SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended November 1, 1997
Commission file number 1-683
Multigraphics, Inc.
(Exact name of registrant as specified in its charter)
Delaware 34-0054940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
431 Lakeview Court Mt. Prospect, IL 60056
(Address of principal executive offices) (Zip Code)
(847) 375-1700
(Registrant's telephone number, including area code)
AM International, Inc.
(Former Name)
Indicate by check mark whether the registrant (1) has filed all reports
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.
X Yes No
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
2,815,337 shares of Registrant's
Common Stock, $.025 par value, were outstanding as of December 1, 1997.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended
November 1, 1997 November 2,1996
<S> <C> <C>
Revenues Machines and Supplies $ 10,160 $15,746
Services 10,540 11,953
Total Revenues 20,700 27,699
Cost of Sales
Machines and Supplies 7,856 12,119
Services 7,298 8,438
Total Cost of Sales 15,154 20,557
Gross Margin 5,546 7,142
Operating expenses
Selling, general and
administrative 5,053 8,322
Miscellaneous (income)
expense (16) (41)
Unusual items, net - (2,095)
Total operating
expenses 5,037 6,186
Operating income 509 956
Non-operating income
(expense):
Interest income 120 297
Interest expense (374) (854)
Other, net - 120
Income before income taxes 255 519
Income tax expense 97 -
Net income $ 158 $ 519
Per share of common stock: (a)
Net income $ 0.06 $0.19
Weighted average shares of common stock and
common stock equivalents outstanding (in
thousands) 2,815 2,804
<FN>
(a) The weighted average number of common shares outstanding
and net income per common share have been restated to reflect the effect
of the 1 for 2 1/2 share reverse stock split which was approved by the
Company's shareholders on May 28, 1997.
The notes to Consolidated Financial Statements are an integral part of
these financial statements.
</TABLE>
<PAGE>
<TABLE>
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands except per share amounts)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $9,049 $ 10,376
Accounts receivable, net 8,770 10,746
Inventories, net 10,899 11,893
Prepaid expenses and other assets 547 744
Total current assets 29,265 33,759
12/3/97<PAGE>
Property, plant and equipment, net 9,915 10,222
Other assets, net 916 919
Total assets $40,096 $44,900
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and current $ 6,394 $ 6,273
maturities of long-term debt
Accounts payable 4,193 5,217
Service contract deferred income 11,713 11,738
Payroll related expenses 5,542 6,803
Other current liabilities 8,401 9,652
Total current liabilities 36,243 39,683
Long-term debt 3,982 5,245
Other long-term liabilities 11,516 11,872
Total liabilities 51,741 56,800
Shareholders Equity:
Common stock, $.025 par value; 9.5
million shares authorized;
2,815,337 issued as of November 1, 70 70
1997 and July 31, 1997
Capital in excess of par value 22,259 22,162
Accumulated earnings (deficit) (33,974) (34,132)
Total shareholders' equity (11,645) (11,900)
Total liabilities and shareholders' equity $40,096 $44,900
<FN>
The Notes to Consolidated Financial Statements are an
integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands, except per share amounts)
Three Months Ended
November 1, November 2,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 158 $ 519
Adjustments to reconcile net income to cash flow
from operating activities:
Depreciation of property,
plant and equipment 454 511
Change in assets and liabilities:
Benefit from operating loss
carryforwards 97 -
Accounts receivable, net 1,976 3,801
Inventory, net 994 (3,050)
Prepaid expenses and other assets 200 588
Accounts payable (1,024) (8,364)
Other current liabilities (2,512) (4,397)
Other, net (381) (363)
Cash flow from operating activities (38) (10,755)
Cash Flows from Investing Activities:
Capital expenditures (147) (271)
Net proceeds from divested
operations - 50,638
Proceeds from disposition of
PP&E - 15
Cash flow from investing activities (147) 50,382
Cash Flows from Financing Activities:
Net borrowings (payments) under revolving
credit facilities - (5,430)
Payments of Bankruptcy Claims (972) (1,419)
Payments under capital leases
arrangements (170) (215)
Cash flow from financing activities (1,142) (7,064)
Increase (decrease)
cash equivalents (1,327) 32,563
Cash and cash equivalents at
beginning of period 10,376 2,560
Cash and cash equivalents
at end of period $ 9,049 $35,123
<FN>
The Notes to Consolidated Financial Statements are an
integral part of these financial statements.
