<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 April 30, 1996 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 April 30,1996
------------------- --------------------------------------
COMMON STOCK, $.10 PAR VALUE 7,144,444
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
-----
PART I - FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ -----------
Item 1. - Financial Statements (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Condensed Consolidated Statements of Income - 1
three months ended April 30, 1996 and
April 30, 1995
Condensed Consolidated Balance Sheets - 2-3
April 30, 1996 and January 31, 1996
Condensed Consolidated Statements of 4
Cash Flows - three months ended
April 30, 1996 and April 30, 1995
Notes to Condensed Consolidated Financial 5
Statements - April 30, 1996
</TABLE>
Item 2. - Management's Discussion and Analysis 7
of Financial Condition and Results of
Operations
<TABLE>
<CAPTION>
PART II - OTHER INFORMATION
--------------------------------------
<S> <C> <C>
Item l. Legal Proceedings 10
2. Changes in Securities 10
3. Defaults upon Senior Securities 10
4. Submission of Matters to a Vote of 10
Security Holders
5. Other Information 10
6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</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 APRIL 30,
-----------------------------
<S> <C> <C>
1996 1995
------------ ------------
Net sales $112,961,201 $105,798,991
Cost of sales 84,380,473 80,098,318
------------ ------------
28,580,728 25,700,673
Selling, general and
administrative expenses 20,632,952 18,580,916
Restructuring charge 9,000,000 -
Interest and other income-net 770,714 433,391
Interest expense 2,688,539 2,927,292
------------ ------------
Income (loss) before income taxes (2,970,049) 4,625,856
Income taxes (benefit) (561,000) 1,850,000
------------ ------------
Net income (loss) $ (2,409,049) $ 2,775,856
============ ============
Net income (loss) per share:
Primary $ (.21) $ .26
============ ============
Fully diluted $ (.21) $ .25
============ ============
Dividends declared:
Common Stock $ .0175 $ .0175
============ ============
Class B Common Stock $ .0125 $ .0125
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
-1-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 30, JANUARY 31,
1996 1996
------------- -------------
(Unaudited)
<TABLE>
<CAPTION>
A S S E T S
- -----------
<S> <C> <C>
Current Assets
Cash and marketable securities $ 27,896,254 $ 34,507,981
Trade accounts receivable 79,623,599 73,807,212
Inventories:
Materials 10,797,303 11,695,824
Work-in-process 21,695,535 18,593,850
------------ ------------
32,492,838 30,289,674
Prepaid expenses and other
current assets 4,678,250 3,871,083
------------ ------------
Total Current Assets 144,690,941 142,475,950
Other Assets 8,362,156 5,243,584
Property, Plant and Equipment
Land 8,414,866 8,414,866
Buildings and improvements 39,869,056 39,693,622
Machinery and equipment 159,779,683 157,372,381
------------ ------------
208,063,605 205,480,869
Less accumulated depreciation 87,340,841 83,041,109
------------ ------------
120,722,764 122,439,760
Goodwill-net 16,322,260 16,343,418
------------ ------------
$290,098,121 $286,502,712
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
-2-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 30, JANUARY 31,
1996 1996
------------ ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Current Liabilities
Notes payable $ 19,482,258 $ 16,917,239
Accounts payable 19,908,971 19,930,381
Other current liabilities 20,559,560 17,948,371
Current portion of long-term
obligations 3,397,459 3,609,760
------------ ------------
Total Current Liabilities 63,348,248 58,405,751
Long-Term Obligations, less
current portion 99,950,329 97,651,125
Deferred Income Taxes 15,049,061 16,043,672
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 7,144,444 at April 30,
1996 and 7,104,250 at January
31, 1996, including treasury
shares of 81,375 at April 30,
1996 and 95,791 at January 31,
1996 714,444 710,425
Common Stock, Class B, $.10 par
value; authorized 10,000,000
shares; issued 4,519,117 in
both periods 451,912 451,912
Additional paid-in capital 17,587,419 17,182,567
Retained earnings 73,021,356 76,229,748
------------ ------------
91,775,131 94,574,652
Less treasury stock at cost (811,648) (959,488)
------------ ------------
90,963,483 93,615,164
------------ ------------
$290,098,121 $286,502,712
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
------------------------
1996 1995
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (2,409,049) $2,775,856
Restructuring charge, net of tax 6,026,500 -
Depreciation and amortization 4,467,045 3,949,564
Loss (gain) on sale of property, plant
and equipment and investments (102,250) 68,910
Provision for deferred taxes 120,625 92,500
Changes in operating assets and liabilities (9,771,908) (19,316,240)
------------ ------------
Net cash used in operating activities (1,669,037) (12,429,410)
INVESTING ACTIVITIES
Additions to property, plant and equipment (5,020,077) (6,350,139)
Proceeds from sale of property, plant
and equipment 7,133 405,112
Assets of acquired businesses, net of
cash acquired (419,140) (159,873)
Net purchase of marketable securities (5,855,014) (553,927)
Other investing activities (3,241,909) 2,457,122
------------ -----------
Net cash used in investing activities (14,529,007) (4,201,705)
FINANCING ACTIVITIES
Borrowings on long-term obligations 3,000,000 593,285
Payments on long-term obligations (913,097) (2,695,013)
Net borrowings on notes payable 2,565,019 9,971,835
Dividends (180,230) (164,253)
Other financing activities 173,120 7,992
------------ -----------
Net cash provided by financing activities 4,644,812 7,713,846
------------ -----------
Net decrease in cash and cash equivalents (11,553,232) (8,917,269)
Cash and cash equivalents at beginning of period 14,476,139 6,617,595
------------ -----------
Cash and cash equivalents at end of period $ 2,922,907 $ (2,299,674)
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1996
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
1996 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 April 30, 1996 and the results of
the operations and cash flows for the three months then ended. The results of
operations for the three months ended April 30, 1996 are not necessarily
indicative of the results to be expected for the year ending January 31, 1997.
