<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, 1997 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, GEORGIA 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, 1997
------------------- ---------------------------------------
COMMON STOCK, $.10 PAR VALUE 7,361,343
CLASS B COMMON STOCK, $.10 PAR VALUE 4,518,817
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 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)
Condensed Consolidated Statements of Income - 1
three months ended April 30, 1997 and
April 30, 1996
Condensed Consolidated Balance Sheets - 2-3
April 30, 1997 and January 31, 1997
Condensed Consolidated Statements of 4
Cash Flows - three months ended
April 30, 1997 and April 30, 1996
Notes to Condensed Consolidated Financial 5
Statements - April 30, 1997
Item 2. - Management's Discussion and Analysis 7
of Financial Condition and Results of
Operations
PART II - OTHER INFORMATION
- ---------------------------
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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED APRIL 30,
----------------------------
1997 1996
------------ ------------
Net sales $115,245,807 $112,961,201
Cost of sales 85,577,889 84,380,473
------------ ------------
29,667,918 28,580,728
Selling, general and
administrative expenses 20,983,119 20,632,952
Restructuring charge - 9,000,000
Interest and other income-net 660,457 770,714
Interest expense 2,757,192 2,688,539
------------ ------------
Income (loss) before income taxes 6,588,064 (2,970,049)
Income taxes (benefit) 2,635,000 (561,000)
------------ ------------
Net income (loss) $ 3,953,064 $ (2,409,049)
============ ============
Net income (loss) per share:
Primary $ .34 $ (.21)
============ ============
Fully diluted $ .32 $ (.21)
============ ============
Dividends declared:
Common Stock $ .0175 $ .0175
============ ============
Class B Common Stock $ .0125 $ .0125
============ ============
See notes to condensed consolidated financial statements.
-1-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 30, JANUARY 31,
1997 1997
------------- -------------
(Unaudited)
A S S E T S
- -----------
Current Assets
Cash and marketable securities $ 25,784,763 $ 30,789,430
Trade accounts receivable 88,330,584 80,658,006
Inventories:
Materials 10,809,552 10,113,812
Work-in-process 26,056,094 18,597,802
------------ ------------
36,865,646 28,711,614
Prepaid expenses and other
current assets 6,562,747 4,691,311
------------ ------------
Total Current Assets 157,543,740 144,850,361
Other Assets 13,292,476 10,582,417
Property, Plant and Equipment
Land 9,027,468 9,027,467
Buildings and improvements 44,172,292 43,637,850
Machinery and equipment 169,303,510 164,719,258
------------ ------------
222,503,270 217,384,575
Less accumulated depreciation 94,625,558 90,250,580
------------ ------------
127,877,712 127,133,995
Goodwill-net 16,795,672 16,909,523
------------ ------------
$315,509,600 $299,476,296
============ ============
See notes to condensed consolidated financial statements.
-2-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 30, JANUARY 31,
1997 1997
------------ ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Notes payable $ 22,395,316 $ 15,814,485
Accounts payable 26,843,340 21,426,662
Other current liabilities 19,823,872 20,117,973
Current portion of long-term
obligations 3,385,032 3,471,916
------------ ------------
Total Current Liabilities 72,447,560 60,831,036
Long-Term Obligations, less
current portion 101,888,334 99,676,541
Deferred Income Taxes 15,563,160 15,620,738
7% Convertible Subordinated
Debentures 19,553,000 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 7,361,343 at April 30,
1997 and 7,357,309 at January
31, 1997, including treasury
shares of 80,754 at April 30,
1997 and 78,599 at January 31,
1997 736,134 735,731
Common Stock, Class B, $.10 par
value; authorized 10,000,000
shares; issued 4,518,817 in
both periods 451,882 451,882
Additional paid-in capital 19,537,760 19,496,988
Retained earnings 86,142,298 82,657,865
------------ ------------
106,868,074 103,342,466
Less treasury stock at cost (810,528) (781,485)
------------ ------------
106,057,546 102,560,981
------------ ------------
$315,509,600 $299,476,296
============ ============
See notes to condensed consolidated financial statements.
