Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from to
Commission file number 0-16071
CALCOMP TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0888312
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2411 W. LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92803
(Address of principal executive offices) (Zip Code)
(714) 821-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at April 25, 1997
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$.01 par value 46,898,650
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
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Condensed Consolidated Balance Sheets for the periods
ended March 30, 1997 and December 29, 1996 1
Condensed Consolidated Statements of Operations
for the three months ended March 30, 1997 and March 31, 1996 2
Condensed Consolidated Statements of Cash Flows
for the three months ended March 30, 1997 and March 31, 1996 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
CALCOMP TECHNOLOGY, INC.
Condensed Consolidated Balance Sheets
March 30, December 29,
1997 1996
(Unaudited)
------------ ------------
(In thousands)
ASSETS:
Current Assets:
Cash $ 14,357 $ 15,290
Accounts receivable, net 48,851 48,230
Accounts receivable from affiliates, net 3,373 3,929
Inventories (Note 3) 60,590 57,765
Net assets held for sale 15,119 15,119
Prepaids and other current assets 5,122 5,866
--------- ---------
Total Current Assets 147,412 146,199
Property, plant and equipment, net 27,116 26,891
Goodwill, net 81,004 82,080
Other assets 19,185 20,915
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Total Assets $ 274,717 $ 276,085
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable $ 24,274 $ 27,554
Deferred revenue 9,639 9,217
Accrued restructuring costs 4,969 9,355
Accrued reorganization costs 5,132 5,595
Other accrued liabilities 10,201 10,871
Line of credit --- 2,948
Other current liabilities 20,668 19,428
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Total Current Liabilities 74,883 84,968
Other long-term liabilities 9,193 9,733
Line of credit with Majority Shareholder (Note 4) 48,679 28,880
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized --- ---
Common stock,$.01 par value, 60,000,000 shares authorized,
46,898,650 shares issued on March 30, 1997 and
December 29, 1996 469 469
Additional paid-in capital 286,860 286,860
Accumulated deficit (151,446) (141,957)
Cumulative translation adjustment 6,544 7,597
Less: Treasury stock, at cost, 49,000 shares (465) (465)
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Total Stockholders' Equity 141,962 152,504
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Total Liabilities and Stockholders' Equity $ 274,717 $ 276,085
========= =========
See accompanying notes to condensed consolidated financial statements.
1
CALCOMP TECHNOLOGY, INC.
Condensed Consolidated Statements of Operations
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(Unaudited)
Three Months Ended
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March 30, March 31,
1997 1996
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(In thousands)
NET REVENUE $ 60,523 $ 55,852
COST APPLICABLE TO REVENUE 48,596 41,383
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Gross Profit 11,927 14,469
EXPENSES:
Selling 10,960 11,710
Research and development 3,638 5,071
General and administrative 4,635 4,236
Corporate expenses from Majority Shareholder 725 2,306
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LOSS FROM OPERATIONS (8,031) (8,854)
Interest expense (881) ---
Other (expense) income, net (284) 640
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LOSS BEFORE INCOME TAXES (9,196) (8,214)
Provision for income taxes 293 901
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NET LOSS $ (9,489) $ (9,115)
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Net loss per share of common stock (Note 5) $(0.20) $(0.22)
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Weighted-average shares outstanding 46,898,650 40,742,957
=========== ===========
See accompanying notes to condensed consolidated financial statements
2
CALCOMP TECHNOLOGY, INC.
