<PAGE>
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, 1998
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 Identification No.)
431 Lakeview Court
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:
Name of each exchange on
Title of each class which registered
Common Stock, $0.025 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.[X]
The aggregate market value of voting stock held by
nonaffiliates of the Registrant as of October 21, 1998:
Common Stock, $0.025 par value: $8.0 million
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
<PAGE>
Indicate the number of shares outstanding of the
Registrant's classes of common stock as of October 21, 1998:
2,828,960 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 the fiscal
year ended July 31, 1998 (the "1998 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 December 3, 1998 (the "1998
Proxy Statement") are incorporated by reference into Part III.
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 an extensive range of
equipment and supplies and a service provider to the U.S. graphic
arts industry. Registrant has completed its transition from a
manufacturer of offset duplicating machines to focus solely on
distribution of equipment and supplies and providing service to the
graphic arts industry. The Registrant sells a variety of equipment,
systems and supplies under the Multigraphics brand name and
increasingly is selling products carrying the applicable
manufacturers' brand names.
Since December of 1997, the Company has acquired four
regional graphic arts dealers as part of its strategy of expanding
its target customer base in the in-plant and smaller to mid-size
commercial printing market segments. The acquisitions have broadened
the Company's product-line, service capabilities and opportunities.
In the last thirty-six 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.
<PAGE>
The disposition of the AM Multigraphics - International
business segment took place in stages, as Registrant 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.
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 stockholders 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.
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.
4. Corporate Structure of Registrant.
<PAGE>
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. As noted above, Registrant changed its name from
"AM International, Inc." to "Multigraphics, Inc." on May 28, 1997.
Registrant has one active subsidiary, Publishing Solutions Inc.
(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 13 to the "Notes to Consolidated Financial
Statements" under the section entitled "Geographic Segments"
contained in the 1998 Annual Report are incorporated herein by
reference.
(c) Narrative Description of Business.
Registrant is a distributor of equipment and supplies and a
service provider to the graphic arts industry, and has exited the
engineering and manufacturing of offset duplicating equipment and
supplies to focus exclusively on one business segment, distributing
equipment and supplies, and providing parts and service, to in-plant,
franchise, and commercial printers. The Registrant's strategy is to
achieve growth within the graphic arts market by expanding its
product offerings, enhancing its digital support capabilities, taking
advantage of its unique national service capabilities and increasing
market penetration and coverage through a program of acquisitions of
regional dealers that compete in the fragmented graphic arts market.
Since December 1997, Registrant has acquired four regional
graphic arts dealers which serve the same general customer base as
the Registrant. In December, Registrant acquired certain assets of
Hanley Graphic Products Company, a graphic arts dealer operating in
northern Illinois with annual revenues of over $18 million. In
December, Registrant also acquired the stock of Publishing Solutions
Inc., a privately held Akron, Ohio based systems integrator with
annual revenues of approximately $9 million. In June 1998, the
Company acquired certain assets of Chicago based Progressive
Lithoplate and Supply Company, which had annual revenues of
approximately $5 million. In September of 1998, the Company acquired
certain assets of Texas PrePress Systems, Inc., an Austin, Texas
based prepress systems integrator with revenues of approximately $2
million.
The acquisitions complement the Registrant's internal
efforts to expand its product offerings, and bring enhanced digital
sales and support capabilities, as well as an expanded customer base
in the Registrant's key markets. In addition, the Company has
undertaken a marketing program focusing on obtaining national service
accounts with manufacturers and national retail outlets.
<PAGE>
In the last three years, 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 670 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 graphic
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 and supplies and
providing 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. The Company has
licensed the rights to manufacture certain of its offset duplicator
products, and therefore has available to it and its customers a
continuing supply of offset duplicator products.
<PAGE>
The Company's supplies and equipment offerings consist 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 imagesetters,
platesetters, presses, folders and cutters. The Registrant tracks
various categories of these products, none of which accounts for more
than 10% of its revenues.
The Company's service and parts offerings include service
on over 250 models of printing equipment installed in in-plant and
small to medium sized commercial print shops, governmental and
educational institutions, as well as national retail outlets. The
Company has 342 service representatives, and offers service
capabilities in all 50 states.
The following table sets forth the breakdown of revenues
among machines, supplies and services in the United States, Canada
and Japan for fiscal 1998, 1997 and 1996:
<TABLE>
1998 1997 1996
<S> <C> <C> <C>
UNITED STATES
Machines $12,989 $ 9,407 $ 39,598
Supplies 41,189 34,440 40,921
Services 41,073 42,618 47,511
95,251 86,465 128,030
CANADA
Machines - 220 4,352
Supplies - 363 2,312
Services - 462 3,287
- 1,045 9,951
JAPAN
Machines - 292 13,574
Supplies - 552 11,361
Services - 307 5,136
- 1,151 30,071
TOTAL $95,251 $88,661 $168,052
</TABLE>
Registrant also distributes products through approximately
51 independent dealers selling in approximately 46 countries.
The principal distribution and service 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, and its service customers
also include manufacturers and national retail accounts. Registrant
has approximately 20,000 customers. No customer accounts for more
than 10% of Registrant's revenues.
5. Competition and Competitive Conditions.
<PAGE>
The Company operates in a highly competitive market in
which price, delivery and customer service are key factors.
Historically, the Registrant developed its customer base of in-plant,
quick print and small to medium size commercial printers, and
governmental and educational institutions through the sale of its
proprietary small offset duplicator presses. Because the market for
such presses is mature and continues to face competition from
alternative technologies, the Company has had to refocus its
marketing approach to emphasize its distribution and service
capabilities in continuing to serve its market segments.
As described above, the Company has completed its exit from
the manufacture of offset duplicators and has divested certain
unprofitable businesses and product lines. These cost reduction
efforts have contributed to the Company's return to profitability,
and the Company has developed strategies for achieving growth in its
traditional markets by expanding its product offerings, enhancing its
digital support capabilities, taking advantage of its unique national
service organization, and by acquiring regional dealers that serve
the same general customer base. The Company has initiated internal
sales and marketing programs which have offset the decline in its
supplies distribution operations, and has recently acquired four
regional dealers to expand its product offerings, digital
capabilities and customer base. The Company has also undertaken a
marketing program to reverse the long-term decline in its service
operations by focusing on manufacturers, franchise accounts and
national retail operations which prefer national service
capabilities.
Gross margins have decreased as the Company has ceased its
manufacturing operations and switched to product lines obtained
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.
These cost reduction efforts continue. The Company has also
undertaken marketing efforts to increase both its distribution
customer base and its higher margin service revenues.
The competitive market is also one of heavy regional
competition, with hundreds of regional dealers. A consolidation of
dealers, distributors and suppliers is occurring, resulting in a
consolidation of buying power and distribution cost efficiencies.
The Registrant's investments in information systems, distribution
outlets and other capabilities, its marketing efforts to expand its
business opportunities with existing customers, its leveraging of its
national service capabilities, and the addition of new customers and
capabilities through acquisitions, are intended to increase the
Company's profitability by increasing revenues without incurring
proportionate increases in expense levels. Registrant believes that
its renewed focus on its traditional customer base, the expansion of
its product lines, and its strategy to make acquisitions in the
graphic arts industry provide a sound basis for continued growth.
6. Cyclical Nature of Business and Liquidity.
<PAGE>
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 1999
fiscal year.
7. Research and Development; Patents and Trademarks.
Although Registrant actively seeks new marketing
opportunities, Registrant's research, development and engineering
expenditures ceased when the Company exited manufacturing of
products.
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 Registrant's distribution capabilities; and, (3) the sale
of its former Mount Prospect, Illinois facility. The Mt. Prospect
and Arlington Heights facilities are leased until 2005 and are the
Registrant's principal facilities.
Registrant leases 16 additional distribution, sales and
service facilities throughout the United States with total square
footage of 94,600. 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
<PAGE>
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.
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 21, 1998, 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 51 President and Chief Executive
Officer 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 45 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.
Positions and Offices Held and
Principal Occupations or Employment
<PAGE>
Name Age During the Past Five Years
Mark F. Duchesne 41 Vice President, Distribution
Operations since May 27, 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 Products Business
Unit of AM Graphics in Dayton, OH.
Donald W. Hanigan 60 Vice President of Registrant and
President, Hanley Graphic Products
Division since December 11, 1997.
