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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. [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED OCTOBER 3, 1997.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934. [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 1-9348
QMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 63-0737870
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MAGNUM PASS, MOBILE, ALABAMA 36618
(Address of principal executive (Zip Code)
offices)
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
------------------- -----------------------
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 [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of 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. [_]
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF NOVEMBER 24, 1997; APPROXIMATELY $30,361,884.
Number of shares of Common Stock outstanding as of November 24, 1997:
10,697,065
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held January 20, 1998 are incorporated by
reference into Part III.
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PART I
ITEM 1. BUSINESS.
GENERAL
The Company 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 Company also
markets its controllers separately for incorporation into products marketed by
others and offers service support for non-QMS manufactured products.
The Company 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. The Company's
telephone number is (334) 633-4300.
PRODUCTS/1/
The Company'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 majority of the Company'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 Company offers products with
PostScript Level 2 from Adobe as well as products with UltraScript(TM), a QMS-
developed PostScript interpreter that is compatible with Adobe's PostScript
Levels 1 and 2. All of the Company's products that support UltraScript also
support the QMS-developed PCL 5 page-description language.
The nonimpact printing products marketed by the Company address the printing
needs of customers in electronic publishing, general business, automatic
identification, scientific, and engineering environments. The Company's
nonimpact printing products include both color and monochrome printer systems
with a variety of speeds, paper-handling, and performance characteristics.
The Company 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 as well as for non-
QMS manufactured products.
During fiscal 1997, the Company enhanced its product line by releasing a
number of enabling products consisting of (but not limited to): CGM Emulation,
which offers high-performance processing and direct printing of ATA and CALS
CGM file formats; XES Emulation, which enables QMS(R) Crown print systems to
recognize and interpret Xerox XES/UDK (Xerox Escape Sequence/User Defined Key)
data streams; an enhanced version of QFORM(TM), a software package that allows
QMS laser printers to replace line printers in classic information systems
forms-based operations; an enhanced version of CrownAdmin(R), a software tool
allowing management of networked QMS printers from a central point; QMS
CrownView(TM), an HTML-based Web page that resides inside the Crown Print
System, which allows users to monitor printer setting, consumable levels and
print job status from their desktop; an enhanced number of high performance
print drivers for Windows 95(R) and Windows NT; and Print Monitors for
Windows(R) 95 and Windows NT, which provide an efficient method for
transporting print jobs directly to QMS Crown(R) Print Systems.
The majority of the Company's new product offerings during fiscal 1997 were
based on the Company's Crown 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 (SIO), and
the ability to differentiate the
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/1/The following trademarks and registered trademarks of the Registrant are
used herein: UltraScript(TM), Crown(R), QFORM(TM), CrownAdmin(TM),
CrownView(R), QMS(R), ImageServer(R), ColorScript(R), Hammerhead(R), and
magicolor(R). All other trademarks and registered trademarks are the property
of their respective companies.
2
resident languages supported by a product and switch between them without user
intervention (ESP) are among the features Crown technology provides.
During fiscal 1997, the Company extended its product line by releasing
several new products including (but not limited to) the QMS 2060 and QMS 4060
printer series, top-level QMS ImageServer(R) printers, and the QMS
ColorScript(R) 460 and 480 dye sublimation color printers. In addition, new
document-handling features were added to the QMS 2425 Print System, allowing
for stacking and stapling of documents.
With the introduction of the QMS 2060 Print System series, the Company has
delivered a family of versatile 20 page-per-minute ("ppm") monochrome printers
for small and medium-size work groups. The QMS 2060 is the third generation of
the popular QMS Hammerhead(R) Print System, first introduced in June, 1992.
The QMS 2060 printers offer both high-performance network printing and large
format, edge-to-edge printing capabilities, and up to 1200 dots-per-inch
("dpi") resolution.
With the introduction of the QMS 4060, the Company has delivered one of the
most feature-rich printers in its class, with print speeds up to 40 ppm, 600
dpi resolution capability, an Ethernet(R) network interface card, standard
duplexer, and a suite of easy-to-use drivers and management tools. The QMS
4060 can be equipped with up to 4,500 sheets of paper input and a 2,000 sheet
output stacker for production-level printing applications.
The Company's most recent product offerings include the QMS magicolor(R) 2
and the QMS 2425 TURBO Print Systems. With the introduction of the QMS
magicolor 2, the Company has delivered a cost-effective, easy-to-use, color
laser print system, with speeds of 4 to 8 ppm in color, and 16 ppm in
monochrome. The QMS 2425 TURBO is a next-generation version of the award-
winning QMS 2425 Print System, offering superior document and image processing
at 24 ppm. Both of these new print systems feature the ultra-fast NEC
Vr4300(R) 133 MHz processor.
Most of the Company's products provide high-resolution (600x600, 1200x600,
and 1200x1200 dpi), large format (up to 11^ by 17^) laser printing (monochrome
and/or color), advanced document-handling features, optional network
connectivity, or a combination of these features.
SALES AND MARKETING
The market for the Company's products is related to the market for computer
systems generally. Current end users of the Company's products include many
Fortune 500 companies, governmental agencies, and educational institutions. In
the United States, the Company sells its products primarily through its direct
sales channel and through resellers including national and regional
distributors and computer dealers.
As of October 3, 1997, the Company operated direct sales offices in 19
cities in 17 states in the United States. The Company, either directly or
through its international network and distributors, markets its products in 28
countries outside of the United States.
At the beginning of fiscal 1996, the Company sold its subsidiaries in Europe
and Australia, and also sold the assets of its subsidiary in Japan. The
Company signed master distributor agreements with the purchasers so that the
Company's products will continue to be marketed in these countries.
The Company's 10 largest customers accounted for an aggregate of
approximately 27.4% of total net sales during fiscal 1997. During fiscal 1997,
no single customer accounted for more than 10% of the Company's total net
sales.
The Company'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 Company's name and under the name of its wholly
owned subsidiary, QMS Canada, Inc. The Company 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 Company believes that this support has been well received by its customers
and sales organizations and has assisted the Company in the introduction of
new products.
3
INTERNATIONAL OPERATIONS
In fiscal 1995, 1996, and 1997, international sales totaled $132,130,000,
$40,084,000, and $27,778,000, respectively, representing approximately 51%,
27%, and 22%, respectively, of the Company's net sales. The Company derives
its international sales from Europe, Japan, Canada, and Central and South
America. The Company generally invoices customers in their local currency and,
therefore, is exposed to currency translation risks.
The components used in the Company's products are purchased abroad,
primarily from Japanese companies. Accordingly, the cost of such components
may increase if the value of the United States dollar declines relative to the
currency of the source country.
For financial information regarding the Company's foreign and domestic
operations and export sales, see Notes 1 and 14 of Notes to the Company's
Consolidated Financial Statements under Item 8 (Financial Statements and
Supplementary Data).
SERVICE, SUPPORT, AND WARRANTY
The Company 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 Company's
products. In the United States, the Company 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 33 states. Technical
support is provided via telephone and electronic bulletin boards while a
national service organization provides alternative repair choices of return to
depot or factory, on site, and special contractual service. During fiscal
1997, the Company provided international technical service in Canada through
its direct service organization as well as through certain authorized dealers.
The Company warrants its products for a period of 90 days to 2 years from
the date of shipment, depending on the product. The Company's annual warranty
costs have not been significant relative to the Company's net sales.
COMPETITION
Competition in the computer printing industry is extremely intense, and a
number of the Company's competitors have far greater financial, technical,
marketing, and manufacturing resources than the Company. 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 Company competes against noncomputerized means of labeling
products, such as offset printing. The Company would be adversely affected if
its competitors successfully marketed products that were technologically
superior or significantly lower in price.
The Company's intelligent print systems are positioned to compete in the
low- and medium-speed, nonimpact page printer markets. Nonimpact laser
printing competes with other technologies in the computer printer market,
including inkjet, dye sublimation, ion deposition, magnetic, thermal, and
impact printers. Companies whose nonimpact printers compete with the Company's
include: Apple Computer, Inc.; Canon, Inc.; Digital Equipment Corporation;
Hewlett-Packard Company; Lexmark International, Inc.; NEC Technologies, Inc.;
Seiko Epson Corp.; Tektronix, Inc.; Xerox Corporation; and IBM. Many of these
competitors are larger companies with greater financial resources than those
of the Company.
MANUFACTURING AND QUALITY CONTROL
The Company assembles its intelligent processors by adding components to
printed circuit boards manufactured according to its designs and
specifications. Essentially, the Company manufactures its products by
assembling components and subassemblies manufactured by others and adding
software enhancements. The intelligent processors, which include electronic
circuitry and software designed by the Company, are tested to ensure quality
and consistency of production and design.
4
Most of the parts, components, and subassemblies used in the Company's
products are available to the Company from a variety of sources. When
management determines that a particular supplier is sufficiently reliable,
however, the Company generally chooses to rely on a single source for its
requirements in order to ensure a sufficient supply to meet its needs. If the
Company were required to change its sources of certain of those materials
unexpectedly, the Company 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 1997, the Company performed manufacturing and assembly
operations in Mobile, Alabama.
ORDER BACKLOG
The Company's backlog consists of firm purchase orders which the Company
expects to fill during fiscal 1998. As of September 27, 1996, and October 3,
1997, the backlog was $5,118,000 and $5,668,000, respectively.
The Company 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 Company does not believe that sales of its products are
subject to significant seasonal fluctuations.
PRINT ENGINES
The Company purchases print engines for its products from third-party
manufacturers, including: Canon U.S.A., Inc.; Ricoh Company, Ltd.; Hitachi
America, Ltd.; Fujitsu America, Inc.; Minolta Co., Ltd.; and Mitsubishi
Electronics America, Inc. While other sources are available, the Company
currently relies on these suppliers' abilities to make print engines available
as needed by the Company. Some of these print engines are supplied to the
Company 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 Company's supply
contracts with foreign manufacturing sources are subject to adjustment for
exchange rate fluctuations.
The Company believes that its requirements for print engines for fiscal 1998
will be adequately met under the terms of existing arrangements and those
expected to be entered into in fiscal 1998. The Company 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
Company's print engines will be supplied by: Canon U.S.A. Inc.; Fujitsu
America, Inc.; Hitachi America, Ltd.; and Minolta Co., Ltd. Consequently,
disruption of the Company's contracts with these suppliers would adversely
affect the Company 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
The Company's research and development program examines new technologies,
develops new and improved applications for the Company's products, and
provides insights into new directions for the Company's business.
