SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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 SEPTEMBER 29, 1995.
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 .
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Commission file number 1-9348
QMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 63-0737870
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Magnum Pass, Mobile, Alabama 36618
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (334) 633-4300
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock, $.01
par value per share New York Stock Exchange
Rights to purchase shares of Series A New York Stock Exchange
Participating Preferred Stock
Securities registered pursuant to Section 12(g) of the Act: None
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 XX No
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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 the 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. XX
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AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF NOVEMBER 27, 1995; APPROXIMATELY $39,630,764.
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF NOVEMBER 27, 1995:
10,676,815
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR ITS ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD JANUARY 23, 1996 ARE INCORPORATED BY REFERENCE INTO
PART III.
PART I
ITEM 1. BUSINESS.
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General
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The Registrant designs and manufactures intelligent controllers which
enhance the graphics capabilities and performance of computer printing and
imaging systems. The Registrant incorporates its controllers, which consist
of software implemented on printed circuit boards, into computer printing and
imaging systems which it markets, sells and supports. The Registrant also
markets its controllers separately for incorporation into products marketed by
others.
The Registrant was incorporated under the laws of the State of Alabama in
1977 and reincorporated as a Delaware corporation in 1982. Its principal
executive offices are located at One Magnum Pass, Mobile, Alabama 36618, (334)
633-4300.
Products(1)
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The Registrant's principal products are intelligent nonimpact print systems
consisting of purchased print engines, proprietary hardware and software,
proprietary intelligent printer-to-computer interfaces and other components.
The Registrant also designs, markets and supports intelligent raster image
processors implemented as either proprietary software or hardware; proprietary
intelligent printer-to-computer interfaces to enable printers marketed by others
to perform specialized publishing applications; intelligent processors with
proprietary hardware, software and intelligent printer-to-computer interfaces to
enable impact printers marketed by others to produce graphics such as labels and
bar codes used in the automatic identification market segment; and intelligent
processors with proprietary hardware, software and intelligent interfaces to
perform specialized office functions including printing, copying, scanning and
faxing.
The majority of the Registrant's products support the functionality of
Adobe Systems Incorporated's PostScript(TM) page description language and
Hewlett Packard's PCL(R) page description language. The Registrant offers
products with PostScript Level 1 from Adobe as well as products with
UltraScript(TM), a QMS-developed PostScript interpreter that is compatible
with Adobe's PostScript Levels I and II. All but a small number of products
that support UltraScript also support the QMS-developed PCL5 page description
language.
(1) The following trademarks and registered trademarks of the Registrant are
used herein: QFORM(TM), CrownImage(TM), CrownNet(TM), CrownAdmin(TM), QMS(R),
magicolor(R), Crown(R), ColorScript(R) and MAGNUM(R). PostScript(TM) and
UltraScript(TM) are trademarks of Adobe Systems Incorporated, which may be
registered in certain jurisdictions, and PCL(R) is a registered trademark of
Hewlett Packard Company. IBM(R) is a registered trademark of
International Business Machines Corporation. Xerox(R) is a registered
trademark of Xerox Corporation. MacIntosh(R) is a registered trademark
of Apple Computer, Inc.
The nonimpact printing products marketed by the Registrant address the
printing needs of customers in electronic publishing, general business,
automatic identification, scientific and engineering environments. The
Registrant's nonimpact printing products include both color and monochrome
printer systems with a variety of speeds, paper-handling and performance
characteristics.
The Registrant's intelligent processor products are used in impact printers
for interfacing and industrial graphics applications and in nonimpact printers
for electronic publishing and document-processing applications.
The Registrant also markets accessories, add-ons and software for use with
its nonimpact printing systems and offers spare parts, fonts, consumables,
maintenance services and other support for its products.
The majority of the Registrant's new product offerings during fiscal 1995
were based on the Registrant's Crown(R) advanced document-processing technology,
which provides a combination of high-performance capabilities. RISC (Reduced
Instruction Set Computing) processors, support for multiple page description
languages, simultaneously active computer and network interfaces, and the
ability to differentiate the resident languages supported by a product and
switch between them without user intervention are among the features Crown
technology provides.
During fiscal 1995, the Registrant enhanced its product line by introducing
print systems with capabilities to support simultaneous network connectivity to
multiple protocol stacks. This capability, called QMS CrownNet(TM), is a
line of adapter cards and software which enhances the entire Crown product
line with additional connectivity in the IBM(R) OS/2 marketplace and
significantly enhances its support in the Novell Netware(R) arena. It also
provides superior performance to several other network options.
During fiscal 1995, the Registrant enhanced its product line by releasing a
number of enabling products consisting of, but not limited to: QFORM(TM), a
software package that allows QMS laser printers to replace line printers in
classic IS forms-based operations; AFP and UDK host software emulations, which
allow QMS laser printers to replace IBM and Xerox(R) legacy printers; and Crown
Administration, a software tool allowing management of networked QMS printers
from a central point and a high performance PostScript Level II printer driver
for both PC and MacIntosh(R) compatibility.
The Registrant also released a color copier option for the magicolor(R) LX
printers. This option allows scanning and printing of color documents. The
magicolor CX, a native 600 dpi (dots per inch) next generation color printer,
was also introduced. A 1200x1200 dpi monochrome printer, based on the already
released QMS 1660, was also introduced.
The CrownImage(TM) software released in fiscal 1995 enables QMS printers to
scan, store, change, retrieve and print documents utilizing an icon-driven,
user-friendly graphical interface. The scanners, printers, faxes and file
servers that are controlled by CrownImage on a networked basis allow each to be
physically located in non-contiguous areas.
Most of the Registrant's products provide high-resolution (600x600,
1200x600 and 1200x1200 dpi), large format laser printing (monochrome and/or
color), advanced document-handling features, optional network connectivity or a
combination of these features.
SALES AND MARKETING
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The market for the Registrant's products is related to the market for
computer systems generally. Current end users of the Registrant's products
include many Fortune 500 companies, governmental agencies and educational
institutions. In the United States, the Registrant sells its products primarily
through its direct sales channel and through resellers including national and
regional distributors and computer dealers.
As of September 29, 1995, the Registrant operated direct sales offices in
28 cities in 20 states.
During fiscal 1995, wholly owned subsidiaries of the Registrant operated in
Europe, Canada, Australia and Japan. The Registrant, either directly or through
its international network, markets its products in approximately 68 countries
outside of the United States. Subsequent to the end of fiscal 1995, the
Registrant sold its subsidiaries in Europe and Australia, and also sold the
assets of its subsidiary in Japan. The Registrant signed master distributor
agreements with the purchasers so that the Registrant's products will continue
to be marketed in these countries.
The Registrant's 10 largest customers accounted for an aggregate of
approximately 26% of total net sales during fiscal 1995. During fiscal 1995, no
single customer accounted for more than 10% of the Registrant's total net sales.
The Registrant's products are advertised in the United States and
international markets and exhibited at industry trade shows in the United States
and internationally under the Registrant's name and under the names of its
wholly owned subsidiaries. The Registrant also provides field sales support,
including training for customers and resellers, trade show exhibits, sales
training and assistance to sales representatives to facilitate sales. The
Registrant believes that this support has been well-received by its customers
and sales organizations and has assisted the Registrant in the introduction of
new products.
INTERNATIONAL OPERATIONS
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In fiscal 1993, 1994 and 1995, international sales totaled $128,782,000,
$135,532,000 and $132,130,000, respectively, representing approximately 43%, 46%
and 51%, respectively, of the Registrant's net sales. The Registrant derives
its international sales primarily from Western Europe, Canada, the United
Kingdom, Scandinavia, Australia and Japan. To a lesser degree, international
sales have been generated in various Far Eastern and Pacific Rim countries (in
addition to Japan) and in Central and South America. The Registrant generally
invoices customers in their local currency and therefore is exposed to currency
translation risks.
In terms of the cost of goods sold of components used in the Registrant's
products, the Registrant purchases a substantial majority of such components
abroad, primarily from Japanese companies. Accordingly, the cost of such
components may increase as the value of the United States dollar depreciates
relative to the currency of the source country.
The financial statements of the Registrant's foreign subsidiaries are
affected by foreign currency fluctuations. For financial information regarding
the Registrant's foreign and domestic operations and export sales, see Notes 1
and 14 of Notes to the Registrant's Consolidated Financial Statements under Item
8 (Financial Statements and Supplementary Data).
SERVICE, SUPPORT AND WARRANTY
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The Registrant provides a high level of technical and software support and
maintenance service and support to its end users directly and through
distributors, resellers and third party service providers. A staff of engineers
and technicians provides systems applications support, field service support and
customer training for the use and maintenance of the Registrant's products. In
the United States, the Registrant provides technical hardware and software
support and maintenance service from its home office in Mobile, Alabama, and
from field offices located in 53 cities in 32 states. Technical support is
provided via telephone and electronic bulletin boards while a national service
organization provides choices of return to depot or factory, on site and special
contractual service. In fiscal 1995, the Registrant provides international
technical service in Europe from its office located in Utrecht, the
Netherlands, and in Australia and Canada. In Canada, the Registrant provides
service through its direct service organization as well as through certain
authorized dealers. (See Sales and Marketing regarding the sale of the
Registrant's subsidiaries in Europe, Australia and Japan.)
The Registrant warrants its products for a period of 90 days to 2 years
from the date of shipment, depending on the product. The Registrant's annual
warranty costs have not been significant relative to the Registrant's net sales.
COMPETITION
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Competition in the computer printing industry is extremely intense and a
number of the Registrant's competitors have far greater financial, technical,
marketing and manufacturing resources than the Registrant. Management believes
that performance, reliability, versatility of features, product support and
price are the primary bases of competition in this market. Further, in some of
its markets, the Registrant competes against noncomputerized means of labeling
products, such as offset printing. The Registrant would be adversely affected
if its competitors successfully marketed products that were technologically
superior or significantly lower in price.
The Registrant's intelligent print systems are positioned to compete in the
low- and medium-speed, nonimpact page printer market. Nonimpact laser printing
competes with other technologies in the computer printer market, including
inkjet, dye sublimation, ion disposition, magnetic, thermal and impact printers.
Companies whose nonimpact printers compete with the Registrant's include Apple
Computers Inc., Canon, Inc., Oki Electric Industry Company, Ltd., Digital
Equipment Corporation, Hewlett-Packard Company, Lexmark International, Inc., NEC
Technologies, Inc., Seiko Epson Corp., Tektronix, Inc. and Xerox Corporation.
Many of these competitors are larger companies with greater financial resources
than those of the Registrant.
MANUFACTURING AND QUALITY CONTROL
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The Registrant assembles its intelligent processors by adding components to
printed circuit boards manufactured according to its designs and specifications.
Essentially, the Registrant manufactures its products by assembling components
and subassemblies manufactured by others. The intelligent processors, which
include electronic circuitry and software designed by the Registrant, are tested
to assure quality and consistency of production and design.
Most of the parts, components and subassemblies used in the Registrant's
products are available to the Registrant from a variety of sources. When
management determines that a particular supplier is sufficiently reliable,
however, the Registrant generally chooses to rely on a single source for its
requirements in order to ensure a sufficient supply to meet its needs. If the
Registrant were required to change its sources of certain of those materials
unexpectedly, the Registrant might be adversely affected during the time it
would take to negotiate new arrangements with another vendor and to integrate
those materials into its production process. See "Print Engines" below.
During fiscal 1995, the Registrant performed manufacturing and assembly
operations in Mobile, Alabama; Utrecht, the Netherlands; and Utsunomiya, Japan.
(See Sales and Marketing regarding the sale of the Registrant's subsidiaries
in Europe, Australia and Japan.)
One of the Registrant's wholly owned subsidiaries manufactures prototype
printed circuit boards for the Registrant and for sale to third parties. This
subsidiary has provided the Registrant with partial vertical integration in the
production of printed circuit boards. The Registrant is currently seeking to
sell this subsidiary; however, no agreement with any potential buyer has been
reached.
In addition to in-house manufacturing, the Registrant routinely contracts
with certain vendors to manufacture high-volume, standard products.
ORDER BACKLOG
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Only firm purchase orders are included in the Registrant's backlog.
Backlog generally is deliverable within 12 months from the date of the purchase
orders. As of September 30, 1994 and September 29, 1995, backlog consisted of
orders to purchase $8,577,000 and $7,129,000, respectively, of QMS products and
services. These figures include orders generated by the Registrant's
international operations. The Registrant expects to fill all of the September
29, 1995 backlog during fiscal 1996.
