<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
of the SECURITIES EXCHANGE ACT of 1934
For the Quarter Ended July 2, 1994
Commission file No. 1-7786
SAVIN CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-2949772
(State of incorporation) (I.R.S. Employer
Identification No.)
9 WEST BROAD STREET
STAMFORD,CT 06904
(Address of principal (Zip Code)
executive offices)
</TABLE>
Registrant's telephone number, including area code: 203-967-5000
---------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report).
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 months
and (2) has been subject to such filing requirements for at least the
past 90 days. Yes x No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes X. No...
The number of shares outstanding of registrant's Common Stock, par
value $.001 per share at August 5, 1994....................3,833,482
-1-
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
______________
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Consolidated Condensed Financial Statements:
Consolidated Balance Sheets, July 2, 1994
and January 1, 1994 3-4
Consolidated Statements of Operations:
Quarter ended July 2, 1994 and
July 3, 1993 5
Six Months ended July 2, 1994 and
July 3, 1993 6
Consolidated Statements of Shareholders'
Equity (Deficiency):
Six Months ended July 2, 1994 and
July 3, 1993 7
Consolidated Statements of Cash Flows:
Six Months ended July 2, 1994 and
July 3, 1993 8
Notes to Consolidated Condensed Financial
Statements 9-13
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-19
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
-2-
<PAGE>
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
SAVIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
JULY 2, JANUARY 1,
1994 1994
----------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 6,065 $ 10,650
Accounts receivable, trade (net of
allowances of $4,693 at July 2,
1994 and $5,692 at January 1, 1994) 23,639 19,665
Other receivables (net of allowances of
$2,521 at July 2, 1994 and $2,930
at January 1, 1994) 1,047 882
Inventories (Note 2) 15,178 22,383
Other current assets 3,357 3,542
Deferred tax asset (Note 7) 2,512 3,055
------- -------
Total current assets 51,798 60,177
------- -------
Property, plant and equipment (Note 3):
Rental machines 4,170 3,693
Less accumulated depreciation (818) (504)
------- -------
3,352 3,189
------- -------
Other 4,166 3,368
Less accumulated depreciation (542) (271)
------- -------
3,624 3,097
------- -------
Property, plant and equipment, net 6,976 6,286
------- -------
Deferred tax asset (Note 7) 8,435 9,432
------- -------
Reorganization value in excess of amounts
allocable to identifiable assets (Note 1) 9,162 9,395
------- -------
Other assets 111 230
------- -------
Total assets $76,482 $ 85,520
------- -------
------- -------
</TABLE>
See notes to consolidated condensed financial statements.
-3-
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
(in thousands of dollars, except share per share amounts)
<TABLE>
<CAPTION>
JULY 2, JANUARY 1,
1994 1994
----------- ----------
(Unaudited)
<S> <C> <C>
LIABILITIES
Current liabilities:
Short-term borrowings (Note 4) $ 3,668 $ 7,039
Long-term indebtedness, current portion 3,166 3,023
Accounts payable, trade 13,206 16,641
Accrued expenses 19,403 23,111
Deferred revenue 5,420 5,700
Other current liabilities 1,190 1,237
------- -------
Total current liabilities 46,053 56,751
------- -------
Long-term indebtedness 1,086 2,765
------- -------
Other non-current liabilities 1,000 1,000
------- -------
Total liabilities 48,139 60,516
------- -------
Commitments and contingencies (Note 5)
SHAREHOLDERS' EQUITY
New common stock, par value $.001 per share;
authorized, 10,000,000 shares; issued
3,833,482 shares (3,749,115 at January 1,
1994) (Note 6) $ 4 $ 4
Additional paid-in capital 26,697 26,256
Accumulated earnings (deficit) 1,642 (1,256)
------- -------
Total shareholders' equity 28,343 25,004
------- -------
Total liabilities and shareholders'
equity $76,482 $ 85,520
------- -------
------- -------
</TABLE>
See notes to consolidated condensed financial statements.