Condensed Consolidated Statements of Cash Flows
---------------------------------------
(Unaudited)
THREE MONTHS ENDED
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MARCH 30, MARCH 31,
1997 1996
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(In thousands)
OPERATING ACTIVITIES:
Net loss $(9,489) $(9,115)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,520 2,432
Restructuring payments (4,386) ---
Reorganization costs (463) ---
Investee income (97) (117)
Net changes in operating assets and liabilities (3,792) 6,210
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Net cash used in operating activities (15,707) (590)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,427) (2,278)
Proceeds from disposition of property, plant
and equipment 245 22
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Net cash used in investing activities (1,182) (2,256)
FINANCING ACTIVITIES:
Proceeds from line of credit with Majority Shareholder 19,799 ---
Reduction in revolving credit line (2,948) ---
Net cash received from Majority Shareholder --- 2,523
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Net cash provided by financing activities 16,851 2,523
Effect of exchange rate changes on cash (895) (90)
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Change in cash (933) (413)
Cash at beginning of quarter 15,290 14,574
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Cash at end of quarter $14,357 $14,161
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Supplementary disclosures of cash flow information:
Net income taxes (received) paid $ (392) $ 829
Interest paid $ 699 $ 0
See accompanying notes to condensed consolidated financial statements
3
CALCOMP TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
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March 30, 1997
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(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 30,
1997, are not necessarily indicative of the results that may be expected for the
Company's fiscal year or any other interim period. Certain reclassifications of
prior year amounts have been made to conform to the current year presentation.
It is suggested that the financial statements be read in conjunction with the
information contained in the company's Annual Report for the year ended December
29, 1996 on Form 10-K, filed with the Securities and Exchange Commission.
2. MERGER OF SUMMAGRAPHICS CORPORATION WITH CALCOMP, INC.
CalComp Technology, Inc. (the "Company") completed a Plan of Reorganization (the
"Exchange")for the exchange of Stock of CalComp Inc. for Stock of Summagraphics
Corporation as of July 23, 1996. Pursuant to the Exchange, the Company issued
to Lockheed Martin Corporation ("Majority Shareholder") 40,742,957 shares of
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. As a result of the Exchange,
Lockheed Martin Corporation acquired control of the Company and CalComp Inc.
became a wholly-owned subsidiary of the Company. In connection with the
Exchange, the Company changed its name from Summagraphics Corporation to CalComp
Technology, Inc. and changed its year end from May 31 to a fifty-two, fifty-
three week fiscal year ending on the last Sunday of December.
The purchase was accounted for as a "reverse acquisition" whereby CalComp Inc.
was deemed to have acquired CalComp Technology, Inc. (formerly Summagraphics
Corporation) for financial reporting purposes. However, CalComp Technology, Inc.
remains the continuing legal entity and registrant for Securities and Exchange
Commission filing purposes. Consistent with reverse acquisition accounting, the
historical financial statements of the Company presented for the three month
period ended March 31, 1996, are the consolidated financial statements of
CalComp Inc. and differ from the consolidated financial statements of the
Company previously reported.
4
3. INVENTORIES
Inventories as of March 30, 1997 and December 29, 1996 are as follows:
March 30, December 29,
1997 1996
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(in thousands)
Raw materials and purchased components $15,491 $16,719
Work in process 1,077 628
Finished goods 44,022 40,347
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$60,590 $57,765
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4. LINE OF CREDIT AND CASH MANAGEMENT AGREEMENTS WITH MAJORITY SHAREHOLDER
Revolving Credit Agreement: In July 1996, the Company and the Majority
Shareholder entered into a Revolving Credit Agreement, which was subsequently
amended and restated ("Agreement"), pursuant to which the Majority Shareholder
will provide from time to time, financing of up to $73,000,000 for repayment of
specified indebtedness and general corporate purposes including, without
limitation, financing the working capital needs of the Company and its
subsidiaries. Among other things the Agreement provides for a grant of a
general security interest in the Company's assets to the Majority Shareholder.
The Agreement has a termination date of July 22, 1998, however, the commitment
of the Majority Shareholder to make loans to the Company may be canceled, with
120 days prior written notice, by the Majority Shareholder at any time after the
first anniversary date of the Agreement dated December 20, 1996.
