<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
__X__ Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the nine months ended August 2, 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 No. 0-3223
AUTOLOGIC INFORMATION INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3855697
- - - - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1050 Rancho Conejo Boulevard, Thousand Oaks, CA 91320
- - - - ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 498-9611
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes x No
----- -----
The number of shares of Common Stock, $0.01 par value, outstanding as of
September 9, 1996 was 5,793,870.
<PAGE> 2
AUTOLOGIC INFORMATION INTERNATIONAL, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statement of Stockholders' Equity 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
August 2, July 28, August 2, July 28,
1996 1995 1996 1995
---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES
Systems and equipment $ 14,890 $ 12,245 $ 45,730 $ 35,814
Customer service and support 6,679 4,421 18,330 13,555
------------- ------------- ------------ ------------
21,569 16,666 64,060 49,369
------------- ------------- ------------ ------------
OPERATING COSTS AND EXPENSES
Cost of systems and equipment 9,034 7,258 28,906 21,317
Cost of customer service and support 5,125 3,993 14,394 12,135
Operating expenses 8,575 5,305 21,828 15,241
Restructuring charge -- -- 700 --
Charges from Volt
Rent 201 425 821 1,276
General and administrative 9 224 215 674
------------- ------------- ------------ ------------
22,944 17,205 66,864 50,643
------------- ------------- ------------ ------------
OPERATING INCOME (LOSS) (1,375) (539) (2,804) (1,274)
------------- ------------- ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 102 46 251 46
Interest expense charged by Volt -- (679) (583) (1,946)
Foreign exchange gain (loss) (39) (34) (382) (58)
Other, net 219 34 (141) --
------------- ------------- ------------ ------------
282 (633) (855) (1,958)
------------- ------------- ------------ ------------
INCOME (LOSS) BEFORE
INCOME TAXES (1,093) (1,172) (3,659) (3,232)
INCOME TAX PROVISION (BENEFIT) (415) 263 (74) 733
------------- ------------- ------------ ------------
NET INCOME (LOSS) $ (678) $ (1,435) $ (3,585) $ (3,965)
============= ============= ============ ============
NET INCOME (LOSS) PER SHARE $ (0.12) $ (0.43) $ (0.71) $ (1.19)
============= ============= ============ ============
Average number of shares outstanding 5,788 3,337 5,032 3,337
============= ============= ============ ============
</TABLE>
See accompanying notes
3
<PAGE> 4
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
August 2, November 3,
1996 1995
------- ------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,607 $ 2,542
Accounts receivable less allowance for doubtful
accounts of $1,856 (in 1996) and $651 (in 1995) 19,178 15,205
Inventories 12,023 9,318
Deferred income tax benefit 5,575 116
Prepaid expenses and other assets 2,215 1,014
-------------- -------------
Total current assets 46,598 28,195
PROPERTY AND EQUIPMENT, at cost net of
accumulated depreciation and amortization
of $4,845 (in 1996) and $3,852 (in 1995) 5,499 3,444
DEFERRED INCOME TAX BENEFIT 2,422 --
EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED, net of amortization of $275 2,478 --
OTHER ASSETS 110 52
-------------- -------------
$ 57,107 $ 31,691
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ -- $ 707
Accounts payable 7,956 5,737
Payable to Volt 220 88,109
Accrued expenses 5,591 3,654
Accrued restructuring costs 2,154 --
Customer advances 3,312 2,657
Income taxes payable 457 880
-------------- -------------
Total current liabilities 19,690 101,744
-------------- -------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, par value $0.01
Authorized-1,000,000 shares; issued - none -- --
Common stock, par value $0.01
Authorized - 12,000,000 shares; issued and outstanding 5,793,870 shares 58 133
Paid-in capital 112,665 1,535
Accumulated deficit (75,306) (71,721)
-------------- -------------
37,417 (70,053)
-------------- -------------
$ 57,107 $ 31,691
============== =============
</TABLE>
See accompanying notes.
