Back to GetFilings.com



Table of Contents

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q


  x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the quarterly period ended December 31, 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
(State or other jurisdiction of
incorporation or organization)
   31-1125853
(IRS Employer
Identification No.)		  

425 Walnut Street, Suite 1300, Cincinnati, Ohio 45202
(Address of principal executive offices)

Registrant’s 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 o

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

Common shares, no par value - 3,938,806 (as of February 12, 2003)

Table of Contents

MULTI-COLOR CORPORATION
FORM 10-Q
CONTENTS

        Page
           
PART I   FINANCIAL INFORMATION (Unaudited)  
           
        Condensed Consolidated Balance Sheets at December 31, 2002 and March 31, 2002 3
           
        Condensed Consolidated Statements of Income for the Three Months Ended December 31, 2002 and December 31, 2001 4
           
        Condensed Consolidated Statements of Income for the Nine Months Ended December 31, 2002 and December 31, 2001 5
           
        Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2002 and December 31, 2001 6
           
        Notes to Condensed Consolidated Financial Statements 7
           
        Management’s Discussions and Analysis of Financial Condition and Results of Operations 10
           
        Quantitative and Qualitative Disclosures About Market Risk 12
           
        Controls and Procedures 12
           
PART II   OTHER INFORMATION  
           
    Item 1.   Legal Proceedings 12
           
    Item 2.   Changes in Securities 12
           
    Item 3.   Defaults upon Senior Securities 12
           
    Item 4.   Submission of Matters to a Vote of Security Holders 13
           
    Item 5.   Other Information 13
           
    Item 6.   Exhibits and Reports on Form 8-K 13

SIGNATURE 14
   
CERTIFICATIONS 15
   
CERTIFICATIONS 16

- 2 -

Table of Contents
Item 1. Financial Statements

MULTI-COLOR CORPORATION
Condensed Consolidated Balance Sheets
(Thousands)

December 31,
2002		   March 31,
2002
(Unaudited)  
             
ASSETS              
             
Current Assets:              
   Cash   $ 1,163   $ 1,390  
   Accounts receivable, net     10,388     5,440  
   Inventories     4,814     5,276  
   Deferred tax asset     243     243  
   Prepaid expenses and other     408     229  
     Total current assets     17,016     12,578  
             
Property, plant and equipment, net     28,461     28,089  
             
Goodwill     10,854     6,384  
             
Intangible assets, net     623     859  
             
Other     81     14  
             
     Total assets   $ 57,035   $ 47,924  
             
LIABILITIES AND SHAREHOLDERS’ EQUITY              
             
Current liabilities:              
   Short-term debt   $ —   $ —  
   Current portion of long-term debt     3,632     3,593  
   Current portion of capital lease obligations     43     14  
   Accounts payable     3,240     3,277  
   Accrued liabilities     3,589     2,369  
     Total current liabilities     10,504     9,253  
             
Long-term debt, excluding current portion     16,597     14,484  
             
Capital lease obligations, excluding current portion     4,212     4,207  
             
Deferred tax liability     2,913     1,989  
             
Deferred compensation     334     332  
     Total liabilities     34,560     30,265  
             
Shareholders’ equity:              
   Common stock, no par value     267     253  
   Paid-in capital     10,732     10,304  
   Treasury stock, at cost     (119 )   (119 )
   Retained earnings     11,595     7,221  
     Total shareholders’ equity     22,475     17,659  
             
     Total liabilities and shareholders’ equity   $ 57,035   $ 47,924  

The accompanying notes are an integral part of this financial information.

- 3 -

Table of Contents
Item 1. Financial Statements (continued)

MULTI-COLOR CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
(Thousands except per share amounts)

Three Months Ended
December 31,
2002		   December 31,
2001
             
Net sales   $ 25,940   $ 15,995  
             
Cost of goods sold     21,270     12,914  
             
   Gross profit     4,670     3,081  
             
Selling, general and administrative expenses     1,863     1,210  
             
   Operating income     2,807     1,871  
             
Other expense, net     57     21  
             
Interest expense     333     352  
             
   Income before income taxes     2,417     1,498  
             
Income taxes     931     539  
             
   Net income   $ 1,486   $ 959  
             
Basic earnings per share   $ 0.38   $ 0.26  
             
Diluted earnings per share   $ 0.35   $ 0.23  
             
Average number of common shares outstanding              
Basic     3,873     3,742  
             
Diluted     4,289     4,235  

The accompanying notes are an integral part of this financial information.

