<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended July 31, 1997
Commission File Number 1-683
MULTIGRAPHICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 34-0054940
(State of Incorporation) (I.R.S. Employer
431 LAKEVIEW COURT Identification No.)
MT. PROSPECT, ILLINOIS 60056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 375-1700
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
- ------------------- ----------------
<S> <C>
Common Stock, $0.025 par value American Stock Exchange
</TABLE>
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
-----
<PAGE> 2
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 aggregate market value of voting stock held by
nonaffiliates of the Registrant as of October 7, 1997:
Common Stock, $0.025 par value: $1,932,430
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 the Registrant's
classes of common stock as of October 7, 1997:
2,812,952 shares of Registrant's common stock, par value
$0.025 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Stockholders for fiscal year ended
July 31, 1997 (the "1997 Annual Report") are incorporated by reference into
Parts I, II and IV of this report. Portions of Registrant's definitive proxy
statement for Registrant's Annual Meeting of Stockholders to be held on
November 21, 1997 (the "1997 Proxy Statement") are incorporated by reference
into Part III.
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<PAGE> 3
PART I
ITEM 1. BUSINESS
(a) General Development of Business and Recent Events
1. Introduction.
Multigraphics, Inc. is incorporated in Delaware. As used herein,
"Registrant" or the "Company" means Multigraphics, Inc., and its subsidiaries,
unless the context indicates the contrary.
Registrant is a distributor of equipment, supplies and service to the
U.S. graphic arts industry. In the last twenty-four months, as previously
reported, Registrant has divested its Sheridan Systems and AM Multigraphics -
International business segments. On May 28, 1997, Registrant's stockholders
approved a change in corporate name from "AM International, Inc." to
"Multigraphics, Inc." to reflect the name known to customers of Registrant's
sole remaining business segment, and to reflect the fact that the Company has
exited its international operations.
On August 27, 1996, Registrant sold substantially all of the assets and
liabilities of the Sheridan Systems division, a leading supplier of systems and
components to both the printing and newspaper publishing industries, to
Heidelberger Druckmaschinen AG. The sale included substantially all of the
assets and liabilities of Registrant's AM Graphics International Limited
subsidiary in Slough, England.
The disposition of the AM Multigraphics - International business segment
has taken place in stages, as Registrant has divested its unprofitable foreign
subsidiaries as well as its 67% interest in AM Japan Co., Ltd. In February,
1996, Registrant's AM International UK Limited subsidiary in England entered
into an Administration Proceeding, which resulted in the sale of certain
portions of that business. In March, 1996, Registrant sold its Netherlands
holding company, including its subsidiaries in the Netherlands, France and
Belgium, to a local management buyout team. In September, 1996, Registrant
sold its interest in AM Japan Co., Ltd., and on October 17, 1996, Registrant's
Canadian subsidiary initiated bankruptcy proceedings.
All financial information has been restated to reflect the Sheridan
Systems and the AM Multigraphics - International operations as discontinued
operations. Registrant is a distributor of an extensive range of equipment,
supplies and services to the graphic arts industry, having recently completed
the exit from the manufacture of equipment. The majority of Registrant's
equipment, systems and supplies are sold under the Multigraphics(R) brand name.
To complement and expand its product lines, Registrant purchases additional
products from outside suppliers, which are sold either under Registrant's or
the producing company's trade names.
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2. Bankruptcy Proceedings.
On May 17, 1993, Registrant and its subsidiary, Addressograph-Multigraph
Corporation ("AMC"), filed for protection under Chapter 11 of the United States
Bankruptcy Code, in The United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") case numbers 93-582 through 93-583 (the
"Bankruptcy Proceedings"). Registrant also filed on that date a proposed Plan
of Reorganization. The Chapter 11 filing related to Registrant's domestic
operations and did not include its foreign subsidiaries.
On August 26, 1993, a hearing was held by the Bankruptcy Court to
consider approval of a Disclosure Statement to be distributed to creditors and
shareholders of Registrant. After that hearing, and by Order of the Bankruptcy
Court dated August 26, 1993, the Second Amended Disclosure Statement
(hereinafter the "Disclosure Statement") was approved. Further information on
the First Amended Plan of Reorganization as amended by Amendment No. 1 thereto
(as so amended the "Reorganization Plan") and the disclosures made in
connection therewith, is available in the Disclosure Statement and the
Reorganization Plan incorporated herein by reference to Exhibits 28 and 10(A),
respectively, to the Company's Annual Report on Form 10-K for the fiscal year
ended July 31, 1993, File No. 1-683.
On September 29, 1993, Registrant's Reorganization Plan was confirmed by
the Bankruptcy Court. In general, the Reorganization Plan provided for
distribution of approximately 7,000,000 shares of new Common Stock ("Common
Stock"), of which 97% was distributed to former holders of Registrant's 12%
Senior Subordinated Debentures, 2% to former holders of Registrant's $2.00
Convertible Exchangeable Preferred Stock ("Old Preferred Stock") and 1% to
former holders of Registrant's Common Stock ("Old Common Stock"). The
Reorganization Plan also provided for distribution of 1,095,000 Warrants to
Purchase Common Stock ("Warrants") to former holders of Old Preferred Stock.
The Warrants permitted the holder to purchase an aggregate of 1,095,000 shares
of Common Stock until October 15, 1996 at an exercise price of $18.00 per
share, but have now expired and are of no further effect. Under the
Reorganization Plan, general unsecured creditors are to be paid in full over a
period of five years with interest at 5% per annum unless they elected to be
paid in full under the convenience class (claims under $2,000) or unless they
elected before September 29, 1993 to receive Common Stock in lieu of cash.
The Reorganization Plan became effective on October 13, 1993 (the
"Effective Date"). On the Effective Date, all Old Preferred Stock, Old Common
Stock, Old Warrants to Purchase Common Stock and Old Preferred Stock Purchase
Rights attached to the Old Common Stock were canceled and became of no further
force and effect except as evidence of the holder's entitlement to a
distribution under the Reorganization Plan. All exchange rights associated
with the Old Preferred Stock and Old Common Stock expired on October 13, 1995.
For information relating to shares of Common Stock outstanding and shares of
Common Stock held for exchange as described above, see Note 4 of the "Notes to
Consolidated Financial Statements" incorporated by reference into Item 8
hereof. Also on the Effective Date the former directors of Registrant were
replaced.
3. Events Leading to Bankruptcy Proceedings.
Reference is made to Section D of Part III of the Disclosure Statement
(pages 22 to 29), incorporated herein by reference to Exhibit 28 to the
Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1993,
File No. 1-683, for information on the general development of the business of
Registrant and events which led to commencement of the Bankruptcy Proceedings
on May 17, 1993.
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4. Corporate Structure of Registrant.
Registrant, Multigraphics, Inc., was originally incorporated in Delaware
in 1924 as Addressograph Securities Corporation. Registrant has had several
name changes, one of which was Addressograph-Multigraph Corporation for the
period May 6, 1931 to January 2, 1979. Registrant's subsidiary,
Addressograph-Multigraph Corporation ("AMC") was originally incorporated in
Delaware in August 1972 as AM International, Inc. and changed its name to
Addressograph-Multigraph Corporation on January 2, 1979. Until October 13,
1993, AMC was a wholly owned subsidiary of Registrant and was a holding company
for certain foreign subsidiaries. Pursuant to the Plan, AMC was merged with
and into Registrant on October 13, 1993. As noted above, Registrant changed
its name from "AM International, Inc." to "Multigraphics, Inc." on May 28,
1997.
(b) Financial Information About Industry Segments.
The information in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in Note 12 to
the "Notes to Consolidated Financial Statements" under the section entitled
"Geographic Segments" contained in the 1997 Annual Report are incorporated
herein by reference.
(c) Narrative Description of Business.
Registrant is a distributor of equipment, supplies and services to the
graphic arts industry, and has exited the engineering and manufacturing of
offset duplicating equipment and supplies to focus exclusively on one
businesses segment, distributing equipment and supplies, and providing parts
and service, to in-plant, franchise, and commercial printers. In the last
twenty-four months, Registrant has divested its Sheridan Systems and AM
Multigraphics - International business units in previously reported
transactions. In December of 1996, Registrant and Xeikon, N.V. entered into an
agreement, as previously reported, pursuant to which the parties agreed not to
renew the distribution agreement under which the Registrant distributed and
serviced Xeikon digital color presses in North America.
Registrant currently has approximately 650 employees in the United
States and is headquartered in Mount Prospect, Illinois where, historically, it
has manufactured and distributed a broad product line of equipment and supplies
and provided services for the graphics arts industry through its own direct
sales and service organizations. The Company's products traditionally have
included small offset printing equipment, automated copy/duplicating systems,
pre and post press products and supplies.
Presently, the Company has completed its exit from the engineering and
manufacturing of offset duplicating equipment to focus entirely on distribution
of equipment, supplies and services to the graphic arts industry. The Company
primarily serves in-plant printers and small to medium sized commercial
printers. Declining market demand for the Registrant's traditional offset
duplicator products, due to inroads by alternative technologies, resulted in
the re-evaluation of its traditional strategy and the decision to exit
manufacturing and focus upon the distribution of supplies, services and
equipment. The Company has licensed the rights to manufacture certain of its
offset duplicator products to Amergraph Corporation in Sparta, New Jersey, and
other products in other regions of the world, and therefore has available to it
and its customers a continuing supply of offset duplicator products.
5
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The supplies and equipment category consists of consumable products used
in the production of printed materials such as films, inks, plates, rubber
rollers, cleaning solutions and cotton pads, as well as equipment products such
as digital platesetters, presses, folders and cutters. The Registrant tracks
various categories of these products, none of which accounts for more than 10%
of its revenues. Similarly, no single supplier accounts for more than 10% of
Registrant's revenues.
The service and parts category provides service to over 250 models of
printing equipment installed in in-plant and small to medium sized commercial
print shops. The Company has 365 service representatives.
The following table sets forth the breakdown of revenues among machines,
supplies and services in the United States, Canada and Japan for fiscal 1997,
1996 and 1995:
1997 1996 1995
UNITED STATES
Machines $ 9,407 $ 39,598 $ 50,829
Supplies 34,440 40,921 43,578
Services 42,618 47,511 52,748
------- -------- --------
86,465 $128,030 147,155
------- -------- --------
CANADA
Machines 220 4,352 3,849
Supplies 363 2,312 2,842
Services 462 3,287 3,594
------- -------- --------
1,045 9,951 10,285
------- -------- --------
JAPAN
Machines 292 13,574 15,928
Supplies 552 11,361 12,383
Services 307 5,136 5,734
------- -------- --------
1,151 30,071 34,045
------- -------- --------
TOTAL 88,661 168,052 191,485
------- -------- --------
Registrant also manages a network of approximately 46 independent dealers
selling in approximately 44 countries.
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<PAGE> 7
The principal customers of Registrant include in-plant print shops,
franchised and independent quick print shops, small to medium sized commercial
printers and governmental and educational institutions. Registrant has
approximately 20,000 customers. No customer accounts for more than 10% of
Registrant's revenues.
5. Competition and Competitive Conditions.
The Company operates in a highly competitive market in which price,
delivery and customer service are key factors. The Registrant's customers are
in-plant, quick print and small to medium size commercial printers, and
governmental and educational institutions. The market for small offset
duplicator presses, the traditional proprietary equipment of the Company, is
mature and continues to face competition from alternative technologies.
Because the installed base of offset duplicator presses has historically
provided a primary market for many of Registrant's services and supplies, the
Company is increasingly reliant on its general distribution capabilities in
continuing to serve its market segments. Gross margins may decrease as the
Company seeks to add product lines through distribution agreements, joint
ventures and affiliations with third parties, and acquisitions. To offset the
lower margins the Company has invested in information systems and has
undertaken other reorganization measures to increase efficiency and lower
expenses.
The competitive market is also one of heavy regional competition, but a
consolidation of dealers and distributors is occurring, which results in a
consolidation of buying power and distribution cost efficiencies. The
Registrant's investments in information systems, distribution outlets and other
capabilities enable it to both expand its business opportunities with existing
customers, and add volume through acquisitions. Registrant believes that its
renewed focus on its traditional customers, the expansion of its product line,
and its strategy to make acquisitions in the graphic arts industry provide a
sound basis for growth.
6. Cyclical Nature of Business and Liquidity.
The revenues of Registrant are dependent upon trends in the printing
industry, which are a function of (among other factors) overall economic
factors and advertising expenditures. Registrant's backlog is less than 5% of
annual revenues and is not a material factor in the conduct of the business.
Registrant believes that substantially all of this backlog will be shipped
during the 1998 fiscal year.
Certain customers of the Company require long-term financing for
purchases of equipment distributed by the Company. Registrant cooperates with
various independent finance and leasing companies to provide such financing.
These agreements are sometimes on a partial recourse basis with remarketing
arrangements on a non-discretionary, non-priority basis. Registrant has sold
identified pools of lease receivables and pools of rental equipment to
financial institutions on a limited recourse basis. The existence of such
financing is not, however, significant to Registrant's operations each taken as
a whole.
7
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7. Research and Development; Patents and Trademarks.
There were no expenditures by Registrant for research and
development in fiscal 1997, $0.4 million in 1996, and $0.7 million in 1995.
Registrant's research, development and engineering expenditures ceased when the
Company exited manufacturing of products. Previous years' expenditures were
made primarily to maintain competitive product offerings.
Registrant owns or is licensed under various patents and trademarks.
Registrant does not believe that its business as a whole is materially
dependent on any one patent or trademark or group of patents or trademarks.
ITEM 2. PROPERTIES
Registrant's principal executive offices are located in Mt. Prospect,
Illinois. Registrant moved its corporate headquarters from Rosemont, Illinois
to its current headquarters in September, 1996, following the disposition of
Registrant's Sheridan Systems division.
