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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 28, 1997 Commission file number 1-11802
[Graphic omitted]
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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
GREENWICH, CONNECTICUT 06831
(Address of principal executive offices) (Zip Code)
203-532-4200
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
Common Stock, $.01 par value per share New York Stock Exchange, Inc.
9-1/8% Senior Subordinated Notes due 2003 New York Stock Exchange, Inc.
6% Convertible Senior Subordinated Notes due 2007 New York Stock Exchange, Inc.
</TABLE>
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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 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 registrant's 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. [x]
The only class of voting securities of World Color Press, Inc. is its
common stock, par value $.01 per share (the "Common Stock"). On March 13, 1998,
the aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $1,234.5 million.
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The number of shares of the Common Stock outstanding as of March 13, 1998:
38,354,853
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits as listed on the Exhibit Index and filed with
registrant's registration statement on Form S-1 (No. 33-99676) and registrant's
registration statement on Form S-8 (No. 333-47743) under the Securities Act of
1933, as amended, are incorporated by reference into Part IV of this Form 10-K.
Portions of the registrant's 1997 Annual Report to Stockholders are incorporated
by reference into Part II of this Form 10-K. Portions of the registrant's
definitive Proxy Statement dated March 27, 1998 are incorporated by reference
into Part III of this Form 10-K.
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INDEX
Page
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PART I
ITEM 1. Business ....................................................... 1
ITEM 2. Properties ..................................................... 5
ITEM 3. Legal Proceedings .............................................. 6
ITEM 4. Submission of Matters to a Vote of Security Holders ............ 6
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters ........................................................ 7
ITEM 6. Selected Financial Data ........................................ 7
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 7
ITEM 8. Financial Statements and Supplementary Data .................... 7
ITEM 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure ....................................... 7
PART III
ITEM 10. Directors and Executive Officers of the Registrant ............. 8
ITEM 11. Executive Compensation ......................................... 8
ITEM 12. Security Ownership of Certain Beneficial Owners and Management . 8
ITEM 13. Certain Relationships and Related Transactions ................. 8
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K ....................................................... 9
SIGNATURES .............................................................. 15
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
World Color Press, Inc. (together with its subsidiaries, "World Color" or the
"Company") is an industry leader in the management and distribution of print and
digital information. The Company is the third largest diversified commercial
printer in the United States, providing digital prepress, press, multi-media,
binding and distribution services to customers in the magazine, catalog,
commercial, book, direct mail and directory market sectors. Founded in 1903, the
Company currently operates a national network of 47 production and distribution
facilities and an extensive network of sales offices nationwide. Through
selective acquisitions and internal expansion, World Color has strategically
positioned itself as a full-service provider of multiple high technology
solutions for its customers' imaging, print and distribution needs.
The Company operates in one business segment -- printing services. The following
table presents the percentage of total revenue contributed by each market sector
during the past three fiscal years.
1997 1996 1995
Magazines 30% 29% 31%
Catalogs 24 27 23
Commercial 23 27 30
Books 11 2 -
Direct Mail 7 9 9
Directories 5 6 7
--- --- ---
TOTAL: 100% 100% 100%
=== === ===
The Company completed two acquisitions in 1997: Rand McNally Book & Media
Services Company (January), a hardcover book printer servicing the consumer,
education and reference markets and The Johnson & Hardin Co. (July), which
is a short-to-medium run printer servicing the magazine and commercial sectors.
The above table includes the revenues recognized by World Color from these
operations from their respective acquisition dates in 1997.
Substantially all sales are made to customers through employees of the Company
based upon customer specification. A significant amount of the Company's sales
are made pursuant to term contracts with its customers, with the remainder being
made on an order-by-order basis. As a result, the Company has a significant
backlog of orders. No customer accounted for more than 10% of the Company's net
sales in 1997. In the opinion of management, the loss, at substantially the same
time, of all of the business provided by any one of its largest customers could
have an adverse effect upon the Company.
1
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MARKET SECTORS
MAGAZINES. The Company believes that it is the second largest printer of
consumer magazines in the United States. The Company's principal competitors in
this sector consist of three diversified printing companies. World Color's
publication customer base includes some of the largest and most established
consumer magazine publishers in a diverse range of market categories.
Established publications are the most likely to have a continuing and improving
presence. Additionally, the popularity of these magazines makes them less
susceptible to cyclical downturns in advertising spending, which the Company
believes provides it with a significant advantage over competitors whose
customers may be more susceptible to such downturns.
A majority of the Company's magazine printing is performed under contracts with
remaining terms of between one and ten years, the largest of which are with
customers whose relationships with the Company average more than 20 years. The
Company has extended a majority of such contracts beyond their initial
expiration dates and intends to continue this practice when economically
practicable.
CATALOGS. The Company is a leading printer for the U.S. catalog market. The
Company's key competitors in the catalog market consist of four diversified
commercial printers whose facilities enable them to compete in the national
market and smaller local and regional printers who compete for regional
business. In addition, the Company's business-to-business catalog printing work
spans a broad range of industries including the computer, home and office
furniture, office products and industrial safety products industries.
COMMERCIAL. The Company is a premier printer of high quality specialty products
such as annual reports (including its own) and automobile and travel brochures.
World Color is also a leading printer of product brochures, bill stuffers,
informational marketing materials and other advertising supplements. The Company
has focused on building lasting customer relationships through investments in
equipment, focused customer service and the maintenance of the flexibility
required to accommodate specific and changing customer needs. The Company
believes its reputation for and dedication to innovation and leadership in
specialized services will allow it to enjoy continued loyalty from its
customers.
The Company also prints free-standing inserts and retail inserts for established
national retailers. With a broad range of specialized equipment and focused
attention to customer service, the Company provides its commercial customers
with format flexibility, high speed production and the ability to print high
quality commercial products from start to finish at one full-service source.
BOOKS. Through its acquisition of Ringier America in June 1996, World Color
believes it has become the largest printer of mass-market, racksize books in the
world. In January 1997, the Company acquired the Book Services Group of Rand
McNally, which prints hardcover books for the consumer, education and reference
markets, and services many of the largest U.S. publishers.
DIRECT MAIL. Direct mail marketing services are an important and rapidly growing
component of many businesses' marketing programs and overall U.S. advertising
expenditures. The Company prints direct mail materials such as booklets,
inserts, bill stuffers and other advertisements. In addition, the Company
provides direct marketers with direct imaging, personalization and other
lettershop services.
DIRECTORIES. The Company has printed directories since 1981 predominately
through its relationship with Pacific Bell. The Company prints four-color
white-page and yellow-page directories for Pacific Bell pursuant to a contract
which extends through the year 2000 and which can be extended by Pacific Bell
for up to an additional five years. The Company prints a total of over 100
different regional directory titles for Pacific Bell and certain other
customers.
2
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CURRENT SERVICES.
PREPRESS SERVICES. The Company provides a complete spectrum of film and digital
preparation services, from traditional paste-up and color separations to
state-of-the-art, all-digital prepress, as well as digital imaging and digital
archiving. The Company's eleven specialized digital and prepress facilities,
which are all strategically located close to the Company's customers, provide
high quality, 24-hour preparatory services linked directly to the Company's
various printing facilities. In addition, the Company's computer systems enable
customers and World Color to exchange images and textual material electronically
directly between the Company's printing and prepress facilities and the
customers' business locations. The Company's integrated prepress operations
provide it with comparative advantages over traditional prepress shops that are
not able to provide the same level of services. The Company's digital group also
provides multi-media services such as the transformation of customers' existing
printed and digital material into interactive media such as user-friendly
information kiosk systems, Internet web sites, corporate intranets, CD-ROM's and
computer laptop sales presentations. The Company's digital services group has
provided a natural opportunity for the Company's cross-selling efforts by
offering its integrated prepress and multi-media services to the Company's print
customers who may have historically used third-party suppliers for their
prepress and multi-media needs.
PRESS AND BINDING SERVICES. The Company believes that it provides its customers
with access to state-of-the-art technology in all phases of the printing and
binding process, including, among others, wide-web presses, computerized quality
information systems, computer-to-plate and digital processing systems, high
speed binding and personalization capabilities and robotic material handling.
Wide-web press technology, a large expenditure for which only a small number
of well-capitalized printers are able to justify, generates a significant cost
savings on longer press runs. The computerized quality information systems
provide the Company and its customers with instant analysis of the quality of
the printing, thereby enabling the Company to improve its performance and plan
preventative maintenance of its equipment more effectively. The
computer-to-plate and digital processing technologies eliminate the use of film
which significantly reduces costs and production time and enables World Color's
customers to extend their production deadlines. The Company's personalization
capabilities allow customers to include different content, whether advertising
or editorial or both, within different copies of their product depending upon
the geographic, demographic and subscriber specifications of their readers.
The Company operates web and sheetfed offset, rotogravure, flexographic and
digital presses. The Company believes that the variety and capabilities of its
presses and other production equipment allow World Color to meet the broad range
of its customers' printing needs and be the full service provider demanded by
the market. This capacity provides the Company with a competitive advantage over
those smaller printers who are unable to meet this demand.
DISTRIBUTION AND LOGISTICS. The Company believes that its sophisticated mailing
and distribution capabilities are among the best in the industry. World Color
maintains a network of strategic regional locations from which it provides its
customers important local access to the Company's nationwide services. Nearly
all of the Company's printing facilities dedicated to servicing its magazine,
catalog and direct mail customers are strategically located in the mid-region of
the country. The Company believes that the size of these printing plants and
their central location and close proximity to each other provide the Company
with a significant advantage in distribution capabilities, enabling it to
distribute a greater volume of product than its competitors to a wider target
market at a lower cost. The Company also operates facilities on the west and
east coasts which serve more regionalized needs. The Company uses computerized
cost studies to examine the benefits of pooled and palletized mailings for each
customer to develop an efficient and cost effective distribution plan designed
to ensure that the customer's product reaches consumers at narrowly specified
delivery times.
3
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COMPETITION
Although the Company is one of the largest diversified commercial printers in
the United States, the industry is highly competitive in most product categories
and geographic regions. Competition is largely based on price, quality, range of
services offered, distribution capabilities, customer service, availability of
printing time on appropriate equipment and state-of-the-art technology. The
Company competes for commercial business not only with large national printers,
but also with smaller regional printers. In certain circumstances, due primarily
to factors such as freight rates and customer preference for local services,
printers with better access to certain regions of the country may have a
competitive advantage in such a region. The Company believes that primarily due
to the continued excess capacity in the industry, there has been downward
pricing pressure and increased competition in the printing industry.
RAW MATERIALS
The primary raw materials required in a printing operation are ink and paper.
The Company supplies all of the ink and a substantial amount of the paper used
in the printing process. The Company provides warehouse space for both World
Color and customer supplied paper. The price of paper, the primary raw material
used by the Company, is volatile over time and may cause significant swings in
net sales and cost of sales. The Company generally is able to pass on increases
in the cost of paper to its customers, while declines in paper costs result in
lower prices to its customers. Since the beginning of 1997, the paper market
firmed in pricing and availability for certain grades. During the first quarter
of 1998, the price for most grades of paper increased modestly. Although the
Company anticipates that the price of certain grades of paper may continue to
increase during the balance of 1998, the Company believes it has adequate
allocations with its paper suppliers to meet its customers' needs. The Company's
contracts with its customers generally provide for price adjustments to reflect
price changes for other materials, wages and outside services. World Color's
materials management program capitalizes on the Company's purchasing power in
order to minimize materials costs while optimizing inventory management. In
addition, the Company's strong commercial relationships with a relatively small
number of suppliers allow the Company to negotiate favorable price discounts and
achieve more assured sourcing of high quality paper that meets the Company's
specifications. The Company is not dependent upon any one source for its paper
or ink. Given the volume of the Company's purchases, the Company is generally
able to obtain quality paper, ink and other materials at competitive prices. The
Company believes that an adequate supply of ink is available.
ENVIRONMENTAL COMPLIANCE
The Company is subject to regulation under various and changing federal, state
and local laws relating to the environment and to employee safety and health.
These environmental regulations relate to the generation, storage,
transportation, disposal and emission into the environment of various
substances. Permits are required for operation of the Company's
business (particularly air emission permits), and these permits are subject to
renewal, modification and, in certain circumstances, revocation. The Company
believes that it is in substantial compliance with such laws and permitting
requirements. The Company is also subject to regulation under various and
changing federal, state and local laws which allow regulatory authorities to
compel (or to seek reimbursement for) cleanup of environmental contamination at
its own sites and at facilities where its waste is or has been disposed.
