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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 28, 1999
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 of (IRS Employer
Incorporation or organization) Identification No.)
2411 W. La Palma Avenue, Anaheim, California 92801
(Address of principal executive offices)
(714) 821-2000
(Registrant's telephone number, including area code)
----------------
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 [_]
The number of shares of Common Stock outstanding as of April 30, 1999:
47,120,650
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CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Net Liabilities in Liquidation
as of March 28, 1999 (Unaudited) and December 27, 1998.... 3
Unaudited Consolidated Statement of Changes in Net
Liabilities in Liquidation for the three months ended
March 28, 1999............................................ 4
Notes to Unaudited Consolidated Financial Statements....... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 14
Item 6. Exhibits and Reports on Form 8-K........................... 14
Signatures............................................................. 15
2
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
CONSOLIDATED STATEMENTS OF NET LIABILITIES IN LIQUIDATION
(In thousands, except share and per share data)
March 28, December
ASSETS 1999 27, 1998
------ ----------- ----------
(Unaudited)
Cash.................................................. $ 9,453 $ 3,280
Accounts receivable................................... 2,577 7,775
Inventories........................................... 1,165 5,966
Prepaid expenses and other assets..................... 977 1,033
Net assets held for sale.............................. -- 1,430
Property, plant and equipment......................... 2,355 2,455
---------- ----------
Total assets........................................ 16,527 21,939
---------- ----------
LIABILITIES
-----------
Accounts payable...................................... 8,775 12,308
Accrued salaries and related expenditures............. 16,707 20,697
Operating expenses during liquidation period.......... 14,314 21,647
Commitment cancellation costs......................... 5,895 15,433
Secured demand loan with Lockheed Martin.............. 15,716 --
Net service liabilities held for sale................. 3,966 --
Other liabilities..................................... 16,154 16,854
---------- ----------
Total liabilities................................... 81,527 86,939
---------- ----------
Net liabilities in liquidation........................ $ (65,000) $ (65,000)
========== ==========
Contingencies (Note 2)
Number of common shares outstanding................... 47,120,650 47,120,650
========== ==========
Net liabilities in liquidation per share.............. $ (1.38) $ (1.38)
========== ==========
See accompanying notes to unaudited consolidated financial statements.
3
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN NET LIABILITIES IN LIQUIDATION
For the Three Months Ended March 28, 1999
(In thousands)
Net liabilities in liquidation, December 27, 1998................... $(65,000)
Net changes in estimated fair values and settlement amounts for
assets and liabilities............................................. --
--------
Net liabilities in liquidation, March 28, 1999...................... $(65,000)
========
See accompanying notes to unaudited consolidated financial statements.
4
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background and Summary of Significant Developments
The Company has been 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 were designed for use in computer aided design and
manufacturing ("CAD/CAM"), printing and publishing, and graphic arts markets,
both domestically and internationally. The Company also maintained service,
product support and technical assistance programs for its customers and sold
software, supplies and after-warranty service.
In recent years, the Company had begun 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 end of 1997, the
Company had substantially completed its strategy to discontinue its non-inkjet
printer and plotter products.
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 was marketed under the
"CrystalJetTM" name and targeted at the graphic arts industry. The Company
began shipping the initial market development and demonstration units of these
printers in the first quarter of 1998. Although volume shipments to customers
of CrystalJet products commenced in the second quarter and increased during
the remainder of the fiscal year, the projected profitability of the
CrystalJet products was dependent on achieving greater production volumes and
wider market acceptance than could reasonably be anticipated to occur in the
near term and would have required substantial infusions of new capital which
the Company was unable to obtain. Although the new CrystalJet technology
proved viable, the Company believes that production delays, technical
difficulties in the manufacturing processes and a failure to gain timely
market acceptance resulted in continuing operating losses and negative cash
flow, which materially and adversely affected the Company's business plan for
the CrystalJet technology and in significant part, resulted in the Company's
liquidity crisis discussed further below.