The Company places significant emphasis on the addition of new features for
its nonimpact print systems and enhancement of these systems to satisfy new
applications. The Company solicits and receives continuing advice from its end
users and various resellers in identifying appropriate additions. To augment
in-house development efforts, the Company also contracts with third parties to
develop products to its specifications or to license applications and other
software. In addition, the Company assists certain software design firms in
adapting their existing software for use with the Company's products.
As of October 3, 1997, approximately 19.6% of the Company's employees were
employed in its research and development department. During fiscal 1995, 1996,
and 1997, the Company spent approximately $13,378,000, $11,333,000, and
$13,461,000, respectively, for research and development and software costs and
received no material customer-sponsored funding for research and development.
In fiscal 1995, 1996, and 1997, approximately $7,096,000, $6,766,000, and
$8,167,000, respectively, of the software costs for those fiscal years were
capitalized in accordance with Financial Accounting Standards ("FAS")
Statement No. 86.
5
PATENTS AND TRADEMARKS
The Company currently holds United States patents on certain of its
products; however, most of the Company's revenue is derived from products for
which there is no patent protection. Because of rapid technological changes in
the computer and electronic printing industries, the Company does not believe
that patents offer a significant degree of protection for most product and
technology advances. The Company'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 Company has obtained registration of many of its trademarks, and has
applications pending on others, in the United States and other countries.
ENVIRONMENTAL MATTERS
Management believes the Company 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 Company 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
As of October 3, 1997, the Company employed 705 permanent employees in the
United States. During fiscal 1997, the Company had one foreign operating
subsidiary, QMS Canada, Inc., employing 29 permanent employees. QMS Canada,
Inc. has sales and support organizations in Montreal, Ottawa, Toronto, and
Vancouver.
Management believes that much of its future success depends on its ability
to attract and retain skilled personnel. The Company has implemented a Cash or
Deferred Retirement Plan and an Employee Stock Purchase Plan and maintains
stock option plans for officers and key employees.
The Company's employees are not subject to collective bargaining agreements,
and there have been no work stoppages due to labor difficulties. Management of
the Company believes that its relations with its employees are good.
ITEM 2. PROPERTIES.
The Company'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 Company's primary manufacturing and warehousing facility
covers 152,000 square feet. Both of these facilities are located and leased by
the Company in Mobile, Alabama. In Fort Walton Beach, Florida, a subsidiary of
the Company owns a 35,000 square foot facility on three acres of land.
Effective August, 1997, this subsidiary ceased operations and the Company
anticipates leasing or selling the property.
During fiscal 1997, the Company leased additional office space in the United
States and in Canada.
The Company's properties are utilized approximately five and one-half days
per week, with no significant underutilization of facilities. The Company
believes that its owned and leased properties are sufficient for its current
and foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in a case in the United States District Court for
the Southern District of Alabama involving a former employee alleging
violation of the plaintiff's civil rights and certain other acts of wrongful
conduct. A Summary Judgment was rendered by the Court dismissing the case and
the plaintiff has filed its notice of intent to appeal the Summary Judgment.
The Company cannot predict the ultimate outcome of this case; however, it does
not expect the resolution of this matter to materially affect the Company's
financial condition or results of operations.
6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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
October 3, 1997, and September 27, 1996. 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. There were 1,470
holders of record of the Company's common stock at November 24, 1997.
1997 1996
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FISCAL QUARTER HIGH LOW HIGH LOW
- -------------- ------ ------ ------ ------
First............................................... $6 3/8 $5 1/8 $5 1/8 $3 1/4
Second.............................................. 5 7/8 4 1/4 6 1/4 4 1/2
Third............................................... 4 5/8 2 3/8 6 3/4 4 7/8
Fourth.............................................. 3 1/2 2 1/2 6 3/8 3 3/4
ITEM 6. SELECTED FINANCIAL DATA.
FIVE-YEAR SUMMARY--FINANCIAL AND OTHER DATA
For the fiscal years ended October 3, 1997, September 27, 1996, September
29, 1995, September 30, 1994, and October 1, 1993
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Operating results
Net sales................... $124,589 $147,174 $259,740 $292,688 $297,380
Cost of sales............... 98,557 99,151 210,032 196,538 201,804
Marketing and selling ex-
pense...................... 22,026 25,331 47,066 48,812 48,702
Research and development ex-
pense...................... 5,294 4,567 6,282 8,904 9,018
General and administrative
expense.................... 15,900 12,461 32,862 31,156 39,246
Restructuring expense....... 8,029 0 8,364 0 0
-------- -------- -------- -------- --------
Operating income (loss)..... (25,217) 5,664 (44,866) 7,278 (1,390)
Interest income............. 373 398 171 80 756
Interest expense............ (721) (1,805) (4,113) (3,235) (3,342)
Gain on divestitures of
businesses................. 0 0 3,675 0 0
Miscellaneous income (ex-
pense)..................... (557) (737) 847 (83) (946)
-------- -------- -------- -------- --------
Income (loss) before income
taxes...................... (26,122) 3,520 (44,286) 4,040 (4,922)
Income tax provision (bene-
fit)....................... 0 (733) 0 1,080 (1,526)
-------- -------- -------- -------- --------
Net income (loss)........... $(26,122) $ 4,253 $(44,286) $ 2,960 $ (3,396)
======== ======== ======== ======== ========
7
1997 1996 1995 1994 1993
------- ------- -------- -------- --------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS
Earnings (loss) per common
share Primary and fully
diluted................... $ (2.44) $ 0.40 $ (4.15) $ 0.28 $ (0.31)
Weighted average number of
shares (in thousands) used
in computing earnings per
share:
Primary................... 10,696 10,722 10,677 10,723 10,792
Fully diluted............. 10,696 10,755 10,677 10,761 10,821
Balance sheet Total assets. $58,589 $91,718 $135,538 $182,023 $170,217
Net working capital....... 12,287 19,235 35,511 79,390 78,359
Term debt and bank loans.. 447 13,695 36,404 38,348 44,543
Stockholders' equity...... 24,324 47,432 43,213 89,002 85,729
Other data
Current ratio............. 1.46 1.49 1.55 2.44 2.82
Gross profit margin....... 20.9% 32.6% 19.1% 32.9% 32.1%
Net profit (loss) margin.. (21.0)% 2.9% (17.1)% 1.0% (1.1)%
Return on average stock-
holders' equity.......... (72.8)% 9.4% (67.0)% 3.3% (3.9)%
Persons employed at year
end...................... 705 886 1,194 1,382 1,425
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Fiscal Years 1997, 1996, and 1995 Compared
GENERAL
Fiscal 1997 has been a year of action as the Company has taken the initial
steps to correct disappointing operating results. In fiscal 1997, the Company
had a net loss of $26.1 million on net sales of $124.6 million compared to net
income of $4.3 million in fiscal 1996 and net loss of $44.3 million in fiscal
1995 on net sales of $147.2 million and $259.7 million in fiscal 1996 and
1995, respectively. Of the $26.1 million fiscal 1997 loss, $8.0 million was
from restructuring charges and $7.0 million was from special cost of goods
sold charges. The elements and impact of these charges are discussed under the
headings Gross Profit and Special Charges and Restructuring Charges below.
The Company dramatically reduced its debt in fiscal 1997 from $13,695,000 to
$447,000. This was accomplished principally by a sale-leaseback transaction
which was completed in February 1997. The Company's Mobile, Alabama facilities
were sold for net proceeds of approximately $12.5 million. (See Note 19 of
Notes to Consolidated Financial Statements.) At the end of fiscal 1997, the
Company had cash and cash equivalents in excess of outstanding debt. The
Company currently has a $30.0 million four-year credit facility that expires
in November 1999. Availability at any given point in time is a function of
eligible accounts receivable and inventory levels. At October 3, 1997, total
availability was $10.3 million.
The Company introduced significant new products during fiscal 1997,
including the QMS 2060 Hammerhead, a 20 page-per-minute (ppm) monochrome
printer with graphic arts capabilities, and the QMS 4060, a 40 ppm monochrome
printer with size capabilities to 11^ by 17^. In October 1997, the Company
introduced the new QMS magicolor 2, a color print system which delivers up to
8 ppm in color and 16 ppm monochrome. These new products have energized our
sales and marketing management team for fiscal 1998 and should increase the
Company's ability to compete effectively in domestic and international
markets.
In addition, the Company announced in October 1997 a return to the Original
Equipment Manufacturer ("OEM") market with a contract to provide private label
print systems and accessories. The OEM market provides an additional channel
for product sales without conflicting with our existing sales channels.
The Company enters fiscal 1998 with a renewed focus on its core business of
laser print systems, consumables and service. With a lowered cost structure,
adequate borrowing capacity, new product introductions and a new OEM market,
management believes the Company is positioned for renewed profitability and
improved stockholder value.
8
NET SALES
TABLE OF NET SALES COMPARISONS FOR KEY CHANNELS
YEAR-TO-YEAR
NET SALES INCREASES/(DECREASES)
-------------------------- ----------------------
1997 1996 1995 1997 1996
-------- -------- -------- ---------- ----------
IN THOUSANDS
U.S. direct.............. $ 47,100 $ 47,623 $ 73,047 $ (523) $ (25,424)
U.S. service............. 33,587 33,126 31,564 461 1,562
U.S. reseller............ 11,014 20,661 15,162 (9,647) 5,499
Europe/Australia......... 12,070 19,792 88,391 (7,722) (68,599)
Japan.................... 5,617 9,220 30,876 (3,603) (21,656)
QMS Canada............... 7,189 8,733 12,860 (1,544) (4,127)
QMS Circuits............. 1,751 3,289 3,851 (1,538) (562)
All other................ 6,261 4,730 3,989 1,531 741
-------- -------- -------- ---------- ----------
Total................... $124,589 $147,174 $259,740 $ ( 22,585) $ (112,566)
======== ======== ======== ========== ==========
Total sales declined by $22.6 million, or 15.3%, during fiscal 1997 compared
to a decline of $112.6 million, or 43.3%, during fiscal 1996. The decline in
fiscal year 1997 is primarily due to reduced commissions from our European and
Japanese partners totaling $11.3 million. The decline in European and Japanese
commissions is primarily due to fiscal 1996 end-of-life sales of 16 ppm
products. This resulted in higher fiscal 1996 sales without a corresponding
increase in 1997 sales of the replacement product. An additional reduction of
$9.6 million occurred in the reseller channel. Reseller sales declined due to
a temporary Company focus on the graphic arts market and away from traditional
reseller markets. The Company has now refocused on traditional as well as
niche distributors and has seen an increase in quarterly reseller revenue for
the past two quarters following declines in the previous six quarters.
