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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ______________ to _______________
COMMISSION FILE NO. 0-16071
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CALCOMP TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-0888312
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
2411 W. LA PALMA AVENUE 92803
ANAHEIM, CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
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
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 [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of 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. [_]
The aggregate market value as of March 10, 1998, of Common Stock held by
non-affiliates of the Registrant: $24,007,884 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 MARCH 10, 1998:
47,073,050
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PART I
ITEM 1. BUSINESS
CalComp Technology, Inc. ("CalComp Technology" or the "Company"), formerly
Summagraphics Corporation ("Summagraphics"), 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 Company is a supplier of both input and output computer graphics
peripheral products consisting of (i) printers (including plotters), (ii)
cutters, (iii) digitizers, and (iv) large format scanners. In general, the
Company's products are designed for use in the computer aided design and
manufacturing ("CAD/CAM"), printing and publishing, and graphic arts markets,
both domestically and internationally. The Company also maintains service,
product support and technical assistance programs for its customers and sells
software, supplies and after-warranty service.
In recent years, the Company began transitioning its traditional pen,
electrostatic and most thermal technology products to inkjet plotters and
printers. Generally, inkjet technology products provide increased user
productivity compared to traditional pen plotters and solid area fill
capability for applications requiring graphic imaging. By the fourth quarter
of 1997, the Company had substantially completed its strategy to discontinue
its non-inkjet printer and plotter products.
Further, in the fourth quarter of 1997, the Company completed the
development of a new line of wide-format digital printers based on its
proprietary piezo inkjet technology obtained through the acquisition of
Topaz Technologies, Inc. ("Topaz") in 1996. This new line of printers will be
marketed under the "CrystalJet(TM)" name and will be targeted to the graphic
arts industry. The Company began shipping the initial market development and
demonstration units of these printers in the first quarter of 1998. Volume
shipments to customers are scheduled for the second quarter. The Company
believes this new line of wide-format printers will be the first of a new
generation of products based on its new technology.
The Company plans to continue to market CalComp branded printers as well as
CrystalJet(TM) print head technology. In addition, the Company expects to
expand the market for its printers and print heads through the sale of
complete printers or print heads to strategic partners, who will in turn
leverage their existing brand names and distribution channels in various new
markets such as the photographic, industrial packaging and textile printing
markets. The products marketed through the Company's strategic partners,
whether sold under the CalComp name or under private label, will contain the
CrystalJet(TM) technology logo to establish CrystalJet(TM) technology brand
awareness. The Company will also pursue various non-manufacturing licensing
and royalty agreements for the CrystalJet(TM) technology and related inks.
The Company believes this strategy will enable it to use its new
CrystalJet(TM) technology to penetrate sizable new markets beyond graphic arts
and create significant product differentiation opportunities due to print
speeds, ink and media types associated with the new technology. The Company's
strategy is to position itself as a leading-edge image marking company that,
through continued development of proprietary piezo based print heads, ink,
media, and printers, will capture substantial consumable sales in high ink
consumption markets.
In line with the Company's strategy, in December 1997, the Company and IRIS
Graphics, a wholly-owned subsidiary of Scitex Corporation Ltd. ("IRIS
Graphics"), jointly announced an agreement under which the Company will
provide IRIS Graphics with wide-format color printers targeted at the high-end
graphic and fine arts markets, featuring the Company's CrystalJet(TM) inkjet
technology. In addition, in March of 1998, the Company and Eastman Kodak Co.
("Kodak"), entered into a joint development agreement covering the joint
development of a range of CrystalJet(TM) based products, printers and
consumables. See "Recent Developments." The Company anticipates that these
will be the first of several strategic partnerships that it will enter into in
furtherance of its market expansion plans. See "Risk Factors Affecting the
Company."
2
BACKGROUND OF THE BUSINESS
CalComp Inc. The principal business of the Company derives from that of
CalComp Inc., formerly California Computer Products, Inc. ("CCP") which was
incorporated in September 1958 to manufacture and market computer graphics
products for the U.S. Government's NIMBUS Weather Satellite Program. In 1959,
CCP introduced the world's first drum plotter, which translated computer
output into visual data such as drawings, charts and graphics. CCP expanded
its product offerings by introducing new plotters and controllers through the
1960's and 1970's. CCP added its first electrostatic plotter to its product
line in 1979. During the 1980's and 1990's, CCP and subsequently CalComp Inc.,
continued to expand its product line through adapting various technologies to
new products, including thermal transfer technology in printers, laser
technology in printers/plotters, LED technology in plotters, bubble inkjet
technology in plotters, and direct thermal technology in printers and
plotters. CCP added the digitizer product line in 1980 through the acquisition
of Talos Systems, Inc.
In 1980, CCP was acquired by Sanders Associates, Inc., a defense electronics
company in Nashua, New Hampshire. At the end of 1983, CCP was merged with and
into Sanders Associates, Inc. and the business was conducted thereafter under
the name of CalComp Group. In 1986, Sanders Associates, Inc. was acquired by
Lockheed Corporation ("Lockheed") at which time CalComp Group became an
operating unit of Lockheed's Information Systems Group. CalComp Inc. was
incorporated in 1987 under California law to acquire the assets and
liabilities of CalComp Group from Sanders Associates, Inc., and to operate as
a separate legal entity and a wholly-owned indirect subsidiary of Lockheed. In
March 1995, the businesses of Lockheed and Martin Marietta Corporation were
combined to form Lockheed Martin Corporation, at which time CalComp Inc.
became a subsidiary of Lockheed Martin in the Information and Technology
Services Sector.
Commencing in 1991 and continuing into 1996, CalComp Inc. experienced
substantial net operating losses principally due to the negative impact on
margins resulting from the migration of the hard copy output device industry
to inkjet technology products and CalComp Inc.'s late entry into the inkjet
market in fiscal 1994. In late 1995, Lockheed Martin Corporation and
Summagraphics Corporation began discussions concerning a proposed combination
of CalComp Inc. and Summagraphics Corporation which resulted in the
combination of the companies on July 23, 1996. See "The Exchange."
Summagraphics Corporation. Summagraphics Corporation manufactured and sold
input and output computer graphics peripheral products, many of which competed
with CalComp Inc. In 1996, Summagraphics encountered significant financial
difficulties primarily due to problems with its output products. Due to
continuing losses and pressure from its lenders and vendors, Summagraphics
pursued various activities to raise additional capital including the sale of
part or all of the Company.
The Exchange. The Company, then Summagraphics Corporation, entered into a
Plan of Reorganization and Agreement for the Exchange of Stock of CalComp Inc.
for Stock of the Company (dated as of March 19, 1996 and subsequently as
amended April 30, 1996 and June 5, 1996) pursuant to which the Company issued
to Lockheed Martin Corporation ("Lockheed Martin" or the "Majority
Shareholder") 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. (the "Exchange"). The closing of the Exchange
occurred on July 23, 1996 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 Inc. 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.
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 Exchange was accounted for as a "reverse acquisition," whereby CalComp
Inc. was deemed to have acquired the Company, for financial reporting
purposes. However, the Company remains the continuing legal entity and
registrant for Securities and Exchange Commission ("SEC") filing purposes.
Consistent with reverse acquisition accounting, the historical financial
statements of the Company presented for the period ended
3
December 31, 1995, are the consolidated financial statements of CalComp Inc.,
and differ from the consolidated financial statements of the Company
previously reported. In addition, the historical stockholders' equity as of
December 31, 1995, has been retroactively restated to reflect the equivalent
number of shares issued in connection with the Exchange. The accounts and
results of operations of the Company have been included in the financial
statements for the period ended December 29, 1996, from the date of the
Exchange and reflect purchase price allocations and adjustments recorded as a
result of the Exchange. Certain reclassifications of prior year amounts have
been made to conform to the current year presentation.
Immediately following the Exchange, each of the then directors and executive
officers of the Company 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 elected seven new directors. The Board then
appointed officers to fill the vacant offices.
For so long as Lockheed Martin continues to beneficially own more than 50%
of the outstanding voting stock of the Company, Lockheed Martin will be able
to control the Board of Directors and approve any other matter submitted to a
vote of the stockholders without the consent of the other stockholders of the
Company. In addition, in connection with the Exchange, the Company entered
into agreements providing for, among other things, a long term line of credit
and cash advances for long term financing and operating requirements,
administrative support in selected areas and the filing of a consolidated tax
return.
CalComp Technology, Inc. Subsequent to the Exchange, the Company moved its
executive offices from Austin, Texas to Anaheim, California and substantially
completed its business plan to reduce duplicative work force and corporate
overhead between the companies, integrate manufacturing operations and
eliminate certain unprofitable product lines. The Company also substantially
completed efforts to rationalize CalComp Inc.'s and Summagraphics' respective
sales, product support, distribution and marketing organizations, and to
integrate each company's product offering and development activities.
In November 1996, the Company acquired Topaz, a privately held company
located in Sunnyvale, California, in exchange for 1,500,000 shares of the
Company's Common Stock and $750,000 in cash. Subsequent to the acquisition,
Topaz became a wholly-owned subsidiary of CalComp Technology, Inc. Topaz is a
developer and manufacturer of the proprietary piezo inkjet printing technology
which the Company is currently marketing under the "CrystalJet(TM)" name.
RECENT DEVELOPMENTS
On March 29, 1998, the Company and Kodak entered into a Patent License and
Joint Development Agreement (the "Joint Development Agreement") covering a
project (the "Project") for the joint development of the Company's existing
CrystalJet(TM) piezo inkjet technology into a range of piezo inkjet products,
printers and consumables for commercial application. The Joint Development
Agreement has a term of five years and provides for the contribution by Kodak
to the Project of up to $36,000,000, with $20,000,000 having been advanced
upon the signing of the Joint Development Agreement and up to an additional
$16,000,000 to be funded incrementally over the term upon the achievement of
certain milestones and the occurrence of certain events. The Joint Development
Agreement also provides for royalties to be paid by Kodak to the Company in
respect of licenses granted thereunder by the Company to Kodak which allow
Kodak under certain circumstances to exploit the inkjet technology developed
pursuant to the Project. The Joint Development Agreement provides that Kodak
will also provide technical personnel to work on the project, but that except
as otherwise contemplated by the Joint Development Agreement, the Company will
fund all other development and manufacturing expenses relating to the Project.
If, during the term of the Joint Development Agreement, the Company desires to
sell any of the CrystalJet(TM) assets related to the assets acquired by the
Company from Topaz Technologies, Inc. (the "Topaz Assets"), the Company will
be required to offer Kodak a right of first refusal to purchase such Topaz
Assets. The Joint Development Agreement also includes OEM Agreements between
the parties providing for the sale of future developed products by the Company
to Kodak and the mutual purchase of certain inks and related media products
developed in connection with the Project.
4
Pursuant to the Joint Development Agreement, the Company issued to Kodak a
warrant (the "Warrant") to purchase 8,000,000 shares (the "Warrant Shares") of
the Company's Common Stock (or approximately 15% of the Company's outstanding
shares after giving effect to the issuance of the Warrant Shares) at an
exercise price of $3.88 per share. The Warrant has a term of seven years and
will become exercisable as to 4,000,000 of the Warrant Shares on March 29,
1999, and as to the remaining 4,000,000 Warrant Shares on March 29, 2000 (each
a "Vesting Date"); provided, however, that in the event the Joint Development
Agreement is terminated prior to a Vesting Date, the Warrant will terminate as
to any unvested Warrant Shares. The Warrant contains standard adjustment
provisions and piggyback registration rights covering the Warrant Shares.
During the 24-month period after the issuance of the Warrant (and so long as
the Joint Development Agreement has not been terminated), upon the issuance by
the Company of additional shares of Common Stock, the number of Warrant Shares
will be proportionately increased so that the number of Warrant Shares will
continue to represent 15% of the issued and outstanding shares of the
Company's Common Stock; provided, however that the exercise price of any
additional Warrant Shares will be the same as the price of the additional
shares of Common Stock issued by the Company. No adjustments will be required
with respect to 1) shares of Common Stock issued to any employee, consultant,
advisor, officer or director of the Company pursuant to a Board-approved plan;
or shares issued in connection with stock dividend or stock split; or 2)
shares issued in connection with certain merger, exchange, or acquisition of
assets transactions. The Warrant also provides Kodak with a right of first
refusal with respect to proposed issuances of the Company's capital stock
during the 24-month period after the date of issuance of the Warrant.
In connection with the Joint Development Agreement, Lockheed Martin
Corporation, the Company's majority stockholder, has agreed, among other
things, to vote its shares for the election of a Kodak-designated director to
the Company's Board of Directors during the term of the Joint Development
Agreement.
PRODUCTS
Through 1997, the Company continued to distribute graphics peripheral
products targeted at CAD/CAM printing and publishing and graphic arts markets.
The Company's products fall into two general product lines: (1) hard copy
output products, consisting primarily of printers and plotters, and graphics
cutters; and (2) input devices, consisting of digitizers and scanners. The
Company also sells after-warranty service and supplies which support its
product lines.
HARD-COPY OUTPUT DEVICES
The Company historically has produced and sold a wide variety of hard-copy
output devices of which the two principal classes of products are printers
(including plotters) and vinyl-cutting plotters ("cutters"). Printers are
devices that place raster images (oriented dots) on various types of output
media (either paper or film) producing text, pictures and/or graphic images.
Plotters are devices that translate computer output data into hard-copy media,
such as schematics, charts, maps, and computer-aided design ("CAD") drawings,
pictures, and other images. The basic unit consists of a microprocessor, a
controller, and a marking mechanism. These output devices are often
interchangeable, with the difference between plotters and printers often being
the firmware-based connectivity solutions. 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.
Printers and Plotters
CrystalJet(TM). In the fourth quarter, the Company completed the development
of the first products in a new line of wide-format piezo inkjet digital
printers, which are expected to be brought to market in the first half of
1998. These CrystalJet(TM) printers will be offered initially in 42" and 54"
sizes and will be marketed primarily to the graphic arts industry. The key
market applications benefiting from this new technology are ones requiring
fast throughput of digital printed images at the highest level of print
resolution and quality. The Company believes that this emerging market for
"on-demand" digital color printing will replace many of the current
traditional printing technologies. The Company expects that the new technology
and products will have key strengths against the current field of competition
participating in these markets.
5
The CrystalJet(TM) wide-format printers contain four print heads, one for
each of the four process colors. The print heads can be adjusted to two
different heights above the media: 1.0 mm or 2.5 mm, which allows for a range
of media options. Each print head, which contains 256 nozzles, is spaced at
1/180th-inch intervals yielding a print swath of 1.4 inches per color. This
unique feature gives the user the ability to control the resolution and print
speed. Users can select, on a job by job basis, 180, 360, or 720 dots per inch
("dpi"); 2, 4 or 8 interleaved passes; bi-directional or unidirectional
printing; and pixel drop size. The CrystalJet(TM) printers can print a 360 dpi
resolution image at 120 square feet per hour and a 720 dpi resolution image at
70 square feet per hour. These printing speeds are believed to be three to
four times faster than traditional thermal inkjet printers. In addition, the
technology supports different droplet sizes providing users the capability of
printing high quality images at various resolutions for numerous market
applications not currently available with competing thermal or piezo
technology. For a further discussion of the risks relating to the Company's
transition to the CrystalJet(TM) product lines, see "Risk Factors Affecting
the Company."
Historical Output Products. Printers and plotters represented 24%, 28% and
35% of total revenue of the Company for fiscal years 1997, 1996 and 1995,
respectively. In connection with the Company's plan to transition
substantially all of its output products to its new CrystalJet(TM) technology,
the Company has announced it will end-of-life substantially all of its non-
CrystalJet(TM) based thermal inkjet output products. However, the Company will
continue to offer these products into fiscal 1998 as it liquidates its
existing inventories.
Cutters
The Company's cutter business which was acquired from Summagraphics in
connection with the Exchange represented 7% of revenues in 1997. Cutters
represented 23% and 16% of the revenues of Summagraphics prior to the Exchange
for the fiscal years ended May 1996 and 1995, 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, art film 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.
The Company's cutter products include:
SummaSign Series. Combines high performance cutting with an advanced
media handling system offering both sprocket and friction drive, and is
capable of handling plain media, as well as half-inch industry standard
punched media.
SummaCut Series. A family of cutters designed for small, independent sign
shops that produce a limited quantity of vinyl signs.
The Company believes that the Summagraphics cutter products will continue to
complement the existing CalComp Inc. product offerings by giving the Company a
proven output device in its established marketing and distribution channels.
INPUT DEVICES
Digitizers
Digitizers accounted for 25%, 22% and 17% of the revenues of the Company for
fiscal years 1997, 1996 and 1995, respectively. Fiscal 1997 and part of fiscal
1996 included sales of Summagraphics products subsequent to the Exchange. Uses
for digitizers include desktop publishing, image processing, simple mouse
replacement
6
and pen-based computing. The Company's 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 the Company's
digitizers as part of their complete computer-aided publishing systems for
publication layout. Animation and graphics design uses for digitizers vary
widely and include use in cinema productions, colorization of black and white
movies and television weather and sports analysis. The cost of digitizers has
come down significantly over the past few years, making them a viable mouse
replacement.
