<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 (No Fee Required) For the quarter ended August 1, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) For the transition period from
________________________ to _______________________
Commission File No. 0-29396
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
Not Applicable
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares of common stock outstanding as of September 5, 1997 was
5,783,370.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
August 1, November 1,
1997 1996
--------- ---------
(Dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,967 $ 6,133
Accounts receivable less allowance for doubtful
accounts of $1,823 (1997) and $1,856 (1996) 15,672 21,761
Inventories--Notes C 8,831 12,301
Deferred income tax benefit--Notes B and D 5,017 5,797
Prepaid expenses and other assets 2,333 1,093
--------- ---------
Total current assets 39,820 47,085
PROPERTY AND EQUIPMENT, at cost net of
accumulated depreciation and amortization
of $5,866 (1997) and $4,845 (1996) 5,895 6,212
DEFERRED INCOME TAX BENEFIT--Notes B and D 3,554 3,554
EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED, net of amortization of $827 (1997) and
$413 (1996) -- Note B 1,926 2,340
OTHER ASSETS 80 94
--------- ---------
$ 51,275 $ 59,285
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,234 $ 10,311
Payable to Volt--Note F -- 771
Accrued expenses 4,564 5,282
Accrued restructuring costs 1,993 2,334
Customer advances 3,980 3,402
Income taxes payable--Note D -- 1,174
--------- ---------
Total current liabilities 14,771 23,274
STOCKHOLDERS' EQUITY--Notes B, E and I
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 5,783,370 shares (1997) and
5,793,870 shares (1996) 58 58
Paid-in capital 112,620 112,665
Accumulated deficit (76,174) (76,712)
--------- ---------
36,504 36,011
--------- ---------
$ 51,275 $ 59,285
========= =========
</TABLE>
See accompanying notes
2
<PAGE> 3
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 1, August 2, August 1, August 2,
1997 1996 1997 1996
------------- ---------- ---------- ------------
(Dollars in thousands, except per share and share amounts)
<S> <C> <C> <C> <C>
REVENUES
Systems and equipment $ 15,303 $ 14,820 $ 40,145 $ 45,549
Customer service and support 7,011 6,679 20,177 18,330
-------- -------- -------- --------
22,314 21,499 60,322 63,879
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES
Cost of systems and equipment 8,037 9,034 21,938 28,906
Cost of customer service and support 5,203 5,125 14,553 14,394
Operating expenses 7,833 8,256 22,002 21,123
Restructuring charge -- -- -- 700
Charges from Volt-Note F
Rent 194 201 589 821
General and administrative 9 9 27 215
-------- -------- -------- --------
21,276 22,625 59,109 66,159
-------- -------- -------- --------
OPERATING INCOME (LOSS) 1,038 (1,126) 1,213 (2,280)
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest income 130 102 225 251
Interest expense charged by Volt--Note F -- -- -- (583)
Foreign exchange gain (loss) 61 (39) 195 (382)
Other, net 18 219 (247) (141)
-------- -------- -------- --------
209 282 173 (855)
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,247 (844) 1,386 (3,135)
INCOME TAX PROVISION (BENEFIT)--Note D 422 (321) 645 125
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 825 (523) 741 (3,260)
LOSS FROM DISCONTINUED OPERATIONS-Note H -- (155) (203) (325)
-------- -------- -------- --------
NET INCOME (LOSS) $ 825 $ (678) $ 538 $ (3,585)
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE
CONTINUING OPERATIONS $ 0.14 $ (0.09) $ 0.13 $ (0.65)
NET LOSS PER SHARE
DISCONTINUED OPERATIONS -- (0.03) (0.04) (0.06)
-------- -------- -------- --------
NET INCOME (LOSS) PER SHARE-Note I $ 0.14 $ (0.12) $ 0.09 $ (0.71)
======== ======== ======== ========
Average number of shares outstanding 5,783 5,788 5,786 5,032
======== ======== ======== ========
</TABLE>
See accompanying notes
3
<PAGE> 4
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 1, 1996 5,793,870 $ 58 $ 112,665 $ (76,712)
Retirement of stock in connection
with Digiflex sale (10,500) -- (45) --
Net income for the nine months -- -- -- 538
