<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K/A
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 31, 1997 OR
----------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to _________
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 or 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
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.10 PAR VALUE
(Title of class)
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 12 months (or for such shorter period 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ x ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT WAS $52,899,828 AS OF APRIL 22, 1997 BASED UPON THE CLOSING SALE
PRICE AS REPORTED ON THE NASDAQ NATIONAL MARKET SYSTEM THAT DAY.
SHARES OF COMMON STOCK, $.10 PAR VALUE, OUTSTANDING AT APRIL, 22, 1997 -
7,290,507; SHARES OF CLASS B COMMON STOCK, $.10 PAR VALUE, OUTSTANDING AT APRIL
22, 1997 - 4,518,817.
Documents incorporated by reference:
PORTIONS OF THE GRAPHIC INDUSTRIES, INC. ANNUAL SHAREHOLDERS REPORT FOR THE YEAR
ENDED JANUARY 31, 1997 ARE INCORPORATED BY REFERENCE INTO PART I AND PART II.
PORTIONS OF THE GRAPHIC INDUSTRIES, INC. DEFINITIVE PROXY STATEMENT FOR ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD JUNE 3, 1997 ARE INCORPORATED BY REFERENCE
INTO PART III.
Exhibit Index begins on page ____. Total number of pages: ____.
<PAGE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
3. Exhibits incorporated by reference or filed with this
report:
Exhibit
- -------
Number Description
- ------ -----------
3(a) Amended and Restated Articles of Incorporation of Registrant. (1)
3(b) By-laws of Registrant. (2)
4(a) Instruments defining the rights of security holders. See Articles V and
VI of the Amended and Restated Articles of Incorporation contained in
Exhibit 3(a) and Articles Two and Seven of the By-laws contained in
Exhibit 3(b). (2)
4(b) Form of Indenture, including Form of Debenture, between Registrant
and the First National Bank of Atlanta. (3)
10(a)* Incentive Stock Option Plan and Form of Option Agreement of
Registrant. (4)
10(b)* Profit Sharing Plan and Trust of Registrant, together with Call,
Put and Right of First Refusal Agreement. (5)
10(c)* Payroll-Based Employee Stock Ownership Plan and Trust of Registrant.
(6)
10(d) Officers' and Directors' Liability Insurance Policy issued by
National Union Fire Insurance Co. (5)
10(l) Stock Purchase Agreement dated July 12, 1990 between the Registrant
and Dyment Limited with respect to the sale of Finish It, Inc. (1)
10(m) Asset Purchase Agreement dated October 1, 1990 between the Registrant
and Vista Business Forms, Inc. with respect to the sale of KAL Forms,
Inc. (1)
10(n) Term Loan Agreement dated July 17, 1990 between Monroe Litho, Inc. and
Trust Company Bank with form of Term Note and Guaranty of the
Registrant. (1)
-2-
<PAGE>
10(o) Receivable Financing Agreement dated September 28, 1990 between W.E.
Andrews Co., Inc. of Connecticut and Bank of New England together with
Security Agreement, Installment Promissory Note and Guaranty of W.E.
Andrews Co. (1)
10(p) Receivable Financing Agreement dated December 17, 1990 between Edwards &
Broughton Company and First Citizens Bank together with Installment
Promissory Note, Security Agreement and Guaranty of the Registrant. (1)
10(q) Receivable Financing Agreement dated December 26, 1990 between Baum
Printing House, Inc. and Philadelphia National Bank together with
Installment Promissory Note, Security Agreement and Guaranty of the
Registrant. (1)
10(u) Stock Purchase Agreement dated as of January 26, 1984 among the
Registrant, W.E.A., Inc. and W.E. Andrews Co. Inc., with exhibits. (7)
10(aa) Stock Purchase Agreement dated September 11, 1985 among the Registrant,
IPD Acquisition Corp., IPD Printing & Distributing, Inc., and Equifax,
Inc., with exhibits and Articles of Merger. (8)
10(ff) Promissory Note from the Registrant and Craftsman Printing Company to
Life Insurance Company of Georgia; Security Agreement between Craftsman
Printing Company and Life Insurance Company of eorgia; Deed of Trust
among Craftsman Printing Company, Lewis H. Parham, Jr., and Life
Insurance Company of Georgia; and Guaranty from Registrant to Life
Insurance Company of Georgia. (9)
10(gg) Promissory Note from the Registrant and Wetmore & Company to Life
Insurance Company of Georgia; Deed of Trust among Wetmore & Company, John
B. Stewart and Life Insurance Company of Georgia; and Guaranty Agreement
from Registrant to Life Insurance Company of Georgia. (9)
10(hh) Real Estate Note from Registrant and IPD Printing & Distributing, Inc. to
Life Insurance Company of Georgia; Deed to Secure Debt from IPD Printing
& Distributing, Inc. to Life Insurance Company of Georgia; Security
Agreement between IPD Printing & Distributing, Inc. and Life Insurance
Company ofGeorgia; and Guaranty from Registrant to Life Insurance Company
of Georgia. (9)
10(ii) 1988 Incentive Stock Option Plan. (10)
10(jj) Lease Agreement dated December 1, 1981, as amended, and Agreement
and Release of Guaranty dated October 30, 1987. (10)
-3-
<PAGE>
10(kk) Stock Purchase Agreement dated September 14, 1988 among the Registrant,
Mercury Acquisition Company and the Shareholders of Mercury Printing
Company, Inc. with exhibits. (11)
10(ll) Stock Purchase Agreement dated June 8, 1988 among the Registrant,
Harvey A. Hoechstetter, HPC Acquisition Corp., and Hoechstetter Printing
Company, Inc. with exhibits and Articles of Merger. (11)
10(mm) Stock Purchase Agreement dated August 12, 1988 among the Registrant,
Baum Acquisition Co., Baum Printing House, Inc., Seymour Z. Baum, Joseph
A. Fasolo and Seymour Z. Baum, as trustee, with exhibits and Articles of
Merger. (11)
10(qq) First Mortgage Real Estate Note and Deed to Secure Debt and Security
Agreement between the Registrant and Jefferson-Pilot Life Insurance
Company. (11)
10(rr) Real Estate Note and Mortgage between Printing Service, Inc. and
Jefferson-Pilot Life Insurance Company dated June 29, 1988. (11)
10(ss) First Mortgage Real Estate Note and Deed to Secure Debt and Security
Agreement between State Printing Company and Jefferson-Pilot Life
Insurance Company dated May 24, 1988. (11)
10(tt) Stock Purchase Agreement dated July 31, 1989 among the Registrant,
Monroe Litho, Inc., Monroe Acquisition, Inc., and the Shareholders of
Monroe Litho, Inc. with exhibits. (12)
10(ww)* 1991 Incentive Stock Option and Non-Qualified Stock Options Plan
and Form of Option Agreement of Registrant. (2)
10(xx)* 1992 Restricted Stock Award Plan of Registrant. (2)
10(yy) Receivable Financing Agreement and Term Loan Agreement dated March 3,
1992 between NationsBank, Atlanta Blue Print Company, Inc., Craftsman
Printing Company, Heritage Press, Inc., IPD Printing & Distributing,
Inc., The Stein Printing Company, Inc., Wetmore & Company, Williams
Printing Company and the Registrant. (2)
-4-
<PAGE>
10(zz) Form of Sale and Leaseback Agreement between Fleet Credit Corporation,
W.E. Andrews Co., Inc., W.E. Andrews Co., Inc. of Connecticut, Baum
Printing, Inc., The Central Press of Miami, Inc., Graphic Direct, Inc.-
Illinois, Heritage Press, Inc., IPD Printing & Distributing, Inc., The
Stein Printing Company, Inc., Wetmore & Company, Williams Printing
Company and the Registrant. (2)
10(aaa) Sale and Leaseback Agreement between Fleet Credit Corporation,
W.E. Andrews Co., Inc. and the Registrant. (5)
10(bbb) First Mortgage Real Estate Note and Deed to Secure Debt and Security
Agreement between Heritage Press, Inc. Protective Life Insurance
Company and the Registrant dated February 4, 1992. (5)
10(ccc) First Mortgage Real Estate Note and Deed to Secure Debt between Baum
Printing, Inc., MetLife Corporation and the Registrant dated August 27,
1992. (5)
10(ddd) First Mortgage Real Estate Note and Deed to Secure Debt between
MetLife Corporation and the Registrant dated August 27, 1992. (5)
10(eee) Receivable Financing Agreement dated October 20, 1992 between
Executive Courier, Inc. and the Merchant Bank of Atlanta together with
Installment Promissory Notes and Guaranty of the Registrant. (5)
10(fff) Term Note Agreement, Promissory Note and Security Agreement between
State Printing Company, Inc., First Union National Bank of Georgia and
the Registrant along with Guaranty of the Registrant. (5)
10(ggg) Letter Loan Agreement, Installment Term Notes and Master Demand Note
between Graphic Direct, Inc.-Illinois, Graphic Direct, Inc.-Michigan,
NBD Bank, NA and the Registrant along with Guaranty of the Registrant.
(5)
10(hhh) Loan and Security Agreement and Form of Promissory Note among the
Registrant, Atlanta Blue Print Co., Baum Printing, Inc., The Central
Press of Miami, Inc., Craftsman Printing Company, Edwards & Broughton
Co., Graphic Direct, Inc.-Illinois, Graphic Direct, Inc.-Michigan,
Heritage Press, Inc., Hoechstetter Printing Company, Inc., IPD Printing
& Distributing, Inc., Mercury Printing Company, Inc., State Printing
Company, Inc., The Stein Printing Company, Inc., W.E. Andrews Co.,Inc.,
W.E. Andrews Co., Inc. of Connecticut, Wetmore & Company, Williams
Printing Company, A.C. Scanning, Inc., and the CIT Group/Equipment
Financing, Inc. dated July 29, 1993. (13)
-5-
<PAGE>
10(iii) Amended and restated Financing Agreement, along with the First and
Second Amendment thereto, among the Registrant, Atlanta Blue Print Co.,
Baum Printing, Inc., The Central Press of Miami, Inc., Craftsman
Printing Company, Edwards & Broughton Co., Graphic Direct, Inc.-
Illinois, Graphic Direct, Inc.-Michigan, Heritage Press, Inc., IPD
Printing & Distributing, Inc., Mercury Printing Company, Inc., State
Printing Company, Inc., The Stein Printing Company, Inc., Wetmore &
Company, Williams Printing Company and NationsBank of Georgia, N.A.
dated August 6, 1993. (13)
10(jjj) First Mortgage Real Estate Note and Deed to Secure Debt between
the Registrant and MetLife Corporation dated January 26, 1994. (13)
10(kkk) Offer to Purchase and Supplement to Offer to Purchase between the
Registrant and Kenneth A. Walt, as Trustee for the Estate of Graphic
Dynamics, Inc. dated January 31, 1994. (13)
10(lll) Agreement and Plan of Reorganization between the Registrant, SS
Acquisition Co., Southern Signatures, Inc., Brian R. Smith, MI
Holdings, Inc. and Steven C. Carson, M.D., Pension Fund dated April 19,
1994. (14)
10(mmm) Promissory Note and Master Security Agreement between Mercury Printing
Company, Fleet Credit Corporation and the Registrant dated May 5, 1994.
