SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 29, 1995
----------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-9348
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QMS, INC.
- ----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 63-0737870
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
ONE MAGNUM PASS, MOBILE, AL 36618
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(Address of principal executive offices) (Zip Code)
(334) 633-4300
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(Registrant's telephone number, including area code)
NOT APPLICABLE
- ----------------------------------------------------------------------
(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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- -----------
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of the issuer's common stock, as of the latest practicable date
10,676,815 AT JANUARY 26, 1996.
- -------------------------------
QMS, INC. AND SUBSIDIARIES
==========================
INDEX
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NUMBER
--------------------- -----------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(unaudited) as of December 29, 1995 and
September 29, 1995 3 - 4
Condensed Consolidated Statements of Operations
(unaudited) for the three months ended
December 29, 1995 and December 30, 1994 5
Condensed Consolidated Statements of Cash Flows
(unaudited) for the three months ended
December 29, 1995 and December 30, 1994 6
Notes to Condensed Consolidated Financial Statements
(unaudited) for the three months ended
December 29, 1995 and December 30, 1994 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
PART II - OTHER INFORMATION 12 - 13
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. (a) Exhibits
(b) Reports on Form 8 - K
SIGNATURES 14
</TABLE>
QMS, INC. AND SUBSIDIARIES
==========================
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
as of December 29, 1995 and September 29, 1995
<TABLE>
<CAPTION>
(Unaudited)
December 29, September 29,
in thousands 1995 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 554 $ 7,431
Trade Receivables (less allowance for doubtful
accounts of $401 at December 1995 and $546
at September 1995) 24,785 37,721
Notes Receivable 4,833 0
Inventories, Net (Note 3) 35,516 47,482
Other Current Assets 5,286 7,066
--------- ---------
Total Current Assets 70,974 99,700
PROPERTY, PLANT AND EQUIPMENT 61,834 69,205
Less Accumulated Depreciation 39,456 42,484
--------- ---------
Property, Plant and Equipment, Net 22,378 26,721
OTHER ASSETS 11,218 9,117
--------- ---------
TOTAL ASSETS $ 104,570 $ 135,538
========= =========
</TABLE>
- --------
See Notes to Condensed Consolidated Financial Statements
QMS, INC. AND SUBSIDIARIES
==========================
CONDENSED CONSOLIDATED BALANCE SHEETS
as of December 29, 1995 and September 29, 1995
<TABLE>
<CAPTION>
(Unaudited)
December 29, September 29,
in thousands 1995 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 13,215 $ 16,586
Short-Term Bank Loans 0 7,764
Revolving Credit Loan and Short-Term Debt (Note 4) 18,110 4,129
Other 24,711 35,710
--------- ---------
Total Current Liabilities 56,036 64,189
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
(Note 4) 744 25,630
DEFERRED INCOME TAXES 1,129 1,162
OTHER LIABILITIES 2,792 1,344
STOCKHOLDERS' EQUITY 43,869 43,213
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 104,570 $ 135,538
========= =========
</TABLE>
- --------
See Notes to Condensed Consolidated Financial Statements
QMS, INC. AND SUBSIDIARIES
==========================
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 29, 1995 and December 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
December 29, December 30,
in thousands, except per share amounts 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
NET SALES
Printers and Supplies $ 29,447 $ 63,039
U.S. Service 7,898 7,481
----------- -----------
Total Net Sales 37,345 70,520
----------- -----------
COST OF GOODS SOLD
Printers and Supplies 20,292 43,297
U.S. Service 4,636 4,549
----------- -----------
Total Cost of Goods Sold 24,928 47,846
----------- -----------
GROSS PROFIT
Printers and Supplies 9,155 19,742
U.S. Service 3,262 2,932
----------- -----------
Total Gross Profit 12,417 22,674
----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 10,973 21,643
----------- -----------
OPERATING INCOME 1,444 1,031
----------- -----------
OTHER INCOME (EXPENSE)
Interest Income 79 13
Interest Expense (574) (924)
Miscellaneous Income (Expense) (330) (20)
------------ ------------
