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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 28, 1999 COMMISSION FILE NUMBER 1-11802
[Logo ommitted]
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 5, 1999, 38,091,422 shares of the registrant's common stock, $.01 par
value, were outstanding.
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<CAPTION>
WORLD COLOR PRESS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 28, 1999
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets as of March 28, 1999 and
December 27, 1998............................................. 3
Condensed Consolidated Statements of Operations for the Three
Months Ended March 28, 1999 and March 29, 1998................ 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 28, 1999 and March 29, 1998................ 5
Notes to Condensed Consolidated Financial Statements............ 6-7
Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 8-12
PART II. OTHER INFORMATION............................................... 13
</TABLE>
2
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<TABLE>
<CAPTION>
WORLD COLOR PRESS, INC.
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 28, 1999 AND DECEMBER 27, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
MARCH 28, DECEMBER 27,
1999 1998
(Unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 81,245 $ 199,932
Accounts receivable - net 201,575 229,209
Inventories 279,756 276,111
Deferred income taxes 15,386 16,986
Other 71,974 63,729
----------- -----------
Total current assets 649,936 785,967
Property, plant and equipment, at cost 1,688,384 1,613,674
Accumulated depreciation and amortization (757,974) (727,675)
----------- -----------
Property, plant and equipment - net 930,410 885,999
Goodwill - net 746,152 647,085
Other 95,583 114,835
----------- -----------
TOTAL ASSETS $ 2,422,081 $ 2,433,886
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 370,381 $ 321,208
Current maturities of long-term debt 48,717 225,331
----------- -----------
Total current liabilities 419,098 546,539
Long-term debt 1,171,257 1,030,589
Deferred income taxes 98,093 94,793
Other long-term liabilities 90,820 93,318
----------- -----------
Total liabilities 1,779,268 1,765,239
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value - shares
authorized, 100,000,000 in 1999 and 1998;
shares outstanding, 38,722,482 in 1999
and 38,639,642 in 1998 387 386
Additional paid-in capital 723,121 721,913
Accumulated deficit (61,436) (49,310)
Treasury stock, at cost: 604,946 shares in
1999 and 20,246 shares in 1998 (15,734) (613)
Unamortized restricted stock compensation (3,525) (3,729)
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Total stockholders' equity 642,813 668,647
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,422,081 $ 2,433,886
=========== ===========
</TABLE>
Note: Derived from audited consolidated financial statements.
See notes to condensed consolidated financial statements.
3
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<CAPTION>
WORLD COLOR PRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 28, 1999 AND MARCH 29, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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THREE MONTHS
1999 1998
<S> <C> <C>
Net sales $ 605,843 $ 550,407
Cost of sales 507,807 462,834
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Gross profit 98,036 87,573
Selling, general and administrative expenses 56,535 51,427
---------- ----------
Operating income 41,501 36,146
Interest expense and securitization fees 23,909 20,150
---------- ----------
Income before income taxes, extraordinary
items and cumulative effect of change in
accounting principle 17,592 15,996
Income tax provision 7,213 6,638
---------- ----------
Income before extraordinary items and
cumulative effect of change in accounting
principle 10,379 9,358
Extraordinary items, net of tax (11,992) -
Cumulative effect of change in accounting
principle, net of tax (10,513) -
---------- ----------
Net income (loss) $ (12,126) $ 9,358
========== ==========
Net income (loss) per common share - basic:
Income before extraordinary items and
cumulative effect of change in
accounting principle $ 0.27 $ 0.24
Extraordinary items (0.31) -
Cumulative effect of change in accounting
principle (0.28) -
---------- ----------
Net income (loss) per common share - basic $ (0.32) $ 0.24
========== ==========
Net income (loss) per common share - diluted:
Income before extraordinary items and
cumulative effect of change in
accounting principle $ 0.27 $ 0.24
Extraordinary items (0.31) -
Cumulative effect of change in accounting
principle (0.27) -
---------- ----------
Net income (loss) per common share - diluted $ (0.31) $ 0.24
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
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<CAPTION>
WORLD COLOR PRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 28, 1999 AND MARCH 29, 1998
(IN THOUSANDS)
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THREE MONTHS
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (12,126) $ 9,358
Adjustments to reconcile net income to
net cash flows provided by (used in)
operating activities:
Depreciation and amortization 38,276 34,728
Extraordinary items, net of tax 11,992 -
Cumulative effect of change in
accounting principle, net of tax 10,513 -
Deferred income tax provision 2,463 2,291
Changes in operating assets and
liabilities:
Accounts receivable - net 48,942 18,804
Inventories 3,138 (36,410)
Accounts payable and accrued expenses 32,520 (38,224)
Other assets and liabilities - net (20,584) (13,919)