Prior to that, Mr. Hanigan was CEO
and President of Hanley Graphic
Products Company, a privately held
graphic arts dealer based in
Itasca, Illinois.
Gregory T. Knipp 43 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.
Raymond T. Leach 32 Vice President since December 18,
1997 and President, Publishing
Solutions Inc. since July, 1988,
when Mr. Leach and Mr. Stewart
founded Publishing Solutions. Mr.
Leach is primarily responsible for
Publishing Solutions' national
electronic sales and product
research.
<PAGE>
Positions and Offices Held and
Principal Occupations or Employment
Name Age During the Past Five Years
Charles T. Richards 54 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.
Keith E. Stewart 32 Vice President since December 18,
1997 and CEO, Publishing Solutions
Inc. since July 1988, when
Mr. Stewart and Mr. Leach founded
Publishing Solutions. Mr. Stewart
is primarily responsible for
management of Publishing Solutions'
general operations and its national
electronic services.
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."
<PAGE>
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 were made 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.
On October 20, 1998, the Registrant's Board of Directors
adopted the 1998 Stock Incentive Plan for Directors, which is
intended to align the interests of the Registrant's stockholders and
non-employee directors by increasing the proprietary interests of
non-employee directors in the Registrant's growth and success, and to
enable the Company to attract and retain non-employee directors. A
total of 140,000 Common Stock shares are available under the plan for
option grants and other stock incentives for the Registrant's non-
employee directors.
For information regarding quarterly stock prices for the
Common Stock, see Note 14 to the "Notes to Consolidated Financial
Statements" in Registrant's 1998 Annual Report, incorporated herein
by reference.
(b) Holders.
As of October 21, 1998, Registrant had approximately 1000
stockholders of record.
(c) Dividends.
On May 27, 1997, Registrant paid a special dividend of
$2.00 per share to holders of record as of 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 1998
Annual Report, incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
<PAGE>
The information in the section entitled "Five Year
Financial Summary" contained in the 1998 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 1998 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 1998
Annual Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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 1998 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 1998
Proxy Statement which 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 1998 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 1998 Proxy Statement, which is
incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(1) Financial Statements.
The "Consolidated Financial Statements" including the Notes
thereto and the Report of Arthur Andersen LLP dated
September 25, 1998 included in the 1998 Annual Report are
incorporated herein by reference.
(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 1998 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.
Schedule Page
No. No.
Valuation and
Qualifying Accounts II 17
(3) Exhibits.
Reference is made to the separate exhibit index contained
on page 19 hereof.
(b) Reports on Form 8-K
None.
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 27, 1998
MULTIGRAPHICS, INC.
(Registrant)
By /s/Thomas D. Rooney
Thomas D. Rooney, President and
Chief Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed on October 27, 1998 by the
following persons on behalf of the Registrant and in the capacities
indicated.
Signature Title
/s/Jeff M. Moore Chairman of the Board
Jeff Moore and Director
/s/Thomas D. Rooney President, Chief Executive
Thomas D. Rooney Officer and Director
/s/Gregory T. Knipp Chief Financial Officer
Gregory T. Knipp (principal accounting &
financial officer)
/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>
SCHEDULE II
MULTIGRAPHICS, INC.
VALUATION & QUALIFYING ACCOUNT
FOR THE THREE YEARS ENDED JULY 31, 1998
(Dollars in Thousands)
Accounts
Receivable
Reserves
<S> <C>
Balance July 31, 1995 $ 1,312
Additions Charged to Cost & Expenses 193
Reclassification to Assets Held for Sale (171)
Deductions from Reserve (512)
Balance July 31, 1996 822
Additions Charged to Cost & Expenses 150
Deductions from Reserve (637)
Balance July 31, 1997 335
Additions Charged to Cost & Expenses 175
Deductions From Reserve (210)
Balance July 31, 1998 $ 300
</TABLE>
<PAGE>
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 25, 1998. 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 re-
lation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
September 25, 1998
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 (incorporated by reference to Exhibit 3(D) to
Registrant's Form 10-K for the year ended July 31, 1997,
filed with the Commission October 22, 1997).
10 Material Contracts
(A)AM International, Inc. 401(k) Employees' Savings and
Investment Plan, Amendment 1995-1.* **
(B)Multigraphics, Inc. Executive Incentive Compensation
Plan Fiscal Year 1999.**
(C)AM International, Inc. Retirement Accumulation Plan.*
**
<PAGE>
(D)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).**
(E)Change-In-Control and Termination Benefits Agreements
dated July 7, 1995 between Registrant and Messrs.
Andrews 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.**
(F)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).**
(G)Engagement Letter dated January 27, 1994 between
Registrant and Jay Alix & Associates (incorporated by
reference to Exhibit 10(B) to Registrant's Annual Report
on Form 10-K for the year ended July 31, 1994, filed
with the Commission on October 27, 1994).**
(H)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).**
(I)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).*
(J)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).**
(K)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).**
(L)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).**
(M)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).**
(N)Letter Agreement dated as of March 3, 1997 between
Registrant and Steven R. Andrews, filed as Exhibit 10(T)
to Registrant's Report on Form 10-K for the year ended
July 31, 1997, filed with the Commission on October 22,
1997.**
<PAGE>
(O)Letter Agreement dated April 10, 1997 between Registrant
and Thomas D. Rooney, filed as Exhibit 10(U) to
Registrant's Report on Form 10-K for the year ended
July 31, 1997, filed with the Commission on October 22,
1997.**
(P)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).**
(Q)Amended and Restated Loan and Security Agreement dated
as of February 19, 1998 between Registrant, Publishing
Solutions Inc. and Foothill Capital Corporation
(incorporated by reference to Exhibit 10(.1) to
Registrant's Report on Form 10-Q filed with the
Commission on March 17, 1998).
(R)Amendment to Registrant's 1994 Long Term Incentive Plan
dated May 1, 1997 (incorporated by reference to Exhibit
10(X) to Registrant's Report Form 10K for the year ended
July 31, 1997 field with the commission on October 22,
1997).**
(S)Employment Agreements between Registrant and Donald W.
Hanigan, Keith E. Stewart and Raymond T. Leach,
respectively (incorporated by reference to Exhibit 10.2
to Registrant's Report on Form 10-Q filed with the
commission on March 17, 1998).**
(T)First Amendment to Amended and Restated Loan Agreement
between Registrant, Publishing Solutions Inc. and Foothill
Capital Corporation dated as of July 30, 1998.
13 Annual Report to Stockholders for the year ended July 31,
1998.
23 Consent of Arthur Andersen LLP
24 Powers of Attorney
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.
<PAGE>
<PAGE>
EXHIBIT 10B
MULTIGRAPHICS, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FISCAL YEAR 1999
I. PLAN OBJECTIVES
A. To provide competitive levels of compensation to enable
Multigraphics, 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 Compensation and Management
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.
Categories of participants will be established with target and
maximum award potential as follows:
Category Threshold Target Maximum
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%
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: identification
and achievement of an average transaction cost index 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 FY99, both financial and operational, are shown
on Attachment A.
<PAGE>
V. TARGET BONUS POOL
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
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
<PAGE>
A. The Plan Year will be the same as the Company's fiscal year,
i.e. August 1, 1998 through July 31, 1999.
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.
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 an 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.
<PAGE>
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.
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.
d. In the event of an acquisition or divestiture of a
business, product line or other similar transaction that would affect
the attainment of performance goals, the Committee will endeavor to
adjust the performance goals to reflect the expected impact of the
transaction preferably at the time the transaction is approved.
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.
<PAGE>
<PAGE>
EXHIBIT 10T
FIRST AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (this "Amendment") is entered into as of July
30, 1998, among MULTIGRAPHICS, INC. f/k/a AM INTERNATIONAL, INC.,
a Delaware corporation ("Multigraphics"), PUBLISHING SOLUTIONS
INC., an Ohio corporation ("PSI") and FOOTHILL CAPITAL CORPORATION
("Lender").
WHEREAS, Multigraphics, PSI and Lender are parties to
that certain Amended and Restated Loan and Security Agreement
dated as of February 19, 1998 (as amended, the "Loan Agreement");
and
WHEREAS, Multigraphics and PSI (collectively,
"Borrowers") have requested that Lender amend various provisions
of the Loan Agreement, and Lender has agreed to do so subject to
the terms and conditions contained herein;
NOW THEREFORE, in consideration of the premises and
mutual agreements herein contained, the parties hereto agree as
follows:
1. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to
such terms in the Loan Agreement.