The Company has internal controls and personnel dedicated to compliance with all
applicable environmental laws. The Company estimates that capital expenditures
in 1998 and 1999 required to comply with federal, state and local provisions for
environmental controls, as well as expenditures for the Company's share of costs
for environmental clean-up, if any, will not be material and will not have a
material adverse effect on the Company. The Company expects to incur ongoing
capital and operating costs to maintain compliance with applicable environmental
laws, which costs the Company does not expect to be, in the aggregate, material.
4
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RESEARCH AND DEVELOPMENT
Suppliers of equipment and materials used by companies such as World Color
perform most of the research and development related to the printing industry.
Accordingly, the Company has not spent a material amount of resources for such
purposes. World Color does, however, dedicate significant resources to improving
its operating efficiencies and the services it provides to its customers. In an
effort to realize increased efficiencies in its printing processes, the Company
has made significant investments in state-of-the-art equipment, including new
press and binding technology, digital photography, computer-to-plate and digital
processing technology and real-time product quality monitoring systems.
EMPLOYEES
As of March 1, 1998, the Company had approximately 15,000 employees, of which
approximately 2,779 or 18.5% were represented by unions. As of March 1, 1998,
approximately 10% of such union employees were covered under several different
labor contracts which expire in September and October 1998, with the balance
covered by labor contracts that expire during 1999, 2000 and 2002. The Company
believes it has satisfactory employee and labor relations.
ITEM 2. PROPERTIES.
The Company's corporate office is currently located in leased facilities in
Greenwich, Connecticut. Production facilities are located throughout the United
States, as set forth below. The Company believes its facilities provide adequate
productive capacity for its needs. Summary information regarding the Company's
facilities is set forth below:
Use and Location Owned/Leased Square Footage
- ---------------- ------------ --------------
Corporate Headquarters:
Greenwich, Connecticut......................... Leased 31,000
Printing Plants:
Atlanta, Georgia............................... Owned 129,000
Augusta, Georgia............................... Owned 650,000
Aurora, Illinois............................... Owned 227,000
Brookfield, Wisconsin.......................... Owned 309,000
Corinth, Mississippi........................... Owned 623,000
Covington, Tennessee........................... Owned 565,000
Dresden, Tennessee............................. Owned 618,300
Dyersburg, Tennessee........................... Owned 865,000
Elk Grove Village, Illinois.................... Owned 175,000
Elk Grove Village, Illinois.................... Leased 93,000
Effingham, Illinois............................ Owned 640,000
Gainesville, Georgia........................... Leased 130,000
Jonesboro, Arkansas............................ Owned 425,000
Lebanon, Ohio.................................. Owned 280,000
Los Angeles, California........................ Leased 299,000
Merced, California............................. Owned 500,000
Metairie,Louisiana ............................ Owned 106,000
North Haven, Connecticut....................... Owned 440,000
Oakwood,Georgia ............................... Owned 250,000
Oberlin, Ohio.................................. Owned 110,000
Oklahoma City, Oklahoma........................ Owned 210,000
Omaha, Nebraska................................ Leased 42,000
Orlando, Florida............................... Leased 191,000
Red Bank, Ohio................................. Owned 168,000
Salem, Illinois................................ Owned 680,000
South Windsor, Connecticut..................... Owned 42,000
Stillwater, Oklahoma........................... Owned 335,000
Taunton, Massachusetts......................... Owned 352,000
Versailles, Kentucky........................... Owned 1,090,000
Winchester, Virginia........................... Owned 96,000
5
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Digital Services/Prepress:
Charlotte, North Carolina...................... Leased 28,000
Des Plaines, Illinois.......................... Owned 26,000
Lake Mary, Florida............................. Leased 11,000
Lexington, Kentucky............................ Leased 20,000
Los Angeles, California........................ Leased 21,000
New York, New York............................. Leased 10,000
Orlando, Florida............................... Leased 27,000
St. Charles, Missouri.......................... Leased 20,000
Tampa, Florida................................. Leased 14,300
Warren, Michigan............................... Leased 11,000
Washington, D.C................................ Owned 65,000
Distribution:
Altamont, Illinois............................. Leased 27,000
Bensenville, Illinois (Distribution/Bindery)... Owned 307,000
Flora, Illinois................................ Owned 119,000
Lexington, Kentucky............................ Leased 175,000
Lexington, Kentucky............................ Leased 108,000
Trenton, Tennessee............................. Leased 96,000
Warehouse:
Corinth, Mississippi........................... Leased 25,600
Dresden, Tennessee............................. Leased 34,900
Elk Grove Village, Illinois.................... Leased 102,000
Versailles, Kentucky........................... Leased 46,000
In addition, the Company maintains an extensive network of sales offices located
throughout the United States. The Company believes that none of its leases is
material to its operations and that such leases were entered into on market
terms.
ITEM 3. LEGAL PROCEEDINGS.
The Company does not believe that there are any pending legal proceedings which,
if adversely determined, could have a material adverse effect on the financial
condition or results of operations of the Company, taken as a whole.
There were no material pending legal proceedings that were terminated in the
fourth quarter of the fiscal year ended December 28, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
6
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET PRICE RANGE OF COMMON STOCK
World Color's Common Stock is listed on the New York Stock Exchange under the
symbol: "WRC". At March 13, 1998 there were 128 record holders of the Common
Stock. The following table sets forth the range of the high and low sales prices
of the Common Stock as quoted on the New York Stock Exchange for 1996 and 1997.
The first quarter 1996 information reflects market prices from January 25, 1996
(the date of the Company's initial public offering) to March 31, 1996. Prior to
January 25, 1996, there was no established public trading market for the
Company's Common Stock. The Company paid no dividends during 1996 or 1997.
1996 High Low Close
First Quarter 21 1/2 18 1/4 19
Second Quarter 25 1/2 18 25 3/8
Third Quarter 25 1/8 20 1/2 22
Fourth Quarter 24 1/8 17 3/4 19 1/8
1997 High Low Close
First Quarter 22 5/8 18 1/8 20 1/4
Second Quarter 26 1/4 19 5/8 24 1/8
Third Quarter 32 7/16 23 1/4 29 9/16
Fourth Quarter 30 1/4 22 11/16 25 15/16
DIVIDEND POLICY
The Company does not anticipate declaring and paying cash dividends on the
Common Stock at any time in the foreseeable future. The decision whether to
apply legally available funds to the payment of dividends on the Common Stock
will be made by the Board of Directors of the Company from time to time in the
exercise of its prudent business judgment, taking into account, among other
things, the Company's results of operations and financial condition, any then
existing or proposed commitments for the use by the Company of available funds,
and the Company's obligations with respect to any then outstanding class or
series of its preferred stock. The Company is restricted by the terms of certain
of its outstanding debt and financing agreements from paying cash dividends on
its Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
See "Selected Financial Data" on page 18 of the Company's Annual Report to
Stockholders, which information is incorporated by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See "Management's Discussion and Analysis" on pages 19 - 21 of the Company's
Annual Report to Stockholders, which information is incorporated by reference
herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements described in Item 14(a) hereof are
incorporated herein. The supplementary quarterly data set forth in Note 16 on
page 36 of the Company's Annual Report to Stockholders is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
7
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
See "Election of Directors" on pages 2 - 4; "Executive Officers" on pages 9 - 10
and "Other Matters" on page 22 of the Company's definitive Proxy Statement dated
March 27, 1998, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
See "Board of Directors -- Director Compensation" on page 5; "Executive
Compensation -- Summary Compensation Table", "-- Option Grants in 1997", "--
Aggregate Option Exercises in Fiscal 1997 and Fiscal Year-End Option Values",
"-- Compensation Under Retirement Plans" and "-- Agreements With Named Executive
Officers" on pages 11 - 13 and "-- Compensation Committee Interlocks and Insider
Participation" on page 16 of the Company's definitive Proxy Statement dated
March 27, 1998, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See "Stock Ownership of Certain Beneficial Owners and Management" on pages 7 - 8
of the Company's definitive Proxy Statement dated March 27, 1998, which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See "Certain Relationships and Related Transactions" on page 6 of the Company's
definitive Proxy Statement dated March 27, 1998, which information is
incorporated herein by reference.
8
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
(i) Financial Statements
The Company's Consolidated Financial Statements, as included
in Part II, Item 8, are as follows:
Page in 1997
Annual Report to
Stockholders
------------
Independent Auditors' Report 22
Consolidated Balance Sheets as of December 28, 1997 and
December 29, 1996 23
Consolidated Statements of Operations for the Years ended
December 28, 1997, December 29, 1996 and December 31, 1995 24
Consolidated Statements of Stockholders' Equity for the
Years ended December 28, 1997, December 29, 1996 and
December 31, 1995 25
Consolidated Statements of Cash Flows for the Years ended
December 28, 1997, December 29, 1996 and December 31, 1995 26
Notes to Consolidated Financial Statements 27 - 36
(ii) Financial Statement Schedule:
Independent Auditors' Report, as set forth on page 13 of this
report.
Schedule II, Valuation and Qualifying Accounts, as set forth
on page 14 of this report.
All other schedules have been omitted because they are
inapplicable or are not required or the information is
included elsewhere in the financial statements or notes
thereto.
(iii) Exhibits:
9
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EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation of World Color
Press, Inc., incorporated by reference to Exhibit 3.1 to World
Color's Registration Statement on Form S-1 (No. 33-99676) under
the Securities Act of 1933, as amended (the "World Color Equity
S-1").
3.2 Amended and Restated By-Laws of World Color Press, Inc.,
incorporated by reference to Exhibit 3.2 to World Color's Annual
Report on Form 10-K for the fiscal year ended December 29, 1996.
4.1 Indenture (the "Indenture") between World Color and First Trust
National Association, as trustee, relating to World Color's 9-1/8%
Senior Subordinated Notes due 2003 (the "Notes"), incorporated by
reference to Exhibit 4.1 to World Color's Annual Report on Form
10-K for the fiscal year ended December 26, 1993.
4.2 Specimen of 9-1/8% Senior Subordinated Notes due 2003 (included in
the Indenture, incorporated by reference as Exhibit 4.1).
4.3 Indenture (the "Convert Indenture") between World Color Press,
Inc. and State Street Bank and Trust Company, as trustee,
relating to World Color's 6% Convertible Senior Subordinated
Notes due 2007 (the "Converts"), incorporated by reference to
Exhibit 4.1 to World Color's Quarterly Report on Form 10-Q for
the quarterly period ended September 28, 1997.
4.4 Specimen of Converts (included in the Convert Indenture,
incorporated by reference as Exhibit 4.3).
10.1 Second Amended and Restated Credit Agreement, dated as of June 6,
1996, among World Color Press, Inc. and the lenders and agents
party thereto (the "Credit Agreement"), incorporated by reference
to Exhibit 10.2 to World Color's Current Report on Form 8-K dated
June 21, 1996.
10.2 First Amendment dated as of June 10, 1996 to the Credit Agreement,
incorporated by reference to Exhibit 10.3 to World Color's Current
Report on Form 8-K dated June 21, 1996.
10.3 Limited Waiver, Consent and Second Amendment to Second Amended and
Restated Credit Agreement dated as of June 9, 1997, by and among
World Color Press, Inc., the Lenders party to the Second Amended
and Restated Credit Agreement, as amended, Bankers Trust Company,
as Administrative Agent, and the Guarantors listed on the
signature pages, incorporated by reference to Exhibit 10.1 to the
World Color Quarterly Report on Form 10-Q for the quarterly period
ended June 29, 1997.
10.4 Third Amendment to Second Amended and Restated Credit Agreement
dated as of June 27, 1997, by and among World Color Press, Inc.,
the Lenders party to the Second Amended and Restated Credit
Agreement, as amended, Bankers Trust Company, as Administrative
Agent, and the Guarantors listed on the signature pages,
incorporated by reference to Exhibit 10.2 to the World Color
Quarterly Report on Form 10-Q for the quarterly period ended June
29, 1997.
10.5 Limited Waiver, Consent and Fourth Amendment to Second Amended and
Restated Credit Agreement dated as of September 29, 1997, by and
among World Color Press, Inc., the Lenders party to the Second
Amended and Restated Credit Agreement, as amended, Bankers Trust
Company, as Administrative Agent, and the Guarantors listed on the
signature pages thereto, incorporated by reference to Exhibit 10.4
to World Color's Quarterly Report on Form 10-Q for the quarterly
period ended September 28, 1997.
