<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 February 29, 1996 Commission file number 0-16071
Summagraphics Corporation
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3573 06-0888312
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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.0
Yes X No
--- ---
Number of common shares outstanding at February 29, 1996 - 4,666,000
---------
Page 1 of 12
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SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
FEBRUARY 29, 1996
PART I. FINANCIAL INFORMATION PAGE NO.
Consolidated Balance Sheets - May 31, 1995 and February 29, 1996..... 3
Consolidated Statements of Operations for the Three Months and
Nine Months ended February 28, 1995 and February 29, 1996.......... 4
Consolidated Statements of Cash Flows for the Nine Months ended
February 28, 1995 and February 29, 1996............................ 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
Page 2 of 12
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SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets May 31, February 29,
1995 1996
Unaudited
-------------- ---------------
<S> <C> <C>
Current Assets
Cash $ 560,000 $ 916,000
Accounts receivable (less allowance for
doubtful accounts: May 31, 1995 -- $954,000
February 29, 1996 -- $921,000) 18,039,000 15,672,000
Inventories:
Materials 9,881,000 5,699,000
Work-in-process 2,504,000 1,161,000
Finished goods 6,998,000 4,600,000
-------------- ---------------
19,383,000 11,460,000
Prepaid expenses and other current assets 1,136,000 1,049,000
-------------- ---------------
Total current assets 39,118,000 29,097,000
Fixed assets:
Land 344,000 324,000
Building 1,616,000 1,227,000
Machinery and equipment 13,861,000 13,440,000
Furniture and fixtures 1,241,000 1,598,000
Leasehold improvements 1,044,000 819,000
Construction in progress 389,000 552,000
-------------- ---------------
18,495,000 17,960,000
Less accumulated depreciation and amortization (13,188,000) (13,708,000)
-------------- ---------------
Net fixed assets 5,307,000 4,252,000
Intangible and other assets, net of accumulated amortization 9,176,000 8,543,000
-------------- ---------------
$ 53,601,000 $ 41,892,000
============== ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 12,500,000 $ 9,637,000
Accrued liabilities 10,619,000 7,050,000
Notes payable to banks 9,548,000 9,957,000
Current portion of long-term debt 561,000 768,000
Current obligations under capital leases 277,000 290,000
-------------- --------------
Total current liabilities 33,505,000 27,702,000
Long-term liabilities, less current portion:
Long-term debt 1,579,000 1,323,000
Capital lease obligations 282,000 133,000
Deferred gain on sale of building 476,000 451,000
Restructuring, lease abandonment and other charges 3,355,000 2,575,000
-------------- --------------
Total liabilities 39,197,000 32,184,000
-------------- --------------
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 4,666,000 shares, respectively 46,000 47,000
Additional paid-in capital 39,111,000 39,155,000
Accumulated deficit (25,879,000) (29,863,000)
Cumulative translation adjustment 1,601,000 844,000
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 9,708,000
-------------- --------------
$ 53,601,000 $ 41,892,000
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 12
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SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 29, February 28, February 29,
1995 1996 1995 1996
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net sales $ 22,273,000 $ 14,106,000 $ 61,343,000 $ 48,138,000
Cost of sales 14,981,000 10,795,000 40,274,000 36,286,000
------------ ------------- ------------ -------------
Gross profit 7,292,000 3,311,000 21,069,000 11,852,000
Selling, general and administrative 5,143,000 3,871,000 14,868,000 12,198,000
Research and development 1,633,000 823,000 4,904,000 2,992,000
------------ ------------- ------------ -------------
Operating income (loss) 516,000 (1,383,000) 1,297,000 (3,338,000)
Other income (expense):
Interest income 6,000 6,000 19,000 14,000
Interest expense (184,000) (328,000) (327,000) (880,000)
Miscellaneous, net (158,000) 111,000 (122,000) 220,000
------------ ------------- ------------ -------------
(336,000) (211,000) (430,000) (646,000)
Income (loss) before income taxes 180,000 (1,594,000) 867,000 (3,984,000)
Provision (benefit) for income taxes --- --- --- ---
------------ ------------- ------------ -------------
Net income (loss) $ 180,000 $ (1,594,000) $ 867,000 $ (3,984,000)
============ ============= ============ =============
Net income (loss) per common share $ 0.04 $ (0.35) $ 0.18 (0.87)
============ ============= ============ =============
Weighted average shares used in computing
net income (loss) per common share 4,838,000 4,618,000 4,802,000 4,605,000
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 12
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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 29,
1995 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 867,000 $ (3,984,000)
Adjustments to reconcile net income (loss) to net cash
used in (provided by) operating activities:
Depreciation and amortization 2,494,000 1,827,000
Restucturing Charges (361,000) (361,000)
Loss (gain) on sale of fixed assets 23,000 (80,000)
Compensation in form of stoc 18,000 19,000
