<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 May 1, 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 June 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>
May 1, October 31,
1998 1997
---- ----
(Unaudited)
ASSETS (Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 11,859 $ 9,452
Accounts receivable less allowance for doubtful
accounts of $1,880 (1998) and $1,828 (1997) 14,205 17,529
Inventories-See Note C 10,908 8,229
Deferred income tax benefit-See Note D 4,182 4,085
Prepaid expenses and other assets 2,532 2,670
--------- ---------
Total current assets 43,686 41,965
PROPERTY AND EQUIPMENT, at cost net of
accumulated depreciation and amortization
of $5,922 (1998) and $5,462 (1997) 5,394 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 $1,240 (1998)
and $964 (1997)-See Note B 1,513 1,789
OTHER ASSETS 128 78
--------- ---------
$ 54,554 $ 53,596
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,633 $ 5,372
Payable to Volt-See Note E 91 265
Accrued payroll and related liabilities 3,095 3,165
Accrued expenses 1,431 1,752
Accrued restructuring costs 1,265 1,521
Customer advances 5,238 4,103
Income taxes payable-See Note D 680 --
--------- ---------
Total current liabilities 16,433 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 (74,557) (75,260)
--------- ---------
38,121 37,418
--------- ---------
$ 54,554 $ 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 For the
Months Ended Six Months Ended
-------------------- ----------------------
May 1, May 2, May 1, May 2,
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in thousands, except per share and share amounts)
REVENUES
<S> <C> <C> <C> <C>
Systems and equipment $ 15,906 $ 13,614 $ 27,988 $ 24,859
Customer service and support 6,642 6,299 12,602 13,149
-------- -------- -------- --------
22,548 19,913 40,590 38,008
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES
Cost of systems and equipment 8,793 7,301 14,574 13,902
Cost of customer service and support 5,109 4,511 9,700 9,351
-------- -------- -------- --------
Gross margin 8,646 8,101 16,316 14,755
Operating expenses 7,283 7,092 14,377 14,168
Charges from Volt-See Note E
Rent 194 194 395 395
General and administrative 9 9 18 18
-------- -------- -------- --------
OPERATING INCOME 1,160 806 1,526 174
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest income 121 64 228 95
Foreign exchange gain (loss) (124) (127) (570) 134
Other, net 14 (138) 10 (264)
-------- -------- -------- --------
11 (201) (332) (35)
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,171 605 1,194 139
INCOME TAX PROVISION--Note D 481 165 491 223
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 690 440 703 (84)
LOSS FROM DISCONTINUED OPERATIONS-Note G -- -- -- (203)
-------- -------- -------- --------
NET INCOME (LOSS) $ 690 $ 440 $ 703 $ (287)
======== ======== ======== ========
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE CONTINUING OPERATIONS $ 0.12 $ 0.08 $ 0.12 $ (0.01)
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE DISCONTINUED OPERATIONS $ -- $ -- $ -- $ (0.04)
-------- -------- -------- --------
BASIC AND DILUTED NET INCOME (LOSS)
PER SHARE--See Note H 0.12 0.08 0.12 (0.05)
======== ======== ======== ========
Average number of shares outstanding - Basic 5,788 5,783 5,788 5,788
======== ======== ======== ========
Average number of shares outstanding - Diluted 5,789 5,783 5,789 5,788
======== ======== ======== ========
</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 six months (unaudited) -- -- -- 703
---------- ---------- ---------- ----------
Balance at May 1, 1998 (unaudited) 5,787,970 $ 58 $ 112,620 $ (74,557)
========== ========== ========== ==========
</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 1, May 2,
1998 1997
---- ----
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 703 $ (287)
Adjustments to reconcile net income (loss) to net
cash applied to operating activities:
Depreciation 1,094 1,118
Amortization 276 276
Provision for doubtful accounts 30 624
Loss (gain) on foreign currency translation 24 (371)
Loss on dispositions of property and equipment 76 65
Deferred income taxes (97) --
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,973 6,771
(Increase) decrease in inventories (2,679) 3,028
Decrease (Increase) in prepaid expenses and other assets 80 (529)
Decrease in accounts payable (680) (6,011)