Digitizers offer significant advantages over other entry devices such as
keyboards, mice, trackballs, lightpens, and touchpanels in graphics intensive
applications, due to their high level of precision, greater functionality and
increased productivity. Keyboards are primarily used to input 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 to within several thousandths of an inch. 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.
The Company's 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. Electromagnetic tablets offer the additional advantage of being
relatively unaffected by temperature, humidity, electrical noise and the
presence of conductive materials on the digitizing surface.
Traditionally, customers using CAD applications, mapping applications and
GIS applications have perceived the need for the high precision input offered
by digitizers. Recent software releases in the CAD industry, whereby mouse
input devices are interchangeable with digitizer tablets for CAD applications,
have significantly reduced the customer need for digitizer products. This
trend is expected to continue. Graphic arts applications have in the past
favored mouse input devices. Customers in the graphic arts market have
recently begun broader use of digitizers, which use is expected to continue to
expand. Failure of the Company to replace or renew demand for CAD digitizer
products could have an adverse impact on the Company's input device business.
The Company's digitizer products include:
DrawingBoard(TM) Digitizer Tablets. A family of high performance, low cost
digitizer tablets which are designed for CAD, mapping, and GIS
applications, and can be used in drawing, tracing, and presentation
graphics applications. These digitizers come in a range of sizes and
accuracies. The Company also produces a backlit version of this tablet.
UltraSlate(TM) Digitizer Tablets. A family of small format digitizers which
are thin and lightweight and have a pressure sensitive, cordless,
batteryless pen for variable line weight input. These tablets are directed
toward the graphic arts markets.
SummaSketch(TM) III Digitizer Tablets. A family of digitizers which offer
accuracy, reliability and ease of use. This product is primarily used in
the CAD market for drawing and tracing.
SummaGrid(TM) IV Digitizing Tablets. A set of high performance large format
tablets that support CAD, GIS and mapping applications.
Scanners
Scanners are input devices which detect images on input media and translate
the images into raster data for a computer. The Company markets a family of
large format scanners, the ScanPlus(TM) III large format scanners
7
that are capable of fast, high volume scanning. These units, which can scan
documents up to 36" wide, come in resolutions from 300 to 1000 dpi. The large
format monochrome/color scanner addresses the needs of users who have to
transfer hard copy drawings into a digital form. Applications for large format
scanning include architectural engineering and construction (AEC), document
management, mapping/GIS, and facilities management. Traditionally, converting
to a digital form has been accomplished by either totally recreating the
original drawing, utilizing a computer aided drafting package within the
computer, or digitizing the original drawing using a large format digitizer.
SUPPLIES
The Company markets an extensive line of consumable inks and media for its
printers and plotters. Supplies represented 25%, 26% and 26% of the revenues
of the Company for fiscal years 1997, 1996 and 1995, respectively.
Summagraphics had no supplies sales before the Exchange.
In connection with the release of the new CrystalJet(TM) products, the
Company intends to introduce a full line of ink and media supplies. The
Company plans to market inks, under the name "CrystalInk", which will contain
a complete set of both indoor dye-based ink and outdoor pigment-based ink. In
addition, the Company intends to offer a full line of media products including
opaque matte bond, premium bond, graphics presentation, glossy, adhesive-
backed vinyl, canvas, and overlaminate material. The CrystalJet(TM) ink and
media will be matched to provide the best possible image quality for
CrystalJet(TM) products and will be specially formulated to fast dry,
accommodating CrystalJet(TM) high speed printing. This matched ink and media
system provides customers with one source for their printing needs.
The Company's strategy for its new line of CrystalJet(TM) products is to
establish a CrystalJet(TM) based-consumables business. The Company believes
that the CrystalJet(TM) consumables business should replace and, as the
installed base grows, exceed the Company's existing non-CrystalJet(TM)
consumables business. The demands of the marketplace are extreme and require
not only the ability to print fast with high resolution, but also require inks
and substrates that can accommodate a full spectrum of color with outdoor
durability. See "Risk Factors Affecting the Company--CrystalJet Technology".
SERVICE AND SUPPORT
The Company, through its North American Channels group, its international
subsidiaries and selected third party providers, provides an extensive range
of customer service and technical support for the Company's products. Service
revenues accounted for 17%, 18% and 20% of the Company's revenues in 1997,
1996 and 1995, respectively. Technical support and customer service are
provided through a twelve hour, five day telephone response network that
provides customers with continuous access to trained technical support
personnel. In addition, the Company provides product support and service
through repair, exchange or replacement of products. The Company also
maintains a staff of service technicians that are available for on-site
service calls. During the past three years, the Company had entered certain
agreements under which third parties provided service and technical support
for the Company's traditional printer/plotter products. However, in view of
the increased complexity of the Company's inkjet printer products, together
with the need for increased emphasis on providing better response times to
calls for service, the Company has moved away from using third parties in
favor of its in-house service staff where feasible.
RESEARCH AND DEVELOPMENT
During each of the years 1997, 1996 and 1995, the Company expended funds for
research and development activities of $23.3 million, $20.7 million and $17.3
million, respectively. The Company intends to continue to invest funds to
develop technologies, such as the CrystalJet(TM) inkjet technology, that are
expected to expand its product offerings. A significant portion of research
and development funds in the output device market involve expanding inkjet
technology and related platforms, with an emphasis on improving the Company's
position in the area of image marking technology. For a discussion of the
Company's research and development project with Kodak, see "Recent
Developments." Additional funds are expected to be utilized to develop
proprietary after-
8
market products such as inks and media. Research and development funds in the
digitizer and cutter markets, where the Company has proprietary core
technology, are expected to be devoted to developing new products and
improving product performance while maintaining competitive pricing.
PATENTS AND PROPRIETARY INFORMATION
The Company owns numerous patents and patent applications, including
domestic and foreign applications covering the CrystalJet(TM) technology,
which are used in the operation of the Company's business and has developed a
variety of proprietary information that is necessary for its business. While
such patents, patent applications and other proprietary information are, in
the aggregate, important to the operation of the Company's business,
management of the Company does not believe that any individual patent, patent
application or other intellectual property right is of such significance to
the business of the Company that its loss or termination would materially
affect the business of the Company.
SALES AND DISTRIBUTION
The Company sells hardware, supplies and service through a variety of
distribution channels. Domestically, in 1997, the Company continued the
ChannelWorks two-tiered distribution network introduced two years earlier.
Through ChannelWorks, the number of domestic distributors was limited to those
with broad market penetration capabilities and high efficiencies in their
operations and logistics. Under ChannelWorks, products are generally sold
through a limited number of distributors to value-added resellers serving the
market applications targeted by the Company's products.
Internationally, sales and distribution activities are determined by
international sales management in coordination with in-country distributors
and resellers to insure that sales and distribution efforts are appropriate
for the country's market. In countries where the Company does not have a sales
presence, orders are handled either by a local distributor or under a master
distributor who is managed by the Company. See Note 12 of the "Notes to
Consolidated Financial Statements."
In 1998, the Company is modifying its distribution strategy for output
products to sell its branded products through value-added resellers. The
Company believes it can achieve an overall higher level of customer
satisfaction with this approach. In addition, the Company intends to sell the
new CrystalJet(TM) technology products to various strategic partners, such as
IRIS Graphics and Kodak, who, in turn, will distribute such products under
their private label. The Company believes this strategy will enable the
Company to penetrate new markets and better service customer needs. See "Risk
Factors Affecting the Company."
COMPETITION
General. The Company encounters extensive competition in all of its lines of
business with numerous other parties, depending on the particular product or
market environment. The Company's business involves rapidly changing
technologies resulting in continued performance improvements at lower customer
prices. The Company competes not only with other manufacturers of similar
technologies, but also with firms that make products that may be substituted
or exchanged for the Company's products. The parties with whom the Company
competes differ depending on whether the product at issue is in the hard-copy
plotter, printer and cutter market, or the digital input technology market.
Many of the Company's competitors have larger technical staffs, larger
marketing and sales organizations and significantly greater financial
resources than the Company. The Company also faces additional competition from
many smaller competitors. There can be no assurance that the products of
existing or new competitors will not obtain greater market acceptance than the
Company's products.
Wide-Format Hard Copy Output Market. The wide-format hard copy output market
is comprised of professional printing products having media handling
capability of greater than 17" print width. The Company has historically
competed in this market with the following four technologies: pen plotter,
inkjet plotters and printers, direct thermal plotters and LED plotters. The
parties with whom the Company competes vary depending on the nature of the
technology and markets involved. The Company competes with a wide variety of
competitors
9
in product performance, features and price in connection with the sale of its
hard-copy output products. Traditional competitors in the wide-format hard
copy market are: Hewlett Packard, Xerox, Encad, JDL, Oce, JRL and Mutoh.
CrystalJet(TM) Products. In the fourth quarter of 1997, the Company
announced its new line of wide-format digital printers featuring
CrystalJet(TM) technology. The key market applications benefiting from this
new technology are ones requiring fast throughput of digital printed images at
the highest level of print resolution and quality. The Company anticipates
that an emerging market for "on-demand" digital color printing will replace
many of the current traditional printing technologies. The Company believes
that the CrystalJet(TM) technology and products have a technical and
competitive advantage over the current field of competitive products
participating in these markets. Nevertheless, the traditional competitors in
the wide-format hard copy market such as the companies listed in the prior
paragraph are expected to compete on price, in an attempt to hold market
share. It is also expected that current and new competitors with piezo
technology capability, such as Brother, Epson, Xerox, Raster Graphics, Brady
and Mimaki, may compete in these high productivity market segments. There is
no assurance that new products of existing or new competitors will not obtain
greater market acceptance than the Company's new products.
Cutters. The flexible adhesive cutter market is a worldwide market with many
competitors. Gerber Scientific and Roland claim the largest overall market
share, while the Company is the major cutter company in Europe. The rest of
the market is divided among a dozen or so companies, including the Company,
Ioline, Graphtec and Mutoh.
Input Devices. There are many suppliers of input devices with which the
Company competes. A myriad of other signal-sensing devices are all capable of
direct computer input and, to some extent, are interchangeable with other
input devices. Various features distinguish the competitive products in this
market. The input device selected by a customer will vary based upon intended
application, price and performance.
Major vendors in the worldwide digitizer market include the Company, along
with Wacom, Seiko and Hitachi. In addition, there are many smaller companies
such as ACECAD, Mutoh, GTCO and Graphtec. The Company is one of the largest
providers of both small and large format digitizers. Wacom is the largest
worldwide provider of small format tablets for the graphic arts market, while
the Company is the largest supplier in the CAD market. Major providers in the
scanner market are Vidar, Ideal, Contex and Oce.
Market position is usually dictated by advertising, pricing and channel
awareness rather than product differentiators.
There can be no assurance that products of existing or new competitors will
not obtain greater market acceptance than the Company's products or that the
Company will be able to maintain its market share in the hard copy output,
graphic cutter or input devices markets.
RISK FACTORS AFFECTING THE COMPANY
CrystalJet(TM) Technology
In the fourth quarter of 1997, the Company completed the development of what
is expected to be the first of a new generation of products based on its new
CrystalJet(TM) piezo proprietary technology. The first of these piezo based
products will be a new line of wide format digital printers which are expected
to be brought to market in the first half of 1998. However, there can be no
assurance that this product, or future products, will be accepted by the
market place or that the Company will be able to manufacture these units in
volume at costs which will make the large scale production of these products
economically feasible.
In conjunction with the introduction of the Company's new CrystalJet(TM)
piezo inkjet technology, the Company intends to transition out of
substantially all of its current thermal inkjet printer products by the end of
1998. Although the Company has recorded substantial reserves to reduce this
end-of-life inventory to its estimated net realizable value, there can be no
assurance that the Company will be able to liquidate this inventory at its
current carrying value.
10
The Company's sales related to the end-of-life printer product lines
represented 24%, 28% and 35% of the total revenues of the Company for fiscal
1997, 1996 and 1995, respectively. By the end of 1998, the Company's inkjet
output product offerings will be limited to the new CrystalJet(TM) line of
wide-format digital color printers. Failure to achieve market acceptance for
these new products or the inability to timely achieve required production
volumes at acceptable costs, could have a material adverse impact on the
Company's business.
Additionally, the Company's strategy for its new line of CrystalJet(TM)
products is to establish a CrystalJet(TM) based-consumables business. The
Company believes that the CrystalJet(TM) consumables business should replace
and, as the installed base grows, exceed the Company's existing non-
CrystalJet(TM) consumables business. There can be no assurance that the
Company's will achieve this strategic goal.
CrystalJet(TM) Technology and Manufacturing Risks
The Company's CrystalJet(TM) manufacturing processes are highly complex,
require the use of expensive and technically sophisticated equipment and will
be continuously subject to modification in an effort to improve manufacturing
yields and product quality. Technical or other difficulties in the
manufacturing process can lower such manufacturing yields and result in
products being less profitable than anticipated. Manufacturing difficulties
and capacity limitations could also delay the Company's ability to deliver
products in a timely manner. Delays or technical difficulties associated with
new CrystalJet(TM) product introductions or product enhancements could have a
material adverse effect on the Company's business.
In addition to the technical and manufacturing risks inherent in the
Company's new technology, the Company's believes that any significant business
interruption affecting the Company's single CrystalJet(TM) manufacturing
facility in Sunnyvale, California could materially and adversely affect
CrystalJet(TM) product yields.
Strategic Partnership Agreements
The Company's CrystalJet(TM) strategy also is dependent on its ability to
sign strategic partnership agreements with other companies, enabling it to
leverage their established brand names and distribution channels. The Company
has recently signed an agreement with IRIS Graphics to provide them with wide-
format color printers, has entered into the Joint Development Agreement with
Kodak, and has also had discussions with several other companies regarding
strategic partnerships. The Company believes the strength of the
CrystalJet(TM) technology will enable it to complete additional strategic
agreements. However, there can be no assurance that the Company will be able
to conclude such agreements.
Contract Manufacturers
The Company is dependent on various contract manufacturers to produce or
assemble certain critical sub assemblies or products. There can be no
assurance that the Company will be able to continue these third party
relationships or that the contract manufacturers will continue to perform
under their current contractual agreements. Any material interruption in these
relationships could have a significant impact on the Company's ability to
deliver products to customers, and therefore could have a material adverse
impact on the Company's operations.
Product Development
The markets in which the Company's products compete are subject to rapid
technological development. This rapid technological change results in the need
to continually develop and bring to market new products to compete with
competitive product offerings. The Company intends to continue investing in
the development of new products and technology to enable it to aggressively
compete within its various market segments; however, the availability of
research and development funds is dependent on the Company's ability to
internally fund its development and/or obtain continued external financing
with respect to which no assurance can be given.
11
Suppliers
The Company contracts with various outside vendors to obtain both component
parts for its manufacturing process and for the acquisition of ink and media
for its supplies business. Although the Company believes alternative vendors
are available, any disruption in the relationship with these vendors could
have an adverse impact on the Company's operations. In addition, any
significant change in component price or delay in component availability could
also negatively impact the Company's operations.
Liquidity
The Company's main sources of financing have been a $75 million line of
credit with the Majority Shareholder under the Revolving Credit and Cash
Management Agreements ("Credit Agreements") and the cash proceeds from the
sale of the Company's headquarters facility. At December 28, 1997, the Company
had drawn $59.5 million against that line which was scheduled to mature in
July 1998. The Company was also in violation of certain financial ratio
covenants under the Credit Agreements. In January 1998, the Majority
Shareholder waived compliance with those covenants, and in March 1998, the
Credit Agreements were amended to extend the maturity date to January 31,
1999, to eliminate the requirement for compliance with certain financial ratio
covenants, to eliminate the right of the Majority Shareholder to cancel the
Credit Agreements upon 120 days prior written notice, and to remove the
security interest of the Majority Shareholder in the assets of the Company.
After determining that remaining amounts available under the line were not
adequate to fund the Company's operations in the near term, the Company
entered into a letter of intent in March, 1998 with a bank which contemplates
an additional $25 million senior line of credit (the "Secured Agreement"). The
Secured Agreement will allow the Company to borrow up to 80 percent of its
eligible accounts receivable and 20 percent of eligible inventory through
April, 2000. In addition, in March, 1998, the Company entered into the Joint
Development Agreement with Kodak that provided $20 million in cash upon
signing of the agreement and an additional $16 million in cash over the term
to be funded incrementally upon the achievement of certain milestones and the
occurrence of certain events. Management believes these financial resources
will be sufficient to satisfy the Company's liquidity requirements through
1998. If not, the Company will be required to seek additional financing from
others or pursue other financing alternatives. No assurance can be given that,
if required, additional financing will be available on acceptable terms or at
all. Failure to obtain future financing or to have available continued access
to such financing could result in material liquidity problems for the Company.
