-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WmUFFNdLhMk5t+N5VvA7euNN1aosOyUYRdqRFI/zZkVRbfsQIZiKzmxuOT9vVreF VT0jKIqNfAOeac7Fg3Gg0Q== 0000002310-99-000001.txt : 19990317 0000002310-99-000001.hdr.sgml : 19990317 ACCESSION NUMBER: 0000002310-99-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MULTIGRAPHICS INC CENTRAL INDEX KEY: 0000002310 STANDARD INDUSTRIAL CLASSIFICATION: PRINTING TRADES MACHINERY & EQUIPMENT [3555] IRS NUMBER: 330054940 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00683 FILM NUMBER: 99566371 BUSINESS ADDRESS: STREET 1: 431 LAKEVIEW COURT CITY: MT PROSPECT STATE: IL ZIP: 60056 BUSINESS PHONE: 7088181294 MAIL ADDRESS: STREET 1: 431 LAKEVIEW COURT CITY: MT PROSPECT STATE: IL ZIP: 60056 FORMER COMPANY: FORMER CONFORMED NAME: AM INTERNATIONAL INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ADDRESSOGRAPH MULTIGRAPH CORP DATE OF NAME CHANGE: 19790322 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarterly Period Ended January 30, 1999 Commission file number 1-683 Multigraphics, Inc. (Exact name of registrant as specified in its charter) Delaware 34-0054940 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 431 Lakeview Court Mt. Prospect, IL 60056 (Address of principal executive offices) (Zip Code) (847) 375-1700 (Registrant's telephone number, including area code) AM International, Inc. (Former Name) 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 whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 2,833,322 shares of Registrant's Common Stock, $.025 par value, were outstanding as of March 12, 1999. MULTIGRAPHICS, INC. INDEX Page PART I - Financial Information Item 1 - Condensed Consolidated Statement of Operations for the Three and Six Months Ended January 30, 1999 and January 31, 1998 (unaudited). 1 Condensed Consolidated Balance Sheet as of January 30, 1999 (unaudited) and July 31, 1998. 2 Condensed Consolidated Statement of Cash Flows for the Six Months Ended January 30, 1999 and January 31, 1998 (unaudited). 3 Notes to Condensed Consolidated Financial Statements (unaudited). 4 - 8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. 9 - 13 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 14 Part II Other Information Item 4- Submission of Matters to a Vote of Security Holders 14 Item 6- Exhibits 14 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements MULTIGRAPHICS, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended January January January January 30, 1999 31, 1998 30, 1999 31, 1998 Revenues Machines and Supplies $ 15,650 $ 12,966 $ 31,386 $23,126 Services 9,305 9,233 19,238 19,773 Total revenues 24,955 22,199 50,624 42,899 Cost of Sales Machines and Supplies 12,784 10,292 25,267 18,149 Services 6,366 6,543 12,685 13,841 Total cost of sales 19,150 16,835 37,952 31,990 Gross Margin 5,805 5,364 12,672 10,909 Operating Expenses Selling, general and administrative 6,075 5,136 12,160 10,188 Miscellaneous (income) expense (33) (350) (9) (366) Total operating expenses 6,042 4,786 12,151 9,822 Operating income (loss) (237) 578 521 1,087 Non-operating income (expense): Interest income 17 41 37 161 Interest expense (484) (349) (979) (722) Other, net (20) (6) (41) (6) Income (loss) before taxes (724) 264 (462) 520 Income tax expense (benefit) (275) 100 (175) 197 Net income (loss) $ (449) $ 164 $ (287) $ 323 Net income (loss) per common share : Basic $ (0.16) $ 0.06 $ (0.10) $ 0.11 Diluted $ (0.16) $ 0.06 $ (0.10) $ 0.11 Weighted average shares of common stock and common stock equivalents outstanding (in thousands): Basic 2,833 2,831 2,832 2,818 Diluted 2,833 2,893 2,832 2,844
The Notes to Consolidated Financial Statements are an integral part of these financial statements. MULTIGRAPHICS, INC. CONDENSED CONSOLIDATED BALANCE SHEET (Dollars in thousands, except per share amounts) (Unaudited) January 30, July 31, 1999 1998 Assets Current assets: Cash and cash equivalents $ 1,602 $ 2,869 Accounts receivable, net 13,392 14,629 Inventories, net 13,312 13,188 Prepaid expenses and other assets 450 726 Total current assets 28,756 31,412 Property, plant and equipment, net 8,976 9,554 Goodwill 4,052 3,681 Other assets, net 1,092 992 Total assets $ 42,876 $45,639 Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings and current maturities of long-term debt $ 10,916 $10,745 Accounts payable 9,787 7,312 Service contract deferred income 10,408 12,013 Payroll related expenses 4,511 5,504 Other 4,115 5,248 Total current liabilities 39,737 40,822 Long-term debt 810 1,048 Post-retirement benefit obligations 8,188 8,626 Other long-term liabilities 4,728 5,287 Total liabilities 53,463 55,783 Shareholders' Equity: Preferred stock, 0.5 million shares authorized; no shares issued - - Common stock, $.025 par value; 9.5 million shares authorized; 2,833,322 issued as of January 30, 1999 and 2,829,526 as of July 31, 1998 70 70 Capital in excess of par value 22,691 22,847 Accumulated earnings (deficit) (33,348) (33,061) Total shareholders'equity (10,587) (10,144) Total liabilities and shareholders' equity $ 42,876 $ 45,639