4
<PAGE> 5
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
$0.01 Par Value
---------------------------- Paid-In Accumulated
Shares Amount Capital Deficit
------ ------ ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at November 3, 1995 -- $ 133 $ 1,535 $ (71,721)
Contribution to capital of amounts
payable to Volt -- -- 89,525 --
Issuance of 3,337,000 shares of Common
Stock to Volt in connection with merger
of Autologic Incorporated and transfer
of stock of Volt Subsidiaries 3,337,000 (100) 100 --
Issuance of 2,429,870 shares of Common
Stock to Triple-I stockholders to purchase
the net assets of Triple-I, net of $357,000
of expenses related to registering shares 2,429,870 25 20,272 --
Value of stock options issued by the
Company in exchange for outstanding stock
options issued by Triple-I -- -- 1,027 --
Stock issued upon exercise of stock options 27,000 -- 206 --
Net loss -- -- -- (3,585)
--------- -------- ---------- ----------
Balance at August 2, 1996 5,793,870 $ 58 $ 112,665 $ (75,306)
========= ======== ========== ==========
</TABLE>
See accompanying notes
5
<PAGE> 6
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
August 2, July 28,
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (3,585) $ (3,965)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,059 1,093
Provision for doubtful receivables 641 291
(Gains) losses on foreign currency translations (227) 324
Gains (losses) on dispositions of property and equipment 41 (28)
Deferred income tax benefit (1,034) --
Changes in operating assets and liabilities excluding the effects
of acquired companies:
Decrease in accounts receivable 468 2,075
Decrease (increase) in inventories 284 (2,655)
Increase in prepaid expenses and
other assets (754) (493)
Increase in accounts payable 873 151
Decrease in accrued expenses (1,146) (586)
Decrease (increase) in customer advances (231) 1,285
Increase in income taxes payable 360 457
Increase in payable to Volt 220 3,151
-------- --------
NET CASH PROVIDED BY (APPLIED TO) OPERATING
ACTIVITIES $ (2,031) $ 1,100
-------- --------
</TABLE>
6
<PAGE> 7
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
August 2, July 28,
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES
Cash of acquired companies (Triple-I) $ 8,764 $ --
Proceeds from disposal of property
and equipment -- 267
Purchases of property and equipment (1,508) (1,132)
-------- --------
NET CASH PROVIDED BY (APPLIED
TO) INVESTING ACTIVITIES 7,256 (865)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase (decrease) in notes payable to banks (672) 73
Proceeds from exercise of stock options 206 --
-------- --------
NET CASH PROVIDED BY (APPLIED
TO) FINANCING ACTIVITIES (466) 73
-------- --------
Effect of exchange rate changes on cash $ 306 $ (331)
NET INCREASE IN CASH 5,065 (23)
Cash beginning of period 2,542 2,242
-------- --------
CASH END OF PERIOD $ 7,607 $ 2,219
======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the period:
Interest expense $ 10 $ 37
Income taxes 694 357
======== ========
</TABLE>
See accompanying notes
7
<PAGE> 8
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A--DESCRIPTION OF BUSINESS
Autologic Information International, Inc. and its subsidiaries (the "Company"),
design, develop, manufacture, assemble, integrate, market, sell and service
computerized image-setting and publication systems equipment and software that
automate the various prepress production steps in the publishing process. The
products are primarily marketed and sold to the newspaper, publishing and
commercial printing industries and to companies and other organizations having
internal publishing facilities.