---------- ----------
Net cash provided by (used in)
operating activities 115,134 (23,372)
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INVESTING ACTIVITIES:
Additions to property, plant and equipment
- net (24,993) (47,520)
Acquisitions of businesses, net of cash
acquired (73,512) (160,703)
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Net cash used in investing
activities (98,505) (208,223)
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FINANCING ACTIVITIES:
Net (payments) borrowings on debt (114,564) 226,710
Premium paid on debt extinguishment (6,840) -
Proceeds from issuance of common stock 1,209 -
Repurchases of common stock (15,121) -
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Net cash (used in) provided by
financing activities (135,316) 226,710
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DECREASE IN CASH AND CASH EQUIVALENTS (118,687) (4,885)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 199,932 37,676
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 81,245 $ 32,791
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
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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. These condensed consolidated financial statements
should 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 28, 1999, 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. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
MARCH 28, DECEMBER 27,
1999 1998
<S> <C> <C>
Work-in-process $140,893 $139,259
Raw materials 138,863 136,852
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Total $279,756 $276,111
======== ========
</TABLE>
3. NET INCOME (LOSS) PER COMMON SHARE
Common shares of 38,173,899 and 38,354,853 were utilized to calculate net
income (loss) per common share - basic for the first quarter ended 1999 and
1998, respectively. Net income (loss) per common share - diluted was
computed utilizing the basic shares noted above as well as common stock
equivalents of 588,708 and 1,044,124 for the first quarter ended 1999 and
1998, respectively. Options to purchase 1,243,200 and 25,000 shares of
common stock were not included in the computations of net income (loss) per
common share - diluted for the first quarter of 1999 and 1998, respectively,
because the exercise price of the options was greater than the average
market price of the common shares. The Company omitted approximately
117,000 restricted common shares from the 1999 diluted calculation as well
as the impact of convertible debt securities from the 1999 and 1998 diluted
calculations since the effects were antidilutive.
4. DEBT ISSUANCE AND EXTINGUISHMENT
On December 28, 1998, the Company used proceeds from its November 1998 debt
issuance to redeem all of its outstanding 9.125% Senior Subordinated Notes
due 2003 in an aggregate principal amount of $150,000. The notes were
redeemed for approximately $160,800, including the redemption premium of
$6,840 and accrued interest. This early extinguishment of debt generated an
extraordinary charge of $5,946, net of taxes of $4,132, for the redemption
premium and write-off of deferred financing costs.
6
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WORLD COLOR PRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
On February 22, 1999, the Company issued Senior Subordinated Notes in the
aggregate principal amount of $300,000, receiving net proceeds of
approximately $294,000. Interest on the notes is payable semi-annually at
the annual rate of 7.75%. The notes do not have required principal payments
prior to maturity on February 15, 2009. The net proceeds from the notes
issuance were used to repay certain indebtedness under the Second Amended
and Restated Credit Agreement dated June 6, 1996, as amended (the "Credit
Agreement"). In connection with the issuance of these notes, the Company
amended the Credit Agreement resulting in, among other modifications, a
$95,000 permanent reduction in borrowings and commitments under the Credit
Agreement. As a result, aggregate total commitments decreased from $920,000
to $825,000. This amendment and related permanent reduction in total
borrowings and commitments resulted in a substantial modification of the
terms under the Credit Agreement. Accordingly, the Company recognized an
extraordinary charge for the early extinguishment of debt of $6,046, net of
taxes of $4,201, for the write-off of deferred financing costs.
5. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs
of Start-Up Activities," which requires costs of start-up activities and
organization costs to be expensed as incurred. The Company adopted this SOP
in the first quarter of fiscal year 1999, which resulted in a charge of
$10,513, net of taxes of $7,305, as the cumulative effect of a change in
accounting principle for the non-recurring write-off of deferred start-up
costs. The adoption of this SOP did not have a material effect on operating
income.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP requires
certain costs related to computer software developed or obtained for
internal use to be expensed or capitalized depending on the stage of
development and the nature of the costs. The Company adopted this SOP in the
first quarter of fiscal year 1999. The adoption of SOP 98-1 did not have a
material effect on the consolidated financial statements.
7. SUBSEQUENT EVENTS
On April 6, 1999, the Company issued 202,500 restricted shares of common
stock at $21.19 per share to certain key employees. The shares were awarded
because, among other things, certain 1998 operational targets were achieved.