---------- ---------- ---------- ----------
Balance at August 1, 1997 5,783,370 $ 58 $ 112,620 $ (76,174)
========== ========== ========== ==========
</TABLE>
See accompanying notes
4
<PAGE> 5
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
August 1, August 2,
1997 1996
------- -------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 538 $(3,585)
Adjustments to reconcile net income (loss) to net cash
provided by (applied to) operating activities:
Loss on sale of discontinued operation 75 --
Loss from discontinued operation 128 325
Depreciation and amortization 2,113 1,911
Provision for doubtful accounts 692 641
Gains on foreign currency translation (519) (227)
Loss on dispositions of property and equipment 46 41
Deferred income tax provision (benefit) 689 (1,034)
Changes in operating assets and liabilities:
Decrease in accounts receivable 4,501 468
Decrease in inventories 3,470 284
Increase in prepaid expenses and other assets (908) (754)
Increase (decrease) in accounts payable (5,694) 873
Decrease in accrued expenses (1,097) (1,146)
Increase (decrease) in customer advances 738 (231)
Increase (decrease) in income taxes payable (1,342) 360
Increase (decrease) in payable to Volt (830) 220
------- -------
Net cash provided by (applied to) continuing operations 2,600 (1,854)
======= =======
Net cash applied to discontinued operation (81) (177)
------- -------
NET CASH PROVIDED BY (APPLIED TO) OPERATING ACTIVITIES 2,519 (2,031)
======= =======
</TABLE>
Continued on next page
5
<PAGE> 6
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
August 1, August 2,
1997 1996
------- -------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Cash of acquired company (Triple-I) $ -- $ 8,764
Proceeds from disposal of property and equipment 110 --
Purchases of property and equipment (1,705) (1,508)
------- -------
NET CASH PROVIDED BY (APPLIED TO)
INVESTING ACTIVITIES (1,595) 7,256
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable -- (672)
Proceeds from exercise of stock options -- 206
------- -------
NET CASH APPLIED TO FINANCING ACTIVITIES -- (466)
------- -------
Effect of exchange rate changes on cash 919 306
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,843 5,065
Cash and cash equivalents, beginning of period 6,133 2,542
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,976 $ 7,607
======= =======
SUPPLEMENTAL CASH TRANSACTIONS
Cash paid during the period:
Interest expense $ 9 $ 10
Income tax $ 1,084 $ 694
</TABLE>
See accompanying notes
6
<PAGE> 7
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and Article 10 of
Regulation S-X and, therefore, do not include all information and footnotes
necessary for a fair presentation of financial position, results of operations
and cash flows in conformity with generally accepted accounting principles. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the Company's
financial position at August 1, 1997 and results of operations for the three and
nine months ended August 1, 1997 and August 2, 1996 and cash flows for the nine
months ended August 1, 1997 and August 2, 1996. Operating results for the nine
months ended August 1, 1997 are not necessarily indicative of the results that
may be expected for the fiscal year ending October 31, 1997.
These statements should be read in conjunction with the financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended November 1, 1996. The accounting policies used in preparing these
financial statements are the same as those described in that Report. The
Company's fiscal year ends on the Friday nearest October 31.
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 dated October 5, 1995,
as subsequently amended (the "Merger Agreement"), 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 Autologic or such 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, through its wholly-owned subsidiary Nuco
I, Ltd., received 3,333,000 shares of the Company's common stock for its
transfer of Autologic and the Volt Subsidiaries 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 (including
58,500 shares issued to Volt in respect of Triple-I common stock owned by Volt
prior to the mergers).