In a letter dated December 23, 1998, Lockheed Martin Corporation ("Lockheed
Martin") notified the Company that it would not increase the Company's credit
availability, needed to fund the Company's current operations, beyond the $43
million then available under the Company's Revolving Credit Agreement and
related Cash Management Agreement (collectively, the "Credit Agreements") with
Lockheed Martin. At such date, the Company anticipated that, to fund operating
requirements, it would require the $4.9 million remaining under the Credit
Agreements in January 1999. On December 28, 1998, the Company indicated its
intent to accept Lockheed Martin's proposal to fund a non-bankruptcy orderly
shut-down of the Company's operations in accordance with a plan to be proposed
by the Company. On January 14, 1999, the Company's directors approved and
submitted the Company's plan ("Plan for Orderly Shutdown") to Lockheed Martin
for their review and approval. As a result of this liquidity crisis and after
considering its lack of strategic alternatives, in particular, given the
Company's inability to obtain funding from sources other than Lockheed Martin,
on January 15, 1999, the Company announced that it would commence an orderly
shutdown of its operations. Under the Plan for Orderly Shutdown approved by
the Company's Board of Directors, the Company completed a Secured Demand Loan
Facility ("Secured Demand Loan") with Lockheed Martin, pursuant to which
Lockheed Martin agreed to provide, subject to the terms and conditions set
forth in such facility, funding to the Company in addition to the $43 million
available under the Credit Agreements. The Secured Demand Loan would provide
funds to assist the Company in the non-bankruptcy shutdown of its operations
pursuant to the Plan for Orderly Shutdown. In addition, Lockheed Martin agreed
to forebear from exercising its rights and remedies to collect amounts
5
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
outstanding under the Credit Agreements until the Secured Demand Loan is
terminated. In connection with the Plan for Orderly Shutdown, it was
anticipated that the Company would cause the dissolution, merger or
consolidation of its subsidiaries with the Company, and that the Company,
itself, would then proceed with its own formal winding up and dissolution. On
April 29, 1999, the Company's Board of Directors (a) authorized the merger
with and into CalComp Technology, Inc. of all the Company's subsidiaries
organized under the laws of any state of the United States and (b) approved
and adopted the Plan of Complete Liquidation and Dissolution (the "Plan of
Liquidation and Dissolution"). Lockheed Martin, as holder of a majority of the
outstanding shares of Common Stock and holder of all of the outstanding shares
of Preferred Stock, executed a written consent on May 12, 1999 approving the
Plan of Liquidation and Dissolution. The Company expects to file a draft
Information Statement pursuant to Section 14(c) of the Securities Exchange Act
of 1934 concerning the approval of the Plan of Liquidation and Dissolution
with the Securities and Exchange Commission in the immediate future. The Plan
of Liquidation and Dissolution will not become effective until at least (20)
days after mailing of a final Information Statement to holders of the
Company's common stock.
Pursuant to the Plan of Liquidation and Dissolution, the Company will be
liquidated by (i) the sale (or sales) of substantially all of its remaining
assets, including its CrystalJet assets, and (ii) after payment of all the
claims, obligations and expenses owing to the Company's creditors, by cash and
in-kind distributions (if any) to the holder of the Preferred Stock (up to the
$60.0 million, plus accrued and unpaid dividends, aggregate liquidation
preference of the Preferred Stock), with the remainder (if any) to holders of
the Common Stock on a pro rata basis, and, if deemed necessary, appropriate or
desirable by the Board of Directors, by distributions of its assets and funds
from time to time to one or more liquidating trusts established for the
benefit of stockholders (subject to the claims of creditors), or by a final
distribution of its then remaining assets to a liquidating trust established
for the benefit of stockholders (subject to the claims of creditors). Based on
the anticipated value of the Company's assets and the amounts owed to
creditors of the Company, the Company does not believe it will have any funds
or assets remaining to make distributions to either preferred or common
stockholders. Therefore, it is highly unlikely that any distributions will be
made to stockholders.