The primary reason for the significant decline in total sales in fiscal 1996
is that fiscal 1995 sales of $119.3 million are attributable to Japanese,
European and Australian subsidiaries that the Company divested at the start of
fiscal 1996. Although the divested subsidiary operations are no longer
reflected in the consolidated financial statements of the Company, QMS
recognizes substantial benefits from the ongoing relationships with the new
owners of these operations. Agreements are in place whereby the Company sells
printer controllers and components at cost to these international distributors
and then receives a commission from their sales of QMS products. As a result,
the Company realizes an income stream from these international operations
without the burden of carrying their fixed costs.
The U.S. direct sales channel sells the higher end of the Company's product
offerings and consumables to major corporate accounts. Generally, product
gross margins and the cost of distribution are higher in this channel than in
the reseller channel. During fiscal 1997, the U.S. direct sales operations
resulted in a net sales decrease of 1.1%, which compares to a net sales
decrease of 34.8% during fiscal 1996. During fiscal 1995, $8.2 million, or
11.2%, of net sales in this channel was attributable to sales of color thermal
transfer consumables, which was a product line sold in fiscal 1995 and whose
sales are therefore no longer available to the Company. Excluding this effect,
the net sales decline during fiscal 1996 would have been 26.6%. Turnover in
sales and marketing personnel during fiscal 1996 and 1997 contributed to the
sales declines in both years. The Company has addressed this issue with the
addition of new sales and marketing employees who joined the Company during
fiscal 1997.
The U.S. service channel supports the sale of QMS products through a
nationwide field service organization. Service contracts are available for all
Company product offerings but are generally written for the higher end
products sold through the U.S. direct sales channel. In addition to QMS
products, the service organization services products sold by other
manufacturers. The U.S. service business realized a net sales gain of 1.4% in
fiscal 1997 compared to a gain of 4.9% in fiscal 1996. This deceleration in
service business growth is directly related to the sales decline in the U.S.
direct sales channel.
9
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 sales channel than in the
direct sales channel. The U.S. reseller channel net sales decreased 46.7% in
fiscal 1997 after increasing 36.3% between fiscal 1995 and 1996. Fiscal 1997
reseller sales declined due to a Company focus on the graphic arts market and
away from traditional reseller markets. The Company has now refocused on
traditional as well as niche distributors and has seen an increase in
quarterly reseller revenue for the past two quarters following declines in the
previous six quarters.
QMS Europe B.V. and QMS Australia Pty. Ltd. were sold to Jalak Investment
B.V., effective the beginning of fiscal 1996. The Company continues to sell
controller boards and components to these businesses at cost and then realizes
a commission on their sales of QMS products to third parties. As a result of
this change in business operations, net sales through these channels are
significantly lower in fiscal 1996, with sales to the new QMS Europe B.V. of
$19.8 million compared to sales of $88.4 million by the wholly owned
subsidiaries QMS Europe B.V. and QMS Australia Pty. Ltd. in fiscal 1995. While
the net third-party sales of QMS Europe B.V. and QMS Australia Pty. Ltd. are
no longer included in the consolidated fiscal 1996 and 1997 financial
statements, the entire operating expense structure of these businesses was
also eliminated. In fiscal 1997, sales to QMS Europe B.V. of $12.1 million are
down 39.0% from fiscal 1996 sales of $19.8 million. This 1997 decrease in
revenue was caused primarily by the fiscal 1996 end-of-life sales of the 16
ppm product.
The assets of QMS Japan KK were divested at the beginning of fiscal 1996.
The Company continues to sell controller boards and components to the new
owner of the business at cost and then realizes a commission on their sales of
QMS products to third parties. For the same reasons described above for QMS
Europe/Australia, there are significantly lower net sales through this channel
in fiscal 1996, with sales to the new QMS Japan KK of $9.2 million compared to
sales of $30.9 million by the wholly owned subsidiary QMS Japan in fiscal
1995. In fiscal 1997, sales to QMS Japan KK of $5.6 million are down 39.1%
from fiscal 1996 sales of $9.2 million. This 1997 decrease in revenue was
caused primarily by the fiscal 1996 end-of-life sales of the 16 ppm product.
QMS Canada, Inc., a wholly owned subsidiary, sells the entire line of
Company products, services and accessories to end users and through resellers.
Net sales for QMS Canada declined by 17.7% in fiscal 1997 and by 32.1% in
fiscal 1996. Reasons for the sales decline in fiscal 1996 are the same as
noted for the U.S. direct and reseller channels discussed above. In fiscal
1997, the Company decreased Canadian operations and closed one office.
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 1997, 1996, and 1995, the Company also
sold controller boards, controller-level products to original equipment
manufacturers, and printer products. In the fourth quarter of fiscal 1997, QCI
ceased operations due to continuing losses and the Company recorded an
$800,000 charge for associated closing costs.
GROSS PROFIT AND SPECIAL CHARGES
Gross profit dollars decreased from $48.0 million in fiscal 1996 to $26.0
million in fiscal 1997 (a decrease of 45.8%) due primarily to a 15% reduction
in revenue, reduced margins on end-of-life products and special charges
totaling $7.0 million. Excluding special charges, the gross margin on sales
decreased from 32.6% in fiscal 1996 to 26.5% in fiscal 1997. This decrease is
caused by shorter life spans on products, higher expenses to develop new
products being amortized over shorter product life spans and increased
competition causing lower margins on print system products.
Special cost of goods sold charges for fiscal 1997 included fourth quarter
excess and obsolete and valuation charges of $4.2 million related to reduced
values for surplus inventory and repaired parts. Additionally, a $2.6 million
fourth quarter charge was taken to reduce the balance of capitalized software
development costs to estimated net realizable value.
In fiscal 1996, gross profit decreased 3.4% as the revenue decreases from
the sale of QMS Japan and QMS Europe were offset by commission revenues.
10
OPERATING EXPENSES
The Company's strategy for fiscal 1996 and 1997 was to reduce overall costs
and bring them in line with revenues. This was attempted through several
avenues including divestitures, reductions in work force, restructuring
employee benefit programs, executive salary reductions, and aggressive cost
management, although the benefits in fiscal 1997 are masked by restructuring
charges and increased rental costs. Total operating expenses for fiscal 1997
increased to $51.2 million compared to $42.4 million and $94.6 million for
fiscal 1996 and 1995, respectively. Excluding restructuring expenses,
operating expenses were $43.2 million, $42.4 million and $86.2 million for
fiscal 1997, 1996, and 1995, respectively. The $0.8 million increase in
operating expenses is due to increased rent expense caused by the February
1997 sale-leaseback of the Company's headquarters in Mobile, Alabama. The
sale-leaseback resulted in $0.9 million increased operating expenses from rent
with a corresponding decrease in interest and depreciation expense. Most of
the benefit of the reductions in work force that occurred primarily in August
of 1997 will not be felt until fiscal 1998 due to the September fiscal year
end. The combined reduction in salaries from reductions in work force and
divestiture of businesses totals $3.5 million per year.
In fiscal 1996, operating expenses declined by $52.2 million, or 55.2%;
these improvements are a direct result of eliminating the operating expense
structure of the divested Japanese, European and Australian business
operations.
RESTRUCTURING CHARGES
Restructuring charges in fiscal 1997 totaled $8.0 million from reductions in
force and divestiture of businesses.
As discussed previously, in the fourth quarter of fiscal 1997, the Company
ceased operations of its subsidiary QMS Circuits, Inc. ("QCI") and divested
the Imaging Services Business Unit ("IMS"). A charge of $800,000 was incurred
to cover the severance, asset and inventory writedowns, and other closing
expenses associated with QCI. In fiscal 1997, IMS lost $543,000 on sales of
$123,000. In divesting IMS, the Company incurred charges of $247,000.
During fiscal 1997, the Company work force decreased nearly 20% to
approximately 700 employees due primarily to the closing and divestiture of
businesses and a corporate-wide reduction in work force. Severance and
outplacement expense recorded in fiscal 1997 totaled $1.6 million.
The Company entered into agreements during fiscal 1997 specifying the
retirement of two executives; the President and Chief Executive Officer, and
the Executive Vice President and Chief Technical Officer. These agreements
caused an additional $2.6 million in fiscal 1997 charges related to
accelerated retirement benefits and other management transition expenses.
Moreover, the Company recognized in the income statement cumulative foreign
currency translation losses of $2.4 million in connection with its Canadian
operations. These translation losses had previously been recognized as a
reduction of stockholders' equity.
OTHER INCOME (EXPENSE)
Interest expense decreased $1.1 million, 60.1%, from $1.8 million to $0.7
million in fiscal 1997 after decreasing $2.3 million, 56.1%, from $4.1 million
to $1.8 million in fiscal 1996. The reduction in fiscal 1996 and 1997 is
directly related to the overall reduction in short-term and long-term debt due
to the divestiture of businesses and sale-leaseback of the Mobile headquarters
and manufacturing property.
Interest income increased 132.7% in fiscal 1996 and is attributable to
interest earned on the notes receivable from QMS Europe B.V. and QMS Japan KK.
11
In fiscal 1995, a net gain of $3.7 million was recognized from the
divestiture of businesses, principally the result of the sale of a portion of
the color thermal transfer consumables business. Miscellaneous income
(expense) includes gains and losses on asset disposals and foreign currency
transactions.
The Company did not enter into any material foreign exchange contracts
during fiscal 1997, 1996, or 1995 and has no foreign exchange contracts at
October 3, 1997.
INCOME TAXES
No benefit or provision for income taxes was recognized for fiscal 1997 or
1995. For fiscal 1996, a benefit of 20.8% of pretax income was recognized.
This benefit resulted from the carryback of losses in Japan relating to the
divestiture of business operations in that country.
