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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1995 COMMISSION FILE NUMBER 0-18708
MICROGRAFX, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1952080
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1303 ARAPAHO 75081
RICHARDSON, TEXAS (Zip Code)
(Address of principal executive offices)
(214) 234-1769
(Registrant's telephone number)
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 .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class November 6, 1995
----- ----------------
Common Stock 8,905,301
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MICROGRAFX, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 3
September 30, 1995 and June 30, 1995
Condensed Consolidated Statements of Income 4
for the Three Months Ended September 30, 1995 and 1994
Condensed Consolidated Statements of Cash Flows 5
for the Three Months Ended September 30, 1995 and 1994
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
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MICROGRAFX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 JUNE 30, 1995
------------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,719 $11,180
Short-term investments 5,193 5,312
Accounts receivable, less allowances
of $2,261 and $1,928 9,379 8,786
Inventories 1,089 1,204
Other current assets 2,107 1,803
------- -------
Total current assets 27,487 28,285
Property and equipment, net 4,088 4,374
Capitalized software development costs, net 3,462 3,453
Acquired product rights, net 1,734 1,302
Other assets 246 604
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Total assets $37,017 $38,018
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,414 $ 5,485
Accrued compensation and benefits 1,268 1,356
Accrued liabilities and other 3,450 3,311
Income taxes payable 417 710
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Total current liabilities 9,549 10,862
Long-term debt -
Noncurrent deferred income taxes and other 1,010 903
Shareholders' equity:
Preferred stock, voting, $.10 par value,
10,000 shares authorized, none
issued and outstanding - -
Common stock, $.01 par value,
20,000 shares authorized; 9,374 and 9,338 shares
issued; 8,832 and 8,836 shares outstanding 94 93
Additional capital 21,602 21,334
Retained earnings 7,712 7,272
Cumulative translation adjustment (350) (279)
Less - treasury stock (542 and 502 shares), at cost (2,600) (2,167)
------- -------
Total shareholders' equity 26,458 26,253
------- -------
Total liabilities and shareholders' equity $37,017 $38,018
======= =======
</TABLE>
See accompanying notes.
3
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MICROGRAFX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1995 1994
--------------- -------------
<S> <C> <C>
Net revenues $ 15,050 $ 14,211
Cost of revenues 3,584 3,690
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Gross profit 11,466 10,521
Operating expenses:
Sales and marketing 7,407 7,621
General and administrative 1,830 1,861
Research and development 1,377 1,022
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Total operating expenses 10,614 10,504
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Income from operations 852 17
Interest income, net (180) (151)
Other expense, net 404 13
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Total non operating (income) expense 224 (138)
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Income before income taxes 628 155
Income taxes 188 53
Net income $ 440 $ 102
--------------- -------------
Income per share $ 0.05 $ 0.01
=============== =============
Shares used in computing
income per share 9,109 8,778
=============== =============
</TABLE>
See accompanying notes.
4
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MICROGRAFX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1995 1994
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 440 $ 102
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,835 2,057
Deferred income taxes and other 108 (113)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (593) 383
Decrease in inventories 115 246
Increase in other current assets (304) (446)
Decrease in payables and accruals (1,314) (2,375)
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Total adjustments (153) (248)
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Net cash provided by (used in) operating activities 287 (146)
---------- -----------
Cash flows from investing activities:
Proceeds from short-term investments, net 119 2,356
Capitalization of software development costs and
purchases of acquired product rights (1,578) (1,253)
Purchases of property and equipment (412) (526)
Other 287 105
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Net cash provided by (used in) investing activities (1,584) 682
---------- -----------
Cash flows from financing activities:
Payments of notes payable, net - (349)
Proceeds from employee stock programs 226 -
Tax benefits realized from stock transactions 42 -
Purchases of treasury stock and other (432) (537)
---------- -----------
Net cash used in financing activities (164) (886)
---------- -----------
Net decrease in cash and cash equivalents (1,461) (350)
Cash and cash equivalents, beginning of period 11,180 10,802
---------- -----------
Cash and cash equivalents, end of period $ 9,719 $ 10,452
========== ===========
Supplemental disclosures of cash flow information:
Cash paid for --
Interest $ 5 $ 17
Income taxes 1 4
</TABLE>
See accompanying notes.