Decrease in accrued expenses (616) (1,819)
Increase (decrease) in customer advances 1,178 (76)
Increase (decrease) in income taxes payable 680 (338)
Decrease in payable to Volt (174) (696)
------- -------
Net cash provided by continuing operations 2,868 1,755
------- -------
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 2,868 1,877
------- -------
</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 1, May 2,
1998 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment $ 145 $ 110
Purchases of property and equipment (778) (800)
-------------- -------------
NET CASH APPLIED TO INVESTING ACTIVITIES (633) (690)
-------------- -------------
Effect of exchange rate changes on cash 172 604
-------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,407 1,791
Cash and cash equivalents, beginning of period 9,452 6,133
-------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,859 $ 7,294
============== =============
SUPPLEMENTAL CASH TRANSACTIONS Cash paid during the period:
Interest expense $ 3 $ 9
Income tax $ 258 $ 461
</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 May 1, 1998 and results of operations for
the three months and six months ended May 1, 1998 and May 2, 1997, and cash
flows for the six months ended May 1, 1998 and May 2, 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>
May 1, October 31,
1998 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
Service parts $ 2,471 $ 2,318
Materials 4,673 3,653
Work-in-process 1,614 965
Finished goods 2,150 1,293
------- -------
$10,908 $ 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 Six Months Ended
-------------------------- ------------------------
May 1, May 2, May 1, May 2,
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Current Taxes:
Federal $ 446 $ -- $ 464 $ --
State and local 70 -- 80 --
Foreign 213 165 44 223
----- ----- ----- -----
Total current 729 165 588 223
----- ----- ----- -----
Deferred Taxes:
Federal (216) -- (77) --
State and local (32) -- (20) --
Foreign -- -- -- --
----- ----- ----- -----
Total deferred (248) -- (97) --
----- ----- ----- -----
Total income tax provision $ 481 $ 165 $ 491 $ 223
===== ===== ===== =====
</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--CHARGES FROM VOLT
Volt incurs certain costs on behalf of the Company which are reflected in the
results of operations. During the quarter ended May 1, 1998 and May 2, 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 May 1, 1998, the Company paid rent to Volt aggregating
$1,780,000.
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 six month
period ended May 2, 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.
Three months ended May 1, 1998 compared to three months ended May 2, 1997
Results of Operations
Revenues in the three months ended May 1, 1998 increased by $2,635,000, or
13.2%, consisting of an increase of $2,292,000, or 16.8%, in sales of systems
and equipment and an increase of $343,000, or 5.4%, in customer service and
support sales. The increase in sales of systems and equipment was due primarily
to increased sales in the domestic operations offset, in part, by a decrease in
systems and equipment sales in the international operations. All of the
international decline was due to lower sales in the Pacific Rim as a result of
the economic problems in Asia, which may continue to impair sales in the region
until the Pacific Rim currencies strengthen. The increase in customer service
and support sales is due primarily to increased sales in the domestic
operations. The markets in which the segment competes are marked by rapidly
changing technology, with sales in the second quarter of fiscal 1998 of
equipment introduced within the last three years comprising approximately 84% of
equipment sales.
Gross profit margins expressed as a percentage of sales from systems, equipment,
customer service and support revenues decreased by 2.4 percentage points from
40.7% in 1997 to 38.3% in the second quarter of 1998 consisting of a decrease of
1.6 percentage points on systems and equipment and a decrease of 5.3 percentage
points in customer service and support margins. The decrease in systems and
equipment margins was due principally to the sale of a greater proportion of
lower margin products. The decline in customer service and support margins was
due primarily to higher material costs associated with the domestic operations.
