<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 October 1, 1994
Commission File No. 1-7786
SAVIN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2949772
(State of Incorporation) (I.R.S. Employer
Identification No.)
333 LUDLOW STREET
STAMFORD, CT 06904
(Address of principal (Zip Code)
executive offices)
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 November 9, 1994....................................3,841,626
1
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
-----------------------
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Consolidated Condensed Financial Statements:
Consolidated Balance Sheets, October 1, 1994
and January 1, 1994 ........................................... 3-4
Consolidated Statements of Operations:
Quarter ended October 1, 1994 and October 2, 1993 ............. 5
Nine Months ended October 1, 1994 and October 2, 1993 ......... 6
Consolidated Statements of Shareholders' Equity
(Deficiency):
Nine Months ended October 1, 1994 and October 2, 1993 ...... 7
Consolidated Statements of Cash Flows:
Nine Months ended October 1, 1994 and October 2, 1993....... 8
Notes to Consolidated Condensed Financial
Statements ................................................... 9-13
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 14-18
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K................................. 19
SIGNATURES.................................................................. 20
</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>
October 1, January 1,
ASSETS 1994 1994
----------- ----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 3,516 $10,650
Accounts receivable, trade (net of allowances of $4,928
at October 1, 1994 and $5,692 at January 1, 1994) 24,227 19,665
Other receivables (net of allowances of $2,524 at
October 1, 1994 and $2,930 at January 1, 1994) 783 882
Inventories (Note 2) 15,985 22,383
Other current assets 4,364 3,542
Deferred tax asset (Note 7) 2,512 3,055
--------- --------
Total current assets 51,387 60,177
--------- --------
Property, plant and equipment (Note 3):
Rental machines 5,333 3,693
Less accumulated depreciation (1,939) (504)
--------- --------
3,394 3,189
--------- --------
Other 4,750 3,368
Less accumulated depreciation (1,108) (271)
--------- --------
3,642 3,097
--------- --------
Property, plant and equipment, net 7,036 6,286
--------- --------
Deferred tax asset (Note 7) 7,844 9,432
--------- --------
Reorganization value in excess of amounts allocable to
identifiable assets (Note 1) 9,044 9,395
--------- --------
Other assets 76 230
--------- --------
Total assets $75,387 $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 per share amounts)
<TABLE>
<CAPTION>
October 1, January 1,
LIABILITIES 1994 1994
----------- -----------
(Unaudited)
<S> <C> <C>
Current liabilities:
Short-term borrowings (Note 4) $ 3,149 $ 7,039
Long-term indebtedness, current portion 3,255 3,023
Accounts payable, trade 13,100 16,641
Accrued expenses 19,044 23,111
Deferred revenue 5,555 5,700
Other current liabilities 610 1,237
--------- --------
Total current liabilities 44,713 56,751
Long-term indebtedness 298 2,765
Other non-current liabilities 1,000 1,000
--------- --------
Total liabilities 46,011 60,516
--------- --------
Commitments and contingencies (Note 5)
SHAREHOLDERS' EQUITY
New Common Stock, par value $.001 per share;
authorized, 10,000,000 shares; issued 3,847,423
shares (3,749,115 at January 1, 1994) (Note 6) $ 4 $ 4
Additional paid-in capital 26,783 26,256
Accumulated earnings (deficit) 2,589 (1,256)
--------- --------
Total shareholders' equity 29,376 25,004
--------- --------
Total liabilities and shareholders' equity $75,387 $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 per share amounts)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
-------------- -------------
Quarter Ended Quarter Ended
October 1, 1994 October 2, 1993
-------------- -------------
<S> <C> <C>
Revenues:
Sales $30,876 $31,997
Service 11,005 12,576
Rentals 4,149 5,239
Finance income 330 370
---------- ----------
46,360 50,182
-------- --------
Operating costs and expenses:
Cost of sales 22,188 24,544
Cost of service 7,959 8,668
Cost of rentals 1,887 2,789
Selling and administrative 12,439 12,315
Reorganization items, net (Note 1) -- 1,208
---------- ---------
44,473 49,524
-------- --------
Income from operations before interest expense, other
income and income taxes and extraordinary item 1,887 658
Interest expense (1993 contractual interest of
$2,468) (Note 1) 403 591
Other income, net 93 14
----------- -----------
