<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 quarter ended July 31, 1998
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 2, 1998 was
5,787,970.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, October 31,
1998 1997
--------- ---------
(Unaudited)
ASSETS (Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 11,265 $ 9,452
Accounts receivable less allowance for doubtful
accounts of $2,005 (1998) and $1,828 (1997) 16,671 17,529
Inventories-See Note C 11,175 8,229
Deferred income tax benefit-See Note D 4,068 4,085
Prepaid expenses and other assets 2,220 2,670
--------- ---------
Total current assets 45,399 41,965
PROPERTY AND EQUIPMENT, at cost net of
accumulated depreciation and amortization
of $5,964 (1998) and $5,462 (1997) 5,362 5,931
DEFERRED INCOME TAX BENEFIT-See Note D 3,833 3,833
EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED, net of amortization of $1,378 (1998)
and $964 (1997)-See Note B 1,375 1,789
OTHER ASSETS 94 78
--------- ---------
$ 56,063 $ 53,596
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,875 $ 5,372
Payable to Volt-See Note E 184 265
Accrued payroll and related liabilities 3,063 3,165
Accrued expenses 1,970 1,752
Accrued restructuring costs 1,139 1,521
Customer advances 6,129 4,103
Income taxes payable-See Note D 872 --
--------- ---------
Total current liabilities 17,232 16,178
STOCKHOLDERS' EQUITY-See Notes B and H
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 5,787,970 shares in 1998 and 1997 58 58
Paid-in capital 112,620 112,620
Accumulated deficit (73,847) (75,260)
--------- ---------
38,831 37,418
--------- ---------
$ 56,063 $ 53,596
========= =========
</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
-------------------------- --------------------------
July 31, August 1, July 31, August 1,
1998 1997 1998 1997
-------- --------- -------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES
Systems and equipment $ 15,083 $ 15,303 $ 43,071 $ 40,145
Customer service and support 7,183 7,011 19,785 20,177
-------- -------- -------- --------
22,266 22,314 62,856 60,322
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES
Cost of systems and equipment 8,552 8,037 23,126 21,938
Cost of customer service and support 4,511 5,203 14,211 14,553
-------- -------- -------- --------
Gross margin 9,203 9,074 25,519 23,831
Operating expenses 7,593 7,833 21,970 22,002
Charges from Volt-See Note E
Rent 194 194 589 589
General and administrative 9 9 27 27
-------- -------- -------- --------
OPERATING INCOME 1,407 1,038 2,933 1,213
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest income 140 130 368 225
Foreign exchange gain (loss) (132) 61 (702) 195
Other, net (32) 18 (22) (247)
-------- -------- -------- --------
(24) 209 (356) 173
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,383 1,247 2,577 1,386
INCOME TAX PROVISION-See Note D 673 422 1,164 645
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS 710 825 1,413 741
LOSS FROM DISCONTINUED OPERATIONS-See Note G -- -- -- (203)
-------- -------- -------- --------
NET INCOME $ 710 $ 825 $ 1,413 $ 538
======== ======== ======== ========
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE FROM CONTINUING OPERATIONS $ 0.12 $ 0.14 $ 0.24 $ 0.13
BASIC AND DILUTED LOSS PER SHARE
FROM DISCONTINUED OPERATIONS $ -- $ -- $ -- $ (0.04)
-------- -------- -------- --------
BASIC AND DILUTED EARNINGS
PER SHARE-See Note H 0.12 0.14 0.24 0.09
======== ======== ======== ========
Average number of shares outstanding - Basic 5,788 5,783 5,788 5,786
======== ======== ======== ========
Average number of shares outstanding - Diluted 5,789 5,783 5,789 5,786
======== ======== ======== ========
</TABLE>
See accompanying notes
3
<PAGE> 4
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<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 October 31, 1997 5,787,970 $ 58 $ 112,620 $ (75,260)
Net income for the nine months (unaudited) -- -- -- 1,413
--------- --------- --------- ---------
Balance at July 31, 1998 (unaudited) 5,787,970 $ 58 $ 112,620 $ (73,847)
========= ========= ========= =========
</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
--------------------------
July 31, August 1,
1998 1997
--------- ---------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,413 $ 538
Adjustments to reconcile net income to net
cash applied to operating activities:
Depreciation 1,649 1,699
Amortization 414 414
Provision for doubtful accounts 328 692
Loss (gain) on foreign currency translation 234 (519)
Loss on dispositions of property and equipment 101 46
Deferred income taxes 17 689
Changes in operating assets and liabilities:
Decrease in accounts receivable 95 4,501
(Increase) decrease in inventories (2,946) 3,470
Decrease (increase) in prepaid expenses and other assets 426 (908)