NOTE B--MARKETABLE SECURITIES
The Company determines the appropriate classification of securities at the time
of purchase and reevaluates such securities at each balance sheet date. At
April 30, 1996, all marketable securities were classified as "available for
sale" and, therefore, were carried at fair value, with the difference between
cost and fair value, net of tax, reported as a component of retained earnings.
At April 30, 1996, this difference was an unrealized loss of $959,434 net of
income taxes of $651,508. This difference was due to the effect of changes in
market interest rates on the fair value of these securities.
NOTE C--NET INCOME (LOSS) PER COMMON SHARE
Primary earnings (loss) per share are computed based on the weighted average
number of common shares outstanding during the period. Fully diluted earnings
(loss) 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>
NOTE D--RESTRUCTURING CHARGE
On May 14, 1996 the Company announced an agreement in principle for the sale of
its direct-mail subsidiary, Graphic Direct, Inc.-Illinois ("GDI") and the
closing of a commercial printing subsidiary, The Stein Printing Company, Inc.
("SPC"). On May 31, 1996, the sale of certain assets of GDI was concluded. In
connection with these actions, the Company recorded in its first quarter ended
April 30, 1996, a one-time pre-tax restructuring charge of $9,000,000. The
after-tax effect of the charge was $6,026,500 or equivalent to $0.52 per common
share. The charge primarily covers the costs of liquidating and disposing of
certain assets, the write-off of intangible assets, and a provision for certain
expenses, including severance pay and future lease obligations.
The composition of the Company's restructuring reserves is as follows:
<TABLE>
<CAPTION>
Writedown Restructuring
Original of Assets Reserves as
Restructuring to Fair Cash of April 30,
Reserve Value Payments 1996
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Restructuring loss on
writedown of current
assets................. $1,633,665 $(1,633,665) - $ -
Restructuring loss on
writedown of property
and equipment and
other assets........... 2,516,688 (2,516,688) - -
Restructuring expendi-
tures to close
facilities............. 4,161,018 - - 4,161,018
Impairment loss on
intangible assets...... 688,629 (688,629) - -
---------- ------------- ------------- ----------
Total restructuring
reserves............... $9,000,000 $(4,838,982) - $4,161,018
========== ============= ============= ==========
</TABLE>
For the three months ended April 30, 1995, the combined results for GDI and SPC
were net sales of $8,869,207 and pre-tax loss of $(434,014). For the three
months ended April 30, 1996, the combined results were net sales of $6,738,947
and a pre-tax loss of $(135,342).
-6-
<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 APRIL 30,
---------------------------
<S> <C> <C>
1996 1995
---------- ---------
Net sales l00.0% l00.0%
Cost of sales 74.7 75.7
Selling, general and administrative
expenses 18.2 17.6
Restructuring charge 8.0 -
Interest and other income - net 0.7 0.4
Interest expense 2.4 2.7
----- ----
Income before income taxes (2.6) 4.4
Provision for income taxes (benefit) (0.5) 1.8
----- ----
Net income (loss) (2.1)% 2.6%
===== ====
</TABLE>
RESULTS OF OPERATIONS
General. 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. On April 18, 1996, the Company
issued an additional 37,770 shares of Common Stock valued at $383,591 as a final
adjustment to the purchase of CRPC.
As of November 1, 1995 the Company acquired Quadras, Inc. ("Quadras"), 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.
As of December 1, 1995 Monroe Litho, Inc., Rochester, New York, a subsidiary of
the Company, acquired the Graphic Operations Department of Bausch & Lomb,
Incorporated for $2,839,000 in cash and subsequently merged the operation into
its facility.
-7-
<PAGE>
As of April 30, 1996 the Company recorded a one-time pre-tax restructuring
charge of $9,000,000. The after-tax effect of the charge was $6,026,500. The
charge was discussed previously in Note D of the Notes to Condensed Consolidated
Financial Statements. Excluding the one-time charge, net income was $3,617,451
or $0.31 per share, an increase of 30.3% versus last year.