Income from operations before income taxes and
extraordinary item 1,577 81
Provision for income taxes (Note 7) 631 6
---------- ------------
Income before extraordinary item 946 75
Extraordinary item, gain on extinguishment of debt (Note 4) -- 1,449
------------ ---------
Net income $ 946 $ 1,524
========= ========
Income per New Common Share $ .25
==========
Weighted average common shares outstanding used
in computing net income per share 3,834,248
=========
</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
---------- -----------
Nine Months Nine Months
Ended Ended
October 1, 1994 October 2, 1993
---------------- ----------------
<S> <C> <C>
Revenues:
Sales $ 93,479 $ 94,526
Service 35,976 40,584
Rentals 12,552 17,537
Finance income 1,043 1,013
---------- -----------
143,050 153,660
---------- -----------
Operating costs and expenses:
Cost of sales 68,575 69,328
Cost of service 25,411 26,971
Cost of rentals 5,754 10,246
Selling and administrative 37,279 37,030
Reorganization items, net (Note 1) -- 3,116
----------- -----------
137,019 146,691
---------- -----------
Income from operations before interest expense, other
income, income taxes and extraordinary item 6,031 6,969
Interest expense (1993 contractual interest of
$7,747) (Note 1) 1,169 1,872
Other income, net:
Gain on sale of assets -- 451
Other income (expense), net (55) 76
---------- -----------
Income from operations before income taxes and
extraordinary item 4,807 5,624
Provision for income taxes (Note 7) 1,923 68
----------- -------------
Income before extraordinary item 2,884 5,556
Extraordinary item:
Gain on the extinguishment of debt, net of
taxes (Note 4) 961 1,449
------------ -----------
Net income $ 3,845 $ 7,005
========== ==========
Income per New Common Share:
Income before extraordinary item $ .76
Extraordinary item .25
----------
Income per New Common Share $ 1.01
==========
Weighted average common shares outstanding used
in computing net income per share 3,797,664
==========
</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 Accumulated
Par Value Capital Earnings Treasury Stock Total Equity
------------------ ---------------- -------------------
Preferred Common Preferred Common (Deficit) Preferred Common (Deficiency)
--------- --------- --------- -------- ----------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Predecessor Company:
Nine months ended October 2, 1993:
Balance at December 31, 1992 $ -- $ 3 $ 5,152 $ 202,544 $ (413,364) $ (458) $ (9,009) $ (215,132)
Preferred Stock dividends in
arrears (3,828) (3,828)
Issuance of Common Stock:
Conversion of Preferred Stock 759 759
Net income 7,005 7,005
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at October 2, 1993 $ -- $ 3 $ 5,152 $ 203,303 $ (410,187) $ (458) $ (9,009) $ (211,196)
========== ========== ========== ========== ========== ========== ========== ==========
- - -----------------------------------------------------------------------------------------------------------------------------------
Successor Company:
Nine months ended October 1, 1994:
Balance at January 1, 1994 $ -- $ 4 $ -- $ 26,256 $ (1,256) $ -- $ -- $ 25,004
Issuance of Common Stock:
Claims Settlement 527 527
Net income 3,845 3,845
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at October 1, 1994 $ -- $ 4 $ -- $ 26,783 $ 2,589 $ -- $ -- $ 29,376
========== ========== ========== ========== ========== ========== ========== ==========
</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
----------- -----------
Nine Months Nine Months
Ended Ended
----------- -----------
October 1, 1994 October 2, 1993
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,845 $ 7,005
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 3,994 6,212
Extraordinary gain on the forgiveness of debt (961) (1,449)
Utilization of deferred tax asset 2,131 --
Other non-cash items 1,001 3,344
Change in working capital:
Increase in trade receivables (7,174) (572)
Decrease in SCC financing receivables 1,637 1,787
Decrease in inventories 5,524 2,527
Decrease in accounts payable and accrued expenses (5,350) (2,587)
Increase in other working capital (1,872) (1,895)
---------- --------
Net cash provided by operating activities
before reorganization items 2,775 14,372
Reorganization items -- (1,233)
---------- --------
Net cash provided by operating activities 2,775 13,139
---------- --------
Cash flows used in investing activities:
Net acquisition of rental machines (2,909) (225)
Other investing activities (acquisition of other PP&E) (1,609) (1,523)
-------- --------
Net cash used in investing activities (4,518) (1,748)
