<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Form 10-Q
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Quarter ended February 28, 1995 Commission file number 0-16071
Summagraphics Corporation
(Exact name of Registrant as specified in its charter)
----------------------
Delaware 3573 06-0888312
(State or other (Primary standard (I.R.S. Employer
jurisdiction incorporation industrial classification identification No.)
or organization) code number)
8500 Cameron Road
Austin, Texas 78754
(512) 835-0900
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
(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, and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Number of common shares outstanding at February 28, 1995 - 4,606,785
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PAGE 1 OF 11
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SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
FEBRUARY 28, 1995
Part I. Financial Information Page No.
Consolidated Balance Sheets - May 31, 1994 and February 28, 1995........ 3
Consolidated Statements of Operations for the Three and Nine Months
ended February 28, 1994 and February 28, 1995........................ 4
Consolidated Statements of Cash Flows for the Nine Months ended
February 28, 1994 and February 28, 1995.............................. 5
Notes to Consolidated Financial Statements.............................. 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 7
Part II. Other Information
Item 1. Legal Proceedings.............................................. 10
Item 5. Other Information.............................................. 10
Item 6. Exhibits and Reports on Form 8-K............................... 10
Signatures................................................................ 11
PAGE 2 OF 11
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SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, February 28,
Assets 1994 1995
Unaudited
----------- -----------
<S> <C> <C>
Cash $ 819,000 $ 717,000
Accounts receivable (less allowance for
doubtful accounts: May 31, 1994 - $1,090,000
February 28, 1995 - $906,000) 17,914,000 22,150,000
Inventories:
Materials 5,269,000 11,513,000
Work-in-process 1,043,000 3,200,000
Finished goods 5,224,000 5,147,000
----------- -----------
11,536,000 19,860,000
Prepaid expenses and other current assets 1,117,000 1,215,000
----------- -----------
Total current assets 31,386,000 43,942,000
Fixed assets:
Land 290,000 325,000
Building 1,319,000 1,524,000
Machinery and equipment 12,133,000 12,633,000
Furniture and fixtures 1,228,000 1,240,000
Leasehold improvements 1,009,000 1,014,000
Construction in progress 187,000 1,074,000
----------- -----------
16,166,000 17,810,000
Less accumulated depreciation and amortization (9,725,000) (11,765,000)
----------- -----------
Net fixed assets 6,441,000 6,045,000
Intangible and other assets, net of accumulated amortization 9,509,000 9,858,000
----------- -----------
$47,336,000 $59,845,000
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 9,583,000 $12,474,000
Accrued liabilities 9,274,000 7,048,000
Notes payable to banks - 9,579,000
Current portion of long-term debt 148,000 492,000
Current obligations under capital leases 458,000 312,000
----------- -----------
Total current liabilities 19,463,000 29,905,000
Long-term liabilities, less current portion:
Long-term debt 947,000 1,605,000
Capital lease obligations 535,000 349,000
Deferred gain on sale of building 510,000 485,000
Restructuring charges 1,804,000 1,443,000
----------- -----------
Total liabilities 23,259,000 33,787,000
----------- -----------
Stockholder's equity:
Preferred stock, $.01 par value, authorized 5,000,000 shares - -
Common stock, $.01 par value; authorized 20,000,000
shares, issued 4,455,000 and 4,606,000 shares, respectively 45,000 46,000
Additional paid-in capital 38,639,000 38,989,000
Accumulated deficit (13,830,000 (13,413,000)
Cumulative translation adjustment (302,000) 911,000
Less: Treasury stock at cost - 48,720 shares (465,000) (465,000)
Stockholder note receivable (10,000) (10,000)
----------- -----------
Total stockholders' equity 24,077,000 26,058,000
----------- -----------
$47,336,000 $59,845,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE 3 OF 11
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SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28, February 28, February 28,
1994 1995 1994 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $19,460,000 $22,273,000 $56,069,000 $61,343,000
Cost of sales 12,467,000 14,981,000 36,719,000 40,274,000
----------- ----------- ----------- -----------
Gross profit 6,993,000 7,292,000 19,350,000 21,069,000
Selling, general and administrative 4,827,000 5,143,000 13,893,000 14,868,000
Research and development 1,314,000 1,633,000 4,123,000 4,904,000
----------- ----------- ----------- -----------
Operating income 852,000 516,000 1,334,000 1,297,000
Other income (expense):
Interest income 24,000 6,000 60,000 19,000
Interest expense (104,000) (184,000) (328,000) (327,000)
