================================================================================
UNITED STATES
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 March 30, 1997 Commission file number 1-11802
[Graphic Omitted]
World Color Press, Inc.
(Exact name of registrant as specified in its charter)
Delaware 37-1167902
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
The Mill, 340 Pemberwick Road 06831
Greenwich, Connecticut (Zip Code)
(Address of principal executive offices)
203-532-4200
(Registrant's telephone number, including area code)
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 [ ]
At May 9, 1997, 33,744,531 shares of the registrant's common stock, $.01 par
value, were outstanding.
================================================================================
<PAGE>
WORLD COLOR PRESS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 30, 1997
INDEX
- --------------------------------------------------------------------------------
Page
----
Part I. Financial Information
Condensed Consolidated Balance Sheets as of March 30, 1997
and December 29, 1996.............................................3
Condensed Consolidated Statements of Operations for the Three
Months Ended March 30, 1997 and March 31, 1996....................4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 30, 1997 and March 31, 1996....................5
Notes to Condensed Consolidated Financial Statements..................6
Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................7 - 8
Part II. Other Information....................................................9
-2-
<PAGE>
WORLD COLOR PRESS, INC.
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 30, 1997 AND DECEMBER 29, 1996
(Dollars in thousands)
- --------------------------------------------------------------------------------
MARCH 30, DECEMBER 29,
ASSETS 1997 1996
(Unaudited) (Note)
CURRENT ASSETS:
Cash and cash equivalents $ 26,518 $ 33,182
Accounts receivable - net 320,481 311,478
Inventories 149,191 140,160
Deferred income taxes 29,659 32,944
Other 27,903 24,843
----------- -----------
Total current assets 553,752 542,607
----------- -----------
Property, plant and equipment, at cost 1,424,360 1,346,496
Accumulated depreciation and amortization (556,752) (528,339)
----------- -----------
Property, plant and equipment - net 867,608 818,157
Goodwill - net 520,624 423,880
Other 45,038 37,788
----------- -----------
TOTAL ASSETS $ 1,987,022 $ 1,822,432
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 273,905 $ 306,867
Current maturities of long-term debt 8,843 8,672
----------- -----------
Total current liabilities 282,748 315,539
Long-term debt 1,067,985 889,195
Deferred income taxes 90,055 91,555
Other long-term liabilities 124,399 111,211
----------- -----------
Total liabilities 1,565,187 1,407,500
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value - shares authorized,
100,000,000 at March 30, 1997 and
December 29, 1996; shares outstanding,
33,744,531 at March 30, 1997 and
December 29, 1996 337 337
Additional paid-in capital 583,721 583,721
Accumulated deficit (162,223) (169,126)
----------- -----------
Total stockholders' equity 421,835 414,932
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,987,022 $ 1,822,432
=========== ===========
Note: Derived from audited financial statements.
See notes to condensed consolidated financial statements.
-3-
<PAGE>
WORLD COLOR PRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1996
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
THREE MONTHS
1997 1996
Net sales $ 458,351 $ 329,111
Cost of sales 383,036 276,825
----------- -----------
Gross profit 75,315 52,286
Selling, general and administrative expenses 43,592 32,304
----------- -----------
Operating income 31,723 19,982
Interest expense 19,821 10,084
----------- -----------
Income before income taxes 11,902 9,898
Income tax provision 4,999 3,959
----------- -----------
Net income $ 6,903 $ 5,939
=========== ===========
Net income per common and common equivalent share $ 0.20 $ 0.17
Weighted average common and common equivalent
shares outstanding 34,486,102 34,827,689
See notes to condensed consolidated financial statements.
-4-
<PAGE>
WORLD COLOR PRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1996
(In thousands)
- --------------------------------------------------------------------------------
THREE MONTHS
1997 1996
OPERATING ACTIVITIES:
Net income $ 6,903 $ 5,939
Adjustments to reconcile net income to net cash
flows provided by (used in) operating activities:
Depreciation and amortization 33,814 20,424
Deferred income tax provision 1,785 1,980
Changes in operating assets and liabilities:
Accounts receivable - net 25,511 1,543
Inventories (1,984) 18,718
Accounts payable and accrued expenses (59,718) (17,865)
Other assets and liabilities - net (15,171) (3,112)
--------- --------
Net cash flows provided by (used in)
operating activities (8,860) 27,627
--------- --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment - net (21,790) (12,061)
Acquisitions of businesses, net of cash acquired (154,975) (3,000)
--------- --------
Net cash used in investing activities (176,765) (15,061)
--------- --------
FINANCING ACTIVITIES:
Net borrowings on debt 178,961 (19,497)
Proceeds from issuance of common stock -- 8,940
--------- --------
Net cash provided by (used in) financing
activities 178,961 (10,557)
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,664) 2,009
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 33,182 8,902
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26,518 $ 10,911
========= ========
See notes to condensed consolidated financial statements.
