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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED: DECEMBER 29, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO __________
COMMISSION FILE NUMBER 0-16071
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CALCOMP TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 06-0888312
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2411 W. LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92803
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 821-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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 twelve (12) months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety (90) days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. Yes [X] No [_]
The aggregate market value as of March 3, 1997, of Common Stock held by non-
affiliates of the Registrant: $14,943,564 based on the last reported sale
price on the National Market System as reported by NASDAQ, Inc.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 3, 1997:
46,898,650
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PART I
ITEM 1. BUSINESS.
CalComp Technology, Inc., ("CalComp Technology" or the "Company") formerly
Summagraphics Corporation ("Summagraphics"), was incorporated under Delaware
law in 1972. The Company is a supplier of both input and output computer
graphics peripheral products consisting of (i) large format Light Emitting
Diode ("LED"), direct imaging and inkjet plotters, (ii) digitizers, (iii)
large format scanners, (iv) large format color printers and (v) graphics
cutters. In general, the Company's products are designed for use in the
computer aided design and manufacturing ("CAD/CAM"), printing and publishing,
and graphic art markets, both domestically and internationally. The Company
also maintains service product support and technical assistance programs for
its customers and sells software and supplies and after-warranty service. The
mailing address of the Company's principal executive office is 2411 W. La
Palma Avenue, Anaheim, California 92803. The Company's telephone number is
(714) 821-2000. Except where the context indicates otherwise, references to an
entity include its consolidated subsidiaries.
The Company entered into a Plan of Reorganization and Agreement for the
Exchange of Stock of CalComp Inc. for Stock of the Company, dated as of March
19, 1996, as amended April 30, 1996 and June 5, 1996 pursuant to which the
Company issued to Lockheed Martin Corporation ("Lockheed Martin") 40,742,957
shares of the Common Stock of the Company, representing 89.7% of the total
outstanding shares of Common Stock of the Company following such issuance, in
exchange for all of the outstanding capital stock of CalComp Inc. (the
"Exchange"). The closing of the Exchange occurred on July 23, 1996 following
approval of the Exchange by the stockholders of the Company. As a result of
the Exchange, Lockheed Martin acquired control of the Company and CalComp Inc.
became a wholly-owned subsidiary of the Company. In connection with the
Exchange, the Company also changed its name from Summagraphics Corporation to
CalComp Technology, Inc. and changed its year end from May 31 to a fifty-two,
fifty-three week fiscal year ending on the last Sunday of December.
The Exchange was accounted for as a "reverse acquisition", whereby CalComp
Inc. was deemed to have acquired the Company, for financial reporting
purposes. However, the Company remains the continuing legal entity and
registrant for Securities and Exchange Commission ("SEC") filing purposes.
Consistent with reverse acquisition accounting, the historical financial
statements of the Company presented as of and for the periods ended December
31, 1995 and December 25, 1994, are the consolidated financial statements of
CalComp Inc., and differ from the consolidated financial statements of the
Company previously reported. In addition, the historical stockholders' equity
as of December 31, 1995 and December 25, 1994 have been retroactively restated
to reflect the equivalent number of shares issued in connection with the
Exchange. The accounts and results of operations of the Company have been
included in the financial statements for the period ended December 29, 1996,
from the date of the Exchange and reflect purchase price allocations and
adjustments recorded as a result of the Exchange. Certain reclassifications of
prior year amounts have been made to conform to the current year presentation.
Immediately following the Exchange, each of the then directors and executive
officers of the Company resigned and Lockheed Martin, as the owner of a
majority of outstanding shares of the Common Stock of the Company, adopted a
resolution by written consent increasing the size of the Board of Directors
from six to seven members and elected seven new directors. The Board then
appointed officers to fill the vacant offices.
For so long as Lockheed Martin continues to beneficially own more than 50%
of the outstanding voting stock of the Company, Lockheed Martin will be able
to control the Board of Directors and approve any other matter submitted to a
vote of the stockholders without the consent of the other stockholders of the
Company. In addition, in connection with the Exchange, the Company entered
into agreements providing for, among other things, a long term line of credit
and cash advances for long-term financing and operating requirements,
administrative support in selected areas and the filing of a consolidated tax
return.
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BACKGROUND OF THE BUSINESS
CalComp Inc. The principal business of the Company derives from that of
CalComp Inc., formerly, California Computer Products, Inc. ("CCP") which was
incorporated in September 1958 to manufacture and market computer graphics
products for the U.S. Government's NIMBUS Weather Satellite Program. In 1959,
CCP introduced the world's first drum plotter, which translated computer
output into visual data such as drawings, charts and graphics. CCP expanded
its product offerings by introducing new plotters and controllers through the
1960's and 1970's. CCP added its first electrostatic plotter to its product
line in 1979. During the 1980's and 1990's, CCP, and subsequently CalComp Inc.
continued to expand its product line through adapting various technologies to
new products, including thermal transfer technology in printers, laser
technology in printers/plotters, LED technology in plotters, bubble inkjet
technology in plotters, and direct thermal technology in printers and
plotters. CCP added the digitizer product line in 1980 through the acquisition
of Talos Systems, Inc.
In 1980, CCP was acquired by Sanders Associates, Inc., a defense electronics
company in Nashua, New Hampshire. At the end of 1983, CCP was merged with and
into Sanders Associates, Inc. and the business was conducted thereafter under
the name of CalComp Group. In 1986, Sanders Associates, Inc. was acquired by
Lockheed Corporation ("Lockheed") at which time CalComp Group became an
operating unit of Lockheed's Information Systems Group. CalComp Inc. was
incorporated in 1987 under California law to acquire the assets and
liabilities of CalComp Group from Sanders Associates, Inc., and to operate as
a separate legal entity and a wholly owned indirect subsidiary of Lockheed. In
March 1995, the businesses of Lockheed and Martin Marietta Corporation were
combined to form Lockheed Martin Corporation, at which time CalComp Inc.
became a subsidiary of Lockheed Martin in the Commercial Systems Group of the
Information & Technology Services Sector.
Commencing in 1991 and continuing through fiscal 1996, CalComp Inc.
experienced substantial net operating losses principally due to the negative
impact on margins resulting from the migration of the hard copy output device
industry to inkjet technology products and CalComp Inc.'s late entry into the
inkjet market in fiscal 1994. In late 1995, Lockheed Martin and Summagraphics
Corporation began discussions concerning a proposed combination of CalComp
Inc. and Summagraphics Corporation which resulted in the Exchange.
Summagraphics Corporation. Prior to the Exchange, Summagraphics Corporation
also manufactured and sold input and output computer graphics peripheral
products, many of which competed with CalComp Inc. In 1996, Summagraphics
encountered significant financial difficulties due to problems with its output
products. Due to continuing losses and pressure from its lenders and vendors,
Summagraphics pursued various activities to raise additional capital including
the sale of part or all of the company. These efforts resulted in the
negotiation of the terms of and subsequent closing of the Exchange.
RECENT DEVELOPMENTS
Subsequent to the Exchange, the Company moved its executive offices from
Austin, Texas to Anaheim, California. In addition, the Company has
substantially completed its business plan to reduce duplicative work force and
corporate overhead between the companies, integrate manufacturing operations
and eliminate certain unprofitable product lines. The Company has also
substantially completed efforts to rationalize CalComp Inc.'s and
Summagraphics' respective sales, product support, distribution and marketing
organizations, and to integrate each company's product offering and
development activities.
On November 18, 1996, the Company acquired Topaz Technologies, Inc.
("Topaz"), a privately held company located in Sunnyvale, California in
exchange for 1,500,000 shares of the Company's Common Stock and $0.8 million
in cash. Topaz is a developer and manufacturer of a proprietary inkjet
printing technology, which the Company anticipates will be integrated into a
new offering of hard copy output products during fiscal 1997.
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Although management believes that the combination of the companies will
allow the Company to better respond to intense industry competition, that the
restructuring actions will result in cost savings and that the new proprietary
inkjet product offerings will be timely brought to market, no assurance can be
given that such goals will be realized.
PRODUCTS
The newly combined Company continues to produce graphics peripheral products
targeted at CAD/CAM printing and publishing and graphic arts markets. The
Company products fall into two general product lines: (1) hard copy output
products, consisting primarily of printers and plotters, and graphics cutters;
and (2) input devices, consisting of digitizers and scanners. The Company also
sells after-warranty service and supplies which support its product lines.
HARD-COPY OUTPUT DEVICES
The Company produces and sells a wide variety of hard-copy output devices of
which the two principal classes of products are printers (including plotters)
and vinyl-cutting plotters ("cutters"). Printers are devices that place raster
images (oriented dots) on various types of output media (either paper or film)
producing text, pictures and/or graphic images. Plotters are devices that
translate computer output data into hard-copy media, such as schematics,
charts, maps, and computer-aided design ("CAD") drawings, pictures, and other
images. The basic unit consists of a microprocessor, a controller, and a
marking mechanism. These output devices are often interchangeable, with the
difference between plotters and printers often being the firmware-based
connectivity solutions. A cutter performs a function similar to a plotter, but
rather than drawing an image onto a sheet of paper, it accurately cuts on
various media (such as vinyl) along a programmed image employing the same
technique as a plotter except using a knife instead of a pen.
Printers and Plotters. Printers and plotters represented 28% , 35% and 37%
of the sales of the Company for fiscal 1996, 1995 and 1994, respectively (1996
includes sales of Summagraphics products subsequent to the Exchange).
Traditionally, these products have included: thermal transfer printers that
produce high quality color output on paper or transparency media for use with
presentation graphics and other applications where high quality color images
are required; vector pen plotters and a direct imaging plotter, the
DrawingMaster(R), a monochrome plotter suitable for use in network
environments or other applications where medium to high volume plotting is
required; L.E.D. plotters under the name of Solus(TM) which are designed for
environments that require high volumes, such as networks, reprographics and
document management operations; and dry film imaging printers under the name
EcoGrafix(TM) and EcoPro(TM) which are used for placing images on dry film or
paper for many kinds of screen printing without the need for darkroom
equipment.
In recent years, CalComp Inc. began transitioning its traditional pen and
electrostatic technologies to inkjet plotters and printers. Generally, inkjet
technology products provide increased user productivity than comparable pen
plotters and solid area fill capability for applications requiring graphic
imaging. Since the Exchange, the Company has continued this transition by
discontinuing the Summagraphics series of large format thermal transfer
printers. Although, CalComp Inc.'s late entry, in 1994, into the market with
its inkjet technology materially and adversely impacted its overall
operations, the Company believes that it is now positioned to successfully
compete in the wide format market with its current offerings of TechJET(R)
printers and plotters which utilize bubble-jet technology in the design of
both color and monochrome plotters. In 1994, the Company introduced its 24"
and 36" TechJET(R) Designer monochrome 360 dpi printers as a technology
upgrade and a replacement for its conventional pen plotter products. In late
1994, the Company introduced a 24" and 36" color inkjet printer product line
under the name TechJET(R) Color.
In early 1995, the Company enhanced its color inkjet printers under the name
TechJET(R) Color GT. These printers provided resolutions up to 720 dpi on cut
sheet or roll-feed media and offered increased memory capability and greater
throughput than the Company's prior TechJET(R) products.
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In early 1996, the Company introduced the 36"TechJET(R) 175i printer which
included a large ink supply and was particularly directed toward the graphic
arts or digital printing markets in which photo quality images are required.
The Company later evolved its TechJET(R) product series. In late 1996, the
Company introduced the TechJET(R) 720c printer, a monochrome and color-capable
24" and 36" printer which provided resolution of up to 720 dpi and an option
for PostScript-language compatibility. This product was a low end product
which was intended to replace the earlier TechJET Designer(R) monochrome
products.
In January, 1997, the Company introduced its Model Nos. 5524 and 5536 full-
color 24" and 36" inkjet printers which are intended to replace the TechJET(R)
Color GT printers and are network-compatible and PostScript-language
compatible and offer the latest technology in inkjet printing.
The Company's current product strategy contemplates a further transition
from the traditional non-inkjet printers and plotters to new lines of large
format digital imaging products using proprietary technology such as that
acquired in the Topaz Technologies transaction.
Cutters. In connection with the post-Exchange restructuring, the Company has
determined to continue the line of Summagraphics cutters. (CalComp Inc. did
not produce cutters.) Cutters represented 23%, 16% and 6% of the sales of
Summagraphics prior to the Exchange for the fiscal years ended May, 1996, 1995
and 1994, respectively. Cutters are output devices, similar in construction to
a pen plotter, but employ a knife in place of a pen to cut vinyl for signs and
banners, art film for screen printing, and various stencil materials for
etching text and images into glass, wood and stone via an abrasive etching
process. Cutter performance is primarily measured by speed, acceleration, and
guaranteed accuracy. Additional features include knife type, tool pressure and
software compatibility. Speed is measured by how many inches the knife moves
per second. Acceleration is measured by how quickly the knife reaches its top
speed and, therefore, is important since most signs consist of short lines.
Guaranteed accuracy depends on the drive mechanism, either friction or
sprocket, in the cutter. There are currently two types of knife systems used
to cut material: drag and tangential. Drag knife units typically cost less,
have less knife pressure capability, and are used for general sign
applications. Tangential knife units are typically more expensive, with more
knife pressure, greater precision cutting abilities and the ability to cut a
wider variety of material.
The Company's cutter products include:
SummaSign Series. Combines high performance cutting with an advanced
media handling system offering both sprocket and friction drive, and is
capable of handling plain media, as well as half-inch industry standard
punched media.
SummaCut Series. A family of cutters designed for small, independent sign
shops who produce a limited quantity of vinyl signs.
The Company believes that the Summagraphics cutter products will augment the
existing CalComp Inc. product offerings by giving the Company a proven output
device whose sales will benefit significantly from CalComp Inc.'s established
marketing and distribution channels.
INPUT DEVICES
Digitizers. Digitizers accounted for 22%, 17% and 16% of the sales of the
Company for fiscal 1996, 1995 and 1994, respectively (1996 includes sales of
Summagaphics products subsequent to the Exchange). Uses for digitizers include
desktop publishing, image processing and pen-based computing. The Company's
primary markets for digitizers are in computer-aided design, engineering and
manufacturing (CAD/CAE/CAM). Digitizers typically are used with personal
computers and workstations and support a broad range of software applications
which include high-end computer aided publishing, construction management and
costing, graphics
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design and animation, mapping and geographic information systems (GIS) and
geological/seismic analysis. They also are used frequently with software
systems such as AutoCAD. Newspaper publishers, for example, use the Company's
digitizers as part of their complete computer-aided publishing systems for
publication layout. Engineers and architects use digitizers in estimating
construction costs rapidly and accurately from blueprints and site plans while
in the field. Animation and graphics design uses for digitizers vary widely
and include use in cinema productions, colorization of black and white movies
and television weather and sports analysis.
Digitizers can offer significant advantages over other entry devices such as
keyboards, mice, trackballs, lightpens, joystick and touchpanels in graphics
intensive applications due to their high level of precision, greater
functionality and increased productivity. Keyboards are primarily used for
inputting text and numerical information and are not well suited for graphics
applications. Mice are low accuracy, relative pointing devices commonly used
with icon-based operating systems and low-resolution graphics applications. By
contrast, digitizers are capable of inputting X-Y coordinate data to
communicate an absolute position to within several thousandths of an inch.
Absolute positioning allows accurate drawing and selection of discrete points
on the surface of the digitizing tablet. The latter is critical to high
accuracy tasks such as digitizing a map or an existing CAD drawing.
The Company's digitizer products are primarily based on electromagnetic
technology, whereby a cursor or a grid generates an electromagnetic field
which is sensed by built-in electronic circuitry. This technical approach
results in digitizers capable of higher resolution than other commonly-used
technologies (magnetostrictive and resistive). Electromagnetic tablets offer
the additional advantage of being relatively unaffected by temperature,
humidity, electrical noise and the presence of conductive materials on the
digitizing surface.
The Company's digitizer products include:
DrawingBoard(TM) Digitizer Tablets. A family of high performance, low cost
digitizer tablets which are designed for CAD, mapping, and GIS applications,
and can be used in drawing, tracing, and presentation graphics applications.
These digitizers come in a range of sizes and accuracies. The Company also
produces a backlit version of this tablet.
Estimat(TM) Flexible Graphics Tablets. A lightweight, flexible tablet which
can be rolled up for transport or storage.
DrawingSlate(TM) II Digitizer Tablets. A family of small format digitizers
that are thin and lightweight and have a pressure sensitive, cordless pen for
variable line weight input. These tablets are particularly useful with
graphics software where variations in pen pressure may translate to line
width, color blend, opaqueness, or various other attributes.
UltraSlate(TM)Digitizer Tablets. A family of small format digitizers which,
like the Drawing Slate II tablets, are thin and lightweight and have a
pressure sensitive, cordless, batteryless pen for variable line weight input.
These tablets are directed toward the graphics arts markets.
SummaSketch(TM) III Digitizer Tablets. A family of digitizers which offers
accuracy, reliability and ease of use. This product is primarily used in the
CAD market for drawing and tracing.
SummaGrid(TM) IV Digitizing Tablets. A set of high performance large format
tablets that support CAD, GIS and mapping applications.
Scanners. Scanners are input devices which detect images on input media and
translate the images into raster data for a computer. The Company markets a
family of large format scanners, the ScanPlus(TM) III Large Format Scanners
which are capable of fast, high volume scanning. These units, which can scan
documents up to 36" wide, come in resolutions from 300 to 1000 dpi. The large
format monochrome/color scanner addresses the needs of users who have to
transfer hard copy drawings into a digital form. Applications for large format
scanning include architectural engineering and construction (AEC), document
management, mapping/GIS, and facilities management. Traditionally, converting
to a digital form has been accomplished by either totally re-creating the
original drawing, utilizing a computer aided drafting package within the
computer, or digitizing the original drawing using a large format digitizer.
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SERVICE AND SUPPORT
The Company, through its North American Channels group, its international
subsidiaries, and selected third party providers, provides an extensive range
of customer service and technical support for the Company's products. Service
revenues accounted for 19%, 20% and 19% of the Company's revenues in 1996,
1995 and 1994, respectively. Technical support and customer service are
provided through a twelve hour, five day telephone response network that
provides customers with continuous access to trained technical support
personnel. In addition, the Company provides product support and service
through repair, exchange or replacement of products sent to its Anaheim
headquarters. The Company also maintains a staff of service technicians that
are available for on-site service calls. During the past three years, the
Company has entered certain agreements under the terms of which third parties
have provided service and technical support for the Company's traditional
printer/plotter products. However, in view of the increased complexity of the
Company's inkjet printer products, together with the need for increased
emphasis on providing better response times to calls for service and the need
for a higher level of technical competency of service providers, the Company
has begun taking steps to further enhance the capabilities of its in-house
service staff.
RESEARCH AND DEVELOPMENT
During each of the years 1996, 1995 and 1994, the Company expended funds for
research and development activities of $20.7 million, $17.3 million and $21.5
million, respectively. The Company intends to continue to invest funds to
develop technologies, such as the Topaz inkjet technology, that are expected
to expand its product offerings. A significant portion of research and
development funds in the output device market involve expanding inkjet
technology and related platforms, with an emphasis on improving the Company's
position in the area of core marking and printing technology used in the CAD,
graphic arts and printing and publishing markets. Additional funds are
expected to be utilized to develop proprietary after-market output products
such as inks and media. Research and development funds in the digitizer and
cutter markets, where the Company has proprietary core technology, are
expected to be devoted to developing new products and improving product
performance while maintaining competitive pricing.
PATENTS AND PROPRIETARY INFORMATION
The Company owns numerous patents and patent applications which are used in
the operation of the Company's business and has developed a variety of
proprietary information that is necessary for its business. While such
patents, patent applications and other proprietary information are, in the
aggregate, important to the operation of the Company's business, management of
the Company does not believe that any individual patent, patent application or
other intellectual property right is of such significance to the business of
the Company that its loss or termination would materially affect the business
of the Company.
SALES AND DISTRIBUTION
The Company sells hardware, supplies and service through a variety of
distribution channels. In 1996, the Company continued the ChannelWorks two-
tiered distribution network introduced in 1995 by CalComp Inc. Through
ChannelWorks, the number of domestic distributors were limited to those with
broad market penetration capabilities and high efficiencies in their
operations and logistics. Under ChannelWorks products were generally sold
through a limited number of distributors to value-added resellers serving the
market applications targeted by CalComp's products.
The Company believes that some resellers and former direct customers appear
to prefer dealing directly with the Company. Therefore, the Company is
currently examining alternative channel strategies that could better serve the
markets that the company is targeting. Some additional products are sold to
original equipment manufacturers (OEM) and systems integrators who serve niche
applications or have other value-added features that benefit specific customer
requirements. The Company's CAD Warehouse, Inc. subsidiary ("CAD Warehouse")
also sells certain of the Company's computer peripheral products and products
of other companies which it advertises through trade publications and its own
catalog.
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Internationally, sales and distribution activities are determined by
international sales management in coordination with in-country subsidiaries to
insure that sales and distribution efforts are appropriate for the country's
market. In countries where the Company does not have subsidiaries, sales are
handled by either a local distributor or under a master distributor who is
managed by the Company's headquarters in Anaheim, California. See Note 12 of
the "Notes to Consolidated Financial Statements."