Decrease in accounts payable (1,411) (5,694)
Decrease in accrued expenses (211) (1,097)
Increase in customer advances 2,084 738
Increase (decrease) in income taxes payable 872 (1,342)
Decrease in payable to Volt (81) (830)
------- -------
Net cash provided by continuing operations 2,984 2,397
------- -------
Loss on sale of discontinued operations -- 75
Loss from discontinued operations -- 128
Net cash applied to discontinued operations -- (81)
------- -------
Net cash provided by discontinued operations -- 122
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,984 2,519
------- -------
</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
--------------------------
July 31, August 1,
1998 1997
-------- ---------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS PROVIDED BY (APPLIED TO)
INVESTING ACTIVITIES
Proceeds from disposal of property and equipment $ 145 $ 110
Purchases of property and equipment (1,326) (1,705)
-------- --------
NET CASH APPLIED TO INVESTING ACTIVITIES (1,181) (1,595)
-------- --------
Effect of exchange rate changes on cash 10 919
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,813 1,843
Cash and cash equivalents, beginning of period 9,452 6,133
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,265 $ 7,976
======== ========
SUPPLEMENTAL CASH TRANSACTIONS Cash paid during the period:
Interest expense $ 11 $ 9
Income tax $ 51 $ 1,084
</TABLE>
SUPPLEMENTAL NON-CASH TRANSACTIONS
On January 2, 1997, the Digiflex division of the Company was disposed of in
exchange for 10,500 shares of the Company's stock (See Note G).
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
required by generally accepted accounting principles for complete financial
statements. However, 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 July 31, 1998 and results of operations for
the three months and nine months ended July 31, 1998 and August 1, 1997, and
cash flows for the nine months ended July 31, 1998 and August 1, 1997. Operating
results for interim periods are not necessarily indicative of the results that
may be expected for a full fiscal year.
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 October 31, 1997. 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.
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. 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. The $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.
NOTE C--INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
July 31, October 31,
1998 1997
------- -------
(Dollars in thousands)
<S> <C> <C>
Service parts $ 2,118 $ 2,318
Materials 4,963 3,653
Work-in-process 2,962 965
Finished goods 1,132 1,293
------- -------
$11,175 $ 8,229
======= =======
</TABLE>
7
<PAGE> 8
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.
Significant components of the income tax provision attributable to operations
are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
July 31, August 1, July 31, August 1,
1998 1997 1998 1997
--------- --------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Current Taxes:
Federal $ 696 $ (492) $ 1,160 $ (492)
State and local 87 (29) 167 (29)
Foreign (224) 254 (180) 477
------- ------- ------- -------
Total current 559 (267) 1,147 (44)
------- ------- ------- -------
Deferred Taxes:
Federal 106 614 29 614
State and local 8 75 (12) 74
Foreign -- -- -- --
------- ------- ------- -------
Total deferred 114 689 17 689
------- ------- ------- -------
Total income tax provision $ 673 $ 422 $ 1,164 $ 645
======= ======= ======= =======
</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, historical results of operations 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--CHARGES FROM VOLT
Volt incurs certain costs on behalf of the Company which are reflected in the
results of operations. During the quarters ended July 31, 1998 and August 1,
1997, 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.
8
<PAGE> 9
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
NOTE F--RELATED PARTY TRANSACTIONS
A 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. 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. During the period from the date of the
mergers through July 31, 1998, the Company paid rent to Volt aggregating
$1,974,000.
NOTE G--DISCONTINUED OPERATIONS
On January 2, 1997, the Company disposed of the assets of, and discontinued the
operations of, Digiflex, its advertisement delivery division, which was acquired
at the end of January 1996. Digiflex was sold in exchange for the retirement of
10,500 shares of the Company's stock, which was previously held by an
unaffiliated party. The loss from discontinued operations for the nine-month
period ended August 1, 1997, all incurred in the three-month period ended
January 31, 1997, 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.
