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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, 2001
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
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(Exact name of registrant as specified in its charter)
OHIO 31-1125853
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(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
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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 $11.45
per share held by nonaffiliates of the registrant is $28,584,238 as of June 18,
2001.
As of June 18, 2001, 2,496,440 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 6
Item 3 - Legal Proceedings 6
Item 4 - Submission of Matters to a Vote of Security Holders 6
PART II
Item 5 - Market for the Registrant's Common Stock and Related Stockholder 7
Matters
Item 6 - Selected Financial Data 8
Item 7 - Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
Item 7A - Quantitative and Qualitative Disclosures About Market Risk 11
Item 8 - Financial Statements and Supplementary Data 11
Item 9 - Changes in and Disagreements with Accountants on Accounting and 27
Financial Disclosure
PART III Part III (except for certain information relating to Executive Officers included in 27
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, 2001 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 27
FORWARD-LOOKING STATEMENTS
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, pressure-sensitive and heat-shrink
labels utilizing gravure, lithographic and flexographic printing
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technologies. 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.
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
technically 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 60 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, beverages, gum and health and beauty aids. The Company 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 technically demanding product. Each component of
the label producing process, starting with substrates (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.
Cylinders:
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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 many advantages. The
process uses a laser to expose the cylinder directly from the computer without
ever having to generate films. The cylinders are then chemically etched to
produce very fine and highly accurate cells. The process is quicker and less
costly than other engraving processes as several process steps are removed since
the system is completely digital. 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.
Historically, the Laser Graphic Systems facility has been an integrated
supplier of cylinders to the Company's other facilities. Minimal sales of
cylinders were made to outside third parties. In fiscal 2001, the Company
upgraded the pre-press area of Laser Graphic Systems as well as made
improvements in the manufacturing system leading to increased capacity. A number
of specialized users of gravure cylinders have been targeted and the special
abilities of the Think system is being offered to a select portion of the
cylinder market.
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Pressure-sensitive labels:
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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 that 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.
The pressure-sensitive market is the largest single segment within the
overall label market and represents a significant growth opportunity. The
Company's strategy is to be a supplier of pressure-sensitive labels in
categories that demand high impact graphics or are otherwise technically
challenging. In September of 2000, the Company installed a second flexographic
press to produce pressure-sensitive labels. Both of the presses are equipped
with UV curing units and have the ability to print screen inks as well as apply
foil stamping for highly decorated products.
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
that 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.
The heat-shrink market is growing rapidly as consumer products
companies look for ways to cause their products to stand out on the shelf. New
age beverages, sports drinks, and spirits are among the segments that have
adopted this decorating technology. However, there is demand growing in the food
and the personal care markets that will greatly increase the sales opportunities
for heat-shrink labels. The Company is expanding its manufacturing base for
these products and will produce heat-shrink labels in three of its locations.
These acquisitions allow the Company to become a "one-stop-shop" for a
customer's label requirements, offering a variety of label applications. The
acquisition of the Batavia facility expanded the Company's ability to print
labels using the lithographic and flexographic technology. This allows the
Company to enter several market categories that cannot be served by rotogravure
printing. In particular, the health and beauty market and personal care segments
often use clear in mold materials and require a level of print quality that can
only be met with a combination of screen inks and flexographic technology. The
demand for these products is growing rapidly and the marketplace is thirsty for
a technology leader.
Another segment that is gaining strength is injection in-mold labeling.
Historically, injection molded products are decorated with pressure sensitive or
direct print methods. However, several years ago, injection in-mold technology
was developed in Europe and today it enjoys much success. A number of U.S.
companies are starting to explore injection IML and the Company intends to be a
leading supplier. The majority of these products are printed using the
lithographic process which utilizes another of the technologies at the Batavia
location.
SALES AND MARKETING
The Company sells to a broad range of consumer products companies
located in the United States, Canada, Mexico and Latin America. In some cases,
multi-year agreements are in place and in other cases the customers provides
quarterly or annual requirements. Often the Company is the sole supplier of
specific families of products.
Recent acquisitions have allowed the Company to increase its value to
both new and existing customers. The strategy is to adopt a counselor selling
approach which allows the sales organization to review the requirements of the
container to be decorated and then offer a number of alternative decorating
methods. Thereby, the Company is viewed as an expert source of multiple
materials and methods, able to cut across numerous technologies, and offer the
best possible cost effective solution.
The Company maintains a marketing and technical support staff of 17
people who are responsible for developing innovative solutions, including new
labels, for customers' label needs. Included in the support staff are field
engineers whose job is to assist the customers with technically demanding
products and processes. In this manner, the Company differentiates itself from
its competitors and is often chosen for the most challenging projects.
The sales organization has been increased to include representatives in
Canada and Mexico in order to increase sales in those regions. There is also a
growing need to serve markets in the Pacific Rim. Multi-national customers are
searching for companies that are capable of supporting global brands and the
Companies leadership in IML and heat shrink products drives increased interest
in our capabilities.
Approximately 58% of the Company's total sales in fiscal 2001 were to
three customers: The Procter & Gamble Company, 38% (divided among six product
categories and three separate purchasing groups), Alvin Press, 10% (Alvin Press
is a long-
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standing supplier to the Unilever Corporation) and The Quaker Oats Company, 10%.
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 2001, the Company completed its second
acquisition. In June 2000, 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.
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 two flexographic presses 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, 2001 and March 31, 2000, the label backlog was approximately
$6,100,000 and $2,300,000, respectively. The backlog at March 31, 2001 increased
over the backlog at March 31, 2000 due to strong orders and the acquisitions
completed by the Company during fiscal 2000 and fiscal 2001. 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 that translates to lower cost for its consumer
products customers.
Multi-Color's research and development expenditures totaled $301,000 in
fiscal 2001, $320,000 in fiscal 2000 and $340,000 in fiscal 1999.