Since the announcement of the Plan for Orderly Shutdown, the Company has
ceased all manufacturing, sales and marketing activities and scaled back
operations to a level designed to allow the Company to sell or liquidate its
assets in a manner that takes into account the interests of the Company's
stockholders, creditors, employees, customers and suppliers. To date, the
Company has consummated or entered into letters of intent for the sales of
substantially all of its non-CrystalJet assets. However, no assurances can be
given that pending transactions will be consummated. Additionally, pursuant to
the Plan for Orderly Shutdown, the Company has issued notices to its domestic
employees under the Worker Adjustment and Retraining Notification Act
(W.A.R.N.) and, as of April 30 1999, has terminated 433 employees, or 84% of
the Company's domestic workforce. Non-U.S. employees have also been terminated
or notified of their scheduled termination under applicable foreign laws.
Certain of the Company's sales and service personnel, pending sales of
specified assets, and an administrative team (including a newly appointed
Chief Executive Officer) will wind up the operations of the Company through
the shutdown process which is expected to be substantially completed by July
1999. The Company anticipates that it will be able to negotiate reasonable
settlement amounts with its non-affiliated creditors but the Company's ability
to make payments on the agreed settlement amounts will depend on receiving
sufficient cash from the sale of its assets and securing additional funding
sufficient for the Plan for Orderly Shutdown.
The Secured Demand Loan provides for Lockheed Martin to make loans to the
Company from time to time up to an aggregate maximum available amount (the
"Maximum Available Amount"), specified by Lockheed Martin, which may be
increased by Lockheed Martin, in its sole and absolute discretion, upon
requests for borrowing that are in conformity with the cash requirements set
forth in the Plan for Orderly Shutdown. The Maximum Available Amount is
subject to a ceiling ("Maximum Available Amount Ceiling") of $51 million, an
6
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
amount based on the Company's initial estimate of loan proceeds needed to
fully fund the Plan for Orderly Shutdown. The Maximum Available Amount,
initially, was set at $11 million. At April 30, 1999, the Maximum Available
Amount had been increased to $20.1 million. Lockheed Martin has the right to
accept or reject, in whole or in part, any request for borrowing based on its
determination, in its sole discretion, as to whether the Company is complying
with, or making reasonable progress with respect to, the Plan for Orderly
Shutdown. Loans under the Secured Demand Loan are to be repaid at the earlier
to occur of (i) the business day following written demand by Lockheed Martin
or (ii) the Termination Date. The "Termination Date" is defined as the earlier
of July 15, 1999, or the date on which Lockheed Martin notifies the Company of
termination based on (x) Lockheed Martin's determination that the Company is
not reasonably complying with, or making reasonable progress with respect to,
the Plan for Orderly Shutdown, which determination may be made in the sole and
absolute discretion of Lockheed Martin, (y) the occurrence of a bankruptcy
event (as defined in the Secured Demand Loan), or (z) the breach by the
Company of the Secured Demand Loan or the accompanying Security Agreement.
Under the Security Agreement, the Company granted to Lockheed Martin a
security interest in all of the assets of the Company and its principal
domestic subsidiaries to secure the obligations owing to Lockheed Martin under
the Secured Demand Loan. The Secured Demand Loan also provides for certain
other obligations of the Company, including covenants of the Company with
respect to periodic notices, reports and forecasts relating to the Plan for
Orderly Shutdown.
The Secured Demand Loan also required the Company to retain an independent
third-party liquidation specialist acceptable to Lockheed Martin to review,
validate and, to the extent deemed necessary by Lockheed Martin in its sole
and absolute discretion, implement the Plan for Orderly Shutdown. In March
1999, Brincko Associates, Inc. was retained as the liquidation specialist
approved by Lockheed Martin, and Mr. John P. Brincko was appointed the Chief
Executive Officer of the Company. After his appointment, the Company conducted
an updated and more detailed analysis of the amount of loan proceeds needed to
fund the Plan for Orderly Shutdown, and revised its estimate of funding needed
under the Secured Demand Loan to approximately $65 million.
