<PAGE> 1
- --------------------------------------------------------------------------------
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 six months ended May 2, 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. 0-3223
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
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 June 2, 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>
May 2, November 1,
1997 1996
----------- -----------
(Dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,924 $ 6,133
----------- -----------
Accounts receivable less allowance for doubtful
accounts of $2,119 (1997) and $2,221 (1996) 13,782 21,761
Inventories--Notes C 9,273 12,301
Deferred income tax benefit--Notes B and D 5,797 5,797
Prepaid expenses and other assets 1,619 1,093
----------- -----------
Total current assets 38,395 47,085
PROPERTY AND EQUIPMENT, at cost net of
accumulated depreciation and amortization
of $5,518 (1997) and $5,084 (1996) 5,552 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 $689 (1997) and
$413 (1996) -- Note B 2,064 2,340
OTHER ASSETS 97 94
----------- -----------
$ 49,662 $ 59,285
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,030 $ 10,311
Payable to Volt--Note F 75 771
Accrued expenses 3,696 5,282
Accrued restructuring costs 2,095 2,334
Customer advances 3,251 3,402
Income taxes payable--Note D 836 1,174
----------- -----------
Total current liabilities 13,983 23,274
STOCKHOLDERS' EQUITY (DEFICIENCY)--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 (76,999) (76,712)
----------- -----------
35,679 36,011
----------- -----------
$ 49,662 $ 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 Six Months Ended
-------------------------- ------------------------
May 2, May 3, May 2, May 3,
1997 1996 1997 1996
-------- -------- -------- --------
(Dollars in thousands, except per share and share amounts)
<S> <C> <C> <C> <C>
REVENUES
Systems and equipment $ 13,614 $ 18,856 $ 24,859 $ 30,729
Customer service and support 6,299 6,977 13,149 11,651
-------- -------- -------- --------
19,913 25,833 38,008 42,380
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES
Cost of systems and equipment 7,301 11,335 13,902 19,872
Cost of customer service and support 4,511 4,949 9,351 9,269
Operating expenses 7,092 7,564 14,168 12,867
Restructuring charge -- -- -- 700
Charges from Volt-Note F
Rent 194 201 395 620
General and administrative 9 9 18 206
-------- -------- -------- --------
19,107 24,058 37,834 43,534
-------- -------- -------- --------
OPERATING INCOME (LOSS) 806 1,775 174 (1,154)
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest income 64 108 95 149
Interest expense charged by Volt--Note F -- -- -- (583)
Foreign exchange (loss) gain (127) (161) 134 (343)
Other, net (138) (118) (264) (360)
-------- -------- -------- --------
(201) (171) (35) (1,137)
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 605 1,604 139 (2,291)
INCOME TAX PROVISION--Note D 165 594 223 446
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 440 1,010 (84) (2,737)
LOSS FROM DISCONTINUED OPERATIONS-Note H -- (170) (203) (170)
-------- -------- -------- --------
NET INCOME (LOSS) $ 440 $ 840 $ (287) $ (2,907)
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE
CONTINUING OPERATIONS $ 0.08 $ 0.18 $ (0.01) $ (0.59)
======== ======== ======== ========
NET LOSS PER SHARE
DISCONTINUED OPERATIONS -- (0.03) (0.04) (0.04)
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE--Note I $ 0.08 $ 0.15 $ (0.05) $ (0.63)
-------- -------- -------- --------
Average number of shares outstanding 5,783 5,775 5,788 4,650
======== ======== ======== ========
</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 loss for the six months -- -- (287)
---------- ---------- ---------- ----------
Balance at May 2, 1997 5,783,370 $ 58 $ 112,620 $ (76,999)
========== ========== ========== ==========
</TABLE>
See accompanying notes
4
<PAGE> 5
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------
May 2, May 3,
1997 1996
------- -------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (287) $(2,907)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss on sale of discontinued operation 75 --
Loss from discontinued operation 128 170
Depreciation and amortization 1,394 1,183
Provision for doubtful accounts 624 91
Gains on foreign currency translation (371) (373)
Gains (Loss) on dispositions of property and equipment 65 (23)
Deferred income tax benefit -- (304)
Changes in operating assets and liabilities:
Decrease in accounts receivable 6,771 324
Decrease in inventories 3,028 1,251
Increase in prepaid expenses and other assets (529) (1,627)
Increase (Decrease) in accounts payable (6,011) 868
Decrease in accrued expenses (1,819) (292)
Increase (Decrease) in customer advances (76) 139
Increase (Decrease) in income taxes payable (338) 6
Increase (Decrease) in payable to Volt (696) 777
------- -------
Net cash provided by (applied to) continuing operations 1,958 (717)
======= =======
Net cash applied to discontinued operation (81) (96)
------- -------
NET CASH PROVIDED BY (APPLIED TO) OPERATING ACTIVITIES $ 1,877 $ (813)
======= =======
</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 Six Months Ended
------------------------
May 2, May 3,
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 (800) (854)
