<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended October 31, 1994 Commission File Number 0-12204
GRAPHIC INDUSTRIES, INC.
(Exact Name of Registrant as Specified In Its Charter)
Georgia 58-1101633
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
2155 Monroe Drive, N.E., Atlanta, Ga. 30324
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (404) 874-3327
Not Applicable
Former name, former address and former fiscal year, if changed since last report
Title of each Class Shares Outstanding as of October 31, 1994
------------------- -----------------------------------------
COMMON STOCK, $.10 PAR VALUE 6,074,561
CLASS B COMMON STOCK, $.10 PAR VALUE 4,519,117
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 COMMISSION ACT OF
1934 DURING THE PRECEDING TWELVE MONTHS (OR SUCH SHORTER PERIODS 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
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GRAPHIC INDUSTRIES, INC.
------------------------
INDEX
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NUMBER
- - ------------------------------ -----------
<S> <C>
Item 1. - Financial Statements (Unaudited)
Condensed Consolidated Statements of 1
Income - three months ended October 31,
1994 and October 31, 1993 - nine months
ended October 31, 1994 and October 31, 1993
Condensed Consolidated Balance Sheets - 2-3
October 31, 1994 and January 31, 1994
Condensed Consolidated Statements of 4
Cash Flows - nine months ended October
31, 1994, and October 31, 1993
Notes to Condensed Consolidated Financial 5
Statements - October 31, 1994
Item 2. - Management's Discussion and Analysis 6
of Financial Condition and Results of
Operations
<CAPTION>
PART II - OTHER INFORMATION
- - ---------------------------
<S> <C>
Item l. Legal Proceedings 9
2. Changes in Securities 9
3. Defaults upon Senior Securities 9
4. Submission of Matters to a Vote of 9
Security Holders
5. Other Information 9
6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------ --------------------------
1994 1993 1994 1993
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $90,398,338 $84,032,697 $260,964,514 $251,585,828
Cost of Sales 67,573,154 63,782,438 196,439,290 192,391,743
----------- ----------- ------------ ------------
22,825,184 20,250,259 64,525,224 59,194,085
Selling,
General and
Administrative
Expenses 16,221,324 15,768,034 47,796,143 46,230,100
Interest and
Other Income(Loss) (718,811) 598,413 142,315 1,351,606
Interest Expense 2,404,121 2,151,922 6,765,367 6,335,410
----------- ----------- ------------ ------------
Income before
income taxes 3,480,928 2,928,716 10,106,029 7,980,181
Income Taxes 1,392,000 1,318,000 4,042,000 3,591,000
----------- ----------- ------------ ------------
Net Income $2,088,928 $1,610,716 $ 6,064,029 $ 4,389,181
=========== =========== ============ ============
Net income per
common share:
Primary $ .20 $ .16 $ .58 $ .44
====== ====== ====== ======
Fully diluted $ .19 $ .16 $ .57 $ .44
====== ====== ====== ======
Dividends declared:
Common Stock $.0175 $.0175 $.0525 $.0525
====== ====== ====== ======
Class B Common
Stock $.0125 -0- $.0375 -0-
====== ==== ====== ====
</TABLE>
See notes to condensed consolidated financial statements.