NOTE H--PER SHARE DATA
During the quarter ended January 30, 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earning Per Share," (SFAS 128) which
required a change in the method used to compute earnings per share. SFAS 128
replaces primary and fully diluted earnings per share with basic and diluted
earnings per share, respectively. Basic earnings per share is calculated using
the weighted average number of common shares outstanding for the period, and
excludes stock options and other dilutive securities that could result in the
issuance of common stock. Diluted earnings per share reflects the dilution to
earnings that would occur if securities, stock options and other dilutive
securities result in the issuance of common stock.
NOTE I--RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting
Comprehensive Income," and Statement of Financial Accounting Standards No. 131
(SFAS No. 131), "Disclosures about Segments of an Enterprise and Related
Information," were issued in June 1997. SFAS No. 130 and SFAS No. 131 are
effective for fiscal years beginning subsequent to December 15, 1997, and,
therefore, will be adopted by the Company for its 1999 fiscal year. The Company
does not expect the adoption of SFAS No. 130 or SFAS No. 131 to result in any
material changes in its disclosure or to have any impact on the Company's
consolidated results of operations, financial position or cash flows.
In October 1997, the American Institute of Certified Public Accountants issued
SOP 97-2, "Software Revenue Recognition," which provides guidance on applying
generally accepted accounting principles in recognizing revenue on software
transactions and will supersede SOP 91-1. The Company will be required to apply
the provisions of SOP 97-2 to transactions entered into during fiscal 1999.
Management anticipates that the adoption of this guidance will not have a
material impact on its financial condition or results of operations.
9
<PAGE> 10
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
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, as well as
other factors discussed in the Company's Annual Report on Form 10-K for the year
ended October 31, 1997, and from time to time in other Company reports
thereafter filed with the Securities and Exchange Commission, including this
Report.
Sales and Distribution Overview:
The Company distributes and supports its products through a number of channels:
- - Americas Operations - United States domestic sales experienced strong
bookings and shipments in the third quarter of 1998. This is a continuation
of a trend for the entire year where sales are well above last year. Latin
American sales were strong in the first half of the year, but slowed in the
third quarter of 1998.
- - European Operations - European shipments were soft during the third
quarter of 1998, but we experienced a high booking rate at the end of the
quarter resulting in a strong backlog entering the fourth quarter of 1998.
The introduction and roll out of the Computer-to-Plate imager is one key to
the success of European sales in the fourth quarter of 1998 and into next
fiscal year.
- - Pacific Operations - The Company is experiencing a significant drop in
sales from distributors in the Far East as a result of the Asian economic
crisis. Australian and New Zealand sales through our wholly owned
subsidiary are also off due to the strengthening of the dollar to local
currencies.
- - Xitron - Xitron has been concentrating on OEM and major distributor sales
with an emphasis on repeat business, and this strategy is beginning to
payoff. Several new agreements were signed in the third quarter of 1998,
and sales have increased.
- - Laser Cinema Recorder - During the third quarter of 1998, the Company
shipped two machines. The Company is changing the sales and support
strategy for the product assuming more of the activity in-house. The
Company is concentrating on improving the manufacturing support processes
for the LCR to improve our manufacturing efficiency.
Product Overview:
The Company is focused on expanding market share in its primary markets. The
Company's layered architecture and standard products, when used in combination,
provide the market with tailored solutions for the customer. The Company
continues with a research and development program focusing on both hardware and
system software products. During the third quarter of 1998, a number of new
products and enhancements were released:
- - The first manufacturing built Computer-to-Plate ("CTP") imager was
shipped. This unit was used at a major trade show and is now being
installed as a trial system at a newspaper in Australia. The fourth quarter
will be the period where manufacturing ramp-up for the CTP machine occurs
and the initial customer orders are filled.