-------- --------
Cash flows used in financing activities:
Net proceeds (payments) under Foothill line of credit 3,118 (6)
Payments of short-term debt (6,350) --
Payments of long-term debt (2,159) (5,983)
---------- --------
Net cash used in financing activities (5,391) (5,989)
-------- --------
Net change in cash (7,134) 5,402
Cash, beginning of period 10,650 11,130
-------- --------
Cash, end of period $ 3,516 $16,532
======== =======
Supplmental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 105 $ 314
Income taxes -- 5
Issuance of common stock 527 --
</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 October 1, 1994, approximately $3.6 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
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
9
<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)
year period. Since fresh start reporting has been reflected in the
accompanying consolidated financial statements for the period 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 $1.2 million and $3.1 million for the third
quarter and first nine 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 October 1, 1994 and the results of
operations for the three and nine months ended October 1, 1994 and
October 2, 1993 and cash flows for the nine months ended October 1, 1994
and October 2, 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>
October 1, January 1,
1994 1994
---------- -----------
<S> <C> <C>
Office machines and accessories $ 8,324 $11,816
Parts, paper and supplies 7,661 10,567
-------- --------
$15,985 $22,383
======= =======
</TABLE>
Inventories at October 1, 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>
October 1, 1994 January 1, 1994
------------------------- -------------------------
Adjusted Accumulated Adjusted Accumulated
Cost Depreciation Cost Depreciation
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Rental Machines $5,333 $(1,939) $3,693 $(504)
====== ======= ====== =====
Machinery and equipment $ 49 $ (21) $ 42 $ --
Furniture and leasehold
improvements 4,701 (1,087) 3,326 (271)
------- -------- ------- ------
$4,750 $(1,108) $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 October 1, 1994, the maximum amount of available borrowings under the
Foothill Facility based upon the Available Collateral was $16.9 million,
of which $9.2 million was used to support the letters of credit. There
were cash advances of $1.3 million and $22 of accrued fees outstanding at
October 1, 1994. The interest rate per annum on the Foothill Facility is
equal to the prime rate plus 2% (9.75% at October 1, 1994). The Foothill
Facility was amended on March 28, 1994 as of the Effective Date, with
respect to certain covenants. At October 1, 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 October 1,
1994 the maximum amount of available borrowings at that date was $5.0
million. The interest rate on the SCC Credit Facility is equal to the
prime rate plus 2% (9.75% at October 1, 1994). SCC routinely draws and
repays funds under the SCC Credit Facility in accordance with SCC's
capital requirements. At October 1, 1994, $1.8 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 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.
In addition to the 3.8 million shares of New Common Stock issued pursuant
to the Plan, the Company estimates that up to approximately 200,000
additional shares of New Common Stock will be issued to satisfy
prepetition disputed claims which will be resolved in the Bankruptcy
Court.
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)
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 $.6 million and $2.1
million of its deferred tax asset during the three and nine months ended
October 1, 1994, respectively, to reduce taxes otherwise payable.
The provision for income taxes for the three and nine month periods ended
October 1, 1994 consists of current tax expense of $.5 million and $1.6
million, respectively for federal income taxes and $.1 million and $.3
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 October 24, 1994 the Company announced that it had signed an agreement
in principle to be acquired by Ricoh Corporation for a purchase price of
$42 million, subject to adjustment in certain circumstances. The
transaction is subject to negotiation and execution of a definitive
agreement, obtaining of approval by Savin shareholders and the
satisfactory performance of other customary conditions. The successful
completion of such transaction could trigger events which would
effectively eliminate the majority of the Company's net deferred tax
benefits.
