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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1998 COMMISSION FILE NUMBER 1-11802
[Graphic omitted]
WORLD COLOR PRESS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 37-1167902
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
THE MILL, 340 PEMBERWICK ROAD 06831
GREENWICH, CONNECTICUT (Zip Code)
(Address of principal executive offices)
203-532-4200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] No [ ]
At May 7, 1998, 38,402,123 shares of the registrant's common stock, $.01 par
value, were outstanding.
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WORLD COLOR PRESS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1998
INDEX
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<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION
<S> <C>
Condensed Consolidated Balance Sheets as of March 29, 1998
and December 28, 1997.........................................................3
Condensed Consolidated Statements of Operations for the Three Months
Ended March 29, 1998 and March 30, 1997.......................................4
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 29, 1998 and March 30, 1997.......................................5
Notes to Condensed Consolidated Financial Statements...............................6 - 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................8 - 10
PART II. OTHER INFORMATION....................................................................11
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<TABLE>
<CAPTION>
WORLD COLOR PRESS, INC.
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 29, 1998 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- ---------------------------------------------------------------------------------------------------------------------------
MARCH 29, DECEMBER 28,
ASSETS 1998 1997
(Unaudited) (Note)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 32,791 $ 37,676
Accounts receivable - net 182,987 166,747
Inventories 251,162 204,889
Deferred income taxes 28,345 31,297
Other 39,797 33,625
--------------- -------------
Total current assets 535,082 474,234
Property, plant and equipment, at cost 1,598,844 1,495,333
Accumulated depreciation and amortization (667,464) (638,138)
--------------- -------------
Property, plant and equipment - net 931,380 857,195
Goodwill - net 628,434 535,416
Other 68,122 66,726
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TOTAL ASSETS $ 2,163,018 $ 1,933,571
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 284,924 $ 296,512
Current maturities of long-term debt 9,273 8,970
--------------- -------------
Total current liabilities 294,197 305,482
Long-term debt 1,036,550 810,143
Deferred income taxes 103,557 100,045
Other long-term liabilities 119,437 118,132
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Total liabilities 1,553,741 1,333,802
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value - shares authorized,
100,000,000 at March 29, 1998 and
December 28, 1997; shares outstanding,
38,363,353 at March 29, 1998 and 38,353,853 at
December 28, 1997 384 384
Additional paid-in capital 711,442 711,292
Accumulated deficit (102,549) (111,907)
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Total stockholders' equity 609,277 599,769
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,163,018 $ 1,933,571
=============== =============
</TABLE>
Note: Derived from audited financial statements.
See notes to condensed consolidated financial statements.
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<CAPTION>
WORLD COLOR PRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 29, 1998 AND MARCH 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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THREE MONTHS
1998 1997
<S> <C> <C>
Net sales $ 550,407 $ 458,351
Cost of sales 462,834 383,036
--------- ----------
Gross profit 87,573 75,315
Selling, general and administrative expenses 51,427 43,592
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Operating income 36,146 31,723
Interest expense and securitization fees 20,150 19,821
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Income before income taxes 15,996 11,902
Income tax provision 6,638 4,999
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Net income $ 9,358 $ 6,903
========== =========
Net income per common share - basic $ 0.24 $ 0.20
Net income per common share - diluted $ 0.24 $ 0.20
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
WORLD COLOR PRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 29, 1998 AND MARCH 30, 1997
(IN THOUSANDS)
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THREE MONTHS
1998 1997
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 9,358 $ 6,903
Adjustments to reconcile net income to net cash
flows used in operating activities:
Depreciation and amortization 34,728 33,814
Deferred income tax provision 2,291 1,785
Changes in operating assets and liabilities:
Accounts receivable - net 18,804 25,511
Inventories (36,410) (1,984)
Accounts payable and accrued expenses (38,224) (59,718)
Other assets and liabilities - net (13,919) (15,171)
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Net cash used in operating activities (23,372) (8,860)
----------- ------------
INVESTING ACTIVITIES:
Additions to property, plant and equipment - net (47,520) (21,790)
Acquisitions of businesses, net of cash acquired (160,703) (154,975)
----------- -----------
Net cash used in investing activities (208,223) (176,765)
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FINANCING ACTIVITIES:
Net borrowings on debt 226,710 178,961
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Net cash provided by financing activities 226,710 178,961
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DECREASE IN CASH AND CASH EQUIVALENTS (4,885) (6,664)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 37,676 33,182
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 32,791 $ 26,518
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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WORLD COLOR PRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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1. BASIS OF PRESENTATION
The accompanying condensed consolidated interim financial statements have
been prepared by World Color Press, Inc. (along with its subsidiaries,
the "Company") pursuant to the rules and regulations of the Securities
and Exchange Commission and reflect normal and recurring adjustments,
which are, in the opinion of the Company, considered necessary for a fair
presentation. As permitted by these regulations, these statements do not
include all information required by generally accepted accounting
principles to be included in an annual set of financial statements,
however, the Company believes that the disclosures made are adequate to
make the information presented not misleading. It is suggested that these
condensed consolidated financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in
the Company's latest Annual Report on Form 10-K.
