SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/ / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
OR
/ X / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from October 3, 1998 to January 1, 1999
Commission file number 1-9348
QMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0737870
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
ONE MAGNUM PASS, MOBILE, AL 36618
(Address of principal executive offices) (Zip Code)
(334) 633-4300
(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
10,698,810 at January 29, 1999.
<PAGE>
QMS, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(unaudited) as of January 1, 1999, and
October 2, 1998 3 - 4
Condensed Consolidated Statements of Income
(unaudited) for the three months ended
January 1, 1999, and January 2, 1998 5
Condensed Consolidated Statements of Comprehensive
Income (unaudited) for the three months ended
January 1, 1999, and January 2, 1998 6
Condensed Consolidated Statements of Cash Flows
(unaudited) for the three months ended
January 1, 1999, and January 2, 1998 7
Notes to Condensed Consolidated Financial Statements
(unaudited) 8 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II - OTHER INFORMATION 15
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior 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 16
QMS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
as of January 1, 1999, and October 2, 1998
(Unaudited)
<TABLE> <C> <C>
<S> January 1, October 2,
in thousands 1999 1998
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 1,707 $ 2,754
Trade Receivables (less allowance for doubtful
accounts of $484 at January 1, 1999, and $512
at October 2, 1998) 22,747 21,636
Note Receivable (net) 146 3,239
Inventories:
Raw Materials 6,419 5,962
Work in Process 2,132 2,158
Finished Goods 20,767 18,643
Inventory Reserves (3,629) (3,673)
------- -------
Total Inventories, Net 25,689 23,090
Other Current Assets 2,944 2,248
------- -------
Total Current Assets 53,233 52,967
------- -------
PROPERTY, PLANT, AND EQUIPMENT 35,990 35,881
Less Accumulated Depreciation 31,255 30,932
------- -------
Total Property, Plant, and Equipment, Net 4,735 4,949
CAPITALIZED AND DEFERRED SOFTWARE 10,155 9,271
PREPAID RENT (Note 6) 1,300 1,300
OTHER ASSETS, NET 871 868
------- -------
TOTAL ASSETS $ 70,294 $ 69,355
======= =======
See Notes to Condensed Consolidated Financial Statements
QMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of January 1, 1999, and October 2, 1998
(Unaudited)
January 1, October 2,
in thousands 1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 14,363 $ 12,999
Revolving Credit Loan and Short-Term Debt 7,306 5,981
Current Maturities of Capital Lease Obligations 218 330
Employment Costs 3,851 3,713
Deferred Service Revenue 7,453 7,761
Other Current Liabilities :
Warranty Accrual 1,298 1,208
Accrued Management Transition Expenses 644 697
Other 3,708 5,298
------- -------
Total Other Current Liabilities 5,650 7,203
------- -------
Total Current Liabilities 38,841 37,987
------- -------
CAPITAL LEASE OBLIGATIONS 326 383
OTHER LIABILITIES
Deferred Service Revenue 839 897
Deferred Compensation 2,638 2,718
Accrued Management Transition Expenses 421 424
Other Liabilities 790 908
------- -------
Total Other Liabilities 4,688 4,947
------- -------
STOCKHOLDERS' EQUITY 26,439 26,038
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 70,294 $ 69,355
======= =======
See Notes to Condensed Consolidated Financial Statements
</TABLE>
QMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended January 1, 1999, and January 2, 1998
(Unaudited)
<TABLE>
<S> <C> <C>
Three Months Ended
January 1, January 2,
in thousands, except per share amounts 1999 1998
NET SALES
Printers and Supplies $ 31,525 $ 20,231
Service 7,813 8,347
------ ------
Total Net Sales 39,338 28,578
------ ------
COST OF GOODS SOLD
Printers and Supplies 24,451 14,506
Service 4,875 4,999
------ ------
Total Cost of Goods Sold 29,326 19,505