The Notes to Consolidated Financial Statements are an integral part of these financial statements. MULTIGRAPHICS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands, except per share amounts) (Unaudited) Six Months Ended January 30, January 31, 1999 1998 Cash Flows from Operating Activities: Net income $ (287) $ 323 Adjustments to reconcile net income to cash flow from operating activities: Depreciation of property, plant and equipment 907 913 Amortization of goodwill 41 6 Benefit from operating loss carryforwards (175) 197 Change in assets and liabilities: Accounts receivable, net 1,237 2,308 Inventory, net (124) 2,119 Prepaid expenses and other assets 276 129 Accounts payable 2,475 (3,275) Other current liabilities (1,744) (4,268) Other, net (2,129) (1,421) Cash flow from operating activities 477 (2,969) Cash Flows from Investing Activities: Acquisition activities (462) (5,415) Capital expenditures (349) (270) Other 20 - Cash flow from investing activities (791) (5,685) Cash Flows from Financing Activities: Net borrowings (payments) under revolving credit facilities 1,466 2,975 Payments of claims (2,068) (1,999) Payments under capital lease arrangements (351) (346) Cash flow from financing activities (953) 630 Increase (decrease) in cash and cash equivalents (1,267) (8,024) Cash and cash equivalents at beginning of period 2,869 10,376 Cash and cash equivalents at end of period $ 1,602 $ 2,352
The Notes to Consolidated Financial Statements are an integral part of these financial statements. MULTIGRAPHICS, INC. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (Unaudited) Note 1 - Basis of Presentation The Condensed Consolidated Financial Statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the Condensed Consolidated Financial Statements reflect all adjustments, which are of a recurring nature, necessary for fair presentation. Certain prior year amounts have been reclassified to conform with the current year presentation. The accompanying Condensed Consolidated Financial Statements and the related notes should be read in conjunction with the Consolidated Financial Statements and the related notes thereto included in the Company's Annual Report on Form 10-K for the year ended July 31, 1998. Note 2 - Acquisitions In December 1997, the Company purchased all of the outstanding shares of Publishing Solutions Inc., and acquired the operating assets of Hanley Graphic Products Company. Publishing Solutions provides its customers with equipment and systems integration solutions utilizing digital technologies for design, pre-press, imaging, and interactive media applications. Hanley Graphic Products Company is a regional dealer of graphic arts equipment and supplies serving customers in Northern Illinois. In June 1998, the Company acquired the business and certain assets of Progressive Lithoplate and Supply Company, a regional graphic arts dealer serving customers in Northern Illinois. In September 1998, the Company acquired the business and certain assets of Austin, Texas based Texas PrePress Systems, Inc., a regional prepress systems integrator. The aggregate purchase price for the four acquired companies was approximately $7,213 including expenses of the transactions, and could increase by a maximum of $875, contingent upon the acquired companies' attainment of certain operating targets over the two years following their acquisition. The excess purchase price over the fair market value of net assets acquired amounts to a preliminary value of $4,135, which will be amortized over a period not to exceed forty years. The acquisitions have been accounted for as purchases and, accordingly, the financial statements include results of operations from the respective dates of acquisition. The following pro forma summary presents the results of operations for the current and prior period as though the acquisitions had taken place at the beginning of the prior period. The pro forma amounts give effect to certain adjustments including increased interest expense, goodwill amortization, estimated income tax expense as well as other factors, and do not necessarily reflect the results which would have occurred had the businesses operated as a single entity during such periods, nor are they necessarily indicative of results which may be obtained in the future. Three Months Ended Six Months Ended January 30, January 31, January 30, January 31, 1999 1998 1999 1998 Revenues $ 24,955 $ 25,836 $ 50,834 $ 53,474 Net Income $ (449) $ 87 $ (284) $ 243 Earnings per share: Basic $ (0.16) $ 0.03 $ (0.10) $ 0.09 Diluted $ (0.16) $ 0.03 $ (0.10) $ 0.09
