<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, 1995 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 SHARE OUTSTANDING AS OF OCTOBER 31, 1995
- ------------------------------------ ----------------------------------------
COMMON STOCK, $.10 PAR VALUE 6,558,345
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
----- -----
<PAGE>
GRAPHIC INDUSTRIES, INC.
------------------------
INDEX
-----
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ -----------
Item 1. - Financial Statements (Unaudited)
<S> <C>
Condensed Consolidated Statements of 1
Income - three months ended October 31,
1995 and October 31, 1994 - nine months
ended October 31, 1995 and October 31, 1994
Condensed Consolidated Balance Sheets - 2-3
October 31, 1995 and January 31, 1995
Condensed Consolidated Statements of 4
Cash Flows - nine months ended October
31, 1995 and October 31, 1994
Notes to Condensed Consolidated Financial 5
Statements - October 31, 1995
Item 2. - Management's Discussion and Analysis 6
of Financial Condition and Results of
Operations
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>
2
<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,
------------------------- -------------------------
1995 1994 1995 1994
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $105,614,827 $90,398,338 $308,421,764 $260,964,514
Cost of Sales 80,536,057 67,573,154 234,309,846 196,439,290
------------ ----------- ----------- ------------
25,078,770 22,825,184 74,111,918 64,525,224
Selling,
General and
Administrative
Expenses 18,244,274 16,221,324 54,250,251 47,796,143
Interest and
Other Income(Loss) 566,016 (718,811) 1,354,586 142,315
Interest Expense 2,923,878 2,404,121 8,584,025 6,765,367
---------- ---------- ----------- -----------
Income before
Income Taxes 4,476,634 3,480,928 12,632,228 10,106,029
Income Taxes 1,791,000 1,392,000 5,053,000 4,042,000
---------- ---------- ----------- -----------
Net Income $ 2,685,634 $ 2,088,928 $ 7,579,228 $ 6,064,029
=========== =========== =========== ===========
Net Income per
common share:
Primary $ .25 $ .20 $ .71 $ .58
=========== =========== =========== ===========
Fully diluted $ .24 $ .19 $ .69 $ .57
=========== =========== =========== ===========
Dividends declared:
Common Stock $ .0175 $ .0175 $ .0525 $ .0525
=========== ========== =========== ===========
Class B Common
Stock $ .0125 $ .0125 $ .0375 $ .0375
=========== ========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
OCTOBER 31, JANUARY 31,
1995 1995
------------- -------------
(Unaudited)
<TABLE>
<CAPTION>
A S S E T S
- -----------
<S> <C> <C>
Current Assets
Cash and marketable securities $ 23,706,816 $ 28,287,722
Trade accounts receivable 74,904,742 59,917,946
Inventories:
Materials 12,819,099 12,325,468
Work in process 22,042,935 14,659,141
------------ ------------
34,862,034 26,984,609
Prepaid expenses and other
current assets 6,111,486 3,990,781
------------ ------------
Total Current Assets 139,585,078 119,181,058
Other Assets 17,346,647 21,461,440
Property, Plant and Equipment
Land 8,438,522 9,618,883
Buildings and improvements 38,761,380 38,976,010
Machinery and equipment 154,982,328 138,571,937
------------ ------------
202,182,230 187,166,830
Less accumulated depreciation 83,857,545 74,643,058
------------ ------------
118,324,685 112,523,772
------------ ------------
$275,256,410 $253,166,270
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
OCTOBER 31, JANUARY 31,
1995 1995
------------ ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Current Liabilities
Notes payable $ 30,491,942 $21,909,936
Accounts payable 25,521,188 25,308,635
Other current liabilities 17,342,658 15,083,800
Current portion of long-term
obligations 13,431,605 11,087,348
------------ -----------
Total Current Liabilities 86,787,393 73,389,719
Long-Term Obligations, less
current portion 65,183,586 68,781,374
Deferred Income Taxes 16,353,901 15,306,327
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 6,558,345 at October 31,
1995 and 6,234,449 at January
31, 1995, including treasury shares
of 61,305 at October 31, 1995
and 77,461 at January 31, 1995 655,835 623,445
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 12,571,607 9,322,787
Retained earnings 73,093,872 65,298,086
------------ -----------
86,773,226 75,696,230
Less treasury stock at cost (628,696) (794,380)
------------ -----------
86,144,530 74,901,850
------------ -----------
$275,256,410 $253,166,270
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
------------------------------
1995 1994
------ ------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,579,228 $ 6,064,029
Depreciation and amortization 12,254,284 10,704,068
Provision for deferred taxes 252,650 606,000
Changes in operating assets and liabilities (20,975,321) (12,070,458)
------------ ------------
Net cash (used in) provided by
operating activities (889,159) 5,303,639
INVESTING ACTIVITIES
Additions to property, plant and equipment (19,599,452) (12,094,991)
Net increase in marketable securities (585,560) (6,755,976)
Other investing activities 9,747,641 (2,164,058)
------------ ------------
Net cash used in investing activities (10,437,371) (21,015,025)
FINANCING ACTIVITIES
Borrowings on long-term obligations 7,028,482 6,557,422
Payments on long-term obligations (9,914,401) (7,620,165)
Net borrowings on notes payable 7,923,801 3,383,331
Dividends (496,002) (486,208)
Other financing activities 299,966 59,629
------------ ------------
Net cash provided by financing activities 4,841,846 1,894,009
------------ ------------
Net decrease in cash and cash equivalents $ (6,484,684) $(13,817,377)
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 31, 1995
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
1995 Annual Report on Form l0-K. 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, 1995 and the results of
the operations and cash flows for the three months and nine months then ended.