For additional discussion of liquidity see "Item 7. Management's Discussion
and Analysis Of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Foreign Market Risk
Approximately 47%, 51%, and 53% of the Company's revenues in 1997, 1996 and
1995, respectively, were made internationally. International sales involve
risks that are not necessarily applicable to domestic activities, such as
exposure to currency fluctuations, offset obligations and changes in foreign
economic and political environments. In addition, international transactions
often involve increased financial and legal risks arising from widely
different legal systems and customs. For additional information regarding the
Company's revenue, operating profits and identifiable assets attributable to
the Company's domestic and foreign operations, see Note 12 of the "Notes to
Consolidated Financial Statements."
ORGANIZATION
The Company's business organization consists of two business units, the
Input Technologies Division located in Scottsdale, Arizona which manufactures
and/or distributes digitizers and scanners and the Digital Printing Systems
Division located in Anaheim and Sunnyvale, California and Gistel, Belgium
which manufactures and sells output products consisting of printers and
cutters. Sales and service are organized geographically for both divisions,
while the following functions are included within each division:
Product Management is responsible for defining product requirements and
remains responsible for the product through development, manufacturing and
sales, to provide continuity to the Company's market commitment.
12
Product Development is charged with the design of an economically
manufacturable product which meets the specifications originated by Product
Management. Topaz is the development center for printers and printing
technology for the Digital Printing Systems Division.
Manufacturing performs all of the manufacturing operations, including the
purchasing of materials, manufacturing, testing, packaging and shipping of
products. Manufacturing consists of a blend of internal and outsourced
capabilities.
Marketing and Sales is responsible for the selection, management and support
of distribution channels. Additionally, the North America Sales organization
manages sales in territories where the Company has no operating subsidiaries
or distributors through Budde International, Inc., a Master Distributor
located in Anaheim, California.
The Company's European operations are headquartered in Neuss, Germany. The
Company's activities in the Asia/Pacific region are conducted through
subsidiaries in Hong Kong, China and Australia. The Company is a party to a
joint venture in Japan in which it has a 44% equity interest. Nippon Steel
Corporation owns 51% and Sumitomo Corporation owns 5%. The joint venture, NS
CalComp Corp., is the exclusive distributor for nearly all of the Company's
products in Japan. See Note 6 of the "Notes to Consolidated Financial
Statements."
EMPLOYEES
As of December 28, 1997, the Company employed approximately 885 people
worldwide, of which 146 employees are involved in product development,
manufacturing, marketing and headquarters operations in Anaheim, California.
Approximately 191 employees are employed in the sales and service of the
Company's products and are located at various strategic sites throughout North
America, with many located in Anaheim, California. The Company employs
approximately 137 people in support of its digitizer operations in Scottsdale,
Arizona, and 133 people in support of inkjet products in Sunnyvale,
California. In addition, there are approximately 252 employees in Europe and
26 employees in Asian operations, primarily involved with the importation,
sales and service of the Company's products into their local geographic
regions.
ITEM 2. PROPERTIES
The Company owns its Input Technologies Division facility in Scottsdale,
Arizona which is comprised of a 68,000 square foot building on seven acres of
land, and its cutter facility in Gistel, Belgium which is comprised of a
43,180 square foot building.
During the fourth quarter of 1996, the Company decided to sell its 27.9 acre
headquarter facility in Anaheim, California and wrote the facility down to its
then current appraised value, less costs to sell, of $15,119,000 resulting in
a loss of $10,908,000. On June 24, 1997, the Company completed the sale of the
facility, to Lincoln Property Company, Inc. of Dallas, Texas, and D.L.J. Real
Estate Capital partners for $21,500,000, less associated costs to sell. The
headquarters sale resulted in a gain on disposal of $5,873,000. Proceeds from
the sale of the property were used to reduce outstanding borrowings under a
line of credit the Company has with the Majority Shareholder. The Company has
leased back approximately 138,500 square feet of space, or two of the ten
buildings located on the property. The Company has a one year lease with an
option to continue the lease for an additional year. In accordance with the
lease agreement, the Company has exercised this option to extend the lease
through June 23, 1999.
The Company also leases space at several field locations in the United
States. These leased facilities are located in Sunnyvale, California; Livonia,
Michigan; Bensalem, Pennsylvania; New Braunfels, Texas; Houston, Texas; and
Macedonia, Ohio totaling approximately 51,532 square feet. The Company's
Canadian subsidiary leases 13,815 square feet of space in Richmond Hill,
Ontario. The Company leases 37,986 square feet of space in Europe, at
locations in Vienna, Austria; Neuss, Germany; Bologna, Spain; Milan, Italy;
Twyford, Berkshire, England; Paris, France; Madrid, Spain; Sollentuna, Sweden;
and Amstelveen, Netherlands. Asian operations
13
occupy 10,340 square feet of space collectively in Sydney and Melbourne,
Australia; Quarry Bay, Hong Kong; and Beijing, China.
Prior to the move of the Company's corporate headquarters to Anaheim,
California as a result of the Exchange, the Company's executive offices were
located in a leased building in Austin, Texas having a total of 96,400 square
feet of space. The Company is currently negotiating to terminate the lease on
this vacant facility. The Company is also currently renegotiating certain
European facility leases to reduce or eliminate excess space currently
occupied by the Company's European subsidiaries.
ITEM 3. LEGAL PROCEEDINGS
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 "Shareholders"), and the Company
in California Superior Court in Santa Clara County. The complaint alleged,
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 where they participated in the development of certain
inkjet technology. On April 18, 1997, Raster Graphics filed an amended
complaint, dismissing its claims against the Company and amending the
complaint to focus on technology relating to a test fixture that had been
developed at Raster Graphics. The complaint seeks unspecified compensatory
damages, punitive damages, costs and injunctive relief. The Company continues
to believe that the inkjet printing technology developed by Topaz is
proprietary to the Company and is not based on Raster Graphics technology, and
that this lawsuit is without merit.
A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom
Technology Corp. against CalComp Inc., a wholly-owned subsidiary of the
Company, in the U.S. District Court for the Central District of California.
The complaint alleged among other things, that CalComp Inc.'s sale of
ULTRASLATE digitizer tablets infringes U.S. Patents Nos. 4,878,553 (now
Reexamination Certificate #3325), 5,028,745 and 4,999,461 and infringes
Wacom's common law trademark ULTRAPEN. Wacom's request for a preliminary
injunction concerning infringement of the first two of three patents was
denied by the Court on February 12, 1998. Wacom is also seeking damages and
permanent injunctive relief with respect to alleged infringement of the three
patents, pre-judgment interest and, among other things, has requested an award
of its attorneys' fees and costs. The Company does not believe that any of the
allegations made by Wacom in this suit have merit and intends to defend itself
against all the claims.
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 any of these
matters will have a material adverse effect on its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
PART II
ITEM 5. MARKET FOR 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." The following table sets forth the high and
low closing bid prices of the Common Stock for the periods, since the
consummation of the Exchange, as reported by the NASDAQ.
HIGH LOW
------ ------
Year Ended December 28, 1997:
Fourth Quarter............................................... 6 1/16 3 1/2
Third Quarter................................................ 5 1/2 1 7/8
Second Quarter............................................... 2 7/8 1 3/8
First quarter................................................ 2 3/4 2 3/16
Year Ended December 29, 1996:
Fourth Quarter............................................... 3 2
Third Quarter................................................ 3 3/16 1 5/8
As of March 10, 1998, there were 311 record holders of the Company's Common
Stock (which shares are believed to be beneficially owned by approximately
1,892 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 deems
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.
15
ITEM 6. SELECTED FINANCIAL DATA
The selected statement of operations and balance sheet data for each of the
five years in the periods set forth below are derived from CalComp Technology,
Inc.'s audited consolidated financial statements. The comparability of the
selected financial data presented is significantly affected by the Exchange
and the items discussed in the footnotes below. This selected financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of CalComp Technology, Inc. and related notes thereto included
elsewhere herein. The following data is presented in thousands, except for per
share data:
DECEMBER 28, DECEMBER 29, DECEMBER 31, DECEMBER 25, DECEMBER 26,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS
DATA:
Revenue................. $200,158 $235,916 $281,655 $294,548 $300,151
Loss from operations.... (69,691)(3) (59,580)(2) (9,088) (23,464) (48,622)
Net loss................ (75,188) (56,604) (10,718) (23,226) (46,639)
Weighted average shares
used in computing per
share amounts.......... 46,951 42,946 40,743 40,743 40,743
Basic and diluted loss
per share(1)........... $ (1.60) $ (1.32) $ (0.26) $ (0.57) $ (1.14)
BALANCE SHEET DATA:
Total assets............ $209,457 $276,085 $231,564 $228,312 $257,746
Long-term liabilities... 67,896 33,909 8,720 8,548 4,967
- --------
(1) Loss per share amounts for all years prior to 1997 have been restated, as
required, to conform with the requirements of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." The adoption of
Statement No. 128 resulted in no changes in per share amounts previously
reported.
(2) Loss from operations includes charges of $10,090,000, related to the
restructuring of the Company's operations and $10,908,000 related to the
loss on the sale of the Company's headquarters facility. (See Note 2 of
the "Notes to Consolidated Financial Statements").
(3) Loss from operations includes net charges of $3,788,000 related to
additional restructuring of the Company's operations and $10,800,000 to
reduce certain end-of-life product inventory to its estimated net
realizable value. In addition, loss from operations includes a $5,873,000
realized gain on the sale of the Company's headquarters facility. (See
Note 2 of the "Notes to Consolidated Financial Statements").
16
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 have been made subject
to the safe harbor protections provided by Sections 27A and 21E.
The following table sets forth, for the Company's fiscal years ended
December 28, 1997, December 29, 1996, and December 31, 1995, items in the
consolidated statements of operations of the Company as percentages of total
revenue. The table and the subsequent discussion should be read in conjunction
with the consolidated financial statements and related notes thereto of
CalComp Technology included elsewhere herein. For more detailed information
concerning the Company after consummation of the Exchange, see Item 1.
Business and Note 2 of "Notes to the Consolidated Financial Statements".
PERCENTAGE OF TOTAL REVENUES
YEARS ENDED
--------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
Revenue:
Hardware and supplies.................. 74% 68% 67%
Service................................ 17 18 20
Sales to affiliates.................... 9 14 13
--- --- ---
Total revenue........................ 100 100 100
Cost of revenue:
Hardware and supplies.................. 93 76 72
Service................................ 89 82 72
Sales to affiliates.................... 80 70 73
--- --- ---
Total cost of revenue................ 91 76 72
--- --- ---
Gross profit:
Hardware and supplies.................. 7 24 28
Service................................ 11 18 28
Sales to affiliates.................... 20 30 27
--- --- ---
Total gross profit................... 9 24 28
Operating expenses:
Research and development............... 12 9 6
Selling, general and administrative.... 32 30 22
Corporate expenses from Majority
Shareholder........................... 1 1 3
(Gain) loss on disposal of facilities.. (3) 5 --
Restructuring charge................... 2 4 --
--- --- ---
Total operating expenses............. 44 49 31
--- --- ---
Loss from operations.................... (35) (25) (3)
--- --- ---
Interest expense........................ 2 1 0
Other expense (income), net............. 1 (1) 0
--- --- ---
Loss before income taxes................ (38) (25) (3)
Provision for (benefit of) income taxes. -- (1) 1
--- --- ---
Net loss................................ (38)% (24)% (4)%
=== === ===
GENERAL
The Company's products and services compete in several markets including
CAD/CAE/CAM, presentation graphics, graphic arts, and printing and publishing.
The Company's ability to successfully market its products requires adapting
new technologies, such as the CrystalJet(TM) technology, and leveraging the
channels of
17
distribution in order to remain competitive. The Company encounters extensive
competition in all of its lines of business with numerous other parties,
depending on the particular product or market environment. The Company's
business involves rapidly changing technologies resulting in continued
performance improvements at lower customer prices. 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. Many of the Company's competitors have
larger technical staffs, larger marketing and sales organizations and
significantly greater financial resources than the Company. There can be no
assurance that the products of existing or new competitors will not obtain
greater market acceptance than the Company's products. See Item 1. "Business--
Risk Factors Affecting the Company".
On July 23, 1996, Summagraphics Corporation ("Summagraphics") and CalComp
Inc., a wholly-owned subsidiary of Lockheed Martin Corporation ("Lockheed
Martin" or the "Majority Shareholder"), effected a plan of reorganization for
the exchange of CalComp Inc. stock for Summagraphics stock, after which
Summagraphics changed its name to CalComp Technology, Inc. ("Company") (the
"Exchange"). The newly reorganized Company adopted a fiscal year ending on the
last Sunday of December. For accounting purposes, CalComp Inc. was treated as
the acquiring company. Therefore, the historical financial statements are
those of CalComp Inc. with the accounts and results of Summagraphics included
from the date of the Exchange (See Note 2 of Notes to the Consolidated
Financial Statements). During fiscal 1997, the purchase price allocation for
the Exchange was adjusted to reflect the differences between the current and
preliminary estimate of costs incurred to terminate facility leases and actual
costs incurred related to various acquisition related liabilities. These
purchase price allocation revisions resulted in an adjustment to increase
goodwill by $3.6 million.
In 1997, the Company introduced its new CrystalJet(TM) product line and
initiated a transition plan to eliminate certain existing output product lines
and accelerate the Company's end-of-life process for those products that will
be discontinued. As a result, in the third and fourth quarters of 1997, the
Company recorded credit memos of $5.2 million against revenue and inventory
reserves of $12.4 million to cost of sales aggregating $17.6 million,
primarily to reduce accounts receivable and certain end-of-life inventories to
their estimated net realizable values, respectively. Although the Company has
recorded these additional reserves to reflect their estimated net realizable
values, there can be no assurance that the Company will be able to liquidate
this inventory and collect these receivables at their current carrying values.
In addition, as the Company's sales related to these end-of-life product lines
represented 24%, 28%, and 35% of the revenues of the Company for fiscal 1997,
1996 and 1995, respectively, the Company's diversity of inkjet product
offerings, by the end of 1998, will be limited to the new CrystalJet(TM) line
of wide-format digital printers until subsequent CrystalJet(TM) product
offerings are introduced. Failure to achieve market acceptance for these
products or the inability to increase manufacturing volumes to achieve
production efficiencies, could have a material adverse impact on the Company's
consolidated financial position and results of operations. See Item 1
"Business--Risk Factors Affecting the Company".
In addition, the Company's strategy for its new products focuses on
capturing consumable sales through establishing a strong installed base of
CrystalJet(TM) products, both through CalComp branded products and through the
various channels provided by the Company's strategic partners. However, there
can be no assurance that the Company will be able to achieve this strategic
goal.
RESULTS OF OPERATIONS
Comparison of 1997 to 1996
Revenues. Revenues for 1997 declined $35.8 million, or 15%, to $200.2
million from the previous year, with hardware and supplies and sales to
affiliates (collectively "product revenue") down 14% and service revenue down
19%. For purposes of Management's Discussion and Analysis of the Results of
Operations, revenue and gross profit from sales to affiliates have been
combined with hardware and supplies revenues and gross profit, since such
sales have been consummated at prices and terms that are consistent with
prices and terms available to unrelated third parties. The decline in product
revenue resulted primarily from decreases in product
18
demand due to the maturity of the Company's output products compared to its
competitors, the associated price reductions necessary to maintain market
position and lower customer demand due to the Company's announcement of its
intent to discontinue certain output products in anticipation of the release
of the new CrystalJet(TM) product lines. These decreases were partially offset
by increases in sales of the Company's cutter products resulting primarily
from a full year of sales in 1997 compared to five months in 1996 subsequent
to the Exchange. The lower service revenue compared to the prior year is a
result primarily of fewer service contracts being generated due to the lower
product revenue base, a lower rate of service contract renewals as older
generation products are retired from service and the transition of customers
to lower cost products, which traditionally do not capture the level of
service contract renewals as higher priced products. The Company's foreign
sales declined 23% in 1997, compared to the prior year, reflecting the
decrease in demand for the Company's mature output products and the Company's
responses to significant competitor pricing pressures.
Gross Profit. Gross profit for 1997 decreased to 9% from 24% in 1996.
Product gross profit decreased to 8% from 25% in the prior year while service
gross profit decreased to 11% in 1997 from 18% in 1996. The decline in gross
profit margin was attributable primarily to manufacturing inefficiencies
resulting from decreased production volumes due to lower customer demand for
the Company's mature output products, and selling price reductions for these
mature products, necessitated by competitive pressures. The decrease in
service gross profit is attributable to the transition to lower cost products
which do not carry the same level of service margin as the older generation
higher cost products which they replaced. The decline in gross profit was
further impacted by the $17.6 million charge associated with the Company's
decision to accelerate the transition from its current products to its new
proprietary inkjet products. Excluding the effect of these charges, the gross
profit percentage was 17%.
Operating Expenses. Total operating expenses, excluding restructuring
charges and the sale of the Company's headquarters facility, were $89.3
million in 1997, or 45% of revenue, compared to $94.1 million, or 40% of
revenue, in 1996.