Operating expenses at $7,283,000 increased by $191,000, or 2.7%, from $7,092,000
in the second quarter of 1997 due primarily to higher development costs incurred
in the development of the Company's proprietary computer-to-plate product during
the current year. However, expressed as a percentage of sales, operating
expenses decreased by 3.3 percentage points from 35.6% in 1997 to 32.3% in 1998.
The $57,000 increase in interest income in the second quarter of fiscal 1998 was
due to higher average (over the three month period) cash balances than in the
comparable period in the prior year.
10
<PAGE> 11
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
The Company had a foreign exchange loss in the second quarter of fiscal 1998 of
$124,000 compared to $127,000 in the second quarter of fiscal 1997. The losses
in both periods were due to unfavorable 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, changed from an expense of $138,000 in fiscal 1997 to income
of $14,000 in fiscal 1998 due to a decrease of several items of expense in this
category.
The income tax provision in the three month reported fiscal 1998 period was 41%
of pretax income and was higher than the statutory rate of 34% due primarily to
state taxes and relatively higher foreign tax rates. The tax provision of 27% of
pre-tax income in the second quarter of fiscal 1997 was lower than the statutory
rate due to taxes on foreign earnings without U.S. tax benefit.
Six months ended May 1, 1998 compared to six months ended May 2, 1997
Results of Operations
Revenues in the six months ended May 1, 1998 increased by $2,582,000, or 6.8%
consisting of an increase of $3,129,000, or 12.6% in sales of systems and
equipment offset, in part, by a decrease of $547,000, or 4.2% in customer
service and support sales. The increase in sales of systems and equipment is due
primarily to increased sales in the domestic operations offset, in part, by a
decrease in systems and equipment sales in the international operations. Most of
the international decline was due to lower sales in the Pacific Rim as a result
of the economic problems in Asia, which may continue to impair sales in the
region until the Pacific Rim currencies strengthen. The decrease 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 parts sales.
Gross profit margins expressed as a percentage of sales from systems, equipment,
customer service and support revenue increased by 1.4 percentage points from
38.8% in 1997 to 40.2% in the second half of 1998 due to an increase of 3.9
percentage points on systems and equipment offset, in part, by a 5.9 percentage
point decline in customer service margins. The increase in systems and equipment
margins was due primarily to a favorable mix of sales of higher margin products
and lower manufacturing costs during the current year. This is a continuation of
a trend started mid fiscal 1997 resulting from consolidation of products and
operations plus on-going cost reduction efforts. The decline in customer service
margins was due primarily to lower customer service and support revenues, and
higher material costs associated with the domestic operations.
Operating expenses increased by $209,000, or 1.5%, in the first six months of
fiscal 1998 over to the prior year comparable period. However, expressed as a
percentage of sales operating expenses declined from 37.3% in fiscal 1997 to
35.4% in fiscal 1998.
The $133,000 increase in interest income in fiscal 1998 was due to higher
average (over the six-month period) cash balances in the first half of fiscal
1998 than in the comparable period in the prior year.
The Company had a foreign exchange loss in the first six months of fiscal 1998
of $570,000 compared to a $134,000 gain in the first six months of fiscal 1997.
The gain in 1997 was due to favorable, and the loss in 1998 was due to
unfavorable, currency movement in the European and Pacific currency markets. To
reduce the 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, changed from an expense of $264,000 in fiscal 1997 to income
of $10,000 in 1998 due to a decrease of several items of expense in this
category.
The income tax provision in the six month reported fiscal 1998 period was 41% of
pretax income and was higher than the statutory rate of 34% due primarily to
state taxes and relatively higher foreign tax rates. The tax provision for 1997
relates to taxes on foreign earnings without U.S. tax benefit.
11
<PAGE> 12
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
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. The loss from discontinued operations for the six
month period ended May 2, 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.