At October 3, 1997, the Company had domestic operating loss carryovers and
general business credit carryovers of approximately $42.3 million and $1.7
million, respectively, which expire in periods ranging from 2002 to 2012. (See
Note 13 of Notes to Consolidated Financial Statements.)
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 may result in limited availability and/or 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 print engine mechanisms and consumables from
Japanese suppliers. Fluctuations in foreign currency exchange rates will
affect the prices of these products. The Company attempts to mitigate possible
negative impacts through yen-sharing arrangements with suppliers, foreign
exchange contracts, and price negotiations; however, material price increases
resulting from exchange rate fluctuations could develop which would adversely
affect operating results.
Because the Company competes in an industry of rapid technological
advancement, it is important that the Company be able to develop innovative
new technologies and leading-edge print systems in a timely, cost-effective
manner. The Company has invested significantly in 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 $0.6 million at October 3, 1997, compared to
$0.2 million and $7.4 million at the end of fiscal 1996 and 1995,
respectively. Cash flow from operations was $9.8 million for fiscal 1997
compared to $14.9 million and $12.4 million for fiscal 1996 and 1995,
respectively. The Company's financing for fiscal 1997, 1996, and 1995 came
principally from cash flows from operations and borrowings under revolving
credit agreements. In addition, the divestiture of businesses and disposal of
property, plant, and equipment has provided cash flows of $13.5 million, $9.5
million and $6.9 million in fiscal 1997, 1996, and 1995, respectively.
The Company's working capital was $12.3 million at October 3, 1997, down
from $19.2 million at the end of fiscal 1996. Although working capital was
reduced, the working capital ratio increased from 1.35 at the end of fiscal
1996 to 1.46 at the end of 1997. Changes in working capital are primarily the
result of a 27% decrease in net receivables ($6.6 million) caused by lower
sales and improved collections, a 36% decrease in inventory ($10.2 million)
caused by improved inventory management and a 97% decrease in short-term debt
($13.2 million) caused primarily by proceeds from the sale-leaseback of the
Mobile headquarters and manufacturing location.
12
At October 3, 1997, the Company was not in compliance with certain covenants
contained in the sale-leaseback agreement. On December 8, 1997, the Company
obtained a one-year waiver of non-compliance from the lessor through October
5, 1998, in exchange for $1.3 million in prepaid rent and an amendment to a
related warrant agreement. At the end of the waiver period, the Company may be
out of compliance with one or more covenants contained in the lease agreement.
Among the remedies available to the landlord are the acceleration of all rent
for the initial lease term, cancellation of the lease, or all other remedies
available at law. Management believes over the next year through further
negotiations a further extension of the waiver or a permanent revision of the
covenant will be obtained.
Management believes that the Company's fiscal 1997 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 Foothill credit facility.
(See Note 7 of Notes to Consolidated Financial Statements.)
YEAR 2000 COMPLIANCE
The Company has developed and begun implementing plans to review its
purchased and developed software for year 2000 compliance. Systems that
require modification or replacement have been identified and a plan for
resolving year 2000 issues has been established.
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
Management does not believe the adoption of any of the recently issued
accounting standards described in Note 1 of Notes to Consolidated Financial
Statements will have a significant impact on the Company's financial
statements.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the fiscal years ended October 3, 1997, September 27, 1996, and September
29, 1995
1997 1996 1995
-------- -------- --------
DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS
Net sales
Printers and supplies.......................... $ 91,002 $114,048 $228,176
U.S. service................................... 33,587 33,126 31,564
-------- -------- --------
Total net sales............................... 124,589 147,174 259,740
Cost of sales
Printers and supplies.......................... 74,842 79,613 191,010
U.S. service................................... 23,715 19,538 19,022
-------- -------- --------
Total cost of sales........................... 98,557 99,151 210,032
Gross profit
Printers and supplies.......................... 16,160 34,435 37,166
U.S. service................................... 9,872 13,588 12,542
-------- -------- --------
Total gross profit............................ 26,032 48,023 49,708
Operating expenses
Marketing and selling......................... 22,026 25,331 47,066
Research and development...................... 5,294 4,567 6,282
General and administrative.................... 15,900 12,461 32,862
-------- -------- --------
Total excluding restructuring charges........ 43,220 42,359 86,210
Restructuring charges......................... 8,029 0 8,364
-------- -------- --------
Total operating expenses..................... 51,249 42,359 94,574
-------- -------- --------
Operating income (loss)......................... (25,217) 5,664 (44,866)
-------- -------- --------
Other income (expense)
Interest income............................... 373 398 171
Interest expense.............................. (721) (1,805) (4,113)
Divestitures of businesses.................... 0 0 3,675
Miscellaneous income (expense)................ (557) (737) 847
-------- -------- --------
Total other income (expense), net............ (905) (2,144) 580
-------- -------- --------
Income (loss) before income taxes............... (26,122) 3,520 (44,286)
Income tax benefit.............................. 0 (733) 0
-------- -------- --------
Net income (loss)............................... $(26,122) $ 4,253 $(44,286)
======== ======== ========
Earnings (loss) per common share:
Primary and fully diluted..................... $ (2.44) $ 0.40 $ (4.15)
Weighted average number of shares (in thousands)
used in
computing earnings (loss) per common share:
Primary........................................ 10,696 10,722 10,677
Fully diluted.................................. 10,696 10,755 10,677
See Notes to Consolidated Financial Statements.
14
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the fiscal years ended September 29, 1995,
September 27, 1996, and October 3, 1997
COMMON STOCK TREASURY STOCK
----------------- -------------------
RETAINED
ADDITIONAL EARNINGS FOREIGN
SHARES PAID-IN (ACCUMULATED NUMBER OF CURRENCY
ISSUED AMOUNT CAPITAL DEFICIT) SHARES AMOUNT TRANSLATION
---------- ------ ---------- ------------ --------- -------- -----------
DOLLARS IN THOUSANDS
Balance September 30,
1994................... 11,832,806 $118 $39,990 $62,901 1,159,391 $(13,340) $ (667)
Stock options exer-
cised................. 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)
Warrant issued......... 175
Stock options exer-
cised................. (13) (4,650) 35
Translation adjustment. (231)
Net income............. 4,253
---------- ---- ------- ------- --------- -------- ------
Balance September 27,
1996................... 11,832,806 118 40,156 22,868 1,151,341 (13,279) (2,431)
Warrant issued......... 208
Stock options exer-
cised................. (42) (15,600) 121
Translation adjustment. 2,431
Other.................. 296
Net loss............... (26,122)
-------
Balance October 3, 1997. 11,832,806 $118 $40,618 $(3,254) 1,135,741 $(13,158) $ 0
========== ==== ======= ======= ========= ======== ======
See Notes to Consolidated Financial Statements.
15
CONSOLIDATED BALANCE SHEETS
At October 3, 1997
and September 27, 1996
1997 1996
-------- --------
DOLLARS IN
THOUSANDS
ASSETS
Current assets.............................................
Cash and cash equivalents................................. $ 612 $ 190
Trade receivables (less allowance for doubtful accounts
of $529 in 1997 and $383 in 1996)........................ 17,535 24,145
Notes receivable.......................................... 443 2,667
Inventories, net.......................................... 18,124 28,366
Other current assets...................................... 2,257 2,908
-------- --------
Total current assets..................................... 38,971 58,276
Property, plant, and equipment, net........................ 5,357 20,282
Notes receivable (less reserve of $900).................... 3,433 2,267
Other assets, net.......................................... 10,828 10,893
-------- --------
Total assets............................................. $ 58,589 $ 91,718
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 6,562 $ 7,463
Revolving credit loan and short-term debt................. 447 13,695
Current maturities of capital lease obligations........... 988 737
Other current liabilities................................. 18,687 17,146
-------- --------
Total current liabilities................................ 26,684 39,041
Capital lease obligations.................................. 898 531
Other liabilities.......................................... 6,683 4,714
-------- --------
Total liabilities........................................ 34,265 44,286
-------- --------
Commitments and contingencies (Note 16)
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 1997 and 1996....................... 118 118
Additional paid-in capital................................ 40,618 40,156
Retained earnings (accumulated deficit)................... (3,254) 22,868
Treasury stock, at cost (1,135,741 shares in 1997 and
1,151,341 shares in 1996)................................ (13,158) (13,279)
Foreign currency translation.............................. 0 (2,431)
-------- --------
Total stockholders' equity............................... 24,324 47,432
-------- --------
Total liabilities and stockholders' equity............... $ 58,589 $ 91,718
======== ========
See Notes to Consolidated Financial Statements.
16
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal years ended October 3, 1997,
September 27, 1996, and September 29, 1995
1997 1996 1995
-------- ------- --------
DOLLARS IN THOUSANDS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $(26,122) $ 4,253 $(44,286)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation of property, plant, and equipment. 4,392 5,368 8,406
Amortization and write-off of capitalized and
deferred software and other................... 9,409 4,429 15,925
Provision for losses on accounts receivable.... 402 328 282
Provision for losses on inventory.............. 7,416 2,123 19,132
Non-cash restructuring charges................. 4,178 0 8,364
Gains from divestitures of businesses, net..... 0 0 (3,675)
Other.......................................... 151 172 (474)
Changes in assets and liabilities which provided
(used) cash:
Trade receivables.............................. 6,208 13,248 13,484
Inventories.................................... 2,826 16,993 3,149
Accounts payable............................... (901) (9,123) (4,205)
Other assets and liabilities................... 1,849 (22,888) (3,688)
-------- ------- --------
Total adjustments............................. 35,930 10,650 56,700
-------- ------- --------
Net cash provided by operating activities..... 9,808 14,903 12,414
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections of notes receivable................. 1,057 1,666 0
Additions to property, plant, and equipment..... (2,672) (2,255) (5,107)
Additions to capitalized software costs......... (8,167) (6,766) (7,096)
Additions to deferred software costs............ (611) (624) (768)
Proceeds from disposal of property, plant, and
equipment...................................... 13,548 161 1,262
Proceeds from divestitures of business.......... 0 9,300 5,675
-------- ------- --------
Net cash provided by (used in) investing activ-
ities......................................... 3,155 1,482 (6,034)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from term debt and capital lease obli-
gations........................................ 1,386 13,116 723
Payments of term debt, including current maturi-
ties........................................... (13,248) (27,672) (9,708)
Payments of capital lease obligations, including
current maturities............................. (757) (1,097) (1,181)
Proceeds from bank loans........................ 0 0 7,764
Payments of bank loans.......................... 0 (7,764) 0
Proceeds from stock options exercised........... 78 22 30
-------- ------- --------
Net cash used in financing activities.......... (12,541) (23,395) (2,372)
-------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.......... 0 (231) (1,533)
-------- ------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......... 422 (7,241) 2,475
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..... 190 7,431 4,956
-------- ------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR........... $ 612 $ 190 $ 7,431
======== ======= ========
See Notes to Consolidated Financial Statements.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business--QMS, Inc. designs and manufactures intelligent
controllers which enhance the graphics capabilities and performance of
computer printing and imaging systems. The Company incorporates its
controllers, which consist of software implemented on printed circuit boards,
into computer printing and imaging systems which it markets, sells, and
supports in the United States, Europe, Japan, Canada, and Central and South
America. The market for these products is related to the market for computer
systems generally. Current end users of the Company's products include many
Fortune 500 companies, governmental agencies, and educational institutions.