In 1994 and 1995, Registrant undertook the relocation of its AM
Multigraphics operations from its 700,000 square foot manufacturing and office
facility in Mt. Prospect to newer, more cost efficient facilities. The project
consisted of three parts: (1) relocation of the business offices to a 64,400
square foot facility in Mt. Prospect; (2) relocation of the distribution center
to a 79,700 square foot complex in nearby Arlington Heights, Illinois to
enhance the unit's distribution capabilities; and, (3) the sale of its former
Mount Prospect, Illinois facility for approximately $6.8 million in November,
1995. The Mt. Prospect and Arlington Heights facilities are leased until 2005
and are the Registrant's principal facilities.
Registrant leases 15 additional distribution, sales and service
facilities throughout the United States with total square footage of 81,900.
Registrant believes that the properties and equipment included therein are well
maintained, in good operating condition and adequate for the current needs of
its operations.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Item 1, Section (a) Paragraph 2, for
information on Registrant's Bankruptcy Proceedings. The commencement of the
Bankruptcy Proceedings resulted in an automatic stay of certain litigation
against Registrant pursuant to Section 362 of the Bankruptcy Code as of May 17,
1993. Therefore, with certain exceptions, all legal proceedings against
Registrant pending as of May 17, 1993, will be resolved through the bankruptcy
process. Although the vast majority of the claims filed in the Bankruptcy
Proceedings have been expunged or resolved within the Company's reserves, a few
significant disputed claims remain pending in the Bankruptcy Proceeding.
Registrant believes the resolution of these legal proceedings and claims will
not have a material adverse effect on the business or the financial position of
Registrant.
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Registrant has been notified of various environmental matters in
connection with certain current or former locations in Illinois, Indiana,
Ohio, Pennsylvania, and Rhode Island. Registrant believes that the legal
liability relating to such matters, if any, will either be resolved
consensually between Registrant and relevant governmental authorities or will
be subject to resolution through the bankruptcy process as with other disputed
claims. Registrant believes the resolution of these matters will not have a
material adverse effect on the business or the financial position of
Registrant.
Registrant is involved in various other administrative and legal
proceedings incidental to its business, including product liability and general
liability lawsuits against which Registrant is partially insured. The
resolution of these other proceedings is not expected to have a material
adverse effect on the business or the financial position of Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
None.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the names and ages, as of October 7,
1997, of all of the executive officers of Registrant and all positions and
offices of Registrant held by each person and each such person's occupation or
employment on such date and during the preceding five years. All such persons
have been elected to serve until their successors are elected or until their
earlier resignation or retirement.
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POSITIONS AND OFFICES HELD AND
PRINCIPAL OCCUPATIONS OR EMPLOYMENT
NAME AGE DURING THE PAST FIVE YEARS
- ---- --- --------------------------
Thomas D. Rooney 50 President and CEO of the Company
since May 28, 1997. Prior to that
date, Mr. Rooney served as
President of the AM Multigraphics
business unit since August of
1996, and also held the positions
of Vice President of Registrant
since February 1986, Chief
Financial Officer since August
1993, and Controller and Chief
Accounting Officer of Registrant
from September 1989 to August 1993.
From 1986 to 1989, Mr.Rooney was
President of Registrant's former
AM Bruning division, a
manufacturer and distributor of
equipment, supplies and services
for the engineering graphics
market.
Steven R. Andrews 44 Vice President of Law and
Secretary of Registrant since May
28, 1997. Prior to that, Mr.
Andrews served as Vice President,
General Counsel and Secretary of
Registrant, since June 1994. Mr.
Andrews was Vice President,
General Counsel and Secretary of
Amana Refrigeration, Inc., a
manufacturer of major household
appliances, from February 1993 to
June 1994 and Senior Deputy
General Counsel of Registrant from
January 1992 to February 1993.
From 1988 to 1991 Mr. Andrews was
Associate General Counsel and
Assistant Secretary of Tonka
Corporation, an international
manufacturer and marketer of toys
and games.
Mark F. Duchesne 40 Vice President, Distribution
Operations since May 28, 1997. Mr.
Duchesne joined Multigraphics in
January, 1995 as Vice President of
Marketing and Business Development
and was assigned the
responsibility for distribution
operations in January, 1996. From
January, 1994 to January, 1995 he
served as Vice President of
Engineering and Customer Service
for Sheridan Systems, Dayton,
Ohio, formerly a sister company of
Multigraphics serving the high end
newspaper and publications market.
From 1987 to 1994 Mr. Duchesne
served as Director of Engineering
and Customer Satisfaction for the
Advanced Imaging
10
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Products Business Unit of AM Graphics
in Dayton, OH.
Gregory T. Knipp 42 Vice President and Chief Financial
Officer since May 27, 1997. Mr. Knipp
was Treasurer of Registrant from
September, 1995 to May, 1997. From
1987 to 1994, Mr. Knipp held several
treasury-related management positions
of Registrant, including that of
Assistant Treasurer from 1994 to 1995.
From 1981 to 1987, Mr. Knipp was the
Cash Manager of Woodland Services Co.,
a spin-off company of Masonite
Corporation. Prior to 1981, Mr. Knipp
was an auditor with Peat Marwick
Mitchell & Co.
Charles T. Richards 53 Vice President, Service Operations
since May 27, 1997. Mr. Richards served
as Vice President of Manufacturing from
September 1994 to April 1996, and then
as Vice President, Service Business
until May, 1997. Prior to 1994, Mr.
Richards held a number of technical and
commercial positions with the Company.
He joined the Company in 1960.
11
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market and Other Information
At the Annual Meeting of Stockholders held on May 28, 1997,
Registrant's stockholders approved an amendment to the Second Restated
Certificate of Incorporation to change the Registrant's corporate name and to
reduce the authorized number of shares of all classes of capital stock the
Company shall have the authority to issue from fifty million (50,000,000) to
ten million (10,000,000), of which five hundred thousand (500,000) may be
issued as preferred shares. Registrant's stockholders also approved an
amendment to the Second Restated Certificate of Incorporation to effect a 1 for
2-1\2 share reverse stock split (the "Reverse Stock Split") of the issued and
outstanding shares of the Registrant's Common Stock, with an increase of the
par value from $0.01 per share to $0.025 per share.
Following the Reverse Stock Split and the change in Registrant's
corporate name, Registrant's new Common Stock, $0.025 par value, commenced
trading on the American Stock Exchange on May 29, 1997 under the ticker symbol
"MTI."
Registrant's Plan of Reorganization provided for the amendment and
restatement of Registrant's Certificate of Incorporation and Bylaws. The new
charter authorized 50 million shares of stock of which 40 million shares were
reserved for issuance as new Common Stock and 10 million shares were reserved
for issuance as new Preferred Stock. On the Effective Date of the Plan, the
Board of Directors authorized the issuance of 7 million shares of new Common
Stock, $0.01 par value, to holders of claims and interests as described in Note
4 of "Notes to Consolidated Financial Statements" contained in the 1997 Annual
Report and incorporated herein by reference.
On the Effective Date, Registrant also issued 1,095,000 new Warrants to
Purchase Common Stock at an exercise price of $18.00 per share which expired on
October 15, 1996, and are of no further effect.
At the Annual Meeting of Stockholders held on December 8, 1994,
Registrant's stockholders approved the 1994 Long-Term Incentive Plan (the
"Plan"). In conjunction therewith, an additional aggregate of 1,400,000 Common
Stock shares are available pursuant to and in accordance with the terms of the
Plan, subject to adjustments as provided in Section 6.7 of the Plan. The
shares available under the Plan, as well as all awards thereunder, have been
adjusted to 560,000 common shares to reflect the 1 for 2-1/2 share Reverse
Stock Split effected on May 28, 1997.
For information regarding quarterly stock prices for the Common Stock,
see Note 13 to the "Notes to Consolidated Financial Statements" in Registrant's
1997 Annual Report, incorporated herein by reference.
(b) Holders
At October 7, 1997, Registrant had approximately 500 stockholders of
record.
12
<PAGE> 13
(c) Dividends
On May 27, 1997, Registrant paid a special dividend of $2.00 per share
to holders of record on May 13, 1997. Prior to that time, Registrant had not
paid cash dividends on its Common Stock since August 15, 1981. Registrant's
current Loan and Security Agreement restricts the payment of dividends. See
Note 3 to the "Notes to Consolidated Financial Statements" in Registrant's 1997
Annual Report, incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information in the section entitled "Five Year Financial Summary"
contained in the 1997 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of the 1997 Annual
Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Consolidated Financial Statements", including the Notes thereto
and the Report of Arthur Andersen LLP, included in the 1997 Annual Report are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information with respect to the Directors of the
Registrant which is set forth in the section entitled "Election of Directors"
of the 1997 Proxy Statement. Except for the paragraphs relating to the
remuneration of directors, this section is incorporated herein by reference.
For information regarding Executive Officers of Registrant, see Item
4(A) of this Report which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the information set forth in the sections entitled "Remuneration of
Directors" and "Executive Compensation" in the 1997 Proxy Statement. This
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
See the information set forth in the sections entitled "Principal
Stockholders" and "Security Ownership of Directors and Executive Officers" in
the 1997 Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the section entitled "Compensation Committee Interlocks and Insider
Participation" in the 1997 Proxy Statement, which is incorporated herein by
reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) FINANCIAL STATEMENTS.
The "Consolidated Financial Statements" including the Notes thereto
and the Report of Arthur Andersen LLP dated September 19, 1997
included in the 1997 Annual Report are incorporated herein by
reference.
(a)(2) FINANCIAL STATEMENT SCHEDULE.
The financial statement schedule listed below should be read in
conjunction with Registrant's "Consolidated Financial Statements"
including the Notes thereto incorporated herein by reference from the
1997 Annual Report. Schedules not listed here have been omitted
because they are not applicable or they are immaterial or the
required information is included in Registrant's "Consolidated
Financial Statements" including the Notes thereto.
<TABLE>
<CAPTION>
Schedule Page
No. No.
-------- -----
<S> <C> <C>
Valuation and
Qualifying Accounts II 17
</TABLE>
(a)(3) EXHIBITS.
---------
Reference is made to the separate exhibit index contained on page
19 hereof.
(b) REPORTS ON FORM 8-K
None.
15
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: October 20, 1997
MULTIGRAPHICS, INC.
(Registrant)
By /s/Thomas D. Rooney
-------------------
Thomas D. Rooney, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on October 20, 1997 by the following persons on behalf
of the Registrant and in the capacities indicated.
Signature Title
--------- -----
/s/Jeff M. Moore Chairman of the Board and Director
----------------
Jeff M. Moore
/s/Thomas D. Rooney President, Chief Executive Officer
------------------- and Director
Thomas D. Rooney
/s/Gregory T. Knipp Chief Financial Officer (principal
------------------- accounting & financial officer)
Gregory T. Knipp
/s/Robert E. Anderson III Director
-------------------------
Robert E. Anderson III
/s/Jeffrey D. Benjamin Director
----------------------
Jeffrey D. Benjamin
/s/Robert N. Dangremond Director
-----------------------
Robert N. Dangremond
16
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SCHEDULE II
MULTIGRAPHICS, INC.
VALUATION & QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JULY 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Reserves Deducted in the
Balance Sheet from Assets
-------------------------------------
Accounts
Receivable Inventories
-------------------------------------
<S> <C> <C>
BALANCE JULY 31, 1994 1,440 4,581
Additions Charged to Cost & Expenses 337 2,659
Deductions from Reserves (465) (2,582)
---------------- -----------
BALANCE JULY 31, 1995 1,312 4,658
Additions Charged to Cost & Expenses 193 7,156
Reclassification to Assets Held for Sale (171) (270)
Deductions from Reserves (512) (2,890)
---------------- -----------
BALANCE JULY 31, 1996 822 8,654
Additions Charged to Cost & Expenses 150 174
Deductions from Reserves (637) (6,328)
---------------- -----------
BALANCE JULY 31, 1997 335 2,500
================ ===========
</TABLE>
17
<PAGE> 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE
To Multigraphics, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in Multigraphics, Inc.'s Annual
Report to Stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated September 19, 1997. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule listed in Part IV, Item 14(a)(2) is the responsibility of the
Company's management and is presented for the purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
October 20, 1997
18
<PAGE> 19
EXHIBIT INDEX
No. Description
3 Certificate of Incorporation and By-laws
(A) Second Restated Certificate of Incorporation of Registrant.*
(B) By-laws of Registrant effective as of October 13, 1993.*
(C) Certificate of Amendment to the Second Restated Certificate of
Incorporation of Registrant (incorporated by reference to Exhibit
3(B) to Registrant's Report on Form 10-Q filed with the Commission
on May 3, 1997.
(D) Amendment to Bylaws Of Registrant effective as of May 27, 1997.
10 Material Contracts
(A) AM International, Inc. 401(k) Employees' Savings and Investment
Plan, Amendment 1995-1.* **
(B) AM International, Inc. Executive Incentive Compensation Plan
Fiscal Year 1997.**
(C) AM International, Inc. Retirement Accumulation Plan.* **
(D) Settlement Agreements between Registrant and Richard J. Bonnie and
David A. Roberts, dated January, 1996 and September, 1996,
respectively (incorporated by reference to Exhibit 10(D) to
Registrant's Annual Report on Form 10-K for the year ended
July 31, 1996, filed with the Commission on October 29, 1996).**
(E) Letter Agreement dated December 8, 1994 between
Registrant and Jerome D. Brady (incorporated by reference to
Exhibit 10(A) to Registrant's Report on Form 10-Q filed with
the Commission on March 13, 1995).**
(F) Letter Agreement dated December 8, 1994 between Registrant and
Steven R. Andrews (incorporated by reference to Exhibit 10(B) to
Registrant's Report on Form 10-Q filed with the Commission on
March 13, 1995).**
(G) Letter Agreement dated January 31, 1995 between Registrant and
David A. Roberts (incorporated by reference to Exhibit 10(G) to
Registrant's Annual Report on Form 10-K for the year ended
July 31, 1996, filed with the Commission on October 29, 1996).**
(H) Change-In-Control and Termination Benefits Agreements dated
July 7, 1995 between Registrant and Messrs. Brady, Andrews,
Bonnie, Roberts and Rooney (incorporated by reference to
Exhibit 10(H) to Registrant's Annual Report on Form 10-K for the
year ended July 31, 1995, filed with the Commission on
October 26, 1995.**
(I) AM International, Inc. 1994 Long-Term Incentive Plan (incorporated
by reference to Exhibit 10(A) to Registrant's Annual Report on
Form 10-K for the year ended July 31, 1994, filed with the
Commission on October 27, 1994).**
(J) Engagement Letter dated January 27, 1994 between Registrant and J.