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 the traditional and
pressure sensitive label markets and three principal competitors in each of the
in-mold label and heat-shrink label markets. Some of these competitors in the
traditional and pressure sensitive label markets have greater financial and
other resources than the Company. The competitors in the in-mold label and
heat-shrink label markets 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
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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, 2001, the Company had 320 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 retains an
outside environmental consultant to monitor environmental compliance.
Additionally, the Company made capital investments of approximately $689,000
from fiscal 1999 to fiscal 2001 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 total manufacturing capacity of the Company is approximately 194,000 square
feet. 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.
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,
2001.
EXECUTIVE OFFICERS
Francis D. Gerace, 48, 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, 51, was promoted to Senior Vice President of Sales and
Marketing 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, 44, was appointed Vice President of Finance, Chief
Financial Officer and Secretary 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, 58, was appointed Vice President of Sales, In-Mold
Labels 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
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from 1989 to 1992.
Thomas J. Vogt, 52, was appointed Vice President of Sales, 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, 34, 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, 59, 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 years 2000 and 2001. 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 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
April 1, 2000 to June 30, 2000 $8.00 $6.50
July 1, 2000 to September 30, 2000 $8.75 $7.75
October 1, 2000 to December 31, 2000 $10.38 $7.88
January 1, 2001 to March 31, 2001 $11.75 $8.50
As of June 18, 2001, there were approximately 400 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 (1)
MARCH 31 March 31 March 28 March 29 March 30
------------ ------------ -------------- ------------ ------------
2001 2000 (3) 1999 1998 (2) 1997
- --------------------------------------------------- ------------ ------------ -------------- ------------ ------------
(In thousands, except per share amounts)
Net sales $66,618 $53,331 $49,786 $47,576 $48,143
Gross profit 13,288 9,014 6,929 4,840 8,267
Operating income (loss) 8,305 4,280 2,165 (2,455) 2,579
Income (loss) before cumulative effect of
a change in accounting principle 3,559 5,626 1,259 (4,071) 1,627
Cumulative effect of a change in accounting
principle - - 224 - -
Net income (loss) 3,559 5,626 1,484 (4,071) 1,627
Diluted earnings (loss) per share 1.37 2.01 0.50 (2.00) 0.58
Weighted average shares outstanding - diluted 2,600 2,804 2,949 2,172 2,821
Preferred dividends - 177 275 279 261
Working capital 2,944 (281) (1,869) (1,827) 661
Total assets 44,650 37,151 29,781 30,854 28,487
Short-term debt 3,417 5,143 4,369 4,782 3,411
Long-term debt 20,870 17,292 11,086 11,208 9,902
Shareholders' investment 12,967 9,136 6,010 4,665 8,907
- --------------------------------------------------- ------------ ------------ -------------- ------------ ------------
(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
-----------------------------------
2001 2000 1999
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Net sales 100.0% 100.0% 100.0%
Cost of goods sold 80.1% 83.1% 86.1%
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Gross profit 19.9% 16.9% 13.9%
Selling, general & administrative expenses 7.5% 7.4% 9.6%
Impairment loss on long-lived assets - 1.5% -
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Operating income 12.4% 8.0% 4.3%
Interest expense 3.0% 2.4% 2.2%
Other .5% (.2%) (.4%)
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Income before income taxes and cumulative effect of a change in accounting principle 8.9% 5.8% 2.5%
Income taxes (benefit) 3.6% (4.8%) -
- ----------------------------------------------------------------------------------------------------------------------------------
Net income before cumulative effect of a change in accounting principle 5.3% 10.6% 2.5%
Cumulative effect of change in accounting for inventories, net of tax - - (.5%)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 5.3% 10.6% 3.0%
- ----------------------------------------------------------------------------------------------------------------------------------
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 2001 AND MARCH 31, 2000
Net sales increased $13,286,379 or 25% to $66,617,779 in 2001 from
$53,331,400 in 2000. The increase in sales is due primarily to the sales
generated by the acquisitions the Company made in fiscal 2000 and fiscal 2001.
Through these acquisitions, the Company entered the heat-shrink and
pressure-sensitive label markets. Sales of in-mold labels to existing customers
also increased as a result of new product introductions by the Company's key
customers. The Company also benefited this year from the awarding of new
business on current products of the Company's existing customers.
Gross profit increased $4,274,081 or 47% to $13,288,180 in 2001 from
$9,014,099 in 2000. In 2001, gross profit as a percentage of sales was 20% as
compared to 17% in 2000. The Company continues to focus on improving
efficiencies and waste reduction at all plant locations through the use of
strict process plans of controls. An additional flexographic press was installed
in the Batavia plant in fiscal 2001 that enabled the plant to increase volumes.
Selling, general and administrative expenses increased $1,028,973 or
26% to $4,983,645 in 2001 from $3,954,672 from 2000. Expenses as a percentage of
sales remained steady at 8% in 2001 and 7% in 2000.
In 2000, the Company recorded an impairment loss of $779,024 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. There were no additional presses or other assets requiring an impairment
reserve in 2001.
Interest expense increased $701,391 or 54% to $2,001,603 in 2001 from
$1,300,212 in 2000. The increase in interest expense is a result of the
additional debt of approximately $14,050,000 assumed or incurred by the Company
in connection with the acquisitions made in 2000 and 2001. This increase in
interest expense was offset by the reduction of interest expense relating to the
Company's revolving bank loan. The average amount outstanding under the
revolving bank loan in 2001 was approximately $887,000 while the average amount
outstanding in 2000 was approximately $2,271,000.
