<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
----------------------
For Quarter ended August 31, 1995 Commission file number 0-16071
Summagraphics Corporation
(Exact name of Registrant as specified in its charter)
----------------------
Delaware 3573 06-0888312
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) identification No.)
8500 Cameron Road
Austin, Texas 78754
(512) 835-9000
(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 August 31, 1995 - 4,596,000
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Page 1 of 11
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Summagraphics Corporation and Subsidiaries
Index to Form 10-Q
August 31, 1995
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
<S> <C>
Consolidated Balance Sheets - May 31, 1995 and August 31, 1995...........3
Consolidated Statements of Operations for the Three Months ended
August 31, 1994 and August 31, 1995..............................4
Consolidated Statements of Cash Flows for the Three Months ended
August 31, 1994 and August 31, 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...............................................8
Item 6. Exhibits and Reports on Form 8-K................................8
Signatures.......................................................................9
</TABLE>
Page 2 of 11
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SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
August 31,
May 31, 1995
1995 Unaudited
------------ ------------
<S> <C> <C>
Current Assets
Cash $ 560,000 $ 1,122,000
Accounts receivable (less allowance for
doubtful accounts:
May 31, 1995 - $954,000
August 31, 1995 - $913,000) 18,039,000 12,676,000
Inventories:
Materials 9,881,000 5,628,000
Work-in-process 2,504,000 3,809,000
Finished goods 6,998,000 6,010,000
------------ ------------
19,383,000 15,447,000
Prepaid expenses and other current assets 1,136,000 1,778,000
------------ ------------
Total current assets 39,118,000 31,023,000
Fixed assets:
Land 344,000 325,000
Building 1,616,000 1,525,000
Machinery and equipment 13,861,000 14,137,000
Furniture and fixtures 1,241,000 1,139,000
Leasehold improvements 1,044,000 818,000
Construction in progress 389,000 523,000
------------ ------------
18,495,000 18,467,000
Less accumulated depreciation and
amortization (13,188,000) (13,523,000)
------------ ------------
Net fixed assets 5,307,000 4,944,000
Intangible and other assets, net of
accumulated amortization 9,176,000 8,629,000
------------ ------------
$ 53,601,000 $ 44,596,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,500,000 $ 9,556,000
Accrued liabilities 10,619,000 7,250,000
Notes payable to banks 9,548,000 9,749,000
Current portion of long-term debt 561,000 617,000
Current obligations under capital
leases 277,000 274,000
------------ ------------
Total current liabilities 33,505,000 27,446,000
Long-term liabilities, less current
portion:
Long-term debt 1,579,000 1,551,000
Capital lease obligations 282,000 213,000
Deferred gain on sale of building 476,000 468,000
Restructuring, lease abandonment and
other charges 3,355,000 3,095,000
------------ ------------
Total liabilities 39,197,000 32,773,000
------------ ------------
Stockholder's equity:
Preferred stock, $.01 par value,
authorized 5,000,000 shares -- --
Common stock, $.01 par value;
authorized 20,000,000 shares,
issued 4,645,000 and 4,645,000 shares,
respectively 46,000 46,000
Additional paid-in capital 39,111,000 39,117,000
Accumulated deficit (25,879,000) (27,771,000)
Cumulative translation adjustment 1,601,000 906,000
Less: Treasury stock at cost--49,000
shares (465,000) (465,000)
Stockholder note receivable (10,000) (10,000)
------------ ------------
Total stockholders' equity 14,404,000 11,823,000
------------ ------------
$ 53,601,000 $ 44,596,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 11
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
August 31, August 31,
1994 1995
----------- -----------
<S> <C> <C>
Net sales $18,651,000 $15,789,000
Cost of sales 12,533,000 12,217,000
----------- -----------
Gross profit 6,118,000 3,572,000
Selling, general and administrative 4,255,000 4,114,000
Research and development 1,569,000 1,155,000
----------- -----------
Operating income 294,000 (1,697,000)
Other income (expense):
Interest income 4,000 3,000
Interest expense (51,000) (278,000)
Miscellaneous, net 56,000 80,000
----------- -----------
9,000 (195,000)
Income before income taxes 303,000 (1,892,000)
Provision for income taxes -- --
----------- -----------
Net income $ 303,000 $(1,892,000)
=========== ===========
Net income per common share $ 0.06 $ (0.41)
=========== ===========
Weighted average shares used in computing