Alix & Associates (incorporated by reference to Exhibit 10(K) to
Registrant's Annual Report on Form 10-K for the year ended
July 31, 1994, filed with the Commission on October 27, 1994).**
(K) Employment Agreement dated September 19, 1994 between Jerome
D. Brady and Registrant (incorporated by reference to Exhibit
10(C) to Registrant's Annual Report on Form 10-K for the year
ended July 31, 1994, filed with the Commission on October 27,
1994).**
19
<PAGE> 20
(L) AM International, Inc. 401(k) Employees' Savings
and Investment Plan (Restated December 17, 1993, effective
January 1, 1989) (incorporated by reference to Exhibit 10(F) to
Registrant's Annual Report on Form 10-K for the year ended July
31, 1994, filed with the Commission on October 27, 1994).**
(M) First Amended Plan of Reorganization, as amended
September 29, 1993 (incorporated by reference to Exhibit 10(A)
to Registrant's Annual Report on Form 10-K for the year ended
July 31, 1993, filed with the Commission on October 29,
1993).**
(N) Registrant's Amended Plan of Reorganization, as
amended July 16, 1984 (incorporated by reference to Exhibit
4(A) to Registrant's Annual Report on Form 10-K for the year
ended July 31, 1984, filed with the Commission on October 26,
1984).**
(O) Amendment 1991-1 to the AM International, Inc.
Supplemental Executive Retirement Plan (incorporated by
reference to Exhibit 10(M) to Registrant's Annual Report on
Form 10-K for the year ended July 31, 1991, filed with the
Commission on October 29, 1991).**
(P) AM International, Inc. Supplemental Executive
Retirement Plan (incorporated by reference to Exhibit 10(N) to
Registrant's Annual Report on Form 10-K for the year ended July
31, 1987, filed with the Commission on October 28, 1987).**
(Q) Retirement Plan for Outside Directors of AM
International, Inc. (incorporated by reference to Exhibit 10(Q)
to Registrant's Annual Report on Form 10-K for the year ended
July 31, 1987, filed with the Commission on October 28,
1987).**
(R) Amendment to Retirement Plan for Outside Directors
of AM International, Inc. (incorporated by reference to Exhibit
10(M) to Registrant's Annual Report on Form
10-K for the year ended July 31, 1988, filed with the Commission
on October 25, 1988).**
(S) Letter Agreement dated May 8, 1992 between
Registrant and Thomas D. Rooney (incorporated by reference to
Exhibit 10(D) to Registrant's Annual Report on Form
10-K as for the year ended July 31, 1992, filed with the
Commission on October 29, 1992).**
(T) Letters of Agreement dated as of March 3, 1997
between Registrant and Jerome D. Brady and Steven R. Andrews,
respectively.**
(U) Letter of Agreement dated April 10, 1997 between
Registrant and Thomas D. Rooney.**
(V) Letter Agreement dated October 29, 1996 between
Registrant and Thomas D. Rooney, incorporated by reference to
Exhibit 10.1 of Registrant's Report on Form 10-Q filed with the
Commission on December 17, 1996.**
(W) Loan and Security Agreement dated as of May 30,
1997 between Registrant and Foothill Capital Corporation
Incorporated by reference to Exhibit 10(A) to Registrant's
Report on Form 10-Q filed with the Commission on June 16,
1997.**
(X) Amendment to Registrant's 1994 Long Term Incentive
Plan dated May 1, 1997.**
13 Annual Report to Stockholders for the year ended July 31, 1997.
23 Consent of Arthur Andersen LLP
24 Powers of Attorney
20
<PAGE> 21
99 Additional exhibits
Second Amended Disclosure Statement dated August 26, 1993
(incorporated by reference to Registrant's Annual Report for the year
ended July 31, 1993, filed as Exhibit 28 with the Commission on October
29, 1993).
* Incorporated herein by reference to exhibit of the same number filed
with the Registrant's Annual Report for the year ended July 31, 1993, as
filed with the Commission on October 29, 1993.
** Management contract or compensatory plan, contract or arrangement.
21
<PAGE> 1
EXHIBIT 3(D)
AMENDMENTS TO BY-LAWS
RESOLVED, that the Board hereby amends the By-laws of the Corporation such
that the first sentence of Article V, Section 7 of the By-laws shall be amended
and restated to read in its entirety:
Special meetings of the Board of Directors or any committee thereof may be
called at the request of the Chairman of the Board, the President, or the
greater of one-third or any two of the members of the Board of Directors or
committee for which the special meeting is to be held.
RESOLVED, that the Board hereby amends the By-laws of the Corporation such
that Article VII, Section 5, of the By-laws shall be amended and restated in
its entirety to read as follows:
Section 5. DUTIES. The duties and powers of the officers of the Corporation
shall be as follows:
(a) Chairman of the Board - The Chairman of the Board shall (i) be chosen
from among the members of the Board of Directors, (ii) preside at all meetings
of stockholders and the Board of Directors and (iii) perform such other duties
as from time to time may be assigned by the Board of Directors.
(b) Vice Chairman of the Board - The Vice Chairman of the Board shall (i)
be chosen from among the members of the Board of Directors, (ii) preside at all
meetings of stockholders and the Board of Directors during the absence or
disability of the Chairman of the Board and (iii) perform such other duties as
from time to time may be assigned by the Chairman of the Board of the Board of
Directors.
(c) President - The President shall (i) preside at all meetings of the
stockholders and the Board of Directors during the absence or disability of the
Chairman and Vice Chairman of the Board, (ii) be the Chief Executive Officer of
the Corporation, (iii) be primarily responsible for the general management of
the business affairs of the Corporation and for implementing the policies and
directives of the Board of Directors, (iv) have authority to make contracts on
behalf of the Corporation in the ordinary course of the Corporation's business
and (v) perform such other duties as from time to time may be assigned to him
by the Board of Directors.
(d) Vice President - The Vice Presidents, in the order designated by the
Board of Directors, shall exercise the functions of the President during the
absence or disability of the President and shall perform such other duties as
the President or the Board of Directors may assign to them.
(e) Treasurer - The Treasurer shall (i) have general supervision over the
funds of the Corporation and the investment or deposit thereof (ii) advise the
officers and, if requested, the Board of Directors as the President or the
Board of Directors may assign to such person.
(f) Assistant Treasurers - The Assistant Treasurers, in the order
designated by the Board of Directors, shall exercise the duties of the
Treasurer during the absence or disability of the Treasurer and shall perform
such other duties as the Treasurer or the Board of Directors may assign to
them.
1
<PAGE> 2
(g) Controller - The Controller shall (i) be the chief accounting officer
of the Corporation with general supervision over the accounting books and
records of the Corporation, (ii) be responsible for maintaining proper internal
controls over the assets of the Corporation and preparing accurate financial
statements in accordance with generally accepted accounting principles (iii)
perform such other duties as the President or the Board of Directors may assign
to such person.
(h) Secretary - The Secretary shall (i) attend all meetings of the
stockholders, the Board of Directors and all committees of the Board of
Directors and record all proceedings of such meeting in a book to be kept for
that purpose, (ii) give, or cause to be given, such notice as is required of
all meetings of the stockholders, Board of Directors and committees of the
Board of Directors and (iii) perform such other duties as the President or the
Board of Directors may assign to such person.
(i) Assistant Secretary - The Assistant Secretaries, in the order
designated by the Board of Directors, shall exercise the duties of the
Secretary during the absence or disability of the Secretary and shall perform
such other duties as the Secretary or the Board of Directors may assign to
them.
2
<PAGE> 1
EXHIBIT 10(B)
AM INTERNATIONAL, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FISCAL YEAR 1997
I. PLAN OBJECTIVES
A. To provide competitive levels of compensation to enable AM
International, Inc. (the "Company") to attract and retain the people
needed to successfully manage the business.
B. To provide a financial incentive for selected employees upon
achievement of key performance goals, consisting both of financial and
operating objectives set by the Management and Compensation Committee
of the Board of Directors (the "Committee").
II. POLICY
It is the Company's policy to pay base salaries and annual Executive
Incentive Compensation Plan ("EICP") awards which are competitive and which
promote the objectives set by the committee for the plan year.
Under this policy, each participant's annual EICP award will be based on the
degree to which the Company achieves specific financial and operating goals.
III. ELIGIBILITY AND PARTICIPATION
In general, participants in the EICP are to be selected from that group of
employees whose activities are determined by the Committee to have significant
impact on business results and whose base compensation is in excess of $50,000
annually will be selected because many will have responsibilities which do not
have a "significant impact" on results.
Categories of participants will be established with target and maximum award
potential as follows:
<TABLE>
<CAPTION>
Category Threshold Target Maximum
<S> <C> <C> <C>
A 10.0 40.0 80.0
B 7.5% 30% 60%
C 6.25% 25% 50%
D 5% 20% 40%
E 3.75% 15% 30%
F 2.5% 10% 20%
</TABLE>
IV. PERFORMANCE GOALS
Each participant will be measured based on the achievement of pre-established
financial goals: profitability, cash flow and revenue growth; and
pre-established operational objectives: completion of JBA system conversion and
the attainment of a customer satisfaction index as defined. Goals (threshold,
target and maximum) will be suggested by the Chief Executive Officer and
approved by the Committee.
Performance goals for FY97, both financial and operational, are shown on
Attachment A.
V. TARGET BONUS POOL
1
<PAGE> 2
A participant's Target Bonus equals a percentage (generally 10 percent to 40
percent)of the base annual salary at the target level set by the Committee.
The Target Bonus Pool is the sum of the Target Bonuses for all participants.
The Target Bonus Pool is reached based upon satisfaction or attainment of
performance goals set up by the Committee. The Actual Bonus Pool will vary
depending upon the relationship of achievement of performance goals (for
example, profitability, cash flow) to target performance.
VI. INDIVIDUAL AWARDS
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS PLAN, ALL AWARDS ARE
DISCRETIONARY WITH THE COMMITTEE, WHETHER PERFORMANCE GOALS HAVE BEEN MET OR
NOT.
The payout of individual awards shall be based on the attainment of the
performance goals set by the Committee.
A participant's share of the Bonus Pool will be based on the category or target
bonus set for the individual by the Committee and on achievement of performance
goals, unless the Committee sets other criteria. Actual bonus payouts will not
exceed 200% of the Target Bonus.
VII. DISCRETIONARY AWARDS
An amount equal to three (3) percent of the Actual Bonus Pool may be made
available for discretionary bonuses to non-participants in the Plan, but shall
be subject to the approval of the Committee.
VIII. APPROVAL AND TIMING OF AWARD PAYMENTS
No participant shall have any claim or right to be granted an award under the
Plan. The Plan may be amended by the Company at any time and from time to
time. Neither the Plan nor any action taken pursuant to the Plan shall be
construed as giving to any employee the right to be retained in the employ of
the Company. Except as to otherwise provided herein, the Committee of the
Company's Board of Directors shall have full power and authority to interpret,
construe and administer the Plan including the right to adjust the amount
payable to you under any award to reflect any special circumstances that the
Committee deems relevant or to terminate it at any time. All approved award
payments will be made not later than ninety (90) days after the end of the
award fiscal year, provided, however, upon receipt of a written request from
any participant delivered before the end of the year, the Committee may defer
payment for a period not to exceed one year.
IX. COMMUNICATION
In order for the plan to be effective, it is essential that each participant
have a clear understanding of how the plan operates and that each participant
be informed of his or her inclusion shortly after the beginning of the plan
year.
X. ADMINISTRATIVE DECISIONS AND PROCEDURES
A. The Plan Year will be the same as the Company's fiscal year, i.e.
August 1, 1996 through July 31, 1997.
B. Current Awards
All awards will be paid in cash as soon as practical after approval (no later
than 90) days after the end of the award fiscal year). The amounts required by
law to be withheld for income tax and Social Security taxes will be deducted
from the award payments.
2
<PAGE> 3
C. Eligible Participants and Salary
The salary of each participant on September 1 of the Plan Year will be used as
the salary of record for all calculations. Initial calculations will be based
upon an estimate of September 1 salaries for those employees who would be
eligible for September increases, and would be finalized after the September
increases have become effective.
D. Change in Status During the Year
1. New Hire, Transfer, Promotion
A newly hired employee or an employee transferred or promoted during the Plan
Year to a position qualifying for participation may receive a pro rata award
based on the percentage of the Plan Year (actual months/full year times the
amount granted for a full-year award for that position) the employee is in the
participating position.
2. Demotion
No award will be paid to an employee who has been demoted during the Plan Year
to a position not eligible for participation.
3. Discharge
An employee discharged during the Plan Year shall not be eligible to be paid
for an award, even if his or her severance agreement extends past year-end.
4. Resignation
An employee must be an active employee as of the bonus payment date to be
eligible to be paid and award. An employee who resigns or is terminated prior
to the payment date will not be entitled to be paid for an award.
5. Death, Disability, Retirement, Leave of Absence
An employee whose status as an active employee is changed during the Plan Year
for any of the reasons cited in the heading of this section may, at the
discretion of the Committee, be eligible to be paid for a pro rata award.
E. Miscellaneous
1. The Committee shall have the right, in its sole discretion, to modify
the Plan from time to time or to terminate the Plan or to remove any participant
from the Plan.
2. The decision of the Committee with respect to any issues concerning
individuals selected for award, the amount, terms, form and time of payment of
awards and interpretation of any Plan guidelines or requirements shall be final
and binding.