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.
Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from those estimates.
Fiscal Year--The Company's fiscal year ends on the Friday closest to
September 30. Fiscal 1997 included 53 weeks. Fiscal 1996 and 1995 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. Depreciation
is computed on the straight-line method over the estimated useful lives of the
assets, or the lease term, whichever is shorter.
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.
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 five years.
18
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 and any changes in the determination of the economic lives.
Capitalized software costs for fiscal 1997, 1996, and 1995 totaled
$8,167,000, $6,766,000, and $7,096,000, respectively. For fiscal 1997, 1996,
and 1995, $8,931,000, $3,705,000, and $13,853,000, respectively, were charged
as amortization expense on completed projects and were included in cost of
goods sold. Amortization expense included net realizable value adjustments of
$3,224,000, $497,000, and $4,639,000 for fiscal 1997, 1996, and 1995,
respectively. During the fourth quarter of fiscal 1996, the Company extended
the amortization periods of certain of its projects to more closely correspond
with the estimated economic life of the related products. The effect of this
change in estimate was to decrease amortization expense by $164,000.
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 Taxes--The Company complies with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," under which
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.)
Recently Issued Accounting Standards--In February 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share,"
and SFAS No. 129, "Disclosure of Information about Capital Structure." SFAS
No. 128 replaces the presentation of primary earnings per share with a
presentation of basic earnings per share, requires dual presentation of basic
and diluted earnings per share on the face of the income statement for all
entities with complex capital structures, and provides guidance on other
computational changes. SFAS No. 129 establishes standards for disclosing
information about an entity's capital structure. The Company will adopt SFAS
No. 128 and No. 129 in the first quarter of fiscal 1998 and management does
not expect the adoption of these Statements to have a material impact on the
Company's earnings per share or its disclosures.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information," which will be effective for the Company in fiscal 1999.
Management does not expect the adoption of these Statements to have a material
impact on the Company's disclosures.
The American Institute of Certified Public Accountants recently issued a
Statement of Position, "Software Revenue Recognition." This Statement is not
expected to have a material impact on the Company's financial statements.
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.
19
FOREIGN CURRENCY TRANSLATION--The financial position and results of
operations of the Company's Canadian subsidiary are measured using local
currency as the functional currency. During fiscal 1997, the Company
recognized in the income statement cumulative foreign currency translation
losses of $2.4 million in connection with its Canadian operations. These
translation losses had previously been recognized as a reduction of
stockholders' equity. During fiscal 1995, the Company also had foreign
subsidiaries in Europe (for which the functional currency was the U.S. dollar)
and in Japan, Australia, and New Zealand (for which the functional currencies
were the local currencies). Assets and liabilities of these subsidiaries were
translated using current exchange rates with revenues and expenses translated
at rates approximating the actual rates on the dates of the transactions.
Translation adjustments were 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 Notes 17 and 18.)
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 1996
and 1995 amounts to conform to the fiscal 1997 presentation.
2. INVENTORIES
Inventories at October 3, 1997, and September 27, 1996, are summarized as
follows (in thousands):
1997 1996
------- -------
Raw materials............................................. $ 5,614 $ 6,164
Work in process........................................... 1,237 1,426
Finished goods............................................ 18,251 25,953
Inventory reserves........................................ (6,978) (5,177)
------- -------
$18,124 $28,366
======= =======
Inventory reserves consist primarily of excess and obsolete reserves and
spare part valuation reserves. Excess and obsolete reserves are calculated
based on specific identification of items that are potentially excess or
obsolete and are recorded on a routine basis due to rapid obsolescence of
certain inventory items. Spare part valuation reserves reflect the reduced
value of repaired parts from the historical cost of the parts' original
purchase price.
3. OTHER ASSETS
Other assets at October 3, 1997, and September 27, 1996, are summarized as
follows (in thousands):
1997 1996
------- -------
Capitalized software costs, net............................ $ 8,252 $ 9,016
Deferred software costs, net............................... 645 512
Other...................................................... 1,931 1,365
------- -------
$10,828 $10,893
======= =======
Accumulated amortization of capitalized software costs was $8,117,000 and
$6,701,000 at October 3, 1997, and September 27, 1996, respectively.
Accumulated amortization of deferred software costs was $478,000 and
$1,711,000 at October 3, 1997, and September 27, 1996, respectively.
20
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at October 3, 1997, and September 27, 1996,
are summarized as follows (in thousands):
1997 1996
------- -------
Land....................................................... $ 39 $ 1,408
Buildings and improvements................................. 1,233 17,461
Leasehold and land improvements............................ 268 2,580
Machinery and equipment.................................... 30,909 34,919
Office furniture and equipment............................. 5,841 6,166
------- -------
38,290 62,534
Less accumulated depreciation.............................. 32,933 42,252
------- -------
$ 5,357 $20,282
======= =======
5. NOTES RECEIVABLE
Notes receivable at October 3, 1997, and September 27, 1996, are summarized
as follows (in thousands):
1997 1996
------ ------
QMS Europe B.V.--payable as described below (interest at
12%)........................................................ $3,000 $3,000
QMS Japan KK--payable over 37 months (interest at 8%)........ 1,776 2,834
------ ------
4,776 5,834
Less valuation reserve....................................... 900 900
------ ------
3,876 4,934
Less current portion......................................... 443 2,667
------ ------
$3,433 $2,267
====== ======
These notes were received as part of the proceeds from the divestiture of
businesses. (See Note 18.) The note from QMS Europe B.V. is secured by all of
the common stock of QMS Europe B.V. and QMS Australia Pty Ltd. The original
QMS Europe B.V. note required quarterly payments of $1.0 million. The Company
subordinated its note to third-party debt. This subordination calls for
quarterly payments to the Company to be deferred until the new debt is
retired. The note earns interest at 12% per annum on the outstanding balance.
The note from QMS Japan KK is secured by all of its inventory. The fair value,
as of October 3, 1997, and September 27, 1996, has been estimated to
approximate carrying value.
In addition to the notes receivable balances, QMS Europe B.V. and QMS Japan
KK have net receivables balances of approximately $4,498,000 and $2,600,000,
respectively, as of October 3, 1997, and approximately $6,172,000 and
$4,483,000, respectively, as of September 27, 1996.
6. OTHER CURRENT LIABILITIES
Other current liabilities at October 3, 1997, and September 27, 1996, are
summarized as follows (in thousands):
1997 1996
------- -------
Employment costs........................................... $ 4,552 $ 3,714
Deferred service revenue................................... 9,536 10,362
Reserves for restructuring charges......................... 1,747 466
Other...................................................... 2,852 2,604
------- -------
$18,687 $17,146
======= =======
21
7. TERM DEBT
Term debt at October 3, 1997, and September 27, 1996, is summarized as
follows (in thousands):
1997 1996
---- -------
Indebtedness under secured revolving credit agreement (10% at
October 3, 1997)............................................. $447 $ 9,841
6.15% senior secured notes (repaid in fiscal 1997)............ 0 3,854
---- -------
Total term debt............................................... $447 $13,695
==== =======
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. This credit facility provides for a four-year revolving line of
credit with maximum availability of $30.0 million, secured by the Company's
domestic and Canadian accounts receivable, inventory, and machinery and
equipment. Total availability is based on accounts receivable and inventory
and was $10.3 million at October 3, 1997. The stated rate of interest for any
borrowings under the agreement is one and one-half percent over prime (10% at
October 3, 1997). The debt is secured by a lock-box agreement and contains a
subjective acceleration clause and, therefore, is classified as short-term
debt on the financial statements. As part of the credit agreement, Foothill
was granted a warrant to purchase 100,000 shares of the Company's common
stock, at a price of $5 a share, which was valued at $175,000 and is
exercisable through October 30, 1999.
The Foothill credit facility includes requirements for a minimum current
ratio, a maximum total liabilities to equity ratio, and minimum levels of
tangible net worth and working capital. At October 3, 1997, the Company was in
compliance with these requirements.
The fair value of the Company's term debt, based on the variable nature of
the interest rates in the Company's debt agreement, has been estimated to
approximate carrying value. (See Note 5 for fair values of notes receivable.)
8. LEASES
The Company has capital leases for office and computer equipment that expire
through fiscal 2002. The Company is obligated under operating leases
principally for office and manufacturing space which expire through fiscal
2012. Future minimum lease payments under capital and operating leases with
noncancelable terms in excess of one year as of October 3, 1997, were as
follows (in thousands):
CAPITAL
LEASE OPERATING
FISCAL YEAR OBLIGATIONS LEASES
----------- ----------- ---------
1998................................................. $ 991 $ 4,013
1999................................................. 722 3,681
2000................................................. 156 2,933
2001................................................. 81 2,457
2002................................................. 33 2,287
Thereafter........................................... 0 16,039
------ -------
Total minimum payments............................... 1,983 $31,410
=======
Less amounts representing interest................... 97
------
Present value of minimum payments.................... 1,886
Less current maturities under capital lease obliga-
tions............................................... 988
------
$ 898
======
22
Rent expense under operating leases for fiscal 1997, 1996, and 1995 was
$4,150,000, $3,323,000, and $6,120,000, respectively.
