SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended May 1, 1999
Commission file number 1-683
Multigraphics, Inc.
(Exact name of registrant as specified in its charter)
Delaware 34-0054940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
431 Lakeview Court Mt. Prospect, IL 60056
(Address of principal executive offices) (Zip Code)
(847) 375-1700
(Registrant's telephone number, including area code)
AM International, Inc.
(Former Name)
Indicate by check mark whether the registrant (1) has filed all
reports 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 whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
2,833,322 shares of Registrant's
Common Stock, $.025 par value, were outstanding as of June 11, 1999.
MULTIGRAPHICS, INC.
INDEX
Page
PART I - Financial Information
<PAGE>
Item 1 - Condensed Consolidated Statement of
Operations for the Three and Nine Months
Ended May 1, 1999 and
May 2, 1998 (unaudited). 1
Condensed Consolidated Balance Sheet
as of May 1, 1999 (unaudited) and
July 31, 1998. 2
Condensed Consolidated Statement of
Cash Flows for the Nine Months Ended
May 1, 1999 and May 2, 1998
(unaudited). 3
Notes to Condensed Consolidated Financial
Statements (unaudited). 4 - 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9 - 13
Item 3 - Quantitative and Qualitative Disclosures about Market
Risk 14
Part II Other Information
Item 6 - Exhibits 14
PART I - FINANCIAL INFORMATION
<TABLE>
Item 1 - Financial Statements
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months
Ended
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues
Machines and Supplies $20,735 $ 16,806 $ 52,121 $ 39,932
Services 10,364 10,625 29,602 30,398
Total revenues 31,099 27,431 81,723 70,330
Cost of Sales
Machines and Supplies 16,763 12,916 41,920 31,065
Services 6,799 7,350 19,594 21,191
Total cost of sales 23,562 20,266 61,514 52,256
Gross Margin 7,537 7,165 20,209 18,074
<PAGE>
Operating Expenses
Selling, general and
administrative 6,252 5,832 18,412 16,020
Miscellaneous (income)
expense 3 (2) (6) (368)
Total operating expenses 6,255 5,830 18,406 15,652
Operating income 1,282 1,335 1,803 2,422
Non-operating (income)
expense:
Interest income (7) (32) (45) (193)
Interest expense 570 453 1,550 1,175
Other, net 21 18 62 24
Income before taxes 698 896 236 1,416
Income tax expense 265 341 90 538
Net income $433 $555 $146 $878
Net income per common
share :
Basic $0.15 $0.20 $0.05 $0.31
Diluted $0.15 $0.19 $0.05 $0.30
Weighted average shares of
common stock and common
stock equivalents
Outstanding(in thousands):
Basic 2,833 2,818 2,832 2,816
Diluted 2,854 2,919 2,898 2,879
The Notes to Consolidated Financial Statements are an integral
part of these financial statements.
</TABLE>
<TABLE>
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share amounts)
(Unaudited)
May 1, July 31,
1999 1998
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,401 $ 2,869
Accounts receivable, net 14,606 14,629
Inventories, net 12,838 13,188
Prepaid expenses and other assets 643 726
<PAGE>
Total current assets 29,488 31,412
Property, plant and equipment, net 8,682 9,554
Goodwill 4,032 3,681
Other assets, net 1,127 992
Total assets $ 43,329 $ 45,639
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and current
maturities of long-term debt $ 11,802 $ 10,745
Accounts payable 10,892 7,312
Service contract deferred income 8,510 12,013
Payroll related expenses 4,965 5,504
Other 3,446 5,248
Total current liabilities 39,615 40,822
Long-term debt 721 1,048
Post-retirement benefit obligations 8,235 8,626
Other long-term liabilities 4,636 5,287
Total liabilities 53,207 55,783
Shareholders' Equity:
Preferred stock, 0.5 million shares
authorized; no shares issued - -
Common stock, $.025 par value; 9.5
million shares authorized;
2,833,322 issued as of May 1, 1999 and
2,829,526 issued as of July 31, 1998 70 70
Capital in excess of par value 22,967 22,847
Accumulated earnings (deficit) (32,915) (33,061)
Total shareholders' equity (9,878) (10,144)
Total liabilities and shareholders'
equity $ 43,329 $ 45,639
The Notes to Consolidated Financial Statements are an
integral part of these financial statements.