The results of operations for the nine months ended October 31, 1995 are not
necessarily indicative of the results to be expected for the year ending January
31, 1996.
NOTE B--ACCOUNTING FOR INVESTMENTS IN DEBT AND EQUITY SECURITIES
In fiscal 1995, the Company adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As
of October 31, 1995, the cumulative effect of applying Statement 115 was a
reduction to shareholders' equity of $600,792 (net of $400,528 in deferred
income taxes) to reflect the unrealized holding losses on securities classified
as "available-for-sale." This adjustment is the result of a net increase in
market interest rates since the beginning of fiscal 1995 and does not
necessarily reflect the ultimate realization on these investments. This
cumulative adjustment includes an increase to shareholders' equity of $712,560
(net of $508,261 in deferred income taxes) for the nine months ended October 31,
1995. This change is the result of an increase in the market value of
securities during the first nine months of fiscal 1996 due to a decrease in
market interest rates for the period ended October 31, 1995.
NOTE C--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.
7
<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,
------------------ ------------------
1995 1994 1995 1994
-------- ------- --------- -------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 76.2 74.8 76.0 75.3
Selling, general and
administrative expenses 17.3 17.9 17.6 18.3
Interest and other income
(loss) 0.5 (0.8) 0.5 0.1
Interest expense 2.8 2.7 2.8 2.6
----- ----- ----- -----
Income before income taxes 4.2 3.8 4.1 3.9
Provision for income taxes 1.7 1.5 1.6 1.6
----- ----- ----- -----
Net income 2.5% 2.3% 2.5% 2.3%
===== ===== ===== =====
</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.
As of September 29, 1995 the Company acquired Carpenter Reserve Printing Company
("CRPC"), a commercial printing company in Cleveland, Ohio. The acquisition was
financed through the issuance of 246,154 shares of the Company's Common Stock
valued at $2,500,000.
The Company invests excess working capital in interest-bearing and investment
grade short-term securities.
8
<PAGE>
NET SALES. Net sales, for the three months ended October 31, 1995, increased
- ----------
approximately $15.2 million or 16.8% as compared to the same period last year.
Of this increase, approximately 9% was due to increased sales volume growth at
our operations, approximately 1% was due to the net sales of CRPC, approximately
3% was due to the mix of jobs produced, which included an increase in
fulfillment business where we provide additional services and distribution, and
approximately 4% was attributable to paper price increases which are typically
passed through. Net sales, for the nine months ended October 31, 1995,
increased approximately $47.5 million or 18.2% as compared to the same period
last year. Of this increase, approximately 1% was due to the net sales of SSI
and CRPC, approximately 9% was due to increased sales volume growth at our
operations, approximately 4% was due to the mix of jobs produced (including an
increase in fulfillment business) and approximately 4% was attributable to paper
price increases (which are typically passed through).
COST OF SALES. Cost of sales, as a percentage of sales, increased 1.4%, for the
- --------------
three months ended October 31, 1995 and 0.7% for the nine months ended October
31, 1995, as compared to the same periods last year. During the current fiscal
year, cost of sales as a percent of sales has been affected by the pass through
to revenues of paper price increases and by the increase in fulfillment and
distribution which does not carry the same margin as other work.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
- ---------------------------------------------
administrative expenses decreased 0.6% as a percentage of sales for the three
months ended October 31, 1995 and 0.7% for the nine months ended October 31,
1995, as compared to the same periods last year. The percentage decrease in
both periods is due primarily to the significant sales increase which offset
these expenses. The dollar increase in these expenses is primarily due to
higher commissions on the increase in sales.