Research and development expenses increased $2.6 million in 1997, to 12% of
revenue from 9% of revenue in 1996. This higher spending level reflects costs
incurred to develop the Company's new CrystalJet(TM) product line, which is
expected to be the first of a new generation of products based on the
Company's proprietary inkjet technology. The first of the CrystalJet(TM)
products is expected to be released in the first half of 1998. The markets in
which the Company's products compete are subject to rapid technological
development. This rapid technological change results in the need to
continually develop and bring to market new products to compete with its
competitors' product offerings. The Company intends to continue its investment
in the development of new products and technology to enable it to aggressively
compete within its various market segments; however, the availability of
research and development funds is dependent on the Company's ability to
increase its revenue base, control expenses and return to profitability.
Further, the availability of funds is heavily dependent on the Company's
ability to obtain continued financing while it transitions to its new
CrystalJet(TM) products.
Selling, general and administrative expenses decreased $6.7 million in 1997,
to 32% of revenue from 30% of revenue in 1996. The decline in spending
resulted primarily from the benefits of staffing and facility consolidation as
a result of restructuring actions taken in 1996 and 1997 to streamline the
Company's infrastructure, as well as reductions in advertising and marketing
spending as the Company phases out certain output product lines. These cost
savings were partially offset by increased expenses related to a new
management information systems, litigation and higher amortization expense
resulting from additional intangible assets associated with the Summagraphics
and Topaz acquisitions in 1996.
Corporate expenses from Lockheed Martin decreased $0.7 million to $2.9
million in 1997 from $3.6 million in 1996. This decrease is attributable to
the effect of recent acquisitions by Lockheed Martin on corporate charges
whereby expenses are allocable over a larger base thereby reducing the
corporate charge.
Restructuring and Sale of Headquarters Facility. In the fourth quarter of
1996, the Company initiated a plan to restructure its operations worldwide and
incurred a charge of approximately $10.1 million consisting of
19
$6.9 million for the elimination of an estimated 285 positions worldwide and
$3.2 million for lease termination and related fixed asset disposition costs
for the reorganization of the Company's European operations. During 1997, the
Company incurred cash expenditures aggregating $8.0 million and non-cash
charges of $0.1 million, related to severance payments, asset writedowns and
lease payments for closed facilities. As of December 31, 1997, approximately
$6.7 million of the 1996 restructuring charge utilized related to severance
payments made to the 283 employees who have been terminated under the 1996
plan. As of December 28, 1997, substantially all of the 1996 restructuring
plan had been completed, although certain lease obligations will continue
through 1998. The Company recorded a $1.0 million credit in the fourth quarter
of 1997 after concluding that most of the 1996 restructuring plan activities
were completed or adequately provided for within the remaining restructuring
accrual.
In the fourth quarter of 1997, the Company expanded its plan to restructure
its operations worldwide and incurred a charge of approximately $4.8 million
consisting of $2.9 million for the elimination of an additional 91 positions
relating to further realignment of the Company's international operations, and
$1.9 million for lease termination and related fixed asset disposition costs
for certain international facilities. During the fourth quarter, the Company
incurred cash expenditures aggregating $0.6 million related to severance
actions taken prior to year end. At December 31, 1997, the restructuring
accrual approximated $5.0 million consisting of $4.2 million from the 1997
plan and $0.8 million remaining from the 1996 plan.
During the fourth quarter of 1996, the Company decided to sell its 27.9 acre
headquarters facility in Anaheim, California and wrote the facility down to
its then current appraised value, less costs to sell, of $15.1 million
resulting in a loss of $10.9 million. On June 24, 1997, the Company completed
the sale of the facility, to Lincoln Property Company, Inc. of Dallas, Texas,
and D.L.J. Real Estate Capital partners for $21.5 million, less associated
costs to sell. The headquarters sale resulted in a gain on disposal of $5.9
million. Proceeds from the sale of the property were used to reduce
outstanding borrowings under a line of credit the Company has with the
Majority Shareholder. The Company has leased back approximately 138,500 square
feet of space, or two of the ten buildings located on the property. The
Company entered a one year lease with an option to continue the lease for an
additional year. In accordance with the lease agreement, the Company has
exercised this option to extend the lease through June 23, 1999.
The 1997 restructuring is expected to reduce operating expenses and
streamline the Company's infrastructure, resulting in approximately $3.5
million annually in reduced administrative and support expenses.
Interest Expense. Interest expense increased to $3.0 million in 1997 from
$1.0 million in 1996 due substantially to increases in the Company's
outstanding balances under a line of credit with the Majority Shareholder.
Also, interest expense in 1997 includes a full year of expense compared to
five months in 1996 subsequent to the Exchange.
Other Expense (Income), net. Other expense (income), net, declined $2.9
million to $1.4 million of net expense in 1997 compared to $1.5 million of net
income in 1996. This decrease resulted primarily from foreign exchange
transaction losses of $1.9 million in 1997 compared to a loss of $0.5 million
in 1996, resulting from the strength of the U.S. dollar and its impact on the
Company's international subsidiaries' U.S. dollar denominated liabilities. In
addition, during 1996, the Company recorded interest income of $1.1 million
resulting from a favorable determination by U.K. taxing authorities. Earnings
for the Company's Japanese joint venture, which is accounted for on the equity
method in other income, were consistent with the prior year.
Income Taxes (Benefit). The 1997 net tax expense of $38,000 relates
primarily to state tax expense of $0.3 million from the Company's combined
state tax sharing allocations with Lockheed Martin, partially offset by the
foreign tax loss carryback benefit from the Company's foreign operations. As
the Company sustained a net loss in 1997, no federal income tax provision was
necessary, nor was a tax benefit recorded as management determined that it was
appropriate to increase the valuation allowance for deferred tax assets. It is
the intention of management to assess the continued need for the valuation
allowance for each period. In 1996, the income tax benefit of $2.5 million
related primarily to the carryback benefit of foreign tax losses from the
Company's foreign operations.
20
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting (SFAS) No. 131, "Disclosures about Segments
of and Enterprise and Related Information." SFAS 131 establishes standards for
the way in which publicly-held companies report financial and descriptive
information about its operating segments in financial statements for both
interim and annual periods. The Statement also requires additional disclosures
with respect to products and services, geographic areas of operation and major
customers. SFAS 131 is effective for fiscal years beginning after December 15,
1997. The adoption of SFAS 131 will have no impact on the Company's
consolidated results of operations, cash flows or financial position, but may
increase the level of disclosure of segment information.
COMPARISON OF 1996 TO 1995
Revenue. Revenues for 1996 declined $45.7 million, or 16%, to $235.9 million
from the previous year, with product revenue down 15% and service revenues
down 21%. The decline in product revenue during 1996 was $34.1 million
consisting of revenue declines of approximately $55.2 million resulting
primarily from continuing competitive pressures on output products, pricing
actions, continuing difficulties with implementation of the ChannelWorks
distribution program and difficulties and delays associated with new product
introductions. Such revenue declines were partially offset by revenue growth
of approximately $21.1 million resulting primarily from the addition of the
Summagraphics' cutter and digitizer product lines. Service revenue declines
resulted from the drop in after-market service contract sales resulting from
the decline in hardware sales 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. The Company's gross profit for 1996 decreased to 24% from 28%
in 1995. Product gross profit decreased to 25% from 28%, while service gross
profit decreased to 18% from 28%. The decrease in product gross profit is
attributable to continued competitive pricing pressure, continued shift in the
mix of products sold towards lower cost, lower margin products, higher costs
associated with the introduction of new products, and the phase out of mature,
end of life products at reduced selling prices. The decrease in service gross
profit is attributable to the transition to lower cost products which do not
carry the same level of service margin as the older generation higher cost
products which they replaced. In addition, service costs increased during the
period as a result of customer usage rates higher than product specifications
on LED/laser products requiring additional service calls and replacement
parts, as well as from costs associated with product quality issues related to
products introduced at the end of 1995 and in the first half of 1996.
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. Total operating expenses were $115.1 million in 1996, an
increase of 31% or $27.0 million from the prior year and include a one-time
restructuring charge of $21.0 million for facility write-downs and
restructuring expenses. Total operating expenses prior to certain
restructuring charges and facility writedowns were $94.1 million in 1996, a 7%
increase from 1995 to 40% of revenue in 1996 versus 22% in 1995. Product
development expenses increased $3.4 million to 9% of revenue from 6% in 1995.
The increase resulted from ongoing new product development as well as expenses
incurred to address product quality issues related to products introduced at
the end of 1995 and in the first half of 1996. Selling, general and
administrative expenses increased $7.3 million to 30% of revenue from 22% in
1995. Selling, general and administrative expense increases are attributable
to expenses related to the Exchange; marketing and promotional expenses
incurred to meet competitive pressures; costs associated with new management
information systems; litigation; as well as the increase in goodwill
amortization resulting from the Exchange and the decision to shorten CalComp
Inc.'s existing goodwill amortization period from 40 years to 25 years.
Corporate expenses from Lockheed Martin decreased $4.7 million to 1% of
revenue from 3% in 1995 as a result of Lockheed Martin's decision to
discontinue its practice of interest allocation to affiliates. The interest
allocation in 1995 under this method was $4.6 million.
21
Restructuring Charges. The restructuring charges incurred in the fourth
quarter of 1996, of $21.0 million, consisted 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 exiting from certain facilities, and
severance costs of $6.9 million associated with the elimination of
285 positions worldwide. In the fourth quarter of 1996, approximately 68
employees were terminated resulting in payouts of approximately $0.7 million.
Interest Expense. The Company's interest expense for the year was $1.0
million relating primarily to borrowings by the Company from Lockheed Martin
made pursuant to the Credit Agreements (as defined below) entered into as part
of the Exchange. There were no such charges or agreements in place in 1995.
Other Income, net. Other income, net, declined $0.4 million to $1.5 million
in 1996 from $1.9 million in 1995, as a result of a reduction in earnings of
$0.9 million of a Japanese joint venture which is accounted for on the equity
method in other income, foreign exchange transaction losses of $0.5 million
versus a gain of $0.4 million in the prior year resulting from the strength of
the U.S. dollar and its impact on the Company's international subsidiaries'
U.S. dollar denominated liabilities, partially offset by increases in interest
income of $1.1 million resulting primarily from a favorable determination by
U.K. taxing authorities that the Company is entitled to interest on certain
tax amounts refunded.
Income Taxes (Benefit). The income tax benefit of $2.5 million for 1996
relates primarily to the carryback benefit of foreign tax losses from the
Company's foreign operations. As the Company sustained a net loss in 1996, no
federal income tax provision was necessary, nor was a tax benefit recorded as
management determined that it was appropriate to increase the valuation
allowance for deferred tax assets. In 1995, the Company's provision for income
tax was $3.6 million relating primarily to the provision for foreign taxes on
the Company's profitable foreign locations.
SUPPLEMENTAL INFORMATION
The Company uses a fifty-two, fifty-three week fiscal year which ends on the
last Sunday in December. Fiscal 1997 and 1996 each contained fifty-two weeks.
Fifty-three weeks were included in Fiscal 1995.
The Company believes that the effects of inflation on its operations and
financial condition are minimal.
See Note 7 of Notes to Consolidated Financial Statements contained in Item 8
of this Annual Report for information with respect to outstanding litigation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's recent operations have resulted in net losses of $75.2
million, $56.6 million and $10.7 million for the years ended December 28,
1997, December 29, 1996 and December 31, 1995, respectively. The Company's
main sources of financing have been a $75 million line of credit with the
Majority Shareholder under the Revolving Credit and Cash Management Agreements
("Credit Agreements") and the proceeds from the sale of the Company's
headquarters facility. At December 28, 1997, the Company had drawn $59.5
million against that line which was scheduled to mature in July 1998. The
Company was also in violation of certain financial ratio covenants under the
Credit Agreements. In January 1998, the Majority Shareholder waived compliance
with those covenants, and in March 1998, the Credit Agreements were amended to
extend the maturity date to January 31, 1999, to eliminate the requirement for
compliance with certain financial ratio covenants, to eliminate the right of
the Majority Shareholder to cancel the Credit Agreements upon 120 days prior
written notice, and to remove the security interest of the Majority
Shareholder in the assets of the Company.
After determining that remaining amounts available under the line are not
adequate to fund the Company's operations in the near term, the Company
entered into a letter of intent in March 1998 with a bank which contemplates
an additional $25 million senior line of credit (the "Secured Agreement"). The
Secured Agreement will allow the Company to borrow up to 80 percent of its
eligible accounts receivable and 20 percent of eligible inventory through
April, 2000. In addition, in March 1998, the Company entered into the Joint
Development
22
Agreement with Kodak that provided $20 million in cash upon signing of the
agreement and an additional $16 million in cash over the term to be funded
incrementally upon the achievement of certain milestones and the occurrence of
certain events. Management believes these financial resources will be
sufficient to satisfy the Company's liquidity requirements through 1998. If
not, the Company will be required to seek additional financing from others or
pursue other financing alternatives. No assurance can be given that, if
required, additional financing will be available on acceptable terms or at
all.
The Company is implementing plans to improve the Company's competitive
position by introducing a new line of CrystalJet(TM) piezo inkjet printers in
the first half of 1998, as well as increasing operating efficiencies. The
Company anticipates that these efforts will result in improved gross margins
and operating results during fiscal 1998. However, no assurances can be given
that the Company will be successful in realizing these goals. Failure to
achieve market acceptance for these products or the inability to timely
achieve required production volumes at acceptable costs could have a material
adverse impact on the Company's business.
During fiscal 1997, the Company used $47.5 million of cash in its operations
primarily to fund its continuing net losses which included $10.5 million in
payments relating to the Company's reorganization and restructuring plans
announced in 1996 and 1997. In addition, $10.9 million was expended on
property, plant and equipment, relating primarily to purchases of tooling and
equipment for the development and manufacture of the new CrystalJet(TM)
product line, and $2.9 million was expended to repay preexisting Summagraphics
debt. These uses of cash were funded substantially by borrowings from the
Company's Majority Shareholder of $30.6 million, pursuant to the Credit
Agreements, $21.1 million in net proceeds from the sale of the Company's
headquarters facility in Anaheim, California and $1.1 million in net proceeds
from the sale of fixed assets.
During 1997, the Company spent $0.7 million in the implementation of new
management information systems, primarily with respect to its international
locations. During 1997, the Company continued to invest heavily in fixed
assets at the Topaz facility, and during 1998 will use the proceeds
contributed by Kodak pursuant to the Joint Development Agreement to support
the development and manufacture of the new CrystalJet(TM) products. The
Company has no other significant commitments for capital expenditures.
Although the Company believes that cost savings from the restructuring of
its worldwide operations, which will be substantially completed in the first
half of 1998, combined with the introduction of its proprietary new CrystalJet
product line, will allow the Company to better respond to intense industry
competition, no assurance can be given that such goals will be realized. The
Company anticipates operating losses to continue through 1998.
For a discussion of risk factors, see Item 1. "Business--Risk Factors
Affecting the Company".
Year 2000 Compliance. Many existing computer systems, applications, and
other control devices, use only two digits to identify a year in the date
field, without considering the impact of the upcoming change in the century.
Such systems and applications could fail or create erroneous results unless
corrected to process data related to the Year 2000. The Company relies on its
systems, applications and devices in operating and monitoring all major
aspects of its business, including systems (such as general ledger, accounts
payable and payroll modules), customer services, infrastructure, embedded
computer chips, networks and telecommunications equipment. The Company also
relies, directly and indirectly, on external systems of business enterprises
such as customers, suppliers, creditors, financial organizations and
governmental entities, both domestic and international, for accurate exchange
of data.
The Company has been investigating and continues to assess the impact, if
any, which Year 2000 issues may have on its internal computer systems.
Although the assessment process is not complete, based on information and
estimates currently available, Year 2000 issues related to these systems will
not have a material adverse effect on the operations of or on the financial
results of the Company. The inability of customers, suppliers and other
external enterprises with which the Company interacts to make timely changes
to their own systems could have an adverse impact on the Company.
The Company believes all of its products are Year 2000 compliant.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Report of Independent Auditors........................................... 25
Consolidated Balance Sheets at December 28, 1997 and December 29, 1996... 26
Consolidated Statements of Operations for the Years Ended December 28,
1997, December 29, 1996 and December 31, 1995........................... 27
Consolidated Statements of Stockholders' Equity for the Years Ended
December 28, 1997, December 29, 1996 and December 31, 1995.............. 28
Consolidated Statements of Cash Flows for the Years Ended December 28,
1997, December 29, 1996 and December 31, 1995........................... 29
Notes to Consolidated Financial Statements............................... 30
24
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CalComp Technology, Inc.