10.6 Receivables Sale Agreement dated as of June 30, 1997 among World
Color Finance, Inc., as the Seller, ABN AMRO Bank N.V., as the
Agent, the Liquidity Providers from time to time party to the
agreement, ABN AMRO Bank N.V., as the Enhancer, and the
Windmill Funding Corporation, incorporated by reference to
Exhibit 10.4 to the World Color Quarterly Report on Form 10-Q
for the quarterly period ended June 29, 1997.
10
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EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.7 Receivables Purchase Agreement dated as of June 30, 1997 between
World Color Press, Inc., and World Color Finance, Inc.,
incorporated by reference to Exhibit 10.5 to the World Color
Quarterly Report on Form 10-Q for the quarterly period ended June
29, 1997.
10.8 Indemnity Agreement dated as of June 30, 1997, made by and between
World Color Press, Inc. and ABN AMRO Bank N.V., as agent,
incorporated by reference to Exhibit 10.6 to the World Color
Quarterly Report on Form 10-Q for the quarterly period ended June
29, 1997.
10.9 Participation Agreement, dated as of April 30, 1990, among World
Color, as lessee, General Electric Capital Corporation, as owner
participant and The Connecticut National Bank, as owner trustee,
as amended, incorporated by reference to Exhibit 10.18 to World
Color's Registration Statement on Form S-1 (No. 33-59490) under
the Securities Act of 1933, as amended (the "World Color Debt
S-1").
10.10 Lease Agreement, dated as of April 30, 1990, between the Connecticut
National Bank, as Owner Trustee, as lessor and World Color, as
lessee, as amended, incorporated by reference to Exhibit 10.19 to
the World Color Debt S-1.
10.11 Form of Unitholders Agreement, incorporated by reference to Exhibit
10.21 to the World Color Debt S-1.
10.12 Form of Optionholders Agreement between World Color and the
Optionholders (as defined therein), incorporated by reference to
Exhibit 10.23 to the World Color Debt S-1.
10.13 Second Amended and Restated Stock Option Plan of World Color Press,
Inc., incorporated by reference to Exhibit 10.9 to World Color's
Annual Report on Form 10-K for the fiscal year ended December 25,
1994.
10.14 Form of World Color Stock Option Agreement, incorporated by
reference to Exhibit 10.25 to the World Color Debt S-1.
10.15 Letter Agreement, dated as of November 4, 1991, between World Color
and Marc L. Reisch regarding certain severance arrangements,
incorporated by reference to Exhibit 10.26 to the World Color Debt
S-1.
10.16 Letter Agreement, dated as of October 9, 1995, between World Color
and Jennifer L. Adams regarding certain severance arrangements,
incorporated by reference to Exhibit 10.12 to the World Color
Equity S-1.
10.17 Letter Agreement, dated as of February 11, 1998, between World Color
and Dean E. Cherry regarding certain severance arrangements.
10.18 Third Amendment to the World Color Press, Inc. Supplemental
Executive Retirement Plan, incorporated by reference to Exhibit
10.18 to World Color's Annual Report on Form 10-K for the fiscal
year ended December 25, 1994.
10.19 Trust under the World Color Press, Inc. Supplemental Retirement
Plan, dated as of October 12, 1995, by and between World Color and
Harris Trust and Savings Bank, incorporated by reference to
Exhibit 10.2 to the World Color Form 10-Q for the quarterly period
ended October 1, 1995.
11
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.20 The World Color Press, Inc. Second Amended and Restated Supplemental
Retirement Plan dated June 14, 1995, as amended July 15, 1997,
incorporated by reference to Exhibit 10.1 to the World Color
Quarterly Report on Form 10-Q for the quarterly period ended
September 28, 1997.
10.21 Stock Option Agreement dated as of June 12, 1997, incorporated by
reference to Exhibit 10.2 to the World Color Quarterly Report on
Form 10-Q for the quarterly period ended September 28, 1997.
10.22 Stock Option Agreement dated as of June 12, 1997, incorporated by
reference to Exhibit 10.3 to the World Color Quarterly Report on
Form 10-Q for the quarterly period ended September 28, 1997.
10.23 Form of Amended and Restated 1995 Senior Management Stock Option
Plan of World Color Press, Inc., incorporated by reference to
Exhibit 10.3 to the World Color Quarterly Report on Form 10-Q for
the quarterly period ended June 29, 1997.
10.24 Form of Stock Option Agreement between World Color and certain
Optionholders, incorporated by reference to Exhibit 4.7 to the
World Color Registration Statement on Form S-8 (No.
333-47743)under the Securities Act of 1933, as amended.
10.25 Amended and Restated Registration Rights Agreement, dated as of
November 20, 1995, among World Color Press, Inc., KKR Partners II,
L.P., Manufacturing Acquisition Associates, L.P., PACE Equity
Associates, L.P., KKR Associates, L.P., Merrill Lynch Capital
Appreciation PSHP, No. 1, L.P., Merrill Lynch Offshore LBO
Partnership No. 1, Merrill Lynch Employees LBO Partnership No. 1,
Merrill Lynch Kecalp L.P. 1984, Merrill Lynch Kecalp L.P. 1986 and
Merrill Lynch L.P. Holdings, Inc., incorporated by reference to
Exhibit 10.24 to the World Color Equity S-1.
10.26 Registration Rights Agreement, dated as of November 20, 1995, among
World Color Press, Inc., APC Associates, GR Associates and WCP
Associates, incorporated by reference to Exhibit 10.25 to the
World Color Equity S-1.
10.27 Promissory Note dated March 12, 1998, given by Brian Sullivan.
13.0 Pages 18 - 36 of the 1997 Annual Report to Stockholders (with the
exception of the pages incorporated by reference herein, the
Annual Report to Stockholders is not part of this filing).
21.0 Subsidiaries of World Color.
27.1 Financial Data Schedule for the year ended December 28, 1997.
27.2 Financial Data Schedule for the interim periods of fiscal 1997.
27.3 Financial Data Schedule for the interim and annual periods of
fiscal 1996.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed during the fourth quarter
of World Color's fiscal year ended December 28, 1997.
12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of World Color Press, Inc.:
We have audited the consolidated financial statements of World Color Press, Inc.
and subsidiaries as of December 28, 1997 and December 29, 1996, and for each of
the three years in the period ended December 28, 1997, and have issued our
report thereon dated February 4, 1998; such consolidated financial statements
and report are included in your 1997 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the financial
statement schedule of World Color Press, Inc., listed in Item 14. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
February 4, 1998
13
<PAGE>
SCHEDULE II
WORLD COLOR PRESS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Additions Other
Balance Charged to Charges- Balance at
Beginning Costs and Deductions- Add (Deduct) End
Classification Of Year Expenses Describe Describe of Year
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 28, 1997
Allowance for uncollectible
accounts receivable $8,476 $7,193 $8,345(1) $1,963(2) $ 9,287
YEAR ENDED DECEMBER 29, 1996
Allowance for uncollectible
accounts receivable $6,356 $1,454 $ 834(1) $1,500(2) $ 8,476
YEAR ENDED DECEMBER 31, 1995
Allowance for uncollectible
accounts receivable $4,718 $1,875 $ 976(1) $ 739(2) $ 6,356
</TABLE>
(1) Write-offs of receivables, net of recoveries.
(2) Balance of acquired companies at acquisition date.
14
<PAGE>
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.
WORLD COLOR PRESS, INC.
(Registrant)
Date: March 27, 1998 By:/s/ Michael D. Helfand
--------------------------------
Michael D. Helfand
Executive Vice President, Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities indicated on March 27, 1998.
SIGNATURES TITLES
/s/ Robert G. Burton Chairman of the Board of Directors,
- ------------------------- President and Chief Executive Officer
Robert G. Burton (Principal Executive Officer)
/s/ Michael D. Helfand Executive Vice President, Chief Financial
- ------------------------- Officer (Principal Financial Officer;
Michael D. Helfand Principal Accounting Officer)
/s/ Gerald S. Armstrong Director
- -------------------------
Gerald S. Armstrong
/s/ Patrice M. Daniels Director
- -------------------------
Patrice M. Daniels
/s/ Dr. Mark J. Griffin Director
- -------------------------
Dr. Mark J. Griffin
/s/ Henry R. Kravis Director
- -------------------------
Henry R. Kravis
Director
- -------------------------
Alexander Navab, Jr.
/s/ Marc L. Reisch Director, Vice Chairman and Group President
- -------------------------
Marc L. Reisch
/s/ George R. Roberts Director
- -------------------------
George R. Roberts
/s/ Scott M. Stuart Director
- -------------------------
Scott M. Stuart
15
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation of World Color
Press, Inc., incorporated by reference to Exhibit 3.1 to World
Color's Registration Statement on Form S-1 (No. 33-99676) under
the Securities Act of 1933, as amended (the "World Color Equity
S-1").
3.2 Amended and Restated By-Laws of World Color Press, Inc.,
incorporated by reference to Exhibit 3.2 to World Color's Annual
Report on Form 10-K for the fiscal year ended December 29, 1996.
4.1 Indenture (the "Indenture") between World Color and First Trust
National Association, as trustee, relating to World Color's 9-1/8%
Senior Subordinated Notes due 2003 (the "Notes"), incorporated by
reference to Exhibit 4.1 to World Color's Annual Report on Form
10-K for the fiscal year ended December 26, 1993.
4.2 Specimen of 9-1/8% Senior Subordinated Notes due 2003 (included in
the Indenture, incorporated by reference as Exhibit 4.1).
4.3 Indenture (the "Convert Indenture") between World Color Press,
Inc. and State Street Bank and Trust Company, as trustee,
relating to World Color's 6% Convertible Senior Subordinated
Notes due 2007 (the "Converts"), incorporated by reference to
Exhibit 4.1 to World Color's Quarterly Report on Form 10-Q for
the quarterly period ended September 28, 1997.
4.4 Specimen of Converts (included in the Convert Indenture,
incorporated by reference as Exhibit 4.3).
10.1 Second Amended and Restated Credit Agreement, dated as of June 6,
1996, among World Color Press, Inc. and the lenders and agents
party thereto (the "Credit Agreement"), incorporated by reference
to Exhibit 10.2 to World Color's Current Report on Form 8-K dated
June 21, 1996.
10.2 First Amendment dated as of June 10, 1996 to the Credit Agreement,
incorporated by reference to Exhibit 10.3 to World Color's Current
Report on Form 8-K dated June 21, 1996.
10.3 Limited Waiver, Consent and Second Amendment to Second Amended and
Restated Credit Agreement dated as of June 9, 1997, by and among
World Color Press, Inc., the Lenders party to the Second Amended
and Restated Credit Agreement, as amended, Bankers Trust Company,
as Administrative Agent, and the Guarantors listed on the
signature pages, incorporated by reference to Exhibit 10.1 to the
World Color Quarterly Report on Form 10-Q for the quarterly period
ended June 29, 1997.
10.4 Third Amendment to Second Amended and Restated Credit Agreement
dated as of June 27, 1997, by and among World Color Press, Inc.,
the Lenders party to the Second Amended and Restated Credit
Agreement, as amended, Bankers Trust Company, as Administrative
Agent, and the Guarantors listed on the signature pages,
incorporated by reference to Exhibit 10.2 to the World Color
Quarterly Report on Form 10-Q for the quarterly period ended June
29, 1997.
10.5 Limited Waiver, Consent and Fourth Amendment to Second Amended and
Restated Credit Agreement dated as of September 29, 1997, by and
among World Color Press, Inc., the Lenders party to the Second
Amended and Restated Credit Agreement, as amended, Bankers Trust
Company, as Administrative Agent, and the Guarantors listed on the
signature pages thereto, incorporated by reference to Exhibit 10.4
to World Color's Quarterly Report on Form 10-Q for the quarterly
period ended September 28, 1997.
10.6 Receivables Sale Agreement dated as of June 30, 1997 among World
Color Finance, Inc., as the Seller, ABN AMRO Bank N.V., as the
Agent, the Liquidity Providers from time to time party to the
agreement, ABN AMRO Bank N.V., as the Enhancer, and the
Windmill Funding Corporation, incorporated by reference to
Exhibit 10.4 to the World Color Quarterly Report on Form 10-Q
for the quarterly period ended June 29, 1997.
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.7 Receivables Purchase Agreement dated as of June 30, 1997 between
World Color Press, Inc., and World Color Finance, Inc.,
incorporated by reference to Exhibit 10.5 to the World Color
Quarterly Report on Form 10-Q for the quarterly period ended June
29, 1997.
10.8 Indemnity Agreement dated as of June 30, 1997, made by and between
World Color Press, Inc. and ABN AMRO Bank N.V., as agent,
incorporated by reference to Exhibit 10.6 to the World Color
Quarterly Report on Form 10-Q for the quarterly period ended June
29, 1997.
