SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2002 |
OR |
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File #0-16148
Multi-Color Corporation
(Exact name of Registrant as specified in its charter)
OHIO | 31-1125853 | ||
(State or other jurisdiction of | (IRS Employer | ||
incorporation or organization) | Identification No.) |
425 Walnut Street, Suite 1300, Cincinnati, Ohio 45202
(Address
of principal executive offices)
Registrants telephone number (513) 381-1480
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No
Indicate the number of shares outstanding of each of the Registrants classes of common stock, as of the latest practicable date.
Common shares, no par value - 3,844,076 (as of November 11, 2002)
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Item 1. Financial Statements
MULTI-COLOR CORPORATION
Condensed Consolidated Balance Sheets
(Thousands)
September 30, 2002 | March 31, 2002 | |||||||
ASSETS |
(Unaudited) | |||||||
Current Assets: |
||||||||
Cash |
$ | 270 | $ | 1,390 | ||||
Accounts receivable, net |
11,207 | 5,440 | ||||||
Inventories |
5,654 | 5,276 | ||||||
Deferred tax asset |
243 | 243 | ||||||
Prepaid expenses and other |
275 | 229 | ||||||
Total current assets |
17,649 | 12,578 | ||||||
Property, plant and equipment, net |
29,074 | 28,089 | ||||||
Goodwill |
10,854 | 6,384 | ||||||
Intangible assets, net |
753 | 859 | ||||||
Other |
81 | 14 | ||||||
Total assets |
$ | 58,411 | $ | 47,924 | ||||
LIABILITIES AND SHAREHOLDERS INVESTMENT |
||||||||
Current liabilities: |
||||||||
Short-term debt |
$ | 1,734 | $ | - | ||||
Current portion of long-term debt |
3,652 | 3,593 | ||||||
Current portion of capital lease obligations |
56 | 14 | ||||||
Accounts payable |
3,877 | 3,277 | ||||||
Accrued expenses |
2,720 | 2,369 | ||||||
Total current liabilities |
12,039 | 9,253 | ||||||
Long-term debt, excluding current portion |
18,064 | 14,484 | ||||||
Capital lease obligations, excluding current portion |
4,212 | 4,207 | ||||||
Deferred tax liability |
2,913 | 1,989 | ||||||
Deferred compensation |
345 | 332 | ||||||
Total liabilities |
37,573 | 30,265 | ||||||
Shareholders investment: |
||||||||
Common stock, no par value |
259 | 253 | ||||||
Paid-in capital |
10,589 | 10,304 | ||||||
Treasury stock, at cost |
(119 | ) | (119 | ) | ||||
Retained earnings |
10,109 | 7,221 | ||||||
Total shareholders investment |
20,838 | 17,659 | ||||||
Total liabilities and shareholders investment |
$ | 58,411 | $ | 47,924 | ||||
The accompanying notes are an integral part of this financial information.
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MULTI-COLOR CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
(Thousands except per share amounts)
Three Months Ended | |||||||||
September 30, 2002 | September 30, 2001 | ||||||||
Net sales |
$ | 24,100 | $ | 18,595 | |||||
Cost of goods sold |
19,435 | 15,129 | |||||||
Gross profit |
4,665 | 3,466 | |||||||
Selling, general and administrative expenses |
1,669 | 1,143 | |||||||
Operating income |
2,996 | 2,323 | |||||||
Other expense, net |
48 | 25 | |||||||
Interest expense |
361 | 375 | |||||||
Income before income taxes |
2,587 | 1,923 | |||||||
Income taxes |
987 | 692 | |||||||
Net income |
$ | 1,600 | $ | 1,231 | |||||
Basic earnings per share |
$ | 0.42 | $ | 0.33 | |||||
Diluted earnings per share |
$ | 0.38 | $ | 0.29 | |||||
Average number of common shares outstanding |
|||||||||
Basic |
3,821 | 3,740 | |||||||
Diluted |
4,246 | 4,184 |
The accompanying notes are an integral part of this financial information.
Item 1. Financial Statements (continued)
MULTI-COLOR CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
(Thousands except per share amounts)
Six Months Ended | |||||
September 30, 2002 | September 30, 2001 | ||||
Net sales |
$ |
45,014 |
$ |
39,125 | |
Cost of goods sold |
36,202 |
31,672 | |||
Gross profit |
8,812 |
7,453 | |||
Selling, general and administrative expenses |
3,338 |
2,538 | |||
Operating income |
5,474 |
4,915 | |||
Other expense, net |
96
|
46
| |||
Interest expense |
697 |
799 | |||
Income before income taxes |
4,681 |
4,070 | |||
Income taxes |
1,793 |
1,465 | |||
Net income |
$ |
2,888 |
$ |
2,605 | |
Basic earnings per share |
$ |
0.76 |
$ |
0.70 | |
Diluted earnings per share |
$ |
0.68 |
$ |
0.63 | |
Average number of common shares outstanding |
|||||
Basic |
3,796 |
3,740 | |||
Diluted |
4,253 |
4,098 | |||
The accompanying notes are an integral part of this financial information.