The Agreement bears interest, at the Company's option, at either (1) a rate per
annum equal to the higher of the federal funds rate as published in the Federal
Reserve System plus 0.5% or the rate publicly announced from time to time by
Morgan Guaranty Trust Company of New York as its "prime" rate or (2) LIBOR plus
2.0%. The Agreement contains certain negative and affirmative covenants. As of
March 30, 1997 the Company was in compliance with all such covenants. There is
no required prepayment or scheduled reduction of availability of loans under the
Agreement.
Cash Management Agreement: Additionally, in July 1996, the Company and the
Majority Shareholder entered into a cash management agreement, whereby the
Majority Shareholder will provide cash advances up to $2,000,000 to the Company
for cash shortfalls. This agreement has a termination date of June 1, 1998 and
bears interest rates equal to the Federal Funds Rates.
As of March 30, 1997 the Company has an aggregate balance of $48,679,000 on the
Revolving Credit and Cash Management Agreements, with interest rates ranging
from 7.4% to 7.6%.
5
5. PER SHARE DATA
Net loss per share has been calculated by dividing net loss by the weighted
average number of common shares outstanding during the period. All common stock
equivalents have been excluded from the calculation of weighted average common
shares outstanding because their inclusion would be anti-dilative or decrease
the loss per share amount otherwise computed. In February 1997, the Financial
Accounting Standards Board Issued Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share", which establishes new standards for
computing and disclosing earnings per share. The Statement requires dual
presentation of "basic" and "diluted" earnings per share, each as defined
therein, which replace primary and fully diluted earnings per share,
respectively, required under current guidance. SFAS No. 128 is effected for
financials statements for both interim and annual periods ending after December
15, 1997. Early adoption is not permitted; however, after the effective date,
all prior period earnings per share data presented will be required to be
restated to conform to the provisions of the new statement. Management does not
currently anticipate that earnings per share computed under the new standard
will differ materially from earnings per share computed and disclosed under
current guidance.
6. SUBSEQUENT EVENT
Subsequent to March 30, 1997, the Company entered into a purchase and sale
agreement, subject to certain conditions, for the sale of its headquarters
facility in Anaheim, California. At this time there can be no assurance that
these conditions will be met and the transaction completed. The proposed terms
of this agreement include, among other things, the option to lease back a
portion of the facility for a one year period with an option to extend for a
second year. Based on the current terms of the agreement the Company believes
it will realize a gain on the sale of the facility should the transaction be
completed under the terms stipulated in the purchase and sale agreement. Such
gain would be recognized upon finalization of the transaction.
7. CONTINGENCIES
Legal: On November 18, 1996, the Company acquired all the outstanding common
stock of Topaz Technologies Inc. ("Topaz"), a privately held company in
Sunnyvale, California. Topaz is a developer and manufacturer of a proprietary
inkjet printing technology.
A complaint was filed on January 25, 1997, by Raster Graphics, Inc., ("Raster
Graphics") against Topaz, the former shareholders of Topaz, Andreas Bibl, Deane
Gardner and John Higginson (the former "Topaz Shareholders"), and the Company in
California Superior Court in Santa Clara County. The complaint alleges, among
other things, misappropriation of trade secrets, breach of fiduciary duty,
unfair competition, breach of contract and conversion arising from the
employment by Raster Graphics of the Former Topaz Shareholders who founded
Raster Graphics in 1987 and while there participated in the development of
certain inkjet technology. The complaint seeks unspecified compensatory
damages, punitive damages, costs and injuctive relief. The Company believes
that the inkjet technology developed by Topaz is proprietary to Topaz and is not
based on Raster Graphics technology, and that this suit is without merit.
The Company is also party to other legal actions in the normal course of its
business. The Company does not believe that the disposition of these matters
will have a material adverse effect on its financial position or results of
operations taken as a whole.
6
Environmental Matters: In 1988, the Company submitted a plan to the California
Regional Water Quality Control Board (the Water Board) relating to its facility
in Anaheim, California. This plan contemplates site assessment and monitoring
of soil and ground water contamination. The Company's plan includes monitoring
of several ground water sampling wells at the site. No remediation has been
ordered or is considered probable of being ordered and therefore no liability
has been recorded for any such activities. Due to the nature of the contingency,
management is unable to estimate a possible range of cost that might be incurred
should remediation be required.
