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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended: May 31, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-16071
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CALCOMP TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(FORMERLY SUMMAGRAPHICS CORPORATION)
DELAWARE 06-0888312
(STATE OF OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2411 W. LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92803
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 821-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety (90) days. Yes [_] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. Yes [X] No [_]
The aggregate market value as of July 31, 1996, of Common Stock held by non-
affiliates of the Registrant: $8,286,675 based on the last reported sale price
on the National Market System as reported by NASDAQ, Inc.
The number of shares of Common Stock outstanding as of September 3, 1996:
45,398,650
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PART I
ITEM 1. BUSINESS.
CalComp Technology, Inc., formerly Summagraphics Corporation (the
"Company"), was incorporated under Delaware law in 1972. The mailing address
of the Company's principal executive office is 2411 W. La Palma Avenue,
Anaheim, California 92803. The Company's telephone number is (714) 821-2000.
Except where the context indicates otherwise, references to an entity include
its consolidated subsidiaries.
THE EXCHANGE
The Company entered into a Plan of Reorganization and Agreement for the
Exchange of Stock of CalComp Inc. for Stock of Summagraphics Corporation,
dated as of March 19, 1996, as amended April 30, 1996 and June 5, 1996 (the
"Exchange Agreement") pursuant to which the Company issued to Lockheed Martin
Corporation ("Lockheed Martin") 40,742,957 shares of the Common Stock of the
Company, representing 89.7% of the total outstanding shares of Common Stock of
the Company following such issuance, in exchange for all of the outstanding
capital stock of CalComp Inc. ("CalComp") (the "Exchange"). The number of
shares of Common Stock of the Company issued in the Exchange is subject to
adjustment in certain events provided and as described under the Exchange
Agreement in the Company's definitive proxy statement (the "Proxy Statement")
filed with the Securities and Exchange Commission on June 24, 1996 under
Section 14 of the Securities Exchange Act of 1934, as amended. Management of
the Company does not expect that a material adjustment in the number of shares
issued in connection with the Exchange will be required. The closing of the
Exchange occurred on July 23, 1996 (the "Closing") following approval of the
Exchange by the stockholders of the Company. As a result of the Exchange,
Lockheed Martin acquired control of the Company and CalComp became a wholly-
owned subsidiary of the Company. In connection with the Exchange, the Company
also changed its name from Summagraphics Corporation to CalComp Technology,
Inc. For purposes of this report, the Company will hereinafter be referred to
as Summagraphics when identifying the Company as it existed prior to the
Exchange.
As contemplated by the Exchange Agreement, immediately following the
Exchange, each of the then directors and executive officers of Summagraphics
resigned and Lockheed Martin, as the owner of a majority of outstanding shares
of the Common Stock of the Company, adopted a resolution by written consent
increasing the size of the Board of Directors from six to seven members and
electing seven new directors. The Board then appointed officers to fill the
vacant offices.
ADDITIONAL INFORMATION CONCERNING CALCOMP AND THE EXCHANGE IS SET FORTH IN
THE PROXY STATEMENT.
SUMMAGRAPHICS
Summagraphics has engaged in the manufacture and sale of digitizing tablets,
large format plotters, thermal transfer printers, and graphics cutters.
A digitizer is a computer graphics input device, functionally similar to a
keyboard or mouse, consisting of an electronic stylus or cursor and a tablet
containing a grid of sensors which translate engineering drawings, maps and
other graphic information into digital form for entry into a computer.
A pen plotter is a computer graphics output device, functionally similar to
a printer, but used to automatically draw lines, symbols, diagrams and other
graphics output.
An ink jet plotter is a computer graphics output device, functionally
similar to a printer and pen plotter, but using ink jet technology rather than
ink pen technology to automatically draw lines, symbols, diagrams and other
graphics output.
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A thermal transfer printer, capable of interfacing with PostScript(TM) and
other industry standard software, uses certain Summagraphics' patented
techniques to produce brilliantly colored, high quality images up to 249 x 409
for sign-making applications.
A cutter performs a function similar to a plotter, but rather than drawing
an image onto a sheet of paper it accurately cuts on various media (such as
vinyl) along a programmed image employing the same technique as a plotter
except using a knife instead of a pen.
Summagraphics' products are used in applications with high-performance
computer graphics systems, including computer-aided design, manufacturing,
engineering, publishing and graphic arts.
Summagraphics added pen plotters and cutters to its pre-existing digitizer
product lines in May 1990 with the acquisition of the Houston Instrument
Division ("Houston Instrument") of Ametek, Inc. ("Ametek"). This acquisition
broadened Summagraphics' presence in the U.S. market, provided Summagraphics
with a manufacturing facility for cutters in Belgium and expanded
Summagraphics' U.S., European and Far Eastern distribution networks.
Approximately 55% of Summagraphics' net sales for the fiscal year ended May
31, 1996 was attributable to overseas markets.
Summagraphics' products have been sold by its sales force primarily through
distributors and also to OEMs which incorporate Summagraphics' products into
their own computer products. Summagraphics' products may be integrated with
most personal computers, including IBM-compatible personal computers and Apple
personal computers, workstations from Sun Microsystems and Digital Equipment,
and publishing systems from Scitex, and are compatible with most industry
standard CAD and graphics software applications.
Summagraphics' strategy has been to pursue sales and market share growth for
its existing product lines, through product enhancements and new product
introductions; to devote resources to research and development of new
products; and, as and if appropriate opportunities arise, to acquire or
develop one or more complementary product lines or businesses serving the
computer graphics markets.
In March 1992, Summagraphics restructured its North American operation by
combining the management and administrative processes of its digitizer and
Houston Instrument units into a single operating unit; and established an
administrative headquarters in Europe responsible for cutter manufacturing and
sales, distribution and service of all Summagraphics' products for the
European market.
Further restructuring was initiated in May 1993, associated with the arrival
of a new President and Chief Executive Officer who joined Summagraphics in
April 1993. The restructuring included a reduction in workforce, asset write-
downs, consolidation of manufacturing operations into Summagraphics' Austin,
Texas facility, changes in some of Summagraphics' senior executives, and a
redeployment of assets to apply them more effectively. Also, North America and
Asia Pacific sales, manufacturing, and engineering administration were moved
to Austin, Texas.
During fiscal year 1995, in a transaction designed to enhance Summagraphics'
product distribution, Summagraphics purchased CAD Warehouse, Inc., a mail
order dealer of digitizers, plotters and other CAD (Computer Aided Design)
related equipment and software. During fiscal 1995, Summagraphics also changed
its corporate headquarters from Seymour, Connecticut to Austin, Texas, and in
late fiscal year 1995 undertook additional organizational actions which
included a reduction in force and abandonment of the remaining term of
Summagraphics' Connecticut lease.
In fiscal 1996, Summagraphics encountered significant financial difficulties
due to problems with its output products group. Technical problems with its
SummaJet product which was introduced in fiscal 1995, slowed sales of this key
product line causing a large build up of unsold inventory and causing maximum
usage of Summagraphics' credit facilities. Due to continuing losses and
pressure from its lenders and vendors, Summagraphics pursued various
alternatives to raise additional capital including the sale of a part, or all
of Summagraphics. These efforts resulted in the negotiation of the terms of
and subsequent closing of the Exchange.
3
DIGITIZERS
Market And Applications. Digitizers accounted for 50%, 42% and 39% of the
sales of Summagraphics for fiscal 1994, 1995 and 1996, respectively.
Summagraphics' primary markets for digitizers are in computer-aided design,
engineering and manufacturing (CAD/CAE/CAM). Digitizers typically are used
with personal computers and workstations and support a broad range of software
applications which include high-end computer aided publishing, construction
management and costing, graphics design and animation, mapping and geographic
information systems (GIS) and geological/seismic analysis. They also are used
frequently with software systems such as AutoCAD. Newspaper publishers, for
example, use Summagraphics' digitizers as part of their complete computer-
aided publishing systems for publication layout. Engineers and architects use
Summagraphics' digitizers in estimating construction costs rapidly and
accurately from blueprints and site plans while in the field. Animation and
graphics design uses for Summagraphics' digitizers vary widely and include use
in cinema productions, colorization of black and white movies and television
weather and sports analysis. Digitizers offer significant benefits of speed
and efficiency to the user in CAD design over other input methodologies such
as computer mice and on-screen menus.
Uses for digitizers include desktop publishing, image processing and pen-
based computing. See "Product Development."
Technology. Digitizers are capable of determining the absolute location of a
stylus or cursor to within several thousandths of an inch on a grid of sensors
imbedded in a tablet. Depending upon the technology used, this is accomplished
by pulsing either the grid or the cursor with an electric current causing a
reciprocal electrical flow in the cursor or the grid. This reciprocal flow is
measured, converted into a set of digital X-Y coordinates (which represent the
position of the cursor relative to the grid) and transmitted to a host
computer for processing.
Digitizers can offer significant advantages over other entry devices such as
keyboards, mice, trackballs, lightpens, joystick and touchpanels in graphics
intensive applications due to their high level of precision, greater
functionality and increased productivity. Keyboards are primarily used for
inputting text and numerical information and are not well suited for graphics
applications. Mice are low accuracy, relative pointing devices commonly used
with icon-based operating systems and low- resolution graphics applications.
By contrast, digitizers are capable of inputting X-Y coordinate data to
communicate an absolute position. Absolute positioning allows accurate drawing
and selection of discrete points on the surface of the digitizing tablet. The
latter is critical to high accuracy tasks such as digitizing a map or an
existing CAD drawing.
Summagraphics' digitizer products are primarily based on electromagnetic
technology whereby a cursor or a grid generates an electromagnetic field which
is sensed by built-in electronic circuitry. This technical approach results in
digitizers capable of higher resolution than other commonly-used technologies
(magnetostrictive and resistive). Electromagnetic tablets offer the additional
advantage of being relatively unaffected by temperature, humidity, electrical
noise and conductive materials on the digitizing surface.
Products. Summagraphics offers three series of electromagnetic digitizers:
desktop, industry standard tablets (the SummaSketch(R) Series); low-cost,
large-format tablets (the Summagrid(R) Series); and large-format, high
accuracy tablets (the Microgrid(R) Series). Digitizers are offered in standard
configurations for the distribution market and are customized to meet specific
OEM and foreign market specifications. All are supported by a broad range of
accessory products including styli, cursors, pressure sensitive pens, power
supplies, cabling and software templates. Digitizers may be software or
hardware configured to meet various requirements.
The SummaSketch Series electromagnetic tablets, sold under the trade names
SummaSketch III and SummaSketch III Professional, comprises a majority of
Summagraphics' digitizer sales. These tablets are constructed using a single
printed circuit Board housing the X-Y grid and the control and interface
electronics. Applications include desktop CAD, CAM, CAE, graphic arts design
and general purpose computing.
The Summagrid (SG) Series electromagnetic tablets are constructed of a
single large printed circuit Board containing the X-Y grid and control
interface circuitry housed in a separate chassis common to all sizes. The
4
Summagrid Series offers customers a large format tablet with similar accuracy
and resolution to a desktop unit but at a significantly lower cost than the
Microgrid Series. Applications include cost estimation, facilities management
and low-end CAD or mapping. Both the Summagrid and the Microgrid Series of
digitizers are available in backlit versions for high-end medical and tracing
applications.
The Microgrid (MG) Series electromagnetic tablets are constructed of a
single large printed circuit board containing the X-Y grid. Control and
interface electronics are integrated into the tablet in a chassis common to
all sizes of tablets. Applications include high-end CAD, CAE, cartography and
civil and mechanical engineering, which require greater accuracy and line
resolution than desktop models offer. Each Microgrid tablet is tested on
Summagraphics' laser interferometer test bed to guarantee accuracy.
Summagraphics introduced a product enhancement in fiscal year 1993 which
enables users to utilize at their discretion the cursor or stylus as either a
corded or battery powered cordless (convertible) version. Cordless cursors are
an added convenience to users of large tablets where the large tablet surface
otherwise necessitates a long cord. The cordless technology used on Summagrid
represents core technology for Summagraphics which can be applied to new and
existing digitizer products to offer unique customer benefits. Additionally,
Summagraphics introduced its Microgrid Ultra Series large-format tablet which
is an upgrade of Summagraphics' Microgrid Series high-accuracy tablets for
applications requiring precise formatting devices such as GIS mapping,
electronic design and CAD.
In fiscal year 1995, Summagraphics introduced the Summa Expression(TM), a
high performance desktop tablet designed for graphic arts applications such as
drawing, painting, illustration and animation. This tablet features a small 69
x 89 active area footprint and allows drawing with high precision and
flexibility using 256 levels of pressure sensitivity and customizable menu
buttons. The SummaPad(TM) was also introduced in fiscal year 1995. This tablet
features a 49 x 59 active area and also provides pressure sensitivity.
PLOTTERS
Market, Product And Applications. Plotters represented 22%, 21% and 11% of
the sales of Summagraphics for fiscal 1994, 1995 and 1996, respectively.
Summagraphics offers a series of large-format plotters. Summagraphics'
offering of large-format plotters include high performance, high speed CAD pen
plotters. Summagraphics began to market plotters in May 1990 with the
acquisition of Houston Instrument.
Summagraphics introduced the HiPlot 7000 Series of pen plotters in late
fiscal year 1993. The HiPlot Series (in A- to D size and A to E- size
plotters) offers users additional features of faster plot completion, a
primary application requirement and, in addition, improved plotting quality
and a feature called HIQueue(TM), a plot management package for networked
multi-user environments. The ability to effectively manage plot data in a
networked multi-user environment is a strong requirement among users.
Summagraphics' primary markets for plotters are in computer-aided design and
engineering. Its pen plotter products are used extensively by architects and
mechanical, electrical and civil engineers to create complex drawings and
specifications. Pen plotters are also used with computerized mapping,
geographical exploration and geographic information systems, where precise
high quality hard-copy output is required. Summagraphics' plotters are also
used extensively in many other application areas, including medical,
scientific, business and educational presentation graphics. Pen plotters
remain the most cost effective means to create high quality wide format,
permanent line drawings.
Summagraphics introduced in fiscal year 1994, a large-format, color thermal
wax transfer printer-- SummaChrome(TM)--for use in in-house design departments
of corporations and retail chains, advertising agencies, graphic design firms,
and sign, copy and photo shops servicing both businesses and consumers.
Applications include the production of colored signs, presentation materials,
photo enlargements, design renderings, maps, and satellite images. In fiscal
year 1995, Summagraphics re-evaluated the resources required to sell this
product and decided to focus its energy on the segment of the graphics market
where they were already positioned for success--sign-making. Believing there
to be an opportunity to offer the first large-format
5
digital printing solution that could print directly on vinyl without any
additional process for UV or water resistance, Summagraphics shifted its
marketing focus to attempt to take advantage of this technology. Summagraphics
already had the sign-making channel in place to support its SummaSign Series
of high performance cutters/plotters. Summagraphics believed that this shift
in market focus was more cost effective to execute. Sales of the
SummaChrome(TM) products have not to date been as strong as expected, and the
Company is currently evaluating its product strategy with respect to the
marketing and sale of SummaChrome(TM) printers.
In fiscal year 1995, Summagraphics introduced its SummaJet(TM) 2 Series of
ink jet plotters for the CAD market. The product is both raster and vector
compatible and intended to address the CAD market with features like replot,
automatic pilot, printing, automatic scaling and mirror functions.
Summagraphics believed that the SummaJet 2 entry was positioned to fill a void
in the existing ink jet market for low cost color printing. Technical problems
with the SummaJet(TM) products and intense competitive pressures resulted in
less than expected sales, and the Company is currently developing a strategy
concerning the integration of the SummaJet products with CalComp's similar
TechJet(R) products.
Technology. All types of plotters function by creating images on hard-copy
media such as paper or polyester film. Pen plotters may be distinguished from
other hard-copy output devices, because pen plotters create hard copy of
vector images, or point-to point lines, while other plotters produce raster
images, which construct an image as a series of dots, a print band at a time.
Pen plotters function by receiving plot commands downloaded from a computer
and, by following these instructions, moving one pen or a selected one of a
group of pens relative to paper, film or other media, thereby generating a
drawing. The media is driven bi-directionally on one axis while the pen is
driven bi-directionally on the other axis.
Both functions are microprocessor controlled, highly responsive, closed-loop
systems that permit accurate and precise graphic creation.
Summagraphics has also developed expertise in relevant software, paper
handling and mechanical design technologies.