-5-
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying condensed consolidated interim financial statements have
been prepared by World Color Press, Inc. (along with its subsidiaries, the
"Company") pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect normal and recurring adjustments, which
are, in the opinion of the Company, considered necessary for a fair
presentation. As permitted by these regulations, these statements do not
include all information required by generally accepted accounting
principles to be included in an annual set of financial statements,
however, the Company believes that the disclosures made are adequate to
make the information presented not misleading. It is suggested that these
condensed consolidated financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in
the Company's latest Annual Report on Form 10-K.
During the period ended March 30, 1997, the Company acquired a business
whose contribution was not significant to the Company's results of
operations for the period presented, nor is it expected to have a material
effect on the Company's results on a continuing basis.
Certain reclassifications have been made to prior period amounts to
conform with the current presentation.
2. IMPLEMENTATION OF NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
Share, which establishes new standards for computing and presenting net
income per share. The statement is effective for periods ending after
December 15, 1997. Accordingly, the Company will adopt SFAS No. 128 in the
fourth quarter of 1997. If SFAS No. 128 had been implemented for the first
quarter of 1997 and 1996, respectively, pro forma basic and diluted net
income per share amounts, as defined in the statement, would not have been
materially different than net income per common and common equivalent
share shown in the accompanying condensed consolidated statements of
operations.
3. INVENTORIES
Inventories are summarized as follows:
MARCH 30, DECEMBER 29,
1997 1996
Work-in-process $ 82,680 $ 73,747
Raw materials 66,511 66,413
----------- -----------
Total $ 149,191 $ 140,160
=========== ===========
-6-
<PAGE>
WORLD COLOR PRESS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
General
In January 1997, the Company purchased Rand McNally Book Services Group ("Book
Services"), an operating unit of Rand McNally, for approximately $155,000. Book
Services is the third largest producer of hardcover books in the United States
and provides manufacturing and other value-added services to book club, trade,
professional, educational, reference and mail-order publishers. This acquisition
will hereinafter be referred to as the "1997 Acquisition."
In June 1996, the Company acquired from Ringier A.G. all of the issued and
outstanding capital stock of Krueger Acquisition Corporation, including all of
the issued and outstanding capital stock of Ringier Holdings, Inc., Ringier
America, Inc., Krueger Ringier, Inc., Ringier Print U.S., Inc. and W.A. Krueger
Co. Olathe (collectively, "Ringier America"), for approximately $128,000. In
addition, the Company assumed approximately $287,000 of Ringier America's
indebtedness, of which approximately $281,000 was liquidated upon consummation
of the acquisition. Ringier America is a leading diversified commercial printer
whose business includes the printing of catalogs, magazines and mass-market,
racksize books. In addition, the Company acquired certain other businesses in
1996 whose contributions were not significant to the Company's results of
operations for the periods presented, nor are they expected to have a material
effect on the Company's results on a continuing basis. Collectively, Ringier
America and these other acquired companies will hereinafter be referred to as
the "1996 Acquisitions."
Results of Operations
Three Months Ended March 30, 1997 versus Three Months Ended March 31, 1996
Net sales increased $129,240 or 39%, to $458,351 in 1997 from $329,111 in 1996.
The increase was due to the inclusion of the sales from the 1996 Acquisitions
and stronger base business performance as well as the contribution from the 1997
Acquisition. Lower paper prices in the quarter versus 1996 partially offset the
revenue increases.
Gross profit increased $23,029 or 44% to $75,315 in 1997 from $52,286 in 1996,
increasing the gross profit margin to 16.4% from 15.9% in 1996. This improvement
is a result of the 1996 Acquisitions, including the benefits of certain cost
reduction initiatives and other synergies resulting from the combination of the
businesses, increased plant utilization and the effect of lower paper prices.