3. By acceptance of an award, each employee agrees that such award is
special additional compensation and that it will not affect any employee
benefit, e.g. life insurance, savings plan, etc. in which the employee
participates except as provided in paragraph 4 below.
4. Payments of awards made under the Plan shall be included in the
employee's compensation for purposes of the Company's retirement programs.
3
<PAGE> 4
5. The receipt of an award shall not give an employee any right to
continued employment and the right and power to dismiss any employee is
specifically reserved to the Company. The receipt of an award shall not
entitle an employee to an award with respect to any subsequent Plan Year.
6. When a performance goal is based on income, it may be necessary to
exclude significant non-budgeted or not-controllable gains or losses from actual
results in order to properly measure performance. The Committee will decide
those items that shall be considered for exclusion. Examples are:
a. Any gains or losses which will be treated as extraordinary in
the Company's published financial statements.
b. Profits or losses of companies acquired during the Plan Year,
assuming they were not included in the budget and/or the goal.
c. Material gains or losses not in the budget and/or which are of a
nonrecurring nature and are not considered to be in the ordinary course of
business. Some of these would be as follows:
- Gains or losses from the sale or disposal of real
estate or property.
- Gains resulting from insurance recoveries when such
gains relate to claims filed in previous years.
- Losses resulting from natural catastrophes, when
the cause of the catastrophe is beyond the control of
the Company and did not result from any failure or
negligence on the Company's part.
XI. BASIS FOR DETERMINING MEASUREMENT OF RECOMMENDED AWARDS:
Award payouts will be determined upon attainment of performance goals set by
the Committee, which may consist of financial and operational performance
objectives. Payments for the attainment of performance goals will be weighted
at the levels set forth on the plan summary attached hereto.
4
<PAGE> 1
EXHIBIT 10(T)
Mr. Jerome D. Brady
404 St. Marks Court
Oak Brook, IL 60521
Dear Mr. Brady:
Reference is hereby made to your Change in Control and Termination Benefits
Agreement with AM International, Inc. (the "Company") dated as of July 7, 1995
(the "Agreement"). This letter is to effect a satisfaction and discharge of
your and the Company's respective obligations under the Agreement. You will be
entitled to receive, upon execution of this letter, the cash payments and
benefits set forth below. All amounts paid or released to you may be subject
to withholding for federal, state or local taxes.
1. Your employment with the company will continue as provided herein at a
salary, commencing March 1, 1996, of $30,000 per month, payable in accordance
with the Company's usual payroll practices and subject to ordinary withholding
taxes. You will receive no car allowance or other cash compensation from and
after March 1, 1997. On the 20th day of each month the Management and
Compensation Committee will review whether your employment should be extended
for another month.
Either party may terminate this agreement and your employment hereunder at any
time, but each party will endeavor to provide three weeks notice of such
termination to the other.
2. As soon as practicable after the execution of this letter agreement the
Company will wire transfer to the bank account of your choice an amount equal
to $612,500.00, representing the amount payable to you under Section 3(a)(2) of
the Agreement. No amount is payable to you under Section 3(a) (3) of the
Agreement.
3. As soon as practicable after the execution of this letter agreement the
Company will wire transfer to the bank account of your choice an amount equal
to any accrued but unused vacation pay through March 3, 1997, pursuant to
Section 3(a)(1) (ii) of the Agreement.
4. As soon as practicable after the execution of this letter agreement the
Company will wire transfer to the bank account of your choice an amount equal
to $261,951.81, representing the amount owed to you as supplemental retirement
benefit pursuant to Section 3(b) of the Agreement.
5. As soon as practicable after the execution of this letter agreement the
Company shall issue to you a share certificate representing 11,672 shares of
common stock of the Company, pursuant to Section 3(a)(l)(ii) of the Agreement.
1
<PAGE> 2
6. As soon as practicable after the execution of this letter agreement the
Company shall wire transfer to the bank account of your choice an amount equal
to the unvested portions of any employer contributions to Retirement Plans,
pursuant to Section 3(c)(1) of the Agreement.
7. Commencing on March 3, 1997 and continuing through September 3, 1998, the
Company will continue to keep in full force and effect (or shall cause a
successor to keep in full force and effect or shall cause to be provided by a
third-party provider) all policies of medical, prescription, dental, accident,
disability and life insurance for you and your dependents with the same level
of coverage, upon the same terms and otherwise to the same extent as such
policies shall have been in effect immediately prior to the date hereof or, if
more favorable to you, as provided generally with respect to other peer
executives of the Company and its affiliated companies. The obligation of the
Company to continue coverage of you, your spouse and other dependents under
such policies shall cease at such time as you and your spouse and other
dependents obtain substantially comparable coverage under another policy or
policies, including a policy maintained by another employer.
8. All amounts payable to you under the Company's 401(k) plan, savings plans,
retirement plan, and other plans under which you are a participant and which
are not otherwise referred to in this letter shall be paid to you in accordance
with the respective terms of such plans.
9. You will be entitled to reimbursement of reasonable business expenses
during the continuation of your employment in accordance with the Company's
policies and past practice.
10. In consideration of your agreement to continue to provide services to the
company, no termination of this agreement or your employment hereunder, whether
for cause or any other reason, and no other circumstances occurring after the
date hereof, will excuse the Company's performance hereunder.
If the foregoing meets with your approval, kindly execute three originals of
this letter in the space provided below and return two copies to the Company in
care of the undersigned.
AM INTERNATIONAL, INC.
By: /s/ Jeffrey D. Benjamin
-----------------------
Chairman, Management and Compensation Committee
Agreed and Accepted this 3rd day of March, 1997
By: /s/ Jerome D. Brady
---------------------------
Jerome D. Brady
2
<PAGE> 3
Mr. Steven R. Andrews
2150 Kenilworth Avenue
Wilmette, Illinois 60091
Dear Mr. Andrews:
Reference is hereby made to your Change in Control and Termination Benefits
Agreement with AM International, Inc. (the "Company") dated as of July 7, 1995
(the "Agreement"). This letter is to effect a satisfaction and discharge of
your and the Company's respective obligations under the Agreement. You will be
entitled to receive, upon execution of this letter, the cash payments and
benefits set forth below. All amounts paid or released to you may be subject
to withholding for federal, state or local taxes.
1. Your employment with the company will continue as provided herein at a
salary, commencing March 1, 1996, of $16,000 per month, payable in accordance
with the Company's usual payroll practices and subject to ordinary withholding
taxes. You will receive no car allowance or other cash compensation from and
after March 1, 1997. On the 20th day of each month the Management and
Compensation Committee will review whether your employment should be extended
for another month.
Either party may terminate this agreement and your employment hereunder at any
time, but each party will endeavor to provide three weeks notice of such
termination to the other.
2. As soon as practicable after the execution of this letter agreement the
Company will wire transfer to the bank account of your choice an amount equal
to $351,562.50, consisting of $321,562.50 in salary and $30,000.00 in annual
bonus, representing the amounts payable to you under Sections 3(a)(2) and (3)
of the Agreement.
3. As soon as practicable after the execution of this letter agreement the
Company will wire transfer to the bank account of your choice an amount equal
to any accrued but unused vacation pay through March 3, 1997, pursuant to
Section 3(a)(1) (ii) of the Agreement.
4. As soon as practicable after the execution of this letter agreement the
Company will wire transfer to the bank account of your choice an amount equal
to $78,599.93, representing the amount owed to you as supplemental retirement
benefit pursuant to Section 3(b) of the Agreement.
5. As soon as practicable after the execution of this letter agreement the
Company shall issue to you a share certificate representing 2,491 shares of
common stock of the Company, pursuant to Section 3(a)(l)(ii) of the Agreement.
3
<PAGE> 4
6. Commencing on March 3, 1997 and continuing through September 3, 1998, the
Company will continue to keep in full force and effect (or shall cause a
successor to keep in full force and effect or shall cause to be provided by a
third-party provider) all policies of medical, prescription, dental, accident,
disability and life insurance for you and your dependents with the same level
of coverage, upon the same terms and otherwise to the same extent as such
policies shall have been in effect immediately prior to the date hereof or, if
more favorable to you, as provided generally with respect to other peer
executives of the Company and its affiliated companies. The obligation of the
Company to continue coverage of you, your spouse and other dependents under
such policies shall cease at such time as you and your spouse and other
dependents obtain substantially comparable coverage under another policy or
policies, including a policy maintained by another employer.
7. All amounts payable to you under the Company's 401(k) plan, savings plans,
retirement plan, and other plans under which you are a participant and which
are not otherwise referred to in this letter shall be paid to you in accordance
with the respective terms of such plans.
8. You will be entitled to reimbursement of reasonable business expenses
during the continuation of your employment in accordance with the Company's
policies and past practice.
9. In consideration of your agreement to continue to provide services to the
company, no termination of this agreement or your employment hereunder, whether
for cause or any other reason, and no other circumstances occurring after the
date hereof, will excuse the Company's performance hereunder.
If the foregoing meets with your approval, kindly execute three originals of
this letter in the space provided below and return two copies to the Company in
care of the undersigned.
AM INTERNATIONAL, INC.
By: /s/Jeffrey D. Benjamin
-----------------------------
Chairman, Management and Compensation Committee
Agreed and Accepted this 3rd day of March, 1997
/s/ Steven R. Andrews
- ----------------------------
Steven R. Andrews
4
<PAGE> 1
EXHIBIT 10(U)
EMPLOYMENT AGREEMENT
Employment Agreement dated as of April 10, 1997 between Thomas D. Rooney
(the "Executive") and AM International, Inc., A Delaware corporation (the
"Company") with its principal office at 431 Lakeview Court, Mount Prospect,
Illinois 60056.
WHEREAS, the Company desires to employ the Executive as its President and
Chief Executive Officer, and the Executive desires to accept such employment,
upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the agreements and covenants contained
herein, the Executive and the Company hereby agree as follows:
ARTICLE I
Employment
Section 1.01. Position; Term; Responsibilities. The Company shall employ
the Executive as its President and Chief Executive Officer effective May 28,
1997 (the "Commencement Date"). Subject to the powers, authorities and
responsibilities vested in the Board of Directors (including any committees
thereof, the "Board") of the Company, the Executive shall have the
responsibility vested by the Company's By-laws in the President and Chief
Executive Officer. The Executive shall also perform such other executive and
administrative duties for the Company and its subsidiaries and affiliates (not
inconsistent with the positions of President and Chief Executive Officer of the
Company) as may from time to time be authorized or directed by the Board. The
Executive agrees to be employed by the Company in all such capacities subject
to all the covenants and conditions hereinafter set forth.
Section 1.02. Duties. During Executive's Employment hereunder, the
Executive shall perform faithfully the duties assigned to him hereunder to the
best of his abilities and devote his full and undivided business time and
attention to the transaction of the Company's business and not engage in any
other business activities except with the approval of the Board. The previous
sentence shall not preclude the Executive from participating in the affairs of
any governmental, educational or other charitable institution so long as the
Board does not determine in good faith that such activities unreasonably
interfere with the business of the Company or the performance by Executive of
his duties hereunder.
1
<PAGE> 2
ARTICLE II
Compensation
Section 2.01. Basic Compensation. As compensation for his services
hereunder, the Company shall pay to the Executive a minimum annual salary of
$225,000 (the "Base Salary"), payable in installments in accordance with the
Company's normal payment schedule for senior management of the Company, but
retroactive to April 10, 1997. The Executive's salary may be increased from
time to time above the Base Salary at the discretion of the Board. The
Executive's annual salary in effect from time to time under this Section 2.01
is hereinafter called his "Base Compensation".
Section 2.02. Incentive Compensation. (A) Determination of Amount. In
addition to his Base Compensation, the Company shall pay to the Executive as
incentive compensation ("Incentive Compensation"), in respect of each fiscal
year of the Company, an amount determined and payable in accordance with the
Company's Executive Incentive Compensation Plan or a replacement plan
established by the Board (collectively, an "Incentive Plan"); provided,
however, that the Executive shall be entitled to receive Incentive Compensation
on a pro rata basis in respect of any portion of a fiscal year during which the
Executive's employment is terminated other than as a result of a Voluntary
Termination or a termination by the Company for "Cause", provided that
Executive has been employed for at least one-half of such fiscal year. A
"Voluntary Termination" shall mean the voluntary termination by Executive of
his employment with the Company.
(B) Manner of Payment. Incentive Compensation earned hereunder shall be
determined by the Board pursuant to the relevant Incentive Plan.
Section 2.03. Stock Option; Bonus Stock Award. (A) The Company shall
grant to the Executive, effective on the date of execution of this Agreement, a
nonqualified stock option under the Internal Revenue Code of 1986, as amended
(the "Code"), pursuant to the Company's 1994 Long-Term Incentive Plan (the
"LTIP") to purchase 60, 000 shares of Common Stock at an exercise price equal
to the closing price of the Common Stock on the American Stock Exchange on such
date. The Company shall grant Executive an additional option to purchase
12,000 shares of Common Stock subject to such restrictions as the Company's
Board of Directors or appropriate Committee shall determine on June 11, 1997.
Such stock options shall expire ten years after their respective grant dates,
and shall become exercisable as to 33-1/3% of the shares subject to such
options on each of the first, second and third anniversaries of their
respective grant dates, subject to earlier vesting as provided in the LTIP.
Section 2.04. Severance Benefits. If the Executive is terminated for any
reason other than "Cause," as defined below, or if Executive terminates his
employment for any reason, including death or disability, Executive shall
receive a lump sum payment equal to the greater of
2
<PAGE> 3
(i) $349,125, and (ii) an amount equal to Executive's highest annual Base
Compensation at any time after the date hereof. In addition, for a period of
24 months following such termination (the "Severance Period"), Executive shall
be provided medical (including supplemental executive health benefits) dental,
accident, life insurance and long-term disability benefits as are made
available to Executive and his dependents prior to such termination; provided,
that if Executive becomes eligible during the Severance Period to participate
in another group plan by reason of subsequent employment or otherwise, the
Executive's coverage under the Company plans will terminate in accordance with
the transition of coverage provisions in the Company's plans. During such
Severance Period Executive shall also receive at the Company's expense
financial planning services, tax preparation by Arthur Andersen LLP,
Outplacement Services at a firm of Executive's choice, subject to Company's
reasonable consent, and a business or athletic club membership.
