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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 28, 1999
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 $5.63 per
share held by nonaffiliates of the registrant is $5,499,119 as of June 18, 1999.
As of June 18, 1999, 2,305,460 shares of common stock, no par value, were issued
and outstanding.
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INDEX TO ANNUAL REPORT ON FORM 10-K
PART I Page
Item 1 - Business 2
Item 2 - Properties 5
Item 3 - Legal Proceedings 5
Item 4 - Submission of Matters to a Vote of Security Holders 5
PART II
Item 5 - Market for the Registrant's Common Stock and Related Stockholder 6
Matters
Item 6 - Selected Financial Data 7
Item 7 - Management's Discussion and Analysis of Financial Condition and 8-11
Results of Operations
Item 7A - Quantitative and Qualitative Disclosures About Market Risk 11
Item 8 - Financial Statements and Supplementary Data 12-29
Item 9 - Changes in and Disagreements with Accountants on Accounting and 29
Financial Disclosure
PART III Part III (except for certain information relating to Executive Officers included 29
in 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
28, 1999 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 29-32
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;
vendor and customer Year 2000 compliance; quality of management; availability,
terms and development of capital; availability of raw materials; business
abilities and judgment of personnel; changes in, or the failure to comply with,
government regulations; competition; the ability to achieve cost reductions; 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 one of the largest producers of printed labels for
branded consumer products in the United States. Labels printed by the Company
appear principally on mass-marketed products for which label appearance is a
significant element of product marketing and merchandising. In its latest fiscal
year, Multi-Color produced labels for a variety of consumer products including
liquid detergents, fabric softeners, food products, liquid cleaners, anti-freeze
and chewing gum. Multi-Color currently produces labels for approximately 30
customers.
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In 1985, Multi-Color acquired the net assets of the label divisions of
Georgia-Pacific for $14.3 million cash and a $1 million note. Multi-Color
established the Multi-Color Graphic Services division in 1987. This division
supplies color separations of labels and engraves cylinders. The division was
formed to improve the quality of separations and engravings supplied to
Multi-Color and its customers. This division completed an expansion in fiscal
1991 that allows it to engrave cylinders for the Company's Scottsburg, Indiana
plant. The Company constructed a rotogravure printing plant in Scottsburg,
Indiana in 1990. This plant was built to provide additional printing capacity
and capabilities to meet the changing needs of the marketplace.
During the second quarter of fiscal 1997, the Company started a new
entity with Think Laboratories, Inc. of Kashiwa, Japan, through a new
corporation owned 80% by the Company named Laser Graphic Systems, Incorporated
("LGSI"), to develop the market for laser engraving services in the United
States and to compliment the Multi-Color Graphic Services division. The Company
also initiated an expansion of its Scottsburg, Indiana facility which entailed
doubling the existing capacity of the plant during 1997. On May 14, 1999, the
Company and Think Laboratories, Inc. (Think) entered into an agreement whereby
the Company will purchase all of Think's equity interest in LGSI for $500,000.
Think will continue to provide improvements and technology enhancements for the
laser engraving process to the Company.
During fiscal 1999, the Company approved the construction of a 56,000
square foot addition to its Scottsburg, Indiana facility. This addition is
expected to allow the Company to consolidate all of its label manufacturing
operations, presently spread out over three leased facilities, under one roof.
This consolidation should also improve label manufacturing efficiency and is
targeted for completion during the second quarter of fiscal 2000.
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 and its predecessors.
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 produces labels which are used to wrap products or are affixed to
finished product containers. These labels are printed for liquid detergent,
fabric softeners, food products, liquid cleaners, antifreeze and chewing gum. In
addition, the Company produces gift wrap.
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.
Multi-Color provides printed in-mold labels to consumer product
companies and, in addition, sells the unprinted in-mold label substrate to other
label printing companies.
The Company has recently introduced value added products and
capabilities targeted at the following markets:
1. A clear film which the Company believes will outperform
competitive products currently available and is well suited for
the personal care market.
2. Printing techniques that offer enhanced graphic appeal
particularly where metallic decorating is required to
differentiate premium products.
Multi-Color produces rotogravure cylinders at LGSI. Employing a
proprietary laser-exposing process which the Company licenses from Think
Laboratories, Inc., the resulting cylinders produce gravure's high quality at
costs comparable to other printing technologies. The Company is selling the
unique services of LGSI to customers other than its label customers and believes
that significant potential exists for this technology.
In addition, Multi-Color has expanded the reach of its products through
exports in a number of countries in South America; however, total sales to these
countries is still less than two percent of the Company's annual revenue.
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SALES AND MARKETING
Multi-Color receives annual or quarterly requirements estimates for
labels from its customers and ships against orders received, except in certain
cases where the Company has agreements with minimum purchase requirements.
The Company's marketing efforts are directed toward obtaining new
customers and increasing the Company's share of existing customers' overall
label requirements by meeting their specialized and technical label needs. The
Company's marketing strategy is to emphasize those sectors where Multi-Color's
equipment and expertise distinguish the Company from other label producers. The
Company maintains a marketing and technical support staff of eight people who
are responsible for developing innovative solutions, including new labels, for
customers' label needs.
Approximately 57% of the Company's total sales in fiscal 1999 were to
three customers: The Procter & Gamble Company, 30% (divided among six product
categories and three separate buyers); Wm. Wrigley Jr. Company, 15%; and Alvin
Press, 12%. The loss or substantial reduction of the business of any of the
major customers would have a material adverse effect on the Company.
PRINTING OPERATIONS
Multi-Color's printing equipment consists of four rotogravure printing
presses in its Scottsburg 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 28,
1999 and March 28, 1998, the label backlogs were approximately $3,000,000.
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.
Multi-Color's research and development expenditures totaled $340,000 in
fiscal 1999, $447,000 in fiscal 1998 and $246,000 in fiscal 1997.
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 facilitates, Multi-Color has developed
relationships with more than one supply source for each of its critical raw
materials. Additionally, its raw material suppliers are major corporations, each
demonstrating successful historical performance. Although this should prevent
any long term business interruption due to the inability of obtaining raw
materials, there could be short term manufacturing disruptions during the
customer qualification period for any new raw material source.
COMPETITION
The Company has a large number of competitors in its traditional label
business and three principal competitors in the in-mold label and substrate
business. Some of these competitors in the traditional label business have
greater financial and other resources than the Company. The three competitors in
the in-mold label and substrate business are either private companies or
subsidiaries of public companies and the Company cannot access the financial
resources of these organizations. Multi-Color could be adversely affected should
a competitor develop labels similar or technologically superior to the Company's
in-mold label. Although price is an important competitive factor in the
Company's business, the Company believes competition is principally dependent
upon quality, service, and technical expertise and experience. Customer service,
quality and qualification requirements present barriers to new entrants into
Multi-Color's markets.
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EMPLOYEES
As of March 28, 1999, the Company had 237 employees, of whom 64 were
salaried and 173 were hourly. 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 revamped its
environmental compliance procedures during fiscal 1999. An outside environmental
consultant was retained by the Company to monitor environmental compliance
during fiscal 1999 at a cost of approximately $72,000. Additionally, the Company
made capital investments of approximately $75,000 to maintain compliance with
federal and state environmental requirements. The Company is estimating it will
spend approximately $200,000 in fiscal 2000 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 two production facilities. The Scottsburg, Indiana
plant has 56,300 square feet and is situated on 14 acres, 30 miles north of
Louisville, Kentucky. The Erlanger, Kentucky facility, housing its Multi-Color
Graphics division and Laser Graphic Systems, Inc., has approximately 12,000
square feet and is located on approximately 3 acres, 10 miles south of
Cincinnati. The Company owns the real estate constituting all of its plant
sites. The land and buildings of all the plant sites are encumbered by mortgages
in favor of the lenders under the Company's credit facility. The Company's
executive offices are located at 205 West Fourth Street, Cincinnati, Ohio in
approximately 5,000 square feet of leased office space. The Company's properties
are in good condition, are well-maintained, and are adequate for the Company's
intended uses. During April, 1998, the Company sold its 300,000 square foot
building located in Cincinnati. The Company leased approximately 50,000 square
feet of the Cincinnati plant for warehouse purposes until March 28, 1999. As
previously stated, the Company has approved the construction of a 56,000 square
foot addition to its Scottsburg, Indiana plant which is scheduled for completion
during the second quarter of fiscal 2000. The Company will enter into a sale
leaseback arrangement for its Scottsburg facility when the addition is
completed.
ITEM 3. LEGAL PROCEEDINGS
On June 17, 1998, Multi-Color received proposed final findings and
orders from the Director of the Ohio Environmental Protection Agency (OEPA)
concerning certain alleged violations of environmental laws at the Company's
Cincinnati facility which include a proposed civil penalty of $282,700. The
Company subsequently reached an agreement with OEPA on March 8, 1999 which
included a settlement requiring payment of $100,000 and associated costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of the fiscal year ending March 28,
1999.
EXECUTIVE OFFICERS
Francis D. Gerace was promoted to President and was appointed a
Director on May 18, 1999. Prior to that time Mr. Gerace served as the Company's
Vice President of Operations from April 1998 to May 1999. Mr. Gerace was
Director of Strategic Business Systems for Fort James Corporation's Packaging
Business from 1993 to 1997. From 1974 to 1993, Mr. Gerace held various general
management positions with Conagra, Inc. and Beatrice Foods Company.