-4-
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands of dollars, except share per share amounts)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
------------- -------------
Quarter Ended Quarter Ended
July 2, 1994 July 3, 1993
------------- -------------
<S> <C> <C>
Revenues:
Sales $29,608 $ 31,605
Service 12,435 13,547
Rentals 4,190 5,976
Finance income 344 301
--------- --------
46,577 51,429
--------- --------
Operating costs and expenses:
Cost of sales 21,688 23,148
Cost of service 8,535 9,033
Cost of rentals 1,945 3,384
Selling and administrative 12,654 11,833
Reorganization items, net (Note 1) -- 950
--------- --------
44,822 48,348
--------- --------
Income from operations before interest
expense, other income and income taxes 1,755 3,081
Interest expense (1993 contractual
interest of $2,593 (Note 1) 367 611
Other income, net:
Gain on sale of assets -- 451
Other income, net 80 47
--------- --------
Income from operations before income
taxes 1,468 2,968
Provision for income taxes (Note 7) 587 6
--------- --------
Net income $ 881 $ 2,962
--------- --------
--------- --------
Income per New Common Share $ .23
---------
---------
Weighted average common shares
outstanding used in computing net
income per share 3,795,744
---------
---------
</TABLE>
Net income per share for the Predecessor Company is not meaningful due to the
cancellation of common and preferred stock, the issuance of New Common Stock
and fresh start reporting.
See notes to consolidated condensed financial statements.
-5-
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
------------ ------------
Six Months Six Months
Ended Ended
July 2, 1994 July 3, 1993
------------ ------------
<S> <C> <C>
Revenues:
Sales $62,602 $ 62,529
Service 24,971 28,008
Rentals 8,403 12,298
Finance income 713 643
------- --------
96,689 103,478
------- --------
Operating costs and expenses:
Cost of sales 46,397 44,784
Cost of service 17,440 18,303
Cost of rentals 3,867 7,457
Selling and administrative 25,073 24,715
Reorganization items, net (Note 1) -- 1,908
------- --------
92,777 97,167
------- --------
Income from operations before interest
expense, other income, income taxes
and extraordinary item 3,912 6,311
Interest expense (1993 contractual
interest of $5,278)(Note 1) 766 1,281
Other income, net:
Gain on sale of assets -- 451
Other income, net 84 62
------- --------
Income from operations before income
taxes and extraordinary item 3,230 5,543
Provision for income taxes (Note 7) 1,293 62
------- --------
Income before extraordinary item 1,937 5,481
Extraordinary item:
Gain on the extinguishment of debt,
net of taxes (Note 4) 961 --
------- --------
Net income $ 2,898 $ 5,481
------- --------
------- --------
Income per New Common Share:
Income before extraordinary item $ .51
Extraordinary item .26
-------
Income per New Common Share $ .77
-------
-------
Weighted average common shares
outstanding used in computing net
income per share 3,779,669
---------
---------
</TABLE>
Net income per share for the Predecessor Company is not meaningful due to the
cancellation of common and preferred stock, the issuance of New Common Stock
and fresh start reporting.
See notes to consolidated condensed financial statements.
-6-
<PAGE>
FORM 10-Q
SAVIN CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Additional Paid-In
Par Value Capital Accumulated Treasury Stock
------------------- ------------------- Earnings ------------------- Total Equity
Preferred Common Preferred Common (Deficit) Preferred Common (Deficiency)
--------- ------ --------- ------ ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Predecessor
Company:
Six months ended
July 3, 1993:
Balance at
December
31,
1992............ $ -- $ 3 $5,152 $202,544 $(413,364) $ (458) $(9,009) $(215,132)
Preferred
Stock
dividends
in
arrears......... (2,565) (2,565)
Issuance of
Common Stock:
Conversion
of
Preferred
Stock........... 488 488
Net income........ 5,481 5,481
------ ---- ------ -------- ---------- -------- -------- ----------
Balance at
July 3,
1993........... $ -- $ 3 $5,152 $203,032 $(410,448) $ (458) $(9,009) $(211,728)
------ ---- ------ -------- ---------- -------- -------- ----------
------ ---- ------ -------- ---------- -------- -------- ----------
- - ---------------------------------------------------------------------------------------------------------------------------------
Successor
Company:
Six months ended
July 2, 1994:
Balance at
January 1,
1994............ $ -- $ 4 $ -- $ 26,256 $ (1,256) $ -- $ -- $ 25,004
Issuance of
Common Stock:
Claims
Settlement...... 441 441
Net income........ 2,898 2,898
------ ---- ------ -------- ---------- -------- -------- ----------
Balance at
July 2,
1994............ $ -- $ 4 $ -- $ 26,697 $ 1,642 $ -- $ -- $ 28,343
------ ---- ------ -------- ---------- -------- -------- ----------
------ ---- ------ -------- ---------- -------- -------- ----------
</TABLE>
See notes to consolidated condensed financial statements.