Total Other Expense (825) (931)
------------ ------------
INCOME BEFORE INCOME TAXES 619 100
INCOME TAX PROVISION 0 28
----------- -----------
NET INCOME $ 619 $ 72
=========== ===========
EARNINGS PER COMMON SHARE (Note 2)
Primary & Fully Diluted $ 0.06 $ 0.01
SHARES USED IN PER SHARE COMPUTATION (Note 2)
Primary 10,677 10,726
Fully Diluted 10,679 10,726
</TABLE>
See Notes to Condensed Consolidated Financial Statements
QMS, INC. AND SUBSIDIARIES
==========================
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 29, 1995 and December 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
December 29, December 30,
in thousands 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 619 $ 72
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation of Property, Plant and Equipment 1,424 2,184
Amortization of Capitalized and Deferred Software 1,082 2,783
Provision for Losses on Inventory 609 900
Other 20 4
Net Change in Assets and Liabilities that Provided
(Used) Cash 9,892 (2,112)
---------- ----------
Net Cash Provided by Operating Activities 13,646 3,831
Cash Flows from Investing Activities:
Purchase of Property, Plant and Equipment (294) (2,499)
Additions to Notes Receivable (7,500) 0
Additions to Capitalized and Deferred Software Costs (1,535) (2,425)
Proceeds from Divestiture of Businesses 7,668 0
Other (252) 46
----------- ---------
Net Cash Used in Investing Activities (1,913) (4,878)
Cash Flows from Financing Activities:
Proceeds from Long-Term Debt and Capital Leases 12,727 700
Payments of Long-Term Debt and Capital Leases,
including Current Maturities (23,611) (709)
Payments of Notes Payable (7,764) 0
Other 156 30
---------- ---------
Net Cash Provided by (Used in) Financing
Activities (18,492) 21
Effect of Exchange Rate Changes on Cash (118) (115)
----------- ----------
Net Change in Cash and Cash Equivalents (6,877) (1,141)
Cash and Cash Equivalents at Beginning of Period 7,431 4,956
---------- ---------
Cash and Cash Equivalents at End of Period $ 554 $ 3,815
========== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
QMS, INC. AND SUBSIDIARIES
==========================
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 29, 1995 AND DECEMBER 30, 1994
(Unaudited)
1. MANAGEMENT OPINION
In the opinion of management, the condensed consolidated financial statements
reflect all adjustments necessary to present fairly the financial position of
the Company as of December 29, 1995 and September 29, 1995, the results of
operations for the three months ended December 29, 1995 and December 30, 1994
and changes in cash flows for the three months ended December 29, 1995 and
December 30, 1994. All adjustments included in the condensed consolidated
financial statements are of a normal recurring nature except for amounts
related to the restructuring reserves (see Note 5) and reclassification of
the revolving credit loan and senior secured notes payable from long-term to
short-term debt (see Note 4). The results of operations for the three months
ended December 29, 1995 are not necessarily indicative of the results to be
expected for the fiscal year ending September 27, 1996.
2. PER COMMON SHARE COMPUTATIONS
Per share computations are based on the weighted average number of common
shares outstanding during the period and the dilutive effect of the assumed
exercise of stock options.
3. INVENTORIES
Inventories at December 29, 1995 and September 29, 1995 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
December 29, September 29,
1995 1995
----------- -------------
<S> <C> <C>
Raw materials $ 8,959 $ 11,709
Work in process 1,676 3,152
Finished goods 32,840 43,453
Inventory reserve (7,959) (10,832)
---------- -----------
TOTAL $ 35,516 $ 47,482
========== ===========
</TABLE>
4. CLASSIFICATION OF REVOLVING CREDIT LOAN AND SENIOR SECURED NOTES PAYABLE
The Company reclassified its revolving credit loan and the senior secured
notes payable from long-term to short-term debt as of December 29, 1995 only
to comply with FASB Emerging Issues Task Force Issue No. 95-22, "Balance
Sheet Classification of Borrowings Outstanding Under Revolving Credit
Arrangements That Include a Subjective Acceleration Clause and a Lock-Box
Arrangement." This pronouncement was issued in November 1995 and the
Company is currently negotiating with the lender to modify the revolving
credit agreement in such a manner as to permit classification of these loan
obligations as long-term debt. The revolving credit agreement is for a
three-year period and the Company was in full compliance with all the
covenants of this agreement as of December 29, 1995.