-1-
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GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1994 1994
------------- ------------
(Unaudited)
A S S E T S
- - -----------
<S> <C> <C>
Current Assets
Cash and short-term investments $ 22,882,627 $ 32,332,007
Trade accounts receivable 63,915,094 58,552,570
Inventories:
Materials 9,405,059 8,209,998
Work in process 15,321,601 12,680,323
------------ ------------
24,726,660 20,890,321
Prepaid expenses and other
current assets 5,732,351 3,629,109
------------ ------------
Total Current Assets 117,256,732 115,404,007
Other Assets 21,401,755 14,709,016
Property, Plant and Equipment
Land 9,408,319 8,909,787
Buildings and improvements 38,516,060 35,708,871
Machinery and equipment 132,228,022 129,738,436
------------ ------------
180,152,401 174,357,094
Less accumulated depreciation 73,530,788 67,064,692
------------ ------------
106,621,613 107,292,402
------------ ------------
$245,280,100 $237,405,425
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
-2-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1994 1994
------------ -------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
<S> <C> <C>
Current Liabilities
Notes payable $ 25,739,824 $21,666,820
Accounts payable 19,268,010 18,752,280
Other current liabilities 14,453,639 16,803,392
Current portion of long-term
obligations 10,632,273 9,543,777
------------ ------------
Total Current Liabilities 70,093,746 66,766,269
Long-Term Obligations, less
current portion 66,439,093 67,560,368
Deferred Income Taxes 15,511,086 15,860,278
7% Convertible Subordinated
Debentures 20,787,000 20,787,000
Shareholders' Equity
Preferred Stock, no par value;
authorized 500,000
shares; none issued -0- -0-
Common Stock, $.l0 par value;
authorized 20,000,000 shares;
issued 6,074,561 at October 31,
1994 and 5,872,240 at January
31, 1994, including treasury
shares of -0- at October 31, 1994
and 14,400 at January 31, 1994 607,456 587,224
Common Stock, Class B, $.l0 par
value; authorized l0,000,000
shares; issued 4,519,117 in
both periods 451,912 451,912
Additional paid-in capital 8,422,870 6,698,015
Retained earnings 62,966,937 58,854,707
------------ ------------
72,449,175 66,591,858
Less treasury stock at cost -0- (160,348)
------------ ------------
72,449,175 66,431,510
------------ ------------
$245,280,100 $237,405,425
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
-----------------------------
1994 1993
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Funds provided from operations $ 17,374,097 $ 15,652,577
Changes in operating assets and
liabilities (11,869,282) (4,261,149)
------------ ------------
NET 5,504,815 11,391,428
INVESTING ACTIVITIES
Purchase of property, plant and equipment (12,094,991) (15,935 445)
Other investing activities (5,179,792) 674,322
------------ ------------
NET (17,274,783) (15,261,123)
FINANCING ACTIVITIES
Borrowings on long-term obligations 6,557,422 47,619,442
Payments on long-term obligations (7,620,165) (40,297,791)
Net borrowings (repayments) of notes
payable 3,383,331 (6,307,988)
------------ ------------
NET 2,320,588 1,013,663)
------------ ------------
NET DECREASE IN CASH AND
SHORT-TERM INVESTMENTS $ (9,449,380) $ (2,856,032)
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 31, 1994
NOTE A--BASIS OF PRESENTATION
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information not misleading. These financial statements should be read
in conjunction with the financial statements and related notes contained in the
1994 Annual Report on Form l0-K. Other than indicated herein, there have been
no significant changes from the financial data published in said report. In
fiscal 1995, the Company adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities." The
effect of applying Statement 115 was to reduce shareholders' equity by
$1,432,787 at October 31, 1994 (net of $955,192 in deferred income taxes) to
reflect the unrealized holding losses on securities classified as available-for-
sale. This adjustment is the result of the recent rise in short term interest
rates and does not necessarily reflect the ultimate realization on these
investments. In the opinion of Management, the financial statements contain all
adjustments of a normal recurring nature necessary to present fairly the
financial position as of October 31, 1994 and the results of the operations and
cash flows for the nine months then ended. The results of operations for the
nine months ended October 31, 1994 are not necessarily indicative of the results
to be expected for the year ending January 31, 1995.
NOTE B--NET INCOME PER COMMON SHARE
Primary earnings per share are computed based on the weighted average number of
common shares outstanding during the period. Fully diluted earnings per share
are based on the weighted average number of shares outstanding and, when
dilutive, assumed conversion of convertible securities during the period, after
appropriate adjustments for interest and applicable income tax effect.