During the period ended March 29, 1998, the Company acquired certain
businesses whose contributions were not significant to the Company's
results of operations for the period presented, nor are they expected to
have a material effect on the Company's results on a continuing basis.
2. NET INCOME PER COMMON SHARE
Common shares of 38,354,853 and 33,744,531 were utilized to calculate net
income per common share - basic for the first quarter ended 1998 and
1997, respectively. Net income per common share - diluted was computed
utilizing the basic shares noted above as well as common stock
equivalents of 1,044,124 and 741,571 for the first quarter ended 1998 and
1997, respectively. Options to purchase 25,000 and 354,000 shares of
common stock were not included in the computations of net income per
common share - diluted for the first quarter of 1998 and 1997,
respectively, because the exercise price of the options was greater than
the average market price of the common shares. Common shares and interest
incurred from convertible debt securities were also omitted from the 1998
diluted calculation since the effect was antidilutive.
3. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 28,
1998 1997
<S> <C> <C>
Work-in-process $ 120,616 $ 111,326
Raw materials 130,546 93,563
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Total $ 251,162 $ 204,889
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</TABLE>
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WORLD COLOR PRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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4. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components in the financial
statements. The Company adopted this statement in the first quarter of
1998. The adoption of SFAS No. 130 did not have a material effect on the
Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board also issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for reporting
information on operating segments in the financial statements. The
Company will adopt this statement for the fiscal year ended 1998. 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.
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WORLD COLOR PRESS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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GENERAL
In the first quarter of 1998, the Company acquired three businesses serving
customers in the commercial, direct mail and book markets for an aggregate
purchase price of approximately $160,000. These companies, which have been
included in results of operations since the respective acquisition dates, have
not had a material effect on the Company's results of operations, nor are they
expected to on a continuing basis. These acquisitions have been accounted for as
purchases and will hereinafter be referred to as the "1998 Acquisitions."
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 (the "1997 Acquisition") 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 29, 1998 VERSUS THREE MONTHS ENDED MARCH 30, 1997
Net sales increased $92,056 or 20%, to $550,407 in 1998 from $458,351 in 1997.
The increase was due to the inclusion of the sales from the 1997 and 1998
Acquisitions, higher paper prices and stronger base business performance.
Gross profit increased $12,258 or 16% to $87,573 in 1998 from $75,315 in 1997.
The gross profit margin decreased to 15.9% from 16.4% in 1997 due to increased
sales resulting from higher paper prices and increased paper sales, slightly
offset by the benefits of certain cost reduction initiatives and other synergies
resulting from the combination of acquisitions and increased plant utilization.
Selling, general and administrative expenses increased $7,835 or 18% to $51,427
in 1998 from $43,592 in 1997. The increase was attributable to the 1997 and 1998
Acquisitions, including the related additional amortization expense for
goodwill.