Note 3 - Borrowing Arrangements The Company's short and long-term borrowings are comprised of the following: January 30, July 31, 1999 1998 Revolving Credit Facility $ 9,233 $ 7,768 Capital Leases 1,410 1,760 Other long-term obligations 1,083 2,265 Total $11,726 $ 11,793 Classified in the Consolidated Balance Sheet as follows: Short-term $10,916 $ 10,745 Long-term 810 1,048 Total $11,726 $ 11,793
In May, 1997 the Company entered into a $10,000 three year secured Revolving Credit Facility (subject to borrowing base limitations) with Foothill Capital Corporation (_Foothill_). The Revolving Credit Facility includes a $5,000 sub-facility for the issuance of letters of credit. As security for utilization of the Revolving Credit Facility, the Company granted a security interest and general lien upon all of its assets. On February 19, 1998 the Revolving Credit Facility was amended and restated (_the Amendment_) to add the Company's wholly owned subsidiary, Publishing Solutions Inc., as a co-borrower under the Facility. The Amendment was made, among other things, to allow the eligible assets of Publishing Solutions Inc. to be included in the Company's borrowing base and to reset the Company's covenant requirements in light of the acquisitions made by the Company during the quarter ended January 31, 1998. On July 30, 1998 the Revolving Credit Facility was amended further to, among other things; (1) grant the Company the ability to increase the Revolving Credit Facility limit in increments of $1,000 up to a maximum limit of $15,000, and (2) extend the expiration date an additional two years to May 30, 2002 plus an automatic one year extension unless terminated pursuant to the terms of the Revolving Credit Facility. The Revolving Credit Facility limit was increased to $11,000 on July 31, 1998, $12,000 on November 6, 1998 and $13,000 on February 12, 1999. On January 30, 1999, the calculated borrowing base was approximately $11,800. As of January 30, 1999, the Company had borrowings of $9,233 under the Revolving Credit Facility and was utilizing approximately $1,829 of the Facility to secure outstanding letters of credit. Interest generally will be charged at a spread of 1% above the reference (i.e. prime) rate of Foothill and can be reduced by 1/2% at the end of this fiscal year if certain performance measures are achieved. As of January 30, 1999, the reference rate was 7.75%. Letter of credit fees are 0.75% per annum plus issuance costs and processing fees. The agreement contains restrictive covenants limiting capital expenditures, restricting the payment of dividends and other payments and providing for quarterly measures of working capital, income, and net worth, among other things. In addition, the agreement limits the Company's ability to borrow or to request letters of credit following a material adverse change as determined by Foothill. As of January 30, 1999, the Company was in compliance with the covenants of the Revolving Credit Facility. Note 4 - Capital Structure The Company has authorized 10,000,000 shares of capital stock with 9,500,000 shares being reserved for issuance as Common Stock and 500,000 shares being reserved for issuance as Preferred Stock. The Company's 1994 Long Term Incentive Plan provides for the issuance of 560,000 shares of Common Stock. Options to purchase the Common Stock are awarded at a price not less than 100% of the market price on the date of the grant, become exercisable at various dates generally from one to four years after the date of grant, and expire ten years after the date of grant. At January 30, 1999 options to purchase 351,316 shares were outstanding at option prices ranging from $2.1875 to $8.2139 per share. On October 20, 1998, the Company's Board of Directors approved the Multigraphics, Inc. 1998 Stock Incentive Plan for Directors. Options to purchase a total of 140,000 shares of the Company's Common Stock are included in the Plan. Under the Plan, each non-employee director received an option for 10,000 shares on October 20, 1998 and will receive an additional 5,000 share option grant on the date of each annual meeting of stockholders, commencing in 1999, at an option exercise price per share equal to the fair market value of a share of Common Stock on the date of grant. Such options are exercisable in part or in full on the date of grant and will expire ten years after the date of grant. The Company has not issued any Preferred Stock. The Common Stock is not subject to conversion or redemption and when issued is fully paid and non-assessable and has no preemptive rights. Note 5 - Commitments and Contingencies The Company received creditor claims during its 1993 bankruptcy proceedings which the Company believes are duplicative, erroneous or exaggerated and to which the Company believes it has valid defenses. The Company has filed objections to these disputed claims in the United States Bankruptcy Court in Delaware. As of January 30, 1999 disputed claims amounted to