Income tax expense was $2,389,437 in 2001. In 2000, an income tax
benefit of $2,553,129 was recorded as the Company was able to recognize the
benefit of tax loss carryforwards. Previously, due to the Company's prior
history of net income and losses, a valuation allowance was required to be
recorded against the tax loss carryforwards and other deferred tax assets. In
10
10
2000, based on the Company's history of profitability and other factors, a
valuation allowance was no longer required. In 2001, the Company began recording
tax expense at the appropriate federal and state income tax rates.
Even though pre-tax income increased in 2001 as compared to 2000, net
income decreased in 2001 as compared to 2000 due to the recording of the income
tax benefit in 2000 as discussed above.
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 2000 AND MARCH 28, 1999
Net sales increased $3,545,514 or 7% 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% to $9,014,099 in 2000 from
$6,929,086 in 1999. In 2000, gross profit as a percentage of sales was 17% as
compared to 14% 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%
to $3,954,672 in 2000 from $4,764,312 in 1999. Expenses as a percentage of sales
have decreased to 7% in 2000 from 10% 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.
Interest expense increased $178,647 or 16% 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 prior 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations were $7,441,017 in 2001 and $4,271,661 in
2000. The increase is attributable to improved operating profits and better
management of payables.
Cash flows used in investing activities were $9,306,648 in 2001 as
compared to cash provided by investing activities of $933,125 in 2000. Cash used
in 2001 is due to the acquisition of Uniflex Corporation in June 2000. Cash
provided in 2000 was attributed to the acquisition of Buriot International, Inc.
in December 1999.
Capital expenditures were $2,903,968 in 2001 and $2,576,588 in 2000.
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,
including a new flexographic press at the Batavia plant location.
The Company is dependent on availability under its Revolving Credit
Agreement, approximately $4,900,000 at March 31, 2001, and its operations to
provide for cash needs. The Company entered into a credit agreement with PNC
Bank, Ohio, National Association and Key Bank on June 5, 2000. The credit
agreement provides for available borrowings under a revolving line of credit up
to a maximum of $5,000,000 and an acquisition facility of $7,200,000, which was
utilized in June 2000 upon the acquisition of Uniflex Corporation. Under the
terms of the credit agreement, the Company is subject to several financial
covenants. The financial covenants require the Company to maintain certain
leverage and fixed charge ratios as well as maintain a minimum tangible net
11
11
worth. The Company is also prohibited from declaring dividends on the common
stock of the Company under the agreement. The agreement expires in June 2003.
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 2002. 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.
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 $190,000. 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..................................................................12
Consolidated Income Statements for the years ended
March 31, 2001, March 31, 2000 and March 28, 1999.......................13
Consolidated Balance Sheets as of March 31, 2001 and March 31, 2000..........14
Consolidated Statements of Shareholders' Investment for the years ended
March 31, 2001, March 31, 2000 and March 28, 1999.......................15
Consolidated Statements of Cash Flows for the years ended March 31, 2001,
March 31, 2000 and March 28, 1999............................................16
Notes to Consolidated Financial Statements...................................17
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.
12
12
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, 2001 and March 31,
2000, and the related consolidated income statements, shareholders' investment,
and cash flows for each of the three years in the period ended March 31, 2001.
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 auditing standards generally
accepted in the United States of America. 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, 2001 and 2000, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended March 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
Grant Thornton LLP
/s/ GRANT THORNTON LLP
May 2, 2001
Cincinnati, Ohio
13
13
CONSOLIDATED INCOME STATEMENTS
For the Years Ended March 31, 2001, March 31, 2000 and March 28, 1999
2001 2000 1999
- ------------------------------------------------------------------------------------ -------------- --------------- --------------
Net sales $66,617,779 $53,331,400 $49,785,886
Cost of goods sold 53,329,599 44,317,301 42,856,800
- ------------------------------------------------------------------------------------ -------------- --------------- --------------
GROSS PROFIT 13,288,180 9,014,099 6,929,086
Selling, general and administrative expenses 4,983,645 3,954,672 4,764,312
Impairment loss on long-lived assets - 779,024 -
- ------------------------------------------------------------------------------------ -------------- --------------- --------------
OPERATING INCOME 8,304,535 4,280,403 2,164,774
Interest expense 2,001,603 1,300,212 1,121,565
Minority interest in losses of subsidiary - - (33,385)
Other (income) expense, net 354,841 (92,457) (182,866)
- ------------------------------------------------------------------------------------ -------------- --------------- --------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 5,948,091 3,072,648 1,259,460
Income taxes (benefit) 2,389,437 (2,553,129) -
- ------------------------------------------------------------------------------------ -------------- --------------- --------------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 3,558,654 5,625,777 1,259,460
Cumulative effect of change in accounting for inventories, net of tax - - (224,392)
- ------------------------------------------------------------------------------------ -------------- --------------- --------------
NET INCOME $ 3,558,654 $ 5,625,777 $ 1,483,852
- ------------------------------------------------------------------------------------ -------------- --------------- --------------
Preferred stock dividends $ - $ 176,569 $ 275,183
Net income applicable to common shares: $ 3,558,654 $ 5,449,208 $ 1,208,669
- ------------------------------------------------------------------------------------ -------------- --------------- --------------
Weighted average shares and equivalents outstanding:
Basic 2,463,731 2,354,669 2,268,012
Diluted 2,600,379 2,803,857 2,949,212
- ------------------------------------------------------------------------------------ -------------- --------------- --------------
Basic earnings per common share:
Income before cumulative effect $1.44 $2.31 $0.43
Cumulative effect of change in accounting for inventories - - 0.10
- ------------------------------------------------------------------------------------ -------------- --------------- --------------
Net income $1.44 $2.31 $0.53
Diluted earnings per common and common equivalent share:
Income before cumulative effect $1.37 $2.01 $0.43
Cumulative effect of change in accounting for inventories - - 0.07
- ------------------------------------------------------------------------------------ -------------- --------------- --------------
Net income $1.37 $2.01 $0.50
- ------------------------------------------------------------------------------------ -------------- --------------- --------------
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
14
14
CONSOLIDATED BALANCE SHEETS
As of March 31, 2001 and March 31, 2000
2001 2000
- -------------------------------------------------------------------------------------------- --------------- ----------------