</TABLE>
<PAGE>
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Note 1 - Basis of Presentation
The Condensed Consolidated Financial Statements included here have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion
of management, the Condensed Consolidated Financial Statements reflect
all adjustments, which are of a recurring nature, necessary for fair
presentation. Certain prior year amounts have been reclassified to
conform with the current year presentation. The accompanying Condensed
Consolidated Financial Statements and the related notes should be read
in conjunction with the Consolidated Financial Statements and the
related notes thereto included in the Company's Annual Report on Form
10-K for the year ended July 31, 1997.
<TABLE>
Note 2 - Borrowing Arrangements
The Company's short and long-term borrowings are comprised of the
following:
November 1, 1997 July 31, 1997
<S> <C> <C>
Revolving Credit Facility $ - $ -
General Unsecured Claims &
Priority Tax Claims 8,070 9,042
Capital Leases 2,306 2,476
Total $ 10,376 $11,518
Classified in the Consolidated Balance Sheet
as follows:
Short-term $ 6,394 $ 6,273
Long-term 3,982 5,245
Total $ 10,376 $ 11,518
</TABLE>
<PAGE>
In May, 1997 the Company entered into a $10,000 three year secured
Revolving Credit Facility (subject to borrowing base limitations) with
Foothill Capital Corporation (" Foothill"). The Revolving Credit
Facility includes a $5,000 sub-facility for the issuance of letters of
credit. As of November 1, 1997 the calculated borrowing base was
approximately $7,400. As security for utilization of the Revolving
Credit Facility, the Company granted a security interest and general
lien upon all of its assets. At November 1, 1997, there were no direct
borrowings under the Revolving Credit Facility, but the Company was
utilizing approximately $2,275 of the facility to secure outstanding
letters of credit. Interest generally will be charged
at a spread of 1% above the reference (i.e. prime) rate of Foothill and
can be reduced in 1/2% increments in each of the next two fiscal years
if certain performance measures are achieved. At November 1, 1997 the
reference rate was 8.5%. Letter of credit fees are 1.5% per annum plus
issuance costs and processing fees. The agreement contains restrictive
covenants limiting capital expenditures, restricting the payment of
dividends and other payments and providing for quarterly measures of
working capital and net worth, among other things. In addition, the
agreement limits the Company's ability to borrow or to request letters
of credit following a material adverse change as determined by Foothill.
At November 1, 1997 the Company was in compliance with the covenants of
the Revolving Credit Facility. The Company is operating its business
with existing cash reserves and liquidity provided by the Foothill
Revolving Credit Facility which, based on current projections, are
adequate to finance current operations.
On October 13, 1993 the Company concluded a reorganization when the
United States Bankruptcy Court for the District of Delaware confirmed
the Company's Plan of Reorganization (Plan). The Plan provides that
holders of allowed general unsecured claims receive cash payments toward
satisfaction of the full amount of their claims in equal quarterly
payments payable on the last business day of each calendar quarter
ending after October 13, 1993 over a five-year period, together with
interest at 5% per annum. Holders of priority tax claims are paid 10%
of the allowed claim together with accrued and unpaid interest at 8% per
annum on the then outstanding amount on each anniversary of October 13,
1993 which occurs prior to the sixth anniversary of the date of
assessment, and the balances of such claims along with accrued and
unpaid interest on the sixth anniversary. For financial reporting
purposes interest on general unsecured claims has been imputed at 9% per
annum. The timing of payments of disputed claims commence with the
allowance of the claim by the Bankruptcy Court and may occur at a rate
different from the equal quarterly payments made to holders of the
allowed general unsecured claims discussed above. At November 1, 1997
the Company had $1,454 of restricted cash which pertains to the
settlement of disputed claims in accordance with the Plan.
<PAGE>
Note 3 - Capital Structure
On May 1, 1997 the Board of Directors declared a dividend of $2.00 per
common share, payable to holders of record as of May 13, 1997. The
dividend of approximately $14,080 was disbursed May 27, 1997.
On May 28, 1997 the Company's shareholders approved amendments to the
Company's Second Restated Certificate of Incorporation (1) decreasing
the authorized number of shares of
capital stock from 50,000,000 shares to 10,000,000 shares with 9,500,000
shares being reserved for issuance as Common Stock and 500,000 shares
being reserved for issuance as Preferred Stock, (2) changing the name of
the Company to Multigraphics, Inc. and (3) effecting a 1 for 2 / share
reverse stock split, thereby decreasing the number of issued and
outstanding shares of the Company's Common Stock to 2,815,337, without
giving effect to elimination of fractional shares, and increasing the
par value of each Common share from $.01 to $.025 per share. All
references in the accompanying financial statements to the number of
common shares and per-share amounts have been restated to reflect the
reverse stock split and change in par value.