</TABLE>
<TABLE>
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands, except per share amounts)
(Unaudited)
Nine Months Ended
May 1, May 2,
<S> 1999 1998
<PAGE> <C> <C>
Cash Flows from Operating
Activities:
Net income $ 146 $ 878
Adjustments to reconcile net income to
cash flow from operating activities:
Depreciation of property, plant and
equipment 1,400 1,377
Amortization of goodwill 61 30
Benefit from operating loss
carryforwards 90 538
Change in assets and liabilities:
Accounts receivable, net 23 1,868
Inventories, net 350 2,136
Prepaid expenses and other assets 83 48
Accounts payable 3,580 (2,492)
Service contract deferred income (3,503) (1,904)
Other current liabilities (1,992) (5,866)
Other, net (537) 931
Cash flow from operating activities (299) (2,456)
Cash Flows from Investing Activities:
Acquisition activities (462) (5,612)
Capital expenditures (575) (321)
Proceeds from the disposition of PP&E 47 -
Cash flow from investing activities (990) (5,933)
Cash Flows from Financing Activities:
Net borrowings under revolving credit
facilities 2,459 4,367
Payments of Claims (2,188) (3,161)
Payments under capital lease
arrangements (450) (527)
Cash flow from financing activities (179) 679
Decrease in cash and cash equivalents (1,468) (7,710)
Cash and cash equivalents at
beginning of period 2,869 10,376
Cash and cash equivalents at
end of period $ 1,401 $2,666
The Notes to Consolidated Financial Statements are an integral
part of these financial statements.
</TABLE>
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Note 1 - Basis of Presentation
<PAGE>
The Condensed Consolidated Financial Statements included herein have
been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. In the
opinion of management, the Condensed Consolidated Financial
Statements reflect all adjustments, which are of a recurring nature,
necessary for fair presentation. Certain prior year amounts have
been reclassified to conform with the current year presentation. The
accompanying Condensed Consolidated Financial Statements and the
related notes should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto included in the
Company's Annual Report on Form 10-K for the year ended July 31,
1998.
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 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.
In September 1998, the Company acquired the business and certain
assets of Austin, Texas based Texas PrePress Systems, Inc., a
regional prepress systems integrator. The aggregate purchase price
for the four acquired companies was approximately $7,213 including
expenses of the transactions, and could increase by a maximum of
$875, contingent upon the acquired companies' attainment of certain
operating targets over the two years following their acquisition.
The excess purchase price over the fair market value of net assets
acquired amounts to a preliminary value of $4,135, which will be
amortized over a period not to exceed forty years.
The acquisitions have been accounted for as purchases and,
accordingly, the financial statements include results of operations
from the respective dates 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.
<TABLE>
Three Months Ended Nine Months Ended
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues $31,099 $28,088 $81,933 $81,562
Net Income $ 433 $ 479 $ 149 $ 722
<PAGE>
Earnings per share:
Basic $ 0.15 $ 0.17 $ 0.05 $ 0.26
Diluted $ 0.15 $ 0.17 $ 0.05 $ 0.25
</TABLE>
Note 3 - Borrowing Arrangements
The Company's short and long-term borrowings are comprised of the
following:
<TABLE>
May 1, July 31,
1999 1998
<S> <C> <C>
Revolving Credit Facility $10,226 $ 7,768
Capital Leases 1,311 1,760
Other short-term obligations 986 2,265
Total $12,523 $ 11,793
Classified in the Consolidated Balance
Sheet as follows:
Short-term $11,802 $ 10,745
Long-term 721 1,048
Total $12,523 $ 11,793
</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 Revolving Credit Facility. The Amendment was
made, among other things, to allow the eligible assets of Publishing
Solutions Inc. to be included in the Company's borrowing 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. The Revolving Credit Facility limit was increased
to $11,000 on July 31, 1998, $12,000 on November 6, 1998 and $13,000
on February 12, 1999. On May 1, 1999, the calculated borrowing base
was approximately $13,000. As of May 1, 1999, the Company had
borrowings of $10,226 under the Revolving Credit Facility and was
utilizing approximately $1,829 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 by 1/2% at the end of this fiscal year if certain performance
measures are achieved. As of May 1, 1999, the reference rate was
7.75%. 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, income, 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 May 1, 1999, the Company was in compliance with
the covenants of the Revolving Credit Facility.