10.9 Participation Agreement, dated as of April 30, 1990, among World
Color, as lessee, General Electric Capital Corporation, as owner
participant and The Connecticut National Bank, as owner trustee,
as amended, incorporated by reference to Exhibit 10.18 to World
Color's Registration Statement on Form S-1 (No. 33-59490) under
the Securities Act of 1933, as amended (the "World Color Debt
S-1").
10.10 Lease Agreement, dated as of April 30, 1990, between the Connecticut
National Bank, as Owner Trustee, as lessor and World Color, as
lessee, as amended, incorporated by reference to Exhibit 10.19 to
the World Color Debt S-1.
10.11 Form of Unitholders Agreement, incorporated by reference to Exhibit
10.21 to the World Color Debt S-1.
10.12 Form of Optionholders Agreement between World Color and the
Optionholders (as defined therein), incorporated by reference to
Exhibit 10.23 to the World Color Debt S-1.
10.13 Second Amended and Restated Stock Option Plan of World Color Press,
Inc., incorporated by reference to Exhibit 10.9 to World Color's
Annual Report on Form 10-K for the fiscal year ended December 25,
1994.
10.14 Form of World Color Stock Option Agreement, incorporated by
reference to Exhibit 10.25 to the World Color Debt S-1.
10.15 Letter Agreement, dated as of November 4, 1991, between World Color
and Marc L. Reisch regarding certain severance arrangements,
incorporated by reference to Exhibit 10.26 to the World Color Debt
S-1.
10.16 Letter Agreement, dated as of October 9, 1995, between World Color
and Jennifer L. Adams regarding certain severance arrangements,
incorporated by reference to Exhibit 10.12 to the World Color
Equity S-1.
10.17 Letter Agreement, dated as of February 11, 1998, between World Color
and Dean E. Cherry regarding certain severance arrangements.
10.18 Third Amendment to the World Color Press, Inc. Supplemental
Executive Retirement Plan, incorporated by reference to Exhibit
10.18 to World Color's Annual Report on Form 10-K for the fiscal
year ended December 25, 1994.
10.19 Trust under the World Color Press, Inc. Supplemental Retirement
Plan, dated as of October 12, 1995, by and between World Color and
Harris Trust and Savings Bank, incorporated by reference to
Exhibit 10.2 to the World Color Form 10-Q for the quarterly period
ended October 1, 1995.
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.20 The World Color Press, Inc. Second Amended and Restated Supplemental
Retirement Plan dated June 14, 1995, as amended July 15, 1997,
incorporated by reference to Exhibit 10.1 to the World Color
Quarterly Report on Form 10-Q for the quarterly period ended
September 28, 1997.
10.21 Stock Option Agreement dated as of June 12, 1997, incorporated by
reference to Exhibit 10.2 to the World Color Quarterly Report on
Form 10-Q for the quarterly period ended September 28, 1997.
10.22 Stock Option Agreement dated as of June 12, 1997, incorporated by
reference to Exhibit 10.3 to the World Color Quarterly Report on
Form 10-Q for the quarterly period ended September 28, 1997.
10.23 Form of Amended and Restated 1995 Senior Management Stock Option
Plan of World Color Press, Inc., incorporated by reference to
Exhibit 10.3 to the World Color Quarterly Report on Form 10-Q for
the quarterly period ended June 29, 1997.
10.24 Form of Stock Option Agreement between World Color and certain
Optionholders, incorporated by reference to Exhibit 4.7 to the
World Color Registration Statement on Form S-8 (No.
333-47743)under the Securities Act of 1933, as amended.
10.25 Amended and Restated Registration Rights Agreement, dated as of
November 20, 1995, among World Color Press, Inc., KKR Partners II,
L.P., Manufacturing Acquisition Associates, L.P., PACE Equity
Associates, L.P., KKR Associates, L.P., Merrill Lynch Capital
Appreciation PSHP, No. 1, L.P., Merrill Lynch Offshore LBO
Partnership No. 1, Merrill Lynch Employees LBO Partnership No. 1,
Merrill Lynch Kecalp L.P. 1984, Merrill Lynch Kecalp L.P. 1986 and
Merrill Lynch L.P. Holdings, Inc., incorporated by reference to
Exhibit 10.24 to the World Color Equity S-1.
10.26 Registration Rights Agreement, dated as of November 20, 1995, among
World Color Press, Inc., APC Associates, GR Associates and WCP
Associates, incorporated by reference to Exhibit 10.25 to the
World Color Equity S-1.
10.27 Promissory Note dated March 12, 1998, given by Brian Sullivan.
13.0 Pages 18 - 36 of the 1997 Annual Report to Stockholders (with the
exception of the pages incorporated by reference herein, the
Annual Report to Stockholders is not part of this filing).
21.0 Subsidiaries of World Color.
27.1 Financial Data Schedule for the year ended December 28, 1997.
27.2 Financial Data Schedule for the interim periods of fiscal 1997.
27.3 Financial Data Schedule for the interim and annual periods of
fiscal 1996.
<PAGE>
EXHIBIT 10.17
Dear Dean:
This will confirm the commitment I recently made to you regarding severance.
In the event your employment with the Company is terminated for any reason other
than "Cause", you will receive your base salary for a period of eighteen months
as severance. The Company will have "Cause" to terminate your employment in the
event you (1) engage in acts or omissions with respect to the Company which
constitute intentional misconduct which adversely affects the Company or a
knowing violation of law, (2) personally receive a benefit in money, property or
services from another person dealing with the Company in violation of applicable
law or (3) commit an act of fraud, conversion, misappropriation, embezzlement or
felony.
Sincerely,
/s/ Robert G. Burton
February 11, 1998
<PAGE>
EXHIBIT 10.27
SECURED PROMISSORY NOTE
$100,000.00 Greenwich, Connecticut
March 12, 1998
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to pay
to the order of World Color Press, Inc. (the "Company"), at its office at The
Mill, 340 Pemberwick Road, Greenwich, Connecticut 06831, in lawful money of the
United States, ONE HUNDRED THOUSAND DOLLARS ($100,000.00). The undersigned
promises to pay interest in like money at such office on the unpaid principal
amount hereof from time to time outstanding from the date hereof at the rate of
6.9% from November 5, 1997, the date of the loan through December 31, 1998 and
at such other rate as the Company may reasonably determine thereafter. Interest
shall be calculated annually on the basis of a 365 day year and the number of
actual days elapsed until the respective Due Date (as defined below).
Except as otherwise provided herein or in the Repayment and Stock Pledge
Agreement between the Company and the undersigned dated March 12, 1998 (the
"Pledge"), principal and interest payments hereunder shall be due and payable as
set forth on Exhibit A. Each such date on which a payment of principal and/or
interest is due is referred to as a "Due Date".
This Note is issued in connection with the pledge of shares of common
stock, par value $0.01 per share, of the Company (the "Common Stock") and other
collateral (the "Collateral") pursuant to the Pledge.
The undersigned shall have the right to prepay this Note, in whole or in
part, at any time without notice and without penalty and, notwithstanding
anything to the contrary herein, this Note shall be prepaid, in whole or in part
and from time to time, from the proceeds from any sale, transfer or other
disposition of Pledged Securities. Any partial prepayments shall be applied
first to accrued and unpaid interest and then to principal.
Notwithstanding the existence of the Pledged Securities as security for
repayment of the Note, the undersigned remains personally liable to the Company
for any deficiency which the Pledged Securities do not cover.
If an Event of Default (as defined in the Pledge) shall have occurred and
be continuing, then, at such time, the unpaid principal amount hereof, all
accrued and unpaid interest hereunder and all other amounts owing hereunder
shall be and become immediately due and payable without notice to the
undersigned. In the event of any default in payment or other Event of Default,
the Company may pursue any available remedy to collect the payment of principal
and interest hereunder or to otherwise enforce the terms and provisions of this
Note.
The Company shall have all of the rights to a secured creditor under the
Connecticut Commercial Code with respect to the Collateral pledged as security
hereunder.
The undersigned promises to pay all costs and expenses, including
reasonable attorney's fees incurred by the Company in collecting or attempting
to collect the indebtedness under the Note.
If any payment of principal or interest on this Note becomes due and
payable on a day other than a business day, such payment shall be made on the
next succeeding business day. As used herein, the term "business day" means any
day other than a Saturday, Sunday or other day on which banks in the City of
Greenwich, Connecticut are authorized by law to close.
No delay or omission by the Company in exercising any right or remedy
shall impair such (or any other) right or remedy or operate as a waiver thereof
or an acquiescence in such default, and no single or partial exercise by the
Company of any right or remedy shall preclude other or further exercise thereof,
or the exercise or any other right or remedy. The non-exercise by the Company of
its rights under this Note in any instance shall not constitute a waiver thereof
in that or any subsequent instance. All remedies are cumulative to the extent
permitted by law.
<PAGE>
The terms and conditions of this Note may not be amended, modified or
waived except in a writing executed by the parties hereto, nor shall any waiver
be applicable except in the specific insurance for which it is given.
None of the provisions hereof and none of the Company's rights or remedies
hereunder shall be or be deemed to be waived by the Company's acceptance of any
past due payment or by any indulgence granted by the Company to the undersigned.
Except as otherwise provided herein, presentment for payment, demand,
notice of dishonor, protest and notice of protest are hereby waived. All
notices, declarations and other communications hereunder shall be in writing,
hand delivered (including delivery by a courier service) as follows:
If to the Company:
World Color Press
The Mill
340 Pemberwick Road
Greenwich, Connecticut 06831
Attention: Chief Legal and Administrative Officer
If to the undersigned:
Brian Sullivan
[Address omitted]
or to such other address as the Company or the undersigned may deliver to the
other party from time to time in writing in like manner.
If any term or provision of this Note shall be held invalid, illegal or
unenforceable, the validity of all other terms and provisions shall in no way be
affected thereby. The undersigned and the Company agree that, in the event of
any litigation arising on, out of or by reason of this Note, the undersigned
waives the right to a trial by jury and all rights of set off and rights to
interpose counterclaims and cross-claims.
This Note shall not be assigned by the undersigned without the prior
written consent of the Company. This note shall inure to the benefit of the
Company, its successors, endorsers and assigns. This Note may be assigned by the
Company at any time.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF CONNECTICUT.
/s/ Brian Sullivan
--------------------------------
Brian Sullivan
<PAGE>
EXHIBIT 13.0
PORTIONS OF THE ANNUAL REPORT
[Page 18 of the Annual Report]
Selected Financial Data
(Dollars in thousands, except per share data)
The following selected financial data for the five fiscal years ended December
28, 1997 have been derived from the Company's audited consolidated financial
statements. The data presented below should be read in conjunction with, and is
qualified in its entirety by reference to, the Company's consolidated financial
statements and the notes thereto appearing elsewhere in this report.
<TABLE>
<CAPTION>
Fiscal Year (1)
------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales $1,981,225 $1,641,412 $1,295,582 $ 971,627 $ 825,569
Cost of sales 1,613,938 1,349,130 1,074,785 817,934 715,895
---------- ---------- ---------- ---------- ----------
Gross profit 367,287 292,282 220,797 153,693 109,674
Selling, general and
administrative
expenses 188,688 153,071 125,539 90,312 69,688
Streamlining and other
special charges(2) -- -- 40,900 -- 98,000
---------- ---------- ---------- ---------- ----------
Operating income (loss) 178,599 139,211 54,358 63,381 (58,014)
Interest expense and
securitization fees 80,039 58,417 37,897 23,825 25,080
Income tax provision
(benefit) 41,341 33,533 6,584 15,822 (24,700)
Extraordinary charge -- -- -- -- 7,007
Cumulative effect of
changes in accounting
methods -- -- -- -- 55,900
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 57,219 $ 47,261 $ 9,877 $ 23,734 $ (121,301)
========== ========== ========== ========== ==========
Net income (loss) per
common share (3)(4):
Basic $ 1.65 $ 1.40 $ 0.31 $ 0.74 $ (4.26)
Diluted 1.60 1.35 0.29 0.69 (4.26)
Other Operating Data:
Depreciation and
amortization $ 131,710 $ 104,493 $ 74,668 $ 62,898 $ 66,533
Capital expenditures 93,145 70,639 120,339 83,875 57,234
Gross profit margin 18.5% 17.8% 17.0% 15.8% 13.3%
Adjusted operating
income margin(5) 9.0 8.5 7.4 6.5 4.8
Balance Sheet Data (at
period end):
Working capital $ 168,752 $ 227,068 $ 160,835 $ 113,144 $ 83,125
Property, plant and
equipment, net 857,195 818,157 480,421 363,929 356,060
Total assets 1,933,571 1,822,432 1,150,728 837,417 818,130
Long-term debt
(including current
maturities) 819,113 897,867 487,106 293,515 323,118
Stockholders' equity 599,769 414,932 358,766 274,113 247,570
</TABLE>
- ----------
(1) The fiscal years shown each represent the 52 or 53 week period ending on
the last Sunday in December. Fiscal year 1995 consisted of 53 weeks.