-7-
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
------------ -----------
Six Months Six Months
Ended Ended
July 2, 1994 July 3, 1993
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $2,898 $ 5,481
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 2,585 4,302
Extraordinary gain on the forgiveness
of debt (961) --
Utilization of deferred tax asset 1,540 --
Other non-cash items 257 1,716
Change in working capital:
Increase in trade receivables (4,876) (969)
Decrease in SCC financing receivables 232 1,468
Decrease in inventories 6,593 5,504
Decrease in accounts payable and
accrued expenses (4,852) (2,352)
Increase in other working capital (1,011) (655)
--------- --------
Net cash provided by operating
activities before reorganization items 2,405 14,495
Reorganization items -- (976)
--------- --------
Net cash provided by operating
activities 2,405 13,519
--------- --------
Cash flows used in investing activities:
Net acquisition of rental machines (1,815) (207)
Other investing activities (1,002) (697)
--------- --------
Net cash used in investing activities (2,817) (904)
--------- --------
Cash flows used in financing activities:
Net proceeds under Foothill line-of-credit 3,637 23
Payments of short-term debt (6,350) --
Payments of long-term debt (1,460) (2,888)
--------- --------
Net cash used in financing activities (4,173) (2,865)
--------- --------
Net change in cash (4,585) 9,750
Cash, beginning of period 10,650 11,130
--------- --------
Cash, end of period $6,065 $20,880
--------- --------
--------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 455 $ 586
Income taxes 93 4
Issuance of Common Stock 441
</TABLE>
See notes to consolidated condensed financial statements.
-8-
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands of dollars, except where noted and per share amounts)
1. On August 25, 1992, (the "Filing Date"), Savin Corporation ("Savin") and
two wholly-owned subsidiaries, Classic Intersystems, Inc. and
Diversified Equipment Leasing Corporation (collectively, the "Company"),
each filed voluntary petitions (the "Chapter 11 Filings") for relief
under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the Southern District
of New York (the "Bankruptcy Court"). Savin's only other active
subsidiary, Savin Credit Corporation ("SCC") was not included in the
Chapter 11 Filings. On November 24, 1993, the Bankruptcy Court entered
an order confirming the Amended Joint Consolidated Plan of
Reorganization of the Company, (the "Plan"). The effective date of the
Plan was December 14, 1993 (the "Effective Date").
Under the Plan, as of the Effective Date, all shares of existing common
stock and preferred stock, and all common stock options of the
Predecessor Company (defined below) were canceled. In addition,
approximately $93.7 million of prepetition debt and other obligations
were extinguished in exchange for the issuance of new common stock, par
value $.001 per share (the "New Common Stock") to the holders of such
debt and obligations. As a result of such issuance, approximately 80
percent of the voting stock of the Successor Company (defined below) is
held by a group made up of the Company's former major creditors, which
include the Company's former bondholders; Credit Lyonnais Bank Nederland
N.V.; HCS Technology N.V., the Company's former majority shareholder;
ING Lease Structured Finance B.V., an affiliate of ING Bank N.V.; and
King Holding Corporation. The Plan also provided for cash payments of
approximately $8.9 million for certain secured and other obligations of
the Company. As of July 2, 1994, approximately $4.3 million of such
payments are outstanding and payable in installments through 1996.
The accompanying consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles and
in conformity with fresh start reporting under Statement of Position
90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code," issued in November 1990 by the American Institute of
Certified Public Accountants ("SOP 90-7"). For financial reporting
purposes the accompanying consolidated condensed financial statements
are presented as if the Plan became effective at November 28, 1993 which
was in conformity with the Company's fiscal month-end, and financial
statements for periods subsequent to November 27, 1993 have been
designated "Successor Company". Financial statements for the periods
prior to November 28, 1993 have been designated "Predecessor Company".