COMPETITION AND RISKS
The Company encounters extensive competition in all of its lines of business
with numerous other parties, depending on the particular product or market
environment. The Company's business involves rapidly changing technologies
resulting in continued performance improvements at lower customer prices. The
Company competes not only with other manufacturers of similar technologies,
but also with firms that make products that may be substituted or exchanged
for the Company products. The parties with whom the Company competes are
determined based on whether the product at issue is in the hard-copy plotter,
printer and sign cutter market, or the digital input technology market. Many
of the Company's competitors have larger technical staffs, larger marketing
and sales organizations and significantly greater financial resources than the
Company. The Company also faces additional competition from many smaller
competitors such as ACECAD, GTCO and Graphtec. There can be no assurance that
the products of existing or new competitors will not obtain greater market
acceptance than the Company's products.
Hard-Copy Output Devices. The wide-format hard copy output market is
comprised of professional printing products having media handling capability
of greater than 17" print width. The Company competes in the market with the
following four technologies: pen plotter, inkjet plotters and printers, direct
thermal plotters and LED plotters. The parties with whom the Company competes
vary depending on the nature of the technology and markets involved. The
Company competes with a wide variety of competitors in product performance,
features and price in connection with the sale of its hard-copy output
products. Traditional competitors in the wide format hard copy market are:
Hewlett Packard, Xerox, Encad, JDL, Oce, JRL, and Mutoh.
The flexible adhesive cutter market is a worldwide market with many
competitors. Gerber Scientific and Roland claim the largest overall market
share, while the Company is the major cutter company in Europe. The rest of
the market is divided among a dozen or so companies, including the Company,
Ioline, Graphtec and Mutoh. Products generally range from 15" to 48" in width
and cut with either a drag knife or a higher performance tangential knife.
Input Devices. There are many suppliers of input devices with which the
Company competes. A myriad of other signal-sensing devices are all capable of
direct computer input and, to some extent, are interchangeable with other
input devices. Various features distinguish the competitive products in this
market. The input device selected by a customer will vary based upon intended
application, price and performance. Traditionally, customers using CAD
applications, mapping applications and GIS applications have perceived the
need for the high precision input offered by digitizers. Graphic arts
applications have in the past favored mouse input devices. Customers in the
graphic arts market have recently begun broader use of digitizers, which use
is expected to continue to expand.
Major vendors in the worldwide digitizer market include the Company, along
with Wacom, Seiko and Hitachi. In addition, there are many smaller companies
such as ACECAD, Mutoh, GTCO and Graphtec. The Company is one of the largest
providers of both small and large format digitizers. Wacom is the largest
worldwide provider of small format tablets for the graphic arts market, while
the Company is the largest supplier in the CAD market.
Major providers in the scanner market are Vidar, Ideal, Contex and Oce.
Market position is usually dictated by advertising, pricing and channel
awareness rather than product differentiators.
International Sales. Approximately 63%, 62%, and 59% of the Company's sales
in 1996, 1995, and 1994 respectively were made internationally. International
sales involve risks that are not necessarily applicable to
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domestic activities, such as exposure to currency fluctuations, offset
obligations and changes in foreign economic and political environments. In
addition, international transactions often involve increased financial and
legal risks arising from widely different legal systems, customs and mores.
For additional information regarding the Company's revenue, operating profits
and identifiable assets attributable to the Company's domestic and foreign
operations, see Note 12 of the "Notes to Consolidated Financial Statements."
ORGANIZATION
The Company is organized geographically for sales and service, and
functionally, within its lines of business. Within the Company, organizations
are: the Input Technologies Division, located in Scottsdale, Arizona; Digital
Imaging Systems Division, located in Anaheim and Sunnyvale, California, and
the Display Products Division located in Gistel, Belgium. The functional
responsibility within each operating division includes:
Product Management is responsible for defining product requirements and,
once accepted, has product managers who remain responsible for the product
through development, manufacturing, and sales, to provide continuity to the
Company's market commitment.
Product Development is charged with the design of an economically
manufacturable product which meets the specifications originated by Product
Management.
Manufacturing performs all of the manufacturing operations, including the
purchasing of materials, manufacturing, testing, packaging and shipping of
products.
North America Channels is responsible for the selection, management and
support of distribution channels for all of the Company's products in the
United States, Canada and Mexico. Within the Channels group, the North America
Sales Organization manages sales in territories where the Company has no
operating subsidiaries or distributors through Budde International, Inc., a
Master Distributor located in Anaheim, California.
The Company's European operations are headquartered in Neuss, Germany. The
Company's activities in the Asia/Pacific region are conducted through
subsidiaries in Hong Kong, China and Australia. The Company is a party to a
joint venture in Japan in which it has a 44% equity interest. Nippon Steel
Corporation owns 51% and Sumitomo Corporation owns 5%. The joint venture, NS
CalComp Corp., is the exclusive distributor for nearly all of the Company's
products in Japan.
EMPLOYEES
As of December 29, 1996, the Company employed approximately 1,025 people
worldwide, of which 295 employees are involved in product development,
manufacturing, marketing and headquarters operations in Anaheim, California.
Approximately 178 employees are employed in the sales and service of the
Company's products and are located at various strategic sites throughout North
America, with many located in Anaheim, California. The Company employs
approximately 146 people in support of its digitizer operations in Scottsdale,
Arizona and 59 people in support of inkjet products in Sunnyvale, California.
In addition, there are approximately 317 employees in Europe and 30 employees
in Asian operations, primarily involved with the importation, sales and
service of the Company's products into their local geographic regions.
ITEM 2. PROPERTIES
The Company's world headquarters are located on a 27 1/2 acre, company-owned
parcel in Anaheim, California. This facility consists of 10 buildings totaling
433,165 square feet. The Company also owns its Input Technologies Division
facility in Scottsdale, Arizona which is comprised of a 68,000 square foot
building on seven acres of land, and its Display Products division facility in
Gistel, Belgium which is comprised of a 43,180 square foot building. The
Company leases space at several field locations in the United States. These
leased
9
<PAGE>
facilities are located in San Jose and Sunnyvale, California; Schaumburg,
Illinois; Livonia, Michigan; Greensboro, North Carolina; Florham Park, New
Jersey; Bensalem, Pennsylvania; Dallas, Texas; Houston, Texas; and Macedonia,
Ohio totaling approximately 44,942 square feet. The Company's Canadian
subsidiary leases 22,192 square feet of space in Downsview, Toronto. The
Company leases 96,542 square feet of space in Europe, at locations in Vienna,
Austria; Neuss, Germany; Bologna, Spain; Milano, Italy; Twyford, Berkshire,
England; Paris, France; Madrid, Spain; Sollentuna, Sweden; and Amstelveen,
Netherlands. Asian operations occupy 11,851 square feet of space collectively
in Sydney and Melbourne, Australia; Quarry Bay, Hong Kong; and Peking, China.
In conjunction with a restructuring plan implemented in the fourth quarter
of 1996 the Company intends to sell its 27 1/2 acre facility in Anaheim,
California and move its corporate headquarters to a leased facility in Orange
County, California. Prior to the move of the Company's corporate headquarters
to Anaheim, California, as a result of the Exchange, the Company's executive
offices were located in a leased building in Austin, Texas having a total of
96,400 square feet of space. In addition, the Company leased an operating
facility in Seymour, Connecticut totaling 84,000 square feet. The Company is
currently negotiating to terminate the leases on these vacant facilities, and
expects to be out of the leases in fiscal 1997. The Company is also currently
renegotiating certain facility leases to reduce or eliminate excess space
currently occupied by the Company's subsidiaries.
ITEM 3. LEGAL PROCEEDINGS
A complaint was filed on January 25, 1997 by Raster Graphics, Inc. ("Raster
Graphics") against Topaz, the former shareholders of Topaz, Andreas Bibl,
Deane Gardner and John Higginson (the "Former Topaz Shareholders"), and the
Company in California Superior Court in Santa Clara County. The complaint
alleges, among other things, misappropriation of trade secrets, breach of
fiduciary duty, unfair competition, breach of contract and conversion arising
from the employment by Raster Graphics of the Former Topaz Shareholders who
founded Raster Graphics in 1987 and while there participated in the
development of certain inkjet technology. The complaint seeks unspecified
compensatory damages, punitive damages, costs and injunctive relief. The
Company believes that the inkjet technology developed by Topaz is proprietary
to Topaz and is not based on Raster Graphics technology, and that this suit is
without merit.
The Company is also party to other legal actions in the normal course of its
business. The Company does not believe that the disposition of these matters
will have a material adverse effect on its financial position or results of
operations taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS.
The Company's Common Stock currently is traded on the NASDAQ National Market
System under the symbol "CLCP." The following table sets forth the high and
low closing bid prices of the Common Stock for the periods, since the
consummation of the Exchange, as reported by the NASDAQ National Market
System.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
Year Ended December 29, 1996
Fourth Quarter 3 2
Third Quarter 3 3/16 1 5/8
</TABLE>
In connection with the Exchange, the NASDAQ Stock Market indicated that
following the Exchange, the Company would have to meet the initial listing
requirements to trade on the NASDAQ National Market System.
10
<PAGE>
Two of the requirements for initial listing on the National Market System are
that a total market capitalization of common stock held by non-affiliates is
equal to or exceeds $15,000,000 and that the bid price of the listed security
is equal to or exceeds $3.00, (which requirements the Company does not
currently meet). On July 15, 1996, at the request of the Company, the NASDAQ
Stock Market waived these requirements and approved the listing of the
Company's Common Stock on the NASDAQ National Market System following the
Exchange. There is, however, no assurance that such listing can be maintained.
In the event that the Common Stock does not continue to be listed on the
NASDAQ National Market System, the trading volume of the Common Stock may
decrease and an active trading market may not be sustained. In the event that
the Common Stock does not continue to be listed on the NASDAQ National Market
System, the Company has indicated that it intends to use reasonable efforts to
cause the Common Stock to be listed on the NASDAQ SmallCap Market.
The quotations set out above represent prices between dealers and do not
include retail mark-up, mark-down or commission. They do not represent actual
transactions. These quotations have been supplied by the National Association
of Securities Dealers, Inc.
As of February 28, 1997 there were 334 record holders of the Company's
Common Stock.
The Company has never paid any dividends with respect to its Common Stock.
Any future payment of dividends will be at the discretion of the Board of
Directors and will depend on the financial condition and capital requirements
of the Company, as well as other factors that the Board of Directors deem
relevant. It is currently anticipated that the Company will retain future
earnings, if any, to finance the operation and growth of its business. As long
as Lockheed Martin continues to own 50 percent or more of the Common Stock, it
will be able to elect the entire Board of Directors of the Company and,
therefore, will be able to control all decisions with respect to its dividend
policy.
ITEM 6. SELECTED FINANCIAL DATA.
The selected statement of operations and balance sheet data for each of the
five years in the period ended December 29, 1996 are derived from CalComp
Technology, Inc.'s audited consolidated financial statements. The
comparability of the selected financial data presented is significantly
affected by the Exchange. This selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of
CalComp Technology, Inc. and related notes thereto included elsewhere herein.
The following data is presented in thousands, except for share and per share
data for the years ended:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31, DECEMBER 25, DECEMBER 26, DECEMBER 27,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............. $ 235,916 $ 281,655 $ 294,548 $ 300,151 $ 335,467
Loss from operations.... (59,580) (9,088) (23,464) (48,622) (9,180)
Net loss................ (56,604) (10,718) (23,226) (46,639) (16,585)
Weighted average shares
used in
computing per share
amount................ 42,945,581 40,742,957 40,742,957 40,742,957 40,742,957
Net loss per share...... $ (1.32) $ (0.26) $ (0.57) $ (1.14) $ (0.41)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31, DECEMBER 25, DECEMBER 26, DECEMBER 27,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $276,085 $231,564 $228,312 $257,746 $292,183
Long-term liabilities... 38,613 8,720 8,548 4,967 5,409
</TABLE>
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Report on Form 10-K contains statements which, to the extent that they
are not recitations of historical facts, constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All forward looking statements involve risks and uncertainties. The
forward looking statements in this Report on Form 10-K have been made subject
to the safe harbor protections provided by Sections 27A and 21E.
The following table sets forth, for CalComp Technology's fiscal years ended
December 29, 1996, December 31, 1995 and December 25, 1994, items in the
consolidated statements of operations of CalComp Technology as percentages of
net revenues. The table and the subsequent discussion should be read in
conjunction with the consolidated financial statements and related notes
thereto of CalComp Technology included elsewhere herein. For more detailed
information concerning the Company after consummation of the Exchange, see
Item 1. Business and Note 2 to the consolidated financial statements.
PERCENTAGE OF NET REVENUES
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
DECEMBER 29, DECEMBER 31, DECEMBER 25,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Hardware and supplies................. 68% 67% 74%
Service............................... 19 20 19
Sales to affiliates................... 13 13 7
--- --- ---
Total Net Revenue................... 100 100 100
Cost of Revenues:
Hardware and supplies................. 76 72 72
Service............................... 82 72 74
Cost of sales to affiliates........... 70 73 70
--- --- ---
Total Cost applicable to Revenue.... 76 72 72
Gross Profit:
Hardware and supplies................. 24 28 28
Service............................... 18 28 26
Sales to affiliates................... 30 27 30
--- --- ---
Total Gross Profit.................. 24 28 28
Operating Expenses:
Selling and marketing................. 21 16 19
Product development................... 9 6 7
General and administrative............ 9 6 6
Corporate expenses from Majority
Shareholder.......................... 1 3 4
Unrealized loss on disposal of
facilities........................... 5 -- --
Restructuring costs................... 4 -- --
--- --- ---
Total Expenses...................... 49 31 36
--- --- ---
Loss from operations.................... (25) (3) (8)
--- --- ---
Interest expense........................ 1 0 0
Other income, net....................... 1 0 0
--- --- ---
Loss before income taxes................ (25) (3) (8)
--- --- ---
Provision for (benefit of) income taxes. (1) 1 0
--- --- ---
Net loss................................ (24) (4) (8)
=== === ===
</TABLE>
12
<PAGE>
GENERAL
The Company's products and services compete in several markets including
Computer Aided Design ("CAD"), presentation graphics, graphics arts, and
printing and publishing. Each of these markets have several competitors, some
of them larger than the Company. The Company's ability to successfully market
its products requires adapting new technologies and leveraging the channels of
distribution in order to remain competitive.
On July 23, 1996, Summagraphics Corporation and CalComp Inc., a wholly-owned
subsidiary of Lockheed Martin, effected a plan of reorganization for the
exchange of CalComp Inc. stock for Summagraphics stock, after which
Summagraphics changed its name to CalComp Technology, Inc. The newly
reorganized Company adopted a fiscal year ending on the last Sunday of
December. For accounting purposes, CalComp Inc. was treated as the acquiring
company. Therefore, the financial statements for the prior periods are those
of CalComp Inc. and the financial statements for the current year reflect
CalComp Inc.'s acquisition of Summagraphics as of July 23, 1996.
On November 18, 1996, the Company acquired all of the outstanding Common
Stock of Topaz Technology, Inc. ("Topaz"), a privately held company in
Sunnyvale, California, in exchange for 1.5 million shares of the Company's
Common Stock and $0.8 million in cash. As a result of this acquisition, which
was accounted for using the purchase method, the Company acquired
approximately $5.9 million in assets and assumed $1.6 million in liabilities.
Topaz is a developer and manufacturer of a proprietary inkjet printing
technology.
COMPARISON OF 1996 TO 1995
Net Revenues. Net revenues for 1996 declined $45.7 million, or 16%, to
$235.9 million from the previous year, with hardware and supplies and sales to
affiliates (collectively "product revenue") down 15% and service revenues down
21%. For purposes of Management's Discussion and Analysis of Financial
Condition and Results of Operations, revenues and gross margins from sales to
affiliates have been grouped with other hardware and supplies revenues and
gross margins, since such sales have been consummated at prices and terms that
are consistent with prices and terms available to unrelated third parties. The
decline in product revenue during 1996 was $34.1 million consisting of revenue
declines of approximately $55.2 million resulting primarily from continuing
competitive pressures on output products, pricing actions, continuing
difficulties with implementation of the ChannelWorks distribution program and
difficulties and delays associated with new product introduction. Such revenue
declines were partially offset by revenue growth of approximately $21.1
million resulting primarily from the addition of the Summagraphics' cutter and
digitizer product lines. Service revenue declines resulted from the drop in
after-market service contract sales resulting from the decline in hardware
sales and the transition to lower cost products, which traditionally do not
capture the same level of service contract revenue as higher cost products.
Gross Profit. The Company's gross profit for 1996 decreased to 24% from 28%
in 1995. Product gross profit decreased to 25% from 28%, while service gross
profit decreased to 18% from 28%. The decrease in product gross profit is
attributable to continued competitive pricing pressure, continued shift in the
mix of products sold towards lower cost, lower margin products, higher costs
associated with the introduction of new products, and the phase out of mature,
end of life products at reduced selling prices. The decrease in service gross
profit is attributable to the transition to lower cost products which do not
carry the same level of service margin as the older generation higher cost
products which they replaced. In addition, service costs increased during the
period as a result of customer usage rates higher than product specifications
on LED/Laser products requiring additional service calls and replacement
parts, as well as from costs associated with product quality issues related to
products introduced at the end of 1995 and in the first half of 1996.
The companies that participate in the industry are highly competitive.
Reduced unit selling prices and shortened product life cycles are expected to
continue to place pressure on the Company's margins.
13
<PAGE>
Operating Expenses. Total operating expenses were $115.1 million in 1996, an
increase of 31% or $27.0 million from the prior year and includes a one time
restructuring charge of $21.0 million for facility write downs and
restructuring expenses. Total operating expenses prior to certain
restructuring costs and facility write downs were $94.1 million in 1996, a 7%
increase from 1995 to 40% of revenue in 1996 versus 31% in 1995. Selling
expenses increased $3.4 million to 21% of revenue from 16% in 1995. General
and administrative expenses increased $3.9 million to 9% of revenue from 6% in
1995. Selling expense increases are attributable to expenses related to the
Exchange as well as marketing and promotional expenses incurred to meet
competitive pressures. General and administrative expense increases are
attributable to the Exchange, costs associated with new management information
systems, litigation, as well as the increase in goodwill amortization
resulting from the Exchange and the decision to shorten CalComp Inc.'s
existing goodwill amortization period from 40 years to 25 years. Corporate
expenses from Lockheed Martin decreased $4.7 million to 1% of revenue from 3%
in 1995 as a result of Lockheed Martin's decision to discontinue its practice
of interest allocation to affiliates. The interest allocation in 1995 under
this method was $4.6 million.
Product development expenses increased $3.4 million to 9% of revenue from 6%
in 1995. The increase resulted from ongoing new product development as well as
expenses incurred to address product quality issues related to products
introduced at the end of 1995 and in the first half of 1996.
Restructuring Charges. The one time restructuring charges incurred in the
fourth quarter of 1996, of $21.0 million, consisted of $10.9 million for the
write-down of the Company's headquarters facility to its estimated fair market
value, in anticipation of sale, lease termination and fixed asset disposition
costs of $3.2 million related to the exiting from certain facilities, and
severance costs of $6.9 million associated with the elimination of 285
positions worldwide. In the fourth quarter approximately 68 employees were
terminated resulting in payouts of approximately $0.7 million. As a result of
this restructuring and the proposed sale of its headquarters facility the
Company expects to realize approximately $16.0 million to $18.0 million
annually in reduced administrative and support expenses. Subsequent to
December 29, 1996, the Company has entered into discussions with potential
buyers concerning the sale of the headquarters facility. Based on these
discussions, the Company believes it may realize a gain on the sale of the
facility which will be recorded upon the closing of the transaction.
Interest Expense. The Company's interest expense for the year was $1.0
million relating primarily to borrowings by the Company from Lockheed Martin
made pursuant to the Credit Agreements (as defined below) entered into as part
of the Exchange. There were no such charges or agreements in place in 1995.
Other Income, net. Other income, net, declined $0.4 million to $1.5 million
in 1996 from 1995, as result of a reduction in earnings of $0.9 million of a
Japanese joint venture which is accounted for on the equity method in other
income, foreign exchange transaction losses of $0.5 million versus a gain of
$0.4 in the prior year resulting from the strength of the U.S. dollar and its
impact on the Company's international subsidiaries' U.S. dollar denominated
liabilities, partially offset by increases in interest income of $1.1 million
resulting primarily from a favorable determination by U.K. taxing authorities
that the Company is entitled to interest on tax amounts refunded.
Income Taxes (Benefit). The income tax benefit of $2.5 million for 1996
relates primarily to the carryback benefit of foreign tax losses from the
Company's foreign operations. As the Company sustained a net loss in 1996, no
federal income tax provision was necessary, nor was a tax benefit recorded as
management determined that it was appropriate to increase the valuation
allowance for deferred tax assets. It is the intention of management to assess
the continued need for the valuation allowance each period. In 1995, the
Company's provision for income tax was $3.6 million relating primarily to the
provision for foreign taxes on the Company's profitable foreign locations.
