SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 1, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------------------ to ------------------
Commission file number 1-9348
QMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0737870
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number)
ONE MAGNUM PASS, MOBILE, AL 36618
(Address of principal executive offices) (Zip Code)
(205) 633-4300
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
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 ( )
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date 10,707,755 AT APRIL 29, 1994.
QMS, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(unaudited) as of April 1, 1994 and
October 1, 1993 3 - 4
Condensed Consolidated Statements of Operations
(unaudited) for the three and six months ended
April 1, 1994 and April 2, 1993 5
Condensed Consolidated Statements of Cash Flows
(unaudited) for the six months ended
April 1, 1994 and April 2, 1993 6
Notes to Condensed Consolidated Financial Statements
(unaudited) for the six months ended
April 1, 1994 and April 2, 1993 7
Computation of Earnings Per Common Share 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 10
PART II - OTHER INFORMATION 11 - 12
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. (a) Exhibits
(b) Reports on Form 8 - K
SIGNATURES 13
QMS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
as of April 1, 1994 and October 1, 1993
(Unaudited)
April 1, October 1,
in thousands 1994 1993
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $4,642 $3,582
Trade Receivables (less allowance for
doubtful accounts of $500 at April
1994 and $580 at October 1993) 45,192 39,471
Inventories, Net (Note 3) 64,840 70,461
Other, Net 5,830 7,806
Total Current Assets 120,504 121,320
PROPERTY, PLANT AND EQUIPMENT 69,176 66,440
Less Accumulated Depreciation 38,065 33,774
Property, Plant and Equipment, Net 31,111 32,666
OTHER ASSETS, NET 16,491 16,231
TOTAL ASSETS $168,106 $170,217
See Notes to Condensed Consolidated Financial Statements
QMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of April 1, 1994 and October 1, 1993
(Unaudited)
April 1, October 1,
in thousands 1994 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts and Notes Payable $15,263 $11,060
Other 31,093 31,901
Total Current Liabilities 46,356 42,961
LONG-TERM DEBT AND CAPITAL LEASE 35,852 41,527
OBLIGATIONS
COMMITMENTS AND CONTINGENCIES (Note 4) ---- ----
STOCKHOLDERS' EQUITY 85,898 85,729
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $168,106 $170,217
See Notes to Condensed Consolidated Financial Statements
QMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED APRIL 1, 1994 AND APRIL 2, 1993
(Unaudited)
Three Months Ended Six Months Ended
April 1, April 2, April 1, April 2,
in thousands, except per share 1994 1993 1994 1993
amounts
NET SALES $71,283 $82,491 $141,937 $159,764
COST OF GOODS SOLD 48,013 54,608 94,835 105,914
GROSS PROFIT 23,270 27,883 47,102 53,850
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 21,735 24,053 44,408 47,335
OPERATING INCOME 1,535 3,830 2,694 6,515
OTHER INCOME (EXPENSE)
Interest Income 16 204 33 323
Interest Expense (837) (808) (1,709) (1,627)
Miscellaneous 84 (433) (750) (390)
Total Other Expense (737) (1,037) (2,426) (1,694)
INCOME BEFORE INCOME TAXES 798 2,793 268 4,821
PROVISION FOR INCOME TAXES 247 825 83 1,494
NET INCOME $551 $1,968 $185 $3,327
EARNINGS PER COMMON SHARE (Note 2)
Primary $0.05 $0.18 $0.02 $0.31
Fully Diluted $0.05 $0.18 $0.02 $0.31
SHARES USED IN PER SHARE
COMPUTATION (Note 2)
Primary 10,735 10,879 10,748 10,797
Fully Diluted 10,735 10,879 10,748 10,849
See Notes to Condensed Consolidated Financial Statements
QMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 1, 1994 AND APRIL 2, 1993
(Unaudited)
April 1, April 2,
in thousands 1994 1993
Cash Flows from Operating Activities:
Net Income $185 $3,327
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used in) Operating Activities:
Depreciation of Property, Plant and Equipment 4,683 4,451
Amortization of Capitalized and Deferred
Software 3,901 3,921
Provision for Losses on Inventory 2,887 (591)
Other 180 179
Changes in Assets and Liabilities that provided
(used) cash:
Trade Receivables (5,804) (4,921)
Inventories 2,737 (1,210)
Accounts Payable 4,203 4,086
Income Tax Payable 571 (184)
Other 292 (1,466)
Net Cash Provided by Operating Activities 13,835 7,592
Cash Flows from Investing Activities:
Purchase of Property, Plant and Equipment (3,331) (3,900)
Additions to Capitalized and Deferred
Software Costs (3,977) (4,625)
Other 102 (219)
Net Cash Used in Investing Activities (7,206) (8,744)
Cash Flows from Financing Activities:
Payments of Long-Term Debt, including Current
Maturities (5,442) (2,185)
Purchase of Treasury Stock 0 (151)
Proceeds from Stock Options Exercised 19 315
Other (112) (527)
Net Cash Used in Financing Activities (5,535) (2,548)
Effect of Exchange Rate Changes on Cash (34) (315)
Net Change in Cash and Cash Equivalents 1,060 (4,015)
Cash and Cash Equivalents at Beginning of Period 3,582 8,086
Cash and Cash Equivalents at End of Period $4,642 $4,071
See Notes to Condensed Consolidated Financial Statements
QMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 1, 1994 AND APRIL 2, 1993
(Unaudited)
1. MANAGEMENT OPINION
In the opinion of management, the condensed consolidated financial
statements reflect all adjustments necessary to present fairly the financial
position of the Company as of April 1, 1994 and October 1, 1993 and the
results of operations and changes in cash flows for the six months ended
April 1, 1994 and April 2, 1993. The results of operations for the six
months ended April 1, 1994 are not necessarily indicative of the results to
be expected for the fiscal year ending September 30, 1994.