Under fresh start reporting, the final consolidated balance sheet of the
Predecessor Company as of November 27, 1993 became the opening
consolidated balance sheet of the Successor Company and the
reorganization value of the Company has been allocated to the Successor
-9-
FORM 10-Q
<PAGE>
SAVIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands of dollars, except where noted and per share amounts)
Company's assets on the basis of the purchase method of accounting. The
portion of reorganization value not attributable to specific tangible or
identifiable intangible assets of the Successor Company has been
reflected as "Reorganization value in excess of amounts allocable to
identifiable assets" in the accompanying consolidated balance sheets and
is being amortized on a straight-line basis over a 20 year period. Since
fresh start reporting has been reflected in the accompanying consolidated
financial statements for the periods after November 27, 1993, such
statements are not comparable in all material respects to any prior
financial statements of the Predecessor Company. Accordingly, a vertical
black line is shown to separate post-emergence operations from those
prior to November 28, 1993.
In accordance with SOP 90-7, the Company recorded charges for its Chapter
11 reorganization aggregating $.9 million and $1.9 million for the second
quarter and first six months of 1993, respectively. These charges
included professional fees incurred during 1993 offset in part by
interest income earned on the Company's cash balances. Also in
accordance with SOP 90-7, after the Filing Date, the Company ceased
accruing interest on prepetition unsecured and undersecured
indebtedness.
The accompanying consolidated condensed financial statements include all
normal and recurring adjustments necessary to present fairly the
financial position of the Company at July 2, 1994 and the results of
operations and cash flows for the three and six months ended July 2, 1994
and July 3, 1993.
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but which is not required for interim reporting purposes, has
been condensed or omitted. These condensed financial statements and
notes should be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for
the year ended January 1, 1994. The Company's fiscal year is the 52
weeks ending on the Saturday closest to December 31. Certain
reclassifications have been made to prior year financial statements to
conform to the 1994 presentation.
2. Inventories consist of the following:
<TABLE>
<CAPTION>
July 2, January 1,
1994 1994
-------- ---------
<S> <C> <C>
Office machines and accessories $ 8,519 $11,816
Parts, paper and supplies 6,659 10,567
------- -------
$15,178 $22,383
------- -------
------- -------
</TABLE>
Inventories at July 2, 1994 and January 1, 1994 are stated at fair value,
generally determined to be replacement cost, to the extent that such
inventory existed at November 27, 1993, or at the lower of cost or
market, cost being determined by the average cost method, to the extent
such inventory was purchased subsequent to November 27, 1993.
-10-
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands of dollars, except where noted and per share amounts)
3. Other property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
July 2, 1994 January 1, 1994
---------------------- ----------------------------
Adjusted Accumulated Adjusted Accumulated
Cost Depreciation Cost Depreciation
------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Rental Machines $4,170 $(818) $ 3,693 $ (504)
------ ------ -------- ---------
------ ------ -------- ---------
Machinery and equipment $ 47 $ (16) $ 42 $ --
Furniture and leasehold
improvements 4,119 (525) 3,326 (271)
------ ------ -------- ---------
$4,166 $(541) $ 3,368 $ (271)
------ ------ -------- ---------
------ ------ -------- ---------
</TABLE>
The net book value of rental machines was increased by $1.1 million at
November 27, 1993 to estimated fair value in accordance with fresh start
reporting requirements. The additional cost is being depreciated over 15
months. Also in accordance with fresh start reporting requirements, the
net book value of the Company's furniture and fixtures was increased by
$.8 million at November 27, 1993 to estimated fair value, and is being
depreciated over a period of seven years.
4. Upon emergence from Chapter 11 protection on December 14, 1993, Savin
entered into an $18 million working capital facility (the "Foothill
Facility") with Foothill Capital Corporation ("Foothill"). The Foothill
Facility allows Savin to borrow funds and obtain letter of credit support
based on Savin's level of qualifying accounts receivable and inventory
(the "Available Collateral"). The Foothill Facility supports two standby
letters of credit (the "Security Pacific L/Cs) totaling $9.0 million,
which were issued during early 1992 by Security Pacific National Bank
(now part of Bank of America), in favor of Ricoh corporation, Savin's
primary supplier ("Ricoh"), to be used for product purchases by Savin
from Ricoh. Without the Security Pacific L/Cs or an alternate financing
arrangement, Ricoh may not be willing to produce and deliver products to
Savin. The Security Pacific L/Cs were extended in 1994 and expire on
December 9, 1994. The Company has the ability and intent to extend the
Security Pacific L/Cs or to make other arrangements to satisfy Ricoh's
requirements, if necessary. The Foothill Facility also supports a
standby letter of credit issued by Bank of America in October 1993 and
expiring in November 1994 for $215 to be used as security for the rental
of a facility.