The restricted shares were issued under the Company's restricted stock plan
at fair market value at the date of grant. The restricted shares vest ratably
over five years and are contingent upon continued employment.
On April 21, 1999, the Company announced that it would restructure its
manufacturing platform to eliminate redundant and less efficient capacity
resulting from the Company's ongoing acquisition strategy and capital
investment program. The restructuring will include: the consolidation of
equipment and revenue streams to more efficient facilities, the writedown of
assets which are not aligned with the Company's strategic growth objectives,
the elimination of certain administrative positions and the closure of
certain facilities. As a result of this restructuring, the Company will
recognize a second quarter pre-tax restructuring charge of approximately
$125,000 to $175,000, the majority of which will be non-cash, related
primarily to the writedown of assets and facility closures.
7
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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)
- --------------------------------------------------------------------------------
GENERAL
In the first quarter of 1999, we acquired three businesses serving customers in
the commercial and retail markets for an aggregate purchase price of
approximately $150,000, including assumed indebtedness. These companies, which
have been included in results of operations since their respective acquisition
dates, have not had a material effect on our results of operations, nor are they
expected to on a continuing basis. These acquisitions have been accounted for as
purchases.
In the first quarter of 1998, we 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 their respective acquisition dates, have not had a material
effect on our results of operations, nor are they expected to on a continuing
basis. These acquisitions have been accounted for as purchases.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 28, 1999 COMPARED TO THREE MONTHS ENDED MARCH 29, 1998
Net sales increased $55,436 or 10.1% to $605,843 in 1999 from $550,407 in 1998.
The increase was due to the inclusion of sales from the acquisitions in 1999 and
1998 and improved sales in our base business, partially offset by a decrease in
paper prices.
Gross profit increased $10,463 or 11.9% to $98,036 in 1999 from $87,573 in 1998.
The gross profit margin increased to 16.2% in 1999 from 15.9% in 1998 due to
certain cost reduction initiatives, synergies resulting from the integration of
the acquired businesses and decreased sales resulting from lower paper prices.
Selling, general and administrative expenses increased $5,108 or 9.9% to $56,535
in 1999 from $51,427 in 1998. The increase was primarily due to the
acquisitions in 1999 and 1998, including the related additional amortization
expense for goodwill, partially offset by benefits derived from cost saving
initiatives.
Interest expense and securitization fees increased $3,759 or 18.7% to $23,909 in
1999 from $20,150 in 1998. The increase was due to higher average borrowings
incurred to fund acquisitions, slightly offset by a lower average cost of funds.
The effective tax rate, primarily composed of the combined federal and state
statutory rates, was 41.0% for the first quarter of fiscal year 1999 compared
to 41.5% for the comparable period in 1998.
RESTRUCTURING CHARGE
On April 21, 1999, we announced that we would restructure our manufacturing
platform to eliminate redundant and less efficient capacity resulting from our
ongoing acquisition strategy and capital investment program. The restructuring
will include: the consolidation of equipment and revenue streams to more
efficient facilities, the writedown of assets which are not aligned with our
strategic growth objectives, the elimination of certain administrative
positions, and the closure of certain facilities. As a result of this
restructuring, we will recognize a second quarter pre-tax restructuring charge
of approximately $125,000 to $175,000, the majority of which will be non-cash,
related primarily to the writedown of assets and facility closures.
8
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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)
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
On February 22, 1999, we issued Senior Subordinated Notes in the aggregate
principal amount of $300,000, receiving net proceeds of approximately $294,000.
Interest on the notes is payable semi-annually at the annual rate of 7.75%. The
notes do not have required principal payments prior to maturity on February 15,
2009. The net proceeds from the notes issuance were used to repay certain
indebtedness under our credit agreement. In connection with the issuance of
these notes, we amended our credit agreement resulting in, among other
modifications, a $95,000 permanent reduction in borrowings and commitments under
the credit agreement. As a result, aggregate total commitments decreased from
$920,000 to $825,000. This amendment and related permanent reduction in total
borrowings and commitments resulted in a substantial modification of the terms
under the credit agreement. Accordingly, we recognized an extraordinary charge
for the early extinguishment of debt of $6,046, net of taxes of $4,201, for the
write-off of deferred financing costs.
On December 28, 1998, we used proceeds from our November 1998 debt issuance to
redeem all of our outstanding 9.125% Senior Subordinated Notes due 2003 in an
aggregate principal amount of $150,000. The notes were redeemed for
approximately $160,800, including the redemption premium of $6,840 and accrued
interest. This early extinguishment of debt generated an extraordinary charge of
$5,946, net of taxes of $4,132, for the redemption premium and write-off of
deferred financing costs.