approximately $5,105. The disputed claims are primarily comprised of environmental and product liability claims, including one claim for $4.0 million which the Company believes is overstated and for which appropriate reserves have been set. The Company has been notified of various environmental matters in connection with certain current or former Company locations in Illinois and Ohio. The Company is also involved in various other administrative and legal proceedings incidental to its business, including product liability and general liability lawsuits against which the Company is partially insured. The disputed claims in the bankruptcy proceeding and the other legal proceedings are in many cases in excess of recorded reserves. At the present time, it is management's opinion, based on information available to the Company and management's experience in such matters, that the resolution of these legal proceedings is not expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity. Note 6 - Components of Certain Balance Sheet Accounts January 30, July 31, 1999 1998 Accounts receivable: Accounts receivable $13,758 $14,929 Allowance for doubtful accounts (366) (300) Total accounts receivable, net $13,392 $14,629 Property, plant and equipment: Machinery and equipment $12,258 $11,985 Leasehold improvements 3,338 3,338 15,596 15,323 Less accumulated depreciation and amortization (6,620) (5,769) Property, plant and equipment, net $ 8,976 $ 9,554 Goodwill: Goodwill $ 4,135 $ 3,723 Accumulated amortization (83) (42) Goodwill, net $ 4,052 $ 3,681
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion of the results of operations and financial condition presented below should be read in conjunction with Management's Discussion and Analysis included in the Company's Annual Report to Shareholders for the year ended July 31, 1998. As previously reported, the Company acquired the operating assets of Hanley Graphic Products Company, and purchased all of the outstanding shares of Publishing Solutions Inc. in separate transactions consummated in the second quarter of fiscal 1998, and in June, 1998 the Company acquired the business and certain assets of Progressive Lithoplate and Supply Company. In September 1998 the Company acquired the business and certain assets of Austin, Texas based Texas Prepress Systems, Inc., a regional prepress systems integrator. The acquisitions have been accounted for as purchases and, accordingly, the consolidated financial statements include the post-acquisition results of these operations since their respective acquisition dates. All per share data is presented on a diluted basis. Consolidated Results of Operations Three Months Ended Six Months Ended ($ in millions) January January January January 30, 1999 31, 1998 30, 1999 31, 1998 Revenues $25.0 $22.2 $50.6 $42.9 Gross margin 5.8 5.4 12.7 10.9 Gross margin % 23.3% 24.2% 25.0% 25.4% Operating expenses 6.0 4.8 12.2 9.8 Operating income (loss) (0.2) 0.6 0.5 1.1 Non-operating expense, net 0.5 0.3 1.0 0.6 Income tax expense (benefit) (0.3) 0.1 (0.2) 0.2 Net income (loss) $(0.4) $0.2 $(0.3) $0.3
Second Quarter Second quarter revenues of $25.0 million increased by $2.8 million over the comparable prior year period. Since December 1997, the Company has acquired four regional graphic arts dealers as part of its strategy of expanding its target customer base in the in-plant and small to mid-size commercial printing market segments. The growth in revenues was attributable to the acquisitions of regional graphic arts dealers. Revenues from acquired companies more than offset the historic revenue erosion from the Company's duplicator supply and service customers. Market demand for digital prepress equipment was weaker than expected during the quarter, however, demand for these products is cyclical. The acquisitions complement the Company's internal efforts to expand its product offerings, and bring enhanced digital sales and support capabilities and an expanded customer base in the Company's traditional markets. Gross margin of $5.8 million increased by $0.4 million over the comparable prior year period, while the overall margin rate decreased by 0.9 percentage points. The increased margins derived from the acquired operations, new products and product lines more than offset declines in margin from press products and related services, upon which the Company had historically been dependent, and which have been in long term decline. The lower margin rate in the current year quarter reflects the impact of a changing customer base and product mix, which includes more branded items. As previously reported, the Company has pursued a growth strategy to replace the revenues previously derived from its historically higher margin manufactured products, with product lines added through distribution agreements, joint ventures, affiliations with third parties and