At July 2, 1994, the maximum amount of available borrowings under the
Foothill Facility based upon the Available Collateral was $14.8 million,
of which $9.2 million was used to support the letters of credit. There
were no outstanding cash advances and $26 of accrued fees outstanding at
July 2, 1994. The interest rate per annum on the Foothill Facility is
equal to the prime rate plus 2% (9.25% at July 2, 1994). The Foothill
Facility was amended on March 28, 1994 as of the Effective Date, with
respect to certain covenants. At July 2, 1994, the Company was in
compliance with the restrictive covenants contained in the Foothill
Facility, as amended.
-11-
<PAGE> FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands of dollars, except where noted and per share amounts)
During February 1994, SCC, a wholly-owned subsidiary not a party to the
Chapter 11 Filings, entered into financing arrangements with Foothill
(the "SCC Credit Facility"). Under the SCC Credit Facility, Foothill
provides a secured line of credit to SCC up to a maximum of $7.0 million.
Based on SCC's qualifying accounts receivable collateral at July 2, 1994
the maximum amount of available borrowings at that date was $6.0 million.
The interest rate on the SCC Credit Facility is equal to the prime rate
plus 2% (9.25% at July 2, 1994). At July 2, 1994, $3.6 million was
outstanding under the SCC Credit Facility and SCC was in compliance with
the covenants contained in the SCC Credit Facility.
SCC entered into the SCC Credit Facility in order to repay a previous
secured line of credit which had been obtained in 1989 from Atlantic
Financial Federal (the "AFF Facility"). The AFF Facility had been
administered by the Resolution Trust Corporation (the "RTC"), or its
assignees, since December 1989, when Atlantic Financial Federal went into
receivership. At January 1, 1994, $7.0 million of principal and $.9
million of accrued and unpaid interest was outstanding under the AFF
Facility. In February 1994, the RTC agreed to accept, and SCC paid, $6.4
million in full satisfaction of all amounts owed to the RTC by SCC under
the AFF Facility. Accordingly, SCC recorded an extraordinary gain, net
of $.6 million in taxes, of $1.0 million in February 1994 on the
extinguishment of the AFF Facility.
5. Pursuant to the Bankruptcy Code, substantially all prepetition litigation
against the Company was automatically stayed as a result of the Chapter
11 Filings. The Company is party to several "ordinary course of business
lawsuits" which in management's opinion will not have a material adverse
effect on the Company's financial position and results of operations.
6. The Company's Second Restated Certificate of Incorporation (the "New
Charter") authorizes the issuance of up to ten million shares of New
Common Stock, par value $.001 per share. Each holder of record of New
Common Stock will be entitled to one vote per share owned. There are no
conversion, preemptive or other subscription rights and no redemption
provisions applicable to the New Common Stock.
The Company is in the process of distributing certificates representing
the shares of New Common Stock issuable pursuant to the Plan. Holders of
allowed claims as of the Effective Date are deemed to have been holders
of their shares of New Common Stock as of the Effective Date.
The issuance of shares of New Common Stock pursuant to the Plan is exempt
from the registration requirements of the Securities Act of 1933, as
amended, and of equivalent state securities or "blue sky" laws by reason
of an exemption provided by Section 1145(a)(1) of the Bankruptcy Code.
-12-
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands of dollars, except where noted and per share amounts)
In addition to the 3.8 million shares of New Common Stock issued pursuant
to the Plan, the Company estimates that up to approximately .2 million
additional shares of New Common Stock will be issued to satisfy
prepetition disputed claims which will be resolved in the Bankruptcy
Court.
7. As a result of applying Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," $146 million of previously unrecorded
deferred tax benefits (without regard to limitations and expirations)
were recognized at January 1, 1993 as part of the cumulative effect of
adopting this statement. These net deferred tax benefits were offset at
that date, in their entirety, by a valuation allowance, due to the
uncertainty of their realization resulting from the impact of the Chapter
11 Filings on operations.
At November 27, 1993, as part of fresh start reporting, the Company
decreased the valuation allowance by $12.5 million, based on taxable
income projections over the next three years and an analysis of current
and prior tax years without the impact of bankruptcy related charges and
other nonrecurring items. The Company utilized $.5 million and $1.5
million of its deferred tax asset during the three and six months ended
July 2, 1994, respectively, to reduce taxes otherwise payable.