We have historically met our liquidity and capital investment needs with
internally generated funds and external borrowings. Income before extraordinary
items and cumulative effect of change in accounting principle, plus depreciation
and amortization and deferred income taxes was $51,118 and $46,377 for the three
months ended March 28, 1999 and March 29, 1998, respectively. Our outstanding
indebtedness less cash increased $82,741 from December 27, 1998 to March 28,
1999 due primarily to borrowings incurred to fund acquisitions. Working capital
was $230,838 at March 28, 1999 and $240,885 at March 29, 1998. This decrease in
working capital of $10,047 or 4.2% was primarily due to short term obligations
of acquired companies. In accordance with our ongoing program to maintain
modern, efficient plants and increase productivity, we anticipate that 1999 net
capital expenditures will be approximately 4 - 5% of net sales.
Our capital expenditures and acquisitions have been funded in part by borrowings
under our Second Amended and Restated Credit Agreement dated as of June 6, 1996,
as amended, which provides for aggregate total commitments of $825,000 comprised
of $85,000 in term loan commitments, $250,000 of revolving loan commitments and
$490,000 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 28, 1999, we
had unused commitments of $427,020 under our credit agreement.
In the first quarter of 1999, we repurchased 584,700 shares of our common stock
at a weighted average cost of $25.86 per share. From the inception of our stock
repurchase plan in August 1998 through March 28, 1999, we have repurchased
1,071,201 shares at a weighted average cost of $28.10 per share and reissued
466,255 shares.
Concentrations of credit risk with respect to accounts receivable are limited
due to our diverse operations and large customer base. As of March 28, 1999 we
had no significant concentrations of credit risk.
9
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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)
- --------------------------------------------------------------------------------
In the normal course of business, we are exposed to changes in interest rates.
However, we manage this exposure by having a balanced variety of debt maturities
as well as a combination of fixed and variable rate obligations. In addition, we
have entered into interest rate cap and swap agreements in order to further
reduce the exposure on our variable rate obligations. Our interest rate cap
agreements have a notional value of $400,000 and expire in the third quarter of
fiscal year 1999. Our interest rate swap agreements have a notional value of
$75,000 and exchange floating rate for fixed interest payments periodically over
five years. The swap agreements are cancelable by the respective counterparties
in September and December 1999. These agreements did not have a material impact
on the consolidated financial statements for the periods presented. While the
counterparties of these agreements expose us to credit loss in the event of
nonperformance, we believe that the possibility of incurring such a loss is
remote due to the creditworthiness of the counterparties. We do not hold or
issue any derivative financial instruments for trading purposes.
We believe that our 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP requires
certain costs related to computer software developed or obtained for internal
use to be expensed or capitalized depending on the stage of development and the
nature of the costs. We adopted this SOP in the first quarter of fiscal year
1999. The adoption of SOP 98-1 did not have a material effect on our
consolidated financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities," which requires costs of start-up activities and organization costs
to be expensed as incurred. We adopted this SOP in the first quarter of fiscal
year 1999. The adoption of this SOP resulted in a charge of $10,513, net of
taxes of $7,305, as the cumulative effect of a change in accounting principle
for the non-recurring write-off of deferred start-up costs. The adoption of this
SOP did not have a material effect on operating income during the period nor is
it expected to on a continuing basis.
YEAR 2000
The Year 2000 issue, which affects virtually all corporations, arises due to the
inability of certain computer software and hardware and embedded chips found in
manufacturing and other equipment to properly recognize dates beyond 1999. This
inability may cause errors in information and/or system failures. We have a
comprehensive effort underway to address the Year 2000 issue. As discussed
below, we are, among other things, evaluating our present information technology
and non-information technology systems (i.e. equipment with embedded chips),
monitoring and addressing our vendor and customer Year 2000 issues and engaging
in remediative measures as necessary.
In connection with our readiness program, we have endeavored to inventory and
assess the state of compliance of all information systems and non-information
systems. We commenced remediation of our information systems in 1994. As a
result, the majority of our information systems, including our financial, human
resources and payroll functions, are Year 2000 compliant. We estimate that all
of our information systems will be substantially compliant by mid-1999. With
respect to our non-information systems, we have completed an inventory of
facilities (HVAC, safety and security) and manufacturing (pre-press, press,
bindery and finishing) systems. We are working with the outside suppliers of
such
10
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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)
- --------------------------------------------------------------------------------
systems as well as with an outside consultant to remediate non-compliant
components. We have targeted mid-1999 for substantial completion of our
readiness efforts with respect to our non-information systems, including
selective testing procedures.