(14)
10(nnn) First Mortgage Real Estate Note and Security Agreement between the
Registrant and MetLife Capital Financial Corporation dated July 21,
1994. (14)
10(ooo) Promissory Note, Credit Agreement and Security Agreement between
Wetmore & Company, Texas Commerce Bank and the Registrant dated
September 14, 1994 along with Guaranty of the Registrant. (14)
10(ppp) Term Loan, Security and Guaranty Agreement between IPD Printing &
Distributing, Inc., Trust Company Bank and the Registrant dated
November 30, 1994. (14)
10(qqq) First Mortgage Real Estate Note, deed to secure debt and Security
Agreement between the Registrant and MetLife Capital Financial
Corporation dated December 27, 1994. (14)
10(rrr) Agreement and Plan of Reorganization between the Registrant, Quadras
Acquisition Company, QQQ, Inc., Quadras, Inc., Sara Senie Harris and
Cynthia A. Morgan dated November 1, 1995. (15)
10(sss) Agreement and Plan of Merger between the Registrant, Allied Acquisition
Corp., Allied Reprographic Services,Inc. and Vernon E. Langford dated
August 1, 1995. (15)
-6-
<PAGE>
10(ttt) Agreement and Plan of Merger between the Registrant, Carpenter Reserve
Printing Company, Carpenter Acquisition Company and the shareholders of
Carpenter Reserve Printing Companay dated September 21, 1995. (15)
10(uuu) Credit Agreement between the Registrant, co-agents and NationsBank
of Georgia, NA, as agent, dated December 21, 1995. (15)
10(vvv) Asset Sale Agreement between the Registrant, Bausch & Lomb
Incorporated, and Monroe Litho, Inc., a wholly owned subsidiary of the
Registrant, dated December 1, 1995. (15)
10(www) Form of First, Second and Third Amendments to Credit Agreement between
the Registrant, co-agents and NationsBank of Georgia, NA, as agent,
dated June 27, 1996, November 18, 1996 and January 31, 1997
respectively.
10(xxx) Promissory Note, Deed to Secure Debt and Security Agreement between the
Registrant and Metlife Capital Financial Corporation dated December 31,
1996.
10(yyy) Promissory Note, Indemnity Deed of Trust and Security Agreement between
the Registrant and Metlife Capital Financial Corporation dated January
31, 1997.
10(zzz) Asset Purchase Agreement between the Registrant, Presstar Acquisition
Corp., and Ex-Speed-ite Service, Inc. dated October 23, 1997.
10(aaaa) Promissory Note, Mortgage and Security Agreement between the Registrant
and Metlife Capital Financial Corporation dated January 31, 1997.
11 Computation of Earnings Per Share.
13 The Registrant's 1997 Annual Shareholders Report. With the exception of
information expressly incorporated herein by reference, the 1997 Annual
Shareholders Report is not deemed to be filed with the commission.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
* Compensatory Plan, arrangement or management contract.
- --------------------
(1) Incorporated herein by reference to Exhibit of the same number of
the Registrant's Annual Report on Form 10-K for the fiscal year ended January
31, 1991. (File No. 0-12204).
-7-
<PAGE>
(2) Incorporated herein by reference to Exhibit of the same number of the
Registrants Annual Report on Form 10-K for the fiscal year ended January 31,
1992. (File No. 0-12204)
(3) Incorporated herein by reference to Exhibit of the same number to the
Registrant's Registration Statement on Form S-1 as filed on April 30, 1986 (Reg.
No. 33-5277).
(4) Incorporated herein by reference to Exhibit of the same number to
Amendment No. 2 to the Registrant's Registration Statement on Form S-1
filed on December 13, 1983 (Reg. No. 2-86411).
(5) Incorporated herein by reference to Exhibit of the same number of
the Registrants Annual Report on Form 10-K for the fiscal year ended
January 31, 1993. (File No. 0-12204).
(6) Incorporated herein by reference to Exhibit of the same number to
the Registrant's Registration Statement on Form S-1 as filed on October
2, 1985 (Reg. No. 33-600).
(7) Incorporated herein by reference to Exhibit 2 to the Registrant's
Current Report on Form 8-K as filed on February 16, 1984 (File No. 0-12204).
(8) Incorporated herein by reference to the Registrant's Current Report
on Form 8-K as filed on September 26, 1985 (File No. 0-12204).
(9) Incorporated herein by reference to Exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the fiscal year ended Jamuary 31,
1987 (File No. 0-12204).
(10) Incorporated herein by reference to Exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 31,
1988 (File No. 0-12204).
(11) Incorporated herein by reference to Exhibit of the same number to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1989. (File No. O-12204)
(12) Incorporated herein by reference to Exhibit of the same number of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1990. (File No. 0-12204).
(13) Incorporated herein by reference to Exhibit of same number of the
Registrants Annual Report on Form 10-K for the fiscal year ended January
31, 1994. (File No. 0-12204).
(14) Incorporated herein by reference to Exhibit of same number of the
Registrants Annual Report on Form 10-K for the fiscal year ended January
31, 1995. (File No. 0-12204)
-8-
<PAGE>
(15) Incorporated herein by reference to Exhibit of same number of the
Registrants Annual Report on Form 10-K for the fiscal year ended January 31,
1996. (File No. 0-12204).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
January 31, 1997.
-9-
<PAGE>
[LOGO OF GRAPHIC INDUSTRIES, INC. APPEARS HERE]
GRAPHIC INDUSTRIES, INC.
1997 annual report
<PAGE>
GRAPHIC INDUSTRIES, INC. IS A NATIONAL NETWORK OF 20 COMPANIES PROVIDING FULL
SERVICE PRINTING AND GRAPHIC COMMUNICATION SERVICES. LOCATED IN KEY MARKETS IN
THE UNITED STATES, THESE OPERATIONS COMPRISE THE NATION'S LARGEST NETWORK OF
SHORT-TO-MEDIUM RUN, HIGH-QUALITY, FULL-COLOR COMMERCIAL PRINTING COMPANIES.
GRAPHIC'S OPERATIONS OFFER ADVANCED GRAPHIC SUPPLY-CHAIN SOLUTIONS TO ITS
CLIENTS INCLUDING MULTIMEDIA, INTERNET DESIGN, FULFILLMENT, ON-DEMAND PRINTING,
CREATIVE DESIGN AND REPROGRAPHIC SERVICES. GRAPHIC RANKED IN THE TOP 10 IN SALES
AMONG COMMERCIAL PRINTING COMPANIES IN THE UNITED STATES IN 1996.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
--------------------
(In millions except per share data) Year Ended January 31
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Net sales $437.1 $417.3 $348.1 $335.5 $316.9
Net income(1) 13.3 10.6 8.4 6.5 3.7
Net income per common share(1) 1.14 .98 .80 .65 .38
Shareholders' equity $102.6 $ 93.6 $ 74.9 $ 66.4 $ 58.3
</TABLE>
NET SALES NET INCOME SHAREHOLDERS' EQUITY
(in millions) (in millions) (in millions)
[line chart goes here] [line chart goes here] [line chart goes here]
1993 - $ 1993 - $3.7 1993 - $58.3
1994 - $ 1994 - $6.5 1994 - $66.4
1995 - $48.4 1995 - $8.4 1995 - $74.9
1996 - $417.3 1996 - $10.6 1996 - $93.6
1997 - $437.1 1997 - $13.3 1997 - $102.6
/(1)/ For fiscal year ended January 31, 1997, net income and net income per
common share are before an after-tax restructuring charge of $6,026,500 or
$.52 per share.
1
<PAGE>
TO OUR SHAREHOLDERS
- -------------------
Graphic Industries, Inc. had another record-setting year. Net income increased
25% to $13.3 million before a one-time charge for restructuring that positioned
the Company for more profitable growth. Earnings per share reached $1.14 before
the charge, compared with $.98 the previous year. Profit margins improved
significantly. Record revenues exceeded $437 million for the fifth consecutive
year of top line growth. Since our initial public offering in 1983, revenues
have grown at a compounded annual rate of 18.4%.
The restructuring plan implemented early in the past fiscal year will
enable Graphic to improve efficiencies and profitability. Under this plan, the
Company divested its direct-mail subsidiary, Graphic Direct, Inc. of Elmhurst,
Illinois, and closed an Atlanta commercial printing subsidiary, The Stein
Printing Company, Inc., resulting in a first quarter after-tax charge against
earnings of $6 million or $.52 per share. The decision was compelled by the lack
of profitability at the direct-mail company, which did not fit with Graphic's
primary business, and the excess capacity in Stein's market, requiring a major
investment for repositioning, which could not be justified by the expected
return on investment. Graphic management concluded that the Company's resources
should be invested in its more profitable businesses and in external growth
within the consolidating general commercial printing market.
Profit margins improved as a result of both the restructuring and our
ongoing programs of operational efficiencies, volume purchasing and scale
economies. For the year, the after-tax profit margin increased to 3.0% from 2.5%
for the previous year. At the same time, revenues were reduced by almost $23
million as a result of the divested and discontinued operations, reflecting much
stronger growth in sales than shown by the reported comparisons.
Graphic continued to attain strong internal growth in its core business and
added to its strength in technology, investing $23.5 million in equipment,
plants and property during the year. Over the past five years, capital
investments totaled $98 million, reflecting our commitment to technological
leadership.
Major developments of fiscal 1997 included two acquisitions that broadened
Graphic's product base and expanded its presence into another key market. In
June, our Memphis subsidiary, Mercury Printing Company, Inc., acquired The
Wimmer Companies, Inc., the nation's foremost printer and publisher of community
2
<PAGE>
cookbooks for nonprofit organizations. This business, founded more than half a
century ago, offers opportunities to increase sales in its specialized market
through the Graphic network of companies. In November, Graphic gained entry into
the important Baltimore-Washington commercial printing market with the
acquisition of Presstar Printing Corporation, located in Silver Spring,
Maryland. This company, which was established 45 years ago, provides another
strategic location and additional production capabilities for the growing
Graphic network of commercial printing companies, now totaling 17, in key
markets of the United States.
Graphic's plan for growth focuses on continuing internal expansion combined
with an active acquisition program. We are targeting larger shares of the
markets for such products as digital prepress services, on-demand digital
printing, order fulfillment, and management of client data as well as on-site
facilities management. We are actively seeking to acquire in-house operations of
other companies, as per our acquisition of the Graphic Operations Department of
Bausch & Lomb in fiscal 1996. We are also capitalizing on the advantages of the
unique Graphic network capabilities in marketing our services to major
corporations.
As the commercial printing industry continues to consolidate, Graphic will
follow its aggressive yet deliberate approach, seeking high-quality, profitable
companies that will add to the core business with product or geographical
diversification. Our growth plan calls for ultimately gaining entry into every
major U.S. market where we currently do not have a presence, including New York,
Chicago, Denver, New Orleans, Kansas City, St. Louis, Phoenix and Louisville.
This is an exciting time for Graphic! With the commitment of our valued
Associates, we look forward with enthusiasm to setting new records and building
greater value for our shareholders in the future.