2. Amendments to Loan Agreement.
(a) Section 1.1.
(i) A new definition of the term "EBITDA" is hereby
added to Section 1.1 of the Loan Agreement, in the
appropriate alphabetical order, as follows:
"'EBITDA' means, for any period, the sum of
net income (or net loss) before interest, taxes,
depreciation and amortization for such period, all
as determined for Borrowers on a consolidated basis
in accordance with GAAP."
(ii) The definition of the term "Maximum Revolving
Amount" contained in Section 1.1 of the Loan Agreement is
hereby amended and restated in its entirety, as follows:
<PAGE>
"'Maximum Revolving Amount' means
$10,000,000; provided, that from time to time
Borrowers may increase the Maximum Revolving
Amount in increments of $1,000,000, by providing
Foothill with written notice thereof at least 3
Business Days prior to the effective date of such
increase as specified in such notice; provided,
further, that (i) no such increase shall be
effective at any time that a Default or an Event
of Default is in effect and (ii) the Maximum
Revolving Amount shall at no time exceed
$15,000,000. Each such notice of increase shall
be irrevocable when given by Borrowers and shall
be accompanied by the appropriate line increase
fee set forth in Section 2.11 (a)."
(iii) A new definition of the term "Renewal Date" is
hereby added to Section 1.1 of the Loan Agreement, in the
appropriate alphabetical order, as follows:
"'Renewal Date' has the meaning set forth in Section 3.4."
(iv) The definition of the term "Termination Date"
contained in Section 1.1 of the Loan Agreement is hereby
deleted.
(b) Section 2.1(a). Clause (y) of the definition of
the term "Borrowing Base" applicable to each of Multigraphics and
PSI, respectively, and contained in Section 2.1(a) of the Loan
Agreement, is hereby amended by deleting therefrom the amount
"$5,000,000" and inserting in its place the amount "$7,000,000".
(c) Section 2.6(b). Section 2.6(b) of the Loan
Agreement is hereby amended and restated in its entirety, as
follows:
"(b) Letter of Credit Fee. Each Borrower
shall pay Foothill a fee (in addition to the
charges, commissions, fees, and costs set forth
in Section 2.2(d)) equal to 0.75% per annum times
the aggregate undrawn amount of all outstanding
Letters of Credit issued for the account of such
Borrower; provided, that such fee shall be
prospectively reduced by one-quarter percentage
point one day after receipt by Lender of
Borrowers' unqualified annual audited financial
statements for the 1998 fiscal year delivered
pursuant to Section 6.3(b), if the interest rate
applicable to the Obligations is being reduced on
such date pursuant to Section 2.6(a)."
(d) Section 2.6(c). Clause (ii) of Section 2.6(c) of
the Loan Agreement is hereby amended and restated in its entirety,
as follows:
<PAGE>
"(ii) the Letter of Credit fee provided
in Section 2.6(b) shall be prospectively
increased to a per annum rate equal to 2.00
percentage points above the otherwise applicable
Letter of Credit fee provided in Section 2.6(b)."
(e) Section 2.11(a). Section 2.11(a) of the Loan
Agreement is hereby amended and restated in its entirety, as
follows:
"(a) Line Increase Fee. A fee equal to
1.00% of the amount of each increase in the Maximum
Revolving Amount, payable on the effective date of
such increase."
(f) Section 2.11(d). The last clause of Section
2.11(d) is hereby amended and restated in its entirety, as
follows:
"and, on each anniversary of May 30, 1997
prior to the date that this Agreement terminates,
Foothill's customary fee of $1,000 per year for its
loan documentation review."
(g) Section 3.4. Section 3.4 of the Loan
Agreement is hereby amended and restated in its entirety, as follows:
"3.4 Term; Automatic Renewal.
This Agreement shall become effective upon the
execution and delivery hereof by each Borrower and
Foothill and shall continue in full force and
effect for a term ending on May 30, 2002 (the
"Renewal Date") and automatically shall be renewed
for one additional year period thereafter, unless
terminated pursuant to the terms hereof. Either
party may terminate this Agreement effective on the
Renewal Date or on the first anniversary of the
Renewal Date by giving the other party at least 60
days prior written notice. The foregoing
notwithstanding, Foothill shall have the right to
terminate its obligations under this Agreement
immediately and without notice upon the occurrence
and during the continuance of an Event of Default."
(h) Section 3.5. Section 3.5 of the Loan Agreement is
hereby amended by adding the following at the end thereof:
"If Borrowers have sent a notice of
termination pursuant to the provisions of Section
3.4 for a termination on the Renewal Date, but fail
to pay the Obligations in full on the date set
forth in said notice, then Foothill may, but shall
not be required to, renew this Agreement for an
additional term of one year."
(i) Section 3.6. Section 3.6 of the Loan Agreement is
hereby amended and restated in its entirety, as follows:
<PAGE>
"3.6 Early Termination by Borrowers.
The provisions of Section 3.4 that allow
termination of this Agreement by Borrowers
only on the Renewal Date and certain
anniversaries thereof notwithstanding,
Borrowers have the option, at any time upon 60
days prior written notice to Foothill, to
terminate this Agreement by paying to
Foothill, in cash, the Obligations, in full
(provided, that any contingent reimbursement
obligations of either Borrower with respect to
outstanding Letters of Credit shall be
satisfied in the manner set forth in Section
2.2(e)), together with a premium (the "Early
Termination Premium") equal to (a) 2% of the
Maximum Revolving Amount if such termination
occurs on or before November 30, 1998, (b) 3%
of the Maximum Revolving Amount if such
termination occurs after November 30, 1998,
but on or before November 30, 1999, (c) 2% of
the Maximum Revolving Amount if such
termination occurs after November 30, 1999 but
on or before November 30, 2000, (d) 1% of the
Maximum Revolving Amount if such termination
occurs after November 30, 2000 but before May
30, 2002 and (e) if this Agreement is renewed
pursuant to Section 3.4, 1% of the Maximum
Revolving Amount if such termination occurs on
or after the Renewal Date but before May 30,
2003; provided, that if Borrowers terminate
this Agreement due to Foothill's refusal to
consent to a proposed acquisition that would
violate Section 7.13(a) or (c) below, the
applicable Early Termination Premium shall be
reduced by one-half of the amount otherwise
payable hereunder."
(j) Section 7.20(c). A new Section 7.20(c) is
hereby added to the Loan Agreement, as follows:
"(c) EBITDA. EBITDA of at least $1,300,000 on
the last day of each fiscal quarter commencing with the
first fiscal quarter of the 1999 fiscal year, for the 12
month period ending on such day."
(k) Section 7.21. Section 7.21 of the Loan Agreement is
hereby amended and restated in its entirety, as follows:
"7.21 Capital Expenditures.
Make capital expenditures in any fiscal year
in excess of $ 1,000,000 in the aggregate for both
Borrowers."
<PAGE>
3. Ratification and Effectiveness. This Amendment shall
constitute an amendment to the Loan Agreement and all of the Loan
Documents as appropriate to express the agreements contained
herein. Upon proper execution by Borrowers and Lender and
satisfaction of the conditions set forth herein, this Amendment
shall be deemed to have been effective as of July _, 1998. In all
other respects, the Loan Agreement and the Loan Documents shall
remain unchanged and in full force and effect in accordance with
their original terms.
4. Miscellaneous.
(a) Warranties and Absence of Defaults. In order to
induce Lender to enter into this Amendment, each Borrower hereby
warrants to Lender, as of the date hereof, that:
(i) The warranties of each Borrower contained in the
Loan Agreement, as herein amended, are true and correct as of
the date hereof as if made on the date hereof.
(ii) All information, reports and other papers and data
heretofore furnished to Lender by either Borrower in
connection with this Amendment, the Loan Agreement and the
other Loan Documents are accurate and correct in all material
respects and complete insofar as may be necessary to give
Lender true and accurate knowledge of the subject matter
thereof. Each Borrower has disclosed to Lender every fact of
which it is aware which would reasonably be expected to
materially and adversely affect the business, operations or
financial condition of either Borrower or the ability of
either Borrower to perform its obligations under this
Amendment, the Loan Agreement or under any of the other Loan
Documents. None of the information furnished to Lender by or
on behalf of either Borrower contained any material
misstatement of fact or omitted to state a material fact or
any fact necessary to make the statements contained herein or
therein not materially misleading.
