreased $809,640 or
17.0% to $3,954,672 in 2000 from $4,764,312 in 1999. Expenses as a percentage of
sales have decreased to 7.4% in 2000 from 9.6% in 1999. In 1999, the penalty
incurred by the Company from the Indiana Department of Environmental Management
("IDEM") of $625,000 was expensed. In 2000, due to the completion of certain
capital projects, the penalty was reduced by $225,000. This amount reduced
selling, general and administrative costs in 2000.
The Company recorded an impairment loss of $779,024 in fiscal 2000 on a
press located in the Scottsburg plant. This press is an older press and not as
technologically advanced as the other three presses located at the Scottsburg
plant. This press will have limited future use as the Company continues to exit
the prime label sales market.
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Interest expense increased $178,647 or 15.9% to $1,300,212 in 2000 from
$1,121,565 in 1999. The increase in interest expense is caused by the rise
during the year in interest rates as well as the Company assuming additional
long term debt in the acquisition of Buriot.
An income tax benefit of $2,553,129 was recorded in 2000 as the Company
is now able to record the benefit of tax loss carryforwards. Previously, due to
the Company's history of net income and losses, a valuation allowance was
required to be recorded against the tax loss carryforwards and other deferred
tax assets. Currently, based on the Company's history of profitability and
other factors, including the Company's belief that it is more likely than not
that the net operating loss carryforwards will be recognized in full, a
valuation allowance is no longer required.
COMPARISON OF FISCAL YEARS ENDED MARCH 28, 1999 AND MARCH 29, 1998
Net sales increased $2,210,000, or 4.6%, to $49,785,886 in 1999 from
$47,575,608 in 1998. In-mold and cylinder sales increased 6.4% or approximately
$2,600,000 over 1998 levels. The Company has confidence in the long-term growth
of the in-mold label and rotogravure cylinder markets, which is supported by the
expansion program in process at the Scottsburg label manufacturing facility.
Gross profit increased $2,089,000, or 43.2%, to $6,929,086 in 1999 from
$4,840,344 in 1998. Gross profit as a percentage of sales rose to 13.9% in 1999
from 10.2% in 1998. The increase in gross profit was primarily attributable to
improved efficiencies and waste reduction realized at the Scottsburg facility
during fiscal 1999 offset by the reclassification of plant administration
expenses ($900,000), 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 $1,778,000 to
$4,764,312 in 1999 from $6,542,759 in 1998. The decrease in selling, general and
administrative expenses is primarily due to the previously mentioned
reclassification of plant administrative expenses ($900,000) 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 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 1999 second quarter. In light of those developments and
certain developments in Ohio at that time, the Company increased its
environmental reserve by $544,000 during the fiscal 1999 second quarter.
During 1998, the Company accrued a restructuring charge of $314,599 for
the previously announced closing of the Cincinnati printing plant to handle
severance and benefit obligations associated with the plant closing. There were
no restructuring charges incurred in fiscal 2000.
The 1998 impairment loss on long-lived assets represents the loss on
sale of the Cincinnati plant which was completed two days subsequent to the end
of the fiscal year on March 31, 1998. The amount shown represents the difference
between the basis in the property and the selling price.
Interest expense increased to $1,121,565 in 1999 from $1,032,579 in
1998 and was the result of higher average borrowings under the revolving credit
line combined with higher average short-term rates.
The Company recorded no amounts for income taxes in 1999 as it
anticipates utilizing net operating loss carryforward benefits generated in
prior periods. There is no net deferred tax balance.
The Company recorded net income for 1999 of $1,484,000 or an increase
of $5,555,000 from the net loss of $(4,071,000) in 1998, due to the factors
discussed above.
Liquidity and Capital Resources
Cash flows from operations were $4,271,661 in 2000 and $2,276,658 in
1999. The increase is attributable to an increase in net income offset by a
reduction in accounts payable due to the Company utilizing more discount terms
from vendors.
Capital expenditures were $2,576,588 in 2000 and $1,416,128 in 1999.
Capital expenditures were funded either through cash flow from operations or
through the Company's revolving credit agreement. Capital expenditures relate
primarily to new machinery installed at the Company's various plant locations
and leasehold improvements at the Company's Scottsburg facility.
10
10
Cash flows from investing activities were $933,125 in 2000 as compared
to a cash use of $45,070 in 1999. The increase in 2000 is attributed to the
acquisition of Buriot in December 1999.
The Company is dependent on availability under its Revolving Credit
Agreement, approximately $1,500,000 at March 31, 2000, and its operations to
provide for cash needs. The Company entered into a 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 credit agreement, which has been
amended several times, provides for available borrowings under a revolving line
of credit up to a maximum of $5,000,000, subject to certain borrowing base
limitations. Under the terms of the credit agreement, the Company is subject to
a number of financial covenants. The financial covenants require the Company to
maintain certain leverage, working capital and cash flow ratios.
On June 5, 2000, the Company entered into a new credit agreement with
PNC Bank and a new lender. The credit agreement provides for a revolving line of
credit of up to $5,000,000 and an acquisition facility of up to $7,200,000.
Terms and covenants are substantially the same as in prior agreements, however,
interest rates are more favorable. The acquisition facility was utilized as of
June 5, 2000 when the Company completed its acquisition of Uniflex.
The Company believes that cash flow from operations and availability
under the revolving line of credit are sufficient to meet its capital
requirements and debt service requirements for fiscal 2001. From time to time
the Company reviews potential acquisitions of businesses. While the Company has
no present commitments to acquire any businesses, such an acquisition may
require the Company to issue additional equity or incur additional debt.
Inflation
The Company does not believe that its operations have been materially
affected by inflation.
Impact of Year 2000
The Company's Year 2000 compliance program was designed to ensure that
the Company's computer systems and applications would function properly beyond
1999. As a result of this program, the Company experienced no significant
problems affecting its business operations related to the Year 2000 issue. The
Company does not expect any future problems arising from Year 2000 issues that
would have a material impact on the Company's financial statements
ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks from changes in interest rates
and certain of its outstanding debt. The outstanding loan balance under the
Company's bank credit facility bears interest at a variable rate based on
prevailing short-term interest rates in the United States and Europe. Based on
the last fiscal year's average outstanding debt, 100 basis point change in
interest rate would change interest expense by approximately $166,000. The
Company does not presently use financial or derivative instruments to manage its
interest costs. The Company has minimal foreign exchange risks.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Financial Statement
Schedules
PART III
--------
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants..........................................11
Consolidated Statements of Operations for the years ended
March 31, 2000, March 28, 1999 and March 29, 1998......................................12
Consolidated Balance Sheets as of March 31, 2000 and March 28, 1999.........................13
Consolidated Statements of Shareholders' Investment for the years ended
March 31, 2000, March 28, 1999 and March 29, 1998......................................14
Consolidated Statements of Cash Flows for the years ended
March 31, 2000, March 28, 1999 and March 29, 1998......................................15
Notes to Consolidated Financial Statements..................................................16
All Financial Statement Schedules have been omitted because either they
are not required or the information is included in the financial statements and
notes thereto.
11
11
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Directors of Multi-Color Corporation:
We have audited the accompanying consolidated balance sheets of
Multi-Color Corporation (an Ohio corporation) as of March 31, 2000 and March 28,
1999, and the related consolidated statements of operations, shareholders'
investment, and cash flows for each of the three years in the period ended March
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Multi-Color Corporation as of March 31, 2000 and March 28, 1999, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years then ended in conformity with generally accepted
accounting principles.