- 4 -

Table of Contents
Item 1. Financial Statements (continued)

MULTI-COLOR CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
(Thousands except per share amounts)

Nine Months Ended
December 31,
2002		   December 31,
2001
             
Net sales   $ 70,956   $ 55,119  
             
Cost of goods sold     57,474     44,585  
             
   Gross profit     13,482     10,534  
             
Selling, general and administrative expenses     5,201     3,748  
             
   Operating income     8,281     6,786  
             
Other expense, net     153     67  
             
Interest expense     1,030     1,151  
             
   Income before income taxes     7,098     5,568  
             
Income taxes     2,724     2,004  
             
   Net income   $ 4,374   $ 3,564  
             
Basic earnings per share   $ 1.14   $ 0.95  
             
Diluted earnings per share   $ 1.03   $ 0.86  
             
Average number of common shares outstanding              
Basic     3,823     3,738  
             
Diluted     4,267     4,141  

The accompanying notes are an integral part of this financial information.

- 5 -

Table of Contents
Item 1. Financial Statements (continued)

MULTI-COLOR CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Thousands)

Nine Months Ended
December 31,
2002		   December 31,
2001
             
NET CASH PROVIDED BY OPERATING ACTIVITIES   $ 5,323   $ 8,201  
             
CASH FLOWS FROM INVESTING ACTIVITIES:              
   Capital expenditures     (1,461 )    (1,413 )
   Acquisition of business, net of cash received     (6,352 )    (3,852 )
   Proceeds from sale of property, plant and equipment     42     14  
       Net cash used in investing activities     (7,771 )    (5,251 )
             
CASH FLOWS FROM FINANCING ACTIVITIES:              
   Increase (decrease) in revolving line of credit, net     —     6  
   Repayment of long-term debt     (3,108 )    (2,465 )
   Proceeds from issuance of long-term debt     5,000     —  
   Capitalized loan fees     (81 )   —  
   Repayment of capital lease obligations     (32 )   (78 )
   Proceeds from issuance of common stock     442     146  
   Payment in lieu of fractional shares of stock split     —     (1 )
   Purchase of treasury stock     —     (68 )
   Purchase of outstanding stock options     —     (412 )
       Net cash provided by (used in) financing activities     2,221     (2,872 )
       Net increase (decrease) in cash     (227 )   78  
Cash, beginning of period     1,390     3  
Cash, end of period   $ 1,163   $ 81  
             
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION              
             
   Interest paid   $ 926   $ 1,045  
   Income taxes paid   $ 1,164   $ 332  
             
   Acquisition accounted for as a purchase:              
     Assets acquired   $ 7,479   $ 5,646  
     Liabilities assumed     (827 )   (461 )
     Cash acquired     —     53  
     Note payable     (300 )   (1,386 )
       Net cash paid   $ 6,352   $ 3,852  

The accompanying notes are an integral part of this financial information.

- 6 -

Table of Contents

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 Company’s 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
December 31,		   Nine Months Ended
December 31,		  
  2002   2001   2002   2001  
Basic EPS     3,873     3,742     3,823     3,738  
Effect of dilutive stock options     416     493     444     403  
Diluted EPS     4,289     4,235     4,267     4,141  

  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:

December 31,
2002		   March 31,
2002
Finished Goods   $ 2,430   $ 3,291  
Work in Process     449     715  
Raw Materials     1,935     1,270  
    $ 4,814   $ 5,276  

 - 7 -

Table of Contents
Item 1. Financial Statements (continued)

         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 impairment is determined to have occurred, any required impairment loss will be recorded at that time.

  At December 31, 2002, the total amount of intangible assets subject to amortization and related accumulated amortization is $1,424 and $801, respectively. These assets will continue to be amortized over their useful remaining lives. The weighted average amortization period for these assets is 4.05 years. Total amortization expense for the three months ended December 31, 2002 and 2001 was $92 and $86, respectively. Total amortization expense for the nine months ended December 31, 2002 and 2001 was $279 and $296, respectively. The amount of goodwill recorded at December 31, 2002 that is no longer amortized is $10,854. Goodwill increased $4,470 during the nine months ended December 31, 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, excluding any future acquisitions, for each of the fiscal years ended March 31 is as follows:

2003   $ 368  
2004   $ 313  
2005   $ 188  
2006   $ 33  
Total   $ 902  

         5.       Segment Information:

  With the Company’s 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 segment’s 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 nine months ended December 31, 2001 as the Company only operated in the label segment during that time.