5
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MICROGRAFX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed consolidated
financial statements contain all the adjustments, which are normal and
recurring in nature, necessary to present fairly, in all material respects,
the financial position of Micrografx, Inc. ("Micrografx" or "the Company")
as of September 30, 1995 and June 30, 1995, and the results of its
operations and its cash flows for the periods presented. Certain
previously reported amounts have been reclassified to conform with current
year presentation. The accompanying financial statements and notes thereto
should be read in conjunction with the Company's audited financial
statements for the year ended June 30, 1995, included in the 1995 Annual
Report to Shareholders. The results of operations for the period ended
September 30, 1995 are not necessarily indicative of results to be expected
for the year ending June 30, 1996.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1995 June 30, 1995
------------------ -------------
<S> <C> <C>
Raw materials $ 733 $ 749
Finished goods 356 455
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$ 1,089 $ 1,204
======== =========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
Forward Contracts
The Company periodically enters into foreign exchange contracts to hedge
against certain exposure to changes in foreign currency exchange rates.
This exposure results from the Company's foreign operations that are
denominated in currencies other than the U.S. dollar. The Company revalues
foreign exchange contracts at each balance sheet date, which approximates
fair value, and records the exchange differences as an unrealized gain or
loss. This gain or loss is included in other (income) expenses, net. As
of September 30, 1995, there were no hedge contracts outstanding.
4. COMMON STOCK REPURCHASE
On May 10, 1994, the board of directors authorized the purchase of up to
one million shares of Micrografx common stock on the open market over a
five year period as market conditions warrant. The purpose of the program
is to fund existing employee stock benefit programs and will be funded by
normal working capital. During the quarter ended September 30, 1995, the
company purchased approximately 40,000 shares at an average price of
$10.83. As of September 30, 1995, the Company had repurchased
approximately 275,000 shares at an average price of $6.81 per share under
the repurchase program.
6
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MICROGRAFX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME PER SHARE
Income per share for all periods presented is based on the weighted average
common and dilutive equivalent shares outstanding using the treasury stock
method.
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended
September 30,
1995 1994
------- -------
<S> <C> <C>
Weighted average common stock
outstanding during the period 8,872 8,758
Common stock equivalents of employee
stock programs 237 20
------ ------
Shares used in primary income per
share calculation 9,109 8,778
====== ======
</TABLE>
Fully diluted income per share was not materially different from primary
income per share for all periods presented.
7
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MICROGRAFX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three months ended September 30, 1995, the Company reported net
revenues of $15.1 million and net income of $0.4 million, or $0.05 per share,
compared to net income of $0.1 million, or $0.01 per share on net revenues of
$14.2 million, for the quarter ended September 30, 1994.
Revenues for the quarter ended September 30, 1995 included revenues from two
new products, the ABC Graphics Suite(TM) and Hallmark Connections(TM) Card
Studio(TM). The ABC Graphics Suite is a comprehensive offering of all of the
Company's major business applications in a single, integrated package for
Windows 95. The suite includes Micrografx Designer(TM) 6.0, Picture
Publisher(R) 6.0, ABC FlowCharter(R) 6.0, ABC Media Manager(TM), and Instant
3D, a product licensed from a third party.
Hallmark Connections Card Studio features more than 200 pieces of original
artwork and more than 1,000 messages from Hallmark Cards, allowing users to
select and personalize pre-designed cards, signs, certificates and
announcements
Revenues by customer category for the three months ended September 30, 1995 and
1994 are shown below (in thousands). The Business category includes the ABC
Graphics Suite, Micrografx Designer, Picture Publisher, Designer Power Pack,
ABC FlowCharter, ABC ToolKit(TM) and ABC SnapGraphics(TM). The Consumer
category includes Crayola(TM) Amazing Art Adventure(TM), Crayola(TM) Art
Studio(TM), Hallmark Connections Card Studio and Windows Draw(R). Legacy and
Other products include Micrografx Charisma(TM), PhotoMagic(R), Windows
OrgChart, Graphics Works(R) and revenues from clipart libraries and support
services.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1995 1994
----------- ----------
<S> <C> <C>
Business 12,134 11,895
Consumer 2,604 1,842
Legacy 312 474
----------- ----------
Total $ 15,050 $ 14,211
=========== ==========
</TABLE>
8
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MICROGRAFX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Revenues by geographical region for the three months ended September 30, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1995 1994
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<S> <C> <C>
Americas 45% 45%
Europe 36% 40%
Pacific Rim 19% 15%
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Total 100% 100%
======= ======
</TABLE>
Cost of revenues for the three month period ended September 30, 1995 was $3.6
million, or 24.0% of net revenues, compared to $3.7 million, or 26% of net
revenues, for the three month period ended September 30, 1994. The improvement
in cost of revenues as a percentage of revenue is primarily attributed to a
lower cost product mix and lower amortization of capitalized software
development costs and acquired product rights.
Sales and marketing expenses for the three months ended September 30, 1995 were
$7.4 million, or 49% of revenues, compared to $7.6 million, or 54% of revenues,
for the same period in the previous year, a decrease of $0.2 million, or 3%.