Section 2.05. Other Employee Benefits. The Executive shall be entitled
to participate in all employee benefit plans and to receive all other fringe
benefits as are from time to time made generally available to the senior
management of the Company; provided that if a severance benefit is payable to
Executive pursuant to Section 2.04 such benefit shall be paid in lieu of any
benefit otherwise payable to Executive pursuant to any Company severance plan
unless such plan expressly provides that payments thereunder will be made in
addition to the severance payments provided hereunder. As of the date hereof,
such plans include a 401(k) plan, an automobile allowance program, an executive
universal life insurance program, membership in a business or athletic club, an
executive long-term disability plan, a supplemental executive health plan, a
supplemental executive retirement plan, and tax preparation and financial
planning programs. In addition, the Executive shall be entitled to take time
off for vacation or illness in accordance with the Company's policies with
respect thereto established from time to time with respect to its senior
management.
Section 2.06. Expense Reimbursements. The Company shall reimburse the
Executive for all proper expenses incurred by him in the performance of his
duties hereunder in accordance with the policies and procedures established by
the Board.
ARTICLE III
Termination of Employment
Section 3.01. Termination. The Company or the Executive may terminate
Executive's employment hereunder at any time for any reason and Executive shall
be entitled only to the benefits set forth herein.
Section 3.02. Death. In the event of the death of the Executive during
the Employment Period, his Designated Successors (as hereinafter defined) shall
be entitled to receive any accrued
3
<PAGE> 4
and unpaid compensation under Sections 2.01, 2.02 and 2.04 and any unreimbursed
expenses under Section 2.06.
Section 3.03. Definitions of Terms. "Cause" shall mean embezzlement or
misappropriation of corporate funds, other significant act of dishonesty or
illegality, willful refusal to perform or substantial disregard of the duties
properly assigned pursuant to Article I or significant violation of any
statutory or common law duty of loyalty to the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the entire Board of Directors of the Company called and held for the purpose
(after reasonable notice to the Executive and an opportunity for the Executive,
together with his counsel, to be heard before the Board), finding that in the
good faith opinion of the Board, the Executive engaged in the conduct set forth
above in this section 3.03 and specifying the particulars thereof in reasonable
detail. "Designated Successors" of Executive shall mean the executors,
administrators or other legal representatives of Executive (in such order of
priority) as the Executive may have designated in a written instrument filed
with the Secretary of the Company.
ARTICLE IV
Miscellaneous
Section 4.01. Notices. Any notice or request required or permitted to be
given hereunder shall be sufficient if in writing and delivered personally or
sent by registered mail, postage prepaid and return receipt requested, as
follows: if to the Executive, to his address as set forth in the records of
the Company, and if to the Company, to its address hereinabove set forth, or to
any other address designated by either party by notice similarly given. Such
notice shall be deemed to have been given upon the receipt thereof.
Section 4.02. Arbitration; Enforcement Expenses.
(A) Any controversy or claim arising out of this Agreement, or
breach thereof, shall be settled by arbitration in the Chicago
metropolitan area in accordance with the laws of the State of Illinois by
three disinterested arbitrators, one of whom shall be appointed by the
Company, one by the Executive, and the third of whom shall be appointed
by the first two arbitrators. If the third arbitrator cannot be agreed
upon, the third arbitrator shall be appointed by the Chief Judge of the
United States Court of Appeals for the Seventh Circuit. The arbitration
shall be conducted in accordance with the rules of the American
Arbitration Association, except with respect to the selection of
arbitrators. The arbitrators' determination shall be final and binding
upon all parties and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof.
4
<PAGE> 5
(B) The Company shall pay to the Executive all reasonable
out-of-pocket expenses, including reasonable attorneys' fees, court costs
and arbitration costs, incurred by the Executive in connection with any
arbitration proceeding referred to in subsection (A) above brought by
Executive to enforce his rights under this Agreement if Executive is the
prevailing party in such proceeding.
Section 4.03. Assignment and Succession. The rights and obligations of
the Company under this Agreement shall inure to the benefit of and be binding
upon its successors and assigns, and the Executive's rights and obligations
hereunder shall inure to the benefit of and be binding upon his Designated
Successors.
Section 4.04. Headings. The Article, Section paragraph and subparagraph
headings are for convenience of reference only and shall not define or limit
the provisions hereof.
Section 4.05. Applicable Law. this Agreement shall at all times be
governed by and construed, interpreted and enforced in accordance with the laws
of the State of Illinois.
Section 4.06. Entire Agreement. This Agreement represents the entire
agreement among the parties hereto with respect to the employment of the
Executive, except as specifically provided herein, and supersedes all previous
agreements, policies and understandings between the Executive and the Company
with respect to Executive's employment.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its duly authorized officer and the Executive has signed this Agreement as of
the day and year first above written.
AM INTERNATIONAL, INC.
By /s/ Steven R. Andrews
-----------------------------
Title: Vice President
EXECUTIVE
/s/ Thomas D. Rooney
---------------------------------
Thomas D. Rooney
5
<PAGE> 1
EXHIBIT 10(X)
AMENDMENT TO 1994 LONG-TERM INCENTIVE PLAN
RESOLVED, that Section 6.7 of the AM International, Inc. 1994 Long Term
Incentive Plan is hereby amended to read in its entirety as follows:
6.7 Adjustment. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Common Stock other than a regular cash
dividend, the number and class of securities available under this Plan, the
number and class of securities subject to each outstanding option and the
purchase price per security, the number of securities subject to each option to
be granted to Non-Employee Directors pursuant to Article V, the terms of each
outstanding SAR, the number and class of securities subject to each outstanding
Stock Award, and the terms of each outstanding Performance Share shall be
appropriately adjusted by the Committee, such adjustments to be made in the
case of outstanding options and SARS without an increase in the aggregate
purchase price or base price. If any such adjustment would result in a
fractional security being available under this Plan or subject to a grant under
this Plan, such fractional security shall be disregarded.
1
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth for the years indicated certain items from the
Condensed Consolidated Statements of Operations (expressed in millions of
dollars).
OPERATING RESULTS (CONTINUING OPERATIONS)
<TABLE>
<CAPTION>
YEARS ENDED JULY 31, 1997 1996 1995
-------------------- ---- ---- ----
<S> <C> <C> <C>
REVENUES $88.7 $168.1 $191.5
Gross margin 24.8 37.6 52.7
Operating expenses 23.5 54.0 55.2
----- ------ ------
OPERATING INCOME (LOSS) 1.3 (16.4) (2.5)
Non-operating expenses 1.2 3.8 1.7
----- ------ ------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS $0.1 ($20.2) ($4.2)
</TABLE>
COMPARISON OF 1997 TO 1996
Net income in 1997 of $0.1 million ($0.04 per common share) improved
significantly over the net loss of $20.2 million from continuing operations in
1996. The improved result in 1997 was primarily due to restructuring
initiatives which the Company formulated and executed over the past two years.
The plans have included the exit from unprofitable foreign subsidiaries, the
divestitures of non-core product lines, the exit from manufacturing, and the
implementation of strategic investments in new products and capabilities.
Revenues in 1997 of $88.7 million decreased by $79.4 million from 1996. The
revenue decrease was primarily the result of: 1) the divestitures of foreign
subsidiaries in Japan and Canada which accounted for a revenue decline of
$37.8 million, and 2) the discontinuance of certain unprofitable product
lines, including manufactured offset duplicator presses, which accounted for a
revenue decline of $35.0 million. The Company is now focused on distributing
an extensive range of equipment and supplies and providing technical service to
in-plant printers and small to medium size printers in the graphic arts
industry. The Company has completed the transition away from its historical
position as a manufacturer.
1
<PAGE> 2
Gross margin decreased in 1997 from 1996 due largely to the lower revenue
level, however the gross margin rate of 28.0% in the current year improved by
5.6 percentage points over the prior year due to a more favorable product mix
and the elimination of manufacturing overhead costs. Gross margin rates may
decrease, however, as the Company seeks to add product lines through
distribution agreements, joint ventures, affiliations with third parties, and
acquisitions. To offset the lower margins the Company has invested in
information systems and has undertaken other reorganization measures to
increase efficiency and lower expenses.
Operating expenses decreased by $30.5 million in 1997 from 1996. The decrease
in expenses were due to: 1) a $12.0 million reduction in selling, general and
administrative expenses which reflects improved efficiencies as the business
transitions to a distribution organization, and the reduction in corporate
expenses; 2) the elimination of foreign operations, which accounted for $12.5
million of the reduction, including a $2.6 million gain on the divestiture of
AM Japan Co., Ltd.; and 3) a reduction of $6.4 million in restructuring charges
as compared with the prior year. Non-operating expenses decreased in 1997 by
$2.6 million due to the elimination in 1997 of borrowings under the revolving
credit agreement, lower interest costs on general unsecured claims, and
interest income which was earned on divestiture proceeds received in 1997 from
the sales of the Sheridan Systems segment and the Company's interest in AM
Japan Co., Ltd. Net income of $0.1 million in 1997 improved by $20.3 million
over 1996 due to improved gross margin rates and lower expenses as described.
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.
COMPARISON OF 1996 TO 1995
The net loss in 1996 of $20.2 million from continuing operations, or $7.19 per
common share, increased by $16.0 million over the $4.2 million loss in 1995.
(The earnings per share amounts in 1996 and 1995 have been restated to give
effect to the one for two and a half share reverse stock split which took place
in 1997.)
In response to a declining demand for manufactured duplicator products and
services, the Company developed a strategic plan in 1995 to transition from
being a manufacturer to becoming a broad based distributor of equipment,
supplies and services to the graphic arts industry. The initial steps to
implement this strategic shift were undertaken in 1996 and included the sale of
the Company's major manufacturing, distribution and administration facility and
subsequent relocation of operations, which remain in the suburban Chicago area.
2
<PAGE> 3
Revenues in 1996 declined $23.4 million from 1995. The decline in revenues
occurred principally in the manufactured offset duplicating press, supply and
service product lines. The decrease was due to a long term decline in market
demand for duplicator products due to inroads from competing printing
technologies. The decrease in market demand has led to an erosion of installed
equipment and consequently lower sales of consumables and services to the
installed base of duplicators. In addition, in 1996 the Company had
significant liquidity problems which led to a reduction in inventory levels
which in turn affected deliveries to customers.
The loss in 1996 was primarily the result of lower revenues, a decrease in the
gross margin rate as the Company shifted mix to lower margin distributed
products, and restructuring charges of $7.0 million to shut down manufacturing
operations, close the corporate offices and exit its unprofitable Canadian
subsidiary. Non-operating expenses increased in 1996 by $2.1 million due
primarily to increased borrowings under the revolving credit agreement. The
net loss of $20.2 million from continuing operations in 1996 increased by $16.0
million over 1995 due to the factors cited above.
LIQUIDITY AND CAPITAL RESOURCES (THREE YEARS ENDED JULY 31, 1997)
The Company's total cash and cash equivalents of $10.4 million as of July 31,
1997 increased by $7.8 million during the fiscal year following decreases in
cash balances of $10.0 million and $8.5 million in 1996 and 1995, respectively.
Operating Activities
In 1997, the Company had a cash outflow of $15.6 million. The 1997 cash
outflow was primarily due to a $10.2 million reduction in trade payables as
extended credit terms were reduced with vendors, and a $14.7 million reduction
in accrued liabilities primarily due to restructuring payments which included
payments for severance, accrued vacation and the settlement of a lease
obligation. A $9.0 million reduction in accounts receivable partially offset
other outflows and was due to improved collection rates, the collection of
receivables from the phased out manufactured machine product line, and a lower
revenue level. Inventories increased $0.3 million in supplies and parts to
improve product availability.
In 1996, the Company had a cash outflow of $3.9 million which improved by $1.0
million over 1995. The net loss of $45.5 million in 1996 was largely offset by
a $26.3 million reduction in the net assets of discontinued operations,
primarily accounts receivable and lease receivables, and reductions in the
accounts receivable and inventories of the continuing business. The inventory
reduction was the result of the phase out of machine manufacturing and general
reductions in stock levels due to liquidity problems.
3
<PAGE> 4
In 1995, the Company's net outflow of $4.9 million was primarily comprised of
net income of $4.6 million, a cash outflow of $15.7 million in discontinued
operations due primarily to a reduction in customer advances on a lower backlog
of orders, and a favorable benefit from operating loss carryforwards of $8.0
million. Fresh Start Reporting rules require recognition of tax expense
although the Company had no requirement to pay U.S. Federal taxes.
Depreciation and amortization of $1.8 million in 1997 decreased by $2.3 million
from 1996. In 1996 an additional $2.0 million was provided against certain
manufacturing assets following the decision to phase out manufacturing.
Depreciation and amortization in 1995 totaled $2.3 million. The Company's
fixed assets consist primarily of leasehold improvements and computer systems.
Investing Activities
In 1997 the Company received net proceeds of $50.6 million from the
divestitures of Sheridan Systems and AM Japan Co., Ltd. In 1996 the Company
received $6.8 million from the disposition of property, primarily from the sale
of the Mt. Prospect, IL manufacturing and headquarters facility. Capital
expenditures of $1.9 million in 1997 were to maintain facilities and to
complete the information systems upgrade. Capital expenditures in 1996 of $9.0
million were primarily to acquire new facilities and upgrade systems equipment.
Capital expenditures of $2.4 million in 1995 were primarily to maintain
operations.
Financing Activities
In 1997, financing activities were a net outflow of $25.5 million as compared
with outflows of $2.7 million and $2.2 million in 1996 and 1995, respectively.