2. EARNINGS PER COMMON SHARE
The computation of earnings per common share is based on the weighted
average number of common shares outstanding during the period. Shares
issuable upon exercise of stock options have been included in the per share
computation because the effect is dilutive.
3. INVENTORIES
Inventories at April 1, 1994 and October 1, 1993 are summarized as follows
(in thousands):
APRIL 1, October 1,
1994 1993
Raw materials $21,849 $26,104
Work in process 4,257 4,052
Finished goods 44,999 46,609
Inventory reserve (6,265) (6,304)
------ ------
TOTAL $64,840 $70,461
====== ======
4. COMMITMENTS AND CONTINGENCIES
At October 1, 1993, the Company had a commitment of approximately
$31,000,000 under contracts to purchase print engines. As of April 1, 1994
the Company had a commitment of approximately $18,000,000 to purchase print
engines under purchase contracts.
The Company was contingently liable for approximately $2,611,000 as of April
1, 1994. This was principally the result of letters of credit issued in the
normal course of business for the purchase of inventory.
QMS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(Unaudited)
Three Months Six Months
Ended Ended
April April April April
1, 2, 1, 2,
in thousands, except per share amounts 1994 1993 1994 1993
Net Income $551 $1,968 $185 $3,327
Shares used in this computation:
Weighted average common shares
outstanding 10,707 10,685 10,706 10,677
Shares applicable to stock options,
net of shares assumed to be
purchased from proceeds at average 28 194 42 120
market
Total shares for earnings per common
share computation (primary) 10,735 10,879 10,748 10,797
Shares applicable to stock options
in addition to those used in primary
computation due to the use of period-
end market price when higher than
average 0 0 0 52
Total fully diluted shares 10,735 10,879 10,748 10,849
Earnings per common share - primary $0.05 $0.18 $0.02 $0.31
Earnings per common share - fully $0.05 $0.18 $0.02 $0.31
diluted
QMS, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Table 1: Net Sales Comparisons for Key Channels
of Distribution
Quarter Ended April 1, 1994 Six Months Ended April 1, 1994
(000) 1994 1993 difference 1994 1993 difference
U.S. Direct $10,404 $7,950 $2,454 $20,976 $17,736 $3,240
U.S. Reseller 7,413 17,559 (10,146) 19,557 35,806 (16,249)
QMS Europe 19,675 26,279 (6,604) 38,830 49,321 (10,491)
QMS Japan 7,465 4,190 3,275 12,722 6,052 6,670
All Other 26,326 26,513 (187) 49,852 50,849 (997)
Total $71,283 $82,491 ($11,208) $141,937 $159,764 ($17,827)
Net sales for the second fiscal quarter of 1994 declined 13.6% from the record
net sales of the corresponding fiscal quarter of 1993. The significant sales
differences by key distribution channels in the second quarter of fiscal 1994
(the three months ended April 1, 1994) compared to the second quarter of fiscal
1993 (the three months ended April 2, 1993) and the six-month periods ending on
the same dates, respectively, are shown in Table 1 above. In both comparisons,
fiscal 1994 sales through the United States reseller channel and in Europe are
well below the fiscal 1993 net sales achievement. The United States reseller
channel is the Company's primary method of distribution for 4-page per minute
and 8-page per minute monochrome laser printers and also color thermal transfer
printers; new competition in this product class is the primary cause of the
lower net sales. In Europe, net sales are primarily generated from the low end
of the Company's product offering which is sold through distributors.
Competitive pressures and poor economic conditions were the principal causes of
the net sales decline in Europe. The United States direct channel is the
Company's primary method of distribution for the higher end of the Company's
product offerings to major corporate accounts. The net sales improvements in
the United States direct channel can be attributed to sales of two new products
introduced for the channel, the QMS4525 and the ColorScript Laser 1000, and also
to increases in the sales of the QMS3225, QMS2025 and QMS1725; all of these are
higher end products sold through the channel. The QMS Japan increased revenue
came from significant improvements in the sales of the QMS860, an 8-page per
minute printer with large sheet printing capability, which supports Japanese
language requirements. QMS Japan has also realized notable sales gains in the
ColorScript Laser 1000, the QMS1725, the QMS3225, and in the after-market
supplies business.