Stephen G. Mulch was appointed Vice President of Corporate Sales and
Business Development of the Company on April 6, 1998. 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 1997. 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.
William R. Cochran was appointed Vice President, Chief Financial
Officer of the Company in June of 1994 and Secretary in June, 1998. Prior to
joining Multi-Color, Mr. Cochran was Chief Financial Officer of AluChem, Inc.
from 1990 to 1994. From 1975 to 1990, Mr. Cochran was employed in various
accounting functions for Libbey Owens Ford, Owens-Corning and Deloitte & Touche,
LLP.
John R. Voelker was appointed Vice President of Sales and Marketing of
the Company in June of 1995. Prior to that time Mr. Voelker served as the
Company's Vice President National Accounts from 1992 to 1995 and Vice President
Multi-Color Graphics from 1989 to 1992.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's shares trade in the over-the-counter market under the
NASDAQ-NMS symbol LABL. The following table sets forth the high and low sales
prices of the Company's common stock ("Common Stock") as reported in the NASDAQ
National Market System during fiscal year 1998 and 1999. These prices may not
necessarily be indicative of any reliable market value.
High Low
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March 31, 1997 through June 29, 1997 $7.50 $5.75
June 30, 1997 through September 28, 1997 $8.38 $6.75
September 29, 1997 through December 28, 1997 $7.50 $6.25
December 29, 1997 through March 29, 1998 $10.00 $6.00
Year Ended March 29, 1998 $10.00 $5.75
March 30, 1998 to June 28, 1998 $7.50 $6.25
June 29, 1998 to September 27, 1998 $7.50 $5.38
September 28, 1998 to December 27, 1998 $7.63 $6.00
December 28, 1998 to March 28, 1999 $7.75 $6.25
Year Ended March 28, 1999 $7.75 $5.38
As of June 18, 1999, there were approximately 425 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. Additionally, the Company
is prohibited from paying dividends on the Common Stock unless all dividends
declared on the Company's Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock have been fully paid. The Company is currently in
arrears on dividends payable on its preferred stock.
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ITEM 6. SELECTED FINANCIAL DATA
Fiscal Year Ended (1)
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MARCH 28 March 29 March 30 March 31 April 2
1999 1998 (4) 1997 1996 1995 (2)
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(In thousands, except per share amounts)
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Net sales $ 49,786 $ 47,576 $ 48,143 $ 55,375 $ 61,777
Gross profit 6,929 4,840 8,267 8,508 2,803
Operating income (loss) 2,165 (2,455) 2,579 2,631 (7,168)
Income (loss) before extraordinary item and
cumulative effect of a change in accounting
principle 1,259 (4,071) 1,627 1,191 (8,523)
Extraordinary item -- -- -- -- 225
Cumulative effect of a change in accounting
principle 224 -- -- -- --
Net Income (loss) 1,484 (4,071) 1,627 1,191 (8,748)
Diluted earnings (loss) per share 0.50 (2.00) 0.58 0.55 (4.03)
Weighted average shares outstanding - diluted 2,949 2,172 2,821 2,178 2,169
Preferred dividends 275 279 261 -- --
Working capital $ (1,869) $ (1,827) $ 661 $ (3) $(17,031)(3)
Total assets 29,781 30,854 28,487 30,454 35,959
Short-term debt 4,369 4,782 3,411 2,902 19,898(3)
Long-term debt 11,086 11,208 9,902 14,873 8
Shareholders' investment 6,010 4,665 8,907 4,920 2,998
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(1) Multi-Color maintained a fiscal year of 52 or 53 weeks beginning on the
Monday nearest to March 31 through March 28, 1999. Fiscal year 1994 was a
53 week fiscal year. All other fiscal years set forth herein are 52 weeks.
(2) Fiscal year 1995 results include a write down of $3,800 on certain
equipment and an extraordinary charge of $225 related to prepayment fees
associated with a previous financing agreement.
(3) Includes $14,700 of long-term debt which was subject to acceleration and
therefore classified as current.
(4) Fiscal year 1998 results include a restructuring charge of $315, a write
down of $438 on certain property, and a $668 loss on sale of assets.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and notes thereto appearing
elsewhere herein.
RESULTS OF OPERATIONS
The following table shows, for the periods indicated, certain
components of the Company's consolidated statements of operations as a
percentage of net sales and the percentage changes in the dollar amounts of such
components compared to the indicated prior period.
Percentage of Net Sales
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1999 1998 1997
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Net Sales 100.0% 100.0% 100.0%
Cost of Goods Sold 86.1% 89.8% 82.8%
Gross Profit 13.9% 10.2% 17.2%
Selling, General & Administrative Expenses 9.6% 13.8% 11.8%
Restructuring Charge -- .7% --
Impairment Loss on Long-Lived Assets -- 1.0% --
Operating Income (Loss) 4.3% (5.3%) 5.4%
Interest Expense 2.2% 2.1% 2.1%
Other (.4%) 1.2% (.1%)
Income (Loss) Before Income Taxes and
Cumulative Effect of a Change in
Accounting Principle 2.5% (8.6%) 3.4%
Income taxes -- -- --
Net Income (Loss) Before Cumulative Effect of a Change in Accounting 2.5% (8.6%) 3.4%
Principle
Cumulative Effect of Change in Accounting for Inventories, Net of Tax (.5%) -- --
Net income (Loss) 3.0% (8.6%) 3.4%
COMPARISON OF FISCAL YEARS ENDED MARCH 28, 1999 AND MARCH 29, 1998
1999 1998 Change
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Net Sales $49,785,886 $47,575,608 $2,210,278
Net sales increased $2,210,000, or 4.6%, in 1999 as compared to 1998.
In-mold and cylinder sales increased 6.4% or approximately $2,600,000 over 1998
levels. The Company has confidence in the long-term growth of the in-mold label
and rotogravure cylinder markets, which is supported by the expansion program in
process at the Scottsburg label manufacturing facility.
1999 1998 Change
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Gross Profit $ 6,929,086 $ 4,840,344 $2,088,742
As a % of Sales 13.9% 10.2% 3.7%
Gross profit increased $2,089,000 as compared to the prior year. The
increase in gross profit was primarily attributable to improved efficiencies and
waste reduction realized at the Scottsburg facility during fiscal 1999 offset by
the reclassification of plant administration expenses ($900,000), to cost of
goods sold and higher cost product produced in the fiscal 1998 fourth quarter
and sold in the first quarter of fiscal 1999.
1999 1998 Change
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Selling, General
Administrative Expenses $ 4,764,312 $ 6,542,759 $ (1,778,447)
As a % of Sales 9.6% 13.8% (4.2%)
Selling, general, and administrative expenses decreased $1,778,000 as
compared to the prior year. The decrease in selling, general and administrative
expenses is primarily due to the previously mentioned reclassification of plant
administrative expenses ($900,000) to cost of goods sold, cost reductions made
in administrative overhead, and expense control offset in part by the Company
changing its accrual for environmental matters. As previously disclosed, the
Company voluntarily notified officials in
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Indiana that environmental compliance issues existed at the Scottsburg plant.
The Company subsequently announced that the Indiana Department of Environmental
Management ("IDEM") had made an initial proposal for an administrative
settlement to resolve the compliance issues which included a settlement of
claims for penalties in the amount of $1,277,000 and associated costs. The
Company reached an agreement with IDEM to resolve these matters during the
fiscal 1999 second quarter. In light of those developments and certain
developments in Ohio at that time, the Company increased its' environmental
reserve by $544,000 during the fiscal 1999 second quarter.
1999 1998 Change
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Restructuring Charge - $ 314,599 $ (314,599)
During 1998, the Company accrued a restructuring charge of $314,599 for
the previously announced closing of the Cincinnati printing plant to handle
severance and benefit obligations associated with the plant closing.
1999 1998 Change
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Impairment Loss
Long-Lived Assets - $ 438,459 $ (438,459)
The 1998 impairment loss on long-lived assets represents the loss on
sale of the Cincinnati plant which was completed two days subsequent to the end
of the fiscal year on March 31, 1998. The amount shown represents the difference
between the basis in the property and the selling price.
1999 1998 Change
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Interest Expense $ 1,121,565 $ 1,032,579 $ 88,986
Interest expense increased as compared to the same period in the prior
year and was the result of higher average borrowings under the revolving credit
line combined with higher average short-term rates.
The Company recorded no amounts for income taxes in 1999 as it
anticipates utilizing net operating loss carryforward benefits generated in
prior periods. There is no net deferred tax balance.
The Company recorded net income for 1999 of $1,484,000 or an increase
of $5,555,000 from the net loss of $(4,071,000) in 1998, due to the factors
discussed above.
