<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 July 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
<TABLE>
<CAPTION>
Title of each Class Shares Outstanding as of July 31, 1994
------------------- --------------------------------------
<S> <C>
COMMON STOCK, $.10 PAR VALUE 6,074,561
CLASS B COMMON STOCK, $10 PAR VALUE 4,519,117
</TABLE>
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
----- -----
<PAGE>
GRAPHIC INDUSTRIES, INC.
------------------------
INDEX
-----
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NUMBER
- - ------------------------------ -----------
<S> <C>
Item 1. - Financial Statements (Unaudited)
Condensed Consolidated Statements of 1
Income - three months ended July 31,
1994 and July 31, 1993 - six months ended
July 31, 1994 and July 31, 1993
Condensed Consolidated Balance Sheets - 2-3
July 31, 1994 and January 31, 1994
Condensed Consolidated Statements of 4
Cash Flows - six months ended July
31, 1994, and July 31, 1993
Notes to Condensed Consolidated Financial 5
Statements - July 31, 1994
Item 2. - Management's Discussion and Analysis 6
of Financial Condition and Results of
Operations
<CAPTION>
PART II - OTHER INFORMATION
- - ---------------------------
<S> <C> <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 SIX MONTHS ENDED
JULY 31, JULY 31,
-------------------------- -----------------------------
1994 1993 1994 1993
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $82,484,305 $83,111,299 $170,566,176 $167,553,131
Cost of Sales 62,689,408 63,896,235 128,866,136 128,609,305
----------- ----------- ------------ ------------
19,794,897 19,215,064 41,700,040 38,943,826
Selling,
General and
Administrative
Expenses 15,120,387 15,070,204 31,574,819 30,462,066
Interest and
Other Income 564,725 228,396 861,126 753,193
Interest Expense 2,310,806 2,171,108 4,361,246 4,183,488
----------- ----------- ------------ ------------
Income before
income taxes 2,928,429 2,202,148 6,625,101 5,051,465
Income Taxes 1,171,000 991,000 2,650,000 2,273,000
----------- ----------- ------------ ------------
Net Income $ 1,757,429 $ 1,211,148 $ 3,975,101 $ 2,778,465
=========== =========== ============ ============
Net Income per
common share:
Primary $ .17 $ .12 $ .38 $ .28
===== ===== ===== =====
Fully diluted $ .17 $ .12 $ .37 $ .28
===== ===== ===== =====
Dividends declared:
Common Stock $.0175 $.0175 $ .035 $ .035
====== ====== ====== ======
Class B Common
Stock $.0125 -0- $ .025 -0-
====== ====== ====== ======
</TABLE>
See notes to condensed consolidated financial statements.
-1-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1994 1994
------------- -------------
(Unaudited)
A S S E T S
- - -----------
<S> <C> <C>
Current Assets
Cash and short-term investments $ 21,753,588 $ 32,332,007
Trade accounts receivable 59,882,914 58,552,570
Inventories:
Materials 9,210,498 8,209,998
Work in process 13,859,394 12,680,323
------------ ------------
23,069,892 20,890,321
Prepaid expenses and other
current assets 5,045,525 3,629,109
------------ ------------
Total Current Assets 109,751,919 115,404,007
Other Assets 18,245,901 14,709,016
Property, Plant and Equipment
Land 8,938,319 8,909,787
Buildings and improvements 36,806,475 35,708,871
Machinery and equipment 135,230,974 129,738,436
------------ ------------
180,975,768 174,357,094
Less accumulated depreciation 73,346,018 67,064,692
------------ ------------
107,629,750 107,292,402
------------ ------------
$235,627,570 $237,405,425
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
-2-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1994 1994
------------ ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Current Liabilities
<S> <C> <C>
Notes payable to banks $ 18,666,204 $ 21,666,820
Accounts payable 17,889,053 18,752,280
Other current liabilities 13,313,139 16,803,392
Current portion of long-term
obligations 10,471,660 9,543,777
------------ ------------
Total Current Liabilities 60,340,056 66,766,269
Long-Term Obligations, less
current portion 67,607,036 67,560,368
Deferred Income Taxes 15,729,427 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 July 31,
1994 and 5,872,240 at January
31,1994, including treasury
shares of -0- at July 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 61,681,813 58,854,707
------------ ------------
Less treasury stock at cost 71,164,051 66,591,858
-0- (160,348)
------------ ------------
71,164,051 66,431,510
------------ ------------
$235,627,570 $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>
SIX MONTHS ENDED JULY 31,
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Funds provided from operations $ 11,364,748 $ 9,976,544
Changes in operating assets and
liabilities (8,012,965) (4,900,928)
------------ ------------
NET 3,351,783 5,075,616
INVESTING ACTIVITIES
Purchase of property, plant and equipment (7,608,859) (8,873,418)
Other investing activities (2,575,641) (288,698)
------------ ------------
NET (10,184,500) (9,162,116)
FINANCING ACTIVITIES
Borrowings on long-term obligations 5,160,528 44,446,317
Payments on long-term obligations (5,215,941) (37,890,595)
Net repayments of notes payable (3,690,289) (7,391,199)
------------ ------------
NET (3,745,702) (835,477)
------------ ------------
NET DECREASE IN CASH AND
SHORT-TERM INVESTMENTS $(10,578,419) $ (4,921,977)
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 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 $791,777
at July 31, 1994 (net of $527,851 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
July 31, 1994 and the results of the operations and cash flows for the three and
six months then ended. The results of operations for the six months ended July
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 SIX MONTHS ENDED
JULY 31 JULY 31
------------------- ------------------
1994 1993 1994 1993
------------------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 76.0 76.9 75.6 76.8
Selling, general and
administrative expenses 18.4 18.1 18.5 18.2
Interest and other Income 0.7 0.3 0.5 0.5
Interest expense 2.8 2.6 2.5 2.5
---- ---- ----- -----
Income before income taxes 3.5 2.7 3.9 3.0
Provision for income taxes 1.4 1.2 1.6 1.3
---- ---- ----- -----
Net income 2.1% 1.5% 2.3% 1.7%
==== ==== ===== =====
</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 July 31, 1994, decreased
- - ----------
approximately $0.6 million as compared to the same period last year due to
consolidating two operations during the final quarter of last fiscal year. Net
sales, for the six months ended July 31, 1994, increased approximately $3.0
million as compared to the same period last year. Of this increase,
approximately $1.4 million was attributable to the net sales of SSI, and
approximately $1.6 million to increased sales volume.