On June 25, 1995, the date the general terms of the mergers 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 mergers. 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's common stock issued
with respect to Triple-I options exercised subsequent to June 25, 1995, up to a
maximum of 100,000 shares. Between June 25, 1995 and November 1, 1996, 51,250
shares were issued upon the exercise of Triple-I options, and Volt has received
4,000 shares, and is entitled to receive an additional 4,600 shares, of the
Company's common stock with respect to such exercises. None of the Triple-I
options have been exercised in fiscal 1997. Accordingly, Volt owned beneficially
3,399,500 shares (59%) of the Company's common stock as at August 1, 1997.
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 statements of operations reflect 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 value
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 mergers and is being
amortized over a five-year period. The operating results of Triple-I have been
included in the Company's 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 all periods thereafter. The liability for
restructuring costs incurred prior to the mergers ($1,993,000 at August 1, 1997)
provides for estimated costs related to the closing of certain facilities of
Triple-I.
7
<PAGE> 8
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
NOTE B--FORMATION OF THE COMPANY AND MERGER--Continued
The results of operations for the nine months ended August 2, 1996 reflect only
results of operations of Autologic for the first quarter of 1996; therefore,
results of the combined operations for the nine months ended August 1, 1997 are
not comparable to results for the nine months ended August 2, 1996.
The accompanying statement of operations for the nine months ended August 2,
1996 includes a charge of $700,000 related principally to the reduction of
Autologic's workforce and the restructuring of Autologic's operations in
connection with the mergers.
The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company as if the transactions described above had
occurred at the beginning of fiscal 1996 with pro forma adjustments for the
amortization of the excess of purchase price over net assets acquired, the
elimination of interest expense (on indebtedness of Autologic and the Volt
Subsidiaries contributed to such companies by Volt prior to the mergers) and a
portion of rent previously charged by Volt (to reflect the reduced rent charged
by Volt after the mergers), 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,
1996
----
(In thousands, except per share amounts)
<S> <C>
Revenues $ 73,897
Loss from continuing operations (608)
Net loss (933)
Loss from continuing operations, per share (0.12)
Net loss per share (0.19)
</TABLE>
NOTE C--INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
August 1, November 1,
1997 1996
------------ -----------
(Dollars in thousands)
<S> <C> <C>
Service parts $ 2,004 $ 2,396
Materials 3,170 5,257
Work-in-process 2,313 2,654
Finished goods 1,344 1,994
------------ -----------
$ 8,831 $ 12,301
============ ===========
</TABLE>
8
<PAGE> 9
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
NOTE D--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 mergers, 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 consolidated financial statements as if the Company and its
domestic subsidiary had filed their own consolidated income tax returns prior to
the mergers.
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
August 1, August 2, August 1, August 2,
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Significant components of the
income tax provision (benefit)
attributable to operations
are as follows:
Current Taxes:
Federal $(492) $ -- $(492) $ --
State and local (29) -- (29) --
Foreign 254 315 477 960
----- ----- ----- -----
Total current (267) 315 (44) 960
----- ----- ----- -----
Deferred Taxes:
Federal 614 (580) 614 (790)
State and local 75 (56) 75 (45)
Foreign -- -- -- --
----- ----- ----- -----
Total deferred 689 (636) 689 (835)
----- ----- ----- -----
Total income tax provision $ 422 $(321) $ 645 $ 125
===== ===== ===== =====
</TABLE>
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 the mergers, 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 mergers to reduce anticipated taxable income
of the Company to be realized subsequent to the mergers. The Company believes
that it is more likely than not that such tax benefits 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 E--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.
9
<PAGE> 10
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
NOTE F--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
amounts payable by Autologic and the Volt Subsidiaries to Volt on a
non-compounding basis. Subsequent to the mergers, the rent has been
significantly reduced (see Note G), general and administrative services are
being substantially performed by the Company's internal staff and third-party
providers and, due to the contribution by Volt to capital of the amounts owed
Volt by Autologic and the Volt subsidiaries, interest charged by Volt has
ceased.