Grant Thornton LLP
May 3, 2000, except for Note 16 as to which the date is June 5, 2000.
Cincinnati, Ohio
12
12
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended March 31, 2000, March 28, 1999 and March 29, 1998
2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Net Sales $ 53,331,400 $ 49,785,886 $ 47,575,608
Cost of goods sold 44,317,301 42,856,800 42,735,264
- --------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 9,014,099 6,929,086 4,840,344
Selling, general and administrative expenses 3,954,672 4,764,312 6,542,759
Restructuring charge -- -- 314,599
Impairment loss on long-lived assets 779,024 -- 438,459
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 4,280,403 2,164,774 (2,455,473)
Interest expense 1,300,212 1,121,565 1,032,579
Minority interest in losses of subsidiary -- (33,385) (84,889)
Other (income) expense, net (primarily loss on sale of assets in 1998) (92,457) (182,866) 667,831
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 3,072,648 1,259,460 (4,070,994)
Income taxes (benefit) (2,553,129) -- --
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 5,625,777 1,259,460 (4,070,994)
Cumulative Effect of Change in Accounting for Inventories, Net of Tax -- (224,392) --
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 5,625,777 $ 1,483,852 $ (4,070,994)
================================================================================================================================
Preferred stock dividends $ 176,569 $ 275,183 $ 279,408
Net income (loss) applicable to common shares: $ 5,449,208 $ 1,208,669 $ (4,350,402)
- --------------------------------------------------------------------------------------------------------------------------------
Weighted average shares and equivalents outstanding:
Basic 2,354,669 2,268,012 2,172,482
Diluted 2,803,857 2,949,212 2,172,482
- --------------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per common share:
Income (loss) before Cumulative Effect $ 2.31 $ 0.43 $ (2.00)
Cumulative Effect of Change in Accounting for Inventories -- 0.10 --
- --------------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ 2.31 $ 0.53 $ (2.00)
Diluted earnings (loss) per common and common equivalent share:
Income (loss) before Cumulative Effect $ 2.01 $ 0.43 $ (2.00)
Cumulative Effect of Change in Accounting for Inventories -- 0.07 --
- --------------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ 2.01 $ 0.50 $ (2.00)
================================================================================================================================
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
13
13
CONSOLIDATED BALANCE SHEETS
As of March 31, 2000 and March 28, 1999
2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash $ 2,066 $ 9,997
Accounts receivable, net:
Trade 5,045,549 4,488,774
Other 5,000 25,777
Note receivable -- 52,943
Inventories 4,720,982 4,443,871
Deferred Tax Asset 447,772 407,603
Prepaid expenses and other 102,213 162,593
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 10,323,582 9,591,558
Property, Plant and Equipment, net 24,148,042 17,714,230
Sinking Fund Deposits 426,256 2,283,900
Deferred Charges, net 54,570 91,243
Goodwill 70,855 --
Deferred Tax Asset 2,128,170 --
Note Receivable from Officer/Shareholder -- 100,000
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 37,151,475 $ 29,780,931
=============================================================================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term debt $ 3,455,412 $ 3,253,730
Current portion of long-term debt 1,519,012 1,000,000
Current portion of capital lease obligations 168,972 115,153
Accounts payable 3,650,083 4,589,053
Accrued liabilities 1,811,048 2,503,080
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 10,604,527 11,461,016
Long-Term Debt 12,996,608 11,000,000
Capital Lease Obligations 4,295,480 85,792
Deferred Income Taxes -- 407,603
Deferred Compensation 118,999 447,798
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 28,015,614 23,402,209
- -----------------------------------------------------------------------------------------------------------------------------
Minority Interest -- 368,302
Commitments and Contingencies -- --
SHAREHOLDERS' INVESTMENT:
Preferred stock, no par value; 1,000,000 shares authorized, 11,918 shares
issued at March 28, 1999
(aggregate liquidation preference of $476,706) Series B -- 476,706
52,500 shares issued at March 28, 1999
(aggregate liquidation preference of $2,625,000) Series A -- 2,418,303
Common stock, no par value; 10,000,000 shares authorized, 2,447,640 and 2,208,300
shares issued at March 31, 2000 and March 28, 1999, respectively 244,764 220,830
Paid-in capital 9,977,860 9,379,410
Treasury stock, 8,000 shares at cost (51,142) --
Accumulated deficit (1,035,621) (6,484,829)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' INVESTMENT 9,135,861 6,010,420
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 37,151,475 $ 29,780,931
=============================================================================================================================
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
14
14
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For the Years Ended March 31, 2000, March 28, 1999 and March 29, 1998
Preferred Stock Common Stock
------------------------------------------------------
Number of Number of
Shares Shares Paid-In Accumulated
Issued Amount Issued Amount Capital Deficit
- -----------------------------------------------------------------------------------------------------------------------------
MARCH 30, 1997 65,742 $ 2,947,969 2,180,519 $ 218,052 $ 9,174,645 $(3,343,096)
Net loss -- -- -- -- -- (4,070,994)
Issuance and retirement
of treasury stock -- -- (909) (91) 8,691 --
Preferred dividends
declared -- -- -- -- -- (279,408)
Issuance of common stock -- -- 2,450 245 8,616 --
Change in additional
pension liability -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
MARCH 29, 1998 65,742 $ 2,947,969 2,182,060 $ 218,206 $ 9,191,952 $(7,693,498)
Net income -- -- -- -- -- 1,483,852
Preferred dividends declared -- -- -- -- -- (275,183)
Issuance of common stock -- -- 13,000 1,300 38,900 --
Issuance of stock options -- -- -- -- 96,922 --
Conversion of preferred
stock to common stock (1,324) (52,960) 13,240 1,324 51,636 --
- -----------------------------------------------------------------------------------------------------------------------------
MARCH 28, 1999 64,418 $ 2,895,009 2,208,300 $ 220,830 $ 9,379,410 $(6,484,829)
Net income -- -- -- -- -- 5,625,777
Preferred dividends declared -- -- -- -- -- (176,569)
Issuance of common stock -- -- 120,160 12,016 550,359 --
Purchase of treasury stock -- -- -- -- -- --
Conversion of preferred
stock to common stock (11,918) (476,706) 119,180 11,918 464,788 --
Redemption of preferred
stock (52,500) (2,418,303) -- -- (416,697) --
- -----------------------------------------------------------------------------------------------------------------------------
MARCH 31, 2000 -- $ -- 2,447,640 $ 244,764 $ 9,977,860 $(1,035,621)
=============================================================================================================================
Additional
Pension Treasury
Liability Stock Total
- -----------------------------------------------------------------------------------
MARCH 30, 1997 $ (45,682) $ (45,000) $ 8,906,888
Net loss -- -- (4,070,994)
Issuance and retirement
of treasury stock -- 45,000 53,600
Preferred dividends
Declared -- -- (279,408)
Issuance of common stock -- -- 8,861
Change in additional
pension liability 45,682 -- 45,682
- -----------------------------------------------------------------------------------
MARCH 29, 1998 $ -- $ -- $ 4,664,629
Net income -- -- 1,483,852
Preferred dividends declared -- -- (275,183)
Issuance of common stock -- -- 40,200
Issuance of stock options -- -- 96,922
Conversion of preferred
stock to common stock -- -- --
- -----------------------------------------------------------------------------------
MARCH 28, 1999 $ -- $ -- $ 6,010,420
Net income -- -- 5,625,777
Preferred dividends declared -- -- (176,569)
Issuance of common stock -- -- 562,375
Purchase of treasury stock -- (51,142) (51,142)
Conversion of preferred
stock to common stock -- -- --
Redemption of preferred
stock -- -- (2,835,000)