In 1997 the Company repaid its outstanding balance under the revolving credit
agreement of $5.4 million with the proceeds from divestitures. The borrowings
in 1996 were necessitated by operating losses. The Company has made payments
of $5.3 million, $5.1 million and $4.3 million in 1997, 1996 and 1995,
respectively, to resolve unsecured claims and priority tax claims in accordance
with the Reorganization Plan of 1993. In 1997 the Board of Directors declared
a $2.00 per share special dividend to holders of record as of May 13, 1997.
The dividend was paid on May 27, 1997. In 1996 the Company received $4.0
million, primarily from capital lease agreements, which was utilized to fund
leasehold improvements and computer system upgrades. In 1996 discontinued
operations had a $6.7 million outflow which resulted primarily from reductions
in long term debt and capital lease obligations.
4
<PAGE> 5
The Company's primary source of financing is its $10 million three year secured
revolving credit facility which it entered into in May, 1997. The Company
believes that its existing cash reserves and the liquidity provided by the
credit facility are sufficient to finance current operations and support future
growth strategies which may include the acquisitions of other regional dealers
or distributors in the graphics arts industry.
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.
5
<PAGE> 6
Multigraphics, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Months Ended
---------------------------------------------
July 31, 1997 July 31, 1996 July 31, 1995
--------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Machines and Supplies $45,274 $112,118 $129,409
Services 43,387 55,934 62,076
------- -------- --------
Total Revenues 88,661 168,052 191,485
------- -------- --------
Cost of Sales
Machines and Supplies 37,335 94,448 99,460
Services 26,536 35,973 39,292
Total Cost of Sales 63,871 130,421 138,752
Gross Margin 24,790 37,631 52,733
Operating Expenses
Selling, general and administrative 25,616 47,048 55,224
Unusual items, net (income) expense (2,095) 7,032 0
Total Operating Expenses 23,521 54,080 55,224
Operating Income (Loss) 1,269 (16,449) (2,491)
Non-operating income (expense):
Interest income 1,288 169 222
Interest expense (2,574) (3,762) (3,355)
Other, net 120 (212) (53)
Income (loss) from continuing operations
before income taxes 103 (20,254) (5,677)
Income tax expense (benefit) 0 (97) (1,526)
Net income (loss) from continuing
operations 103 (20,157) (4,151)
Net income (loss) from discontinued
operations, net of tax 0 (25,342) 8,764
Net Income (Loss) $103 $(45,499) $ 4,613
Per share of common stock: (a)
Income (loss) from continuing operations $ 0.04 ($7.19) $ (1.48)
Income (loss) from discontinued operation 0.00 (9.04) 3.12
------- -------- --------
Net income (loss) $ 0.04 $ (16.23) $ 1.64
Weighted average shares of common stock and
common stock equivalents outstanding (in
thousands) 2,807 2,803 2,808
</TABLE>
(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
# share reverse stock split which was approved by th shareholders on May
28, 1997.
The Notes to Consolidated Financial Statements are an integral part of these
financial statements.
6
<PAGE> 7
Multigraphics, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $10,376 $2,560
Accounts receivable, net 10,746 19,774
Inventories, net 11,893 11,602
Prepaid expenses and other assets 744 1,069
Net assets held for sale - 7,698
Net assets of discontinued operations - 42,940
-------- -------
Total current assets 33,759 85,643
Property, plant and equipment, net 10,222 10,867
Other assets, net 919 1,452
-------- -------
Total assets $44,900 $97,962
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities of long $6,273 $14,381
Accounts payable 5,217 15,435
Service contract deferred income 11,738 12,924
Payroll related expenses 6,803 13,227
Other current liabilities 9,652 17,956
-------- -------
Total current liabilities 39,683 73,923
Long-term debt 5,245 8,527
Other long-term liabilities 11,872 13,216
-------- -------
Total liabilities 56,800 95,666
======== =======
Commitments and contingencies (Note 5)
Shareholders' equity: (a)
Common stock, $.025 par value; 9.5 million shares authorized;
2,815,337 issued as of July 31, 1997 and 2,803,368 issued
as of July 31, 1996 70 70
Capital in excess of par value 22,162 35,865
Less: treasury stock, at cost, 632 shares as of July 31, - 6
Warrants, 438,000 issued, exercise price of $7.20 as of - 383
Accumulated earnings (deficit) (34,132) (34,234)
Cumulative translation adjustment - 218
-------- --------
Total shareholders' equity (11,900) 2,296
-------- --------
Total liabilities and shareholders' equity $44,900 $97,962
======== ========
</TABLE>
(a) The number of shares authorized and issued and the par value have been
restated to reflect 1 for 2 # share reverse stock split which was
approved by the Company's shareholders on M
The Notes to Consolidated Financial Statements are an integral part of these
financial statement
7
<PAGE> 8
Multigraphics, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Twelve Months Ended
----------------------------------------------------
July 31, 1997 July 31, 1996 July 31, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $103 (45,499) $4,613
Adjustments to reconcile net income to cash flow
from operating activities:
Depreciation of property, plant and equipment 1,836 3,769 1,632
Amortization and writedown of other assets - 407 706
Benefit from operating loss carryforwards - - 8,037
Discontinued operations - 26,284 (15,715)
Net assets held for sale - (2,682) -
Change in assets and liabilities:
Accounts receivable, net 9,028 6,308 (391)
Inventory, net (291) 13,056 2,703
Prepaid expenses and other assets 858 (334) (372)
Accounts payable and accruals (26,132) (2,434) (2,157)
Other, net (1,041) (2,794) (3,950)
------- ------- -------
Cash flow from operating activities (15,639) (3,919) (4,894)
------- ------- -------
Cash Flows from Investing Activities:
Capital expenditures (1,862) (8,990) (2,362)
Proceeds from Divested Operations 50,638 - -
Proceeds from disposition of property 149 6,822 -
Discontinued operations - (1,262) 886
------- ------- -------
Cash flow from investing activities 48,925 (3,430) (1,476)
------- ------- -------
Cash Flows from Financing Activities:
Net borrowings (payments) under revolving
credit facilities (5,430) 5,430 -
Payment of Bankruptcy Claims (5,318) (5,106) (4,312)
Borrowings under capital lease and other
arrangements - 4,041 -
Payments under capital lease
arrangements (642) (358) -
Payment of special dividend (14,080) - -
Discontinued operations - (6,661) 2,133
------- ------- -------
Cash flow from financing activities (25,470) (2,654) (2,179)
------- ------- -------
Increase (decrease) in cash and
cash equivalents 7,816 (10,003) (8,549)
Cash and cash equivalents at beginning of period 2,560 12,563 21,112
------- ------- -------
Cash and cash equivalents at end of period $10,376 $2,560 $12,563
======= ======= =======
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
financial statemen
<PAGE> 9
Multigraphics, Inc.
Consolidated Statement of Shareholders' Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
--------------------------------------- ---------------------------------------
Common Stock Treasury Stock
--------------------------------------- ---------------------------------------
Number Number
of Shares (a) Amount of Shares (a) Amount
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance July 31, 1994 2,800,000 $ 70 448 $ (6)
Net Income
Aggregate effect of current
year translation adjustments
Issuance of new common stock 4,000
Purchase of Treasury Stock 50
--------- ----- -------- --------
Balance at July 31, 1995 2,804,000 70 498 (6)
Net loss
Aggregate effect of current
year translation adjustments
Purchase of Treasury Stock 134
Other, net
--------- ----- -------- --------
Balance at July 31, 1996 2,804,000 70 632 (6)
--------- ----- -------- --------
Net income
Aggregate effect of current
year translation adjustments
Issuance of new common stock 11,969
Retirement of Treasury Stock (632) (632) 6
Expiration of Warrants
Payment of special dividend
Other, net
--------- ----- -------- --------
Balance at July 31, 1997 2,815,337 $ 70 $ - $ -
========= ===== ======== ========
<CAPTION>
---------------------------------------
Warrants
--------------------------------------- Capital in
Number Excess of Accumulated
of Shares (a) Amount Par Value Earnings(Deficit)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance July 31, 1994 438,000 $ 383 $35,547 $ 6,652
Net Income 4,613
Aggregate effect of current
year translation adjustments
Issuance of new common stock 90
Purchase of Treasury Stock
--------- ----- -------- ---------
Balance at July 31, 1995 438,000 383 35,637 11,265
Net loss (45,499)
Aggregate effect of current
year translation adjustments
Purchase of Treasury Stock
Other, net 228
--------- ----- -------- ---------
Balance at July 31, 1996 438,000 383 35,865 (34,234)
--------- ----- -------- ---------
Net income 103
Aggregate effect of current
year translation adjustments
Issuance of new common stock
Retirement of Treasury Stock (6)
Expiration of Warrants (438,000) (383) 383
Payment of special dividend (14,080)
Other, net (1)
--------- ----- -------- ---------
Balance at July 31, 1997 - $ - $ 22,162 $(34,132)
--------- ----- -------- --------
<CAPTION>
Cumulative Total
Translation Shareholder's
Adjustment Equity
--------- ---------
<S> <C> <C>
Balance July 31, 1994 $ 130 $42,776
Net Income 4,613
Aggregate effect of current
year translation adjustments 822 822
Issuance of new common stock 90
Purchase of Treasury Stock -
-------- --------
Balance at July 31, 1995 952 48,301
Net loss (45,499)
Aggregate effect of current
year translation adjustments (734) (734)
Purchase of Treasury Stock -
Other, net 228
-------- --------
Balance at July 31, 1996 218 2,296
-------- --------
Net income 103
Aggregate effect of current
year translation adjustments (218) (218)
Issuance of new common stock -
Retirement of Treasury Stock -
Expiration of Warrants -
Payment of special dividend (14,080)
Other, net (1)
-------- --------
Balance at July 31, 1997 $ - $(11,900)
======== ========
</TABLE>
(a) The number of shares 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 share-
holders on May 28, 1997.
The Notes to Consolidated Financial Statements are an intetral part of these
financial statements.
9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED AND PER SHARE AMOUNTS)
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Multigraphics, Inc. (the "Company"), a Delaware
corporation, distributes an extensive range of equipment, supplies, and
services to the graphics arts industry. The Company has approximately 20,000
customers, including small and mid-size commercial printers, quick print
franchises, in-plant print shops, governmental agencies, and educational
institutions. No individual customer accounts for more than 10% of net
revenue.
The Company's headquarters and primary operations are located in Mt. Prospect,
Illinois. Products are distributed throughout the United States utilizing
eight distribution facilities. To a lesser extent, products are distributed
internationally through independent dealers. The Company employs approximately
365 service technicians throughout the United States to provide technical
service and training.
Basis of Presentation: The Consolidated Financial Statements include the
accounts of Multigraphics, Inc. and its subsidiaries (the "Company"). All
significant intercompany transactions have been eliminated. The Company's
fiscal year end is July 31. All references to years, unless otherwise
indicated, refer to the fiscal year. Certain prior year amounts have been
reclassified to be consistent with current year 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.
Cash Equivalents: The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents. It is the
Company's policy to invest its excess cash in interest bearing deposits with
major banks and institutional money market funds.
Inventories: Inventories are valued at the lower of cost, which includes
material, labor and overhead, determined by the first-in, first out (FIFO)
method, or market.
Properties, Equipment and Depreciation: Properties and Equipment are stated at
cost and are depreciated over estimated useful lives, ranging from 5 to 30
years, primarily on a straight-line basis. The Company adjusts the net book
value to recognize impairments in accordance with "SFAS 121: Accounting for the
Impairment of Long-Lived Assets and Long-Lived assets to be Disposed Of."
Currency Translation: Foreign assets and liabilities have been translated into
United States dollars at current exchange rates as of the balance sheet dates,
and revenues and expenses have been translated at the average exchange rates in
effect during each period. Translation adjustments are reported as a separate
component of Shareholders' Equity. Exchange gains and losses on foreign
currency transactions are included in the Consolidated Statements of Operations
and are not material.
10
<PAGE> 11
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition: Revenue is recognized from sales when a product is
shipped. Amounts billed for service contracts are credited to Service contract
deferred income and recognized as revenues over the term of the contracts. The
Company recognizes warranty and equipment installation expenses at the time a
product is shipped, if applicable. The expense is estimated considering
current warranty policies and historical experience.
Research and Development Expense: Expenses for research and development are
charged to income as incurred. Such expenses were $0 in 1997, $364 in 1996 and
$744 in 1995.
Income Taxes: Income taxes are provided based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards (SFAS) No.
109, " Accounting for Income Taxes." Deferred income taxes are recorded to
reflect the future tax consequences of differences between the tax basis of
assets and liabilities and their financial reporting amounts at each year end.
Income per Common Share: Income per share amounts are based on the weighted
average shares of common stock and common stock equivalents outstanding during
each period, and are adjusted for the reverse stock split discussed in Note 4.
Adoption of New Accounting Pronouncements: In February 1997, Financial
Accounting Standard No. 128 "Earnings Per Share" ("SFAS 128") was issued. SFAS
128 specifies modifications to the calculation of earnings per share from that
currently used by the Company. Under SFAS 128, "basic earnings per share" will
be calculated based upon the weighted average number of shares actually
outstanding, and "diluted earnings per share" will be calculated based upon the
weighted average number of common shares outstanding and other potential common
shares if they are dilutive. SFAS 128 will be adopted for the Company's fiscal
1998 year and all prior periods will be restated. The adoption of SFAS 128
will not change reported earnings per share for the 1997, 1996 or 1995 fiscal
years.
In June 1997, Financial Accounting Standard No. 131 "Disclosures About Segments
of an Enterprise and Related Information" ("SFAS 131") was issued. This
statement establishes standards for reporting financial and descriptive
information about operating segments. Under SFAS 131, information pertaining
to the Company's operating segments will be reported on the basis that is used
internally for evaluating segment performance and making resource allocation
determinations. SFAS 131 will be adopted during the Company's 1998 fiscal year
and required disclosures will be presented for each year included in the
related consolidated financial statements.