acquisitions of graphic arts dealers. To offset the lower margin rates which accompany those relationships, the Company has invested in information systems and has undertaken other reorganization measures to increase efficiency and lower expenses. Operating expenses in the second quarter of $6.0 million increased by $1.2 million over the prior year period, largely due to the addition of sales personnel and related expenses of the acquired entities. Lower than expected revenues during the quarter resulted in the second quarter operating loss. To address the revenue shortfall, over the course of the past six months, the Company has expended significant efforts to secure new customers and new distribution agreements with manufacturers. The results of these efforts have led to significant new account activity which will be reflected in the third and fourth quarters. The Company expects to be profitable in the third and fourth quarters and for the full fiscal year. Non-operating expenses consist primarily of net interest expense, which increased $0.2 million from the prior year. Higher interest costs in the current year quarter were due to borrowings primarily incurred to finance acquisitions. Interest expense related to pre- petition debt obligations decreased $0.1 million from the prior year. The final scheduled prepetition payment obligation was disbursed in September 1998. Six Months Revenues for the first six months of $50.6 million increased by $7.7 million over the prior year comparable period. The 18% growth in revenues was primarily attributable to the acquisitions of the regional graphic arts dealers which the Company completed in the prior fiscal year and the September 1998 acquisition of Texas PrePress Systems, a regional prepress systems integrator. The acquisitions complement the Company's internal efforts to expand its product offerings, and bring enhanced digital sales and support capabilities as well as an expanded customer base in the Company's traditional markets. Gross margin of $12.7 million for the first six months increased by $1.8 million compared to the prior year, largely as a result of the increased revenue volume in the current year. Operating expenses in the first six months of $12.2 million increased by $2.4 million compared to the prior year period, but decreased as a percent of sales. The increased expense levels were largely due to the addition of sales personnel from the acquired entities. Non- operating expenses of $1.0 million increased by $0.4 million, primarily due to higher net interest expense on debt resulting from acquisition financing. As noted above and in previous reports, the Company has developed strategies to increase revenues through product line additions, third party service agreements and acquisitions. An increase in revenue levels could improve profitability since the Company has infrastructure and systems which are capable of absorbing a greater volume of transactions. Liquidity and Capital Resources (Six months ended January 30, 1999 and January 31, 1998) Cash balances at January 30, 1999 were $1.6 million, having decreased by $1.3 million from July 31, 1998. The reduction was due primarily to settlement of bankruptcy claims that were paid out of existing cash reserves. Although cash decreased during the six months, short- term debt increased by approximately $0.2 million. A $1.5 million increase in revolver borrowings was largely offset by a reduction in general unsecured bankruptcy claims. Operating Activities. During the six months ended January 30, 1999 the Company had positive cash flow from operating activities of $0.5 million, which was a $3.5 million improvement over the $3.0 million outflow in the comparable prior year period. The net loss for the current period was $0.3 million, compared to net income of $0.3 million in the comparable prior year period. Accounts receivable decreased by $1.2 million in the current year and $2.3 million in the comparable prior year period, while collection rates were lower in the current year period primarily due to higher equipment sales which historically take longer to collect. Inventory balances have remained fairly stable in the current year. In the prior year period, inventory decreased by $2.1 million due primarily to lower stocking levels of machines. Accounts payable increased by $2.5 million during the current year due to extended payment terms with vendors. In the prior year period, accounts payable decreased by $3.3 million due to lower inventory purchases. Other current liabilities decreased by $1.7 million during the current year, largely due to payment of $1.0 million in payroll related liabilities and payment of $0.4 million in product liability claims and settlement fees. Current liabilities decreased by $4.3 million in the prior year due primarily to payment of payroll related liabilities, settlement