NOTE G--RELATED PARTY TRANSACTIONS
A new three-year lease, commencing on the effective date of the mergers, 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. During the period from
the date of the mergers through November 1, 1996, the Company paid rent to Volt
aggregating $604,000. Pursuant to the terms of the lease, as amended in December
1996, the Company's Board of Directors established a new rental rate based on
prevailing rates in the general area, which resulted in a slight decrease in
rent. During the remaining term of the lease, the Company's Board of Directors
may again, unilaterally, but in good faith and utilizing certain reasonableness
standards, redetermine whether there should be a further increase or decrease in
the base rent and/or increase (if the space is then available) or decrease the
amount of rented space. The lease also provides for the Company to pay all real
estate taxes, insurance, utilities and repairs related to the facility.
On May 15, 1997, the Company obtained a revolving line of credit, which is
guaranteed by Volt, in the amount of $2,250,000 with Wells Fargo Bank. Advances
under the line of credit bear interest at the higher of the prime interest rate
or the federal funds rate plus 0.5%. There were no borrowings outstanding under
this agreement as of August 1, 1997.
NOTE H--DISCONTINUED OPERATIONS
On January 2, 1997, the Company disposed of the assets and discontinued
Digiflex, its advertisement delivery operation. Digiflex was acquired at the end
of January 1996. The loss from discontinued operations includes an operating
loss of $128,000 on revenues of $82,000 and a loss on disposal of $75,000; no
realizable income tax benefits are available to be allocated to the loss. The
results of operations for the period August 2, 1996 have been restated to
reflect the discontinued operation. The loss from discontinued operations for
the nine months ended August 2, 1996 includes an operating loss of $325,000, net
of a tax benefit of $199,000, on revenues of $181,000.
NOTE I--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.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share," which is required to be adopted by the Company in
fiscal year 1998. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating "basic" earnings per share,
the dilutive effect of stock options will be excluded. Basic earnings per share
and fully diluted earnings per share are not expected to differ materially from
per share data reported.
10
<PAGE> 11
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 acquisition of Autologic
and the Volt subsidiaries has been accounted for under the pooling of interest
method of accounting and the acquisition of Triple-I was accounted for under the
purchase method of accounting. Accordingly, the Company's reported results of
operations for all periods prior to January 29, 1996 reflect only the results of
operations of Autologic. In addition, results prior to the Merger do not give
effect to the elimination of interest theretofore charged by Volt to Autologic
on intercompany borrowings (which borrowings were contributed to Autologic's
capital prior to the Merger), the reduction in rent of a facility leased from
Volt (under a new lease 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 since the Merger.
Therefore, results of the combined operations for the nine months ended August
1, 1997 are not comparable to results for the nine months ended August 2, 1996
which (except for the last five days of the first quarter and the entire second
quarter) reflect only the operations of Autologic.
In order to keep investors informed of the Company's future plans and
objectives, this Report (and other reports and statements issued by the Company
and its officers from time to time) contain certain statements concerning the
Company's future results, future performance, intentions, objectives, plans and
expectations that are or may be deemed to be "forward-looking statements". The
Company's ability to do this has been fostered by the Private Securities
Litigation Reform Act of 1995 which provides a "safe harbor" for forward-looking
statements to encourage companies to provide prospective information so long as
those statements are accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from
those discussed in the statement . The Company believes it is in the best
interests of investors to take advantage of the "safe harbor" provisions of that
Act. Such forward-looking statements are subject to a number of known and
unknown risks and uncertainties that could cause the Company's actual results,
performance, and achievements to differ materially from those described or
implied in the forward-looking statements. Factors, in addition to general
economic and business conditions (both in the United States and in the overseas
markets where the Company distributes products) that could cause or contribute
to such differences include, but are not limited to, the Company's ability to
meet competition in its highly competitive markets, intense price competition
and pressure on margins; the Company's ability to maintain superior
technological capability in markets characterized by rapidly changing technology
and frequent new product introductions; the Company's ability to foresee changes
and to identify, develop and commercialize innovative and competitive products
and systems in a timely and cost effective manner, the continuing availability
of components, sub-assemblies, parts and end items; the Company's ability to
successfully expand its market base beyond its traditional newspaper market; the
Company's ability to attract and retain certain classifications of
technologically qualified personnel, particularly in the areas of research and
development and customer service; and the Company's ability to generate cash
flows and obtain financing to support its operations and growth (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"); as well as other factors discussed from time to time in the
Company's Annual Report on Form 10-K for the year ended November 1, 1996, and
other Company reports thereafter filed with the Securities and Exchange
Commission, including this Report.