5. COMMITMENTS AND CONTINGENCIES
At September 29, 1995, the Company had a commitment of approximately $13.2
million under contracts to purchase print engines. As of December 29, 1995,
the Company had a commitment of approximately $18.4 million to purchase print
engines under purchase contracts.
The Company was contingently liable for approximately $785,000 as of December
29, 1995. This was principally the result of letters of credit issued in the
normal course of business for the purchase of inventory.
6. RESTRUCTURING RESERVES
At September 29, 1995, the Company had reserves for restructuring charges and
business divestitures totaling $10.1 million. During the first quarter of
fiscal 1995, total net charges of $5 million were taken against these
reserves leaving a balance of $5.1 million at December 29, 1995.
7. RECLASSIFICATIONS
Certain reclassifications have been made to fiscal 1995 amounts to conform to
the fiscal 1996 presentation.
QMS, INC. AND SUBSIDIARIES
==========================
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Net Sales Comparisons for Key Channels of Distribution (in thousands)
<TABLE>
<CAPTION>
First Quarter ended
-----------------------------------------------------
December 29, December 30,
1995 1994 Difference
--------- --------- ------------
<S> <C> <C> <C>
U.S. Direct $ 12,737 $ 19,370 $ (6,633)
U.S. Service 7,898 7,481 417
U.S. Reseller 4,775 4,780 (5)
Europe 5,108 25,250 (20,142)
Japan 2,502 6,851 (4,349)
Canada 3,081 4,365 (1,284)
QMS Circuits 873 875 (2)
All Other 371 1,548 (1,177)
----------------------------------------------------
Total $ 37,345 $ 70,520 $ (33,175)
====================================================
</TABLE>
Net sales for the first fiscal quarter of 1996 declined by $33.2 million from
the first quarter of fiscal 1995. Sales by key distribution channels in the
first quarter of fiscal 1996 (the three months ended December 29, 1995) and the
first quarter of fiscal 1995 (the three months ended December 30, 1994) are
shown in the above table. The principal reason for the sales decline is the
change in the methods of doing business in Europe and Japan. The combined sales
decline in these two channels represents $24.5 million, or 74%, of the total
decline. The Company has completed the divestiture of its European and Japan
business operations to management buy-out groups and has established exclusive
master distributor agreements with the new owners of these businesses to
continue marketing QMS products in their respective geographic territories. The
Company recognizes revenue on sales of components and controller boards to these
master distributors and, additionally, commissions are earned by the Company on
all sales of QMS products made by them. As a result, the amount of revenue
recognized through these sales channels will be significantly reduced. Net
sales declined in the U.S. direct sales channel by $6.6 million in the first
quarter of fiscal 1996 compared to the first quarter of fiscal 1995. The
principal reason for this decline is that the first quarter of fiscal 1995
included $4 million in sales of color thermal transfer consumables, representing
a product line that was sold during the fourth quarter of fiscal 1995;
accordingly, there were no sales of these products in the first quarter of
fiscal 1996.
Total gross margin declined by $10.3 million in the first quarter of fiscal 1996
compared to the first quarter of fiscal 1995. Of this decline, $8 million
results from the change in the methods of doing business in Europe and Japan, as
discussed above. The remainder of the decline in gross profit of $2.3 million
is principally the margins on sales of color thermal transfer consumables which
are not included in the product mix in the first quarter of fiscal 1996.
Overall, the Company's gross profit as a percentage of net sales increased by
1%, from 32.2% to 33.2%. This increase is due to the larger relative amount of
U.S. service revenues included in the product mix in the first quarter of fiscal
1996 compared to the same period in fiscal 1995 and the increase in gross profit
as a percentage of net sales in this channel from 39.2% in the first quarter of
fiscal 1995 to 41.3% in the first quarter of fiscal 1996.