COMPARISON OF FISCAL YEARS ENDED MARCH 29, 1998 AND MARCH 30, 1997
1998 1997 Change
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Net Sales $ 47,575,608 $ 48,142,920 $ (567,312)
Due to the Company phasing out certain categories of prime labels, the
sales decline of 1.2% was anticipated. Prime label sales declined $3,583,000 to
approximately $8,968,000 in 1998. The decline in prime label sales was the
result of the Company phasing out sales to one major customer as the
profitability did not meet the minimum returns established by management. Prime
labels are labels applied to the consumer-product packaging after the package is
manufactured. Sales of in-mold labels and cylinders increased 8.5% or
approximately $3,000,000 over 1997 levels. The Company has confidence in the
long-term growth of the in-mold label and rotogravure cylinder markets which is
supported by the expansion programs initiated during 1998 at the Scottsburg
label and Erlanger cylinder manufacturing facilities.
1998 1997 Change
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Gross Profit $ 4,840,344 $ 8,266,949 $ (3,426,605)
As a % of Sales 10.2% 17.2% (7.0%)
In support of the expected growth of in-mold label sales, during 1998,
the Company initiated an expansion program at the Scottsburg plant which doubled
its printing capacity. The Company installed a refurbished rotogravure press and
purchased a new Uteco Italian rotogravure press. Additionally, this expansion
program was initiated to give Multi-Color sufficient printing capacity allowing
the Company to close its Cincinnati facility.
The 1998 decline in gross profit was primarily the result of a delay of
the start-up of the new presses at Scottsburg and the resulting continuing
fiscal 1998 operation of the Cincinnati plant which was scheduled to be shut
down during the latter part of the second quarter. These two events combined to
increase expenses and contributed to the majority of the reduction of gross
profit. Although the Company was successful in selling the Cincinnati plant on
March 31, 1998, the facility negatively impacted 1998 results by approximately
$720,000.
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Additionally, the Company incurred one-time-only charges of
approximately $1,100,000 during the fourth quarter and had to curtail production
on two presses at its Scottsburg plant during the fourth quarter due to
environmental compliance problems. Both of these events negatively impacted the
1998 gross profit results.
1998 1997 Change
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Selling, General
Administrative Expenses $ 6,542,759 $ 5,688,392 $ 854,367
As a % of Sales 13.8% 11.8% 2.0%
Selling, general, and administrative expenses increased $854,000 in
fiscal 1998. The increase was attributable to the Company accruing a proposed
final findings and orders from the Ohio Environmental Protection Agency which
included a civil penalty, severance agreement charges, utilization of an outside
consultant to assist in the start-up of the Scottsburg expansion, increased
legal expenses, and increased bad debt expense.
1998 1997 Change
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Restructuring
Charge $ 314,599 $ - $ 314,599
During the second quarter, the Company accrued a restructuring charge
of $310,000 for the previously announced closing of the Cincinnati printing
plant to handle severance and benefit obligations associated with the plant
closing. An additional $4,599 was accrued during the fourth quarter of fiscal
1998 resulting in a total restructuring charge of $314,599.
1998 1997 Change
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Impairment Loss
Long-Lived Assets $ 438,459 $ - $ 438,459
The 1998 impairment loss on long-lived assets represents the loss on
sale of the Cincinnati plant which was completed two days subsequent to the end
of the fiscal year on March 31, 1998. The amount shown represents the difference
between the basis in the property and the selling price.
1998 1997 Change
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Interest Expense $ 1,032,579 $ 1,011,709 $ 20,870
Interest expense increased due to higher average borrowings on the
Company's working capital line offset by the retirement of the Cincinnati
Industrial Revenue Bonds.
The Company recorded no amounts for income taxes in 1998 as it
anticipates utilizing net operating loss carryforward benefits generated in
prior periods. There is no net deferred tax balance.
The Company recorded a net loss for 1998 of $(4,071,000) or a decrease
of $(5,698,000) from the net profit of $1,627,000 in 1997, due to the factors
discussed above.
Liquidity and Capital Resources
The Company is dependent on availability under its Revolving Credit
Agreement, approximately $1,600,000 at March 28, 1999, and its operations to
provide for cash needs. The Company entered into a new credit agreement with PNC
Bank, Ohio, National Association and Comerica Bank on June 22, 1998 which is a
restatement of its prior credit agreements. The earlier credit agreements were
amended several times between 1994 and 1998 to reflect, among other things, the
Company's inability to meet certain financial covenants, including cash flow
coverage ratios, leverage ratios and current ratios, and to reflect equity
infusions and changes in the Company's results of operations during that time
period. The new credit agreement, which has been amended twice since June 22,
1998, provides for available borrowings under a revolving line of credit up to a
maximum of $5,000,000, subject to certain borrowing base limitations. The new
credit agreement also allows $3,500,000 of capital expenditures including an
expansion program for a new facility in Scottsburg. Under the terms of the new
credit agreement, the Company is subject to a number of financial covenants.
Additionally, the Company is prohibited from paying deferred dividends on its
outstanding preferred stock, is limited in its ability to pay current dividends
on its outstanding preferred stock, and is limited in its ability to borrow
other funds until certain performance criteria are met. The amount of accrued
but unpaid preferred dividends was $354,034 at March 28, 1999.
In fiscal 1999, cash provided by operating activities was $2,300,000
compared to $1,300,000 in 1998. The increase was primarily due to an increase in
net income. In fiscal 1999, net cash used in investing activities was ($45,000)
compared to ($3,277,000) in 1998. The decrease was attributable to a decrease in
capital expenditures. Net cash used in financing activities was ($2,234,000) in
fiscal 1999 compared to net cash provided by financing activities of $1,905,000
in 1998. In 1998, net cash provided by financing activities was impacted by the
issuance of $1,300,000 in net long term debt and additional borrowings of
$1,370,000 under the revolving line of credit. In 1999, net cash used in
financing activities was impacted by increased payments of $1,660,000 to the
sinking fund and a $400,000 reduction in the revolving line of credit. The
Company believes it has both sufficient short and long term liquidity financing.
The Company had a deficit in working capital of $(1,869,000) at the end of
fiscal 1999 as
11
11
compared to a working capital deficit of $(1,827,000) at the end of fiscal 1998.
At May 31, 1999, the Company was in compliance with its loan covenants and
current in its principal and interest payments on all debt.
During fiscal 2000, the Company has no scheduled material principal
payments under any of its debt obligations. The Company expects during the
second fiscal quarter to complete the sale and leaseback of its Scottsburg
facility. The net proceeds from the sale, approximately $1,900,000, will be
utilized to reduce long-term debt. Accordingly, debt service requirements
representing sinking fund payments, for fiscal 2000 are expected to be
approximately $850,000. The Company intends to make capital expenditures other
than those in connection with any expansion of its Scottsburg facility of
approximately $1,750,000 during fiscal 2000. 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 2000. From time to time the Company has reviewed 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.
Computer Systems - Year 2000 Impact
STATE OF READINESS: The Company has implemented a Year 2000 compliance program
designed to ensure that the Company's computer systems and applications will
function properly beyond 1999. The program implementation involves employees
from all areas of the Company. The Company believes it has identified all the
systems which need testing, including, but not limited to, its traditional
information systems, as well as those systems containing embedded chip
technology, commonly found in the Company's presses and buildings and equipment
connected with the buildings' infrastructure such as heating, refrigeration and
air conditioning systems. The majority of testing to determine if the systems
are Year 2000 compliant is complete. The majority of the remediation phase is
complete and currently in use. The remainder of the remediation phase is
projected to be completed by the end of September, 1999. In some cases,
purchased software will be the basis for modifying non-compliant systems.
COSTS: The total expected cost of the Company's Year 2000 compliance program is
projected to be less then $300,000, consisting primarily of the installation of
a new computer system and internal salaries, of which approximately $275,000 had
been spent as of March 28, 1999. All costs are either capitalized or expensed as
incurred. The Company expects funding for these costs to come from working
capital.
RISK: Although the full consequences are unknown, the failure of one of the
Company's critical systems or the failure of an outside system, such as that of
the Federal Reserve or electrical utilities, may result in interruption of the
Company's business which may result in a materially adverse effect on the
operations or financial condition of the Company. With particular respect to raw
materials purchased for processing from the Company's key vendors, the Company
does not expect that any vendor's or small group of vendor's Year 2000 problems
would have a long-term negative effect on the Company since the Company does not
believe that any of its competitors would be in a position to sell competitive
products either. Notwithstanding the foregoing, the loss of revenue for an
extended period of time would likely have a materially adverse effect on the
Company. The Company has contacted its significant customers and vendors with
respect to their ability to comply with the Year 2000. Despite the relative lack
of problems encountered in these discussions, the Company has no direct
confirmation or control of Year 2000 remediation efforts by its customers and
suppliers and therefore, there can be no assurance that system failures that
cause materially adverse results to customers or vendors would not have an
adverse effect on the Company.
CONTINGENCY PLANS: The Company is in the process of developing contingency plans
for those areas which might be affected by the Year 2000 problems; however,
there can be no assurance that a contingency plan will exist for all situations.
Further, until the Company has received information from most of its suppliers
and customers, any contingency plan would be preliminary.
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 $149,000. The
Company does not presently use financial or derivative instruments to manage its
interest costs. The Company has minimal foreign exchange risks.