COMPARISON OF 1995 TO 1994
Net Revenues. Net revenues for 1995 declined $12.9 million, or 4%, to $281.7
million from the previous year with product revenue down 4% and Service down
5%. The decline in Product Revenue resulted from the Company's exit during
1993 and 1994 from certain of its printer product lines and obsolete pen and
electrostatic products. Also contributing to the decline in revenue was the
Company's introduction in 1995 of its
14
<PAGE>
ChannelWorks two-tiered distribution program which focused a majority of
hardware revenues through a limited number of national distributors at larger
discounts. When fully implemented, ChannelWorks should allow the Company to
improve total revenue by moving more product, more efficiently through the
extensive dealer base and leveraging the logistical capabilities of these
distributors while at the same time reducing the Company's channel management
expenses. Management estimates approximately $2.0 million of the Product
Revenue decline is due to the ChannelWorks distribution program. This decline
was significantly offset by revenue growth in limited new product offerings in
inkjet and L.E.D. technologies including, revenue of $75.0 million recorded in
the last quarter of fiscal 1995 due in part to the introduction of a number of
new products and stocking shipments to the distributors. Service revenue
declines resulted from the drop in after-market service contract sales
resulting from the decline in hardware sales and the transition to lower cost
products, which traditionally do not capture the same level of service
contract revenue as higher cost products.
Gross Profit. The Company's 1995 gross profit of 28% remained unchanged from
1994. Management continued its focus on reducing costs through the
implementation of the ChannelWorks initiative and continuing efforts to design
lower cost products. Improved service gross profits were primarily due to the
benefits of 1994 cost saving actions which negatively impacted 1994 costs but
resulted in lower direct costs during 1995.
Operating Expenses. Total operating expenses were $88.1 million in 1995, a
17% reduction from 1994. Selling expenses declined $10.9 million or from 19%
of revenues in 1994 to 16% in 1995. General and administrative expenses
decreased $0.8 million, remaining at 6% of revenue in 1995 and 1994. These
selling, general and administrative expense decreases reflect the benefits of
continued product focus, the decline in costs resulting from facility and
consolidation actions completed in 1995, and the Channel Works distribution
strategy. Corporate expenses from Lockheed Martin decreased $2.2 million as a
result of changes in the amounts billed to the Company by Lockheed Martin for
certain allocated corporate, general and administrative expenses.
Due to the more focused concentration of product offerings in 1995 and the
continuing transition from pen and electrostatic technologies to inkjet, the
Company's product development expenses decreased $4.2 million or from 7% of
revenues in 1994 to 6% in 1995. The Company anticipates maintaining product
development expenditures at current levels as a percent of revenue.
Other Income, net. Other income rose $1.4 million to $1.9 million in 1995
from 1994 primarily as a result of the increased profitability of the
Company's minority interest in its Japanese joint venture which is accounted
for on the equity method in other income.
Income Taxes. Income taxes of $3.6 million for 1995 relate primarily to
foreign taxes from the Company's foreign operations. As the Company sustained
a net loss in 1995, no federal income tax provision was necessary, nor was a
tax benefit recorded as management determined that it was appropriate to
increase the valuation allowance. In 1994, the Company's provision for income
tax was $0.3 million. This provision included a $1.8 million provision for
foreign taxes, offset by a benefit of $1.5 million for state taxes. The state
tax benefit resulted from the reversal of state accruals that were no longer
required.
LIQUIDITY AND CAPITAL RESOURCES
When possible, the Company finances its working capital needs and capital
expenditure requirements from internally generated funds. At December 29,
1996, the Company had cash of $15.3 million, consisting primarily of foreign
cash balances.
During the year ended December 29, 1996, the Company used $33.2 million in
operations primarily to fund its $56.6 million net loss, net of depreciation
and amortization of $12.6 million and an unrealized loss on disposal of
facilities of $10.9. In addition, the Company expended $6.6 million for
investments in property, plant and equipment. Those uses of cash were
primarily funded by $2.0 million of net cash acquired in the acquisitions of
Summagraphics and Topaz and borrowings from Lockheed Martin consisting of
$24.6 million prior to the Exchange and $15.4 million pursuant to a Revolving
Credit Agreement and Cash Management Agreement ("Credit Agreements").
15
<PAGE>
In connection with the Exchange, the Company entered into the Credit
Agreements which provide the Company with access to general purpose financing.
In December of 1996, the Credit Agreements were amended to increase the funds
available to the Company under these agreements from $30 million to $75
million. The amendment to the Credit Agreements also provided for a grant by
the Company to Lockheed Martin of a general security interest in the Company's
assets, revisions to certain financial covenants covering the Company's fixed
charge and leverage ratios and restrictions on the Company's ability to incur
additional debt, make investments and effect acquisitions without Lockheed
Martin's approval. In addition, in 1996, the Company retained a $4.0 million
commercial line of credit which Summagraphics had outstanding with an
international bank, $2.9 million of which remained outstanding at December 29,
1996. The agreements relating to these credit facilities contain typical
covenants with respect to the conduct of the Company's business and require
the maintenance of various financial balances and ratios. As of December 29,
1996, the Company was in compliance with all such covenants.
The Company has utilized $28.9 million of its credit facilities, a
substantial portion of which was used to finance costs associated with
integrating the Summagraphics operations with those of CalComp Inc. including
the partial replacement of preexisting Summagraphics' debt. Subsequent to
December 29, 1996, the commercial line of credit outstanding with an
international bank was repaid in full and canceled in February, 1997.
During 1996, the Company spent $2.5 million in the implementation of new
management information systems. It expects to spend an additional $2.4 million
during 1997 to complete this implementation. In addition, the Company expects
to spend approximately $3.0 million in 1997 for Topaz Technology, Inc.'s
equipment expenditures. The Company had no other significant commitments for
capital expenditures.
The Company believes that the Company's post-Exchange transition to a
combined company has been substantially completed and that the benefits from
the Exchange are beginning to be realized as the adverse impact upon the
requirements for management attention and the costs incurred and difficulties
encountered in the transition process diminish.
The operating losses with respect to the operations of the Company that have
continued through the end of fiscal 1996 are expected to continue through at
least the first half of calendar 1997. However, the Company believes that the
completion of the post-Exchange transition and the further actions taken by
management to reduce operating expenses, together with the planned new inkjet
product introductions, should allow the Company to return to profitability
during 1997. Consequently, management believes that cash generated from
operations, disposition of its headquarters facility, and funds available
under the Credit Agreements should be sufficient to fund the Company's
anticipated operating needs for the foreseeable future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................... 17
Consolidated Balance Sheets at December 29, 1996 and December 31, 1995... 18
Consolidated Statements of Operations for the Years Ended December 29,
1996, December 31, 1995 and December 25, 1994........................... 19
Consolidated Statements of Stockholders' Equity for the Years Ended
December 29, 1996, December 31, 1995 and December 25, 1994.............. 20
Consolidated Statements of Cash Flows for the Years Ended December 29,
1996, December 31, 1995 and December 25, 1994........................... 21
Notes to Consolidated Financial Statements............................... 22
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CalComp Technology, Inc.
We have audited the accompanying consolidated balance sheets of CalComp
Technology, Inc. as of December 29, 1996 and December 31, 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 29, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CalComp
Technology, Inc. at December 29, 1996 and December 31, 1995, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 29, 1996, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Orange County, California
January 20, 1997
17
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ -------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash.............................................. $ 15,290 $ 14,574
Accounts receivable (less allowance for doubtful
accounts of $4,603 in 1996 and $4,102 in 1995)... 48,230 46,380
Accounts receivable from affiliates, net.......... 3,929 12,232
Inventories (Note 3).............................. 57,765 40,308
Net assets held for sale (Note 2)................. 15,119 --
Prepaids and other current assets................. 5,866 3,504
-------- --------
Total Current Assets................................ 146,199 116,998
Property, plant and equipment, net (Note 3)......... 26,891 51,060
Investments (Note 6)................................ 5,022 4,518
Goodwill (net of accumulated amortization of $20,324
in 1996 and $15,756 in 1995) 82,080 50,427
Other intangibles (net of accumulated amortization
of $271 in 1996)................................... 7,866 --
Other assets........................................ 8,027 8,561
-------- --------
Total Assets........................................ $276,085 $231,564
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable.................................. $ 27,554 $ 17,592
Deferred revenue.................................. 9,217 10,122
Accrued salaries and related expenditures......... 7,398 7,594
Sales and value added taxes payable............... 3,473 3,784
Accrued restructuring costs (Note 2).............. 9,355 --
Accrued reorganization costs (Note 2)............. 5,595 --
Line of credit (Note 8)........................... 2,948 --
Other liabilities................................. 19,428 17,009
-------- --------
Total Current Liabilities........................... 84,968 56,101
Other long-term liabilities......................... 6,093 5,080
Accumulated postretirement benefit obligation....... 3,640 3,640
Line of credit with Majority Shareholder (Note 8)... 28,880 --
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized -- --
Common stock, $.01 par value, 60,000,000 shares
authorized, 46,898,650 and 40,742,957 shares is-
sued on December 29, 1996 and December 31, 1995.. 469 407
Additional paid-in capital........................ 286,860 265,243
Accumulated deficit............................... (141,957) (71,785)
Cumulative translation adjustment................. 7,597 8,531
Less: Treasury stock, at cost, 49,000 shares...... (465) --
Note receivable from Majority Shareholder......... -- (35,653)
-------- --------
Total Stockholders' Equity.......................... 152,504 166,743
-------- --------
Total Liabilities and Stockholders' Equity.......... $276,085 $231,564
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
DECEMBER 29, DECEMBER 31, DECEMBER 25,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET REVENUE:
Hardware and supplies................. $ 161,083 $ 188,880 $ 216,520
Service............................... 43,208 54,860 57,855
Sales to affiliates................... 31,625 37,915 20,173
---------- ---------- ----------
Total net revenue....................... 235,916 281,655 294,548
COST APPLICABLE TO REVENUE:
Hardware and supplies................. 122,649 135,880 154,875
Service............................... 35,498 39,233 42,847
Cost of sales to affiliates........... 22,228 27,555 14,069
---------- ---------- ----------
Total cost applicable to revenue........ 180,375 202,668 211,791
---------- ---------- ----------
Gross profit............................ 55,541 78,987 82,757
EXPENSES:
Selling............................... 48,363 44,943 55,856
Research and development.............. 20,713 17,343 21,526
General and administrative............ 21,480 17,564 18,416
Corporate expenses from Majority
Shareholder (Note 5)................. 3,567 8,225 10,423
Unrealized loss on anticipated dis-
posal of facilities (Note 2)......... 10,908 -- --
Restructuring costs (Note 2).......... 10,090 -- --
---------- ---------- ----------
LOSS FROM OPERATIONS.................... (59,580) (9,088) (23,464)
Interest expense........................ 989 -- --
Other income, net (Note 4).............. (1,507) (1,942) (513)
---------- ---------- ----------
LOSS BEFORE INCOME TAXES (59,062) (7,146) (22,951)
Provision for (benefit of) income taxes
(Note 9)................................ (2,458) 3,572 275
---------- ---------- ----------
NET LOSS................................ $ (56,604) $ (10,718) $ (23,226)
========== ========== ==========
Net Loss per share of common stock...... $ (1.32) $ (0.26) $ (0.57)
========== ========== ==========
Weighted-average number of shares
outstanding (Note 1).................... 42,945,581 40,742,957 40,742,957
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL CUMULATIVE RECEIVABLE
----------------- PAID-IN ACCUMULATED TRANSLATION TREASURY MAJORITY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT STOCK SHAREHOLDER EQUITY
---------- ------ ---------- ----------- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 26,
1993.................... 40,742,957 $407 $265,243 $ (37,841) $3,921 $ -- $(41,106) $190,624
Net increase in
receivable from
stockholder............ -- -- -- -- -- -- (6,950) (6,950)
Translation adjustment.. -- -- -- -- 2,034 -- -- 2,034
Net loss................ -- -- -- (23,226) -- -- -- (23,226)
---------- ---- -------- --------- ------ ----- -------- --------
Balance at December 25,
1994................... 40,742,957 407 265,243 (61,067) 5,955 -- (48,056) 162,482
Net decrease in
receivable from
stockholder............ -- -- -- -- -- -- 12,403 12,403
Translation adjustment.. -- -- -- -- 2,576 -- -- 2,576
Net loss................ -- -- -- (10,718) -- -- -- (10,718)
---------- ---- -------- --------- ------ ----- -------- --------
Balance at December 31,
1995................... 40,742,957 407 265,243 (71,785) 8,531 -- (35,653) 166,743
Net decrease in
receivable from
stockholder............ -- -- -- -- -- -- 22,085 22,085
Deemed dividend of
receivable from
stockholder (Note 1)... -- -- -- (13,568) -- -- 13,568 --
Issuance of stock for
acquisitions 6,155,693 62 21,617 -- -- -- -- 21,679
Acquired treasury stock. -- -- -- -- -- (465) -- (465)
Translation adjustment.. -- -- -- -- (934) -- -- (934)
Net loss................ -- -- -- (56,604) -- -- -- (56,604)
---------- ---- -------- --------- ------ ----- -------- --------
Balance at December 29,
1996................... 46,898,650 $469 $286,860 $(141,957) $7,597 $(465) $ -- $152,504
========== ==== ======== ========= ====== ===== ======== ========
</TABLE>
20
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------
DECEMBER 29, DECEMBER 31, DECEMBER 25,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss .............................. $(56,604) $(10,718) $(23,226)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization........ 12,631 9,845 12,199
Restructuring costs.................. 10,090 -- --
Restructuring payments............... (735) -- --
Unrealized loss on anticipated dis-
posal of facilities................. 10,908 -- --
Investee income...................... (815) (1,645) (184)
Net changes in operating assets and
liabilities......................... (8,690) 11,406 21,557
-------- -------- --------
Net cash (used in) provided by oper-
ating activities................... (33,215) 8,888 10,346
INVESTING ACTIVITIES:
Net cash acquired in connection with
acquisitions.......................... 1,962 -- --
Purchase of property, plant and
equipment............................. (6,593) (10,824) (8,048)
Proceeds from disposition of property,
plant and equipment................... 135 841 1,739
Dividends received..................... 311 672 --
-------- -------- --------
Net cash used in investing
activities......................... (4,185) (9,311) (6,309)
FINANCING ACTIVITIES:
Proceeds from line of credit with
Majority Shareholder................... 15,380 -- --
Net cash received from Majority
Shareholder............................ 24,600 2,978 (6,467)
Reduction in revolving credit line..... (1,664) -- --
-------- -------- --------
Net cash provided by (used in)
financing activities............... 38,316 2,978 (6,467)
Effect of exchange rate changes on
cash................................... (200) 770 573
-------- -------- --------
Change in cash......................... 716 3,325 (1,857)
Cash at beginning of year.............. 14,574 11,249 13,106
-------- -------- --------
Cash at end of year.................... $ 15,290 $ 14,574 $ 11,249
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
CalComp Technology, Inc. (the "Company") is an 86.9% owned subsidiary of
Lockheed Martin Corporation ("Lockheed Martin or the Majority Shareholder").
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated. The financial statements do not include the
accounts of AGT Holdings, Inc. and Access Graphics, Inc., which have been
transferred to the Majority Shareholder effective May 15, 1996. This
transaction has been treated as a change in the reporting entity since the two
entities are in dissimilar businesses to that of the Company and historically
have been managed and financed separately by the Majority Shareholder.
The acquisition of the Company by Lockheed Martin in August 1986 was
accounted for as a purchase and a new basis of accounting was established for
the Company's financial statements. This new basis resulted in certain assets
and liabilities being recorded at their then fair market value. Accumulated
depreciation, retained earnings, and cumulative translation adjustments
reflect activity from August 1, 1986. For tax purposes, no revaluation
occurred as a result of the business combination.
The equity method of accounting is used when the Company has a significant,
but less than majority ownership interest in another company. Under the equity
method, original investments are recorded at cost and adjusted by the
Company's share of undistributed earnings or losses of the investee companies,
which is recognized as a component of other income in the consolidated
statements of operations. The Company's investment in NS CalComp Corporation
(NSCC) is accounted for under the equity method. A portion of the profit on
product sales to NSCC is deferred until realized through sales to third party
customers.
BUSINESS
The Company develops, manufactures, distributes and supports a wide variety
of computer graphics products which it markets in the United States and
throughout the world. The Company's principal products are printers and
plotters, digitizers and cutters. Printers are units that place raster images
on output media, either paper or film, by placing small dots on the media,
while Plotters are devices that translate computer output into hard copy
visual data such as schematics, maps, charts and other drawings. Digitizers
are devices that convert points, lines and drawings to digital impulses that
can be input into a computer. Cutters are output devices, similar in
construction to a pen plotter, but employ a knife in place of a pen to cut
vinyl for signs and banners, art film for screen printing, and various stencil
materials for etching text and images into glass, wood and stone via an
abrasive etching process. The Company is dependent on certain distributors in
North America and Asia through which it transacts a majority of its hardware
sales. In management's opinion, other sources of distribution on comparable
terms would be available if there was a disruption in the business
relationship with these distributors. The Company is dependent on certain
limited source suppliers for key technology components used in its products.
Loss of such vendor relationships could have a significant impact on the
Company's near term operating results. The Company also derives a significant
portion of its revenues from the sale of services and supplies related to its
hardware products. The Company's products and services compete in several
markets including Computer Aided Design ("CAD"), Presentation Graphics,
Graphics Arts and Printing and Publishing. Each of these markets have several
competitors, some of them larger than the Company. The Company's ability to
successfully market its products requires adapting new technologies and
leveraging the channels of distribution in order to remain competitive.
USE OF ESTIMATES
The development and use of estimates is inherent in the preparation of
financial statements that are presented in accordance with generally accepted
accounting principles. Significant estimations are made relative
22
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to the valuation of accounts receivable, inventories, income taxes, and
certain accrued liabilities, including, among others, those for warranties and
contingent liabilities where an unfavorable outcome is considered probable and
the amount of the loss is estimable. Actual results may differ from amounts
estimated.
REVENUE RECOGNITION
Revenue is recognized from product sales when shipments are made and from
services over the term of the service contract.
FISCAL YEAR
The Company uses a fifty-two, fifty-three week fiscal year which ends on the
last Sunday in December. Fiscal 1996 and 1994 each contained fifty-two weeks.
Fifty-three weeks were included in fiscal 1995.
CONCENTRATION OF CREDIT RISK
The Company sells the majority of its products throughout the United States,
Canada, Europe and Asia. Sales to the Company's recurring customers are
generally made on an open account term while sales to occasional customers are
made on a C.O.D. basis. The Company performs periodic credit evaluations of
its ongoing customers and generally does not require collateral. Reserves are
maintained for potential credit losses, and such losses have been within
management's expectations. No single customer represented more than 10% of
sales in any year presented. Accounts receivable from two of the Company's
primary distributors amounted to $8,016,000 and $9,135,000 at December 1996
and 1995, respectively.
INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market. The Company reserves for inventory that is
determined to be obsolete or substantially in excess of forecasted demand.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment acquired are stated at cost less accumulated
depreciation. Equipment under capital leases is stated at the lower of the
present value of future minimum lease payments or fair value at the inception
of the lease. Depreciation (including amortization of assets covered by
capital leases) is computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings 33 1/3 years
Building improvements 5 to 15 years
Machinery and equipment 3 to 8 years
Furniture and fixtures 5 to 8 years
</TABLE>
On January 1, 1996 the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," (SFAS 121). The standard addresses the
accounting for impairment of long-lived assets, such as property, plant, and
equipment, and goodwill related to those assets. If impairment indicators are
present, SFAS No. 121 requires an assessment of the recoverability of long-
lived assets based on whether the carrying value of the assets could be
recovered through undiscounted cash flows over the expected lives of the
assets. Adjustments to the carrying value are recorded as a component of
operations in the period that an impairment assessment is made. The initial
adoption of SFAS No. 121 did not have a material impact on the financial
statements.
23
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets, consisting of goodwill, patents and other intangibles
(which include developed technology and an assembled workforce) are being
amortized using the straight-line method over the estimated useful lives
ranging from five to twenty-five years.
As of January 1996, the Company re-evaluated its remaining useful life of
the goodwill related to the 1986 purchase of CalComp Inc. by Lockheed
Corporation, which was being amortized over forty years. The Company estimated
the remaining useful life at that date to be fifteen years. Accordingly, the
amortization period was adjusted to reflect this change in the estimated
useful life, resulting in additional goodwill amortization of approximately
$1,635,000 in 1996 and in future periods.
STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed in Note 11, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires
use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equal the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
TRANSLATION OF FOREIGN CURRENCIES
The assets and liabilities of the Company's foreign subsidiaries, whose cash
flows are primarily in their local currency, have been translated into U.S.
dollars using the current exchange rates at each balance sheet date. The
operating results of these foreign subsidiaries have been translated at
average exchange rates that prevailed during each reporting period.
Adjustments resulting from translation of foreign currency financial
statements are reflected as cumulative translation adjustments in the
consolidated balance sheet.
Exchange gains and losses resulting from foreign currency transactions
(transactions denominated in a currency other than that of the entity's
primary cash flow) are included in operations in the period in which they
occur.
WARRANTY RESERVE
The Company provides warranties on its products for various periods. The
Company reserves for future warranty costs based on historical failure rates
and repair costs.
INCOME TAXES
The Company's operations are included in consolidated federal and combined
state income tax returns with the Majority Shareholder. The provision for
income taxes is calculated on a separate return basis, pursuant to Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). SFAS No. 109 requires recognition of deferred tax assets and
liabilities based on the difference between the financial and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
24
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 consolidated financial statements have
been reclassified to conform to the current-year presentation.