9. On or about October 28, 1994, Savin Corporation ("Savin") was served
with a Summons and Complaint by W. Phillip Sullins and Savin Coastal
Valley, Inc. ("SCV") in an action in the Superior Court in the State of
California in which plaintiffs seek compensatory damages in an amount in
excess of $3 million, other unspecified damages and other relief for
alleged breaches of a Dealership Agreement and related claims. Savin owns
49% of SCV and, according to Savin's records, SCV and Mr. Sullins are
indebted to Savin in the amount of approximately $750 pursuant to the
Dealership Agreement and certain promissory notes and guarantees. Savin
believes the suit is without merit and intends to pursue its claims
against SCV and Mr. Sullins and to defend vigorously against the claims
asserted against Savin. "The Company is not now in a position to give an
opinion as to the ultimate outcome of the lawsuit or the effect of such
outcome on the Company's financial position."
13
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT EVENTS
On October 24, 1994 the Company announced that it had signed an agreement in
principle to be acquired by Ricoh Corporation for a purchase price of $42
million, subject to adjustment in certain circumstances. The transaction is
subject to negotiation and execution of a definitive agreement, obtaining
approval of Savin shareholders and the satisfactory performance of other
customary conditions. The completion of such transaction could impact the
financial position and liquidity of the Company.
REORGANIZATION
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 1993 and 1994 third quarter and first nine months of
operating performance, the following discussions of results of operations 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 $946,000 and $3.8 million for the third
quarter and first nine months of 1994, respectively, compared to net income of
$1.5 million and $7.0 million for the third quarter and first nine months of
1993, respectively. Included in income for the first nine 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-related
reorganization related expenses of $1.2 million for the third quarter and $3.1
million for the nine month period.
14
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUES
Revenues for the third quarter and nine months ended October 1, 1994 were $46.4
million and $143.0 million, respectively, compared to $50.2 million and $153.7
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 sales
operations, and to a lesser extent in equipment sales. Revenues from the sale of
copier and facsimile equipment decreased by $1.5 million, or 7%, during the
third quarter, and by $.6 million, or 1%, for the nine month period, compared to
the respective 1993 periods. The decline during the third quarter was primarily
due to lower equipment sales to dealers, partially offset by stronger sales of
new equipment to direct customers. For the nine month period, lower sales of
equipment to direct customers were offset by higher equipment sales to dealers.
The Company has recently shifted its direct customer marketing focus to
increasing sales of new equipment. Revenue from supply sales increased $.2
million, or 2%, for the third quarter of 1994 compared to 1993, but decreased
$.5 million, or 2%, for the first nine months of 1994 compared to 1993. During
both the quarter and nine month periods in 1994, supply sales to dealers have
been higher compared to 1993 levels. Offsetting these increases, however, have
been lower supply sales to direct customers. The supply sales decline to direct
customers is largely attributable to the Company's shrinking installed base of
copiers, and will continue until the Company is able to stem the decline in the
installed base. Supply sales have also been negatively impacted by the growth of
low cost alternative toner distributors.
Service revenue decreased $1.6 million, or 13%, and $4.6 million, or 11%, for
the third quarter and nine 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, and in parts sales to dealers.
The reduction in maintenance agreement sales is also symptomatic of the
declining installed base.
Rental revenue decreased $1.1 million, or 21%, and $5.0 million, or 28%, for the
third quarter and nine 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 third quarter and first nine months of 1994 were $14.3
million and $43.3 million, respectively, compared to $14.2 million and $47.1
million, respectively, for the same periods in 1993. Gross margin percentages
increased slightly for the third quarter 1994 compared to 1993, and declined
slightly for the comparable nine month periods.