(iii) No Event of Default or event which, with
giving of notice or the passage of time, or both would become
an Event of Default, exists a of the date hereof.
(b) Expenses. Borrowers jointly and severally agree to
pay on demand all costs and expenses of Lender (including the
reasonable fees and expenses of outside counsel for Lender) in
connection with the preparation, negotiation, execution, delivery
and administration of this Amendment and all other instruments or
documents provided for herein or delivered or to be delivered
hereunder or in connection herewith. In addition, Borrowers
jointly and severally agree to pay, and save Lender harmless from
all liability for, any stamp or other taxes which may be payable
in connection with the execution or delivery of this Amendment or
the Loan Agreement, as amended hereby, and the execution and
delivery of any instruments or documents provided for herein or
delivered or to be delivered hereunder or in connection herewith.
All obligations provided in this Section 4(b) shall survive any
termination of this Amendment and the Loan Agreement as amended
hereby.
<PAGE>
(c) Governing Law. This Amendment shall be a contract
made under and governed by the internal laws of the State of
California.
(d) Counterparts. This Amendment may be executed in
any number of counterparts, and by the parties hereto on the same
or separate counterparts, and each such counterpart, when executed
and delivered, shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same
Amendment.
(e) Reference to Loan Agreement. On and after the
effectiveness of the amendment to the Loan Agreement accomplished
hereby, each reference in the Loan Agreement to "this Agreement",
"hereunder," "hereof," "herein" or words of like import, and each
reference to the Loan Agreement in any Loan Documents, or other
agreements, documents or other instruments executed and delivered
pursuant to the Loan Agreement, shall mean and be a reference to
the Loan Agreement, as amended by this Amendment.
(f) Successors. This Amendment shall be binding upon
each Borrower, Lender and their respective successors and assigns,
and shall inure to the benefit of each Borrower, Lender and their
respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be executed by their respective officers
thereunto duly authorized and delivered as of the date first
above written.
MULTIGRAPHICS, INC. f/k/a
AM INTERNATIONAL, INC.
By ___________________________________
Its _________________________________
PUBLISHING SOLUTIONS INC.
By __________________________________
Its __________________________________
FOOTHILL CAPITAL CORPORATION
By __________________________________
Its __________________________________
<PAGE>
<PAGE>
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). The operating results for the years ended
July 31, 1997 and 1996 include the results of two foreign
subsidiaries which have been divested. The Company sold its interest
in AM Japan Co., Ltd. in September, 1996, and on October 17, 1996,
the Company's Canadian subsidiary filed a voluntary assignment in
bankruptcy.
During the fiscal year ended July 31, 1998, the Company acquired
certain assets of Hanley Graphic Products Company and Progressive
Lithoplate and Supply Company, both graphic arts dealers competing in
Northern Illinois, and purchased all of the outstanding shares of
capital stock of Akron, Ohio based Publishing Solutions Inc., a
systems integrator. All acquisitions have been accounted for as
purchases and, accordingly, the Company's consolidated financial
statements include the post-acquisition results of these operations
since their respective acquisition dates. All per share data is
presented on a diluted basis.
<TABLE>
OPERATING RESULTS (Continuing Operations)
Years ended July 31, 1998 1997 1996
<S> <C> <C> <C>
Revenues $95.3 $88.7 $168.1
Gross margin 25.2 24.8 37.6
Operating expenses 21.9 23.5 54.0
Operating income (loss) 3.3 1.3 (16.4)
Non-operating expenses 1.6 1.2 3.8
Income (loss) before taxes $1.7 $0.1 ($20.2)
Net income (loss) $1.1 $0.1 ($20.1)
</TABLE>
Comparison of 1998 to 1997
Net income in 1998 of $1.1 million ($0.37 per common share) improved
by $1.0 million over the prior year net income of $0.1 million ($0.04
per common share). In the prior year, the Company had a gain of $2.6
million on the divestiture of its interest in AM Japan Co., Ltd.
Excluding the gain on the divestiture, net income improved by $3.6
million from the prior year. The improved result in 1998 was
primarily due to a reduction in operating expense levels which
resulted from the Company's elimination of unprofitable product
lines, its exit from machine manufacturing, efficiency improvements
in distribution and service activities, and increased gross margins
on higher revenue levels attributable to the acquisitions made in the
current year.
<PAGE>
Revenues in 1998 of $95.3 million increased by $6.6 million over the
prior year. The 7% growth in revenues was largely attributable to
the acquisitions of the three regional graphic arts dealers over the
last eight months of the fiscal year. The acquired businesses serve
the same customer base as the Company. The acquisitions complement
the Company's internal efforts to expand its product offerings, and
bring enhanced digital sales and support capabilities as well as an
expanded customer base in the Company's traditional markets. In
addition, the Company has undertaken marketing programs focusing on
obtaining national service accounts with manufacturers and national
retail outlets. Market demand for the Company's manufactured
duplicator press products, particularly in the in-plant market
segment, has experienced long term decline due in part to inroads
from competing printing technologies. As a result, the installed
base of the Company's duplicator press equipment has declined which
has led to decreased sales of duplicator supplies and services.
Revenues from acquisitions, new products and increased service
offerings collectively were more than sufficient to offset the
decline in revenues from the prior year divestitures of operations in
Japan and Canada, the discontinuance of unprofitable product lines,
and the exit from manufacturing duplicator presses which,
collectively, had contributed revenues of $7.5 million to the prior
year.
Gross margin of $25.2 million was $0.4 million higher than the prior
year largely as a result of increased revenue volume. The overall
gross margin rate declined 1.6 percentage points to 26.4%. The lower
margin rate largely resulted from the shift in revenue mix from the
Company's traditional higher margin manufactured products and service
offerings, the demand for which has been in long term decline, to
revenues derived from product lines added through distribution
agreements, affiliations with third parties, and acquisitions of
graphic arts dealers. In anticipation of the decline in margins, the
Company invested in information systems and instituted various
reorganization measures which increased operational efficiency and
lowered expense levels.
Operating expenses decreased by $4.2 million in 1998 from 1997, after
adjusting 1997 to exclude the $2.6 million gain from the divestiture
of AM Japan Co. Ltd. The decrease in expenses was largely due to the
divestiture of foreign operations, discontinued product lines and
elimination of costs associated with the Company's exited
manufacturing operation which collectively added $2.4 million in the
prior year. The remainder of the decrease in expenses resulted from
reductions in selling, general and administrative expenses as the
Company transitioned to a distribution and service organization.
Non-operating expenses increased $0.4 million in 1998, largely due to
a $1.1 million reduction in interest income due to lower investment
balances in 1998 following the $14.1 million dividend in May, 1997,
offset by a $0.7 million reduction in interest expense. The decrease
in interest expense was primarily due to lower prepetition debt
obligations, which have been reduced by scheduled payments, and lower
interest costs on post retirement benefit obligations.
<PAGE>
The Company recorded income tax expense of $0.6 million during 1998.
Fresh start reporting rules require recognition of tax expense
although the Company had no requirement to pay U.S. Federal taxes due
to utilization of net operating loss carry forwards available to the
Company. Net income from continuing operations improved by $1.0
million over 1997 due to the factors cited above.
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 results in 1997 was primarily due
to restructuring initiatives the Company had formulated and executed
during 1995 and 1996.
Declining market demand for the Company'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. The Company's growth strategy in the
graphic arts market is focused on expanding its product offering,
enhancing its digital support capabilities, taking advantage of
unique national service capabilities and increasing market
penetration and coverage through acquisitions of regional dealers.
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) a $35.0
million decrease due to the discontinuance of certain unprofitable
product lines, including manufactured offset duplicator presses.
Gross margin decreased in 1997 from 1996 due largely to the lower
revenue level; however, the gross margin rate improved by 5.6
percentage points over the previous year due to a more favorable
product mix and the elimination of manufacturing overhead costs.
Operating expenses decreased by $30.5 million in 1997 from 1996. The
decrease in expenses was due to: 1) a $12.0 million reduction in
selling, general and administrative expenses which reflected improved
efficiencies as the business transitioned to a distribution and
service organization, and a 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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (three years ended July 31, 1998)
The Company's total cash and cash equivalents of $2.9 million as of
July 31, 1998 decreased by $7.5 million during the fiscal year,
following an increase in cash balances of $7.8 million in 1997, and a
$10.0 million decrease in cash in 1996.