Changes in assets and liabilities:
Accounts receivable (3,474,000) 1,938,000
Inventories (7,812,000) 7,574,000
Prepaid and other current assets (241,000) (256,000)
Accounts payable 2,701,000 (2,733,000)
Accrued liabilities (2,286,000) (3,866,000)
------------- -------------
Net cash (used in) provided by operating activities (8,071,000) 78,000
------------- -------------
Cash flows from investing activities:
Capital expenditures (1,423,000) (361,000)
Proceeds from sale of fixed assets 10,000 70,000
------------- -------------
Net cash used in investing activities (1,413,000) (291,000)
------------- -------------
Cash flows from financing activities:
Proceeds (Repayments) from short-term borrowings 9,401,000 839,000
Proceeds from sale of common stock 332,000 26,000
Purchase of treasury stock --- ---
Repayments of notes payable to banks --- ---
Payment of cash dividends (450,000)
Proceeds (Repayments) of long-term debt and capital lease
obligation 515,000 (403,000)
------------- -------------
Net cash used in financing activities 9,798,000 462,000
------------- -------------
Effect of exchange rate changes on cash (416,000) 107,000
------------- -------------
Net change in cash (102,000) 356,000
------------- -------------
Cash at beginning of period 819,000 560,000
------------- -------------
Cash at end of period $ 717,000 $ 916,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5 of 12
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SUMMAGRAPHICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
(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 12
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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 29, 1996
RESULTS OF OPERATIONS
Net sales in the third quarter of fiscal 1996 decreased 37% to $14,106,000 from
$22,273,000 in the comparable period last year. For the nine months ended
February 29, 1996, net sales decreased 22% to $48,138,000 from $61,343,000 in
the prior year. Sales in Europe were up slightly over last year, while the
sales decline occurred in the North America and Asia/Pacific sales regions. The
increased sales in Europe represent an increase in cutter sales and the
introduction of the Company's SummaChrome Vinyl printer. 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 significantly lower in the current quarter due principally to the lack of
product availability precipitated by the Company's liquidity position.
Gross margin for the third quarter declined to 23% or $3,311,000 versus 33% or
$7,292,000 in the previous year due to the lower sales volumes. For the nine
month period gross margin decreased to 25% compared to 34% in the prior year.
Selling, general and administrative expense (SG+A), as a percentage of net
sales, increased from 23% or $5,143,000 in the third quarter of 1995 to 27% or
$3,871,000 in the third quarter of 1996. For the nine month period ended
February 29, 1996, SG+A as a percentage of net sales (25%) increased one percent
from last year ($14,868,000 and $12,198,000, respectively). These percentage
increases were due to lower sales levels during the current fiscal year and were
minimized by continued strong cost controls.
Research and development expenditures for the third quarter of 1996 as a
percentage of net sales decreased from 7% or $1,633,000 in 1995 to 6% or
$823,000 in 1996. For the nine months ended February 29, 1996, research and
development expenditures as a percentage of net sales decreased from 8% to 6% in
the nine months end February 28, 1995 ($4,904,000 and $2,992,000, respectively).
These reductions reflect 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 year.
Net interest expense in the third quarter of fiscal 1996 increased to $328,000
from $184,000 in the same period in 1995. For the nine months ended February
29, 1996 interest expense increased to $880,000 compared to $327,000 in the
prior year. These increases reflect the increase in average short-term debt
outstanding from the prior periods.
Other miscellaneous income and expense in the third quarter of 1996 reflected
Page 7 of 12
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income of $111,000 versus expense of $158,000 in 1995. For the nine months
ended February 29, 1996, other miscellaneous income and expense reflected income
of $220,000 compared to loss of $122,000 in the prior year. These changes in
miscellaneous income and expense are primarily due to currency transaction gains
and losses.
The Company had pre-tax loss of $1,594,000 in the third quarter compared to pre-
tax income of $180,000 in last year's third quarter. For the nine months ended
February 29, 1996, the Company had a pre-tax loss of $3,984,000 compared to pre-
tax income of $867,000 in the prior year.
The Company did not record a tax provision for the three or nine month period
ended February 29, 1996 as a result of the current period losses recorded by the
Company.
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 and is
funding operations from operating cash flows. As of February 29, 1996 cash and
short-term investments totaled $916,000 and $829,000 was available under its
Belgian revolving credit line.
During the three and nine-month periods, 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, and for the
three and six-month periods ended February 29, 1996 were $267,000 and $790,000,
respectively.