The Registrant attempts to maintain adequate finished goods inventory to
ship goods off the shelf whenever possible. Because a substantial portion of
the sales in any given month historically has been derived from new orders
received during the month, backlog is not necessarily an accurate indicator of
future revenues. The Registrant does not believe that sales of its products are
subject to significant seasonal fluctuations.
PRINT ENGINES
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The Registrant purchases substantially all of the print engines for its
products from third-party manufacturers. The Registrant has agreements to
purchase print engines for its products from Canon U.S.A., Inc. The Registrant
also purchases print engines from other vendors, including Ricoh Company, Ltd.,
Hitachi America, Ltd., Fujitsu America, Inc., Minolta Co., Ltd. and Oce'-
Nederland B.V. While other sources are available, the Registrant currently
relies on these suppliers' abilities to make print engines available as needed
by the Registrant. Some of these print engines are supplied to the Registrant
pursuant to the terms of contracts entered into which specify prices to be paid
for each print engine depending upon the annual volume of print engines
purchased from that manufacturer. Certain of the Registrant's supply contracts
with foreign manufacturing sources are subject to adjustment for exchange rate
fluctuations.
The Registrant believes that its requirements for print engines for fiscal
1996 will be adequately met under the terms of existing arrangements and those
expected to be entered into in fiscal 1996. The Registrant has some flexibility
to adjust delivery schedules and quantities as demand for specific print engines
changes as a result of changes in product mix and customer demand. Although
print engines are available from a variety of sources, most of the Registrant's
print engines are supplied by Hitachi America, Ltd. and Minolta Co., Ltd.
Consequently, disruption of the Registrant's contracts with these suppliers
would adversely affect the Registrant during the time required to negotiate new
arrangements with a different print engine supplier or suppliers and to bring
the new product to market.
RESEARCH AND DEVELOPMENT
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The Registrant's research and development program examines new technologies
as they relate to current product offerings, develops new and improved
applications for the Registrant's products and provides insights into new
directions for the Registrant's business.
The Registrant places significant emphasis on the addition of new features
for its nonimpact print systems and enhancement of these systems to satisfy new
applications. The Registrant solicits and receives continuing advice from its
end users and various resellers in identifying appropriate additions. To
augment in-house development efforts, the Registrant also contracts with third
parties to develop products to its specifications or to license applications and
other software. In addition, the Registrant assists certain software design
firms in adapting their existing software for use with the Registrant's
products.
As of September 29, 1995, approximately 13.6% of the Registrant's employees
were employed in its research and development department. During fiscal 1993,
1994 and 1995, the Registrant spent approximately $17,810,000, $15,960,000 and
$16,932,000, respectively, for research and development and software costs and
received no customer-sponsored funding for research and development. In fiscal
years 1993, 1994 and 1995, approximately $8,803,000, $7,056,000 and $7,096,000,
respectively, of the software costs for those fiscal years were capitalized in
accordance with Financial Accounting Standards (FAS) Statement No. 86.
PATENTS AND TRADEMARKS
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The Registrant currently holds United States patents on certain of its
products; however, most of the Registrant's revenue is derived from products for
which there is no patent protection. Because of rapid technological changes in
the computer industry in general and in the electronic printing industry in
particular, the Registrant does not believe that patents offer a significant
degree of protection for most products and technological advances. The
Registrant's strategy for maintaining its competitive position is to continue to
emphasize product research and development, coupled with a high level of
customer support.
The Registrant has obtained registration of many of its trademarks, and
applications pending on others, in the United States and other countries.
ENVIRONMENTAL MATTERS
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Management believes the Registrant is in compliance in all material
respects with applicable federal, state and local statutes and ordinances
regulating the discharge of materials into the environment. Management does not
believe the Registrant will be required to expend any material amounts in order
to remain in compliance with these laws and regulations or that compliance will
materially affect its capital expenditures, earnings or competitive position.
EMPLOYEES
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As of September 29, 1995, the Registrant employed 980 permanent employees
in the United States. During fiscal 1995, the Registrant had four foreign
operating subsidiaries employing an aggregate of 214 permanent employees: QMS
Europe B.V., with sales and support organizations in the Netherlands and in
offices in Germany, France, the United Kingdom and Sweden, employing a total of
99 permanent employees; QMS Canada, Inc., with sales and support organizations
in Calgary, Montreal, Ottawa, Quebec City, Toronto and Vancouver, employing a
total of 60 permanent employees; QMS Australia, with sales and support
organizations in Melbourne and Sydney, employing a total of 16 permanent
employees; and QMS Japan, Inc., with sales and support organizations in Tokyo
and Utsunomiya, employing a total of 39 permanent employees. (See Sales and
Marketing regarding the sale of the Registrant's subsidiaries in Europe,
Australia and Japan.)
Management believes that much of its future success depends on its ability
to attract and retain skilled personnel. The Registrant has implemented a Cash
or Deferred Retirement Plan and maintains stock option plans for officers and
key employees.
The Registrant's employees are not subject to collective bargaining
agreements and there have been no work stoppages due to labor difficulties.
Management of the Registrant believes that its relations with its employees are
good.
ITEM 2. PROPERTIES.
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The Registrant's headquarters facilities cover an aggregate of 117,000
square feet, of which 50,000 square feet are used for product research and
development. The Registrant's primary manufacturing and warehousing facility
covers 152,000 square feet. Both of these facilities are located on 20 of the
77 acres owned by the Registrant in Mobile, Alabama. The Registrant rents
approximately 4,060 additional square feet of warehousing and office space in
the Mobile area.
In Fort Walton Beach, Florida, one of the Registrant's subsidiaries owns
and operates a 35,000 square foot facility on ten acres of land. During fiscal
1995, the Registrant and its other subsidiaries leased additional space in
United States cities in which the Registrant operated sales and/or service
offices, as well as in France, the Netherlands, Sweden, Germany, the United
Kingdom, Canada, Australia and Japan. In San Jose, California, the Registrant
conducts sales, service and engineering operations in a 13,295 square foot
leased facility. (See Sales and Marketing regarding the sale of the
Registrant's subsidiaries in Europe, Australia and Japan.)
The Registrant's properties are utilized approximately five and one-half
days per week, with no significant underutilization of facilities. The
Registrant believes that its owned and leased properties are sufficient for its
current and foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
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The Registrant is a defendant in various litigation in the normal course of
business. Based on consultation with various counsel in these matters,
management is of the opinion that the ultimate resolution of such claims will
not materially affect the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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MARKET PRICE AND DIVIDEND INFORMATION
The Company's common stock is listed on the New York Stock Exchange under the
ticker symbol "AQM." The table below sets forth the per share quarterly high
and low closing prices of QMS common stock for the fiscal years ended September
29, 1995 and September 30, 1994. No cash dividends were declared in either of
the last two fiscal years and the Board of Directors has no present intention to
pay cash dividends in the foreseeable future. The new credit facility contains
provisions which may restrict the payment of dividends. There were 1,693
holders of record of the Company's common stock at November 27, 1995.
1995 1994
Fiscal Quarter High Low High Low
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First $10 1/2 $7 7/8 $11 3/4 $8 5/8
Second 9 3/8 5 1/4 9 7/8 7 7/8
Third 6 3/8 5 8 1/4 7
Fourth 6 3/8 4 10 3/4 6 7/8
ITEM 6. SELECTED FINANCIAL DATA.
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FIVE-YEAR SUMMARY - FINANCIAL AND OTHER DATA
For the fiscal years ended September 29, 1995, September 30, 1994,
October 1, 1993, October 2, 1992 and September 27, 1991
Dollars in thousands, except
per share amounts 1995 1994 1993 1992 1991
Operating results
Net sales $ 259,740 $ 292,688 $ 297,380 $ 260,691 $ 304,266
Cost of sales 210,032 196,538 201,804 168,431 192,182
Marketing and selling expense 47,066 48,812 48,702 42,816 38,897
Research and development expense 9,836 8,904 9,018 10,885 9,064
General and administrative expense 29,308 31,156 39,246 37,983 33,764
Restructuring expense 8,364 0 0 0 0
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Operating income (loss) (44,866) 7,278 (1,390) 576 30,359
Interest income 171 80 756 468 600
Interest expense (4,113) (3,235) (3,342) (3,037) (3,768)
Divestitures of businesses 3,675 0 0 0 0
Miscellaneous income (expense) 847 (83) (946) (2,384) (211)
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Income (loss) before income taxes (44,286) 4,040 (4,922) (4,377) 26,980
Income tax provision (benefit) 0 1,080 (1,526) (1,444) 8,903
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Net income (loss) $ (44,286) $ 2,960 $ (3,396) $ (2,933) $ 18,077
============================================================================
Earnings (loss) per common share
Primary $ (4.15) $ 0.28 $ (0.31) $ (0.27) $ 1.60
Fully diluted (4.15) 0.28 (0.31) (0.27) 1.59
Weighted average number of shares
(in thousands)
used in computing earnings per share:
Primary 10,677 10,723 10,792 10,994 11,275
Fully diluted 10,677 10,761 10,821 10,994 11,386
Balance sheet
Total assets $ 135,538 $ 182,023 $ 170,217 $ 168,007 $ 170,226
Net working capital 35,511 79,390 78,359 73,961 80,907
Long-term debt obligations 26,974 35,687 41,527 31,424 21,780
Stockholders' equity 43,213 89,002 85,729 89,419 97,688
Other data
Current ratio 1.55 2.44 2.82 2.59 2.66
Gross profit margin 19.1% 32.9% 32.1% 35.4% 36.8%
Net profit (loss) margin (17.1)% 1.0% (1.1)% (1.1)% 5.9%
Return on average stockholders' equity (67.0)% 3.3% (3.9)% (3.1)% 20.6%
Persons employed at year end 1,194 1,382 1,425 1,584 1,538
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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Fiscal Years 1995, 1994 and 1993 Compared
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GENERAL
The Company expected a level of operating improvement in fiscal 1995; instead,
the year resulted in the largest loss in the Company's history. The losses put
the Company under extreme cash flow pressure because the need for cash increased
and the Company's borrowing capacity was constrained. During the year, the
Company recorded special and restructuring charges in both the second and the
fourth quarters. The elements and impact of the charges are discussed below.
Additionally, many changes in the Company's structure were effected in order to
generate cash and to put the Company in a position to return to profitability.
On August 23, 1995, the Company announced its intention to sell or liquidate
operational assets in Europe and Japan as part of its business strategy for
fiscal 1996. In this regard, the Company reached agreement with Jalak
Investments BV for the purchase of all of the common shares of QMS Europe BV and
QMS Australia Pty Ltd. Jalak Investments BV was formed by Peter van Schaick,
who previously was co-managing director for QMS Europe BV. The sale was
consummated on October 17, 1995, and will result in net proceeds to the Company
of over $10 million. As part of the same transaction, the Company signed an
exclusive master distributor agreement with QMS Europe BV (now owned by Jalak
Investments BV) to continue marketing QMS products under the QMS name throughout
Europe, the Middle East, India, Africa, Australia and New Zealand. The
agreement with the new QMS Europe BV calls for commission payments to the
Company on all sales of QMS products by QMS Europe BV.
On September 25, 1995, the Company sold a portion of its consumables business to
International Imaging Materials, Inc. (also known as IIMAK), resulting in net
proceeds of over $5 million. Under the agreement, IIMAK has the right to sell
color thermal printer ribbons, paper and transparencies to QMS customers in
North and South America. These consumables are used with the discontinued QMS
ColorScript(R) line of printers. QMS retains all of its other consumables
business relating to its monochrome and color laser printer models.
On December 8, 1995, the Company sold the majority of the assets of its wholly
owned subsidiary to a new company that will also be known as QMS Japan KK. The
new company purchased most of the assets of the former subsidiary of QMS,
assumed most of the liabilities and will continue to market QMS products under
an exclusive master distributor agreement. The new QMS Japan KK was formed by
Yoji Kawai, formerly the president and general manager of the QMS subsidiary in
Japan. QMS Japan KK will pay commissions to the Company based on all sales of
QMS products into a defined exclusive territory, which includes Japan, South
Korea, China, Hong Kong, Singapore and other Asian countries.
With these cash generation transactions accomplished or agreed to in principle,
the Company was able to enter into a new credit facility with Foothill Capital
Corporation on November 7, 1995. Proceeds from the new credit facility were
used to repay in full all amounts owed by the Company to its bank lending group
and to repay portions of other long-term debt that existed at the end of fiscal
1995. The new credit facility also provides the Company with new working capital
borrowing capacity and is more fully described in Note 7 to the Company's
Consolidated Financial Statements and below.