- -----------------------------------------------------------------------------------
MARCH 31, 2000 $ -- $ (51,142) $ 9,135,861
===================================================================================
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
15
15
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended March 31, 2000, March 28, 1999 and March 29, 1998
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,625,777 $ 1,483,852 $(4,070,994)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 2,109,751 1,845,535 1,995,528
Amortization 43,115 32,575 38,000
Minority interest in losses of subsidiary -- (33,385) (84,889)
Net loss on disposal of equipment 40,016 10,401 546,358
Increase in non-current deferred compensation 157,001 79,838 161,840
Increase in non-current pension obligation, net of equity charge -- -- 44,319
Decrease in notes receivable 152,943 119,279 109,048
Net (increase) decease in accounts receivable (385,998) 167,255 (1,432,639)
Net (increase) decrease in inventories (213,438) 579,114 69,089
Net (increase) decrease in prepaid expenses and other 60,380 31,949 (62,444)
Net increase (decrease) in accounts payable (938,970) (2,379,142) 3,336,647
Net increase (decrease) in accrued liabilities (581,998) 339,387 215,111
Net increase in deferred taxes (2,575,942) -- --
Impairment loss on long-lived assets 779,024 -- 438,459
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,271,661 2,276,658 1,303,433
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,576,588) (1,416,128) (4,312,323)
Acquisition of business 2,078,000 -- --
Acquisition of minority interest in subsidiary (445,599) -- --
Proceeds from sale of plant and equipment 1,877,312 1,371,058 1,035,118
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 933,125 (45,070) (3,277,205)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in revolving line of credit, net 201,682 (410,706) 1,370,642
Sinking fund withdraws (payments) 1,857,644 (1,663,252) (546,197)
Proceeds from sale (purchase) of treasury stock, net (51,142) -- 53,600
Proceeds from issuance of common stock, net 76,575 40,200 8,861
Redemption of preferred stock, Series A (2,835,000) -- --
Proceeds from issuance of long-term debt 3,280,599 -- 3,034,321
Repayment of long-term debt (7,014,979) (24,256) (1,613,198)
Preferred stock dividend payments (521,603) -- (209,557)
Capitalized bank fees -- (75,578) (78,240)
Repayment of capital lease obligation (206,493) (100,351) (114,888)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (5,212,717) (2,233,943) 1,905,344
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash (7,931) (2,355) (68,428)
CASH, beginning of the year 9,997 12,352 80,780
- -----------------------------------------------------------------------------------------------------------------------------------
CASH, end of year $ 2,066 $ 9,997 $ 12,352
===================================================================================================================================
The accompanying notes to financial statements are an integral part of these statements
16
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000, March 28, 1999 and March 29, 1998
(1) THE COMPANY
Multi-Color Corporation (the Company), headquartered in Cincinnati,
Ohio, supplies printed labels and engravings to various name brand consumer
products companies located primarily in the United States. The Company has
plants located in Scottsburg, Indiana, Batavia, Ohio and Erlanger, Kentucky.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
References to fiscal 2000, 1999 and 1998 are for the fiscal years ended
March 31, 2000, March 28, 1999 and March 29, 1998, respectively. Beginning in
2000, the Company's fiscal year ends on March 31.
PRINCIPLES OF CONSOLIDATION
The consolidated financials statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated.
REVENUE RECOGNITION
Revenue is recognized on sales of products when the customer receives
title to the goods, generally upon delivery.
INVENTORIES
Inventories are stated at the lower of FIFO (first-in, first-out) cost
or market. Inventories as of year-end consisted of the following:
2000 1999
- --------------------------------------------------------------------------------
Finished goods $2,649,939 $2,390,765
Work-in-process 820,293 1,097,675
Raw materials 1,250,750 955,431
- --------------------------------------------------------------------------------
$4,720,982 $4,443,871
================================================================================
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 cumulative effect of this accounting change was to increase
income for the fiscal year ended March 28, 1999 by $224,000 and has been
separately identified on the consolidated statement of operations. Information
is not available to determine the effect of the change on net loss for the
fiscal year ended March 29, 1998.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of
year-end:
2000 1999
- --------------------------------------------------------------------------------
Land and buildings $ 6,792,596 $ 3,316,508
Machinery and equipment 27,714,065 25,274,804
Furniture and fixtures 1,382,294 1,207,654
Construction in progress 1,663,601 9,900
- --------------------------------------------------------------------------------
37,552,556 29,808,866
Accumulated depreciation (13,404,514) (12,094,636)
- --------------------------------------------------------------------------------
$ 24,148,042 $ 17,714,230
================================================================================
Property, plant and equipment are stated at cost. In recognition of the
losses experienced by the Company at the former Cincinnati location in prior
years, the Company recorded a $3,800,000 impairment loss in 1995 on certain
long-lived assets at the Cincinnati location to reduce the carrying cost to the
fair value as generally determined by an independent appraiser. Additional
impairment loss of $438,000 was recorded in 1998 on the Cincinnati location's
assets, while assets with an assigned impairment value of $0, $827,000 and
$2,038,000 were either sold or disposed of in 2000, 1999 and 1998, respectively.
An additional impairment loss of $779,024 was recorded in 2000 on a printing
press at the Scottsburg location.
17
17
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets, as follows:
Building...........................20-30 years
Machinery and equipment.............3-15 years
Furniture and fixtures..............5-10 years
GOODWILL
Goodwill is amortized using the straight-line method over ten years. In
accordance with SFAS No. 121, "Accounting for The Impairment of Long-Lived
Assets", the Company evaluates its goodwill on an ongoing basis to determine
potential impairment by comparing the carrying value to the undiscounted
estimated expected future cash flows of the related assets.
DEFERRED CHARGES
Deferred charges, net, consist primarily of costs associated with the
Scottsburg Industrial Revenue Bonds issued in 1998 which are amortized over the
term of the agreement.
ACCOUNTS PAYABLE
Accounts payable includes approximately $464,000 and $737,000 at
March 31, 2000 and March 28, 1999, respectively, for outstanding checks.
INCOME TAXES
Deferred income tax assets and liabilities are provided for temporary
differences between the tax basis and reported amounts of assets and liabilities
that will result in taxable or deductible amounts in future years.
EARNINGS (LOSS) PER COMMON SHARE
The computation of basic earnings (loss) per common share is based upon
the weighted average number of common shares outstanding during the period and
the weighted average number of contingently issuable common shares upon
satisfaction of all necessary conditions. At March 28, 1999 contingently
issuable shares totaled 97,160 and related to common shares issuable under a
deferred compensation agreement. At March 31, 2000, the contingently issuable
shares had been issued. Diluted earnings (loss) per common share is based upon
the weighted average number of common shares outstanding during the period plus,
in periods in which they have a dilutive effect, the effect of common shares
contingently issuable, primarily from the conversion of Series A & B convertible
preferred stock, the exercise of stock options, and common shares issuable under
a deferred compensation agreement.