-3-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
------------------------------------------------------------------
THREE MONTHS ENDED
APRIL 30,
---------------------------
1997 1996
------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 3,953,064 $ (2,409,049)
Restructuring charge, net of tax -0- 6,026,500
Depreciation and amortization 4,927,096 4,467,045
Gain on sale of property, plant
and equipment and investments (328,269) (102,250)
Gain on purchase of Convertible
Subordinated Debentures (68,905) -0-
Provision for deferred taxes 131,750 120,625
Changes in operating assets and liabilities (12,575,469) (9,771,908)
------------ ------------
Net cash used in operating activities (3,960,733) (1,669,037)
INVESTING ACTIVITIES
Additions to property, plant and equipment (5,826,070) (5,020,077)
Proceeds from sale of property, plant
and equipment 575,692 7,133
Assets of acquired businesses, net of
cash (acquired) received 288,031 (419,140)
Net purchase of marketable securities (2,479,619) (5,855,014)
Other investing activities (3,484,278) (3,241,909)
------------ ------------
Net cash used in investing activities (10,926,244) (14,529,007)
FINANCING ACTIVITIES
Borrowings on long-term obligations 3,000,000 3,000,000
Payments on long-term obligations (875,091) (913,097)
Net borrowings on notes payable 6,580,831 2,565,019
Purchase of Convertible Subordinated
Debentures (1,165,095) -0-
Dividends (184,638) (180,230)
Other financing activities 362,132 173,120
------------ ------------
Net cash provided by financing activities 7,718,139 4,644,812
------------ ------------
Net decrease in cash and cash equivalents (7,168,838) (11,553,232)
Cash and cash equivalents at beginning of period 7,212,351 14,476,139
------------ ------------
Cash and cash equivalents at end of period $ 43,513 $ 2,922,907
============ ============
See notes to condensed consolidated financial statements.
-4-
<PAGE>
GRAPHIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1997
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
1997 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, 1997 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, 1997 are not necessarily
indicative of the results to be expected for the year ending January 31, 1998.
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, 1997, 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, 1997, this difference was an unrealized loss of $749,452 net of
income taxes of $566,331. 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--SFAS NO. 128, "EARNINGS PER SHARE"
In February 1997 the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings per Share", which will change
the current method of computing earnings per share. The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined. SFAS No. 128 will be effective for the Company's quarter
and year ending January 31, 1998, and, upon adoption, all prior-period earnings
per share data presented shall be restated to conform with the provisions of the
new pronouncement. Application earlier than the Company's quarter ending
January 31, 1998 is not permitted.
Proforma basic and diluted earnings per share for the quarters ended April 30,
1997 and 1996 calculated under the provisions of SFAS No. 128 are as follows:
Quarter Ended April 30,
------------------------
1997 1996
---------- ------------
Basic earnings per share $ .34 $(.21)
Diluted earnings per share $ .32 $(.21)
-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.
THREE MONTHS
ENDED APRIL 30,
---------------------
1997 1996
-------- --------
Net sales l00.0% l00.0%
Cost of sales 74.3 74.7
Selling, general and administrative
expenses 18.2 18.2
Restructuring charge - 8.0
Interest and other income - net 0.6 0.7
Interest expense 2.4 2.4
-------- --------
Income before income taxes 5.7 (2.6)
Provision for income taxes (benefit) 2.3 (0.5)
-------- --------
Net income (loss) 3.4% (2.1)%
======== ========
RESULTS OF OPERATIONS
General. As of May 31, 1996 Mercury Printing Company, Inc. ("Mercury"),
- --------
Memphis, Tennessee, a subsidiary of the Company, acquired The Wimmer Companies,
Inc., a printer and publisher of cookbooks in Memphis, Tennessee. The
acquisition was financed through the issuance of 53,830 shares of the Company's
Common Stock valued at $583,376 and cash payments amounting to $1,042,281 to
retire certain debt obligations.
As of November 1, 1996 the Company acquired Presstar Printing Corporation
("PPC"), a commercial printing company in Silver Spring, Maryland, serving the
Baltimore, Maryland and Washington, DC market areas. The acquisition was
financed through the issuance of 102,059 shares of the Company's Common Stock
valued at $875,136 and cash payments amounting to $5,531,078 to retire certain
debt obligations. In the quarter ended April 30, 1997 the Seller returned
$301,480 of cash and 40,816 shares of the Company's Common Stock as part of a
post closing settlement. The shares were cancelled.