Restated for the reverse stock split and the payment of the $2.00 per
share dividend, as of November 1, 1997, the Company's 1994 Long Term
Incentive Plan provides for the issuance of 560,000 shares of Common
Stock. Options to purchase the Common Stock are awarded at a price not
less than 100% of the market price on the date of the grant, become
exercisable at various dates generally from one to four years after the
date of grant, and expire ten years after the date of grant. At
November 1, 1997, options to purchase 286,849 shares were outstanding at
option prices ranging from $2.1875 to $8.2139. The Company has not
issued any Preferred Stock. The Common Stock is not subject to
conversion or redemption and when issued is fully paid and non-
assessable and has no preemptive rights. The Company's warrants that
were issued in accordance with the Plan expired unexercised.
Note 4 - Commitments and Contingencies
The Company received creditor claims during its bankruptcy proceedings
which the Company believes are duplicative, erroneous or exaggerated and
to which the Company believes it has valid defenses. The Company has
filed objections to these disputed claims in the United States
Bankruptcy Court in Delaware. As of November 1, 1997 disputed claims
amounted to $8,205. The disputed claims are primarily comprised of
environmental and product liability claims. The Company has been
notified of various environmental matters in connection with certain
current or former Company locations in Illinois, Ohio, Indiana,
Pennsylvania, and Rhode Island. The Company is also involved in various
other administrative and legal proceedings incidental to its business,
including product liability and general liability lawsuits against which
the Company is partially insured. The disputed claims are in many cases
in excess of recorded reserves. At the present time, it is management's
opinion, based on information available to the Company and management's
experience in such matters, that the resolution of these legal proceedings
is not expected to have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
<PAGE>
<TABLE>
Note 5 - Components of Certain Balance Sheet Accounts
The components of certain balance sheet accounts are as follows:
November 1, 1997 July 31, 1997
<S> <C> <C>
Accounts receivable:
Accounts receivable $ 9,089 $11,080
Allowance for doubtful
accounts (319) (334)
Total accounts
receivable, net $ 8,770 $10,746
Inventories:
Raw materials and
Work-in-process $ 200 $ 225
Finished goods 10,699 11,668
Total inventories,
net $10,899 $11,893
</TABLE>
Inventories and cost of goods sold reported in the interim financial
statements are based, in part, on accounting estimates relating to
inventory obsolescence and differences resulting from periodic and
physical inventories.
Accumulated depreciation deducted from property, plant and equipment was
$7,531 at November 1, 1997 and $7,077 at July 31, 1997.
Note 6 - Unusual Items, Net
On September 20, 1996 the Company completed the sale of its 2,148,000
shares of AM Japan Co., Ltd. ("AM Japa") and the Company received
proceeds of approximately $10,600, net of certain costs. A gain of
approximately $2,600 was recorded by the Company in the quarter ended
November 2, 1996 after providing for expenses related to the sale.
<PAGE>
On December 2, 1996, the Company and Xeikon, N. V. entered into an
agreement under which the parties agreed not to renew the distribution
agreement. The distribution agreement provided for the Company to sell
and service Xeikon digital color presses in North America. As part of
this agreement, Xeikon America, Inc. has acquired certain assets from
the Company and assumed certain liabilities of the Company. The
divestiture of the assets resulted in a net loss of approximately $500
which the Company recorded in the quarter ending November 2, 1996.
Note 7 - Significant Events
On May 1, 1997 the Board of Directors declared a dividend of $2.00 per
common share, payable to holders of record as of May 13, 1997. The
dividend of approximately $14,080 was disbursed on May 27, 1997.
On May 28, 1997 the shareholders approved proposals to reduce the
authorized number of all classes of capital stock from 50,000,000 to
10,000,000 shares, and effect a 1 for 2 / share reverse stock split
thereby reducing the number of outstanding shares of Common Stock, and
increasing the par value from $.01 to $.025 per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The discussion of the results of operations and financial condition
presented below should be read in conjunction with Management's
Discussion and Analysis included in the Company's Annual Report to
Shareholders for the year ended July 31, 1997.