Effective January 1, 1997, the Company adopted the America Institute of
Certified Public Accountants' Statement of Position (SOP) No. 96-1,
"Environmental Remediation Liabilities." In addition to providing a
nonauthoritative discussion of major federal legislation dealing with
environmental matters, SOP 96-1 also provides authoritative guidance on certain
accounting issues relative to the recognition, measurement, display and
disclosures of enviromental remediation liabilities. The impact of the adoption
of this SOP was not material to the Company's consolidated results of
operations, financial position or disclosures.
7
CALCOMP TECHNOLOGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
On July 23, 1996, Summagraphics Corporation ("Summagraphics") and CalComp Inc.
("CalComp"), a wholly-owned subsidiary of Lockheed Martin Corporation, effected
a plan of reorganization for the exchange of CalComp stock for Summagraphics
stock, after which Summagraphics changed its name to CalComp Technology, Inc.
(the "Company"). The newly reorganized company adopted a fiscal year ending on
the last Sunday of December. For accounting purposes, CalComp was treated as the
acquiring company. Therefore, the financial statements for the prior year
periods are those of CalComp and the financial statements for the current year
reflect CalComp's acquisition of Summagraphics as of July 23, 1996.
Revenues
Net revenues for the quarter ended March 30, 1997 were $60.5 million, as
compared to $55.9 million for the same period in 1996. Product revenues were
up 18% while service revenues were down by 26% versus the same period in 1996.
Product revenues for the quarter were favorably impacted by the addition of the
Summagraphics' cutter and digitizer product lines and the Summagraphics' CAD
Warehouse business. Service revenues continued to decline as a result of the
drop in after-market service contract sales resulting from the decline in
hardware sales during recent periods and the transition to lower cost products,
which traditionally do not capture the same level of service contract revenue as
higher cost products.
Gross Profit
Gross profit as a percentage of net revenue was 20% for the first quarter,
compared to 26% for the first quarter of 1996. This decline was primarily
attributable to: continued competitive pricing pressure; continued shift in the
mix of products sold towards lower cost, lower margin products; the phase out of
mature, end of life products at reduced selling prices; and the continued
deterioration in service gross margins primarily due to decreased service
revenues without corresponding cost reductions.
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 the Company's margins.
Operating Expenses:
Operating expenses decreased 14% for the first quarter of 1997 versus 1996
representing 33% of net revenue for the period versus 42% in the prior year.
These operating expense reductions were primarily the result of cost reduction
and restructuring actions taken during mid and late 1996. Selling expenses
declined to 18% of net revenue from 21% primarily from the benefits of facility
and staffing consolidations. Development expenses declined to 6% of net revenue
from 9% primarily from the benefits of staffing and cost reductions resulting
from the Company's decision to narrow its focus to its new technologies. General
and administrative expenses remained unchanged at 8% of net revenue with
staffing and facilities expense
8
reductions offset by increases in expenses relating to new management
information systems and increases in goodwill and intangible amortization
expenses resulting from the Summagraphics and Topaz acquisitions. Corporate
expenses from the Majority Shareholder decreased to $0.7 million or to 1% of net
revenue for the period versus 4% in the prior year as a result of Lockheed
Martin's decision to discontinue its practice of interest allocation to
affiliates.
Other Income/Expense
Other expense for the first quarter was $0.3 million versus other income of $0.6
million for the same quarter in 1996. The 1997 first quarter expense resulted
primarily from foreign exchange losses of $0.3 million in the quarter due to the
continuing strength of the U.S. dollar and its impact on the Company's
international subsidiaries' U.S. dollar denominated liabilities. The prior year
income resulted primarily from interest income of $0.5 million on tax refunds
received which did not occur during the same period in 1997.