NOTE B--FORMATION OF THE COMPANY AND MERGER
The Company was incorporated in Delaware on September 5, 1995 as a wholly-owned
subsidiary of Volt Information Sciences, Inc. ("Volt"). On January 29, 1996,
pursuant to the terms of an Agreement and Plan of Merger (the "Merger
Agreement") dated October 5, 1995, as subsequently amended, among the Company,
Volt and Information International, Inc. ("Triple-I"), Volt contributed to the
capital of Autologic, Incorporated ("Autologic") and certain foreign
subsidiaries of Volt ("Volt subsidiaries") the amounts they or their
subsidiaries owed to Volt and subsequent thereto caused Autologic to merge with
and into the Company. Volt also assigned to the Company all of the issued and
outstanding shares of the Volt Subsidiaries. In addition, pursuant to the
Merger Agreement, on January 29, 1996, following approval by its stockholders,
Triple-I merged with and into the Company.
Pursuant to the Merger Agreement, Volt received 3,337,000 shares of the
Company's Common Stock and the stockholders of Triple-I received 2,429,870
shares of the Company's Common Stock based on one share of the Company being
issued for each outstanding share of Triple-I.
On June 25, 1995, the date the general terms of the merger were agreed to and
announced, Triple-I had outstanding options to purchase approximately 594,000
shares of its Common Stock. In accordance with Triple-I's stock option plans,
each outstanding Triple-I option automatically became fully vested and
immediately exercisable upon consummation of the merger. As part of the Merger
Agreement, the parties agreed to a formula to limit the dilution of Volt's
percentage ownership in the Company as a result of the exercise of those
Triple-I options. Under that formula, Volt is to receive 100 shares of the
Company's Common Stock for every 590 shares of the Company Common Stock issued
with respect to Triple-I options exercised subsequent to June 25, 1995, up to a
maximum of 100,000 shares. Since June 25, 1995, 51,250 shares have been issued
upon the exercise of Triple-I options, and Volt has received 4,000 shares, and
is entitled to receive an additional 4,686 shares, of the Company's Common
Stock, with respect to such exercises. Accordingly, Volt through its
wholly-owned subsidiary Nuco I, Ltd., owns beneficially 3,400,186 shares (59%)
of the Company's Common Stock (including 58,500 shares issued to Volt as a
result of Triple-I common stock owned by Volt prior to the Merger).
As the Company, Autologic and the Volt subsidiaries were under common control,
the merger of Autologic and the transfer of the stock of the Volt subsidiaries
to the Company has been accounted for on a pooling of interest basis.
Accordingly, the assets and liabilities of such entities and their
stockholders' equity accounts have been accounted for at their historical
carrying amounts and the accompanying statement of operations reflects the
results of operations of such entities for such periods. The merger of
Triple-I has been accounted for under the purchase method of accounting and,
accordingly, the purchase price, which was based on the quoted market price of
the Triple-I Common Stock at the time the general terms of the acquisition were
agreed to and announced, plus the value of stock options issued in exchange for
outstanding stock options of Triple-I, has been allocated to net assets based
upon their estimated fair values. A $2,753,000 excess of the purchase price
over the estimated fair values of Triple-I's identifiable assets, including the
estimated future tax benefits of Triple-I's net operating loss carryforwards
and deductible temporary differences, was recorded on the effective date of the
merger and is being amortized over a five-year period. Such excess has been
reduced by estimated future tax benefits of Autologic resulting from previously
unrecognized deductible temporary differences at date of acquisition. The
operating results of Triple-I have been included in the Company's condensed
consolidated financial statements since the date of acquisition, which was
limited to five days of operations for the first quarter of 1996, but are
included for the second and third quarters of 1996. The liability for
restructuring costs incurred prior to the merger ($2,154,000 at August 2, 1996)
provides for estimated costs related to closing of certain facilities of
Triple-I.
8
<PAGE> 9
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE B--FORMATION OF THE COMPANY AND MERGER--CONTINUED
The accompanying statement of operations for the nine months ended August 2,
1996 includes a first quarter charge of $700,000 related principally to the
termination of Autologic employees and the restructuring of Autologic's
operations in connection with the merger.