NET SALES. Net sales, for the three months ended April 30, 1996, increased
- ----------
approximately $7.2 million or 6.8% as compared to the same period last year. Of
this increase, approximately 4.5% was attributable to the net sales of the three
acquisitions discussed above in the General section. Excluding the sales of the
acquired businesses and of the subsidiaries affected by the restructuring, net
sales of the remaining operations increased by approximately 4.6%. In the prior
year, sales were affected by the pass through to revenues of the significant
increase in paper prices. In the current fiscal year, paper prices have
stabilized and it is therefore difficult to make meaningful year to year
comparisons.
COST OF SALES. Cost of sales, as a percentage of sales, decreased 1.0%, for the
- --------------
three months ended April 30, 1996. The improvement resulted from the
stabilization of paper prices which has allowed our companies to more fully
recover these costs in their pricing. Paper costs as a percentage of sales
decreased 1.2% during the quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
- ---------------------------------------------
administrative expenses increased 0.6%, as a percentage of sales, as compared to
the same period last year. The increase is due primarily to higher sales costs
resulting from adding new sales personnel and to a higher level of business
activity.
RESTRUCTURING CHARGE. See Note D to Condensed Consolidated Financial
- ---------------------
Statements.
INTEREST AND OTHER INCOME-NET. Interest and other income-net, as a percentage
- ------------------------------
of sales, increased 0.3% for the three months ended April 30, 1996. This change
is due to an increase in investment income this year and to a write-down of
certain assets in the prior year.
INTEREST EXPENSE. Interest expense, as a percentage of sales, decreased 0.3%
- -----------------
for the three months ended April 30, 1996, as compared to the same period last
year. This decrease is the result of lower borrowing costs due to the
refinancing of substantially all floating rate obligations in December 1995,
partially offset by higher average borrowings compared to the first quarter last
year.
-8-
<PAGE>
INCOME TAXES (BENEFIT). The income tax benefit, as a percentage of sales, was
- -----------------------
(18.9%) for the three months ended April 30, 1996. The tax benefit resulted
from the loss caused by the $9,000,000 pre-tax restructuring charge discussed in
Note D previously. A portion of the restructuring charge related to the write-
off of intangible assets for which there is no tax benefit. The effective
income tax rate prior to the restructuring charge was 40.0% for the three months
ended April 30, 1996. The effective income tax rate was 40.0% for the three
months ended April 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At April 30, 1996, the Company had approximately $81.3 million in working
capital as compared to approximately $47.1 million at April 30, 1995. Capital
expenditures for property, plant and equipment were approximately $5.0 million
during the three months ended April 30, 1996.
The Company's capital expenditures and increase in current assets due to an
increase in the sales volume have been financed by funds from operations, from
additional borrowings and from use of cash and cash equivalents during the first
three months.
The Company believes that existing working capital, including a cash and
marketable securities balance of approximately $27.9 million at April 30, 1996,
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.
-9-
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM ONE - LEGAL PROCEEDINGS
- ----------------------------
At April 30, 1996, 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 - A Form 8-K was filed May 28, 1996, with respect to
the restructuring plan discussed in Note D of the Notes to Condensed
Consolidated Financial Statements.
-10-
<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: June 13, 1996
----------------
/s/ Mark C. Pope III
-----------------------------------------
Mark C. Pope III
Chairman and Chief Executive Officer
DATE: June 13, 1996
----------------
/s/ David S. Fraser
----------------------------------------
Chief Financial Officer and Treasurer
-11-
<PAGE>
EXHIBIT 11
GRAPHIC INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
-------------------------------
<S> <C> <C>
1996 1995
----------- -----------
Net income (loss) $(2,409,049) $ 2,775,856
Add interest on 7% convertible
subordinated debentures(2) 218,264 218,264
----------- -----------
TOTAL $(2,190,785) $ 2,994,120
=========== ===========
Shares (1)
Primary
Weighted average shares
outstanding 11,545,409 10,676,554
Fully Diluted
Add common shares applicable
to assumed conversion of 7%
convertible subordinated
debentures 1,279,200 1,279,200
----------- -----------
Weighted average shares
outstanding, as adjusted 12,824,609 11,955,754
=========== ===========
Primary earnings (loss) per share $ (.21) $ .26
=========== ===========
Fully diluted earnings (loss) per share $ (.21)(3) $ .25
=========== ===========
</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> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 27,896
<SECURITIES> 0
<RECEIVABLES> 79,624
<ALLOWANCES> 0
<INVENTORY> 32,493
<CURRENT-ASSETS> 144,691
<PP&E> 208,063
<DEPRECIATION> 87,341
<TOTAL-ASSETS> 290,098
<CURRENT-LIABILITIES> 63,348
<BONDS> 20,787
0
0
<COMMON> 1,166
<OTHER-SE> 89,797
<TOTAL-LIABILITY-AND-EQUITY> 290,098
<SALES> 112,961
<TOTAL-REVENUES> 112,961
<CGS> 84,380
<TOTAL-COSTS> 84,380
<OTHER-EXPENSES> 19,862
<LOSS-PROVISION> 9,000
<INTEREST-EXPENSE> 2,689
<INCOME-PRETAX> (2,970)
<INCOME-TAX> (561)
<INCOME-CONTINUING> (2,409)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,409)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