Income Taxes
Income taxes were $0.3 million for the first quarter versus $0.9 million for the
same quarter last year. These taxes result primarily from the provision for
foreign taxes related to the company's profitable foreign locations.
Liquidity and Capital Resources
When possible, the Company finances its working capital needs and capital
expenditure requirements from internally generated funds. At March 30, 1997,
the Company had cash of $14.4 million, consisting primarily of foreign cash
balances.
During the three months ended March 30, 1997, the Company used $15.7 million in
operations mainly to fund its $9.5 million net loss, net of depreciation and
amortization of $2.5 million, and to fund $4.4 million in payments relating to
the company's restructuring announced in the fourth quarter of 1996. In
addition, the Company used $1.2 million for investing activities primarily
related to expenditures for investments in property, plant and equipment. Those
uses of cash were offset by cash provided by financing activities of $16.9
million primarily relating to funds borrowed from the Company's Majority
Shareholder totaling $19.8 million, pursuant to the Revolving Credit Agreement
and Cash Management Agreement ("Credit Agreements")
In connection with these Credit Agreements, the Company has access to $75
million of general purpose financing. The Credit Agreements contain typical
covenants with respect to the conduct of the Company's business and require the
maintenance of various financial balances and ratios. As of March 30, 1997, the
Company was in compliance with all such covenants. The Company has utilized
$48.7 million of amounts available under its Credit Agreements, a substantial
portion of which was used to finance costs associated with integrating the
Summagraphics operations with those of CalComp including the partial replacement
of preexisting Summagraphics' debt.
9
During the first three months of 1997, the Company spent $0.2 million for the
implementation of new management information systems. It expects to spend an
additional $2.2 million during the remainder of 1997 to complete this
implementation. At March 30, 1997, the Company had no other significant
commitments for capital expenditures. The company anticipates that cash
generated from operations, disposition of its headquarters facility, and funds
available under the Credit Agreements should be sufficient to fund the Company's
anticipated operating needs for the foreseeable future.
Restructuring
During the fourth quarter of 1996, the Company incurred a one time restructuring
charge of $21.0 million consisting of $10.9 million for the write-down of the
Company's headquarters facility to its estimated fair market value, in
anticipation of sale, lease termination and fixed asset disposition costs of
$3.2 million related to the company exiting from certain facilities, and
severance costs of $6.9 million associated with the elimination of 285 positions
worldwide. During the first quarter of 1997, payouts of approximately $4.4
million were made against these accruals to cover severance actions and the
elimination and consolidation of facilities occurring during the period.
Subsequent to March 30, 1997, the Company entered into a purchase and sale
agreement, subject to certain conditions, for the sale of its headquarters
facility in Anaheim, California. At this time there can be no assurance that
those conditions will be met and the transaction completed. The proposed terms
of this agreement include, among other things, the option to lease back a
portion of the facility for a one year period with an option to extend for a
second year. Based on the current terms of the agreement the Company believes it
will realize a gain on the sale of the facility should the transaction be
completed under the terms stipulated in the purchase and sale agreement. Such
gain would be recognized upon finalization of the transaction.
This Report on Form 10-Q 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-Q have been made subject to the safe harbor
protections provided by Sections 27A and 21E.
10
CALCOMP TECHNOLOGY, INC.
PART II OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - The following exhibits are included herein:
10.23 Termination Agreement between the Company and John C. Batterton
dated March 7, 1997.
10.24 Change of Control Termination Benefit Agreement between the
Company and John C. Batterton dated March 7, 1997.
27 Financial data schedule
(b) Reports on Form 8-K:
None
11
CALCOMP TECHNOLOGY, INC.
Signatures
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALCOMP TECHNOLOGY, INC
-----------------------
(Registrant)
Date: May 12, 1997
/s/ JOHN C. BATTERTON
----------------------
John C. Batterton
President and Chief Executive Officer
/s/ JOHN J. MILLERICK
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John J. Millerick
Senior Vice President, Finance
and Chief Financial Officer
12