As noted above, the Company's latest estimate of funding needed to complete
the Plan for Orderly Shutdown indicates estimated liabilities to be $14
million in excess of amounts expected from asset sales proceeds and the
maximum available under the Secured Demand Loan. As part of its review of the
Company's funding requirements under the Plan for Orderly Shutdown, Lockheed
Martin has agreed to consider increasing the Maximum Available Amount Ceiling,
but there can be no assurance that such increase will be granted or that
Lockheed Martin will authorize the disbursement of all funds potentially
available under the Secured Demand Loan. Additionally, there can be no
assurance that the Company will be able to settle with its creditors at
amounts estimated in the Plan for Orderly Shutdown, that estimated cash
inflows from asset sales will occur, or that actual net cash funding
requirements will not exceed current estimates for any other reason.
Accordingly, there is substantial uncertainty as to whether the Company will
be able to complete the Plan for Orderly Shutdown as originally envisioned. If
the Company is unable to obtain sufficient funds to complete the Plan for
Orderly Shutdown from asset sales proceeds and the Secured Demand Loan or it
is unable to reach acceptable settlements with all of its creditors, the
Company may be forced to seek protection from creditors under Federal
Bankruptcy law or may become subject to an involuntary bankruptcy proceeding.
In the event of a bankruptcy or insolvency proceeding, claims of secured
creditors, such as Lockheed Martin, may not be able to be repaid in full and
unsecured creditors may receive little, if anything, for their claims. In any
circumstance, it is highly unlikely the holders of the Company's preferred and
common stock will receive any distributions of funds or assets, and the Plan
for Orderly Shutdown nor the Plan of Liquidation and Dissolution contemplates
any such distributions.
On January 27, 1999, the Company's Common Stock was delisted from the Nasdaq
National Market System due to the Company's failure to maintain certain
listing requirements. At the present time, the Company's
7
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Common Stock continues to trade on the over-the-counter bulletin board market
maintained by Nasdaq. It is expected that the Company's Common Stock will be
deregistered under Rule 12g-4 of the Securities Exchange Act of 1934 in
connection with the Company's Plan of Liquidation and Dissolution.
Liquidation Basis of Accounting
As a result of the Board of Directors approving the Plan for Orderly
Shutdown, the accompanying consolidated financial statements have been
presented based on the liquidation basis of accounting to provide more
relevant information.
The liquidation basis of accounting requires that assets and liabilities be
stated at estimated fair value. Accordingly, the statements of net liabilities
in liquidation reflects assets and liabilities based on their estimated fair
values and estimated settlement amounts. Changes in the estimated liquidation
value of assets and liabilities are recognized in the period in which such
refinements are known.
The Company established the carrying values for its assets and liabilities
as reflected in the consolidated statement of net liabilities in liquidation
as of December 27, 1998, using estimates of the fair values of assets and
settlement amounts of liabilities developed in March 1999 giving consideration
to all information available at that time. The Company believes there is
insufficient additional information presently available to determine whether a
change to its estimate of the deficiency in the fair value of its assets as
compared to the estimated settlement amounts for its liabilities is necessary.
Accordingly, no refinement to this estimate was made in preparing the
consolidated statement of net liabilities in liquidation as of March 28, 1999.
Organization and Basis of Presentation
The consolidated financial statements included herein have been prepared by
the Company, without audit, and include all adjustments which, in the opinion
of management, are necessary for a fair presentation of the consolidated net
liabilities in liquidation as of March 28, 1999. Certain information and
footnote disclosures normally included in financial statements prepared on the
liquidation basis of accounting have been condensed or omitted in accordance
with principles for interim period financial reporting on Form 10-Q, although
the Company believes the disclosures in these financial statements are
adequate to make the information presented not misleading. These condensed
financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the Company's
Annual Report filed with the Securities Exchange Commission on Form 10-K for
the year ended December 27, 1998.
The Company is an 86.7% owned subsidiary of Lockheed Martin. The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles under the liquidation basis of accounting
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Significant
estimates have been made relative to the valuation of all assets and
liabilities of the Company, including, among others, estimates for warranties
and settlement of litigation and long-term lease commitments. Such estimates
have been developed pursuant to the provisions of the Plan for Orderly
Shutdown. Actual results may differ from amounts estimated.
