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 January 30, 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
March 12, 1999.
MULTIGRAPHICS, INC.
INDEX
<PAGE>
Page
PART I - Financial Information
Item 1 - Condensed Consolidated Statement of
Operations for the Three and Six Months
Ended January 30, 1999 and
January 31, 1998 (unaudited). 1
Condensed Consolidated Balance Sheet
as of January 30, 1999 (unaudited) and
July 31, 1998. 2
Condensed Consolidated Statement of
Cash Flows for the Six Months Ended
January 30, 1999 and January 31, 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 4- Submission of Matters to a Vote of Security
Holders 14
Item 6- Exhibits 14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
<TABLE>
January January January January
30, 1999 31, 1998 30, 1999 31, 1998
<S> <C> <C> <C> <C>
Revenues
Machines and Supplies $ 15,650 $ 12,966 $ 31,386 $23,126
Services 9,305 9,233 19,238 19,773
Total revenues 24,955 22,199 50,624 42,899
Cost of Sales
Machines and Supplies 12,784 10,292 25,267 18,149
Services 6,366 6,543 12,685 13,841
Total cost of sales 19,150 16,835 37,952 31,990
Gross Margin 5,805 5,364 12,672 10,909
Operating Expenses
Selling, general and
administrative 6,075 5,136 12,160 10,188
Miscellaneous (income)
expense (33) (350) (9) (366)
Total operating
expenses 6,042 4,786 12,151 9,822
Operating income (loss) (237) 578 521 1,087
Non-operating income
(expense):
Interest income 17 41 37 161
Interest expense (484) (349) (979) (722)
Other, net (20) (6) (41) (6)
Income (loss) before
taxes (724) 264 (462) 520
Income tax expense (benefit) (275) 100 (175) 197
Net income (loss) $ (449) $ 164 $ (287) $ 323
<PAGE>
Net income (loss) per common
share :
Basic $ (0.16) $ 0.06 $ (0.10) $ 0.11
Diluted $ (0.16) $ 0.06 $ (0.10) $ 0.11
Weighted average shares of common stock and
common stock equivalents outstanding
(in thousands):
Basic 2,833 2,831 2,832 2,818
Diluted 2,833 2,893 2,832 2,844
</TABLE>
The Notes to Consolidated Financial Statements are an integral part
of these financial statements.
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share amounts)
(Unaudited)
January 30, July 31,
<TABLE> 1999 1998
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,602 $ 2,869
Accounts receivable, net 13,392 14,629
Inventories, net 13,312 13,188
Prepaid expenses and
other assets 450 726
Total current assets 28,756 31,412
Property, plant and equipment, net 8,976 9,554
Goodwill 4,052 3,681
Other assets, net 1,092 992
Total assets $ 42,876 $45,639
Liabilities and Shareholders' Equity
Current liabilities: Short-term borrowings and current
maturities of long-term debt $ 10,916 $10,745
Accounts payable 9,787 7,312
Service contract deferred income 10,408 12,013
Payroll related expenses 4,511 5,504
Other 4,115 5,248
Total current liabilities 39,737 40,822
<PAGE>
Long-term debt 810 1,048
Post-retirement benefit obligations 8,188 8,626
Other long-term liabilities 4,728 5,287
Total liabilities 53,463 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 January 30, 1999
and 2,829,526 as of July 31, 1998 70 70
Capital in excess of par
value 22,691 22,847
Accumulated earnings (deficit) (33,348) (33,061)
Total shareholders'equity (10,587) (10,144)
Total liabilities and
shareholders' equity $ 42,876 $ 45,639
</TABLE>
The Notes to Consolidated Financial Statements are an
integral part of these financial statements.