PER SHARE DATA
Net loss per share has been calculated by dividing net loss by the weighted
average number of common shares outstanding during the period. All common
stock equivalents have been excluded from the calculation of weighted average
common shares outstanding since their inclusion would be anti-dilutive or
decrease the loss per share amount otherwise computed.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expenditures
for the years 1996, 1995 and 1994 were $8,980,000, $5,847,000 and $8,874,000,
respectively.
SUPPLEMENTARY CASH FLOW INFORMATION
Changes in operating assets and liabilities are as follows for the years ended
in December:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Changes in operating assets and liabilities:
Accounts receivable............................... $ 7,176 $ 9,618 $ 5,196
Accounts receivable from affiliates............... 8,303 (8,090) (871)
Inventories....................................... (9,122) 4,353 20,541
Other current assets.............................. (540) 487 (219)
Other assets...................................... 902 (2,046) (265)
Accounts payable.................................. (648) (2,308) 94
Accrued salaries and related expenditures......... (369) (906) (12,689)
Deferred revenue.................................. (905) (2,678) 1,619
Sales and value added tax payable................. (311) 284 2,343
Accrued reorganization costs...................... 5,595 -- --
Other liabilities................................... (14,901) 3,095 2,710
Other long-term liabilities......................... (1,355) 473 3,673
Accumulated postretirement benefit obligation....... -- (301) (92)
Decrease (increase) in net receivable from Majority
Shareholder........................................ (2,515) 9,425 (483)
------- ------- -------
Net changes in operating assets and liabilities..... $(8,690) $11,406 $21,557
======= ======= =======
</TABLE>
In connection with the acquisition of Summagraphics Corporation (Note 2),
the Company reclassified the net receivable as of the transaction date of
$13,568,000 from the Majority Shareholder to accumulated deficit to reflect a
deemed dividend of the Company's net receivable from the Majority Shareholder.
Changes in operating assets and liabilities presented in the Consolidated
Statements of Cash Flows are net of the effect of the acquisitions discussed
in Note 2.
Net income taxes paid to (received from) the Majority Shareholder and
foreign governments were $1,424,000, $2,638,000 and ($5,659,000) for 1996,
1995 and 1994, respectively.
25
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest paid was $445,000, $0 and $0 for 1996, 1995 and 1994, respectively.
2. ACQUISITIONS AND RESTRUCTURING
ACQUISITION OF SUMMAGRAPHICS CORPORATION
The Company completed a Plan of Reorganization (the "Exchange") for the
exchange of Stock of CalComp Inc. for Stock of Summagraphics Corporation as of
July 23, 1996. Pursuant to this Exchange, the Company issued to Lockheed
Martin Corporation 40,742,957 shares of Common Stock of the Company,
representing 89.7% of the total outstanding shares of Common Stock of the
Company following such issuance, in exchange for all of the outstanding
capital stock of CalComp Inc. As a result of the exchange, Lockheed Martin
Corporation acquired control of the Company and CalComp Inc. became a wholly-
owned subsidiary of the Company. In connection with the exchange, the Company
changed its name to CalComp Technology, Inc. and changed its year end from May
31 to a fifty-two, fifty-three week fiscal year ending on the last Sunday of
December.
The purchase was accounted for as a "reverse acquisition" whereby CalComp
Inc. was deemed to have acquired the Company, (formerly Summagraphics
Corporation) for financial reporting purposes. However, the Company remains
the continuing legal entity and registrant for Securities and Exchange
Commission filing purposes. Consistent with reverse acquisition accounting,
the historical financial statements of the Company presented for the years
ended December 31, 1995 and December 25, 1994, are the consolidated financial
statements of CalComp Inc. and differ from the consolidated financial
statements of the Company previously reported. In addition, the historical
stockholders' equity as of December 31, 1995 and December 25, 1994 have been
retroactively restated to reflect the equivalent number of shares issued in
connection with the Exchange. The accounts and results of operations of
CalComp Technology, Inc. have been included in the financial statements from
the date of acquisition and reflect purchase price allocations and
adjustments.
The following sets forth the assets, liabilities and stockholders equity that
were recorded by the Company in connection with the acquisition on July 23,
1996 and reflects the purchase price allocation:
26
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITIONS AND RESTRUCTURING (CONTINUED)
<TABLE>
<S> <C>
ASSETS (IN THOUSANDS)
Cash............................................................ $ 2,801
Accounts receivable, net........................................ 11,041
Inventories..................................................... 7,577
Other current assets............................................ 1,248
--------------
Total current assets.......................................... 22,667
Plant and equipment............................................. 2,458
Goodwill........................................................ 36,221
Other assets.................................................... 3,618
--------------
Total Assets.................................................. $ 64,964
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Short term debt................................................. $ 17,912
Account payable................................................. 9,060
Other current liabilities....................................... 18,185
--------------
Total Current Liabilities..................................... 45,157
Other long-term liabilities..................................... 2,156
Stockholders' Equity............................................ 17,651
--------------
Total Liabilities and Stockholder's Equity.................... $ 64,964
==============
</TABLE>
The following unaudited pro forma summary for the years ended in December
presents the consolidated results of operations assuming that the Exchange had
occurred on December 26, 1994. No adjustments are required to conform the
accounting policies of the Company and CalComp Inc.:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
Revenue........................................ $ 265,571 $ 355,171
Net loss....................................... $ (73,221) $ (25,261)
Weighted average shares outstanding............ 45,567,606 45,398,650
Loss per share................................. $ (1.61) $ (0.56)
</TABLE>
The amounts disclosed above for net loss have been adjusted to reflect:
1) Goodwill amortization arising from the Exchange, net of the removal of
the historical goodwill amortization recorded on Summagraphics' statement
of operations. The adjustments increased goodwill expense by $1,178,000 and
$2,019,000 for 1996 and 1995, respectively.
2) A $1,000,000 reduction in the carrying amount of certain property and
equipment to record such assets at their fair value. This adjustment, which
assumes a 5 year useful life, resulted in a decrease to depreciation
expense of $117,000 and $200,000 for 1996 and 1995, respectively.
These pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of what would have occurred had the
transaction been effected on the date indicated above or of results which may
occur in the future.
27
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITIONS AND RESTRUCTURING (CONTINUED)
In connection with the Exchange, the Company accrued $11,970,000 consisting
of $7,358,000 relating to the termination of facility leases and other costs
and $4,612,000 relating to severance costs. At December 29, 1996 the Company
had made all severance related payouts and had expended $1,763,000 related to
lease payments on the facilities and other costs.
ACQUISITION OF TOPAZ
On November 18, 1996, the Company acquired all of the outstanding common
stock of Topaz Technologies, Inc. ("Topaz"), a privately held company in
Sunnyvale, California, in exchange for 1,500,000 shares of the Company's
Common Stock and $750,000 in cash. As a result of this acquisition, which was
accounted for using the purchase method, the Company acquired approximately
$5,946,000 in assets and assumed $1,637,000 in liabilities. Topaz is a
developer and manufacturer of a proprietary inkjet printing technology. The
Company recorded no goodwill in connection with this acquisition.
RESTRUCTURING OF OPERATIONS AND SALE OF HEADQUARTERS FACILITY
In the fourth quarter of 1996, the Company initiated a plan to restructure
its operations worldwide. This plan of restructuring consists primarily of the
elimination of 285 positions worldwide and lease termination costs related to
the reorganization of the Company's European operations. In addition, the
Company decided to sell its 27 1/2 acre headquarters facility in Anaheim,
California. The restructuring plan and sale of the headquarters facility are
expected to reduce operating expenses and streamline the Company's
infrastructure.
In connection with the restructuring plan, the Company established a
$10,090,000 restructuring charge to operating expenses. This restructuring
charge includes $6,940,000 of estimated employee severance costs and
$3,150,000 relating to lease termination and fixed asset disposition costs. In
the fourth quarter approximately 68 employees were terminated resulting in
payouts of $735,000. At December 29, 1996, there remains a $9,355,000
liability to complete the execution of the plan.
In connection with the decision to sell the Company's headquarters facility
in Anaheim, California the Company established an estimated loss on disposal
of the facility of $10,908,000, which is included in operating expenses, to
write the facility down to its fair market value. This unrealized loss has
been offset against the net cost of the facility, after depreciation, of
$26,027,000, with the balance of $15,119,000 included within current assets on
the December 29, 1996 consolidated balance sheet as "Net assets held for
sale."
28
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. BALANCE SHEET INFORMATION
Additional information for certain balance sheet accounts is as follows for
the years ended in December:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net inventories:
Raw materials and purchased components................. $16,719 $ 9,960
Work in process........................................ 699 1,628
Finished goods......................................... 40,347 28,720
------- -------
$57,765 $40,308
======= =======
Property, plant and equipment:
Land, buildings and building improvements.............. $ 6,330 $52,051
Machinery and equipment................................ 47,090 55,745
Furniture and fixtures................................. 7,423 7,241
------- -------
60,843 115,037
Less accumulated depreciation.......................... (33,952) (63,977)
------- -------
$26,891 $51,060
======= =======
</TABLE>
4. OTHER INCOME
Other income consists of the following components for the years ended in
December:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
The Company's share of NSCC's earnings............. $ 732 $1,645 $ 184
Foreign exchange transaction gain (loss)........... (544) 360 228
Interest income.................................... 1,388 268 260
Other expense, net................................. (69) (331) (159)
------ ------ -----
Total............................................ $1,507 $1,942 $ 513
====== ====== =====
</TABLE>
5. TRANSACTIONS WITH MAJORITY SHAREHOLDER AND AFFILIATES
The Majority Shareholder has billed the Company for certain corporate
general and administrative costs under a formula acceptable for the United
States Department of Defense contracting purposes. Additionally, prior to
1996, the Majority Shareholder has billed the Company for interest based on
the Majority Shareholder's cost of borrowed funds. This allocation of interest
is included in corporate expenses from Majority Shareholder on the
consolidated statement of operations. Subsequent to July 23, 1996, the
Majority Shareholder has charged the Company interest based on the terms of
the credit agreement between the parties (Note 8). The interest expense,
subsequent to July 23, 1996, based on the credit agreement, is included in
interest expense on the consolidated statement of operations. Amounts charged
to the Company were as follows for the years ended in December:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Corporate general and administrative............... $3,567 $3,578 $ 4,390
Interest........................................... -- 4,647 6,033
------ ------ -------
$3,567 $8,225 $10,423
====== ====== =======
</TABLE>
29
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. TRANSACTIONS WITH MAJORITY SHAREHOLDER AND AFFILIATES (CONTINUED)
Additionally, the Company has entered into support agreements with the
Majority Shareholder. The agreements provide, among other things, that the
Majority Shareholder undertake to provide certain services for and at the
request of the Company including, but not limited to, administration of the
pension and savings plan, legal and other general administrative services, and
group medical, liability and workers' compensation insurance. Expenses are
allocated to the Company based on actual amounts incurred on behalf of the
Company plus estimated overhead related to such amounts. Amounts billed to the
Company were $2,988,000, $3,981,000 and $6,556,000 for 1996, 1995 and 1994,
respectively. Such amounts are allocated to various cost elements in the
financial statements based on relevant factors which include headcount and
square footage.
The Majority Shareholder had, until July 23, 1996, a centralized domestic
cash management system whereby the Company's cash surplus was transferred to
the Majority Shareholder's accounts on a daily basis and cash disbursements
were funded by the Majority Shareholder, as needed, to maintain the
disbursement account at a zero balance. Since that date, the Company requests
cash as needed to fund operations based on the credit agreement (Note 8) with
the Majority Shareholder. These requests are processed as borrowings against
the credit agreement with the Majority Shareholder. Excess funds are
transferred to the Majority Shareholder as payments toward previous
borrowings.
On July 23, 1996 the Company reclassified the net receivable of $13,568,000
from the Majority Shareholder to accumulated deficit to reflect a deemed
dividend of the Company's net receivable from the Majority Shareholder.
Effective May 15, 1996, the Company transferred its ownership interest in
AGT Holdings, Inc., the parent company of Access Graphics, to the Majority
Shareholder. The Company sells computer graphics equipment to Access Graphics
for resale. Sales amounted to $9,055,000, $19,722,000 and $7,266,000 for the
years 1996, 1995 and 1994, respectively. End user sales to other affiliated
companies were $1,968,000, $1,378,000 and $2,299,000 for the years 1996, 1995
and 1994, respectively. Sales to related parties have been consummated at
prices and terms consistent with similar transactions with unrelated third
parties. Accounts receivable from these affiliates related to such sales
aggregated $2,935,000 and $7,961,000 as of December 1996 and 1995,
respectively.
The Company purchases certain components from Lockheed Martin Commercial
Electronics, a division of the Majority Shareholder. Purchases amounted to
$10,059,000, $10,503,000 and $9,755,000 for the years ended December 1996,
1995 and 1994, respectively. Purchases from Lockheed Martin Commercial
Electronics were made at prices and terms similar to those available from
unrelated vendors.
30
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENT IN NS CALCOMP KK
In 1990, the Company sold a 56% interest in a previously wholly owned
Japanese subsidiary, Nippon CalComp KK (now referred to as NSCC) to Nippon
Steel Corporation (NSC) and Sumitomo Corporation. The Company's remaining 44%
ownership interest in NSCC is accounted for under the equity method based on
financial information for the twelve months ended in November. Summarized
financial information for NSCC for the years ended in December is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEETS:
Current assets.................................. $30,231 $35,534 $32,358
Total assets.................................... 33,508 39,581 36,306
Current liabilities............................. 13,896 20,351 17,805
Total liabilities............................... 14,264 20,813 18,289
STATEMENTS OF OPERATIONS:
Net sales....................................... 60,184 66,703 54,375
Gross profit.................................... 21,790 26,872 21,914
Net earnings.................................... 1,765 2,727 1,531
</TABLE>
As of December 29, 1996, the carrying value of the Company's investment is
less than the underlying equity in NSCC's net assets due to the profit in
NSCC's inventory that has not been realized through sales to third party
customers, a cumulative translation gain and differences resulting from stock
sales by NSCC. As of December 29, 1996, $5,596,000 of consolidated retained
earnings was represented by the undistributed net earnings of NSCC. Sales to
NSCC amounted to $20,602,000, $16,815,000 and $10,608,000 in 1996, 1995, and
1994, respectively. Accounts receivable from NSCC are $5,608,000 and
$4,271,000 as of December 1996 and 1995, respectively, and are included in
accounts receivable from affiliates in the consolidated balance sheets.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases various operating facilities and equipment under
noncancelable operating leases. Most leases contain renewal options at
stipulated amounts for varying periods. Certain agreements contain options for
the purchase of equipment at a stipulated amount, which will approximate
market at the end of the lease. Additionally, certain leases provide for
periodic rental adjustments based on the Consumer Price Index or fair market
values.
Minimum rental payments under noncancelable operating leases are $1,400,000
in 1997, $1,000,000 in 1998, $600,000 in 1999, $500,000 in 2000, $600,000 in
2001 and $0 thereafter. However, due to the Company's restructuring program
(Note 2), certain operating leases are being renegotiated to reduce or
eliminate commitments and, if successful, these future minimum rental payments
could be substantially reduced.
Rent expense was $2,200,000, $3,700,000 and $5,600,000 in 1996, 1995 and
1994, respectively.
LEGAL PROCEEDINGS
A complaint was filed on January 25, 1997 by Raster Graphics, Inc. ("Raster
Graphics") against Topaz, the former shareholders of Topaz, Andreas Bibl,
Deane Gardner and John Higginson (the "Former Topaz Shareholders"), and the
Company in California Superior Court in Santa Clara County. The complaint
alleges,
31
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
among other things, misappropriation of trade secrets, breach of fiduciary
duty, unfair competition, breach of contract and conversion arising from the
employment by Raster Graphics of the Former Topaz Shareholders who founded
Raster Graphics in 1987 and while there participated in the development of
certain inkjet technology. The complaint seeks unspecified compensatory
damages, punitive damages, costs and injunctive relief. The Company believes
that the inkjet technology developed by Topaz is proprietary to Topaz and is
not based on Raster Graphics technology, and that this suit is without merit.
The Company is also party to other legal actions in the normal course of its
business. The Company does not believe that the disposition of these matters
will have a material adverse effect on its financial position or results of
operations taken as a whole.
ENVIRONMENTAL MATTERS
In 1988, the Company submitted a plan to the California Regional Water
Quality Control Board (the Water Board) relating to its facility in Anaheim,
California. This plan contemplates site assessment and monitoring of soil and
ground water contamination. The Company's plan includes monitoring of several
ground water sampling wells at the site. No remediation has been ordered or is
considered probable of being ordered and therefore no liability has been
recorded for any such activities. Due to the nature of the contingency,
management is unable to estimate a possible range of costs that might be
incurred should remediation be required.
8. INDEBTEDNESS
A. LONG-TERM DEBT:
Line of Credit and Cash Management Agreements with Majority Shareholder: In
July 1996, the Company and the Majority Shareholder entered into a Revolving
Credit Agreement (" Credit Agreement"), which was subsequently amended and
restated, pursuant to which the Majority Shareholder will provide, from time
to time, financing of up to $73,000,000 for repayment of specified
indebtedness and general corporate purposes, including, without limitation,
financing the working capital needs of the Company and its subsidiaries. Among
other things the amended Credit Agreement provided for a grant of a general
security interest in the Company's assets to the Majority Shareholder. The
Agreement has a termination date of July 22, 1998, however, the commitment of
the Majority Shareholder to make loans to the Company may be canceled, with
120 days prior written notice, by the Majority Shareholder at any time after
the first anniversary date of the amended and restated Agreement dated
December 20, 1996.
The Agreement bears interest, at the Company's option, at either (1) a rate
per annum equal to the higher of the federal funds rate as published in the
Federal Reserve System plus 0.5% or the rate publicly announced from time to
time by Morgan Guaranty Trust Company of New York as its "prime" rate or (2)
LIBOR plus 2.0%. The Agreement contains certain negative and affirmative
covenants. There is no required prepayment or scheduled reduction of
availability of loans under the Agreement.
Additionally, in July 1996, the Company and the Majority Shareholder entered
into a cash management agreement, whereby the Majority Shareholder will
provide cash advances up to $2,000,000 to the Company for cash shortfalls.
This agreement has a termination date of June 1, 1998 and bears interest rates
equal to the Federal Funds Rates.
As of December 29, 1996, the Company has an aggregate outstanding balance of
$28,880,000 on the agreements, with interest rates ranging from 5.1% to 6.6%.
32
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INDEBTEDNESS (CONTINUED)
B. SHORT-TERM DEBT
Line of Credit: On October 12, 1992, one of the Company's Belgian
subsidiaries entered into a $4,000,000 Credit Agreement with a Belgian bank.
This agreement has no defined expiration date and requires the bank to give
six months notice of termination, if no defaults exist. Borrowings under this
agreement may be in the form of various bank instruments, in various
currencies and at various interest rates, at the Company's option, and are
secured by essentially all of the subsidiary's assets, except real property.
Under the terms of this agreement the subsidiary is subject to certain
covenants and restrictions. At December 29, 1996, $2,948,000 was outstanding
under this agreement, leaving $1,052,000 available to the Company. As of
February 3, 1997, all balances outstanding under this credit agreement were
repaid and the line of credit was canceled.
9. TAXES BASED ON INCOME
The provision for (benefit of) income taxes consists of the following for
years ended in December:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $ --
State.......................................... (201) (54) (1,515)
Foreign........................................ (2,257) 3,626 1,790
------- ------ -------
$(2,458) $3,572 $ 275
======= ====== =======
</TABLE>
The following is a reconciliation of the difference between the actual
provision for income taxes and the provision computed by applying the federal
statutory tax rate on loss before income taxes and equity in income from
subsidiaries excluded from the Exchange:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed income taxes using statutory tax rate..... $(20,672) $(2,501) $(8,033)
Increases (reduction) from:
Foreign taxes at rates other than statutory rate.. 3,573 1,765 1,729
Foreign withholding tax........................... --- 484 454
Operating losses without current tax benefit...... 9,259 3,932 7,165
Write down of facility without current tax
benefit.......................................... 4,078 -- --
Goodwill amortization............................. 1,686 550 550
Minority interest................................. (251) (576) (65)
State taxes, net of federal benefit............... (131) (82) (1,525)
-------- ------- -------
$ (2,458) $ 3,572 $ 275
======== ======= =======
</TABLE>
33
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. TAXES BASED ON INCOME (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components
of the Company's deferred tax assets and liabilities at December 29, 1996 and
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax liabilities related to:
Excess of purchase book value over tax basis of property,
plant, and equipment..................................... $ 3,435 $ 2,896
Depreciation methods...................................... 2,072 1,268
Prepaid pension costs..................................... 1,143 1,367
Other, net................................................ -- 51
-------- --------
6,650 5,582
Deferred tax assets related to:
Inventories............................................... 15,433 11,250
Accumulated postretiree medical benefit obligation........ 1,476 1,635
Accrued liabilities....................................... 5,311 1,695
Accrued compensation and benefits......................... 2,901 2,018
Accounts receivable....................................... 1,287 676
Net operating loss carryover.............................. 20,505 4,074
Foreign tax credit carryover.............................. 22,305 32,208
Other, net................................................ 212 880
-------- --------
69,430 54,436
-------- --------
Valuation allowance for deferred tax assets............... (62,780) (48,854)
-------- --------
$ -- $ --
======== ========
</TABLE>
The Company has provided a valuation allowance for its net deferred tax
assets because of the likelihood that it will not be able to realize those
assets during their carry forward or turnaround periods.
