<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, 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 Codes)
---------------------------------------- -----------
Registrant's Telephone Number, Including Area Code (404) 874-3327
Not Applicable
Former name, former address and former fiscal year, if changed since last year
------------------------------------------------------------------------------
TITLE OF EACH CLASS SHARES OUTSTANDING AS OF JULY 31, 1995
COMMON STOCK, $.10 PAR VALUE 6,257,551
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
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PART I - FINANCIAL INFORMATION PAGE NUMBER
------------------------------ -----------
Item 1. - Financial Statements (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Condensed Consolidated Statements of 1
Income - three months ended July 31,
1995 and July 31, 1994 - six months ended
July 31, 1995 and July 31, 1994
Condensed Consolidated Balance Sheets - 2-3
July 31, 1995 and January 31, 1995
Condensed Consolidated Statements of 4
Cash Flows - six months ended July
31, 1995 and July 31, 1994
Notes to Condensed Consolidated Financial 5
Statements - July 31, 1995
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 2. - Management's Discussion and Analysis 6
of Financial Condition and Results of
Operations
PART II - OTHER INFORMATION
---------------------------
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 SIX MONTHS ENDED
JULY 31, JULY 31,
------------------------ ---------------------------
1995 1994 1995 1994
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $97,007,946 $82,484,305 $202,806,937 $170,566,176
Cost of Sales 73,675,471 62,689,408 153,773,789 128,866,136
----------- ----------- ------------ ------------
23,332,475 19,794,897 49,033,148 41,700,040
Selling,
General and
Administrative Expenses 17,425,061 15,120,387 36,005,977 31,574,819
Interest and
Other Income-net 416,025 564,725 788,570 861,126
Interest Expense 2,793,701 2,310,806 5,660,147 4,361,246
----------- ----------- ------------ ------------
Income before
Income Taxes 3,529,738 2,928,429 8,155,594 6,625,101
Income Taxes 1,412,000 1,171,000 3,262,000 2,650,000
----------- ----------- ------------ ------------
Net Income $ 2,117,738 $ 1,757,429 $ 4,893,594 $ 3,975,101
=========== =========== ============ ============
Net Income per
common share:
Primary $ .20 $ .17 $ .46 $ .38
====== ====== ====== ======
Fully diluted $ .20 $ .17 $ .45 $ .37
====== ====== ====== ======
Dividends declared:
Common Stock $.0175 $.0175 $ .035 $ .035
====== ====== ====== ======
Class B Common
Stock $.0125 $.0125 $ .025 $ .025
====== ====== ====== ======
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1995 1995
------------- -------------
(Unaudited)
A S S E T S
-----------
<S> <C> <C>
Current Assets
Cash and marketable securities $ 23,918,196 $ 28,287,722
Trade accounts receivable 67,523,420 59,917,946
Inventories:
Materials 13,283,294 12,325,468
Work in process 18,139,555 14,659,141
------------ ------------
31,422,849 26,984,609
Prepaid expenses and other
current assets 6,041,306 3,990,781
------------ ------------
Total Current Assets 128,905,771 119,181,058
Other Assets 21,212,692 21,461,440
Property, Plant and Equipment
Land 9,192,958 9,618,883
Buildings and improvements 38,410,253 38,976,010
Machinery and equipment 143,119,381 138,571,937
------------ ------------
190,722,592 187,166,830
Less accumulated depreciation 78,832,633 74,643,058
------------ ------------
111,889,959 112,523,772
------------ ------------
$262,008,422 $253,166,270
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 31, JANUARY 31,
1995 1995
------------ ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Current Liabilities
<S> <C> <C>
Notes payable $ 27,996,831 $ 21,909,936
Accounts payable 21,768,314 25,308,635
Other current liabilities 15,131,575 15,083,800
Current portion of long-term
obligations 12,581,505 11,087,348
------------ -----------
Total Current Liabilities 77,478,225 73,389,719
Long-Term Obligations, less
current portion 67,606,524 68,781,374
Deferred Income Taxes 15,882,138 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, $.10 par value;
authorized 20,000,000 shares;
issued 6,257,551 at July 31,
1995 and 6,234,449 at January
31,1995, including treasury
shares of 77,461 at July 31,
1995 and January 31, 1995 625,755 623,445
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 9,540,486 9,322,787
Retained earnings 70,430,762 65,298,086
------------ ------------
81,048,915 75,696,230
Less treasury stock at cost (794,380) (794,380)
------------ ------------
80,254,535 74,901,850
============ ============
$262,008,422 $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>
SIX MONTHS ENDED
JULY 31,
----------------------------
1995 1994
----------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,893,594 $ 3,975,101
Depreciation and amortization 7,934,076 6,992,647
Provision for deferred taxes 163,100 397,000
Changes in operating assets and liabilities (17,586,785) (8,214,141)
------------ ------------
Net cash (used in) provided by operating activities (4,596,015) 3,150,607
INVESTING ACTIVITIES
Additions to property, plant and equipment (9,439,101) (7,608,859)
Net decrease (increase) in marketable securities 502,489 (5,766,226)
Other investing activities 2,453,074 (791,052)
------------ ------------
Net cash used in investing activities (6,483,538) (14,166,137)
FINANCING ACTIVITIES
Borrowings on long-term obligations 6,858,988 5,160,528
Payments on long-term obligations (6,539,681) (5,215,941)
Net borrowings (payments) on notes payable 6,086,895 (3,690,289)
Dividends (330,152) (323,414)
Other financing activities 154,521 59,629
------------ ------------
Net cash provided by (used in) financing activities 6,230,571 (4,009,487)
------------ ------------
Net decrease in cash and cash equivalents $(4,848,982) $(15,025,017)
=========== ============
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 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 July 31, 1995 and the results of the
operations and cash flows for the three months and six months then ended. The
results of operations for the six months ended July 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 July 31, 1995, the cumulative effect of applying Statement 115 was a
reduction to shareholders' equity of $744,118 (net of $496,078 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 $569,234
(net of $412,711 in deferred income taxes) for the six months ended July 31,
1995. This change is the result of an increase in the market value of
securities during the first six months of fiscal 1996 due to a decrease in
market interest rates for the period ended July 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 SIX MONTHS ENDED
JULY 31 JULY 31
------------------- ------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 75.9 76.0 75.8 75.6
Selling, general and
administrative expenses 18.0 18.4 17.8 18.5
Interest and other income-net 0.4 0.7 0.4 0.5
Interest expense 2.9 2.8 2.8 2.5
----- ----- ----- -----
Income before income taxes 3.6 3.5 4.0 3.9
Provision for income taxes 1.4 1.4 1.6 1.6
----- ----- ----- -----
Net income 2.2% 2.1% 2.4% 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.