------ ------
GROSS PROFIT
Printers and Supplies 7,074 5,725
Service 2,938 3,348
------ ------
Total Gross Profit 10,012 9,073
------ ------
OPERATING EXPENSES 9,777 8,844
------ ------
OPERATING INCOME 235 229
OTHER INCOME (EXPENSE)
Interest Income 51 98
Interest Expense (193) (80)
Miscellaneous Income 23 158
------- -------
Total Other Income (Expense) (119) 176
------- -------
INCOME BEFORE INCOME TAXES 116 405
INCOME TAX PROVISION 4 4
------- -------
NET INCOME $ 112 $ 401
======= =======
EARNINGS PER COMMON SHARE (Note 3)
Basic and Diluted $ 0.01 $ 0.04
SHARES USED IN PER SHARE COMPUTATION (Note 3)
Basic 10,697 10,697
Diluted 10,876 10,701
See Notes to Condensed Consolidated Financial Statements
QMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended January 1, 1999, and January 2, 1998
(Unaudited)
Three Months Ended
January 1, January 2,
in thousands 1999 1998
Net Income $ 112 $ 401
Other Comprehensive Income, Net of Tax:
Canadian Currency Translation Adjustments 43 (213)
Japanese Currency Translation Adjustments 241 0
--- -----
Total Other Comprehensive Income 284 (213)
--- -----
Comprehensive Income $ 396 $ 188
=== =====
See Notes to Condensed Consolidated Financial Statements
QMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended January 1, 1999, and January 2, 1998
(Unaudited)
Three Months Ended
January 1, January 2,
in thousands 1999 1998
Cash Flows from Operating Activities:
Net Income $ 112 $ 401
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used in) Operating Activities:
Depreciation of Property, Plant and Equipment 576 529
Amortization of Capitalized and Deferred Software 1,968 1,839
Provision for Losses on Inventory 795 673
Other 0 (125)
Net Change in Assets and Liabilities that Provided
(Used) Cash:
Trade Receivables (1,111) (2,524)
Inventories, Net (3,394) (191)
Accounts Payable 1,364 3,913
Other (785) (2,681)
------- -------
Net Cash Provided by (Used in) Operating Activities (475) 1,834
------- -------
Cash Flows from Investing Activities:
Collections of Notes Receivable 1,593 0
Purchase of Property, Plant and Equipment (410) (95)
Proceeds from Disposal of Property, Plant and Equipment 0 399
Additions to Capitalized and Deferred Software Costs (2,912) (1,372)
------- -------
Net Cash Used in Investing Activities (1,729) (1,068)
------- -------
Cash Flows from Financing Activities:
Proceeds from Debt 1,325 0
Payments of Debt and Capital Lease Obligations (168) (726)
Other 0 45
------- -------
Net Cash Provided by (Used in) Financing Activities 1,157 (681)
------- -------
Net Change in Cash and Cash Equivalents (1,047) 85
Cash and Cash Equivalents at Beginning of Period 2,754 612
------- -------
Cash and Cash Equivalents at End of Period $ 1,707 $ 697
======= =======
See Notes to Condensed Consolidated Financial Statements
</TABLE>
QMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 January 1, 1999, the results of operations and changes in
cash flows for the three months ended January 1, 1999, and January 2, 1998.
The results of operations for the three months ended January 1, 1999, are not
necessarily indicative of the results to be expected for the fiscal year
ending December 31, 1999. Certain reclassifications have been made to fiscal
1998 amounts to conform to the transitional period ending January 1, 1999,
presentation.
2.FISCAL YEAR CHANGE AND TRANSITION PERIOD
On October 28, 1998, the Company's Board of Directors modified its accounting
periods effective in fiscal 1999, from a fiscal year ending on the Friday
closest to September 30 to a fiscal year ending on the Friday closest to
December 31. Accordingly, this Form 10-Q is for the three-month transition
period ended on January 1, 1999. In connection with this fiscal year change,
the Company will include audited financial statements for this three-month
transition period ended January 1, 1999, in its annual report on Form 10-K
for its new fiscal year ended December 31, 1999.