In the third quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128") . SFAS
128 changed the computation, presentation and disclosure requirements for
earnings per share ("EPS"). Under SFAS 128, EPS is presented as basic earnings
per share ("basic EPS") and diluted earnings per share ("diluted EPS") and
replaces the presentation of primary EPS and fully diluted EPS. The adoption of
SFAS 128 resulted in the restatement of earnings per share for all periods
presented in the Company's consolidated financial statements.
The following is a reconciliation of the number of shares used in the
basic EPS and diluted EPS computations:
2000 1999 1998
----------------------------------------------------------------------------------------
PER SHARE Per Share Per Share
SHARES AMOUNT Shares Amount Shares Amount
----------------------------------------------------------------------------------------
Basic EPS before
cumulative effect 2,354,669 $ 2.31 2,268,012 $ 0.43 2,172,482 $ (2.00)
Cumulative effect of
change in accounting
for inventories -- -- 2,268,012 .10 -- --
Effect of dilutive
stock options 32,351 (.03) 37,040 (.01) -- --
Convertible shares 416,837 (.27) 644,160 (.02) -- --
----------------------------------------------------------------------------------------
Diluted EPS 2,803,857 $ 2.01 2,949,212 $ 0.50 2,172,482 $ (2.00)
========================================================================================
Preferred stock dividends of $176,569, $275,183 and $279,408 in fiscal
2000, 1999 and 1998, respectively, have been deducted from the net income or
added to the net loss generated in fiscal 2000, 1999 and 1998, respectively, to
arrive at the income/loss available to common stockholders for the calculation
of basic EPS. Common stock equivalents of approximately 701,630 shares,
resulting from convertible shares and stock options, were excluded from the
fiscal 1998 computation of diluted EPS because to do so would have been
antidilutive.
18
18
ADVERTISING COSTS
Advertising costs are charged to expense as incurred. Expenses were
minimal for the three fiscal years ended March 31, 2000.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
Expenses were $320,000, $340,000 and $447,000 for 2000, 1999 and 1998,
respectively.
STOCK-BASED COMPENSATION
The provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation" require that employee stock-based compensation either continue to
be determined under Accounting Principles Board Opinion (APB) No. 25 "Accounting
for Stock Issued to Employees" or in accordance with the provisions of SFAS No.
123, whereby compensation expense is recognized based on the fair value of
stock-based awards on the grant date. The Company accounts for such awards under
the provisions of APB No. 25 and, accordingly, no compensation cost has been
recognized for the stock awards unless required by APB No. 25. The Company has
adopted SFAS No. 123 for disclosure purposes.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
FAIR VALUE DISCLOSURE
The fair value of financial instruments approximates carrying value.
COMPREHENSIVE INCOME
The Company does not have any comprehensive income items other then net
income.
NEW PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting No. 133, Accounting for Derivative Instruments and
Hedging Activities, which requires entities to report all derivatives at fair
value as assets or liabilities in their statements of financial position. This
statement is effective for financial statements issued for fiscal periods
beginning after June 15, 2000. The Company does not currently have any
derivative instruments or hedging activities to report under this standard.
(3) DEBT
The components of the Company's debt are as follows:
2000 1999
- --------------------------------------------------------------------------------------------------------------
SHORT-TERM DEBT
Revolving line of credit $ 3,455,412 $ 3,253,730
==============================================================================================================
LONG-TERM DEBT
Scottsburg Industrial Revenue Bonds, floating weekly rate, which approximates
4.35% at March 31, 2000, scheduled balloon
payment $3,385,000 in October 2009 3,385,000 5,750,000
Scottsburg Industrial Revenue Bonds, floating weekly rate,
which approximates 4.10% at March 31, 2000, scheduled balloon
payment of $3,000,000 in April 2007 3,000,000 3,000,000
Boone County Industrial Revenue Bonds, floating weekly rate, which
approximates 4.35% at March 31, 2000, scheduled balloon
payment of $1,750,000 in December 2009 1,750,000 3,250,000
Clermont County Industrial Revenue Bonds, floating weekly rate, which
approximates 4.05% at March 31, 2000, scheduled balloon
payment of $6,075,000 in June 2017 6,075,000 --
Note payable, imputed interest rate of 7.83%, payable in quarterly
payments of principle and interest of $41,667 through April 2002 305,620 --
- --------------------------------------------------------------------------------------------------------------
$ 14,515,620 $ 12,000,000
Less-current portion of debt and sinking fund payments (1,519,012) (1,000,000)
- --------------------------------------------------------------------------------------------------------------
$ 12,996,608 $ 11,000,000
==============================================================================================================
19
19
The following is a schedule of future annual principal payments payable
after one year (including sinking fund payments):
2002 $ 1,661,608
2003 1,500,000
2004 375,000
2005 --
2006 and thereafter 9,460,000
--------------------------------------------------
$ 12,996,608
==================================================
On June 22, 1998, the Company restated its credit agreement with an
existing lender and a new additional lender. The restated credit agreement
provides for a revolving line of credit with borrowings up to a maximum of
$5,000,000 subject to certain borrowing base limitations. The interest rate
fluctuates and is based on the Company meeting certain ratios. For the year
ended March 31, 2000, the average interest rate was 8.12%. At March 31, 2000,
the Company had approximately $1,500,000 in available borrowings under the
revolving line of credit. The credit agreement expires July 31, 2000. The credit
agreement requires quarterly sinking fund deposits of $250,000 until termination
of the agreement. The agreement also contains various financial and operating
covenants which, among others, require the Company to maintain certain leverage,
working capital and cash flow ratios and limits the payment of dividends.
During fiscal 2000, the Company amended its credit agreement for
several items, among which allowed the payment of partial quarterly preferred
dividends if certain cumulative net income thresholds were maintained, reduced
the overall fee structure and reduced the quarterly sinking fund deposit
requirement to $200,000 until termination of the agreement
In December 1999, in connection with the acquisition of Buriot
International, Inc., the Company assumed the Clermont County Industrial Revenue
Bonds. Quarterly payments of $175,000 are required to be made to reduce the
outstanding balance.
With respect to the Bonds, the Company has the option to establish the
Bonds' interest rate form (variable or fixed interest rate). When a fixed
interest rate is selected, the fixed rate assigned will approximate the market
rate for comparable securities. When a variable rate is selected, or at the end
of a fixed interest rate period, the Bondholders reserve the right to demand
payment of the bonds. In the event that any of the Bondholders exercise their
rights, a remarketing agent is responsible for remarketing the Bonds on a best
efforts basis for not less than the outstanding principal and accrued interest.
In the event the Bonds are not able to be remarketed and the letters of credit
are exercised, the lender is committed to providing financing for up to 458
days. These letters of credit expire July 31, 2000, with the exception of the
letter of credit supporting the Clermont County Industrial Revenue Bonds which
expires June 21, 2001.
(4) EMPLOYEE BENEFIT PLANS
The Company has a defined benefit plan covering former hourly employees
at its former Cincinnati facility who met certain age and service requirements.
The Company's funding policy is to contribute the recommended actuarially
determined contribution. Pension costs are based on length of service after May
1, 1985 using the unit credit method.
As the Company sold the Cincinnati facility April 1998, this plan will
be terminated in the near future. There is no curtailment gain or loss to be
recognized at March 31, 2000.