CUTTERS
Cutters represented 6%, 16% and 23% of the sales of Summagraphics for fiscal
1994, 1995 and 1996, respectively. Cutters are output devices, similar in
construction to a pen plotter, but employ a knife in place of a pen to cut
vinyl for signs and banners, artfilm for screen printing, and various stencil
materials for etching text and images into glass, wood and stone via an
abrasive etching process. Cutter performance is primarily measured by speed,
acceleration, and guaranteed accuracy. Additional features include knife type,
tool pressure and software compatibility. Speed is measured by how many inches
the knife moves per second. Acceleration is measured by how quickly the knife
reaches its top speed and, therefore, is important since most signs consist of
short lines. Guaranteed accuracy depends on the drive mechanism, either
friction or sprocket, in the cutter. There are currently two types of knife
systems used to cut material: drag and tangential. Drag knife units typically
cost less, have less knife pressure capability, and are used for general sign
applications. Tangential knife units are typically more expensive, with more
knife pressure, greater precision cutting abilities and the ability to cut a
wider variety of material.
Summagraphics markets a line of precision cutters designed to produce low-
cost, computer-generated letters and graphics for sign and display making
applications. During late fiscal year 1993, Summagraphics introduced two new
tangential cutters, the T1000 and the T600. In fiscal year 1994, Summagraphics
introduced three new drag knife cutters, the D610, D750 and the D1300. These
cutters primarily differ in the width of sign media they handle, the type of
knife used and the features they contain. In fiscal year 1995, Summagraphics
introduced the SummaSign cutter (the SummaSign 1010 Plus). This high
performance cutter combines an advanced media handling system, offers both
sprocket drive and friction drive and is therefore capable of handling plain
media as well as half-inch industry-standard punched media. Summagraphics also
introduced the low cost, small-format SummaCut Series of cutters designed for
small, independent sign shops who produce a limited quantity of vinyl signs.
6
CAD WAREHOUSE
Summagraphics' CAD Warehouse, Inc. subsidiary ("CAD Warehouse") sells
Summagraphics' computer peripheral products and products of other companies
which it advertises through trade publications and its own catalog. Sales of
CAD Warehouse represented 18% and 21% of the sales of Summagraphics for fiscal
1995 and 1996, respectively.
AFTER MARKET SERVICE AND SUPPORT
Summagraphics' customer service group provides customer support for
Summagraphics' products via depot, on-site or on an exchange basis with
standard warranty protection programs which include Limited Lifetime Warranty,
48-Hour Priority Response(TM) in the first year after purchase, along with
additional warranty options for 24-Hour Priority Response(TM) and multiple
product leasing options. The customer service group also sells a wide range of
plotting media and a variety of pens for use with its plotters. Summagraphics
also offers a library of CAD digitizer templates for use with AutoCAD.
Summagraphics' templates simplify the use of CAD programs and increase
productivity by permitting the user to bypass nested menus and access
necessary commands quickly.
PRODUCT DEVELOPMENT
During fiscal year 1994, 1995 and 1996 Summagraphics' research and
development expenses were $5,631,000, $6,761,000, and $3,745,000,
respectively.
During fiscal year 1993, Summagraphics acquired joint ownership of a broad
patent for incorporating a digitizer into a liquid crystal display (LCD)
without the use of a separate digitizer X-Y grid. This allows for a very cost
effective approach to "writing on the screen" pen computer systems.
Summagraphics has been investigating relationships with LCD manufacturers to
pursue this technology further, and recently entered into a license agreement
with Sharp Corporation to enable Sharp to use this technology to enhance its
product line of combined displays and input panels.
MARKETING AND CUSTOMERS
Summagraphics has sought to offer a broad line of application-compatible
computer peripheral products for graphics input and output and to develop
strong brand recognition. Summagraphics has developed a world-wide sales
network including OEMs, distributors and manufacturers' representatives and
maintains sales offices in the United States, Belgium, France and Germany.
Summagraphics has also maintained a support and technical assistance program
for third-party software developers in emerging markets and has on occasion
entered into several joint marketing support arrangements with developers of
selected applications. No single customer of Summagraphics accounts for ten
percent (10%) or more of Summagraphics' yearly sales.
Summagraphics' network of distributors consists of national, vertical and
regional distributors. National distributors, such as Ingram Micro, Inc. and
Merisel in the United States and Computer 2000 in Europe, sell to retail
accounts and account for a large percentage of Summagraphics' sales. Vertical
distributors sell to retail accounts. These distributors carry a line of
Summagraphics' products and specialize in integrating Summagraphics' standard
products into specialized systems for vertical markets. Regional distributors
focus on an area typically composed of five to seven states and specialize in
applications and accounts which require a greater amount of service and
technical skill in making the sale. Summagraphics attempts in most instances
to have more than one distributor in each foreign country. Summagraphics
believes that by avoiding reliance upon exclusive distributorship arrangements
it broadens the market for its products and fosters constructive competition
among its distributors.
7
Summagraphics also sells its products directly to OEMs for incorporation
into systems manufactured by them and indirectly to smaller OEMs through a
network of manufacturers' representatives. Many of these sales are customized
products which are incorporated into the OEMs' design cycles.
For information on Summagraphics' foreign and domestic sales, see Note 7 of
the Notes to the Consolidated Financial Statements of the Company.
Summagraphics maintains domestic sales/service offices in Seymour,
Connecticut; Austin, Texas; and Huntington Beach, California. Summagraphics
has foreign sales subsidiaries located in Brussels, Belgium; London, England;
Munich, Germany; and a foreign sales office located in Paris, France.
Summagraphics' marketing and sales organization consisted of:
product/management, distribution sales, marketing communications, and customer
service. Product management is responsible for market research, new product
planning and pricing strategies. The North America/Asia Pacific sales group,
headquartered in Austin, Texas, includes regional sales managers covering
domestic and foreign territories who are responsible for both direct and
indirect OEM account relationships, and distribution managers who work with
national, regional and vertical distributors. The European sales group is
headquartered in Brussels, Belgium and operates in a manner similar to its
North America/Asia Pacific counterpart. Each of the North America/Asia Pacific
and European sales and service groups has a marketing communications group
responsible for trade shows, advertising, product sales, literature and
customer relations, and a customer service support capability responsible for
customer service and assisting customers with technical issues.
MANUFACTURING OPERATIONS, WAREHOUSING AND DISTRIBUTION, QUALITY CONTROL AND
WARRANTIES
Summagraphics has certain of its manufacturing performed outside the United
States to take advantage of lower manufacturing costs, while allowing
Summagraphics to maintain high standards of quality.
Summagraphics has maintained a manufacturing facility in Gistel, Belgium for
the manufacture of cutters and distribution of all of its products sold in the
European market. In 1996, Summagraphics entered into agreements to outsource
manufacturing of its SummaJet ink jet product line and its large-format
digitizer product line and had a program of investigating the outsourcing of
manufacturing of its remaining products.
Final assembly of products takes place either at the outsourcing
manufacturing locations or at Summagraphics' facilities in Austin, Texas and
Gistel, Belgium where there is also product warehousing and distribution.
Summagraphics also conducted product warehousing and distribution at its
Seymour, Connecticut location through January of 1996.
Summagraphics has generally purchased devices, components and sub-assemblies
from more than one source both domestically and internationally where
alternative sources are available and economical; however, Summagraphics has
used sole suppliers for certain components. Summagraphics believes that it
maintains adequate inventories of sole source items and that alternative
components or sources for those items could be readily incorporated into
Summagraphics' products.
Summagraphics' present manufacturing capacity is adequate to meet its
anticipated production requirements for the foreseeable future. If required,
Summagraphics has the ability to increase purchases under its existing
manufacturing and second source agreements or to manufacture domestically
products currently manufactured offshore.
Summagraphics has maintained quality control procedures for products
manufactured both domestically and offshore. These procedures include quality
testing during design, prototype and pilot stages of production, inspection of
incoming raw materials, inspection of sub-assemblies and testing of finished
product using automatic test equipment. Finished products undergo burn-in
testing to provide for long-term, reliable operation.
Summagraphics warrants its products for periods ranging from ninety days to
the life of the product. Summagraphics makes available extended warranties,
spare parts and out-of-warranty repair service in the United States and
Europe. To date, warranty costs have been insignificant.
8
COMPETITION
The markets in which Summagraphics sells its products are highly
competitive. Summagraphics faces actual and potential competition from a
number of established manufacturers, both domestic and international,
including Summagraphics' largest competitors, CalComp (prior to the Exchange)
and Hewlett-Packard Co., which have significantly greater financial,
technical, manufacturing and marketing resources than Summagraphics; and Mutoh
America Corporation, Wacom Company, Ltd., Encad, Inc., and Oce. CalComp
competed primarily with Summagraphics' digitizer and plotter products; Mutoh
and Gerber Scientific compete primarily with Summagraphics' cutter products;
and Hewlett-Packard and Encad compete primarily with Summagraphics' plotter
products. Summagraphics' lower cost products face competition from
manufacturers of mice and tablets, including Logitech, Inc. Summagraphics
recently entered into an OEM agreement with Mutoh for the production and sale
of certain products of each of those companies by the other, to enhance
Summagraphics' product offerings.
Summagraphics believes that its competitive ability also depends on the
quality, pricing, performance and support of its products, manufacturing costs
and Summagraphics' technical capability and successful introduction of new
products and product enhancements. See "Product Development." Summagraphics
believes that it offers a number of important attributes, including its
product price and performance, market presence, technological expertise,
quality of its product line, relationships with certain OEMs and its well-
developed distribution channels. Inability to match product introductions or
enhancements or price/performance of competitors' products could adversely
affect Summagraphics' market position and results of operations.
BACKLOG
Summagraphics manufactures on the basis of its forecast of near-term demand
and maintains inventories of finished products in anticipation of firm orders
from its customers. Summagraphics typically ships within thirty days of
receipt of orders. While certain OEMs and distributors place orders for
scheduled deliveries, most of Summagraphics' customers currently order
products on an as-needed basis. For this reason, and because customers may
cancel or reschedule orders with little or no penalty, or may place orders on
shipment hold, and because Summagraphics may decline to ship to customers for
credit reasons, Summagraphics believes that it has no backlog orders that are
firm, and, in any event, that the level of such orders is not indicative of
sales.
EMPLOYEES
As of May 31, 1996, Summagraphics employed approximately 194 people, 113
domestically and 81 internationally. None of the employees are covered by a
collective bargaining agreement, although Summagraphics' employees in Belgium
are covered by government mandated benefits. Summagraphics believes that
relations with its employees are good. In connection with the Exchange, the
Company has begun to implement certain reductions in workforce domestically
and internationally as part of its efforts to rationalize and integrate
Summagraphics' and CalComp's organizations.
PATENTS AND PROPRIETARY INFORMATION
Summagraphics attaches importance to its portfolio of patents, trademarks,
copyrights, trade secrets and know-how. In the course of research and
development, Summagraphics engineers at times devise inventions which
Summagraphics may elect to patent if it would provide a market advantage,
inhibit competitors or generate a source of licensing revenues. Summagraphics
has approximately fifty patents and twenty patents pending in the United
States and in a number of foreign countries. Summagraphics also relies on
trade secrets, know-how, contracts, copyrights, trademarks and patents to
establish and protect its proprietary rights and to maintain the
confidentiality of trade secrets, proprietary information and creative
developments.
As part of Summagraphics' strategy for protecting its technology and market
position, it would announce certain inventions that it intended to use but did
not intend to patent in order to prevent competitors and others from obtaining
patent protection on such inventions. As a matter of cost control,
Summagraphics would allow
9
certain patents that it judged to be obsolete to lapse. Summagraphics believed
that its proprietary information was protected to the fullest extent
practicable. There can be no assurance that the confidentiality agreements
upon which Summagraphics relied to protect its trade secrets and know-how will
be upheld by the courts. Moreover, patents relating to particular products do
not necessarily preclude competitors from successfully marketing substitute
products to compete with patented products. The Company believes that the loss
of any particular patent, or group of patents, will not have a material
adverse effect on Summagraphics' financial position or results of operations.
Other companies may also obtain patents covering configurations and processes
relating to Summagraphics' products, which would require Summagraphics to
obtain licenses. There can be no assurance that Summagraphics will be able to
acquire such licenses, if required, on commercially reasonable terms.
CALCOMP
FOR A DISCUSSION OF CALCOMP'S BUSINESS, SEE THE INFORMATION CONTAINED ON
PAGES 87-92 OF THE PROXY STATEMENT, WHICH INFORMATION IS INCORPORATED HEREIN
BY REFERENCE. ANY STATEMENT CONTAINED IN A DOCUMENT INCORPORATED BY REFERENCE
HEREIN SHALL BE DEEMED TO BE MODIFIED OR REPLACED FOR PURPOSES OF THIS REPORT
TO THE EXTENT THAT A STATEMENT CONTAINED HEREIN OR IN ANY OTHER SUBSEQUENTLY
FILED DOCUMENT WHICH ALSO IS OR IS DEEMED TO BE INCORPORATED BY REFERENCE
HEREIN MODIFIES OR REPLACES SUCH STATEMENT. ANY SUCH STATEMENT SO MODIFIED OR
REPLACED SHALL NOT BE DEEMED, EXCEPT AS SO MODIFIED OR REPLACED, TO CONSTITUTE
A PART OF THIS REPORT.
RECENT DEVELOPMENTS
Subsequent to the Exchange, the Company has moved its executive offices from
Austin, Texas to Anaheim, California, effected certain reductions in workforce
and has begun implementation of the Company's business plans to reduce
corporate overhead and eliminate duplicative manufacturing operations and
certain unprofitable product lines. The Company has also commenced efforts to
integrate and rationalize CalComp's and Summagraphics' respective development,
administrative, finance, sales, product support, distribution and marketing
organizations, and to integrate each company's product offerings and
development activities. Although management expects that these actions will
result in future cost savings, no assurances can be given that such savings
will be realized.
ITEM 2. PROPERTIES.
Subsequent to the Exchange the Company's executive offices were relocated to
Anaheim, California. Summagraphics' executive offices were located in Austin,
Texas in a leased building having a total of 96,400 square feet of space. The
lease will expire in June 2010. In addition, Summagraphics leases a building
in Seymour, Connecticut (the lease will expire in November 1998), which is
being vacated, and owns a building in Gistel, Belgium, and those buildings
have a total of 84,000 and 43,180 square feet of space, respectively.
Summagraphics also leases office space for selling operations in Huntington
Beach, California and Macedonia, Ohio, and in three foreign countries
(Germany, France and Belgium). Except for the Seymour, Austin and Gistel
facilities, these locations function primarily as sales, training and field
service centers for their regions. For information regarding Summagraphics'
obligations under leases, see Note 9 of Notes to the Company's Consolidated
Financial Statements.
FOR A DISCUSSION OF CALCOMP'S PROPERTIES, SEE THE INFORMATION CONTAINED ON
PAGE 91 OF THE PROXY STATEMENT UNDER THE CAPTION "PROPERTIES," WHICH
INFORMATION IS INCORPORATED HEREIN BY REFERENCE. ANY STATEMENT CONTAINED IN A
DOCUMENT INCORPORATED BY REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED OR
REPLACED FOR PURPOSES OF THIS REPORT TO THE EXTENT THAT A STATEMENT CONTAINED
HEREIN OR IN ANY OTHER SUBSEQUENTLY FILED DOCUMENT WHICH ALSO IS OR IS DEEMED
TO BE INCORPORATED BY REFERENCE HEREIN MODIFIES OR REPLACES SUCH STATEMENT.
ANY SUCH STATEMENT SO MODIFIED OR REPLACED SHALL NOT BE DEEMED, EXCEPT AS SO
MODIFIED OR REPLACED, TO CONSTITUTE A PART OF THIS REPORT.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to several legal actions arising in the normal course
of business. The Company believes that the disposition of these matters will
not have a material adverse affect on its financial position or results of
operations taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
10
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS.
The Company's Common Stock currently is traded on the NASDAQ National Market
System under the symbol "CLCP." (Prior to the Exchange the Common Stock was
traded under the symbol "SUGR.") The following table sets forth the high and
low closing bid prices of the Common Stock for the periods indicated as
reported by the NASDAQ National Market System.