The provision for income taxes for the three and six month periods ended
July 2, 1994 consists of current tax expense of $.5 million and $1.1
million, respectively for federal [alternative minimum taxes] and $.1
million and $.2 million, respectively for state income taxes. The 1993
tax provision for the comparable period consisted of current tax expense
of $50 for federal alternative minimum taxes and $12 for state income
taxes.
8. On July 5, 1994, Brian L. Merriman, the President of the Company,
announced his resignation for personal reasons. Mr. Merriman, who joined
the Company in 1988 as Executive Vice President, Sales and Marketing, and
was named President in 1990, was responsible for the Company's dealer
division.
-13-
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On August 25, 1992, (the "Filing Date"), Savin Corporation ("Savin")
and two wholly-owned subsidiaries, Classic Intersystems, Inc. and
Diversified Equipment Leasing Corporation (collectively, the
"Company"), each filed voluntary petitions (the "Chapter 11
Filings") for relief under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court"). Savin's only other active subsidiary, Savin
Credit Corporation ("SCC") was not included in the Chapter 11
Filings. On November 24, 1993, the Bankruptcy Court entered an
order confirming the Amended Joint Consolidated Plan of
Reorganization of the Company, (the "Plan"). The effective date of
the Plan was December 14, 1993 (the "Effective Date").
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
applicable to a going concern, and where applicable, in conformity
with fresh start reporting under Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the
Bankruptcy Code," issued in November 1990, by the American Institute
of Certified Public Accountants ("SOP 90-7"). To facilitate a
meaningful comparison of the Company's fiscal first quarter 1994 and
1993 operating performance, the following discussions of results of
operation are presented on a traditional comparative basis for both
fiscal periods. The financial statements for the two periods are
not, however, comparable in all material respects due to the
implementation of fresh start reporting.
Results of Operations
The Company reported net income of $881 and $2.9 million for the
second quarter and first six months of 1994, respectively, compared
to net income of $3.0 million and $5.5 million for the second
quarter and first six months of 1993, respectively. Included in
income for the first six months of 1994 is a nonrecurring
extraordinary gain, net of income taxes, of $1 million from the
extinguishment of debt. The 1993 periods include Chapter 11
reorganization related expenses of $1.0 million for the second
quarter and $1.9 million for the six month period.
Revenues
Revenues for the second quarter and six months ended July 2, 1994
were $46.6 million and $96.7 million, respectively, compared to
$51.4 million and $103.5 million for the comparable periods in 1993.
The decline in revenues for both periods occurred primarily in
rental and service in the Company's direct operations. Revenues
from the sale of copier and facsimile equipment decreased by $.7
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FORM 10-Q
<PAGE>
SAVIN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
million, or 3%, during the second quarter, but was higher by $.9
million, or 2%, for the six month period, compared to the respective
1993 periods. For both periods in 1994, lower sales of equipment to
direct customers were offset by higher equipment sales to dealers,
compared to 1993. Revenue from supply sales decreased $1.1 million,
or 10%, for the second quarter of 1994 and $.7 million, or 3%, for
the first six months of 1994, compared to the same periods in 1993.
The supply sales decline is largely attributable to the Company's
shrinking installed base of copiers. Supply sales have also been
negatively impacted by the growth of low cost alternative toner
distributors.
Service revenue decreased $1.1 million, or 8%, and $3.0 million, or
11%, for the second quarter and six month periods in 1994,
respectively, compared to the same periods in 1993. The decline in
both periods occurred primarily in the sale of maintenance
agreements to direct customers, offset partially by increased parts
sales to dealers.
Rental revenue decreased $1.8 million, or 30%, and $3.9 million, or
32%, for the second quarter and six month periods, respectively, in
1994 compared to 1993. The Company has not been actively placing
new rental copiers, except to meet certain contractual requirements,
since 1991. This decline in new rental placements has resulted in a
steadily dwindling base of active rental copiers, and should
continue in the near term.
Operating Costs and Expenses
Gross profits for the second quarter and first six months of 1994
were $14.4 million and $29.0 million, respectively, compared to
$15.9 million and $32.9 million, respectively, for the same periods
in 1993. Gross margin percentages remained flat for the second
quarter 1994 compared to 1993, and declined slightly for the
comparable six month periods.