12
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Financial Statement
Schedules
PART lll
--------
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants 13
Consolidated Statements of Operations for the years ended
March 28, 1999; March 29, 1998 and March 30, 1997 14
Consolidated Balance Sheets as of March 28, 1999 and March 29, 1998 15
Consolidated Statements of Shareholders' Investment for the years ended
March 28, 1999; March 29, 1998 and March 30, 1997 16
Consolidated Statements of Cash Flows for the years ended
March 28, 1999; March 29, 1998 and March 30, 1997 17
Notes to Consolidated Financial Statements 18-29
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.
13
13
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 28, 1999 and March 29,
1998, and the related consolidated statements of operations, shareholders'
investment, and cash flows for each of the three years in the period ended March
28, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Multi-Color Corporation as of March 28, 1999 and March 29, 1998, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years then ended in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Cincinnati, Ohio
May 3, 1999, except for Note 11 as to which the date is May 14, 1999
14
14
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended March 28, 1999, March 29, 1998 and March 30, 1997
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Net Sales $ 49,785,886 $ 47,575,608 $ 48,142,920
Cost of goods sold 42,856,800 42,735,264 39,875,971
- ----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 6,929,086 4,840,344 8,266,949
Selling, general and administrative expenses 4,764,312 6,542,759 5,688,392
Restructuring charge (Note 14) -- 314,599 --
Impairment loss on long-lived assets (Note 2(f)) -- 438,459 --
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 2,164,774 (2,455,473) 2,578,557
Interest expense 1,121,565 1,032,579 1,011,709
Minority interest in losses of subsidiary (Note 11) (33,385) (84,889) (13,424)
Other (income) expense, net (primarily loss on sale of assets in 1998) (182,866) 667,831 (46,886)
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 1,259,460 (4,070,994) 1,627,158
Income taxes (Note 5) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 1,259,460 (4,070,994) 1,627,158
Cumulative Effect of Change in Accounting for Inventories, Net of Tax (224,392) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,483,852 $ (4,070,994) $ 1,627,158
- ----------------------------------------------------------------------------------------------------------------------------------
Preferred stock dividends $ 275,183 $ 279,408 $ 260,809
Net income (loss) applicable to common shares: $ 1,208,669 $ (4,350,402) $ 1,366,349
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average shares and equivalents outstanding:
Basic 2,268,012 2,172,482 2,169,937
Diluted 2,949,212 2,172,482 2,821,300
- ----------------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per common share:
Income (loss) before Cumulative Effect $ 0.43 $ (2.00) $ 0.63
Cumulative Effect of Change in Accounting for Inventories 0.10 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ 0.53 $ (2.00) $ 0.63
Diluted earnings (loss) per common and common equivalent share:
Income (loss) before Cumulative Effect $ 0.43 $ (2.00) $ 0.58
Cumulative Effect of Change in Accounting for Inventories 0.07 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ 0.50 $ (2.00) $ 0.58
- ----------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
15
15
CONSOLIDATED BALANCE SHEETS
As of March 28, 1999 and March 29, 1998
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2(d)) $ 9,997 $ 12,352
Accounts receivable, net:
Trade (Note 9) 4,488,774 4,605,268
Other 25,777 76,538
Note receivable (Note 8) 52,943 129,709
Inventories (Note 2(e)) 4,443,871 5,022,985
Deferred tax benefit (Note 5) 407,603 475,800
Prepaid expenses, supplies, pension and other 141,593 164,598
Prepaid income taxes 21,000 29,944
Property held for sale, net (Note 2(g)) -- 905,415
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 9,591,558 11,422,609
PROPERTY, PLANT AND EQUIPMENT, NET (NOTE 2(F)) 17,714,230 18,619,681
SINKING FUND DEPOSITS (NOTE 3) 2,283,900 620,648
DEFERRED CHARGES, NET 91,243 48,240
NOTE RECEIVABLE (NOTE 8) -- 42,513
NOTE RECEIVABLE FROM OFFICER/SHAREHOLDER (NOTE 8) 100,000 100,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 29,780,931 $ 30,853,691
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term debt (Note 3) $ 3,253,730 $ 3,664,436
Current portion of long-term debt (Note 3) 1,000,000 1,024,256
Current portion of capital lease obligations (Note 10) 115,153 93,316
Accounts payable (Note 2(i)) 4,589,053 6,968,195
Accrued liabilities:
Payroll benefits and related taxes (Note 4(a)) 1,021,945 866,353
Deferred compensation (Note 4(c)) 485,800 --
Real estate and personal property taxes 280,351 325,917
Interest and other 714,984 307,362
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 11,461,016 13,249,835
LONG-TERM DEBT (NOTE 3) 11,000,000 11,000,000
CAPITAL LEASE OBLIGATIONS (NOTE 10) 85,792 207,980
DEFERRED INCOME TAXES (NOTE 5) 407,603 475,800
DEFERRED COMPENSATION (NOTE 4(C)) 447,798 853,760
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 23,402,209 25,787,375
- ------------------------------------------------------------------------------------------------------------------------------------
Minority Interest (Note 11) 368,302 401,687
- ------------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 12)
SHAREHOLDERS' INVESTMENT (NOTES 7, AND 13):
Preferred stock, no par value; 1,000,000 shares authorized,
- 11,918 and 13,242 shares issued and outstanding at March 28, 1999 and March 29, 1998
(aggregate liquidation preference of $476,706) Series B 476,706 529,666
- 52,500 shares issued and outstanding at March 28, 1999 and March 29, 1998
(aggregate liquidation preference of $2,625,000) Series A 2,418,303 2,418,303
Common stock, no par value; 10,000,000 shares authorized, 2,208,300 and
2,182,060 shares issued and outstanding at March 28, 1999 and March 29, 1998 220,830 218,206
Paid-in capital 9,379,410 9,191,952
Accumulated deficit (6,484,829) (7,693,498)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' investment 6,010,420 4,664,629
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' investment $ 29,780,931 $ 30,853,691
====================================================================================================================================
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
16
16
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For the Years Ended March 28, 1999, March 29, 1998 and March 30, 1997
Preferred Stock Common Stock
----------------------------------------------------------
Number of Number of Additional
Shares Shares Paid-In Accumulated Pension
Outstanding Amount Outstanding Amount Capital Deficit Liability
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE,
March 31, 1996 13,242 $ 529,666 2,172,569 $ 217,257 $ 9,140,334 $(4,709,445) $ (257,769)
ADD (DEDUCT):
Net income -- -- -- -- -- 1,627,158 --
Preferred stock issued 52,500 2,418,303 -- -- -- -- --
Purchase of treasury stock -- -- -- -- -- -- --
Issuance of common stock -- -- 7,950 795 34,311 -- --
Preferred dividends
declared -- -- -- -- -- (260,809) --
Change in additional
pension liability -- -- -- -- -- -- 212,087
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE,
March 30, 1997 65,742 2,947,969 2,180,519 218,052 9,174,645 (3,343,096) (45,682)
ADD (DEDUCT):
Net loss -- -- -- -- -- (4,070,994) --
Issuance and retirement
of treasury stock -- -- (909) (91) 8,691 -- --
Preferred dividends
declared -- -- -- -- -- (279,408) --
Issuance of common stock -- -- 2,450 245 8,616 -- --
Change in additional
pension liability -- -- -- -- -- -- 45,682
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE,
March 29, 1998 65,742 2,947,969 2,182,060 218,206 9,191,952 (7,693,498) --
ADD (DEDUCT)
Net income -- -- -- -- -- 1,483,852 --
Preferred dividends declared -- -- -- -- -- (275,183) --
Issuance of common stock -- -- 13,000 1,300 38,900 -- --
Issuance of stock options -- -- -- -- 96,922 -- --
Conversion of Preferred
Stock to Common Stock (1,324) (52,960) 13,240 1,324 51,636 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE,
March 28, 1999 64,418 $ 2,895,009 2,208,300 $ 220,830 $ 9,379,410 $(6,484,829) $ --
====================================================================================================================================
Treasury
Stock Total
- ------------------------------------------------------------
BALANCE,
March 31, 1996 -- $ 4,920,043
ADD (DEDUCT):
Net income -- 1,627,158
Preferred stock issued -- 2,418,303
Purchase of treasury stock (45,000) (45,000)
Issuance of common stock -- 35,106
Preferred dividends
declared -- (260,809)
Change in additional
pension liability -- 212,087
- ------------------------------------------------------------
BALANCE,
March 30, 1997 (45,000) 8,906,888
ADD (DEDUCT):
Net loss -- (4,070,994)
Issuance and retirement
of treasury stock 45,000 53,600
Preferred dividends
declared -- (279,408)
Issuance of common stock -- 8,861
Change in additional
pension liability -- 45,682
- ------------------------------------------------------------
BALANCE,
March 29, 1998 -- 4,664,629
ADD (DEDUCT)
Net income -- 1,483,852
Preferred dividends declared -- (275,183)
Issuance of common stock -- 40,200
Issuance of stock options -- 96,922
Conversion of Preferred
Stock to Common Stock --
- ------------------------------------------------------------
BALANCE,
March 28, 1999 $ -- $ 6,010,420
============================================================
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
17
17
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended March 28, 1999, March 29, 1998 and March 30, 1997
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,483,852 $(4,070,994) $ 1,627,158
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 1,845,535 1,995,528 1,739,065
Amortization 32,575 38,000 53,234
Minority interest in losses of subsidiary (33,385) (84,889) (13,424)
Net (gain) loss on disposal of equipment 10,401 546,358 (186)
Increase in non-current deferred compensation 79,838 161,840 88,781
Increase in non-current pension obligation, net of equity charge -- 44,319 95,884
Decrease in notes receivable 119,279 109,048 99,697
Net (increase) decrease in accounts receivable, inventories,