Item 1. Financial Statements (continued)
MULTI-COLOR CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Thousands)
Six Months Ended | |||||||
September 30, 2002 | September 30, 2001 | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
$ |
1,181 |
$ |
4,831 |
|||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|||||||
Capital expenditures |
(1,232 |
) |
(832 |
) | |||
Acquisition of business, net of cash received |
(6,352 |
) |
- |
||||
Proceeds from sale of property, plant and equipment |
19 |
13 |
|||||
Net cash used in investing activities |
(7,565 |
) |
(819 |
) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|||||||
Increase (decrease) in revolving line of credit, net |
1,734 |
(94 |
) | ||||
Repayment of long-term debt |
(1,661 |
) |
(1,659 |
) | |||
Proceeds from issuance of long-term debt |
5,000 |
- |
|||||
Capitalized loan fees |
(81 |
) |
- |
||||
Repayment of capital lease obligations |
(19 |
) |
(47 |
) | |||
Proceeds from issuance of common stock |
291 |
133 |
|||||
Purchase of treasury stock |
- |
(68 |
) | ||||
Purchase of outstanding stock options |
- |
(412 |
) | ||||
Net cash provided by (used in) financing activities |
5,264 |
(2,147 |
) | ||||
Net increase (decrease) in cash |
(1,120 |
) |
1,865 |
||||
Cash, beginning of period |
1,390 |
3 |
|||||
Cash, end of period |
$ |
270 |
$ |
1,868 |
|||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|||||||
Interest paid |
$ |
624 |
$ |
537 |
|||
Income taxes paid |
$ |
716 |
$ |
40 |
|||
Acquisition accounted for as a purchase: |
|||||||
Assets acquired |
$ |
7,479 |
$ |
- |
|||
Liabilities assumed |
(827 |
) |
- |
||||
Note payable |
(300 |
) |
- |
||||
Net cash paid |
$ |
6,352 |
$ |
- |
|||
The accompanying notes are an integral part of this financial information.
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MULTI-COLOR CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Amounts in Thousands)
Item 1. Financial Statements (continued) | ||
1. Basis of Presentation: | ||
The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Companys latest Annual Report on Form 10-K. | ||
The information furnished in these financial statements reflects all estimates and adjustments which are, in the opinion of management, necessary to present fairly the results for the interim periods reported, and all adjustments and estimates are of a normal recurring nature. | ||
2. Net Income Per Share Data: | ||
The following is a reconciliation of the number of shares used in the Basic Earnings Per Share (EPS) and Diluted EPS computations (shares in thousands): |
Three Months Ended | Six Months Ended | |||||||
September 30, | September 30, | |||||||
2002 | 2001 | 2002 | 2001 | |||||
Basic EPS | 3,821 | 3,740 | 3,796 | 3,740 | ||||
Effect of dilutive stock options | 425 | 444 | 457 | 358 | ||||
Diluted EPS | 4,246 | 4,184 | 4,253 | 4,098 |
All share amounts have been adjusted to reflect the three for two stock split effective November 30, 2001. |
3. Inventories: | |
Inventories are stated at the lower of cost (First-in-First-out) or market and are comprised of the following: |
September 30, 2002 | March 31, 2002 | ||||||||
Finished Goods | $ | 3,631 | $ | 3,291 | |||||
Work in Process | 335 | 715 | |||||||
Raw Materials | 1,688 | 1,270 | |||||||
$ | 5,654 | $ | 5,276 | ||||||
4. Goodwill and Other Intangible Assets: | |
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets as of April 1, 2001. In accordance with this statement, the amount recorded for goodwill is no longer being amortized. Goodwill will be tested annually for impairment. The fair value of the reporting unit responsible for the goodwill will be compared to its carrying amount. If an impairment is determined to have occurred, any required impairment loss will be recorded at that time. | |
At September 30, 2002, the total amount of intangible assets subject to amortization and related accumulated amortization is $1,484 and $731, respectively. These assets will continue to be amortized over their useful remaining lives. The weighted average amortization period for these assets is 4.01 years. Total amortization expense for the three months ended September 30, 2002 and 2001 was $94 and $96, respectively. Total amortization expense for the six months ended September 30, 2002 and 2001 was $187 and $212, respectively. The amount of goodwill recorded at September 30, 2002 that is no longer amortized is $10,854. Goodwill increased $4,470 during the six months ended September 30, 2002 due to the acquisition of Quick Pak, Inc. in May 2002. This increase in goodwill was attributable entirely to the Packaging Services division of the Company. | |
The annual estimated amortization expense for the fiscal years ended March 31 are as follows: | |
2003 | $ | 372 | ||
2004 | $ | 333 | ||
2005 | $ | 200 | ||
2006 | $ | 35 | ||
Total | $ | 940 | ||
5. Segment Information: | |