The Company has a net operating loss for federal income tax purposes of
$48,000,000 expiring in years through 2011. Additionally, the Company has
foreign tax credits of $22,300,000 expiring in years 1997 to 2000.
For financial reporting purposes, loss before income taxes and equity in
income from subsidiaries excluded from the exchange included the following
components for the years ended in December:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Pretax income (loss):
United States.............................. $ (42,404) $(11,079) $(21,832)
Foreign.................................... (16,658) 3,933 (1,119)
--------- -------- --------
$(59,062) $ (7,146) $(22,951)
========= ======== ========
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $23,000,000 at December 29, 1996. Approximately $17,000,000 of
those earnings are considered to be indefinitely reinvested. Distribution of
foreign earnings, including the cumulative translation adjustment component,
would not create a residual U.S. tax liability due to the availability of
foreign tax credits to offset U.S. taxes. Withholding taxes of approximately
$700,000 would be payable upon the remittance of the portion of the foreign
earnings which is considered permanently reinvested.
34
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE BENEFIT PLANS
A. DEFINED BENEFIT PLAN
Substantially all of the Company employees are covered by a contributory
defined benefit plan sponsored by the Majority Shareholder. Normal retirement
age is 65, but provision is made for earlier retirement. Benefits are based on
salary and years of service. Substantially all benefits are paid from funds
previously provided to trustees. The Majority Shareholder's funding policy is
to make contributions that are consistent with U.S. government cost
allowability and Internal Revenue Service deductibility requirements, subject
to the full funding limits of the Employee Retirement Income Security Act of
1974 (ERISA). Contributions made by the Majority Shareholder on behalf of the
Company's employees are billed to the Company. In accordance with Statement of
Financial Accounting Standards No. 87 "Employers' Accounting for Pensions,"
(SFAS No. 87), the cumulative net difference for all periods since SFAS No. 87
was adopted between amounts contributed to the plan and amounts recorded as
net pension cost is recorded in the consolidated balance sheet.
Net pension cost for the years ended in December, as determined in
accordance with SFAS No. 87, was:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits accrued during the
year........................................ $ 2,016 $ 1,954 $ 2,827
Interest cost on projected benefit
obligation.................................. 2,794 2,756 2,626
Actual return on plan assets................. (6,689) (2,824) (2,500)
Net amortization and deferral................ 2,916 (341) (188)
Employee contributions....................... (359) (479) (554)
------- ------- -------
$ 678 $ 1,066 $ 2,211
======= ======= =======
</TABLE>
An analysis of the funded status of the plan follows for the years ended in
December:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Plan assets at fair value.............................. $50,805 $44,716
Actuarial present value of benefit obligation:
Vested benefits....................................... 29,946 30,407
Nonvested benefits.................................... 1,118 2,035
------- -------
Accumulated benefit obligation......................... 31,064 32,442
Effect of future salary increases...................... 4,464 3,496
------- -------
Projected benefit obligation........................... 35,528 35,938
------- -------
Plan assets in excess of projected benefit obligation.. $15,277 $ 8,778
======= =======
Consisting of:
Unrecognized net asset at initial application of SFAS
No. 87............................................... $ 497 $ 772
Unrecognized prior service cost....................... (49) (95)
Unrecognized net gain................................. 12,026 5,120
Prepaid pension asset................................. 2,803 2,981
------- -------
$15,277 $ 8,778
======= =======
</TABLE>
35
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
Plan assets are comprised of approximately 55% equity securities and 45%
fixed income securities including cash equivalents. Actuarial determinations
were based on various assumptions as illustrated in the following table. Net
pension costs in 1996, 1995 and 1994 were based on assumptions in effect at
the end of the respective preceding year. Benefit obligations as of the end of
each year reflect assumptions in effect as of those dates.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate on benefit obligations................... 7.75% 7.50% 8.50%
Average of full-career compensation increases for those
employees whose benefits are affected by compensation
levels................................................ 6.00% 6.00% 6.00%
Expected long-term rate of return on plan assets....... 9.00% 8.80% 8.00%
</TABLE>
Neither the Majority Shareholder nor the Company has any present intention
of terminating any of its pension plans. However, if a qualified defined
benefit plan is terminated, the Company would be required to vest all
participants and purchase annuities with plan assets to meet the accumulated
benefit obligation for such participants.
B. RETIREE MEDICAL PLAN
The Company currently provides medical benefits under a contributory group
medical plan sponsored by the Majority Shareholder for certain early (pre-65)
retirees and under a noncontributory group Medicare supplement plan for
retirees aged 65 and over (post-65) with greater than ten years of service.
Under the accrual accounting methods of Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits other
than Pensions," (SFAS No. 106), the present value of the actuarially
determined expected future cost of providing medical benefits is attributed to
each year of employee service. The service and interest cost recognized each
year is added to the accumulated postretiree medical benefit obligation. Net
retiree medical benefit costs as determined under SFAS No. 106 for the years
ended in December were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the year................ $325 $304 $386
Interest cost on accumulated post retiree medical benefit
obligation.................................................. 492 590 415
Actual return on plan assets................................. (194) (129) (59)
Net amortization............................................. (20) -- --
---- ---- ----
$603 $765 $742
==== ==== ====
</TABLE>
The Company has implemented funding approaches to help manage future retiree
medical costs. A 401(h) trust established under IRS regulations began
receiving funding in 1992. At December 29, 1996, this trust held $2,902,224 in
short term investment fund accounts. Earnings on trust assets are recorded as
a reduction to annual SFAS No. 106 costs.
36
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
Under SFAS No. 106, actual medical benefit payments to retirees reduce the
Company's accumulated postretiree medical benefit obligation, and any trust
funding reduces the unfunded portion of this obligation on the Company's
balance sheet. An analysis of the funded status of the retiree medical benefit
plan follows for the years ended December:
<TABLE>
<CAPTION>
1996 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Retirees................................................. $4,767 $4,143
Employees eligible to retire............................. 789 768
Employees not eligible to retire......................... 1,646 1,875
------ ------
Accumulated postretirement benefit obligation.............. 7,202 6,786
Plan assets at fair value.................................. (2,902) (2,052)
------ ------
Accumulated postretirement benefit obligation in excess of
plan assets............................................... 4,300 4,734
Unrecognized net loss...................................... (721) (772)
Unrecognized prior service cost............................ 158 178
------ ------
Accrued postretirement benefit unfunded liability.......... $3,737 $4,140
====== ======
</TABLE>
Actuarial determinations were based on various assumptions, as illustrated
in the following table. Net retiree medical costs were based on assumptions in
effect at the end of the respective preceding years. Benefit obligations as of
the end of each year reflect assumptions in effect as of those dates.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- -----
<S> <C> <C> <C>
Discount rate......................................... 7.75% 7.50% 8.50%
Expected long-term rate of return on plan assets...... 9.00% 8.80% 8.00%
Range of medical trend rates:
Initial:
Pre-65 retirees.................................... 8.00% 8.00% 11.00%
Post-65 retirees................................... 8.00% 8.00% 6.00%
Ultimate:
Pre-65 retirees.................................... 4.50% 4.50% 5.00%
Post-65 retirees................................... 2.00% 2.00% 2.00%
</TABLE>
Long-term medical trend rates are applicable to the calculation of benefit
obligations for pre-65 and post-65 retirees after 7 and 12 years,
respectively, in 1996, 8 and 13 years, respectively, in 1995 and 20 and 16
years, respectively, in 1994.
An increase of one percentage point in the assumed medical trend rates would
result in a 13.0% increase in accumulated postretirement benefit obligation to
$8,135,781 at December 29, 1996, and a 1996 net retiree medical benefit cost
under SFAS No. 106 of approximately $740,308. The Company believes that the
cost containment features the Majority Shareholder has previously adopted and
the funding approaches under way will allow it to effectively manage its
retiree medical expenses. The Company and the Majority Shareholder will
continue to monitor the costs of retiree medical benefits and may further
modify the plans if circumstances warrant.
37
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
C. DEFINED CONTRIBUTION PLAN
The Company's Majority Shareholder maintains contributory 401(k) savings
plans for salaried and hourly employees of the Majority Shareholder and its
subsidiaries, which cover substantially all employees. Employees' eligible
contributions are matched by the Majority Shareholder at a 50% rate. The
Majority Shareholder charged to the Company expenses of $1,131,000, $1,152,000
and $1,446,000 in 1996, 1995 and 1994, respectively, for contributions made on
behalf of the Company's employees.
11. STOCK PLANS
A. COMMON STOCK RESERVED
The following shares of common stock are reserved for issuance at December
29, 1996:
<TABLE>
<S> <C>
1996 stock option plan....................................... 2,000,000
1987 stock option plan....................................... 1,239,000
Warrants..................................................... 202,500
----------
3,441,500
==========
</TABLE>
B. STOCK OPTION PLANS
The Company's Board of Directors has adopted the CalComp Technology, Inc.
1996 Stock Option Plan for Key Employees ("the Plan"). Under the terms of the
Plan, eligible key employees can receive options to purchase the Company's
common stock or stock appreciation rights at prices not less than the fair
value of the Company's common stock at the date of grant. Options and rights
granted under the Plan vest over a three year period and expire ten years
after the date of grant or six months after termination of employment.
In connection with its acquisition of Summagraphics Corporation, the Company
assumed 705,662 options outstanding under the Summagraphics 1987 Stock Option
Plan at prices ranging from $.01 to $9.00 per share and which expire through
2005.
A summary of changes in stock issuable under employee option plans follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995............... --
Options assumed through acquisition........... 705,662 $4.48
Granted....................................... 885,500 1.91
Exercised..................................... -- --
Forfeited..................................... (132,273) 4.13
--------- -----
Outstanding at December 29, 1996............... 1,458,889 $2.95
========= =====
</TABLE>
At December 29, 1996, 613,853 options were exercisable at prices ranging
from $.01 to $9.00 a share. The weighted-average remaining contractual life of
these options is 6.84 years.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option
38
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. STOCK PLANS (CONTINUED)
pricing model with the following weighted-average assumptions; risk-free
interest rate of 6%; dividends yield of 0%; volatility of the expected market
price of the Company's common stock of 0.5; and a weighted-average expected
life of the option of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effect
on the Company's pro forma information, as compared to the Consolidated
Statement of Operations presented herein, for the year ended December 29, 1996
is immaterial. The Company issued no options in 1995.
C. WARRANTS
The terms of warrant to acquire shares of common stock are as follows at
December 29, 1996:
<TABLE>
<CAPTION>
WARRANTS PRICE EXPIRATION DATE
-------- ------- ---------------
<C> <C> <S>
150,000 $9.00 May 1, 1997
15,000 $2.00 March 7, 2006
37,500 $1.75 December 6, 2000
-------
202,500
=======
</TABLE>
39
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. FINANCIAL INFORMATION RELATING TO SEGMENTS AND FOREIGN AND DOMESTIC
OPERATIONS
The Company operates in one industry segment, the manufacture, sale and
support of computer graphics products. A summary of the Company's net sales,
loss from operations and identifiable assets by geographic area is as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 29, 1996
---------------------------------------------------------------
MAJORITY
NORTH PACIFIC SHAREHOLDER
AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED
-------- -------- ------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers.............. $ 95,545 $101,405 $38,966 $ -- $ -- $235,916
Transfers between
geographical areas..... 78,441 6,216 -- (84,657) -- --
-------- -------- ------- -------- ------- --------
Net sales............... $173,986 $107,621 $38,966 $(84,657) $ -- $235,916
======== ======== ======= ======== ======= ========
Income (loss) from
operations............. $(40,983) $(18,814) $ 3,562 $ 222 $(3,567) $(59,580)
======== ======== ======= ======== ======= ========
Identifiable assets..... $148,065 $ 95,288 $39,652 $ (6,920) $ -- $276,085
======== ======== ======= ======== ======= ========
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------
MAJORITY
NORTH PACIFIC SHAREHOLDER
AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED
-------- -------- ------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers.............. $116,921 $122,177 $42,557 $ -- $ -- $281,655
Transfers between
geographical areas..... 83,579 -- -- (83,579) -- --
-------- -------- ------- -------- ------- --------
Net Sales............... $200,500 $122,177 $42,557 $(83,579) $ -- $281,655
======== ======== ======= ======== ======= ========
Income (loss) from
operations............. $(10,087) $ 1,974 $ 6,018 $ 1,232 $(8,225) $ (9,088)
======== ======== ======= ======== ======= ========
Identifiable assets..... $145,186 $ 78,966 $15,023 $ (7,611) $ -- $231,564
======== ======== ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 25, 1994
--------------------------------------------------------------
MAJORITY
NORTH PACIFIC SHAREHOLDER
AMERICA EUROPE RIM ELIMINATED ALLOCATION CONSOLIDATED
-------- -------- ------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers.............. $130,370 $125,114 $39,064 $ -- $ -- $294,548
Transfers between
geographical areas..... 77,916 -- -- (77,916) -- --
-------- -------- ------- -------- -------- --------
Net sales............... $208,286 $125,114 $39,064 $(77,916) $ $294,548
======== ======== ======= ======== ======== ========
Income (loss) from
operations............. $(21,493) $ 2,916 $ 5,042 $ 494 $(10,423) $(23,464)
======== ======== ======= ======== ======== ========
Identifiable assets..... $138,580 $ 83,625 $15,107 $ (9,000) $ -- $228,312
======== ======== ======= ======== ======== ========
</TABLE>
In determining net income (loss) from operations for each geographic area,
sales and purchases between geographic areas have been accounted for on the
basis of internal transfer prices set by the Company. Identifiable assets by
geographic area are those assets that are used in the Company's operations in
each location.
40
<PAGE>
CALCOMP TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUBSEQUENT EVENT
Subsequent to December 29, 1996, the Company has entered into discussions
with potential buyers concerning the sale of the headquarters facility. Based
on these discussions, the Company believes it may realize a gain on the sale
of the facility which will be recorded upon closing of the transaction.
14. VALUATION AND QUALIFYING ACCOUNTS
For the years ending in December 1996, 1995 and 1994, certain supplementary
information regarding valuation and qualifying accounts follows (in
thousands):
<TABLE>
<CAPTION>
BALANCES AT CHARGED BALANCES
BEGINNING TO COST AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ----------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful
receivables:
1996........................... $ 4,102 $ 536 $ 35 $ 4,603
1995........................... $ 3,411 $1,192 $ 501 $ 4,102
1994........................... $ 3,020 $1,547 $1,156 $ 3,411
Reserves for excess and obsolete
inventory:
1996........................... $26,822 $4,854 $1,283 $30,393
1995........................... $29,898 $4,522 $7,598 $26,822
1994........................... $28,004 $5,402 $3,508 $29,898
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has no disagreements on accounting or financial disclosure
matters with its independent auditors.
41
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
DIRECTORS
The Company's Bylaws authorize a Board consisting of such number of
Directors as shall be determined by the Board or Stockholders, with the number
of Directors currently fixed at eight. In connection with the Exchange, the
Company and Lockheed Martin entered into an agreement pursuant to which
Lockheed Martin and the Company agreed, among other things, that for so long
as Lockheed Martin owns at least 50% of the Common Stock of the Company, at
least two-thirds of the members of the Board of Directors will consist of
Lockheed Martin designees and at least two directors will be "independent" of
both Lockheed Martin and the Company. One position on the Board is currently
vacant as a result of the retirement, effective February 28, 1997, of Gary R.
Long, the former President and Chief Executive Officer of the Company and a
former Director.
The current Directors of the Company are as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- --------
<S> <C> <C> <C>
Lockheed Martin Designees:
Peter B. Teets............... 55 Chairman of the Board of Directors 1996
Gary P. Mann................. 51 Director 1996
Terry F. Powell.............. 51 Director 1996
Gerald W. Schaefer........... 49 Director 1996
Walter E. Skowronski......... 48 Director 1997
Independent Designees:
Neil A. Knox................. 44 Director 1996
Kenneth R. Ratcliffe......... 50 Director 1996
</TABLE>
Peter B. Teets, the Chairman of the Board of Directors, has served as
President and Chief Operating Officer, Information & Services Sector, Lockheed
Martin Corporation, since March 1995. Mr. Teets also served as President,
Space Group, Martin Marietta Corporation, from 1993 to 1995. From 1987 to
1993, Mr. Teets served as President, Astronautics Group, Martin Marietta
Corporation.
Gary P. Mann has served as President, Commercial Systems Group, Information
& Services Sector, Lockheed Martin Corporation, since February 1996. From
March 1995 to January 1996, Mr. Mann served as Vice President, Business
Development, Information & Technology Services Sector, Lockheed Martin
Corporation. Mr. Mann has also served as Vice President and General Manager,
Martin Marietta Information Systems Company, from 1993 to March 1995. From
1991 to 1993, Mr. Mann served as President, Martin Marietta Technical
Services.
Terry F. Powell has served as Vice President, Human Resources, Information &
Services Sector, Lockheed Martin Corporation, since March 1995. Mr. Powell has
also served as Vice President Human Resources, Lockheed Aeronautical Systems
Company, from 1987 to 1995.
Gerald W. Schaefer has served as Vice President, Finance, Information &
Services Sector, Lockheed Martin Corporation, since March 1995. Mr. Schaefer
also served as Vice President, Finance, Space Group, Martin Marietta
Corporation from 1993 to 1995. From 1989 to 1993, Mr. Schaefer served as
Manager, Finance, Aerospace Operations Division, GE Aerospace.
Walter E. Skowronski has served as Vice President and Treasurer of Lockheed
Martin Corporation since March 1995. Mr. Skowronski also served as Vice
President and Treasurer of Lockheed Corporation, from 1992 to 1995. From 1990
to 1992, Mr. Skowronski served as Staff Vice President-Investor Relations.
42
<PAGE>
Neil A. Knox has served as Vice President and General Manager of Sun
Microsystems, Internet Products Group, a business unit of Sun Microsystems
Computer Company since October 1995. Prior to that time, Mr. Knox served as
Vice President of Reseller Channels in Sun Microsystems United States field
operations.
Kenneth R. Ratcliffe has served as a Principal of Rohner Associates, a
management consulting firm, since July 1996. Mr. Ratcliffe has also served as
President and Chief Operating Officer, PC Connection, Inc., from 1994 to 1995.
From 1987 to 1993, Mr. Ratcliffe served as Vice President, Finance and
Operations, Apple Computer.
EXECUTIVE OFFICERS
The current Executive Officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- -----------------------------------------------------
<C> <C> <S>
John J. Millerick.. 48 Interim President and Chief Executive Officer; Senior
Vice President and Chief Financial Officer
James R. Bell...... 55 Senior Vice President, Input Technologies Division
Winfried Rohloff... 44 Senior Vice President, World Wide Sales, Marketing &
Service
Harold H. Simeroth. 53 Senior Vice President, Digital Imaging Systems
Division
</TABLE>
John J. Millerick was appointed interim President and Chief Executive
Officer of the Company effective February 28, 1997, in addition to his
capacities as Senior Vice President and Chief Financial Officer of the Company
in which he has served since August 1996. Mr. Millerick was also Treasurer of
the Company from August 1996 until January 1997. Mr. Millerick previously
served as Vice President-Finance for Digital Equipment Corporation's Personal
Computer Business Unit from December 1994 until August 1995. Before joining
Digital, Mr. Millerick served 12 years at Wang Laboratories in several
management positions, leaving as Vice President-Corporate Controller and
Acting Chief Financial Officer.
James R. Bell has been Senior Vice President of the Company's Input
Technologies Division (formerly Digitizer Division) since the beginning of
1994. Mr. Bell returned to the Company after serving for nearly two years as
Vice President of Business Development for Lockheed Commercial Electronics Co.
Mr. Bell first joined the Company in 1983 and was named Vice President of
Operations of the former Display Products Division in 1988.
Winfried Rohloff has been Senior Vice President, Worldwide Sales, Marketing
and Service since July 1996. Mr. Rohloff previously served as Vice President
Europe from 1994 to 1996 and Director Central Europe from 1993 to 1994. He has
also held a variety of other sales and marketing positions since joining the
Company in 1980.
Harold H. Simeroth joined the Company as Senior Vice President, Product
Development in November 1995. Before accepting that position, Mr. Simeroth was
Vice President of Engineering at Encad for the previous two years. Mr.
Simeroth has been in the computer industry since 1969 in a number of key
engineering and management positions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and Executive Officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the SEC) initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Directors, Executive Officers and greater-than ten percent
beneficial owners of the Company's Common Stock are required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms they file.