of a recourse obligation of a divested subsidiary, costs related to the phase out of the Company's manufactured machine product line and other exit costs of a divested foreign subsidiary. During the current year, other liabilities decreased by $2.1 million due to a seasonal reduction of $1.6 million in deferred service liabilities and payment of $0.4 million of post retirement related liabilities. In the prior year, other liabilities decreased by approximately $1.4 million mainly due to payment of post retirement related liabilities and the seasonal reduction in deferred service liabilities. Investing Activities. Current year investing activities resulted in a cash outflow of approximately $0.8 million. This outflow was the result of $0.5 million in acquisition related expenditures. Capital expenditures of $0.3 million were for computers, software and other related equipment. The prior year comparable period cash outflow of $5.7 million was mainly related to the acquisitions of Hanley Graphic Products Company and Publishing Solutions Inc. Financing Activities. During the six months ended January 30, 1999, financing activities resulted in a cash outflow of $1.0 million. During the period, net revolver borrowings increased by $1.5 million compared to the prior year increase of $3.0 million. Payments of $2.1 million were for general unsecured bankruptcy claims during the period. Current year payments under capital lease arrangements were $0.4 million. The Company's primary source of financing is its revolving credit facility which was established in May, 1997 and which has been subsequently amended to provide liquidity needed to execute the Company's growth strategy. The Company believes that its existing cash reserves and the liquidity provided by the credit facility are sufficient to finance current operations. The Company also intends to seek to increase its capital availability to support its growth strategy which may include the acquisition of other regional graphic arts dealers. YEAR 2000 DISCLOSURE The Company's information systems will require certain modifications to enable them to be able to process information without regard to whether the date occurs prior to or after the year 2000. Currently, some information systems do not properly identify a year that begins with _20_ instead of the familiar _19_. These and similar issues are generally referred to as _Year 2000_ issues. The Company's information systems are relatively new, and its recent systems implementation in the Fall of 1997 achieved near compliance in the Company's operating systems and full compliance in its host hardware. Based on the Company's experience in the new system implementation and its analysis of the work remaining, the Company anticipates that expenditures for modifying the systems will be approximately $0.3 million, and the work necessary to complete all modifications and testing will be complete by mid 1999. During the first six months ended January 30, 1999, the Company expended $0.2 million for Year 2000 modifications. The Company is working with its software and systems licensor in completing this project. Accordingly, the Company does not believe that the remaining actions or the associated costs will be material to the Company's operating results. The Company has also undertaken a review of its other equipment and operating systems, and has contacted its significant vendors and service providers to assess the possible impact on the Company of such third parties' failure to address Year 2000 issues. Although the Company cannot verify the results of its inquiries of third parties, it has not received any information which would lead it to believe that there will be material problems in obtaining products, supplies and services from its third party service providers and vendors. Nevertheless, any significant or prolonged interruption in the supply of essential services or products could adversely effect the Company's revenues and financial results. Similarly, problems with any significant portion of the Company's 20,000 customers in processing and paying invoices from the Company could result in cash flow shortages and liquidity problems. The Company is undertaking to prepare a contingency plan to address potential Year 2000 problems. The systems issues and supplier contacts described above are a part of those efforts. In the event that the Company identifies potential problems with a service provider or other vendor, it will attempt to obtain services and products from other sources. The Company has available to it a broad range of products, however, and it is unlikely that serious shortages will materialize. Similarly, although the Company will have completed and tested its systems capabilities in advance of the year 2000, the Company is preparing to operate without significant portions of its operating and