INTEREST AND OTHER INCOME (LOSS). Interest and other income (loss), as a
- ---------------------------------
percentage of sales, increased 1.3% for the three months ended October 31, 1995,
and 0.4% for the nine months ended October 31, 1995, as compared to the same
periods last year. The increase in both periods is due primarily to the fact
that last year included a loss on the disposition of certain assets related to
the combination, during last fiscal year, of two of the Company's subsidiaries,
Graphic Direct-Illinois and Graphic Direct-Michigan. Increases in investment
and rental income this year also contributed to the increase in both periods.
INTEREST EXPENSE. Interest expense, as a percentage of sales, increased 0.1%
- -----------------
for the three months ended October 31, 1995 and 0.2% for the nine months ended
October 31, 1995, as compared to the same periods last year. The increase in
both periods is due primarily to an increase in the prime interest rate and
higher notes payable financing on accounts receivable related to the sales
increase.
9
<PAGE>
INCOME TAXES. The effective income tax rate was 40.0% for the three months and
- -------------
nine months ended October 31, 1995 and for the three months and nine months
ended October 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At October 31, 1995, the Company had approximately $52.8 million in working
capital as compared to approximately $47.2 million at October 31, 1994. Capital
expenditures for property, plant and equipment were approximately $19.6 million
for the nine months ended October 31, 1995. Capital expenditures recorded
during the nine months ended October 31, 1995 included several projects begun in
the last fiscal year. Advance payments for these projects were carried in Other
Assets at January 31, 1995.
The Company's capital expenditures and increase in current assets due to an
increase in sales volume have been financed by funds from operations, from
additional borrowings and from use of cash and cash equivalents during the first
nine months.
The Company believes that existing working capital, including a cash and
marketable securities balance of approximately $23.7 million at October 31,
1995, funds provided from operations, undrawn bank lines 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.
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.
SUBSEQUENT EVENTS
- -----------------
On November 1, 1995, the Company acquired Quadras, Inc., a creative design
agency in Atlanta, Georgia. The acquisition was financed through the issuance
of 306,612 shares of the Company's Common Stock valued at $3,000,000.
On December 1, 1995, the Company acquired the Graphic Operations Department of
Bausch & Lomb, Inc. based in Rochester, New York. The Company plans to merge
this operation into its Monroe Litho, Inc. subsidiary which is also based in
Rochester, New York. The purchase price for this acquisition was $2,839,000 in
cash.
10
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM ONE - LEGAL PROCEEDINGS
- ----------------------------
At October 31, 1995, 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 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.
11
<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 14, 1995
-----------------
/s/ Mark C. Pope III
------------------------------------
Mark C. Pope III
Chairman and Chief Executive Officer
DATE: December 14, 1995
-----------------
/s/ David S. Fraser
-------------------------------------
David S. Fraser
Chief Financial Officer and Treasurer
12
<PAGE>
EXHIBIT 11
GRAPHIC INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------- -----------------
1995 1994 1995 1994
---------- -------- -------- -------
<S> <C> <C> <C> <C>
Net income $2,685,634 $2,088,928 $7,579,228 $6,064,029
Add interest on 7% convertible
subordinated debentures(2) 218,263 218,263 654,791 654,791
---------- -------- --------- ---------
TOTAL $2,903,897 $2,307,191 $8,234,019 $6,718,820
========== ========== ========== ==========
Shares (1)
Primary
Weighted average shares
outstanding 10,849,982 10,593,678 10,737,997 10,539,069
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 12,129,182 11,872,878 12,017,197 11,818,269
========== ========== ========== ==========
Primary earnings per share $ .25 $ .20 $ .71 $ .58
========== ========= ========== ==========
Fully diluted earnings per share $ .24 $ .19 $ .69 $ .57
========== ========= ========== ==========
</TABLE>
(1) No significant dilutive common stock equivalents were outstanding in
any year.
(2) Net of income tax effect.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 23,707
<SECURITIES> 0
<RECEIVABLES> 74,905
<ALLOWANCES> 0
<INVENTORY> 34,862
<CURRENT-ASSETS> 139,585
<PP&E> 202,182
<DEPRECIATION> 83,857
<TOTAL-ASSETS> 275,256
<CURRENT-LIABILITIES> 86,788
<BONDS> 20,787
<COMMON> 1,108
0
0
<OTHER-SE> 85,037
<TOTAL-LIABILITY-AND-EQUITY> 275,256
<SALES> 308,422
<TOTAL-REVENUES> 308,422
<CGS> 234,310
<TOTAL-COSTS> 234,310
<OTHER-EXPENSES> 52,896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,584
<INCOME-PRETAX> 12,632
<INCOME-TAX> 5,053
<INCOME-CONTINUING> 7,579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,579
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.69
</TABLE>