10
<PAGE> 11
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
- - The Adobe CPSI based APS-RIP3 Postscript RIP completed its full product
release cycle. The product supports both Postscript 3 and PDF 1.2 and input
languages. Newspaper Beta sites are in production using the new product,
including a newspaper now fully in production using remote transmission of
pages in PDF. The APS-RIP3 takes advantage of the newest Adobe technology
offerings combined with a powerful user implementation by the Company.
Xitron is now offering a version of the RIP3 implementation to the OEM
market demonstrating how we can leverage developments in one operation into
sales via multiple channels.
- - The Harlequin based APS-GrafixRIP was updated with the latest Harlequin
Scriptworks base release, which includes PDF 1.2 support. The Company
provides seamless integration to its customers of the two most popular
Postscript rasterizing technologies.
- - Ad Manager System installations are up with an order rate twice that of
last year reflecting improvements made over prior quarters.
- - A new APSCOM release was completed; it includes PDF transmission support
used in the above referenced PDF transmission site. The Company continues
to grow market share with this technology.
- - At recent trade shows, the Company has introduced a number of new products
including the Plateroom Manager, APS-View soft proofing system, and APS-PDF
AdTool, all of which are in development and will be released to Beta test
in the fourth quarter of 1998.
Three months ended July 31, 1998 compared to three months ended August 1, 1997
Results of Operations
Revenues in the three months ended July 31, 1998 decreased by $48,000, or 0.2%,
due to a decrease of $220,000, or 1.4%, in sales of systems and equipment,
offset, in large part, by an increase of $172,000, or 2.5%, in customer service
and support sales. The decrease in sales of systems and equipment was due
primarily to decreased sales in foreign markets offset, in part, by an increase
in systems and equipment sales in domestic markets. Most of the international
decline was due to lower sales in the Pacific Rim as a result of the Asian
economic problems, which may continue to impair sales in the region until the
Pacific Rim currencies strengthen. The increase in customer service and support
sales was due primarily to increased sales in domestic markets.
Gross profit margins expressed as a percentage of revenues increased by 0.6
percentage points from 40.7% in the third quarter of fiscal 1997 to 41.3% in the
third quarter of 1998 due to an increase of 11.4 percentage points in customer
service and support margin, partially offset by a decrease of 4.2 percentage
points on systems and equipment. The decrease in systems and equipment margins
was due primarily to slightly higher material costs. The increase in customer
service and support margins was due primarily to lower operating costs.
Operating expenses of $7,593,000 decreased by $240,000, or 3.1%, from $7,833,000
in the third quarter of fiscal 1997 due primarily to reduced sales and marketing
expenditures, offset by higher costs incurred in the development of the
Company's proprietary computer-to-plate product during the current quarter.
However, expressed as a percentage of revenues, operating expenses decreased by
1.0 percentage point from 35.1% in 1997 to 34.1% in 1998.
The $10,000 increase in interest income in the third quarter of fiscal 1998 was
due to higher average (over the three-month period) cash balances than in the
third quarter of fiscal 1997.
The Company had a foreign exchange loss in the third quarter of fiscal 1998 of
$132,000 compared to a $61,000 gain in the third quarter of fiscal 1997. The
loss in 1998 was due to unfavorable, and the gain in 1997 was due to favorable,
currency movements in the European and Pacific currency markets. To reduce the
potential adverse impact from foreign currency changes on the Company's foreign
currency receivables and firm commitments, foreign currency options and forward
contracts are purchased.
11
<PAGE> 12
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Continued
Other expense, net, was a gain of $18,000 in the third quarter of fiscal 1997
compared to a loss of $32,000 in the third quarter of fiscal 1998 due to an
increase of $50,000 in several expense items in this category in the current
quarter.
The tax provision in the three month reported fiscal 1998 period is 48.7% of
pretax income compared to 34% in the three month reported fiscal 1997 period,
and was higher than the statutory rate of 34% due primarily to state taxes and
relatively higher foreign tax rates.
Nine months ended July 31, 1998 compared to nine months ended August 1, 1997
Results of Operations
In the nine-month period ended July 31, 1998, revenues increased by $2,534,000,
or 4.2%, due to an increase of $2,926,000, or 7.3%, in sales of systems and
equipment partially offset by a $392,000, or 1.9%, decrease in customer service
revenues. The increase in system and equipment sales was due primarily to
increased domestic sales offset, in part, by a decrease in sale of systems and
equipment in the international markets. Most of the international decline was in
the Pacific Rim due to the economic problems in Asia which may continue to
impair sales in the region until Pacific Rim currencies strengthen. The decrease
(which occurred in the first quarter of fiscal 1998) in customer service sales
was due primarily to a decline in contract service revenue, the effects of the
stronger US dollar on currency conversion of international contracts and lower
customer service part sales.