<PAGE>
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands, except per share amounts)
(Unaudited)
Six Months Ended
January 30, January 31,
1999 1998
<TABLE>
<S> <C> <C>
Cash Flows from Operating
Activities:
Net income $ (287) $ 323
Adjustments to reconcile net income
to cash flow from operating
activities:
Depreciation of property, plant
and equipment 907 913
Amortization of goodwill 41 6
Benefit from operating loss
carryforwards (175) 197
Change in assets and
liabilities:
Accounts receivable, net 1,237 2,308
Inventory, net (124) 2,119
Prepaid expenses and other assets 276 129
Accounts payable 2,475 (3,275)
Other current liabilities (1,744) (4,268)
Other, net (2,129) (1,421)
Cash flow from operating activities 477 (2,969)
Cash Flows from Investing
Activities:
Acquisition activities (462) (5,415)
Capital expenditures (349) (270)
Other 20 -
Cash flow from investing
activities (791) (5,685)
Cash Flows from Financing
Activities:
Net borrowings (payments) under revolving
credit facilities 1,466 2,975
Payments of claims (2,068) (1,999)
Payments under capital lease
arrangements (351) (346)
Cash flow from financing
activities (953) 630
<PAGE>
Increase (decrease) in cash and
cash equivalents (1,267) (8,024)
Cash and cash equivalents at
beginning of period 2,869 10,376
Cash and cash equivalents at end
of period $ 1,602 $ 2,352
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these financial statements.
MULTIGRAPHICS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Note 1 - Basis of Presentation
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.
<PAGE>
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.
Three Months Ended Six Months Ended
January 30, January 31, January 30, January 31,
1999 1998 1999 1998
<TABLE>
<S> <C> <C> <C> <C>
Revenues $ 24,955 $ 25,836 $ 50,834 $ 53,474
Net Income $ (449) $ 87 $ (284) $ 243
Earnings per share:
Basic $ (0.16) $ 0.03 $ (0.10) $ 0.09
Diluted $ (0.16) $ 0.03 $ (0.10) $ 0.09
</TABLE>
Note 3 - Borrowing Arrangements
The Company's short and long-term borrowings are comprised of the
following:
January 30, July 31,
1999 1998
<TABLE>
<S> <C> <C>
Revolving Credit Facility $ 9,233 $ 7,768
Capital Leases 1,410 1,760
Other long-term obligations 1,083 2,265
Total $11,726 $ 11,793
Classified in the Consolidated Balance
Sheet as follows:
Short-term $10,916 $ 10,745
Long-term 810 1,048
Total $11,726 $ 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 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 January 30, 1999, the calculated borrowing
base was approximately $11,800. As of January 30, 1999, the Company
had borrowings of $9,233 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 January 30, 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 January 30, 1999, the Company was in
compliance with the covenants of the Revolving Credit Facility.
<PAGE>
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 January 30, 1999 options to
purchase 351,316 shares were outstanding at option prices ranging
from $2.1875 to $8.2139 per share.
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.
<PAGE>
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 January 30, 1999
disputed claims amounted to approximately $5,105. The disputed
claims are primarily comprised of environmental and product liability
claims, including one claim for $4.0 million which the Company
believes is overstated and for which 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.
<PAGE>
Note 6 - Components of Certain Balance Sheet Accounts
January 30, July 31,
1999 1998
<TABLE>
<S> <C> <C>
Accounts receivable:
Accounts receivable $13,758 $14,929
Allowance for doubtful
accounts (366) (300)
Total accounts receivable, net $13,392 $14,629
Property, plant and equipment:
Machinery and equipment $12,258 $11,985
Leasehold improvements 3,338 3,338
15,596 15,323
Less accumulated depreciation and
amortization (6,620) (5,769)
Property, plant and equipment, net $ 8,976 $ 9,554
Goodwill:
Goodwill $ 4,135 $ 3,723
Accumulated amortization (83) (42)
Goodwill, net $ 4,052 $ 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, and 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.