prepaid expenses, supplies, and pension and other and refundable income taxes 778,318 (1,425,994) 798,108
Net increase (decrease) in accounts payable, accrued liabilities
(excluding restructuring charge) (2,039,755) 3,551,758 (1,935,996)
Impairment loss on long-lived assets -- 438,459 --
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,276,658 1,303,433 2,552,321
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,416,128) (4,312,323) (3,051,607)
Proceeds from sale of equipment 1,371,058 1,035,118 352,415
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (45,070) (3,277,205) (2,699,192)
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in revolving line of credit, net (410,706) 1,370,642 402,240
Sinking fund withdrawls (payments) (1,663,252) (546,197) 2,162,488
Proceeds from sale (purchase) of treasury stock, net -- 53,600 (45,000)
Proceeds from issuance of common stock, net 40,200 8,861 35,106
Proceeds from issuance of preferred stock, net -- -- 2,418,303
Proceeds from issuance of long-term debt -- 3,034,321 --
Repayment of long-term debt (24,256) (1,613,198) (4,901,960)
Preferred stock dividend payments -- (209,557) (260,809)
Proceeds from minority shareholder of subsidiary -- -- 500,000
Capitalized bank fees (75,578) (78,240) --
Repayment of capital lease obligation (100,351) (114,888) (123,166)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (2,233,943) 1,905,344 187,202
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,355) (68,428) 40,331
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR 12,352 80,780 40,449
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 9,997 $ 12,352 $ 80,780
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 1,121,565 $ 1,084,318 $ 1,079,629
Income taxes paid $ 38,550 $ 37,195 $ --
Supplemental Disclosure of Non Cash Activities:
Increase in property, plant and equipment and capital lease obligation $ -- $ -- $ 160,415
Increase in accrued interest and other and decrease in shareholders' investment
due to accrual of preferred stock dividends $ 275,183 $ 69,851 $ --
================================================================================================================================
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
18
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 28, 1999, March 29, 1998 and March 30, 1997
(1) THE COMPANY
Multi-Color Corporation (the Company), headquartered in Cincinnati,
Ohio, primarily supplies printed labels and engravings to various name brand
consumer products companies located throughout the United States. The Company
has plants located in Scottsburg, Indiana and Erlanger, Kentucky.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) FISCAL YEAR
Through March 28, 1999 the fiscal year of the Company commenced on the
Monday closest to March 31. References to fiscal 1999, 1998, and 1997 are for
the fiscal years ended March 28, 1999, March 29, 1998 and March 30, 1997,
respectively. Beginning in 2000, the Company's fiscal year will end on March 31.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financials statements include the accounts of the
Company and its majority-owned subsidiary (Note 11). All significant
intercompany transactions have been eliminated.
(c) REVENUE RECOGNITION
Sales and related costs of goods sold are recognized upon shipment to
the customers.
(d) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include operating cash accounts.
(e) INVENTORIES
Inventories are stated at the lower of FIFO (first-in, first-out) cost
or market. Inventories as of year-end consisted of the following:
1999 1998
- -------------------------------------------
Finished goods $2,390,765 $2,564,039
Work-in-process 1,097,675 739,105
Raw materials 955,431 1,719,841
- -------------------------------------------
$4,443,871 $5,022,985
============================================
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 as of March 30, 1998
was to increase income $224,000 and has been separately identified on the
consolidated statement of operations. Information is not available to determine
the effect of the change on net income (loss) for fiscal years ended March 29,
1998 and March 30, 1997.
(f) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of
year-end:
1999 1998
- -----------------------------------------------------------
Land and buildings $ 3,316,508 $ 2,976,900
Machinery and equipment 25,274,804 24,742,748
Furniture and fixtures 1,207,654 916,632
Construction in progress 9,900 366,413
- -----------------------------------------------------------
29,808,866 29,002,693
Accumulated depreciation (12,094,636) (10,383,012)
- -----------------------------------------------------------
$ 17,714,230 $ 18,619,681
===========================================================
Property, plant and equipment are stated at cost. In recognition of the
losses experienced by the Company at the former Cincinnati location in prior
years, the Company recorded a $3,800,000 impairment loss in 1995 on certain
long-lived assets at the Cincinnati location to reduce the carrying cost to the
fair value as generally determined by an independent appraiser. Additional
impairment losses of $438,000 and $112,000 were recorded in 1998 and 1996,
respectively on the Cincinnati location's assets, while assets with an assigned
impairment value of $827,000, $2,038,000 and $246,000 were either sold or
disposed of in 1999, 1998 and 1997, respectively.
19
19
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
(g) PROPERTY HELD FOR SALE
The Company had made available for sale certain property (former
Cincinnati facility) considered by management to be excess and no longer
necessary for the operations of the Company. Accordingly, this property, net of
accumulated depreciation of $950,878 and impairment losses of $438,000 at March
29, 1998 was classified as property held for sale. The aggregate carrying values
of such property are periodically reviewed and are stated at the lower of cost
or net realizable value. This property was sold in 1999.
(h) DEFERRED CHARGES
Deferred charges, net, consist primarily of costs associated with the
Scottsburg Industrial Revenue Bonds issued in 1998 which are amortized over the
term of the agreement (Note 3).
(i) ACCOUNTS PAYABLE
Accounts payable includes approximately $737,000 and $1,460,000 at
March 28, 1999 and March 29, 1998, respectively, for outstanding checks.
(j) 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.
(k) EARNINGS (LOSS) PER COMMON SHARE
The computation of basic earnings (loss) per common share is based upon
the weighted average number of common shares outstanding during the period and
the weighted average number of contingently issuable common shares upon
satisfaction of all necessary conditions. At March 28, 1999 contingently
issuable shares total 97,160 and relate to common shares issuable under a
deferred compensation agreement. Diluted earnings (loss) per common share is
based upon the weighted average number of common shares outstanding during the
period plus, in periods in which they have a dilutive effect, the effect of
common shares contingently issuable, primarily from the conversion of Series A &
B convertible preferred stock, the exercise of stock options, and common shares
issuable under a deferred compensation agreement.
In the third quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128") . SFAS
128 changed the computation, presentation and disclosure requirements for
earnings per share ("EPS"). Under SFAS 128, EPS is presented as basic earnings
per share ("basic EPS") and diluted earnings per share ("diluted EPS") and
replaces the presentation of primary EPS and fully diluted EPS. The adoption of
SFAS 128 resulted in the restatement of earnings per share for all periods
presented in the Company's consolidated financial statements.
The following is a reconciliation of the number of shares used in the
basic EPS and diluted EPS computations:
1999 1998 1997
------------------------ ------------------------- -------------------------
Per Per Per
Share Share Share
Shares Amount Shares Amount Shares Amount
---------- ------ --------- ------ --------- ------
Basic EPS 2,268,012 $0.43 2,172,482 $(2.00) 2,169,937 $0.63
---------- ------ --------- ------ --------- ------
Cumulative effect of
change in accounting
for inventories 2,268,012 .10 -- -- -- --
Effect of dilutive 37,040 (.01) -- -- -- --
stock options -- -- -- -- 40,097 (0.01)
Convertible shares 644,160 (.02) -- -- 611,266 (0.04)
---------- ------ --------- ------ --------- ------
Diluted EPS 2,949,212 $0.50 2,172,482 $(2.00) 2,821,300 $0.58
---------- ------ --------- ------ --------- ------
Preferred stock dividends of $275,183, $279,408 and $260,809 in fiscal
1999, 1998 and 1997, respectively, have been deducted from the net income or
added to the net loss generated in fiscal 1999, 1998 and 1997, respectively, to
arrive at the income/loss available to common stockholders for the calculation
of basic EPS. Common stock equivalents of approximately 701,630 shares,
resulting from convertible shares and stock options, were excluded from the
fiscal 1998 computation of diluted EPS because to do so would have been
antidilutive.
20
20
(l) ADVERTISING COSTS
Advertising costs are charged to expense as incurred. Expenses were
minimal for the three fiscal years ended March 28, 1999.
(m) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
Expenses were $340,000, $447,000 and $246,000 for 1999, 1998 and 1997,
respectively.
(n) STOCK-BASED COMPENSATION
The provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation" are effective for the Company in 1997. This standard requires 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 made the required
additional disclosures under SFAS No. 123 for 1999, 1998 and 1997 (Note 7).
(o) 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.
(p) FAIR VALUE DISCLOSURE
The fair value of financial instruments approximates carrying value.
(q) COMPREHENSIVE INCOME
The Company does not have any comprehensive income items other then net
income.
(r) NEW PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting No. 133, Accounting for Derivative Instruments and
Hedging Activities, which requires entities to report all derivatives at fair
value as assets or liabilities in their statements of financial position. This
statement is effective for financial statements issued for fiscal periods
beginning after June 15, 1999. The Company does not currently have any
derivative instruments or hedging activities to report under this standard.