Gross margins improved 1.1 percentage points from 39.5% in the nine-month period
in fiscal 1997 to 40.6% in the nine-month period in fiscal 1998. Systems and
equipment gross margins for the nine-month period in fiscal 1998 increased by
0.9 percentage points (from 45.4% to 46.3%) due principally to the sale of a
greater proportion of higher margin products. Customer service gross margins
improved by 0.3 percentage points (from 27.9% to 28.2%) due primarily to lower
operating costs.
Operating expenses decreased by $32,000 from $22,002,000 in the nine-month
period in fiscal 1997 to $21,970,000 in the nine-month period in fiscal 1998.
Also, expressed as a percentage of revenues, operating expenses declined from
36.5% to 35.0% in the nine-month period in fiscal 1998 due primarily to lower
sales and marketing expenditures.
The $143,000 increase in interest income in the nine-month period in fiscal 1998
was due to higher average (over the nine-month period) cash balances in the
nine-month period in fiscal 1998 than in the same period in 1997.
The Company had a foreign exchange loss in the first nine months of fiscal 1998
of $702,000 compared to a $195,000 gain in the first nine months of fiscal 1997.
The loss in 1998 was due to unfavorable, and the gain in 1997 was due to
favorable, currency movements in the European and Pacific currency markets. To
reduce the potential adverse impact from foreign currency changes on the
Company's foreign currency receivables and firm commitments, foreign currency
options and forward contracts are purchased.
Other expense, net, decreased by $225,000 from $247,000 in the nine-month period
in fiscal 1997 to $22,000 in the nine-month period in fiscal 1998 due primarily
to restructuring expenses of $215,000 which were incurred in the first quarter
of fiscal 1997.
The income tax provision was 45.2% in the nine-month period in fiscal 1998 and
46.5% in the nine-month period in fiscal 1997 and in each case was higher than
the statutory rate of 34% due primarily to state taxes and relatively higher
foreign tax rates.
See Note G of Notes to Condensed Consolidated Financial Statements on results of
discontinued operations.
Liquidity and Capital Resources
During the first nine months of fiscal 1998, operating activities provided cash
flows of $2,984,000. The Company generated cash from its net income of
$1,413,000, supplemented by non-cash charges aggregating $2,743,000 consisting
principally of depreciation of $1,649,000, goodwill amortization of $414,000, a
provision for doubtful accounts of $328,000, a loss on foreign translation of
$234,000, a loss on dispositions of property and equipment of $101,000 and
deferred income taxes of $17,000. Cash of $1,172,000 was used as a result of
changes in assets and liabilities to support growth (primarily inventory
increases of $2,946,000) and to reduce accounts payable by $1,411,000 and
accrued expenses by $211,000, offset in part, by a decrease in prepaid expenses
and other assets of $426,000, an increase in customer advances of $2,084,000 and
an increase in income taxes payable of $872,000.
12
<PAGE> 13
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Continued
Investing activities used cash of $1,326,000 for the purchase of property and
equipment, offset, in part, by $145,000 in proceeds from the disposal of
property and equipment.
Primarily as a result of the foregoing, during the nine months ended July 31,
1998, cash and cash equivalents increased by $1,813,000. The Company's working
capital as of July 31, 1998 was $28,167,000, which includes $11,265,000 in cash
and cash equivalents. These resources 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 was
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 could borrow, repay and
re-borrow, from time to time, up to the full amount of the line, with interest
at the higher of the bank's prime rate or the Federal Funds Rate plus .5%. There
were no borrowings made under this agreement throughout its one-year term. The
revolving line of credit was allowed to expire on its one-year anniversary date,
as the Company's current cash resources are considered adequate and management
believes that similar agreements with similar terms will be available in the
future, if necessary.