Going forward, the Company will seek to leverage a reduced operating expense
structure to profitability through focus on technologies, products, channels and
services that produce sustainable, improved gross margins. The Company's
strategic plan is to focus on high-margin networkable laser print systems, color
laser printers, consumables and service.
NET SALES
TABLE OF NET SALES COMPARISONS FOR KEY CHANNELS
YEAR-TO-YEAR
NET SALES INCREASES/(DECREASES)
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(IN THOUSANDS) 1995 1994 1993 1995 1994
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U.S. DIRECT $73,047 $85,835 $65,831 $(12,788) $20,004
U.S. SERVICE 31,564 28,393 27,725 3,171 668
U.S. RESELLER 15,162 33,374 64,334 (18,212) (30,960)
QMS EUROPE 81,916 78,572 81,409 3,344 (2,837)
QMS JAPAN 30,876 31,743 18,210 (867) 13,533
QMS CANADA 12,860 18,187 18,974 (5,327) (787)
QMS AUSTRALIA 6,475 7,437 8,932 (962) (1,495)
QMS CIRCUITS 3,851 3,438 3,625 413 (187)
ALL OTHER 3,989 5,709 8,340 (1,720) (2,631)
---------------------------------------------- ------------------------------
TOTAL $259,740 $292,688 $297,380 $(32,948) $(4,692)
============================================== ==============================
The U.S. direct sales and service channel sells the higher end of the Company's
product offerings and consumables to major corporate accounts and supports those
sales with nationwide service capability. Generally, product gross margins and
the cost of distribution are higher in this channel than in the reseller
channel. During fiscal 1995, the U.S. direct sales operations resulted in a net
sales decrease of 14.9%, after having increased by 30% in fiscal 1994. The
Company has identified this change in revenue from U.S. direct sales as the
single most important cause of the Company's poor financial performance in
fiscal 1995. Instability in marketing and sales management led to inconsistent
strategies and focus. The Company considers success in this area of its
business to be of utmost importance, and accordingly has restructured the
Company to focus on delivering high-end, departmental and shared resource
networking products to the market through this channel. The U.S. service
business experienced a net sales gain in fiscal 1995 of 11%, after a 2.4%
increase in fiscal 1994. Revenues from U.S. service are dependent to a great
degree on an increasing installed base of printers sold by the U.S. direct sales
channel. Additionally, the Company's U.S. service organization has begun to
service products that were sold by other manufacturers, taking advantage of
printer engine knowledge and geographic dispersion.
The U.S. reseller channel is responsible for attracting and qualifying resellers
of the lower end of the Company's product line. Generally, gross margins and
distribution costs are lower in this channel than in the direct channel. The
U.S. reseller channel experienced a decline in net sales of printer products in
fiscal 1995 of nearly 54.6%, after a net sales decrease of 48% in fiscal 1994.
During fiscal 1995 and fiscal 1994, the U.S. reseller channel product mix was
under extreme competitive pressure which resulted in lower sales volume and
continued price erosion. Additionally, instability in sales and marketing
management led to inconsistent strategies. The performance in the U.S. reseller
channel improved during the fourth quarter of fiscal 1995 as sales of the QMS
magicolor LX improved. On September 25, 1995, the Company introduced the QMS
magicolor CX color laser print system. This product offers several new features,
including new color screening technology, improved color management tools and
microfine toner. These features result in higher image quality and should
improve revenue generated in the U.S. reseller channel in fiscal 1996. This
product fits well with the Company's sales and marketing strategies for 1996
because a significant consumables business follows the printer sales.
QMS Europe BV and QMS Australia Pty Ltd were sold to Jalak Investments BV
subsequent to the end of the fiscal year (as described previously). During
fiscal 1995, QMS Europe BV experienced a net sales increase of 4.3% and QMS
Australia had a sales decline of nearly 13%. In fiscal 1996, the Company will
continue to sell component parts and controller boards to QMS Europe under a
master distributor agreement and the Company will also receive a commission from
QMS Europe on all sales of QMS-branded products. The result will be a
significant decrease in the sales revenue recognized by the Company, but the
arrangement will also eliminate the entire operating expense structure of QMS
Europe BV.
QMS Japan KK was sold subsequent to the end of fiscal 1995 (as described
previously). During 1995, QMS Japan sold primarily the lower end of the
Company's product offerings to distributors in Japan and Southeast Asia ("SEA").
QMS Japan began management of the SEA portion of the Company's business during
fiscal 1994, when the Company closed its Hong Kong office. The Company has made
a significant development commitment to the special language requirements for
the Japanese market. During fiscal 1995, QMS Japan experienced a small revenue
decline after having increased net sales by 74% in fiscal 1994. New competition
forced sales price erosion for low-end monochrome products. In fiscal 1996, the
Company will continue to sell component parts and controller boards to QMS Japan
KK under a master distributor agreement, and the Company will also receive a
commission from QMS Japan KK on all sales that they make of QMS-branded
products. The result will be a significant decrease in the sales revenue
recognized by the Company, but the arrangement will also eliminate the entire
operating expense structure of QMS Japan KK.
QMS Canada, Inc., a wholly owned subsidiary headquartered in Montreal, sells the
entire line of Company products, including service and accessories, directly to
end users and also through resellers. Net sales for QMS Canada declined by 29%
in 1995 and by 4% in 1994. The primary reason for the decline in 1995 was
competitive pressure, which resulted in lower sales volume and price erosion.
QMS Circuits, Inc., a wholly owned subsidiary based in Fort Walton Beach,
Florida, manufactures and markets printed circuit boards for the Company and for
third-party sales. During fiscal 1995, 1994 and 1993, the Company also sold
Magnum(R) controller boards, controller-level products to original equipment
manufacturers and printer products into Latin America.
GROSS PROFIT
The significant decline in gross profit dollars in fiscal 1995, a total of $46.4
million, has three main components. 1) Special charges of $18.1 million
related to inventory obsolescence and the write-off of certain software costs
incurred in connection with the implementation of the Company's strategic plan
(as described under General above). These special charges relate primarily to
low-end products that are not a part of the Company's primary focus going
forward. 2) The significant volume declines in the U.S. direct and U.S.
reseller channels (as described under Net Sales above), as well as price
erosion, resulted in lower gross profit in fiscal 1995 of approximately $18
million. 3) The volume decreases in Japan and Canada described above resulted
in less gross profit in fiscal 1995 of $5.4 million. Gross profit dollars
increased slightly in fiscal 1994 despite the fact that sales were lower than in
fiscal 1993. Gross profit as a percentage of sales improved to 32.9% in fiscal
1994 from 32.1% in fiscal 1993. The gross profit percentage improvement
reflects a higher percentage of total sales being generated through the U.S.
direct channel in fiscal 1994 where the higher end of the Company's product
offering is sold directly to end users. Going forward, the Company's new
strategic focus and the method of doing business in Europe and Japan are
intended to result in higher gross margin percentages of sales than were
experienced in fiscal 1995.
OPERATING EXPENSES
Operating expenses, excluding restructuring charges, totaled $86.2 million in
fiscal 1995, approximately 3% less than the fiscal 1994 operating expense level;
however, due to the reduction in sales, these operating expenses were 33.2% of
sales, up from 30.4% in fiscal 1994. The Company implemented workforce
reductions in both the second and the fourth quarters of fiscal 1995 that
resulted in headcount reductions totaling 175 people. The Company's total
headcount after the reductions and after the change in corporate structure from
the divestiture of its businesses in Europe, Australia and Japan is 942, down
from 1,194 at fiscal 1995 year end. As part of the Company's operating plan for
1996, management performed an exhaustive review of operating expenses throughout
the Company and made reductions in every functional area, including a reduction
in executive and senior management salaries and perquisites, reductions in the
costs of employee benefits, the sale of the Company aircraft and many other
items. Management will continue to emphasize cost containment. During fiscal
1994, operating expenses were contained at $88.9 million, a decrease of $8.1
million compared to fiscal 1993. Fiscal 1993 operating expenses included a
charge of approximately $3 million as a result of reducing the Company's work
force by about 12% and the consolidation of several of the Company's leased
facilities around the world. Excluding this charge, operating expenses were $94
million in fiscal 1993.
Research and development expenses increased by 10.4% in fiscal 1995 and were
essentially the same in fiscal 1994 as they were in fiscal 1993. Capitalized
software costs amounted to $7.1 million, $7.1 million and $8.8 million for
fiscal 1995, 1994 and 1993, respectively. Management continues to believe that
investment in product research and development is critical to the Company's
future growth and competitive position in the marketplace, and is directly
related to continued, timely development of new and enhanced products.
RESTRUCTURING CHARGES
During fiscal 1995, restructuring charges, as part of the Company's cost
reduction effort, totaling approximately $8.4 million were recorded to recognize
costs associated with salary continuation and outplacement services ($3.7
million), the write-off of certain fixed assets and facility lease obligations
($2.4 million), and the write-down of the Company's investment in QMS Japan
($2.3 million). The subsequent sale of QMS Japan in early December 1995 did not
result in additional losses.
OTHER INCOME (EXPENSE)
Interest expense increased by 27% in fiscal 1995 and was approximately the same
amount in fiscal 1994 and fiscal 1993. In fiscal 1995, the Company's borrowing
needs grew because of the operating losses. The net gain on divestitures of
businesses (see Note 18 to the Company's Consolidated Financial Statements)
includes a loss on the sale of the Europe and Australia entities (approximately
$2 million) and a gain on the sale of a portion of the Company's consumables
business (approximately $5.7 million). Miscellaneous income (expense) includes
a gain on the sale of the Company aircraft (approximately $517,000) and a net
gain on foreign currency transactions (approximately $400,000).
The Company did not enter into any material foreign exchange contracts in fiscal
1995 or in fiscal 1994. In fiscal 1993, the Company entered into foreign
exchange contracts against forecasted European sales in local currencies to
minimize, or offset, the risk of exchange rate fluctuations. In fiscal 1993,
net foreign currency gains under these contracts were $343,362.
INCOME TAX
For fiscal 1995, no benefit or provision for income taxes was recognized. A
provision of 26.7% of pretax income was recognized for fiscal 1994, and a
benefit of 31% of pretax loss was recognized for fiscal 1993. Effective
October 3, 1992, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." The adoption of this standard
had no material impact on the consolidated financial statements for fiscal 1993.
Recent audits by tax authorities in Japan, the Netherlands, Canada and the U.S.
were all resolved with no adverse tax consequences. Fiscal years 1993 and
forward are still subject to review.
FACTORS WHICH MAY AFFECT FUTURE RESULTS
The Company's products include components, primarily microprocessors and dynamic
random-access memory devices, which from time to time are sensitive to market
conditions that result in limited availability and/or extreme price
fluctuations. An interruption in the supply of or significant changes in price
for these components could have an adverse effect on the Company's operating
results. The Company purchases significant quantities of print engine
mechanisms from Japanese suppliers. An appreciation of the value of the yen to
the dollar results in higher prices, which can be mitigated through yen-sharing
arrangements with suppliers, foreign exchange contracts and price negotiations;
however, severe price increases could develop which would adversely affect
operating results.
Because the Company competes in an industry of rapid technological advance, it
is important that the Company be able to develop new products in a timely, cost-
effective manner. The Company has invested significantly in its Crown advanced
document processing technology which, in addition to providing significantly
improved functionality, is intended to reduce the time it takes to develop
products. New product introduction delays could, however, have an adverse
impact on operating results.
These factors, including increasingly competitive pressures in the Company's
markets, along with others that may affect operating results, mean that past
financial performance may not be a reliable indicator of future performance.
Investors should not use historical trends to anticipate results or trends in
future periods. In addition, the Company participates in a highly dynamic
industry, which can result in significant volatility of the Company's common
stock price.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $7.4 million at September 29, 1995, compared to
$5 million and $3.6 million at the end of the two previous years. The cash flow
from operations was $12.4 million for fiscal 1995, compared to $23.2 million in
fiscal 1994 and $3.1 million in fiscal 1993. The Company's financing for fiscal
1995 and 1994 came principally from cash flows from operations, capital leases
and a secured revolving credit agreement. In addition, during fiscal 1995, cash
flows of $5.7 million came from the sale of the ink roll consumables business
and $7.8 million from short-term bank borrowings. During fiscal 1993, the
Company's financing came principally from borrowings under a secured revolving
credit agreement.