3.EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." Basic and diluted earnings
per share computations are based on the weighted average number of common
shares outstanding during the period and the diluted earnings per share also
includes the dilutive effect of the assumed exercise of stock options.
4.COMPREHENSIVE INCOME
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." which establishes new rules for the reporting of
comprehensive income and its components. Comprehensive income consists of
net income and foreign currency translation adjustments and is reflected in
the Condensed Consolidated Statements of Comprehensive Income. Due to the
Company's available operating loss carryforwards, there was no income tax
expense related to the components of other comprehensive income for the three
months ended January 1, 1999.
5.RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related
Information," which will be effective for the Company's annual 1999 financial
statements. Management does not expect the adoption of this Statement to
have a material impact on the Company's disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for the Company
in fiscal 2000. Management has not determined the effect of SFAS No. 133 on
its financial statements.
6.PREPAID RENT
At October 3, 1997, and October 2, 1998, the Company was not in compliance
with the Net Worth covenant contained in the 1997 sale-leaseback agreement
for the Mobile headquarters. On December 8, 1997, the Company obtained a
one-year waiver of non-compliance through October 5, 1998, from the lessor in
exchange for $1.3 million in prepaid rent and an amendment to a related
warrant agreement. On November 17, 1998, the Company obtained a continuation
of the waiver of non-compliance from the lessor through December 31, 1999, in
exchange for continuing the $1.3 million in prepaid rent.
At the end of the waiver period, the Company may be out of compliance with
one or more covenants contained in the lease agreement. Among the remedies
available to the landlord is the acceleration of all rent for the initial
lease term, cancellation of the lease, or all other remedies available at
law. Management believes over the next year through further negotiations
another extension of the waiver or a permanent revision of the covenant will
be obtained.
7.COMMITMENTS AND CONTINGENCIES
As of January 1, 1999, the Company had a commitment of approximately $15.3
million under contracts to purchase print engines and related components and
approximately $8.2 million under contracts to purchase spares and
consumables.
The Company is a defendant in various litigation and claims in the normal
course of business. Based on consultation with the relevant counsel in these
matters, management is of the opinion that the ultimate resolution of such
litigation and claims will not materially affect the Company's financial
position, results of operations, or cash flows.
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 income for the three months ended January 1, 1999, was $112,000 on net sales
of $39.3 million compared to net income of $401,000 for the three months ended
January 2, 1998, on net sales of $28.6 million. This reduction in net income is
due primarily to lower gross margins, particularly in hardware sales.
Table 1 - Net Sales Comparisons for Key Product Groups
<TABLE>
Three months ended
-----------------------------------------------------------------
<S> <C> <C> <C>
January 1, January 2,
(000's) 1999 1998 Difference
Hardware $ 8,951 $ 8,680 $ 271
Consumables 7,074 6,980 94
Service 7,813 8,838 (1,025)
Europe 6,045 2,638 3,407
Japan 8,959 1,142 7,817
All Other 496 300 196
------ ------ -------
Total $ 39,338 $ 28,578 $ 10,760
====== ====== =======
Table 2 - Hardware and International Sales Comparisons
Three months ended
------------------------------------------------------------------
January 1, January 2,
(000's) 1999 1998 Difference
Hardware Sales
U.S./Canada - Direct $ 1,370 $ 6,631 $ (5,261)
U.S./Canada - Reseller 5,562 1,304 4,258
Latin America & Other 565 567 (2)
OEM 1,454 178 1,276
----- ----- ------
Total Hardware $ 8,951 $ 8,680 $ 271
===== ===== ======
Europe Sales
Controller Boards $ 3,261 $ 1,260 $ 2,001
Commissions 2,784 1,378 1,406
----- ----- ------
Total Europe $ 6,045 $ 2,638 $ 3,407
===== ===== ======
</TABLE>
<PAGE>
Net sales for the three months ended January 1, 1999, increased 37.7% from net
sales for the three months ended January 2, 1998. While service revenues were
down by $1.0 million (11.6%), revenues in Europe and Japan increased $3.4
million (129.2%) and $7.8 million (684.5%), respectively.