HIGH LOW
----- ------
Fiscal Year Ended May 31, 1995
First Quarter............................................ $ 8 $6 3/8
Second Quarter........................................... 9 1/8 6 3/4
Third Quarter............................................ 8 3/4 6 1/2
Fourth Quarter........................................... 6 5/8 2 5/8
Fiscal Year Ended May 31, 1996
First Quarter............................................ 3 5/8 2 5/8
Second Quarter........................................... 3 3/8 1 1/2
Third Quarter............................................ 3 5/8 1 1/2
Fourth Quarter........................................... 3 5/16 2 5/8
On May 16, 1996, the Company received an inquiry from the NASDAQ Stock
Market as to whether it continued to meet the listing requirements for the
National Market System. Pursuant to correspondence and subsequent telephone
conversations, the NASDAQ Stock Market agreed to delay their determination
until consummation of the Exchange, and indicated that following the Exchange
the Company would have to meet the initial listing requirements to continue to
trade on the NASDAQ National Market System. Two of the requirements for
initial listing on the National Market System are that a total market
capitalization of common stock held by non-affiliates is equal to or exceeds
$15,000,000 and that the bid price of the listed security is equal to or
exceeds $3.00. On July 15, 1996, at the request of the Company, the NASDAQ
Stock Market waived these requirements and approved the listing of the
Company's Common Stock on the NASDAQ National Market System following the
Exchange. There is, however, no assurance that such listing can be maintained.
In the event that the Common Stock does not continue to be listed on the
NASDAQ National Market System, the trading volume of the Common Stock may
decrease and an active trading market may not be sustained. In the event that
the Common Stock does not continue to be listed on the NASDAQ National Market
System, the Company has indicated that it intends to use reasonable efforts to
cause the Common Stock to be listed on the NASDAQ SmallCap Market.
The quotations set out above represent prices between dealers and do not
include retail mark-up, mark-down or commission. They do not represent actual
transactions. These quotations have been supplied by the National Association
of Securities Dealers, Inc.
As of July 31, 1996 there were 351 record holders of Registrant Common Stock
(which shares are believed to be beneficially owned by approximately 2,000
persons).
The Company has never paid any dividends with respect to its Common Stock.
Any future payment of dividends will be at the discretion of the Board of
Directors and will depend on the financial condition and capital requirements
of the Company, as well as other factors that the Board of Directors deem
relevant. It is currently anticipated that the Company will retain future
earnings, if any, to finance the operation and growth of its business. As long
as Lockheed Martin continues to own 50 percent or more of the Common Stock, it
will be able to elect the entire Board of Directors of the Company and,
therefore, will be able to control all decisions with respect to its dividend
policy.
11
ITEM 6. SELECTED FINANCIAL DATA.
The selected statement of operations and balance sheet data for the five
fiscal years ended May 31, 1992, 1993, 1994, 1995 and 1996 are derived from
Summagraphics' audited consolidated financial statements. This selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Summagraphics"
and the Consolidated Financial Statements of Summagraphics and related notes
thereto included elsewhere herein. The following data is presented in
thousands except for per share data.
YEAR ENDED MAY 31,
-----------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Net sales..................... $77,295 $ 81,404 $ 77,755 $ 78,494 $ 64,273
Operating income (loss)....... 810 (16,750) 2,664 (10,623) (4,691)
Income (loss) before
extraordinary
gain and cumulative effect of
change in accounting method.. (1,231) (16,835) 2,142 (11,599) (5,527)
Extraordinary gain............ -- -- 645 -- --
Cumulative effect of change in
accounting for income taxes.. -- 411 -- -- --
Net income (loss)............. $(1,231) $(16,424) $ 2,787 $(11,599) $ (5,527)
Net income (loss) per common
share:
Income (loss) before
extraordinary
gain and cumulative effect of
change in accounting method.. $ (0.30) $ (3.89) $ 0.47 $ (2.56) $ (1.20)
Extraordinary gain............ -- -- 0.14 -- --
Cumulative effect of change in
accounting for income taxes.. -- 0.09 -- -- --
------- -------- -------- -------- --------
Net income (loss) per common
share........................ $ (0.30) $ (3.80) $ 0.61 $ (2.56) $ (1.20)
======= ======== ======== ======== ========
Weighted average shares used
in
computing net income (loss)
per common share............. 4,113 4,323 4,519 4,537 4,609
MAY 31,
-----------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital (deficit)... $23,982 $ 11,329 $ 11,923 $ 5,613 $ (1,275)
Total assets................ 61,086 52,276 47,336 53,601 43,078
Long-term debt.............. 5,261 3,627 947 1,579 761
Retained earnings
(accumulated
deficit)................... 1,213 (15,661) (13,830) (25,879) (31,406)
Stockholders' equity........ 39,039 22,314 24,077 14,404 7,808
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Report on Form 10-K contains statements which, to the extent that they
are not recitations of historical facts, constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All forward looking statements involve risks and uncertainties. The
forward looking statements in this Report on Form 10-K are intended to be made
subject to the safe harbor protections provided by Sections 27A and 21E.
12
The following table sets forth, for Summagraphics' fiscal years ended May
31, 1996, 1995 and 1994, items in the consolidated statements of operations of
Summagraphics as percentages of net sales. The table and the subsequent
discussion should be read in conjunction with the consolidated financial
statements and related notes thereto of Summagraphics included elsewhere
herein. For more detailed information concerning the Company after
consummation of the Exchange, see Item 1 above and Notes 12 and 13 to the
consolidated financial statements.
PERCENTAGE OF NET SALES
YEAR ENDED MAY
31,
------------------
1994 1995 1996
---- ---- ----
Net sales.................................................... 100 % 100 % 100 %
Cost of sales................................................ 65 74 76
Gross profit............................................... 35 26 24
Selling, general and administrative.......................... 24 28 27
Research and development..................................... 7 9 6
Restructuring and other charges.............................. -- 3 (1)
Operating income (loss).................................... 3 (14) (8)
Interest income (expense), net............................... * (1) (2)
Miscellaneous, net........................................... * * 1
Income (loss) before income taxes and extraordinary gain..... 3 (15) (9)
Provision for income taxes................................... -- * *
Income (loss) before extraordinary gain...................... 3 (15) (9)
Extraordinary gain........................................... 1 -- --
Net income (loss).......................................... 4 (15) (9)
- --------
* Not meaningful or less than 1%
COMPARISON OF FISCAL YEARS ENDED MAY 31, 1996 AND 1995
Net sales in fiscal 1996 decreased 18% to $64,273,000 from $78,494,000 in
fiscal 1995. Fiscal 1996 sales decreased in Europe and, to an even greater
extent, in the North America and Asia/Pacific sales regions. The decrease was
due primarily to a decrease in input and output product sales and, in the
North America and Asia /Pacific sales regions, service revenue, and was
partially offset by an increase in cutter sales and European service revenues.
Sales were significantly lower in the third quarter and part of the fourth
quarter of fiscal 1996 due principally to a lack of product availability
precipitated by suppliers' concerns about Summagraphics' liquidity problems.
Interim funding received in March from Lockheed Martin helped increase product
availability; however, the Company believes that fourth quarter revenues
continued to be negatively impacted due to longer vendor lead times in filling
orders and due to vendor concerns related to the Company's liquidity problems.
The decrease in output product sales reflects a decline in sales of pen
plotters and the inability to offset this decline with sales of Summagraphics'
SummaJet(TM) ink jet plotter. The SummaJet(TM) plotter was introduced later
than scheduled and experienced technical problems, hindering efforts to
increase sales of this product in the face of intense competition. The Company
also believes that customer uncertainty, both as to future product plans and
potential selling channel changes, caused by the announcement of
Summagraphics' intention to combine with CalComp had a negative impact on
sales in the third and fourth quarter of fiscal 1996 that cannot be
quantified.
Gross profit margin decreased to 24% in fiscal 1996 compared to 26% in the
prior year. This margin decrease occurred despite the absence of costs,
including severance, of outsourcing the manufacturing of its ink jet product
and inventory charges that negatively impacted margin percentage in fiscal
1995, and was principally due to lower sales volume and continued high fixed
manufacturing costs; reduced selling prices (particularly in the U.S. and
Asia/Pacific due to a change in Summagraphics' pricing/promotion strategy that
lowered many selling prices, while reducing promotional incentives that are
recorded as selling expenses); and price reductions in reaction to competitive
pricing actions particularly on output products.
13
Selling, general and administrative expenses as a percentage of net sales
decreased from 28%, or $21,940,000, in fiscal 1995 to 27%, or $16,994,000, in
fiscal 1996. This decrease was primarily due to abnormally high selling costs
incurred in fiscal 1995 caused by delays in the introduction of Summagraphics'
ink jet plotter product, lower selling costs in fiscal 1996 due to the
elimination of certain promotional programs (which were in part offset with
product price reductions) and continued efforts to reduce expenses in all
areas. In fiscal 1996 $510,000 of expenses related to the Exchange were
included in administrative expense.
Research and development expenditures as a percentage of net sales decreased
from 9% in fiscal 1995 to 6% in fiscal 1996 ($6,761,000 and $3,745,000,
respectively). This reduction reflects cost reduction programs put in place by
Summagraphics as well as the absence of any major development programs for
output products in fiscal 1996.
In the fourth quarter of fiscal 1996 Summagraphics reviewed the reserves
that it had provided in fiscal 1993 and fiscal 1995 related to the write-off
and abandonment of its Connecticut leased facility, determined that it had
over-accrued the anticipated remaining rent and operating costs for this
facility and, accordingly, reversed $346,000 of reserves.
Interest expense (net) increased to $1,267,000 for fiscal 1996 compared to
$588,000 in the prior year. This increase reflects the increase in average
short-term debt outstanding from the prior period as well as higher interest
rates on its U.S. borrowings as a result of renegotiated credit arrangements
in the U.S.
Other miscellaneous income and expense reflected income of $431,000 in
fiscal 1996 compared to expense of $201,000 in the prior year. This change in
miscellaneous income and expense is primarily due to currency transaction
gains and losses.
Summagraphics had a pre-tax loss of $5,527,000 in fiscal 1996 compared to a
pre-tax loss of $11,412,000 in the prior year. The decrease in operating
losses is primarily attributable to the absence of various non-
recurring/unusual charges which had been incurred by Summagraphics in the
fourth quarter of fiscal 1995.
Summagraphics did not record a tax provision in fiscal 1996 as a result of
the current period losses.
COMPARISON OF THE FISCAL YEARS ENDED MAY 31, 1995 AND 1994
Net sales increased 1% from fiscal 1994 to fiscal 1995. The net sales
increase reflects record European net sales, positive results of new
distribution alliances in Asia, and an increase in sales by CAD Warehouse.
These increases were offset by a decline in Summagraphics' North American
region, due to the accelerating erosion of the large format pen plotter
market, a later-than-planned introduction of the SummaJet(TM) ink jet plotter,
the loss of certain digitizer OEM business and the final sell out of large
format scanners, which were discontinued in fiscal 1994.
Summagraphics' gross profit margin decreased to 26% in fiscal 1995 from 35%
in fiscal 1994, due to high startup and manufacturing costs related to the new
large format ink jet plotter, as well as lower selling prices for
Summagraphics' older line of pen plotters. The reduction in gross margin also
reflects the costs, including severance, of outsourcing the manufacturing of
its ink jet product, which was completed during the first quarter of fiscal
1996 as well as significant charges for reserves for obsolete and excess
inventories.
Selling, general and administrative expenses as a percentage of net sales
increased from 24% or $18,934,000 in fiscal 1994 to 28% or $21,940,000 in
fiscal 1995. This increase reflects increased promotional costs related to the
delayed introduction of the SummaJet(TM) ink jet plotter and the lower than
expected sales volume generated by the product. Additional selling costs were
also incurred on other products in order to offset the lower revenues of the
ink jet product.
Summagraphics' research and development expenses, as a percentage of net
sales, increased from 7% in fiscal 1994 to 9% in fiscal 1995 principally due
to the increased spending associated with the development of the
14
new large format ink jet plotters introduced in fiscal 1995, new digitizer
products and the conversion of its SummaChrome product from primarily a paper
printer to a vinyl media printer targeted at the sign making market where
Summagraphics' cutter products are sold.
In the fourth quarter of fiscal 1995, Summagraphics incurred various non-
recurring/unusual charges, including charges related to lease abandonment,
manufacturing outsourcing, unusual new product introduction costs and excess
inventory allowances.
A lease abandonment charge of approximately $2.2 million was incurred
related to Summagraphics' decision to move substantially all remaining
activities at its Connecticut facility to Austin, Texas. This charge reflects
the remaining lease obligations, leasehold improvement and operating costs
associated with the lease which expires in November 1998.
Summagraphics incurred approximately $1.4 million in charges, primarily for
severance, related to the outsourcing of its ink jet and large format
digitizer manufacturing and general down-sizing of its North American
operations.
Delays in the initial introduction and subsequent manufacturing of the
SummaJet(TM) product resulted in approximately $2.2 million in charges in the
fourth quarter of fiscal 1995 for air freighting of materials required for
production and for delivery to customers where orders were fulfilled later
than requested, price credits to distributors for in-stock inventories related
to competitive price reductions to which Summagraphics responded in the fourth
quarter, rework related to adding a product feature to aid in the marketing of
the product, additional promotional expenses to relaunch the product after the
delayed introduction and write-downs of superseded parts inventories.
Summagraphics recorded write-downs for unused fixed assets and for excess
and obsolete parts and products inventories of approximately $3.2 million
primarily related to discontinued and/or excess plotter product lines and for
parts and supplies for its large format thermal wax printer that are not
required for the vinyl sign making application to which the product now
targeted.
As a result of the factors described above, Summagraphics had an operating
loss of $10,623,000 in fiscal 1995 compared to operating income of $2,664,000
in fiscal 1994.
Interest expense increased from $421,000 in fiscal 1994 to $609,000 in
fiscal 1995. This increase reflects an increase in average outstanding debt in
fiscal 1995 as compared to fiscal 1994. The increased debt is related
primarily to the increased inventory levels maintained by Summagraphics in
fiscal 1995.
Summagraphics had pre-tax loss of $11,412,000 in fiscal 1995 versus income
of $2,142,000 in fiscal 1994.
Summagraphics recorded a deferred tax provision of $187,000 related to one
of Summagraphics' Belgium subsidiaries which was profitable in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of May 31, 1996, Summagraphics' sources of liquidity consisted of on-hand
cash balances, a $4,000,000 revolving credit facility in Belgium, the loan
from Lockheed Martin pursuant to the Exchange Agreement, vendor credit and
cash generated from operations. Summagraphics' availability under its Belgian
bank credit is calculated based upon percentages, as determined by the bank,
of certain eligible receivables and to a lesser extent inventories. At that
time, Summagraphics did not have any availability under its then current
domestic credit facility. As of May 31, 1996, cash and short-term investments
totaled $1,752,000, and $781,000 was available under the Belgian revolving
credit line.
During fiscal 1996, Summagraphics utilized its cash balances and credit
facilities to fund operations, working capital, capital expenditures and
restructuring costs. Cash charges against the restructuring reserve
established in 1993 and the lease abandonment reserve established in 1995,
both related to the former corporate office lease space in Connecticut, were
$1,041,000. Additionally, $346,000 of these reserves were reversed back to
income in the fourth quarter of 1996 because the reserves exceeded the sum of
the remaining lease payments and maintenance costs.
15
As a result of its U.S. operating losses during early fiscal 1996,
Summagraphics violated certain financial covenants contained in a credit
agreement with its U.S. bank, the lease covering its Texas facility and a
capital expenditure loan agreement. In September 1995, all parties to these
agreements agreed to waive all events of default and to revise the respective
agreements. The amendment to the U.S. bank credit agreement was executed in
January, 1996. Significant new provisions of this agreement included an
extension of the agreement until September 30, 1996, repayment of the loan
based on remittance of certain percentages of daily cash collections, no new
loan advances except for one minor exception, additional loan repayments
required to be made based upon any proceeds from asset sales or equity
proceeds, an increased borrowing rate, new financial covenants and the
granting to the bank of warrants to purchase 37,500 shares of Summagraphics
Common Stock at $1.75 per share.