COST OF SALES. Cost of sales for the three months ended July 31, 1994,
- - --------------
decreased 0.9% 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 six
months ended July 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 increased 0.3% as a percentage of sales for both the
three months ended July 31, 1994 and six months ended July 31, 1994, as compared
to the same periods last year. The increase is due primarily to higher sales
costs resulting from adding sales people.
INTEREST AND OTHER INCOME. Interest and other income, as a percentage of sales,
- - --------------------------
increased 0.4% for the three months ended July 31, 1994, as compared to the same
period last year. This increase is due primarily to an increase in income from
the sale of assets as compared to the same period last year. Interest and other
income, as a percentage of sales, remained essentially the same for the six
months ended July 31, 1994, as compared to the same period last year.
INTEREST EXPENSE. Interest expense, as a percentage of sales, increased 0.2%
- - -----------------
for the three months ended July 31, 1994, as compared to the same period last
year. The increase is due primarily to an increase in the prime interest rate.
Interest expense, as a percentage of sales, remained essentially the same for
the six months ended July 31, 1994 as compared to the same period last year.
INCOME TAXES. The effective income tax rate was 40.0% for the three months and
- - -------------
six months ended July 31, 1994. This compares to an effective tax rate of 45.0%
for the three months and six months ended July 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
At July 31, 1994, the Company had approximately $49.4 million in working capital
as compared to approximately $49.9 million at July 31, 1993. Capital
expenditures for property, plant and equipment were approximately $7.6 million
for the six months ended July 31, 1994.
The Company's capital expenditures and net decrease in debt have been financed
by approximately $3.4 million of funds from operations and approximately $10.6
million from use of cash and short-term investments during the first six months.
The Company believes that existing working capital, including a cash and short-
term investments balance of approximately $21.8 million at July 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 July 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 8-K
- - --------------------------------------
Exhibit 11 - Statement Regarding Computation of Earnings
Per Share.
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: September 13, 1994
------------------
/s/ Mark C. Pope III
----------------------------------------
Mark C. Pope III
Chairman and Chief Executive Officer
DATE: September 13, 1994
------------------
/s/ David S. Fraser
----------------------------------------
Chief Financial Officer and Treasurer
-10-
<PAGE>
EXHIBIT 11
GRAPHIC INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
--------------------- ----------------------
1994 1993 1994 1993
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $1,757,429 $1,211,148 $3,975,101 $2,778,465
Add interest on 7% convertible
subordinated debentures(2) 218,264 200,075 436,528 400,150
---------- ---------- ---------- ----------
TOTAL $1,975,693 $1,411,223 $4,411,629 $3,178,615
========== ========== ========== ==========
Shares (1)
Primary
Weighted average shares
outstanding 10,591,613 10,018,640 10,511,312 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 11,870,813 11,297,840 11,790,512 11,297,840
========== ========== ========== ==========
Primary earnings per share $ .17 $ .12 $ .38 $ .28
===== ===== ===== =====
Fully diluted earnings per share $ .17(3) $ .12(3) $ .37 $ .28(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 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JUL-31-1994
<EXCHANGE-RATE> 1
<CASH> 1,017
<SECURITIES> 20,737
<RECEIVABLES> 61,623
<ALLOWANCES> 1,740
<INVENTORY> 23,070
<CURRENT-ASSETS> 109,752
<PP&E> 180,976
<DEPRECIATION> 73,346
<TOTAL-ASSETS> 235,628
<CURRENT-LIABILITIES> 60,341
<BONDS> 88,394
<COMMON> 1,059
0
0
<OTHER-SE> 70,105
<TOTAL-LIABILITY-AND-EQUITY> 235,628
<SALES> 170,566
<TOTAL-REVENUES> 171,427
<CGS> 128,866
<TOTAL-COSTS> 31,575
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,361
<INCOME-PRETAX> 6,625
<INCOME-TAX> 2,650
<INCOME-CONTINUING> 3,975
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,975
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
</TABLE>