8
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. CONTINGENCIES
Legal
A complaint was filed on October 14, 1997, by Wacom Co., Ltd. and Wacom
Technology Corp. ("Wacom"), against CalComp Inc., a wholly-owned subsidiary of
the Company ("CalComp"), in the U.S. District Court for the Central District
of California. The complaint alleged, among other things, that CalComp's sale
of ULTRASLATE digitizer tablets infringes three patents and infringes Wacom's
common law trademark, ULTRAPEN. Wacom's request for a preliminary injunction
concerning infringement of two of the three patents was denied by the Court on
February 12, 1998. Wacom was seeking damages and permanent injunctive relief
with respect to alleged infringement of the three patents, pre-judgment
interest and, among other things, requested an award of its attorneys' fees
and costs.
Pursuant to a Settlement Agreement and Mutual Release dated effective as of
April 21, 1999, by and among Wacom, Wacom Co., Ltd. and CalComp, CalComp paid
$100,000 to Wacom, and CalComp acknowledged the validity, enforceability, and
the infringement of the subject patents and the trademark.
On July 8, 1998, Xaar Technology Limited ("Xaar") filed suit in the U.S.
District Court for the Northern District of California, against the Company,
CalComp Inc. (a wholly-owned subsidiary of the Company) and Topaz,
(collectively the "Defendants") alleging that the Defendants' manufacture and
sale of CrystalJet piezoelectric inkjet printheads infringes Xaar's U.S. Pat.
Nos. 4,879,568 and 5,003,679 which cover certain pulsed droplet deposition
apparatus and certain processes for manufacturing pulsed droplet deposition
apparatus. The complaint also alleges that the Defendants have induced others
to infringe these patents. The complaint seeks preliminary and permanent
injunctive relief against infringement of the Xaar patents, increased damages
for willful infringement of those patents, interest and award of its
attorneys' fees and costs. The Company has reviewed these patents and believes
that the Company will prevail over Xaar's claims, that the Company's
piezoelectric technology is proprietary to the Company and that the Company's
manufacture and sale of CrystalJet piezoelectric printheads does not infringe
any valid claims of either of these patents. Further, the Company intends to
defend itself against all claims in this lawsuit.
In March 1999, Xaar unsuccessfully sought to enjoin the Company from
proceeding with the Plan for Orderly Shutdown.
On April 20, 1999, Xaar's motion to amend the complaint to add Lockheed
Martin as a party was granted.
In a separate action, on July 6, 1998, Xaar filed suit in the English High
Court of Justice ("High Court") in London alleging that the Defendants and
CalComp Ltd., a U.K. subsidiary of CalComp Inc., have infringed or caused,
enabled, or assisted others to infringe, European patent (UK) number EP 0 277
703 ("703 Patent"), which covers certain pulsed droplet deposition apparatus
and certain processes for manufacturing pulsed droplet deposition apparatus,
as a result of sales of the Company's CrystalJet printers in the U.K. The
complaint seeks an injunction and damages or profits resulting from the
alleged infringement and, among other things, interest on any sums due Xaar
and an award of its costs. The Company has reviewed the patent in suit,
believes that the Company will prevail over Xaar's claims in this suit and
that the Company's sale of CrystalJet printers in the U.K. does not infringe
any valid claims of this patent. The Company has also counterclaimed for an
order revoking the "703 Patent. The Company intends to defend itself against
all claims made and to pursue its counterclaim for the revocation of the "703
Patent.
9
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On September 7, 1998, the Company, CalComp Inc. and CalComp Ltd., filed an
action in the High Court to revoke Xaar's European Patent (UK) number EP 0 278
590 (the "590 Patent") which also covers certain pulsed droplet deposition
apparatus and certain processes for manufacturing pulsed droplet deposition
apparatus and which involves technology similar to that in the "703 Patent.