ASSETS
CURRENT ASSETS:
Cash $ 2,817 $ 2,066
Accounts receivable, net 7,496,240 5,050,549
Inventories 5,783,351 4,720,982
Deferred tax asset 190,249 447,772
Prepaid expenses and other 68,942 102,213
- -------------------------------------------------------------------------------------------- --------------- ----------------
TOTAL CURRENT ASSETS 13,541,599 10,323,582
Property, plant and equipment, net 26,188,657 24,148,042
Sinking fund deposits - 426,256
Goodwill and other intangible assets, net 4,781,193 125,425
Deferred tax asset 122,748 2,128,170
Other 16,274 -
- -------------------------------------------------------------------------------------------- --------------- ----------------
TOTAL ASSETS $ 44,650,471 $ 37,151,475
- -------------------------------------------------------------------------------------------- --------------- ----------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term debt $ 94,253 $ 3,455,412
Current portion of long-term debt 3,248,770 1,519,012
Current portion of capital lease obligations 73,723 168,972
Accounts payable 4,815,837 3,650,083
Accrued liabilities 2,364,727 1,811,048
- -------------------------------------------------------------------------------------------- --------------- ----------------
TOTAL CURRENT LIABILITIES 10,597,310 10,604,527
Long-term debt 16,650,000 12,996,608
Capital lease obligations 4,220,314 4,295,480
Deferred compensation 215,492 118,999
- -------------------------------------------------------------------------------------------- --------------- ----------------
TOTAL LIABILITIES 31,683,116 28,015,614
Commitments and contingencies - -
SHAREHOLDERS' INVESTMENT:
Common stock, no par value; 10,000,000 shares authorized, 2,488,440 and 2,447,640
shares issued at March 31, 2001 and March 31, 2000, respectively 248,844 244,764
Paid-in capital 10,246,620 9,977,860
Treasury stock, 8,000 shares at cost (51,142) (51,142)
Retained earnings (accumulated deficit) 2,523,033 (1,035,621)
- -------------------------------------------------------------------------------------------- --------------- ----------------
TOTAL SHAREHOLDERS' INVESTMENT 12,967,355 9,135,861
- -------------------------------------------------------------------------------------------- --------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 44,650,471 $ 37,151,475
- -------------------------------------------------------------------------------------------- --------------- ----------------
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
15
15
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For the Years Ended March 31, 2001, March 31, 2000 and March 28, 1999
Preferred stock Common stock
---------------------- ---------------------
Retained
Number Number earnings
of shares of shares Paid-In (accumulated Treasury
issued Amount issued Amount capital deficit) stock Total
- -------------------------- ---------- ----------- ----------- ---------- ------------- ------------ ---------- --------------
MARCH 29, 1998 65,742 $2,947,969 2,182,060 $218,206 $ 9,191,952 $(7,693,498) - $ 4,664,629
Net income - - - - - 1,483,852 - 1,483,852
Preferred dividends
declared - - - - - (275,183) - (275,183)
Issuance of common stock - - 13,000 1,300 38,900 - - 40,200
Issuance of stock options - - - - 96,922 - - 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) - $ 6,010,420
Net income - - - - - 5,625,777 - 5,625,777
Preferred dividends
declared - - - - - (176,569) - (176,569)
Issuance of common stock - - 120,160 12,016 550,359 - - 562,375
Purchase of treasury
stock - - - - - - (51,142) (51,142)
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) - - (2,835,000)
- -------------------------- ---------- ----------- ----------- ---------- ------------- ------------ ---------- --------------
MARCH 31, 2000 - $ - 2,447,640 $244,764 $ 9,977,860 $(1,035,621) $ (51,142) $ 9,135,861
Net income - - - - - 3,558,654 - 3,558,654
Issuance of common stock - - 40,800 4,080 268,760 - - 272,840
- -------------------------- ---------- ----------- ----------- ---------- ------------- ------------ ---------- --------------
MARCH 31, 2001 - $ - 2,488,440 $248,844 $10,246,620 $ 2,523,033 $ (51,142) $12,967,355
- -------------------------- ---------- ----------- ----------- ---------- ------------- ------------ ---------- --------------
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
16
16
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended March 31, 2001, March 31, 2000 and March 28, 1999
2001 2000 1999
- --------------------------------------------------------------------------------- ------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,558,654 $ 5,625,777 $ 1,483,852
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,371,705 2,109,751 1,845,535
Amortization 357,018 43,115 32,575
Minority interest in losses of subsidiary - - (33,385)
Net (gain) loss on disposal of equipment (593) 40,016 10,401
Increase in non-current deferred compensation 96,493 157,001 79,838
Decrease in notes receivable - 152,943 119,279
Net (increase) decease in accounts receivable (1,338,667) (385,998) 167,255
Net (increase) decrease in inventories 61,084 (213,438) 579,114
Net (increase) decrease in prepaid expenses and other (167,691) 60,380 31,949
Net decrease in accounts payable (70,772) (938,970) (2,379,142)
Net increase (decrease) in accrued liabilities 310,841 (581,998) 339,387
Net (increase) decrease in deferred taxes 2,262,945 (2,575,942) -
Impairment loss on long-lived assets - 779,024 -
- --------------------------------------------------------------------------------- ------------- -------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,441,017 4,271,661 2,276,658
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,903,968) (2,576,588) (1,416,128)
Acquisition of business, net of cash received (6,407,273) 2,078,000 -
Acquisition of minority interest in subsidiary - (445,599) -
Proceeds from sale of plant and equipment 4,593 1,877,312 1,371,058
- --------------------------------------------------------------------------------- ------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (9,306,648) 933,125 (45,070)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in revolving line of credit, net (3,361,159) 201,682 (410,706)
Sinking fund withdrawals (payments) 428,266 1,857,644 (1,663,252)
Purchase of treasury stock - (51,142) -
Proceeds from issuance of common stock, net 272,840 76,575 40,200
Redemption of preferred stock, Series A - (2,835,000) -
Proceeds from issuance of long-term debt 7,200,000 3,280,599 -
Repayment of long-term debt (2,416,872) (7,014,979) (24,256)
Preferred stock dividend payments - (521,603) -
Capitalized bank fees (86,277) - (75,578)
Repayment of capital lease obligation (170,416) (206,493) (100,351)
- --------------------------------------------------------------------------------- ------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,866,382 (5,212,717) (2,233,943)
- --------------------------------------------------------------------------------- ------------- -------------- --------------
Net increase (decrease) in cash 751 (7,931) (2,355)
CASH, beginning of the year 2,066 9,997 12,352
- --------------------------------------------------------------------------------- ------------- -------------- --------------
CASH, end of year $ 2,817 $ 2,066 $ 9,997
- --------------------------------------------------------------------------------- ------------- -------------- --------------
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
17
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001, March 31, 2000 and March 28, 1999
(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, Erlanger, Kentucky and Las
Vegas, Nevada.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
References to fiscal 2001, 2000 and 1999 are for the fiscal years ended
March 31, 2001, March 31, 2000 and March 28, 1999, 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
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost.