Fiscal years 1993, 1994, 1996 and 1997 each consisted of 52 weeks.
(2) See Note 15 to the Company's consolidated financial statements regarding
the 1995 amount. Operating income in 1993 was reduced by $98,000 of
special charges. These charges reflect the Company's strategy in 1993 to
grant price concessions to certain significant customers to renew and
extend long-term contracts in advance of their expiration dates and to
streamline its operations in response to the continuing competitive
marketplace.
(3) Net loss from continuing operations per common share - basic and diluted
was $2.04 for the year ended 1993.
(4) In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," the Company has calculated net income (loss) per
common share - basic and diluted based on the weighted average shares and
dilutive common equivalent shares outstanding, as applicable, during each
period after giving effect to the change in the Company's capital
structure pursuant to the Merger and the Options Adjustments (as defined
in the Notes to the Company's consolidated financial statements).
(5) Adjusted operating income represents operating income before nonrecurring
streamlining and other charges. Adjusted operating income is not intended
to represent cash flows for the period, is not presented as an alternative
to operating income as an indicator of operating performance, may not be
comparable to other similarly titled measures of other companies and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. See the Company's consolidated financial statements.
<PAGE>
[Page 19 - 21 of the Annual Report]
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(Dollars in thousands)
General
The Company is a diversified commercial printer serving customers in the
magazine, catalog, commercial, book, direct mail and directory markets. The
Company's revenues are derived primarily from the sale of services and materials
to its customer base, including digital and prepress services, press and binding
services and distribution and logistics services.
There continues to be significant pricing pressure on all printers, including
the Company. The Company's net sales include sales to certain customers of
paper purchased by the Company. The price of paper, the primary raw material
used by the Company, is volatile over time and may cause significant swings
in net sales and cost of sales. The Company generally is able to pass on
increases in the cost of paper to its customers, while declines in paper
costs result in lower prices to its customers. In 1995, the availability of
most grades of paper tightened and paper prices increased significantly.
During 1996, paper prices decreased significantly and availability returned
to more normalized levels. Since the beginning of 1997, the paper market
firmed in pricing and availability for certain grades. During the first
quarter of 1998, the price for most grades of paper increased modestly.
Although the Company anticipates that the price of certain grades of paper
may continue to increase during the balance of 1998, the Company believes it
has adequate allocations with its paper suppliers to meet its customers'
needs. The Company's contracts with its customers generally provide for price
adjustments to reflect price changes for other materials, wages and outside
services.
Acquisitions
In the first quarter of 1998, the Company purchased three businesses operating
in the commercial, direct mail and book markets for an aggregate purchase price
of approximately $160,000. These acquisitions will be accounted for as purchases
and are not expected to have a material effect, either individually or in the
aggregate, on the Company's results of operations.
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. In addition, the
Company acquired another business in 1997 whose contribution was not significant
to the Company's results of operations for the periods presented, nor is it
expected to have a material effect on the Company's results on a continuing
basis. These acquisitions were accounted for as purchases and will hereinafter
be referred to as the "1997 Acquisitions."
<PAGE>
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. This acquisition was accounted for as a purchase. Ringier
America was a leading diversified commercial printer whose business included 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
Year Ended December 28, 1997 Compared to Year Ended December 29, 1996
Net sales increased $339,813 or 20.7% to $1,981,225 in 1997 from $1,641,412 in
1996. The increase was attributable to the inclusion of both a full year of
results from the 1996 Acquisitions and results from the 1997 Acquisitions, as
well as improved sales in the Company's base business.
Gross profit increased $75,005 or 25.7% to $367,287 in 1997 from $292,282 in
1996, due primarily to the inclusion of the 1996 and 1997 Acquisitions. Gross
profit margin improved to 18.5% in 1997 from 17.8% in 1996. This improvement is
a result of the 1996 and 1997 Acquisitions, including the benefits of certain
cost reduction initiatives and other synergies resulting from the combination of
the businesses.
Selling, general and administrative expenses increased $35,617 or 23.3% to
$188,688 in 1997 from $153,071 in 1996. The increase is attributable to the 1996
and 1997 Acquisitions, including the related additional amortization expense for
goodwill, offset by benefits derived from cost saving initiatives. In addition,
in 1997 the Company incurred a higher than usual provision for bad debts related
to a customer that entered into bankruptcy.
Interest expense and securitization fees increased $21,622 or 37.0% to $80,039
in 1997 from $58,417 in 1996. The increase is attributable to higher average
borrowings incurred to fund acquisitions, capital expenditures and working
capital requirements. The 1997 amount includes $5,133 of fees resulting from the
Asset Securitization, as defined below.
The effective tax rate, primarily composed of the combined federal and state
statutory rates, was approximately 42.0% for 1997 and 41.5% for 1996. This
slight increase was due to additional nondeductible amortization expense for
goodwill resulting from acquisitions.
Year Ended December 29, 1996 Compared to Year Ended December 31, 1995
Net sales increased $345,830 or 26.7% to $1,641,412 in 1996 from $1,295,582 in
1995. The increase was due to the 1996 Acquisitions, partially offset by lower
paper prices. In 1996, net sales also benefited slightly by continued business
growth from new and existing customers.
Gross profit increased $71,485 or 32.4% to $292,282 in 1996 from $220,797 in
1995. The increase is attributable to the inclusion of the 1996 Acquisitions, as
well as increased volume and improved operating efficiencies. Gross profit
margin improved to 17.8% in 1996 from 17.0% in 1995 as a result of the 1996
Acquisitions, including certain cost savings and other operating synergies that
have resulted from the combination of the businesses, along with the
<PAGE>
effect of lower paper prices.
Selling, general and administrative expenses increased $27,532 or 21.9% to
$153,071 in 1996 from $125,539 in 1995. The increase is partially attributable
to the 1996 Acquisitions, including the related additional amortization expense
for goodwill, as well as increased selling expenses related to higher volume.
Operating income increased $84,853 or 156.1% to $139,211 in 1996 from $54,358 in
1995. The increase is attributable to the factors discussed in the preceding
paragraphs, and the absence in 1996 of a streamlining charge of $40,900 recorded
in the fourth quarter of 1995, when the Company finalized and committed to a
plan to realign certain business operations. The major components of this
realignment plan were to close a facility and to consolidate certain digital
prepress operations and functions. Before the reduction for the 1995
streamlining charge, 1996 operating income increased $43,953 or 46.1%.
Interest expense increased $20,520 or 54.1% to $58,417 in 1996 from $37,897 in
1995. The increase is attributable to higher average borrowings incurred to fund
the 1996 Acquisitions and capital expenditures, partially offset by a slight
benefit from a lower average cost of funds.
The effective income tax rate was approximately 41.5% for 1996 and 40.0% for
1995, and was primarily composed of the combined federal and state statutory
rates.
Liquidity and Capital Resources
On June 30, 1997, the Company entered into an agreement to sell, on a revolving
basis for a period of up to five years, certain of its accounts receivable to a
wholly-owned subsidiary, which entered into an agreement to transfer, on a
revolving basis, an undivided percentage ownership interest in a designated pool
of accounts receivable to a maximum of $204,000 (the "Asset Securitization"). At
December 28, 1997, $200,000 of accounts receivable had been sold and reflected
as a reduction of accounts receivable. The net proceeds were primarily used to
repay certain indebtedness incurred under the Credit Agreement (as defined
below). Fees associated with the Asset Securitization vary based on commercial
paper rates plus a margin , providing a lower effective rate than that available
from the Company's traditional funding sources.
On October 8, 1997, the Company issued 4,600,000 shares of its common stock,
receiving net proceeds of approximately $127,600 (the "Stock Offering").
Concurrent with the Stock Offering, the Company issued $151,800 aggregate
principal amount of Convertible Senior Subordinated Notes (the "Convertible
Notes"), receiving net proceeds of approximately $147,900. Interest on the
Convertible Notes is payable semi-annually at the annual rate of 6.0%. The
Convertible Notes have no required principal payments prior to maturity on
October 1, 2007. The Convertible Notes in the aggregate are convertible into
3,660,477 shares of the Company's common stock at $41.47 per share, subject to
adjustment upon the occurrence of certain events. The net proceeds from the
Stock Offering and Convertible Notes offering were used to repay certain
indebtedness incurred under the Credit Agreement.
Net income plus depreciation and amortization and deferred income taxes was
$203,201 in 1997 compared to $165,327 in 1996, an increase of $37,874 or 22.9%.
Cash flow from operations was primarily used to fund working capital
requirements, capital expenditures, and acquisitions.
<PAGE>
Working capital was $168,752 at December 28, 1997 and $227,068 at December 29,
1996. The decrease of $58,316 or 25.7% was primarily due to the effect of the
Asset Securitization, offset by the 1997 Acquisitions and an increase in
work-in-process inventories.
Capital expenditures totaled $93,145 and $70,639 in 1997 and 1996, respectively.
These capital expenditures reflect the purchase of additional press and bindery
equipment which increased the Company's capacity and are part of the Company's
ongoing program to maintain modern, efficient plants and continually increase
productivity. The Company expects capital expenditures in 1998 to approximate 4%
to 5% of net sales. Additional expenditures in 1998 are possible in line with
growth in earnings and cash flows, or expansion opportunities in certain
markets.
The Company's capital expenditures and acquisitions have been funded through
operations and borrowings under the Company's Second Amended and Restated Credit
Agreement dated as of June 6, 1996, (as amended, the "Credit Agreement"). At the
beginning of the year, aggregate total commitments under the Credit Agreement
were $975,000. During 1997, concurrent with the liquidation of certain
indebtedness, the Company amended the Credit Agreement to provide aggregate
total commitments of $920,000, comprised of $95,000 in term loan commitments,
$250,000 of revolving loan commitments and $575,000 in acquisition term loan
commitments. The Credit Agreement provides for varying semi-annual reductions in
commitments, and the borrowings bear interest at rates that fluctuate with the
prime rate and the Eurodollar rate. As of December 28, 1997, the weighted
average borrowing rate was 6.6%, and $272,000 of acquisition term loan
commitments and $181,929 of revolving loan commitments were unutilized.
At December 28, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of $14,875 available to reduce future taxable
income, expiring primarily in 2000. The Company also has federal tax credits of
$2,495 expiring primarily from 1999 to 2002 and state tax credits of $2,575
expiring from 2001 to 2012. In addition, the Company has alternative minimum tax
carryover credits of $34,532 which do not expire and may be applied against
regular tax in the future, in the event regular tax expense exceeds the
alternative minimum tax.
Concentrations of credit risk with respect to accounts receivable are limited
due to the Company's diverse operations and large customer base. As of December
28, 1997, the Company had no significant concentrations of credit risk.
In order to reduce the exposure on its variable rate indebtedness, the Company
has entered into interest rate cap agreements with a notional value of $500,000,
expiring in the third quarter of 1998. The impact of these agreements on the
consolidated financial statements was not material for the periods presented.
While the Company is exposed to credit loss in the event of nonperformance by
the counterparties of these agreements, management believes that the possibility
of incurring such a loss is remote due to the creditworthiness of the
counterparties. The Company does not hold or issue any derivative financial
instruments for trading purposes.
The Company believes that its liquidity, capital resources and cash flows from
operations are sufficient to fund planned capital expenditures, working capital
requirements and interest and principal payments for the foreseeable future.
<PAGE>
The Company has evaluated the potential impact of the situation commonly
referred to as the "Year 2000 Issue." The Year 2000 Issue, which affects most
corporations, concerns the inability of information systems, primarily computer
software programs, to properly recognize and process date sensitive information
relating to the year 2000 and beyond. During the past several years, the Company
has taken actions to prepare its systems for the year 2000. As a result, the
majority of the Company's financial systems, as well as certain other
significant information systems, are currently year 2000 compliant. While the
Company will continue to evaluate its systems, it has determined, based upon the
available information, that additional costs associated with the Year 2000 Issue
will not have a material adverse effect upon its operating results or financial
condition.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," effective for the fiscal year ended 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components in the financial statements. The Company does not expect the
adoption of SFAS No. 130 to have a material effect on its consolidated
financial statements. SFAS No. 131 establishes standards for reporting
information on operating segments in the financial statements. The Company
is currently evaluating the impact SFAS No. 131 may have on additional
disclosure, if any, to its consolidated financial statements.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," which
standardizes the disclosure for pensions and other postretirement benefits. The
Company will adopt this statement for the fiscal year ended 1998. The Company is
currently evaluating the impact SFAS No. 132 may have on additional disclosure,
if any, to its consolidated financial statements.