The improvement as a percentage of revenue is primarily due to improved
effectiveness of Company s marketing expenditures.
General and administrative expenses were $1.8 million, or 12% of net revenues,
for the three months ended September 30, 1995, compared to $1.9 million, or 13%
of net revenues, for the three months ended September 30, 1994.
Research and development expenses for the three months ended September 30, 1995
were $1.4 million, or 9% of net revenues, compared to $1.0 million, or 7% of
net revenues, for the quarter ended September 30, 1994. Gross research and
development spending increased from $1.8 million for the quarter ended
September 30, 1994, to $2.3 million for the quarter ended September 30, 1995,
primarily due to increased activity related to newly released products and
products released subsequent to September 30, 1995.
The Company reported non operating expense of $0.2 million for the three months
ended September 30, 1995 due to exchange losses of $0.4 million, offset by
interest income of $0.2 million. Non operating income was $0.1 million for the
three months ended September 30, 1994.
9
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MICROGRAFX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company's product offerings in fiscal 1995 included Crayola Amazing Art
Adventure and Crayola Art Studio, which embody copyrights, trademarks, trade
names and other proprietary designs and characters that are the property (the
"Licensed Intellectual Property") of Binney & Smith Properties, Inc. (the
"Licensor") pursuant to a license agreement between the Company and the
Licensor (the "License Agreement"). Subsequent to the end of the first quarter
of fiscal 1996, the Company introduced Crayola Art Studio(TM) 2 using the
Licensed Intellectual Property pursuant to the License Agreement. For fiscal
1995 and the three months ended September 30, 1995, the Company generated $3.4
million and $.8 million, respectively, of net revenues from the sale of
products using the Licensed Intellectual Property. The License Agreement
expires on December 31, 1995, and unless the Company is able to obtain an
extension of the term of the License Agreement, the Company will be required to
cease using the Licensed Intellectual Property in connection with these
products by March 31, 1996. While management is pursuing an extension of the
term of the License Agreement, there can be no assurance that such an extension
will be obtained. If an extension is not obtained, the Company will consider
marketing these products employing other copyrights, trademarks and trade names
and other proprietary designs and characters, which could include intellectual
property developed by the Company or intellectual property licensed from third
parties, although no license agreements with any other third parties are
currently in place.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, the Company's principal sources of liquidity consisted
of cash and cash equivalents of $9.7 million, short-term investments of $5.2
million, and a $6.0 million line of credit. No borrowings were outstanding
under the line of credit as of September 30, 1995.
For the three months ended September 30, 1995, cash used in investing and
financing activities exceeded cash provided by operating activities, resulting
in a decrease of $1.5 million in cash and cash equivalents. Operating
activities provided $0.3 million in cash during the three months ended
September 30, 1995. Investing activities used $1.6 million in cash during the
three months ended September 30, 1995 primarily due to capitalized software
development costs and purchases of acquired product rights of $1.6 million.
Financing activities used $0.2 million in cash during the three months ended
September 30, 1995 and included $0.4 million of purchases of the Company's
common stock.
The Company believes that cash flow from operations, existing cash, and
existing and future borrowing arrangements will be sufficient to meet the
Company's capital expenditures, debt repayments, and any other working capital
requirements in the short term (the next 12 months). The Company believes that
thereafter its liquidity requirements will be met with cash flow from
operations and existing cash and short-term investment balances.
10
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MICROGRAFX, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - none.
11
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROGRAFX, INC.
Date: November 10, 1995 By /s/ J. Paul Grayson
----------------------------
J. Paul Grayson
Chairman of the Board of
Directors and Chief
Executive Officer
Date: November 10, 1995 By /s/ Gregory A. Peters
----------------------------
Gregory A. Peters
Chief Financial Officer
and Treasurer
12
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 11,180
<SECURITIES> 5,312
<RECEIVABLES> 10,714
<ALLOWANCES> (1,928)
<INVENTORY> 1,204
<CURRENT-ASSETS> 1,803
<PP&E> 13,347
<DEPRECIATION> (8,973)
<TOTAL-ASSETS> 38,018
<CURRENT-LIABILITIES> 10,862
<BONDS> 0
<COMMON> 93
0
0
<OTHER-SE> 26,160
<TOTAL-LIABILITY-AND-EQUITY> 38,018
<SALES> 60,444
<TOTAL-REVENUES> 60,444
<CGS> 15,099
<TOTAL-COSTS> 15,099
<OTHER-EXPENSES> 43,737
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> 2,540
<INCOME-TAX> 762
<INCOME-CONTINUING> 1,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,778
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