We have audited the accompanying consolidated balance sheets of CalComp
Technology, Inc. as of December 28, 1997 and December 29, 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 28, 1997. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CalComp
Technology, Inc. at December 28, 1997 and December 29, 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 28, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Orange County, California
January 19, 1998, except for Notes 1, 7, 8 and 13,
as to which the date is March 30, 1998
25
CALCOMP TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 28, DECEMBER 29,
1997 1996
------------ ------------
ASSETS:
Current assets:
Cash............................................... $ 6,494 $ 15,290
Accounts receivable (less allowance for doubtful
accounts of $3,367 in 1997 and $4,603 in 1996).... 26,208 48,230
Accounts receivable from affiliates................ 4,428 8,633
Inventories (Note 3)............................... 43,069 57,765
Net assets held for sale (Note 2).................. -- 15,119
Prepaid expenses and other current assets.......... 4,783 5,866
-------- --------
Total current assets............................. 84,982 150,903
Property, plant and equipment, net (Note 3).......... 29,048 26,891
Investments (Note 6)................................. 5,682 5,022
Goodwill (net of accumulated amortization of $26,050
in 1997 and $20,324 in 1996)........................ 79,994 82,080
Other intangibles (net of accumulated amortization of
$1,894 in 1997 and $271 in 1996).................... 5,857 7,866
Other assets......................................... 3,894 3,323
-------- --------
Total assets..................................... $209,457 $276,085
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable................................... $ 14,395 $ 27,554
Accounts payable to affiliates..................... 5,591 4,704
Deferred revenue................................... 6,828 9,217
Accrued salaries and related expenditures.......... 4,487 7,398
Accrued restructuring costs (Note 2)............... 5,049 9,355
Accrued reorganization costs (Note 2).............. 6,878 5,595
Line of credit..................................... -- 2,948
Other liabilities.................................. 22,600 22,901
-------- --------
Total current liabilities........................ 65,828 89,672
Line of credit with Majority Shareholder (Note 8).... 59,525 28,880
Other long-term liabilities.......................... 8,371 5,029
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued........................... -- --
Common stock, $.01 par value, 60,000,000 shares
authorized, 47,070,950 and 46,898,650 shares
issued and outstanding on December 28, 1997 and
December 29, 1996, respectively................... 471 469
Additional paid-in capital......................... 287,322 286,860
Accumulated deficit................................ (217,145) (141,957)
Cumulative translation adjustment.................. 5,550 7,597
Less: Treasury stock, at cost, 49,000 shares....... (465) (465)
-------- --------
Total stockholders' equity....................... 75,733 152,504
-------- --------
Total liabilities and stockholders' equity....... $209,457 $276,085
======== ========
See accompanying notes to consolidated financial statements.
26
CALCOMP TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEARS ENDED
----------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
Revenue:
Hardware and supplies................. $ 148,157 $ 161,083 $ 188,880
Service............................... 34,827 43,208 54,860
Sales to affiliates................... 17,174 31,625 37,915
----------- ----------- -----------
Total revenue....................... 200,158 235,916 281,655
Cost of revenue:
Hardware and supplies................. 138,061 122,649 135,880
Service............................... 30,831 35,498 39,233
Sales to affiliates................... 13,699 22,228 27,555
----------- ----------- -----------
Total cost of revenue............... 182,591 180,375 202,668
----------- ----------- -----------
Gross profit........................ 17,567 55,541 78,987
Operating Expenses:
Research and development.............. 23,314 20,713 17,343
Selling, general and administrative... 63,129 69,843 62,507
Corporate expenses from Majority
Shareholder (Note 5)................. 2,900 3,567 8,225
(Gain) loss on disposal of facilities
(Note 2)............................. (5,873) 10,908 --
Restructuring charge (Note 2)......... 3,788 10,090 --
----------- ----------- -----------
Loss from operations.................... (69,691) (59,580) (9,088)
Interest expense........................ 4,037 989 --
Other expense (income), net (Note 4).... 1,422 (1,507) (1,942)
----------- ----------- -----------
Loss before income taxes................ (75,150) (59,062) (7,146)
Provision for (benefit of) income taxes
(Note 9)............................... 38 (2,458) 3,572
----------- ----------- -----------
Net loss............................ $ (75,188) $ (56,604) $ (10,718)
=========== =========== ===========
Basic and diluted loss per share of
common stock....................... $ (1.60) $ (1.32) $ (0.26)
=========== =========== ===========
Weighted-average number of shares
outstanding (Note 1)............... 46,951,243 42,945,581 40,742,957
=========== =========== ===========
See accompanying notes to consolidated financial statements.
27
CALCOMP TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE
COMMON STOCK ADDITIONAL CUMULATIVE RECEIVABLE
----------------- PAID-IN ACCUMULATED TRANSLATION TREASURY MAJORITY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT STOCK SHAREHOLDER EQUITY
---------- ------ ---------- ----------- ----------- -------- ----------- -------------
Balance at December 25,
1994................... 40,742,957 $ 407 $ 265,243 $ (61,067) $ 5,955 $ -- $(48,056) $162,482
Net decrease in
receivable from
stockholder........... -- -- -- -- -- -- 12,403 12,403
Translation adjustment. -- -- -- -- 2,576 -- -- 2,576
Net loss............... -- -- -- (10,718) -- -- -- (10,718)
---------- ----- --------- ---------- ------- ------ -------- --------
Balance at December 31,
1995................... 40,742,957 407 265,243 (71,785) 8,531 -- (35,653) 166,743
Net decrease in
receivable from
stockholder........... -- -- -- -- -- -- 22,085 22,085
Deemed dividend of
receivable from
stockholder (Note 1).. -- -- -- (13,568) -- -- 13,568 --
Issuance of stock for
acquisitions.......... 6,155,693 62 21,617 -- -- -- -- 21,679
Acquired treasury
stock................. -- -- -- -- -- (465) -- (465)
Translation adjustment. -- -- -- -- (934) -- -- (934)
Net loss............... -- -- -- (56,604) -- -- -- (56,604)
---------- ----- --------- ---------- ------- ------ -------- --------
Balance at December 29,
1996................... 46,898,650 469 286,860 (141,957) 7,597 (465) -- 152,504
Exercise of stock
options............... 172,300 2 462 -- -- -- -- 464
Translation adjustment. -- -- -- -- (2,047) -- -- (2,047)
Net loss............... -- -- -- (75,188) -- -- -- (75,188)
---------- ----- --------- ---------- ------- ------ -------- --------
Balance at December 28,
1997................... 47,070,950 $ 471 $ 287,322 $ (217,145) $ 5,550 $ (465) $ -- $ 75,733
========== ===== ========= ========== ======= ====== ======== ========
See accompanying notes to consolidated financial statements.
28
CALCOMP TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED
--------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
Operating activities:
Net loss.............................. $(75,188) $(56,604) $(10,718)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization....... 15,041 12,631 9,845
Restructuring charge................ 3,788 10,090 --
Restructuring payments.............. (8,094) (735) --
(Gain) loss on disposal of
facilities......................... (5,873) 10,908 --
Investee income..................... (828) (815) (1,645)
Net changes in operating assets and
liabilities........................ 23,625 (8,690) 11,406
-------- -------- --------
Net cash (used in) provided by
operating activities............. (47,529) (33,215) 8,888
Investing activities:
Net cash acquired in connection with
acquisitions......................... -- 1,962 --
Purchase of property, plant and
equipment............................ (10,942) (6,593) (10,824)
Proceeds from disposition of property,
plant and equipment.................. 1,093 135 841
Proceeds from sale of asset held for
sale................................. 21,121 -- --
Dividends received.................... 168 311 672
-------- -------- --------
Net cash provided by (used in)
investing activities............. 11,440 (4,185) (9,311)
Financing activities:
Proceeds from line of credit with
Majority Shareholder................. 30,645 15,380 --
Net cash received from Majority
Shareholder.......................... -- 24,600 2,978
Reduction in revolving line of credit. (2,948) (1,664) --
Exercise of stock options............. 464 -- --
-------- -------- --------
Net cash provided by financing
activities....................... 28,161 38,316 2,978
Effect of exchange rate changes on cash. (868) (200) 770
-------- -------- --------
Change in cash.......................... (8,796) 716 3,325
Cash at beginning of year............... 15,290 14,574 11,249
-------- -------- --------
Cash at end of year..................... $ 6,494 $ 15,290 $ 14,574
======== ======== ========
See accompanying notes to consolidated financial statements.
29
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
CalComp Technology, Inc. (the "Company") is an 86.6% owned subsidiary of
Lockheed Martin Corporation ("Lockheed Martin" or the "Majority Shareholder").
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated. The financial statements do not include the
accounts of AGT Holdings, Inc. and Access Graphics, Inc., which were
transferred to the Majority Shareholder effective May 15, 1996. This
transaction has been treated as a change in the reporting entity since the two
entities are in dissimilar businesses to that of the Company and historically
have been managed and financed separately by the Majority Shareholder. In
addition, effective November 17, 1997, the Majority Shareholder sold its
ownership interest in AGT Holdings, Inc. to an unrelated third party (Note 5).
The acquisition of the Company by Lockheed Martin in August 1986 was
accounted for as a purchase and a new basis of accounting was established for
the Company's financial statements. This new basis resulted in certain assets
and liabilities being recorded at their then fair market value. Accumulated
depreciation, retained earnings, and cumulative translation adjustments
reflect activity from August 1, 1986. For tax purposes, no revaluation
occurred as a result of the business combination.
On July 23, 1996, Summagraphics Corporation ("Summagraphics") and CalComp
Inc., a wholly-owned subsidiary of Lockheed Martin Corporation at that time,
effected a plan of reorganization for the exchange of CalComp Inc. stock for
Summagraphics stock, after which Summagraphics changed its name to CalComp
Technology, Inc. ("CalComp" or "the Company") ("the Exchange"). The newly
reorganized Company adopted a fiscal year ending on the last Sunday of
December. For accounting purposes, CalComp Inc. was treated as the acquiring
company. Therefore, the historical financial statements are those of CalComp
Inc. with the accounts and results of Summagraphics included from the date of
the Exchange (Note 2).
The equity method of accounting is used when the Company has a significant,
but less than majority ownership interest in another company. Under the equity
method, original investments are recorded at cost and adjusted by the
Company's share of undistributed earnings or losses of the investee companies,
which is recognized as a component of other income in the consolidated
statements of operations. The Company's investment in NS CalComp Corporation
(NSCC) is accounted for under the equity method. A portion of the profit on
product sales to NSCC is deferred until realized through sales to third party
customers.
Operations and Financing
The Company's recent operations have resulted in net losses of $75.2
million, $56.6 million and $10.7 million for the years ended December 28,
1997, December 29, 1996 and December 31, 1995, respectively. The Company's
main sources of financing have been a $75 million line of credit with the
Majority Shareholder under the Revolving Credit and Cash Management Agreements
("Credit Agreements") and the proceeds from the sale of the Company's
headquarters facility. At December 28, 1997, the Company had drawn $59.5
million against that line which was scheduled to mature in July 1998. The
Company was also in violation of certain financial ratio covenants under the
Credit Agreements. In January 1998, the Majority Shareholder waived compliance
with those covenants, and in March 1998, the Credit Agreements were amended to
extend the maturity date to January 31, 1999, to eliminate the requirement for
compliance with certain financial ratio covenants, to eliminate the right of
the Majority Shareholder to cancel the Credit Agreements upon 120 days prior
written notice, and to remove the security interest of the Majority
Shareholder in the assets of the Company.
30
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
After determining that remaining amounts available under the line are not
adequate to fund the Company's operations in the near term, the Company
entered into a letter of intent in March 1998 with a bank which contemplates
an additional $25 million senior line of credit (the "Secured Agreement"). The
Secured Agreement will allow the Company to borrow up to 80 percent of its
eligible accounts receivable and 20 percent of eligible inventory through
April, 2000. In addition, in March 1998, the Company entered into the Joint
Development Agreement with Kodak that provided $20 million in cash upon
signing of the agreement and an additional $16 million in cash over the term
to be funded incrementally upon the achievement of certain milestones and the
occurrence of certain events. Management believes these financial resources
will be sufficient to satisfy the Company's liquidity requirements through
1998. If not, the Company will be required to seek additional financing from
others or pursue other financing alternatives. No assurance can be given that,
if required, additional financing will be available on acceptable terms or at
all.
The Company is implementing plans to improve the Company's competitive
position by introducing a new line of CrystalJet(TM) piezo inkjet printers, in
the first half of 1998, as well as increasing operating efficiencies. The
Company anticipates that these efforts will result in improved gross margins
and operating results during fiscal 1998. However, no assurances can be given
that the Company will be successful in realizing these goals. Failure to
achieve market acceptance for these products or the inability to timely
achieve required production volumes at acceptable costs could have a material
adverse impact on the Company's consolidated financial position, results of
operations and cash flows.
Business
The Company develops, manufactures, distributes and supports a wide variety
of computer graphics products which it markets in the United States and
throughout the world. The Company's principal products are printers and
plotters, digitizers and cutters. Printers are units that place raster images
on output media, either paper or film, by placing small dots on the media,
while plotters are devices that translate computer output into hard copy
visual data such as schematics, maps, charts and other drawings. Digitizers
are devices that convert points, lines and drawings to digital impulses that
can be input into a computer. 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, art film for screen printing, and various stencil
materials for etching text and images into glass, wood and stone via an
abrasive etching process. The Company is dependent on certain distributors in
North America and Asia through which it transacts a majority of its hardware
sales.
In management's opinion, other sources of distribution on comparable terms
would be available if there was a disruption in the business relationship with
these distributors. The Company is dependent on certain limited source
suppliers for key technology components used in its products. Loss of such
vendor relationships could have a significant impact on the Company's near
term operating results. The Company also derives a significant portion of its
revenues from the sale of services and supplies related to its hardware
products. The Company's products and services compete in several markets
including computer aided design ("CAD"), presentation graphics, graphic arts
and printing and publishing. Each of these markets have several competitors,
some of them larger than the Company. The Company's ability to successfully
market its products requires adapting new technologies and leveraging the
channels of distribution in order to remain competitive.
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
31
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Revenue Recognition
Revenue is recognized from product sales when shipments are made and from
services over the term of the service contract. In certain circumstances, the
Company provides customers with stock rebalancing and price protection rights
that permit these distributors, retailers, and dealers to return slow-moving
products to the Company for credit or to receive price adjustments if the
Company lowers the price of selected products within certain time periods.
Stock rebalancing programs allow customers to return product and receive
credit for the invoiced price less any post-sale pricing reductions. The
effect of these programs is estimated and current period sales and cost of
sales are reduced accordingly.
Fiscal Year
The Company uses a fifty-two, fifty-three week fiscal year which ends on the
last Sunday in December. Fiscal 1997 and 1996 each contained fifty-two weeks.
Fifty-three weeks were included in fiscal 1995.
Concentration of Credit Risk
The Company sells the majority of its products throughout the United States,
Canada, Europe and Asia. Sales to the Company's recurring customers are
generally made on an open account term while sales to occasional customers are
made on a C.O.D. basis. The Company performs periodic credit evaluations of
its ongoing customers and generally does not require collateral. Reserves are
maintained for potential credit losses, and such losses have been within
management's expectations. No single customer represented more than 10% of
sales in any year presented. Accounts receivable from the Company's two
largest distributors amounted to $6,702,000 and $8,016,000 at December 1997
and 1996, respectively.
Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market. The Company reserves for inventory that is
determined to be obsolete or substantially in excess of forecasted demand.
Property, Plant and Equipment
Property, plant and equipment acquired are stated at cost less accumulated
depreciation. Equipment under capital leases is stated at the lower of the
present value of future minimum lease payments or fair value at the inception
of the lease. Depreciation (including amortization of assets covered by
capital leases) is computed using the straight-line method over the following
estimated useful lives:
Buildings.......................... 33 1/3 years
Building improvements.............. 5 to 15 years
Machinery and equipment............ 3 to 8 years
Furniture and fixtures............. 5 to 8 years
Depreciation expense for fiscal years 1997, 1996 and 1995 totaled
$7,692,000, $7,792,000 and $8,190,000, respectively.
32
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Intangible Assets
Intangible assets, consisting of goodwill, patents and other intangibles
(which include developed technology and an assembled workforce) are being
amortized using the straight-line method over the estimated useful lives
ranging from five to twenty-five years.
As of January 1, 1996, the Company re-evaluated its remaining useful life of
the goodwill related to the 1986 purchase of CalComp Inc. by Lockheed Martin,
which was being amortized over forty years. The Company estimated the
remaining useful life at that date to be fifteen years. Accordingly, the
amortization period was adjusted to reflect this change in the estimated
useful life, resulting in additional goodwill amortization of approximately
$1,635,000 beginning in 1996.
Recoverability of Long Lived Assets
In accordance with SFAS No. 121, long-lived assets and certain identifiable
intangibles held and used by the Company are reviewed for impairment whenever
events or changes in circumstances indicated that the carrying amount of an
asset may not be recoverable. The recoverability test is performed at a
consolidated level based on undiscounted net cash flows because the assets
being tested do not have identifiable cash flows that are largely independent
of other asset groupings. Based upon its analysis, the Company believes that
no impairment of the carrying value of its long-lived assets inclusive of
goodwill existed at December 28, 1997. The Company's analysis was based on an
estimate of future undiscounted cash flows using forecasts contained in the
Company's operating plan. It is at least reasonably possible that the
Company's estimate of future undiscounted cash flows may change during fiscal
1998. In addition, if the Company's estimate of future undiscounted cash flows
should change or if the operating plan is not achieved, future analyses may
indicate insufficient future undiscounted net cash flows to recover the
carrying value of the Company's long-lived assets, in which case such assets
would be written down to estimated fair value.