Year 2000 Compliance
The Company has conducted a comprehensive review of its internal computer
systems, including embedded technology such as microcontrollers, of its products
and of its discontinued products to identify the systems that could be affected
by the "Year 2000" issue. The Company has developed and implemented a plan to
resolve the issue. The Year 2000 problem is the result of computer programs
being written using two digits rather than four to define the applicable year.
Any of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a major system failure or miscalculations. At this time, the total Year 2000
project cost is estimated at approximately $400,000, which includes $230,000 for
the purchase of new hardware and software that will be capitalized and $170,000
that will be expensed as incurred. To date, the Company has incurred $90,000
primarily for assessment of the Year 2000 issue, development of the modification
plan and actions to correct.
In addition, during fiscal years 1996 and 1997, the Company replaced its
corporate internal computer system at a cost of $345,000, which has been
capitalized.
The Company is in the process of contacting all major vendors and suppliers with
which it has a material relationship. Currently, all major vendors and suppliers
have addressed or are in the process of addressing Year 2000 issues. The review
is scheduled to be completed by January 1, 1999, however, at this time, the
Company does not foresee any material problems. The Company believes that with
modifications to existing software and the completed conversion to a new
business system, the Year 2000 issue will not pose significant operational
problems for its computer systems.
The costs of the project and the date on which the Company believes it will
complete Year 2000 modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the availability to locate and correct all
relevant computer codes, and similar uncertainties.
The Company has reviewed its product line to assist its customers with the Year
2000 issue. The Company believes that its products offered for sale since June
15, 1997 are Year 2000 compliant and no additional costs or expenses are
anticipated under warranties or to service such products except for the
development of certain testing hardware and computer software (which it
presently estimates will cost approximately $200,000 to develop). The Company
believes that a majority of its products sold before June 15, 1997 are also Year
2000 compliant. However, certain of its older products, the sale of which were
discontinued several years ago, may not be Year 2000 compliant. The Company
believes such products are no longer under warranty and the Company does not
intend to renew its one year service contract as they relate to these older
products or products of others that it services which are not Year 2000
compliant. In most cases, the Company offers a new, Year 2000 compliant product
which can be purchased as a replacement for the older product that is not Year
2000 compliant, along with annual maintenance agreements.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<S> <C>
15 Independent Accountants' Report on Review of Interim
Financial Information from Ernst & Young LLP
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter ended July 31,
1998.
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 9, 1998
BY:/s/Anthony F. Marrelli
--------------------------------------
Anthony F. Marrelli
Vice President and Chief Financial
Officer
14
<PAGE> 15
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
15 Independent Accountants' Report on Review of Interim Financial Information from Ernst & Young LLP
27 Financial Data Schedule
</TABLE>
15
<PAGE> 1
EXHIBIT 15
INDEPENDENT ACCOUNTANT'S REVIEW REPORT, ERNST & YOUNG LLP
The Board of Directors
Autologic Information International, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Autologic Information International, Inc. and subsidiaries as of July 31, 1998,
and the related condensed consolidated statements of operations for the
three-month and nine-month periods ended July 31, 1998 and August 1, 1997, the
condensed consolidated statement of stockholders' equity for the nine-month
periods ended July 31, 1998, and the condensed consolidated statements of cash
flows for the nine-month periods ended July 31, 1998, and August 1, 1997. 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 Autologic Information
International, Inc. and subsidiaries as of October 31, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended, not presented herein; and in our report dated December 10,
1997, 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 October 31, 1997, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
August 28, 1998
Woodland Hills, California
16
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001003477
<NAME> AUTOLOGIC INFORMATION INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-30-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 11,265
<SECURITIES> 0
<RECEIVABLES> 16,671
<ALLOWANCES> 0
<INVENTORY> 11,175
<CURRENT-ASSETS> 45,399
<PP&E> 5,362
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,063
<CURRENT-LIABILITIES> 17,232
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 38,773
<TOTAL-LIABILITY-AND-EQUITY> 56,063
<SALES> 22,266
<TOTAL-REVENUES> 22,266
<CGS> 13,063
<TOTAL-COSTS> 20,859
<OTHER-EXPENSES> (24)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,383
<INCOME-TAX> 673
<INCOME-CONTINUING> 710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 710
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