The following pro forma information presents a summary of consolidated results
of operations of the Company as if the merger of Triple-I into the Company had
occurred at the beginning of fiscal 1996 and 1995 with pro forma adjustments
for the amortization of the excess of purchase price over net assets acquired,
the elimination of interest expense and a portion of rent previously charged by
Volt, and certain income tax adjustments. The pro forma financial information
is not necessarily indicative of the results of operations as they would have
been had the transactions been effected on the assumed dates or of future
results of operations of the combined entities.
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
August 2, July 28,
1996 1995
---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C>
Revenues $ 74,018 $ 74,248
Loss from continuing
operations (925) (457)
Net loss (925) (1,878)
Loss from continuing
operations per share (0.16) (0.08)
Net loss per share (0.16) (0.33)
</TABLE>
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year: The Company's fiscal year consists of the 52 or 53 weeks ending on
the Friday nearest October 31.
Consolidation: The condensed consolidated financial statements include the
accounts of the Company and its subsidiaries after elimination of all
significant intercompany balances and transactions.
Revenue Recognition: Revenues are recognized when products are shipped and
when services are rendered.
Inventories: Inventories are stated at the lower of cost (first-in first-out)
or market.
Property and Equipment: Property and equipment are stated at cost, net of
depreciation and amortization which are provided on the straight-line method
over their estimated useful lives, generally as follows:
Equipment - 3 to 7 years
Leasehold improvements - length of lease or life of asset, whichever is
shorter.
9
<PAGE> 10
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Translation of Foreign Currencies: The U.S. dollar is the Company's functional
currency throughout the world. Foreign currency gains and losses resulting
from the translation of the foreign currency financial statements of the
subsidiaries and foreign currency transactions are included in the results of
operations.
Per Share Data: Per share data are computed on the basis of the weighted
average number of shares of common stock outstanding and, if applicable, the
assumed exercise of dilutive outstanding stock options using the treasury stock
method.
NOTE D--INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
August 2, November 3,
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Service parts $ 1,320 $ 1,137
Materials 5,566 3,374
Work-in-process 2,798 1,431
Finished goods 2,339 3,376
-------------- -------------
$ 12,023 $ 9,318
============== =============
</TABLE>
NOTE E--INCOME TAXES
The Company applies the liability method of accounting for deferred taxes in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using tax rates and
tax laws that are scheduled to be in effect when the differences are scheduled
to reverse.
Prior to the Merger, Autologic and its subsidiaries were included in the
consolidated federal income tax return of Volt and were therefore jointly and
severally liable with Volt for any income taxes payable by the consolidated
group. Volt has agreed to indemnify the Company against any loss or liability
that may result from such inclusion. Federal income taxes were provided for in
the accompanying condensed consolidated financial statements as if the Company
and its domestic subsidiary had filed their own consolidated income tax returns
prior to the Merger.
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
August 2, July 28, August 2, July 28,
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Significant components of the income
tax provision (benefit) attributable to
operations are as follows:
Current Taxes -
Foreign $ 315 $ 262 $ 960 $ 730
State and local -- -- 3
Deferred Taxes -
Federal (665) -- (968) --
State and local 65 (2) (66) --
--------- --------- -------- --------
Total income tax provision $ (415) $ 263 $ (74) $ 733
========= ========= ======== ========
</TABLE>
10
<PAGE> 11
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE E--INCOME TAXES--CONTINUED
Deferred income taxes reflect the net tax effects of changes in the temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
As described in Note B, as of the date of acquisition, a deferred tax asset was
established representing the estimated future tax benefit anticipated to be
realized from the use of Triple-I's net operating loss carryforward and
deductible temporary differences and the Company's deductible temporary
differences existing at the date of acquisition to reduce anticipated taxable
income of the Company to be realized subsequent to acquisition. The Company
believes that it is more likely than not that such tax benefit will be realized
based on the combined companies' past and anticipated future results of
operations and after considering provisions of the tax law, such as the change
in ownership provisions, that restrict the future use of Triple-I's tax
benefits.