------- -------
NET CASH PROVIDED BY (APPLIED TO)
INVESTING ACTIVITIES (690) 7,910
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable -- (680)
Proceeds from exercise of stock options -- 155
------- -------
NET CASH APPLIED TO FINANCING ACTIVITIES -- (525)
------- -------
Effect of exchange rate changes on cash 604 730
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,791 7,302
Cash and cash equivalents, beginning of period 6,133 2,542
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,924 $ 9,844
======= =======
SUPPLEMENTAL CASH TRANSACTIONS Cash paid during the period:
Interest expense $ 9 $ 10
Income tax $ 461 $ 660
</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 May 2, 1997 and results of operations for the three and
six months ended May 2, 1997 and May 3, 1996 and cash flows for the six months
ended May 2, 1997 and May 3, 1996. Operating results for the six months ended
May 2, 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 (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 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 as a result 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 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'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. Accordingly, Volt owned
beneficially 3,399,500 shares (59%) of the Company's common stock as at May 2,
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 merger 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 merger ($2,095,000 at May 2, 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 six months ended May 3, 1996 reflect only
results of operations of Autologic for the first quarter of 1996; therefore,
results of the combined operations for the six months ended May 2, 1997 are not
comparable to results for the six months ended May 3, 1996.
The accompanying statement of operations for the six months ended May 3, 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 Six Months Ended
------------------------
May 3,
1996
----
(In thousands, except per share amounts)
<S> <C>
Revenues $ 52,398
Loss from continuing operations (85)
Net loss (255)
Loss from continuing operations, per share (0.02)
Net loss per share (0.05)
</TABLE>
NOTE C--INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
May 2, November 1,
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Service parts $ 2,092 $ 2,396
Materials 3,558 5,257
Work-in-process 1,872 2,654
Finished goods 1,751 1,994
-------------- --------------
$ 9,273 $ 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 Six Months Ended
-------------------------- ------------------------
May 2, May 3, May 2, May 3,
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:
Foreign $ 165 $ 611 $ 223 $ 645
Deferred Taxes:
Federal -- (46) -- (209)
State and local -- 29 -- 10
Foreign -- -- -- --
----- ----- ----- -----
Total deferred -- (17) -- (199)
----- ----- ----- -----
Total income tax provision $ 165 $ 594 $ 223 $ 446
===== ===== ===== =====
</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 merger 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.
Volt has agreed to provide the Company credit facilities of $2,250,000 at the
prime rate in effect at The Chase Manhattan Bank. There were no borrowings
outstanding under this agreement as of May 2, 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 May 3, 1996 have been restated to reflect
the discontinued operation. The loss from discontinued operations for the six
months ended May 3, 1996 includes an operating loss of $170,000, net of a tax
benefit of $105,000, on revenues of $111,000.
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 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 and being implemented since the
Merger.
Therefore, results of the combined operations for the six months ended May 2,
1997 are not comparable to results for the six months ended May 3, 1996 which
(except for the last five days of the first quarter and the entire second
quarter) reflect only the operations of Autologic.
The information which appears below relates to prior periods, the results of
operations for which periods are not necessarily indicative of the results which
may be expected for any subsequent periods. Management has made no predictions
or estimates as to future operations and no inferences as to future operations
should be drawn.
Three month's ended May 2, 1997 compared to three month's ended May 3, 1996
Results of Operations
Revenues in the three months ended May 2, 1997 decreased $5,920,000, or 22.9%,
from the prior year due primarily to a decrease in systems and equipment both
domestically and internationally. The lower sales are due to a general softness
in the market and to increased competition. 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 98% of
equipment sales.
Gross profit expressed as a percentage of sales from systems, equipment,
customer service and support revenues increased by 3.7 percentage points from
37.0% in 1996 to 40.7% in the second quarter of fiscal 1997. Gross profits from
system and equipment sales increased from 39.9% to 46.4% as a result of the sale
of a greater proportion of higher margin products. Customer service margins
decreased from 29.1% to 28.4% due to slightly higher operating costs during the
quarter.