The Company's working capital was $35.5 million at September 29, 1995, down from
$79.4 million at the end of fiscal 1994 and $78.4 million at the end of fiscal
1993. The reduction of $43.9 million during fiscal 1995 is principally due to
reducing net inventories by $22.3 million, net trade accounts receivable by
$13.7 million and acquiring new short-term bank borrowings of $7.8 million.
During fiscal 1995, the Company reduced its total long-term debt levels to $24.5
million, down from $34.3 million in fiscal 1994. Bank borrowings under the
Company's secured revolving credit agreements were reduced to $17.8 million at
the end of fiscal 1995, compared to $23.2 million at the end of fiscal 1994.
Senior secured notes payable were reduced from $15.1 million at the end of
fiscal 1994 to $10.9 million at the end of fiscal 1995. These reductions were
directly related to the Company's efforts to refinance its short- and long-term
indebtedness, as discussed more fully below.
At September 29, 1995, the Company was not in compliance with certain covenants
in its credit agreements. As members of the bank group had expressed a desire
to exit the credit facility, management entered into negotiations to establish a
new credit agreement. On November 7, 1995, the Company entered into a new loan
arrangement with Foothill Capital Corporation. Proceeds from the new loan
arrangement were used to repay in full all amounts owed by the Company to its
bank lending group and to repay portions of other long-term debt that existed at
the end of fiscal 1995. The new loan arrangement also provides the Company with
additional working capital borrowing capacity and is more fully described in
Note 7 to the Company's Consolidated Financial Statements.
Management believes that the Company's fiscal 1996 working capital and capital
expenditure needs, as well as funding for research and development, will be met
by cash flow from operations and by the new financing arrangement.
INFLATION
Inflationary factors have not had a significant effect on the Company's
operations in the past three years. A significant increase in inflation would
adversely affect the Company's operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
- ---------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
For the fiscal years ended September 29, 1995, September 30, 1994 and October 1, 1993
Dollars in thousands, except per share amounts 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Net Sales
Printers and supplies $ 228,176 $ 264,295 $ 269,655
U.S. service 31,564 28,393 27,725
------------------------------------------------------
Total net sales 259,740 292,688 297,380
Cost of sales
Printers and supplies 191,010 180,397 186,523
U.S. service 19,022 16,141 15,281
------------------------------------------------------
Total cost of sales 210,032 196,538 201,804
Gross profit
Printers and supplies 37,166 83,898 83,132
U.S. service 12,542 12,252 12,444
------------------------------------------------------
Total gross profit 49,708 96,150 95,576
------------------------------------------------------
Operating expenses
Marketing and selling 47,066 48,812 48,702
Research and development 9,836 8,904 9,018
General and administrative 29,308 31,156 39,246
------------------------------------------------------
Total 86,210 88,872 96,966
Restructuring expenses 8,364 0 0
------------------------------------------------------
Total operating expenses 94,574 88,872 96,966
------------------------------------------------------
Operating income (loss) (44,866) 7,278 (1,390)
------------------------------------------------------
Other income (expense)
Interest income 171 80 756
Interest expense (4,113) (3,235) (3,342)
Divestitures of businesses 3,675 0 0
Miscellaneous income (expense) 847 (83) (946)
-------------------------------------------------------
Total 580 (3,238) (3,532)
-------------------------------------------------------
Income (loss) before income taxes (44,286) 4,040 (4,922)
Income tax provision (benefit) 0 1,080 (1,526)
-------------------------------------------------------
Net income (loss) $ (44,286) $ 2,960 $ (3,396)
=======================================================
Earnings (loss) per common share
Primary and fully diluted $ (4.15) $ 0.28 $ (0.31)
Weighted average number of shares (in thousands)
used in computing earnings (loss) per common share
Primary 10,677 10,723 10,792
Fully diluted 10,677 10,761 10,821
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the fiscal years ended October 1, 1993,
September 30, 1994 and September 29, 1995
Common Stock Treasury Stock
------------ --------------
Additional Foreign
Shares Paid-In Retained Number of Currency
Issued Amount Capital Earnings Shares Amount Translation
DOLLARS IN THOUSANDS
- -----------------------------------------------------------------------------------------------------------------------------------
Balance October 2, 1992 11,832,806 $ 118 $ 39,857 $63,337 1,152,187 $ (13,236) $ (657)
Stock options exercised 132 (55,394) 423
Purchase of treasury shares 30,500 (306)
Translation adjustment (543)
Net loss (3,396)
------------------------------------------------------------------------------------------
Balance October 1, 1993 11,832,806 118 39,989 59,941 1,127,293 (13,119) (1,200)
Stock options exercised 1 (8,602) 66
Purchase of treasury shares 40,700 (287)
Translation adjustment 533
Net income 2,960
------------------------------------------------------------------------------------------
Balance September 30, 1994 11,832,806 118 39,990 62,901 1,159,391 (13,340) (667)
Stock options exercised 4 (3,400) 26
Translation adjustment (1,533)
Net loss (44,286)
------------------------------------------------------------------------------------------
Balance September 29, 1995 11,832,806 $ 118 $ 39,994 $18,615 1,155,991 $ (13,314) $ (2,200)
==========================================================================================
- --------
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
At September 29, 1995
and September 30, 1994
Dollars in thousands 1995 1994
ASSETS
Current assets
Cash and cash equivalents $ 7,431 $ 4,956
Trade receivables (less allowance for doubtful accounts
of $546 in 1995 and $504 in 1994) 37,721 51,462
Inventories, net 47,482 69,770
Other current assets 7,066 8,335
--------------------------------
Total current assets 99,700 134,523
Property, plant and equipment, net 26,721 30,826
Other assets, net 9,117 16,674
--------------------------------
Total $ 135,538 $ 182,023
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 16,586 $ 20,791
Short-term bank loans 7,764 0
Income taxes payable 0 641
Current maturities of long-term debt and capital lease obligations 4,990 5,099
Other current liabilities 34,849 28,602
--------------------------------
Total current liabilities 64,189 55,133
Long-term debt 24,511 34,340
Capital lease obligations 1,119 1,347
Deferred income taxes 1,162 2,201
Other liabilities 1,344 0
--------------------------------
Total liabilities 92,325 93,021
--------------------------------
Stockholders' equity
Preferred stock-authorized, 500,000 shares of no par value; none issued
Common stock-authorized, 50,000,000 shares of $.01 par value; issued,
11,832,806 shares in 1995 and 1994 118 118
Additional paid-in capital 39,994 39,990
Retained earnings 18,615 62,901
Treasury stock, at cost (1,155,991 shares in 1995 and
1,159,391 shares in 1994) (13,314) (13,340)
Foreign currency translation (2,200) (667)
---------------------------------
Total stockholders' equity 43,213 89,002
--------------------------------
Total $ 135,538 $ 182,023
================================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal years ended September 29, 1995,
September 30, 1994 and October 1, 1993
Dollars in thousands 1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (44,286) $ 2,960 $ (3,396)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation of property, plant and equipment 8,406 9,496 9,106
Amortization and write-off of capitalized and
deferred software and other 15,925 8,147 7,540
(Gain) loss from disposal of property, plant and equipment (521) 161 21
Provision for losses on accounts receivable 282 228 326
Provision for losses on inventory 19,132 5,388 8,923
Provision for restructuring expense 8,364 0 0
Gains from divestitures of businesses (3,675) 0 0
Foreign currency transactions 47 (165) 536
Changes in assets and liabilities which provided (used) cash:
Trade receivables 13,484 (11,301) 3,653
Inventories 3,149 (4,381) (17,881)
Other current assets 1,269 (1,409) (1,008)
Other assets (504) 373 (985)
Accounts payable (4,205) 9,725 (3,621)
Income taxes payable (641) 805 (2,759)
Other current liabilities (4,117) 935 3,185
Other liabilities 1,344 0 0
Deferred income taxes (1,039) 2,201 (525)
--------------------------------------------------------
Total adjustments 56,700 20,203 6,511
--------------------------------------------------------
Net cash provided by operating activities 12,414 23,163 3,115
--------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (5,107) (6,115) (8,188)
Additions to capitalized software costs (7,096) (7,056) (8,803)
Additions to deferred software costs (768) (836) (1,189)
Proceeds from disposal of property, plant and equipment 1,262 198 254
Proceeds from divestitures of business 5,675 0 0
--------------------------------------------------------
Net cash used in investing activities (6,034) (13,809) (17,926)
--------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt and capital lease obligations 723 0 21,000
Payments of long-term debt, including current maturities (9,708) (6,195) (9,483)
Payments of capital lease obligations, including
current maturities (1,181) (1,004) (1,036)
Proceeds from short-term debt 7,764 0 0
Proceeds from stock options exercised 30 67 555
Purchase of treasury stock 0 (287) (306)
--------------------------------------------------------
Net cash provided by (used in) financing
activities (2,372) (7,419) 10,730
--------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,533) (561) (423)
--------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,475 1,374 (4,504)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,956 3,582 8,086
--------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,431 $ 4,956 $ 3,582
========================================================
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements
include the accounts of QMS, Inc. and its wholly owned subsidiaries. All
material intercompany items have been eliminated.
FISCAL YEAR - The Company's fiscal year ends on the Friday closest to September
30. Fiscal 1995, 1994 and 1993 included 52 weeks.
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 or market. Cost,
which includes materials, labor and production and material overhead, is
determined on the first-in, first-out basis. Market is based on replacement
cost or net realizable value, as appropriate.
PROPERTY, PLANT AND EQUIPMENT - Expenditures for property, plant and equipment,
major renewals, and betterments are capitalized at cost. Certain assets are
financed under lease contracts which have been capitalized. Aggregate lease
payments, discounted at appropriate rates, have been recorded as long-term debt,
the related leased assets have been capitalized, and the amortization of such
assets is included in depreciation expense.
Expenditures for maintenance, repairs and minor renewals are charged to expense.
When items are disposed of, the cost and accumulated depreciation are eliminated
from the respective accounts, and the resulting gain or loss is included in the
statement of operations.
Depreciation is provided on the straight-line method over the estimated useful
lives of the assets or the lease term, whichever is shorter.
REVENUE RECOGNITION - Sales of printers and supplies are recorded upon shipments
of products to customers provided that no significant vendor obligations remain
and collectibility of the resulting receivables is probable. Service revenue is
recognized at the time the services are provided or upon completion of certain
obligations under deferred service contracts.
WARRANTY POLICY - The Company warrants its products for a period of 90 days to 2
years from the date of shipment, depending on the product.
DEFERRED SERVICE REVENUES - Amounts billed for service contracts are credited to
deferred service revenue and reflected in revenues over the terms of the
contracts, which range up to three years.
DEFERRED SOFTWARE COSTS - Purchased computer software costs are amortized based
on current and future revenue for each product with an annual minimum
amortization equal to straight-line amortization over the remaining estimated
economic life of the product.
CAPITALIZED SOFTWARE COSTS - The Company capitalizes the qualifying costs of
developing proprietary software included in its products. Capitalization of
costs requires that technological feasibility has been established. Upon
completion of projects, amortization is determined based on the larger of the
amounts computed using (a) the ratio that current gross revenue for each product
bears to the total of current and anticipated future gross revenues for that
product or (b) the straight-line method over the remaining estimated economic
life of the product. Amortization adjustments are made to reflect net
realizable value.
Capitalized software costs for fiscal 1995, 1994 and 1993 totaled $7,096,000,
$7,056,000 and $8,803,000, respectively. For fiscal 1995, 1994 and 1993,
$13,853,000, $7,345,000 and $6,835,000, respectively, were charged as
amortization expense on completed projects, and were included in cost of
goods sold. For fiscal 1995 and 1993, amortization included net realizable
value adjustments of $4,639,000 and $86,850, respectively. The amortization
for fiscal 1994 includes no net realizable value adjustment.
RESEARCH AND DEVELOPMENT - The Company expenses research and development costs,
including expenditures related to development of the Company's software products
that do not qualify for capitalization.
INCOME TAX - In February 1992, the Financial Accounting Standards Board issued
the Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which was adopted by the Company, effective October 3, 1992. The
adoption of this Standard had no material effect on the Company's fiscal 1993
operations. Under this method, deferred tax liabilities and assets are
determined based on the difference between financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. (See Note 13.)
EARNINGS (LOSSES) PER COMMON SHARE - Earnings (losses) per common share are
computed based on the weighted average number of common and common equivalent
shares outstanding, as appropriate. Common equivalent shares result from the
assumed exercise of outstanding stock options that have a dilutive effect when
applying the treasury stock method.