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, 1995, increased
----------
approximately $14.5 million or 17.6% as compared to the same period last year.
Of this increase, approximately 10% was due to increased sales volume growth at
our operations, approximately 4% 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 six months
ended July 31, 1995, increased approximately $32.2 million or 18.9% as compared
to the same period last year. Of this increase, approximately 1% was due to the
net sales of SSI, approximately 10% 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).
-8-
<PAGE>
COST OF SALES. Cost of sales, as a percentage of sales, for the three months
--------------
ended July 31, 1995, remained essentially the same as compared to the same
period last year. Cost of sales, as a percentage of sales, increased 0.2% for
the six months ended July 31, 1995, as compared to the same period 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 0.4% as a percentage of sales for the three
months ended July 31, 1995 and 0.7% for the six months ended July 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-NET. Interest and other income-net, as a percentage
------------------------------
of sales, decreased 0.3% for the three months ended July 31, 1995 and 0.1% for
the six months ended July 31, 1995, as compared to the same periods last year.
This decrease in both periods is due to transactions related to the sale of
fixed assets partially offset by increases in investment and rental income.
INTEREST EXPENSE. Interest expense, as a percentage of sales, increased 0.1%
-----------------
for the three months ended July 31, 1995 and 0.3% for the six months ended July
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.
INCOME TAXES. The effective income tax rate was 40.0% for the three months and
-------------
six months ended July 31, 1995 and for the three months and six months ended
July 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At July 31, 1995, the Company had approximately $51.4 million in working capital
as compared to approximately $49.4 million at July 31, 1994. Capital
expenditures for property, plant and equipment were approximately $9.4 million
for the six months ended July 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
six months.
-9-
<PAGE>
The Company believes that existing working capital, including a cash and
marketable securities balance of approximately $23.9 million at July 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.
-10-
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM ONE - LEGAL PROCEEDINGS
----------------------------
At July 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 8-K
--------------------------------------
Exhibit 11 - Statement Regarding Computation of 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.
-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: September 14, 1995
------------------
/s/ Mark C. Pope III
---------------------------------------
Mark C. Pope III
Chairman and Chief Executive Officer
DATE: September 14, 1995
------------------
/s/ David S. Fraser
----------------------------------------
Chief Financial Officer and Treasurer
-12-
<PAGE>
EXHIBIT 11
GRAPHIC INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
---------------------------- --------------------------
1995 1994 1995 1994
------------- ------------- ---------- --------------
<S> <C> <C> <C> <C>
Net income $2,117,738 $1,757,429 $4,893,594 $3,975,101
Add interest on 7% convertible
subordinated debentures(2) 218,264 218,264 436,528 436,528
---------- ---------- ---------- ----------
TOTAL $2,336,002 $1,975,693 $5,330,122 $4,411,629
========== ========== ========== ==========
Shares (1)
Primary
Weighted average shares
outstanding 10,685,451 10,591,613 10,681,076 10,511,312
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 11,964,651 11,870,813 11,960,276 11,790,512
========== ========== ========== ==========
Primary earnings per share $ .20 $ .17 $ .46 $ .38
========== ========== ========== ============
Fully diluted earnings per share $ .20(3) $ .17(3) $ .45 $ .37
========== ========== ========== ============
</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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JUL-31-1995
<CASH> 23,918
<SECURITIES> 0
<RECEIVABLES> 67,523
<ALLOWANCES> 0
<INVENTORY> 31,422
<CURRENT-ASSETS> 128,906
<PP&E> 190,723
<DEPRECIATION> 78,833
<TOTAL-ASSETS> 262,008
<CURRENT-LIABILITIES> 77,478
<BONDS> 20,787
<COMMON> 1,078
0
0
<OTHER-SE> 79,177
<TOTAL-LIABILITY-AND-EQUITY> 262,008
<SALES> 202,807
<TOTAL-REVENUES> 202,807
<CGS> 153,774
<TOTAL-COSTS> 153,774
<OTHER-EXPENSES> 35,217
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,660
<INCOME-PRETAX> 8,156
<INCOME-TAX> 3,262
<INCOME-CONTINUING> 4,894
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,894
<EPS-PRIMARY> .46
<EPS-DILUTED> .45
</TABLE>