Subsequent to the signing of the amended bank credit agreement,
Summagraphics reported a net loss of approximately $1.6 million in the third
quarter ended February 29, 1996. This loss was caused primarily by
Summagraphics' inability to finance inventory purchases during the quarter due
to a severe tightening of vendor credit in the U.S., the bankruptcy of a key
European cutter supplier late in the quarter and the discontinuance of a
contract manufacturing relationship in the third quarter that resulted in
delayed and reduced product deliveries. As a result of this loss,
Summagraphics breached certain financial covenants under the amended bank
credit agreement. In a further modification to the credit agreement made in
March 1996, concurrent with the execution of the Exchange Agreement, the bank
agreed to forebear against declaring default with respect to certain financial
covenants for the period ending February 29, 1996 until the maturity of the
debt, the date of which was variable, depending upon certain circumstances.
This debt matured on July 23, 1996 and was repaid in full on that date in
connection with the closing of the Exchange. All claims against Summagraphics
by the bank were released as of the Closing date.
A revision to the Texas lease agreement was also executed in March 1996
modifying certain financial covenants to accommodate Summagraphics' losses.
Other new provisions of the lease include a rent reduction through September
30, 1996 and the granting of warrants to purchase 15,000 shares of
Summagraphics' Common Stock at a price of $2.00 per share. As of May 31, 1996,
Summagraphics was not, and the Company may not currently be, in compliance
with the revised terms and conditions of the amended lease agreement. The
Company expects that discussions with the landlord of the lease concerning
lease related issues, will result in an agreement that will be satisfactory to
both parties.
The capital expenditure credit line was also amended in March 1996 to
accommodate the third quarter losses. As of May 31, 1996, as a result of
continued losses in the fourth quarter, Summagraphics was in violation of
certain covenants under the line; however, all borrowings under this agreement
were repaid on the Closing date and all claims by the lender against
Summagraphics were released.
During fiscal 1996, as part of Summagraphics' efforts to address its
significant losses and liquidity constraints, Summagraphics retained the
services of Broadview Associates (an investment banking firm) to assist it
with matters relating to Summagraphics' strategic direction. As a result,
Summagraphics entered into the Exchange Agreement with Lockheed Martin as
described in the Proxy Statement, in connection with which, Lockheed Martin
agreed to loan Summagraphics $2.5 million to help alleviate Summagraphics'
lack of liquidity (the "Interim Financing"). The Interim Financing was
completed and funded in the fourth quarter and was used primarily to finance
inventory purchases and to pay vendor liabilities, enabling Summagraphics to
alleviate some of its product availability problems.
Pursuant to the Exchange Agreement, in connection with the closing of the
Exchange, Lockheed Martin and the Company entered into the following
intercompany agreements effective upon the Closing: (i) a Registration Rights
Agreement pursuant to which the Exchange Shares to be issued to Lockheed
Martin in connection with the Exchange have certain "demand" and "piggyback"
registration rights; (ii) an Intercompany Services Agreement pursuant to which
Lockheed Martin provides certain services to the Company which Lockheed Martin
had previously provided to CalComp; (iii) a Cash Management Agreement pursuant
to which Lockheed Martin manages, on a daily basis, the cash receipts and
disbursements of the Company and provides up to $2 million in credit; (iv) a
Tax Sharing Agreement pursuant to which Lockheed Martin and the Company
16
will allocate their respective tax liabilities and tax attributes and
establish procedures to be followed for tax years for which the Company and
its subsidiaries will be included in consolidated Federal income tax returns
of Lockheed Martin's consolidated group; (v) a Revolving Credit Agreement
pursuant to which Lockheed Martin provided borrowings in an aggregate
principal amount of approximately $28 million to the Company for payment of
certain indebtedness outstanding at closing, including, but not limited to
amounts outstanding under the Interim Financing, for costs incurred to
integrate CalComp and Summagraphics and for general working capital purposes;
and (vi) a Corporate Agreement pursuant to which Lockheed Martin and the
Company agreed, among other things, that for so long as Lockheed Martin owns
at least 50% of the Common Stock of the Company, at least two-thirds of the
members of the Board of Directors will consist of Lockheed Martin designees
and at least two directors will be "independent" of both Lockheed Martin and
the Company, and that the Company will not take any actions which would
violate, or cause an event of default by Lockheed Martin under provisions of
applicable law or regulation, any credit agreement or other material agreement
of Lockheed Martin, or any judgment, order or decree of a governmental body or
court. See the discussion in the Proxy Statement under "Relationship with
Lockheed Martin."
The Company believes that a key benefit to be realized from the Exchange
will be the cost savings from reduction in corporate overhead and elimination
of duplicative manufacturing operations and certain unprofitable product
lines. The anticipated benefits of the Exchange will not be achieved unless
the Company is successful in combining the Summagraphics and CalComp
operations in a smooth, timely and efficient manner. Subsequent to the
Exchange, the Company has proceeded with the integration and rationalization
of each company's development, administrative, finance, sales, product
support, distribution and marketing organizations, as well as the integration
of each company's product offerings and development activities. The Company
expects that the transition to a combined company will continue on into the
next calendar year and will require substantial attention from the new
management team, some members of which have not worked together previously and
have limited experience in integrating companies. Of particular significance
to successful integration of the combining companies' businesses will be
reassuring both companies' customers that product support and distribution
will continue uninterrupted. The requirements for management attention and the
costs incurred and difficulties encountered in the transition process may, at
least in the short term, have an adverse impact upon the Company's operations.
Since the Exchange, operating losses with respect to the operations of the
combined companies have continued and are expected to continue through at
least the third and fourth quarters of calendar 1996. In response, management
has undertaken and continues to consider actions to reduce operating expenses
and continues to focus on planned new product introductions scheduled for the
third and fourth quarters of calendar 1996.
In connection with the Exchange, the Company will have continuing access to
funding from Lockheed Martin. Cash shortfalls of up to $2 million will be
funded by Lockheed Martin on an overnight basis pursuant to the Cash
Management Agreement. In addition, up to $28 million will be available from
Lockheed Martin pursuant to the Revolving Credit Agreement. The proceeds of
the Revolving Credit Agreement will be utilized generally to repay certain
borrowings of Summagraphics and to fund costs associated with the integration
of CalComp and Summagraphics. As anticipated, following the Closing, the
Company's liquidity requirements have been higher than in previous periods
primarily as a result of costs incurred to integrate Summagraphics operations
with and into those of CalComp. However, management believes that cash
generated from operations and funds available under the Revolving Credit and
Cash Management Agreements with Lockheed Martin should be sufficient to fund
the Company's anticipated operating needs for the foreseeable future.
FOREIGN CURRENCY EXCHANGE RATES
Because the Company sources a substantial portion of its production from Far
East manufacturers, the cost of imported product can be affected by
fluctuations in the value of the U.S. dollar and import duties or
restrictions. Summagraphics does a substantial portion of its business
internationally. Summagraphics' products are priced in U.S. dollars in all
North American, Latin American, Asian and Pacific Rim countries. In Europe,
17
the Company prices its products in local currencies in Germany, England,
France, Belgium and in U.S. dollars in other European and Middle Eastern
countries. Approximately 50% of sales are denominated in local currencies and
50% in U.S. dollars. The European operations incur approximately the same
percentages of their expenses in either local currencies or dollars.
Accordingly, Summagraphics believes that it effectively matches cash inflows
and outflows and is not subject to material cash flow impacts due to currency
fluctuations.
NEW ACCOUNTING STANDARDS
During March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." The Company is
required to adopt Statement 121 in the period beginning June 1, 1996.
Statement 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company has not completed all of the
analyses required to estimate the impact of the new statement. As a result of
the consummation of the Exchange, any effect of Statement 121 will be
reflected as part of CalComp's purchase price allocation with respect to the
Summagraphics acquisition, since CalComp has adopted this accounting standard
effective January 1, 1996.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation," which requires adoption of the
disclosure provisions no later than fiscal years beginning after December 15,
1995. Companies are permitted to continue to account for such transactions
under Accounting Principles Board Opinion No. 25. "Accounting for Stock Issued
to Employees," but will be required to disclose in a note to the financial
statements pro forma net earnings and earnings per share as if the company had
applied the new method of accounting, as outlined in SFAS No. 123. The Company
will continue to account for such transactions according to APB 25.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PAGE
-----
Reports of Independent Auditors.......................................... 19-20
Consolidated Balance Sheets--May 31, 1995 and 1996....................... 21
Consolidated Statements of Operations--Years ended May 31, 1994, 1995 and
1996.................................................................... 22
Consolidated Statements of Stockholders' Equity--Years ended May 31,
1994, 1995 and 1996..................................................... 23
Consolidated Statements of Cash Flows--Years ended May 31, 1994, 1995 and
1996.................................................................... 24
Notes to Consolidated Financial Statements............................... 25-40
The consolidated financial statements contain pro forma statements of
operations for the six month periods ended June 25, 1995 and June 30, 1996,
giving effect to the Exchange. Additional pro forma disclosures, including a
pro forma balance sheet as of March 31, 1996, and detailed descriptions of the
pro forma adjustments are set forth on pages 51-57 of the Proxy Statement,
which information is incorporated herein by reference. Any statement contained
in a document incorporated by reference herein shall be deemed to be modified
or replaced for purposes of this report to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or replaces such
statement. Any such statement so modified or replaced shall not be deemed,
except as so modified or replaced, to constitute a part of this report.
18
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CalComp Technology, Inc.
We have audited the accompanying consolidated balance sheet of Summagraphics
Corporation and Subsidiaries as of May 31, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
As more fully described in Note 12 to the financial statements, on July 23,
1996 Summagraphics Corporation entered into an agreement to exchange shares of
its common stock for all the outstanding shares of CalComp Inc., a wholly-
owned subsidiary of Lockheed Martin Corporation. As a result of the exchange,
Lockheed Martin Corporation acquired control of Summagraphics Corporation and
CalComp Inc. became a wholly-owned subsidiary of Summagraphics Corporation.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Summagraphics
Corporation and Subsidiaries at May 31, 1996, and the consolidated results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Orange County, California
August 23, 1996
19
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Summagraphics Corporation:
We have audited the accompanying consolidated balance sheet of Summagraphics
Corporation and Subsidiaries as of May 31, 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the two-year period ended May 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Summagraphics Corporation and Subsidiaries as of May 31, 1995, and the results
of their operations and their cash flows for each of the years in the two-year
period ended May 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Austin, Texas
June 27, 1995, except as to notes 5 and 9 which are as of September 20, 1995
20
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31,
--------------------------
1995 1996
------------ ------------
ASSETS
Current assets:
Cash............................................. $ 560,000 $ 1,752,000
Accounts receivable (less allowance for doubtful
accounts of $954,000 in 1995 and $1,080,000 in
1996)........................................... 18,039,000 15,871,000
Inventories:
Materials........................................ 9,881,000 5,954,000
Work-in-process.................................. 2,504,000 1,334,000
Finished goods................................... 6,998,000 4,800,000
------------ ------------
19,383,000 12,088,000
Prepaid expenses and other current assets........ 1,136,000 741,000
------------ ------------
Total current assets........................... 39,118,000 30,452,000
Fixed assets:
Land............................................. 344,000 311,000
Building......................................... 1,616,000 1,497,000
Machinery and equipment.......................... 13,861,000 13,501,000
Furniture and fixtures........................... 1,241,000 909,000
Leasehold improvements........................... 1,044,000 840,000
Construction-in-progress......................... 389,000 58,000
------------ ------------
18,495,000 17,116,000
Less accumulated depreciation and amortization... (13,188,000) (13,485,000)
------------ ------------
Net fixed assets............................... 5,307,000 3,631,000
Goodwill, net of accumulated amortization.......... 8,452,000 8,315,000
Other intangible and other assets, net of
accumulated amortization (Note 3)................. 724,000 680,000
------------ ------------
Total assets................................... $ 53,601,000 $ 43,078,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 12,500,000 $ 11,603,000
Accrued liabilities (notes 2 and 4).............. 10,619,000 6,589,000
Notes payable (note 5)........................... 9,548,000 12,378,000
Current portion of long-term debt (note 5)....... 561,000 864,000
Current obligations under capital leases (note
9).............................................. 277,000 293,000
------------ ------------
Total current liabilities...................... 33,505,000 31,727,000
Long-term liabilities, less current portion:
Long-term debt (note 5).......................... 1,579,000 761,000
Capital lease obligations (note 9)............... 282,000 80,000
Deferred gain on sale of building................ 476,000 442,000
Deferred tax liability (note 8).................. 498,000 788,000
Restructuring, lease abandonment and other
charges (note 2)................................ 2,857,000 1,472,000
------------ ------------
Total long-term liabilities.................... 5,692,000 3,543,000
Commitments and contingencies (note 9)
Stockholders' equity (note 6):
Preferred stock, $.01 par value, authorized
5,000,000 shares................................ -- --
Common stock, $.01 par value, authorized
20,000,000 shares, issued 4,645,000 shares in
1995 and 4,688,000 shares in 1996............... 46,000 47,000
Additional paid-in capital....................... 39,111,000 39,274,000
Retained earnings (accumulated deficit).......... (25,879,000) (31,406,000)
Cumulative translation adjustment................ 1,601,000 368,000
------------ ------------
14,879,000 8,283,000
Less: Treasury stock, at cost--49,000 shares in
1995 and 1996................................... (465,000) (465,000)
Stockholder note receivable.................... (10,000) (10,000)
------------ ------------
Total stockholders' equity....................... 14,404,000 7,808,000
------------ ------------
Total liabilities and stockholders' equity..... $ 53,601,000 $ 43,078,000
============ ============
See accompanying notes to consolidated financial statements.
21
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MAY 31,
--------------------------------------
1994 1995 1996
----------- ------------ -----------
Net sales.............................. $77,755,000 $ 78,494,000 $64,273,000
Cost of sales.......................... 50,526,000 58,188,000 48,571,000
----------- ------------ -----------
Gross profit......................... 27,229,000 20,306,000 15,702,000
Selling, general and administrative.... 18,934,000 21,940,000 16,994,000
Research and development............... 5,631,000 6,761,000 3,745,000
Restructuring, lease abandonment and
other charges (note 2)................ -- 2,228,000 (346,000)
----------- ------------ -----------
Operating income (loss).............. 2,664,000 (10,623,000) (4,691,000)
----------- ------------ -----------
Other income (expense):
Interest income...................... 105,000 21,000 18,000
Interest expense..................... (421,000) (609,000) (1,285,000)
Miscellaneous, net................... (206,000) (201,000) 431,000
----------- ------------ -----------
(522,000) (789,000) (836,000)
----------- ------------ -----------
Income (loss) before income taxes and
extraordinary gain.................. 2,142,000 (11,412,000) (5,527,000)
Provision for income taxes (note 8).... -- 187,000 --
----------- ------------ -----------
Income (loss) before extraordinary
gain................................ 2,142,000 (11,599,000) (5,527,000)
Extraordinary gain..................... 645,000 -- --
----------- ------------ -----------
Net income (loss).................... $ 2,787,000 $(11,599,000) $(5,527,000)
=========== ============ ===========
Net income (loss) per common share:
Income (loss) before extraordinary
gain................................ $ 0.47 $ (2.56) $ (1.20)
Extraordinary gain................... 0.14 -- --
----------- ------------ -----------
Net income (loss) per common share... $ 0.61 $ (2.56) $ (1.20)
=========== ============ ===========
Weighted average shares used in
computing net income (loss) per common
share................................. 4,519,000 4,537,000 4,609,000
See accompanying notes to consolidated financial statements.