The decrease in service revenue reflects the decreasing cost of new printers and
the tendency to replace rather than repair or maintain printers.
Europe revenue includes both controller board sales at cost and commissions
earned on product sales. Controller board sales and commissions for Europe
increased 158.8% and 102.0%, respectively. The increase in Europe revenue is
primarily from sales of the magicolor 2(R) product. European demand for
magicolor 2 and other color products is expected to remain strong throughout
this year.
During the three months ended January 2, 1998, Japan revenue included product
and commission revenue for Japan, Korea, and other Pacific Rim countries. This
revenue was generated through an independent company, QMS Japan KK, which, until
September 1998, had exclusive rights to distribute QMS products throughout these
countries. In September 1998, the Company reestablished its wholly owned
subsidiary in Japan. Sales that had occurred through a master distributor in
Japan are now being made through the Company's Japanese subsidiary, thereby
eliminating the receipt of commissions on distributor sales. This change
enables the Company to pursue and expand OEM agreements with other Japanese
companies.
Hardware and accessory sales for the three months ended January 1, 1999, were
$9.0 million, an increase of 3.1% over the same period ending January 2, 1998.
The direct market net sales were down $5.3 million (79.3%) for the three months
ended January 1, 1999, compared to the three months ended January 2, 1998, while
the reseller and OEM net sales increased by $4.3 million (326.5%) and $1.3
million (716.9%), respectively, for the same periods. This shift reflects the
change implemented in February 1998 to move from a direct sales force to
distributors and value added resellers, combining direct and reseller sales
channels. Management expects a continued increase in the reseller distribution
channel and a corresponding decrease in the direct channel over the next several
quarters.
Overall, the Company's gross profit increased $939,000, from $9,073,000 to
$10,012,000, as a result of higher net sales. While the gross profit increased,
the gross profit margin decreased from 31.7% to 25.5%. Hardware margins in
particular were down approximately 20% compared to the same period in the prior
year due to pricing competition. In addition, reestablishing the Japan
subsidiary decreased profit margins as distributor commissions were replaced
with more typical sales margins.
The operating expenses increased $933,000 (from $8,844,000 to $9,777,000 for the
three months ended January 2, 1998, and January 1, 1999, respectively) but
decreased as a percentage of sales from 30.9% to 24.9%. Of the $933,000
increase in operating expenses, $885,000 was caused by the addition of Japanese
operating expenses. The decrease in spending as a percentage of sales is
primarily due to the additional Japanese sales but also reflects management's
continued focus on cost reduction.
Total other income and expense was a net expense of $119,000 for the three
months ended January 1, 1999, compared to a net income of $176,000 for the three
months ended January 2, 1998. This $295,000 decrease to net profit for the
current period is a result of a $193,000 gain on the sale of capital equipment
during the three months ended January 2, 1998, and an increase of $113,000 in
interest expense due to higher revolving credit balances in the three-month
period ended January 1, 1999.
Income taxes reflect estimated foreign and domestic income taxes required by
foreign tax treaties and federal alternative minimum taxes. The Company has
available operating loss carryforwards and income tax credits which reduce the
effective alternative minimum tax rate to 2%.
Financial Condition
Current and long-term notes receivable decreased by approximately $3.1 million
from the October 2, 1998, balances, reflecting the payment in full from Europe
against their note receivable and $93,000 received from Japan in reduction of
their note balance. Accounts receivable and net inventories increased $1.1
million and $2.6 million, respectively, for the three months ended January 1,
1999, due to higher sales and the introduction of new product lines. Accounts
payable increased $1.4 million for the same period due to higher purchases.
The Company expects accounts receivable and accounts payable to remain at higher
levels than the October 2, 1998, balances because of higher sales and production
volumes.
Liquidity and Capital Resources
During the three months ended January 1, 1999, the Company's working capital and
capital expenditure requirements came principally from operations. The
Company's net working capital as of January 1, 1999, improved to $14.4 million
compared to $12.5 million at January 2, 1998. This increase is due entirely to
Japanese operations and the additional working capital requirements of a foreign
subsidiary in cash and receivables.