Seasonality
The operations of the business are seasonal with approximately two-thirds of
historical operating profits recognized 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.
<PAGE>
[Page 22 of the Annual Report]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
World Color Press, Inc.:
We have audited the accompanying consolidated balance sheets of World Color
Press, Inc. and subsidiaries as of December 28, 1997 and December 29, 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 28, 1997. 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 audit 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, such consolidated financial statements present fairly, in all
material respects, the financial position of World Color Press, Inc. and
subsidiaries at December 28, 1997 and December 29, 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 28, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
February 4, 1998
<PAGE>
[Page 23 of the Annual Report]
WORLD COLOR PRESS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1997 AND DECEMBER 29, 1996
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 37,676 $ 33,182
Accounts receivable - net of allowances for doubtful
accounts of $9,287 and $8,476, respectively 166,747 311,478
Inventories 204,889 140,160
Deferred income taxes 31,297 32,944
Other 33,625 24,843
----------- -----------
Total current assets 474,234 542,607
Property, plant and equipment - net 857,195 818,157
Goodwill - net 535,416 423,880
Other 66,726 37,788
----------- -----------
TOTAL ASSETS $ 1,933,571 $ 1,822,432
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 163,710 $ 172,013
Accrued expenses 132,802 134,854
Current maturities of long-term debt 8,970 8,672
----------- -----------
Total current liabilities 305,482 315,539
Long-term debt 810,143 889,195
Deferred income taxes 100,045 91,555
Other long-term liabilities 118,132 111,211
----------- -----------
Total liabilities 1,333,802 1,407,500
----------- -----------
Stockholders' equity:
Common stock, $.01 par value - authorized, 100,000,000 shares
in 1997 and 1996; shares outstanding,
38,353,853 in 1997 and 33,744,531 in 1996 384 337
Additional paid-in capital 711,292 583,721
Accumulated deficit (111,907) (169,126)
----------- -----------
Total stockholders' equity 599,769 414,932
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,933,571 $ 1,822,432
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
[Page 24 of the Annual Report]
WORLD COLOR PRESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996 AND DECEMBER 31, 1995 (In
thousands, except per share data)
- --------------------------------------------------------------------------------
1997 1996 1995
NET SALES $1,981,225 $1,641,412 $1,295,582
COST OF SALES 1,613,938 1,349,130 1,074,785
---------- ---------- ----------
Gross profit 367,287 292,282 220,797
---------- ---------- ----------
OTHER OPERATING EXPENSES:
Selling, general and administrative 188,688 153,071 125,539
Streamlining charge -- -- 40,900
---------- ---------- ----------
Total other operating expenses 188,688 153,071 166,439
---------- ---------- ----------
OPERATING INCOME 178,599 139,211 54,358
INTEREST EXPENSE AND SECURITIZATION FEES 80,039 58,417 37,897
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 98,560 80,794 16,461
INCOME TAX PROVISION 41,341 33,533 6,584
---------- ---------- ----------
NET INCOME $ 57,219 $ 47,261 $ 9,877
========== ========== ==========
Net income per common share - basic $ 1.65 $ 1.40 $ 0.31
Net income per common share - diluted $ 1.60 $ 1.35 $ 0.29
See notes to consolidated financial statements.
<PAGE>
[Page 25 of the Annual Report]
WORLD COLOR PRESS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996 AND DECEMBER 31, 1995
(In thousands)
- --------------------------------------------------------------------------------
Additional
Common Paid-in Accumulated
Stock Capital Deficit
BALANCE, DECEMBER 25, 1994 $ 257 $ 500,120 $(226,264)
Net income -- -- 9,877
Common stock issued 65 74,711 --
--------- --------- ---------
BALANCE, DECEMBER 31, 1995 322 574,831 (216,387)
Net income -- -- 47,261
Common stock issued 15 8,890 --
--------- --------- ---------
BALANCE, DECEMBER 29, 1996 337 583,721 (169,126)
Net income -- -- 57,219
Common stock issued 47 127,571 --
--------- --------- ---------
BALANCE, DECEMBER 28, 1997 $ 384 $ 711,292 $(111,907)
========= ========= =========
See notes to consolidated financial statements.
<PAGE>
[Page 26 of the Annual Report]
WORLD COLOR PRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996 AND DECEMBER 31, 1995 (In
thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 57,219 $ 47,261 $ 9,877
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 131,710 104,493 74,668
Streamlining charge -- -- 40,900
Deferred income tax provision (benefit) 14,272 13,573 (766)
Changes in operating assets and liabilities:
Proceeds from sale of accounts receivable 200,000 -- --
Other changes in accounts receivable - net (13,812) (30,062) (31,097)
Inventories (53,936) 29,495 (51,083)
Accounts payable and accrued expenses (43,577) 35,178 (7,650)
Other assets and liabilities - net (52,571) (53,355) (28,105)
--------- --------- ---------
Net cash provided by operating activities 239,305 146,583 6,744
--------- --------- ---------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (93,145) (70,639) (120,339)
Proceeds from sale of property, plant and
equipment 2,006 1,345 7,959
Acquisitions of businesses,net of cash acquired (172,539) (167,283) (108,738)
--------- --------- ---------
Net cash used in investing activities (263,678) (236,577) (221,118)
--------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings 285,775 562,120 214,037
Payments on long-term debt (384,526) (456,751) (90,365)
Proceeds from issuance of common stock 127,618 8,905 74,776
--------- --------- ---------
Net cash provided by financing activities 28,867 114,274 198,448
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 4,494 24,280 (15,926)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 33,182 8,902 24,828
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 37,676 $ 33,182 $ 8,902
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
[Pages 27 - 36 of the Annual Report]
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996 AND DECEMBER 31, 1995
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
1. ORGANIZATION
World Color Press, Inc. and subsidiaries (the "Company") specializes in
the production and distribution of data for customers in the magazine,
catalog, commercial, book, direct mail and directory markets.
Prior to November 20, 1995, the Company was wholly-owned by Printing
Holdings, L.P. ("PHLP"), a nonoperating affiliate of Kohlberg Kravis
Roberts & Co. L.P. ("KKR"), whose holdings consisted solely of the
Company. On November 20, 1995, PHLP was merged with and into the Company,
with the Company as the survivor (the "Merger"). In connection with the
Merger, PHLP partnership units (aggregating approximately 65,500,000
units) were converted into approximately 32,200,000 shares of the
Company's common stock, principally at a ratio of one PHLP partnership
unit to 0.50 shares of common stock. Accordingly, the common stock and
additional paid-in capital amounts presented on the consolidated
statements of stockholders' equity have been restated to reflect the
change in the Company's capital structure pursuant to the Merger. Also
pursuant to the Merger, the shares of the Company's common stock owned by
PHLP immediately prior to the Merger were canceled. On November 20, 1995,
the Company also amended and restated its Certificate of Incorporation
increasing the authorized number of shares of common stock to 100,000,000
shares and newly authorizing 50,000,000 shares of preferred stock, par
value $0.01 per share. At December 28, 1997 and December 29, 1996, there
were no shares of preferred stock issued or outstanding.
On January 25, 1996, 15,861,568 shares of the Company's common stock were
sold at $19 per share in an initial public equity offering (the
"Offering"). All of the shares in the Offering were sold by existing
stockholders. The Company did not receive any of the proceeds from the
sale of the shares, except that certain members of former management
elected to participate in the Offering by exercising certain stock options
granted to them by the Company. An aggregate of 1,531,290 shares
underlying such options were sold in the Offering, generating proceeds to
the Company of approximately $8,900. These proceeds were used to pay
expenses of the Offering and for general corporate purposes.
On October 8, 1997, the Company issued 4,600,000 common shares through a
public offering, resulting in net proceeds of approximately $127,600.
These proceeds were utilized to repay certain indebtedness under the
Credit Agreement (as defined in Note 2).
2. BUSINESS ACQUISITIONS
In 1997, the Company acquired two businesses operating in the book,
magazine and catalog markets. These companies were acquired for the
aggregate purchase price of approximately $173,000, primarily funded using
proceeds from the Company's credit facility. The Company liquidated
approximately $20,000 of the acquired companies' indebtedness. These
acquisitions were accounted for as purchases and the consolidated
financial statements include the results of their operations from the
respective acquisition dates. The excess of purchase cost over estimated
fair value of net assets acquired was approximately $126,000 and is being
amortized using the straight-line method over 35 years.
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
<PAGE>
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 (the
"Acquisition"). 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 was a
leading diversified commercial printer whose business included the
printing of catalogs, magazines and mass-market, racksize books. The
Acquisition and liquidation of certain indebtedness were funded using
proceeds from acquisition term loans under the 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.
The Acquisition was accounted for as a purchase and the consolidated
financial statements include the results of Ringier America's operations
from the acquisition date. The excess of purchase cost over estimated fair
value of net assets acquired was approximately $160,000, and is being
amortized using the straight-line method over 35 years.
In March 1995, the Company acquired three companies that operate in the
commercial, digital and direct mail market sectors (the "1995
Acquisitions") for an aggregate purchase price of approximately $108,000.
In addition, the Company liquidated approximately $44,500 of the acquired
companies' indebtedness. The 1995 Acquisitions and liquidation of
indebtedness were funded using proceeds from the Company's credit
facility. The 1995 Acquisitions were accounted for as purchases and the
consolidated financial statements include the results of their operations
from the respective acquisition dates. The excess of purchase cost over
estimated fair value of net assets acquired was approximately $81,700,
which is being amortized using the straight-line method over 35 years.
During 1996 and 1995, the Company acquired certain other businesses 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.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of World Color Press, Inc. and its subsidiaries.
Intercompany transactions have been eliminated.
Cash and Cash Equivalents - Cash equivalents consist of highly liquid
instruments with original maturities of three months or less.
Accounting Period - The Company's fiscal year is the 52 or 53-week period
ending on the last Sunday in December. Fiscal years 1997 and 1996 each
included 52 weeks. Fiscal year 1995 included 53 weeks.
Consolidated Statements of Cash Flows - During 1997, 1996 and 1995, the
Company borrowed and repaid $563,200, $407,200 and $318,700, respectively,
pursuant to the terms of credit agreements. See also Note 7. Such amounts
have not been reflected in the consolidated statements of cash flows
because of the short-term nature of the borrowings.
Cash paid for interest by the Company during the years 1997, 1996 and 1995
was $75,738, $54,037 and $37,193, respectively, net of capitalized
interest of $941, $252 and $1,810, respectively. Cash paid for taxes
during the years 1997, 1996 and 1995 was $28,266, $18,068 and $8,305,
respectively.
Revenue Recognition - In accordance with trade practice, sales are
recognized by the Company on the basis of production and service activity
at the pro rata billing value of work completed.
<PAGE>
Inventories - The Company's raw materials of paper and ink and the related
raw material component of work-in-process are valued at the lower of cost,
as determined using the first-in, first-out ("FIFO") method, or market.
The remainder of the work-in-process is valued at the pro rata billing
value of work completed.
Depreciation and Amortization - Property, plant and equipment is stated at
cost. Depreciation is recorded principally on the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are
amortized on the straight-line method over the lesser of the useful life
of the improvement or the lease term. Estimated useful lives used in
computing depreciation and amortization expense are 3 to 15 years for
machinery and equipment and 15 to 40 years for buildings and leasehold
improvements.
Goodwill - Goodwill is amortized using the straight-line method primarily
over 35 years. Amortization of goodwill for the years 1997, 1996 and 1995
was $16,424, $10,757 and $7,275, respectively, and is included in selling,
general and administrative expenses. Accumulated amortization of goodwill
was $51,228 and $34,804 as of year-end 1997 and 1996, respectively.
Net Income per Common Share - 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 common share. The Company
adopted SFAS No. 128 in the fourth quarter 1997, and has calculated "net
income per common share - basic" based on the weighted average common
shares outstanding during each period and "net income per common share -
diluted" based on the weighted average common and dilutive common
equivalent shares outstanding during each period. Weighted average shares
were adjusted to give effect to the change in the Company's capital
structure pursuant to the Merger and the Options Adjustments, as described
in Notes 1 and 11.