information systems. Customer service representatives are trained to take orders without access to the information systems, purchasing representatives are trained to purchase parts without access to the information systems, and the Company's finance department is preparing to invoice and bill customers without access to the information systems, if necessary. The Company is unable to anticipate whether significant customers or significant numbers of its customers will have difficulty processing and paying its invoices. Moreover, the Company cannot predict or address all possible problems which may be associated with Year 2000 issues. FORWARD LOOKING STATEMENTS This document contains certain forward-looking statements and other statements that are not historical facts concerning, among other things, market conditions, the Company's strategies for growth and expansion, and third and fourth quarter operating results, as well as results for the entire fiscal year. These statements are highly dependent upon a variety of important factors that could cause such results or events to differ materially from those expressed or implied in such statements. These factors include, but are not limited to, changing market conditions, the availability and cost of products, the impact of competitive products and pricing, the Company's ability to execute its strategic plans, including the integration of acquired businesses, the continued availability of sources of financing to assist in the execution of the Company's strategic plans, and other risks detailed herein and from time-to-time in the Company's Securities and Exchange Commission filings. There can be no assurance that the Company has accurately identified and properly weighed all of the factors that affect market conditions and demand for the Company's products and services, that the public information on which the Company has relied is accurate or complete or that the Company's analysis of the market and demand for its products and services is correct and, as a result, that the strategies based on such analysis will be successful. Item 3. Quantitative and Qualitative Disclosures about Market Risk. The company is exposed to market risk related to change in interest rates. At January 30, 1999, the Company had approximately $9.2 million of debt outstanding on a revolving credit facility with floating interest rates tied to the prime rate. If this rate was to increase 10 percent, the increase in interest payments would not have a material impact on the Company's net income or cash flows. In addition, the Company has fixed rate financing arrangements under capital lease obligations in the amount of $1.4 million. A 10 percent change in interest rates would not have a material impact on the fair market value of this debt. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. On December 3, 1998, Registrant held its Annual Meeting of Stockholders for the fiscal year ended July 31, 1998. Registrant's stockholders reelected the five incumbent members of the Board of Directors to serve until the next annual meeting or until their successors are elected and qualified. The Board of Directors consists of Robert E. Anderson III, Jeffrey D. Benjamin, Robert N. Dangremond, Jeff M. Moore, and Thomas D. Rooney. Registrant's stockholders also ratified the appointment of Arthur Andersen LLP as the Registrant's independent public accountants for the fiscal year ending July 31, 1999. The vote total was 2,763,575 votes _for_, 2,626 votes _against_, and 577 votes to _abstain_. Item 6. Exhibits (a) Exhibits 10 Material Contracts (a) 1998 Stock Incentive Plan for Directors (incorporated by reference to Exhibit 99.1 to Registrants' Registration Statement on Form S-8 (File No. 333-67069)). (b) Form of Stock Option Agreement for Non- Employee Directors (incorporated by reference to Exhibit 99.2 to Registrants' Registration Statement on Form S-8 (File No. 333-67069)). 27 Financial Data Schedule (b) Reports on form 8-K None Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MULTIGRAPHICS, INC. Date: March 15, 1999 /s/ Gregory T. Knipp Gregory T. Knipp Vice President and Chief Financial Officer (authorized officer and principal accounting officer) EXHIBITS No. Description 10 Material Contracts (a) 1998 Stock Incentive Plan for Directors (incorporated by reference to Exhibit 99.1 to Registrants' Registration Statement on Form S-8 (File No. 333-67069)). (b) Form of Stock Option Agreement for Non- Employee Directors (incorporated by reference to Exhibit 99.2 to Registrants' Registration Statement on Form S-8 (File No. 333-67069)). 27 Financial Data Schedule EX-27 2
5 6-MOS JUL-31-1999 JAN-30-1999 1,602 0 13,758 (366) 13,312 28,756 15,596 6,620 42,876 39,737 0 0 0 70 (10,657) 42,876 50,624 50,624 37,952 50,911 0 0 979 (462) (175) (287) 0 0 0 (287) (0.10) (0.10)
-----END PRIVACY-ENHANCED MESSAGE-----