As a result of its U.S. operating losses during fiscal 1996, Summagraphics
violated certain financial covenants with its U.S. bank, the landlord of its
Texas facility and a loan agreement for Summagraphics' capital expenditures. In
September 1995, all parties agreed to waive all events of default and to revise
the respective agreements, as previously disclosed in Summagraphics' Form 10-K
for the fiscal year ended May 31, 1995. The U.S. bank agreement was executed in
January 1996. Significant new provisions of this agreement included an
extension of the agreement until September 30, 1996, repayment of the loan based
on remittance of certain percentages of daily cash collections, no new loan
advances except for one minor exception, additional loan repayments required to
be made based upon any proceeds from asset sales or equity proceeds, an
increased borrowing rate, new financial covenants and the granting to the bank
of warrants to purchase 37,500 shares of Summagrpahics Common Stock at $1.75 per
share.
Subsequent to the signing of the bank agreement, Summagraphics reported a net
loss of approximately $1.6 million in the third quarter ended February 29, 1996.
This loss was caused primarily by Summagraphics' inability to finance inventory
purchases during the quarter due to a severe tightening of vendor credit in the
U.S.,
Page 8 of 12
<PAGE>
the bankruptcy of a key European cutter supplier late in the quarter and the
discontinuance of a contract manufacturing relationship in the third quarter
that resulted in delayed and reduced product deliveries. As a result of this
loss, Summagraphics breached certain financial covenants as revised by an
amendment to the credit agreement effective in December 1995. In a further
modification to the agreement made in March 1996, concurrent with the execution
of the Exchange Agreement with Lockheed Martin, the bank agreed to forebear
against declaring default with respect to certain financial covenants for the
period ending February 29, 1996 until the maturity of the debt, the date of
which is variable, depending upon certain circumstances.
The revised Texas lease agreement was executed in March 1996 and also contained
revisions to certain financial covenants to accommodate the third quarter
losses. New provisions of this agreement include a rent reduction through
September 30, 1996 and the granting of warrants to purchase 15,000 shares of
Common Stock to the landlord at a price of $2.00 per share as well as revised
financial covenants. Summagraphics is currently in compliance with the revised
terms and conditions of the amended lease agreement. The capital expenditure
credit line was also amended in March 1996 to accommodate the third quarter
loss.
In February 1996, Summagraphics announced that it had signed a letter of intent
with Lockheed Martin Corporation ("Lockheed Martin") with respect to a proposal
acquisition by Lockheed Martin of Summagraphics and on March 19, 1996,
Summagraphics and Lockheed Martin signed a Plan of Reorganization and Agreement
for the Exchange of Stock of CalComp Inc. ("CalComp") for stock of Summagraphics
(the "Exchange Agreement"). The Exchange Agreement calls for Summagraphics to
issue to Lockheed Martin approximately 40.7 million shares of Summagraphics
common stock in exchange for all of the capital stock of CalComp. As a result
of this share issuance, Lockheed Martin will own approximately 89.7% of the
outstanding Common Stock (on a fully diluted basis) of Summagraphics. The
Exchange Agreement, among other items, includes a provision for Lockheed Martin
to provide $2.5 million of financing to Summagraphics during the period from the
signing of the Exchange Agreement until the closing of the Exchange. The
initial funding under this Agreement was received by Summagraphics in late March
and has been used primarily to finance inventory purchases.
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,
Page 9 of 12
<PAGE>
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. 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.
Page 10 of 12
<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
See Form 8-K dated February 12, 1996 filed on February 21, 1996.
Exhibit 27 - Financial Data Schedule.
Page 11 of 12
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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 15, 1996 By: /s/
---------------------------------
David G. Osowski,
Senior Vice President, Controller
and Treasurer
Page 12 of 12
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 916
<SECURITIES> 0
<RECEIVABLES> 16,593
<ALLOWANCES> 921
<INVENTORY> 11,460
<CURRENT-ASSETS> 29,097
<PP&E> 17,960
<DEPRECIATION> 13,708
<TOTAL-ASSETS> 41,892
<CURRENT-LIABILITIES> 27,702
<BONDS> 1,323
0
0
<COMMON> 47
<OTHER-SE> 9,661
<TOTAL-LIABILITY-AND-EQUITY> 41,892
<SALES> 48,138
<TOTAL-REVENUES> 48,138
<CGS> 36,286
<TOTAL-COSTS> 36,286
<OTHER-EXPENSES> 15,190
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 880
<INCOME-PRETAX> (3,984)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,984)
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<NET-INCOME> (3,984)
<EPS-PRIMARY> (.87)
<EPS-DILUTED> (.87)
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