Reclassifications - Certain reclassifications have been made to prior
years' amounts to conform with the current presentation.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Accounting for the Impairment of Long-Lived Assets - In March 1995, the
Financial Accounting Standards Board issued SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." SFAS No. 121 establishes the accounting for the impairment
of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed. The Company adopted SFAS
No. 121 for the year ended December 29, 1996. Accordingly, the Company
evaluates long-lived assets, including goodwill, periodically to determine
if there has been an impairment of value by reviewing current and
estimated undiscounted cash flows. The carrying amounts of such long-lived
assets will be adjusted if and when it has been determined that a
permanent impairment has occurred. There were no adjustments to the
carrying value of these assets for 1997 or 1996.
<PAGE>
Accounting for Stock-Based Compensation - In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 encourages companies to account
for stock compensation awards based on their fair value at the date they
are granted. The resulting compensation cost would be shown as an expense
on the income statement. Companies choosing not to apply the new
accounting method are permitted to continue following current accounting
requirements, however, they are required to disclose in the notes to the
financial statements the effect on net income and earnings per share had
the new accounting method been applied. The Company has adopted only the
disclosure provisions of SFAS No. 123. Accordingly, the Company has
disclosed in Note 11 the pro forma effect on net income and net income per
common share - basic and diluted.
Recent Accounting Pronouncements - In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," effective for the fiscal year ended 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income
and its components in the financial statements. The Company does not
expect the adoption of SFAS No. 130 to have a material effect on its
consolidated financial statements. SFAS No. 131 establishes standards for
reporting information on operating segments in the financial statements.
The Company is currently evaluating the impact SFAS No. 131 may have on
additional disclosure, if any, to its consolidated financial statements.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," which standardizes the disclosure for pensions and other
postretirement benefits. The Company will adopt this statement for the
fiscal year ended 1998. The Company is currently evaluating the impact
SFAS No. 132 may have on additional disclosure, if any, to its
consolidated financial statements.
4. INVENTORIES
Inventories are summarized as follows:
1997 1996
Work-in-process $111,326 $ 73,747
Raw materials 93,563 66,413
-------- --------
Total $204,889 $140,160
======== ========
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is as follows:
<PAGE>
1997 1996
Land $ 16,252 $ 14,822
Buildings and leasehold improvements 292,092 247,806
Machinery and equipment 1,180,297 1,075,349
Leased property under capitalized leases 6,692 8,519
---------- ----------
1,495,333 1,346,496
Accumulated depreciation and amortization 638,138 528,339
---------- ----------
Total $ 857,195 $ 818,157
========== ==========
Depreciation expense related to property, plant and equipment was
$114,819, $91,186 and $65,526 for the years 1997, 1996 and 1995,
respectively.
6. ACCRUED EXPENSES
Accrued expenses are as follows:
1997 1996
Compensation $ 50,239 $ 48,447
Employee health and welfare benefits 9,696 16,593
Deferred revenue 10,956 16,105
Interest 10,368 8,493
Other 51,543 45,216
-------- --------
Total $132,802 $134,854
======== ========
7. LONG-TERM DEBT
Long-term debt is summarized as follows:
1997 1996
Senior Subordinated Notes $150,000 $150,000
Convertible Senior Subordinated Notes 151,800 --
Borrowings under credit agreements 450,500 672,000
Notes payable, average of 9.17% due 2004 - 2005 36,729 40,129
Capitalized lease obligations, weighted average
imputed interest rate of 9.27% due through 2003 3,540 5,067
Other debt, average of 8.46% due 1998 - 2004 26,544 30,671
-------- --------
Total 819,113 897,867
Less current maturities 8,970 8,672
-------- --------
Noncurrent portion $810,143 $889,195
======== ========
At December 28, 1997, the fair value of the Senior Subordinated Notes and
Convertible Senior Subordinated Notes was approximately $156,188 and
$146,108, respectively, based on quoted market prices. The fair value of
the Company's remaining debt approximated its carrying value, based upon
the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
Senior Subordinated Notes - On May 10, 1993, Senior Subordinated Notes
(the "Notes") were issued in the aggregate principal amount of $150,000.
Interest on the Notes is payable semi-annually at the annual rate of
9.125%. The Notes have no required principal payments prior to maturity on
March 15, 2003.
<PAGE>
Convertible Senior Subordinated Notes - On October 8, 1997, the Company
issued $151,800 aggregate principal amount of Convertible Senior
Subordinated Notes (the "Convertible Notes"), receiving net proceeds of
approximately $147,900. Interest on the Convertible Notes is payable
semi-annually at the annual rate of 6.00%. The Convertible Notes have no
required principal payments prior to maturity on October 1, 2007. The
Convertible Notes in the aggregate are convertible into 3,660,477 shares
of the Company's common stock at $41.47 per share, subject to adjustment
upon the occurrence of certain events. The Convertible Notes are
redeemable at the option of the holder at any time and at the option of
the Company, at specified prices, subsequent to October 4, 2000. The net
proceeds from the Convertible Notes offering were utilized to repay
certain indebtedness incurred under the Credit Agreement.
Borrowings Under Credit Agreements - On June 6, 1996, an amendment was
made to the Company's credit facility to provide for an additional
$566,000 of commitments and to extend the maturity date two years to
December 31, 2002. In June and October 1997, concurrent with the
liquidation of indebtedness utilizing proceeds from the Asset
Securitization (as defined in Note 8), equity offering and Convertible
Notes offering, the Credit Agreement was amended to provide and
subsequently maintain the aggregate total commitments of $920,000,
comprised of $95,000 in term loan commitments, $250,000 of revolving loan
commitments and $575,000 in acquisition term loan commitments. All other
significant financial provisions of the Credit Agreement remained
substantially unchanged. The Credit Agreement requires varying semi-annual
reductions in commitments, and the borrowings bear interest at rates that
fluctuate with the prime rate and the Eurodollar rate which ranged from
6.25% to 8.63% in 1997 and 6.25% to 8.50% in 1996. The Credit Agreement
includes a commitment fee of .25% per annum based on the daily average
unutilized revolving credit commitment. At December 28, 1997, $272,000 of
acquisition term loan commitments and $181,929 of the revolving loan
commitments were unutilized. The amount unutilized under the revolving
loan commitments has been reduced by outstanding letters of credit of
$15,571, not reflected in the accompanying consolidated financial
statements, for which the Company was contingently liable under the Credit
Agreement. Such letters of credit primarily guarantee various insurance
reserves.
Borrowings under the terms of the Credit Agreement are secured by pledges
of various assets of the Company. The Credit Agreement has covenants
which, among other things, restrict the incurrence of additional
indebtedness by the Company and limit its ability to make payments to
affiliated parties. The Credit Agreement also restricts the payment of
dividends or other distributions of capital. The Company was in compliance
with these covenants as of December 28, 1997.
Aggregate annual maturities of long-term debt subsequent to
December 28, 1997 are as follows:
<PAGE>
Year Amount
1998 $ 8,970
1999 25,209
2000 75,733
2001 96,427
2002 289,718
2003 and thereafter 320,512
--------
816,569
Noncurrent portion of capitalized lease obligations 2,544
--------
Total $819,113
========
8. ASSET SECURITIZATION
In conjunction with the amended Credit Agreement described in Note 7, on
June 30, 1997, the Company entered into an agreement to sell, on a
revolving basis for a period of up to five years, certain of its accounts
receivable to a wholly-owned subsidiary, which entered into an agreement
to transfer, on a revolving basis, an undivided percentage ownership
interest in a designated pool of accounts receivable to a maximum of
$204,000 (the "Asset Securitization"). At December 28, 1997, $200,000 of
accounts receivable had been sold and reflected as a reduction of accounts
receivable. Fees arising from the securitization transaction of $5,133 are
included in interest expense and securitization fees in the consolidated
statement of operations for the year ended December 28, 1997. These fees
vary based on commercial paper rates plus a margin, providing a lower
effective rate than that available under the Company's Credit Agreement.
The Company maintains an allowance for doubtful accounts based on the
expected collectibility of all accounts receivable, including receivables
sold.
<PAGE>
9. LEASES
Capital Leases - The Company is a lessee under several noncancellable
capital lease agreements for certain fixed assets. The leases extend for
periods up to 6 years and contain purchase provisions.
Operating Leases - The Company leases certain equipment, warehouse
facilities and office space under noncancellable operating leases which
expire over the next 11 years. Most of these operating leases provide the
Company with the option, after the initial lease term, either to purchase
the equipment or renew its lease based upon the fair value of the property
at the option date.
Future minimum rental payments required under noncancellable leases at
December 28, 1997 were as follows:
Year Capital Operating
1998 $ 1,465 $ 47,795
1999 1,181 45,808
2000 556 42,076
2001 556 38,212
2002 556 22,153
2003 and thereafter 231 52,585
-------- --------
Total minimum lease payments 4,545 $248,629
========
Less imputed interest 1,005
--------
Capitalized lease obligations 3,540
Less current maturities 996
--------
Noncurrent portion $ 2,544
========
Rental expense for operating leases was $44,703, $36,299 and $31,948 for
the years 1997, 1996 and 1995, respectively. Assets recorded under capital
leases amounted to $4,828 and $5,342, net of accumulated amortization of
$1,864 and $3,177 at the end of 1997 and 1996, respectively.
10. INCOME TAXES
The provision (benefit) for income taxes is summarized as follows:
1997 1996 1995
Current:
Federal $ 21,178 $ 16,542 $ 6,540
State 5,891 3,418 810
-------- -------- --------
27,069 19,960 7,350
-------- -------- --------
Deferred:
Federal 14,525 12,491 (944)
State (253) 1,082 178
-------- -------- --------
14,272 13,573 (766)
-------- -------- --------
Total $ 41,341 $ 33,533 $ 6,584
======== ======== ========
The tax effects of significant items comprising the Company's net deferred
tax liability as of December 28, 1997 and December 29, 1996 are as
follows:
<PAGE>
1997 1996
Deferred tax assets:
Operating loss carryforwards $ 8,219 $ 15,161
Tax credit carryforwards 39,602 21,241
Postemployment benefits 20,906 22,106
Postretirement benefits other than pensions 10,867 11,450
Pension accrual 7,232 7,668
Vacation accrual 7,172 5,390
Other differences 10,119 21,585
--------- ---------
Gross deferred tax assets 104,117 104,601
--------- ---------
Deferred tax liabilities:
Differences between book and tax
basis of property (138,066) (138,116)
Other differences (27,959) (18,256)
--------- ---------
Gross deferred tax liabilities (166,025) (156,372)
--------- ---------
Deferred tax asset valuation allowance (6,840) (6,840)
--------- ---------
Net deferred tax liability (68,748) (58,611)
Less current deferred tax asset 31,297 32,944
--------- ---------
Noncurrent deferred tax liability $(100,045) $ (91,555)
========= =========
The 1997 and 1996 amounts above include a valuation allowance of $6,840
relating to a capital loss carryforward that is not expected to be
realized for tax purposes and for the limitations of certain state net
operating loss carryforwards.
The following table reconciles the difference between the U.S. federal
statutory tax rates and the rates used by the Company in the determination
of net income:
1997 1996 1995
Income tax provision, at 35% $34,496 $28,278 $ 5,761
State and local income taxes, net of
federal income tax benefit 3,665 2,941 642
Deferred tax asset valuation allowance -- -- (1,160)
Other, primarily goodwill amortization 3,180 2,314 1,341
------- ------- -------
Total $41,341 $33,533 $ 6,584
======= ======= =======
At December 28, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of $14,875 available to reduce future taxable
income, expiring primarily in 2000. The Company also has federal tax
credits of $2,495 expiring primarily from 1999 to 2002 and state tax
credits of $2,575 expiring from 2001 to 2012. In addition, the Company has
alternative minimum tax carryover credits of $34,532 which do not expire
and may be applied against regular tax in the future, in the event that
the regular tax expense exceeds the alternative minimum tax.
11. EMPLOYEE BENEFIT PLANS
<PAGE>
Pension Plans - The Company has defined benefit pension plans in effect
which cover certain employees who meet minimum eligibility requirements
and who are not covered by multiemployer plans. The Company contributes
annually amounts sufficient to satisfy the government's minimum standards.
Net periodic pension cost is determined based upon years of service and
compensation levels, using the projected unit credit method. Prior year
service costs and unrecognized gains and losses are amortized over the
estimated future service periods of active employees in the respective
plan.