Operating Activities
In 1998, the Company had a cash outflow from operating activities of
$2.8 million. The 1998 cash outflow was primarily due to a $5.1
million reduction in accrued liabilities largely from restructuring
payments which included payments for severance, accrued vacation and
the settlement of a lease recourse obligation from a discontinued
business, and a $1.8 million reduction in trade payables primarily
due to lower inventory purchases. A $1.8 million reduction in
inventories partially offset other outflows and was due to lower
stocking levels of machines resulting from an increase in drop
shipment sales, and improved supplies and parts turnover rates
reflective of the transition from a manufacturing to a distribution
and service operation.
In 1997, the Company had a cash outflow from operating activities 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
leases 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.
Depreciation and amortization remained flat from 1997 to 1998 at $1.9
million, but 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. The
Company's fixed assets consist primarily of leasehold improvements
and computer systems.
<PAGE>
Investing Activities
In 1998, the Company invested $6.9 million in the acquisitions of
three regional graphic arts equipment and supply dealers. 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 its Mt. Prospect, IL manufacturing and
headquarters facility. Capital expenditures of $0.6 million in 1998
and $1.9 million in 1997 were made to upgrade information systems and
customer service capabilities, and to maintain facilities. Capital
expenditures in 1996 of $9.0 million were primarily for leasehold
improvements of new facilities in conjunction with the planned exit
from the Company's manufacturing facilities, and to upgrade
information systems equipment.
Financing Activities
In 1998 the Company had a net inflow of $2.8 million from financing
activities, as compared to net outflows in 1997 and 1996 of $25.5
million and $2.7 million, respectively. In 1998 the Company borrowed
$7.8 million under its revolving credit agreement to finance the
operating and investing activities noted above. In 1997 the Company
repaid its outstanding balance under its 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 $4.3 million, $5.3 million and $5.1 million in 1998, 1997
and 1996, 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 totaling $14.1
million 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.
The Company's primary source of financing is its revolving credit
facility which was established in May, 1997 and which has
subsequently been amended to provide liquidity needed to execute the
Company's growth strategy. 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 graphic arts industry. The Company may
also seek to increase its capital availability to expand its growth
strategy beyond its current sources of liquidity.
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to change in interest
rates. At July 31, 1998, the Company had approximately $7.8 million
of debt outstanding on a revolving credit facility with floating
interest rates tied to the prime rate. If this rate was to increase
10 percent, the increase in interest payments would not have a
material impact on the Company's net income or cash flows. In
addition, the Company has fixed rate financing arrangements under
capital lease obligations in the amount of $1.7 million. A 10
percent change in interest rates would not have a material impact on
the fair market value of this debt.
YEAR 2000 DISCLOSURE
The Company's information systems will require certain modifications
to enable them to be able to process information without regard to
whether the date occurs prior to or after the year 2000. Currently,
some information systems do not properly identify a year that begins
with "20" instead of the familiar "19". These and similar issues
are generally referred to as "Year 2000" issues. The Company's
information systems are relatively new, and its recent systems
implementation in the Fall of 1997 achieved near compliance in the
Company's operating systems and full compliance in its host hardware.
Based on the Company's experience in the new system implementation
and its analysis of the work remaining, the Company anticipates that
expenditures for modifying the systems will be approximately $0.2
million, and the work necessary to complete all modifications will be
complete by mid 1999. The Company is working with its software and
systems licensor in completing this project. Accordingly, the
Company does not believe that the remaining actions or the associated
costs will be material to the Company's operating results.
The Company has also undertaken a review of its other equipment and
operating systems, and has begun the process of contacting its
significant vendors and service providers to assess the possible
impact on the Company of such third parties' failure to address Year
2000 issues. Although the Company cannot verify the results of its
inquiries of third parties, it has not received any information which
would lead it to believe that there will be material problems in
obtaining products, supplies and services from its third party
service providers and vendors. Nevertheless, any significant or
prolonged interruption in the supply of essential services or
products could adversely effect the Company's revenues and financial
results. Similarly, problems with any significant portion of the
Company's 20,000 customers in processing and paying invoices from the
Company could result in cash flow shortages and liquidity problems.
<PAGE>
The Company is undertaking a number of steps to address potential
Year 2000 problems. The systems issues and supplier contacts
described above are a part of those efforts. In the event that the
Company identifies potential problems with a service provider or
other vendor, it will attempt to obtain services and products from
other sources. The Company has available to it a broad range of
products, however, and it is unlikely that serious shortages will
materialize. Similarly, although the Company will have completed and
tested its systems capabilities in advance of the year 2000, the
Company is preparing to operate without significant portions of its
operating and information systems. Customer service representatives
are trained to take orders without access to the information systems,
purchasing representatives are trained to purchase parts without
access to the information systems, and the Company's finance
department is preparing to invoice and bill customers without access
to the information systems, if necessary. The Company is unable to
anticipate whether significant customers or significant numbers of
its customers will have difficulty processing and paying its
invoices.
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, maintenance
of principal vendor relations, 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.
<PAGE>
<TABLE>
Multigraphics, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
Twelve Months Ended
July 31, July 31, July 31,
1998 1997 1996
<S> <C> <C> <C>
Revenues
Machines and Supplies $ 54,990 $ 45,274 $112,118
Services 40,261 43,387 55,934
Total Revenues 95,251 88,661 168,052
Cost of Sales
Machines and Supplies 42,724 37,335 94,448
Services 27,346 26,536 35,973
Total Cost of Sales 70,070 63,871 130,421
Gross Margin 25,181 24,790 37,631
Operating Expenses
Selling, general and administrative 21,910 25,616 47,048
Unusual items, net (income) expense - (2,095) 7,032
Total Operating Expenses 21,910 23,521 54,080
Operating Income (Loss) 3,271 1,269 (16,449)
Non-operating income (expense):
Interest income 211 1,288 169
Interest expense (1,723) (2,574) (3,762)
Other, net (42) 120 (212)
Income (loss) from continuing
operations before income taxes 1,717 103 (20,254)
Income tax expense (benefit) 646 - (97)
Net income (loss) from continuing
operations 1,071 103 (20,153)
Net income (loss) from discontinued
operations, net of tax - - (25,342)
Net Income (Loss) $ 1,071 $ 103 $(45,499)
Per share of common stock: (a)
Basic:
Income (loss) from continuing operations $ 0.38 $ 0.04 $ (7.19)
Income (loss) from discontinued
operations - - (9.04)
Net income (loss) $ 0.38 $ 0.04 $(16.23)
Diluted:
Income (loss) from continuing operations $ 0.37 $ 0.04 $ (7.19)
Income (loss) from discontinued
operations - - (9.04)
Net income (loss) $ 0.37 $ 0.04 $(16.23)
Weighted average shares of common stock
and common stock equivalents outstanding
(in thousands)
Basic 2,823 2,807 2,803 Diluted
Diluted 2,895 2,811 2,803
(a) The weighted average number of common shares outstanding
and net income per common share have been restated to reflect
the effect of the 1 for 2 1/2 share reverse stock split which
was approved by the Company's shareholders on May 28,1997.