43
<PAGE>
To the Company's knowledge, based solely on its review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 29, 1996 all
Section 16(a) filing requirements applicable to its Directors, Executive
Officers and greater-than ten percent beneficial owners were satisfied.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following sets forth certain summary compensation information concerning
the named Executive Officers for each of the Company's last three fiscal
years:
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------ ---------------------
AWARDS
---------------------
NUMBER OF NUMBER OF
SECURITIES SECURITIES
OTHER ANNUAL UNDERLYING UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION COMPANY LOCKHEED COMPENSATION
POSITION(1) YEAR SALARY BONUS (2)(3)(4) OPTIONS(5) OPTIONS(6) (7)
- ------------------------ ------ -------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary R. Long 1996 $250,016 -- $ 24,900 100,000 7,000 $ 12,463
Chief Executive Officer 1995 265,208 $103,000 -- -- 7,000 12,988
and President.......... 1994 248,408 90,000 69,283 -- -- 11,924
James R. Bell
Senior V.P., 1996 160,061 -- 59,867 50,000 3,000 7,774
Input Technologies 1995 164,519 55,800 36,048 -- 2,700 8,497
Division............... 1994 151,799 48,800 166,685 -- -- 7,118
Winfried Rohloff
Senior V.P., 1996 207,727 88,718 43,061 50,000 2,700 --
World Wide Sales, 1995 204,426 72,553 -- -- 3,500 --
Marketing & Service.... 1994 192,986 50,300 -- -- -- --
Harold H. Simeroth
Senior V.P., 1996 160,004 -- 23,534 50,000 500 1,071
Digital Imaging 1995 -- -- -- -- -- --
Systems Division....... 1994 -- -- -- -- -- --
James L. Volkmar
Vice President 1996 152,993 -- 10,842 -- 3,000 192,940
North American 1995 142,704 91,600 53,862 -- 3,500 --
Channels............... 1994 -- -- -- -- -- --
</TABLE>
- --------
(1) Mr. Long retired as an Executive Officer and Director of the Company
effective February 28, 1997 and Mr. Volkmar resigned as an Executive
Officer of the Company effective September 20, 1996. Mr. Simeroth became
an Executive Officer of the Company effective July 23, 1996.
(2) During 1996, certain Executive Officers of the Company received personal
benefits from the Company. The cost of the personal benefits furnished to
each named Executive Officer with the exceptions of Messrs. Bell, Rohloff
and Simeroth did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus of that Executive Officer as reported in the above
table. The amount reported for Mr. Bell for 1996 includes $38,820 for a
car lease buyout payment and $21,047 for tax reimbursements, financial
services, airline club memberships, and health club dues. The amount
reported for Mr. Rohloff for 1996 includes payments of $20,526 for
relocation expenses, $15,510 for tax reimbursements, and $7,025 for Cost
of Living Adjustment. The amount reported for Mr. Simeroth for 1996
includes payments of $23,084 for relocation expenses and $450 for airline
club memberships. All payments of perquisites and other personal benefits
to the named Executive Officers, including relocation expenses, were made
in accordance with the Company's policies and procedures.
44
<PAGE>
(3) The amount reported for Mr. Bell for 1995 includes payments of $16,500 for
a country club membership and $10,904 for tax reimbursements, health club
dues and car telephone expenses. The amount reported for Mr. Volkmar for
1995 represents relocation expenses.
(4) The amount reported for Mr. Long for 1994 includes payments of $67,632 for
relocation expenses and $1,651 for financial services and airline club
memberships. The amount reported for Mr. Bell for 1994 includes payments
of $153,155 for relocation expenses and $13,530 for financial services,
health club dues, airline club memberships and the use of a company car.
(5) The referenced options were granted under the Company's 1996 Stock Option
Plan for Key Employees and relate to Common Stock of the Company.
(6) The referenced options for 1996 and 1995 were granted under the Lockheed
Martin Corporation Amended Omnibus Securities Award Plan and for 1994
under Lockheed Corporation stock option plans, and relate to shares of
common stock of Lockheed Martin.
(7) Amounts include Lockheed Martin's (for 1995 and 1996) and Lockheed
Corporation's (for 1994) matching contributions under the Lockheed
Salaried Employees Savings Plan Plus (401K Plan) for Messrs. Long, Bell,
Simeroth, and Volkmar of $29,174, $21,406, $1,071 and $5,028 respectively,
and Lockheed Martin's (for 1995 and 1996) and Lockheed Corporation's (for
1994) contributions to the Lockheed non-qualified supplemental plan for
Messrs. Long and Bell of $8,201 and $1,983, respectively. Amounts also
include severance payments of $187,912 for Mr. Volkmar.
OPTION GRANTS IN LAST FISCAL YEAR
The following sets forth certain information concerning individual grants of
stock options during the fiscal year ended December 29, 1996 to each of the
named Executive Officers by the Company and Lockheed Martin, respectively:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS BY THE COMPANY
- ------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL EXERCISE AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OR BASE OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN ($/SHARE) EXPIRATION ----------------------------
NAME GRANTED (1) FISCAL YEAR (2) DATE 5% 10%
---- ------------ ------------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gary R. Long............ 100,000 11.94% $1.75 08/06/06 $ 110,057 $ 278,905
James R. Bell........... 50,000 5.97% 1.75 08/06/06 55,029 139,453
Winfried Rohloff........ 50,000 5.97% 1.75 08/06/06 55,029 139,453
Harold H. Simeroth...... 50,000 5.97% 1.75 08/06/06 55,029 139,453
James L. Volkmar........ -- -- -- -- -- --
</TABLE>
(1) No SARS were granted in 1996.
(2) The options were granted under the CalComp Technology, Inc. 1996 Stock
Option Plan for Key Employees for a term of 10 years, subject to earlier
termination in certain events related to termination of employment, and
become exercisable 33% per year beginning one year from the date of grant.
Options awarded in 1996 expire six months following termination of
employment except in instances of death, disability, layoff or retirement.
In the event of death all outstanding options vest immediately and will
expire at the end of their remaining term or three years following death,
whichever is earlier. In instances of disability, all outstanding options
vest immediately and expire on the normal expiration date, ten years
following the date of grant. In instances of layoff or early or normal
retirement the terms of all outstanding options that have been outstanding
for 18 months or more, or which have already vested, will be unaffected by
such layoff or retirement. Options outstanding less than 18 months which
have not vested will be forfeited. In the event of a change in control of
the Company, the options would vest to the extent not already vested.
(3) All options were granted at fair market value (the last sales price for
the Company's Common Stock on the trading day previous to the date of
grant as reported by NASDAQ).
45
<PAGE>
(4) The dollar amounts set forth in these columns are the result of
calculations at the 5% and 10% rates set by the Securities and Exchange
Commission, and, therefore, are not intended to forecast possible future
appreciation, if any, of the Company's Common Stock price.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS BY LOCKHEED MARTIN FOR OPTION TERM(3)
- ------------------------------------------------------------------------ -----------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS IN FISCAL BASE PRICE EXPIRATION
NAME GRANTED (1) YEAR ($/SHARE) (2) DATE 5% 10%
---- ----------- ---------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary R. Long............ 7,000 .37% $74.125 1/25/06 $326,318 $826,953
James R. Bell........... 3,000 .16% 74.125 1/25/06 139,850 354,408
Winfried Rohloff........ 2,700 .14% 74.125 1/25/06 125,866 318,967
Harold H. Simeroth...... 500 .03% 74.125 1/25/06 23,308 59,069
James L. Volkmar........ 3,000 .16% 74.125 1/25/06 139,850 354,408
</TABLE>
- --------
(1) No SARs were granted in 1996.
(2) The options were granted under the Lockheed Martin Corporation Omnibus
Securities Award Plan for a term of 10 years, subject to earlier
termination in certain events related to termination of employment. The
options vest and become exercisable in two equal installments on the first
and second anniversary dates following the grant. Options awarded in 1996
expire 186 days following termination of employment. The options vest and
become exercisable in instances of death, disability, layoff or
retirement. In the event of death all outstanding options vest immediately
and will expire at the end of their remaining term or three years
following death, whichever is earlier. In instances of disability, all
outstanding options vest immediately and expire on the normal expiration
date, ten years following the date of grant. In instances of layoff all
outstanding options will be unaffected by such layoff. In instances of
retirement which occurs on or after the first vesting date, options
remaining on the second vesting date will vest as though the employee had
remained employed through the second vesting date. In the event of a
change in control of Lockheed Martin, the options would vest to the extent
not already vested.
(3) All options were granted at fair market value (the last sales price for
the Lockheed Martin Common Stock on the day previous to the date of grant
as reported by the New York Stock Exchange).
(4) The dollar amounts set forth in these columns are the result of
calculations at the 5% and 10% rates set by the SEC, and, therefore, are
not intended to forecast possible future appreciation, if any, of Lockheed
Martin Common Stock prices.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following sets forth certain information concerning each exercise of
stock options during the fiscal year ended December 29, 1996 by each of the
named Executive Officers and the aggregated fiscal year-end value of the
unexercised options of each such Executive Officer:
46
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE AT FISCAL YEAR-END FISCAL YEAR-END ($)(2)
ON REALIZED ------------------------- -------------------------
NAME(1) EXERCISE ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary R. Long--Company -- $ -- -- 100,000 $ -- $ 93,800
-- Lockheed Martin..... -- -- 3,500 10,500 112,420 234,045
James R. Bell--Company -- -- -- 50,000 -- 46,900
-- Lockheed Martin..... -- -- 5,254.5 4,750 160,503 108,335
Winfried Rohloff--
Company -- -- -- 50,000 -- 46,900
-- Lockheed Martin..... -- -- 1,750 4,450 56,210 103,123
Harold H. Simeroth--
Company -- -- -- 50,000 -- 46,900
-- Lockheed Martin..... -- -- -- 500 -- 45,750
James L. Volkmar--
Company -- -- -- -- -- --
-- Lockheed Martin..... 750 26,719 1,000 4,750 32,120 167,415
</TABLE>
- --------
(1) The first line next to each Executive Officer's name indicates options to
acquire shares of the Company's Common Stock. The second line indicates
options to acquire shares of Common Stock of Lockheed Martin.
(2) Market value of underlying securities at exercise date or year-end, as the
case may be, minus the exercise or base price of "in-the-money" options.
PENSION PLAN
The Executive Officers of the Company named in the Summary Compensation
Table set forth above, with the exception of Mr. Rohloff, participate in the
Sanders Pension Plan (the "Pension Plan"), which covers all of the Company's
Executive Officers and substantially all of the salaried employees of the
Company on a contributory basis. Set forth below is a pension table, which
shows the estimated annual benefits payable upon retirement for specified
earnings and years of service under the Pension Plan. The following
information does not apply to Mr. Rohloff who is covered under a pension plan
sponsored by the German government.
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
FINAL AVERAGE EARNINGS 15 20 25 30 40
- ---------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000........................... $ 21,912 $ 29,220 $ 35,064 $ 40,908 $ 52,752
150,000........................... 33,168 44,220 53,064 61,908 79,752
200,000(1)........................ 44,412 59,220 71,064 82,908 106,752
300,000(1)........................ 66,912 89,220 107,064 124,908 160,752
400,000(1)........................ 89,412 119,220 143,064 166,908 214,752
500,000(1)........................ 111,912 149,220 179,064 208,908 268,752
</TABLE>
(1) Benefits payable under the Pension Plan may be limited by Section
401(a)(17) and 415 of the Internal Revenue Code. The maximum annual amount
payable under the Pension Plan as of December 29, 1996 in accordance with
Section 415(b) was $120,000 at age 65 for someone born before January 1, 1938.
Compensation covered by the Pension Plan generally includes, but is not
limited to, base salary, executive compensation awards and overtime. The
normal retirement age under the Pension Plan is 65, but unreduced early
retirement benefits are available at age 62 and reduced benefits are available
as early as age 55. The calculation of retirement benefits under the Pension
Plan is generally based upon an annual accrual rate, average compensation for
the highest five years of the ten years preceding retirement, and the number
of years of service. Maximum benefits payable under the Pension Plan are
subject to current limits on benefits under the Internal Revenue Code. Except
for Messrs. Rohloff and Simeroth, the Executive Officers named in the Summary
Compensation Table participate in the Sanders Supplemental Executive
Retirement Plan, which provides for the
47
<PAGE>
payment of benefits in excess of those limits. Amounts listed in the foregoing
table are not subject to any deduction for Social Security benefits or other
offsets.
As of December 29, 1996, the estimated annual benefits payable upon
retirement at age 65 for the Executive Officers named in the compensation
table, based on continued employment at current compensation levels, are as
follows: Mr. Long $89,400 and Mr. Bell $69,362. The years of credited service
upon assumed retirement at age 65 for Mr. Long and Mr. Bell were 18.8 and
19.3, respectively.
Messrs. Long, Bell and Simeroth participated in the Lockheed Salaried
Employees Savings Plan Plus (the "Lockheed Savings Plan") which was in effect
until December 31, 1996. Under the Lockheed Savings Plan, participants could
save 2% to 12% of their base compensation on an after-tax or pretax basis (the
"Participant's Contribution"). Lockheed Martin matched 60% of up to the first
8% of compensation contributed on behalf of the employee (the "Matching
Contribution").
Participants in the Lockheed Savings Plan could direct the investment of the
Participant's Contribution among four different investment options, of which
Lockheed Martin common stock was one option. Prior to January 1, 1996, a
participant could not invest more than 25% of the Participant's Contribution
in the common stock Fund. Effective January 1, 1996, that limitation was
removed. Lockheed Martin's Matching Contribution was invested in Lockheed
Martin common stock to the extent determined by the Board of Directors of
Lockheed Martin. During certain periods prior to July 1, 1995, 50% of the
Matching Contribution was invested in the Lockheed Martin Common Stock Fund
and the remaining 50% was invested in the same funds as the Participant's
Contribution. Commencing with Matching Contributions made after July 1, 1995,
100% of the Matching Contribution was invested in the Lockheed Martin Common
Stock Fund.
Effective March 27, 1989, the Lockheed Savings Plan was amended to create
the Lockheed (ESOP Feature) Trust (the "ESOP Trust") to fund a portion of the
Matching Contribution. On April 4, 1989, Lockheed Corporation (predecessor to
Lockheed Martin) sold to the ESOP Trust 10,613,458 shares of Lockheed
Corporation common stock for an aggregate purchase price of $500 million. The
ESOP Trust financed the purchase of the stock through a loan payable over
fifteen years. As the loan is repaid, shares of stock are released from a
suspense account for allocation to the accounts of participants. The common
stock portion of the Matching Contribution is fulfilled, in part, with the
stock allocated from the suspense account (approximately 1,200,000 shares of
Lockheed Martin common stock per year). The balance of the stock portion of
the Matching Contribution is fulfilled through purchases of common stock on
the open market or from participants who terminate employment by retirement or
otherwise.
Participant's accounts may be distributed upon termination of employment,
except that all or portions of the Matching Contribution are forfeited if the
participant terminates employment prior to having earned five years of service
except if the termination is on account of retirement, disability, death,
commencement of military service or layoff.
Because of the limitations on annual contributions to the Lockheed Savings
Plan contained in the Internal Revenue Code, certain employees are not allowed
to elect to contribute the maximum 12 percent of compensation otherwise
permitted by the Lockheed Savings Plan. A supplemental savings plan has been
established for Lockheed Savings Plan participants affected by these limits.
Additional matching contributions that become payable under a Termination
Benefits Agreement are also payable through this plan. The supplemental
savings plan provides for payment in a lump sum or up to 20 annual
installments upon termination of employment, subject to restrictions similar
to those contained in the Lockheed Savings Plan, of amounts deferred by the
employee in excess of the Internal Revenue Code's deferral limit, the
corresponding Matching Contribution (if applicable) and the income on both.
All amounts accumulated and unpaid under this supplemental plan must be paid
in a lump sum within fifteen calendar days following a change in control, as
defined in the plan document.
48
<PAGE>
Effective January 1, 1997, the Lockheed Savings Plan and the prior Martin
Marietta Savings Plan (which was available to employees of the former Martin
Marietta Corporation) were consolidated into the Lockheed Martin Salaried
Savings Program ("Salaried Savings Program). Participants in the Salaried
Savings Program may contribute up to 17% of their base pay through pre-tax or
after-tax contributions (a maximum of 16% on a pretax basis). Participants in
the Salaried Savings Program can direct the investment of their contributions
into ten different investment options, including Lockheed Martin Corporation
common stock.
Lockheed Martin matches 50% of the first 8% of base pay contributed to the
Salaried Savings Program. Matching contributions are made in common stock of
Lockheed Martin through an employee stock ownership feature. The prior one-
year of continuous employment waiting period prior to eligibility has been
eliminated so that employees are eligible to join the Salaried Savings Program
at the start of their employment by the Company. Matching contributions are
100% vested.
The Company entered into an agreement with Gary Long on November 8, 1995
under the provisions of the Sanders Supplemental Executive Retirement Plan
("SERP"). Pursuant to this agreement, Mr. Long continued in the employ of
CalComp through February 28, 1997 at which time he was eligible for certain
SERP benefits, including: (i) one year of salary continuation plus the average
of the three prior years' incentive compensation with all benefits and
perquisites to which he was entitled as President of the Company continuing;
(ii) payment of a consulting fee equal to 35% of his base salary at retirement
for a one-year period following salary continuation; and (iii) a one-time
relocation benefit payable within one year of retirement. Mr. Long elected to
be paid items(i) and (ii) under the SERP in a lump sum of $404,189, which was
paid on February 28, 1997. Additionally, when Mr. Long reaches age 65 on May
18,1997, he will be entitled to certain retirement benefits, including Company
retiree life insurance coverage (beginning at $1 million in May, 1997 and
decreasing in equal annual increments to $250,000 beginning in May 2002 and
continuing at $250,000 until his death), dental coverage and retiree medical
plan benefits.
EMPLOYMENT ARRANGEMENTS
On June 25, 1996, CalComp Inc. and CalComp GmbH (both wholly-owned
subsidiaries of the Company) and Mr. Rohloff, entered into an employment
agreement with a term ending June 30, 1997. Salary thereunder was payable at
the rate of $207,727 per annum through June 30, 1997. The Agreement also
entitles Mr. Rohloff to a bonus in the amount of $88,718 for 1996, payable in
1997. Mr. Rohloff's employment agreement also provides for (1) his
participation in insurance, retirement, and other employee benefit plans
pursuant to his prior employment contract with CalComp GmbH in Germany, (2)
payment of a foreign service premium of 10% of base pay for the duration of
his assignment in the United States, and (3) reimbursement for travel and
related expenses, food and lodging, vehicle, transportation and food and
lodging for up to six visits by his spouse in accordance with Company
policies.
The Company has also entered into Change of Control Agreements with Messrs.
Simeroth, Bell and Rohloff. Benefits under these agreements are payable if,
within 18 months of a "change of control," (1) the officer is involuntarily
terminated by the Company or any successor owner (except for terminations for
cause), (2) the officer is removed from the position held immediately prior to
the change and the effect is a material reduction of status, responsibilities
or duties or, the officer's base salary at the time of change of control is
reduced and the officer terminates his employment within sixty (60) days after
his status or pay is reduced.
These agreements provide for a lump sum payment to each officer of one and
one-half years' annual salary for the period immediately prior to the change
of control plus an amount equal to one year's bonus award at the officer's
target level, less all statutory deductions. In addition, the agreements
provide for lump sum payment for any vacation earned but not taken prior to
termination of employment, outplacement assistance at a cost to the Company
not to exceed $20,000 and up to 18 months' continuation of the officer's then
current medical/dental coverage. In addition, the Company will pay for
medical/dental coverage for the officer and his dependents for the first 12
months following the employment termination date or, if earlier, until the
officer is eligible for coverage under a health plan of another employer.
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<PAGE>
"Change of control" of the Company is defined as the occurrence of any event
as a result of which, Lockheed Martin, one or more subsidiaries of Lockheed
Martin, or a combination thereof ceases to own or control (directly or
indirectly) more than 50% of the voting securities of the Company.
The Change of Control Agreement entered with Mr. Rohloff also grants Mr.
Rohloff the option of electing either the benefits under the terms of his
Change of Control Agreement or the benefits that are available to him under
German law, but not both.
DIRECTORS COMPENSATION
Directors, other than employees or officers of the Company or Lockheed
Martin, receive $10,000 annually for service on the Board of Directors, $1,000
per Board meeting attended and $500 per committee meeting attended. Directors
are reimbursed for expenses incurred in connection with attendance at Board
and committee meetings. Directors who are officers or employees of the Company
or Lockheed Martin are not compensated separately for service on the Board of
Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company during
the last fiscal year consisted of Messrs. Powell, Knox, Mann and Ratcliffe,
each of whom was a non-employee Director of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Certain information with respect to (i) each stockholder known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each of the current Directors, (iii) each of the Executive
Officers listed in the compensation tables herein, and all current Directors
and Executive Officers as a group, including the number of shares of the
Company's Common Stock beneficially owned by each of them as of February 28,
1997, is set forth below:
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
SHARES OF COMMON STOCK
NAME OF INDIVIDUAL COMMON STOCK BENEFICIALLY
OR IDENTITY OF GROUP(1) BENEFICIALLY OWNED OWNED
----------------------- ------------------ ------------
<S> <C> <C>
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817....................... 40,742,957 86.9%
Neil A. Knox.............................. -- (2)
Gary P. Mann.............................. -- (2)
Terry F. Powell........................... -- (2)
Kenneth R. Ratcliffe...................... -- (2)
Gerald W. Schaefer........................ 3,000 (2)
Walter E. Skowronski...................... 2,000 (2)
Peter B. Teets............................ 20,000 (2)
Gary R. Long(3)........................... -- (2)
James R. Bell............................. -- (2)
Winfried Rohloff.......................... -- (2)
Harold H. Simeroth........................ -- (2)
James L. Volkmar.......................... -- (2)
All Executive Officers and Directors
as a Group (11 persons).................. 25,000 (2)
</TABLE>
- --------
(1) The address for each of the named individuals is c/o CalComp Technology,
Inc., 2411 W. La Palma Avenue, Anaheim, California 92803. Unless otherwise
indicated, the named persons possess sole voting and
50
<PAGE>
investment power with respect to the shares listed (except to the extent
such authority is shared with spouses under applicable law).