The change in the Company's benefit obligation is computed as follows:
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
Projected benefit obligation at beginning of year $ 2,575,224 $ 2,468,988 $ 2,449,063
Service cost 17,117 39,624 98,871
Interest cost 170,873 164,322 163,113
Actual gain (11,933) (158,784) (159,506)
Benefits paid (97,909) (103,376) (82,553)
Change in assumptions -- 164,450 --
- -------------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of year $ 2,653,372 $ 2,575,224 $ 2,468,988
=============================================================================================================
The change in the Plan's assets is computed as follows:
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $ 2,857,469 $ 2,837,343 $ 2,447,700
Actual return on plan assets 205,825 123,502 382,935
Employer contribution -- -- 89,261
Benefits paid (97,909) (103,376) (82,553)
- -------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 2,965,385 $ 2,857,469 $ 2,837,343
=============================================================================================================
20
20
The following table sets forth the Plan's funded status and amounts
recognized on the Company's accompanying balance sheets:
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Funded status $ 312,013 $ 282,245 $ 368,355
Unrecognized net actuarial (gain) loss (179,654) (168,198) (277,116)
Unrecognized prior service cost 15 1,221 2,427
- -----------------------------------------------------------------------------------------------------------------------------
Prepaid benefit cost $ 132,374 $ 115,268 $ 93,666
=============================================================================================================================
The weighted-average actuarial assumptions used were:
As of MARCH 31, 2000 March 28, 1999 March 29, 1998
- -----------------------------------------------------------------------------------------------------------------------------
Discount rate 6.75% 6.75% 7.25%
Expected return on plan assets 7.50% 7.50% 9.00%
Net periodic pension cost includes the following components:
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Service cost $ 17,117 $ 39,624 $ 98,871
Interest cost 170,873 164,322 163,113
Expected return on plan assets (209,419) (208,398) (219,643)
Amortization of prior service cost 1,206 1,206 1,206
Recognized net actuarial (gain) loss 117 (18,356) --
- -----------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ (20,106) $ (21,602) $ 43,547
=============================================================================================================================
The Company has established a profit sharing/401(k) retirement savings
plan which covers those employees who meet certain service requirements and are
not participants in the Company retirement plan discussed above. The plan
provides for voluntary contributions by the Company's employees up to a
specified maximum percentage of gross pay. At the discretion of the Company's
Board of Directors, the Company will contribute a specified matching percentage
of the employee contributions. Company contributions in 2000, 1999 and 1998
approximated $149,000, $147,000 and $147,000, respectively, which represent
one-half of the employee contributions not exceeding 6% of gross pay.
The Company previously entered into deferred compensation agreements
with certain officers and management employees. Amounts due under deferred
compensation agreements with current officers are classified as long-term
liabilities at March 31, 2000 and March 28, 1999. Amounts due under deferred
compensation agreements with former officers are classified as short-term
liabilities at March 28, 1999. Amounts due to former officers have been paid in
full at March 31, 2000. Interest on the long-term deferred amounts, which are
included in the balances due, were accrued at 9.75%, 9.75% and 10.5% in 2000,
1999, and 1998, respectively. Expenses in 2000, 1999, and 1998 approximated
$54,000, $80,000, and $93,000, respectively.
During 1992 the Company established a supplemental retirement program
for former key executives which allows a maximum of $300,000 in loans to such
employees with a maximum of $100,000 to any one individual. At March 28, 1999
and March 29, 1998 a $100,000 loan at no interest was outstanding under this
program from a former officer. This loan has been paid in full at March
31, 2000.
(5) INCOME TAXES
The provision (credit) for income taxes includes the following
components:
2000 1999 1998
- -------------------------------------------------------------------------------------------
CURRENTLY PAYABLE (RECEIVABLE)
Federal $ 856,475 $ 684,000 $ --
State and local 143,252 121,000 --
Benefit of operating loss carry-forwards (955,011) (805,000) --
- -------------------------------------------------------------------------------------------
44,716 -- --
- -------------------------------------------------------------------------------------------
DEFERRED
Federal (2,528,675) 9,000 103,000
State and local (69,170) (9,000) (103,000)
- -------------------------------------------------------------------------------------------
$(2,553,129) $ -- $ --
===========================================================================================
21
21
The following is a reconciliation between the statutory federal income
tax rate and the effective rate shown above:
2000 1999 1998
- -------------------------------------------------------------------------------------------
Computed provision (credit) for federal
income taxes at the statutory rate 34% 34% (34%)
State and local income taxes, net of
federal income tax benefit 3% 5%
(2%)
Valuation allowance (92%) (61%) (49%)
Changes in estimates for deferred
components, primarily net operating
loss carry-forward (18%) 9% (17%)
EPA fines (7%) 11% 2%
Other (3%) 2% 2%
- -------------------------------------------------------------------------------------------
Effective tax rate (83%) -- --
===========================================================================================
At year end the net deferred tax components consisted of the
following:
2000 1999
- ------------------------------------------------------------------------
Deferred tax liabilities
Tax depreciation over book depreciation $(2,464,437) $(2,489,702)
- ------------------------------------------------------------------------
Other -- (13,600)
- ------------------------------------------------------------------------
$(2,464,437) $(2,503,302)
- ------------------------------------------------------------------------
Deferred tax assets:
Asset impairment loss $ 264,868 $ 191,014
Deferred compensation 40,460 294,059
Inventory reserves 19,887 --
Other 163,017 209,277
AMT credit carry-forward 171,550 131,115
Tax credit carry-forward 42,019 42,019
State deferred tax asset, net of
federal benefit 23,517 96,431
Net operating loss carry-forward 4,315,061 4,370,234
- ------------------------------------------------------------------------
5,040,379 5,334,149
Valuation allowance -- (2,830,847)
- ------------------------------------------------------------------------
$ 5,040,379 $ 2,503,302
- ------------------------------------------------------------------------
Net deferred tax components $ 2,575,942 $ --
========================================================================
For tax reporting purposes, the Company has approximately $172,000 of
alternative minimum tax (AMT) credits available for an indefinite period. The
regular tax net operating loss of approximately $12,691,000 can be carried
forward and used to reduce future taxable income in addition to tax credits of
approximately $42,000, which can be carried forward through the following
expiration dates:
Year Net Operating Losses Tax Credits
------------------------------------------------------------------------------------------------
2009 $ 5,226,000 $ --
2010 5,204,000 --
2011 612,000 9,000
2012 -- 33,000
2013 1,649,000 --
------------------------------------------------------------------------------------------------
$ 12,691,000 $ 42,000
================================================================================================
The valuation allowance, which decreased by approximately $2,831,000 in
2000, is no longer required as the Company believes that it is more likely than
not that all of the net operating loss carryforward will be utilized prior to
their expiration dates.
22
22
(6) MAJOR CUSTOMERS
During 2000, 1999, and 1998, sales to three companies and their related
subsidiaries and divisions approximated 63%, 57%, and 54%, respectively, of the
Company's net sales individually presented as follows:
2000 1999 1998
---------------------------------------------------------------------------------------------
CUSTOMER A 39% 30% 26%
CUSTOMER B 13% 15% 14%
CUSTOMER C 11% 12% 14%
---------------------------------------------------------------------------------------------
63% 57% 54%
==========================================================================-------------------
In addition, the year end accounts receivable balances of these
companies approximated 55%, 43%, and 44% of the Company's total accounts
receivable balance at year end 2000, 1999, and 1998, respectively.