Assets recorded under capital leases (included in property, plant, and
equipment in the accompanying consolidated balance sheets) at October 3, 1997,
and September 27, 1996, are summarized as follows (in thousands):
1997 1996
------ ------
Machinery and equipment....................................... $3,693 $2,440
Office furniture and equipment................................ 1,716 2,816
------ ------
5,409 5,256
Less accumulated depreciation................................. 3,841 3,784
------ ------
$1,568 $1,472
====== ======
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 several investment choices. 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. The Company elected to match
employee contributions in calendar years 1997 and 1995, but did not do so for
calendar year 1996. In fiscal 1996 and 1995, the Company contributed $680,807
and $1,010,244 to the plan, respectively, with such contributions being
applicable to the immediately preceding calendar year.
In January 1996, the Board of Directors and stockholders of the Company
adopted the Employee Stock Purchase Plan and reserved 500,000 shares for
issuance. The plan covers substantially all employees and is a qualified plan
under Section 423 of the Internal Revenue Code. Under the plan, employees may
elect to contribute between 2% and 10% of their annual salaries to purchase
shares of the Company's common stock at a price per share that is 85% of the
fair market value. The remaining 15% and all related fees and expenses of
administering the plan are paid by the Company. Shares purchased and
compensation expense recorded during fiscal 1997 and 1996 were immaterial.
10. STOCK OPTION PLANS
The Company's stock option plans allow incentive or non-qualified stock
options to be granted to employees and directors providing the right, when
exercisable, to purchase up to an aggregate of 1,741,160 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 October 3, 1997, the Company had reserved 469,036 shares
for the future grant of options under these plans.
23
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 1997 Stock Incentive Plan, stock options expire not
later than ten years from the date of grant. The Company's 1987 stock option
plan expired in fiscal 1997 upon the adoption of the Company's 1997 plan and
its 1984 plan expired during fiscal 1994. No additional options can be granted
under the expired plans. Outstanding stock options under these plans were not
affected by their expiration.
Subsequent to fiscal 1997's year end, the Company repriced certain stock
option grants under the 1987 Stock Option Plan. Stock option grants of 376,950
shares that were previously issued under the 1987 plan at option prices
greater than the current fair market value were forfeited and replaced with
stock option grants under the 1997 Stock Incentive Plan for 188,475 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 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 1997, 1996, and 1995 was
$93,990, $85,488, and $77,244, respectively.
24
A summary of stock option activity is as follows:
WEIGHTED
AVERAGE
WEIGHTED FAIR
AVERAGE VALUE OF
NUMBER OF OPTION PRICE EXERCISE OPTIONS
SHARES PER SHARE PRICE GRANTED
--------- --------------- -------- --------
Outstanding,
September 30, 1994................. 1,205,551 $4.38 to $24.12
Granted........................... 705,529 4.44 to 10.00
Exercised......................... (3,400) 8.25 to 9.00
Terminated........................ (390,130) 4.63 to 24.12
---------
Outstanding,
September 29, 1995................. 1,517,550 4.38 to 22.50
Granted at fair value............. 453,750 4.88 to 5.63 $ 5.54 $2.52
Granted at below fair value....... 34,130 2.81 to 2.81 2.81 3.18
Exercised......................... (4,650) 4.63 to 5.50 4.84
Terminated........................ (627,310) 4.63 to 22.50 8.68
---------
Outstanding,
September 27, 1996................. 1,373,470 2.81 to 22.50 7.95
Granted at fair value............. 376,750 2.69 to 5.63 5.15 2.29
Granted at above fair value....... 3,750 5.63 to 5.63 5.63 1.39
Granted at below fair value....... 32,708 2.81 to 2.81 2.81 3.18
Exercised......................... (15,600) 4.63 to 5.63 5.02
Terminated........................ (498,954) 2.81 to 22.50 10.14
---------
Outstanding,
October 3, 1997.................... 1,272,124 $2.69 to $15.00 $ 6.16
=========
Exercisable,
October 3, 1997.................... 743,397 $2.69 to $15.00 $ 6.47
=========
A summary of outstanding and exercisable shares by price range as of October
3, 1997, is as follows:
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------- ----------- ----------- -------- ----------- --------
$2.69 - $4.63 335,714 9.47 $3.93 261,306 $4.04
5.13 - 5.50 48,500 9.85 5.18 10,500 5.13
5.63 - 5.63 490,800 9.40 5.63 146,411 5.63
5.75 - 8.88 348,510 4.76 8.33 276,580 8.22
11.25 - 15.00 48,600 2.73 12.41 48,600 12.41
--------- -------
2.69 - 15.00 1,272,124 7.91 6.16 743,397 6.47
========= =======
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which defines a fair value method of accounting for stock-based
compensation. Under the fair value method, compensation cost is measured at
the grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. Pursuant to the new
standard, companies are encouraged, but are not required, to adopt the fair
value method of accounting for employee stock-based transactions. Companies
also are permitted to continue to account for such transactions under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), but are required to disclose in a note to the financial
statements pro forma information as if the company had applied the new method
of accounting. The Company has elected to continue to follow APB 25, and the
required pro forma disclosures are presented below.
25
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for options was estimated at the date of the grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.0%; dividend yields of 0%;
volatility factors of the expected market price of the Company's common stock
of 0.5285% for fiscal 1997 and 0.4940% for fiscal 1996; and a weighted-average
expected life of the option of 1.54 years for fiscal 1997 and 1.60 years for
fiscal 1996.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The effects of
applying SFAS No. 123 on a pro forma basis for the years ended October 3,
1997, and September 28, 1996, would have approximated the following amounts
(in thousands, except per share amounts):
1997 1996
------- -----
Net income (loss):
Reported..................................................... (26,122) 4,253
Per share................................................... (2.44) 0.40
Pro forma.................................................... (26,652) 4,006
Per share................................................... (2.49) 0.37
11. SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENTS
The Company has agreements with three of its officers under which each is
entitled to a monthly benefit upon leaving the Company's employment. In fiscal
1997, 1996, and 1995, the Company expensed $1,780,185, $190,476, and $366,396,
respectively, related to these benefits. The fiscal 1997 expense includes
restructuring charges. During fiscal 1997, the Company entered into agreements
that accelerated the retirement benefits for two officers. (See Note 17.)
The Company paid benefits of $92,771, $111,325, and $27,831 in fiscal 1997,
1996, and 1995, respectively, under these agreements.
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.
26
13. INCOME TAXES
The components of income (loss) before income taxes and the provision
(benefit) for income taxes (both domestic and foreign) for fiscal 1997, 1996,
and 1995 are summarized as follows (in thousands):
1997 1996 1995
-------- ------- --------
Income (loss) before income taxes:
Domestic......................................... $(23,800) $ 5,265 $(41,709)
Foreign.......................................... (2,322) (1,745) (2,577)
-------- ------- --------
$(26,122) $ 3,520 $(44,286)
======== ======= ========
Provision (benefit) for income taxes:
Current:
Federal.......................................... $ 0 $ 0 $ 0
Foreign.......................................... 0 (718) (247)
State............................................ 0 (15) 0
-------- ------- --------
0 (733) (247)
======== ======= ========
Deferred:
Federal.......................................... 0 0 0
Foreign.......................................... 0 0 247
State............................................ 0 0 0
-------- ------- --------
0 0 247
-------- ------- --------
$ 0 $ (733) $ 0
======== ======= ========
At October 3, 1997, the Company had domestic operating loss carryovers of
approximately $42.3 million which will expire in fiscal years 2007 through
2012, and general business credit carryovers of approximately $1.7 million
which will expire during fiscal years 2002 through 2007. Foreign tax credit
carryforwards of approximately $87,000 existed at October 3, 1997, and will
expire $70,000 in fiscal 1998 and $17,000 in fiscal 2002.
A reconciliation of the statutory federal income tax rate to the effective
rate for fiscal 1997, 1996, and 1995 is as follows (in thousands):
1997 1996 1995
------- ------ --------
Tax at federal statutory rate................... $(8,881) $1,232 $(15,500)
State income taxes, net of federal benefit...... 0 (15) 0
Operating losses generating no tax benefit...... 8,881 0 15,618
Utilization of carryovers....................... 0 (1,232) 0
Tax effect of international operations, net..... 0 (718) 0
Other, net...................................... 0 0 (118)
------- ------ --------
$ 0 $ (733) $ 0
======= ====== ========
27
Deferred tax assets and liabilities that arise as a result of temporary
differences at October 3, 1997, and September 27, 1996, are summarized as
follows (in thousands):
1997 1996
-------- --------
Deferred tax assets:
Inventory reserves...................................... $ 2,404 $ 1,863
Restructuring reserves.................................. 788 516
Foreign tax credits..................................... 87 70
General business credit carryforwards................... 1,696 1,696
Net operating loss carryforwards........................ 15,758 12,521
Deferred income......................................... 683 698
Other................................................... 3,150 1,794
-------- --------
Total gross deferred tax assets........................ 24,566 19,158
Deferred tax asset valuation allowance.................. (20,737) (14,614)
-------- --------
Total deferred tax assets.............................. 3,829 4,544
-------- --------
Deferred tax liabilities:
Depreciation............................................. (93) (690)
Capitalized software costs.............................. (3,078) (3,663)
Deferred software costs................................. (240) (191)
Other................................................... (418) 0
-------- --------
Total deferred tax liabilities......................... (3,829) (4,544)
-------- --------
Net deferred tax assets............................... $ 0 $ 0
======== ========
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 1997, the deferred tax asset valuation
allowance reflects an evaluation which recognizes uncertainties related to the
future utilization of carryovers. The valuation allowance for deferred tax
assets increased by approximately $5.4 million during fiscal 1997 and
decreased by approximately $5.4 million during fiscal 1996.