FOREIGN CURRENCY TRANSLATION - The Company's subsidiary in Europe transacts a
significant amount of business in U.S. dollars. Accordingly, the U.S. dollar is
deemed to be the functional currency of this subsidiary, and all foreign
currency gains and losses are included in income currently.
The financial position and results of operations of the Company's other foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of such subsidiaries are translated using current
exchange rates. Revenues and expenses of such subsidiaries have been translated
at rates approximating the actual rates on the dates of the transactions.
Translation adjustments are included as a separate component of stockholders'
equity except for QMS Japan, for which a gain of approximately $2.3 million was
included in restructuring charges in fiscal 1995 as a component of the write-
down of the Company's investment in QMS Japan. (See Note 17.) Foreign currency
transaction gains (losses) are included as a component of miscellaneous income
(expense). (See Note 14.)
RECLASSIFICATIONS - Certain reclassifications have been made to fiscal 1994 and
1993 amounts to conform to the fiscal 1995 presentation.
NOTE 2 INVENTORIES
Inventories at September 29, 1995 and September 30, 1994 are summarized as
follows (in thousands):
1995 1994
Raw materials $ 11,709 $ 24,003
Work in process 3,152 5,842
Finished goods 43,453 46,733
Inventory reserve (10,832) (6,808)
------------------------------
$ 47,482 $ 69,770
==============================
Inventory reserves are calculated based on specific identification of items that
are potentially excess or obsolete. Reserves are also recorded on a routine
basis due to rapid obsolescence of certain inventory items. The increase in
reserve is due to special charges against inventory (approximately $6.4 million)
taken in the fourth quarter of fiscal 1995 due to the change in the Company's
strategic focus, as described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NOTE 3 OTHER ASSETS
Other assets at September 29, 1995 and September 30, 1994 are summarized as
follows (in thousands):
1995 1994
Capitalized software costs, net $ 5,955 $ 12,982
Deferred software costs, net 659 977
Other 2,503 2,715
-----------------------------
$ 9,117 $ 16,674
============================
Accumulated amortization of capitalized software costs amounted to $30,002,000
and $16,509,000 at September 29, 1995 and September 30, 1994, respectively.
Accumulated amortization of deferred software costs amounted to $3,143,000 and
$1,987,000 at September 29, 1995 and September 30, 1994, respectively.
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 29, 1995 and September 30, 1994 are
summarized as follows (in thousands):
1995 1994
Land $ 1,408 $ 1,408
Buildings and improvements 20,871 20,682
Machinery and equipment 38,853 42,365
Office furniture and equipment 8,073 8,425
-----------------------------
69,205 72,880
Less accumulated depreciation 42,484 42,054
-----------------------------
$ 26,721 $ 30,826
=============================
NOTE 5 SHORT-TERM BANK BORROWINGS
Short-term bank borrowings at September 29, 1995 and September 30,
1994 were as follows (in thousands):
1995 1994
Unsecured demand note with Credit
Lyonnais Bank, Nederland
(interest at 1-1/2% above prime) $ 5,307 $ 0
Unsecured demand note with Sanwa Bank
Limited, Hong Kong
(interest at 3/4% above Euro-rate) 802 0
Unsecured demand notes with Dai-Ichi
Kangyo Bank Ltd., Japan
(interest at 3.0%) 1,655 0
----------------------------------
$ 7,764 $ 0
==================================
Proceeds from the above loans were used for working capital.
Subsequent to year end, these loans were repaid as part of the
divestiture of the Company's European and Japanese subsidiary
operations.
NOTE 6 OTHER CURRENT LIABILITIES
Other current liabilities at September 29, 1995 and September 30, 1994 are
summarized as follows (in thousands):
1995 1994
Employment costs $ 7,106 $ 8,670
Deferred service revenue 10,330 11,374
Accrued royalties 487 1,061
Accrued warranty 1,138 825
Accrued interest 636 371
Sales and use tax payable 502 1,688
Reserves for restructuring charges
and divestitures of businesses 10,149 0
Other 4,501 4,613
-----------------------------
$ 34,849 $ 28,602
=============================
NOTE 7 LONG-TERM DEBT
Long-term debt at September 29, 1995 and September 30, 1994 is
summarized as follows (in thousands):
1995 1994
Indebtedness to banks under secured
revolving credit agreement
(10.75% at September 29, 1995) $ 17,776 $ 23,200
10.13% senior secured notes payable
in equal semi-annual installments of
$1,052,632 plus interest through 1998 4,987 7,368
6.15% senior secured notes payable in
monthly installments of $194,026
including interest through 1998 5,877 7,780
----------------------------
28,640 38,348
Less current portion of long-term debt 4,129 4,008
----------------------------
$ 24,511 $ 34,340
============================
The 6.15% senior secured notes are secured by a first priority lien on portions
of the Company's land and buildings located in Mobile, Alabama.
On November 7, 1995, the Company entered into an agreement with Foothill Capital
Corporation ("Foothill") which allowed the Company to retire the existing
secured revolving credit agreement and the 10.13% senior secured notes payable.
The new credit facility provides for a three-year revolving line of credit with
maximum availability of $30 million, secured by the Company's domestic accounts
receivable, inventory and machinery and equipment. The stated rate of interest
for any borrowings under the new agreement is one and one-half percent over
prime. Additional provisions of the new credit facility provide for a term loan
of $1.2 million secured by machinery and equipment and the availability of a
second term loan of $5 million. The $1.2 million term loan requires minimum
annual principal payments of approximately $300,000.
Although the Company was not in compliance with certain covenants contained in
the credit agreements existing at year end and has not obtained waivers of non-
compliance from the lenders, the new long-term credit facility with Foothill
provided the Company with the capacity to pay off these debts individually and
collectively and, therefore, they have been classified as long-term debt in the
financial statements.
The new credit facility with Foothill includes requirements for a minimum
current ratio, a maximum total liabilities to equity ratio and minimum levels of
tangible net worth and working capital.
In connection with the new financing arrangements, Foothill was granted a
warrant to purchase 100,000 shares of the Company's common stock, at a price of
$5 a share, which is exercisable through October 30, 1999.
Following is the Company's disclosure in accordance with Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments." The fair value of the Company's long-term debt is estimated based
on the quoted prices for the same or similar issues. The fair value, as of
September 29, 1995 and of September 30, 1994, has been estimated as follows (in
thousands):
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Secured revolving credit facility $ 17,776 $ 17,776 $ 23,200 $ 23,200
10.13% senior secured notes 4,987 5,025 7,368 7,627
6.15% senior secured notes 5,877 5,559 7,780 7,524
NOTE 8 LEASES
The Company has capital leases that expire through fiscal 2000. The Company
is obligated under operating leases for certain sales and service offices
expiring through fiscal 2003. Future minimum lease payments under capital
and operating leases with noncancelable terms in excess of one year as of
September 29, 1995 were as follows (in thousands):
Capital
Lease Operating
Fiscal Year Obligations Leases
1996 $ 991 $ 4,451
1997 815 3,359
1998 277 1,861
1999 62 868
2000 40 590
Thereafter 0 1,239
--------------------------
Total minimum payments 2,185 $ 12,368
=========
Less amounts representing interest 205
---------
Present value of minimum payments 1,980
Less current maturities under
capital lease obligations 861
---------
$ 1,119
=========
Rent expense under operating leases for fiscal 1995, 1994 and 1993 was
$6,120,000, $7,233,000 and $7,120,000, respectively.
Assets recorded under capital leases (included in property, plant and equipment
in the accompanying consolidated balance sheets) at September 29, 1995 and
September 30, 1994 are summarized as follows (in thousands):
1995 1994
Machinery and equipment $ 2,256 $ 3,835
Office furniture and equipment 1,652 1,920
---------------------------
3,908 5,755
Less accumulated depreciation 2,840 3,330
---------------------------
$ 1,068 $ 2,425
===========================
NOTE 9 EMPLOYEE BENEFIT PLANS
The Company has a Cash or Deferred Retirement Plan which covers substantially
all employees and is a qualified plan under Section 401(k) of the Internal
Revenue Code. Employees may make a pretax contribution of up to 10% of their
annual salaries and are provided investment choices from among a Retirement
Preservation Trust, a Corporate Bond Fund, a Capital Fund, a Basic Value Fund
and a Company Stock Fund. The Company may match employee contributions at
varying rates up to a maximum of 3.5% of annual salary, and Company
contributions are made on an annual basis. The plan is a calendar year plan.
Employees at the end of the plan year are fully vested in applicable Company
contributions. In fiscal 1995, 1994 and 1993, the Company contributed
$1,010,244, $1,046,137 and $1,029,391 to the plan, respectively.
NOTE 10 STOCK OPTION PLANS
The Company's stock option plans allow incentive or non-qualified stock options
to be granted to key employees and directors providing the right, when
exercisable, to purchase up to an aggregate of 1,872,688 shares of the Company's
common stock. In the case of incentive stock options, the option price is not
less than the fair market value at date of grant. A non-qualified optionee may
receive the right to be paid cash upon the exercise of a non-qualified option in
an amount intended to approximate 100% of the amount of the federal, state and
local income tax payable by that optionee upon exercise of the option.
For employees with less than one year of service with the Company, one-fourth of
the granted options may be exercised one year after the date of grant, with an
additional one-fourth exercisable each year thereafter, although other exercise
provisions are allowed. For employees with greater than one year of service,
one-fifth of the granted options may be exercised on the date of grant, with an
additional one-fifth exercisable each year thereafter, although other exercise
provisions are allowed. Options that expire or are canceled prior to exercise
are restored to the shares available for future grants. At September 29, 1995,
the Company had reserved 355,138 shares for the future grant of options under
these plans.
The Company's stock option plans also provide that, in the event of a change of
control (as defined in each of the plans), all options then outstanding would
become exercisable immediately either in full or in part.
Under the Company's 1987 plan, no more than 500,000 shares may be issued to
directors, whether or not they are also key employees. Stock options under the
plan expire not later than ten years from the date of grant. The Company's 1984
plan expired during fiscal 1994, and no additional options can be granted under
the plan. Outstanding stock options under the plan were not affected by the
plan's expiration.
During fiscal 1995, the Company repriced certain stock option grants under the
1987 Stock Option Plan. Stock option grants of 158,360 shares that were
previously issued at option prices greater than the current fair market value
were forfeited and replaced with stock option grants for 79,180 shares (a rate
of one new share for two previous shares) at the fair market value on the date
of grant. The grant of these repriced options was restricted to non-executive
officer employees.
During fiscal 1994, the Company adopted the Stock Option Plan for Directors
whereby non-employee directors receive non-qualified stock option grants
annually, and may make an irrevocable election annually to receive stock options
at a below-market exercise price in lieu of cash directors' fees. Compensation
expense under this plan for fiscal 1995 and 1994 was $77,244 and $39,750,
respectively.
A summary of stock option activity is as follows:
Number Price Per
of Shares Share Total
Outstanding,
October 2, 1992 1,101,324 $4.62 to $24.12 $15,160,095
Granted 269,550 8.50 to 16.25 2,719,100
Exercised (55,394) 4.62 to 15.00 (554,920)
Terminated (197,710) 6.62 to 22.38 (3,218,562)
------------ --------------
Outstanding,
October 1, 1993 1,117,770 6.75 to 24.12 14,105,713
Granted 238,571 4.38 to 10.50 2,011,273
Exercised (8,602) 7.50 to 14.00 (66,848)
Terminated (142,188) 7.50 to 24.12 (1,762,637)
------------ --------------
Outstanding,
September 30, 1994 1,205,551 4.38 to 24.12 14,287,501
Granted 705,529 4.44 to 10.00 4,495,941
Exercised (3,400) 8.25 to 9.00 (29,863)
Terminated (390,130) 4.63 to 24.12 (4,974,800)
------------ --------------
Outstanding,
September 29, 1995 1,517,550 $4.38 to $24.12 $ 13,778,779
============ ==============
Exercisable,
September 29, 1995 720,446
============
NOTE 11 SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENTS
In fiscal 1992, the Company entered into separate agreements with three officers
of the Company, under which each officer is entitled to a monthly benefit upon
either the officer's leaving the Company's employment, retirement or departure
following a change in control of the Company, to be paid over a ten-year benefit
period. In fiscal 1995, 1994 and 1993, the Company expensed $366,396, $291,806
and $441,938, respectively, related to these benefits. In fiscal 1995, the
Company paid benefits of $27,831 under these agreements.