Liquidity and Capital Resources
During the first six months of fiscal 1998, operating activities provided
$2,868,000 of cash. The Company generated cash from its profit of $703,000,
supplemented by non-cash charges aggregating $1,403,000 consisting principally
of depreciation of $1,094,000, goodwill amortization of $276,000, a provision
for doubtful accounts of $30,000, a loss on foreign translation of $24,000 and a
loss on dispositions of property and equipment of $76,000 offset, in part, by a
deferred income tax charge of $97,000. In addition, cash was provided by net
changes in assets and liabilities of $762,000, primarily due to a decrease in
accounts receivable of $2,973,000, an increase in customer advances of
$1,178,000 and an increase in income taxes payable of $680,000. These were
offset by uses of cash to support growth (primarily inventory increases of
$2,679,000) and to reduce accounts payable by $680,000 and accrued expenses by
$616,000.
Investing activities used cash of $778,000 for the purchase of property and
equipment, offset, in part, by $145,000 in proceeds from the disposal of
property and equipment.
As a result of the foregoing, during the six months ended May 1, 1998, cash and
cash equivalents increased by $2,407,000. The Company's working capital as of
May 1, 1998 was $27,253,000, which includes $11,859,000 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 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, 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 outstanding under this agreement as of May 1, 1998.
Subsequent to the end of the quarter, the revolving line of credit was allowed
to expire, 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.
12
<PAGE> 13
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1998 Annual Meeting of Shareholders held on April 22, 1998,
stockholders:
(a) Elected the following to serve as Directors of the Company to serve until
the 1999 Annual Meeting of the Stockholders, by the following votes:
<TABLE>
<CAPTION>
For Votes Withheld
--- --------------
<S> <C> <C>
Leroy M. Bell 5,502,401 3,530
Dennis D. Doolittle 5,502,459 3,472
Alden L. Edwards 5,502,533 3,398
EuGene L. Falk 5,503,533 2,398
James J. Groberg 5,503,533 2,398
Paul H. McGarrell 5,503,533 2,398
Jerome Shaw 5,503,502 2,429
William Shaw 5,503,533 2,398
</TABLE>
(b) Ratified the action of the Board of Directors in appointing Ernst & Young
LLP as the Company's independent public accountants for the fiscal year ending
October 30, 1998 by the following vote:
For: 5,504,038 Against: 444 Abstain: 1,449
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
15 Independent Accountants' Report on Review of Interim
Financial Information from Ernst & Young LLP
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended May 1, 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
June 12, 1998
BY: /s/Anthony F. Marrelli
-----------------------------------------
Anthony F. Marrelli
Vice President and Chief Financial Officer
14
<PAGE> 15
Exhibit Index
Exhibit Description
- ------- -----------
15 Independent Accountants' Report on Review of Interim Financial
Information from Ernst & Young LLP
27 Financial Data Schedule
15
<PAGE> 1
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 May 1, 1998,
and the related condensed consolidated statements of operations for the
three-month and six-month periods ended May 1, 1998 and May 2, 1997, the
condensed consolidated statement of stockholders' equity for the three-month
period ended May 1, 1998, and the condensed consolidated statements of cash
flows for the six-month periods ended May 1, 1998 and May 2, 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 general 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.
ERNST & YOUNG LLP
May 29, 1998
Woodland Hills, California
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-30-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> MAY-01-1998
<CASH> 11,859
<SECURITIES> 0
<RECEIVABLES> 14,205
<ALLOWANCES> 0
<INVENTORY> 10,908
<CURRENT-ASSETS> 43,686
<PP&E> 5,394
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,554
<CURRENT-LIABILITIES> 16,433
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 38,063
<TOTAL-LIABILITY-AND-EQUITY> 54,554
<SALES> 22,548
<TOTAL-REVENUES> 22,548
<CGS> 13,902
<TOTAL-COSTS> 21,388
<OTHER-EXPENSES> 11
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,171
<INCOME-TAX> 481
<INCOME-CONTINUING> 690
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 690
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
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