With the Companys acquisition of Quick Pak, Inc. in May 2002, the Company now operates in two segments within the packaging industry: decorative label solutions and packaging services. The decorative label solutions segments primary operations involve the printing of labels while the packaging services segment provides promotional packaging, assembling and fulfillment services. Both segments sell to major consumer product companies. Segment information is not applicable for the three and six months ended September 30, 2001 as the Company only operated in the label segment during that time. | |
Financial information by operating segment is as follows: |
Three Months Ended | Six Months Ended | |||||||||
September 30, | September 30, | |||||||||
2002 | 2002 | |||||||||
Sales: | ||||||||||
Decorative Label Solutions | $ | 19,480 | $ | 39,387 | ||||||
Packaging Services | 4,620 | 5,627 | ||||||||
$ | 24,100 | $ | 45,014 | |||||||
Net income before income taxes: | ||||||||||
Decorative Label Solutions | $ | 2,856 | $ | 5,619 | ||||||
Packaging Services | 448 | 502 | ||||||||
Corporate expenses | (717 | ) | (1,440 | ) | ||||||
$ | 2,587 | $ | 4,681 | |||||||
Capital expenditures: | ||||||
Decorative Label Solutions |
$ |
492 |
$ |
934 |
||
Packaging Services |
244 |
270 |
||||
Corporate |
16 |
28 |
||||
$ |
752 |
$ |
1,232 |
|||
Depreciation and amortization: |
||||||
Decorative Label Solutions |
$ |
854 |
$ |
1,655 |
||
Packaging Services |
85 |
110 |
||||
Corporate |
23 |
43 |
||||
$ |
962 |
$ |
1,808 |
|||
Total assets: |
September 30, 2002 | |||||
Decorative Label Solutions |
$ |
47,145 |
||||
Packaging Services |
10,262 |
|||||
Corporate |
1,004 |
|||||
$ |
58,411 |
|||||
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Amounts in Thousands) | |
Results of Operations | |
Three Months Ended September 30, 2002 Compared to the Three Months Ended September 30, 2001 | |
Net sales increased $5,505 or 30%, for the three months ended September 30, 2002 as compared to the same period in the prior year. The increase was primarily a result of the acquisition completed by the Company in May 2002 of Quick Pak, Inc. The acquisition contributed $4,620 in sales for the three months ended September 30, 2002. | |
Gross profit increased $1,199 or 35% as compared to the same period in the prior year as a result of the sales increase. Gross profit as a percentage of sales was the same for the three months ended September 30, 2002 as compared to the same period in the prior year, 19% in both periods. | |
Selling, general and administrative expenses increased $526 or 46% as compared to the same prior year period. Selling, general and administrative expenses as a percentage of sales increased slightly to 7% for the three months ended September 30, 2002 from 6% for the same period in the prior year. The increase in expenses is a result of the Company expanding its sales force in the third and fourth quarter of the fiscal year ended March 31, 2002. | |
Interest expense decreased $14 as compared to the same period in the prior year and was the result of lower interest rates for the three months ended September 30, 2002. | |
Income tax expense increased $295 as compared to the same period in the prior year. The increase is a result of anticipated higher state taxes for the fiscal year ending March 31, 2003 due to the mix of income earned in higher taxed states such as Ohio. The effective tax rate for the three months ended September 30, 2002 was 38% as compared to 36% for the same period in the prior year. | |
Six Months ended September 30, 2002 Compared to the Six Months Ended September 30, 2001 | |
Net sales increased $5,889 or 15% for the six months ended September 30, 2002 as compared to the same period in the prior year. The increase was primarily a result of the acquisition completed by the Company in May 2002 of Quick Pak, Inc. The acquisition contributed $5,627 in sales for the six months ended September 30, 2002. |
Gross profit increased $1,359 or 18% for the six months ended September 30, 2002 as compared to the same period in the prior year. Gross profit as a percentage of sales was comparable for the six months ended September 30, 2002 as compared to the same period in the prior year, 20% versus 19%, respectively. | |
Selling, general and administrative expenses increased $800 or 32% as compared to the same prior year period. Selling, general and administrative expenses as a percentage of sales increased slightly to 7% for the six months ended September 30, 2002 from 6% for the same period in the prior year. The increase in expenses is a result of the Company expanding its sales force in the third and fourth quarter of the fiscal year ended March 31, 2002. | |
Interest expense decreased $102 for the six months ended September 30, 2002 as compared to the same period in the prior year. This is a result of lower interest rates for the six months ended September 30, 2002. | |