Gross profits from the sales of copier and facsimile equipment
increased by $.2 million, or 5%, for the second quarter 1994
compared to 1993, and decreased $.3 million, or 3%, for the six
month period in 1994 compared to 1993. The increase in the second
quarter was due mainly to increased volume in equipment sales to
dealers more than offsetting the decline in equipment sales to
direct customers. Gross margins declined for the six month period
on equipment sales to both dealer and direct customers, as
yen-denominated product costs have increased compared to 1993. The
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<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
decrease experienced in margins on equipment sales to dealers is
expected to continue throughout 1994, absent any pricing actions or
strengthening of the U.S. dollar relative to the Japanese yen.
Gross profits from the sale of supplies decreased for the second
quarter and first six months of 1994 by $.6 million, or 12%, and
$1.2 million, also 12%, respectively, compared to the same periods
in 1993. The declines in 1994 resulted from both lower volume and a
less profitable product mix compared to 1993.
Service gross profits for the second quarter and first six months of
1994 declined $.6 million, or 14%, and $2.2 million, or 22%,
respectively, compared to 1993. The decrease for both periods is
primarily due to lower maintenance agreement revenue in 1994 from
direct customers, which have not been fully offset by service
overhead cost reductions.
Rental gross profits decreased by $.3 million for both the second
quarter and first six months of 1994 compared to the same periods in
1993. The decline in rental revenue for the two periods was largely
offset by lower depreciation and commission expense in 1994, as the
Company's base of active rentals continues to decline.
Selling and administrative expense increased $.8 million and $.4
million for the second quarter and first six months of 1994,
respectively, compared to 1993. Bad debt expense increased $.6
million and $.5 million for the second quarter and six month
periods, respectively, due to higher accrual rates in 1994.
Professional fee expenses increased for both 1994 periods by $.2
million, and advertising expense was higher for the second quarter
and first six months of 1994 by $.1 million and $.2 million,
respectively, compared to 1993. The 1994 periods also include
Chapter 11-related amortization and depreciation expense of $.3
million for the second quarter and $.6 million for the first six
months. Offsetting these increases for the second quarter and first
six months of 1994 are lower manpower expenses ($.1 million and $.5
million, respectively) and lower freight expenses ($.1 million and
$.3 million, respectively).
Interest Expense
Interest expense for the second quarter and first six months of 1994
decreased $.2 million and $.5 million, respectively, compared to the
same periods in 1993. The decrease was mainly due to lower Foothill
Capital Corporation ("Foothill") fees and the repayment of a
financing agreement by the Company in December 1993.
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<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Income
Other income for the second quarter and first six months of 1993
includes a gain of $.5 million on the sale of an idle warehouse
facility.
Reorganization Items
The Company recorded charges of $1.0 million and $1.9 million for
the second quarter and first six months of 1993, respectively.
These charges include professional fees incurred during the
respective periods offset in part by interest income earned on the
Company's cash balances. There were no such items in 1994.
Extraordinary Item
During the first six months of 1994, SCC recorded an extraordinary
item for a gain on the forgiveness of debt of $1.0 million, net of
taxes.
Liquidity and Capital Resources
Throughout 1993, the Company's short-term liquidity position had
been favorably affected since cash requirements relating to the
payment of principal and interest associated with long-term and
short-term indebtedness and other liabilities which arose prior to
the Chapter 11 Filings, were, in most cases, deferred until the Plan
became effective. Offsetting these favorable impacts, however, was
the payment of administrative and professional expenses incurred due
to the Chapter 11 process, and the payment of certain settlements at
the Effective Date.
The Company reported a $4.6 million decrease in cash for the first
six months of 1994, compared to an increase in cash of $9.8 million
for the same period in 1993. Sources of cash were $6.8 million from
operations adjusted for noncash activities, $3.6 million in net
proceeds under the SCC Credit Facility (defined below) and $6.6
million from decreased inventories. Primary uses of cash were $6.4
million in settlement of the AFF Facility (defined below), $4.6
million for increased trade receivables, $4.9 million for accounts
payable and accrued expense payments, $1.5 million in payments of
long-term debt and $2.8 million for the acquisition of rental
machines and other equipment.