In March 1999, QRS 10-12 (TX), Inc. and QRS 11-5 (TX), Inc., the landlords
under the lease for the Company's former Austin, Texas headquarters
(collectively, "Landlord"), filed suit against the Company in the U.S.
District Court for the Southern District Court of New York claiming damages
equal to the present value of rent due for the remaining term of the lease.
The Company had ceased paying rent in January 1999. The Company has moved to
change the jurisdiction and venue of the case to Texas where it intends to
defend itself against the Landlord's claims.
In a separate action, on April 30, 1999, the Landlord filed suit against the
Company in the Court of Chancery of the State of Delaware (the "Delaware
Action") claiming damages under the terms of the lease; claiming compensatory
and punitive damages from the Company for an alleged breach of fiduciary duty
to creditors; and requesting that the court void alleged fraudulent transfers
of assets since October 1, 1998, require the Company to provide a complete
accounting, and provide such additional relief as the court may determine. In
addition, under the Delaware Action, the Landlord sought an expedited hearing
on its claims, and injunctive relief to enjoin the Company and its
subsidiaries from paying any debt to any creditor and to require the Company
to place in escrow to be held by the court all proceeds obtained from sales of
its assets. On May 12, 1999, the Landlord's motion for an expedited hearing
was denied.
If the Company were to determine that one of the Landlord's suits was
reasonably likely to result in a judgment that would compromise the Company's
ability to successfully complete the Plan for Orderly Shutdown, the Company
might be forced to seek protection from the Landlord under Federal Bankruptcy
law in order to statutorily limit the Landlord's claims so that all then
remaining creditors could share more fairly in the Company's then remaining
assets, if any. In any event, the Company believes that any payments to the
Landlord by way of judgment or settlement will be for substantially less than
the present value of the lease payments that might otherwise be owing through
the term of the lease.
The Company is also party to other legal actions arising from its Plan for
Orderly Shutdown. The Company believes that any such claims in material
amounts are without merit.
Because of their contingent nature, the Company does not believe that the
disposition of any of these matters will have a material adverse effect on its
net liabilities in liquidation, nor will the results of any lawsuits affect
the Company's determination to proceed with the Plan for Orderly Shutdown or
the Plan of Liquidation and Dissolution.
Dispute with Kodak
On March 29, 1998, the Company and Eastman Kodak Co. ("Kodak") entered into
a Patent License and Joint Development Agreement (the "Joint Development
Agreement") covering the joint development of the Company's CrystalJet
technology into a range of products, printers and consumables for commercial
applications. The Joint Development Agreement has a term of five years and
provides for the contribution by Kodak of up to $36 million, with $20 million
having been advanced upon the signing of the Joint Development Agreement and
up to an additional $16 million to be funded incrementally over the term upon
the achievement of certain milestones and the occurrence of certain events. As
of December 1998, the initial $2 million milestone under the Joint Development
Agreement had been achieved and paid by Kodak. A second $2 million milestone
had been achieved and was recorded as revenue but remains unpaid by Kodak who
is withholding payment pending resolution of its dispute with the Company
relating to the Joint Development Agreement. The Company
10
CALCOMP TECHNOLOGY, INC.
(In Process of Liquidation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and Kodak are also in dispute concerning the appropriate criteria applicable
to an additional $3 million payment concerning a third milestone, notice of
achievement of which the Company has also delivered to Kodak. The Joint
Development Agreement also provides for royalties to be paid by Kodak to the
Company in respect of licenses granted thereunder which allow Kodak, under
certain circumstances, to exploit the inkjet technology developed under the
terms of the agreement.
Subsequent to the Company's announcement of the Plan for Orderly Shutdown,
Kodak notified the Company that it considered the Company to be in breach of
various obligations relating to the Joint Development Agreement and has
claimed unspecified damages against the Company for such alleged breaches. The
Company, in turn, has notified Kodak that it rejects Kodak's claims and also
asserts various claims against Kodak. Although the Company and Kodak have
discussed a settlement of the dispute which would have involved, among other
things, Kodak's purchase of certain CrystalJet related assets, no agreement
has been concluded. In the absence of a satisfactory settlement or termination
of the Joint Development Agreement with Kodak, the Company intends to defend
itself and/or pursue any claims it may have under the Joint Development
Agreement.