net income per common share 4,768,000 4,596,000
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 OF 11
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW REPRESENTING
INCREASES (DECREASED) IN CASH
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
August 31, August 31,
1994 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 303,000 $(1,892,000)
Adjustments to reconcile net income to
net cash used in (provided by)
operating activities:
Depreciation and amortization 901,000 609,000
Loss on sale of fixed assets (17,000) (4,000)
Compensation in form of stock -- 6,000
Changes in assets and liabilities:
Accounts receivable 2,475,000 5,118,000
Inventories (375,000) 3,628,000
Prepaid and other current assets (171,000) (709,000)
Accounts payable (1,983,000) (2,870,000)
Accrued liabilities (917,000) (3,301,000)
Other liabilities (120,000) (260,000)
----------- -----------
Net cash provided by operating
activities 96,000 325,000
----------- -----------
Cash flows from investing activities:
Capital expenditures (245,000) (184,000)
Proceeds from sale of fixed assets 8,000 --
Intangible assets, principally
patent costs -- 21,000
----------- -----------
Net cash used in investing activities (237,000) (163,000)
----------- -----------
Cash flows from financing activities:
Net proceeds from notes payable 1,052,000 358,000
Proceeds from sale of common stock 22,000 --
Proceeds from long-term debt -- 91,000
Payment of cash dividends (220,000) --
Repayments of long-term debt and capital
lease obligations (129,000) (67,000)
----------- -----------
Net cash provided by financing
activities 725,000 382,000
----------- -----------
Effect of exchange rate changes on cash (126,000) 18,000
----------- -----------
Net change in cash 458,000 562,000
----------- -----------
Cash at beginning of period 819,000 560,000
----------- -----------
Cash at end of period $ 1,277,000 $ 1,122,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 OF 11
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 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 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, 1995 included in
the Company's filing with the SEC on Form 10-K. The results for these
interim periods are not necessarily indicative of the results for the
respective fiscal years.
Page 6 of 11
<PAGE>
SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED AUGUST 31, 1995
Results of Operations
Net sales in the first quarter of fiscal 1996 decreased 16% to $15,789,000
from $18,651,000 in the comparable period last year. Sales in Europe were flat
with last year and the sales decline occurred in the North America and
Asia/Pacific sales regions. The Company has continued to experience lower than
expected sales of pen plotters and has not been able to offset this sales
decline with sales of its SummaJet inkjet printer which, as previously
disclosed, was introduced later than scheduled and has hindered the Company's
efforts to recover its delayed market opportunity. Sales were also adversely
affected by price reductions and continuing efforts to reduce customer on-hand
inventories of the Company's products primarily in North America.
Gross margin for the first quarter declined to 23% or $3,572,000 versus 32%
or $6,117,000 in the previous year due to the lower sales volumes as well as
price reductions taken since last year primarily on pen plotters and small
format digitizers.
Selling, general and administrative expense (SG+A), as a percentage of net
sales, increased from 22% or $4,255,000 in the first quarter of 1995 to 26% or
$4,114,000 in the first quarter of 1996. This percentage increase was due to the
lower sales level during the most recent quarter. SG+A on an actual expenditure
basis decreased from the preceding year by $141,000 reflecting cost reduction
programs put in place by the Company.
Research and development expenditures as a percentage of net sales
decreased from 8% or $1,569,000 in 1995 to 7% or $1,115,000 in 1996. This
reduction reflects cost reduction programs put in place by the Company as well
as the absence of any major development programs for output products in the
current quarter.
Net interest expense in the first quarter of fiscal 1996 increased to
$278,000 from $51,000 in the same period in 1995, reflecting the increase in
average short-term debt outstanding from the prior year.
Other miscellaneous income and expense in the first quarter of 1996
reflected income of $80,000 versus expense of $57,000 in 1994. The change in
miscellaneous income and expense is primarily due to currency transaction gains
and losses.
The Company had pre-tax loss of $1,892,000 in the first quarter compared to
pre-tax income of $303,000 in last year's first quarter.