Three months ended August 1, 1997 compared to three months ended August 2, 1996
Results of Operations
Revenues in the three months ended August 1, 1997 increased $815,000, or 3.8%,
from the comparable period in the prior year due to an increase of $483,000, or
3.3%, in systems and equipment sales and an increase of $332,000, or 5.0%, in
customer service and support. The higher systems and equipment sales are due
primarily to increased sales due to the effect of increased efforts to improve
domestic sales. The higher customer service revenue is due to the increased
equipment sales and the associated service contracts which follow and contracts
renewed during the quarter at higher revenues. The markets in which the segment
competes are marked by rapidly changing technology, with sales in fiscal 1997 of
equipment introduced within the last three years comprising approximately 87% of
equipment sales.
11
<PAGE> 12
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Continued
Gross profit expressed as a percentage of sales from systems, equipment,
customer service and support revenues increased by 6.6 percent points from 34.1%
in 1996 to 40.7% in the third quarter of fiscal 1997. Gross profits from system
and equipment sales increased from 39.0% to 47.5% as a result of the sale of a
greater proportion of higher margin products. Customer service margins increased
from 23.3% in 1996 to 25.8% in 1997 due to lower operating costs and higher
revenues.
Operating expenses of $7,833,000 in the third quarter of fiscal 1997 have been
reduced by $423,000, or 5.1% from $8,256,000 in the third quarter of 1996.
Expressed as a percentage of sales, operating expenses decreased from 38.4% in
the 1996 period to 33.6% in the 1997 period. The dollar and percentage decrease
in operating expenses is due primarily to cost cutting and workforce reductions
which have been implemented since the Merger.
The $28,000 increase in interest income in the third quarter of fiscal 1997 is
due to higher average (over the three-month period) cash balances in fiscal 1997
than in the comparable period in the prior year.
The foreign exchange gain was $61,000 in fiscal 1997 compared to a loss in 1996
of $39,000. The gain in 1997 was due to favorable, and the loss in 1996 was due
to unfavorable, currency movements in the European currency markets. To reduce
the potential adverse impact from foreign currency changes on the Company's
foreign currency receivables, sales and firm commitments, foreign currency
options and forward contracts are purchased.
Other, income net decreased from $219,000 in the three month period in fiscal
1996 to $18,000 in fiscal 1997 due to the absence in 1997 of 1996 sundry items.
The provision for income tax for the three months of fiscal 1997 is due to both
foreign and domestic taxable income, with a relatively high foreign rate and a
domestic rate lower than the statutory rate, due to utilization in the three
months of losses incurred in the first six months of 1997 for which no U.S.
benefits were provided.
Nine months ended August 1, 1997 compared to nine months ended August 2, 1996
Results of Operations
In the nine month period ended August 1, 1997, revenues decreased by $3,557,000
or 5.6%, due to a $5,404,000, or 11.9%, decrease in sales of systems and
equipment offset, in part, by an increase of $1,847,000, or 10.1%, of customer
service sales. The decrease in system sales was due primarily to weaker sales in
the foreign operations particularly in France, Germany and Sweden. The increase
in customer service sales resulted primarily from the integration of the two
merged businesses (thus adding Triple-I's revenue to Autologic's revenues). Had
the Merger occurred at the beginning of fiscal 1996, revenues for the nine
months ended August 2, 1996 would have been $75,000,000 compared to $60,322,000
for the nine months ended August 1, 1997. The markets in which the segment
competes are marked by rapidly changing technology, with sales in fiscal 1997 of
equipment introduced within the last three years comprising approximately 88% of
equipment sales.