Gross profit as a percentage of sales declined from 33.8% to 32.6% in the three-
month comparison and from 33.7% to 33.2% in the six-month comparison. In both
comparisons, the decline is primarily attributable to lower overall volume,
which results in an inability to absorb fixed manufacturing costs. The Company
has reduced the total costs associated with product procurement and conversion
to finished goods but such expense reduction has not been enough to offset the
lower volume. If increases in volume and additional cost reductions are
achieved as planned, then improvements in the gross profit percentage could
occur.
Operating expenses were managed down in both the second quarter comparison and
in the six-month comparison; the expenses were 9.6% less in the three-month
comparison and they were 6.2% less in the six-month comparison. The Company
implemented cost reduction measures in the fourth quarter of fiscal 1993 that
included a reduction in the labor force of about 200 people. The Company
intends to continue to place significant emphasis on operating expense
containment.
In the other income (expense) category, a net expense decrease of $300,000 was
experienced in the three-month comparison and a net expense increase of $732,000
was experienced in the six-month comparison. In both comparisons, the
differences come primarily from changes in translation of balance sheet elements
that were denominated in foreign currencies.
The Company's effective tax rate was 31% in the second quarter of fiscal 1994
compared to 29.5% in the second quarter of fiscal 1993. The effective tax rate
for the full fiscal year 1993 was 31%.
LIQUIDITY AND CAPITAL RESOURCES
During the second quarter of fiscal 1994, the Company's financing came
principally from operations and borrowings under its secured revolving credit
agreement. During the second quarter, the Company reached agreement with its
banking partners on an extension of the secured revolving credit agreement to
January 1996. The agreement provides for up to $30,000,000 in borrowing
capacity determined by a borrowing base calculated from certain levels of
working capital. At April 1, 1994, borrowing capacity totaled $29.9 million and
the Company had borrowings of $21.9 million compared to borrowings of $25.5
million at October 1,1993. Additionally, $7.5 million in borrowing capacity is
available, also based on a borrowing base calculated from certain levels of
working capital. The additional line will be reviewed for renewal in June 1994,
on a one-year basis. The Company was not in compliance with certain of its
revolving credit agreement covenants at the end of the second quarter of fiscal
1994, but has received a waiver of the non-compliance.
During the first six months of fiscal 1994, the Company has reduced inventory
levels by nearly 8% from $70.5 million to $64.8 million and has reduced total
long-term debt by $5.7 million or about 14%. The long-term debt to equity ratio
has improved from 48% at October 1, 1993 to 42% at April 1, 1994.
Management believes that the Company's continuing working capital and capital
expenditure needs will be met by cash flow from operations and by the secured
revolving credit agreement. Although management believes the Company's
relationship with its lenders is good, future waivers from the lenders, if
necessary, will depend on the Company's performance.
QMS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS - None.
ITEM 2 - CHANGES IN SECURITIES - None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on January 25, 1994.
The results of the voting on the election of directors were as follows:
Nominee For Against Withheld
Donald L. Parker, Ph.D. 9,091,496 0 556,521
Jack R. Altherr 9,087,642 0 560,375
G. William Speer, Esq. 9,082,946 0 565,071
The results of the voting to approve an amendment to increase the aggregate
number of shares of the Company's Common Stock that may be issued pursuant to
the Company's 1987 Stock Option Plan from 1,400,000 to 1,900,000 were as
follows:
Broker
For Against Abstain Non-Votes
4,260,119 2,002,971 126,422 3,258,505
The results of the voting to adopt the QMS, Inc. Stock Option Plan for
Directors were as follows:
Broker
For Against Abstain Non-Votes
4,911,788 1,314,285 126,264 3,295,680
Accordingly, all nominees for the Board of Directors were elected, the
amendment to the Company's Stock Option Plan was approved and the QMS, Inc.
Stock Option Plan for Directors was adopted.
ITEM 5 - OTHER INFORMATION - None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit
Number Description
10(f)(xi) Waiver Agreement dated as of February 25, 1994 waiving certain
provisions of the Note Agreement dated March 15, 1988.(1)
10(g)(xv) Fourth Amendment to Amended and Restated Secured Revolving Credit
Agreement dated April 22, 1994.(2)
10(l)(v) Waiver Agreement dated as of February 25, 1994 waiving certain
provisions of the Note Agreement dated June 30, 1993.(3)
b) Reports - None.
QMS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QMS, INC.
(Registrant)
Date: May 12, 1994 /s/Charles D. Daley
CHARLES D. DALEY
Executive Vice President - Finance and
Administration, Chief Financial Officer
(Mr. Daley is the Principal Financial Officer and
has been duly authorized to sign on behalf of the
registrant.)
_______________________________
(1)Incorporated herein by reference to exhibit of same number in Registrant's
quarterly report on Form 10-Q for the quarter ended April 1, 1988
(Commission File No. 1-9348).
(2)Incorporated herein by reference to exhibit of same number in Registrant's
annual report on Form 10-K for the fiscal year ended October 2, 1992
(Commission File No. 1-9348).
(3)Incorporated herein by reference to exhibit of same number in Registrant's
quarterly report on Form 10-Q for the quarter ended July 1, 1993 (Commission
File No. 1-9348).