The loss or substantial reduction of the business of any of the major
customers in a particular year could have a material adverse effect on the
Company.
(7) STOCK OPTIONS
As of March 31, 2000, 280,500 of the authorized but unissued common
shares were reserved for issuance to key employees and directors under the
Company's qualified and non-qualified stock option plans. Stock options granted
under the plans enable the holder to purchase common stock at an exercise price
not less than the market value on the date of grant. To the extent not
exercised, options will expire not more than ten years after the date of grant.
The applicable options vest immediately or ratably over a three to five year
period. A summary of the changes in the options outstanding during 2000, 1999,
and 1998 is set forth below:
Options Price
Number of Weighted Average Range
Shares Exercise Price (Per Share)
- ---------------------------------------------------------------------------------------------------------------------
Outstanding at March 30, 1997 329,050 $6.47 $2.63-$11.00
Granted 150,000 6.53 6.41-6.77
Exercised (2,450) 3.62 2.63-4.65
Cancelled (228,050) 6.79 2.63-9.25
Expired (2,500) 8.95 7.75-9.25
- ---------------------------------------------------------------------------------------------------------------------
Outstanding at March 29, 1998 246,050 $6.18 $2.63-$11.00
Granted 261,675 6.47 2.63-7.38
Exercised (13,000) 3.09 2.63-4.65
- ---------------------------------------------------------------------------------------------------------------------
Outstanding at March 28, 1999 494,725 $6.42 $2.63-$11.00
Granted 158,000 6.39 $5.31-$6.59
Exercised (23,000) 3.33 $2.63-$4.65
Cancelled (112,000) 6.51 $4.65-$9.25
- ---------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT MARCH 31, 2000 517,725 $6.53 $2.63-$11.00
=====================================================================================================================
The following summarizes options outstanding and exercisable at March
31,2000:
Options Outstanding Options Exercisable
--------------------------------------------------- -----------------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable at Exercise
Exercise Prices at 3/31/00 Contractual Life Price at 3/31/00 Price
- ----------------------------------------------------------------------------------------------------------------------
$2.63-$6.25 123,425 5.33 $5.43 92,180 $5.32
$6.26-$11.00 394,300 3.86 $6.87 260,966 $7.04
-------------- --------------
517,725 353,146
============== ==============
23
23
The weighted average fair value at date of grant for options granted
during 2000, 1999 and 1998 was $2.57, $3.21 and $3.27, respectively. The fair
value of options at the date of grant was estimated using the binomial model
with the following weighted average assumptions:
2000 1999 1998
- ----------------------------------------------------------------------------------------------
Expected life (years) 3.74 5.00 5.00
Interest rate 5.32% 5.23% 5.42%
Volatility 48.80% 48.27% 50.19%
Dividend yield 0% 0% 0%
Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards in 1999, 1998
and 1997 consistent with the provisions of SFAS No. 123, the Company's net
income (loss) and earnings (loss) per share would have been reduced to the pro
forma amounts indicated below:
2000 1999 1998
- ---------------------------------------------------------------------------------------------
Net income (loss) - as reported $ 5,625,777 $ 1,483,852 $ (4,070,994)
Net income (loss) - pro forma 5,459,018 868,656 $ (4,086,937)
Net income (loss) per common and common
equivalent share - as reported
Basic $ 2.31 $ .53 $ (2.00)
Diluted $ 2.01 $ .50 $ (2.00)
Net income (loss) per common and common
equivalent share - pro forma
Basic $ 2.24 $ .38 $ (2.01)
Diluted $ 1.96 $ .30 $ (2.01)
(8) ACCOUNTS RECEIVABLE
The Company values its trade accounts receivable on the reserve method.
The following table summarizes the activity in the allowance for doubtful
accounts for fiscal 2000, 1999 and 1998.
2000 1999 1998
- ---------------------------------------------------------------------------------------------
Balance at beginning of year $ 137,967 $ 418,669 $ 26,077
Provision 58,251 76,051 555,840
Accounts written-off (129,898) (356,753) (163,248)
- ---------------------------------------------------------------------------------------------
Balance at end of year $ 66,320 $ 137,967 $ 418,669
=============================================================================================
(9) CAPITAL LEASE OBLIGATIONS
In fiscal 2000, the Company entered into a sale/leaseback agreement on
its Scottsburg, Indiana plant. Upon completion of a 61,000 square foot addition
to the plant, the Company sold the plant to a third party for $1,900,000. No
gain or loss was recorded upon the sale. Concurrent with the sale, the Company
entered into a lease agreement with the third party to lease the plant for a
period of 20 years. Monthly lease payments are $46,200.
The Company also entered into capital leases for certain equipment. The
amount recorded for the plant and equipment under the capital leases amounted to
$5,330,100 and $558,000 at fiscal year end 2000 and 1999, respectively. The
accumulated depreciation was $322,902 and $119,766 at year end 2000 and 1999,
respectively.
The following is a schedule of future annual minimum lease payments
under the capital leases together with the present value of the net minimum
lease payments, as of March 31, 2000:
Total future minimum lease payments $ 14,419,327
Less: Interest (9,954,875)
---------------------------------------------------------------------------------
Present value of minimum lease payments 4,464,452
Less: Current portion (168,972)
---------------------------------------------------------------------------------
$ 4,295,480
=================================================================================
24
24
The following is a schedule of future annual minimum lease payments:
2001 $ 734,644
2002 625,083
2003 554,400
2004 554,400
2005 and thereafter 11,950,800
------------------------------------------------------------
$14,419,327
============================================================
(10) WHOLLY-OWNED SUBSIDIARY
In July 1996, the Company started a new entity with Think Laboratories,
Inc. (Think) of Kashiwa, Japan to develop the market for engraving services in
the United States. The new company, Laser Graphic Systems, Incorporated (LGSI),
was owned 80% by the Company. Prior to fiscal 2000 for financial reporting
purposes, LGSI's assets, liabilities and earnings were consolidated with those
of the Company, and Think's interest in the Company was included in the
accompanying financial statements as minority interest.
On May 14, 1999, the Company and Think Laboratories, Inc. (Think)
entered into an agreement whereby the Company purchased all of Think's equity
interest in LGSI for $500,000, payable in quarterly installments of $41,667
through April 2002. Think will continue to provide improvements and technology
enhancements for the laser engraving process to the Company.
(11) COMMITMENTS AND CONTINGENCIES
OPERATING LEASE AGREEMENTS
The Company has various equipment, office and facility operating
leases. Leases expire on various dates through February 2005. Rent expense
during 2000, 1999 and 1998 was approximately $281,000, $358,000, and $451,000,
respectively.
The annual future minimum rental obligations as of March 31, 2000 are
as follows:
2001 $181,000
2002 120,000
2003 87,000
2004 58,000
2005 10,000
------------------------------------------------------------
Total $456,000
============================================================
ENVIRONMENTAL MATTERS
During early January 1998, the Company discovered problems with the
environmental permits relating to the operations of the two newly installed
presses at the Scottsburg, Indiana plant. The Company promptly and appropriately
notified the Indiana Department of Environmental Management (IDEM) and
voluntarily halted production on the involved presses. The Company has
successfully resolved the permitting issues with IDEM, but due to a period of
non-compliance with required regulatory statues, the Company was assessed a
civil penalty of up to $625,000. This amount was recorded in full at March 28,
1999. Under the agreement with IDEM, the Company could reduce the civil penalty
by up to $225,000 upon completion of 1 of 3 proposed Supplemental Environmental
Projects (SEPs). A SEP was chosen and completed by the Company in fiscal 2000.