<PAGE>
Consolidated Results of Operations
Three Months Ended Six Months Ended
<TABLE>
<S> <C> <C> <C> <C>
($ in millions) January January January January
30, 1999 31, 1998 30, 1999 31, 1998
Revenues $25.0 $22.2 $50.6 $42.9
Gross margin 5.8 5.4 12.7 10.9
Gross margin % 23.3% 24.2% 25.0% 25.4%
Operating expenses 6.0 4.8 12.2 9.8
Operating income (loss) (0.2) 0.6 0.5 1.1
Non-operating expense, net 0.5 0.3 1.0 0.6
Income tax expense
(benefit) (0.3) 0.1 (0.2) 0.2
Net income (loss) $(0.4) $0.2 $(0.3) $0.3
</TABLE>
Second Quarter
Second quarter revenues of $25.0 million increased by $2.8 million
over the comparable prior year period. Since December 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 small to mid-size commercial printing market segments. The growth
in revenues was attributable to the acquisitions of regional graphic
arts dealers. Revenues from acquired companies more than offset the
historic revenue erosion from the Company's duplicator supply and
service customers. Market demand for digital prepress equipment was
weaker than expected during the quarter, however, demand for these
products is cyclical. The 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.
Gross margin of $5.8 million increased by $0.4 million over the
comparable prior year period, while the overall margin rate decreased
by 0.9 percentage 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 reflects the impact of a changing customer base and product
mix, which includes more branded items. 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.
<PAGE>
Operating expenses in the second quarter of $6.0 million increased by
$1.2 million over the prior year period, largely due to the addition
of sales personnel and related expenses of the acquired entities.
Lower than expected revenues during the quarter resulted in the
second quarter operating loss. To address the revenue shortfall,
over the course of the past six months, the Company has expended
significant efforts to secure new customers and new distribution
agreements with manufacturers. The results of these efforts have led
to significant new account activity which will be reflected in the
third and fourth quarters. The Company expects to be profitable in
the third and fourth quarters and for the full fiscal year.
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 borrowings primarily
incurred to finance acquisitions. Interest expense related to pre-
petition debt obligations decreased $0.1 million from the prior year.
The final scheduled prepetition payment obligation was disbursed in
September 1998.
Six Months
Revenues for the first six months of $50.6 million increased by $7.7
million over the prior year comparable period. The 18% growth in
revenues was primarily attributable to the acquisitions of the
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. Gross margin of $12.7 million for the first
six months increased by $1.8 million compared to the prior year,
largely as a result of the increased revenue volume in the current
year.
Operating expenses in the first six months of $12.2 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 $1.0 million increased by $0.4 million,
primarily due to higher net interest expense on debt resulting from
acquisition financing.
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.
<PAGE>
Liquidity and Capital Resources
(Six months ended January 30, 1999 and January 31, 1998)
Cash balances at January 30, 1999 were $1.6 million, having decreased
by $1.3 million from July 31, 1998. The reduction was due primarily
to settlement of bankruptcy claims that were paid out of existing
cash reserves. Although cash decreased during the six months, short-
term debt increased by approximately $0.2 million. A $1.5 million
increase in revolver borrowings was largely offset by a reduction in
general unsecured bankruptcy claims.
Operating Activities. During the six months ended January 30, 1999
the Company had positive cash flow from operating activities of $0.5
million, which was a $3.5 million improvement over the $3.0 million
outflow in the comparable prior year period. The net loss for the
current period was $0.3 million, compared to net income of $0.3
million in the comparable prior year period. Accounts receivable
decreased by $1.2 million in the current year and $2.3 million in the
comparable prior year period, while collection rates were lower in
the current year period primarily due to higher equipment sales which
historically take longer to collect. Inventory balances have
remained fairly stable in the current year. In the prior year
period, inventory decreased by $2.1 million due primarily to lower
stocking levels of machines. Accounts payable increased by $2.5
million during the current year due to extended payment terms with
vendors. In the prior year period, accounts payable decreased by
$3.3 million due to lower inventory purchases. Other current
liabilities decreased by $1.7 million during the current year,
largely due to payment of $1.0 million in payroll related liabilities
and payment of $0.4 million in product liability claims and
settlement fees. Current liabilities decreased by $4.3 million in the
prior year due primarily to payment of payroll related liabilities,
settlement of a recourse obligation of a divested subsidiary,
costs related to the phase out of the Company's manufactured
machine product line and other exit costs of a divested foreign
subsidiary. During the current year, other liabilities
decreased by $2.1 million due to a seasonal reduction of $1.6 million
in deferred service liabilities and payment of $0.4 million of post
retirement related liabilities. In the prior year, other liabilities
decreased by approximately $1.4 million mainly due to payment of post
retirement related liabilities and the seasonal reduction in deferred
service liabilities.