Gross margins improved 7.3 percentage points (from 32.2% to 39.5%) due to
improved gross margins on systems and equipment and customer service. Systems
and equipment gross margins increased by 8.9 percentage points (from 36.4% to
45.4%) due principally to the sale of a greater proportion of higher margin
products. Customer service gross margins improved by 6.4% percentage points
(from 21.5% to 27.9%) due primarily to workforce reductions.
The $879,000 increase in operating expenses from $21,123,000 in fiscal 1996 to
$22,002,000 in fiscal 1997 is primarily a result of the combination of the
operations of Autologic and Triple-I at the end of the first quarter of fiscal
1996 (the results for which the quarter included operating expenses of Autologic
only). The operating expenses in the second and third quarter of 1997 have been
lower than they were in the comparable periods in fiscal 1996. Operating expense
expressed as a percentage of sales increased 3.4 percentage points (from 33.1%
to 36.5%) due to the effects of the higher operating expenses and a decline in
sales.
The restructuring charge of $700,000 relates principally to the termination of
Autologic employees and the restructuring of its operations in connection with
the Merger.
The $232,000 reduction in rent charged by Volt for a facility leased by the
Company from Volt resulted from a new lease, entered into between the Company
and Volt in connection with the Merger, effective January 29,1996. (See Note G
of Notes to Condensed Consolidated Financial Statements).
12
<PAGE> 13
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Continued
The $188,000 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.
The $26,000 reduction in interest income is due to a lower average (over the
nine-month period) cash balance in fiscal 1997 versus the prior year.
The elimination of interest expense charged by Volt resulted from the
contribution by Volt to Autologic of intercompany borrowings of Autologic prior
to the Merger.
The foreign exchange gain was $195,000 in fiscal 1997 compared to a loss in 1996
of $382,000. The gain in 1997 was due to favorable, and the loss in 1996 was due
to unfavorable, currency movements in the European currency markets. To reduce
the potential adverse impact from foreign currency changes on the Company's
foreign currency receivables, sales and firm commitments, foreign currency
options and forward contracts are purchased.
Other expense, net increased from $141,000 in fiscal 1996 to $247,000 in fiscal
1997 due primarily to restructuring expenses incurred during 1997.
The tax provision in 1997 is 46.5% and is high due to tax on foreign tax
jurisdictions.
See Note H of Notes to Condensed Consolidated Financial Statements on results of
discontinued operations.
Liquidity and Capital Resources
During the nine months of fiscal 1997, cash from operating activities was
provided in the amount of $2,519,000. While the Company reported a profit of
$538,000 for the nine months of fiscal 1997, such profit was after deducting
non-cash charges aggregating $3,224,000 including depreciation of $2,113,000, a
provision for doubtful accounts of $692,000, and deferred income tax charges of
$689,000. Accounts receivable and inventories were reduced by $4,501,000 and
$3,470,000 respectively, generating a positive cash flow of $7,971,000 which was
used primarily to reduce payable by $5,694,000 and accrued expenses by
$1,097,000.
Investing activities used net cash of $1,595,000, with $1,705,000 being expended
for the purchase of property and equipment offset by $110,000 received from the
disposal of property and equipment.
As a result of the foregoing, during the nine months ended August 1, 1997, cash
and cash equivalents increased by $1,843,000. The Company's working capital as
of August 1, 1997 was $25,049,000, which includes $7,967,000 in cash and cash
equivalents. These resources, along with the credit facility from Wells Fargo
Bank discussed below, are anticipated to be sufficient to meet the Company's
liquidity and capital needs for the near term in the normal course of business.