Stock Option Plans
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations, in accounting for its employee stock options because, as
discussed in Note 11, the alternative fair value accounting provided for under
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-
Based Compensation," (SFAS 123) requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equal the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Translation of Foreign Currencies
The assets and liabilities of the Company's foreign subsidiaries, whose cash
flows are primarily in their local currency, have been translated into U.S.
dollars using the current exchange rates at each balance sheet date. The
operating results of these foreign subsidiaries have been translated at
average exchange rates that prevailed during each reporting period.
Adjustments resulting from translation of foreign currency financial
statements are reflected as cumulative translation adjustments in the
consolidated balance sheet.
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.
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.
33
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Company's operations are included in consolidated federal and combined
state income tax returns of the Majority Shareholder. The provision for income
taxes is calculated on a separate return basis, pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires recognition of deferred tax assets and liabilities
based on the difference between the financial and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Reclassifications
Certain amounts in the 1996 and 1995 consolidated financial statements have
been reclassified to conform to the current year presentation.
Per Share Data
Loss per share for fiscal 1997, 1996 and 1995 was computed based on the
weighted average number of common shares outstanding during each period since
common stock equivalents are antidilutive.
The Company has adopted SFAS 128, "Earnings Per Share," and applied this
pronouncement to all periods presented. This statement requires the
presentation of both basic and diluted net income (loss) per share for
financial statement purposes. Basic net income (loss) per share is computed by
dividing income (loss) available to common stockholders by the weighted
average number of common shares outstanding. Diluted net income (loss) per
share includes the effect of the potential shares outstanding, including
dilutive stock options and warrants, using the treasury stock method. Because
the impact of options and warrants are antidilutive, there is no difference
between the loss per share amounts computed for basic and diluted purposes.
Also, the adoption of SFAS 128 resulted in no change in amounts previously
reported.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenditures
for the years 1997, 1996 and 1995 were $5,228,000, $8,980,000 and $5,847,000,
respectively.
Supplementary Cash Flow Information
Changes in operating assets and liabilities are as follows for the years
ended in December:
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
Changes in operating assets and liabilities:
Accounts receivable.......................... $ 24,500 $ 7,176 $ 9,618
Accounts receivable from affiliates.......... 1,270 3,599 (8,090)
Inventories.................................. 12,683 (9,122) 4,353
Prepaid expenses and other current assets.... 1,249 (540) 487
Other assets................................. 630 902 (2,046)
Accounts payable............................. (12,232) (648) (2,308)
Accounts payable to affiliates............... 887 4,704 --
Accrued salaries and related expenditures.... (2,446) (369) (906)
Deferred revenue............................. (2,389) (905) (2,678)
Accrued reorganization costs................. (2,357) 5,595 --
Other liabilities............................ 1,766 (15,212) 3,379
Other long-term liabilities.................... 64 (1,355) 172
Decrease (increase) in net receivable from
Majority Shareholder.......................... -- (2,515) 9,425
-------- -------- -------
Net changes in operating assets and
liabilities................................... $ 23,625 $ (8,690) $11,406
======== ======== =======
34
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the acquisition of Summagraphics Corporation (Note 2),
the Company reclassified the net receivable as of the transaction date of
$13,568,000 from the Majority Shareholder to accumulated deficit to reflect a
deemed dividend of the Company's net receivable from the Majority Shareholder.
Changes in operating assets and liabilities presented in the Consolidated
Statements of Cash Flows are net of the effect of the acquisitions discussed
in Note 2.
Net income taxes paid to (received from) the Majority Shareholder and
foreign governments were $(1,231,000), $1,424,000, and $2,638,000 for 1997,
1996 and 1995, respectively.
Interest paid was $4,154,000, $445,000 and $0 for 1997, 1996 and 1995,
respectively.
Pending Adoption of New Accounting Standard
In June 1997, the FASB issued Statement of Financial Accounting Standard No.
131, "Disclosures about Segments of an Enterprise and Related Information
(SFAS 131)." SFAS 131 establishes standards for the way in which publicly held
companies report financial and descriptive information about its operating
segments in financial statements for both interim and annual periods. The
Statement also requires additional disclosures with respect to products and
services, geographic areas of operation and major customers. SFAS 131 is
effective for fiscal years beginning after December 15, 1997. The Company's
adoption of SFAS 131 will have no impact on the Company's consolidated results
of operations, cash flows or financial position but may increase the level of
disclosure of segment information.
2. RESTRUCTURING AND ACQUISITIONS
Restructuring of Operations and Sale of Headquarters Facility
In the fourth quarter of 1996, the Company initiated a plan to restructure
its operations worldwide and provided a charge of approximately $10,090,000,
consisting primarily of $6,940,000 for the elimination of an estimated 285
positions worldwide and $3,150,000 for lease termination and related fixed
asset disposition costs for the reorganization of the Company's European
operations. During 1997, the Company incurred cash expenditures aggregating
$7,986,000 and non-cash charges of $108,000, related to severance payments,
asset writedowns and lease payments for closed facilities. As of December 31,
1997, approximately $6,736,000 of the 1996 restructuring charge utilized
relates to severance payments made to the 283 employees who have been
terminated under the 1996 plan. As of December 28, 1997, the majority of the
1996 restructuring plan has been completed although certain lease obligations
will continue through 1998. The Company recorded a $1,000,000 credit in the
fourth quarter of 1997 after concluding that most of the 1996 restructuring
plan activities were completed or adequately provided for within the remaining
restructuring accrual.
In the fourth quarter of 1997, the Company expanded its plan to restructure
its operations worldwide and provided a charge of approximately $4,788,000
consisting primarily of $2,900,000 for the elimination of an additional 91
positions, relating to further realignment of the Company's international
operations, and $1,888,000 for lease termination and fixed asset disposition
costs for certain international facilities. During the fourth quarter, the
Company incurred cash expenditures aggregating $615,000 related to severance
actions taken prior to year end. At December 31, 1997, the restructuring
accrual approximates $5,049,000, consisting of $4,173,000 from the 1997 plan
and $876,000 remaining from the 1996 plan.
Also in 1997, the Company initiated a transition plan to rationalize certain
existing output product lines and accelerate the Company's end-of-life process
for those products that will be discontinued as a result of the introduction
of a new generation of inkjet products based on the Company's proprietary
CrystalJet(TM) technology.
35
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As a result, in the third and fourth quarters of 1997, the Company recorded
credit memos of $5,200,000 against revenue and inventory reserves of
$12,400,000 to cost of sales in the accompanying 1997 statement of operations
to reduce accounts receivable and certain end-of-life product inventory to
their estimated net realizable values, respectively.
During the fourth quarter of 1996, the Company decided to sell its 27.9 acre
headquarters facility in Anaheim, California and wrote the facility down to
its then appraised value, less costs to sell, of $15,119,000, resulting in a
loss of $10,908,000. On June 24, 1997, the Company completed the sale of the
facility to Lincoln Property Company, Inc. of Dallas, Texas, and D.L.J. Real
Estate Capital partners for $21,500,000, less associated costs to sell. The
headquarters sale resulted in a gain on disposal of $5,873,000. Proceeds from
the sale of the property were used to reduce outstanding borrowings under a
line of credit the Company has with the Majority Shareholder. The Company has
leased back approximately 138,500 square feet of space, or two of the ten
buildings located on the property under a one year lease with an option to
continue the lease for an additional year. In accordance with the lease
agreement, the Company has exercised this option to extend the lease through
June 23, 1999.
The restructuring and sale of the headquarters facility are expected to
reduce operating expenses and streamline the Company's infrastructure.
Acquisition of Summagraphics Corporation
In July 1996, the Company completed a Plan of Reorganization (the
"Exchange") for the exchange of Stock of CalComp Inc. for Stock of
Summagraphics Corporation. Pursuant to this Exchange, the Company issued to
Lockheed Martin 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 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 to CalComp
Technology, Inc. and changed its year end from May 31 to 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 year ended December 31, 1995 are the consolidated financial
statements of CalComp Inc. and differ from the consolidated financial
statements of the Company previously reported. In addition, the historical
stockholders' equity as of December 31, 1995 has been retroactively restated
to reflect the equivalent number of shares issued in connection with the
Exchange. The accounts and results of operations of CalComp Technology, Inc.
have been included in the financial statements from the date of acquisition
and reflect purchase price allocations and adjustments.
In connection with the Exchange, the Company had accrued $7,358,000 relating
to the termination of facility leases and other costs and $4,612,000 related
to severance costs. During 1996, the Company made all severance payouts.
During 1997, the purchase price allocation for the Exchange was adjusted to
reflect differences between the current and preliminary estimate of costs
incurred to terminate facility leases and to reflect actual costs incurred
related to various acquisition liabilities. This purchase price allocation
adjustment resulted in an increase to goodwill and the reorganization accrual
on the consolidated balance sheet of $3,640,000. The Company has expended
$2,357,000 and $1,763,000 in 1997 and 1996, respectively, related to lease
termination and rent payments on these facilities.
36
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Acquisition of Topaz Technologies, Inc.
In November 1996, the Company acquired Topaz Technologies, Inc. ("Topaz"), a
privately held company located in Sunnyvale, California in exchange for
1,500,000 shares of the Company's Common Stock and $750,000 in cash. Topaz
became a wholly owned subsidiary of CalComp Technology, Inc. As a result of
the acquisition, which was accounted for using the purchase method of
accounting, the Company acquired $5.9 million in assets and assumed $1.6
million in liabilities and the results of operations of Topaz are consolidated
with the Company's subsequent to the acquisition date. Topaz is a developer
and manufacturer of proprietary inkjet printing technology. The Company
anticipates the introduction of a new generation of CrystalJet(TM) inkjet
products based on this new proprietary technology in the first half of 1998.
The CrystalJet(TM) products being introduced will replace most existing output
products.
3. BALANCE SHEET INFORMATION
Additional information for certain balance sheet accounts is as follows as
of December:
1997 1996
-------- --------
(IN THOUSANDS)
Net inventories:
Raw materials and purchased components.............. $ 11,042 $ 16,719
Work in process..................................... 434 699
Finished goods...................................... 31,593 40,347
-------- --------
$ 43,069 $ 57,765
======== ========
Property, plant and equipment:
Land, buildings and building improvements........... $ 6,330 $ 6,330
Machinery and equipment............................. 40,982 47,090
Furniture and fixtures.............................. 3,183 7,423
-------- --------
50,495 60,843
Less accumulated depreciation....................... (21,447) (33,952)
-------- --------
$ 29,048 $ 26,891
======== ========
4. OTHER EXPENSE (INCOME), NET
Other expense (income) consists of the following components for the years
ended in December:
1997 1996 1995
------ ------- -------
(IN THOUSANDS)
The Company's share of equity investee
earnings..................................... $ (828) $ (815) $(1,645)
Foreign exchange transaction loss (gain)...... 1,891 544 (360)
Interest income............................... (245) (1,388) (268)
Other expense, net............................ 604 152 331
------ ------- -------
Total..................................... $1,422 $(1,507) $(1,942)
====== ======= =======
5. TRANSACTIONS WITH MAJORITY SHAREHOLDER AND AFFILIATES
The Majority Shareholder has billed the Company for certain corporate
general and administrative costs under a formula acceptable for the United
States Department of Defense contracting purposes. Additionally, prior to
1996, the Majority Shareholder had billed the Company for interest based on
the Majority Shareholder's cost
37
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of borrowed funds. This allocation of interest is included in corporate
expenses from Majority Shareholder on the consolidated statement of
operations. Subsequent to July 23, 1996, the Majority Shareholder has charged
the Company interest based on the terms of the credit agreement between the
parties (Note 8). The interest expense, subsequent to July 23, 1996, based on
the credit agreement, is included in interest expense on the consolidated
statement of operations. Amounts charged to the Company, and included in
Corporate expenses from Majority Shareholder were as follows for the years
ended in December:
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
Corporate general and administrative................ $2,900 $3,567 $3,578
Interest............................................ -- -- 4,647
------ ------ ------
$2,900 $3,567 $8,225
====== ====== ======
Additionally, the Company has entered into support agreements with the
Majority Shareholder. The agreements provide, among other things, that the
Majority Shareholder undertake to provide certain services for and at the
request of the Company including, but not limited to, administration of the
pension and savings plan, legal and other general administrative services, and
group medical, liability and workers' compensation insurance. Expenses are
allocated to the Company based on actual amounts incurred on behalf of the
Company plus estimated overhead related to such amounts. Amounts billed to the
Company were $4,223,000, $2,988,000 and $3,981,000 for 1997, 1996 and 1995,
respectively. Such amounts are allocated to various cost elements in the
financial statements based on relevant factors which include headcount and
square footage.
The Company purchases certain components from Lockheed Martin Commercial
Electronics, a division of the Majority Shareholder. Purchases amounted to
$4,273,000, $10,059,000 and $10,503,000 for the years ended December 1997,
1996 and 1995, respectively. Purchases from Lockheed Martin Commercial
Electronics were made at prices and terms similar to those available from
unrelated vendors.
Accounts payable to these affiliates aggregated $5,591,000 and $4,704,000 as
of December 1997 and 1996, respectively.
The Majority Shareholder had, until July 23, 1996, a centralized domestic
cash management system whereby the Company's cash surplus was transferred to
the Majority Shareholder's accounts on a daily basis and cash disbursements
were funded by the Majority Shareholder, as needed, to maintain the
disbursement account at a zero balance. Since that date, the Company requests
cash as needed to fund operations based on the credit agreement (Note 8) with
the Majority Shareholder. These requests are processed as borrowings against
the credit agreement with the Majority Shareholder. Excess funds are
transferred to the Majority Shareholder as payments toward previous
borrowings. On July 23, 1996, the Company reclassified the net receivable of
$13,568,000 from the Majority Shareholder to accumulated deficit to reflect a
deemed dividend of the Company's net receivable from the Majority Shareholder.
The Company sells computer graphics equipment to Access Graphics, Inc.
("Access Graphics") for resale. The Company transferred its ownership interest
in AGT Holdings, Inc., the parent company of Access Graphics, to the Majority
Shareholder on May 15, 1996. In addition, effective November 17, 1997, the
Majority Shareholder sold its ownership interest in AGT Holdings, Inc. to an
unrelated third party. As a result, sales to Access Graphics for 1997,
aggregating $6,401,000, are included in hardware and supplies revenue on the
consolidated statement of operations. Sales to Access Graphics for 1996 and
1995 are included in sales to affiliates on the consolidated statements of
operations and totaled $9,055,000 and $19,722,000, respectively.
End user sales to other affiliated companies, including sales to NS CalComp
KK (Note 6), were $17,174,000, $22,570,000 and $18,193,000 during 1997, 1996,
and 1995, respectively. Sales to related parties have been consummated at
prices and terms consistent with similar transactions with unrelated third
parties.
38
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accounts receivable from these affiliates related to such sales aggregated
$4,428,000 and $8,633,000 as of December 1997 and 1996, respectively.
6. INVESTMENT IN NS CALCOMP KK
In 1990, the Company sold a 56% interest in a previously wholly owned
Japanese subsidiary, Nippon CalComp KK (now referred to as NSCC) to Nippon
Steel Corporation (NSC) and Sumitomo Corporation. The Company's remaining 44%
ownership interest in NSCC is accounted for under the equity method based on
financial information for the twelve months ended in November. Summarized
financial information for NSCC for the years ended in December is as follows:
1997 1996 1995
------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
Balance sheets:
Current assets.................................. $33,760 $30,231 $35,534
Total assets.................................... 36,617 33,508 39,581
Current liabilities............................. 18,050 13,896 20,351
Total liabilities............................... 18,421 14,264 20,813
Statements of operations:
Net sales....................................... $57,172 $60,184 $66,703
Gross profit.................................... 20,332 21,790 26,872
Net earnings.................................... 1,514 1,765 2,727
As of December 28, 1997, the carrying value of the Company's investment is
less than the underlying equity in NSCC's net assets due to the profit in
NSCC's inventory that has not been realized through sales to third party
customers, a cumulative translation gain and differences resulting from stock
sales by NSCC. As of December 28, 1997, $5,945,000 of consolidated retained
earnings was represented by the undistributed net earnings of NSCC. Sales to
NSCC amounted to $16,130,000, $20,602,000 and $16,815,000 in 1997, 1996, and
1995, respectively. Accounts receivable from NSCC are $4,399,000 and
$5,608,000 as of December 1997 and 1996, respectively, and are included in
accounts receivable from affiliates in the consolidated balance sheets.
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases various operating facilities and equipment under
noncancelable operating leases. Most leases contain renewal options at
stipulated amounts for varying periods. Certain agreements contain options for
the purchase of equipment at a stipulated amount, which will approximate
market at the end of the lease. Additionally, certain leases provide for
periodic rental adjustments based on the Consumer Price Index or fair market
values.
Minimum rental payments under noncancelable operating leases are $3,194,000
in 1998, $2,613,000 in 1999, $1,920,000 in 2000, $1,729,000 in 2001,
$1,099,000 in 2002 and $1,855,000 thereafter. However, due to the Company's
restructuring program (Note 2), certain operating leases are being
renegotiated to reduce or eliminate commitments and, if successful, these
future minimum rental payments could be substantially reduced.