-5-
<PAGE>
ITEM 2
------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following table sets forth items from the Condensed Consolidated Statements
of Income as a percentage of net sales for the indicated periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------ -----------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 74.8 75.9 75.3 76.5
Selling, general and
administrative expenses 17.9 18.8 18.3 18.4
Interest and other income
(loss) (0.8) 0.7 0.1 0.6
Interest expense 2.7 2.5 2.6 2.5
----- ----- ----- -----
Income before income taxes 3.8 3.5 3.9 3.2
Provision for income taxes 1.5 1.6 1.6 1.4
----- ----- ----- -----
Net income 2.3% 1.9% 2.3% 1.8%
===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
General. As of April 29, 1994, the Company acquired Southern Signatures, Inc.
- - --------
("SSI"), a commercial printing company in Atlanta, Georgia. The acquisition was
financed through the issuance of 119,337 shares of the Company's Common Stock
valued at $1,005,000.
The Company invests excess working capital in interest-bearing and investment
grade short-term securities.
NET SALES. Net sales, for the three months ended October 31, 1994, increased
- - ----------
approximately $6.4 million as compared to the same period last year. Of this
increase, approximately $1.5 million was attributable to the net sales of SSI,
and approximately $4.9 to increased sales volume. Net sales, for the nine
months ended October 31, 1994, increased approximately $9.4 million as compared
to the same period last year. Of this increase, approximately $2.9 million was
attributable to the net sales of SSI, and approximately $6.5 million to
increased sales volume.
COST OF SALES. Cost of sales for the three months ended October 31, 1994,
- - --------------
decreased 1.1% as a percentage of sales, as compared to the same period last
year. Cost of sales, as a percentage of sales, decreased 1.2% for the nine
months ended October 31, 1994, as compared to the same period last year. The
improvement in both periods is the result of expense containment programs and
the better utilization of assets.
-6-
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
- - ---------------------------------------------
administrative expenses decreased 0.9% as a percentage of sales for the three
months ended October 31, 1994 and 0.1% for the nine months ended October 31,
1994, as compared to the same periods last year. The decrease in both periods
is due primarily to the effect of the Company's on-going focus on operations and
expense reduction.
INTEREST AND OTHER INCOME (LOSS). Interest and other income (loss), as a
- - ---------------------------------
percentage of sales, decreased 1.5% for the three months ended October 31, 1994
and 0.5% for the nine months ended October 31, 1994, as compared to the same
periods last year. The decrease in both periods is due primarily to reduced
investment income and a loss on the disposition of certain assets related to the
combination, during this fiscal year, of two of the Company's subsidiaries,
Graphic Direct-Illinois and Graphic Direct-Michigan.
INTEREST EXPENSE. Interest expense, as a percentage of sales, increased 0.2%
- - -----------------
for the three months ended October 31, 1994 and 0.1% for the nine months ended
October 31, 1994, as compared to the same periods last year. The increase in
both periods is due primarily to an increase in the prime interest rate.
INCOME TAXES. The effective income tax rate was 40.0% for the three months and
- - -------------
nine months ended October 31, 1994. This compares to an effective tax rate of
45.0% for the three months and nine months ended October 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
At October 31, 1994, the Company had approximately $47.2 million in working
capital as compared to approximately $50.4 million at October 31, 1993. Capital
expenditures for property, plant and equipment were approximately $12.1 million
for the nine months ended October 31, 1994.
The Company's capital expenditures have been financed by funds from operations,
additional borrowings of $4.3 million and from use of cash and short-term
investments during the first nine months.
The Company believes that existing working capital, including a cash and short-
term investments balance of approximately $22.9 million at October 31, l994,
funds provided from operations, undrawn bank lines of credit, and additional
bank financing will be adequate to satisfy the Company's presently anticipated
needs for working capital and capital expenditures, including possible future
acquisitions.