11
<PAGE> 12
NOTE 2 - DISCONTINUED OPERATIONS
The results of discontinued business units are included in the consolidated
statements of operations under "discontinued operations." The following table
summarizes key financial data related to the discontinued operations:
<TABLE>
<CAPTION>
Twelve Months Ended
--------------------------------------------------------
July 31, 1997 July 31, 1996 July 31, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ - $ 149,256 $ 318,016
Gross margin - 34,709 86,219
Unusual income - - (4,845)
Operating income (loss) - (6,749) 16,944
Non-operating (income) expense - 2,136 3,212
Allocated interest expense - 581 314
Income tax provision (benefit) applicable
to discontinued businesses - 664 4,654
Income (loss) from operations of discontinued ------------ ------------ -------------
businesses net of taxes - (10,130) 8,764
Loss on sale - (15,212) -
------------ ------------ -------------
Income (loss) from discontinued operati $ - $ (25,342) $ 8,764
============ ============ =============
</TABLE>
In August 1996, the Company completed the sale of substantially all of the
assets and liabilities of the Sheridan Systems division for proceeds of
$50,100. A loss of $15,212 was recorded in the fourth quarter of the Company's
fiscal year ended July 31, 1996 as a result of the transaction, with no
recorded tax benefit.
During fiscal year 1996 the Company completed the exit of its Multigraphics -
International subsidiaries with the sale of its subsidiaries in the
Netherlands, France, and Belgium and the placement of the Company's
Multigraphics UK holding company into an Administration Proceeding. The sale
of the subsidiaries in the Netherlands, France, and Belgium required the
Company to provide consideration of approximately $3,000 in the form of cash
and other assets. No gain or loss was recorded as a result of the exit of the
Multigraphics - International subsidiaries.
The results of operations, net of taxes, and the net assets of Sheridan Systems
and the divested Multigraphics - International operations are presented in the
consolidated financial statements as discontinued operations. Interest expense
pertaining to the Company's Revolving Credit Facility has been allocated based
upon the ratio of the net assets of the discontinued operations to the
consolidated capitalization of the Company. Continuing operations and
discontinued operations reflect the net tax benefit or tax expense generated by
the respective operations, limited, however, by the income tax benefit or tax
expense recognized in the Company's historical financial statements. No
general corporate expenses have been allocated to the discontinued operations.
The results of the discontinued operations are not necessarily indicative of
the results of operations which may have been obtained had the continuing and
discontinued operations been operating independently.
12
<PAGE> 13
The net assets of discontinued operations included in the Consolidated Balance
Sheet at July 31, 1996 amounted to $42,940 and consisted primarily of
receivables, inventory, property and equipment, and intangible assets related
to the discontinued operations, and are net of accounts payable and accrued
liabilities.
The net assets of discontinued operations included in the Consolidated Balance
Sheet at July 31, 1996 is net of approximately $7,000 of liabilities that were
paid from the $50,100 sale proceeds.
13
<PAGE> 14
NOTE 3 - BORROWING ARRANGEMENTS
The Company's short and long-term borrowings are comprised of the following:
<TABLE>
<CAPTION>
July 31, 1997 July 31, 1996
------------- -----------
<S> <C> <C>
Revolving Credit Facility $ - $ 5,430
General Unsecured Claims & Priority Tax
Claims 9,042 13,795
Capital Leases 2,476 3,683
------- -------
Total $11,518 $22,908
======= =======
Classified in the Consolidated Balance Sheet
as follows:
Short-term $ 6,273 $14,381
Long-term 5,245 8,527
------- -------
Total $11,518 $22,908
======= =======
</TABLE>
In May, 1997 the Company entered into a $10,000 three year 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 July 31, 1997 the
calculated borrowing base was approximately $7,100. As security for
utilization of the Revolving Credit Facility, the Company granted a security
interest and general lien upon all of its assets. As of July 31, 1997, there
were no direct borrowings under the Revolving Credit Facility, but the Company
was utilizing $1,750 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. As of July
31, 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 July 31, 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 new Foothill Revolving Credit Facility which, based on current projections,
are adequate to finance current operations.
Through October 12, 1996, the date the facility expired, the Company maintained
a $25,000 three year secured domestic Revolving Credit Facility (subject to
borrowing base limitations) with BT Commercial Corporation and LaSalle National
Bank. The Revolving Credit Facility included a $10,000 sub-facility for the
issuance of letters of credit. As security for the utilization of the
Revolving Credit Facility, the Company granted a security interest and general
lien upon its domestic assets. As of July 31, 1996 the Company had borrowings
of $5,430 under the Revolving Credit Facility and was utilizing $3,347 of the
facility to secure outstanding letters of credit.
In August, 1996 the Company completed the sale of substantially all of the
assets and liabilities of the Sheridan Systems division for gross proceeds of
$50,100. The proceeds of the sale were used in part to pay off all outstanding
borrowings on the Revolving Credit Facility which expired in October, 1996 and
to temporarily cash collateralize approximately $2,300 of outstanding letters
of credit, which expired June 30, 1997.
14
<PAGE> 15
NOTE 3 - BORROWING ARRANGEMENTS (CONTINUED)
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. At July 31, 1997 the
Company had $1,233 of restricted cash which pertains to the settlement of
disputed claims in accordance with the Plan.
As of July 31, 1997, aggregate maturities of total debt, excluding capitalized
leases, are as follows:
<TABLE>
<S> <C>
Due fiscal year ending:
1998 $5,557
1999 2,358
2000 536
2001 84
2002 84
Thereafter 423
</TABLE>
Cash paid for interest was $1,647 during 1997, $2,282 during 1996 and $1,103
during fiscal 1995.
NOTE 4 - CAPITAL STRUCTURE
Prior to May 28, 1997 the Company's charter authorized 50 million shares of
stock, of which 40 million shares were reserved for issuance as Common Stock
and 10 million shares were reserved for issuance as Preferred Stock. The Board
of Directors had authorized the issuance of 7,039,921 shares of $.01 par value
Common Stock. Of these shares, 7,000,000 were issued upon the Company's
emergence from Chapter 11 Bankruptcy on October 13, 1993 (the Effective Date)
to holders of claims and interests pursuant to the Company's Plan of
Reorganization dated September 29, 1993. In addition, the Company issued
Warrants on the Effective Date to purchase 1,095,000 shares of Common Stock.
The Warrants were exercisable at $18.00 per share and expired on October 15,
1996. No warrants were exercised prior to their expiration.
On May 1, 1997 the Board of Directors declared a special dividend of $2.00 per
common share, payable to holders of record as of May 13, 1997. The dividend,
which totaled approximately $14,080, was disbursed on 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 1/2 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. 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-
15
<PAGE> 16
assessable and has no preemptive rights. 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.
NOTE 5 - 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
July 31, 1997 and July 31, 1996, disputed claims amounted to $8,205 and
$31,300, respectively. The disputed claims are primarily comprised of
environmental and product liability claims. Although the vast majority of the
claims filed in the bankruptcy proceedings have been expunged or resolved
within the Company's reserves, a few significant disputed claims remain pending
in the bankruptcy proceeding.
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 in the bankruptcy proceedings and the other legal
proceedings 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.
The Company has sold certain receivables related to machine sales, subject to
recourse provisions and repurchase provisions. Management believes unreserved
exposures pertaining to these contingencies will not materially impact the
Company's financial condition, results of operations or liquidity.
16
<PAGE> 17
NOTE 6 - INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------------------------------------
July 31, 1997 July 31, 1996 July 31, 1995
------------- ------------- -------------
<S> <C> <C> <C>
The domestic and foreign components of
income (loss) from continuing operations
are as follows:
Domestic $ 366 $ (18,857) $ (5,302)
Foreign (263) (1,397) (375)
----------- ------------- ------------
$ 103 $ (20,254) (5,677)
Provision (benefit) for income taxes
for continuing operations:
Domestic $ - $ - $ (1,744)
Foreign - (97) 218
----------- ------------- ------------
$ - $ (97) $ (1,526)
=========== ============= ============
A reconciliation of the income tax expense
(benefit) on income (loss) per the U.S.
federal statutory rate to the reported
income tax expense (benefit) follows:
US Federal statutory rate applied to pretax
income (loss) $ 35 $ (6,886) $ (1,930)
Intangibles with no tax benefit - 138 240
Operating loss with no current tax benefit
and varying tax rates of other national
governments 89 6,597 130
Permanent tax differences (124) 54 34
----------- ------------- ------------
Income tax expense (recovery) $ - $ (97) $ (1,526)
=========== ============= ============
</TABLE>
17
<PAGE> 18
NOTE 6 - INCOME TAXES (CONTINUED)
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standard (SFAS) No. 109. At July 31, 1997 and July 31, 1996 the
approximate amounts of deferred tax assets and deferred tax liabilities
resulting from temporary differences and carryforwards were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred Tax Assets
Inventory valuation $ 1,100 $ 3,600
Insurance reserves 4,700 6,400
Other 6,100 10,700
-------- --------
Subtotal 11,900 20,700
Domestic tax operating loss carryforwards
limited by Sec 382. 21,000 21,000
Domestic tax operating loss carryforwards 56,700 49,800
Foreign tax operating loss carryforwards - 2,700
AMT credit carryforward 1,800 1,800
-------- --------
Deferred Tax assets 91,400 96,000
Valuation allowance (91,400) (96,000)
-------- --------
Net deferred tax asset $ - $ -
======== ========
</TABLE>
The Sec. 382 ownership change which resulted from the 1993 bankruptcy
reorganization imposed a limitation on the usage of pre-reorganization domestic
tax operating loss carryforwards. Usage of this loss carryforward is limited
to $3,689 per year or $55,335 for a period of 15 years following the ownership
change. In addition, as of July 31, 1997 the Company had domestic tax loss
carryforwards of approximately $149,000 attributable to post-reorganization
periods and therefore not subject to limitation. The domestic tax loss
carryforwards will expire from 1998 to 2012. The AMT credit, although subject
to the Sec. 382 limitation, has no expiration date.
During 1997, the deferred tax asset decreased by $4,600 primarily due to
decreases in the Company's reserve balances. Due to the uncertainty as to the
realizability of the deferred tax assets, the Company has established valuation
allowances in accordance with SFAS No. 109 to offset the asset.
To the extent the Company realizes a tax benefit as a result of future
reductions in the valuation allowance related to the utilization of
pre-reorganization deferred tax assets, fresh start accounting rules provide
for the reporting of such benefit by increasing Capital in excess of par value.
Although the future recognition of this benefit will have no impact on net
earnings, the Company will realize a cash benefit from utilization of the
"Pre-Reorganization Benefits" against any future tax liabilities.
18
<PAGE> 19
NOTE 7 - DEFERRED COMPENSATION
Restated for the reverse stock split discussed in Note 4, as of July 31, 1997,
the Company's 1994 Long Term Incentive Plan provides for the issuance of
560,000 shares of $.025 par value 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 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. In the
event a holder of options is no longer employed by the Company, the unvested
shares are canceled upon the employee's termination and any vested shares must
be exercised within 90 days or they are also canceled.
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------------
Exercise Price Exercise Price
Number of Range Number of Range
Shares Per Share Shares Per Share
--------- --------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at the Beginning of the 202,460 $ 6.250-8.660 239,366 $ 6.250-8.660
Granted 179,150 $ 2.1875-2.4375 36,494 $ 1.521-5.803
Exercised (11,969)* $ 3.000 0 $ 0
Canceled (75,992) $ 4.6426-6.875 (73,400) $ 1.521-8.660
-------- --------------- ------- -------------
Outstanding at the End of the Period 293,649 $ 2.1875-8.660 202,460 $ 6.250-8.660
======== =============== ======= =============
Exercisable at the End of the Period 87,039 $ 2.1875-8.660 82,240 $ 6.250-8.660
-------- --------------- ------- -------------
</TABLE>
* All 11,969 shares were issued as share awards and not as options under the
Company's 1995 Executive Incentive Compensation Plan.
As permitted under Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation," the Company has elected to
follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"), in accounting for stock-based awards to employees.
Under APB No. 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized in the Company's financial statements for
all periods presented.
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123. This information is required to be determined as if the
Company had accounted for its employee stock options granted subsequent to July
31, 1995 under the fair value method of that statement. The fair value of
options granted in fiscal years 1997 and 1996 reported below has been estimated
at the date of grant using the following weighted average assumptions:
1997 1996
---- ----
Risk-free rate (%) 5.85 5.96
Volatility (%) 25.0 30.0
Expected Life (in years) 5.0 5.0
Dividend Yield (%) 0.00 0.00
19
<PAGE> 20
NOTE 7 - DEFERRED COMPENSATION (CONTINUED)
Option valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because the Company's options
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in the opinion of management, the existing models do not
necessarily provide a reliable single measure of the fair value of its
options. The weighted average estimated fair value of stock options granted
through July 31, 1997 and 1996 was $1.72 and $2.38 per share, respectively.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Pro Forma Net Income:
Net income (loss) from continuing operations $94 $(20,159)
Net income (loss) from discontinued operations 0 (25,351)
--- -------
Net Income (loss) $94 $(45,510)
Pro Forma Per Share Data:
Net income (loss) from continuing operations $0.03 $(7.19)
Net income (loss) from discontinued operations 0.00 (9.04)
----- ------
Net Income (loss) $0.03 $(16.23)
</TABLE>
Because the Company anticipates making additional grants and options vest over
several years, the effects on pro forma disclosures of applying SFAS No. 123
are not likely to be representative of the effects on pro forma disclosures of
future years. SFAS No. 123 is applicable only to options granted subsequent to
July 31, 1995.
20
<PAGE> 21
NOTE 8 - UNUSUAL ITEMS
On September 20, 1996 the Company completed the sale of its 2,148,000 shares of
AM Japan Co., Ltd. ("AM Japan") and received proceeds of approximately $10,600,
net of certain costs. At July 31, 1996, the Company's investment in AM Japan
amounted to $7,698 and was reflected as "Net assets held for sale" in the
Consolidated Balance Sheet. This amount consisted primarily of accounts
receivable, inventory, property and equipment, and intangible assets, net of
accounts payable and accrued liabilities. 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.