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 AND OTHER INTANGIBLE ASSETS
Goodwill is amortized using the straight-line method over periods of
ten to twenty 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.
Other intangible assets are amortized using the straight-line method over
periods of up to three years.
ACCOUNTS PAYABLE
Accounts payable includes approximately $1,160,000 and $464,000 at
March 31, 2001 and March 31, 2000, 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 PER COMMON SHARE
The computation of basic earnings 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 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.
18
18
The following is a reconciliation of the number of shares used in the
basic EPS and diluted EPS computations:
2001 2000 1999
----------------------------------------------------------------------------------------
Per Per Per
Share Share Share
Shares Amount Shares Amount Shares Amount
----------------------------------------------------------------------------------------
Basic EPS before
cumulative effect 2,463,731 $1.44 2,354,669 $2.31 2,268,012 $0.43
Cumulative effect of
change in accounting
for inventories - - - - 2,268,012 .10
Effect of dilutive
stock options 136,648 (.07) 32,351 (.03) 37,040 (.01)
Convertible shares - - 416,837 (.27) 644,160 (.02)
----------------------------------------------------------------------------------------
Diluted EPS 2,600,379 $1.37 2,803,857 $2.01 2,949,212 $0.50
----------------------------------------------------------------------------------------
Preferred stock dividends of $0, $176,569 and $275,183 in fiscal 2001,
2000 and 1999, respectively, have been deducted from the net income generated in
fiscal 2001, 2000 and 1999, respectively, to arrive at the income available to
common stockholders for the calculation of basic EPS.
ADVERTISING COSTS
Advertising costs are charged to expense as incurred. Expenses were
minimal for the three fiscal years ended March 31, 2001.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
Expenses were $301,000, $320,000 and $340,000 for 2001, 2000 and 1999,
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 the fourth quarter of fiscal 2001, the Company adopted the
provisions of Emerging Issues Task Force ("EITF") No. 00-10, "Accounting for
Shipping and Handling Fees and Costs" which requires that amounts billed to
customers for shipping and handling fees be classified as revenue. The Company
previously recorded these fees as reductions of the related expenses. The
adoption of EITF 00-10 had no effect on the net income of the Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements", which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. The Company
adopted SAB 101 in the quarter ending March 31, 2001. The adoption of SAB 101
did not have an impact on the Company's results of operations.
19
19
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.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current period presentation.
(3) 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 2001, 2000 and 1999:
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 66,320 $ 137,967 $ 418,669
Provision 62,760 58,251 76,051
Accounts written-off (48,742) (129,898) (356,753)
- --------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 80,338 $ 66,320 $ 137,967
- --------------------------------------------------------------------------------------------------------------------
(4) INVENTORIES
Inventories as of March 31 consisted of the following:
2001 2000
- --------------------------------------------------------------------------------------------------------------------
Finished goods $2,883,666 $2,649,939
Work-in-process 925,411 820,293
Raw materials 1,974,274 1,250,750
- --------------------------------------------------------------------------------------------------------------------
$5,783,351 $4,720,982
- --------------------------------------------------------------------------------------------------------------------
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.
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of March
31:
2001 2000
- --------------------------------------------------------------------------------------------------------------------
Land and buildings $ 7,596,681 $ 6,792,596
Machinery and equipment 30,647,636 27,714,065
Furniture and fixtures 1,275,438 1,382,294
Construction in progress 1,723,371 1,663,601
- --------------------------------------------------------------------------------------------------------------------
41,243,126 37,552,556
Accumulated depreciation (15,054,469) (13,404,514)
- --------------------------------------------------------------------------------------------------------------------
$ 26,188,657 $ 24,148,042
- --------------------------------------------------------------------------------------------------------------------
In 2000, an impairment loss of $779,024 was recorded on a printing
press at the Scottsburg location due to the limited future use of the press. The
press is an older press and not as technologically advanced as other presses
located at the Scottsburg location.