Operating expenses of $7,092,000 in the second quarter of fiscal 1997 have been
reduced $472,000, or 6.2%, from $7,564,000 in the second quarter of fiscal 1996,
although expressed as a percentage of sales, they increased from 29.3% in the
1996 period to 35.6% in the 1997 period. The dollar decrease in operating
expense is due primarily to cost cutting and workforce reductions which have
been implemented since the Merger.
The $44,000 reduction in interest income is due to a lower average cash balance
in fiscal 1997 versus the prior year.
The foreign exchange loss in fiscal 1997 and 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, loss on
currencies not hedged.
The tax provision in both years relates to taxes on foreign earnings without
U.S. tax benefits.
11
<PAGE> 12
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Six month's ended May 2, 1997 compared to six month's ended May 3, 1996
Results of Operations
In the six month period ended May 2, 1997, revenues decreased by $4,372,000, or
10.3%, due to an increase of $1,498,000, or 12.9%, on customer service sales
offset by a $5,870,000, or 19.1%, decrease in sales of systems and equipment.
The decrease in systems sales was due primarily to weaker sales in the foreign
operations and in particular Germany and the UK. The increase in customer
service sales resulted primarily from the integration of the two business (thus
adding Triple-I's revenues to Autologic's revenues). Had the Merger occurred at
the beginning of fiscal 1996, revenues for the six months ended May 3, 1996
would have been $52,398,000 compared to $38,008,000 for the six months ended May
2, 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 98% of equipment sales.
Gross margins improved by 7.6 percentage points (from 31.2% to 38.8%) due to
improved gross margins on systems and equipment and customer service. System and
equipment gross margins increased by 8.8 percentage points (from 35.3% to 44.1%)
due principally to the sale of a greater proportion of higher margin products.
Customer service gross margins improved by 8.5 percentage points (from 20.4% to
28.9%) due primarily to workforce reductions.
The $1,301,000 increase in operating expenses is primarily a result of combining
the operations of Autologic and Triple-I. Operating expenses expressed as a
percentage of sales increased 6.9 percentage points, from 30.4% in fiscal 1996
to 37.3% in fiscal 1997, due to the effects of increased 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 $225,000 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).
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 $54,000 reduction in interest income is due to a lower average 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 in 1997 resulted from gains on currencies hedged. The
loss in 1996 was due to 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.
The tax provision in both years relates to taxes on foreign earnings without
U.S. tax benefits.
See Note H of Notes to Condensed Consolidated Financial Statements on results of
discontinued operations.
12
<PAGE> 13
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Capital Resources
During the first six months of fiscal 1997, cash from operating activities was
provided in the amount of $1,877,000. While the Company reported a net loss of
$287,000 for the first half of fiscal 1997, such loss included non-cash charges
aggregating approximately $2,221,000 including depreciation and amortization of
$1,394,000 and a provision for doubtful accounts of $624,000. Accounts
receivable and inventories were reduced by $6,771,000 and $3,028,000
respectively, generating a positive cash flow of $9,799,000 which was used
primarily to reduce payables by $6,011,000 and accrued expenses by $1,819,000.
Net cash applied to investing activities was $690,000, of which, $800,000 was
expensed for the purchase of property plant and equipment offset by $110,000
received from the disposal of property and equipment.
As a result of the foregoing, during the six months ended May 2, 1997, cash and
cash equivalents increased by $1,791,000. The Company's working capital as of
May 2, 1997 was $24,412,000, which includes $7,924,000 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 $860,000 has been incurred through May 2, 1997. 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.
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:
During the quarter covered by this Report, the Company filed one
Current Report on Form 8-K dated (date of earliest event reported)
February 28, 1997, under Item 5, Other Events. No financial statements
were filed with that report.
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
June 13, 1997
BY:/s/Anthony F. Marrelli
------------------------------------------
Anthony F. Marrelli
Vice President and Chief Financial Officer
13
<PAGE> 1
[ERNST & YOUNG LLP LETTERHEAD]
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 May
2, 1997, and the related condensed consolidated statements of operations for
the three-month and six-month periods ended May 2, 1997 and May 3, 1996, and
the condensed consolidated statements of cash flows for the six-month periods
ended May 2, 1997 and May 3, 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 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
consolidated 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.
ERNST & YOUNG LLP
May 29, 1997
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
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