-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 or
equivalent to $0.52 per common share. The charge covered the costs associated
with the sale of the Company's direct-mail subsidiary, Graphic Direct-Illinois
("GDI") and the closing of a commercial printing subsidiary, The Stein Printing
Company, Inc. ("SPC"). Excluding the one-time charge, net income for the three
months ended April 30, 1996 would have been $3,617,451 or $0.31 per share
primary and $0.30 per share fully diluted.
NET SALES. Net sales, for the three months ended April 30, 1997, increased
- ----------
approximately $2.3 million or 2.0% as compared to the same period last year. Of
this increase, approximately 2.5% was attributable to the net sales of the
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 6.2%.
COST OF SALES. Cost of sales, as a percentage of sales, decreased 0.4%, for the
- --------------
three months ended April 30, 1997 as compared to the same period last year. The
decrease resulted from an improved product mix and higher utilization of assets.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
- ---------------------------------------------
administrative expenses remained the same as a percentage of sales for both
periods.
RESTRUCTURING CHARGE. A pre-tax $9,000,000 restructuring charge was booked in
- ---------------------
the quarter ended April 30, 1996. See a discussion of the restructuring charge
in the General Section above in Results of Operations.
INTEREST AND OTHER INCOME-NET. Interest and other income-net, as a percentage
- ------------------------------
of sales, decreased 0.1% for the three months ended April 30, 1997 as compared
to the same period last year. The decrease was due to a decrease in interest
income.
INTEREST EXPENSE. Interest expense, as a percentage of sales, remained the same
- -----------------
for both periods.
INCOME TAXES (BENEFIT). The effective income tax rate for the three months
- -----------------------
ended April 30, 1997 was 40.0%. The income tax benefit for the three months
ended April 30, 1996 resulted from the loss caused by the $9,000,000 pre-tax
restructuring charge discussed in the General Section above in Results of
Operations. The effective income tax rate prior to the restructuring charge was
40.0% for the three months ended April 30, 1996.
-8-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At April 30, 1997, the Company had approximately $85.3 million in working
capital as compared to approximately $81.3 million at April 30, 1996. Capital
expenditures for property, plant and equipment were approximately $5.8 million
during the three months ended April 30, 1997.
The Company's capital expenditures, increase in other assets and increase in
current assets have been financed by funds from operations, from additional
borrowings and from use of cash and cash equivalents during the first three
months. The increase in other assets is primarily due to advance payments for
several capital projects. The increase in current assets is due primarily to an
increase in sales volume and work-in-process.
The Company believes that existing working capital, including a cash and
marketable securities balance of approximately $25.8 million at April 30, 1997,
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, 1997, 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.
-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, 1997
------------------
/s/ Mark C. Pope III
--------------------
Mark C. Pope III
Chairman and Chief Executive Officer
DATE: June 13, 1997
------------------
/s/ David S. Fraser
----------------------------------------
Chief Financial Officer and Treasurer
-11-
<PAGE>
EXHIBIT 11
GRAPHIC INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED APRIL 30,
----------------------------
1997 1996
----------- -----------
Net income (loss) $ 3,953,064 $(2,409,049)
Add interest on 7% convertible
subordinated debentures(2) 205,307 218,264
----------- -----------
TOTAL $ 4,158,371 $(2,190,785)
=========== ===========
Shares (1)
Primary
Weighted average shares
outstanding 11,792,343 11,545,409
Fully Diluted
Add common shares applicable
to assumed conversion of 7%
convertible subordinated
debentures 1,203,262 1,279,200
----------- -----------
Weighted average shares
outstanding, as adjusted 12,995,605 12,824,609
=========== ===========
Primary earnings (loss) per share $ .34 $ (.21)
=========== ===========
Fully diluted earnings (loss) per share $ .32 $ (.21)(3)
=========== ===========
(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>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> APR-30-1997
<CASH> 25,785
<SECURITIES> 0
<RECEIVABLES> 88,331
<ALLOWANCES> 0
<INVENTORY> 36,865
<CURRENT-ASSETS> 157,544
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0
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<COMMON> 1,188
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