NOTE F--STOCK OPTIONS
Pursuant to the Merger Agreement, the Company has adopted the Triple-I 1976
Employees' Stock Option Incentive Plan ("Employees' Plan") and the Triple-I
1992 Directors' Stock Option Plan ("Directors' Plan"), and has established a
1995 Employees' Incentive Stock Option Plan ("New Plan"). Under the former
Triple-I plans, shares of the Company will now be issued instead of the shares
of Triple-I. A summary of each of these plans follows.
Employees' Plan: The Plan provides for the granting of options to purchase
Triple-I's common stock at a price equal to at least 100% of the fair market
value of Triple-I's stock on the date of grant. As of August 2, 1996, options
to purchase 467,000 shares of the Company's common stock at exercise prices
ranging from $7.25 to $9.75 per share were outstanding. All such options are
fully vested.
Directors' Plan: The Plan provides for the granting of options to purchase
Triple-I's common stock at a price equal to at least 100% of the fair market
value of Triple-I's stock on the date of grant. As of August 2, 1996, options
to purchase 16,000 shares of the Company's common stock at exercise prices
ranging from $7.25 to $11.50 per share were outstanding. All such options
are fully vested.
New Plan: The Company has adopted a stock option plan that provides for the
granting of options to purchase up to 150,000 shares of the Company's common
stock at a price equal to at least 100% of the fair market value of the
Company's stock on the date of grant to employees, directors or consultants of
the Company, its subsidiaries and Volt. The options may be exercised for
periods up to ten years. As of August 2, 1996, options to purchase 92,000
shares of the Company's common stock which were granted to employees of the
Company at a price of $12.00 per share and options to purchase 40,500 shares of
the Company common stock which were granted to officers of Volt (18,000 at
$13.20 per share and 22,500 at $12.00 per share) were outstanding. Options
were granted to officers of Volt in connection with the acquisition of
Triple-I.
NOTE G--PREFERRED STOCK
The Preferred Stock authorized is issuable in one or more series from
time-to-time at the discretion of the Company's Board of Directors. The Board
is authorized, with respect to each series, to fix its designation, powers,
preferences, rights and limitations.
11
<PAGE> 12
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE H--CHARGES FROM VOLT
In addition to rent expense, prior to the merger of Autologic into the Company,
Volt allocated to Autologic a proportional share of corporate general and
administrative expenses on the basis of assets employed and interest on the
payable to Volt on a non-compound basis. Subsequent to the merger, the rent is
significantly reduced (see Note I), general and administrative service are
being substantially performed by the Company's internal staff and third-party
providers and, due to the contribution to capital, interest charged by Volt has
ceased.
During the three month period ended August 2, 1996, the Company incurred $9,000
in legal fees payable to Volt under a $3,000 per month retainer arrangement
that provides the Company access to Volt's in-house legal staff.
As of August 2, 1996, the Company had a $220,000 payable to Volt due as a
result of post-merger activity, including certain merger costs incurred by the
Company and paid by Volt.
NOTE I--RELATED PARTY LEASE
A new three-year lease, commencing on the effective date of the merger, was
entered into between the Company, as lessee, and a wholly-owned subsidiary of
Volt, as lessor, for space previously occupied by Autologic as its headquarters
and manufacturing facility in Thousand Oaks, California. The lease provides
for an initial monthly rental of $67,107 for a six-month period, subject to
adjustment by the Board of Directors of the Company within seven months (which
date has been extended) after the commencement date of the lease, as to the
base rent, the term of the lease and/or the amount of space rented. The lease
provides for further adjustment not earlier than two years after such date and
from time-to-time thereafter. The lease also provides for the Company to pay
all real estate taxes, insurance, utilities and repairs related to the
facility.