NOTE 12 STOCKHOLDER RIGHTS PLAN
In November 1988, the Company adopted a Stockholder Rights Plan and pursuant to
the plan declared a dividend on its common stock of one right (a "Right") for
each share of common stock then outstanding and for each share of common stock
issued thereafter and prior to the time the Rights expire or become exercisable.
Upon the occurrence of certain events, each Right becomes exercisable to
purchase one one-hundredth of a share of Series A Participating Preferred Stock
at a price of $40. The Rights expire on November 30, 1998 and, prior to the
occurrence of certain events, may be redeemed at a price of $.01 per Right. Of
the Company's 500,000 authorized shares of preferred stock, no par value, the
Board of Directors has designated 250,000 shares as Series A Participating
Preferred Stock.
NOTE 13 INCOME TAXES
The components of income (loss) before income taxes and the provision (benefit)
for income taxes (both domestic and foreign), for fiscal 1995, 1994 and 1993 are
summarized as follows (in thousands):
1995 1994 1993
Income (loss) before income taxes:
Domestic $(41,709) $ 6,527 $ (540)
Foreign (2,577) (2,487) (4,382)
--------------------------------------------
Total $(44,286) $ 4,040 $ (4,922)
============================================
Provision (benefit) for income taxes:
Current:
Federal $ 0 $ 436 $ 169
Foreign (247) 452 (2,119)
State 0 439 0
--------------------------------------------
(247) 1,327 (1,950)
--------------------------------------------
Deferred:
Federal 0 0 0
Foreign 247 (247) 424
State 0 0 0
--------------------------------------------
247 (247) 424
--------------------------------------------
Total $ 0 $ 1,080 $ (1,526)
============================================
At September 29, 1995, the Company had domestic operating loss carryovers of
approximately $36 million which will expire in fiscal 2010, and general business
credit carryovers of approximately $1.7 million which will expire during fiscal
2002 through 2007. Foreign tax credit carryforwards of approximately $1.7
million existed at September 29, 1995 and will expire in fiscal 1996 through
1998.
There were no undistributed earnings in the Company's Canadian subsidiary at
fiscal 1995 year end. Undistributed earnings of the Company's other foreign
subsidiaries which were divested will not result in any material taxes payable
by the Company.
During fiscal 1994, the Company settled outstanding issues with tax authorities
in Japan, the Netherlands, Canada and the U.S. without adverse results.
A reconciliation of the statutory federal income tax rate to the effective rate
for fiscal 1995, 1994 and 1993 is as follows (in thousands):
1995 1994 1993
Tax at federal statutory rate $(15,500) $ 1,415 $ (1,723)
State income taxes, net of
federal benefit 0 283 0
Operating losses generating
no tax benefit 15,618 0 0
Utilization of carryovers 0 (1,465) 0
Foreign sales corporation benefit 0 (423) (221)
Tax effect of international
operations, net 0 1,075 (161)
Other, net (118) 195 579
--------------------------------------------
Total $ 0 $ 1,080 $ (1,526)
============================================
Deferred tax assets and liabilities that arise as a result of temporary
differences at September 29, 1995 and September 30, 1994 are summarized as
follows (in thousands):
1995 1994
Deferred tax assets:
Inventory reserves $ 3,187 $ 2,085
Restructuring reserves 1,275 0
Foreign tax credits 1,700 1,700
General business credit carryforwards 1,742 1,742
Net operating loss carryforwards 13,455 1,575
Deferred income 746 747
Other 791 1,644
---------------- --------------
Total gross deferred tax assets 22,896 9,493
Deferred tax asset valuation allowance (19,294) (2,775)
---------------- --------------
Total deferred tax assets 3,602 6,718
Deferred tax liabilities:
Depreciation (1,159) (1,190)
Capitalized software costs (2,221) (4,842)
Deferred software costs (222) (341)
Deferred tooling 0 (98)
---------------- --------------
Total deferred tax liabilities (3,602) (6,471)
---------------- --------------
Net deferred tax assets $ 0 $ 247
================ ==============
The valuation allowance was established based on certain assumptions about
levels of future pretax income that are consistent with historical results. As
the Company had losses in fiscal 1995 and 1993, the deferred tax asset valuation
allowance reflects an evaluation which recognizes uncertainties related to the
future utilization of certain carryovers. The valuation allowance for deferred
tax assets increased by approximately $16.5 million during fiscal 1995. The
Company did not recognize tax benefits for fiscal 1995 losses due to
restrictions on the carryback of the losses and there is no assurance that the
benefits may be realized in the future.
NOTE 14 BUSINESS SEGMENT AND FOREIGN OPERATIONS
The Company's domestic operations and those of its wholly owned European,
Canadian, Australian/New Zealand and Japanese subsidiaries for fiscal 1995, 1994
and 1993 are summarized as follows (in thousands):
1995 1994 1993
Net sales to unaffiliated
customers from:
United States $ 127,610 $ 157,156 $ 169,853
Europe 81,917 78,572 81,413
Canada 12,859 18,186 18,974
Australia/New Zealand 6,476 8,573 8,932
Japan 30,878 30,201 18,208
Net transfer between
geographic areas 52,151 60,984 53,188
Adjustments and eliminations (52,151) (60,984) (53,188)
--------------------------------------------------
Consolidated $ 259,740 $ 292,688 $ 297,380
==================================================
All transfers between geographic areas are sales from the U.S. parent to its
foreign subsidiaries.
A summary of operating income by geographic areas is as follows (in thousands):
1995 1994 1993
Operating income (loss):
United States $ (29,100) $ 22,056 $ 14,303
Europe 4,810 2,136 1,862
Canada (1,122) (262) (568)
Australia/New Zealand (600) 469 616
Japan 1,193 2,012 757
Adjustments and eliminations 533 (552) 522
--------------------------------------------------
Consolidated operating profit (24,286) 25,859 17,492
General corporate expenses (20,580) (18,581) (18,882)
Interest income 171 80 756
Interest expense (4,113) (3,235) (3,342)
Divestitures of businesses 3,675 0 0
Miscellaneous income (expense)* 847 (83) (946)
--------------------------------------------------
Consolidated income (loss)
before income taxes $ (44,286) $ 4,040 $ (4,922)
==================================================
*Miscellaneous expense includes foreign currency transaction gains
(losses) as follows (in thousands):
1995 1994 1993
United States $ (305) $ (346) $ (314)
Europe 542 518 (1,348)
Canada 0 0 598
Australia/New Zealand (37) 25 (91)
Japan 200 1 (46)
--------------------------------------------------
Total $ 400 $ 198 $ (1,201)
==================================================
Identifiable assets by geographical area are as follows (in
thousands):
1995 1994 1993
Identifiable assets:
United States $ 88,164 $ 131,179 $ 127,227
Europe 19,933 23,009 21,360
Canada 4,632 6,711 6,424
Australia/New Zealand 2,996 3,568 2,635
Japan 10,466 13,077 7,143
Adjustments and eliminations (1,231) (2,180) (1,166)
--------------------------------------------------
124,960 175,364 163,623
Corporate assets 10,578 6,659 6,594
-------------------------------------------------
Total assets $ 135,538 $ 182,023 $ 170,217
=================================================
The transfers between geographic areas are priced at cost plus a reasonable
profit.
A summary of the Company's foreign sales to indicated geographic areas for
fiscal 1995, 1994 and 1993 is as follows (in thousands):
1995 1994 1993
Europe $ 77,309 $ 74,305 $ 76,561
Canada 12,875 18,198 18,992
Far East & Pacific Rim 37,368 39,187 27,390
Other 6,683 6,654 5,839
-------------------------------------------------
Total $ 134,235 $ 138,344 $ 128,782
=================================================
U.S. export sales included in the above summary for fiscal 1995, 1994 and 1993
were $2,171,260, $2,802,489 and $1,298,769, respectively.
No customer accounted for 10% or more of consolidated net sales for fiscal 1995,
1994 and 1993.
NOTE 15 SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes for fiscal 1995, 1994 and 1993 is as
follows (in thousands):
1995 1994 1993
Interest $ 4,113 $ 3,235 $ 3,143
Income taxes 2,688 1,193 5,033
Additions to capital lease assets and related obligations were $823,000,
$1,705,000 and $41,000 in fiscal 1995, 1994 and 1993, respectively, as a result
of the Company entering into equipment leases.
NOTE 16 COMMITMENTS AND CONTINGENCIES
At September 29, 1995, the Company had a commitment of approximately $13.2
million under contracts to purchase print engines.
The Company was contingently liable for approximately $1.2 million as of
September 29, 1995, principally the result of written letters of credit, with
various expiration dates, issued in the normal course of business for the
purchase of inventory. These letters are not collateralized by the Company.
The Company is a defendant in various litigation in the normal course of
business. Based on consultation with various counsel in these matters,
management is of the opinion that the ultimate resolution of such claims will
not materially affect the Company's financial position or results of operations.
NOTE 17 RESTRUCTURING CHARGES
During fiscal 1995, the Company recognized restructuring charges totaling
approximately $8.4 million. These costs included $3.7 million associated with
salary continuation and outplacement services for a group of 175 employees from
all levels and functional areas of the Company, $2.4 million related to the
write-off of certain fixed assets and facility lease obligations and $2.3
million for the write-down of the Company's investment in QMS Japan. The
subsequent sale of QMS Japan in early December 1995 did not result in additional
losses.
NOTE 18 DIVESTITURES OF BUSINESSES
On September 25, 1995, the Company completed a cash sale of a portion of its
color thermal ink roll consumables business to International Imaging Materials,
Inc., resulting in a gain of $5.7 million.
On October 17, 1995, the Company sold all of the common shares of QMS Europe BV
and QMS Australia Pty Ltd. This transaction resulted in a loss of approximately
$2 million. The proceeds from this transaction were received in the form of
cash of $6.3 million, short-term receivables of $1.6 million and a $4 million
note receivable, payable in quarterly installments of $1 million each with
interest at 6.5%.
On December 8, 1995, the Company sold the majority of the assets of QMS Japan
with the purchaser acquiring most of the assets and assuming most of the
liabilities. This transaction resulted in a loss of approximately $2.3 million.
The proceeds from this transaction were received in the form of cash of
$500,000 to be paid December 20, 1995, short-term receivables of $500,000 and a
$3.0 million note receivable, payable over 54 months with interest at 8%.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of QMS, Inc. is responsible for the preparation, integrity and
objectivity of the consolidated financial statements and all other sections of
this annual report. The financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, management made informed estimates and judgments of the
expected effects of events and transactions based upon currently available facts
and circumstances.
Management maintains a system of internal accounting controls which it believes
is adequate to provide reasonable assurance that assets are safeguarded,
transactions are executed in accordance with management authorization and the
financial records are reliable for preparing the consolidated financial
statements. The concept of reasonable assurance recognizes that the cost of a
system of internal accounting controls should not exceed the benefits derived
and that there are inherent limitations in the effectiveness of any system of
internal accounting controls.
The Company's independent auditors, Deloitte & Touche LLP, have audited the
Company's consolidated financial statements and expressed an opinion that such
statements present fairly the Company's financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles. Their audit was conducted in accordance with generally accepted
auditing standards and included such procedures believed by them to be
sufficient to provide reasonable assurance that the consolidated financial
statements are free of material misstatement.
The Board of Directors, acting through its Audit Committee, oversees
management's responsibilities in the preparation of the consolidated financial
statements. In performing this function, the Audit Committee, which is composed
of directors who are not employees of the Company, meets periodically with
management and the independent auditors to review the work of each. Deloitte &
Touche LLP has free access to the Audit Committee and to the Board of Directors,
without management present, to discuss internal accounting control, auditing and
financial reporting matters.
We believe these policies and procedures provide reasonable assurance that our
operations are conducted with a high standard of business conduct and that the
financial statements reflect fairly the financial position, results of
operations and cash flows of the Company.
/s/James L. Busby
President and Chief Executive Officer
/s/James K. Doan
Executive Vice President,
Finance and Administration,
and Chief Financial Officer
QUARTERLY DATA
Unaudited quarterly data for the fiscal years
ended September 29, 1995 and September 30, 1994.