As part of our readiness program, we are communicating with our major customers
and vendors to assess such parties' respective efforts to identify and remediate
their own Year 2000 issues in a timely and comprehensive manner. We are also
requesting our vendors to certify to the compliancy of their systems and
equipment that we currently own or lease. We intend to follow up with non-
compliant vendors through 1999 in order to continually assess the extent of such
third parties' Year 2000 exposure and to adjust our contingency plans
accordingly.
The costs incurred to date solely related to our Year 2000 efforts have not been
material to us, and based upon current estimates, we do not believe that the
total cost of our Year 2000 readiness programs will have a material adverse
effect upon our operating results or financial condition. While we cannot make
assurances as to the impact of the Year 2000 issue on our operations, we
currently anticipate that any adverse consequences of the Year 2000 issue on our
systems will not create a significant disruption to our operations. However,
the failure or delay by us, our customers and/or vendors to identify and
remediate each respective instance of Year 2000 non-compliance could result in a
material adverse effect on our results of operations, liquidity or financial
condition.
Our readiness program includes the development of contingency plans addressing
potential business interruptions arising from Year 2000-related disruptions.
Such plans include assessing the movement of work among our facilities. In the
second half of 1999, we will hone our contingency plans, taking into account,
among other things, the state of readiness of our vendors, including, without
limitation, utility suppliers, as well as our major customers.
The statements set forth herein concerning Year 2000 issues which are not
historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. In particular, the costs associated with our
Year 2000 programs, the time-frame in which we plan to complete Year 2000
modifications and the potential impact of the Year 2000 issues on us are based
upon our best estimates. These estimates were derived from internal assessments
and numerous assumptions of future events. These estimates may be adversely
affected by, among other things, the continued availability of personnel and
system resources, the accurate identification of all relevant computer codes,
the success of remediation efforts, the effectiveness of our contingency plans
and by the failure of significant third parties to properly address Year 2000
issues. Therefore, we cannot guarantee that any estimates or other forward-
looking statements will be achieved and actual results could differ
significantly from those contemplated.
SEASONALITY
Results of operations for this interim period are not necessarily indicative of
results for the full year. Our operations are seasonal. Historically,
approximately two-thirds of our 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.
11
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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)
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the statements in this
document are forward-looking and made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve known and unknown risks and uncertainties, which may cause our actual
results in future periods to differ materially from forecasted results. Those
risks include, among others, changes in customers' demand for our products,
changes in raw material and equipment costs and availability, seasonal changes
in customer orders, pricing actions by our competitors, changes in estimates of
our readiness or the readiness of our vendors and customers with regard to Year
2000 issues and the significance of costs thereof, and general changes in
economic condition.
12
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WORLD COLOR PRESS, INC.
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibits required in accordance with Item 601 of Regulation S-K are
incorporated by reference herein as filed with registrant's Annual Report
on Form 10-K for the fiscal year ended December 27, 1998, dated March 26,
1999.
In addition, the Company has filed herewith the following exhibits:
27.0 Financial Data Schedule for the period ended March 28, 1999 (filed in
electronic form only).
(b) Reports on Form 8-K
The registrant filed a Current Report on Form 8-K dated February 23, 1999,
with respect to the issuance of $300 million of Senior Subordinated Notes
due 2009. The items reported in such Current Report were Item 5 (Other
Events) and Item 7 (Text of Press Release dated February 17, 1999).
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 10, 1999 By:/s/ ROBERT B. LEWIS
-------------------------
Robert B. Lewis
Executive Vice President,
Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 28, 1999 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 28, 1999
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-26-1999
<PERIOD-END> MAR-28-1999
<CASH> 81,245
<SECURITIES> 0
<RECEIVABLES> 201,575
<ALLOWANCES> 0
<INVENTORY> 279,756
<CURRENT-ASSETS> 649,936
<PP&E> 1,688,384
<DEPRECIATION> 757,974
<TOTAL-ASSETS> 2,422,081
<CURRENT-LIABILITIES> 419,098
<BONDS> 1,171,257
0
0
<COMMON> 387
<OTHER-SE> 642,426
<TOTAL-LIABILITY-AND-EQUITY> 2,422,081
<SALES> 605,843
<TOTAL-REVENUES> 605,843
<CGS> 507,807
<TOTAL-COSTS> 507,807
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,909
<INCOME-PRETAX> 17,592
<INCOME-TAX> 7,213
<INCOME-CONTINUING> 10,379
<DISCONTINUED> 0
<EXTRAORDINARY> (11,992)
<CHANGES> (10,513)
<NET-INCOME> (12,126)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.31)
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