-7-
<PAGE>
IMPACT OF INFLATION
- - -------------------
The Company has experienced increases in the costs of materials, labor,
equipment and machinery as well as other operating expenses. Its ability to
pass on such increased costs through increased prices has been affected
differently in different time periods; however, the Company has generally been
able to mitigate cost increases by increasing its production efficiencies or by
passing on increased costs to customers.
-8-
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM ONE - LEGAL PROCEEDINGS
- - ----------------------------
At October 31, 1994, there were no material pending legal proceedings to
which the Company was a party or to which any of its property was the
subject.
ITEM TWO - CHANGES IN SECURITIES
- - --------------------------------
None
ITEM THREE - DEFAULTS UPON SENIOR SECURITIES
- - --------------------------------------------
None
ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ---------------------------------------------------------------
None
ITEM FIVE - OTHER INFORMATION
- - -----------------------------
None
ITEM SIX - EXHIBITS AND REPORTS ON FORM 8-K
- - --------------------------------------------
Exhibit 11 - Statement Regarding Computation on Earnings Per Share.
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K - No report on Form 8-K has been filed by the
registrant during the quarter for which this report is filed.
-9-
<PAGE>
SIGNATURES
----------
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.
GRAPHIC INDUSTRIES, INC.
----------------------------------------
DATE: December 12, 1994
-----------------
/s/ Mark C. Pope III
----------------------------------------
Mark C. Pope III
Chairman and Chief Executive Officer
DATE: December 12, 1994
-----------------
/s/ David S. Fraser
----------------------------------------
David S. Fraser
Chief Financial Officer and Treasurer
-10-
<PAGE>
EXHIBIT 11
GRAPHIC INDUSTRIES, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
---------------------- ---------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $2,088,928 $1,610,716 $6,064,029 $4,389,181
Add interest on 7% convertible
subordinated debentures(2) 218,263 200,075 654,791 600,225
---------- ---------- ---------- ----------
TOTAL $2,307,191 $1,810,791 $6,718,820 $4,989,406
========== ========== ========== ==========
Shares (1)
Primary
Weighted average shares
outstanding 10,593,678 10,018,640 10,539,069 10,018,640
Fully Diluted
Add common shares
applicable to assumed
conversion of 7%
convertible sub-
ordinated debentures 1,279,200 1,279,200 1,279,200 1,279,200
---------- ---------- ---------- ----------
Weighted average shares
outstanding, as adjusted 11,872,878 11,297,840 11,818,269 11,297,840
========== ========== ========== ==========
Primary earnings per share $.20 $.16 $.58 $.44
==== ==== ==== ====
Fully diluted earnings per share $.19 $.16(3) $.57 $.44(3)
==== ==== ==== ====
</TABLE>
(1) No significant dilutive common stock equivalents were outstanding in any
year.
(2) Net of income tax effect.
(3) Fully diluted earnings per share, as computed, were not dilutive and,
therefore, equal primary earnings per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GRAPHIC
INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> OCT-31-1994
<CASH> 1,163
<SECURITIES> 21,720
<RECEIVABLES> 65,692
<ALLOWANCES> 1,777
<INVENTORY> 24,727
<CURRENT-ASSETS> 117,257
<PP&E> 180,152
<DEPRECIATION> 73,531
<TOTAL-ASSETS> 245,280
<CURRENT-LIABILITIES> 70,093
<BONDS> 87,226
<COMMON> 1,059
0
0
<OTHER-SE> 71,389
<TOTAL-LIABILITY-AND-EQUITY> 245,280
<SALES> 260,965
<TOTAL-REVENUES> 261,107
<CGS> 196,439
<TOTAL-COSTS> 47,796
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,765
<INCOME-PRETAX> 10,106
<INCOME-TAX> 4,042
<INCOME-CONTINUING> 6,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,064
<EPS-PRIMARY> .58
<EPS-DILUTED> .57
</TABLE>