  Financial information by operating segment is as follows:

Three Months Ended
December 31,
2002		 Nine Months Ended
December 31,
2002
Sales:              
   Decorative Label Solutions   $ 19,722   $ 59,111  
   Packaging Services     6,218     11,845  
    $ 25,940   $ 70,956  
             
Net income before income taxes:              
   Decorative Label Solutions   $ 2,433   $ 8,052  
   Packaging Services     770     1,272  
   Corporate expenses     (786 )   (2,226 )
    $ 2,417   $ 7,098  

- 8 -

Table of Contents
Item 1. Financial Statements (continued)

Three Months Ended
December31,
2002		   Nine Months Ended
December31,
2002
Capital expenditures:              
   Decorative Label Solutions   $ 175   $ 1,109  
   Packaging Services     46     316  
   Corporate     8     36  
    $ 229   $ 1,461  
             
Depreciation and amortization:              
   Decorative Label Solutions   $ 779   $ 2,434  
   Packaging Services     105     215  
   Corporate     21     64  
    $ 905   $ 2,713  

December 31, 2002
Total assets:        
   Decorative Label Solutions   $ 37,735  
   Packaging Services     8,667  
   Corporate     10,633  
    $ 57,035  

         6.       New Accounting Pronouncements:

  In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock Based Compensation - Transition and Disclosure - an Amendment of SFAS 123.” SFAS No. 148 provides additional transition guidance for those entities that elect to voluntarily adopt the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Adoption of SFAS No. 148 is expected to impact only the future disclosures of the Company. The new disclosures are effective for the Company’s March 31, 2003 fiscal year end.

  In November 2002, the EITF reached a consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”. EITF No. 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which the vendor will perform multiple revenue generating activities. EITF No. 00-21 is effective for fiscal years beginning after June 15, 2003. The Company does not expect the adoption of EITF No. 00-21 to have a material impact on its financial position and results of operations.

         7.       Subsequent Event:

  On January 17, 2003, the Company completed the purchase of Avery Dennison’s Decorating Technologies Division. The purchase price of $6,206 was funded through the Company’s operating cash ($1,811) and a four year promissory note to Avery Dennison ($4,395).

- 9 -

Table of Contents
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations (Amounts in Thousands)

Results of Operations

Three Months Ended December 31, 2002 Compared to the Three Months Ended December 31, 2001

  Net sales increased $9,945 or 62%, for the three months ended December 31, 2002 as compared to the same period in the prior year. The increase was primarily a result of strong holiday sales at Quick Pak, Inc., an acquisition completed by the Company in May 2002. The acquisition contributed $6,218 in sales for the three months ended December 31, 2002. The remaining revenue increase was a result of organic growth in the core label business.

  Gross profit increased $1,589 or 52% for the three months ended December 31, 2002 as compared to the same period in the prior year as a result of the sales increase. For the three months ended December 31, 2002, gross profit as a percentage of sales was 18% versus 19% in the same prior year period. The slight decrease was a result of changes in business mix.

  Selling, general and administrative expenses increased $653 or 54% for the three months ended December 31, 2002 as compared to the same period last year. The increase is due to the Company’s continued investment in sales and marketing programs. As a percentage of sales, selling, general and administrative expenses decreased slightly to 7% for the three months ended December 31, 2002 from 8% for the same period last year.

  Interest expense decreased $19 as compared to the same period in the prior year. The decrease was the result of lower interest rates for the three months ended December 31, 2002.

  Income tax expense increased $392 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 December 31, 2002 was 39% as compared to 36% for the same period in the prior year.

Nine Months ended December 31, 2002 Compared to the Nine Months Ended December 31, 2001

  Net sales increased $15,837 or 29% for the nine months ended December 31, 2002 as compared to the same period in the prior year. The increase was primarily a result of Quick Pak, Inc., an acquisition completed by the Company in May 2002. The acquisition contributed $11,845 in sales for the nine months ended December 31, 2002. The remaining revenue increase was a result of organic growth in the core label business.

  Gross profit increased $2,948 or 28% for the nine months ended December 31, 2002 as compared to the same period in the prior year. Gross profit as a percentage of sales was comparable for the nine months ended December 31, 2002 as compared to the same period in the prior year, 19% for both periods.

  Selling, general and administrative expenses increased $1,453 or 39% as compared to the same prior year period. The increase in expenses is a result of the Company’s continued investment in sales and marketing programs and due to the expansion of the Company’s sales force. Selling, general and administrative expenses as a percentage of sales remained consistent at 7% for both periods.

  Interest expense decreased $121 for the nine months ended December 31, 2002 as compared to the same period in the prior year. This is a result of lower interest rates for the nine months ended December 31, 2002.

- 10 -

Table of Contents
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations Continued (Amounts in Thousands)

  Income tax expense increased $720 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 nine months ended December 31, 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 Company’s borrowings.

Aggregated Information about Contractual Obligations and Other Commitments

December 31, 2002 Total   Year 1   Year 2   Year 3   Year 4   Year 5   More
than 5
years		  
Long-Term Debt   $ 20,229     3,632     4,632     3,680     2,500     2,500     3,285  
Rent due under Capital Lease Obligations     4,255     582     571     554     554     554     1,440  
Rent due under Operating Leases     2,318     739     643     636     300              
Unconditional Purchase Obligations     None                                      
Other Long-Term Obligations     None                                      
Total Contractual Cash Obligations   $ 26,802     4,953     5,846     4,870     3,354     3,054     4,725