22
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1994, 1995 AND 1996
COMMON STOCK
-----------------
RETAINED TREASURY
ADDITIONAL EARNINGS CUMULATIVE STOCK AND
NUMBER PAID-IN (ACCUMULATED TRANSLATION STOCKHOLDER STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT NOTE EQUITY
--------- ------- ----------- ------------ ----------- ----------- -------------
Balance at May 31, 1993. 4,481,000 $45,000 $38,397,000 $(15,661,000) $ 7,000 $(475,000) $ 22,313,000
Sale of common stock
pursuant to the 1987
Employee Stock Plan.... 11,000 -- 42,000 -- -- -- 42,000
Sale of common stock
pursuant to the 1988
Employee Stock Purchase
Plan................... 47,000 -- 165,000 -- -- -- 165,000
Awards granted pursuant
to the 1987 stock plan. 7,000 -- 35,000 -- -- -- 35,000
Net income.............. -- -- -- 2,787,000 -- -- 2,787,000
Unrealized translation
loss................... -- -- -- -- (309,000) -- (309,000)
Dividends paid to
stockholders of CAD
Warehouse, Inc., an S-
corporation............ -- -- -- (956,000) -- -- (956,000)
--------- ------- ----------- ------------ ----------- --------- ------------
Balance at May 31, 1994. 4,546,000 45,000 38,639,000 (13,830,000) (302,000) (475,000) 24,077,000
Sale of common stock
pursuant to the 1987
Employee Stock Plan.... 59,000 1,000 304,000 -- -- -- 305,000
Sale of common stock
pursuant to the 1988
Employee Stock Purchase
Plan................... 37,000 -- 150,000 -- -- -- 150,000
Awards granted pursuant
to the 1987 stock plan. 3,000 -- 18,000 -- -- -- 18,000
Net loss................ -- -- -- (11,599,000) -- -- (11,599,000)
Unrealized translation
gain................... -- -- -- -- 1,903,000 -- 1,903,000
Dividends paid to
stockholders of CAD
Warehouse, Inc., an S-
corporation............ -- -- -- (450,000) -- -- (450,000)
--------- ------- ----------- ------------ ----------- --------- ------------
Balance at May 31, 1995. 4,645,000 46,000 39,111,000 (25,879,000) 1,601,000 (475,000) 14,404,000
Sale of common stock
pursuant to the 1988
Employee Stock Purchase
Plan................... 29,000 1,000 47,000 -- -- -- 48,000
Awards granted pursuant
to the 1987 Employee
Stock Plan............. 14,000 -- 37,000 -- -- -- 37,000
Issuance of warrants.... -- -- 79,000 -- -- -- 79,000
Net loss................ -- -- -- (5,527,000) -- -- (5,527,000)
Unrealized translation
loss................... -- -- -- -- (1,233,000) -- (1,233,000)
--------- ------- ----------- ------------ ----------- --------- ------------
Balance at May 31, 1996. 4,688,000 $47,000 $39,274,000 $(31,406,000) $ 368,000 $(475,000) $ 7,808,000
========= ======= =========== ============ =========== ========= ============
See accompanying notes to consolidated financial statements.
23
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31,
--------------------------------------
1994 1995 1996
----------- ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................... $ 2,787,000 $(11,599,000) $(5,527,000)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Gain on retirement of debt........... (645,000) -- --
Depreciation and amortization........ 3,580,000 3,629,000 2,349,000
Restructuring, lease abandonment and
other charges....................... -- 2,228,000 (346,000)
(Gain) loss on sale of fixed assets.. (4,000) 14,000 64,000
Compensation in form of stock........ 35,000 18,000 116,000
Accounts receivable................ 34,000 864,000 1,618,000
Inventories........................ 644,000 (6,985,000) 6,806,000
Prepaid expenses and other current
assets............................ (8,000) 56,000 (781,000)
Accounts payable................... 4,465,000 2,670,000 (684,000)
Accrued liabilities................ (4,828,000) 883,000 (4,168,000)
Other liabilities.................. (321,000) 18,000 (455,000)
----------- ------------ -----------
Net cash provided by (used in)
operating activities................ 5,739,000 (8,204,000) (1,008,000)
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................. (1,528,000) (1,927,000) (325,000)
Proceeds from sale of fixed assets... 55,000 10,000 81,000
Intangible assets.................... 38,000 644,000 96,000
----------- ------------ -----------
Net cash used in investment
activities.......................... (1,435,000) (1,273,000) (148,000)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid to stockholders
of CAD Warehouse, Inc............... (956,000) (450,000) --
Proceeds from long-term borrowings... -- 855,000 --
Proceeds from short-term borrowings.. -- 9,323,000 3,131,000
Proceeds from sales of common stock.. 208,000 455,000 48,000
Repayment of short-term debt......... (2,805,000) -- --
Repayment of long-term debt and
capital lease obligations........... (2,623,000) (466,000) (675,000)
----------- ------------ -----------
Net cash provided by (used in)
financing activities................ (6,176,000) 9,717,000 2,504,000
----------- ------------ -----------
Effect of exchange rate changes on
cash.................................. 42,000 (499,000) (156,000)
----------- ------------ -----------
Net change in cash..................... (1,830,000) (259,000) 1,192,000
Cash at beginning of year.............. 2,649,000 819,000 560,000
----------- ------------ -----------
Cash at end of year.................... $ 819,000 $ 560,000 $ 1,752,000
=========== ============ ===========
See accompanying notes to consolidated financial statements.
24
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1995, AND 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements included the accounts of Summagraphics
Corporation and its Subsidiaries, all of which are wholly owned (collectively
referred to as the "Company"). All significant intercompany balances and
transactions have been eliminated.
DESCRIPTION OF BUSINESS
The Company is primarily engaged in the manufacture and sale of digitizing
tablets (computer input devices), and plotters (computer output devices).
These products are used in applications with high performance computer
graphics systems such as computer-aided design ("CAD"). The Company engages in
the manufacture and sale of cutters. The Company also owns a mail-order
distributor of CAD related equipment and software. The Company's products are
sold by its sales force primarily through distributors and also to original
equipment manufacturers ("OEMs") which incorporate the Company's products into
their own computer products. The Company has a world-wide sales network
including OEMs, distributors and manufacturers' representatives and maintains
sales offices in the United States, Belgium, France and Germany.
USE OF ESTIMATES
The development and use of estimates is inherent in the preparation of
financial statements that are presented in accordance with generally accepted
accounting principles. Significant estimations are made relative to the
valuation of accounts receivable, inventories, income taxes and certain
accrued liabilities, including among others, those for warranties and
contingent liabilities where an unfavorable outcome is considered probable and
the amount of the loss is estimable. Actual results may differ from amounts
estimated.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less at the date of acquisition to be cash equivalents. The Company
had no cash equivalents at May 31, 1995 and 1996.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is applied on a
first-in, first-out (FIFO) basis; market is determined on the basis of
estimated net realizable value. The Company reserves for inventory that is
determined to be obsolete or substantially in excess of forecasted demand.
FIXED ASSETS
Fixed assets acquired are stated at cost. Equipment and furniture under
capital leases are stated at the lower of the present value of future minimum
lease payments or fair value at the inception of the lease.
Building depreciation is provided on the straight-line method over a period
of fifteen (15) years, depreciation of furniture and fixtures and machinery
and equipment (including amortization of assets covered by capital leases) is
provided on the straight-line method based on estimated useful lives ranging
from three (3) to ten (10) years. Amortization of leasehold improvements is
provided over the lesser of the estimated useful life of the improvement or
the life of the related lease. Maintenance and repairs are charged to
operations as incurred; significant betterments are capitalized.
25
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
INTANGIBLE ASSETS
Goodwill represents the amount by which the cost to purchase Houston
Instrument exceeded the fair market value of the related net assets. The
Company assesses the recoverability of its intangible assets by determining
whether the amortization of the intangible asset balance over its remaining
life can be recovered through projected future operating cash flows before
interest over the remaining amortization period. As a result of this ongoing
review, the Company reduced the original life of the goodwill from forty (40)
to twenty-five (25) years in 1995.
Other acquired identifiable intangible assets are amortized using the
straight-line method over lives not exceeding seven and one-half (7.5) years.
WARRANTY RESERVE
The Company provides warranties on its products for various periods. The
Company reserves for future warranty costs based on historical failure rates
and repair costs.
REVENUE RECOGNITION
The Company recognizes revenue when product is shipped to customers. Under
contract, certain customers may return a small percentage of the prior
quarter's net purchases provided the product is in resale condition and a new
order of equal value is placed for delivery within thirty (30) days. The
Company carries reserves for these and other returns based on historical
trends.
INCOME TAXES
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109) which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the 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.
PER SHARE DATA
Net income (loss) per common and common equivalent share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. Dilutive common equivalent shares consist of
stock options and warrants, calculated by using the Treasury Stock method.
FOREIGN EXCHANGE
Assets and liabilities of foreign subsidiaries generally are translated into
U.S. Dollars at exchange rates in effect at the end of the year whereas
revenues and expenses are translated using average exchange rates that
prevailed during the year. Gains and losses that result from this process are
shown as an adjustment in stockholders' equity. Exchange gains and losses
resulting from foreign currency transactions (transactions denominated in a
currency other than that of the entity's primary cash flow) are included in
operations in the period in which they occur.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expenditures
for the years 1994, 1995 and 1996 were $4,429,000, $5,435,000 and $3,119,000,
respectively.
26
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
BASIS OF PRESENTATION
The consolidated financial statements of the Company have been prepared to
give retroactive effect to the merger with CAD Warehouse, Inc., an S-
Corporation, on November 10, 1994 in exchange for 510,000 shares of the
Company's common stock. The merger was accounted for using the pooling of
interest method.
NEW ACCOUNTING STANDARDS
During March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." Summagraphics
is required to adopt Statement 121 in the period beginning June 1, 1996.
Statement 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Summagraphics has not completed all of the
analyses required to estimate the impact of the new statement. As a result of
the consummation of the Exchange (see Note 12), any effect of Statement 121
will be reflected as part of CalComp's purchase price allocation with respect
to the Summagraphics acquisition, since CalComp has adopted this accounting
standard effective January 1, 1996.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation," which requires adoption of the
disclosure provisions no later than fiscal years beginning after December 15,
1995. Companies are permitted to continue to account for such transactions
under Accounting Principles Board Opinion No. 25 (APB 25) "Accounting for
Stock Issued to Employees," but will be required to disclose in a note to the
financial statements pro forma net earnings and earnings per share as if the
company had applied the new method of accounting, as outlined in SFAS No. 123.
Summagraphics will continue to account for such transactions according to APB
25.
NOTE 2: RESTRUCTURING, LEASE ABANDONMENT AND OTHER CHARGES
In the fourth quarter of 1995, the Company decided to completely abandon its
leased facility in Connecticut, and accordingly recorded an additional
liability of $2,228,000 related to the Company's consolidation of operations
to Austin, Texas (in 1993, the Company recorded a liability of $2,606,000 for
the partial abandonment of this facility). This abandoned lease liability
relates to the remaining lease costs associated with the Company's Connecticut
facility. This liability will be funded over the approximately three (3) years
remaining on the lease.
In the fourth quarter of 1996, the Company reviewed the reserves that had
been recorded in 1993 and 1995 relating to the Connecticut lease and
determined that the reserves exceeded the sum of the remaining lease payments
and maintenance costs of the lease by $346,000 and accordingly reversed these
excess reserves.
NOTE 3: INTANGIBLE AND OTHER ASSETS
Significant components of intangible and other assets at May 31, 1995 and
1996 are as follows:
1995 1996
---------- -----------
Goodwill.......................................... $9,912,000 $10,059,000
Other acquired intangibles........................ 2,941,000 3,168,000
---------- -----------
12,853,000 13,227,000
Less accumulated amortization..................... 3,903,000 4,392,000
---------- -----------
8,950,000 8,835,000
Other assets...................................... 226,000 160,000
---------- -----------
$9,176,000 $ 8,995,000
========== ===========
27
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
NOTE 4: ACCRUED LIABILITIES
Significant components of accrued liabilities at May 31, 1995 and 1996 are
as follows:
1995 1996
----------- ----------
Payroll and other compensation.................... $ 1,223,000 $1,143,000
Federal, state, foreign, and payroll withholding
taxes............................................ 444,000 1,213,000
Sales returns and allowances...................... 3,026,000 677,000
Restructuring and lease abandonment costs......... 1,039,000 428,000
Other............................................. 4,887,000 3,128,000
----------- ----------
$10,619,000 $6,589,000
=========== ==========
NOTE 5: INDEBTEDNESS
A. LONG-TERM DEBT
Long-term debt at May 31, 1995 and 1996 consists of the following:
1995 1996
---------- ----------
Long-term debt...................................... $2,140,000 $1,625,000
Less current portion................................ 561,000 864,000
---------- ----------
$1,579,000 $ 761,000
========== ==========
The aggregate maturities of long-term debt are as follows:
1997................................................ $ 864,000
1998................................................ 95,000
1999................................................ 95,000
2000................................................ 95,000
2001 and thereafter................................. 476,000
----------
$1,625,000
==========
Components of long-term debt are as follows:
(i) In December 1994, the Company entered into a loan agreement (Loan
Agreement) that provided financing for capital expenditures through May 31,
1995, to a maximum amount of $2,500,000. The Company received funding under
the Loan Agreement in the amount of $1,153,000, through May 31, 1995, which
is payable over a period of three (3) years at a rate based on London
InterBank Offered Rate (LIBOR). At May 31, 1996 there was $769,000
outstanding under the Loan Agreement. The capital expenditure credit line
was amended in March 1996 to accommodate the third quarter losses. As of
May 31, 1996, as a result of continued losses in the fourth quarter, the
Company was in violation of certain covenants, which the lender waived. All
borrowings under the Loan Agreement were repaid on July 23, 1996 using the
proceeds of the Revolving Credit agreement provided by Lockheed Martin as a
result of the Exchange (see Note 12), and all claims by the lender against
the Company were released.
(ii) An $856,000 mortgage due in the year 2005, on the subsidiary's
facility in Gistel, Belgium.
At May 31, 1996 interest rates on long-term debt ranged from 7.55% to 10%
per annum.
28
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
B. NOTES PAYABLE
Note Payable to Belgian Bank
On October 12, 1992, one of the Company's Belgian subsidiaries entered into
a $4,000,000 Credit Agreement. This agreement has no defined expiration date
and requires the bank to give six (6) months notice of termination, if no
defaults exist. Borrowings under this agreement may be in the form of various
bank instruments, in various currencies and at various rates, at the Company's
option, and are secured by essentially all of the subsidiary's assets except
real property. Under the terms of the agreement, the subsidiary is subject to
certain covenants and restrictions. At May 31, 1996, $3,219,000 was
outstanding under this agreement, leaving $781,000 available to the Company.
Note Payable to U.S. Bank
In July, 1994, the Company entered into an $8,000,000 Credit Agreement (U.S.
Credit Agreement) with a bank. Under the terms of the agreement, the Company
is subject to certain covenants and restrictions. Borrowings under this
agreement may be in the form of various bank instruments at rates based on the
bank's base rate and are secured by substantially all of the Company's North
American assets.
On September 18, 1995 the bank agreed to amend the U.S. Credit Agreement due
to existing covenant violations. This amendment was finalized in January 1996.
Significant new provisions of the amendment included waiving existing
defaults, reducing the borrowing limit to $7,000,000, new financial covenants
and extension of the maturity date to September 30, 1996. Additionally, the
amendment required repayment of the loan based on daily collections and
suspended new borrowings. In consideration for the amendment, the Company
granted the bank warrants to purchase 37,500 shares of Summagraphics Common
Stock at $1.75 per share (market value at the date of issuance) and agreed to
apply a portion of proceeds from certain cash inflows outside the ordinary
course of business, if any, to outstanding principal.
As a result of its U.S. operating losses during the quarter ended February
29, 1996, Summagraphics breached certain financial covenants under the U.S.
Credit Agreement. The U.S. Credit Agreement was again modified in March 1996,
concurrent with the execution of the Exchange Agreement with Lockheed Martin,
and the bank agreed to forebear against declaring default with respect to the
breach of certain financial covenants until the maturity of the debt, the date
of which became variable under the modification. This debt matured on July 23,
1996 and was repaid in full on that date using the proceeds of the Revolving
Credit agreement provided by Lockheed Martin as a result of the Exchange. All
claims against the Company by the lender were released as of the repayment
date.
As of May 31, 1996, $6,643,000 was outstanding under this agreement, and no
new borrowings were available.
Other Notes Payable
Other notes payable of $16,000 were outstanding as of May 31, 1996.
Because the long-term debt and notes payable agreements are at variable
rates, the carrying value of those debt agreements approximates fair value.