(6) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following as of
March 31:
2001 2000
- --------------------------------------------------------------------------------------------------------------------
Goodwill $4,022,687 $ 77,297
Non-compete agreement 750,000 -
Other 429,472 91,243
- --------------------------------------------------------------------------------------------------------------------
5,202,159 168,720
Accumulated amortization (420,966) (43,295)
- --------------------------------------------------------------------------------------------------------------------
$4,781,193 $ 125,425
- --------------------------------------------------------------------------------------------------------------------
20
20
In fiscal 2001, the Company acquired certain assets of Uniflex
Corporation, a heat-shrink label printing company. The Company recorded
$4,695,390 of goodwill and other intangible assets in connection with this
acquisition.
(7) DEBT
The components of the Company's debt are as follows:
2001 2000
- --------------------------------------------------------------------------------------------------------------------
SHORT-TERM DEBT
Revolving line of credit $ 94,253 $ 3,455,412
- --------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT
Scottsburg Industrial Revenue Bonds, floating weekly rate, which approximates
3.7% at March 31, 2001, scheduled balloon
payment $3,385,000 in October 2009 3,385,000 3,385,000
Scottsburg Industrial Revenue Bonds, floating weekly rate,
which approximates 3.7% at March 31, 2001, 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 3.7% at March 31, 2001, scheduled balloon
payment of $725,000 in December 2009 725,000 1,750,000
Clermont County Industrial Revenue Bonds, floating weekly rate, which
approximates 3.7% at March 31, 2001, scheduled balloon
payment of $5,550,000 in June 2017. 5,550,000 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 158,770 305,620
Bank term note payable, interest at LIBOR plus 1.5%, currently 6.96%
at March 31, 2001, quarterly principal payments of $360,000, due
July 2005 6,480,000 -
Non-compete agreement with former owner of Uniflex Corporation,
annual payments of $150,000 due in June,
final payment due June 2005 600,000 -
- --------------------------------------------------------------------------------------------------------------------
19,898,770 $14,515,620
Less-current portion of debt and sinking fund payments (3,248,770) (1,519,012)
- --------------------------------------------------------------------------------------------------------------------
$16,650,000 $12,996,608
- --------------------------------------------------------------------------------------------------------------------
The following is a schedule of future annual principal payments payable
after one year (including quarterly bond payments required under the Company's
credit agreement):
2003 $ 3,090,000
2004 1,790,000
2005 1,590,000
2006 720,000
2007 and thereafter 9,460,000
------------------------------------------------------
Total $16,650,000
------------------------------------------------------
On June 5, 2000, 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 and an acquisition facility of up to $7,200,000. The acquisition
facility was fully utilized upon the acquisition of the Uniflex Corporation in
June 2000. The interest rates are based on prime or LIBOR plus certain margin
amounts based on the Company's leverage ratio. For the year ended March 31,
2001, the average interest rate was 8.86%. At March 31, 2001, the Company had
approximately $4,900,000 in available borrowings under the revolving line of
credit. The credit agreement expires June 1, 2003. The credit agreement requires
quarterly bond payments of $375,000 until termination of the agreement. The
agreement also contains various financial and operating covenants which, among
others, require the Company to maintain certain leverage, fixed charge coverage
and net worth ratios and limits the payment of dividends.
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
21
21
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 June 1, 2003.
(8) EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Company had a defined benefit plan covering former hourly employees
at its former Cincinnati facility who met certain age and service requirements.
The Company sold the Cincinnati facility April 1998. In December 2000, this plan
was terminated.
The change in the Company's benefit obligation is computed as follows:
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Projected benefit obligation at beginning of year $ 2,653,372 $2,575,224 $2,468,988
Service cost - 17,117 39,624
Interest cost 473,630 170,873 164,322
Actual gain - (11,933) (158,784)
Benefits paid (3,127,002) (97,909) (103,376)
Change in assumptions - 164,450
- --------------------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of year $ - $2,653,372 $2,575,224
- --------------------------------------------------------------------------------------------------------------------
The change in the Plan's assets is computed as follows:
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $ 2,965,385 $2,857,469 $2,837,343
Actual return on plan assets 161,617 205,825 123,502
Employer contribution - - -
Benefits paid (3,127,002) (97,909) (103,376)
- --------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ - $2,965,385 $2,857,469
- --------------------------------------------------------------------------------------------------------------------
The following table sets forth the Plan's funded status and amounts
recognized on the Company's accompanying balance sheets:
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Funded status $ - $ 312,013 $ 282,245
Unrecognized net actuarial (gain) loss - (179,654) (168,198)
Unrecognized prior service cost - 15 1,221
- --------------------------------------------------------------------------------------------------------------------
Prepaid benefit cost $ - $ 132,374 $ 115,268
- --------------------------------------------------------------------------------------------------------------------
The weighted-average actuarial assumptions used were:
As of MARCH 31, 2001 March 31, 2000 March 28, 1999
- --------------------------------------------------------------------------------------------------------------------
Discount rate N/A 6.75% 6.75%
Expected return on plan assets N/A 7.50% 7.50%
Net periodic pension cost includes the following components:
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Service cost $ - $ 17,117 $ 39,624
Interest cost - 170,873 164,322
Expected return on plan assets - (209,419) (208,398)
Amortization of prior service cost - 1,206 1,206
Recognized net actuarial (gain) loss - 117 (18,356)
- --------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ - $ ( 20,106) $ (21,602)
- --------------------------------------------------------------------------------------------------------------------
OTHER PLANS
The Company has established a 401(k) retirement savings plan which
covers all employees who meet certain service requirements. 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
22
22
of the employee contributions. Company contributions in 2001, 2000 and 1999
approximated $198,000, $149,000 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, 2001 and March 31, 2000. Interest on the deferred
amounts, which are included in the balances due, were accrued at 11.00%, 9.75%
and 9.75% in 2001, 2000 and 1999, respectively. Expenses in 2001, 2000 and 1999
approximated $96,000, $54,000 and $80,000, respectively.