(2) Less than 1% of the outstanding shares of Common Stock.
(3) Mr. Long retired as a Director and as President and Chief Executive
Officer of the Company effective February 28, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
General. Because of Lockheed Martin's beneficial ownership of in excess of
85% of the outstanding shares of the Company's Common Stock, Lockheed Martin
is able to elect all of the members of the Company's Board of Directors and
exercise a controlling influence over the business and affairs of the Company,
including any determinations with respect to mergers or other business
combinations involving the Company, the acquisition or disposition of assets
by the Company, the incurrence of indebtedness by the Company, the issuance of
any additional Common Stock or other equity securities, and the payment of any
dividends with respect to the Common Stock. In addition, Lockheed Martin, by
virtue of its controlling ownership, has the power to approve matters
submitted to a vote of the Company's stockholders (or by written consent in
lieu of a meeting) without the consent of the Company's other stockholders;
has the power to prevent a change in control of the Company; and could seek to
cause the Company to pay dividends, enter into business or financial
transactions with Lockheed Martin, sell assets, or take other actions that
might be favorable to Lockheed Martin.
The Company currently has a Board of Directors consisting of seven members.
Five members of the Board are officers, directors or employees of Lockheed
Martin. Two members of the Board, Messrs. Knox and Ratliffe, are neither
directors or officers nor employees of Lockheed Martin, nor officers or
employees of the Company. As a result of the February 28, 1997, retirement of
Gary R. Long, former President and Chief Executive Officer of the Company, one
authorized position on the Board of Directors is vacant. Lockheed Martin has
agreed with the Company to use its good faith efforts to continue to cause at
least two of the members of CalComp's Board of Directors to be independent of
Lockheed Martin and the Company. Subject to this agreement, Lockheed Martin
has the ability to change the size and composition of the Company's Board of
Directors and committees of the Board.
Revolving Credit Agreement. In connection with the Exchange, the Company and
Lockheed Martin entered into a revolving credit agreement (the "Revolving
Credit Agreement") pursuant to which Lockheed Martin agreed to provide, from
time to time, financing of up to $28 million for repayment of specified
indebtedness and general corporate purposes, including, without limitation,
financing the working capital needs of the Company and its subsidiaries. The
Revolving Credit Agreement had a term of two years from the date of its
execution, but could be terminated (or could have the maximum borrowing limit
reduced) after the first anniversary of the July 23, 1996 effective date of
the Revolving Credit Agreement, at CalComp's or Lockheed Martin's option, upon
at least 120 days' prior written notice of termination, which notice could be
given not more than 120 days prior to the first anniversary. On December 20,
1996, the Company and Lockheed Martin amended the Revolving Credit Agreement.
The amended Revolving Credit Agreement (the "Amended Revolving Credit
Agreement") increased the aggregate amount of borrowings available to the
Company under the existing credit line from $33 million to $73 million. The
Revolving Credit Agreement had previously been amended effective December 2,
1996 to increase available borrowings under the line from $28 million to $33
million while leaving the original terms and conditions unchanged. The Amended
Revolving Credit Agreement also amended the original agreement to provide,
among other things, for the following: (i) the addition of CalComp Inc., the
Company's wholly-owned subsidiary, as a party; (ii) the grant by the Company
and CalComp Inc. to Lockheed Martin of a general security interest in the
inventory, accounts, contract rights, general intangibles, chattel paper,
equipment and fixtures and the stock of certain of their subsidiaries,
securing the borrowings under the line; (iii) revisions to certain financial
covenants covering the Company's fixed charge coverage and leverage ratios;
and (iv) restrictions on the Company's ability to incur additional debt, make
investments and effect acquisitions, absent Lockheed Martin's approval. As of
December 29, 1996, the Company has borrowed an aggregate of $28.9
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<PAGE>
million under the line and expects to continue to use the additional funds
available under the increased line to meet working capital, investment and
restructuring requirements. There is no required prepayment or scheduled
reduction of availability of loans under the Amended Revolving Credit
Agreement.
Loans outstanding under the Amended Revolving Credit Agreement bear
interest, at the Company's option, either at (i) a rate per annum equal to the
higher of the Federal Funds rate plus 0.5% or the rate publicly announced from
time to time by Morgan Guaranty Trust Company of New York in New York as its
"prime" rate or (ii) LIBOR plus 2.0%. In addition, the Company is required to
pay Lockheed Martin a commitment fee equal to 0.45% per annum on the amount of
the available but unused commitment under the Amended Revolving Credit
Agreement. During 1996, the Company had paid Lockheed Martin an aggregate of
$0.3 million in interest and loan fees to Lockheed Martin.
The Amended Revolving Credit Agreement imposes certain negative and
affirmative covenants on the Company which limit the Company's ability to
incur indebtedness, to pay dividends, or to undertake certain corporate
actions (mergers, consolidations, etc.) without the prior approval of Lockheed
Martin. The Amended Revolving Credit Agreement also sets forth certain events
of default. The events of default include, without limitation, (i) failure to
pay interest or principal when due, (ii) material breach of any representation
or warranty, (iii) failure to perform certain covenants, (iv) failure to pay
other indebtedness when due or breach of any other term contained in other
agreements or instruments relating to other indebtedness, (v) commencement of
bankruptcy or reorganization proceedings, (vi) an event of default under the
Cash Management Facility or (vii) the occurrence of certain events the result
of which could reasonably be expected to have a Material Adverse Effect. In
the case of an Event of Default, Lockheed Martin may, by notice in writing to
the Company, terminate the Amended Revolving Credit Agreement and demand
payment of amounts owing thereunder.
Pursuant to the Amended Revolving Credit Agreement, Lockheed Martin has the
right to set off, appropriate and apply against any and all cash transferred
from the Company to Lockheed Martin in accordance with the Cash Management
Agreement (as defined below) and any and all credits, indebtedness or claims
at any time held or owing by Lockheed Martin to or for the credit or account
of the Company.
Cash Management Agreement In connection with the Exchange, the Company and
Lockheed Martin entered into a cash management agreement (the "Cash Management
Agreement") pursuant to which Lockheed Martin provides cash advances to the
Company. The term of the Cash Management Agreement extends from the date of
its execution through June 1, 1998, but can be terminated by either party
after one year on 90 days' prior written notice. In accordance with the terms
of the Cash Management Agreement, excess cash balances of the Company will
first be deemed to be a repayment of outstanding principal indebtedness under
the Amended Revolving Credit Agreement, with any excess being applied against
advances or held as an investment by Lockheed Martin on an overnight basis.
The aggregate principal amounts of cash invested with Lockheed Martin will
bear interest at a rate per annum equal to the Federal Funds Rate as in effect
from time to time. Cash shortfalls, up to $2 million, will be funded by
Lockheed Martin on an overnight basis, and will bear interest at a rate per
annum equal to the Federal Funds Rate as in effect from time to time. Pursuant
to the terms of the Cash Management Agreement, Lockheed Martin will have the
right to set off, appropriate and apply against any and all cash transferred
from the Company to Lockheed Martin under the Cash Management Agreement and
any and all credits, indebtedness or claims at any time held or owing by
Lockheed Martin to or for the credit or account of the Company.
Intercompany Services Agreement In connection with the Exchange, the Company
and Lockheed Martin also entered into an intercompany services agreement (the
"Services Agreement") with respect to the services to be provided by Lockheed
Martin. The Services Agreement provides that Lockheed Martin will furnish to
the Company a package of services in exchange for a services fee, which will
be determined by Lockheed Martin recognizing to the extent practicable, (i)
Lockheed Martin's percentage ownership of the Company, (ii) the Company's
requirements for certain services for which CalComp Inc. or the Company was
previously charged by Lockheed Martin or other third parties and (iii) costs
of obtaining services from third parties that previously
52
<PAGE>
were provided to CalComp Inc. by Lockheed Martin. The Services Agreement will
expire two years after the date of its execution, but may be terminated by
Lockheed Martin, at its option, upon not less than 90 days' prior written
notice to the Company, provided that Lockheed Martin no longer owns Common
Stock representing more than 50% of all of the issued and outstanding Common
Stock of the Company. The Company may terminate the Services Agreement by
providing not less than 90 days prior written notice to Lockheed Martin at any
time that Lockheed Martin owns less than 25% of all of the issued and
outstanding Common Stock of the Company. Consistent with past practices, the
method used to determine amounts to be charged the Company will be in
accordance with the requirements of Cost Accounting Standard 9904.403 ("CAS
403") "Allocation of Home Office Expenses to Segments." CAS 403 establishes
the formulas and criteria for the allocation of home office expenses to
organizational segments and is promulgated by the Cost Accounting Standards
Board and used by contractors to the United States Government. Lockheed
Martin's allocations are reviewed for compliance with the promulgated
standards by the Department of Defense. In fiscal 1996, Lockheed Martin billed
the Company an aggregate of $2.7 million for certain services provided by
Lockheed Martin prior to the Exchange, and subsequent to the Exchange billed
the Company approximately $0.9 million under the Services Agreement.
The services provided by Lockheed Martin under the Services Agreement
include certain tax services; corporate control and audit services; insurance
planning and advice; health, safety and environmental management services;
human resources and employee relations services; legal services; employee
benefit plans administration and services; and treasury services.
The Company has agreed to indemnify Lockheed Martin, except in certain
limited circumstances, against liabilities that Lockheed Martin may incur that
are caused by or arise in connection with the Company's failure to fulfill its
obligations under the Services Agreement.
In addition to the service agreement fees, the Company has entered into
various support agreements with Lockheed Martin to provide, among other
things, that Lockheed Martin undertake to provide certain services for and at
the request of the Company including, but not limited to, administration of
the pension and savings plan, legal and other general administrative services
and group medical, liability and workers' compensation insurance. Expenses are
allocated to the Company based on actual amounts incurred on behalf of the
Company plus estimated overhead related to such amounts. Amounts billed to the
Company were $2,988,000 in 1996. Such amounts are allocated to various cost
elements in the financial statements based on relevant factors which include
headcount and square footage.
Corporate Agreement The Company and Lockheed Martin also entered into a
corporate agreement (the "Corporate Agreement") in connection with the
Exchange. Under the terms of the Corporate Agreement, the Company has agreed
that, for so long as Lockheed Martin continues to own 50 percent or more of
the Common Stock of the Company, the Company will propose, at each election of
directors (including elections to fill vacancies) a slate of directors or
individual directors such that at least 66 percent of the Board of Directors
of the Company is comprised of persons designated by Lockheed Martin. The
Corporate Agreement also obligates Lockheed Martin and the Company to use
their good faith efforts to cause at least two individual directors of the
Company to be independent of both the Company and Lockheed Martin within the
meaning of the rules of the New York Stock Exchange regarding who may serve on
the audit committee of a company listed on such exchange. Subject to these
agreements, Lockheed Martin will be able to elect 100% of the directors for so
long as Lockheed Martin owns more than 50% of the combined voting power of the
Company.
In addition, the Corporate Agreement provides that for so long as Lockheed
Martin maintains ownership of 50 percent or more of the Common Stock, the
Company may not take any action or enter into any commitment or agreement
which may reasonably be anticipated to result, with or without notice and with
or without lapse of time, or otherwise, in a contravention or event of default
by Lockheed Martin of (i) any provision of applicable law or regulation,
including, but not limited to provisions pertaining to ERISA, (ii) any
provision of Lockheed Martin's Charter or Bylaws, (iii) any credit agreement
or other material instrument binding upon any Lockheed Martin entity, or (iv)
any judgment, order or decree of any governmental body, agency or court having
jurisdiction over any Lockheed Martin entity. Additionally, for so long as
Lockheed Martin continues to own 50
53
<PAGE>
percent or more of the Common Stock of the Company, the Company may not take
any action reasonably expected to result in a material increase in liabilities
required to be included in its consolidated financial statements, nor may it
materially increase its obligations under any employee benefit plan, without
the prior written consent of Lockheed Martin. The Corporate Agreement also
provides that nothing contained in the Corporate Agreement is intended to
limit or restrict in any way the ability of Lockheed Martin to control or
limit any action or proposed action of the Company, including but not limited
to, the incurrence by the Company of indebtedness, based upon Lockheed
Martin's internal policies or other factors.
Registration Rights Agreement In connection with the Exchange, the Company
also entered into a registration rights agreement (the "Registration Rights
Agreement") with Lockheed Martin. Under the Registration Rights Agreement,
until Lockheed Martin or its assignees can sell all of the registrable
securities then owned in a single market transaction pursuant to Rule 144(k)
under the Securities Act of 1933, as amended (the "Securities Act"), in the
case of any proposed registration of shares of capital stock or other
securities of the Company, Lockheed Martin or its assignees shall have the
right, subject to certain limitations contained therein, to elect to include
in such registration statement all or a part of their registrable securities
(a "Piggyback Registration").
Under the Registration Rights Agreement, at any time after the date of the
Registration Rights Agreement and from time to time thereafter, Lockheed
Martin (or an assignee owning in the aggregate at least 25% of the Common
Stock issued to Lockheed Martin as of the date of the execution of the
Registration Rights Agreement) may cause the Company to use its best efforts
to file a registration statement to register under the Securities Act for sale
to the public all or a portion of the registrable securities of Lockheed
Martin or its assignees, and thereafter use its best efforts to file any and
all amendments as may be necessary to cause the registration statement to be
declared effective. The Company will have no obligation, however, to register
any securities under the Registration Rights Agreement unless the reasonably
anticipated aggregate offering price to the public of such securities, as
stated by Lockheed Martin or its assignees in their written registration
request, equals or exceeds $15 million. In addition, the Company will have no
obligation to file more than three registration statements on a form other
than Form S-3 and in no event will it be required to file more than four
registration statements in total. The costs and expenses (other than
underwriting discounts, commissions and similar payments) of all registrations
will be borne by the Company.
The Registration Rights Agreement contains indemnification and contribution
provisions (i) by Lockheed Martin and its assignees for the benefit of the
Company and related persons, (ii) by the Company for the benefit of Lockheed
Martin and the other persons entitled to effect registrations of Common Stock
pursuant to its terms and (iii) related persons.
Tax Sharing Agreement The Company and Lockheed Martin also entered into a
tax sharing agreement (the "Tax Sharing Agreement"), effective the date of the
Exchange. Pursuant to the Tax Sharing Agreement, the Company and Lockheed
Martin will make payments between them such that, with respect to any period,
the amount of taxes to be paid by the Company or any refund payable to the
Company will be determined as though the Company were to file separate
federal, state and local income tax returns (including any amounts determined
to be due as a result of a redetermination of the tax liability of Lockheed
Martin arising from an audit or otherwise) as the common parent of an
affiliated group of corporations filing a consolidated return rather than a
consolidated subsidiary of Lockheed Martin. Under the Tax Sharing Agreement,
for so long as the Company remains part of the Lockheed Martin combined
consolidated group for federal income tax purposes, the Company will be
entitled to the benefit of any tax attribute attributable to the Company that
could be used by the Company if it were not part of the Lockheed Martin
combined consolidated group. At such time as the Company ceases to be included
in the Lockheed Martin combined consolidated group for federal income tax
purposes, the Company shall no longer be entitled to the benefit of any tax
attribute created while part of the Lockheed Martin combined consolidated
group that would otherwise have been attributable to the Company.
In determining the amount of tax sharing payments, Lockheed Martin will
prepare a pro forma consolidated return for the Company that reflects the same
positions and elections used by Lockheed Martin in preparing the
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<PAGE>
returns for the Lockheed Martin consolidated group. Lockheed Martin will
continue to have all the rights of a common parent of a consolidated group,
will be the sole and exclusive agent for the Company in any and all matters
relating to the income tax liability of the Company, will have sole and
exclusive responsibility for the preparation and filing of consolidated
federal and consolidated or combined state income tax returns (or amended
returns), and will have the power, in its sole discretion, to contest or
compromise any asserted tax adjustment or deficiency and to file, litigate or
compromise any claim or refund on behalf of the Company. Interest required to
be paid by or to the Company with respect to any federal income tax pursuant
to the Tax Sharing Agreement shall be computed at the rate and in the manner
provided in the Internal Revenue Code of 1986 for interest on underpayments
and overpayments, respectively, of federal income tax for the relevant period.
Any interest required to be paid by or to the Company with respect to any
state or local income tax or franchise tax return shall be computed at the
rate and in the manner as provided under the applicable state or local statute
for interest on underpayments and overpayments, respectively, of such tax for
the relevant period.
Under the Tax Sharing Agreement, the Company will reimburse Lockheed Martin
for any outside legal and accounting expenses incurred by Lockheed Martin in
the course of the conduct of any audit or contest regarding the Lockheed
Martin consolidated group, and for any other expenses incurred by Lockheed
Martin in the course of any litigation relating thereto, to the extent such
costs are reasonably attributable to an issue relating to the Company or its
subsidiaries; provided, however, that prior to incurring any such expenses,
Lockheed Martin shall consult with the Company and shall consider the
Company's views with regard to the retention of outside professional
assistance.
The Company believes that the amounts payable by, or charged to, the Company
under the terms of the forgoing agreements with Lockheed Martin, taken
collectively, are reasonable in the circumstances and are substantially at
market rates.
Vendor and Customer Relationships. Effective May 15, 1996, CalComp Inc.
transferred its ownership interest in AGT Holdings, Inc., the parent of Access
Graphics Technology, Inc., a computer products distributor ("Access
Graphics"), to Lockheed Martin. CalComp Inc. had sold, and the Company
continues to sell, computer graphics equipment to Access Graphics for resale.
Sales to Access Graphics amounted to $9,055,000 in 1996. It is expected that
the customer relationship with Access Graphics will continue. In addition the
Company sold products to Lockheed Martin Missile and Space ($913,000),
Lockheed Martin Commercial Electronics ($262,000), Lockheed Martin
Aeronautical Systems ($185,000), Lockheed Martin Enterprise Information
Systems ($148,000), Lockheed Sanders of ($135,000) and to other various
Lockheed Martin affiliated companies ( $325,000). The Company believes that
such sales were consummated at prices and terms consistent with similar
transactions to unrelated third parties. The Company also purchases certain
components from Lockheed Martin Commercial Electronics, an affiliate of
Lockheed Martin Purchases amounted to $10,059,000, $10,503,000 and $9,755,000
for 1996, 1995 and 1994, respectively. The Company believes these sales were
consummated at prices and terms consistent with similar transactions to
unrelated third parties.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements.
The following consolidated financial statements of the Company and the
report of independent auditors are on pages 17 through 41 hereof.
Reports of Independent Auditors
Consolidated Balance Sheets--December 29, 1996 and December 31, 1995
Consolidated Statements of Operations--Years ended December 29, 1996,
December 31, 1995 and December 25, 1994
Consolidated Statements of Stockholders' Equity--Years ended December
29, 1996, December 31, 1995 and December 25, 1994
Consolidated Statements of Cash Flows--Years ended December 29, 1996,
December 31, 1995 and December 25, 1994
Notes to Consolidated Financial Statements
All Financial Statement Schedules have been omitted because they are not
applicable or because the applicable disclosures have been included in the
Consolidated Financial Statements or in the Notes thereto.
(2) Lists of Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2 Plan of Reorganization and Agreement for the Exchange of Stock of
CalComp Inc. for Stock of Summagraphics Corporation by and among
Lockheed Martin Corporation, a Maryland corporation, CalComp Inc., a
California corporation, and Summagraphics Corporation, a Delaware
corporation, as amended (filed as Exhibit 2 to the Company's Form 10-K
for the fiscal year ended May 31, 1996 and incorporated herein by
reference).
3.1 Fourth Amended and Restated Certificate of Incorporation of the
Company (filed as Exhibit 3.1 to the Company's Form 10-K for the
fiscal year ended May 31, 1996 and incorporated herein by reference).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's Form 10-K
for the fiscal year ended May 31, 1996 and incorporated herein by
reference).
10.1 Registration Rights Agreement dated as of July 23, 1996 between the
Company and Lockheed Martin Corporation (filed as Exhibit 10.1 to the
Company's Form 10-Q for the quarterly period ended September 29, 1996,
and incorporated herein by reference).
10.2 Intercompany Services Agreement dated as of July 23, 1996 between the
Company and Lockheed Martin Corporation (filed as Exhibit 10.2 to the
Company's Form 10-Q for the quarterly period ended September 29, 1996,
and incorporated herein by reference).
10.3 Cash Management Agreement dated as of July 23, 1996 between the
Company and Lockheed Martin Corporation (filed as Exhibit 10.3 to the
Company's Form 10-Q for the quarterly period ended September 29, 1996,
and incorporated herein by reference).
10.4 Tax Sharing Agreement dated as of July 23, 1996 between the Company
and Lockheed Martin Corporation (filed as Exhibit 10.4 to the
Company's Form 10-Q for the quarterly period ended September 29, 1996,
and incorporated herein by reference).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.5 Amended and Restated Revolving Credit Agreement dated as of December
20, 1996 between the Company and Lockheed Martin Corporation (filed as
Exhibit 99.1 to the Company's Current Report on Form 8-K dated
December 20, 1996, and incorporated herein by reference).