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 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 off-site water investigations and on-
site soil remediation. In 1998, CalComp conducted an extensive aquifer
characterization and off-site plume delineation investigation. Afterwards, the
Board approved CalComp's work plans for Off-Site Plume Delineation and Source
Area Remediation. 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 projected any future
expenditures in connection with environmental matters and does not believe
that the disposition of any of these matters will have a material adverse
effect on its net liabilities in liquidation, nor will any such expenditures
affect the Company's determination to proceed with the Plan for Orderly
Shutdown or the Plan of Liquidation and Dissolution.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Report on Form 10-Q contains statements which, to the extent that they
are not recitations of historical facts, constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All forward looking statements involve risks and uncertainties. The
forward looking statements in this Report on Form 10-Q have been made subject
to the safe harbor protections provided by Sections 27A and 21E.
Liquidity and Capital Resources
On January 14, 1999, the Board of Directors approved a Plan for Orderly
Shutdown which is expected to be substantially completed by July 1999. On
April 29, 1999, the Company's Board of Directors approved the Plan of
Liquidation and Dissolution. For further information see "Note 1. Summary of
Significant Accounting Policies--Background and Summary of Significant
Developments" of the Notes to Unaudited Consolidated Financial Statements in
Part I which is incorporated herein by reference.
During the three months ended March 28, 1999, the Company's sources of cash
consisted primarily of proceeds from the Secured Demand Loan with Lockheed
Martin of $15.7 million, collections from trade accounts receivable of $14.5
million, and proceeds from the sale of its non-CrystalJet assets of $10.9
million.
The Company's use of cash during the three months ended March 28, 1999,
consisted primarily of salaries and related benefits of $14.3 million,
operating expenses during the liquidation period of $13.3 million, commitment
cancellation costs related to open purchase orders as of January 14, 1999, of
$8.9 million, and other liquidation expenses of $5.7 million.
Pursuant to the Plan for Orderly Shutdown, the Company has to date
consummated or entered into letters of intent for the sales of substantially
all of its non-CrystalJet assets. The status of the primary sales transactions
to date is as follows: On February 1, 1999, the Company, through certain
domestic and foreign subsidiaries, sold substantially all of the assets
relating to its input device business to GTCO Corporation ("GTCO") for an
aggregate of $6,500,000 in cash and the assumption by GTCO of certain
liabilities relating to the input device business. On February 19, 1999, the
Company sold its cutter business to WestComp Incorporated ("WestComp") for
$600,000 in cash and the assumption by WestComp of certain liabilities
relating to the cutter business. The asset sale to WestComp principally
included the shares of CalComp Display Products N.V., a Belgian company and an
indirect subsidiary of the Company, and the cutter related products held as
inventory by the other subsidiaries of the Company. In connection with the
sale, CalComp Technology Europe N.V. sold the principal facility of the cutter
business, located in Gistel, Belgium, to an affiliate of WestComp at a
purchase price of $924,000 on March 31, 1999. On March 24, 1999, the Company
sold its non-CrystalJet consumables business (excluding the territories of
Europe and Africa) to Budde International, Inc. for a purchase price of
$833,000 in cash. Effective April 30, 1999, the Company also sold the European
and African supplies business to CalComp European Supplies Limited, a
subsidiary of RES Holdings Limited, for a purchase price of $1,089,000 in
cash. On April 1, 1999, the Company sold the assets and liabilities relating
to its worldwide parts distribution business and its North American service
business to CalGraph Technology Services, Inc., a wholly-owned subsidiary of
Tekgraf Inc., for a purchase price of $400,000 in cash. No assurances can be
given that pending sales will be consummated or that the proceeds from such
sales, together with any proceeds from the sale of assets relating to the
Company's CrystalJet business and with the funding from Lockheed Martin under
the Secured Demand Loan, will allow the Company to successfully complete the
Plan for Orderly Shutdown and the Plan of Liquidation and Dissolution, in
which case the Company may be forced to seek protection from its creditors
under Federal Bankruptcy law or may become the subject of an involuntary
bankruptcy proceeding.