(9) INCOME TAXES
The provision (credit) for income taxes includes the following
components:
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------
CURRENTLY PAYABLE
Federal $ 2,020,987 $ 856,475 $ 684,000
State and local 356,600 143,252 121,000
Benefit of operating loss carry-forwards (2,256,944) (955,011) (805,000)
- -----------------------------------------------------------------------------------------------------------------
120,643 44,716 -
- -----------------------------------------------------------------------------------------------------------------
DEFERRED
Federal 2,085,597 (2,528,675) 9,000
State and local 183,197 (69,170) (9,000)
- -----------------------------------------------------------------------------------------------------------------
$ 2,389,437 $ (2,553,129) $ -
- -----------------------------------------------------------------------------------------------------------------
The following is a reconciliation between the statutory federal income
tax rate and the effective rate shown above:
2001 2000 1999
- ------------------------------------------------------------ ---------------- ----------------- -----------------
Computed provision for federal
income taxes at the statutory rate 34% 34% 34%
State and local income taxes, net of
federal income tax benefit 2% 3% 5%
Valuation allowance - (92%) (61%)
Changes in estimates for deferred
components, primarily net operating
loss carry-forward - (18%) 9%
EPA fines - (7%) 11%
Other 4% (3%) 2%
- ------------------------------------------------------------ ---------------- ----------------- -----------------
Effective tax rate 40% (83%) -
- ------------------------------------------------------------ ---------------- ----------------- -----------------
At year end the net deferred tax components consisted of the following:
2001 2000
- -----------------------------------------------------------------------------------------------------------------
Deferred tax liabilities
Tax depreciation over book depreciation $(3,088,060) $(2,464,437)
- -----------------------------------------------------------------------------------------------------------------
Other (53,151) -
- -----------------------------------------------------------------------------------------------------------------
$(3,141,211) $(2,464,437)
- -----------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Asset impairment loss $ 264,868 $ 264,868
Deferred compensation 73,267 40,460
Inventory reserves 48,643 19,887
AMT credit carry-forward 133,334 171,550
Tax credit carry-forward 111,662 42,019
Net operating loss carry-forward 2,804,580 4,315,061
Other 17,854 186,534
- -----------------------------------------------------------------------------------------------------------------
$ 3,454,208 $ 5,040,379
- -----------------------------------------------------------------------------------------------------------------
Net deferred tax components $ 312,997 $ 2,575,942
- -----------------------------------------------------------------------------------------------------------------
23
23
For tax reporting purposes, the Company has approximately $133,000 of
alternative minimum tax (AMT) credits available for an indefinite period. The
regular tax net operating loss of approximately $8,248,000 can be carried
forward and used to reduce future taxable income in addition to tax credits of
approximately $112,000, which can be carried forward through the following
expiration dates:
Year Net Operating Losses Tax Credits
------------------------------------------------------------------------------------------------
2009 $ 725,000 $ -
2010 5,204,000 -
2011 612,000 9,000
2012 57,000 33,000
2013 1,649,000 23,000
2014 1,000 25,000
2015 - 22,000
------------------------------------------------------------------------------------------------
$ 8,248,000 $ 112,000
------------------------------------------------------------------------------------------------
(10) MAJOR CUSTOMERS
During 2001, 2000 and 1999, sales to major customers and their related
subsidiaries and divisions approximated 58%, 63% and 57%, respectively, of the
Company's net sales individually presented as follows (customer designated as
customer C is not the same customer from year to year) :
2001 2000 1999
------------------------------ --------------------- --------------------- ---------------------
CUSTOMER A 38% 39% 30%
CUSTOMER B 10% 13% 15%
CUSTOMER C 10% 11% 12%
------------------------------ --------------------- --------------------- ---------------------
58% 63% 57%
------------------------------ --------------------- --------------------- ---------------------
In addition, the year end accounts receivable balances of these
companies approximated 55%, 55% and 43% of the Company's total accounts
receivable balance at year end 2001, 2000 and 1999, 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.
(11) STOCK OPTIONS
As of March 31, 2001, 188,500 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 2001, 2000
and 1999 is set forth below:
Weighted Average Options Price
Number of Exercise Price Range
Shares (Per Share)
- -------------------------------------------------- ------------------------- -------------------- -------------------
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
Granted 108,000 7.42 $6.50-$8.88
Exercised (40,800) 6.69 $4.65-$7.38
Cancelled (22,000) 6.40 $6.25-$6.63
- -------------------------------------------------- ------------------------- -------------------- -------------------
OUTSTANDING AT MARCH 31, 2001 562,925 $6.69 $2.63-$11.00
- -------------------------------------------------- ------------------------- -------------------- -------------------
24
24
The following summarizes options outstanding and exercisable at March
31, 2001:
Options Outstanding Options Exercisable
--------------------------------------------------- -----------------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable at Exercise
Exercise Prices at 3/31/01 Contractual Life Price at 3/31/01 Price
- ------------------------- -------------- ------------------ ----------------- ---- ---------------- ------------------
$2.63-$6.25 94,625 4.31 $5.27 75,292 $5.15
$6.26-$11.00 468,300 4.23 $6.98 321,633 $7.07
-------------- ----------------
562,925 396,925
-------------- ----------------
The weighted average fair value at date of grant for options granted
during 2001, 2000 and 1999 was $4.02, $2.57 and $3.21, respectively. The fair
value of options at the date of grant was estimated using the binomial model
with the following weighted average assumptions:
2001 2000 1999
- --------------------------------------------------- ------------------- ------------------ -------------------
Expected life (years) 6.30 3.74 5.00
Interest rate 6.10% 5.32% 5.23%
Volatility 46.11% 48.80% 48.27%
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 2001, 2000
and 1999 consistent with the provisions of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
2001 2000 1999
- --------------------------------------------------- ------------------- ------------------ -------------------
Net income - as reported $3,558,654 $5,625,777 $1,483,852
Net income - pro forma $3,354,036 $5,459,018 $868,656
Net income per common and common
equivalent share - as reported
Basic $1.44 $2.31 $.53
Diluted $1.37 $2.01 $.50
Net income per common and common
equivalent share - pro forma
Basic $1.36 $2.24 $.38
Diluted $1.34 $1.96 $.30
(12) 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 $4,783,000 and $5,330,100 at
March 31, 2001 and 2000, respectively. The accumulated depreciation was $366,308
and $322,902 at March 31, 2001 and 2000, 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, 2001:
Total future minimum lease payments $13,638,483
Less: Interest (9,344,446)
-----------------------------------------------------------------
Present value of minimum lease payments 4,294,037
Less: Current portion (73,723)
-----------------------------------------------------------------
$ 4,220,314
-----------------------------------------------------------------
25
25
The following is a schedule of future annual minimum lease payments:
2002 $ 625,083
2003 554,400
2004 554,400
2005 554,400
2006 and thereafter 11,350,200
---------------------------------- ----------------------
Total $ 13,638,483
---------------------------------- ----------------------
(13) 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.