Miscellaneous, net (93,000) (158,000) (185,000) (122,000)
----------- ----------- ----------- -----------
(173,000) (336,000) (453,000) (430,000)
Income before income taxes 679,000 180,000 881,000 867,000
Provision for income taxes - - - -
----------- ----------- ----------- -----------
Net income $ 679,000 $ 180,000 $ 881,000 $ 867,000
=========== =========== =========== ===========
Net income per common share $ 0.15 $ 0.04 $ 0.20 $ 0.18
=========== =========== =========== ===========
Weighted average shares used in computing
net income per common share 4,581,000 4,838,000 4,482,000 4,802,000
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE 4 OF 11
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SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS REPRESENTING
INCREASES (DECREASES) IN CASH
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended
February 28, February 28,
1994 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 881,000 $ 867,000
Adjustments to reconcile net income to net cash
used in (provided by) operating activities:
Depreciation and amortization 2,681,000 2,494,000
Loss on sale of fixed assets 19,000 23,000
Compensation in form of stock 8,000 18,000
Changes in assets and liabilities:
Accounts receivable 4,341,000 (3,474,000)
Inventories 2,335,000 (7,812,000)
Prepaid and other current assets (112,000) (241,000)
Accounts payable 1,102,000 2,701,000
Accrued liabilities (4,675,000) (2,286,000)
Other liabilities - (361,000)
----------- -----------
Net cash (used in) provided by
operating activities 6,580,000 (8,071,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures (958,000) (1,423,000)
Proceeds from sale of fixed assets 47,000 10,000
Intangible assets, principally patent costs 13,000 -
----------- -----------
Net cash used in investing activities (898,000) (1,413,000)
----------- -----------
Cash flows from financing activities:
Net proceeds from notes payable (2,837,000) 9,401,000
Proceeds from sale of common stock 89,000 332,000
Proceeds from long-term debt - 977,000
Payment of cash dividends (661,000) (450,000)
Repayments of long-term debt and capital
lease obligations (502,000) (462,000)
----------- -----------
Net cash (used in) provided by financing
activities (3,911,000) 9,798,000
----------- -----------
Effect of exchange rate changes on cash 248,000 (416,000)
----------- -----------
Net change in cash 2,019,000 (102,000)
----------- -----------
Cash at beginning of period 2,649,000 819,000
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Cash at end of period $ 4,668,000 $ 717,000
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</TABLE>
See accompanying notes to consolidated financial statements.
PAGE 5 OF 11
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SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1) Financial Statement Presentation
The financial statements of Summagraphics Corporation and its subsidiaries
(the Company) included herein have been prepared without audit pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC)
and, in the opinion of management, reflect all adjustments necessary, such
adjustments being of a normal or recurring nature, to present fairly the
financial condition and the results of operations for such interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations; however, management believes that the disclosures are adequate
to make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the audited financial
statements and notes thereto for the year ended May 31, 1994 included in the
Company's filing with the SEC on Form 10-K and the CompanyOs Form 8-K-1 filed
on January 30, 1995. The results for these interim periods are not
necessarily indicative of the results for the respective fiscal years.
PAGE 6 OF 11
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SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 1995
Results of Operations
Net sales in the third quarter of fiscal 1995 increased 14% to $22,273,000
from $19,460,000 last year. For the nine months ended February 28, 1995, net
sales increased 9% to $61,343,000 from $56,069,000 in the prior year. The net
sales increase reflects positive results of new distribution alliances in Asia,
record sales in Europe, increased sales of the CompanyOs cutter products and the
introduction in the third quarter of a new line of ink-jet plotters. Gross
margin percentage for the third quarter and nine months ended February 28, 1995
decreased as compared to the prior year to 33% versus 36% and 34% compared to
35%, respectively, due to high startup and manufacturing costs related to the
new large format ink jet plotter as well as lower selling prices on the
CompanyOs older line of pen plotters. The Company expects margins to continue
to be under pressure in the fourth quarter due to competitive pricing actions on
the recently introduced ink-jet plotters taken early in the fourth quarter to
which the Company has recently responded with similar price decreases.