Sincerely,
/s/ Mark C. Pope III
- --------------------------------------
Mark C. Pope III
Chairman and Chief Executive Officer
April 30, 1997
[Photo of Mark C. Pope III
appears here]
3
<PAGE>
5-YEAR COMPARATIVE SUMMARY OF OPERATIONS
- ----------------------------------------
<TABLE>
<CAPTION>
Fiscal Years Ended January 31 1997
=============================================================
<S> <C>
Net sales 437,107,260
Cost of sales 329,515,288
-----------
Gross profit 107,591,972
Selling, general and administrative expenses 78,354,798
Restructuring charge(1) 9,000,000
-----------
Operating profit 20,237,174
Other income, net 3,595,644
-----------
23,832,818
Interest expense 10,654,151
-----------
Income before income taxes 13,178,667
Income taxes 5,898,000
-----------
Net income(1) 7,280,667
===========
Primary earnings per share(1) .62
===========
Average outstanding shares 11,663,751
===========
Dividends paid per common share .07
Dividends paid per Class B common share .05
===========
Current ratio 2.4/1
Return on shareholders' equity 7.8%
Working capital 84,019,325
Depreciation and amortization 18,999,855
Additions to property, plant and equipment 23,527,407
Number of employees 3,348
===========
</TABLE>
NOTE TO 5-YEAR COMPARATIVE SUMMARY OF OPERATIONS
(1) The $9 million restructuring charge related to the sale of the Company's
direct-mail subsidiary, Graphic Direct, Inc., and the closing of a
commercial printing subsidiary, The Stein Printing Company, Inc. The after-
tax effect of the charge was $6,026,500, or $0.52 per share. Without the
charge, net income would have been $13,307,167 and primary earnings per
share, $1.14.
4
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended January 31
- -------------------------------------------------------------
1996 1995 1994 1993
=============================================================
<S> <C> <C> <C>
417,261,697 348,130,390 335,467,743 316,880,544
318,319,117 263,485,570 257,549,959 243,109,921
- -------------------------------------------------------------
98,942,580 84,644,820 77,917,784 73,770,623
72,510,489 63,040,317 61,260,267 59,961,199
-- -- -- --
- -------------------------------------------------------------
26,432,091 21,604,503 16,657,517 13,809,424
2,670,660 1,716,054 2,469,351 2,454,356
- -------------------------------------------------------------
29,102,751 23,320,557 19,126,868 16,263,780
11,712,475 9,539,823 8,426,398 9,103,891
- -------------------------------------------------------------
17,390,276 13,780,734 10,700,470 7,159,889
6,760,000 5,375,000 4,200,000 3,441,000
- -------------------------------------------------------------
10,630,276 8,405,734 6,500,470 3,718,889
- -------------------------------------------------------------
.98 .80 .65 .38
- -------------------------------------------------------------
10,894,319 10,556,833 10,031,893 9,752,295
- -------------------------------------------------------------
.07 .07 .07 .07
.05 .05 -- --
- -------------------------------------------------------------
2.4/1 1.6/1 1.7/1 1.6/1
14.2% 12.7% 11.2% 7.0%
84,070,199 45,791,339 48,637,738 40,392,323
16,599,327 14,113,780 12,850,096 12,318,921
24,982,790 21,927,430 21,126,441 6,631,110
3,379 2,961 2,833 2,671
=============================================================
</TABLE>
5
<PAGE>
5-YEAR COMPARATIVE CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------
<TABLE>
<CAPTION>
Fiscal Years Ended January 31 1997
===========================================================
<S> <C>
ASSETS
Current assets
Cash & marketable securities 30,789,430
Receivables 80,658,006
Inventories 28,711,614
Prepaid and other items 4,691,311
-------------
Total current assets 144,850,361
-------------
Other assets 27,491,940
-------------
Property, plant & equipment 217,384,575
Accumulated depreciation 90,250,580
-------------
Net fixed assets 127,133,995
-------------
Total assets 299,476,296
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable 15,814,485
Accounts payable 21,426,662
Other current liabilities 20,117,973
Current portion-long-term debt 3,471,916
-------------
Total current liabilities 60,831,036
Long-term debt 99,676,541
Deferred income taxes 15,620,738
7% convertible subordinated debentures 20,787,000
-------------
Shareholders' equity
Common stock 1,187,613
Additional paid-in capital 19,496,988
Retained earnings 82,657,865
-------------
103,342,466
Less treasury stock (781,485)
-------------
Total shareholders' equity 102,560,981
-------------
Total liabilities and shareholders' equity 299,476,296
=============
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended January 31
- -----------------------------------------------------------
1996 1995 1994 1993
===========================================================
<S> <C> <C> <C>
34,507,981 28,287,722 32,332,007 26,258,163
73,807,212 59,917,946 58,552,570 58,261,811
30,289,674 26,984,609 20,890,321 21,937,869
3,871,083 3,990,781 3,629,109 2,735,905
- -----------------------------------------------------------
142,475,950 119,181,058 115,404,007 109,193,748
- -----------------------------------------------------------
21,587,002 21,461,440 14,709,016 15,603,802
- -----------------------------------------------------------
205,480,869 187,166,830 174,357,094 152,910,173
83,041,109 74,643,058 67,064,692 57,318,867
- -----------------------------------------------------------
122,439,760 112,523,772 107,292,402 95,591,306
- -----------------------------------------------------------
286,502,712 253,166,270 237,405,425 220,388,856
===========================================================
16,917,239 21,909,936 21,666,820 24,821,257
19,930,381 25,308,635 18,752,280 19,486,747
17,948,371 15,083,800 16,803,392 13,604,703
3,609,760 11,087,348 9,543,777 10,888,718
- -----------------------------------------------------------
58,405,751 73,389,719 66,766,269 68,801,425
97,651,125 68,781,374 67,560,368 57,519,213
16,043,672 15,306,327 15,860,278 15,004,631
20,787,000 20,787,000 20,787,000 20,787,000
- -----------------------------------------------------------
1,162,337 1,075,357 1,039,136 1,003,404
17,182,567 9,322,787 6,698,015 4,701,940
76,229,748 65,298,086 58,854,707 52,742,718
- -----------------------------------------------------------
94,574,652 75,696,230 66,591,858 58,448,062
959,488 794,380 160,348 171,475
- -----------------------------------------------------------
93,615,164 74,901,850 66,431,510 58,276,587
- -----------------------------------------------------------
286,502,712 253,166,270 237,405,425 220,388,856
===========================================================
</TABLE>
7
<PAGE>
[Full Page Art appears here]
<PAGE>
PROVIDING COMPREHENSIVE NETWORK SUPPORT
---------------------------------------
Graphic's network of 17 commercial printing companies provides comprehensive
support both internally, among the strategically located operations, and
externally, serving large national accounts from one or more facilities to
quickly and precisely meet customer needs. The unique structure brings numerous
competitive advantages including expanded business opportunities; efficiencies
gained from consolidating purchases; lower cost access to capital; the
acquisition of new technology; improved training; shared information and
expertise among the companies; and management experienced in local and regional
markets.
SUPPORT NETWORK
A key element in the success of the network is the sharing of large or time-
sensitive projects, enabling a local Graphic company to draw on the entire range
of technical and production capabilities of sister companies in order to meet
the specifications, deadlines and quality standards for the largest or most
demanding projects. This type of service cannot be matched by a local printer,
thus providing significant marketing advantages to Graphic. Cross-selling allows
each company in the network to offer a full range of products and enlarge sales
opportunities. Internally, the Graphic companies rely on their network for
rapid, timely exchange of information in selection and use of new equipment and
technology, avoiding costly mistakes and gaining an edge in operating expertise
by solving problems through innovation.
9
<PAGE>
1 INFORMATION MANAGEMENT
Versioning
ISDN and T1 file communication
CD-ROM archiving
Multimedia services
Calibration and color management
2 PRINT AND FINISHING
ISO 9002
Largest sheetfed printer
Full-size webs, 6-color
In-line web production
Perfect binding
3 DISTRIBUTION AND FULFILLMENT
On-demand digital printing
Complete EDI orientation
Inventory cost management
Fully integrated
distribution system
International fulfillment
<PAGE>
SOLVING PROBLEMS THROUGH INNOVATIONS
------------------------------------
SERVICE AND SOLUTIONS
Graphic's strategy for growth is market-focused and customer-driven, directed
toward providing solutions for our customers' needs -- from the creative and
prepress process to printing, file management, warehousing, order fulfillment
and distribution. Digital-based services, such as creation of a home page on the
Internet, are met through Graphic's array of disciplines, relying on the talents
and capabilities within the Company's own creative design agencies and
multimedia service. Within the last two years, the Company has developed more
than 50 home pages and continues to manage them for corporate clients. Graphic's
capabilities also deliver turnkey multimedia business solutions, from concept
development through production, hardware, installation and support.
Technology continues to drive the commercial printing industry, playing to
the strength of the Graphic network. Graphic's advanced equipment begins with
electronic prepress systems, which receive 90% or more of incoming printing
projects via digital media. Digital image processing allows alteration of color
balance, creation of special effects and other changes to provide accurate color
reproduction for electronic output of film from which the printing plates are
produced. High-quality printing, the essence of service, is accomplished on
Graphic's extensive network of presses -- the nation's largest sheetfed printing
operation, with 80 sheetfed presses, 45 of which are capable of printing 6 to 8
colors at one time. In addition, the Company's network has 15 heatset web
presses, both full and half size, with the ability to print 5 to 6 colors with
one pass. Demonstrating the commitment to excellence, several of the Graphic
printing companies have started the process of, or have received, ISO 9002
certification of quality systems and procedures.
11
<PAGE>
[Full page art appears here]
<PAGE>
PROVIDING EXPERIENCE AND KNOWLEDGE
----------------------------------
Graphic's Associates bring to their craft the combined skills and experiences of
their trade and the heritage of the original Graphic company founded in 1922 in
Atlanta -- Williams Printing Company. Building on a proud tradition of high
quality, creativity and customer satisfaction, Graphic's Associates, totaling
over 3,300, combine the artisan's eye with state-of-the-art technology to create
printed products that elicit praise from both our clients and our peers. The
experience and knowledge of every Graphic Associate, from the prepress system
and production line to the accounting department, are available to every other
company in the Graphic network, providing the strength that comes through
experience.
STRENGTH THROUGH EXPERIENCE
This expertise attracts repeat business year after year, including more than 250
annual reports and other financial documents entrusted to Graphic's companies
annually, plus packing and shipping to all parts of the nation -- together with
a wide array of products and services ranging from warehousing and order
fulfillment to in-house printing, courier services, fax, mail and supply room
services, legal services including graphics for courtroom presentations and
electronic document imaging. The increasingly technical world of Graphic
requires skills in the rapidly growing electronic communications network,
including order processing and fulfillment via electronic data interchange (EDI)
as well as the receipt and transmission of prepress data. Confirmation of
strength through experience is the growing number of awards for excellence
presented to Graphic Associates.
13
<PAGE>
[Full page art appears here]
<PAGE>
[Full page art appears here]
<PAGE>
THE GRAPHIC NETWORK
- -------------------
Graphic's growing network extends into 24 cities of the United States, offering
its wide array of commercial printing and
graphic communications services to an expanding client base. Internationally,
Graphic has established network relationships in Mexico and The Netherlands.