(14) 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 2001, 2000 and 1999 was approximately $321,000, $281,000 and $358,000,
respectively.
The annual future minimum rental obligations as of March 31, 2001 are
as follows:
2002 $396,000
2003 304,000
2004 36,000
2005 8,000
------------------------------------ -----------------------
Total $744,000
------------------------------------ -----------------------
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 remaining liability of the civil penalty 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.
26
26
(15) 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 was immediately
convertible, at the option of the shareholder, into ten shares of the Company's
Common Stock and could be redeemed by the Company starting in May 1998. The
Series A Convertible Preferred Stock included a preferred dividend of $4.25 per
share and 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. 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 had a liquidation value of $40 per share, plus unpaid dividends. These
shares were immediately convertible, at the option of the shareholders, into
132,420 shares of Common Stock and could 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.
(16) 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.
In June 2000, the Company acquired certain assets and liabilities of
Uniflex Corporation, a heat-shrink label printing company with a printing
facility located in Las Vegas, Nevada. Total consideration consisted of
$7,000,000 cash, less cash acquired of $800,000 and assumption of certain
operating liabilities. Assets acquired included equipment, inventory and
accounts receivable. A non-compete agreement was entered into with one of the
owners of Uniflex Corporation for total consideration of $750,000. 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 the above acquisitions assuming
the acquisitions had occurred March 29, 1999. 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.
and Uniflex Corporation during the periods presented.
2001 2000
------------------------- --------------------- ---------------------
Net Sales $68,444,970 $62,145,109
Net Income $3,948,169 $6,830,953
Earnings per share
Basic $1.60 $2.83
Diluted $1.52 $2.44
------------------------- --------------------- ---------------------
27
27
(17) SUPPLEMENTAL CASH FLOW DISCLOSURES
Supplemental disclosures with respect to cash flow information and
non-cash investing and financing activities are as follows:
2001 2000 1999
------------- ------------- --------------
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 1,881,476 $ 1,152,165 $ 1,121,565
Income taxes paid (refunded) $ 106,825 $ (12,527) $ 38,550
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
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 $ 9,287,280 $ 4,407,000 $ -
Liabilities assumed (1,479,364) (6,485,000) -
Cash received (800,000) - -
Note payable (600,000) - -
------------- ------------- --------------
Net cash paid (received) $ 6,407,273 $ (2,078,000) $ -
- ----------------------------------------------------------------------------- ------------- --- ------------- -- --------------
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, 2001 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, 2001, March 31, 2000 and March 28, 1999.
Consolidated Balance Sheets as of March 31, 2001 and March 31,
2000.
Consolidated Statements of Shareholders' Investment for the
years ended March 31, 2001, March 31, 2000 and March 28, 1999.
Consolidated Statements of Cash Flows for the years ended
March 31, 2001, March 31, 2000 and March 28, 1999.
Notes to Consolidated Financial Statements
28
28
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 o
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
10.28 Purchase Agreement to Sell dated February 26, 1999 by and between the
Company and Indiana Properties, LLC f
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
10.33 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. o
10.34 Asset Purchase Agreement, dated June 5, 2000, between Multi-Color Corporation,
Uniflex, John Yamasaki, Meiwa Corporation and Ryohsei Plastics Industries, Co., Ltd. n
10.35 Amendment to Credit Agreement dated February 8, 2001 g
29
29
MANAGEMENT CONTRACTS AND COMPENSATION PLANS
10.19 1992 Directors' Stock Option Plan b
10.20 401(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
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.
o. Filed as an exhibit to the Form 10-K for the 2000 fiscal year and
incorporated herein by reference.
(b) Reports on Form 8-K
None.
30
30
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 27, 2001 (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 27, 2001
- -------------------------------------------- (Principal Executive Officer)
Francis D. Gerace
/s/ Dawn H. Bertsche Vice President-Finance, June 27, 2001
- -------------------------------------------- Chief Financial Officer, Secretary
Dawn H. Bertsche (Principal Financial Officer
and Principal Accounting
Officer)
/s/ Lorrence T. Kellar Chairman of the June 27, 2001
- -------------------------------------------- Board of Directors
Lorrence T. Kellar
/s/ Gordon B. Bonfield Director June 27, 2001
- --------------------------------------------
Gordon B. Bonfield
/s/ Charles B. Connolly Director June 27, 2001
- --------------------------------------------
Charles B. Connolly
/s/ Burton D. Morgan Director June 27, 2001
- --------------------------------------------
Burton D. Morgan
/s/ David H. Pease, Jr. Director June 27, 2001
- --------------------------------------------
David H. Pease, Jr.
/s/ Roger A. Keller Director June 27, 2001
- --------------------------------------------
Roger A. Keller