Note 4 - Capital Structure
The Company has authorized 10,000,000 shares of capital stock with
9,500,000 shares being reserved for issuance as Common Stock and
500,000 shares being reserved for issuance as Preferred Stock. The
Company's 1994 Long Term Incentive Plan provides for the issuance of
560,000 shares of Common Stock. Options to purchase the Common
Stock are awarded at a price not less than 100% of the market price
on the date of the grant, become exercisable at various dates
generally from one to four years after the date of grant, and expire
ten years after the date of grant. At May 1, 1999 options to
purchase 345,866 shares were outstanding at option prices ranging
from $2.1875 to $8.2139 per share.
<PAGE>
On October 20, 1998, the Company's Board of Directors approved the
Multigraphics, Inc. 1998 Stock Incentive Plan for Directors. Options
to purchase a total of 140,000 shares of the Company's Common Stock
are included in the Plan. Under the Plan, each non-employee director
received an option for 10,000 shares on October 20, 1998 and will
receive an additional 5,000 share option grant on the date of each
annual meeting of stockholders, commencing in 1999, at an option
exercise price per share equal to the fair market value of a share of
Common Stock on the date of grant. Such options are exercisable in
part or in full on the date of grant and will expire ten years after
the date of grant.
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.
Note 5 - Commitments and Contingencies
The Company received creditor claims during its 1993 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 May 1, 1999
disputed claims amounted to approximately $5,105. The disputed
claims are primarily comprised of environmental and product liability
claims, including one claim for approximately $4,000 which the
Company believes is overstated and for which the Company believes
appropriate reserves have been set.
The Company has been notified of various environmental matters in
connection with certain current or former Company locations in
Illinois and Ohio. 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 proceeding 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 6 - Components of Certain Balance Sheet Accounts
<TABLE>
The components of certain balance sheet accounts are
as follows:
May 1, July 31,
1999 1998
<S> <C> <C>
Accounts receivable:
Accounts receivable $15,019 $14,929
Allowance for doubtful accounts (413) (300)
Total accounts receivable, net $14,606 $14,629
<PAGE>
Property, plant and equipment:
Machinery and equipment $12,407 $11,985
Leasehold improvements 3,338 3,338
15,745 15,323
Less accumulated depreciation
and amortization (7,063) (5,769)
Property, plant and equipment,
net $ 8,682 $ 9,554
Goodwill:
Goodwill $ 4,135 $ 3,723
Accumulated amortization (103) (42)
Goodwill, net $ 4,032 $ 3,681
</TABLE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion of the results of operations and financial condition
presented below should be read in conjunction with Management's
Discussion and Analysis included in the Company's Annual Report to
Shareholders for the year ended July 31, 1998.
As previously reported, the Company acquired the operating assets of
Hanley Graphic Products Company, and purchased all of the outstanding
shares of Publishing Solutions Inc. in separate transactions
consummated in the second quarter of fiscal 1998. In June 1998 the
Company acquired the business and certain assets of Progressive
Lithoplate and Supply Company. In September 1998 the Company
acquired the business and certain assets of Austin, Texas based Texas
Prepress Systems, Inc., a regional prepress systems integrator. The
acquisitions have been accounted for as purchases and, accordingly,
the 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.
Consolidated Results of Operations
<TABLE>
($ in millions) Quarter Ended Nine Months Ended
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
<PAGE>
<S> <C> <C> <C> <C>
Revenues $ 31.1 $ 27.4 $ 81.7 $ 70.3
Gross Margin 7.5 7.1 20.2 18.1
Gross Margin % 24.2% 26.1% 24.7% 25.7%
Operating Expenses 6.2 5.8 18.4 15.7
Operating Income 1.3 1.3 1.8 2.4
Non-operating expenses,
net 0.6 0.4 1.6 1.0
Net income before tax 0.7 0.9 0.2 1.4
Net Income $ 0.4 $ 0.6 $ 0.1 $ 0.9
Third Quarter
The net income for the quarter ended May 1, 1999 was $0.4 million
($0.15 per common share). In the comparable prior year period, the
Company had a profit of $0.6 million ($0.19 per common share).
Current quarter revenues were more heavily weighted with machine
sales, which carry margin rates relatively lower than the Company's
supply and service product offerings. This sales mix reduced the
overall margin rate. Selling expenses and interest costs increased
over prior year levels, both as a result of the previously reported
acquisition activities, leading to the lower net income.