[SITES Artwork appears here]
CONNECTICUT MASSACHUSETTS PENNSYLVANIA
Hartford Boston Philadelphia
Pittsburgh
FLORIDA MEXICO
Jacksonville Monterrey SOUTH CAROLINA
Miami Columbia
THE NETHERLANDS Greenville
GEORGIA Boxtel Myrtle Beach
Atlanta Spartanburg
Augusta NEW YORK
Chamblee Rochester TENNESSEE
Doraville Memphis
Macon NORTH CAROLINA
Marietta Asheville TEXAS
Charlotte Dallas
MARYLAND
Silver Spring OHIO
Cleveland
16
<PAGE>
FINANCIAL CONTENTS
------------------
18 Management's Discussion and Analysis
21 Consolidated Balance Sheets
22 Consolidated Statements of Income
23 Consolidated Statements of Shareholders' Equity
24 Consolidated Statements of Cash Flows
25 Notes to Consolidated Financial Statements
32 Report of Independent Auditors
33 Quarterly Results of Operations
33 Board of Directors and Officers
34 Member Companies
IBC Shareholder Information
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
BASIS OF PRESENTATION In fiscal year 1995, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Investments in Debt and
Equity Securities" ("SFAS 115"). In applying SFAS 115, the Company recorded in
fiscal year 1995 a cumulative decrease in retained earnings of approximately
$1,313,000, net of income taxes of approximately $909,000, and a corresponding
decrease in the carrying value of its marketable securities. In fiscal year
1996, the Company recorded an increase in retained earnings of approximately
$973,000, net of income taxes of approximately $670,000, and a corresponding
increase in the carrying value of its marketable securities. In fiscal year
1997, the Company recorded a decrease in retained earnings of approximately
$125,000, net of income taxes of approximately $138,000, and a corresponding
decrease in the carrying value of its marketable securities. These changes in
the fair value of its marketable securities were due entirely to the effect of
changes in market interest rates during fiscal years 1995, 1996 and 1997 and do
not necessarily reflect the ultimate realization on these investments.
The following table sets forth items from the Consolidated Statements of Income
as a percentage of net sales for the indicated years.
<TABLE>
<CAPTION>
Year Ended January 31
---------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 75.4 76.3 75.7
Selling, general and
and administrative
expenses 17.9 17.4 18.1
Restructuring
charge 2.1 - -
Interest and other
income-net 0.8 0.6 0.5
Interest expense 2.4 2.8 2.7
----------------------
Income before
income taxes 3.0 4.1 4.0
Income taxes 1.3 1.6 1.6
----------------------
Net Income 1.7% 2.5% 2.4%
======================
RESULTS OF OPERATIONS
</TABLE>
GENERAL The Company has experienced significant growth over the last five
fiscal years. Net sales increased in each of the fiscal years during this time
period, reaching a record $437,107,260 in fiscal year 1997. Over the 1993-1997
fiscal periods, the Company experienced a compounded annual growth rate of 8.4%
in sales. This performance has been accomplished both through the acquisition of
established businesses in the printing and graphic arts industry and through
internal growth and development.
During the past five fiscal years, the Company invested approximately $98.2
million in additional property, plant and equipment, including new multi-color
presses, automated scanning equipment, electronic prepress equipment and other
computerized equipment.
During fiscal 1995, the Company merged The Central Press of Miami, Inc. ("CP"),
Pompano Beach, Florida into the Pompano Beach, Florida location which was
acquired during fiscal 1994 from Graphic Dynamics Inc. During fiscal 1995, the
Company merged Graphic Direct, Inc.-Michigan ("GDM") of Madison Heights,
Michigan with Graphic Direct, Inc.-Illinois ("GDI") of Elmhurst, Illinois.
During fiscal 1995, the Company acquired Southern Signatures, Inc. ("SSI"),
Atlanta, Georgia. SSI is primarily engaged in the printing of graphic
communications.
During fiscal 1996, the Company acquired Carpenter Reserve Printing Company
("CRPC"), a commercial printing company in Cleveland, Ohio and Quadras, Inc.
("Quadras"), a creative design agency in Atlanta, Georgia. These businesses were
acquired through the issuance of the Company's common stock. Also in fiscal
1996, acquisitions were made by three of the Company's subsidiaries as follows:
Monroe Litho, Inc. ("Monroe"), Rochester, New York acquired the Graphic
Operations Department of Bausch & Lomb, Incorporated for cash and subsequently
merged the operation into its facilities; Mercury Printing Company, Inc.
("Mercury"), Memphis, Tennessee acquired for cash a creative design agency that
has since become a part of its operations; and Atlanta Blue Print Co. ("ABP"),
acquired for the Company's common stock a reprographics company in Atlanta,
Georgia which was merged into its operations.
During fiscal 1997, the Company acquired Presstar Printing Corporation ("PPC"),
a commercial printing company in Silver Spring, Maryland. PPC was acquired
through the issuance of the Company's common stock and cash payments to retire
certain debt obligations. Also in fiscal 1997, one of the company's
subsidiaries, Mercury Printing Company, acquired The Wimmer Companies, Inc., a
printer and publisher of cookbooks in Memphis, Tennessee that has since become a
part of its operations. The acquisition was financed through the issuance of the
Company's common stock and cash payments to retire certain debt obligations.
On May 14, 1996 the Company announced an agreement in principle for the sale of
its direct-mail subsidiary, GDI and the closing of a commercial printing
18
<PAGE>
subsidiary, The Stein Printing Company, Inc. ("SPC"), Atlanta, Georgia. 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 covered 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 as of January 31, 1997 is discussed in Note 10 of Notes
to Consolidated Financial Statements.
Results of Operations - Fiscal Years 1997, 1996 and 1995
NET SALES Net sales for fiscal 1997 increased approximately $19.8 million or
4.8% over fiscal 1996. Of this increase, approximately 4.7% was the result of
businesses acquired in the past two fiscal years. Net sales decreased
approximately $23.0 million in fiscal 1997 compared to fiscal 1996 at two of the
Company subsidiaries, GDI and SPC, due to the sale of GDI and the closing of SPC
during fiscal 1997 as previously discussed above in the General section of
Results of Operations. Excluding the net sales of the acquired businesses and
the net sales of GDI and SPC, net sales on a fully comparable basis increased
approximately 6.0% due to increased sales volume. Net sales for fiscal 1996
increased approximately $69.1 million or 19.9% over fiscal 1995. Of this
increase, approximately 2.5% was the result of the businesses acquired in the
prior two fiscal years, approximately 9.4% 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).
The Company's operations are geographically diverse with a wide customer base.
Accordingly, from year to year the Company experiences different results from
different geographical areas, depending in many respects on local market
factors. Because of this, the aggregate results for the Company may be different
than for each operation. In fiscal year 1997, the Company experienced strong
results from its Southeastern and New England operations. In fiscal year 1996,
the Company experienced strong results from its Southwestern, Mid-Atlantic and
New England operations. In other years, this pattern may vary. The Company
considers this diverse revenue base as one of its competitive advantages.
COST OF SALES Cost of sales, as a percentage of sales, decreased 0.9% in fiscal
1997 as compared to fiscal 1996. The improvement resulted from the following:
stabilization of paper prices which has allowed our companies to more fully
recover these costs in their pricing; increased utilization of equipment and
technology and volume purchasing programs. Cost of sales, as a percentage of
sales, increased 0.6% in fiscal 1996 as compared to fiscal 1995. This increase
resulted from the pass through of paper price increases and by the increase in
fulfillment and distribution operations which do not carry the same margin as
other work.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses, as a percentage of sales, increased 0.5% in fiscal 1997
compared with fiscal 1996. The fiscal 1996 percentage of sales was historically
low due to the inflated sales level in fiscal 1996 which was caused by the pass
through of the significant paper price increases during the year. Selling,
general and administrative expenses, as a percentage of sales, decreased 0.7% in
fiscal 1996 as compared to fiscal 1995. The decrease was due to the effect of
the Company's ongoing focus on operations and expense reduction and the
significant sales increase which offset these expenses. The dollar amount
increase in these expenses was primarily due to higher commissions on the
increase in sales and higher office salary costs associated with the
acquisitions made during these fiscal years.
RESTRUCTURING CHARGE 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 is discussed above in the General section of Results of
Operations and Note 10 of Notes to Consolidated Financial Statements. Excluding
the one-time charge, net income for fiscal year 1997 was $13,307,167 or $1.14
per share Primary, an increase of 25.2% compared with fiscal year 1996.
INTEREST AND OTHER INCOME-NET Interest and other income - net, as a percentage
of sales, increased 0.2% in fiscal 1997 compared to fiscal 1996. Both the
percentage and dollar change was primarily due to higher gains on the
disposition of certain assets and higher investment income in fiscal 1997
compared to fiscal 1996. Interest and other income-net, as a percentage of
sales, increased 0.1% in fiscal 1996 as compared to fiscal 1995. Both the
percentage and dollar change was primarily due to gains on the disposition of
certain assets, as compared to losses on similar transactions recorded in fiscal
1995.
19
<PAGE>
INTEREST EXPENSE Interest expense, as a percentage of sales, decreased 0.4% in
fiscal 1997 compared to fiscal 1996. The decrease was 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 in
fiscal 1997 compared to fiscal 1996. Interest expense, as a percentage of sales,
increased 0.1% in fiscal 1996 as compared to fiscal 1995. This increase was due
to the full effect during the year of prior increases in the prime interest rate
and to an increase in borrowings, described below.
INCOME TAXES The effective tax rate for fiscal 1997 was 44.8% compared to 38.9%
in fiscal 1996. The increase was due to the restructuring charge booked in
fiscal 1997 and discussed above in the General section of Results of Operations
and Note 10 of Notes to Consolidated Financial Statements. A portion of the
restructuring charge related to the write-off of intangible assets for which
there is no tax benefit and a portion of the charge received no state tax
benefit due to the significant loss. The effective tax rate for fiscal 1996 was
38.9% which was comparable to fiscal 1995. See Note 4 of Notes to Consolidated
Financial Statements of the Company for additional information on the Company's
effective income tax rate.
Liquidity and Capital Resources
At January 31, 1997, the Company had approximately $84.0 million in working
capital compared with $84.1 million at January 31, 1996. Capital expenditures
for property, plant and equipment during fiscal 1997 were approximately $23.5
million. During fiscal 1997 other assets increased by approximately $5.3
million. This increase was primarily due to advance payments on the purchase of
three sheet-fed presses, one web press, and new electronic prepress equipment
that will be placed in service in fiscal 1998. Also contributing to the increase
in other assets was the long-term portion of a note receivable from the sale of
GDI. The Company's capital expenditures and increase in other assets in fiscal
1997 were financed by cash provided by operating activities, by the proceeds
from the sale of assets and by the decrease in cash. The Company's capital
expenditures and increase in current assets in fiscal 1996 were financed by cash
provided by operating activities, by a decrease in other assets and by
additional bank borrowing. See Note 3 of Notes to Consolidated Financial
Statements of the Company for additional information regarding the Company's
obligations.
During fiscal 1997, the Company amended its revolving credit facility to include
$10 million in additional commitments for a total of $120 million for the
facility.
During fiscal 1996, the Company refinanced approximately $90 million of term
loans and lines of credit collateralized by accounts receivable, owed by its
subsidiaries, into a parent company revolving credit agreement with a total
commitment of $110 million provided by eight commercial banks. In conjunction
with the refinancing, interest rates were reduced, terms of the borrowing
arrangements were improved, and future repayment requirements were lowered, all
as compared to the prior agreements. Also as a part of the refinancing, certain
amounts which had previously been classified as current liabilities became long-
term obligations, resulting in an increase in working capital.
The Company believes that existing working capital, funds provided from
operations, unused availability under the revolving credit of approximately
$27.2 million and additional bank financing will be adequate to satisfy the
Company's 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.