21
21
(3) DEBT
The components of the Company's debt are as follows:
1999 1998
- ---------------------------------------------------------------------------------------------------------------
SHORT-TERM DEBT
Revolving line of credit $ 3,253,730 $ 3,664,436
===============================================================================================================
LONG-TERM DEBT
Scottsburg Industrial Revenue Bonds, floating weekly rate, which approximates
3.52% at March 28, 1999, scheduled balloon
payment $5,750,000 in October 2009 5,750,000 5,750,000
Scottsburg Industrial Revenue Bonds, floating weekly rate,
which approximates 3.42% at March 28, 1999, 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 3.35% at March 28, 1999, scheduled balloon
payment of $3,250,000 in December 2009 3,250,000 3,250,000
Other -- 24,256
- ---------------------------------------------------------------------------------------------------------------
$ 12,000,000 $ 12,024,256
Less-current portion of debt and sinking fund payments (1,000,000) (1,024,256)
- ---------------------------------------------------------------------------------------------------------------
$ 11,000,000 $ 11,000,000
===============================================================================================================
The following is a schedule of future annual principal payments payable
after one year (including sinking fund payments):
2001 $ 250,000
2002 -
2003 -
2004 -
2005 -
2006 and thereafter 10,750,000
--------------------------------------------------------------
$11,000,000
==============================================================
On June 22, 1998, the Company restated its credit agreement with an
existing lender and a new additional lender. The restated credit agreement
provides for a revolving line of credit with borrowings up to a maximum of
$5,000,000 subject to certain borrowing base limitations. The interest rate
fluctuates and is based on the Company meeting certain ratios. For the year
ended March 28, 1999, the average interest rate was 7.83%. At March 28, 1999,
the Company had approximately $1,600,000 in available borrowings under the
revolving line of credit. The credit agreement expires July 31, 2000. The credit
agreement requires quarterly sinking fund deposits of $250,000 until termination
of the agreement. The agreement also contains various financial and operating
covenants which, among others, require the Company to maintain certain leverage,
working capital and cash flow ratios and limits the payment of dividends. On
April 16, 1999, the Company amended its credit agreement to increase the
collateral borrowing base for short term borrowings, increase the annual lease
payments to cover the lease payments for the Scottsburg expansion, and allow for
the payment of partial quarterly preferred dividends if certain cumulative net
income thresholds are maintained.
On May 1, 1999, the Company amended its credit agreement providing for
a reduction in its short term and long term borrowings rates and reduction
overall fee structure. Additionally, the lenders reduced the quarterly sinking
fund deposit requirement to $200,000 until termination of the agreement.
On April 1, 1997 the Company entered into a $3,000,000 industrial
development revenue bond financing (Series 1997 Bonds) with the City of
Scottsburg, Indiana in support of its Scottsburg, Indiana plant expansion.
With respect to the Bonds, the Company has the option to establish the
Bonds' interest rate form (variable or fixed interest rate). When a fixed
interest rate is selected, the fixed rate assigned will approximate the market
rate for comparable securities. When a variable rate is selected, or at the end
of a fixed interest rate period, the Bondholders reserve the right to demand
payment of the bonds. In the event that any of the Bondholders exercise their
rights, a remarketing agent is responsible for remarketing the Bonds on a best
efforts basis for not less than the outstanding principal and accrued interest.
In the event the Bonds are not able to be remarketed and the letters of credit
are exercised, the lender is committed to providing financing for up to 458
days. These letters of credit expire July 31, 2000.
22
22
(4) EMPLOYEE BENEFIT PLANS
(a) The Company has a defined benefit plan covering former hourly employees
at its former Cincinnati facility who met certain age and service requirements.
The Company's funding policy is to contribute the recommended actuarially
determined contribution. Pension costs are based on length of service after May
1, 1985 using the unit credit method.
As the Company has sold the Cincinnati facility (see Note 2(g)), this
plan will be terminated in the near future. There is no curtailment gain or loss
to be recognized at March 28, 1999.
Effective March 30, 1998, the Company adopted Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits ("SFAS 132"). SFAS 132 revises employers' disclosures
about pensions and other post retirement benefit plans. As required, disclosures
for 1998 and 1997 have been restated for comparative purposes.
The change in the Company's benefit obligation is computed as follows:
1999 1998 1997
- ------------------------------------------------------------------------------------------------
Projected benefit obligation at beginning of year $ 2,468,988 $ 2,449,063 $ 2,232,996
Service cost 39,624 98,871 140,074
Interest cost 164,322 163,113 158,341
Actual (gain) (158,784) (159,506) (18,982)
Benefits paid (103,376) (82,553) (63,366)
Change in assumptions 164,450 -- --
- ------------------------------------------------------------------------------------------------
Projected benefit obligation at end of year $ 2,575,224 $ 2,468,988 $ 2,449,063
================================================================================================
The change in the Plan's assets is computed as follows:
1999 1998 1997
- ---------------------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $ 2,837,343 $ 2,447,700 $ 1,967,460
Actual return on plan assets 123,502 382,935 375,606
Employer contribution -- 89,261 168,000
Benefits paid (103,376) (82,553) (63,366)
- ---------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 2,857,469 $ 2,837,343 $ 2,447,700
=============================================================================================
The following table sets forth the Plan's funded status and amounts recognized
on the Company's accompanying balance sheets:
1999 1998 1997
- --------------------------------------------------------------------------------
Funded status $ 282,245 $ 368,355 $ (1,363)
Unrecognized net actuarial (gain) loss (168,198) (277,116) 45,682
Unrecognized prior service cost 1,221 2,427 3,633
- --------------------------------------------------------------------------------
Prepaid benefit cost $ 115,268 $ 93,666 $ 47,952
================================================================================
The weighted-average actuarial assumptions used were:
As of MARCH 28, 1999 March 29, 1998 March 30, 1997
- ------------------------------------------------------------------------------------------------------
Discount rate 6.75% 7.25% 7.25%
Expected return on plan assets 7.50% 9.00% 9.00%
Net periodic pension cost includes the following components:
1999 1998 1997
- --------------------------------------------------------------------------------
Service cost $ 39,624 $ 98,871 $ 140,074
Interest cost 164,322 163,113 158,341
Expected return on plan assets (208,398) (219,643) (183,821)
Amortization of prior service cost 1,206 1,206 1,206
Recognized net actuarial (gain) loss (18,356) - 1,320
- --------------------------------------------------------------------------------
Net periodic pension cost $ (21,602) $ 43,547 $ 117,120
================================================================================
(b) The Company has established a profit sharing/401(k) retirement savings
plan which covers those employees who meet certain service requirements and are
not participants in the Company retirement plan discussed above. The plan
provides for voluntary contributions by the Company's employees up to a
specified maximum percentage of gross pay. At the discretion of the Company's
Board of Directors, the Company will contribute a specified matching percentage
of the employee contributions.
23
23
Company contributions in 1999, 1998 and 1997 approximated $147,000, $147,000 and
$124,000, respectively, which represent one-half of the employee contributions
not exceeding 6% of gross pay.
(c) 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 28, 1999 and March 29, 1998. Amounts due under deferred
compensation agreements with former officers are classified as short-term
liabilities at March 28, 1999. Interest on the long-term deferred amounts which
are included in the balances due were accrued at 9 3/4%, 10 1/2% and 10 1/4% in
1999, 1998 and 1997, respectively. Expenses in 1999, 1998 and 1997 approximated
$80,000, $93,000 and $88,000, respectively.
(d) The Company allows retirees between the ages of 62 and 65 to continue
to participate in its health plan. The retirees reimburse the Company a
stipulated premium amount so the net cost to the Company is immaterial. The
Company offers no other programs requiring recognition of the cost of
postretirement or postemployment benefits under the Financial Accounting
Standards Board statements on accounting for postretirement and postemployment
benefits.
(e) During 1992 the Company established a supplemental retirement program
for key executives which allows a maximum of $300,000 in loans to such employees
with a maximum of $100,000 to any one individual. At March 28, 1999 and March
29, 1998 a $100,000 loan at no interest was outstanding under this program from
a former officer (Note 8).
(f) The Company has an employee stock purchase plan whereby eligible
employees may purchase up to 1,000 shares of Company stock per year through
payroll deductions. The Company will contribute one bonus share for every four
shares purchased up to a maximum of twenty bonus shares per year to any one
employee; however, in 1999, 1998 and 1997 the Company contributed cash rather
than stock.