29
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
C. MERGER AGREEMENT AND INTERIM FINANCING
In connection with the execution of the Exchange Agreement (see Note 12),
Lockheed Martin provided Summagraphics with a loan of up to $2.5 million to
fund Summagraphics' operations pending the Closing of the Exchange (the
"Interim Financing"). The Interim Financing was provided pursuant to a secured
convertible debenture (the "Convertible Debenture") bearing interest at 9-1/4%
per annum that is convertible upon an Event of Default (as defined therein)
into shares of common stock (the "Conversion Shares") at a conversion price of
$2.00 per share, unless the Exchange Agreement is terminated as a result of a
material breach by Lockheed Martin, in which case the conversion rate is
increased to $3.00 per share of common stock. The Convertible Debenture is
secured by a lien on certain of Summagraphics' assets. The maturity of the
Convertible Debenture was at the earlier of (i) the Closing, (ii) the
termination of the Exchange Agreement by either party under certain
circumstances, or (iii) July 31, 1996; provided that, if the Exchange
Agreement is terminated as a result of a material breach by Lockheed Martin,
the maturity date is extended to the first anniversary of the termination. In
connection with the issuance of the Convertible Debenture, Summagraphics
entered into a registration rights agreement with Lockheed Martin relating to
the Conversion Shares (the "Debenture Registration Rights"). Subject to
certain limitations, the Debenture Registration Rights entitle Lockheed Martin
(or its assignees) to cause Summagraphics to include Conversion Shares in any
registration statement filed by Summagraphics or to cause Summagraphics to
file and use its best efforts to cause to become effective a registration
statement under the Securities Act of 1933, as amended, in connection with any
public offering of Conversion Shares by Lockheed Martin. This loan matured on
July 23, 1996 and was repaid to Lockheed Martin on that day, using the
proceeds of the Revolving Credit agreement provided by Lockheed Martin as a
result of the Exchange. The loan is a short term debt instrument whose
carrying value approximates fair value.
NOTE 6: STOCKHOLDERS' EQUITY
A. COMMON STOCK RESERVED
The following shares of common stock are reserved for issuance at May 31,
1996:
Stock option plans:
Employee stock plan........................................... 1,198,000
Non-employee director stock option plan....................... 75,000
Performance unit plan......................................... 50,000
---------
1,323,000
Warrants........................................................ 202,500
Employee stock purchase plan.................................... 6,000
---------
1,531,500
=========
B. STOCK OPTION PLANS
The Company's 1987 Stock Option Plan provides for the granting to directors,
consultants, officers, and other employees of options to purchase a total of
1,350,000 shares of common stock.
The Company's 1988 Non-Employee Director Stock Option Plan ("Directors'
Plan") for outside directors provides for the issuance of options for 75,000
shares of common stock exercisable for a period of ten (10) years from the
date of option grant. Under the Directors' Plan, each member of the Board of
Directors ("Board") who is neither an employee nor an officer of the Company
will be automatically granted on October 31 of each year an option to purchase
3,000 shares of the Company's common stock.
30
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
In addition to these two plans, the Board may also grant qualified and non-
qualified options, stock purchase rights, and stock awards.
Any options, awards, etc., granted under these plans are required to be at
prices which are not less than the fair market value per share of common stock
on the date of grant. The options, awards, etc., shall either be fully
exercisable on the date of grant or shall become exercisable thereafter in
such installments as the Board may specify. Each option shall expire on the
date specified by the Board, subject to earlier termination provisions, but
not more than, under 1987 Stock Plan, ten (10) years and one day and, under
the Directors' Plan, ten (10) years, from the date of grant.
A summary of changes in stock issuable under employee and non-employee
option plans follows:
RANGE OF
SHARES EXERCISE PRICES
-------- ----------------
Outstanding at May 31, 1993................... 626,000 $3.75 - $13.25
Granted..................................... 543,000 .01 - 7.13
Exercised................................... (18,000) 3.50 - 7.13
Canceled.................................... (202,000) 3.13 - 11.50
-------- ----- ------
Outstanding at May 31, 1994................... 949,000 .01 - 13.25
-------- ----- ------
Granted..................................... 182,000 3.13 - 8.63
Exercised................................... (62,000) 3.13 - 8.00
Canceled.................................... (225,000) 3.13 - 13.25
-------- ----- ------
Outstanding at May 31, 1995................... 844,000 .01 - 9.00
-------- ----- ------
Granted..................................... 199,000 2.38 - 3.50
Exercised................................... (14,000) 2.38 - 2.38
Canceled.................................... (268,000) 2.75 - 9.00
-------- ----- ------
Outstanding at May 31, 1996................... 761,000 $ .01 - $ 9.00
======== ===== ======
At May 31, 1996, 422,000 options were exercisable at prices ranging from
$.01 to $9.00 a share.
C. EMPLOYEE STOCK PURCHASE PLAN
The 1988 Employee Stock Purchase Plan, which was approved by stockholders in
1989, provides that eligible employees may authorize payroll deductions
between 2% and 10% of their regular pay to purchase up to a maximum of 2,000
shares of the Company's common stock in a fiscal year. The purchase price of
the stock is the lesser of 85% of the average market price of the Company's
common stock on either the first or last business day of the Payment Period.
Payment Periods begin on June 1 and December 1 each year. The aggregate number
of shares which may be purchased under this plan is 250,000, of which 244,000
have been purchased as of May 31, 1996. Subsequent to May 31, 1996 this Plan
was suspended.
D. PERFORMANCE UNIT PLAN
The 1989 Performance Unit Plan, which was approved by stockholders in fiscal
1990, provides that officers and key employees of the Company may be granted
performance units by the Board or a committee comprised of at least three (3)
Board members (no such committee has been appointed). Performance units, which
are the equivalent of $100 each, may be granted either in cash, shares of
common stock or any combination thereof,
31
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
to participants upon the attainment of certain objectives as established by
the Board. No performance units have been granted as of May 31, 1996.
E. WARRANTS
The terms of warrants to acquire shares of common stock are as follows:
MAY 31, 1996 PRICE EXPIRATION DATE
------------ ----- ---------------
150,000 $9.00 May 1, 1997
15,000 $2.00 March 7, 2006
37,500 $1.75 December 6, 2000
-------
202,500
=======
NOTE 7: FOREIGN AND DOMESTIC OPERATIONS, EXPORT SALES, AND MAJOR CUSTOMERS
Sales, operating income (loss), and identifiable assets of the Company by
geographical area are as follows:
1994 1995 1996
Years Ended May 31, ----------- ------------ -----------
Net sales to unaffiliated
customers:
United States................. $42,175,000 $ 34,228,000 $29,017,000
Europe........................ 21,435,000 27,381,000 24,536,000
Other......................... 14,145,000 16,885,000 10,720,000
----------- ------------ -----------
$77,755,000 $ 78,494,000 $64,273,000
=========== ============ ===========
Operating income (loss):
United States................. $ 1,426,000 $ (9,647,000) $(4,508,000)
Europe........................ 954,000 2,208,000 1,482,000
Other......................... 284,000 (3,184,000) (1,665,000)
----------- ------------ -----------
$ 2,664,000 $(10,623,000) $(4,691,000)
=========== ============ ===========
1994 1995 1996
Balance at May 31, ----------- ------------ -----------
Identifiable assets:
United States................. $35,082,000 $ 34,898,000 $22,634,000
Europe........................ 18,751,000 21,987,000 20,783,000
Elimination................... (6,497,000) (3,284,000) (339,000)
----------- ------------ -----------
$47,336,000 $ 53,601,000 $43,078,000
=========== ============ ===========
During 1994, 1995, and 1996, export sales were $14,145,000, $16,885,000, and
$10,720,000, respectively. No one customer accounted for greater than ten
percent (10%) of net sales in any of these years.
32
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
NOTE 8: INCOME TAXES
A $187,000 provision for income taxes was recorded in 1995 (none was
recorded in 1994 or 1996). The provision (benefit) for income taxes consists
of the following for 1994, 1995, and 1996:
CURRENT DEFERRED TOTAL
Year Ended May 31, 1994 --------- -------- ---------
Federal................................... $ -- $ -- $ --
State..................................... -- -- --
Foreign................................... -- -- --
--------- -------- ---------
Total................................... $ -- $ -- $ --
========= ======== =========
CURRENT DEFERRED TOTAL
Year Ended May 31, 1995 --------- -------- ---------
Federal................................... $(400,000) $ -- $(400,000)
State..................................... -- -- --
Foreign................................... 21,000 566,000 587,000
--------- -------- ---------
Total................................... $(379,000) $566,000 $ 187,000
========= ======== =========
CURRENT DEFERRED TOTAL
Year Ended May 31, 1996 --------- -------- ---------
Federal................................... $ -- $ -- $ --
State..................................... -- -- --
Foreign................................... 51,000 (51,000) --
--------- -------- ---------
Total................................... $ 51,000 $(51,000) $ --
========= ======== =========
The components of the net deferred tax asset (liability) as of May 31, 1995
and 1996 were as follows:
U.S. FEDERAL
& STATE FOREIGN
As of May 31, 1995 ------------ ----------
Deferred tax assets:
Net operating loss carryforwards............. $ 3,598,000 $2,361,000
Inventory and warranty reserves.............. 1,792,000 --
Restructuring accruals....................... 2,283,000 51,000
Accounts receivable and return reserves...... 1,201,000 --
Tax credit carryforwards..................... 1,689,000 --
Other assets................................. 944,000 153,000
Valuation allowance.......................... (10,518,000) (79,000)
------------ ----------
Total deferred tax asset................... 989,000 2,486,000
------------ ----------
Deferred tax liabilities:
Property, plant, and equipment............... 989,000 --
Tax deductible goodwill...................... -- 2,984,000
------------ ----------
Total deferred tax liability............... 989,000 2,984,000
------------ ----------
Net deferred tax asset (liability)............. $ -- $ (498,000)
============ ==========
33
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
U.S. FEDERAL
& STATE FOREIGN
As of May 31, 1996 ------------ ----------
Deferred tax assets:
Net operating loss carryforwards............. $ 8,353,000 $1,503,000
Inventory and warranty reserves.............. 1,728,000 --
Restructuring accruals....................... 853,000 93,000
Accounts receivable and return reserves...... 405,000 --
Tax credit carryforwards..................... 1,476,000 --
Other assets................................. 820,000 288,000
Valuation allowance.......................... (13,243,000) (98,000)
------------ ----------
Total deferred tax asset................... 392,000 1,786,000
------------ ----------
Deferred tax liabilities:
Property, plant, and equipment............... 310,000 --
Other liabilities............................ 82,000 --
Tax deductible goodwill...................... -- 2,574,000
------------ ----------
Total deferred tax liability............... 392,000 2,574,000
------------ ----------
Net deferred tax asset (liability)............. $ -- $ (788,000)
============ ==========
The valuation allowance for deferred tax assets as of June 1, 1995 was
$10,597,000. The net change in the valuation allowance for the year ended May
31, 1996 was an increase of $2,744,000. Subsequently recognized tax benefits
relating to the valuation allowance for deferred tax assets as of May 31, 1996
will be allocated as follows:
Income tax benefit that would be reported in the
consolidated statement of operations........................ $13,087,000
Goodwill..................................................... 254,000
-----------
$13,341,000
===========
34
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
The provision (benefit) for income taxes varies from the amounts computed by
applying the U.S. Federal Income Tax rate of thirty-four percent (34%) as
follows:
1994 1995 1996
AMOUNT % AMOUNT % AMOUNT %
--------- ----- ----------- ----- ----------- -----
Income tax computed at
federal statutory rate. $ 947,000 34.0 $(3,880,000) (34.0) $(1,879,000) (34.0)
Increase (reduction)
resulting from:
Benefit of Subchapter S
Corporation status..... (333,000) (11.9) (156,000) (1.4) -- --
Change in the beginning
of the year balance of
the valuation allowance
for deferred tax assets
allocated to income tax
expense................ (690,000) (24.8) 2,256,000 19.8 2,744,000 49.6
Differing foreign tax
rates.................. 57,000 2.0 104,000 0.9 86,000 1.6
Contingency resolution.. -- -- -- -- (341,000) (6.2)
Benefit of foreign
eliminations........... -- -- -- -- (167,000) (3.0)
Benefit due to revisions
in deferred
tax balances........... -- -- -- -- (448,000) (8.1)
Amortization of
goodwill............... 26,000 .9 2,099,000 18.4 40,000 .7
Other differences....... (7,000) (.2) (236,000) (2.1) (35,000) (.6)
--------- ----- ----------- ----- ----------- -----
$ -- -- $ 187,000 1.6 $ -- --
========= ===== =========== ===== =========== =====
At May 31, 1996, the Company had available NOL carryforwards of
approximately $24,567,000 and $3,741,000 for U.S. and foreign tax reporting
purposes, respectively. The NOL carryforwards for tax reporting purposes
expire in varying amounts in the U.S. through the year 2011. The NOLs in
foreign jurisdictions generally carryforward indefinitely. Further, the
Company has general business credit carryforwards of approximately $854,000
which expire through the year 2008, foreign tax credits of $296,000 which
expire through the year 2000, and alternative minimum tax carryforwards of
$326,000 which have no expiration dates. As a result of a change in ownership
of the Company on July 23, 1996, the ultimate utilization of the Company's NOL
carryforwards and tax credits could be limited.
U.S. and foreign income (loss) from operations before federal, state, and
foreign income taxes are as follows:
1994 1995 1996
---------- ------------ -----------
U.S................................. $2,326,000 $(13,034,000) $(6,927,000)
Foreign............................. 461,000 1,622,000 1,400,000
---------- ------------ -----------
$2,787,000 $(11,412,000) $(5,527,000)
========== ============ ===========
The Company is currently undergoing an audit of its 1991 through 1993 U.S.
Federal income tax returns. There have been no material deficiencies asserted
by the Internal Revenue Service for the audit to date.
NOTE 9: COMMITMENTS AND CONTINGENCIES
A. LEASES
In May, 1992, the Company concluded a sale and leaseback of its Austin,
Texas facility. The Company recorded a $612,000 gain on the sale which was
deferred and is being amortized over the lease term. The lease is an eighteen
(18) year operating lease expiring in the year 2010. The lease provides for a
fixed rental charge, plus additional rent based on increases in the Consumer
Price Index. Under the terms of the agreement, the Company is subject to
certain covenants and restrictions. At May 31, 1995, the Company was in
default with certain of the covenants. On September 20, 1995, the lessor
committed to waive defaults at May 31, 1995 and to
35
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
forbear against exercising remedies to financial covenant violations in
exchange for commitments to specific performance by the Company through August
31, 1996. A revised Texas lease agreement was executed in March 1996 and also
contains revisions to certain financial covenants to accommodate the losses.
New provisions of this agreement include a rent reduction through September
30, 1996 and the granting of warrants to purchase 15,000 shares of Common
Stock at a price of $2.00 per share (market value at date of issuance) as well
as revised financial covenants. As of May 31, 1996 Summagraphics was not, and
the Company may not currently be, in compliance with the revised terms and
conditions of the amended lease agreement. However, the Company expects that
discussions with the landlord of the lease concerning lease related issues
will result in an agreement that will be satisfactory to both parties.
The Company leases various assets used in its operations, primarily
buildings and equipment. Substantially all of the leases provide that the
Company pay for maintenance and insurance.
Future minimum lease payments for leased capital assets total $394,000, of
which $21,000 represents interest. Capital leases and non-cancelable operating
leases, exclusive of the Connecticut facility, at May 31, 1996 require the
following annual minimum lease payments:
CAPITAL OPERATING
LEASES LEASES
-------- -----------
1997................................................. $310,000 $ 1,082,000
1998................................................. 66,000 965,000
1999................................................. 18,000 913,000
2000................................................. -- 878,000
2001................................................. -- 863,000
Later years.......................................... -- 7,763,000
-------- -----------
$394,000 $12,464,000
======== ===========
Rental expense on operating leases for 1994, 1995, and 1996 was $1,530,000,
$1,686,000 and $1,131,000, respectively. The original cost and net book value
of furniture and equipment under capital lease at May 31, 1996 was $828,000
and $22,000, respectively.
B. EMPLOYEE 401 (K) PLAN
The Company's 401(k) Plan covers all full-time employees who have completed
six (6) months of continuous employment and are eighteen (18) years of age or
older. Under the terms of the plan an employee may contribute up to twenty
percent (20%) of annual compensation, up to five percent (5%) of which may be
matched by the Company at 25%, 50%, 75% or 100% of the employee contribution
depending on years of service. Employee contributions vest fully upon
contribution while employer contributions vest twenty percent (20%) per year.
There were no employer contributions for 1994, 1995, or 1996. Additional
contributions may be authorized by the Board of Directors predicated on
Company performance.
C. LITIGATION
The Company is party to various legal actions and administrative proceedings
and subject to various claims arising in the normal course of business. The
Company believes that the disposition of these matters will not have a
material adverse effect on its financial position, results of operations or
cash flows taken as a whole.