Service and Products
The following table indicates the approximate percentages of total gross
revenues of the Company attributable to each class of service provided by the
Company for the indicated periods:
<TABLE>
<CAPTION>
Fiscal Year
-----------------------
Class of Service 1997 1996 1995
===============================================
<S> <C> <C> <C>
Financial and
Corporate Printing 38% 35% 34%
Graphic
Communications 46 43 43
Reprographic
Services 7 7 7
Point-of-Purchase
Materials 6 6 6
Direct Mail 1 6 7
Educational Services 2 3 3
-----------------------
Total 100% 100% 100%
=======================
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
---------------------------
January 31
------------------------------
1997 1996
==================================================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Notes 1 and 8) $ 7,212,351 $ 14,476,139
Marketable securities (Note 8) 23,577,079 20,031,842
Trade accounts receivable, less allowance for doubtful accounts of $1,985,000
in 1997 and $1,250,000 in 1996 (Note 3) 80,658,006 73,807,212
Inventories (Note 3):
Materials 10,113,812 11,695,824
Work in process 18,597,802 18,593,850
------------------------------
28,711,614 30,289,674
Prepaid expenses and other current assets 1,552,493 1,998,694
Deferred income taxes (Note 4) 3,138,818 1,872,389
------------------------------
Total current assets 144,850,361 142,475,950
Other assets 10,582,417 5,243,584
Property, plant and equipment (Note 3):
Land 9,027,467 8,414,866
Buildings and improvements 43,637,850 39,693,622
Machinery and equipment 164,719,258 157,372,381
------------------------------
217,384,575 205,480,869
Less accumulated depreciation 90,250,580 83,041,109
------------------------------
127,133,995 122,439,760
Goodwill, less accumulated amortization of $3,311,000
in 1997 and $3,026,000 in 1996 16,909,523 16,343,418
------------------------------
Total assets $299,476,296 $286,502,712
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (Notes 3 and 8) $ 15,814,485 $ 16,917,239
Trade accounts payable 21,426,662 19,930,381
Accrued compensation 6,752,127 5,705,247
Other current liabilities 13,365,846 12,243,124
Current portion of long-term obligations 3,471,916 3,609,760
------------------------------
Total current liabilities 60,831,036 58,405,751
Long-term obligations, less current portion (Notes 3 and 8) 99,676,541 97,651,125
Deferred income taxes (Note 4) 15,620,738 16,043,672
Convertible subordinated debentures (Notes 2 and 8) 20,787,000 20,787,000
Shareholders' equity (Notes 2, 3 and 7):
Preferred stock, no par value -- authorized 500,000 shares; none issued - -
Common stock, $.10 par value -- authorized 20,000,000 shares; issued and
outstanding 7,357,309 shares in 1997 and 7,104,250 shares in 1996;
including 78,599 shares in 1997 and 95,791 shares in 1996 held in treasury 735,731 710,425
Common stock, Class B, $.10 par value -- authorized 10,000,000 shares;
issued and outstanding 4,518,817 in 1997 and 4,519,117 in 1996 451,882 451,912
Additional paid-in capital 19,496,988 17,182,567
Retained earnings (Note 8) 82,657,865 76,229,748
------------------------------
103,342,466 94,574,652
Treasury stock, at cost (781,485) (959,488)
------------------------------
Total shareholders' equity 102,560,981 93,615,164
Commitments (Note 5)
Total liabilities and shareholders' equity $299,476,296 $286,502,712
==============================
See accompanying notes.
</TABLE>
21
<PAGE>
consolidated statements of income
<TABLE>
<CAPTION>
Year ended January 31
----------------------------------------
1997 1996 1995
========================================================================================
<S> <C> <C> <C>
Net sales $437,107,260 $417,261,697 $348,130,390
Cost of sales 329,515,288 318,319,117 263,485,570
----------------------------------------
107,591,972 98,942,580 84,644,820
Selling, general and administrative expenses 78,354,798 72,510,489 63,040,317
Restructuring charge (Note 10) 9,000,000 - -
Interest and other income, net 3,595,644 2,670,660 1,716,054
Interest expense 10,654,151 11,712,475 9,539,823
----------------------------------------
Income before income taxes 13,178,667 17,390,276 13,780,734
Income taxes (Note 4) 5,898,000 6,760,000 5,375,000
----------------------------------------
Net income $ 7,280,667 $ 10,630,276 $ 8,405,734
========================================
Net income per share:
Primary $ .62 $ .98 $ .80
========================================
Fully diluted $ .62 $ .95 $ .79
========================================
See accompanying notes.
</TABLE>
22
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
Common Stock
Commn Stock Class B Additional
--------------------- -------------------- Paid-in
Shares Amount Shares Amount Capital
======================================================================================
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1994 5,872,240 $587,224 4,519,117 $451,912 $ 6,698,015
Net income - - - - -
Cumulative effect of
change in
accounting principle,
net of tax - - - - -
Adjustment to unrealized
loss on
marketable
securities, net of
tax - - - - -
Treasury stock award - - - - (6,906)
Purchase of treasury stock - - - - -
Common stock issued under
non-compete agreement 77,650 7,765 - - 665,188
Common stock issued in
connection with
acquisition 119,337 11,934 - - 993,066
Common stock issued from
exercise of stock
options 165,222 16,522 - - 973,424
Cash dividends on common
stock ($.07) - - - - -
Cash dividends on common
stock, Class B ($.05) - - - - -
----------------------------------------------------------
BALANCE AT JANUARY 31, 1995 6,234,449 623,445 4,519,117 451,912 9,322,787
Net income - - - - -
Adjustment to unrealized
loss on
marketable
securities, net of
tax - - - - -
Common stock issued under
employee stock
purchase plan 22,214 2,221 - - 200,350
Purchase of treasury stock - - - - -
Common stock issued from
exercise of stock
options 239,293 23,929 - - 1,646,994
Common stock award 888 89 - - 7,903
Common stock issued in
connection with
acquisitions 607,406 60,741 - - 6,004,533
Cash dividends on common
stock ($.07) - - - - -
Cash dividends on common
stock, Class B ($.05) - - - - -
----------------------------------------------------------
BALANCE AT JANUARY 31, 1996 7,104,250 710,425 4,519,117 451,912 17,182,567
----------------------------------------------------------
Net income - - - - -
Adjustment to unrealized
loss on
marketable
securities, net of
tax - - - - -
Common stock issued under
employee stock
purchase plan - - - - (40,795)
Purchase of treasury stock - - - - -
Common stock issued from
exercise of stock
options 34,815 3,482 - - 293,536
Common stock award 5,924 592 - - 54,576
Common stock issued in
connection with
current
and prior year acquisitions 212,020 21,202 - - 2,007,104
Class B shares converted to
common stock 300 30 (300) (30) -
Cash dividends on common
stock ($.07) - - - - -
Cash dividends on common
stock, Class B ($.05) - - - - -
----------------------------------------------------------
BALANCE AT JANUARY 31, 1997 7,357,309 $735,731 4,518,817 $451,882 $19,496,988
==========================================================
Treasury Stock Total
Retained --------------------- Shareholders'
Earnings Shares Amount Equity
==================================================================================
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1994 $58,854,707 (14,400) $(160,348) $ 66,431,510
Net income 8,405,734 - - 8,405,734
Cumulative effect of
change in
accounting principle,
net of tax 87,000 - - 87,000
Adjustment to unrealized
loss on
marketable
securities, net of
tax (1,400,352) - - (1,400,352)
Treasury stock award - 2,272 25,299 18,393
Purchase of treasury stock - (77,461) (794,380) (794,380)
Common stock issued under
non-compete agreement - 12,128 135,049 808,002
Common stock issued in
connection with
acquisition - - - 1,005,000
Common stock issued from
exercise of stock
options - - - 989,946
Cash dividends on common
stock ($.07) (423,047) - - (423,047)
Cash dividends on common
stock, Class B ($.05) (225,956) - - (225,956)
----------------------------------------------------
BALANCE AT JANUARY 31, 1995 65,298,086 (77,461) (794,380) 74,901,850
Net income 10,630,276 - - 10,630,276
Adjustment to unrealized
loss on
marketable
securities, net of
tax 973,030 - - 973,030
Common stock issued under
employee stock
purchase plan - 30,243 310,149 512,720
Purchase of treasury stock - (48,573) (475,257) (475,257)
Common stock issued from
exercise of stock
options - - - 1,670,923
Common stock award - - - 7,992
Common stock issued in
connection with
acquisitions - - - 6,065,274
Cash dividends on common
stock ($.07) (445,688) - - (445,688)
Cash dividends on common
stock, Class B ($.05) (225,956) - - (225,956)
----------------------------------------------------
BALANCE AT JANUARY 31, 1996 76,229,748 (95,791) (959,488) 93,615,164
----------------------------------------------------
Net income 7,280,667 - - 7,280,667
Adjustment to unrealized
loss on
marketable
securities, net of
tax (125,144) - - (125,144)
Common stock issued under
employee stock
purchase plan - 67,953 686,908 646,113
Purchase of treasury stock - (50,761) (508,905) (508,905)
Common stock issued from
exercise of stock
options - - - 297,018
Common stock award - - - 55,168
Common stock issued in
connection with
current
and prior year acquisitions - - - 2,028,306
Class B shares converted to
common stock - - - -
Cash dividends on common
stock ($.07) (501,454) - - (501,454)
Cash dividends on common
stock, Class B ($.05) (225,952) - - (225,952)
----------------------------------------------------
BALANCE AT JANUARY 31, 1997 $82,657,865 (78,599) $(781,485) $102,560,981
====================================================
See accompanying notes.
</TABLE>
23
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
Year ended January 31
------------------------------------------
1997 1996 1995
==========================================
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,280,667 $ 10,630,276 $ 8,405,734
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,999,855 16,599,327 14,113,780
Loss (gain) on sale of property, plant and equipment
and investments 296,675 (671,263) 623,192
Provision for deferred taxes (1,253,000) 169,000 265,000
Changes in operating assets and liabilities:
Trade accounts receivable (4,800,635) (10,806,806) (118,009)
Inventories 2,861,594 (2,305,649) (5,705,536)
Prepaid expenses and other current assets 509,961 (330,474) 13,030
Trade accounts payable (1,300,281) (6,257,260) 6,010,620
Other current liabilities 1,540,374 1,694,285 (2,029,170)
------------------------------------------
Net cash provided by operating activities 24,135,210 8,721,436 21,578,641
INVESTING ACTIVITIES
Additions to property, plant and equipment (23,527,407) (24,982,790) (21,927,430)
Proceeds from sale of property, plant and equipment 7,354,200 3,868,999 3,937,578
Assets of acquired businesses, net of cash acquired (7,069,236) (3,330,242) -
Purchase of marketable securities (24,355,192) (12,541,201) (12,263,429)
Proceeds from sale and maturity of marketable securities 21,182,522 16,226,328 5,569,530
Other investing activities (5,337,297) 4,719,454 (6,110,287)
------------------------------------------
Net cash used in investing activities (31,752,410) (16,039,452) (30,794,038)
FINANCING ACTIVITIES
Borrowings on long-term obligations 20,763,478 92,643,850 12,450,971
Payments on long-term obligations (19,069,299) (73,131,436) (10,716,358)
Net repayments of notes payable (1,102,754) (5,380,588) (446,557)
Purchase of treasury stock (508,905) (475,257) (794,380)
Stock options exercised 297,018 1,670,923 989,946
Other financing activities (26,126) (150,932) (630,610)
------------------------------------------
Net cash provided by financing activities 353,412 15,176,560 853,012
------------------------------------------
Net increase (decrease) in cash and cash equivalents (7,263,788) 7,858,544 (8,362,385)
Cash and cash equivalents at beginning of year 14,476,139 6,617,595 14,979,980
------------------------------------------
Cash and cash equivalents at end of year $ 7,212,351 $ 14,476,139 $ 6,617,595
==========================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 6,039,000 $ 4,925,000 $ 6,306,000
==========================================
Interest $ 10,705,000 $ 11,516,000 $ 9,743,000
==========================================
</TABLE>
NON-CASH TRANSACTIONS
During fiscal year 1995, the Company issued 89,778 shares of its stock (valued
at $808,002) to an officer of the Company in settlement of a non-compete
agreement entered into in fiscal year 1990 when the Company acquired Monroe
Litho, Inc. This transaction is reflected in goodwill in the accompanying
consolidated balance sheets.