The quarterly results of operations for the three months ended November
2, 1996 include the results of two foreign subsidiaries which have been
divested. The Company sold its interest in AM Japan Co., Ltd. in
September, 1996, and on October 17, 1996, the Company's Canadian
subsidiary filed a voluntary assignment in bankruptcy.
<TABLE>
Consolidated Results of Operations
Three Months Ended
($ in millions) November 1, 1997 November 2, 1996
<S> <C> <C>
Revenues $20.7 $27.7
Gross margin 5.5 7.1
Gross margin % 26.8% 25.8%
Operating expenses 5.0 8.3
Unusual items 0.0 (2.1)
(income)
Operating income 0.5 0.9
Non-operating 0.2 0.4
expense, net
Income tax expense 0.1 0.0
Net income $0.2 $0.5
</TABLE>
The net income for the first quarter ended November 1, 1997 was $0.2
million ($0.06 per common share). In the prior year comparable quarter,
the Company had a gain of $2.6 million on the divestiture of its
interest in AM Japan Co., Ltd. which led to net income of $0.5 million
($0.19 per common share). Excluding the gain on the divestiture, net
income improved by $2.3 million in the first quarter.
<PAGE>
Revenues of $20.7 million were $7.0 million lower than the comparable
prior year period. The decrease in revenues was primarily attributable
to actions taken in prior periods which resulted in the divestiture of
subsidiaries in Japan and Canada ($2.2 million), and the discontinuance
of manufactured machines and other unprofitable product lines ($4.5
million). The Company has completed its exit from the manufacture of
offset duplicating presses and is now focused entirely on selling
supplies and graphic arts equipment and providing service and parts to
its traditional customer base of in-plant and small-to-medium sized
printers.
Gross margin of $5.5 million was $1.6 million lower than the comparable
prior year period, primarily due to lower revenue levels resulting from
the divestitures and product line exits noted above. The divested
foreign operations accounted for $0.4 million of the margin decline,
while margins contributed from exited product lines were $1.0 million in
the prior year period.
Selling, general and administrative expenses in the first quarter of
$5.0 million were $3.3 million lower than the prior year period. The
decrease in expenses was primarily the result of cost reduction actions
taken by the Company which lowered headcount, facility and other
selling, general and administrative costs by $2.5 million. The
divestitures of operations in Japan and Canada accounted for $0.8
million of the decrease.
Unusual item income in the prior year quarter resulted from a $2.6
million gain on the sale of the Company's majority ownership interest in
AM Japan Co., Ltd. in a transaction completed on September 20, 1996, net
of a $0.5 million loss recorded on the disposition of net assets
employed following the decision to exit distribution of the Xeikon
digital color press.
Non-operating expenses consist primarily of net interest expense, which
decreased $0.2 million from the prior year primarily due to reduction in
outstanding pre-petition debt obligations, and lower interest costs
incurred on postretirement benefit obligations.
The Company recorded income tax expense of $0.1 million during the
quarter ending November 1, 1997. Fresh Start Reporting rules require
recognition of tax expense although the Company had no requirement to
pay U.S. Federal taxes due to utilization of net operating loss
carryforwards available to the Company.
The Company has developed strategies to increase revenues through
product line additions, third party service agreements and acquisitions.
An increase in revenue levels could improve profitability since the
Company has infrastructure and systems which are capable of absorbing a
greater volume of transactions.
<PAGE>
Liquidity and Capital Resources
(three months ended November 1, 1997 and November 2, 1996)
The Company's total cash and cash equivalents were $9.0 million as of
November 1, 1997, a decrease of $1.4 million from the $10.4 million
balance on July 31, 1997. Although cash balances decreased, debt was
reduced by $1.1 million during the first quarter of the current year.
Operating Activities. In the first quarter ended November 1, 1997 the
Company had a minimal cash outflow as compared with a cash outflow of
$10.8 million in the comparable period ended November 2, 1996. The net
income for the first quarter ended November 1, 1997 was $0.2 million as
compared with net income of $0.5 million in the comparable prior year
period.
Accounts receivable decreased by $2.0 million in the first quarter ended
November 1, 1997 and $3.8 million in the comparable period ended
November 2, 1996 resulting from collection of the relatively higher
outstanding balances which exist at the inception of each fiscal year.