In April 2000, IDEM approved the SEP completed by the Company and the original
civil penalty was reduced by $225,000. This reduction was recorded at March 31,
2000. The remainder of the civil penalty ($400,000) is due in quarterly
installments of $33,000 through September 30, 2001.
On March 8, 1999, the Company reached an agreement with the Director of
the Ohio Environmental Protection Agency concerning certain alleged violations
of environmental laws at the Company's Cincinnati facility which included a
civil penalty of $100,000. The penalty has been paid in full at March 31, 2000.
LITIGATION
Litigation is instituted from time to time against the Company which
involves routine matters incident to the Company's business. In the opinion of
management, the ultimate disposition of pending litigation will not have a
material adverse effect upon the Company's financial statements.
25
25
(12) PREFERRED STOCK
On May 2, 1996, the Company sold to Label Venture Group LLC 52,500
shares of a newly created issue of Series A Convertible Preferred Stock for
$2,432,000. Each share of Series A Convertible Preferred Stock is immediately
convertible, at the option of the shareholder, into ten shares of the Company's
Common Stock and may be redeemed by the Company starting in May 1998. The Series
A Convertible Preferred Stock bears a preferred dividend of $4.25 per share and
has a liquidation value of $50 per share, plus unpaid dividends. The Company's
lenders required $1,000,000 of the proceeds to be deposited into the Company's
Sinking Fund Deposit account (Note 3). The remaining proceeds were used to
support capital expansion plans.
Effective March 31, 1996, 13,242 shares of Series B Convertible
Preferred Stock were issued upon conversion of the entire outstanding balance,
including accrued interest, of Subordinated Convertible Notes that were issued
in October 1995. The Series B Convertible Preferred Stock was issued at $40 per
share and also has a liquidation value of $40 per share, plus unpaid dividends.
These shares are immediately convertible, at the option of the shareholders,
into 132,420 shares of Common Stock and may be redeemed by the Company starting
in May 1998.
In fiscal 1999, 1,324 shares of Series B Convertible Preferred Stock
were converted into 13,240 shares of Common Stock. In fiscal 2000, the remaining
shares of Series B Convertible Preferred Stock were converted into 119,180
shares of Common Stock. Also in fiscal 2000, all of the Series A Convertible
Preferred Stock was redeemed for cash for a total consideration of $2,835,000.
This amount was paid in full at March 31, 2000.
(13) RESTRUCTURING PLAN
The Company implemented a restructuring plan in fiscal year 1998 which
resulted in a pre-tax charge to operating results of $314,599 primarily related
to reducing operations at the Cincinnati plant. The restructuring charge
included severance pay, employee insurance and certain other costs. These costs
were paid in full in fiscal 1998.
(14) ACQUISITION
In December 1999, the Company acquired certain assets and liabilities
of Buriot International, Inc. a label printing company located in Batavia,
Ohio. Total consideration consisted of assumption of Clermont County Industrial
Revenue Bonds in the amount of $6,250,000 and assumption of certain operating
liabilities. Assets acquired included property, plant and equipment, inventory,
accounts receivable and net cash of approximately $2,078,000. There was no cash
consideration paid to the previous owners of Buriot International, Inc. The
acquisition was accounted for as a purchase, accordingly the purchase price was
allocated to assets and liabilities based on their estimated value as of the
date of acquisition. The results of operations of the acquisition are included
in the consolidated statement of operations from the date of acquisition.
The following table summarizes, on an unaudited proforma basis, the
estimated combined results of the Company and Buriot International, Inc.
assuming the acquisition had occurred March 30, 1998. The results include
certain adjustments, primarily interest expense, and are not necessarily
indicative of what results would have been had the Company owned Buriot
International, Inc. during the period presented.
2000 1999
------------------------------------------------------------------
Net Sales $54,290,707 $51,088,129
Net Income (loss) $4,880,210 $(257,198)
Earnings (loss) per share
Basic $2.00 $(.23)
Diluted $1.74 $(.09)
==================================================================
26
26
(15) SUPPLEMENTAL CASH FLOW DISCLOSURES
Supplemental disclosures with respect to cash flow information and
non-cash investing and financing activities are as follows:
2000 1999 1998
----------- ----------- -----------
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 1,152,165 $ 1,121,565 $ 1,084,318
Income taxes paid (refunded) $ (12,527) $ 38,550 $ 37,195
Supplemental Disclosure of Non Cash Activities:
Increase in property, plant and equipment and capital lease obligation $ 4,470,000 $ -- $ --
Increase in accrued interest and other and decrease in shareholders'
investment due to accrual of preferred stock dividends $ -- $ 275,183 $ 69,851
Increase in shareholders' investment and decrease in deferred
compensation due to distribution of common stock held under the
Rabbi Trust $ 485,800 $ -- $ --
Business combination accounted for as a purchase
Assets acquired $ 4,407,000 $ -- $ --
Liabilities assumed $(6,485,000) $ -- $ --
----------- ----------- -----------
Net cash received $(2,078,000) $ -- $ --
===================================================================================================================
(16) SUBSEQUENT EVENTS
On June 5, 2000, the Company signed a new credit agreement with an
existing lender and a new additional lender. The new agreement provides for a
revolving line of credit of up to $5,000,000 and an acquisition facility of up
to $7,200,000. Terms and covenants are substantially the same as in prior
agreements.
Also on June 5, 2000, the Company acquired certain assets and assumed
certain liabilities of Uniflex Corporation, a heat-shrink label printing
company. Total consideration paid was $7,000,000 cash,less cash acquired of
$800,000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Part III (except for certain information relating to Executive Officers
included in Part 1) is omitted. The Company intends to file with the Securities
and Exchange Commission within 120 days of the close of the fiscal year ended
March 31, 2000 a definitive proxy statement containing such information pursuant
to Regulation 14A of the Securities Exchange Act of 1934 and such information
shall be deemed to be incorporated herein by reference from the date of filing
such document.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of Multi-Color
Corporation, the related notes, and the Report of Independent
Certified Public Accountant are incorporated herein.
Consolidated Statements of Operations for the years ended
March 31, 2000, March 28, 1999 and March 29, 1998.
Consolidated Balance Sheets as of March 31, 2000 and March 28,
1999.
Consolidated Statements of Shareholders' Investment for the
years ended March 31, 2000, March 28, 1999 and March 29, 1998.
27
27
Consolidated Statements of Cash Flows for the years ended
March 31, 2000, March 28, 1999 and March 29, 1998.
Notes to Consolidated Financial Statements
Report of Grant Thornton LLP, Independent Certified Public
Accountants
(a)(2) Financial Statement Schedules
All schedules have been omitted because either they are not
required or the information is included in the financial
statements and notes thereto.