(5) INCOME TAXES
The provision (credit) for income taxes includes the following components:
1999 1998 1997
=========================================================================================
Currently payable (receivable)
Federal $ 684,000 $ -- $ 1,151,000
State and local 121,000 -- 107,000
Benefit of operating loss carryforwards (805,000) -- (1,258,000)
- -----------------------------------------------------------------------------------------
-- -- --
- -----------------------------------------------------------------------------------------
Deferred
Federal 9,000 103,000 7,000
State and local (9,000) (103,000) (7,000)
$ -- $ -- $ --
=========================================================================================
The following is a reconciliation between the statutory federal income
tax rate and the effective rate shown above:
1999 1998 1997
- ------------------------------------------------------------------
Computed provision (credit) for federal
income taxes at the statutory rate 34% (34%) 34%
State and local income taxes, net of
federal income tax benefit 5% (2%) (6%)
Valuation allowance (61%) (49%) (43%)
Changes in estimates for deferred
components, primarily net operating
loss carryforward 9% (17%) --
EPA fines 11% 2% --
Other 2% 2% 3%
- ------------------------------------------------------------------
Effective tax rate -- -- --
==================================================================
24
24
At year end the net deferred tax components consisted of the following:
1999 1998
- --------------------------------------------------------------------------------
Deferred tax liabilities
Tax depreciation over book depreciation $(2,489,702) $(2,879,393)
- --------------------------------------------------------------------------------
Other (13,600) (15,543)
- --------------------------------------------------------------------------------
$(2,503,302) $(2,894,936)
================================================================================
Deferred tax assets:
Asset impairment loss $ 191,014 $ 472,135
Deferred compensation 294,059 266,911
Ohio EPA fine -- 96,118
Inventory reserves -- 36,977
Other 209,277 232,050
AMT credit carryforward 131,115 89,855
Tax credit carryforward 42,019 142,215
State deferred tax asset, net of
federal benefit 96,431 117,861
Net operating loss carryforward 4,370,234 5,168,896
- --------------------------------------------------------------------------------
5,334,149 6,623,018
Valuation allowance (2,830,847) (3,728,082)
- --------------------------------------------------------------------------------
$ 2,503,302 $ 2,894,936
- --------------------------------------------------------------------------------
Net deferred tax components $ -- $ --
================================================================================
For tax reporting purposes, the Company has approximately $131,000 of
alternative minimum tax (AMT) credits available for an indefinite period. The
regular tax net operating loss of approximately $12,855,000 can be carried
forward and used to reduce future taxable income in addition to tax credits of
approximately $42,000, which can be carried forward through the following
expiration dates:
Year Net Operating Losses Tax Credits
----------------------------------------------------------------------------------------------
2009 $ 5,390,000 $ -
2010 5,204,000 -
2011 612,000 9,000
2012 - 33,000
2013 1,649,000 -
----------------------------------------------------------------------------------------------
$12,855,000 $42,000
==============================================================================================
The valuation allowance, which decreased by approximately $897,000 in
1999, is required due to the uncertainty of realizing the net deferred tax asset
through future operations.
(6) MAJOR CUSTOMERS
During 1999, 1998 and 1997, sales to three companies and their related
subsidiaries and divisions approximated 57%, 54% and 51%, respectively, of the
Company's net sales individually presented as follows:
1999 1998 1997
--------------------------------------------------------------------
30% 26% 27%
15% 14% 13%
12% 14% 11%
--------------------------------------------------------------------
57% 54% 51%
====================================================================
In addition, the year end accounts receivable balances of these
companies approximated 43%, 44%, and 43% of the Company's total accounts
receivable balance at year end 1999, 1998, and 1997, respectively.
The loss or substantial reduction of the business of any of the major
customers would have a material adverse effect on the Company.
25
25
(7) STOCK OPTIONS
As of March 28, 1999, 88,500 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 1999, 1998,
and 1997 is set forth below:
Options Price
Number of Weighted Average Range
Shares Exercise Price (Per Share)
- ---------------------------------------------------------------------------------------------------------------------
Oustanding at March 31, 1996 312,800 $6.82 $2.63-$11.00
Granted 42,500 6.12 6.00-6.25
Exercised (1,250) 2.63 2.63
Cancelled (5,000) 9.25 9.25
Expired (20,000) 11.00 11.00
- ---------------------------------------------------------------------------------------------------------------------
Outstanding at March 30, 1997 329,050 $6.47 $2.63-$11.00
Granted 150,000 6.53 6.41-6.77
Exercised (2,450) 3.62 2.63-4.65
Cancelled (228,050) 6.79 2.63-9.25
Expired (2,500) 8.95 7.75-9.25
- ---------------------------------------------------------------------------------------------------------------------
Outstanding at March 29, 1998 246,050 $6.18 $2.63-$11.00
Granted 261,675 6.47 2.63-7.38
Exercised (13,000) 3.09 2.63-4.65
- ---------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT MARCH 28, 1999 494,725 $6.42 $2.63-$11.00
=====================================================================================================================
26
26
The following summarizes options outstanding and exercisable at March
28, 1999:
Options Outstanding Options Exercisable
---------------------------------------------------- ------------------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable at Exercise
Exercise Prices at 3/28/99 Contractual Life Price at 3/28/99 Price
- ---------------------------------------------------------------------------------------------------------------------
$2.63 to $6.25 170,925 5.30 $5.26 95,350 $4.91
$6.26 to $11.00 323,800 3.91 $7.03 223,800 $7.25
--------------- -----------------
494,725 319,150
=============== =================
The weighted average fair value at date of grant for options granted
during 1999, 1998 and 1997 was $3.21, $3.27 and $3.17, respectively. The fair
value of options at the date of grant was estimated using the binomial model
with the following weighted average assumptions:
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
Expected life (years) 5.00 5.00 5.00
Interest rate 5.23% 5.42% 6.04%
Volatility 48.27% 50.19% 51.71%
Dividend yield 0% 0% 0%
Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards in 1999, 1998
and 1997 consistent with the provisions of SFAS No. 123, the Company's net
income (loss) and earnings (loss) per share would have been reduced to the pro
forma amounts indicated below:
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) - as reported $1,483,852 $(4,070,994) $1,627,158
Net income (loss) - pro forma 868,656 $(4,086,937) $1,547,054
Net income (loss) per common and common
equivalent share - as reported
Basic $.53 $(2.00) $.63
Diluted $.50 $(2.00) $.58
Net income (loss) per common and common
equivalent share - pro forma
Basic $.38 $(2.01) $.59
Diluted $.30 $(2.01) $.55
(8) NOTES RECEIVABLE
The components of notes receivable are summarized as follows:
1999 1998
- -----------------------------------------------------------------------------------------------------------------
Officer note established under the
supplemental retirement program (Note 4(e)) $100,000 $ 100,000
- -----------------------------------------------------------------------------------------------------------------
Note receivable related to the sale of the
previously owned Lockport facility,
interest at 9%, payable in monthly
installments through July 1999,
secured by a mortgage on the property
and personal guarantees $ 52,943 $ 172,222
- -----------------------------------------------------------------------------------------------------------------
Less-current portion (52,943) (129,709)
- -----------------------------------------------------------------------------------------------------------------
$ - $ 42,513
=================================================================================================================
27
27
(9) 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 1999, 1998 and 1997.
1999 1998 1997
- --------------------------------------------------------------------------------
Balance at beginning of year $ 418,669 $ 26,077 $ 35,716
Provision 76,051 555,840 58,654
Accounts written-off (356,753) (163,248) (68,293)
- --------------------------------------------------------------------------------
Balance at end of year $ 137,967 $ 418,669 $ 26,077
================================================================================
(10) CAPITAL LEASE OBLIGATIONS
The Company has entered into capital leases for certain equipment. The
amount recorded for the equipment and related obligations under the capital
leases amounted to $558,000 at year end 1998. The accumulated depreciation was
$119,766 and $94,450 at year end 1999 and 1998, 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 28, 1999:
Total future minimum lease payments $225,389
Less: Interest (24,444)
----------------------------------------------------------------------------------------
Present value of minimum lease payments 200,945
Less: Current portion (115,153)
---------------------------------------------------------------------- -----------------
$ 85,792
========================================================================================
The following is a schedule of future annual minimum lease payments:
2000 $135,063
2001 88,403
2002 1,923
----------------------------------------------------------
$225,389
==========================================================
(11) MAJORITY-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),
is owned 80% by the Company. For financial reporting purposes, LGSI's assets,
liabilities and earnings are consolidated with those of the Company, and Think's
interest in the Company is included in the accompanying financial statements as
minority interest.
The Company and Think are subject to a shareholders' agreement. Under
the terms of the agreement, Think sells to LGSI any equipment it requires that
is manufactured by Think at a price no greater than 80% of Think's normal
wholesale price. During 1999, 1998 and 1997, LGSI purchased equipment and other
items from Think totaling $62,558, $174,510 and $422,849, respectively.
Additionally, a royalty of 5% of revenues from cylinders produced by LGSI has
been paid by LGSI to Think beginning July 1, 1997. The parties may agree to
dissolve LGSI upon either party providing 90 days written notice of its desire
to do so.
On May 14, 1999, the Company and Think Laboratories, Inc. (Think)
entered into an agreement whereby the Company will purchase all of Think's
equity interest in LGSI for $500,000. Think will continue to provide
improvements and technology enhancements for the laser engraving process to the
Company. The Company is required to make quarterly payments of $41,668
commencing July 1999 and continuing thereafter until the first business day of
April 2002.
28
28
(12) COMMITMENTS AND CONTINGENCIES
(a) OPERATING LEASE AGREEMENTS
The Company has various equipment, office and plant facility leases.
Leases expire on various dates through August 2003. Rent expense during 1999,
1998 and 1997 was approximately $358,000, $451,000, and $256,000, respectively.