See accompanying notes.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JANUARY 31, 1997
1 Summary of Accounting Policies
Graphic Industries, Inc. and subsidiaries ("GII" or the "Company") are engaged
in providing comprehensive printing, graphic arts services, and related products
and supplies through facilities located in 12 states, principally Georgia,
Texas, Pennsylvania, and Massachusetts. The Company services a diverse customer
base and, therefore, has minimal exposure to credit loss from any particular
customer or industry segment.
The following accounting policies are presented to assist the reader in
understanding the Company's financial statements.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the Company and all of its subsidiaries, Baum Printing, Inc.,
Carpenter Reserve Printing Company, The Central Press of Miami, Inc., Craftsman
Printing Company, Graphic Direct, Inc. -- Illinois, Heritage Press, Inc.,
Hoechstetter Printing Company, Inc., Imaging Technologies Services, Inc., IPD
Printing & Distributing, Inc., Mercury Printing Company, Inc., Monroe Litho,
Inc., Presstar Printing Corporation, Quadras, Inc., Southern Signatures, Inc.,
State Printing Company, Inc., The Stein Printing Company, Inc., Wetmore &
Company, Williams Printing Company, W.E. Andrews Co., Inc., A.C. Scanning, Inc.
and W.E. Andrews Co., Inc., of Connecticut. The operations of Graphic Direct,
Inc. -- Michigan were merged into other subsidiaries during fiscal year 1995.
During fiscal year 1996, the Company acquired Allied Reprographic Services and
Supplies, Carpenter Reserve Printing Company, and Quadras, Inc. These
acquisitions were financed through issuance of 607,406 shares of the Company's
stock valued at $6,065,274. In December 1995, the Company acquired the printing
operations of Bausch & Lomb for $2,839,000 in cash, including $600,000 for
prepaid rebates. Cost exceeded the fair value of net assets for these 1996
acquisitions by approximately $4.5 million.
During fiscal year 1997, the Company acquired The Wimmer Companies, Inc. and
Presstar Printing Corporation. These acquisitions were financed through issuance
of 155,889 shares of the Company's stock valued at $1,458,512 and cash payments
amounting to $6,650,927. Cost exceeded the fair value of net assets for these
1997 acquisitions by approximately $653,000.
The above acquisitions were accounted for using the purchase method of
accounting. Operations of the acquired companies have been included in the
consolidated statements of income from the respective dates of purchase.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results may
differ from those estimates.
REVENUE RECOGNITION The Company reports revenue, with the related costs, in the
accounting period in which the job is completed and available for delivery to
the customer. The Company generally does not require collateral for its accounts
receivable.
CASH EQUIVALENTS The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Inventories Inventories are stated at the lower of cost (first-in, first-out
basis) or replacement market.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated on the
basis of cost. Depreciation is computed using the straight-line method over the
estimated useful life of each asset as set forth below. Leases and leasehold
improvements that have been capitalized are amortized over the lives of the
leases. Amortization of these assets is included in depreciation expense.
Buildings 15-30 years
Building improvements 5-25 years
Machinery and equipment 4-10 years
Vehicles 2- 5 years
GOODWILL In connection with the Company's acquisitions, costs in excess of the
fair value of net assets acquired are recorded as goodwill. Goodwill is
amortized on a straight-line basis over a forty-year period. The carrying value
of goodwill is reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicates that the goodwill will not be recoverable,
the Company's carrying value of the goodwill would be reduced to its estimated
fair value.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
JANUARY 31, 1997
LONG-LIVED ASSETS In March 1995, the FASB issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), which requires
impairment losses to be recognized for long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are not sufficient to recover the assets'
carrying amount. The Company adopted SFAS 121 in the first quarter of fiscal
year 1997. The adoption had no effect on the financial statements.
CHANGE IN ACCOUNTING PRINCIPLE In fiscal year 1995, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Investments
in Debt and Equity Securities" ("SFAS 115"). The cumulative effect of adopting
SFAS 115 at February 1, 1994 increased the carrying value of the Company's
marketable securities by $145,000, and also increased shareholders' equity by
$87,000 (net of $58,000 of deferred income taxes) to reflect the unrealized
holding gains on these securities which were previously carried at cost.
NET INCOME PER COMMON SHARE Primary net income per common share is based on the
weighted average number of shares of common stock outstanding during each year.
Fully diluted net income per share is based on the weighted average number of
shares of common stock outstanding and the assumed conversion of convertible
securities outstanding, after appropriate adjustment for interest on convertible
debentures during each year. Shares issuable under the Company's incentive stock
option plans would not materially dilute net income per share; therefore, they
have not been included in the computations. The number of shares used in
computing primary net income per common share was 11,663,751 in 1997, 10,894,319
in 1996 and 10,556,833 in 1995. The number of shares used in computing fully
diluted net income per common share was 12,942,951 in 1997, 12,173,519 in 1996
and 11,836,033 in 1995.
2 CONVERTIBLE SUBORDINATED DEBENTURES
The Company has outstanding $20,787,000 of 7% convertible subordinated
debentures due May 15, 2006. The debentures are unsecured general obligations of
the Company.
The debentures are convertible into common stock of the Company at any time on
or before May 15, 2006, unless previously redeemed, at a conversion price of
$16.25 per share, subject to adjustment, as defined. The debentures are subject
to redemption through payment into a sinking fund. The sinking fund is scheduled
to retire 75% of the debentures prior to maturity. The Company reacquired and
holds $2,338,000 of these debentures. The Company's intention is to present
these debentures to the trustee for cancellation in lieu of required cash
payments into the sinking fund. Remaining payment requirements for fiscal years
ending January 31 are as follows:
1998 $ -
1999 1,412,000
2000 1,875,000
2001 1,875,000
2002 1,875,000
Thereafter 13,750,000
-----------
$20,787,000
===========
3 DEBT
Long-term obligations consist of the following:
January 31
-----------------------------
1997 1996
==============================================================================
Revolving line of credit with
interest at LIBOR plus 1.75% $ 77,000,000 $ 75,600,000
Term loan agreement with bank
with interest at prime (8.25%
at January 31, 1997) payable
in installments of $383,000
annually, including interest 1,400,171 1,646,153
Real estate mortgage loan
agreements with interest from
4.5% to 10.4%, payable in
installments aggregating from
$26,000 to $395,000 annually,
including interest 20,426,531 17,771,454
Capital lease obligations, payable
in installments aggregating
from $3,000 to $302,000
annually with interest at
8.4% to 17.65% or prime
plus .25% to .5% 1,827,727 3,043,724
Industrial development revenue
bonds with interest from 3%
to 70% of prime (5.78% at
January 31, 1997) 458,012 553,874
Other notes with interest at
3% to 11.25% or 30 day
commercial paper rate
plus 2.35% 2,036,016 2,645,680
-----------------------------
103,148,457 101,260,885
Less amounts due within
one year 3,471,916 3,609,760
-----------------------------
$ 99,676,541 $ 97,651,125
=============================
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JANUARY 31, 1997
On December 21, 1995, the Company entered into a $110 million revolving credit
facility with a group of lenders led by NationsBank. The interest rate on this
indebtedness is a floating rate which, at the Company's option, will equal
NationsBank's prime rate or a specified margin (based upon a specific financial
ratio) over LIBOR. This indebtedness is secured by substantially all the
accounts receivable and inventories of the Company and its subsidiaries.
On November 18, 1996, the revolving credit facility was amended to include $10
million in additional commitments, for a total availability of $120 million for
this facility. In addition, the maturity date of the amounts outstanding under
the revolving credit facility was extended one year to December 21, 1998 with
two consecutive one-year renewable periods, with renewal at the option of the
Company.
Under the provisions of the revolving credit facility, the Company may also
borrow up to $10 million for short-term financing. At January 31, 1997, the
Company had borrowed the full amount available under this provision and such
amount is reflected in notes payable in the accompanying balance sheets.
This facility contains covenants, including maintenance of a maximum leverage
ratio, minimum net worth, a minimum cash flow to fixed charges ratio, maximum
debt to earnings ratio and certain limits on outstanding debt and other
transactions.
The Company and certain of its subsidiaries also have credit agreements with
various banks to provide short-term financing, tied into the revolving credit
facility through an intercreditor provision. Some of these agreements contain
covenants, including maintenance of a minimum net worth and a minimum cash flow
to fixed charges ratio. Under these agreements, the Company can borrow an
aggregate of $25,000,000 as of January 31, 1997. Interest rates on these lines
are primarily at the banks' prime interest rates (8.25% at January 31, 1997). At
January 31, 1997, the available unused portion of the credit lines was
approximately $19,200,000. The credit agreements are renewed and revised
periodically.
Certain property, plant and equipment is pledged as collateral on long-term
obligations other than the revolving credit facility.
Aggregate maturities of long-term obligations as of January 31, 1997, are
approximately $3,472,000 in 1998, $2,880,000 in 1999, $2,761,000 in 2000,
$79,688,000 in 2001, $2,180,000 in 2002 and $12,168,000 thereafter, assuming the
revolving credit facility is renewed to its maximum term.
4 INCOME TAXES
The Company accounts for income taxes using the liability method as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires the recognition of deferred tax assets
and liabilities for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
The components of income tax expense (benefit) are as follows:
Year ended January 31
------------------------------------
1997 1996 1995
=====================================================
Federal
Current $ 5,902,000 $5,304,000 $3,661,000
Deferred (1,007,000) 138,000 334,000
State
Current 1,249,000 1,287,000 1,449,000
Deferred (246,000) 31,000 (69,000)
------------------------------------
$ 5,898,000 $6,760,000 $5,375,000
====================================
A reconciliation of income tax expense computed at the statutory federal income
tax rate to the Company's effective income tax rate follows:
Year ended January 31
------------------------------------
1997 1996 1995
=====================================================
Federal rate 34.3% 34.3% 34.3%
State, net of
federal
tax benefit 6.7 4.6 6.3
Expenses for which
no tax
benefits
were recorded 3.1 1.3 0.9
Other, net .7 (1.3) (2.5)
------------------------------------
44.8% 38.9% 39.0%
====================================
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
JANUARY 31, 1997
Significant components of the Company's deferred tax liabilities and assets are
as follows:
January 31
1997 1996
========================================================================
Deferred tax liabilities:
Property, plant and equipment $15,367,254 $16,344,631
Other, net 253,484 260,050
--------------------------
Total deferred tax liabilities 15,620,738 16,604,681
Deferred tax assets:
State net operating loss
carryforwards (NOLs) (1,233,581) (1,429,875)
Federal net operating loss
carryforwards - (259,242)
Employee benefit accruals (1,167,642) (1,034,743)
Allowance for doubtful accounts (795,191) (498,750)
Unrealized loss on marketable
securities (337,490) (238,772)
Other, net (838,495) (312,932)
--------------------------
Total deferred tax assets (4,372,399) (3,774,314)
Valuation allowance for state NOLs 1,233,581 1,340,916
--------------------------
Net deferred tax liabilities $12,481,920 $14,171,283
==========================
The deferred tax accounts are presented in the accompanying balance sheets as
follows:
January 31
1997 1996
========================================================================
Current portion (net asset) $(3,138,818) $(1,872,389)
Long-term portion (net liability) 15,620,738 16,043,672
--------------------------
Net deferred tax liabilities $12,481,920 $14,171,283
==========================
SFAS 109 requires that a valuation allowance be recognized if it is "more likely
than not" that some or all of the deferred tax assets will not be realized.