36
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
NOTE 10: SUPPLEMENTARY CASH FLOW INFORMATION AND OTHER DATA
For the years ended May 31, 1994, 1995, and 1996 certain supplementary cash
flow information follows:
1994 1995 1996
-------- -------- ----------
Cash paid during the year for:
Interest.................................. $421,000 $609,000 $1,233,000
Income Taxes.............................. -- -- --
Non-Cash financing and investing activities,
capital leases............................. 175,000 15,000 83,000
NOTE 11: VALUATION AND QUALIFYING ACCOUNTS
For the years ended May 31, 1994, 1995, and 1996 certain supplementary
information regarding valuation and qualifying accounts follows:
BALANCES
AT CHARGED TO BALANCES
BEGINNING COST AND AT END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ---------- ---------- ----------- ----------
ALLOWANCE FOR DOUBTFUL RECEIVABLES:
1994 $1,119,000 $ 124,000 $ (130,000) $1,113,000
1995 $1,113,000 $ 35,000 $ (194,000) $ 954,000
1996 $ 954,000 $ 324,000 $ (198,000) $1,080,000
RESERVES FOR EXCESS & OBSOLETE INVENTORY:
1994 $4,195,000 $ 637,000 $ (606,000) $4,226,000
1995 $4,226,000 $1,497,000 $(1,009,000) $4,714,000
1996 $4,714,000 $ 385,000 $(1,291,000) $3,808,000
NOTE 12: SUBSEQUENT EVENTS
On July 23, 1996, the Company consummated the transaction contemplated in
the Plan of Reorganization and Agreement for the Exchange of Stock of CalComp
Inc. for Stock of Summagraphics Corporation (the "Exchange Agreement")
pursuant to which the Company issued to Lockheed Martin Corporation ("Lockheed
Martin") 40,742,957 shares of the Common Stock of the Company, representing
89.7% of the total outstanding shares of Common Stock of the Company following
such issuance, in exchange for all of the outstanding capital stock of CalComp
Inc. ("CalComp") (the "Exchange"). The number of shares of Common Stock of the
Company issued in the Exchange is subject to adjustment, as provided in the
Exchange Agreement, based on the equity and backlog of the Company and the
equity of CalComp as of July 23, 1996. In connection with the Exchange, the
name of the Company was changed to CalComp Technology, Inc. ("CalComp
Technology").
Prior to the Exchange, the number of authorized shares of common stock of
the Company was increased to 60,000,000. Concurrent with the exchange, the
CalComp Technology, Inc. 1996 Stock Option Plan for Key Employees (with Stock
Appreciation Rights) was approved, which provides for the issuance of
2,000,000 stock options and 2,000,000 rights. Additionally, several
intercompany agreements between CalComp Technology and Lockheed Martin were
entered into, including a Registration Rights agreement, an Intercompany
Services agreement, a Tax Sharing agreement, a Corporate agreement, a Cash
Management agreement, and a Revolving Credit agreement, providing a $28
million line of credit. All borrowings from the Company's U.S. bank, the
Convertible Debenture payable to Lockheed Martin, and the amounts due under
the Loan Agreement for capital expenditures were repaid in full on July 23,
1996 with proceeds from the Revolving Credit agreement, and the related
borrowing agreements were terminated.
37
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
As a result of the Exchange, Lockheed Martin acquired control of the Company
and CalComp became a wholly owned subsidiary of the Company. The Exchange will
be accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16 "Business Combinations". Because the Exchange is a reverse
acquisition for accounting purposes, CalComp is considered to be the acquirer
and the net assets of the Company will be revalued to their estimated fair
market values.
NOTE 13: PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited condensed financial information gives effect to the
Exchange. Since CalComp is considered the acquirer for accounting purposes,
the statements reflect the adoption of CalComp's year end, which is based on a
52/53 week fiscal year ending on the last Sunday in December. The unaudited
results of operations for CalComp are for the six months ended June 25, 1995
and June 30, 1996. The unaudited results of operations for the Company are for
the six months ended May 31, 1995 and 1996. Pro forma adjustments have been
made to reflect the financial impact of purchase accounting and other items
which would have been effected if the Exchange had taken place on December 26,
1994. Such adjustments include additional goodwill amortization offset in part
by a reduction in depreciation expense for assets that will be disposed.
Additionally, interest charges allocated to CalComp by Lockheed Martin, and
included in selling, general and administrative expenses, have been reversed
in a pro forma adjustment. Such interest had been allocated based on Lockheed
Martin's net investment in each of its subsidiaries. Future interest charges
to CalComp Technology will be based on average borrowings under a revolving
credit agreement between CalComp Technology and Lockheed Martin.
The pro forma statements of operations included in the Company's Proxy
Statement, dated June 24, 1996, disclosed that management of CalComp
Technology intended to dispose of the Company's CAD Warehouse subsidiary.
Management is re-evaluating such plans, and at this time, the disposal of such
entity is not certain. Accordingly, the results of operations for CAD
Warehouse remain in the pro forma results of operations for the six month
periods ended June 25, 1996 and June 30, 1996.
In connection with the Exchange, Summagraphics will record in its operating
results for the period ended July 23, 1996, reserves and allowances of
approximately $2.5 million, $8.0 million and $1.5 million for accounts
receivable, inventory, and warranty obligations, respectively. These reserves
and allowances are necessary because the plans of the new management of
CalComp Technology call for the discontinuance of certain product lines.
38
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
The pro-forma results are based on historical data and may not be indicative
of the future results of CalComp Technology.
Six Months Ended June 25, 1995
HISTORICAL
------------------------- PRO FORMA
CALCOMP SUMMAGRAPHICS ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Net sales.................... $ 141,276 $ 39,422 $ 180,698
Cost of sales................ 100,464 32,893 133,357
---------- --------- ----------
Gross profit............... 40,812 6,529 47,341
Selling, general and
administrative expenses..... 40,310 12,216 $(1,395) 51,131
Research and development..... 8,794 3,490 12,284
---------- --------- ----------
Operating loss............... (8,292) (9,177) (16,074)
Other income and expenses:
Interest income............ -- 8 8
Interest expense........... (12) (465) (477)
Miscellaneous, net......... 1,362 (2,465) (1,103)
---------- --------- ----------
Loss before income taxes..... (6,942) (12,099) (17,646)
Income tax provisions........ 2,007 187 2,194
---------- --------- ----------
Net loss..................... $ (8,949) $ (12,286) $ (19,840)
========== ========= ==========
Weighted average number of
common shares outstanding... 1,000 4,570,000 45,313,000
Net loss per common share.... $(8,949.00) $ (2.69) $ (0.44)
========== ========= ==========
Six Months ended June 30, 1996
HISTORICAL
-------------------------- PRO FORMA
CALCOMP SUMMAGRAPHICS ADJUSTMENTS PRO FORMA
----------- ------------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales................... $ 102,806 $ 30,241 $ 133,047
Cost of sales............... 80,668 23,080 103,748
----------- --------- ----------
Gross profit.............. 22,138 7,161 29,299
Selling, general and
administrative expenses.... 36,456 8,321 $(1,395) 43,382
Research and development.... 10,098 1,576 11,674
----------- --------- ----------
Operating loss.............. (24,416) (2,736) (25,757)
Other income and expenses:
Interest income........... 729 10 739
Interest expense.......... -- (733) (733)
Miscellaneous, net........ 14 323 337
----------- --------- ----------
Loss before income taxes.... (23,673) (3,136) (25,414)
Income tax provisions....... 618 -- 618
----------- --------- ----------
Net loss.................... $ (24,291) $ (3,136) $ (26,032)
=========== ========= ==========
Weighted average number of
common shares outstanding.. 1,000 4,618,000 45,361,000
Net loss per common share... $(24,291.00) $ (0.68) $ (0.57)
=========== ========= ==========
39
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1994, 1995, AND 1996
CalComp's revenues for the six months ended June 30, 1996 declined $38.5
million from the six months ended June 25, 1995, and gross margin decreased
from 29% to 22%. Product revenues and gross margin were adversely impacted
primarily by competitive actions and by continuing difficulties associated
with a new product introduction. Additionally, service revenues in the first
quarter of 1996 continued to decline resulting from the transition to lower
cost products, and a lower rate of service contract renewals as older
generation products are retired from service.
The companies that participate in the industry are highly competitive.
Reduced unit selling prices and shortened product life cycles are expected to
continue to place pressure on CalComp's revenue and margin. As a result of
such pressures, CalComp experienced a loss of $3.6 million in July of 1996.
Losses are expected to continue through at least the third and fourth quarters
of 1996. In response, management has undertaken and continues to consider
actions to reduce operating expenses and continues to focus on planned new
product introductions scheduled for the third and fourth quarters of calendar
1996.
CalComp's general and administrative expenses decreased by $3.9 million as
compared to the six months ended June 25, 1995 primarily because the 1995
period included $4.5 million of expenses related to facilities closures and
workforce reductions. This decrease was offset by increased goodwill
amortization of $0.8 million resulting from the decision to shorten CalComp's
original goodwill amortization period of 40 years to 15 years prospectively
effective January 1, 1996. Product development expenses increased $1.3 million
compared with the six month period ended June 25, 1995 as a result of ongoing
new product development.
CalComp's interest income of $0.7 million recognized in the six months ended
June 30, 1996 relates to a refund received as a result of a favorable
determination by U.K. taxing authorities that CalComp is entitled to interest
on amounts refunded and recognized as a benefit in its provision for foreign
income taxes for the year ended December 31, 1995. Miscellaneous, net,
decreased by $1.3 million for the six months ended June 30, 1996 compared to
the 1995 period as a result of a reduction in foreign currency gains and a
reduction in the profitability of CalComp's minority interest in its Japanese
joint venture, which is accounted for on the equity method in other income.
Income taxes of $0.6 million for the six months ended June 30, 1996 resulted
from provision of foreign income taxes for profitable foreign CalComp
locations.
40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company has no disagreements on accounting or financial disclosure
matters with its independent auditors. Subsequent to the completion of the
"Exchange," the Company appointed Ernst & Young LLP as its independent
auditors replacing KPMG Peat Marwick LLP.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Information concerning directors and executive officers of the Company
required under this item is incorporated herein by this reference to the
information in the Proxy Statement captioned "Management of New CalComp After
the Exchange" on pages 93 through 95. Each of the individuals listed therein
have been elected directors and/or appointed executive officers of the Company
as anticipated thereby. In addition, John J. Millerick was appointed Senior
Vice President, Chief Financial Officer and Treasurer of the Company on
August 12, 1996. Mr. Millerick, age 48, previously served as Vice President-
Finance for Digital Equipment Corporation's Personal Computer Business Unit
from December of 1994 until August of 1995. Before joining Digital, Mr.
Millerick served 12 years at Wang Laboratories in several management
positions, leaving as Vice President-Corporate Controller and Acting Chief
Financial Officer.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
ten percent (10%) of a registered class of the Company's equity securities, to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of Common Stock and other equity
securities of the Company. Executive officers, directors and greater than ten-
percent (10%) stockholders are required by regulation promulgated by the
Securities and Exchange Commission to furnish the Company with copies of all
Section 16(a) forms they file.
To Summagraphics' knowledge, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent (10%)
beneficial owners have been complied with.
ITEM 11. EXECUTIVE COMPENSATION.
Information concerning Executive Compensation required under this item is
incorporated herein by this reference to the information in the Proxy
Statement captioned "Interests of Certain Persons in the Exchange" on page 42,
"Compensation of Directors" on page 94, "Compensation of Directors" on
page 102 and "Summagraphics Executive Compensation and Other Information" on
pages 104 through 108.
41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of Company Common Stock as of July 31, 1996 by (i) each stockholder
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each current director and each named executive
officer of the Company, and (iii) all current directors and current executive
officers of the Company as a group. Except as otherwise indicated, the Company
believes that the current beneficial owners of Common Stock listed below,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable.
COMMON STOCK
BENEFICIALLY OWNED
---------------------
NUMBER OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES OF SHARES
- --------------------------------------- ---------- ----------
Lockheed Martin Corporation(2) ........................... 40,742,957 89.7%
6801 Rockledge Drive
Bethesda, Maryland 20817
Peter B. Teets............................................ -- --
Gary R. Long.............................................. -- --
Gary P. Mann.............................................. -- --
Terry F. Powell........................................... -- --
Gerald W. Schaefer........................................ -- --
Neil A. Knox.............................................. -- --
Kenneth R. Ratcliffe...................................... -- --
Michael S. Bennett(3)(6).................................. 126,168 *
David G. Osowski(4)(6).................................... 74,500 *
Robert B. Sims(5)(6)...................................... 71,999 *
Dennis Jolly(6)........................................... 20,000 *
Darius C. Power(6)........................................ -- --
All current directors and executive officers as a group... -- --
- --------
* Less than 1%.
(1) Except as otherwise noted, each person or group named in the table has
sole investment and voting power with respect to all shares of Common
Stock shown as beneficially owned by such person or group.
(2) Pursuant to the Exchange Agreement, the Company issued to Lockheed Martin
Corporation 40,742,957 shares of its Common Stock. The number of such
shares are subject to adjustment for certain events discussed in the Proxy
Statement. The Company does not believe that such adjustments, if any,
will materially effect Lockheed Martin's interest in the Company.
(3) Includes 121,249 shares which Mr. Bennett has the right to acquire
pursuant to the exercise of stock options which are exercisable on July
31, 1996 or within sixty days thereafter. Such options expire on July 23,
1998.
(4) Includes 67,499 shares which Mr. Osowski has the right to acquire pursuant
to the exercise of stock options which are exercisable on July 31, 1996 or
within sixty (60) days thereafter. Such options expire on July 23, 1998.
(5) Consists solely of options to purchase 71,999 shares which are exercisable
on July 31, 1996 or within sixty (60) days thereafter. Such options expire
on July 23, 1998.
(6) Messrs. Bennett, Osowski, Sims, Jolly and Power resigned as executive
officers of the Company in connection with the Exchange.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item is incorporated herein by this
reference to the information in the Proxy Statement captioned "Interests of
Certain Persons in the Exchange" on pages 42 and 43, "Relationship with
Lockheed Martin" on pages 71 through 76 and "Certain Relationships and Related
Transactions" on page 109.
42
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) Consolidated Financial Statements.
The following consolidated financial statements of the Company and the
reports of independent auditors' are on pages 19 through 40 hereof.
Reports of Independent Auditors
Consolidated Balance Sheets--May 31, 1995 and 1996
Consolidated Statements of Operations--Years ended May 31, 1994, 1995 and
1996
Consolidated Statements of Stockholders' Equity--Years ended May 31, 1994,
1995 and 1996
Consolidated Statements of Cash Flows--Years ended May 31, 1994, 1995 and
1996
Notes to Consolidated Financial Statements
The consolidated financial statements contain pro forma statements of
operations for the six month periods ended June 25, 1995 and June 30, 1996,
giving effect to the Exchange. Additional pro forma disclosures, including a
pro forma balance sheet as of March 31, 1996, and detailed descriptions of the
pro forma adjustments are set forth on pages 51-57 of the Proxy Statement,
which information is incorporated herein by reference. Any statement contained
in a document incorporated by reference herein shall be deemed to be modified
or replaced for purposes of this report to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or replaces such
statement. Any such statement so modified or replaced shall not be deemed,
except as so modified or replaced, to constitute a part of this report.
All Financial Statement Schedules have been omitted because they are not
applicable or because the applicable disclosures have been included in the
Consolidated Financial Statements or in the Notes thereto.
(2) Lists of Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
2 Plan of Reorganization and Agreement for the Exchange of Stock of
CalComp Inc. for Stock of Summagraphics Corporation by and among
Lockheed Martin Corporation, a Maryland corporation, CalComp Inc., a
California corporation, and Summagraphics Corporation, a Delaware
corporation, as amended.
Fourth Amended and Restated Certificate of Incorporation of the
3.1 Company.
3.2 Bylaws of the Company.
4.1 8% Convertible Subordinated Note due May 1, 1995 of Summagraphics
Corporation (filed as
Exhibit 2 to the Company's Current Report on Form 8-K, dated May 14,
1990, and incorporated herein by this reference).
10.1 Lease between 330 Realty Associates and the Company dated May 28, 1987
(filed as Exhibit 10.18 to the Company's Registration Statement on
Form S-1 (No. 33-15658) and incorporated herein by this reference).
10.2 1985 Employee Stock Purchase Plan (filed as Exhibit 10.04 to the
Company's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
10.3 1984 Executive Stock Purchase Plan, as amended (filed as Exhibit 10.05
to the Company's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
10.4 Form of Stock Purchase Agreement under 1984 Executive Stock Purchase
Plan (filed as Exhibit 10.06 to the Company's Registration Statement
on Form S-1 (No. 33-15658) and incorporated herein by this reference).