10.6 Corporate Agreement dated as of July 23, 1996 between the Company and
Lockheed Martin Corporation (filed as Exhibit 10.6 to the Company's
Form 10-Q for the quarterly period ended September 29, 1996, and
incorporated herein by reference).
10.7 CalComp Technology, Inc. 1996 Stock Option Plan for Key Employees
(filed as Exhibit 10.7 to the Company's Form 10-Q for the quarterly
period ended September 29, 1996, and incorporated herein by reference).
10.8 CalComp Technology, Inc. Management Incentive Compensation Plan (filed
as Exhibit 10.8 to the Company's Form 10-Q for the quarterly period
ended September 29, 1996, and incorporated herein by reference).
10.9 CalComp Technology, Inc. Deferred Management Incentive Compensation
Plan (filed as Exhibit 10.9 to the Company's Form 10-Q for the
quarterly period ended September 29, 1996, and incorporated herein by
reference).
10.10 Senior Executive Retirement Plan ("SERP") Agreement between Lockheed
Martin Corporation and Gary R. Long dated November 8, 1995 (filed as
Exhibit 10.10 to the Company's Form 10-Q for the quarterly period
ended September 29, 1996, and incorporated herein by reference).
10.11 Employment Agreement (with Temporary Assignment Memorandum) between
Company and Winfried Rohloff dated June 25, 1996 (filed as Exhibit
10.11 to the Company's Form 10-Q for the quarterly period ended
September 29, 1996, and incorporated herein by reference).
10.12 Employment Offer and Agreement between the Company and John J.
Millerick dated July 12, 1996 (filed as Exhibit 10.12 to the Company's
Form 10-Q for the quarterly period ended September 29, 1996, and
incorporated herein by reference).
10.13 Selex Mini-Engine OEM Agreement for Cuervo plotters between the
Company and Selex Systems U.S.A., Inc. dated May 26, 1994 (filed as
Exhibit 10.13 to the Company's Form 10-Q for the quarterly period
ended September 29, 1996, and incorporated herein by reference).
10.14 Selex Color Mini-Engine Supplement for Sake plotters between the
Company and Selex Systems U.S.A., Inc. dated January 2, 1995 (filed as
Exhibit 10.14 to the Company's Form 10-Q for the quarterly period
ended September 29, 1996, and incorporated herein by reference).
10.15 OEM Agreement for Asahi and Absolut plotters between the Company and
Copyer Co., Ltd. dated September 19, 1996 (filed as Exhibit 10.15 to
the Company's Form 10-Q for the quarterly period ended September 29,
1996, and incorporated herein by reference).
10.16 OEM Agreement for Model 2700 between the Company and Katsuragawa
Electric Co., Ltd. dated June 14, 1996 (filed as Exhibit 10.16 to the
Company's Form 10-Q for the quarterly period ended September 29, 1996,
and incorporated herein by reference).
10.17 OEM Agreement for Model 1220 between the Company and Katsuragawa
Electric Co., Ltd. dated April 23, 1996 (filed as Exhibit 10.17 to the
Company's Form 10-Q for the quarterly period ended September 29, 1996,
and incorporated herein by reference).
10.18 Change of Control Termination Benefit Agreement between the Company
and Winfried Rohloff dated January 10, 1997.
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.19 Change of Control Termination Benefit Agreement between the Company
and Harold H. Simeroth dated December 13, 1997.
10.20 Change of Control Termination Benefit Agreement between the Company
and John J. Millerick dated December 13, 1996.
10.21 Change of Control Termination Benefit Agreement between the Company
and James R. Bell dated December 17, 1996.
10.22 Agreement and Plan of Reogranization entered into as of November 18,
1996, by and among the Company, CalComp Acquisition Sub, Inc., Topaz
Technologies, Inc., Andreas Bibl, Deane Gardner and John Higginson
(filed as Exhibit 99.2 to the Company's Current Report on Form 8-K
dated November 18, 1996, and incorporated herein by reference).
21 Subsidiaries
23 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K
Reports on Form 8-K filed by the Company during the fourth quarter of the
Company's fiscal year ended December 29, 1996 were as follows:
See Forms 8-K dated:
November 18, 1996 filed on November 18, 1996 (Item 5. Other Events)
December 20, 1996 filed on December 28, 1996 (Item 5. Other Events)
58
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, CALCOMP TECHNOLOGY, INC. HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Calcomp Technology, Inc.
By: /s/ John J. Milleric
------------------------------------
John J. Millerick
President, Chief Executive Officer;
Senior Vice President, and Chief
Financial Officer
March 27, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING ON BEHALF OF CALCOMP TECHNOLOGY,
INC. AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John J. Millerick President, Chief Executive Officer March 27, 1997
- ----------------------------------- (Principal Executive Officer),
John J. Millerick Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
/s/ Peter B. Teets Chairman of the Board of Directors
- ----------------------------------- March 27, 1997
Peter B. Teets
/s/ Gary P. Mann Director March 27, 1997
- -----------------------------------
Gary P. Mann
/s/ Terry F. Powell Director March 27, 1997
- -----------------------------------
Terry F. Powell
/s/ Gerald W. Schaefer Director March 27, 1997
- -----------------------------------
Gerald W. Schaefer
/s/ Neil A. Knox Director March 27, 1997
- -----------------------------------
Neil A. Knox
/s/ Kenneth R. Ratcliffe Director March 27, 1997
- -----------------------------------
Kenneth R. Ratcliffe
/s/ Walter E. Skowronski Director March 27, 1997
- -----------------------------------
Walter E. Skowronski
</TABLE>
59
<PAGE>
January 10, 1997
Mr. Winfried Rohloff
Sr.Vice President
Worlwide Sales, Marketing and Services
RE: CALCOMP TECHNOLOGY, INC. - CHANGE OF CONTROL
TERMINATION BENEFIT AGREEMENT
Dear Winfried:
CalComp Technology, Inc. ("CalComp") is a publicly held corporation. Lockheed
Martin Corporation ("Lockheed Martin") currently owns more than 50% of the
voting securities of CalComp. If at any future time Lockheed Martin, one or
more subsidiaries of Lockheed Martin, or a combination thereof ceases to own or
control (directly or indirectly) more than 50% of the voting securities of
CalComp, then, for the purposes of this letter a, "change of control" of CalComp
shall be deemed to have occurred. The term "voting securities" shall mean
securities able to vote for directors or securities convertible into or
exchangeable or exercisable for securities able to vote for directors.
We understand that the prospect of a change of control may trouble you, but as a
key and valued employee we want you to remain with the Company to help keep the
Company running properly. That is why we are offering you the benefits
described in this agreement.
If a change of control occurs and if within 18 months from the date of the
change of control (1) you are involuntarily terminated by the Company or any
successor owner (except for terminations for cause) or; (2) you are removed from
the position held immediately prior to the change and the effect is a material
reduction of status, responsibilities or duties and you then terminate your
employment within 60 days after having your status reduced or; (3) your base
salary in effect at the time of the change of control is reduced, and you then
terminate your employment within 60 days after having your status reduced, then
you will be eligible to receive the benefits described below. No other
severance or similar benefits will be paid to you.
1. SEVERANCE BENEFIT
You will be eligible for a lump-sum severance payment determined under the
following formula: an amount equal to one and a half (1 1/2) years' annual base
salary immediately prior to the change of control plus an amount equal to one
year's Management Incentive Compensation Plan Award at your target level, all
less statutory deductions but excluding voluntary deductions, such as for
savings plans. (Example: If your salary is $100,000 and your target is 20%, you
will receive $150,000 + $20,000 for a total of $170,000, less withholdings).
2. ACCRUED VACATION BENEFIT
Your will be eligible for a lump-sum cash payment, if applicable, for any
vacation earned but not taken through the Effective Date of termination.
<PAGE>
3. OUTPLACEMENT
You also will receive outplacement assistance from a firm selected by the
Company. This assistance will include: (1) group job search and training by a
professional outplacement firm; and (2) resume preparation and secretarial
assistance. Cost not to exceed $20,000.00.
4. MEDICAL/DENTAL COVERAGE
You will be eligible for up to 18 months continuation of your current
medical/social and pension coverage in accordance with CalComp GmbH procedures.
5. AMENDMENTS
The Company has the right to modify any of the terms set forth in this letter to
clarify unclear provisions or remedy omissions, but it will not make any change
that it determines would materially reduce the value of the benefits offered to
you under this letter.
6. APPLICATION OF THIS AGREEMENT
The rights and benefits provided under this Termination Benefit Agreement shall
apply only in the event of involuntary termination of your employment within 18
months of a change in control (defined herein). The rights and benefits
provided hereunder are in lieu of any corresponding rights and benefits
available under German law. You may elect either the rights and benefits
available hereunder, or the rights available under German labor laws, but may
not elect both sets of rights and benefits.
Thank you in advance for your continued service.
Very truly yours,
Gary R. Long
ACCEPTED:
___________________________________
(Employee)
yh:termagmt
<PAGE>
December 13, 1996
Dr. Harold H. Simeroth
Sr. Vice President
Digital Imaging Systems Div.
RE: CALCOMP TECHNOLOGY, INC. - CHANGE OF CONTROL
TERMINATION BENEFIT AGREEMENT
Dear Hal:
CalComp Technology, Inc. ("CalComp") is a publicly held corporation. Lockheed
Martin Corporation ("Lockheed Martin") currently owns more than 50% of the
voting securities of CalComp. If at any future time Lockheed Martin, one or
more subsidiaries of Lockheed Martin, or a combination thereof ceases to own or
control (directly or indirectly) more than 50% of the voting securities of
CalComp, then, for the purposes of this letter a, "change of control" of CalComp
shall be deemed to have occurred. The term "voting securities" shall mean
securities able to vote for directors or securities convertible into or
exchangeable or exercisable for securities able to vote for directors.
We understand that the prospect of a change of control may trouble you, but as a
key and valued employee we want you to remain with the Company to help keep the
Company running properly. That is why we are offering you the benefits
described in this agreement.
If a change of control occurs and if within 18 months from the date of the
change of control (1) you are involuntarily terminated by the Company or any
successor owner (except for terminations for cause) or; (2) you are removed from
the position held immediately prior to the change and the effect is a material
reduction of status, responsibilities or duties and you then terminate your
employment within 60 days after having your status reduced or; (3) your base
salary in effect at the time of the change of control is reduced, and you then
terminate your employment within 60 days after having your status reduced, then
you will be eligible to receive the benefits described below. No other
severance or similar benefits will be paid to you.
1. SEVERANCE BENEFIT
You will be eligible for a lump-sum severance payment determined under the
following formula: an amount equal to one and a half (1 1/2) years' annual base
salary immediately prior to the change of control plus an amount equal to one
year's Management Incentive Compensation Plan Award at your target level, all
less statutory deductions but excluding voluntary deductions, such as for
savings plans. (Example: If your salary is $100,000 and your target is 20%, you
will receive $150,000 + $20,000 for a total of $170,000, less withholdings).
2. ACCRUED VACATION BENEFIT
Your will be eligible for a lump-sum cash payment, if applicable, for any
vacation earned but not taken through the Effective Date of termination.
<PAGE>
3. OUTPLACEMENT
You also will receive outplacement assistance from a firm selected by the
Company. This assistance will include: (1) group job search and training by a
professional outplacement firm; and (2) resume preparation and secretarial
assistance. Cost not to exceed $20,000.00.
4. MEDICAL/DENTAL COVERAGE
You will be eligible for up to 18 months' continuation of your current
medical/dental coverage in accordance with the Company's customary COBRA
procedures. As part of your benefits, the Company will, at no charge to you,
continue your medical/dental coverage, including coverage for your dependents,
for the first 12 months following the date your employment with the Company ends
or, if earlier, until you become eligible for coverage under a health plan of
another employer.
5. AMENDMENTS
The Company has the right to modify any of the terms set forth in this letter to
clarify unclear provisions or remedy omissions, but it will not make any change
that it determines would materially reduce the value of the benefits offered to
you under this letter.
Thank you in advance for your continued service.
Very truly yours,
Gary R. Long
ACCEPTED:
___________________________________
(Employee)
yh:termagmt
<PAGE>
December 13, 1996
Mr. John J. Millerick
Sr. Vice President and CFO
RE: CALCOMP TECHNOLOGY, INC. - CHANGE OF CONTROL
TERMINATION BENEFIT AGREEMENT
Dear John:
CalComp Technology, Inc. ("CalComp") is a publicly held corporation. Lockheed
Martin Corporation ("Lockheed Martin") currently owns more than 50% of the
voting securities of CalComp. If at any future time Lockheed Martin, one or
more subsidiaries of Lockheed Martin, or a combination thereof ceases to own or
control (directly or indirectly) more than 50% of the voting securities of
CalComp, then, for the purposes of this letter a, "change of control" of CalComp
shall be deemed to have occurred. The term "voting securities" shall mean
securities able to vote for directors or securities convertible into or
exchangeable or exercisable for securities able to vote for directors.
We understand that the prospect of a change of control may trouble you, but as a
key and valued employee we want you to remain with the Company to help keep the
Company running properly. That is why we are offering you the benefits
described in this agreement.
If a change of control occurs and if within 18 months from the date of the
change of control (1) you are involuntarily terminated by the Company or any
successor owner (except for terminations for cause) or; (2) you are removed from
the position held immediately prior to the change and the effect is a material
reduction of status, responsibilities or duties and you then terminate your
employment within 60 days after having your status reduced or; (3) your base
salary in effect at the time of the change of control is reduced, and you then
terminate your employment within 60 days after having your status reduced, then
you will be eligible to receive the benefits described below. No other
severance or similar benefits will be paid to you.
1. SEVERANCE BENEFIT
You will be eligible for a lump-sum severance payment determined under the
following formula: an amount equal to one and a half (1 1/2) years' annual base
salary immediately prior to the change of control plus an amount equal to one
year's Management Incentive Compensation Plan Award at your target level, all
less statutory deductions but excluding voluntary deductions, such as for
savings plans. (Example: If your salary is $100,000 and your target is 20%, you
will receive $150,000 + $20,000 for a total of $170,000, less withholdings).
2. ACCRUED VACATION BENEFIT
Your will be eligible for a lump-sum cash payment, if applicable, for any
vacation earned but not taken through the Effective Date of termination.
<PAGE>
3. OUTPLACEMENT
You also will receive outplacement assistance from a firm selected by the
Company. This assistance will include: (1) group job search and training by a
professional outplacement firm; and (2) resume preparation and secretarial
assistance. Cost not to exceed $20,000.00.
4. MEDICAL/DENTAL COVERAGE
You will be eligible for up to 18 months' continuation of your current
medical/dental coverage in accordance with the Company's customary COBRA
procedures. As part of your benefits, the Company will, at no charge to you,
continue your medical/dental coverage, including coverage for your dependents,
for the first 12 months following the date your employment with the Company ends
or, if earlier, until you become eligible for coverage under a health plan of
another employer.
5. AMENDMENTS
The Company has the right to modify any of the terms set forth in this letter to
clarify unclear provisions or remedy omissions, but it will not make any change
that it determines would materially reduce the value of the benefits offered to
you under this letter.
Thank you in advance for your continued service.
Very truly yours,
Gary R. Long
ACCEPTED:
___________________________________
(Employee)
yh:termagmt
<PAGE>
December 13, 1996
Mr. James R. Bell
Sr. Vice President
Input Technologies Div.
RE: CALCOMP TECHNOLOGY, INC. - CHANGE OF CONTROL
TERMINATION BENEFIT AGREEMENT
Dear Jim:
CalComp Technology, Inc. ("CalComp") is a publicly held corporation. Lockheed
Martin Corporation ("Lockheed Martin") currently owns more than 50% of the
voting securities of CalComp. If at any future time Lockheed Martin, one or
more subsidiaries of Lockheed Martin, or a combination thereof ceases to own or
control (directly or indirectly) more than 50% of the voting securities of
CalComp, then, for the purposes of this letter a, "change of control" of CalComp
shall be deemed to have occurred. The term "voting securities" shall mean
securities able to vote for directors or securities convertible into or
exchangeable or exercisable for securities able to vote for directors.
We understand that the prospect of a change of control may trouble you, but as a
key and valued employee we want you to remain with the Company to help keep the
Company running properly. That is why we are offering you the benefits
described in this agreement.
If a change of control occurs and if within 18 months from the date of the
change of control (1) you are involuntarily terminated by the Company or any
successor owner (except for terminations for cause) or; (2) you are removed from
the position held immediately prior to the change and the effect is a material
reduction of status, responsibilities or duties and you then terminate your
employment within 60 days after having your status reduced or; (3) your base
salary in effect at the time of the change of control is reduced, and you then
terminate your employment within 60 days after having your status reduced, then
you will be eligible to receive the benefits described below. No other
severance or similar benefits will be paid to you.
1. SEVERANCE BENEFIT
You will be eligible for a lump-sum severance payment determined under the
following formula: an amount equal to one and a half (1 1/2) years' annual base
salary immediately prior to the change of control plus an amount equal to one
year's Management Incentive Compensation Plan Award at your target level, all
less statutory deductions but excluding voluntary deductions, such as for
savings plans. (Example: If your salary is $100,000 and your target is 20%, you
will receive $150,000 + $20,000 for a total of $170,000, less withholdings).
2. ACCRUED VACATION BENEFIT
Your will be eligible for a lump-sum cash payment, if applicable, for any
vacation earned but not taken through the Effective Date of termination.
<PAGE>
3. OUTPLACEMENT
You also will receive outplacement assistance from a firm selected by the
Company. This assistance will include: (1) group job search and training by a
professional outplacement firm; and (2) resume preparation and secretarial
assistance. Cost not to exceed $20,000.00.
4. MEDICAL/DENTAL COVERAGE
You will be eligible for up to 18 months' continuation of your current
medical/dental coverage in accordance with the Company's customary COBRA
procedures. As part of your benefits, the Company will, at no charge to you,
continue your medical/dental coverage, including coverage for your dependents,
for the first 12 months following the date your employment with the Company ends
or, if earlier, until you become eligible for coverage under a health plan of
another employer.
5. AMENDMENTS
The Company has the right to modify any of the terms set forth in this letter to
clarify unclear provisions or remedy omissions, but it will not make any change
that it determines would materially reduce the value of the benefits offered to
you under this letter.
Thank you in advance for your continued service.
Very truly yours,
Gary R. Long
ACCEPTED:
___________________________________
(Employee)
yh:termagmt
<PAGE>
EXHIBIT 21
Subsidiaries
<TABLE>
<CAPTION>
Name Country/State Name for Doing Business
- ---- ------------- -----------------------
<S> <C> <C>
CAD Warehouse Nevada Same
CalComp A.B. Sweden Same
CalComp A/S Norway Same
CalComp Asia Pacific Limited Hong Kong Same
CalComp Australia Australia Same
CalComp B.V. Netherlands Same
CalComp Canada Canada Same
CalComp Espana S.A. Spain Same
CalComp Europe B.V. Netherlands Same
CalComp Europe Ltd. United Kingdom Same
CalComp Ges.m.b.H. Austria Same
CalComp GMBH Germany Same
CalComp Graphic Peripherals (China) Limited Hong Kong Same
CalComp Inc. California Same
CalComp Ltd. United Kingdom Same
CalComp Pacific Inc. Nevada Same
CalComp S.A. France Same
CalComp S.p.A. Italy Same
NS CalComp Corp. Japan Same
N.V. CalComp S.A. Begguim Same
Sanders Development Corp. Delaware Same
Summagraphics Ltd. United Kingdom Same
Summagraphics GMBH Germany Same
Summagraphics (Europe) N.V. Belguim Same
Summagraphics N.V. Belguim Same
Topaz Technologies, Inc. California Same
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
pertaining to the Summagraphics Corporation 1987 Stock Option Plan (Form S-8
No. 33-19583), 1988 Employee Stock Purchase Plan (Form S-8 No. 33-25348), 1988
Non-Employee Director Stock Option Plan (Form S-8 No. 33-26415), and CalComp
Technology, Inc. 1996 Stock Option Plan for Key Employees (Form S-8 No.
333-19533) of our report dated January 20, 1997, with respect to the
consolidated financial statements of CalComp Technology, Inc. included in the
Annual Report (Form 10-K) of CalComp Technology, Inc. for the year ended
December 29, 1996.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Orange County, California
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-29-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 DEC-26-1994
<PERIOD-END> DEC-29-1996 DEC-31-1995
<CASH> 15,290 14,574
<SECURITIES> 0 0
<RECEIVABLES> 56,762 62,714
<ALLOWANCES> 4,603 4,102
<INVENTORY> 57,765 40,308
<CURRENT-ASSETS> 146,199 116,998
<PP&E> 60,843 115,037
<DEPRECIATION> 33,952 63,977
<TOTAL-ASSETS> 276,085 231,564
<CURRENT-LIABILITIES> 84,968 56,101
<BONDS> 0 0
0 0
0 0
<COMMON> 469 407
<OTHER-SE> 152,035 166,336
<TOTAL-LIABILITY-AND-EQUITY> 276,085 231,564
<SALES> 235,916 281,655
<TOTAL-REVENUES> 235,916 281,655
<CGS> 180,375 202,668
<TOTAL-COSTS> 295,496 290,743
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 989 0
<INCOME-PRETAX> (59,062) (7,146)
<INCOME-TAX> (2,458) 3,572
<INCOME-CONTINUING> (56,604) (10,718)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (56,604) (10,718)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> (1.32) (.26)
</TABLE>