The Company purchases print engine mechanisms and memory components from several
Japanese suppliers. Fluctuations in foreign currency exchange rates will affect
the prices of products. The Company attempts to mitigate possible negative
impacts through yen-sharing arrangements with suppliers, foreign exchange
contracts and price negotiations; however, material price increases resulting
from exchange rate fluctuations could develop which would adversely affect
operating results.
Selling, general and administrative expenses declined from $21.6 million in the
first quarter of fiscal 1995 to slightly below $11 million in the first quarter
of fiscal 1996. This decrease of $10.7 million is the result of the change in
the methods of doing business in Europe and Japan which eliminated $6.6 million
of expenses associated with these former operations; the remaining $4.1 million
results from cost reduction and restructuring efforts were implemented during
the latter part of fiscal 1995. This $10.7 million decrease was greater than
the decrease in gross profit of $10.3 million for the same periods and,
therefore, resulted in an improvement in operating income of $0.4 million.
Total other expense decreased from $931,000 in the first quarter of fiscal 1995
to $825,000 in the first quarter of fiscal 1996. Included in this decrease is a
reduction of interest expense of $350,000 in the first quarter of fiscal 1996
compared to the first quarter of fiscal 1995 that is the result of the Company
reducing its overall short- and long-term debt from $38.8 million at September
29, 1995 to $19.7 million at December 29, 1995.
The Company's effective tax rate was zero for the first quarter of fiscal 1996
compared to 28% in the first quarter of fiscal 1995. Due to the availability of
operating loss carry forwards and tax credits, the Company does not anticipate
incurring any additional tax expense during fiscal 1996.
FINANCIAL CONDITION
- -------------------
The decrease in cash and cash equivalents from approximately $7.4 million at
September 29, 1995 to $554,000 at December 29, 1995 is related to revised cash
management processes that were implemented as part of the new credit facility
with Foothill Capital Corporation (`Foothill''). This credit facility provides
for a direct flow of the Company's cash receipts to Foothill and a simplified
method of re-borrowing funds from Foothill to meet working capital requirements.
The decreases in trade accounts receivable of $12.9 million, in inventories of
$12 million, in property, plant and equipment of $4.3 million, in trade accounts
payable of $3.4 million, in short-term bank loans of $7.8 million, and in other
current liabilities of $11 million at December 29, 1995 compared to September
29, 1995 are principally the result of the divestitures of the Company's
European and Japanese operations.
The increases in notes receivable (short-term) of $4.8 million and other non-
current assets of $2.1 million at December 29, 1995 compared to September 29,
1995 represent notes due from the purchasers of the Company's business
operations in Europe ($4.0 million) and Japan ($3.5 million).
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the first quarter of fiscal 1996, the Company's working capital and
capital expenditure requirements came principally from operations, the proceeds
from the disposition of its business operations in Europe and Japan, and
borrowings under its new credit facility with Foothill. The Company's net
working capital as of December 29, 1995 was approximately $14.9 million compared
to $35.5 million at September 29, 1995. This reduction is principally due to
the disposition of the European and Japanese operations, the change in the
Company's cash management processes under the Foothill credit facility, as
discussed earlier, and the reclassification of the revolving credit loan and
senior secured notes payable from long-term to short-term debt, as discussed
below.
At December 29, 1995, borrowings under the Foothill credit facility were
$12.7 million and borrowing capacity under this three-year credit facility
totaled $18.2 million, plus the availability of a $5 million term loan. The
Company was in compliance with all of the Foothill debt covenants.
At December 29, 1995, the Company was not in compliance with certain
covenants contained in the 6.15% senior secured notes payable. Although the
Company has not received a waiver of the non-compliance, the holder of the
senior secured notes has not taken steps to accelerate repayment of this debt
and, in management's opinion, the status of this debt is unlikely to change.
The Company has adequate borrowing capacity available as a term loan under the
Foothill credit facility to repay the senior secured notes in the unlikely event
these notes are deemed due.