10.5 1987 Stock Plan, as amended (filed as Exhibit 10.12 to the Company's
Form 10-K for fiscal year 1994 and incorporated herein by reference).
43
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.6 1989 Performance Unit Plan (filed as Exhibit 10.11) to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1989
(File No. 0-16071) and incorporated herein by this reference).
10.7 Form of Employment Agreement between Summagraphics Corporation and
senior executive officers (filed as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended
May 31, 1989 (File No. 0- 16071) and incorporated herein by this
reference).
10.8 Management Bonus Plan letter (filed as Exhibit 10.09 to the Company's
Registration Statement on Form S-1 (No. 33-15658) and incorporated
herein by this reference).
10.9 The Cash or Deferral Profit Sharing Plan (filed as Exhibit 10.10 to
the Company's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
10.10 Amended and Restated Shareholders' Agreement, as amended (filed as
Exhibit 10.14 to the Company's Registration Statement on Form S-1 (No.
33-15658) and incorporated herein by this reference).
10.11 Second Amendment to Amended and Restated Shareholders' Agreement, as
amended (Exhibit 10.13) (filed as Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the fiscal year ended
May 31, 1988 (File No. 0-16071) incorporated herein by this
reference).
10.12 Agreement of Sale, dated as of March 14, 1990, by and between Ametek
and Summagraphics Corporation (filed as Exhibit 1 to the Company's
Current Report on Form 8-K, dated May 14, 1990, and incorporated
herein by reference).
10.13 Registration Rights Agreement, dated as of May 1, 1990, between the
Company and Ametek, Inc. (filed as Exhibit 3 to the Company's Current
Report on Form 8-K, dated May 14, 1990, as amended on
July 13, 1990 and August 15, 1990 and incorporated herein by this
reference).
10.14 Termination Agreement dated as of May 31, 1994 to terminate the
Registration Rights Agreement dated May 1, 1990, between Ametek, Inc.
and Summagraphics Corporation (filed as Exhibit 10.21 to the Company's
Form 10-K for fiscal year 1994 and incorporated herein by reference).
10.15 Registration Rights Agreement, dated as of May 25, 1994, between
Ametek, Inc. and Summagraphics Corporation (filed as Exhibit 10.22 to
the Company's Form 10-K for fiscal year 1994 and incorporated herein
by reference).
10.16 Lease Agreement dated as of May 28, 1992 by and between QRS 10-12
(TX), Inc. and QRS 11-5 (TX), Inc., as landlord, and Summagraphics
Corporation, as tenant, on premises located at 8500 Cameron Road,
Austin, Texas in connection with the sale and leaseback of that
property (filed as Exhibit 10.24 to the Company's Annual Report for
the fiscal year ended May 31, 1992
(File No. 0-16071) and incorporated herein by this reference).
10.17 Employment Agreement, dated April 16, 1993, between the Company and
Michael S. Bennett (filed as an Exhibit to the Company's Annual 10-K
for the fiscal year ended May 31, 1993
(File No. 0-16071) and incorporated herein by this reference).
10.18 Letter of Credit Agreement dated September 9, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993 (File No. 0-16071) and incorporated herein by
this reference).
10.19 Deed of Pledge of Business dated September 9, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993 (File No. 0-16071) and incorporated herein by
this reference).
10.20 Acceptance of Subordination dated October 12, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993 (File No. 0-16071) and incorporated herein by
this reference).
44
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.21 Amendment No. 1 to the Lease Agreement, dated as of August 27, 1993,
between QRS 10-12 (TX), Inc. and QRS (TX), Inc. as landlord and
Summagraphics Corporation, as tenant (filed as an Exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended May 31,
1993
(File No. 0-16071) and incorporated herein by this reference).
10.22 Employment Modification Agreement dated as of April 25, 1995, by and
between the Company and Michael S. Bennett (filed as an Exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended May 31,
1995 (File No. 0-16071) and incorporated herein by reference).
10.23 Credit Agreement dated as of July 18, 1994 by and between the Company
and Silicon Valley Bank (filed as an Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1995 (File No.
0-16071) and incorporated herein by reference).
10.24 Security Agreement dated as of December 13, 1994 between the Company
and Heller Financial, Inc. (filed as an Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1995
(File No. 0-16071) and incorporated herein by reference).
10.25 Amendment dated as of June 1, 1995 of the Security Agreement dated as
of December 13, 1994 between the Company and Heller Financial, Inc.
(filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1995 (File No. 0-16071) and incorporated
herein by reference).
10.26 Asset Purchase Agreement dated as of November 10, 1994 among the
Company, CAD Warehouse, Inc. (a Nevada corporation), CAD Warehouse,
Inc. (a Delaware corporation), John G. Panutsos, Rosemary Wollet, and
David C. Hoffer (filed as an Exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1995 (File No. 0-16071)
and incorporated herein by reference).
10.27 Amendment No. 1 to Form S-3 Registration Statement under the
Securities Act of 1933 dated April 3, 1995 relating to the
registration of 133,323 shares of the Company's Common Stock (filed as
an Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1995
(File No. 0-16071) and incorporated herein by reference).
10.28 Form 8 Amendment No.1 to Form 8-K Report of the Company (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1995 (File No. 0-16071) and incorporated herein by
reference).
10.29 Amendment No. 2 dated as of April 12, 1995 of the Lease Agreement
dated as of May 28, 1992, by and between QRS 10-12 (TX), Inc. and QRS
11-5 (TX), Inc. and the Company (filed as an Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1995
(File No.
0-16071) and incorporated herein by reference).
10.30 Manufacturing Agreement dated as of September 13, 1995 between the
Company and Harvard Manufacturing Ventures, LLC (filed as an Exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1995 (File No. 0-16071) and incorporated herein by reference).
10.31 License Agreement dated as of July 31, 1995 between the Company and
Sharp Corporation (filed as an Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1995 (File No. 0-16071)
and incorporated herein by reference).
10.32 Amendment dated as of March 7, 1996 of the Lease Agreement dated as of
May 28, 1992, by and between QRS 10-12 (TX), Inc. and QRS 11-5 (TX),
Inc. and the Company.
10.33 Waiver dated as of March 15, 1996 of the Security Agreement dated as
of December 13, 1994 between the Company and Heller Financial, Inc.
10.34 Loan Document Modification Agreement dated December 6, 1995 to the
Credit Agreement dated as of July 18, 1994 by and between the Company
and Silicon Valley Bank.
45
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.35 First Amendment dated March 20, 1996 to the Loan Document Modification
Agreement dated December 6, 1995 by and between the Company and
Silicon Valley Bank.
21 Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP.
99 Proxy Statement of the Company filed on June 24, 1996.
REPORTS ON FORM 8-K
Reports on Form 8-K filed by the Company during the fourth quarter of the
Company's fiscal year ended May 31, 1996 were as follows:
See Forms 8-K dated:
March 26, 1996 filed on April 1, 1996 (Item 5. Other Events)
May 11, 1996 filed on May 21, 1996 (Item 5. Other Events)
46
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, CALCOMP TECHNOLOGY, INC. HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CALCOMP TECHNOLOGY, INC.
/s/ Gary R. Long
By: ________________________________
GARY R. LONG
President and Chief Executive
Officer
September 11, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING ON BEHALF OF CALCOMP TECHNOLOGY,
INC. AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Gary R. Long President, Chief Executive September 11,
____________________________________ Officer, Director (Principal 1996
GARY R. LONG Executive Officer)
/s/ John J. Millerick Chief Financial Officer September 11,
____________________________________ (Principal Financial and 1996
JOHN J. MILLERICK Accounting Officer)
/s/ Peter B. Teets Chairman of the Board of September 11,
____________________________________ Directors 1996
PETER B. TEETS
/s/ Gary P. Mann Director September 11,
____________________________________ 1996
GARY P. MANN
/s/ Terry F. Powell Director September 11,
____________________________________ 1996
TERRY F. POWELL
/s/ Gerald W. Schaefer Director September 11,
____________________________________ 1996
GERALD W. SCHAEFER
/s/ Neil A. Knox Director September 11,
____________________________________ 1996
NEIL A. KNOX
/s/ Kenneth R. Ratcliffe Director September 11,
____________________________________ 1996
KENNETH R. RATCLIFFE
47
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
2 Plan of Reorganization and Agreement for the Exchange of Stock of
CalComp Inc. for Stock of Summagraphics Corporation by and among
Lockheed Martin Corporation, a Maryland corporation, CalComp Inc., a
California corporation, and Summagraphics Corporation, a Delaware
corporation, as amended.
3.1 Fourth Amended and Restated Certificate of Incorporation of the
Company.
3.2 Bylaws of the Company.
4.1 8% Convertible Subordinated Note due May 1, 1995 of Summagraphics
Corporation (filed as
Exhibit 2 to the Company's' Current Report on Form 8-K, dated May 14,
1990, and incorporated herein by this reference).
10.1 Lease between 330 Realty Associates and the Company dated May 28, 1987
(filed as Exhibit 10.18 to the Company's Registration Statement on
Form S-1 (No. 33-15658) and incorporated herein by this reference).
10.2 1985 Employee Stock Purchase Plan (filed as Exhibit 10.04 to the
Company's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
10.3 1984 Executive Stock Purchase Plan, as amended (filed as Exhibit 10.05
to the Company's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
10.4 Form of Stock Purchase Agreement under 1984 Executive Stock Purchase
Plan (filed as Exhibit 10.06 to the Company's Registration Statement
on Form S-1 (No. 33-15658) and incorporated herein by this reference).
10.5 1987 Stock Plan, as amended (filed as Exhibit 10.12 to the Company's
Form 10-K for the fiscal year 1994 and incorporated herein by this
reference).
10.6 1989 Performance Unit Plan (filed as Exhibit 10.11) to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1989
(File No. 0-16071) and incorporated herein by this reference.
10.7 Form of Employment Agreement between Summagraphics Corporation and
senior executive officers (filed as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended
May 31, 1989 (File No. 0-16071) and incorporated herein by this
reference).
10.8 Management Bonus Plan letter (filed as Exhibit 10.09 to the Company's
Registration Statement on Form S-1 (No. 33-15658) and incorporated
herein by this reference).
10.9 The Cash or Deferral Profit Sharing Plan (filed as Exhibit 10.10 to
the Company's Registration Statement on Form S-1 (No. 33-15658) and
incorporated herein by this reference).
10.10 Amended and Restated Shareholders' Agreement, as amended (filed as
Exhibit 10.14 to the Company's Registration Statement on Form S-1 (No.
33-15658) and incorporated herein by this reference).
10.11 Second Amendment to Amended and Restated Shareholders' Agreement, as
amended (Exhibit 10.13) (filed as Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1988
(File No. 0-16071) incorporated herein by this reference).
10.12 Agreement of Sale, dated as of March 14, 1990, by and between Ametek
and Summagraphics Corporation (filed as Exhibit 1 to the Company's
Current Report on Form 8-K, dated May 14, 1990, and incorporated
herein by reference).
10.13 Registration Rights Agreement, dated as of May 1, 1990, between the
Company and Ametek, Inc. (filed as Exhibit 3 to the Company's Current
Report on Form 8-K, dated May 14, 1990, as amended on July 13, 1990
and August 15, 1990 and incorporated herein by this reference).
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.14 Termination Agreement dated as of May 31, 1994 to terminate the
Registration Rights Agreement dated May 1, 1990, between Ametek, Inc.
and Summagraphics Corporation (filed as Exhibit 10.21 to the Company's
Form 10-K for the fiscal year 1994 and incorporated herein by this
reference).
10.15 Registration Rights Agreement, dated as of May 25, 1994, between
Ametek, Inc. and Summagraphics Corporation (filed as Exhibit 10.22 to
the Company's Form 10-K for the fiscal year 1994 and incorporated
herein by this reference).
10.16 Lease Agreement dated as of May 28, 1992 by and between QRS 10-12
(TX), Inc. and
QRS 11-5 (TX), Inc., as landlord, and Summagraphics Corporation, as
tenant, on premises located at 8500 Cameron Road, Austin, Texas in
connection with the sale and leaseback of that property (filed as
Exhibit 10.24 to the Company's Annual Report for the fiscal year ended
May 31, 1992
(File No. 0-16071) and incorporated herein by this reference).
10.17 Employment Agreement, dated April 16, 1993, between the Company and
Michael S. Bennett (filed as an Exhibit to the Company's Annual 10-K
for the fiscal year ended May 31, 1993
(File No. 0-16071) and incorporated herein by this reference).
10.18 Letter of Credit Agreement dated September 9, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993 (File No. 0-16071) and incorporated herein by
this reference).
10.19 Deed of Pledge of Business dated September 9, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993 (File No. 0-16071).
10.20 Acceptance of Subordination dated October 12, 1992, between
Summagraphics N.V. and ABN AMRO Bank (Belgium) N.V. (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1993 (File No. 0-16071) and incorporated herein by
this reference).
10.21 Amendment No. 1 to the Lease Agreement, dated as of August 27, 1993,
between QRS 10-12 (TX), Inc. and QRS (TX), Inc. as landlord and
Summagraphics Corporation, as tenant (filed as an Exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended May 31,
1993
(File No. 0-16071) and incorporated herein by this reference).
10.22 Employment Modification Agreement dated as of April 25, 1995, by and
between the Company and Michael S. Bennett. (Filed as an Exhibit to
the Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1995 (File No. 0-16071) and incorporated herein by reference).
10.23 Credit Agreement dated as of July 18, 1994 by and between the Company
and Silicon Valley Bank. (Filed as an Exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1995 (File No.
0-16071) and incorporated herein by reference).
10.24 Security Agreement dated as of December 13, 1994 between the Company
and Heller Financial, Inc. (Filed as an Exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1995
(File No. 0-16071) and incorporated herein by reference).
10.25 Amendment dated as of June 1, 1995 of the Security Agreement dated as
of December 13, 1994 between the Company and Heller Financial, Inc.
(Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1995 (File No. 0-16071) and incorporated
herein by reference).
10.26 Asset Purchase Agreement dated as of November 10, 1994 among the
Company, CAD Warehouse, Inc. (a Nevada corporation), CAD Warehouse,
Inc. (a Delaware corporation), John G. Panutsos, Rosemary Wollet, and
David C. Hoffer. (Filed as an Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1995 (File No. 0-16071)
and incorporated herein by reference).
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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10.27 Amendment No. 1 to Form S-3 Registration Statement under the
Securities Act of 1933 dated April 3, 1995 relating to the
registration of 133,323 shares of the Company's Common Stock. (Filed
as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1995 (File No. 0-16071) and incorporated
herein by reference).
10.28 Form 8 Amendment No.1 to Form 8-K Report of the Company. (Filed as an
Exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1995 (File No. 0-16071) and incorporated herein by
reference).
10.29 Amendment No. 2 dated as of April 12, 1995 of the Lease Agreement
dated as of May 28, 1992, by and between QRS 10-12 (TX), Inc. and QRS
11- 5 (TX), Inc. and the Company. (Filed as an Exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended May 31,
1995 (File No.
0-16071) and incorporated herein by reference).
10.30 Manufacturing Agreement dated as of September 13, 1995 between the
Company and Harvard Manufacturing Ventures, LLC. (Filed as an Exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1995 (File No. 0-16071) and incorporated herein by reference).
10.31 License Agreement dated as of July 31, 1995 between the Company and
Sharp Corporation. (Filed as an Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1995 (File No. 0-16071)
and incorporated herein by reference).
10.32 Amendment dated as of March 7, 1996 of the Lease Agreement dated as of
May 28, 1992, by and between QRS 10-12 (TX), Inc. and QRS 11-5 (TX),
Inc. and the Company.
10.33 Waiver dated as of March 15, 1996 of the Security Agreement dated as
of December 13, 1994 between the Company and Heller Financial, Inc.
10.34 Loan Document Modification Agreement dated December 6, 1995 to the
Credit Agreement dated as of July 18, 1994 by and between the Company
and Silicon Valley Bank.
10.35 First Amendment dated March 20, 1996 to the Loan Document Modification
Agreement dated December 6, 1995 by and between the Company and
Silicon Valley Bank.
10.36 Subordination Agreement dated as of March 20, 1996 among the Company,
Lockheed Martin Corporation and Silicon Valley Bank.
21 Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KMPG Peat Marwick LLP.
99 Proxy Statement of the Company filed on June 24, 1996.