28
14. BUSINESS SEGMENT AND FOREIGN OPERATIONS
The Company's operations are primarily the manufacture and sale of network
printing solutions. Accordingly, such operations are classified as one
business segment. Financial information by geographic area is presented below:
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
Net sales to unaffiliated customers from:
United States................................... $117,323 $138,440 $127,610
Europe.......................................... 0 0 81,917
Canada.......................................... 7,266 8,734 12,859
Australia/New Zealand........................... 0 0 6,476
Japan........................................... 0 0 30,878
Net transfer between geographic areas............ 3,592 6,047 52,151
Adjustments and eliminations...................... (3,592) (6,047) (52,151)
-------- -------- --------
Consolidated net sales........................... $124,589 $147,174 $259,740
======== ======== ========
Operating income (loss):
United States................................... $(13,211) $ 14,404 $(29,100)
Europe.......................................... 0 0 4,810
Canada.......................................... (1,586) (733) (1,122)
Australia/New Zealand........................... 0 0 (600)
Japan........................................... 0 0 1,193
Adjustments and eliminations.................... (1,455) 220 533
-------- -------- --------
Consolidated operating profit (loss)............. (16,252) 13,891 (24,286)
General corporate expenses........................ (8,965) (8,227) (20,580)
Interest income................................... 373 398 171
Interest expense.................................. (721) (1,805) (4,113)
Divestitures of businesses........................ 0 0 3,675
Miscellaneous income (expense) *.................. (557) (737) 847
-------- -------- --------
Consolidated income (loss) before income taxes... $(26,122) $ 3,520 $(44,286)
======== ======== ========
* Foreign currency transction gains (losses) included in miscellaneous income
(expense):
29
1997 1996 1995
------- ------- --------
(IN THOUSANDS)
United States...................................... $ (48) $ (110) $ (305)
Europe............................................. 0 0 542
Australia/New Zealand.............................. 0 0 (37)
Japan.............................................. 0 0 200
------- ------- --------
$ (48) $ (110) $ 400
======= ======= ========
Identifiable assets:
United States.................................... $54,545 $86,450 $ 88,164
Europe........................................... 0 0 19,933
Canada........................................... 1,880 3,537 4,632
Australia/New Zealand............................ 0 0 2,996
Japan............................................ 0 0 10,466
Adjustments and eliminations....................... 0 (132) (1,231)
------- ------- --------
56,425 89,855 124,960
Corporate assets................................... 2,164 1,863 10,578
------- ------- --------
Total assets...................................... $58,589 $91,718 $135,538
======= ======= ========
Sales to indicated foreign geographic areas:
Europe........................................... $12,070 $19,792 $ 77,309
Canada........................................... 7,189 8,734 12,875
Far East & Pacific Rim........................... 5,617 9,220 37,368
Other............................................ 2,902 2,338 6,683
------- ------- --------
$27,778 $40,084 $134,235
======= ======= ========
U.S. export sales included in the Company's sales to indicated foreign
geographic areas for fiscal years 1997 1996, and 1995 were $20,589,000,
$31,350,000, and $2,171,260, respectively. The increase in fiscal 1996 is due
to sales to Europe and Japan as third-party export sales compared to fiscal
1995 when those business operations were wholly owned subsidiaries.
Sales to QMS Europe B.V. represented 13.4% of fiscal 1996 consolidated
revenues and the related accounts receivable balance amounted to $2.9 million.
No customer accounted for 10% or more of consolidated net sales for fiscal
1997 and 1995.
15. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes for fiscal 1997, 1996, and 1995 is
as follows (in thousands):
1997 1996 1995
---- ------ ------
Interest.................................................. $735 $2,326 $4,113
Income taxes.............................................. 0 53 2,688
Additions to capital lease assets and related obligations were $1,513,400,
$302,200, and $823,000 in fiscal 1997, 1996, and 1995, respectively, as a
result of the Company entering into equipment leases. The Company also had
additions to notes receivable in the amount of $7,500,000 in fiscal 1996 as a
result of the divestitures of foreign subsidiaries. (See Notes 5 and 18.)
16. COMMITMENTS AND CONTINGENCIES
At October 3, 1997, the Company had a commitment of approximately $13.9
million under contracts to purchase print engines and related components.
30
The Company was contingently liable for approximately $199,000 as of October
3, 1997, 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 and claims 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
litigation and claims will not materially affect the Company's financial
position, results of operations, or cash flows.
17. RESTRUCTURING CHARGES
During fiscal 1997, the Company recognized restructuring charges totaling
approximately $8.0 million. These costs included $1.6 million in salary
continuation and out-placement costs for 119 employees from all levels and
functional areas of the Company, $2.6 million for retirement benefits and
management transition expenses, $2.4 million related to foreign translation
adjustments in connection with the substantial reduction of foreign
operations, $0.6 million related to the write-off of certain fixed assets,
$0.4 million in the write-off of office lease obligations, and $0.3 million in
other expenses.
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, and also included the
write-off of certain fixed assets and facility lease obligations and the
reorganization of its international business operations.
Uses of restructuring reserves for fiscal 1997 and 1996 are summarized as
follows (in thousands):
1997 1996
------- ------
Salary continuation and out-placement........................ $ 731 $2,002
Write-off of facility lease obligations...................... 281 212
Divestiture of QMS Japan and QMS Europe...................... 0 6,531
Reorganization of QMS Canada................................. 0 938
Other exit activities........................................ 649 0
------- ------
$ 1,661 $9,683
======= ======
The retirement benefits and management transition reserve balance was an
additional $4,174,000 and $1,498,000 at October 3, 1997, and September 27,
1996, respectively.
18. DIVESTITURES OF BUSINESSES
In September 1995, the Company completed a cash sale of a portion of its
color thermal transfer consumables business to International Imaging
Materials, Inc., resulting in a gain of $5.7 million.
In October 1995, the Company sold all of the common shares of QMS Europe
B.V. and QMS Australia Pty Ltd. This transaction resulted in a loss of
approximately $2.0 million which was recorded as of September 29, 1995. The
proceeds from this transaction were received in the form of cash of $7.9
million and a $4.0 million note receivable. The original QMS Europe B.V. note
required quarterly payments of $1.0 million. In fiscal 1997, the Company
subordinated its debt to new third-party debt. This subordination calls for
quarterly payments to the Company to be deferred until the new debt is
retired. The note earns interest at 12% per annum on the outstanding balance.
In December 1995, the Company sold the majority of the assets of QMS Japan
KK with the purchaser acquiring most of the assets and assuming most of the
liabilities. A loss of $2.3 million was recorded on this transaction as of
September 29, 1995. The proceeds from this transaction were received in the
form of cash of $1.0 million and a $3.0 million note receivable, payable over
54 months with interest at 8%.
31
Proceeds from the above transactions were used to pay down outstanding debt
under the revolving credit agreements and for working capital purposes.
The Company continues to sell controller boards and components to the new
owners of these divested entities under master distributor agreements, and then
realizes a commission on their sales of QMS products to third parties.
19. SALE/LEASEBACK
a. In February 1997, the Company completed the sale and leaseback of land and
buildings at its Mobile, Alabama headquarters and operations. The initial
term of the operating lease is fifteen years with renewal options for five
additional five-year periods. Quarterly rent of approximately $0.4 million
is payable in advance, subject after three years to adjustment for increases
in the Consumer Price Index.
Net proceeds of the sale were approximately $12.5 million which resulted in
no material gain or loss on the sale. The net proceeds were used to retire
the existing term loan and to substantially reduce the balance of the
Company's revolving credit loan.
b. At October 3, 1997, the Company was not in compliance with certain covenants
contained in the lease agreement. On December 8, 1997, the Company obtained
a one-year waiver of non-compliance from the lessor through October 5, 1998,
in exchange for $1.3 million in prepaid rent and an amendment to a related
warrant agreement. At the end of the waiver period, the Company may be out
of compliance with one or more covenants contained in the lease agreement.
Among the remedies available to the landlord are the acceleration of all
rent for the initial lease term, cancellation of the lease, or all other
remedies available at law. Management believes over the next year through
further negotiations a further extension of the waiver or a permanent
revision of the covenant will be obtained.
32
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, in all material respects, 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. The Audit Committee is responsible for reviewing and making
recommendations regarding the Company's employment of independent auditors,
the annual audit of the Company's financial statements and the Company's
internal accounting practices and policies. 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/ Charles D. Daley
----------------------
Chief Operating Officer
and Executive Vice President
/s/ Richard A. Wiggins
----------------------
Chief Financial Officer and
Senior Vice President
33
QUARTERLY DATA
Unaudited quarterly data for the fiscal years ended October 3, 1997, and
September 27, 1996.
1997
--------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER(A) QUARTER(B)
------- ------- ---------- ----------
DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS
Net sales................................ $31,468 $30,887 $32,383 $ 29,851
Gross profit............................. 9,721 7,328 7,862 1,121
Net income (loss)........................ 62 (4,386) (5,452) (16,346)
Earnings (loss) per common share
Primary and fully diluted............... $ 0.01 $ (0.41) $ (0.51) $ (1.53)
1996
--------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ---------- ----------
DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS
Net sales................................ $37,345 $37,403 $38,218 $ 34,208
Gross profit............................. 12,417 12,440 12,616 10,550
Net income............................... 620 1,056 1,621 956
Earnings per common share
Primary and fully diluted............... $ 0.06 $ 0.10 $ 0.15 $ 0.09
- --------
(a) Includes $2.2 million for restructuring charges.
(b) Includes special charges of $6.9 million principally associated with
inventory revaluation charged to cost of sales and $5.8 million for
restructuring charges.
34
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of QMS, Inc.:
We have audited the accompanying consolidated balance sheets of QMS, Inc.
and subsidiaries as of October 3, 1997 and September 27, 1996, 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 October 3,
1997. 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 October 3, 1997 and September 27, 1996, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
October 3, 1997 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, 1997 (December 8, 1997, as to Note 19b)
35
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 "Section 16(a) Beneficial Ownership Reporting
Compliance" 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 page 4, "Executive Compensation Tables" on pages 6-9, "Stock
Performance Graph" on pages 9-10, "Executive Agreements" on page 10, 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 $2.6 million management transition expense included in the fiscal 1997
restructuring charges relates to agreements with the Company's Chairman of the
Board, James L. Busby, and Board member Donald L. Parker, as discussed under
the heading Restructuring Charges in Management's Discussion and Analysis of
Financial Condition and Results of Operations. The other 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
October 3, 1997, September 27, 1996, and September 29, 1995.
. Consolidated Statements of Changes in Stockholders' Equity for the
Fiscal Years Ended October 3, 1997, September 27, 1996, and September
29, 1995.
. Consolidated Balance Sheets at October 3, 1997, and September 27,
1996.
. Consolidated Statements of Cash Flows for the Fiscal Years Ended
October 3, 1997, September 27, 1996, and September 29, 1995.