The Company did not record a tax provision for the three month period ended
August 31, 1995 as a result of the current period losses recorded by the
Company.
Page 7 of 11
<PAGE>
Liquidity and Capital Resources
The Company's sources of liquidity consist of on-hand cash balances, a
$4,000,000 revolving credit facility in Belgium, vendor credit and cash
generated from operations. The Company's availability under its Belgian bank
credit line is calculated based upon percentages, as determined by the bank, of
certain eligible receivables and to a lesser extent inventories. The Company
does not have any availability under its current domestic credit facility. The
Company has substantial investment in inventories for its ink jet plotter,
thermal wax printer and pen plotters. Because of this investment, the Company
will not be required to purchase a substantial portion of the materials required
to build these output devices during the first two quarters of fiscal 1996. As
of August 31, 1995 cash and short-term investments totaled $1,122,000 and
$1,246,000 was available under its Belgian revolving credit line.
During the three month period, the Company utilized its cash balances and
bank credit facilities to fund operations, working capital, capital expenditures
and other costs. Charges against the restructuring reserve established in 1993
and the lease abandonment reserve established in 1995, both related to the
former corporate office lease space in Connecticut, for the quarter ended August
31, 1995 was $266,000.
The Company experienced a significant loss in the first quarter of fiscal
1996. The Company has developed a plan to return to profitable levels during
fiscal 1996 which include outsourcing certain of its manufacturing and
distribution requirements as well as reducing expenditures in all areas. The
waiver received on the U.S. Credit Agreement was based in part, on management's
projections of future operations and cash flows. The ability of the Company to
achieve its projections is dependent upon various factors, some of which may be
outside the control of the Company. Additionally, management is considering
various other alternatives to raise additional funds including debt or equity
financing and/or sales of certain operating assets. The Company has retained the
services of Broadview Associates to assist the Company with matters relating to
its strategic direction. However, there can be no assurance that any such
alternatives can be successfully consummated.
Other Matters
Impact of Inflation
- -------------------
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
Company's products are priced in dollars in all North American, Latin American,
Asian and Pacific Rim countries. In Europe, the Company prices its products in
Page 8 of 11
<PAGE>
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. 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.
Accounting for Asset Impairment
- -------------------------------
During March, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of."
The Company is required to adopt Statement 121 in the fiscal year beginning June
1, 1996. Statement 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company has not completed all of the analyses
required to estimate the impact of the new statement, however, the adoption of
Statement 121 is not expected to have a material adverse impact on the Company's
financial position or the results of its operations at the time of adoption.
Subsequent Events
In 1995 as a result of its U.S. operating losses, the Company violated
certain financial covenants with its U.S. bank, the landlord of its Texas
facility and a loan agreement for the Company's capital expenditures. In
September 1995, all parties agreed to waive all events of default and to revise
the respective agreements, as previously disclosed in the Company's Form 10-K
for the fiscal year ended May 31, 1995. The Company is currently in the process
of completing amendments with these parties evidencing such waivers.
Page 9 of 11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Annual Report on Form 10-K for fiscal year 1995.
Item 6. Exhibits and Reports on 8-K
None.
Page 10 of 11
<PAGE>
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: October 26, 1995 By: /s/ David G. Osowski
________________________
David G. Osowski,
Senior Vice President, Controller
and Treasurer
Page 11 of 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> AUG-31-1995
<CASH> 1,122
<SECURITIES> 0
<RECEIVABLES> 13,589
<ALLOWANCES> 913
<INVENTORY> 15,447
<CURRENT-ASSETS> 31,023
<PP&E> 18,467
<DEPRECIATION> 13,523
<TOTAL-ASSETS> 44,596
<CURRENT-LIABILITIES> 27,446
<BONDS> 1,551
<COMMON> 46
0
0
<OTHER-SE> 11,777
<TOTAL-LIABILITY-AND-EQUITY> 44,596
<SALES> 15,789
<TOTAL-REVENUES> 15,789
<CGS> 12,217
<TOTAL-COSTS> 12,217
<OTHER-EXPENSES> 5,269
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 278
<INCOME-PRETAX> (1,892)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,892)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,892)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