The Notes to Consolidated Financial Statements are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Multigraphics, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
July July
31, 31,
1998 1997
<S>
ASSETS <C> <C>
Current assets:
Cash and cash equivalents $2,869 $10,376
Accounts receivable, net 14,629 10,746
Inventories, net 13,188 11,893
Prepaid expenses and other assets 726 744
Total current assets 31,412 33,759
Property, plant and equipment, net 9,554 10,222
Goodwill 3,681 -
Other assets, net 992 919
Total assets $45,639 $44,900
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
maturities of long-term debt $10,844 $5,773
Accounts payable 7,312 5,217
Service contract deferred income 12,013 11,738
Payroll related expenses 5,709 6,803
Other current liabilities 6,737 10,152
Total current liabilities 42,615 39,683
Post-retirement benefit obligations 8,626 9,729
Long-term debt 1,048 3,352
Other long-term liabilities 3,494 4,036
Total liabilities 55,783 56,800
Shareholders' equity:
Preferred stock, 0.5 million shares
authorized; no shares issued - -
Common stock, $.025 par value; 9.5
million shares authorized;
2,829,526 issued as of July 31,
1998 and 2,815,337 issued
as of July 31, 1997 70 70
Capital in excess of par value 22,847 22,162
Accumulated earnings (deficit) (33,061) (34,132)
Total shareholders' equity (10,144) (11,900)
Total liabilities and shareholders' equity $45,639 $44,900
The Notes to Consolidated Financial Statements are an
integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Multigraphics, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Twelve Months Ended
July 31, July 31, July 31,
1998 1997 1996
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Net income (loss) $ 1,071 $ 103 $(45,499)
Adjustments to reconcile net income to
cash flow from operating activities:
Depreciation of property, plant
and equipment 1,859 1,836 3,769
Amortization and writedown of
other assets 42 - 407
Benefit from operating loss
carryforwards 646 - -
Discontinued operations - - 26,284 Net assets held for sale
Net assets held for sale - - (2,682)
Change in assets and
liabilities:
Accounts receivable, net 27 9,028 6,308
Inventory, net 1,750 (291) 13,056
Prepaid expenses and other assets 193 858 (334)
Accounts payable and accruals (6,633) (26,132) (2,434)
Other, net (1,719) (1,041) (2,794)
Cash flow from operating
activities (2,764) (15,639) (3,919)
Cash Flows from Investing
Activities:
Acquisition Activities (6,873) - -
Capital expenditures (638) (1,862) (8,990)
Proceeds from Divested Operations - 50,638 -
Proceeds from disposition of
property - 149 6,822
Cash flow from investing activities (7,511) 48,925 (3,430)
Cash Flows from Financing
Activities:
Net borrowings (payments) under
revolving credit facilities 7,768 (5,430) 5,430
Payment of Bankruptcy Claims (4,285) (5,318) (5,106)
Borrowings under capital lease
and other arrangements - - 4,041
Payments under capital lease
arrangements (715) (642) (358)
Payment of special dividend - (14,080) -
Discontinued operations - - (6,661)
Cash flow from financing
activities 2,768 (25,470) (2,654)
Increase (decrease) in cash and
cash equivalents (7,507) 7,816 (10,003)
Cash and cash equivalents at
beginning of period 10,376 2,560 12,563
Cash and cash equivalents at end of
period $ 2,869 $10,376 $ 2,560
The Notes to Consolidated Financial Statements are an integral part of
these financial statements.
</TABLE>
<PAGE>
<TABLE>
Multigraphics, Inc.
Consolidated Statement of Shareholders' Equity
(Dollars in thousands)
Common Stock Treasury Stock Warrants Total
----------------- ---------------- ---------------- Capital in Accumulated Cumulative Share-
Number Number Number Excess of Earnings/ Translation holders
of Shares Amount of Shares Amount of Shares Amount Par Value (Deficit) Adjustment Equity
(a) (a) (a)
--------- ----- ------ ------ ------- ----- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1995 2,804,000 $ 70 498 $ (6) 438,000 $ 383 $35,637 $ 11,265 $ 952 $48,301
Net loss (45,499) (45,499)
Aggregate effect of
current year translation
adjustments (734) (734)
Purchase of Treasury
Stock 134 -
Other, net 228 228
--------- ----- ------ ------ ------- ----- ------- --------- ------- -------
Balance at July 31, 1996 2,804,000 70 632 (6) 438,000 383 35,865 (34,234) 218 2,296
Net income 103 103
Aggregate effect of
current year translation
adjustments (218) (218)
Issuance of new common
stock 11,969 -
Retirement of Treasury
Stock (632) (632) 6 (6) -
Expiration of Warrants (438,000) (383) 383 -
Payment of special
dividend (14,080) (14,080)
Other, net (1) (1)
--------- ----- ------ ------ ------- ----- ------- --------- ------- -------
Balance at July 31, 1997 2,815,337 70 - - - - 22,162 (34,132) - (11,900)
Net Income 1,071 1,071
Benefit from operating
loss carryforwards 646 646
Issuance of new common
stock 13,523 39 39
Stock option exercises 666 -
--------- ----- ------ ------ ------- ----- ------- --------- ------- -------
Balance at July 31, 1998 2,829,526 $ 70 - $ - - $ - $ 22,847 $ (33,061) $ - $(10,144)
========= ===== ====== ====== ======= ===== ======= ========= ======= ======
(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 shareholders on May 28, 1997.
The Notes to Consolidated Financial Statements are an integral
part of these financial statements.
</TABLE>
<PAGE>
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 graphic 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 342 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 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 3 to 10 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."
Goodwill: The excess purchase price over the fair market value of net
assets acquired has been allocated to goodwill. These amounts are
amortized over the estimated useful lives not to exceed 40 years.
<PAGE>
Revenue Recognition: Revenue is recognized from sales when a product
is shipped. 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. Amounts billed for service
contracts are credited to Service contract deferred income and
recognized as revenues over the term of the contracts.
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: "Basic earnings per share" have been
calculated based upon the weighted average number of shares actually
outstanding, and "diluted earnings per share" have been calculated
based upon the weighted average number of common shares outstanding
and other potential common shares if they were dilutive.
Note 2 - Acquisitions
In December, 1997 the Company purchased all of the outstanding shares
of Publishing Solutions Inc., and acquired the operating assets of
Hanley Graphic Products Company. Publishing Solutions provides its
customers in northeast and central Ohio with equipment and systems
integration solutions utilizing digital technologies for design, pre-
press, imaging, and interactive media applications. Hanley Graphic
Products Company is a regional dealer of graphic arts equipment and
supplies serving customers in Northern Illinois. In June, 1998 the
Company acquired the business and certain assets of Progressive
Lithoplate and Supply Company, a regional graphic arts dealer serving
customers in Northern Illinois.
The aggregate purchase price for the three companies was $6,873
including expenses of the transactions, and could increase by a
maximum of $1,950, contingent upon the attainment of certain
operating targets by the acquired companies over the next two years.
The excess purchase price over the fair market value of net assets
acquired amounts to a preliminary value of $3,723, which will be
amortized over a period not to exceed forty years. The allocation of
purchase price was based on preliminary estimates, and may be revised
at a later date.
The acquisitions have been accounted for as purchases and,
accordingly, the financial statements include results of operations
from the date of acquisition. The following pro forma summary
presents the results of operations for the current and prior period
as though the acquisitions had taken place at the beginning of the
prior period. The pro forma amounts give effect to certain
adjustments including increased interest expense, goodwill
amortization, estimated income tax expense as well as other factors,
and do not necessarily reflect the results which would have occurred
had the businesses operated as a single entity during such periods,
nor are they necessarily indicative of results which may be obtained
in the future.
<PAGE>
<TABLE>
July 31, July 31,
1998 1997
<S> <C> <C>
Revenues $108,063 $120,385
Net Income $ 1,110 $ 335
Earning per share:
Basic $ 0.39 $ 0.12
Diluted $ 0.38 $ 0.12
</TABLE>
Note 3 - Borrowing Arrangements
The Company's short and long-term borrowings are comprised of the
following:
<TABLE>
July 31, July 31,
1998 1997
<S> <C> <C>
Revolving Credit Facility $ 7,768 $ -
General Unsecured Claims
& Priority Tax Claims 2,364 6,649
Capital Leases 1,760 2,476
Total $11,892 $ 9,125
Classified in the Consolidated Balance Sheet
as follows:
Short-term $10,844 $ 5,773
Long-term 1,048 3,352
Total $11,892 $ 9,125
</TABLE>
<PAGE>
In May, 1997 the Company entered into a $10,000 three year secured
Revolving Credit Facility (subject to borrowing base limitations)
with Foothill Capital Corporation ("Foothill"). The Revolving Credit
Facility includes a $5,000 sub-facility for the issuance of letters
of credit. As security for utilization of the Revolving Credit
Facility, the Company granted a security interest and general lien
upon all of its assets. On February 19, 1998 the Revolving Credit
Facility was amended and restated ("the Amendment") to add the
Company's wholly owned subsidiary, Publishing Solutions Inc., as a
co-borrower under the Facility. The Amendment was made, among other
things, to allow the eligible assets of Publishing Solutions Inc. to
be included in the Company's borrowings base and to reset the
Company's covenant requirements in light of the acquisitions made by
the Company during the quarter ended January 31, 1998. On July 30,
1998 the Revolving Credit Facility was amended further to, among
other things, (1) grant the Company the ability to increase the
Revolving Credit Facility limit in increments of $1,000 up to a
maximum limit of $15,000 and, (2) extend the expiration date an
additional two years to May 30, 2002 plus an automatic one year
extension unless terminated pursuant to the terms of the Revolving
Credit Facility. On July 31, 1998, the Company increased the
Revolving Credit Facility limit to $11,000 and the calculated
borrowing base was approximately $11,000. As of July 31, 1998, the
Company had borrowings of $7,768 under the Revolving Credit Facility
and was utilizing approximately $1,804 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,
1998 the reference rate was 8.5%. Letter of credit fees are 0.75%
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. As of July 31, 1998, the Company
was in compliance with the covenants of the Revolving Credit
Facility.