. Notes to Consolidated Financial Statements for the Fiscal Years
October 3, 1997, September 27, 1996, and September 29, 1995.
36
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
II Valuation and Qualifying Accounts and Reserves for the Three
Fiscal Years Ended October 3, 1997.
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)
37
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(m) QMS, Inc. Employee Stock Purchase Plan.(18)
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)
38
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(r)(xi) Amendment Number One dated December 4, 1995 to the Loan and
Security Agreement dated November 7, 1995.(17)
10(r)(xii) Amendment Number Two dated February 7, 1996 to the Loan and
Security Agreement dated November 7, 1995.(17)
10(r)(xiii)Amendment Number Three dated July 31, 1996 to the Loan and
Security Agreement dated November 7, 1995.(17)
10(r)(xiv) Waiver Agreement dated May 5, 1997, waiving certain provisions
of the Loan and Security Agreement..19)
10(r)(xv) Amendment Number Five dated June 3, 1997 to the Loan and
Security Agreement.(20)
10(s)(i) Asset Purchase Agreement dated September 30, 1995 between QMS
Japan Kabushiki Kaisha ("QMS Japan KK") and QMS, Inc.(16)
10(s)(ii) Assumption of Liabilities dated September 30, 1995 by QMS
Japan, KK.(16)
10(s)(iii) Inventory Johto-Tampo Agreement dated September 30, 1995
between QMS Japan, KK and QMS, Inc.(16)
10(s)(iv) Master Distributor Agreement dated September 30, 1995 between
QMS Japan, KK and QMS, Inc.(16)
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.(16)
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.(16)
10(s)(vii) Trademark and Trade Name License Agreement dated December 7,
1995 between QMS Japan, KK and QMS, Inc.(16)
10(s)(viii)Assumption Agreement dated December 7, 1995 between QMS Japan,
KK and QMS, Inc.(16)
10(t) Sale-Leaseback Agreement between QMS, Inc. and Ink (AL) QRS 12-
21, Inc. dated February 18, 1997.(21)
10(t)(i) Waiver agreement between Ink (AL) QRS 12-21, Inc. and QMS, Inc.
dated December 8, 1997.
10(t)(ii) Amendment to Warrant dated December 8, 1997 to the Sale-
Leaseback Agreement.
10(u) Agreement dated July 7, 1997, between QMS, Inc. and James L.
Busby.(22)
10(v) Agreement dated August 7, 1997, between QMS, Inc. and Donald L.
Parker.
10(w) QMS, Inc.--Genicom Corporation Strategic Partner Agreement
11
Statement Regarding Computation of Earnings Per Share.
21
Subsidiaries of the Registrant.
27
Financial Data Schedules
39
- --------
* 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).
(16) 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, 1995 (Commission File No. 1-9348).
(17) Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter ended
June 28, 1996 (Commission File No. 1-9348).
(18) Incorporated herein by reference to Appendix A to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on January 23, 1996
(Commission File No. 1-9348).
(19) Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter ended
March 28, 1997 (Commission File No. 1-9348).
(20) Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter ended
June 27, 1997 (Commission File No. 1-9348).
(21) Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on February 18, 1997 (Commission File No. 1-9348).
(22) Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on July 7, 1997 (Commission File No. 1-9348).
(b) Reports on Forms 8-K: The following reports were filed on Forms 8-K during
fiscal 1997.
. Form 8-K dated February 18, 1997, reporting the disposition of assets in
a sale-leaseback transaction.
. Form 8-K dated July 7, 1997, reporting an executive management transition
agreement.
40
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.
/s/ James L. Busby
Date: December 8, 1997 By:______________________________________
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 8, 1997 /s/ James L. Busby
----------------------------------
James L. Busby
President and Director (Principal Executive Officer)
Date: December 8, 1997 /s/ Charles D. Daley
----------------------------------
Charles D. Daley
Director
Date: December 8, 1997 /s/ Donald L. Parker, Ph.D.
----------------------------------
Donald L. Parker, Ph.D.
Director
Date: December 8, 1997 /s/ Lucius E. Burch, III
----------------------------------
Lucius E. Burch, III
Director
Date: December 8, 1997 /s/ Michael C. Dow
----------------------------------
Michael C. Dow
Director
Date: December 8, 1997 /s/ S. Felton Mitchell, Jr.
----------------------------------
S. Felton Mitchell, Jr.
Director
Date: December 8, 1997 /s/Jack Edwards
----------------------------------
Jack Edwards
Director
Date: December 8, 1997 /s/Rigdon Currie
----------------------------------
Rigdon Currie
Director
41
SCHEDULE II
QMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE FISCAL YEARS ENDED OCTOBER 3, 1997
ADDITIONS
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 September 29,
1995...................... $ 504,000 $ 282,000 $ 240,000 $ 546,000
=========== =========== =========== ===========
Year ended September 27,
1996...................... $ 546,000 $ 328,000 $ 491,000 $ 383,000
=========== =========== =========== ===========
Year ended October 3,
1997...................... $ 383,000 $ 402,000 $ 256,000 $ 529,000
=========== =========== =========== ===========
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OTHER BALANCE AT
DESCRIPTION OF YEAR ACCOUNTS DEDUCTIONS END OF YEAR
- ----------- ----------- ----------- ------------- -----------
Allowance for notes
receivable--deducted from
notes receivable in the
balance sheet
Year ended September 29,
1995...................... $ 0 $ 0 $ 0 $ 0
=========== =========== =========== ===========
Year ended September 27,
1996...................... $ 0 $ 900,000 $ 0 $ 900,000
=========== =========== =========== ===========
Year ended October 3,
1997...................... $ 900,000 $ 0 $ 0 $ 900,000
=========== =========== =========== ===========
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(C) END OF YEAR
- ----------- ----------- ----------- ------------- -----------
Inventory reserves--deducted
from gross inventories in
the balance sheet
Year ended September 29,
1995...................... $ 6,808,000 $19,132,000 $15,108,000 $10,832,000
=========== =========== =========== ===========
Year ended September 27,
1996...................... $10,832,000 $ 2,123,000 $ 7,778,000 $ 5,177,000
=========== =========== =========== ===========
Year ended October 3,
1997...................... $ 5,177,000 $ 7,416,000 $ 5,615,000 $ 6,978,000
=========== =========== =========== ===========
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(D) END OF YEAR
- ----------- ----------- ----------- ------------- -----------
Reserves for restructuring
charges and divestitures of
businesses
Year ended September 29,
1995...................... $ 0 $10,149,000 $ 0 $10,149,000
=========== =========== =========== ===========
Year ended September 27,
1996...................... $10,149,000 $ 0 $ 9,683,000 $ 466,000
=========== =========== =========== ===========
Year ended October 3,
1997...................... $ 466,000 $ 2,942,000 $ 1,661,000 $ 1,747,000
=========== =========== =========== ===========
- --------
(a) Uncollectible accounts written off
(b) Reclassification from restructuring reserve
(c) Disposal of inventory
(d) Includes salary continuation and outplacement, divestitures of businesses,
and other write-offs. See Note 17 to the Registrant's Consolidated
Financial Statement under Item 8.
42
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*/
1
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(m) QMS, Inc. Employee Stock Purchase Plan./18/
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/
2
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/
3
10(r)(x) Security Agreement dated November 7, 1995
between Foothill Capital Corporation and QMS
Circuits, Inc./15/
10(r)(xi) Amendment Number One dated December 4, 1995 to
the Loan and Security Agreement dated November 7,
1995./17/
10(r)(xii) Amendment Number Two dated February 7, 1996 to
the Loan and Security Agreement dated November 7,
1995./17/
10(r)(xiii) Amendment Number Three dated July 31, 1996 to the
Loan and Security Agreement dated November 7, 1995./17/
10(r)(xiv) Waiver Agreement dated May 5, 1997, waiving certain
provisions of the Loan and Security Agreement./19/
10(r)(xv) Amendment Number Five dated June 3, 1997 to the
Loan and Security Agreement./20/
10(s)(i) Asset Purchase Agreement dated September 30, 1995
between QMS Japan Kabushiki Kaisha ("QMS Japan KK")
and QMS, Inc./16/
10(s)(ii) Assumption of Liabilities dated September 30,
1995 by QMS Japan, KK./16/
10(s)(iii) Inventory Johto-Tampo Agreement dated September 30,
1995 between QMS Japan, KK and QMS, Inc./16/
10(s)(iv) Master Distributor Agreement dated September 30,
1995 between QMS Japan, KK and QMS, Inc./16/
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./16/
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./16/
10(s)(vii) Trademark and Trade Name License Agreement
dated December 7, 1995 between QMS Japan, KK
and QMS, Inc./16/
10(s)(viii) Assumption Agreement dated December 7, 1995
between QMS Japan, KK and QMS, Inc./16/
10(t) Sale-Leaseback Agreement between QMS, Inc.
and Ink (AL) QRS 12-21, Inc. dated February 18,
1997./21/
4
10(t)(i) Waiver agreement between Ink (AL) QRS 12-21,
Inc. and QMS, Inc. dated December 8, 1997.
10(t)(ii) Amendment to Warrant dated December 8, 1997
to the Sale-Leaseback Agreement.
10(u) Agreement dated July 7, 1997, between QMS, Inc.
and James L. Busby./22/
10(v) Agreement dated August 7, 1997, between QMS, Inc.
and Donald L. Parker.
10(w) QMS, Inc. - Genicom Corporation Strategic Partner
Agreement.
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).
5
/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).
/16/ 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, 1995 (Commission File No. 1-9348).
/17/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter ended
June 28, 1996 (Commission File No. 1-9348).
/18/ Incorporated herein by reference to Appendix A to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on January 23, 1996
(Commission File No. 1-9348).
/19/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter ended
March 28, 1997 (Commission File No. 1-9348).
/20/ Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter ended
June 27, 1997 (Commission File No. 1-9348).
/21/ Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on February 18, 1997 (Commission File No. 1-9348).
/22/ Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on July 7, 1997 (Commission File No. 1-9348).
(b) Reports on Forms 8-K: The following reports were filed on Forms 8-K
during fiscal 1997.
. Form 8-K dated February 18, 1997, reporting the disposition of assets in a
sale-leaseback transaction.
. Form 8-K dated July 7, 1997, reporting an executive management transition
agreement.
6