Rent expense was $4,075,000, $2,200,000 and $3,700,000 in 1997, 1996 and
1995, respectively.
Legal Proceedings
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
39
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"Shareholders"), and the Company in California Superior Court in Santa Clara
County. The complaint alleged, 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 while they participated in
the development of certain inkjet technology. On April 18, 1997, Raster
Graphics filed an amended complaint, dismissing its claims against the Company
and amending the complaint to focus on technology relating to a test fixture
that had been developed at Raster Graphics. The complaint seeks unspecified
compensatory damages, punitive damages, costs and injunctive relief. The
Company continues to believe that the inkjet printing technology developed by
Topaz is proprietary to Topaz and is not based on Raster Graphics technology
and that this lawsuit is without merit.
A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom
Technology Corp. against CalComp Inc., a wholly-owned subsidiary of the
Company, in the U.S. District Court for the Central District of California.
The complaint alleged, among other things, that CalComp Inc.'s sale of
ULTRASLATE digitizer tablets infringes U.S. Patents Nos. 4,878,553 (now
Reexamination Certificate #3325), 5,028,745 and 4,999,461 and infringes
Wacom's common law trademark ULTRAPEN. Wacom's request for a preliminary
injunction concerning infringement of the first two of the three patents was
denied by the Court on February 12, 1998. Wacom is also seeking damages and
permanent injunctive relief with respect to alleged infringement of the three
patents, pre-judgment interest and, among other things, has requested an award
of its attorneys' fees and costs. The Company does not believe that any of the
allegations made by Wacom in this suit have merit and intends to defend itself
against all the claims.
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 any of these
matters will have a material adverse effect on its consolidated financial
position, results of operations or cash flows.
Environmental Matters
In connection with the June 1997 sale of the Company's headquarters facility
in Anaheim, California, the Company agreed to remain obligated to address
certain environmental conditions which existed at the site prior to the
closing of the sale. In addition, Lockheed Martin, the Company's Majority
Shareholder, has guaranteed the performance of the Company under this
environmental agreement.
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 contemplated site assessment and monitoring of soil and
ground water contamination. In 1997, the Company, at the request of the Water
Board, submitted work plans to conduct offsite water investigations and onsite
soil remediation. The initial phase of work commenced in January 1998. As of
December 28, 1997, the Company has established reserves which it considers to
be adequate to cover the cost of investigations and tests required by the
Water Board, any additional remediation that may be requested and potential
costs of continued monitoring of soil and groundwater contamination, if
required.
The Company believes that it has adequately accrued for any future
expenditures in connection with environmental matters and that such
expenditures will not have a materially adverse effect on its consolidated
financial condition or results of operations.
Effective January 1, 1997, the Company adopted the American Institute of
Certified Public Accounts' Statement of Position (SOP) No. 96-1,
"Environmental Remediation Liabilities." In addition to providing a
nonauthoratative discussion of major federal legislation dealing with
environmental matters, SOP 96-1 also provides authoritative guidance on
certain remediation liabilities. The impact of the adoption of this SOP was
not material to the Company's consolidated results of operations, financial
position or cash flows.
40
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INDEBTEDNESS
Credit Agreements with Majority Shareholder
In July 1996, the Company and the Majority Shareholder entered into two
separate agreements; the Revolving Credit Agreement and the Cash Management
Agreement, collectively referred to as the "Credit Agreements". The Revolving
Credit Agreement was subsequently amended and restated, 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 financing the working capital needs of the Company and its
subsidiaries. The Revolving Credit Agreement contained certain negative and
affirmative covenants. As of December 28, 1997, the Company was in breach of
certain of these financial covenants. On January 22, 1998, the Majority
Shareholder waived compliance with these covenants. In March 1998, the
Revolving Credit Agreement was further amended to extend the maturity date
from July 22, 1998 to January 31, 1999, to eliminate the requirement for
compliance with certain financial ratio covenants, to eliminate the right of
the Majority Shareholder to cancel the Revolving Credit Agreements upon 120
days prior written notice, and to remove the security interest of the Majority
Shareholder in the assets of the Company.
The Revolving Credit 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%. There is no required prepayment or
scheduled reduction of availability of loans under the Agreement.
The Cash Management Agreement provides cash advances of up to $2,000,000 to
the Company by the Majority Shareholder for cash shortfalls. In March 1998,
the Cash Management Agreement was amended to extend the maturity date from
June 1, 1998 to January 31, 1999. The agreement bears interest equal to the
Federal Funds Rate.
As of December 28, 1997, the Company has an aggregate outstanding balance
under the Credit Agreements of $59,500,000 with interest rates ranging from
5.29% to 7.69%.
Secured Agreement with Bank
After determining that remaining amounts available under the line were not
adequate to fund the Company's operations in the near term, the Company
entered into a letter of intent in March, 1998 with a bank which contemplates
an additional $25 million senior line of credit (the "Secured Agreement"). The
Secured Agreement will allow the Company to borrow up to 80 percent of its
eligible accounts receivable and 20 percent of eligible inventory through
April, 2000.
9. TAXES BASED ON INCOME
The provision for (benefit of) income taxes consists of the following for
years ended in December:
1997 1996 1995
----- ------- ------
(IN THOUSANDS)
Current:
Federal......................................... $ -- $ -- $ --
State........................................... 334 (201) (54)
Foreign......................................... (296) (2,257) 3,626
----- ------- ------
$ 38 $(2,458) $3,572
===== ======= ======
41
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a reconciliation of the difference between the actual
provision for income taxes and the provision computed by applying the federal
statutory tax rate on loss before income taxes and equity in income from
subsidiaries excluded from the Exchange:
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
Computed income taxes using statutory tax
rate....................................... $(26,303) $(20,672) $(2,501)
Increases (reduction) from:
Operating losses without current tax
benefit.................................. 16,701 9,259 3,932
Foreign taxes at rates other than
statutory rate........................... 7,988 3,573 1,765
Goodwill amortization..................... 1,347 1,686 550
State taxes, net of federal benefit....... 217 (131) (82)
Minority interest......................... (211) (251) (576)
Write down of facility without current tax
benefit.................................. -- 4,078 --
Foreign withholding tax................... -- -- 484
Other..................................... 299 -- --
-------- -------- -------
$ 38 $ (2,458) $ 3,572
======== ======== =======
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components
of the Company's deferred tax assets and liabilities at December 28, 1997 and
December 29, 1996 were as follows:
1997 1996
-------- --------
(IN THOUSANDS)
Deferred tax liabilities related to:
Excess of purchase book value over tax basis of property,
plant and equipment..................................... $ 1,729 $ 3,435
Depreciation methods..................................... 2,072 2,072
Prepaid pension costs.................................... 986 1,143
-------- --------
4,787 6,650
Deferred tax assets related to:
Inventories.............................................. 12,145 15,433
Accumulated postretiree medical benefit obligation....... 1,838 1,476
Accrued liabilities...................................... 5,660 5,311
Accrued compensation and benefits........................ 869 2,901
Accounts receivable...................................... 1,421 1,287
Foreign net operating loss carryover..................... 8,750 --
Net operating loss carryover............................. 50,567 20,505
Foreign tax credit carryover............................. 16,671 22,305
Other, net............................................... 2 212
-------- --------
97,923 69,430
-------- --------
Valuation allowance for deferred tax assets.............. (93,136) (62,780)
-------- --------
$ -- $ --
======== ========
The Company has provided a valuation allowance for its net deferred tax
assets because of the likelihood that it will not be able to realize those
assets during their carry forward or turnaround periods.
42
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a net operating loss for federal income tax purposes of
$119,000,000 expiring in years through 2012. The Federal net operating loss
also includes $25,000,000 of expired tax credit carryover that was converted
into net operating loss carry forward in 1997. Also, the Company has foreign
net operating loss carry forwards in various European countries aggregating
$23,000,000. Additionally, the Company has foreign tax credits of $16,700,000
expiring in years 1998 to 2001.
For financial reporting purposes, loss before income taxes and equity in
income from subsidiaries excluded from the exchange included the following
components for the years ended in December:
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
Pretax income (loss):
United States................................... $(51,929) $(42,404) $(11,079)
Foreign......................................... (23,221) (16,658) 3,933
-------- -------- --------
$(75,150) $(59,062) $ (7,146)
======== ======== ========
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $15,000,000 at December 28, 1997. Approximately $9,000,000 of
those earnings are considered to be indefinitely reinvested. Distribution of
foreign earnings, including the cumulative translation adjustment component,
would not create a residual U.S. tax liability due to the availability of
foreign tax credits to offset U.S. taxes. Withholding taxes of approximately
$260,000 would be payable upon the remittance of the portion of the foreign
earnings which is considered permanently reinvested.
10. EMPLOYEE BENEFIT PLANS
A. Defined Benefit Plan
Substantially all of the Company employees are covered by a contributory
defined benefit plan sponsored by the Majority Shareholder. Normal retirement
age is 65, but provision is made for earlier retirement. Benefits are based on
salary and years of service. Substantially all benefits are paid from funds
previously provided to trustees. The Majority Shareholder's funding policy is
to make contributions that are consistent with U.S. government cost
allowability and Internal Revenue Service deductibility requirements, subject
to the full funding limits of the Employee Retirement Income Security Act of
1974 (ERISA). Contributions made by the Majority Shareholder on behalf of the
Company's employees are billed to the Company. In accordance with Statement of
Financial Accounting Standards No. 87 "Employers' Accounting for Pensions,"
(SFAS 87), the cumulative net difference for all periods since SFAS 87 was
adopted between amounts contributed to the plan and amounts recorded as net
pension cost is recorded in the consolidated balance sheet. The Company has a
supplemental executive retirement plan which is not material. Under this plan,
benefits are paid directly by the Company and charged against liabilities
previously accrued.
Net pension cost for the years ended in December, as determined in
accordance with SFAS 87, was:
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
Service cost--benefits accrued during the
year........................................ $ 1,776 $ 2,016 $ 1,954
Interest cost on projected benefit
obligation.................................. 2,902 2,794 2,756
Actual return on plan assets................. (8,943) (6,689) (2,824)
Net amortization and deferral................ 4,703 2,916 (341)
Employee contributions....................... (281) (359) (479)
------- ------- -------
$ 157 $ 678 $ 1,066
======= ======= =======
43
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
An analysis of the funded status of the plan follows as of December:
1997 1996
------- -------
(IN THOUSANDS)
Plan assets at fair value.............................. $58,291 $50,805
Actuarial present value of benefit obligation:
Vested benefits...................................... 32,170 29,946
Nonvested benefits................................... 848 1,118
------- -------
Accumulated benefit obligation......................... 33,018 31,064
Effect of future salary increases...................... 4,375 4,464
------- -------
Projected benefit obligation........................... 37,393 35,528
------- -------
Plan assets in excess of projected benefit obligation.. $20,898 $15,277
------- -------
Consisting of:
Unrecognized net asset at initial application of SFAS
87.................................................. $ 222 $ 497
Unrecognized prior service cost...................... (303) (49)
Unrecognized net gain................................ 18,333 12,026
Prepaid pension asset................................ 2,646 2,803
------- -------
$20,898 $15,277
======= =======
Plan assets are comprised of approximately 55% equity securities and 45%
fixed income securities including cash equivalents. Actuarial determinations
were based on various assumptions as illustrated in the following table. Net
pension costs in 1997, 1996 and 1995 were based on assumptions in effect at
the end of the respective preceding year. Benefit obligations as of the end of
each year reflect assumptions in effect as of those dates.
1997 1996 1995
----- ----- -----
Discount rate on benefit obligations................... 7.50% 7.75% 7.50%
Average of full-career compensation increases for those
employees whose benefits are affected by compensation
levels................................................ 6.00% 6.00% 6.00%
Expected long-term rate of return on plan assets....... 9.25% 9.00% 8.80%
Neither the Majority Shareholder nor the Company has any present intention
of terminating any of its pension plans. However, if a qualified defined
benefit plan is terminated, the Company would be required to vest all
participants and purchase annuities with plan assets to meet the accumulated
benefit obligation for such participants.
B. Retiree Medical Plan
The Company currently provides medical benefits under a contributory group
medical plan sponsored by the Majority Shareholder for certain early (pre-65)
retirees and under a noncontributory group Medicare supplement plan for
retirees aged 65 and over (post-65) with greater than ten years of service.
Under the accrual accounting methods of Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits other
than Pensions," (SFAS 106), the present value of the actuarially determined
expected future cost of providing medical benefits is attributed to each year
of employee service. The service and interest cost recognized each year is
added to the accumulated postretiree medical
44
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
benefit obligation. Net retiree medical benefit costs as determined under SFAS
106 for the years ended in December were:
1997 1996 1995
----- ----- -----
(IN THOUSANDS)
Service cost--benefits earned during the year....... $ 276 $ 325 $ 304
Interest cost on accumulated post retiree medical
benefit obligation................................. 534 492 590
Actual return on plan assets........................ (289) (194) (129)
Net amortization.................................... (20) (20) --
----- ----- -----
$501 $ 603 $ 765
===== ===== =====
The Company has implemented funding approaches to help manage future retiree
medical costs. A 401(h) trust and a VEBA trust have been established to pre-
fund benefit payments. At December 28, 1997, this trust held $3,872,000 in
short term investment fund accounts. Earnings on trust assets are recorded as
a reduction to annual SFAS 106 costs.
Under SFAS 106, actual medical benefit payments to retirees reduce the
Company's accumulated postretiree medical benefit obligation, and any trust
funding reduces the unfunded portion of this obligation on the Company's
balance sheet. An analysis of the funded status of the retiree medical benefit
plan follows for the years ended December:
1997 1996
------- -------
(IN THOUSANDS)
Actuarial present value of benefit obligation:
Retirees............................................. $ 8,116 $ 4,767
Employees eligible to retire......................... 823 789
Employees not eligible to retire..................... 1,612 1,646
------- -------
Accumulated postretirement benefit obligation.......... 10,551 7,202
Plan assets at fair value.............................. (3,872) (2,902)
------- -------
Accumulated postretirement benefit obligation in excess
of plan assets........................................ 6,679 4,300
Unrecognized net loss.................................. (3,360) (721)
Unrecognized prior service cost........................ 138 158
------- -------
Accrued postretirement benefit unfunded liability...... $ 3,457 $ 3,737
======= =======
Actuarial determinations were based on various assumptions, as illustrated
in the following table. Net retiree medical costs were based on assumptions in
effect at the end of the respective preceding years. Benefit obligations as of
the end of each year reflect assumptions in effect as of those dates.
1997 1996 1995
---- ---- ----
Discount rate........................................... 7.75% 7.75% 7.50%
Expected long-term rate of return on plan assets........ 9.25% 9.00% 8.80%
Range of medical trend rates:
Initial:
Pre-65 retirees..................................... 8.00% 8.00% 8.00%
Post-65 retirees.................................... 8.00% 8.00% 8.00%
Ultimate:
Pre-65 retirees..................................... 4.50% 4.50% 4.50%
Post-65 retirees.................................... 2.00% 2.00% 2.00%
45
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term medical trend rates are applicable to the calculation of benefit
obligations for pre-65 and post-65 retirees after 6 and 11 years,
respectively, in 1997, 7 and 12 years, respectively, in 1996 and 8 and 13
years, respectively, in 1995.
An increase of one percentage point in the assumed medical trend rates would
result in a 10.4% increase in accumulated postretirement benefit obligation to
$11,647,000 at December 28, 1997, and a 1997 net retiree medical benefit cost
under SFAS 106 of approximately $610,000. The Company believes that the cost
containment features the Majority Shareholder has previously adopted and the
funding approaches under way will allow it to effectively manage its retiree
medical expenses. The Company and the Majority Shareholder will continue to
monitor the costs of retiree medical benefits and may further modify the plans
if circumstances warrant.
C. Defined Contribution Plan
The Company's Majority Shareholder maintains contributory 401(k) savings
plans for salaried and hourly employees of the Majority Shareholder and its
subsidiaries, which cover substantially all employees. Employees' eligible
contributions are matched by the Majority Shareholder at a 50% rate. The
Majority Shareholder charged to the Company expenses of $1,034,000, $1,131,000
and $1,152,000 in 1997, 1996 and 1995, respectively, for contributions made on
behalf of the Company's employees.
11. STOCK PLANS
A. Common Stock Reserved
The following shares of common stock are reserved for issuance at December
28, 1997:
1996 stock option plan......................................... 1,990,500
1987 stock option plan......................................... 367,000
Warrants....................................................... 52,500
---------
2,410,000
=========
B. Stock Option Plans
The Company's Board of Directors has adopted the CalComp Technology, Inc.
1996 Stock Option Plan for Key Employees ("the Plan"). Under the terms of the
Plan, eligible key employees can receive options to purchase the Company's
common stock or stock appreciation rights at prices not less than the fair
value of the Company's common stock on the date of grant. Options and rights
granted under the Plan generally vest over a three year period and expire ten
years after the date of grant or six months after termination of employment.