The Company believes that even if the Plan for Orderly Shutdown and the Plan
of Liquidation and Dissolution are successfully completed, it is highly
unlikely that there will be any funds or assets available for distribution to
its preferred or common stockholders and neither the Plan for Orderly Shutdown
nor the Plan of Liquidation and Dissolution contemplates any such
distributions.
12
Assets and Liabilities following the Adoption of the Plan for Orderly Shutdown
As a result of the Board of Directors approving the Plan for Orderly
Shutdown, the Company adopted the liquidation basis of accounting which
requires assets and liabilities to be stated at estimated fair value.
Accordingly, the consolidated statements of net liabilities in liquidation
reflect assets and liabilities based on their estimated fair values and
estimated settlement amounts. Changes in the estimated liquidation value of
assets and liabilities are recognized in the period in which such refinements
are known.
The Company established the carrying values for its assets and liabilities
as reflected in the consolidated statement of net liabilities in liquidation
as of December 27, 1998, using estimates of the fair values of assets and
settlement amounts of liabilities developed in March 1999 giving consideration
to all information available at that time. The Company believes there is
insufficient additional information presently available to determine whether a
change to its estimate of the deficiency in the fair value of its assets as
compared to the estimated settlement amounts for its liabilities is necessary.
Accordingly, no refinement to this estimate was made in preparing the
consolidated statement of net liabilities in liquidation as of March 28, 1999.
Year 2000 Compliance
Many existing computer systems and 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. Others do not correctly
process "leap year" dates. As a result, such systems and applications could
fail or create erroneous results unless corrected to process data related to
the year 2000 and beyond. The problems are expected to increase in frequency
and severity as the year 2000 approaches, and are commonly referred to as the
"Year 2000 Problem". The Company intends to complete an orderly shutdown of
its operations before the end of calendar year 1999; therefore, no additional
funding will be expended on the assessment process. Year 2000 issues are not
expected to impact the shutdown of Company operations.
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ITEM 1. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see "Note 2. Commitments and
Contingencies - Legal" of the Notes to Unaudited Consolidated Financial
Statements in Part I, which is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits-The Following Exhibits Are Included Herein:
10.34 Letter Agreement dated January 8, 1999, between the Company and GTCO
Corporation, a Maryland corporation (filed as Exhibit 99.1 to the
Company's current report on Form 8-K dated February 1, 1999, and
incorporated herein by reference.)
10.35 Settlement Agreement and Mutual Release dated effective as of April 21,
1999, by and among Wacom Co. LTD., Wacom Technology Corp. and CalComp
Inc.
10.36 Plan of Complete Liquidation and Dissolution of CalComp Technology, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
Reports on Form 8-K filed by the Company during the first quarter of the
Company's fiscal year ended March 28, 1999 were as follows:
Form 8-K dated December 23, 1998, filed on December 31, 1998, reporting
under Item 5 the letter to the Company from Lockheed Martin Corporation
("Lockheed Martin") dated December 23, 1998, notifying the Company that
Lockheed Martin will not increase the existing credit it provides to the
Company.
Form 8-K dated February 1, 1999, filed on February 16, 1999 reporting
under Item 2 the Company's sale of the operating assets of its input device
business to GTCO Corporation, a Maryland corporation, ("GTCO"), and the
assumption by GTCO of certain of the liabilities relating to the input
device business.
Form 8-K/A dated February 1, 1999, filed on April 19, 1999, reporting
under Item 7 information related to the Company's sale of the operating
assets of its input device business to GTCO.
14
CALCOMP TECHNOLOGY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALCOMP TECHNOLOGY, INC.
(Registrant)
Date: May 13, 1999 /s/ John J. Millerick
_____________________________________
John J. Millerick
Sr. Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
15