On May 15, 1997, the Company obtained a revolving line of credit, which is
guaranteed by Volt, in the amount of $2,250,000 with Wells Fargo Bank. Under the
terms and conditions of the line of credit, the Company may borrow from time to
time, up to the full amount of the line with an interest at the higher of the
bank's prime rate or the Federal Funds Rate plus .5%. There were no borrowings
outstanding under this agreement as of August 1, 1997.
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 $860,000 has been incurred through August 1, 997. 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.
13
<PAGE> 14
PART II -- OTHER INFORMATION
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1997 Annual Meeting of Shareholders held on June 9, 1997,
shareholders:
(a) Elected the following to serve as Directors of the Corporation to serve
until the 1998 Annual Meeting of the Shareholders, by the following votes:
<TABLE>
<CAPTION>
For Vote Withheld
--- -------------
<S> <C> <C>
Leroy I. Bell 5,362,066 224,846
Dennis D. Doolittle 5,364,201 222,711
Alden L. Edwards 5,363,001 223,911
James J. Groberg 5,363,701 223,211
Brian W. LeClair 5,363,981 222,931
Paul H. McGarrell 5,363,481 223,431
Ralph S. Roth 5,363,701 223,211
Jerome Shaw 5,363,701 223,211
William Shaw 5,363,501 223,411
</TABLE>
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS--Continued
(b) approved the Corporation's 1995 Non-Qualified Stock Option Plan, by the
following vote:
For: 5,329,182 Against: 234,992 Abstain: 22,738
(c) reported that a majority of the votes cast at the meeting were voted in
favor of the resolution to ratify the action of the Board of Directors in
appointing Ernst & Young LLP as the Corporation's independent public accountants
for the fiscal year ending October 31, 1997 by the following vote:
For: 5,585,078 Against: 671 Abstain: 1,163
ITEM 5 -- OTHER INFORMATION
On September 3, 1997 Ralph Roth resigned as a Director and was replaced by
Eugene Falk.
14
<PAGE> 15
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 1,
1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AUTOLOGIC INFORMATION INTERNATIONAL, INC.
Dated: Thousand Oaks, California
September 12, 1997
BY: /s/ ANTHONY F. MARRELLI
--------------------------------
Anthony F. Marrelli
Vice President and Chief
Financial Officer
15
<PAGE> 1
INDEPENDENT ACCOUNTANTS REPORT; ERNST & YOUNG LLP
The Board of Directors
Autologic Information International, Inc.
We have reviewed the accompanying unaudited condensed consolidated balance sheet
of Autologic Information International, Inc. and subsidiaries as of August 1,
1997, and the related condensed consolidated statements of operations for the
three-month and nine-month periods ended August 1, 1997 and August 2, 1996, and
the condensed consolidated statements of cash flows for the nine-month periods
ended August 1, 1997 and August 2, 1996. 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 of as of November 1, 1996, and the
related consolidated statements of operations and cash flows for the year then
ended, not presented herein; and in our report dated December 19, 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 1, 1996, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
August 27, 1997
Woodland Hills, California
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-02-1996
<PERIOD-END> AUG-01-1997
<CASH> 7,967
<SECURITIES> 0
<RECEIVABLES> 15,672
<ALLOWANCES> 0
<INVENTORY> 8,831
<CURRENT-ASSETS> 39,820
<PP&E> 5,895
<DEPRECIATION> 0
<TOTAL-ASSETS> 51,275
<CURRENT-LIABILITIES> 14,771
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 36,446
<TOTAL-LIABILITY-AND-EQUITY> 51,275
<SALES> 60,322
<TOTAL-REVENUES> 60,322
<CGS> 0
<TOTAL-COSTS> 59,109
<OTHER-EXPENSES> 173
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,386
<INCOME-TAX> 645
<INCOME-CONTINUING> 741
<DISCONTINUED> (203)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 538
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