The decrease in accounts receivable was higher in the prior year due to
the elimination of revenues related to the phase-out of the Company's
manufactured machines. In the first quarter ended November 1, 1997,
inventories decreased $1.0 million due primarily to lower stocking
levels of machines resulting from an increase in drop shipment sales.
During the prior year first quarter, inventories increased by $3.1
million because the Company began to build back stock levels to improve
product availability. Accounts payable decreased $1.0 million during
the first quarter ended November 1, 1997 due to lower inventory
purchases and reductions resulting from taking prompt pay discounts
offered by vendors. During the prior year quarter, accounts payable was
reduced by $8.4 million due to a paydown of past due creditors. In the
current year first quarter, accrued liabilities were reduced by $2.5
million primarily due to payment of $1.2 million of payroll related
liabilities, payment of $0.6 million to settle a recourse obligation of
a divested operation, and other restructuring payments of approximately
$0.5 million relating to the Company's phase-out of its manufactured
machine product line. During the prior year quarter, accrued
liabilities decreased by $4.4 million due primarily to restructuring
payments of $2.7 million relating to the shutdown of the Corporate
offices and the divestiture of certain subsidiaries and payment of
payroll items of $1.3 million.
Investing Activities. The prior year comparable period had a cash
inflow from investing activities of $50.4 million that primarily
related to the $50.6 million net proceeds from the divestiture of
Sheridan Systems and AM Japan.
<PAGE>
Financing Activities. Payment of the $1.0 million quarterly bankruptcy
distribution was the primary reason for a cash outflow of $1.1 million
in the first quarter ended November 1, 1997. Prior year outflows of
$7.1 million were due to the $5.4 million paydown of the revolving
credit facility and the $1.4 million payment of bankruptcy claims.
FORWARD LOOKING STATEMENTS
This document contains certain forward-looking statements and other
statements that are not historical facts concerning, among other things,
market conditions and the Company's strategies for growth and expansion.
These statements are highly dependent upon a variety of important
factors that could cause such results or events to differ materially.
These factors include, but are not limited to, changing market
conditions, the availability and cost of products, the impact of
competitive products and pricing, the Company's ability to execute its
strategic plans, the continued availability of sources of financing to
assist in the execution of the Company's strategic plans, and other
risks detailed herein and from time-to-time in the Company's Securities
and Exchange Commission filings. There can be no assurance that the
Company has accurately identified and properly weighed all of the
factors that affect market conditions and demand for the Company's
products and services, that the public information on which the Company
has relied is accurate or complete or that the Company's analysis of the
market and demand for its products and services is correct and, as a
result, that the strategies based on such analysis will be successful.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On November 21, 1997, Registrant held its Annual Meeting of Stockholders
for the fiscal year ended July 31, 1997.
Registrant's stockholders reelected the five incumbent members of the
Board of Directors to serve until the next annual meeting or until their
successors are elected and qualified. The Board of Directors consists
of Robert E. Anderson III, Jeffrey D. Benjamin, Robert N. Dangremond,
Jeff M. Moore, and Thomas D. Rooney.
Registrant's stockholders also ratified the appointment of Arthur
Andersen LLP as the Registrant's independent public accountants for the
fiscal year ending July 31, 1998. The vote total was 2,751,753 votes
"for", 1,065 votes" against", and 1,857 votes to "abstain".
<PAGE>
Item 6. Exhibits
(a) Exhibits
27 Financial Data Schedule
(b) Reports on form 8-K
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MULTIGRAPHICS, INC.
Date: December 3, 1997 /s/ Gregory T. Knipp
Gregory T. Knipp
Vice President and Chief Financial Officer
(authorized officer and principal
accounting officer)
12/3/97<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> NOV-01-1997
<CASH> 9,049
<SECURITIES> 0
<RECEIVABLES> 9,089
<ALLOWANCES> (319)
<INVENTORY> 10,899
<CURRENT-ASSETS> 29,265
<PP&E> 17,446
<DEPRECIATION> 7,531
<TOTAL-ASSETS> 40,096
<CURRENT-LIABILITIES> 36,243
<BONDS> 0
0
0
<COMMON> 70
<OTHER-SE> (11,715)
<TOTAL-LIABILITY-AND-EQUITY> 40,096
<SALES> 20,700
<TOTAL-REVENUES> 20,700
<CGS> 15,154
<TOTAL-COSTS> 20,542
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 254
<INCOME-PRETAX> 255
<INCOME-TAX> 97
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<NET-INCOME> 158
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</TABLE>