12
<PAGE> 13
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
General
As set forth in Note B in the accompanying financial statements, on January
29, 1996, Volt Information Sciences, Inc. ("Volt") assigned the capital stock
of certain of Volt's foreign subsidiaries to the Company and each of Autologic,
Inc. (together with such foreign subsidiaries, "Autologic") and Information
International, Inc. ("Triple-I") were merged into the Company (such
transactions being collectively referred to as the "Merger"). The Company's
reported results of operations for all periods prior to January 29, 1996
reflect only the results of operations of Autologic (and, accordingly, do not
reflect the results of Triple-I prior to January 29, 1996). In addition, such
results do not give effect to the elimination of interest theretofore charged
by Volt to Autologic on intercompany borrowings (which were contributed to
Autologic's capital prior to the Merger), the reduction in rent of a facility
leased from Volt (under a new leased entered into in connection with the
Merger), or cost savings from the aggregate amounts incurred by Autologic and
Triple-I separately (such as from staff and facilities reductions and the
ability of existing staff to absorb general and administrative functions
previously provided by Volt and charged to Autologic) and other synergies
implemented, and being implemented, since the Merger. Accordingly, results
prior to January 29, 1996 and the Company's balance sheet as at November 3,
1995 are not reflective of the operations and financial position of the Company
as presently constituted.
Three Months Ended August 2, 1996 Compared to Three Months Ended July 28, 1995
The $4,903,000 (29.4%) increase in revenues in the third quarter of fiscal 1996
period ($2,645,000, or 21.6%, in sales of systems and equipment and $2,258,000,
or 51.1%, in customer service and support revenues) resulted primarily from the
integration of the two business (thus adding Triple-I's revenues to Autologic's
revenues). However, third quarter sales were below the combined levels of
Autologic and Triple-I for the comparable period 1995 primarily due to intense
competition.
Gross profit expressed as a percentage of sales improved by two percentage
points in the third quarter of fiscal 1996 over Autologic's gross profit margin
in the third quarter of fiscal 1995, principally as a result of efficiencies
realized by combining Autologic's and Triple-I's customer service and support
revenue bases, adding Triple-I's 3850 family of imagers to the manufactured
product base of the Company, increased sales of software products, and reducing
costs through the reorganization and reduction of combined staff implemented
after the Merger.
Operating expenses in the third quarter of fiscal 1996 reflect the combined
operations of Triple-I and Autologic and are therefore higher than Autologic's
operating expenses alone were in the third quarter of fiscal 1995. The
expenses represent a decrease in the combined expense of the two companies as a
result of reorganizing and reducing staff and reduction in operating expenses.
Operating expenses as a percentage of revenues increased (from 31.8% for
Autologic alone in the third quarter of fiscal 1995 to 39.8% for the combined
companies in the third quarter of fiscal 1996) as combined sales of Autologic
and Triple-I did not increase by the same percentage as did the overall
increase in operating expenses (which were incurred based on anticipated
revenue levels).
The $224,000 reduction in rent relates to a facility leased by the Company from
Volt under a lease which provides for lower rent subsequent to the Merger than
was charged to Autologic prior to the Merger.
The $215,000 reduction in general and administrative expenses charged by Volt
resulted from substantially all of the services previously performed by Volt
being performed since the Merger by the Company's internal staff and, to some
extent, third-party providers. A monthly fee of $3,000 is paid to Volt for
on-going legal services. The expenses related to post-Merger general and
administrative services performed by the Company's internal staff and third
party providers is included under operating expenses discussed above.
The $56,000 increase in interest income resulted from the investment of
Triple-I funds acquired by the Company in the Merger.
The elimination of interest expense charged by Volt resulted from the
contribution by Volt to Autologic of intercompany borrowings of Autologic just
prior to the Merger.
13
<PAGE> 14
The foreign exchange loss in both fiscal 1996 and 1995 resulted from the cost
of foreign currency options purchased to minimize the potential adverse impact
on foreign currency receivables and sales in order to protect against the
dollar strengthening against foreign currencies, substantially offset by gains
on those currencies hedged.