1995
First Second Third Fourth
Dollars in thousands, except per share Quarter Quarter (a) Quarter Quarter (b)
amounts
Net sales $ 70,520 $ 66,651 $ 62,698 $ 59,871
Gross profit 22,674 10,353 13,588 3,093
Net income (loss) 72 (14,511)(c) (9,478)(c) (20,369)(c)
Earnings (loss) per common share:
Primary and fully diluted $ .01 $ (1.36) $ (0.89) $ (1.91)
1994
First Second Third Fourth
Dollars in thousands, except per share Quarter Quarter Quarter Quarter
amounts
Net sales $ 70,654 $ 71,283 $ 73,538 $ 77,213
Gross profit 23,832 23,270 23,748 25,300
Net income (loss) (366) 551 1,205 1,570
Earnings (loss) per common share:
Primary and fully diluted $ (.03) $ .05 $ .11 $ .15
(a) Includes special charges of $6.8 million principally associated with
inventory revaluation charged to cost of sales and $2.7 million for
restructuring charges.
(b) Includes special charges of $11.3 million related to inventory revaluations
and the write-down of certain software development costs charged to cost
of sales and $5.7 million for restructuring charges.
(c) The net loss amounts in the second, third and fourth quarters of fiscal
1995 do not include the recognition of any income tax benefits.
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of QMS, Inc. and
subsidiaries as of September 29, 1995 and September 30, 1994, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for each of the three fiscal years in the period ended September 29,
1995. Our audits also included the financial statement schedule listed in the
index at Item 14. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule 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, such consolidated financial statements present fairly, in all
material respects, the financial position of QMS, Inc. and subsidiaries as of
September 29, 1995 and September 30, 1994, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
September 29, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Birmingham, Alabama
November 7, 1995, except for Note 18 as
to which the date is December 8, 1995
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------------------------------------------------------------
The information required by this item is incorporated by reference to
information under the captions "Proposal 1 - Election of Directors - Directors
and Director Nominees and - Compliance with Section 16(a) of the Securities
Exchange Act of 1934" on pages 2-4 of the Proxy Statement and "Executive
Officers" on pages 4-5 of the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
- ---------------------------------
The information required by this item is incorporated by reference to
information under the captions "Proposal 1 - Election of Directors - Director
Compensation" on pages 3-4, "Executive Compensation Tables" on pages 6-9, "Stock
Performance Graph" on page 10, "Executive Agreements" on pages 10-11 and "Report
of the Compensation Committee of the Board of Directors of QMS, Inc." on pages
11-13 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------------------------------------------------------------------------
The information required by this item is incorporated by reference to
information under the caption "Beneficial Ownership of Common Stock" on pages 5-
6 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ---------------------------------------------------------
The information required by this item is incorporated by reference to
information under the caption "Compensation Committee Interlocks and Insider
Participation" on page 13 of the Proxy Statement.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
- --------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements
The following financial statements are included in Item 8 of Part
II:
. Consolidated Statements of Operations for the Fiscal Years Ended
September 29, 1995, September 30, 1994 and October 1, 1993.
. Consolidated Statements of Changes in Stockholders' Equity for
the Fiscal Years Ended September 29, 1995, September 30, 1994
and October 1, 1993.
. Consolidated Balance Sheets at September 29, 1995 and September
30, 1994.
. Consolidated Statements of Cash Flows for the Fiscal Years
September 29, 1995, September 30, 1994 and October 1, 1993.
. Notes to Consolidated Financial Statements for the Fiscal Years
September 29, 1995, September 30, 1994 and October 1, 1993.
2. Financial Statement Schedules
The schedule listed below is included herein immediately after
the signature pages hereto. Schedules not listed below have been
omitted because they are not applicable or the required
information is included in the financial statements or notes
thereto.
Schedule
Number Description
------- -----------
VIII Valuation and Qualifying Accounts and Reserves for the
Three Fiscal Years Ended September 29, 1995.
The Registrant's independent auditors' report on the financial
statements and financial statement schedule listed above is located at
Item 8 of Part II.
3. Exhibits:
Exhibit
Number Description
- -------- -----------
3(a) Restated Certificate of Incorporation, as amended as of February
17, 1987 1/ and Certificate of Amendment thereto filed with the
Secretary of State of Delaware as of January 31, 1991.2/
3(b) Bylaws of Registrant.1/
4(a) The rights of security holders are defined in Articles 4, 9 and
10 of the Restated Certificate of Incorporation of the
Registrant, Articles II, VI and VII of the Bylaws of the
Registrant and the Rights Agreement. [Incorporated herein by
reference to Exhibits 3(a), 3(b) and 4(b), respectively.]
4(b) Rights Agreement dated November 30, 1988.3/
10(a)(i) Cash or Deferred Retirement Plan, as amended and restated as of
December 17, 1993. 4/*
10(a)(ii) Trust Agreement dated November 1, 1993 relating to the Cash or
Deferred Retirement Plan as amended by an Amendment to the Trust
Agreement dated December 28, 1993. 4/
10(c)(i) Form of 1987 Stock Option Plan, as amended and restated as of
December 13, 1990.2/*
10(c)(ii) Form of First Amendment to the 1987 Stock Option Plan effective
November 7, 1991.2/*
10(d) Supplemental Executive Retirement Plan Agreements dated September
30, 1991. 4/*
10(e)(i) Worldwide Master Purchase Agreement 90-01 among Canon U.S.A.,
Inc., Canon Europa, N.V. and QMS, Inc. dated October 1, 1990.5/
10(e)(ii) SX/TX/LX Worldwide Master Purchase Agreement 90-02 among Canon
U.S.A., Inc., Canon Europa, N.V. and QMS, Inc. dated October 1,
1990.5/
10(e)(iii) LBP-20 Purchase Agreement 90-03-LBP-20 between Canon U.S.A., Inc.
and QMS, Inc. dated October 1, 1990.5/
10(h) Form of Executive Agreement entered into with: James L. Busby;
Donald L. Parker, Ph.D.; Charles D. Daley; and James K. Doan.
10/*
10(l)(i) Note Agreement dated June 30, 1993 ("1993 Note Agreement")
between QMS, Inc. and Connecticut General Life Insurance Company
for $10,000,000 in aggregate principal amount of QMS, Inc.'s
6.15% Senior Secured Notes due June 15, 1998.7/
10(l)(ii) Mortgage, Trust and Security Agreement dated June 30, 1993
between QMS, Inc. and First Alabama Bank of Mobile, as Trustee,
for QMS, Inc. $10,000,000 aggregate principal amount of 6.15%
Senior Secured Notes due June 15, 1998.7/
10(l)(iii) Senior Secured Notes, each dated July 1, 1993, with CIG & CO.
($3,500,000) and ($3,500,000) and ZANDE & Co. ($3,000,000).7/
10(l)(iv) Waiver Agreement dated November 23, 1993 waiving certain
provisions of the 1993 Note Agreement. 4/
10(l)(v) Waiver Agreement dated as of February 25, 1994 waiving certain
provisions of the 1993 Note Agreement. 8/
10(l)(vi) Waiver Agreement dated as of May 3, 1994 waiving certain
provisions of the 1993 Note Agreement. 9/
10(l)(vii) Waiver Agreement dated as of August 12, 1994 waiving certain
provisions of the 1993 Note Agreement. 13/
10(l)(viii) Waiver Agreement dated as of November 30, 1994 waiving certain
provisions of the 1993 Note Agreement. 13/
10(o) Stock Option Plan, dated July 30, 1984,11/* together with First
Amendment thereto effective as of January 1, 1987,1/* Second
Amendment thereto effective as of November 10, 1987,1/* Third
Amendment thereto effective as of April 6, 1989,10/* Fourth
Amendment thereto effective as of January 1, 1990,6/* and Fifth
Amendment thereto effective as of November 7, 1991.2/*
10(p) Stock Option Plan for Directors. 12/*
10(q)(i) Share Purchase Agreement dated October 12, 1995 between Jalak
Investments B.V. and QMS, Inc. 14/
10(q)(ii) Promissory Note dated October 16, 1995 in the original principal
amount of U.S. $4,000,000 from QMS Europe B.V. and QMS Australia
PTY Ltd. in favor of QMS, Inc. 14/
10(q)(iii) Pledge and Security Agreement and Pledging of Shares, each dated
October 16, 1995 by Jalak Investments, B.V. in favor of QMS, Inc.
14/
10(q)(iv) Deed of Subordination and Pledge dated October 16, 1995 by and
among QMS, Inc., QMS Europe B.V. and Credit Lyonnais Bank
Nederland N.V. 14/
10(q)(v) Master Distributor Agreement dated October 16, 1995 among the
Registrant, QMS Europe, B.V. and QMS Australia PTY Ltd. 14/
10(q)(vi) Trademark and Trade Name License Agreement dated October 16, 1995
between QMS Europe B.V. and QMS, Inc. 14/
10(r) Loan and Security Agreement dated November 7, 1995 by and between
QMS, Inc. and Foothill Capital Corporation. 15/
10(r)(i) Stock Pledge Agreement dated November 7, 1995 by and between QMS,
Inc. and Foothill Capital Corporation. 15/
10(r)(ii) Term Note A dated November 7, 1995 in the original principal
amount of $1,750,000 from QMS, Inc. in favor of Foothill Capital
Corporation. 15/
10(r)(iii) Term Note B dated November 7, 1995 in the original principal
amount of $5,000,000 from QMS, Inc. in favor of Foothill Capital
Corporation. 15/
10(r)(iv) Trademark Security Agreement dated November 7, 1995 made by QMS,
Inc. in favor of Foothill Capital Corporation. 15/
10(r)(v) QMS, Inc. Warrant to Purchase 100,000 shares of Common Stock,
dated November 7, 1995. 15/
10(r)(vi) General Security Agreement dated November 7, 1995 by and between
QMS Canada Inc. in favor of Foothill Capital Corporation. 15/
10(r)(vii) General Continuing Guaranty dated November 7, 1995 by QMS Canada
Inc. in favor of Foothill Capital Corporation. 15/
10(r)(viii) Security Agreement dated November 7, 1995 by and between Foothill
Capital Corporation and QMS Canada Inc. 15/
10(r)(ix) General Continuing Guaranty dated November 7, 1995 by QMS
Circuits, Inc. in favor of Foothill Capital Corporation. 15/
10(r)(x) Security Agreement dated November 7, 1995 between Foothill
Capital Corporation and QMS Circuits, Inc. 15/
10(s)(i) Asset Purchase Agreement dated September 30, 1995 between QMS
Japan Kabushiki Kaisha ("QMS Japan KK") and QMS, Inc.
10(s)(ii) Assumption of Liabilities dated September 30, 1995 by QMS Japan,
KK.
10(s)(iii) Inventory Johto-Tampo Agreement dated September 30, 1995 between
QMS Japan, KK and QMS, Inc.
10(s)(iv) Master Distributor Agreement dated September 30, 1995 between QMS
Japan, KK and QMS, Inc.
10(s)(v) Promissory Note dated September 30, 1995 in the original
principal amount of U.S. $3,000,000 from Yoji Kawai in favor of
QMS Japan, KK.
10(s)(vi) Promissory Note dated September 30, 1995 in the original
principal amount of U.S. $500,000 from Yoji Kawai in favor of
QMS Japan, KK.
10(s)(vii) Trademark and Trade Name License Agreement dated December 7, 1995
between QMS Japan, KK and QMS, Inc.
10(s)(viii) Assumption Agreement dated December 7, 1995 between QMS Japan, KK
and QMS, Inc.
11 Statement Regarding Computation of Earnings Per Share.
21 Subsidiaries of the Registrant.
27 Financial Data Schedules
* Indicates a management contract or compensatory plan or arrangement.
1/ 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, 1987 (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
September 27, 1991 (Commission File No. 1-9348).
3/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 30, 1988 (Commission File No. 1-9348).
4/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
October 1, 1993 (Commission File No. 1-9348).
5/ 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).
6/ 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).
7/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter
ended July 2, 1993 (Commission File No. 1-9348).
8/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter
ended April 1, 1994 (Commission File No. 1-9348).
9/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter
ended July 1, 1994 (Commission File No. 1-9348).
10/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 29, 1989 (Commission File No. 1-9348).
11/ Incorporated herein by reference to exhibit of same number in
Registrant's Registration Statement on Form S-1, filed September 19,
1984 (Registration No. 2-93329).
12/ Incorporated herein by reference to Appendix B to the Registrant's
Proxy Statement for the Annual Meeting of Stockholders held on January
25, 1994 (Commission File No. 1-9348).
13/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 30, 1994 (Commission File No. 1-9348).
14/ Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on October 16, 1995 (Commission File No. 1-9348).
15/ Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on November 21, 1995 (Commission File No. 1-9348).
(b) Reports on Forms 8-K:
The following reports were filed on Forms 8-K during the most recent fiscal
quarter:
. Form 8-K dated October 16, 1995 reporting the sale of QMS Europe B.V. and
QMS Australia PTY Ltd.