In November 1995, the FASB Emerging Issues Task Force released Issue No.
95-22, "Balance Sheet Classification of Borrowings Outstanding Under Revolving
Credit Arrangements That Include a Subjective Acceleration Clause and a Lock-Box
Arrangement" which required the Company to reclassify its revolving credit loan
and the senior secured notes payable from long-term to short-term debt as of
December 29, 1995. The Company is currently negotiating with the lender to
modify the revolving credit agreement in such a manner as to permit
classification of these loan obligations as long-term debt.
Management believes that the Company's continuing working capital and
capital expenditure requirements will be met by cash flow from operations and
borrowings under the Foothill credit facility.
QMS, INC. AND SUBSIDIARIES
==========================
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------
The Company is a defendant in various litigation in the normal course of
business. Management is of the opinion that the ultimate resolution of such
claims will not materially affect the Company's financial position or results of
operations.
ITEM 2 - CHANGES IN SECURITIES - None.
- ------------------------------
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
At December 29, 1995, the Company was not in compliance with certain covenants
contained in the 6.15% senior secured notes payable. Covenant violations
include noncompliance with minimum net income requirements and interest
coverage. Although the Company has not received a waiver of the non-compliance,
the holder of the senior secured notes has not taken steps to accelerate
repayment of this debt and, in management's opinion, the status of this debt is
unlikely to change. The Company has adequate borrowing capacity available as a
term loan under the Foothill credit facility to repay the senior secured notes
in the unlikely event these notes are deemed due. The Foothill credit facility
is a three-year agreement and the Company was in full compliance with all of the
covenants in this agreement as of December 29, 1995.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The Company's Annual Meeting of Stockholders was held on January 23, 1996. The
results of the voting on the election of directors were as follows:
<TABLE>
<CAPTION>
Nominee For Withheld Total Votes Cast
------- --- -------- ----------------
<S> <C> <C> <C>
Charles D. Daley 9,503,993 243,277 9,747,270
Michael C. Dow 9,503,398 243,872 9,747,270
S. Felton Mitchell, Jr. 9,517,428 229,842 9,747,270
Accordingly, all nominees for the Board of Directors were elected.
The results of the voting on the Company's Employee Stock Purchase Plan were as follows:
For Against Abstain
--- ------- -------
9,400,720 278,058 68,492
</TABLE>
Accordingly, the Employee Stock Purchase Plan was adopted.
ITEM 5 - OTHER INFORMATION - None.
- --------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits:
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
(b) Reports: The report listed below was filed on Form 8-K/A during the first
quarter of fiscal 1996.
. Form 8-K/A dated October 31, 1995 reporting pro forma financial statements
reflecting the disposition of the Company's operational assets in Europe and
Japan.
QMS, INC. AND SUBSIDIARIES
==========================
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.
QMS, INC.
(Registrant)
Date: February 9, 1996 /s/ Philip R. Cahoon
---------------------------- --------------------------
PHILIP R. CAHOON
Corporate Controller, Vice President -
Finance and Administration, and
Assistant Secretary (Mr. Cahoon is
an officer of the Company and has
been duly authorized to sign on behalf
of the registrant.)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000710983
<NAME> QMS INC
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1996
<PERIOD-END> DEC-29-1995
<CASH> 554
<SECURITIES> 0
<RECEIVABLES> 25186
<ALLOWANCES> 401
<INVENTORY> 35516
<CURRENT-ASSETS> 70974
<PP&E> 61834
<DEPRECIATION> 39456
<TOTAL-ASSETS> 104570
<CURRENT-LIABILITIES> 56036
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> 43751
<TOTAL-LIABILITY-AND-EQUITY> 104570
<SALES> 37345
<TOTAL-REVENUES> 37345
<CGS> 24928
<TOTAL-COSTS> 24928
<OTHER-EXPENSES> 10973
<LOSS-PROVISION> 609
<INTEREST-EXPENSE> 574
<INCOME-PRETAX> 619
<INCOME-TAX> 0
<INCOME-CONTINUING> 619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 619
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