At January 1, 1999, the Company had borrowings of $7.3 million under the
revolving credit facility and cash on hand totaled $1.7 million. Total
borrowing capacity under this credit facility is $30.0 million, although
availability at any point in time is a function of eligible accounts receivable
and inventory levels. At January 1, 1999, total availability was $12.2 million.
The revolving credit facility expires in November 1999. The Company is
considering renewing the credit facility or pursuing other financing options.
Management expects that existing cash plus available credit will be sufficient
to meet cash flow requirements during the coming year.
Foreign Currency Exchange Rates
The Company purchases print engine mechanisms and memory components from several
Japanese suppliers. Fluctuations in Japanese yen currency exchange rates will
affect the prices of these products. The Company may attempt to mitigate some
negative impacts through yen-sharing arrangements with suppliers; however,
material price increases resulting from unfavorable exchange rate fluctuations
could adversely affect operating results.
The effect of yen fluctuations on material prices are also offset in part by
yen-based Japanese sales. Roughly 20% of all Company sales are in Japanese yen,
which causes sales and profit margins to increase when yen values increase.
Sale-Leaseback Agreement
At October 3, 1997, and October 2, 1998, the Company was not in compliance with
the Net Worth covenant contained in the 1997 sale-leaseback agreement for the
Mobile headquarters. On December 8, 1997, the Company obtained a one-year
waiver of non-compliance through October 5, 1998, from the lessor in exchange
for $1.3 million in prepaid rent and an amendment to a related warrant
agreement. On November 17, 1998, the Company obtained a continuance of the
waiver of non-compliance from the lessor through December 31, 1999, in exchange
for continuing the $1.3 million in prepaid rent.
At the end of the waiver period, the Company may be out of compliance with one
or more covenants contained in the lease agreement. Among the remedies
available to the landlord is the acceleration of all rent for the initial lease
term, cancellation of the lease, or all other remedies available at law.
Management believes over the next year through further negotiations a further
extension of the waiver or a permanent revision of the covenant will be
obtained.
Year 2000 Compliance
State of Readiness - In March 1997, the Company developed and began implementing
plans to review its purchased and developed software for Year 2000 compliance.
The plan addresses the major areas listed below.
1. IT Systems and Applications
The Company has identified 218 internal systems and applications
components; of these, 52 were identified as critical. As of January
27, 1999, all but four of these critical systems have been verified
as Year 2000 compliant. The remaining four should be compliant by
the end of February 1999.
The Company has contacted all critical IT (information technology)
systems and applications vendors and has received letters of
compliance from them and system upgrades as required. The Year 2000
review for IT systems and applications was completed in November
1998. The last of the IT systems upgrades should be complete by
February 1999. The Company has performed basic component testing
following the guidelines defined by the BSI Year 2000 compliance
definition. Because of the testing results to date, the Company
does not currently foresee the need for additional contingency plans
for these IT components
2. Critical Non-IT Suppliers and Vendors
The Company is sending Year 2000 compliance questionnaires to all
critical non-IT suppliers and vendors. The Company is not aware of
any anticipated Year 2000 non-compliance issues by its vendors or
customers that could materially affect its business operations;
however, the Company does not control the systems of other companies
and cannot assure that such systems will be converted in a timely
fashion and, if not converted, would not have an adverse effect on
the Company's business operations.
The Company is dependent upon a variety of local suppliers and
vendors for such items as electrical power, telephone service,
water, banking services and other necessary commodities. The
Company is not currently aware of any non-compliance by these
vendors that will materially affect its business operations;
however, the Company does not control these systems and cannot
assure that they will be converted in a timely fashion and, if not
converted, would not have an adverse effect on the Company's
business operations.