Selling, general and administrative expense (SG&A), as a percentage of net
sales, decreased from 25% or $4,827,000 in the third quarter of 1994 to 23% or
$5,143,000 in the third quarter of 1995. This percentage decrease was due to
the increase in net sales as these expenses increased on an absolute basis from
the prior year by 7% due to increased sales and promotional costs incurred in
the third quarter of this year. For the nine month period ended February 28,
1995, SG&A as a percentage of net sales was 24% or $14,868,000, as compared to
25% or $13,893,000 last year. Sales and promotional costs are expected to
remain at a higher level in the fourth quarter of fiscal 1995, as the product
delays associated with the introduction of the ink-jet product will cause
additional expenses to be incurred to stimulate sales of this product against
several competitive products that were introduced to the market in the third
quarter.
As a percentage of net sales, research and development expenditures in the
third quarter of 1995 were 7%, the same as in 1994. Actual expenditures
increased 24% in the third quarter of 1995 to $1,633,000 versus $1,314,000 in
1994, reflecting the increased spending associated with the development of new
large format ink jet plotters and new digitizer products. For the nine months
ended February 28, 1995, research and development expenditures as a percentage
of net sales increased to 8% versus 7% in the prior year. Actual spending
increased from $4,123,000 to $4,904,000 in the current year (19%), due to the
development expenses associated with the ink-jet products.
Net interest expense in the third quarter increased 77% reflecting the
increase in debt over last year as well as higher interest rates. Net interest
expense for the first nine months of 1995 remained essentially the same as last
year.
Other miscellaneous expense in the third quarter of 1995 was $158,000, versus
$93,000 in 1994. The $65,000 change in miscellaneous income and expense is
primarily due to foreign currency losses recorded in the current year. For the
nine month period, other miscellaneous income and expense improved by $63,000
from an expense of $185,000 last year to an expense of $122,000 in the current
year.
The Company had pre-tax income of $180,000 and $867,000 in the third quarter
and nine month period ended February 28, 1995, respectively, compared to pre-tax
income of $679,000 and $881,000 in the third quarter and nine month period
ended February 28, 1994.
The Company did not record a tax provision for the three and nine month
periods ended February 28, 1995 as a result of the utilization of tax
loss/credit carryforwards and a related change in valuation allowance which
offset current taxable income.
PAGE 7 OF 11
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The Company had net income of $180,000 ($.04 per share) for the third quarter
ended February 28, 1995, compared to $679,000 last year ($.15 per share). For
the nine month period, net income was $867,000 ($.18 per share), compared to
$881,000 last year ($.20 per share).
Liquidity and Capital Resources
During the quarter the Company borrowed $5.8 million under its bank credit
facilities, primarily to fund increases in inventories and accounts receivable,
and currently owes $9.6 million to its banks. The inventory build up is due to
the delayed sales introduction of the CompanyOs new line of large format ink-jet
plotters, receipt of inventory for a new plotter product (SummaColor) that began
initial shipment in the third quarter, and a slow-down in demand for the
CompanyOs line of pen plotters caused by several new ink-jet products introduced
in the third quarter, including the CompanyOs. The increase in receivables is
primarily due to the late-in-the quarter shipment of the new ink-jet product as
well as a slow-down in payments by customers, primarily in North America due to
the delayed product introduction and slow sell through of the CompanyOs pen
plotters. The Company believes that it has adjusted its inventory intake,
resolved its production delays and taken appropriate pricing action on pen
plotters to alleviate these issues over the next several quarters.