. Form 8-K dated November 21, 1995 reporting the new credit agreement with
Foothill Capital Corporation.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: December 21, 1995 By: /s/James L. Busby
---------------------------------------------------------------
James L. Busby
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date: December 21, 1995 /s/James L. Busby
--------------------------------------------------------------
James L. Busby
President and Director (Principal Executive
Officer)
Date: December 21, 1995 /s/Charles D. Daley
--------------------------------------------------------------
Charles D. Daley
Director
Date: December 21, 1995 /s/Donald L. Parker, Ph.D.
--------------------------------------------------------------
Donald L. Parker, Ph.D.
Director
Date: December 21, 1995 /s/Lucius E. Burch, III
--------------------------------------------------------------
Lucius E. Burch, III
Director
Date: December 21, 1995 /s/Michael C. Dow
--------------------------------------------------------------
Michael C. Dow
Director
Date: December 21, 1995 /s/S. Felton Mitchell, Jr.
--------------------------------------------------------------
S. Felton Mitchell, Jr.
Director
Date: December 21, 1995 /s/G. William Speer
--------------------------------------------------------------
G. William Speer
Director
SCHEDULE VIII
QMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 29, 1995
Balance at Charged to
Beginning Costs and Balance at
Description of Year Expenses Deductions (a) End of Year
- ------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts--deducted from receivables
in the balance sheet
YEAR ENDED OCTOBER 1, 1993.........................$ 618,000 $ 326,000 $ 364,000 $ 580,000
========== =========== =========== ===========
YEAR ENDED SEPTEMBER 30, 1994......................$ 580,000 $ 228,000 $ 304,000 $ 504,000
========== =========== =========== ===========
YEAR ENDED SEPTEMBER 29, 1995......................$ 504,000 $ 282,000 $ 240,000 $ 546,000
========== =========== =========== ===========
Additions
Balance at Charged to
Beginning Costs and Balance at
Description of Year Expenses Deductions (b) End of Year
- ------------------------------------------------------------------------------------------------------------------------------
Inventory reserves and reserves for divestitures of businesses
YEAR ENDED OCTOBER 1, 1993.......................... $6,016,000 $ 8,923,000 $ 8,635,000 $ 6,304,000
========== =========== =========== ===========
YEAR ENDED SEPTEMBER 30, 1994....................... $6,304,000 $ 5,388,000 $ 4,884,000 $ 6,808,000
========== =========== =========== ===========
YEAR ENDED SEPTEMBER 29, 1995....................... $6,808,000 $29,281,000 $15,109,000 $20,980,000
========== =========== =========== ===========
Additions
Balance at Charged to
Beginning Costs and Balance at
Description of Year Expenses Deductions End of Year
- ----------------------------------------------------------------------------------------------------------------------------------
Reserves for restructuring charges and divestitures
of businesses
YEAR ENDED OCTOBER 1, 1993.......................... $ 0 $ 0 $ 0 $ 0
=========== =========== =========== ===========
YEAR ENDED SEPTEMBER 30, 1994....................... $ 0 $ 0 $ 0 $ 0
=========== =========== =========== ===========
YEAR ENDED SEPTEMBER 29, 1995....................... $ 0 $10,149,000 $ 0 $10,149,000
=========== =========== =========== ===========
- --------------------------------------
(a) Uncollectible accounts written off
(b) Disposal of inventory
INDEX
3. Exhibits:
Exhibit Page
Number Description Number
- ------ ------------------------------------ ------
3(a) Restated Certificate of Incorporation, as amended as
of February 17, 1987 1/ and Certificate of Amendment
thereto filed with the Secretary of State of Delaware
as of January 31, 1991.2/
3(b) Bylaws of Registrant.1/
4(a) The rights of security holders are defined in Articles
4, 9 and 10 of the Restated Certificate of Incorporation
of the Registrant, Articles II, VI and VII of the Bylaws
of the Registrant and the Rights Agreement. [Incorporated
herein by reference to Exhibits 3(a), 3(b) and 4(b),
respectively.]
4(b) Rights Agreement dated November 30, 1988.3/
10(a)(i) Cash or Deferred Retirement Plan, as amended and
restated as of December 17, 1993. 4/*
10(a)(ii) Trust Agreement dated November 1, 1993 relating to
the Cash or Deferred Retirement Plan as amended by
an Amendment to the Trust Agreement dated December
28, 1993. 4/
10(c)(i) Form of 1987 Stock Option Plan, as amended and restated
as of December 13, 1990.2/*
10(c)(ii) Form of First Amendment to the 1987 Stock Option
Plan effective November 7, 1991.2/*
10(d) Supplemental Executive Retirement Plan Agreements
dated September 30, 1991. 4/*
10(e)(i) Worldwide Master Purchase Agreement 90-01 among
Canon U.S.A., Inc., Canon Europa, N.V. and QMS, Inc.
dated October 1, 1990.5/
10(e)(ii) SX/TX/LX Worldwide Master Purchase Agreement
90-02 among Canon U.S.A., Inc., Canon Europa,
N.V. and QMS, Inc. dated October 1, 1990.5/
10(e)(iii) LBP-20 Purchase Agreement 90-03-LBP-20 between
Canon U.S.A., Inc. and QMS, Inc. dated October 1, 1990.5/
10(h) Form of Executive Agreement entered into with:
James L. Busby; Donald L. Parker, Ph.D.; Charles D.
Daley; and James K. Doan. 10/*
10(l)(i) Note Agreement dated June 30, 1993 ("1993 Note
Agreement" between QMS, Inc. and Connecticut
General Life Insurance Company for $10,000,000
in aggregate principal amount of QMS, Inc.'s 6.15%
Senior Secured Notes due June 15, 1998.7/
10(l)(ii) Mortgage, Trust and Security Agreement dated
June 30, 1993 between QMS, Inc. and First Alabama
Bank of Mobile, as Trustee, for QMS, Inc. $10,000,000
aggregate principal amount of 6.15% Senior Secured
Notes due June 15, 1998.7/
10(l)(iii) Senior Secured Notes, each dated July 1, 1993,
with CIG & CO. ($3,500,000) and ($3,500,000)
and ZANDE & Co. ($3,000,000).7/
10(l)(iv) Waiver Agreement dated November 23, 1993 waiving
certain provisions of the 1993 Note Agreement. 4/
10(l)(v) Waiver Agreement dated as of February 25, 1994
waiving certain provisions of the 1993 Note
Agreement. 8/
10(l)(vi) Waiver Agreement dated as of May 3, 1994 waiving
certain provisions of the 1993 Note Agreement. 9/
10(l)(vii) Waiver Agreement dated as of August 12, 1994
waiving certain provisions of the 1993 Note
Agreement. 13/
10(l)(viii) Waiver Agreement dated as of November 30, 1994
waiving certain provisions of the 1993 Note
Agreement. 13/
10(o) Stock Option Plan, dated July 30, 1984,11/* together
with First Amendment thereto effective as of January 1,
1987,1/* Second Amendment thereto effective as of
November 10, 1987,1/* Third Amendment thereto
effective as of April 6, 1989,10/* Fourth Amendment
thereto effective as of January 1, 1990, 6/* and Fifth
Amendment thereto effective as of November 7, 1991.2/*
10(p) Stock Option Plan for Directors. 12/*
10(q)(i) Share Purchase Agreement dated October 12, 1995
between Jalak Investments B.V. and QMS, Inc. 14/
10(q)(ii) Promissory Note dated October 16, 1995 in the original
principal amount of U.S. $4,000,000 from QMS Europe
B.V. and QMS Australia PTY Ltd. in favor of QMS, Inc. 14/
10(q)(iii) Pledge and Security Agreement and Pledging of Shares,
each dated October 16, 1995 by Jalak Investments, B.V.
in favor of QMS, Inc. 14/
10(q)(iv) Deed of Subordination and Pledge dated October 16,
1995 by and among QMS, Inc., QMS Europe B.V.
and Credit Lyonnais Bank Nederland N.V. 14/
10(q)(v) Master Distributor Agreement dated October 16,
1995 among the Registrant, QMS Europe, B.V.
and QMS Australia PTY Ltd. 14/
10(q)(vi) Trademark and Trade Name License Agreement
dated October 16, 1995 between QMS Europe B.V.
and QMS, Inc. 14/
10(r) Loan and Security Agreement dated November 7, 1995
by and between QMS, Inc. and Foothill Capital
Corporation. 15/
10(r)(i) Stock Pledge Agreement dated November 7, 1995
by and between QMS, Inc. and Foothill Capital
Corporation. 15/
10(r)(ii) Term Note A dated November 7, 1995 in the original
principal amount of $1,750,000 from QMS, Inc. in favor
of Foothill Capital Corporation. 15/
10(r)(iii) Term Note B dated November 7, 1995 in the original
principal amount of $5,000,000 from QMS, Inc. in favor
of Foothill Capital Corporation. 15/
10(r)(iv) Trademark Security Agreement dated November 7,
1995 made by QMS, Inc. in favor of Foothill Capital
Corporation. 15/
10(r)(v) QMS, Inc. Warrant to Purchase 100,000 shares of
Common Stock, dated November 7, 1995. 15/
10(r)(vi) General Security Agreement dated November 7,
1995 by and between QMS Canada Inc. in
favor of Foothill Capital Corporation. 15/
10(r)(vii) General Continuing Guaranty dated November 7,
1995 by QMS Canada Inc. in favor of Foothill Capital
Corporation. 15/
10(r)(viii) Security Agreement dated November 7, 1995 by
and between Foothill Capital Corporation and QMS
Canada Inc. 15/
10(r)(ix) General Continuing Guaranty dated November 7,
1995 by QMS Circuits, Inc. in favor of Foothill Capital
Corporation. 15/
10(r)(x) Security Agreement dated November 7, 1995
between Foothill Capital Corporation and QMS
Circuits, Inc. 15/
10(s)(i) Asset Purchase Agreement dated September 30,
1995 between QMS Japan Kabushiki Kaisha
("QMS Japan KK") and QMS, Inc.
10(s)(ii) Assumption of Liabilities dated September 30,
1995 by QMS Japan, KK.
10(s)(iii) Inventory Johto-Tampo Agreement dated September 30,
1995 between QMS Japan, KK and QMS, Inc.
10(s)(iv) Master Distributor Agreement dated September 30,
1995 between QMS Japan, KK and QMS, Inc.
10(s)(v) Promissory Note dated September 30, 1995 in the
original principal amount of U.S. $3,000,000 from
Yoji Kawai in favor of QMS Japan, KK.
10(s)(vi) Promissory Note dated September 30, 1995 in
the original principal amount of U.S. $500,000
from Yoji Kawai in favor of QMS Japan, KK.
10(s)(vii) Trademark and Trade Name License Agreement
dated December 7, 1995 between QMS Japan, KK
and QMS, Inc.
10(s)(viii) Assumption Agreement dated December 7, 1995
between QMS Japan, KK and QMS, Inc.
11 Statement Regarding Computation of Earnings Per
Share.
21 Subsidiaries of the Registrant.
27 Financial Data Schedules
* Indicates a management contract or compensatory plan or arrangement.
1/ 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, 1987 (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
September 27, 1991 (Commission File No. 1-9348).
3/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 30, 1988 (Commission File No. 1-9348).
4/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
October 1, 1993 (Commission File No. 1-9348).
5/ 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).
6/ 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).
7/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter
ended July 2, 1993 (Commission File No. 1-9348).
8/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter
ended April 1, 1994 (Commission File No. 1-9348).
9/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter
ended July 1, 1994 (Commission File No. 1-9348).
10/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 29, 1989 (Commission File No. 1-9348).
11/ Incorporated herein by reference to exhibit of same number in
Registrant's Registration Statement on Form S-1, filed September 19,
1984 (Registration No. 2-93329).
12/ Incorporated herein by reference to Appendix B to the Registrant's
Proxy Statement for the Annual Meeting of Stockholders held on January
25, 1994 (Commission File No. 1-9348).
13/ Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 30, 1994 (Commission File No. 1-9348).
14/ Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on October 16, 1995 (Commission File No. 1-9348).
15/ Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on November 21, 1995 (Commission File No. 1-9348).
(b) Reports on Forms 8-K:
The following reports were filed on Forms 8-K during the most recent fiscal
quarter:
. Form 8-K dated October 16, 1995 reporting the sale of QMS Europe B.V. and
QMS Australia PTY Ltd.
. Form 8-K dated November 21, 1995 reporting the new credit agreement with
Foothill Capital Corporation.