The annual future minimum rental obligations as of March 28, 1999 are
as follows:
2000 $303,000
2001 208,000
2002 139,000
2003 34,000
2004 11,000
---------------------------------------------------------
Total $695,000
=========================================================
(b) 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 has been recorded in full at March
28, 1999. The civil penalty may be reduced by up to $225,000 upon completion of
1 of 3 proposed Supplemental Environmental Projects (SEPs). Payment of this
portion of the penalty will be contingent upon which SEP is chosen, if any, by
the Company. The Company is still in the process of evaluating the proposed
SEPs. The remainder of the civil penalty ($400,000) is due in quarterly
installments of $33,000 through September 30, 2001.
On March 8, 1999, the Company reached an agreement with the Director of
the Ohio Environmental Protection Agency concerning certain alleged violations
of environmental laws at the Company's Cincinnati facility which included a
civil penalty of $100,000. The Company accrued and expensed the penalty as of
March 29, 1998.
(c) SALE/LEASEBACK OF SCOTTSBURG, INDIANA PLANT
In February 1999, the Company entered into an agreement to sell its
Scottsburg, Indiana plant to a third party for $1,900,000. The sale will occur
upon completion of an approximately 56,000 square foot addition to the plant by
the purchaser and is expected to take place during the second quarter of fiscal
2000. Concurrent with the sale, the Company will enter into a lease agreement
with the third party to lease the plant for a period of 20 years. Monthly lease
payments will be $46,200. The lease will be classified as a capital lease.
(d) 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.
(13) PREFERRED STOCK
On May 2, 1996, the Company sold to Label Venture Group LLC 52,500
shares of a newly created issue of Series A Convertible Preferred Stock for
$2,432,000. Each share of Series A Convertible Preferred Stock is immediately
convertible, at the option of the shareholder, into ten shares of the Company's
Common Stock and may be redeemed by the Company starting in May 1998. The Series
A Convertible Preferred Stock bears a preferred dividend of $4.25 per share and
has a liquidation value of $50 per share, plus unpaid dividends. The Company's
lenders required $1,000,000 of the proceeds to be deposited into the Company's
Sinking Fund Deposit account (Note 3). The remaining proceeds were used to
support capital expansion plans.
Effective March 31, 1996, 13,242 shares of Series B Convertible
Preferred Stock were issued upon conversion of the entire outstanding balance,
including accrued interest, of Subordinated Convertible Notes that were issued
in October 1995. The Series B Convertible Preferred Stock was issued at $40 per
share and also has a liquidation value of $40 per share, plus unpaid dividends.
These shares are immediately convertible, at the option of the shareholders,
into 132,420 shares of Common Stock and may be redeemed by the Company starting
in May 1998.
In fiscal 1999, 1,324 shares of Series B Convertible Preferred Stock
were converted into 13,240 shares of Common Stock.
29
29
The Company is currently prohibited from paying all preferred dividends
on its outstanding preferred stock under the terms of the credit agreement until
certain performance covenants are met. The amount of accrued but unpaid
preferred dividends was $345,034 at March 28, 1999. The credit agreement
currently prohibits redemption of the preferred stock. Beginning in May 1999,
the Company was allowed to pay $35,000 in dividends per quarter to the holders
of preferred stock (representing approximately 50% of the required quarterly
payment).
(14) RESTRUCTURING PLAN
The Company implemented a restructuring plan in fiscal year 1998 which
resulted in a pre-tax charge to operating results of $314,599 primarily related
to reducing operations at the Cincinnati plant. The restructuring charge
included severance pay, employee insurance and certain other costs. These costs
were paid in full in fiscal 1998.
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 28, 1999 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 28, 1999, March 29, 1998 and March 30, 1997.
Consolidated Balance Sheets as of March 28, 1999 and March 29,
1998.
Consolidated Statements of Shareholders' Investment for the
years ended March 28, 1999, March 29, 1998 and March 30, 1997.
Consolidated Statements of Cash Flows for the years ended
March 28, 1999, March 29, 1998 and March 30, 1997.
Notes to Consolidated Financial Statements
Report of Grant Thornton LLP, Independent Certified Public
Accountants
(a)(2) Financial Statement Schedules
All schedules have been omitted because either they are not
required or the information is included in the financial
statements and notes thereto.
30
30
(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) Amended and Restated Code of Regulations b
10.1 Irrevocable Letter of Credit dated July 19, 1994 from PNC Bank, Ohio, National c
Association covering $5,750,000 City of Scottsburg, Indiana Economic
Development Revenue Bonds
10.2 Trust Indenture securing City of Scottsburg, Indiana Economic Development d
Revenue Series 1989 dated as of October 1, 1989
10.3 Bond Purchase Agreement for $5,750,000 City of Scottsburg, Indiana Economic d
Development Revenue Bonds Series 1989
10.4 Remarketing Agreement dated October 1, 1989 by and among d
the Company, The Ohio Company and The PNC Bank (Formerly
The Central Trust Company, N.A).
10.5 First Refusal Agreement among the Company's shareholders b
10.6 Loan Agreement between City of Scottsburg, Indiana and Multi-Color dated d
October 1, 1989 for $5,750,000
10.7 Trust Indenture securing County of Boone, Kentucky Industrial Building Revenue Bonds, d
Series 1989 dated as of December 1, 1989
10.8 Loan Agreement between County of Boone, Kentucky and Multi-Color for $3,250,000 d
dated as of December 1, 1989
10.9 Remarketing Agreement dated as of December 1, 1989 by and d
among the Company, The Ohio Company and The PNC Bank
(Formerly The Central Trust Company, N.A.)
10.10 Remarketing Agreement dated October 1, 1989 by and among the Company, The Ohio d
Company and The PNC Bank (Formerly The Central Trust Company, N.A.)
10.11 Irrevocable Letter of Credit dated July 19, 1994 from PNC Bank, Ohio, National c
Association covering $3,250,000 County of Boone, Kentucky Industrial Building
Revenue Bonds
10.12 Bond Purchase Agreement for $3,250,000 County of Boone, Kentucky Industrial c
Building Revenue Bonds Series 1989
10.14 Loan Agreement between the Company and City of Scottsburg, Indiana, dated e
as of April 1, 1997 for $3,000,000
10.15 Third Amended and Restated Credit, Reimbursement and Security Agreement, original j
dated as of July 15, 1994, restated as of June 22, 1998 among Multi-Color Corporation
and PNC Bank, National Association and Comerica Bank
10.16 Amendment, Consent and Waiver Agreement dated April 16, 1999, original dated as of f
July 15, 1994, restated as of June 22, 1998 among Multi-Color Corporation and PNC
Bank, National Association and Comerica Bank.
10.17 Second Amendment to Credit Agreement dated May 1, 1999, original dated as of July 15, f
1994, restated as of June 22, 1998, amended as of April 16, 1999 among Multi-Color
Corporation and PNC Bank, National Association and Comerica Bank
MANAGEMENT CONTRACTS AND COMPENSATION PLANS
10.18 1987 Stock Option Plan b
10.19 1992 Directors' Stock Option Plan b
10.20 Profit Sharing/401(k) Retirement Savings Plan and Trust b
10.21 Deferred Compensation Rabbi Trust Agreement a
10.22 Multi-Color Employee Stock Purchase Plan as g
amended and restated dated March 4, 1992
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 f
and Steven G. Mulch
10.26 Employment Agreement entered into March 16, 1998 by and between the Company f
and Francis D. Gerace
10.27 Amendment to Employment Agreement dated May 18, 1999, to employment agreement f
dated as of March 16, 1998 among Multi-Color Corporation and Francis D. Gerace
10.28 Purchase Agreement to Sell dated February 26, 1999 by and between the f
Company and Indiana Properties, LLC
31
31
27 Financial Data Schedule f
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 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 herewith.
g Filed as an exhibit to the Form 8-K filed on March 16, 1992.
h Filed as an exhibit to the 1997 Proxy Statement and incorporated
herein by reference.
i Filed with the Company's definitive Proxy Statement for the annual
meeting held October 15, 1998.
j Filed as an exhibit to the Form 10-K for the 1998 fiscal year and
incorporated herein by reference.
32
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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 24, 1999 (Registrant)
-------------------
/s/ Francis D. Gerace
--------------------------------
Francis D. Gerace
President
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 and Director June 24, 1999
- ----------------------------------
Francis D. Gerace
/s/ William R. Cochran Vice President, June 24, 1999
- ---------------------------------- Chief Financial Officer, Secretary
William R. Cochran (Principal Financial Officer
and Principal Accounting
Officer)
/s/ Louis M. Perlman Chairman of the June 24, 1999
- ---------------------------------- Board of Directors
Louis M. Perlman
/s/ Gordon B. Bonfield Director June 24, 1999
- ----------------------------------
Gordon B. Bonfield
/s/ Charles B. Connolly Director June 24, 1999
- ----------------------------------
Charles B. Connolly
/s/ Lorrence T. Kellar Director June 24, 1999
- ----------------------------------
Lorrence T. Kellar
/s/ Burton D. Morgan Director June 24, 1999
- ----------------------------------
Burton D. Morgan
/s/ David H. Pease, Jr. Director June 24, 1999
- ----------------------------------
David H. Pease, Jr.