In connection with its acquisition of Summagraphics Corporation, the Company
assumed 705,662 options outstanding under the Summagraphics 1987 Stock Plan at
prices ranging from $.01 to $9.00 per share and which expire through 2005.
46
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of changes in stock issuable under employee option plans follows:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
Outstanding at December 31, 1995.............. --
Options assumed through acquisition......... 705,662 $4.48
Granted..................................... 885,500 1.91
Canceled.................................... (132,273) 4.13
--------- -----
Outstanding at December 29, 1996.............. 1,458,889 2.95
Granted..................................... 573,000 2.85
Exercised................................... (172,300) 2.70
Canceled.................................... (323,139) 2.74
--------- -----
Outstanding at December 28, 1997.............. 1,536,450 $2.99
========= =====
As of December 28, 1997, there were 821,050 shares available for future
grants under the plan.
The weighted average remaining contractual life and weighted average
exercise price of options outstanding and of options exercisable as of
December 28, 1997, were as follows:
OUTSTANDING EXERCISABLE
------------------------------------- --------------------
WEIGHTED WEIGHTED
NUMBER OF WEIGHTED AVERAGE AVERAGE AVERAGE
RANGE OF SHARES REMAINING EXERCISE SHARES EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ---------------- -------- ----------- --------
$1.75 to $2.31... 680,100 8.76 $1.94 206,800 $1.94
$2.38 to $3.13... 548,250 8.40 $2.88 92,730 $2.97
$3.50 to $9.00... 308,100 1.80 $5.50 274,434 $5.60
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions; risk-free interest rate of 6.3%; dividends yield of 0%;
volatility of the expected market price of the Company's common stock of 1.1;
and a weighted-average expected life of the option of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
47
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The weighted-average fair values of options granted to employees during 1997
and 1996 were $2.85 and $1.64, respectively. The Company granted no options in
1995. For pro forma purposes, the estimated fair value of the Company's stock-
based awards to employees is amortized over the vesting period of the
underlying instruments. The results of applying SFAS 123 to the Company's
stock-based awards to employees would approximate the following:
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
------------ ------------
Pro Forma:
Net loss.................................... $ (76,113) $ (56,849)
Basic and diluted loss per Common Share..... $ (1.62) $ (1.32)
C. Warrants
The terms of warrants to acquire shares of common stock are as follows at
December 28, 1997:
WARRANTS PRICE EXPIRATION DATE
-------- ----- ---------------
15,000 $2.00 March 7, 2006
37,500 $1.75 December 6, 2000
------
52,500
======
48
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. FINANCIAL INFORMATION RELATING TO SEGMENTS AND FOREIGN AND DOMESTIC
OPERATIONS
The Company operates in one industry segment, the manufacture, sale and
support of computer graphics products. A summary of the Company's net sales,
loss from operations and identifiable assets by geographic area is as follows
(in thousands):
YEAR ENDED DECEMBER 28, 1997
----------------------------------------------------------------
MAJORITY
NORTH PACIFIC SHAREHOLDER
AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED
-------- -------- ------- ---------- ----------- ------------
Sales to unaffiliated
customers.............. $ 88,170 $ 78,445 $16,369 $ -- $ -- $182,984
Sales to affiliated cus-
tomers................. 17,174 -- -- -- -- 17,174
Transfers between geo-
graphical areas........ 74,839 9,055 -- (83,894) -- --
-------- -------- ------- -------- ------- --------
Net sales............... $180,183 $ 87,500 $16,369 $(83,894) $ -- $200,158
======== ======== ======= ======== ======= ========
Income (loss) from oper-
ations................. $(42,105) $(25,424) $ (84) $ 822 $(2,900) $(69,691)
======== ======== ======= ======== ======= ========
Identifiable assets..... $113,459 $ 66,311 $35,513 $ (5,826) $ -- $209,457
======== ======== ======= ======== ======= ========
YEAR ENDED DECEMBER 29, 1996
----------------------------------------------------------------
MAJORITY
NORTH PACIFIC SHAREHOLDER
AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED
-------- -------- ------- ---------- ----------- ------------
Sales to unaffiliated
customers.............. $ 84,522 $101,405 $18,364 $ -- $ -- $204,291
Sales to affiliated
customers.............. 31,625 -- -- -- -- 31,625
Transfers between
geographical areas..... 78,441 6,216 -- (84,657) -- --
-------- -------- ------- -------- ------- --------
Net sales............... $194,588 $107,621 $18,364 $(84,657) $ -- $235,916
======== ======== ======= ======== ======= ========
Income (loss) from
operations............. $(36,452) $(18,814) $ (969) $ 222 $(3,567) $(59,580)
======== ======== ======= ======== ======= ========
Identifiable assets..... $148,065 $ 95,288 $39,652 $ (6,920) $ -- $276,085
======== ======== ======= ======== ======= ========
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------
MAJORITY
NORTH PACIFIC SHAREHOLDER
AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED
-------- -------- ------- ---------- ----------- ------------
Sales to unaffiliated
customers.............. $ 95,821 $122,177 $25,742 $ -- $ -- $243,740
Sales to affiliated
customers.............. 37,915 -- -- -- -- 37,915
Transfers between
geographical areas..... 83,579 -- -- (83,579) -- --
-------- -------- ------- -------- ------- --------
Net Sales............... $217,315 $122,177 $25,742 $(83,579) $ -- $281,655
======== ======== ======= ======== ======= ========
Income (loss) from
operations............. $ (6,035) $ 1,974 $ 1,966 $ 1,232 $(8,225) $ (9,088)
======== ======== ======= ======== ======= ========
Identifiable assets..... $145,186 $ 78,966 $15,023 $ (7,611) $ -- $231,564
======== ======== ======= ======== ======= ========
In determining net income (loss) from operations for each geographic area,
sales and purchases between geographic areas have been accounted for on the
basis of internal transfer prices set by the Company. Identifiable assets by
geographic area are those assets that are used in the Company's operations in
each location.
49
CALCOMP TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
13. SUBSEQUENT EVENT
On March 29, 1998, the Company entered into a five-year Patent License and
Joint Development Agreement with Kodak covering the joint development of the
Company's technology into a range of products, printers and consumables for
commercial applications. Under the terms of the agreement, Kodak will
contribute up to $36 million, $20 million of which was advanced to the Company
upon signing of the agreement, and the reminder of which will be funded
incrementally upon the achievement of certain milestones and the occurrence of
certain events. The agreement also calls for Kodak to pay royalties on the net
selling price of Kodak products sold that use the licensed technology.
In addition to the license, the Company granted to Kodak a warrant for 8
million shares of its Common Stock with an exercise price of $3.88, vesting 50
percent on the first anniversary of the agreement and 50 percent on the second
anniversary of the agreement. The warrant expires on the seventh anniversary
of the agreement.
14. VALUATION AND QUALIFYING ACCOUNTS
For the years ended in December 1997, 1996 and 1995, certain supplementary
information regarding valuation and qualifying accounts follows (in
thousands):
BALANCES AT CHARGED BALANCES
BEGINNING TO COST AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- ----------- ----------- ---------- ---------
Allowance for doubtful
receivables:
1997........................ $ 4,603 $ 320 $ 1,556 $ 3,367
1996........................ $ 4,102 $ 536 $ 35 $ 4,603
1995........................ $ 3,411 $ 1,192 $ 501 $ 4,102
Reserves for excess and
obsolete inventory:
1997........................ $30,393 $21,405 $20,600 $31,198
1996........................ $26,822 $ 4,854 $ 1,283 $30,393
1995........................ $29,898 $ 4,522 $ 7,598 $26,822
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.
PART III
Information required under Item 10 "Directors and Executive Officers of the
Company," Item 11 "Executive Compensation," Item 12 "Security Ownership of
Certain Beneficial Owners and Management," and Item 13 "Certain Relationships
and Related Transactions" has been omitted from this report. Such is hereby
incorporated by reference from the Company's Proxy Statement for its Annual
Meeting of Stockholders to be held on June 11, 1998, which the Company intends
to file with the Securities and Exchange Commission no later than April 27,
1998.
50
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
report of independent auditors are on pages 25 through 50 hereof.
Report of Independent Auditors
Consolidated Balance Sheets--December 28, 1997 and December 29, 1996
Consolidated Statements of Operations--Years ended December 28, 1997,
December 29, 1996 and December 31, 1995
Consolidated Statements of Stockholders' Equity--Years ended December
28, 1997, December 29, 1996 and December 31, 1995
Consolidated Statements of Cash Flows--Years ended December 28, 1997,
December 29, 1996 and December 31, 1995
Notes to Consolidated Financial Statements
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 Corpo-
ration, a Delaware corporation, as amended (filed as Exhibit 2
to the Company's Form 10-K for the fiscal year ended May 31,
1996 and incorporated herein by reference).
3.1 Fourth Amended and Restated Certificate of Incorporation of the
Company (filed as Exhibit 3.1 to the Company's Form 10-K for the
fiscal year ended May 31, 1996 and incorporated herein by refer-
ence).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Form 10-K for the fiscal year ended May 31, 1996 and incorpo-
rated herein by reference).
10.1 Registration Rights Agreement dated as of July 23, 1996 between
the Company and Lockheed Martin Corporation (filed as Exhibit
10.1 to the Company's Form 10-Q for the quarterly period ended
September 29, 1996, and incorporated herein by reference).
10.2 Intercompany Services Agreement dated as of July 23, 1996 be-
tween the Company and Lockheed Martin Corporation (filed as Ex-
hibit 10.2 to the Company's Form 10-Q for the quarterly period
ended September 29, 1996, and incorporated herein by reference).
10.3 Cash Management Agreement dated as of July 23, 1996 between the
Company and Lockheed Martin Corporation (filed as Exhibit 10.3
to the Company's Form 10-Q for the quarterly period ended Sep-
tember 29, 1996, and incorporated herein by reference).
10.4 Tax Sharing Agreement dated as of July 23, 1996 between the Com-
pany and Lockheed Martin Corporation (filed as Exhibit 10.4 to
the Company's Form 10-Q for the quarterly period ended September
29, 1996, and incorporated herein by reference).
51
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.5 Amended and Restated Revolving Credit Agreement dated as of De-
cember 20, 1996 between the Company and Lockheed Martin Corpora-
tion (filed as Exhibit 99.1 to the Company's Current Report on
Form 8-K dated December 20, 1996, and incorporated herein by
reference).
10.6 Corporate Agreement dated as of July 23, 1996 between the Com-
pany and Lockheed Martin Corporation (filed as Exhibit 10.6 to
the Company's Form 10-Q for the quarterly period ended September
29, 1996, and incorporated herein by reference).
10.7 CalComp Technology, Inc. 1996 Stock Option Plan for Key Employ-
ees (filed as Exhibit 10.7 to the Company's Form 10-Q for the
quarterly period ended September 29, 1996, and incorporated
herein by reference).
10.10 Senior Executive Retirement Plan ("SERP") Agreement between
Lockheed Martin Corporation and Gary R. Long dated November 8,
1995 (filed as Exhibit 10.10 to the Company's Form 10-Q for the
quarterly period ended September 29, 1996, and incorporated
herein by reference).
10.11 Employment Agreement (with Temporary Assignment Memorandum) be-
tween the Company and Winfried Rohloff dated June 25, 1996
(filed as Exhibit 10.11 to the Company's Form 10-Q for the quar-
terly period ended September 29, 1996, and incorporated herein
by reference).
10.12 Employment Offer and Agreement between the Company and John J.
Millerick dated July 12, 1996 (filed as Exhibit 10.12 to the
Company's Form 10-Q for the quarterly period ended September 29,
1996, and incorporated herein by reference).
10.15 OEM Agreement for Asahi and Absolut plotters between the Company
and Copyer Co., Ltd. dated September 19, 1996 (filed as Exhibit
10.15 to the Company's Form 10-Q for the quarterly period ended
September 29, 1996, and incorporated herein by reference).
10.19 Change of Control Termination Benefit Agreement between the Com-
pany and Harold H. Simeroth dated December 13, 1996 (filed as
Exhibit 10.19 to the Company's Form 10-K for the fiscal year
ended December 29, 1996 and incorporated herein by reference).
10.20 Change of Control Termination Benefit Agreement between the Com-
pany and John J. Millerick dated December 13, 1996 (filed as Ex-
hibit 10.19 to the Company's Form 10-K for the fiscal year ended
December 29, 1996 and incorporated herein by reference).
10.22 Agreement and Plan of Reorganization entered into as of November
18, 1996, by and among the Company, CalComp Acquisition Sub,
Inc., Topaz Technologies, Inc., Andreas Bibl, Deane Gardner and
John Higginson (filed as Exhibit 99.2 to the Company's Current
Report on Form 8-K dated November 18, 1996, and incorporated
herein by reference).
10.23 Termination Agreement between the Company and John C. Batterton
dated March 7, 1997, (filed as Exhibit 10.23 to the Company's
Form 10-Q for the quarter ended March 30, 1997, and incorporated
herein by reference).
10.24 Change of Control Termination Agreement between the Company and
John C. Batterton dated March 7, 1997, (filed as Exhibit 10.24
to the Company's Form 10-Q for the quarter ended March 30, 1997,
and incorporated herein by reference).
10.25 Headquarters Lease Agreement dated as of June 24, 1997, between
the Company and Lincoln--RECP Anaheim, OPCO, LLC (filed as Ex-
hibit 10.25 to the Company's Form 10-Q for the quarter ended
June 29, 1997, and incorporated herein by reference).
10.26 Agreement of Purchase and Sale and Joint Escrow Instructions
dated as of April 4, 1997, between the Company and Lincoln Prop-
erty Company, N.C. Inc. (filed as Exhibit 10.25 to the Company's
Form 10-Q for the quarter ended June 29, 1997, and incorporated
herein by reference).
52
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.29 1997 Second Amendment to 1994 Addendum to Joint Venture
Relationships between CalComp Inc., Nippon Steel Corpora-
tion, Sumitomo Corporation and NS CalComp Corp., dated
September 10, 1997 (filed as Exhibit 10.29 to the
Company's Form 10-Q for the quarter ended September 28,
1997, and incorporated herein by reference).
10.30 Relocation Agreement for John C. Batterton, dated Septem-
ber 16, 1997 (filed as Exhibit 10.30 to the Company's Form
10-Q for the quarter ended September 28, 1997, and incor-
porated herein by reference).
10.31 Termination Agreement with Addendum for Winfried Rohloff,
dated November 25, 1997.
10.32 Settlement Agreement and General Release for Harold
Simeroth, dated January 28, 1998.
10.33 Change of Control Termination Benefit Agreement between
the Company and James R. Bell dated April 1, 1998.
10.34 Patent License and Joint Development Agreement dated March
29, 1998, between the Company and Eastman Kodak Co.
10.35 Warrant to Purchase Common Stock of the Company issued to
Eastman Kodak Co., March 29, 1998.
10.36 Agreement Regarding Election of Directors between Lockheed
Martin Corporation (the Company's Majority Shareholder)
and Eastman Kodak Co., dated March 29, 1998.
10.37 Amendment No. 1, dated March 20, 1998, to Amended and Re-
stated Revolving Credit Agreement between the Company and
Lockheed Martin Corporation.
10.38 First Amendment, dated March 20, 1998, to Cash Management
Agreement between the Company and Lockheed Martin Corpora-
tion.
10.39 CalComp Technology, Inc. 1998 Management Incentive Compen-
sation plan, approved January 27, 1998.
10.40 CalComp Technology, Inc. 1998 Deferred Management Incen-
tive Compensation Plan, approved January 27, 1998.
10.41 Waiver of Rights, dated April 1, 1998, by Lockheed Martin
Corporation, under Amended and Restated Revolving Credit
Agreement between the Company and Lockheed Martin Corpora-
tion.
21 Subsidiaries (filed as Exhibit 21 to the Company's Form
10-K for the fiscal year ended December 29, 1996 and in-
corporated herein by reference).
23 Consent of Independent Auditors
27 Financial Data Schedule
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 December 28, 1997 were as follows:
None.
53
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/ John C. Batterton
By: _________________________________
John C. Batterton
President and Chief Executive
Officer
April 9, 1998
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/ John C. Batterton President and Chief April 9, 1998
____________________________________ Executive Officer
John C. Batterton
/s/ John J. Millerick Senior Vice President and April 9, 1998
____________________________________ Chief Financial Officer
John J. Millerick (Principal Financial and
Accounting Officer)
/s/ Arthur E. Johnson Chairman of the Board of April 9, 1998
____________________________________ Directors
Arthur E. Johnson
/s/ Gary P. Mann Director April 9, 1998
____________________________________
Gary P. Mann
/s/ Terry F. Powell Director April 9, 1998
____________________________________
Terry F. Powell
/s/ Gerald W. Schaefer Director April 9, 1998
____________________________________
Gerald W. Schaefer
Director
____________________________________
Jeb S. Hurley
/s/ Kenneth R. Ratcliffe Director April 9, 1998
____________________________________
Kenneth R. Ratcliffe
/s/ Walter E. Skowronski Director April 9, 1998
____________________________________
Walter E. Skowronski
54