The tax provision in fiscal 1995 related to taxes on foreign earnings without
U.S. tax benefit. U.S. net operating losses incurred by Autologic were utilized
by Volt prior to the Merger.
Nine Months Ended August 2, 1996 Compared to Nine Months Ended July 28, 1995
Included in the loss for the nine months ended August 2, 1996 were the
following non-recurring expenses incurred by Autologic (and, accordingly,
reflected in the Company's financial statements) during the first three months
of fiscal 1996 (ended February 2, 1996) and prior to the Merger: (1)
restructuring charges of approximately $700,000 related principally to the
termination of Autologic employees and the restructuring of its operations in
connection with the Merger; (2) interest expense charged by Volt of $583,000
(which has been eliminated as a result of Volt's contribution of the underlying
indebtedness to Autologic's capital prior to the Merger); (3) charges from Volt
to Autologic for rent of $821,000 (which rent to the Company would have been
$603,000 had the Merger been completed at the beginning of fiscal 1996; (4)
charges from Volt for general and administrative services of $215,000 (the
services related to which are being substantially performed by the Company's
internal staff and, to some extent, third-party providers). The results of
operations for periods prior to February 3, 1996 do not give effect to
amortization expense of approximately $137,500 per fiscal quarter (for five
years commencing with the quarter beginning February 3, 1996) of the excess
purchase price over the estimated fair value of Triple-I's identifiable assets.
Included in the loss for the nine months ended July 28, 1995 was interest
expense of $1,946,000 on loans from Volt (which are no longer outstanding),
rent of $1,276,000 (which would have been reduced to approximately $603,000 had
the Merger arrangements then been in effect) and general and administrative
expenses of $674,000 (the services related to which are being substantially
performed by the Company's internal staff and, to some extent, third-party
providers).
The $14,691,000 (29.8%) increase in revenues in the nine month fiscal 1996
period ($9,916,000, or 27.7% in sales of systems and equipment and $4,77,000,
or 35.2%, in customer service and support revenues) resulted primarily from the
integration of the two businesses (thus adding Triple-I's revenues to
Autologic's revenues).
Although the Company's gross profit margin for the nine months ended August 2,
1996 approximated Autologic's gross profit margin for the comparable period in
fiscal 1995, the gross profit margins for post-Merger combined operations of
Autologic and Triple-I in the second and third quarters of fiscal 1996 improved
significantly, offsetting a decline in Autologic's margins in the first quarter
of fiscal 1996. The improvement in the last six months of the current nine
month period were for the same reasons as described above in the discussion of
gross margins for the three months ended August 2, 1996. The margins of
Autologic in the pre-Merger first three months of fiscal 1996 were adversely
affected by sales of lower gross profit margin imagers purchased from others
(including Triple-I) which have been replaced by sales of 3850 imagers
manufactured by the merged Company.
The $6,587,000 increase in operating expenses in the nine months ended August
2, 1996 over the comparable period in fiscal 1995 reflects the combined
operations of Triple-I and Autologic and are therefore higher than Autologic's
operating expenses alone were in the first nine months of fiscal 1995.
Operating expenses as a percentage of sales increased (from 30.9% for Autologic
alone in the first nine months of fiscal 1995 to 34.1% for the first nine
months of fiscal 1996) as combined sales of Autologic and Triple-I did not
increase by the same percentage as did the overall increase in operating
expenses (which were incurred in light of anticipated revenue levels).
The restructuring charge of $700,000 (incurred prior to the Merger) is related
principally to the termination of Autologic employees and the restructuring of
its operations in connection with the Merger.
The $455,000 reduction in rent relates to a facility leased by the Company from
Volt under a lease which provides for lower rent subsequent to the Merger than
was charged to Autologic prior to the Merger.