Investing Activities. Current year investing activities resulted in
a cash outflow of approximately $0.8 million. This outflow was the
result of $0.5 million in acquisition related expenditures. Capital
expenditures of $0.3 million were for computers, software and other
related equipment. The prior year comparable period cash outflow of
$5.7 million was mainly related to the acquisitions of Hanley Graphic
Products Company and Publishing Solutions Inc.
Financing Activities. During the six months ended January 30, 1999,
financing activities resulted in a cash outflow of $1.0 million.
During the period, net revolver borrowings increased by $1.5 million
compared to the prior year increase of $3.0 million. Payments of
$2.1 million were for general unsecured bankruptcy claims during the
period. Current year payments under capital lease arrangements were
$0.4 million.
<PAGE>
The Company's primary source of financing is its revolving credit
facility which was established in May, 1997 and which has been
subsequently 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. The Company also intends
to seek to increase its capital availability to support its growth
strategy which may include the 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 first six months
ended January 30, 1999, the Company expended $0.2 million 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, the Company's strategies for growth and
expansion, and third and fourth quarter operating results, as well as
results for the entire fiscal year. 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, including the
integration of acquired businesses, 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The company is exposed to market risk related to change in interest
rates. At January 30, 1999, the Company had approximately $9.2
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 $1.4 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 4. Submission of Matters to a Vote of Security Holders.
On December 3, 1998, Registrant held its Annual Meeting of
Stockholders for the fiscal year ended July 31, 1998.
Registrant's stockholders reelected the five incumbent members of the
Board of Directors to serve until the next annual meeting or until
their successors are elected and qualified. The Board of Directors
consists of Robert E. Anderson III, Jeffrey D. Benjamin, Robert N.
Dangremond, Jeff M. Moore, and Thomas D. Rooney.
Registrant's stockholders also ratified the appointment of Arthur
Andersen LLP as the Registrant's independent public accountants for
the fiscal year ending July 31, 1999. The vote total was 2,763,575
votes _for_, 2,626 votes _against_, and 577 votes to _abstain_.
Item 6. Exhibits
(a) Exhibits
10 Material Contracts
(a) 1998 Stock Incentive Plan for Directors
(incorporated by reference to Exhibit 99.1 to
Registrants' Registration Statement on Form S-8 (File
No. 333-67069)).
(b) Form of Stock Option Agreement for Non-
Employee Directors (incorporated by reference to
Exhibit 99.2 to Registrants' Registration Statement on
Form S-8 (File No. 333-67069)).
27 Financial Data Schedule
(b) Reports on form 8-K
None
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant had duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
<PAGE>
MULTIGRAPHICS, INC.
Date: March 15, 1999 /s/ Gregory T. Knipp
Gregory T. Knipp
Vice President and Chief Financial
Officer
(authorized officer and principal
accounting officer)
EXHIBITS
No. Description
10 Material Contracts
(a) 1998 Stock Incentive Plan for Directors
(incorporated by reference to Exhibit 99.1 to
Registrants' Registration Statement on Form S-8 (File
No. 333-67069)).
(b) Form of Stock Option Agreement for Non-
Employee Directors (incorporated by reference to
Exhibit 99.2 to Registrants' Registration Statement on
Form S-8 (File No. 333-67069)).
27 Financial Data Schedule
<PAGE>
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