Gross profits from the sales of copier and facsimile equipment increased by $1.0
million, or 23%, for the third quarter 1994 compared to 1993, and increased $.8
million, or 5%, for the nine month period in
15
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1994 compared to 1993. The increase in both periods was due mainly to higher
gross margins from equipment sales to dealers, the result of favorable product
mixes and price increases more than offsetting an increase in yen-denominated
product costs compared to 1993. Gross margins on equipment sales will come under
downward pressure, however, during the remainder of 1994 absent any significant
strengthening of the U.S. dollar relative to the Japanese yen.Gross profits from
the sale of supplies increased for the third quarter of 1994 by $.2 million, or
3%, and decreased for the first nine months of 1994 by $1.1 million, or 7%,
compared to the respective periods in 1993. The increase for the third quarter
was due to higher volume and higher gross margins on supply sales to dealers,
offset by lower volume of supply sales to direct customers. The decline in gross
profits from supply sales for the nine month period in 1994 resulted from both
lower sales volume to direct customers and a less profitable product mix
compared to 1993.
Service gross profits for the third quarter and first nine months of 1994
declined $.9 million, or 22%, and $3.0 million, also 22%, respectively, compared
to 1993. The decrease for both periods is primarily due to lower maintenance
agreement revenues in 1994 from direct customers, which has not been fully
offset by service overhead cost reductions.
Rental gross profits decreased by $.2 million and $.5 million for the third
quarter and first nine months of 1994, respectively, 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 $.2 million and $.6 million for the
third quarter and first nine months of 1994, respectively, compared to 1993.
Depreciation and amortization expense increased by $.2 million and $.6 million
for the third quarter and nine month periods, respectively, mainly due to
Chapter 11-related fair value adjustments. Bad debt expense increased $.1
million and $.6 million for the third quarter and nine month periods,
respectively, due to higher accrual rates in 1994. Professional fee expense
increased by $.1 million and $.3 million for the third quarter and first nine
months of 1994, respectively. Offsetting these increases for the third quarter
and first nine months of 1994 are lower salary expense ($.1 million and $.5
million, respectively) and lower business tax expense ($.1 million and $.2
million, respectively).
INTEREST EXPENSE
Interest expense for the third quarter and first nine months of 1994 decreased
$.2 million and $.7 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.
16
<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 third quarter and first nine months of 1993 includes a gain
of $.5 million on the sale of an idle warehouse facility.
REORGANIZATION ITEMS
The Company recorded charges of $1.2 million and $3.1 million for the third
quarter and first nine 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.
EXTRAORDINARY ITEM
During the first nine months of 1994, SCC recorded an extraordinary item from a
gain on the forgiveness of debt of $1.0 million, net of taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company reported a $7.5 million decrease in cash for the first nine months
of 1994, compared to an increase in cash of $5.4 million for the same period in
1993. Sources of cash were $10.0 million from operations adjusted for noncash
activities, $3.1 million in net proceeds under the SCC Credit Facility and
Foothill Facility (defined below) and $5.5 million from decreased inventories.
Primary uses of cash were $6.4 million in settlement of the AFF Facility
(defined below), $5.6 million for increased trade receivables, $5.4 million for
accounts payable and accrued expense payments, $2.2 million in payments of
long-term debt and $4.5 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 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 $215,000 to be used as security
for the rental of a facility.
17
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At October 1, 1994, the maximum amount of available borrowings under the
Foothill Facility based upon the Available Collateral was $16.9 million, of
which $9.2 million was used to support the letters of credit. There were cash
advances of $1.3 million and $22 of accrued fees outstanding at October 1, 1994.
The Foothill Facility was amended on March 28, 1994 as of the Effective Date,
with respect to certain covenants. At October 1, 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 October 1, 1994 the maximum amount of
available borrowings at that date was $5.0 million. SCC routinely draws and
repays funds under the SCC Credit Facility in accordance with SCC's capital
requirements. At October 1, 1994, $1.8 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.
The viability of the Company, and its ability to continue operations, is
directly dependent upon generating working capital through operations and
continuing credit 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 $10.4 million in deferred tax assets, which, when
realized, will provide future benefits to the Company's liquidity. 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.
18
<PAGE>
FORM 10-Q
SAVIN CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27--Financial Data Schedule.
(b) The Company filed a Current Report on Form 8-K on July 5, 1994
reporting the resignation of Brian L. Merriman, the President of Savin
Corporation.
19
<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.
November 11, 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)
20
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