Interest expense and securitization fees increased $329 to $20,150 in 1998 from
$19,821 in 1997. The 1998 amount includes $3,072 of fees resulting from the
securitization of accounts receivable ("Asset Securitization") entered into in
the second half of 1997.
The effective tax rate, primarily composed of the combined federal and state
statutory rates, was 41.5% for the first three months of 1998 compared to 42%
for the comparable period in 1997.
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WORLD COLOR PRESS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its liquidity and capital investment needs with
internally generated funds and external borrowings. Net income plus depreciation
and amortization and deferred income taxes was $46,377 and $42,502 for the three
months ended March 29, 1998 and March 30, 1997, respectively. The Company's
outstanding indebtedness less cash increased $231,595 from December 28, 1997 to
March 29, 1998 due primarily to borrowings incurred to fund the 1998
Acquisitions. Working capital was $240,885 at March 29, 1998 and $271,004 at
March 30, 1997. The decrease of $30,119 or 11% was primarily due to the effect
of the Asset Securitization, offset by the 1997 and 1998 Acquisitions and an
increase in inventory levels. In accordance with the Company's ongoing program
to maintain modern, efficient plants and increase productivity, the Company
anticipates that 1998 capital expenditures will be approximately 4 - 5% of net
sales.
The Company's capital expenditures and acquisitions have been funded in part by
borrowings under the Company's Second Amended and Restated Credit Agreement
dated as of June 6, 1996, (as amended, the "Credit Agreement"), which provides
for 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, and borrowings bear interest at rates that fluctuate with the prime
rate and the Eurodollar rate. As of March 29, 1998, the Company had unutilized
commitments of $227,079 under its Credit Agreement.
Concentrations of credit risk with respect to accounts receivable are limited
due to the Company's diverse operations and large customer base. As of March 29,
1998, 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 are
sufficient to fund planned capital expenditures, working capital requirements
and interest and principal payments for the foreseeable future.
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.
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SEASONALITY
Results of operations for this interim period are not necessarily indicative of
results for the full year. The Company's operations are seasonal. Historically,
approximately two-thirds of its operating income has been generated in the
second half of the fiscal year, primarily due to the higher number of magazine
pages, new product launches and back-to-school and holiday catalog promotions.
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WORLD COLOR PRESS, INC.
PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibits required in accordance with Item 601 of Regulation S-K are
incorporated by reference herein as filed with registrant's Annual
Report on Form 10-K for the fiscal year ended December 28, 1997, dated
March 27, 1998.
In addition, the Company has filed herewith the following exhibits:
27.0 Financial Data Schedule for the period ended March 29, 1998
(filed in electronic form only).
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the quarterly period
ended March 29, 1998:
The registrant filed a Current Report on Form 8-K dated February 6,
1998, in respect of the appointment of Michael D. Helfand to Executive
Vice President, Chief Financial Officer. The items reported in such
Current Report were Item 5 (Other Events) and Item 7 (Text of Press
Release dated February 5, 1998).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORLD COLOR PRESS, INC.
Date: May 7, 1998 By: /s/ MICHAEL D. HELFAND
-----------------------
Michael D. Helfand
Executive Vice President, Chief
Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 29, 1998 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 29, 1998 OF WORLD COLOR PRESS, INC. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-END> MAR-29-1998
<CASH> 32,791
<SECURITIES> 0
<RECEIVABLES> 182,987
<ALLOWANCES> 0
<INVENTORY> 251,162
<CURRENT-ASSETS> 535,082
<PP&E> 1,598,844
<DEPRECIATION> 667,464
<TOTAL-ASSETS> 2,163,018
<CURRENT-LIABILITIES> 294,197
<BONDS> 1,036,550
0
0
<COMMON> 384
<OTHER-SE> 608,893
<TOTAL-LIABILITY-AND-EQUITY> 2,163,018
<SALES> 550,407
<TOTAL-REVENUES> 550,407
<CGS> 462,834
<TOTAL-COSTS> 462,834
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,150
<INCOME-PRETAX> 15,996
<INCOME-TAX> 6,638
<INCOME-CONTINUING> 9,358
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,358
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