The Company's sources of liquidity consist of on-hand cash balances,
$12,000,000 of revolving bank credit facilities ($8,000,000 in the U.S. and
$4,000,000 in Belgium), a $2.5 million credit facility solely to finance capital
expenditures which expires May 31, 1995 and cash generated from operations. The
CompanyOs availability under its bank credit lines are calculated based upon
percentages, as determined by the banks, of certain eligible receivables and to
a much lesser extent inventories. Accordingly, if managementOs actions noted
above, to reduce the recent high levels of inventories do not take effect on a
timely basis, the Company may have to renegotiate certain provisions of its
lending arrangements. As of February 28, 1995, cash and short-term investments
totaled $717,000, and $2,421,000 was available under its revolving bank credit
lines.
During the three and nine month period ended February 28, 1995, the Company
utilized its cash balances and credit facilities to fund operations, working
capital, capital expenditures and restructuring costs. Charges against the
restructuring reserve during the three and nine month periods ended February 28,
1995 totaled $567,000 and $1,605,000, respectively. At February 28, 1995,
remaining restructuring reserves amounted to $2,280,000, of which $1,924,000
relates to the leased space which is only partially utilized at the CompanyOs
former corporate headquarters in Connecticut. The Company expects that all
restructuring reserves, other than those that relate to the leased space, will
be fully utilized by the end of the fist quarter of fiscal 1996. The reserve
for the leased space will be utilized over the remaining term of the lease, or
approximately four years. The Company estimates that savings realized as a
result of the restructuring in 1993 amounted to approximately $1,000,000 and
$3,000,000 in the three and nine month periods ended February 28. 1995,
respectively.
Other Matters
The Company believes that inflation has not had a material effect on the
results of operations to date. However, since the Company sources a substantial
portion of its production from Far East manufacturers, the cost of imported
product is dependent on the inflation rate in those countries, fluctuations in
the value of the U.S. dollar and import duties or restrictions.
The Company does a substantial portion of its business internationally. The
CompanyOs products are priced in dollars in all North American, Latin American,
Asian and Pacific Rim countries. In Europe, the Company prices its products in
local currencies in Germany, England, France, Belgium and in dollars in other
European and Middle Eastern countries. Approximately 50% of sales are
denominated in local currencies and 50% in dollars. The European operations
incur approximately the same percentages of their expenses in either local
currencies or dollars.
PAGE 8 OF 11
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Accordingly, the Company believes that it effectively matches cash inflows and
outflows and is not subject to material cash flow impacts due to currency
fluctuations. The recent substantial devaluation of the Mexican peso has slowed
sales to Mexico and caused a slowdown in collections from customers in Mexico.
However, the Company does not expect any material write-offs of receivables from
this event.
The Company is currently undergoing an audit of its 1991 through 1993 U.S.
federal income tax returns. To date, there have been no deficiencies asserted
against the Company and the Company is unaware of any deficiencies that may be
asserted that would have a material impact on the results of operations or
liquidity.
PAGE 9 OF 11
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SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Annual Report on Form 10-K for fiscal year 1994.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on 8-K
See Exhibit 27 - Financial Data Schedule (filed herewith)
See Form 8-K-1 dated January 30, 1995 filed on January 30, 1995.
See Form S-3 dated January 30, 1995 filed on February 1, 1995.
PAGE 10 OF 11
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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.
SUMMAGRAPHICS CORPORATION
(Registrant)
Date: April 19, 1995 By: //
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David G. Osowski, Senior Vice President,
Treasurer and Controller
PAGE 11 OF 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> NOV-1-1994
<PERIOD-END> FEB-28-1995
<CASH> 717
<SECURITIES> 0
<RECEIVABLES> 22,150
<ALLOWANCES> 0
<INVENTORY> 19,860
<CURRENT-ASSETS> 43,942
<PP&E> 17,810
<DEPRECIATION> 11,765
<TOTAL-ASSETS> 59,845
<CURRENT-LIABILITIES> 29,905
<BONDS> 1,954
<COMMON> 46
0
0
<OTHER-SE> 26,012
<TOTAL-LIABILITY-AND-EQUITY> 59,845
<SALES> 61,343
<TOTAL-REVENUES> 61,343
<CGS> 40,274
<TOTAL-COSTS> 40,274
<OTHER-EXPENSES> 19,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 327
<INCOME-PRETAX> 867
<INCOME-TAX> 0
<INCOME-CONTINUING> 867
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 867
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