14
<PAGE> 15
The $459,000 reduction in general and administrative expenses charged by Volt
resulted from substantially all of the services previously performed by Volt
being performed since the Merger by the Company's internal staff and, to some
extent, third-party providers. A monthly fee of $3,000 is paid to Volt for
on-going legal services. The expenses related to post-Merger general and
administrative services performed by the Company's internal staff and third
party providers is included under operating expenses discussed above.
Interest income resulted from the investment of Triple-I funds acquired by the
Company in the Merger.
The $1,363,000 reduction in interest expense charged by Volt resulted from the
contribution by Volt to Autologic of intercompany borrowings just prior to the
Merger toward the end of the first quarter of fiscal 1996.
The foreign exchange loss in fiscal 1996 resulted from the cost of foreign
currency options purchased to minimize the potential adverse impact on foreign
currency receivables and sales in order to protect against the dollar
strengthening against foreign currencies and, to a lesser extent, losses on
currencies not hedged.
Other expenses in 1996 include a first quarter $180,000 charge related to an
unfavorable lawsuit judgment.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet as of November 3, 1995 represents the financial
position of Autologic only, while the balance sheet as of August 2, 1996
represents the financial position of the Company after the Merger and includes
the accounts of Autologic and Triple-I.
During the first nine months of fiscal 1996, cash was applied in operating
activities in the amount of $2,031,000 principally as a result of the year to
date net loss (net of depreciation and amortization) of $1,526,000 and the net
impact ($505,000) of various changes in operating assets and liability
accounts.
The principal factor in the cash provided by investing cash activities was the
cash and cash equivalents balance of Triple-I acquired in the Merger
($8,764,000), offset by $1,508,000 used for the purchase of property and
equipment.
The repayment of the notes payable to banks resulted in the use of $680,000 of
cash for financing activities, while proceeds from the exercise of stock
options provided $206,000.
As a result of the foregoing, during the nine months ended August 2, 1996, cash
and cash equivalents increased by $5,065,000. The Company's working capital as
of August 2, 1996 was $26,908,000, which includes $7,607,000 in cash and cash
equivalents. These resources, along with a credit facility of $2,250,000
available from Volt, are anticipated to be sufficient to meet the Company's
liquidity and capital needs for the near term in the normal course of business.
As part of the consolidation of operations and facilities, the Company's Board
of Directors has approved the expenditure of up to $1,000,000 for
communications, facilities and fixtures for plant renovation. Of this,
approximately $530,000 has been incurred through August 2, 1996. The Company
has no other plans for significant capital expenditures other than expenditures
in the normal course of business anticipated to be funded from ongoing
operations.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
15 Independent Accountants' Report on Review of Interim Financial
Information from Ernst & Young LLP
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended August 2, 1996.
16
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AUTOLOGIC INFORMATION INTERNATIONAL, INC.
BY: ______________________________
Dennis Doolittle
Chief Operating Officer
BY: ______________________________
John Griffin
Controller
(Chief Accounting Officer)
Date: September 13, 1996
17
<PAGE> 1
EXHIBIT 15
The Board of Directors
Autologic Information International, Inc.
We have reviewed the accompanying unaudited consolidated balance sheet of
Autologic Information International, Inc. and subsidiaries as of August 2, 1996,
and the related condensed consolidated statements of operations for the
three-month and nine-month periods ended August 2, 1996 and July 28, 1995, and
the condensed consolidated statements of cash flows for the nine-month periods
ended August 2, 1996 and July 28, 1995. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited,in accordance with generally accepted auditing
standards, the consolidated balance sheet as of November 3, 1995, and the
related consolidated statements of operations and cash flows for the year then
ended, not presented herein; and in our report dated January 2, 1996, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed balance
sheet as of November 3, 1995, is fairly stated in all material respects, in
relation to the consolidated balance sheet from which it had been derived.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
September 4, 1996
Woodland Hills, California
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