Management believes that the future reversal of existing taxable temporary
differences provides evidence that a significant portion of the deferred tax
assets will be realized. The change in the valuation allowance during 1997 and
1996 was not material.
5 COMMITMENTS
The Company leases facilities, equipment, machinery and vehicles under operating
leases. Certain land and building leases have renewal options for periods
ranging from one to ten years. Rental expense for operating leases amounted to
$7,995,000, $7,314,000, and $6,655,000 in 1997, 1996, and 1995, respectively.
Future minimum payments under noncancellable leases with initial or remaining
terms of one year or more consisted of the following at January 31, 1997:
1998 $ 6,258,000
1999 4,550,000
2000 2,431,000
2001 829,000
2002 208,000
Thereafter 483,000
-----------
Total $14,759,000
===========
The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. Management believes (based on
advice of legal counsel) that such litigation and claims will be resolved
without material effect on the Company's financial position.
6 EMPLOYEE BENEFITS
The Company has a profit sharing plan (PSP) which includes a "salary reduction
plan" as described in Section 401(k) of the Internal Revenue Code. The PSP
provides for discretionary employee contributions not in excess of 15% of the
employee's annual salaries. The salary reduction plan provides for Company
contributions based on 50% of the first 4% of the covered employee's
contribution. The Company expensed contributions to these plans of approximately
$2,308,000, $1,631,000, and $1,287,000 in 1997, 1996, and 1995, respectively.
The Company has a payroll-based employee stock ownership plan (Paysop) which
provides for contributions made by the Company and its subsidiaries, as
determined by the respective board of directors, and covers substantially all
employees. Contributions to the plan for the years ended January 31, 1997, 1996,
and 1995 were not significant.
The Company has an employee stock purchase plan which provides for the purchase
of up to 500,000 shares of the Company's outstanding common stock. The plan
provides for employee contributions not to exceed $10,400 per employee in any
one calendar year and allows participants to utilize these contributions to
purchase shares of the Company's common stock at a 10% discount from market
value. The remaining 10% and all related fees and expenses are paid by the plan.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
JANUARY 31, 1997
Participants may also purchase up to $10,000 of common stock per year at market
value. The Company expensed contributions to the plan of approximately $87,000,
$98,000, and $21,000 during 1997, 1996, and 1995, respectively.
Pursuant to various collective bargaining agreements, contributions to union-
sponsored multi-employer pension plans made by the Company's two unionized
subsidiaries were approximately $238,000, $279,000, and $400,000 in 1997, 1996,
and 1995, respectively. Information as to the respective subsidiaries' portion
of accumulated plan benefits and plan net assets is not determinable.
The Company does not provide postretirement benefits, such as healthcare and
life insurance, to retirees.
7 Stock Option and Award Plans
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
The Company adopted an Incentive Stock Option Plan in April 1988 ("1988 Plan")
which permits the granting of options to officers and key employees to purchase
up to an aggregate of 750,000 shares of the Company's common stock, no more than
200,000 of which may be issued to persons who are directors of the Company. In
April 1991, the Board of Directors approved an amendment to the 1988 Plan. The
number of shares exercisable each year was changed from 50% in the third and
fourth years following the year of grant to 33 1/3% during January in the three
years following the amendment. Additionally, in fiscal year 1995 each subsidiary
company president was granted a two-year option for 5,000 shares which are
exercisable in two cumulative installments of 50% each year. Options not
exercised within the required times are terminated and cancelled.
The Company adopted a Stock Option Plan in September 1991 ("1991 Plan"). The
Plan permits the granting of incentive stock options or non-qualified stock
options to officers, key employees and outside directors to purchase up to an
aggregate of 1,000,000 shares of the Company's common stock, no more than
250,000 of which may be issued to persons who are directors of the Company.
Options granted under the 1991 Plan are exercisable during January in the three
years following the date of grant in increments of 33 1/3% each year. Options
not exercised within the required times are terminated and cancelled.
The Company adopted a Stock Option Plan in April 1995 ("1995 Plan"). The Plan
permits the granting of options to officers, key employees, and directors of the
Company and its subsidiaries to purchase up to an aggregate of 1,000,000 shares
of the Company's common stock, no more than 250,000 of which may be issued to
persons who are directors of the Company. Options granted under the 1995 Plan
are exercisable in one designated month occurring in the period from February to
July in each of the three years following the date of grant in increments of
33 1/3% each year. Options not exercised within the required times are
terminated and cancelled.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
January 31, 1995 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1997
and 1996, respectively: risk-free interest rates of 6.87% and 6.95%; a dividend
yield of .80% and .80%; volatility factors of the expected market price of the
Company's common stock of .35 and .35; and a weighted-average expected life of
the option of 3 years and 3 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
JANUARY 31, 1997
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
----------------
1997 1996
==================================================
<S> <C> <C>
Pro forma net income $7,011 $10,341
Pro forma net income per share:
Primary .60 .95
Fully diluted .60 .92
================
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to January 31,
1995, its pro forma effect will not be fully reflected until future years.
A summary of the Company's stock option activity and related information for the
years ended January 31 follows:
<TABLE>
<CAPTION>
-------------------
Weighted-
Average
Options Exercise
(000) Price
===============================================================
<S> <C> <C>
1997
Outstanding at beginning of year 728 $8.76
Granted 77 8.43
Exercised (39) 8.67
Canceled (145) 8.82
-----
Outstanding at January 31 621 8.71
-----
Shares available for future grants 749
-----
Weighted-average fair value of options
granted during the year 2.42
================
1996
Outstanding at beginning of year 346 $7.48
Granted 648 8.75
Exercised (239) 7.00
Canceled (27) 7.74
-----
Outstanding at January 31 728 8.76
-----
Shares available for future grants 974
-----
Weighted-average fair value of options
granted during the year 2.64
1995
Outstanding at beginning of year 375 $5.99
Granted 192 8.78
Exercised (165) 6.01
Canceled (56) 6.29
-----
Outstanding at January 31 346 7.48
-----
Shares available for future grants 595
-----
</TABLE>
Exercise prices for options outstanding as of January 31, 1997 ranged from $7.88
to $9.38. The weighted-average remaining contractual life of those options is
one year. No options were exercisable at the end of each fiscal year.
In April 1992 the Company adopted a Stock Award Plan. This plan provides for
awards of the Company's common stock to key employees and directors up to an
aggregate of 400,000 shares. The plan is administered by a committee, appointed
by the Board of Directors, that has full authority to make awards under the
plan. During 1997, 1996 and 1995, 5,924 shares, 888 shares and 2,272 shares,
respectively, were awarded under this plan and charged to compensation expense.
8 Fair Value of Financial Instruments
and Investments
The following methods and assumptions are used by the Company in estimating its
fair value disclosures for financial instruments.
CASH AND CASH EQUIVALENTS The carrying value of cash and cash equivalents
approximates fair value.
MARKETABLE SECURITIES Management determines the appropriate classification of
securities at the time of purchase and reevaluates such designations as of each
balance sheet date.
All marketable securities are classified as "available-for-sale" and, therefore,
are carried at fair value, with the difference between cost and fair value, net
of tax, reported as a component of retained earnings. At January 31, 1997 and
1996, this difference was an unrealized loss of approximately $465,000 and
$340,000 which was net of income taxes of approximately $377,000 and $239,000,
respectively. This difference was due to the effect of changes in market
interest rates on the fair value of these securities. Realized gains and losses
are included in investment income. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities classified
as available for sale are included in interest income.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
JANUARY 31, 1997
The following is a summary of available-for-sale securities at January 31, 1997
and 1996:
<TABLE>
<CAPTION>
------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
============================================================================
<S> <C> <C> <C> <C>
1997
U.S. Treasury
bonds $ 4,824,080 $ - $(183,377) $ 4,640,703
Municipal
bond funds 14,873,672 22,710 (552,915) 14,343,467
------------------------------------------------
Total debt
securities 19,697,752 22,710 (736,292) 18,984,170
Equity
securities 3,655,272 35,987 (149,821) 3,541,438
Other
securities 1,066,518 2,640 (17,687) 1,051,471
------------------------------------------------
$24,419,542 $61,337 $(903,800) $23,577,079
------------------------------------------------
1996
U.S. Treasury
bonds $ 1,776,192 $ 9,183 $ - $ 1,785,375
Municipal
bonds 403,500 - (7,500) 396,000
Municipal
bond funds 13,517,193 15,710 (339,538) 13,193,365
------------------------------------------------
Total debt
securities 15,696,885 24,893 (347,038) 15,374,740
Equity
securities 3,953,766 14,425 (263,430) 3,704,761
Other
securities 960,280 18,257 (26,196) 952,341
------------------------------------------------
$20,610,931 $57,575 $(636,664) $20,031,842
------------------------------------------------
</TABLE>
The investments in U.S. Treasury bonds are scheduled to mature in fiscal years
2025 through 2026.
CONVERTIBLE SUBORDINATED DEBENTURES The fair value of the debentures
approximates $18,916,000 and $19,124,000 as of January 31, 1997 and 1996,
respectively, based on its quoted market prices.
SHORT-TERM BORROWINGS AND LONG-TERM OBLIGATIONS The carrying amounts of the
short-term borrowings and long-term obligations approximate the instruments'
fair values.
9 Related Party Transactions
In January 1995, the Chairman of GII purchased certain land from GII for
$750,000, which represents the higher of two MAI appraisals obtained. In
connection with this transaction, GII realized a gain of approximately $450,000.
This transaction was approved by the Board of Directors of the Company.
In January 1997, the Chairman of GII purchased a certain building from GII for
$640,000, which represents the higher of two MAI appraisals obtained. In
connection with this transaction, GII realized a gain of approximately $335,000.
This transaction was approved by the Board of Directors of the Company.
10 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.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
JANUARY 31, 1997
The composition of the Company's restructuring reserves as of January 31, 1997
is as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Original Writedown Restructuring
Restructuring of Assets Cash Reserves as
Reserve to Fair Value Payments of January 31, 1997
=============================================================================================================================
<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 expenditures to close facilities including
termination benefits of $2,177,271 4,161,018 - 3,149,392 1,011,626
Impairment loss on intangible assets 688,629 (688,629) - -
--------------------------------------------------------------
Total restructuring reserves $9,000,000 $(4,838,982) $3,149,392 $1,011,626
==============================================================
</TABLE>
For the year ended January 31, 1996, the combined results for GDI and SPC were
net sales of $32,647,782 and a pre-tax loss of $(1,376,281). For the year ended
January 31, 1997, the combined results were net sales of $9,602,649 and pre-tax
loss of $(70,055).
At January 31, 1997, the Company believes that the provision for restructuring
continues to be adequate and will not require adjustment in future periods.
REPORT OF INDEPENDENT AUDITORS
- ------------------------------
Board of Directors
Graphic Industries, Inc.
We have audited the accompanying consolidated balance sheets of Graphic
Industries, Inc. and subsidiaries as of January 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended January 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Graphic
Industries, Inc. and subsidiaries at January 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1995 the
Company changed its method of accounting for its investments in marketable
securities.