Third quarter revenues of $31.1 million increased by $3.7 million
over the corresponding prior year period. Since December of 1997, the
Company has acquired four regional graphic arts dealers to expand its
target customer base in the in-plant and smaller to mid-size
commercial printing market segments. The growth in revenues was
primarily attributable to the acquisitions of three regional graphic
arts dealers which the Company completed in the prior fiscal year,
and the September 1998 acquisition of Texas PrePress Systems, a
regional prepress systems integrator. These acquisitions complement
the Company's internal efforts to expand its product offerings, and
bring enhanced digital sales and support capabilities and an expanded
customer base in the Company's traditional markets. The Company's
primary objective is to achieve continued growth within the graphic
arts market by expanding the product offering, enhancing digital
support capabilities and increasing market penetration and geographic
coverage through selected acquisitions. Company management believes
that additional increases in revenues could improve profitability,
since the Company has infrastructure and systems capable of absorbing
greater volumes of transactions.
<PAGE>
Gross margin of $7.5 million increased by $0.4 million over the
comparable prior year period, while the overall margin rate decreased
by 1.9 basis points. The increased margins derived from the acquired
operations, new products and product lines more than offset declines
in margin from press products and related services, upon which the
Company had historically been dependent, and which have been in long
term decline. The lower margin rate in the current year quarter
resulted from a sales mix more heavily weighted with machines which
carry margin rates relatively lower than the Company's supply and
service product offerings. As previously reported, the Company has
pursued a growth strategy to replace the revenues previously derived
from its historically higher margin manufactured products, with
product lines added through distribution agreements, joint ventures,
affiliations with third parties and acquisitions of graphic arts
dealers. To offset the lower margin rates which accompany those
relationships, the Company has invested in information systems and
has undertaken other reorganization measures to increase efficiency
and lower expenses.
Selling, general and administrative expenses in the third quarter of
$6.2 million increased by $0.4 million over the prior year period,
largely due to the addition of sales personnel, and higher variable
expenses related to the increasing revenue levels. The improved
relationship of expenses to revenue levels was the result of various
actions taken by the Company to lower headcount, facility and other
general and administrative costs, while improving service levels and
operational efficiency.
Non-operating expenses consist primarily of net interest expense,
which increased $0.2 million from the prior year. Higher interest
costs in the current year quarter were due to increased borrowings
primarily incurred to finance acquisitions and higher interest on
post retirement benefit obligations. Interest expense related to
pre-petition debt obligations decreased $0.1 million from the prior
year. The final scheduled pre-petition debt payment obligation was
disbursed in September 1998.
Nine Months
For the nine months ended May 1, 1999 the Company had net income of
$0.1 million ($0.05 per common share). In the prior year comparable
period, the Company recorded net income of $0.9 million ($0.30 per
common share).
Revenues for the nine months ended May 1, 1999 of $81.7 million
increased by $11.4 million over the corresponding prior year period.
The 16% growth in revenues was primarily attributable to the
acquisitions of three regional graphic arts dealers which the Company
completed in the prior fiscal year and the September 1998 acquisition
of Texas PrePress Systems, a regional prepress systems integrator.
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.
<PAGE>
Gross margin of $20.2 million for the first nine months of 1999
increased by $2.1 million compared to the prior year, largely as a
result of the increased revenue volume in the current year. The
margin rate decreased 1.0 percentage points due to a sales mix more
heavily weighted with machines which carry rates relatively lower
than the Company's supply and service product offerings.
Selling, general and administrative expenses in the first nine months
of $18.4 million increased by $2.4 million compared to the prior year
period, but decreased as a percent of sales. The increased expense
levels were largely due to the addition of sales personnel from the
acquired entities. Non-operating expenses of $1.6 million increased
by $0.6 million, primarily due to higher net interest expense on debt
resulting from acquisition financing and higher interest expense on
post retirement benefit obligations.
As noted above and in previous reports, the Company has developed
strategies to increase revenues through product line additions, third
party service agreements and acquisitions. An increase in revenue
levels could improve profitability since the Company has
infrastructure and systems which are capable of absorbing a greater
volume of transactions.
Liquidity and Capital Resources
(nine months ended May 1, 1999 and May 2, 1998)
Cash and cash equivalents at May 1, 1999 were $1.4 million, having
decreased $1.5 million from July 31, 1998. The reduction in cash was
due primarily to settlement of bankruptcy claims. A $2.5 million
increase in revolver borrowings was largely offset by a reduction in
general unsecured bankruptcy claims and capital lease obligations.