Income tax expense increased $328 as compared to the same period in the prior year. The increase is a result of anticipated higher state taxes for the fiscal year ending March 31, 2003 due to the mix of income earned in higher taxed states such as Ohio. The effective tax rate for the six months ended September 30, 2002 was 38% as compared to 36% for the same period in the prior year. | |
Liquidity and Capital Resources | |
The Company entered into a new credit agreement with PNC Bank, Ohio, National Association (PNC Bank) and three other participating banks on July 12, 2002. The credit agreement provides the Company with a $6,000 revolving line of credit, a $15,000 acquisition credit facility and the refinancing of existing term loans and standby letters of credit. The terms, covenants and interest rates under the agreement are substantially the same as under the previous credit agreement. This agreement expires July 1, 2005. | |
Substantially all of the assets of the Company are pledged as collateral under the Companys borrowings. | |
Through the six months ended September 30, 2002, net cash provided by operating activities was $1,181 as compared to net cash provided of $4,831 through the same period of the prior year. The change is due primarily to the increase in accounts receivable at September 30, 2002 as compared to March 31, 2002. The accounts receivable increase is a result of increased sales during the six months period ending September 30, 2002. | |
The cash used in investing activities of $7,565 and cash provided of $5,264 by financing activities was a result of the acquisition completed by the Company in May 2002 of Quick Pak, Inc. The Company used its available line of credit to complete the acquisition and the Companys lenders granted the Company a temporary $3,000 increase in the line of credit to fund the acquisition and temporary future cash needs. During July, 2002, the majority of the borrowings under the line of credit were converted to a term note under the acquisition credit facility provided for in the new financing agreement entered into with PNC Bank and others on July 12, 2002 as noted above. | |
The Company believes it has both sufficient short and long term liquidity financing. The Company had a working capital position of $5,610 and $5,563 at September 30, 2002 and 2001, respectively. At September 30, 2002, the Company was in compliance with its loan covenants and current in its principal and interest payments on all debt. | |
The Company intends to make capital expenditures of approximately $3,300 during fiscal 2003. The Company believes that cash flow from operations and availability under the revolving line of credit are sufficient to meet its capital requirements and debt service requirements for the next |
Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of Shareholders was held on August 15, 2002. At the meeting, the shareholders voted on the following items:
1. Election of the following directors: | ||||
Votes for |
Votes withheld | |||
Gordon B. Bonfield | 3,539,913 | 100,684 | ||
Charles B. Connolly | 3,634,887 | 5,710 | ||
Francis D. Gerace | 3,542,538 | 98,059 | ||
Lorrence T. Kellar | 3,634,087 | 6,510 | ||
Roger A. Keller | 3,633,887 | 6,710 | ||
Burton D. Morgan | 3,633,487 | 7,110 | ||
David H. Pease, Jr. | 3,631,987 | 8,610 | ||
2. Ratification of the appointment of Grant Thornton LLP as the Companys independent public
accountants for fiscal 2003. (3,631,100 votes for; 6,950 votes against; 2,597 votes abstained.) |
Item 5. Other Information In accordance with Section 202 of the Sarbanes Oxley Act of 2002 and prior practice, the Audit Committee approved the provision of certain audit and non-audit services by Multi-Colors independent auditor Grant Thornton during this quarter. The non-audit services primarily tax related.
Item 6. Exhibits and Reports on Form 8-K
(a) | Exhibits: | ||
99.1 | Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
99.2 | Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
(b) | Reports on Form 8-K: | ||
None |
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Multi-Color Corporation (Registrant) | |
Date: November 14, 2002 | By: /s/ Dawn H.
Bertsche Dawn H. Bertsche Vice President-Finance, Chief Financial Officer |
I, Francis D. Gerace, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Multi-Color Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
6. The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Francis D. Gerace Francis D. Gerace Chief Executive Officer |
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CERTIFICATIONS
I, Dawn H. Bertsche, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Multi-Color Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
6. The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Dawn H. Bertsche Dawn H. Bertsche Chief Financial Officer |
-15-