/s/ Ernst & Young LLP
March 12, 1997
32
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
-------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------
(In thousands, except per share data) April 30, 1996(1) July 31, 1996 October 31, 1996 January 31, 1997
=============================================================================================================
<S> <C> <C> <C> <C>
Net sales $112,961 $102,069 $111,234 $110,843
Gross profit 28,581 24,798 27,675 26,538
--------------------------------------------------------------------
Net income (2,409) 2,386 3,493 3,811
--------------------------------------------------------------------
Net income per share:
Primary (.21) .21 .30 .32
--------------------------------------------------------------------
Fully diluted (.21) .20 .29 .31
====================================================================
Three Months Ended
--------------------------------------------------------------------
(In thousands, except per share data) April 30, 1995 July 31, 1995 October 31, 1995 January 31, 1996
=============================================================================================================
Net sales $105,799 $ 97,008 $105,615 $108,840
Gross profit 25,701 23,332 25,079 24,831
--------------------------------------------------------------------
Net income 2,776 2,118 2,685 3,051
--------------------------------------------------------------------
Net income per share:
Primary .26 .20 .25 .27
--------------------------------------------------------------------
Fully diluted .25 .20 .24 .26
====================================================================
</TABLE>
(1) After restructuring charge of $9,000,000 before income taxes and $6,026,500
after-tax or $.52 primary earnings per share.
BOARD OF DIRECTORS AND OFFICERS
-------------------------------
DIRECTORS
MARK C. POPE III
Chairman of the Board,
Graphic Industries, Inc.
WARREN E. ANDREWS
Private Investor and
Former Chairman of the Board,
W.E. Andrews Co., Inc.**
LEO BENATAR*
Senior Partner and Associated
Consultant, A.T. Kearney, Inc.,
Former Chairman of the Board and
CEO, Engraph, Inc.
JAMES A. HATCHER
Vice President and General Counsel,
Cox Cable Communications, Inc.
ALVAN A. HERRING JR.
Vice President,
Graphic Industries, Inc.
CARTER D. POPE
President,
Atlanta Blue Print Company**
JOHN R. POPE
President,
Williams Printing Company**
RALPH N. STRAYHORN JR.*
Of Counsel to Petree Stockton;
Retired General Counsel,
First Wachovia Corporation
WILLIAM A. WOOD JR.
Former Vice President,
Graphic Industries, Inc.
Member of Audit Committee
Subsidiary of Graphic Industries, Inc.
OFFICERS
MARK C. POPE III
Chairman of the Board,
Chief Executive Officer and President
ELLIS T. ALEXANDER
Vice President
JOSEPH A. FASOLO
Vice President
DONALD S. FORSHAY
Vice President--Marketing
JEFF GLOVER
Vice President
ALVAN A. HERRING JR.
Vice President
JIM R. TIDWELL
Vice President
DAVID S. FRASER
Chief Financial Officer and Treasurer
DONALD P. HUNNICUTT
Secretary
33
<PAGE>
MEMBER COMPANIES
- ----------------
GRAPHIC INDUSTRIES, INC.
CORPORATE HEADQUARTERS
2155 Monroe Dr, NE
Atlanta, GA 30324
Telephone: (404) 874-3327
Fax: (404) 874-7589
W.E. ANDREWS CO., INC.
140 South Rd
Bedford, MA 01730
Telephone: (617) 275-0720
Fax: (617) 275-3256
W.E. ANDREWS CO., INC.
OF CONNECTICUT
206 Murphy Rd
Hartford, CT 06114
Telephone: (860) 527-5570
Fax: (860) 527-0159
BAUM PRINTING, INC.
9985 Gantry Rd
Philadelphia, PA 19115
Telephone: (215) 671-9500
Fax: (215) 676-5455
CARPENTER RESERVE
PRINTING COMPANY
7100 Euclid Ave
Cleveland, OH 44103
Telephone: (216) 431-0800
Fax: (216) 431-5240
THE CENTRAL PRESS OF
MIAMI, INC.
2901 Gateway Dr
Pompano Beach, FL 33069
Telephone: (954) 978-9958
Fax: (954) 978-9959
CRAFTSMAN PRINTING COMPANY
2700 Westinghouse Blvd
Charlotte, NC 28273
Telephone: (704) 588-2120
Fax: (704) 588-9466
EXECUTIVE COURIER, INC.*
120 Ottley Dr
Atlanta, GA 30324
Telephone: (404) 249-9000
Fax: (404) 249-6620
HERITAGE PRESS, INC.
8939 Premier Row
Dallas, TX 75247
Telephone: (214) 637-2700
Fax: (214) 589-2205
HOECHSTETTER PRINTING
COMPANY, INC.
218 North Braddock Ave
Pittsburgh, PA 15208
Telephone: (412) 241-8200
Fax: (412) 242-9138
IPD PRINTING &
DISTRIBUTING, INC.
5800 Peachtree Rd
Chamblee, GA 30341
Telephone: (770) 458-6351
Fax: (770) 454-6236
MERCURY PRINTING
COMPANY, INC.
2929 Convair Rd
Memphis, TN 38132
Telephone: (901) 345-8480
Fax: (901) 346-9918
MONROE LITHO, INC.
39 Delevan St
Rochester, NY 14605
Telephone: (716) 454-3290
Fax: (716) 454-5092
PRESSTAR PRINTING CORPORATION
12201 Old Columbia Pike
Silver Spring, MD 20904
Telephone: (301) 622-5000
Fax: (301) 622-5403
QUADRAS, INC.
3176 Marjan Dr
Atlanta, GA 30340
Telephone: (770) 458-2170
Fax: (770) 457-2473
SOUTHERN SIGNATURES, INC.
201 Armour Dr
Atlanta, GA 30324
Telephone: (404) 872-4411
Fax: (404) 872-1620
STATE PRINTING COMPANY, INC.
1210 Key Rd
Columbia, SC 29201
Telephone: (803) 799-9550
Fax: (803) 252-2852
STEIN EDUCATIONAL MARKETING GROUP
2161 Monroe Dr, NE
Atlanta, GA 30324
Telephone: (404) 875-0421
Fax: (404) 876-7209
WETMORE & COMPANY
1645 West Sam Houston Parkway North
Houston, TX 77043
Telephone: (713) 468-7175
Fax: (713) 468-8021
WILLIAMS PRINTING COMPANY
1240 Spring St, NW
Atlanta, GA 30309
Telephone: (404) 875-6611
Fax: (404) 872-4025
IMAGING TECHNOLOGIES
SERVICES
1052 West Peachtree St, NW
1117 West Peachtree St, NW
Atlanta, GA 30309
Telephone: (404) 873-5911
Fax: (404) 872-1215
IMAGING TECHNOLOGIES
SERVICES DIVISIONS
AND SUBSIDIARIES:
A&E Reprographics &
Supply Co.
Jacksonville, FL
Telephone: (904) 399-8946
Fax: (904) 399-0184
Arco Blueprinter
Asheville, NC
Telephone: (704) 254-9536
Fax: (704) 253-8467
Atlanta Blue Print Company
Atlanta, GA
Telephone: (404) 873-5911
Fax: (404) 872-1215
Atlantic Reprographics
Myrtle Beach, SC
Telephone: (803) 626-3641
Fax: (803) 626-6580
Carolina Reprographics
Columbia, SC
Telephone: (803) 254-2561
Fax: (803) 254-2561
Cobb Reprographics &
Office Supply
Marietta, GA
Telephone: (770) 422-0333
Fax: (770) 422-3441
Imaging Technologies Services
Buckhead Branch
Atlanta, GA
Telephone: (404) 261-2523
Fax: (404) 261-6878
Imaging Technologies Services
Augusta, GA
Telephone: (706) 724-7924
Fax: (706) 724-7960
Imaging Technologies Services
Greenville, SC
Telephone: (864) 233-5371
Fax: (864) 233-7742
Imaging Technologies Services
Spartanburg, SC
Telephone: (864) 585-8388
Fax: (864) 582-7152
Macon Blueprint Company
Macon, GA
Telephone: (912) 742-7541
Fax: (912) 741-1469
Tower Legal Services
Atlanta, GA
Telephone: (404) 873-3445
Fax: (404) 872-1215
* Subsidiary of Imaging Technologies Services
34
<PAGE>
SHAREHOLDER INFORMATION
-----------------------
DIVIDEND INFORMATION The Company has paid quarterly dividends on its common
stock since the second quarter of fiscal 1988. The Company has paid quarterly
dividends on its Class B common stock since the first quarter of fiscal 1995.
The per common share dividend paid was $.07 in fiscal 1997 and in fiscal 1996.
The per Class B common stock dividend paid was $.05 in fiscal 1997 and in fiscal
1996.
SHAREHOLDER INFORMATION To obtain a copy of the Company's Form 10(k) report for
fiscal 1997 at no charge, write to: Corporate Secretary, Graphic Industries,
Inc., 2155 Monroe Drive, NE, Atlanta, GA 30324. For other financial information,
write to Investor Relations at the same address. Shareholders with shares in
"street name" who desire to receive financial and other information directly
from the Company should contact Investor Relations at the above address.
ANNUAL SHAREHOLDERS' MEETING
June 3, 1997, 10:00 AM
Ritz-Carlton Hotel - Buckhead
3434 Peachtree Road, NE
Atlanta, Georgia
TRANSFER AGENT & REGISTRAR
COMMON STOCK
SunTrust Bank of Georgia, N.A.
Atlanta, Georgia
TRUSTEE
The Bank of New York
New York, New York
MARKET FOR COMMON STOCK
Graphic Industries, Inc. common stock trades on
the Nasdaq Stock Market under the symbol: GRPH
Newspaper Listing: "GRPHIN"
Wall Street Journal: "GRAPHIND"
MARKET MAKERS
First Albany Corporation
Herzog, Heine, Geduld, Inc.
Interstate/Johnson Lane Cp.
Josephthal Lyon and Ross
Mayer & Schweitzer Inc.
Merrill Lynch, Pierce, Fenner
Robinson Humphrey Co. Inc.
Troster Singer Corp.
The high and low sales prices for the Company's common stock as reported by the
Nasdaq National Market by quarter during the period from February 1, 1995
through January 31, 1997 are set forth below. Prices are rounded to the nearest
eighth. As of April 17, 1997, there were 516 shareholders of record of the
Company's common stock and the Company estimates that there were approximately
1500 "street name" shareholders. The closing price of the Company's common stock
on that date was $9.88 per share.
<TABLE>
<CAPTION>
- -------------------------------------------------
Fiscal Year Ended January 31 High Low
=================================================
<S> <C> <C>
1996
1st Quarter 10 1/2 8 5/8
2nd Quarter 11 1/2 9 1/2
3rd Quarter 10 5/8 9 1/4
4th Quarter 13 3/8 9 5/8
- -------------------------------------------------
1997
1st Quarter 12 10
2nd Quarter 11 1/2 8 1/4
3rd Quarter 9 5/8 8 3/8
4th Quarter 10 1/8 6 1/4
- -------------------------------------------------
</TABLE>
There is not an established public trading market for the Company's Class B
common stock, which, as of April 17, 1997, was held of record by 6 persons.
LEGAL COUNSEL
Powell, Goldstein, Frazer & Murphy
INDEPENDENT AUDITORS
Ernst & Young LLP
ACCOUNTING FIRM
Kanes Benator & Company L.L.C.
PRINCIPAL BANKING AFFILIATION
NationsBank, N.A.