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, 1998 the Company had $2,179 of restricted cash which pertains to
the settlement of disputed claims in accordance with the Plan.
<PAGE>
Note 3 - Borrowing Arrangements (Continued)
As of July 31, 1998, aggregate maturities of total debt and
capitalized leases, are as follows:
<TABLE>
<S>
Due fiscal year ending:
<C> <C>
1999 $3,078
2000 533
2001 211
2002 7,925
2003 and thereafter 145
</TABLE>
The Revolving Credit Facility is classified as a current liability on
the balance sheet to comply with the accounting requirements.
However, for the aggregate debt maturities above, the Revolving
Credit Facility amount of $7,768 is reflected in 2002, the year the
Revolving Credit Facility expires.
Cash paid for interest was $1,202 during 1998, $1,647 during 1997 and
$2,282 during fiscal 1996.
Note 4 - Capital Structure
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-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.
<PAGE>
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, 1998 and
July 31, 1997, disputed claims amounted to $5,205 and $8,205,
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.
Note 5 - Commitments and Contingencies (continued)
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.
<PAGE>
Note 6 - Income Taxes
<TABLE>
The components of income tax expense (benefit) are as follows:
Twelve Months Ended
July 31, July 31, July 31,
1998 1997 1996
<S> <C> <C> <C>
The domestic and foreign components of income (loss)
from continuing operations are as follows:
Domestic $ 1,717 $ 366 $(18,857)
Foreign - (263) (1,397)
$ 1,717 $ 103 $(20,254)
Provision (benefit) for income taxes
for continuing operations:
Domestic $ 646 $ - $ -
Foreign - - (97)
$ 646 $ - $ (97)
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) $ 584 $ 35 $ (6,886)
Operating loss with no
current tax benefit and
varying tax rates of other
national governments - 89 6,597
Permanent tax differences 19 (124) 192
State taxes, net of federal
benefit 43 - -
Income tax expense (recovery) $ 646 $ - $ (97)
</TABLE>
<PAGE>
Note 6 - Income Taxes (continued)
The Company accounts for income taxes pursuant to Statement of
Financial Accounting Standard (SFAS) No. 109. At July 31, 1998 and
July 31, 1997 the approximate amounts of deferred tax assets and
deferred tax liabilities resulting from temporary differences and
carryforwards were as follows:
<TABLE>
1998 1997
<S> <C> <C>
Deferred Tax Assets
Inventory valuation $ 1,200 $ 1,100
Insurance reserves 4,400 4,700
Other 3,800 6,100
Subtotal 9,400 11,900
Domestic tax operating loss
carryforwards limited by
Sec 382. 21,000 21,000
Domestic tax operating loss
carryforwards 60,000 59,300
AMT credit carryforward 1,800 1,800
Deferred Tax assets 92,200 94,000
Valuation allowance (92,200) (94,000)
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, 1998, the Company had domestic tax loss carryforwards of
approximately $158,000 attributable to post-reorganization periods
and therefore not subject to limitation. The domestic tax loss
carryforwards will expire from 1999 to 2013. The AMT credit,
although subject to the Sec. 382 limitation, has no expiration date.
During 1998, the deferred tax asset and related valuation allowance
decreased by $1,800 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.
<PAGE>
Note 7 - Deferred Compensation
Restated for the reverse stock split discussed in Note 4, as of July
31, 1998, 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>
1998 1997
Exercise Exercise
Price Price
Number Range Number Range
of of
Shares Per Share Shares Per Share
<S> <C> <C> <C> <C>
Outstanding at the
Beginning of the Year 293,649 $2.1875-8.660 202,460 $ 6.250-8.660
Granted 129,000 $ 2.500-4.875 179,150 $2.1875-2.4375
Exercised (666) $ 2.4375 (11,969)* $ 3.000
Canceled (71,600) $2.1875-8.660 (75,992) $ 4.6426-6.875
Outstanding at the End
of the Period 350,383 $2.1875-8.660 293,649 $ 2.1875-8.660
Exercisable at the End
of the Period 104,416 $2.1875-8.660 87,039 $ 2.1875-8.660
* All 11,969 shares were issued as share awards and not as options
under the Company's 1995 Executive Incentive Compensation Plan.
</TABLE>
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 1998, 1997 and 1996 reported below has been estimated at the
date of grant using the following weighted average assumptions:
<PAGE>
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Risk-free rate (%) 5.90 5.85 5.96
Volatility (%) 33.0 25.0 30.0
Expected Life (in years) 5 5 5
Dividend Yield --- --- ---
</TABLE>
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, 1998, 1997 and 1996 was $1.55, $1.72 and $2.38 per
share, respectively.
Note 7 - Deferred Compensation (continued)
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 net income and per share data from continuing
operations is as follows:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Pro Forma Net Income (loss): $1,029 $ 94 $ (20,159)
Pro Forma Per Share Data:
Basic $ .36 $ .03 $ (7.19)
Diluted $ .36 $ .03 $ (7.19)
</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.
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. 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.
<PAGE>
On December 2, 1996, the Company and Xeikon, N.V. entered into an
agreement under which the parties agreed not to renew the
distribution agreement. The distribution agreement provided for the
Company to sell and service Xeikon digital color presses in North
America. As part of this agreement, Xeikon America, Inc. has
acquired certain assets from the Company and assumed certain
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.
Note 9 - 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>
Twelve Months ended
July 31, July 31, July 31,
1998 1997 1996
<S> <C> <C> <C>
Net sales $ - $ - $ 149,256
Gross margin - - 34,709
Operating income (loss) - - (6,749)
Non-operating (income)
expense - - 2,136
Allocated interest expense - - 581
Income tax provision
(benefit) applicable
to discontinued businesses - - 664
Income (loss) from operations
of discontinued businesses net
of taxes - - (10,130)
Loss on sale - - (15,212)
Income (loss) from
discontinued operations $ - $ - $(25,342)
</TABLE>
<PAGE>
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
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.
<PAGE>
<TABLE>
Note 10 - Balance Sheet Accounts
July 31, July 31,
1998 1997
<S> <C> <C>
Accounts receivable:
Accounts receivable $ 14,929 $ 11,080
Allowance for doubtful
accounts (300) (334)
Accounts receivable, net $ 14,629 $ 10,746
Property, plant and equipment:
Machinery and equipment $ 11,985 $ 14,196
Leasehold improvements 3,338 3,103
15,323 17,299
Less accumulated depreciation
and amortization (5,769) (7,077)
Property, plant and equipment, net $ 9,554 $ 10,222
Goodwill:
Goodwill $ 3,723 $ -
Amortization (42) -
Goodwill, net $ 3,681 $ -
</TABLE>
Note 11 - 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 $800, $911 and $1,317 in
1998, 1997 and 1996 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.
<PAGE>
Net post-retirement life and health care cost includes the following
components:
<TABLE>
Twelve Months Ended
July 31, July 31, July 31,
1998 1997 1996
<S> <C> <C> <C>
Service Cost - benefits earned
during the period $ 3 $ 3 $ 5
Interest cost on accumulated post-
retirement benefit obligation 622 622 843
Amortization of unrecognized
actuarial gain (50) (304) -
Total life and health care costs $ 575 $ 321 $ 848
The plans' funded status at July
31, was as follows:
1998 1997 1996
Actuarial present value of benefit
obligations-
Retirees $ 7,323 $ 8,348 $ 9,617
Fully eligible active
participants 197 224 294
Accumulated postretirement benefit
obligation 7,520 8,572 9,911
Cumulative unrecognized actuarial
gain 1,106 1,157 253
Plan assets - - -
Accrued post-retirement life and
health care costs $ 8,626 $ 9,729 $ 10,164
Assumptions used for the Company's retiree life and health care plans
as of July 31, were as follows:
1998 1997
Discount rate for determining
obligations and interest cost 7.25% 7.25%
</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, 1998. The effect of this change on the
aggregate of service and interest costs would have been an increase
of 2.6% for 1998. 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.