Effective January 1, 1997, several of the Company's defined benefit plans
were merged into the World Color Press, Inc. Retirement Plan, which was
then amended to form the World Color Press Cash Balance Plan (the "Cash
Balance Plan"), which provides for a new benefit formula applicable to all
participants. Under the Cash Balance Plan, each participant's account is
credited with both interest and a fixed percentage of the participant's
annual compensation.
The components of net periodic pension cost are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost (for benefits earned during the
year) $ 5,201 $ 4,927 $ 2,270
Interest cost on projected benefit obligation 14,066 9,218 5,010
Actual return on plan assets (14,947) (12,467) (7,751)
Net amortization and deferral (1,712) 2,295 1,800
-------- -------- --------
Net periodic pension cost $ 2,608 $ 3,973 $ 1,329
======== ======== ========
</TABLE>
The funded status of the Company's pension plans at year-end, which
reflects the aforementioned mergers and amendment, is presented below.
<TABLE>
<CAPTION>
1997 1996 1996
-------------------------------------
(Plans in Which)
-------------------------------------
Accumulated Assets Accumulated
Benefits Exceed Benefits
Exceed Accumulated Exceed
Assets Benefits Assets
<S> <C> <C> <C>
Actuarial present value of plan benefits:
Vested $ 170,732 $ 83,262 $ 27,774
Nonvested 8,026 5,723 1,273
--------- --------- ---------
Accumulated benefit obligation 178,758 88,985 29,047
Effect of projected future salary increases 13,091 12,201 2,822
--------- --------- ---------
Projected benefit obligation 191,849 101,186 31,869
Plan assets at fair value 168,625 109,669 26,260
--------- --------- ---------
Plan assets greater than (less than) the
projected benefit obligation (23,224) 8,483 (5,609)
Unrecognized net loss (gain) 15,474 (18,520) (245)
Unrecognized net transition
obligation (asset) (408) (982) 347
Unrecognized prior service cost (credit) (11,125) (6,508) 694
Adjustment required to recognize
minimum liability (3,484) -- (1,477)
--------- --------- ---------
Accrued pension liability $ (22,767) $ (17,527) $ (6,290)
========= ========= =========
</TABLE>
The unrecognized net transition asset or obligation is being amortized
over the average expected future service periods of employees. The market
value of plan assets was used to calculate the assumed return on plan
assets. At the end of 1997 and 1996, an
<PAGE>
additional minimum pension liability for unfunded accumulated benefit
obligations of $3,484 and $1,477, respectively, was recognized. The
weighted average discount rate and rate of increase in future compensation
levels used in determining actuarial present value of the projected
benefit obligation for the Company's plans were 7.5% and 3.5% in 1997 and
8.0% and 3.5% in 1996, respectively. The expected long-term rate of return
on plan assets used was 10.0%, 10.0% and 9.0% for 1997, 1996 and 1995,
respectively. Plan assets consist principally of common stocks and U.S.
government and corporate obligations. At December 28, 1997, the plans'
assets included an aggregate of $4,614 of the Company's common stock.
Certain union employees of the Company participate in multiemployer plans.
Amounts charged to benefit expense relating to the multiemployer plans for
1997, 1996 and 1995 totaled $3,352, $3,185 and $3,049, respectively. In
addition, the Company has various deferred savings and profit sharing
plans for certain employees who meet eligibility requirements. Amounts
charged to benefit expense related to these plans for 1997, 1996 and 1995
totaled $1,977, $1,044 and $1,186, respectively.
Postretirement Benefit Plans - The Company provides postretirement medical
benefits to eligible employees. The Company's postretirement health care
plans are unfunded. The status of the plans is as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Actuarial present value of plan benefits:
Retirees $ 17,263 $ 15,349
Fully eligible active plan participants 6,783 2,274
Other active plan participants 20,619 8,503
-------- --------
Total accumulated benefit obligation 44,665 26,126
Unrecognized net deferrals (584) 5,172
-------- --------
Accrued postretirement benefits $ 44,081 $ 31,298
======== ========
</TABLE>
The components of net periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service Cost $ 1,365 $ 839 $ 511
Interest Cost 3,158 1,596 1,192
Amortization of unrecognized prior
service cost (1,289) (1,289) (1,289)
Amortization of unrecognized net gain -- -- (194)
------- ------- -------
Net periodic postretirement benefit cost $ 3,234 $ 1,146 $ 220
======= ======= =======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 7% and 5% at the end of 1996 and
1997, respectively, after which it remains constant at 5%. A one
percentage point increase in the assumed health care cost trend rate would
increase the accumulated postretirement benefit obligation as of December
28, 1997 by $3,409 and the annual postretirement benefit expense by
approximately $392. The assumed discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% and 8.0% in 1997
and 1996, respectively.
Stock Option Plans - Upon consummation of the Merger described in Note 1,
the Stock Option Committee of the Board of Directors (the "Stock Option
Committee") adjusted all of the outstanding options so that each option
became exercisable for five times the number of shares of common stock for
which it had been exercisable immediately prior to the Merger at an
exercise price per share equal to one-fifth of the exercise price per
<PAGE>
share immediately prior to the Merger (the "Options Adjustments").
Accordingly, the following stock option data has been presented on a
post-Merger basis.
The Company has stock option plans that permit the Stock Option Committee
to grant up to an aggregate of 5,250,000 options to purchase shares of the
Company's common stock to certain key employees of the Company. Options
granted under the plans generally vest ratably over a five-year period.
Vested options may generally be exercised up to ten years from the date of
grant. Information related to the Company's stock option plans is
presented below.
Number of Option
Options Price
Outstanding at December 25, 1994 3,406,000 $5.49 to $10.30
Granted 640,555 $11.20 to $15.00
Exercised (26,575) $5.49
Rescinded/Canceled (204,660) $6.89 to $10.30
-----------
Outstanding at December 31, 1995 3,815,320 $5.49 to $15.00
-----------
Granted 354,000 $22.00
Exercised (1,532,290) $5.49 to $6.95
Rescinded/Canceled (74,725) $8.97 to $15.00
-----------
Outstanding at December 29, 1996 2,562,305 $ 5.49 to $22.00
-----------
Granted 804,000 $23.75 to $26.75
Exercised (12,000) $6.89
Rescinded/Canceled (45,365) $11.20 to $22.00
-----------
Outstanding at December 28, 1997 3,308,940 $5.49 to $26.75
===========
Reserved for
Exercisable Future Grants
December 28, 1997 1,861,934 396,770
December 29, 1996 1,655,640 1,155,405
December 31, 1995 2,810,910 1,434,680
As permitted by SFAS No. 123, the Company has not recorded compensation
expense for stock options granted to employees, but rather has determined
the pro forma net income and net income per common share - basic and
diluted amounts for fiscal years 1997, 1996 and 1995, had compensation
expense been recorded for options granted during those years under the
applicable fair value method described in the statement.
For options granted during 1997 and 1996, the fair value at the date of
grant was estimated using the Black-Scholes option pricing model. Under
the Black-Scholes model, a volatility factor of .310 and .312 was used for
1997 and 1996, respectively. For options granted during 1995, the fair
value was estimated using the minimum value method. Under this method, the
expected volatility of the Company's common stock is not estimated, as
prior to the Offering there was no market for the Company's common stock
in which to monitor stock price volatility.
<PAGE>
The following weighted average assumptions were used in calculating the
fair value of the options granted in 1997, 1996 and 1995, respectively:
risk-free interest rates of 6.33%, 6.80% and 6.41%; an assumed dividend
yield of zero; and an expected life of the options of ten years.
For purposes of the pro forma disclosures, the estimated fair value of the
options granted is amortized to compensation expense over the options'
vesting period. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net income:
As reported $ 57,219 $ 47,261 $ 9,877
Pro forma $ 55,893 $ 46,688 $ 9,746
Net income per common share - basic:
As reported $ 1.65 $ 1.40 $ 0.31
Pro forma $ 1.61 $ 1.39 $ 0.30
Net income per common share - diluted:
As reported $ 1.60 $ 1.35 $ 0.29
Pro forma $ 1.57 $ 1.34 $ 0.28
Weighted average fair value
of options granted during the
year: $ 14.39 $ 12.81 $ 7.01
</TABLE>
<PAGE>
12. NET INCOME PER COMMON SHARE
The following represents the reconciliation between net income per common
share - basic and diluted: (In thousands, except per share data)
<TABLE>
<CAPTION>
Per
Income Shares share
<S> <C> <C> <C>
For the year ended 1997:
Net income per common share -
basic $57,219 34,773 $1.65
Effect of dilutive securities:
Stock options -- 863
Convertible debt 1,264 815
------- -------
Net income per common share -
diluted $58,483 36,451 $1.60
======= =======
For the year ended 1996:
Net income per common share -
basic $47,261 33,642 $1.40
Effect of dilutive securities:
Stock options -- 1,361
------- -------
Net income per common share -
diluted $47,261 35,003 $1.35
======= =======
For the year ended 1995:
Net income per common share -
basic $ 9,877 32,218 $0.31
Effect of dilutive securities:
Stock options -- 2,223
------- -------
Net income per common share -
diluted $ 9,877 34,441 $0.29
======= =======
</TABLE>
Options to purchase 429,000 shares of common stock were issued and
outstanding in 1997, but were not included in the computation of net
income per common share - diluted because the exercise price of the
options was greater than the average market price of the common shares.
13. TRANSACTIONS WITH AFFILIATES
The Company has incurred expenses of $750, $750 and $850 in 1997, 1996 and
1995, respectively, for management services provided by affiliated
companies. In addition, the Company paid $3,735 in advisory fees in 1995
associated with the acquisitions described in Note 2, to affiliated
companies.
14. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is subject to legal proceedings and other claims arising in
the ordinary course of operations. In the opinion of management, ultimate
resolution of proceedings currently pending will not have a material
effect on the results of operations or financial position of the Company.
<PAGE>
15. STREAMLINING CHARGE
In the fourth quarter of 1995, the Company finalized and committed to a
plan to realign certain business operations, resulting in a charge of
$40,900. The major components of this realignment plan were to close a
facility and to consolidate certain digital prepress operations and
functions. The financial statement effects of this decision were a
writedown of assets to net realizable value of $30,700, a provision for
severance costs of $8,000 and a provision for certain other related costs
of $2,200. The facility referred to above was exited and the consolidation
of the operations and functions were substantially complete at the end of
1996. At December 28, 1997, substantially all of the amounts provided for
as severance and other related costs had been paid.
16. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Net Net
income income
per per
Quarter Net sales Gross profit Net income common common
ended share - share -
basic diluted
------------ ---------- ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C>
March 30, 1997 $ 458,351 $ 75,315 $ 6,903 $0.20 $0.20
June 29, 1997 425,647 76,052 6,580 0.19 0.19
September 28, 1997 557,268 110,701 22,873 0.68 0.66
December 28, 1997 539,959 105,219 20,863 0.55 0.53
---------- ---------- ----------
$1,981,225 $ 367,287 $ 57,219 1.65 1.60
========== ========== ==========
March 31, 1996 $ 329,111 $ 52,286 $ 5,939 $0.18 $0.17
June 30, 1996 342,266 57,942 6,056 0.18 0.17
September 29, 1996 487,804 96,406 19,217 0.57 0.55
December 29, 1996 482,231 85,648 16,049 0.48 0.46
---------- ---------- ----------
$1,641,412 $ 292,282 $ 47,261 1.40 1.35
========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 21.0
SUBSIDIARIES
(as of 3/27/98)
Northeast Graphics Inc.
The Wessel Company, Inc.
The Lanman Companies, Inc.
Lanman Lithotech, Inc.
Central Florida Press, L.L.C.
Image Technologies, Inc.
RAI, Inc.
KRI, Inc.
World Color Book Services, Inc.
Shea Communications Company
The Johnson & Hardin Co.
Magna Graphic, Inc.
Century Graphics Corporation
Dittler Brothers, Incorporated
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 28, 1997 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 28, 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> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> DEC-28-1997
<CASH> 37,676
<SECURITIES> 0
<RECEIVABLES> 176,034
<ALLOWANCES> 9,287
<INVENTORY> 204,889
<CURRENT-ASSETS> 474,234
<PP&E> 1,495,333
<DEPRECIATION> 638,138
<TOTAL-ASSETS> 1,933,571
<CURRENT-LIABILITIES> 305,482
<BONDS> 810,143
0
0
<COMMON> 384
<OTHER-SE> 599,385
<TOTAL-LIABILITY-AND-EQUITY> 1,933,571
<SALES> 1,981,225
<TOTAL-REVENUES> 1,981,225
<CGS> 1,613,938
<TOTAL-COSTS> 1,613,938
<OTHER-EXPENSES> 0
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