Selling, general and administrative expenses increased $11,288 or 35% to $43,592
in 1997 from $32,304 in 1996. The increase was attributable to the 1996 and 1997
Acquisitions, including the related additional amortization expense for
goodwill.
Interest expense increased $9,737 to $19,821 in 1997 from $10,084 in 1996. The
increase was attributable to higher average borrowings incurred to fund
acquisitions as well as capital expenditures and working capital requirements.
The effective tax rate, primarily composed of the combined federal and state
statutory rates, was 42% for the first three months of 1997 compared to 40% for
the comparable period in 1996. The increase was primarily due to the additional
non-deductible amortization expense for goodwill resulting from acquisitions.
-7-
<PAGE>
WORLD COLOR PRESS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
The Company has historically met its liquidity and capital investment needs with
internally generated funds and external borrowings. Net income from operations
plus depreciation and amortization and deferred income taxes was $42,502 and
$28,343 for the three months ended March 30, 1997 and March 31, 1996,
respectively. The Company's outstanding indebtedness less cash increased
$185,625 from December 29, 1996 to March 30, 1997 due primarily to borrowings
incurred to fund acquisitions. Working capital was $271,004 at March 30, 1997
and $227,068 at March 31, 1996. The increase of $43,936 or 19% was primarily due
to the 1996 and 1997 Acquisitions and the paydown of accounts payable. In
accordance with the Company's ongoing program to maintain modern, efficient
plants and increase productivity, the Company anticipates that 1997 capital
expenditures will be approximately $95,000.
The Company's capital expenditures and acquisitions have been funded in part by
borrowings under the Company's Second Amended and Restated Credit Agreement
dated as of June 6, 1996, as amended (the "Credit Agreement"), among the Company
and the lenders and agents party thereto, which provides for aggregate total
commitments of $975,000, comprised of $125,000 in term loan commitments,
$250,000 of revolving loan commitments and $600,000 in acquisition term loans.
The Credit Agreement provides for varying semi-annual reductions in commitments
and matures on December 31, 2002. Borrowings bear interest at rates that
fluctuate with the prime rate and the Eurodollar rate. As of March 30, 1997, the
Company had undrawn commitments of $108,329 under its revolving bank credit
facility.
The Company believes that its liquidity, capital resources and cash flows are
sufficient to fund planned capital expenditures, working capital requirements
and interest and principal payments for the foreseeable future.
Seasonality
Results of operations for this interim period are not necessarily indicative of
results for the full year. The Company's operations are seasonal. Historically,
approximately two-thirds of its operating income has been generated in the
second half of the fiscal year, primarily due to the higher number of magazine
pages, new product launches and back-to-school and holiday catalog promotions.
-8-
<PAGE>
WORLD COLOR PRESS, INC.
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits required in accordance with Item 601 of Regulation S-K are
incorporated by reference herein as filed with registrant's Annual Report
on Form 10-K for the fiscal year ended December 29, 1996, dated March 27,
1997.
In addition, the Company has filed herewith the following exhibit:
27 Financial Data Schedule for the period ended March 30, 1997
(filed in electronic form only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarterly period ended March
30, 1997.
SIGNATURES
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.
WORLD COLOR PRESS, INC.
Date: May 13, 1997 By: /s/ THOMAS M. PIERNO
-------------------------------
Thomas M. Pierno
Executive Vice President, Chief
Financial Officer
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 30, 1997 AND
THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 30, 1997 OF WORLD COLOR PRESS, INC. AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> MAR-30-1997
<CASH> 26,518
<SECURITIES> 0
<RECEIVABLES> 320,481
<ALLOWANCES> 0
<INVENTORY> 149,191
<CURRENT-ASSETS> 553,752
<PP&E> 1,424,360
<DEPRECIATION> 556,752
<TOTAL-ASSETS> 1,987,022
<CURRENT-LIABILITIES> 282,748
<BONDS> 1,067,985
0
0
<COMMON> 337
<OTHER-SE> 421,498
<TOTAL-LIABILITY-AND-EQUITY> 1,987,022
<SALES> 458,351
<TOTAL-REVENUES> 458,351
<CGS> 383,036
<TOTAL-COSTS> 383,036
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,821
<INCOME-PRETAX> 11,902
<INCOME-TAX> 4,999
<INCOME-CONTINUING> 6,903
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,903
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