<PAGE>
Operating Activities. In the nine months ended May 1, 1999 the
Company had a cash outflow from operating activities of $0.3 million
compared with a $2.5 million outflow in the comparable prior year
period. The net income was $0.1 million in the current period
compared to net income of $0.9 million in the comparable prior year
period. Historically higher fourth quarter sales create the highest
receivable balance throughout the year, however, in the current year,
increased sales during the third quarter resulted in an accounts
receivable balance approximating that of the prior year-end.
Accounts receivable in the comparable prior year period decreased
$1.9 million. Inventories decreased by $2.1 million in the
comparable prior year period primarily due to lower stocking levels
of machines. Deferred service revenues decreased by $3.5 million
during the first nine months of 1999 and $1.9 million in the first
nine months of 1998 primarily as a result of the higher level of
contract renewals which exist at the beginning of each fiscal year,
and for the first nine months of 1999, the decrease also resulted
from a shift by customers to shorter duration contracts. Other
current liabilities were reduced by $2.0 million largely resultant
from payment of various product liability claims, and reductions in
payroll related liabilities. Prior year other current liabilities
were reduced by $5.9 million primarily due to payments for payroll
related liabilities, settlement of a recourse obligation from a
previously divested operation, phase out costs related to the
Company's outsource of its manufactured machine product line and exit
costs of a previously divested foreign subsidiary. During the
current year period accounts payable increased by $3.6 million due to
extending payment terms with vendors and a higher level of machine
sales. In the prior year comparable period, accounts payable
decreased by $2.5 million due to lower inventory purchases and
reductions resulting from taking prompt pay discounts offered by
vendors.
Investing Activities. Cash outflow from investing activities was
$1.0 million in the current period largely due to $0.6 million in
capital expenditures to upgrade systems and equipment and $0.5
million in acquisition related activities. The comparable prior year
period cash outflow of $5.9 million was largely resultant from the
purchases of Hanley Graphic Products Company and Publishing Solutions
Inc.
Financing Activities. Financing activities resulted in a current
year cash outflow of $0.2 million. The outflow resulted primarily
from payment of general unsecured bankruptcy claims of $2.2 million
and payments under capital lease arrangements of $0.5 million that
were largely offset by increased revolver borrowings of $2.5 million.
In the comparable prior year period, a cash inflow of $0.7 million
arose, as revolver borrowings of $4.4 million were only partly offset
by $3.2 million of payments for general unsecured bankruptcy claims
and $0.6 million of capital leases payments.
<PAGE>
The Company's principal credit facility is its $15.0 million
revolving credit facility. The utilizations allowed under this
facility are limited by a borrowing base which is calculated based on
levels of accounts receivable and inventories, as defined in the
agreement. The Company's ability to meet its future liquidity
requirements is dependent on sustained levels of billings to
customers. Variations in market demand, competitive pressures or
purchase mix and the timing of revenues and costs could have a
negative impact on the Company's credit facility. In light of this
the Company is continuing to implement cost reduction programs to
minimize uses of cash. The Company believes that its current cash
balances, its current projections of future billings, the results of
identified cost reduction programs and the continuation of the
Company's credit facilities will provide the Company with capital
resources and liquidity sufficient to finance its current operations
and fund non-operating obligations as they come due, although there
can be no assurance that such will be the case. In addition, the
Company also intends to seek additional capital from prospective
investors to support its current operations and growth strategy,
which may include acquisition of other regional graphic arts dealers.
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 $0.3
million, and the work necessary to complete all modifications and
testing will be complete by mid 1999. During the nine months ended
May 1, 1999 the Company expended substantially all of the total $0.3
million estimated for Year 2000 modifications. 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 contacted 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 to prepare a contingency plan 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. Moreover, the Company cannot predict or
address all possible problems which may be associated with Year 2000
issues.
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 from those expressed or implied in such statements. These
factors include, but are not limited to, changing market conditions,
the availability and cost of products, the impact of competitive
products and pricing, the Company's ability to execute its strategic
plans and reduce costs, the availability of sources of financing to
fund current operations and 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to change in interest
rates. At May 1, 1999, the Company had approximately $10.2 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 $1.3 million. A 10
percent change in interest rates would not have a material impact on
the fair market value of this debt.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MULTIGRAPHICS, INC.
Date: June 14, 1999 /s/ Gregory T. Knipp
Gregory T. Knipp
Vice President and
Chief Financial Officer
(authorized officer and principal
accounting officer)
<PAGE>
EXHIBITS
No. Description
27 Financial Data Schedule
<PAGE>
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