Upon emergence from Chapter 11 protection on December 14, 1993,
Savin entered into an $18 million working capital facility (the
"Foothill Facility") with Foothill. The Foothill Facility allows
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<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Savin to borrow funds and obtain letter of credit support based on
Savin's level of qualifying accounts receivable and inventory (the
"Available Collateral"). The Foothill Facility supports two standby
letters of credit (the "Security Pacific L/Cs") totaling $9.0
million, which were issued during early 1992 by Security Pacific
National Bank (now part of Bank of America), in favor of Ricoh
Corporation, Savin's primary supplier ("Ricoh"), to be used for
product purchases by Savin from Ricoh. Without the security Pacific
L/Cs and/or an alternate financing arrangement, Ricoh may not be
willing to produce and deliver products to Savin. The Security
Pacific L/Cs were extended in 1994 and expire on December 9, 1994.
The Company has the ability and intent to extend the Security
Pacific L/Cs or to make other arrangements to satisfy Ricoh's
requirements, if necessary. The Foothill Facility also supports a
standby letter of credit issued by Bank of America in October 1993
and expiring in November 1994 for $215 to be used as security for
the rental of a facility.
At July 2, 1994, the maximum, amount of available borrowings under
the Foothill Facility based upon the Available Collateral was $14.8
million, of which $9.2 million was used to support the letters of
credit. There were no outstanding cash advances and $26 of accrued
fees outstanding at July 2, 1994. The Foothill Facility was amended
on March 28, 1994 as of the Effective Date, with respect to certain
covenants. At July 2, 1994, the Company was in compliance with the
restrictive covenants contained in the Foothill Facility, as
amended.
During February 1994, SCC, a wholly-owned subsidiary not a party to
the Chapter 11 Filings, entered into financing arrangements with
Foothill (the "SCC Credit Facility"). Under the SCC Credit
Facility, Foothill provides a secured line of credit to SCC up to a
maximum of $7.0 million. Based on SCC's qualifying accounts
receivable collateral at July 2, 1994 the maximum amount of
available borrowings at that date was $6.0 million. At July 2,
1994, $3.6 million was outstanding under the SCC Credit Facility and
SCC was in compliance with the covenants contained in the SCC Credit
Facility.
SCC entered into the SCC Credit Facility in order to repay a
previous secured line of credit with had been obtained in 1989 from
Atlantic Financial Federal (the "AFF Facility"). The AFF Facility
had been administered by the Resolution Trust Corporation (the
"RTC"), or its assignees, since December 1989, when Atlantic
Financial Federal went into receivership. At January 1, 1994, $7.0
million of principal and $.9 million of accrued and unpaid interest
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FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
was outstanding under the AFF Facility. In February 1994, the RTC
agreed to accept, and SCC paid, $6.4 million in full satisfaction of
all amounts owed to the RTC by SCC under the AFF Facility.
Accordingly, SCC recorded an extraordinary gain, net of $.6 million
in taxes, of $1.0 million in February 1994 on the extinguishment of
the AFF Facility.
The viability of the Company, and its ability to continue
operations, is directly dependent upon generating working capital
through raising cash from operations and continuing availability
under the Foothill Facility. In addition, in an effort to improve
its working capital position, the Company routinely adjusts the
scheduled arrivals of, and payment for, products to match demand
levels. The Company also has recognized $10.9 million in deferred
tax assets, which, when realized, will provide future benefits to
the Company's liquidity. Savin has no plans for material capital
expenditures in 1994 but plans for $1.0 million in restructuring
related expenditures, which were accrued for in 1993, for the
remainder of 1994. In addition, the Company expects to pay
approximately $1.8 million in professional fees, previously accrued,
relating to the Company's reorganization under Chapter 11. These
fees represent the final costs under the Chapter 11 Filings. The
Company believes it will have adequate capital resources generated
from operations and from the Foothill Facility and the SCC Credit
Facility to meet its foreseeable capital requirements and to fund
future operations.
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<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the quarter for which
this report was filed.
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<PAGE>
FORM 10-Q
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.
August 16, 1994 SAVIN CORPORATION
By: /s/ D. Thomas Abbott
------------------------------
D. THOMAS ABBOTT
Chairman of the Board
(Principal Executive Officer)
By: /s/ Thomas L. Salierno, Jr.
------------------------------
THOMAS L. SALIERNO, JR.
Corporate Vice President,
Controller and Treasurer
(Principal Accounting Officer)
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