3. QMS Products
The design of the Company's products precludes the possibility of
Year 2000 errors. Date and time information is passed to the QMS
printer by the host computer in real time. The real-time clock used
to apply the time stamp to the accounting files stores the year as
four digits and is designed to correctly handle leap year
calculations, including the Year 2000. All QMS hardware and
software are designed to function properly at the turn of the
century and beyond without any interruption in business.
Costs - The Company expects to spend approximately $150,000 in connection with
the Year 2000 remediation. The Company has concluded all necessary purchases
and has spent approximately $138,000 to date.
Risks and Reasonably Likely Worst Case Scenarios - Although the Company has not
identified any specific areas of risk, general market Year 2000 problems outside
of the Company's control could have an adverse effect on the Company's operating
results.
Contingency and Business Continuation Plan - The Company will evaluate the need
for a formal Year 2000 contingency plan by June 1999.
QMS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
________________________________________________________________________________
The Company is exposed to market risk primarily from changes in foreign currency
exchange rates and to a lesser extent interest rates. The following describes
the nature of the risks and demonstrates that, in general, such market risk is
not material to the Company.
Foreign Currency Exchange Risk
At October 2, 1998, the Company had sales in over 28 countries worldwide. These
sales outside the United States accounted for approximately 25 percent of
worldwide sales. In 1999, the Company expects this percentage to increase
slightly with approximately 18% of sales being in Japanese yen. Over ninety
percent of these foreign sales are denominated in currencies of the local
country. As such, the Company's reported profits and cash flows are exposed to
changing exchange rates.
To date, management has not deemed it cost-effective to engage in a formula-
based program of hedging the profits and cash flows of foreign operations using
derivative financial instruments. Because the Company's foreign subsidiaries
purchase significant quantities of inventory payable in U.S. dollars, managing
the level of inventory and related payables and the rate of inventory turnover
provides a level of protection against adverse changes in exchange rates.
In addition, at any point in time, the Company's foreign subsidiaries hold
financial assets and liabilities that are denominated in currencies other than
U.S. dollars. These financial assets and liabilities consist primarily of
short-term, third-party receivables and payables. Changes in exchange rates
affect these financial assets and liabilities. For the most part, however,
these gains or losses arise from translation and, as such, do not significantly
affect net income.
Prior to 1998, the Company on occasion has used derivatives to hedge specific
risk situations involving foreign currency exposures. No such derivatives were
held at January 1, 1999.
Interest Rate Risk
The financial liabilities of the Company that are exposed to changes in interest
rates are limited to short-term borrowings. The stated rate of interest for
borrowings under the revolving credit agreement is one and one-half percent over
prime. Management believes interest rate risk for the Company is not
significant due to the relatively low short-term debt balance.
<PAGE>
QMS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is a defendant in various litigation and claims in the normal course
of business. Based on consultation with various counsel in these matters,
management is of the opinion that the ultimate resolution of such litigation and
claims will not materially affect the Company's financial position, results of
operations, or cash flows.
ITEM 2 - CHANGES IN SECURITIES - None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.
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: None.
<PAGE>
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 10, 1999 /s/ Edward E. Lucente
Edward E. Lucente
President and Chief Executive Officer
Date: February 10, 1999 /s/ James A. Wallace
<PAGE>
James A. Wallace
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-1-1999
<PERIOD-START> OCT-3-1998
<PERIOD-END> JAN-1-1999
<CASH> 1707
<SECURITIES> 0
<RECEIVABLES> 23231
<ALLOWANCES> 484
<INVENTORY> 25689
<CURRENT-ASSETS> 53233
<PP&E> 35990
<DEPRECIATION> 31255
<TOTAL-ASSETS> 70294
<CURRENT-LIABILITIES> 38841
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> 26321
<TOTAL-LIABILITY-AND-EQUITY> 70294
<SALES> 39338
<TOTAL-REVENUES> 39338
<CGS> 29326
<TOTAL-COSTS> 29326
<OTHER-EXPENSES> 9777
<LOSS-PROVISION> 795
<INTEREST-EXPENSE> 193
<INCOME-PRETAX> 116
<INCOME-TAX> 4
<INCOME-CONTINUING> 112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