On October 17, 1996, the Company's Canadian subsidiary filed for voluntary
assignment in bankruptcy. Reserves for the cost to exit Canada, which had been
established in the fiscal year ended July 31, 1996, were adequate and no
additional costs were recognized.
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
responsibilities 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.
During 1996, the Company had provided $7,032 to cover certain restructuring
actions to be carried out in 1997. These restructuring actions consisted of:
1) $2,845 of severance and benefits associated with the termination of seven
employees, including three officers, in conjunction with approved plans to
close the corporate office and consolidate certain functions of the Company, 2)
$3,561 to write-off net assets of the Company's Canadian subsidiary in
connection with plans to exit this operation, and 3) $626 of facility closure,
equipment disposal, and severance costs associated with management's plans to
exit its manufacturing business. These actions were substantially concluded in
1997.
21
<PAGE> 22
NOTE 9 - BALANCE SHEET ACCOUNTS
The components of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
July 31, 1997 July 31, 1996
<S> <C>
Accounts receivable:
Accounts receivable $11,080 $20,596
Allowance for doubtful accounts (334) (822)
------- -------
Accounts receivable, net $10,746 $19,774
Inventories:
Raw materials and Work in Process $225 $4,366
Finished goods 11,668 7,236
------- -------
Inventories, net $11,893 $11,602
Property, plant and equipment
Land & Buildings $0 $0
Machinery and equipment 14,196 13,240
Leasehold improvements 3,103 3,026
17,299 16,266
------- -------
Less accumulated depreciation and amorti (7,077) (5,399)
------- -------
Property, plant and equipment, net $10,222 $10,867
======= =======
</TABLE>
22
<PAGE> 23
NOTE 10 - RETIREMENT BENEFIT PLANS
The Company maintains defined contribution retirement plans for domestic
employees comprised of a savings plan (401(k)) and a profit sharing plan
(Retirement Accumulation Plan). Contributions to these plans take the form of
(i) Company contributions to match a portion of employee contribution and (ii)
contributions made at the discretion of the Board of Directors. The Company's
contributions to the domestic defined contribution plans were $1,273, $1,317,
and $1,778 in 1997, 1996 and 1995 respectively.
The Company also maintained a defined benefit pension plan for certain U.S.
employees. During 1997, the Company settled all of its obligations under this
plan. The net periodic pension costs for this plan were $0, $308, and $291 in
1997, 1996, and 1995, respectively.
In addition, the Company provides limited life insurance and health care
benefits to certain domestic retired employees and provides for certain medical
and life insurance benefits for retirees of previously closed manufacturing
locations.
Net post-retirement life and health care cost includes the following
components:
<TABLE>
<CAPTION>
Twelve Months Ended
--------------------------------------------------------
July 31, 1997 July 31, 1997 July 31, 1995
----------------- --------------- -----------------
<S> <C> <C> <C>
Service Cost - benefits earned during the period $ 3 $ 5 $ 5
Interest cost on accumulated post-retirement
benefit obligation 622 843 846
Amortization of unrecognized acturial gain (304) - -
------------ ------------ ----------
Total life and health care costs $ 321 $ 848 $ 851
============ ============ ==========
</TABLE>
The plans funded status at July 31, was as follows:
<TABLE>
<CAPTION>
1997 1996
------------- --------------
<S> <C> <C>
Actuarial present value of benefit obligations-
Retirees $ 8,348 $ 9,617
Fully eligible active participants 224 294
-------- ---------
Accumulated postretirement benefit obligation 8,572 9,911
Cumulative unrecognized actuarial gain 1,157 253
Plan assets - -
-------- ---------
Accured post-retirement life and health care costs $ 9,729 $ 10,164
======== =========
</TABLE>
Assumptions used for the Company's retiree life and health care plans as of July
31, were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- -----------
<S> <C> <C>
Discount rate for determining obligations and
interest cost 7.25% 8.00%
</TABLE>
If the health care cost trend rates were increased 1% for all future years, the
accumulated post-retirement benefit obligation would have increased 2.9% at
July 31, 1997. The effect of this change on the aggregate of service and
interest costs would have been an increase of 2.6% for 1997. An 11% increase
in the health care cost trend rate was assumed for retirees under age 65 and an
9.0% increase for those over the age of 65. These rates are assumed to
decrease gradually to 5.5% in the year 2001.
23
<PAGE> 24
NOTE 11 - LEASE TRANSACTIONS
The Company leases certain real and personal property and is responsible for
most maintenance, insurance and tax expenses related to leased facilities. At
July 31, 1997, the future lease payments for continuing operating leases are as
follows:
1998 $ 1,542
1999 1,261
2000 1,169
2001 1,036
2002 1,015
2003 and thereafter 3,113
-------
Total future operating lease payments $ 9,136
=======
Rental expenses for all operating leases were $2,741, $5,184 and $2,437 in
1997, 1996 and 1995, respectively.
NOTE 12 - GEOGRAPHIC SEGMENTS
The Company is a distributor of equipment, supplies and services to the
graphics arts industry. Its only current operations are in the United States.
The Company distributes on a lesser scale internationally through foreign
dealers. In September 1996, the Company sold all of its interest in its AM
Japan subsidiary.
<TABLE>
<CAPTION>
Twelve Months Ended
-----------------------------------------------
July 31, 1997 July 31, 1996 July 31, 1995
--------------- --------------- -------------
<S> <C> <C> <C>
Revenues
North America $ 87,510 $ 137,981 $ 157,440
Japan 1,151 30,071 34,045
Total $ 88,661 $ 168,052 $ 191,485
======== ========= =========
Operating Profit (Loss)
North America $ 1,609 $ (16,007) $ (3,402)
Japan (340) (442) 911
-------- --------- ---------
Total $ 1,269 $ (16,449) $ (2,491)
======== ========= =========
Assets
North America $ 44,900 $ 47,324 $ 81,487
Japan - 7,698 20,284
-------- --------- ---------
Total $ 44,900 $ 55,022 $ 101,771
======== ========= =========
</TABLE>
24
<PAGE> 25
NOTE 13 - QUARTERLY FINANCIAL INFORMATION - (UNAUDITED)
A summary of quarterly financial information for fiscal 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
Quarter
--------------------------------------------------------------------------
1997 1st 2nd 3rd 4th Total Year
- --------- ----- ----- ----- ----- ------------
<S> <C> <C> <C> <C> <C>
Revenues $27,699 $20,767 $20,869 $19,326 $88,661
Gross Profit 7,246 5,558 6,277 5,709 24,790
Net income (loss) from continuing
operations 519 (857) 268 173 103
Net income (loss) from discontinued
operations -- -- -- -- --
------- ------ ------ ------ -------
Net income (loss) $ 519 ($857) $ 268 $ 173 $ 103
======= ====== ====== ====== ======
Per Common Share (1):
Net income (loss) from continuing
operations $ 0.19 ($0.31) $ 0.10 $ 0.06 $ 0.04
Net income (loss) from discontinued
operations -- -- -- -- --
------- ------ ------ ------ ------
Total $ 0.19 ($0.31) $ 0.10 $ 0.06 $ 0.04
======= ====== ====== ====== ======
Closing Market Price (2)
High $ 1.700 $1.850 $1.500 $2.500 $2.500
Low $ 0.550 $1.500 $1.100 $1.500 $0.550
<CAPTION>
Quarter
--------------------------------------------------------------------------
1996 1st 2nd 3rd 4th Total Year
------ ----- ----- ------ ----------
<S> <C> <C> <C> <C> <C>
Revenues $42,994 $40,886 $44,340 $39,832 $168,052
Gross Profit 10,889 9,400 11,321 6,021 37,631
Net income (loss) from continuing
operations (3,460) (4,329) 2,493 (14,861) (20,157)
Net income (loss) from discontinued
operations (310) (4,401) (1,163) (19,468) (25,342)
------- ------- -------- -------- --------
Net income (loss) ($3,770) ($8,730) $ 1,330 $(34,329) $(45,499)
======= ======= ======= ======== ========
Per Common Share (1):
Net income (loss) from continuing
operations ($1.23) ($1.54) $ 0.89 $ (5.30) $ (7.19)
Net income (loss) from discontinued
operations (0.11) (1.57) (0.42) (6.94) (9.04)
------- ------ ------- -------- --------
Total ($1.34) ($3.11) $ 0.47 $ (12.24) $ (16.23)
======= ====== ======= ======== ========
Closing Market Price (2)
High $3.350 $3.000 $ 1.875 $ 1.225 $ 3.350
Low $2.900 $1.875 $ 0.750 $ .750 $ .750
</TABLE>
(1) Sum of quarters may not equal the total for the year due to changes in the
number of shares outstanding during the
(2) The Company's common stock is traded on the American Stock Exchange under
the ticker symbol "MTI". Market price ha restated to reflect the effect
of the 1 for 2 1/2 share reverse stock split approved by the Company's
shareholders
25
<PAGE> 26
NOTE 14 - FIVE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Years Ended Sept. 30 1993 Aug. 1 1993 Year
------------------------------------------ Through Through Ended
Operations: July 31, 1997 July 31, 1994 July 31, 1995 July 31, 1994 Sept. 29, 1993 July 31, 1993
------------ ------------- ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $88.7 $168.1 $191.5 $163.8 $ 26.5 $195.7
Gross profit 24.8 37.6 52.7 51.4 7.0 57.0
as a percent of revenues 28.0% 22.4% 27.5% 31.4% 26.4% 29.1%
Unusual items (inc.) exp. (2.1) 7.0 -- -- -- 37.6
Operating income (loss) 1.3 (16.4) (2.5) 6.8 (2.0) (34.3)
as a percent of revenues 1.5% -9.8% -1.3% 4.2% -(7.5)% -(17.5)%
Net income (loss) from
continuing operations 0.1 (20.2) (4.2) 2.1 21.8 (43.8)
Income (loss) from
discontinued operations 0.0 (25.3) 8.8 4.6 (27.8) (81.9)
Extraordinary gain 0.0 0.0 0.0 58.7 0.0
Net income (loss) $0.1 ($45.5) $4.6 $6.7 $ 52.7 ($125.7)
Capital Employed
Working Capital (5.9) (38.9) 61.5 8.7 (17.6) 5.6
Total Assets 44.9 98.0 163.1 169.2 164.4 175.4
Long-Term Debt 5.2 8.5 14.9 19.4 25.5 129.0
Shareholder's Equity (11.9) 2.3 48.3 42.8 36.0 (49.7)
Per Common Share
Net income (loss) from
continuing operations $ 0.04 ($7.19) ($1.48) $0.75 N/A N/A
Market Price - High (1) (3) $2.500 $3.350 $4.900 $4.750 N/A N/A
Low (1) $0.550 $0.750 $3.250 $3.500 N/A N/A
Average number of common shares
and equivalents (in thousands) (2) 2,807 2,803 2,808 2,802 N/A N/A
Number of Employees at Year End 651 1,121 1,378 1,520 1,633 1,662
</TABLE>
(1) Trading of Reorganized Company Stock commenced on December 6, 1993.
(2) The weighted average number of common shares 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 net income per common share and average number of common
shares and equivalents for the predecessor Company has not been presented
as this information is not comparable.
(3) Trading of predecessor Company Common Stock and Preferred Stock was
suspended on May 21, 1993. Periods prior to this date are not presented as
they are not comparable.
26
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the
Board of Directors of
Multigraphics, Inc.
We have audited the accompanying consolidated balance sheets of Multigraphics,
Inc. as of July 31, 1997 and 1996 and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended July 31, 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 audit.
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, the financial statements referred to above present fairly, in
all material respects, the financial position of Multigraphics, Inc. as of July
31, 1997 and 1996 and the results of their operations and cash flows for each
of the three years in the period ended July 31, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
September 19, 1997
Chicago, Illinois
27
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS WITH
RESPECT TO FORM S-8
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Registrant's previously filed
Registration Statement (Registration No. 33-87288) on Form S-8.
Chicago, Illinois
October 20, 1997
ARTHUR ANDERSEN LLP
1
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Thomas D. Rooney, Steven R. Andrews and
Gregory T. Knipp, and each of them, his true and lawful attorney-in-fact and
agent with full power of substitution, for him and in his name, place and stead
in any and all capacities, to sign the Report on Form 10-K and all amendments
thereto, and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them full power and
authority to do and perform each and every act and thing requisite and
necessary to be done to comply with the provisions of the Securities Exchange
Act of 1934, as amended, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on October 20, 1997 by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/Jeff M. Moore Chairman of the Board and Director
- ----------------
Jeff M. Moore
/s/Thomas D. Rooney President, Chief Executive Officer and
- -------------------
Thomas D. Rooney Director
/s/Robert E. Anderson III Director
- -------------------------
Robert E. Anderson III
/s/Jeffrey D. Benjamin Director
- -------------------------
Jeffrey D. Benjamin
/s/Robert N. Dangremond Director
- -------------------------
Robert N. Dangremond
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 10,376
<SECURITIES> 0
<RECEIVABLES> 11,080
<ALLOWANCES> (334)
<INVENTORY> 11,893
<CURRENT-ASSETS> 33,759
<PP&E> 17,299
<DEPRECIATION> (7,077)
<TOTAL-ASSETS> 44,900
<CURRENT-LIABILITIES> 39,683
<BONDS> 0
0
0
<COMMON> 70
<OTHER-SE> (11,970)
<TOTAL-LIABILITY-AND-EQUITY> 44,900
<SALES> 88,661
<TOTAL-REVENUES> 88,661
<CGS> 63,871
<TOTAL-COSTS> 87,392
<OTHER-EXPENSES> (120)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,286
<INCOME-PRETAX> 103
<INCOME-TAX> 0
<INCOME-CONTINUING> 103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