<PAGE>
Note 12 - 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, 1998, the future lease payments
for continuing operating leases are as follows:
<TABLE>
<C> <C>
1999 $1,666
2000 1,413
2001 1,264
2002 1,266
2003 1,283
2004 and thereafter 2,459
Total future operating
lease payments $9,351
</TABLE>
Rental expenses for all operating leases were $2,026, $2,741 and
$5,184 in 1998, 1997 and 1996, respectively.
Note 13 - Geographic Segments
The Company is a distributor of equipment, supplies and services to
the graphic 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>
Twelve Months Ended
July 31, July 31, July 31,
1998 1997 1996
<S> <C> <C> <C>
Revenues
North America $ 95,251 $87,510 $137,981
Japan - 1,151 30,071
Total $ 95,251 $88,661 $168,052
Operating Profit (Loss)
North America $ 3,271 $1,609 $(16,007)
Japan - (340) (442)
Total $ 3,271 $1,269 $(16,449)
Assets
North America $ 45,639 $44,900 $ 47,324
Japan - - 7,698
Total $ 45,639 $44,900 $ 55,022
</TABLE>
<PAGE>
Note 14 - Quarterly Financial Information - (Unaudited)
A summary of quarterly financial information for fiscal 1998 and 1997
is as follows:
<TABLE>
Quarter
<S> <C> <C> <C> <C> <C>
1998 1st 2nd 3rd 4th Total
Year
Revenues $20,700 $22,199 $27,431 $24,921 $ 95,251
Gross Profit 5,546 5,364 7,165 7,107 25,182
Net income $ 158 $ 164 $ 555 $ 194 $ 1,071
Per Common Share (1):
Basic $ 0.06 $ 0.06 $ 0.20 $ 0.07 $ 0.38
Diluted $ 0.06 $ 0.06 $ 0.19 $ 0.07 $ 0.37
Closing Market Price (2)
High $ 2.750 $ 4.688 $ 6.375 $8.938 $ 8.938
Low $ 1.625 $ 2.500 $ 3.750 $4.750 $ 1.625
Quarter
1997 1st 2nd 3rd 4th Total
Year
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) $ 519 $ (857) $ 268 $ 173 $ 103
Per Common Share (1):
Basic $ 0.19 $(0.31) $ 0.10 $ 0.06 $ 0.04
Diluted $ 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
(1) Sum of quarters may not equal the total for the year due to changes
in the number of shares outstanding during the year.
(2) The Company's common stock is traded on the American Stock Exchange
under the ticker symbol "MTI". Market price has been restated to
reflect the effect of the 1 for 2-1/2 share reverse stock split
approved by the Company's shareholders on May 28, 1997.
</TABLE>
<PAGE>
Note 15 - Five Year Financial Summary
<TABLE>
Sept. 30 Aug. 1
1993 1993
Through Through
Years Ended
Operations: July July July July July 31, Sept. 29,
31, 31, 31, 31, 1994 1993
1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 95.3 $ 88.7 $168.1 $191.5 $ 163.8 $ 26.5
Gross profit 25.2 24.8 37.6 52.7 51.4 7.0
as a percent
of revenues 26.4% 28.0% 22.4% 27.5% 31.4% 26.4%
Unusual items
(inc.) exp. - (2.1) 7.0 - - -
Operating
income (loss) 3.3 1.3 (16.4) (2.5) 6.8 (2.0)
as a percent
of revenues 3.5% 1.5% -9.8% -1.3% 4.2% -7.5%
Net income (loss)
from continuing
operations 1.1 0.1 (20.2) (4.2) 2.1 21.8
Income (loss)
from discontinued
operations - - (25.3) 8.8 4.6 (27.8)
Extraordinary gain - - - 58.7
Net income (loss) $ 1.1 $ 0.1 $(45.5) $ 4.6 $ 6.7 $ 52.7
Capital Employed
Working Capital (11.2) (5.9) (38.9) 61.5 8.7 (17.6)
Total Assets 45.6 44.9 98.0 163.1 169.2 164.4
Long-Term Debt 1.0 3.4 8.5 14.9 19.4 25.5
Shareholder's Equity (10.1) (11.9) 2.3 48.3 42.8 36.0
Per Common Share
Net income(loss) from
continuing operations N/A
Basic $ 0.38 $ 0.04 $(7.19) $(1.48) $ 0.75
Diluted $ 0.37 $ 0.04 $(7.19) $(1.48) $ 0.75
Market Price
High (1) $8.938 $2.500 $20.938 $30.625 $29.688 N/A
Low (1) $1.625 $0.550 $ 4.688 $20.313 $21.875 N/A
Average number of common shares
and equivalents (in thousands) (2)
Basic $2,823 $2,807 $2,803 $2,808 $2,802 N/A
Diluted $2,895 $2,811 $2,803 $2,808 $2,802 N/A
Number of Employees
at Year End 671 651 1,121 1,378 1,520 1,633
(1) Trading of Reorganized Company Stock commenced on
December 6, 1993.
<PAGE>
(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.
</TABLE>
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, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended July 31, 1998.
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, 1998 and 1997, and the results of
its operations and cash flows for each of the three years in the
period ended July 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
September 25, 1998
<PAGE>
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 25, 1998. 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 re-
lation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
September 25, 1998
COMPANY DESCRIPTION
Multigraphics, Inc., is a distributor of a broad range of
equipment and supplies and a service provider to the graphic
arts industry. The Company employs approximately 670 people and
is headquartered in Mt. Prospect, Illinois. In May, 1997 the
Company's Stockholders approved a change in the name of the
corporation from "AM International, Inc." to "Multigraphics,
Inc."
STOCKHOLDER INFORMATION
Stock Information
Multigraphics, Inc.'s Common Stock trades on the American Stock
Exchange under the ticker symbol "MTI".
Stockholders of Record
As of October 21, 1998 the Company had approximately 1,000
stockholders of record.
Investor Inquiries
<PAGE>
Analysts, portfolio managers and representatives of financial
institutions seeking information about the Company should
contact Thomas D. Rooney at the corporate headquarters or call
(847) 375-1700.
Stock Transfer Agent and Registrar
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, New Jersey 07310
(800) 446-2617
Annual Meeting of Stockholders
The Annual Meeting of Stockholders for the fiscal year ended
July 31, 1998 will be held on December 3, 1998 at 11:00 a.m.
(Central Standard Time) at the Company's headquarters at 431
Lakeview Court, Mt. Prospect, IL, 60056.
Reports and Publications
The Company's Report on Form 10-K (without exhibits other than
those specifically incorporated therein by reference), Annual
Report to Stockholders, Proxy Statement, Quarterly Reports or
other printed corporate literature can be obtained without
charge, upon written request to the Shareholder Relations
Department at the corporate headquarters, or by calling (847)
375-1700.
Independent Public Accountants Corporate Headquarters
Arthur Andersen LLP Multigraphics, Inc.
33 West Monroe Street 431 Lakeview Court
Chicago, Illinois 60603 Mt. Prospect, Illinois
60056
(847) 375-1700
Board of Directors
Jeff M. Moore Robert E. Anderson III
Apollo Advisors, L.P. Owens & Minor, Inc.
Jeffrey D. Benjamin Robert N. Dangremond
Co-Chief Executive Officer Principal
Libra Investments Jay Alix & Associates
Thomas D. Rooney
President and CEO
Multigraphics, Inc.
Committees of the Board
<PAGE>
Audit Committee Compensation and Management Committee
Jeff M. Moore, Chairman Jeffrey D. Benjamin, Chairman
Robert E. Anderson III Robert E. Anderson III
Jeffrey D. Benjamin Robert N. Dangremond
Robert N. Dangremond Jeff M. Moore
Executive Officers
Thomas D. Rooney
President and
Chief Executive Officer
Steven R. Andrews
Vice President, General Counsel and Secretary
Mark F. Duchesne
Vice President Distribution Operations
Donald W. Hanigan
Vice President and President,
Hanley Graphic Products Division
Gregory T. Knipp
Vice President, Chief Financial Officer and Treasurer
Raymond T. Leach
Vice President and CEO,
Publishing Solutions Inc.
Charles T. Richards
Vice President Service Operations
Keith E. Stewart
Vice President and President
Publishing Solutions Inc.
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.
ARTHUR ANDERSEN LLP
Chicago, Illinois
October 27, 1998
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 27, 1998 by the
following persons 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
Thomas D. Rooney and 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
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