(a)(3) List of Exhibits
Exhibit Filing
Numbers Description of Exhibit Status
------- ---------------------- ------
3 (i) Amended and Restated Articles of Incorporation a
3 (ii) Amendment to Amended and Restated Articles of Incorporation a
3 (iii) Amendment to Amended and Restated Articles of Incorporation g
3 (iv) Amended and Restated Code of Regulations b
9.0 Separation agreement with the mutual releases, dated July 7, 1998, between the Company
and John Court m
10.1 Irrevocable Letter of Credit dated July 19, 1994 from PNC Bank, Ohio, National
Association covering $5,750,000 City of Scottsburg, Indiana Economic
Development Revenue Bonds c
10.2 Trust Indenture securing City of Scottsburg, Indiana Economic Development
Revenue Series 1989 dated as of October 1, 1989 d
10.3 Bond Purchase Agreement for $5,750,000 City of Scottsburg, Indiana Economic
Development Revenue Bonds Series 1989 d
10.4 Remarketing Agreement dated October 1, 1989 by and among the Company,
The Ohio Company and The PNC Bank (Formerly The Central Trust Company, N.A). d
10.5 First Refusal Agreement among the Company's shareholders b
10.6 Loan Agreement between City of Scottsburg, Indiana and Multi-Color dated
October 1, 1989 for $5,750,000 d
10.7 Trust Indenture securing County of Boone, Kentucky Industrial Building Revenue Bonds,
Series 1989 dated as of December 1, 1989 d
10.8 Loan Agreement between County of Boone, Kentucky and Multi-Color for $3,250,000
dated as of December 1, 1989 d
10.9 Remarketing Agreement dated as of December 1, 1989 by and among the Company,
The Ohio Company and The PNC Bank (Formerly The Central Trust Company, N.A.) d
10.10 Remarketing Agreement dated October 1, 1989 by and among the Company, The Ohio
Company and The PNC Bank (Formerly The Central Trust Company, N.A.) d
10.11 Irrevocable Letter of Credit dated July 19, 1994 from PNC Bank, Ohio, National
Association covering $3,250,000 County of Boone, Kentucky Industrial Building
Revenue Bonds c
10.12 Bond Purchase Agreement for $3,250,000 County of Boone, Kentucky Industrial
Building Revenue Bonds Series 1989 c
10.14 Loan Agreement between the Company and City of Scottsburg, Indiana, dated
as of April 1, 1997 for $3,000,000 e
10.15 Third Amended and Restated Credit, Reimbursement and Security Agreement,
dated as of June 22, 1998 among Multi-Color Corporation and PNC Bank, National
Association and Comerica Bank j
10.16 Amendment, Consent and Waiver Agreement to Credit Agreement dated April 16, 1999 f
10.17 Second Amendment to Credit Agreement dated May 1, 1999 f
10.28 Purchase Agreement to Sell dated February 26, 1999 by and between the
Company and Indiana Properties, LLC f
10.29 Third Amendment to Credit Agreement dated August 13, 1999 g
10.30 Fourth Amendment to Credit Agreement dated November 17, 1999 g
10.31 Asset Purchase Agreement, dated December 4, 1999, between MCC-Batavia, LLC and
Leonard Z. Eppel, Receiver of the Assets of Buriot International, Inc. k
10.32 Fifth Amendment to Credit Agreement dated March 31, 2000 g
28
28
10.33 Fourth Amended and Restated Credit, Reimbursement and Security Agreement as of
June 6, 2000 among Multi-Color Corporation, PNC Bank, National Association and
Keybank National Association. g
10.34 Asset Purchase Agreement dated June 5, 2000, between Multi-Color Corporation,
Uniflex, John Yamasaki, Melwa Corporation and Ryohsei Plastics Industries,
Co., Ltd. n
MANAGEMENT CONTRACTS AND COMPENSATION PLANS
10.18 1987 Stock Option Plan b
10.19 1992 Directors' Stock Option Plan b
10.20 Profit Sharing/401(k) Retirement Savings Plan and Trust b
10.21 Deferred Compensation Rabbi Trust Agreement a
10.23 1997 Stock Option Plan h
10.24 1998 Non-Employee Director Stock Option Plan of Multi-Color Corporation I
10.25 Employment Agreement entered into March 16, 1998 by and between the Company
and Steven G. Mulch f
10.26 Employment Agreement entered into March 16, 1998 by and between the Company
and Francis D. Gerace f
10.27 Amendment to Employment Agreement dated May 18, 1999, to employment agreement
dated as of March 16, 1998 among Multi-Color Corporation and Francis D. Gerace f
10.35 1999 Long-Term Incentive Plan of Multi-Color Corporation dated as of January 19, 1999. l
21 Subsidiaries of the Company g
23 Consent of Grant Thornton, LLP g
27 Financial Data Schedule g
a Filed as an exhibit to the Form 10-K for the 1996 fiscal year and
incorporated herein by reference.
b Filed as an exhibit to Registration Statement #33-51772, filed
September 10, 1992, and incorporated herein by reference.
c Filed as an exhibit to the Form 10-K for the 1994 fiscal year and
incorporated herein by reference.
d Filed as an exhibit to the Form 10-K for the 1990 fiscal year and
incorporated herein by reference.
e Filed as an exhibit to the Form 10-K for the 1997 fiscal year and
incorporated herein by reference.
f Filed as an exhibit to the Form 10-K for the 1999 fiscal year and
incorporated herein by reference.
g Filed herewith.
h Filed as an exhibit to the 1997 Proxy Statement and incorporated
herein by reference.
i Filed as an exhibit to the 1998 Proxy Statement and incorporated
herein by reference.
j Filed as an exhibit to the Form 10-K for the 1998 fiscal year and
incorporated herein by reference.
k Filed as an exhibit to the Form 8-K filed December 31, 1999 and
incorporated herein by reference.
l Filed as an exhibit to the 1999 Proxy Statement and incorporated
herein by reference.
m Filed as an exhibit to the Form 10-Q for the quarterly period ended
June 28, 1998 and incorporated herein by reference.
n Filed as an exhibit to the Form 8-K filed June 20, 2000 and
incorporated herein by reference.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on February 29, 2000 consisting
of the financial statements of Buriot International, Inc. and proforma
financial information.
The Company filed a report on Form 8-K on June 20, 2000 reporting the
acquisition of Uniflex Corporation.
29
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
Dated: June 26, 2000 (Registrant)
/s/ Francis D. Gerace
-----------------------------------------------
Francis D. Gerace
President, Chief Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the date indicated.
Name Capacity Date
/s/ Francis D. Gerace President, Chief Executive Officer and Director June 26, 2000
- -------------------------------------------- (Principal Executive Officer)
Francis D. Gerace
/s/ Dawn H. Bertsche Vice President-Finance, June 26, 2000
- -------------------------------------------- Chief Financial Officer, Secretary
Dawn H. Bertsche (Principal Financial Officer
and Principal Accounting
Officer)
/s/ Lorrence T. Kellar Chairman of the June 26, 2000
- -------------------------------------------- Board of Directors
Lorrence T. Kellar
/s/ Gordon B. Bonfield Director June 26, 2000
- --------------------------------------------
Gordon B. Bonfield
/s/ Charles B. Connolly Director June 26, 2000
- --------------------------------------------
Charles B. Connolly
/s/ Burton D. Morgan Director June 26, 2000
- --------------------------------------------
Burton D. Morgan
/s/ David H. Pease, Jr. Director June 26, 2000
- --------------------------------------------
David H. Pease, Jr.
/s/ Louis M. Perlman Director June 26, 2000
- --------------------------------------------
Louis M. Perlman