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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 (No Fee Required) For the fiscal year ended October 31, 1997
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ______________________ to _____________________
Commission File No. 0-29396
AUTOLOGIC INFORMATION INTERNATIONAL, INC.
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 498-9611
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($0.01 par value)
(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of the
Registrant as of January 15, 1998 (based on the closing price on the NASDAQ
National Market on that date) was approximately $13,800,000 (based on the number
of shares outstanding on that date exclusive of all shares held beneficially by
Registrants' 59% shareholder and executive officers, directors and their
spouses, without conceding that all such persons are "affiliates" of the
Registrant).
The number of shares of common stock outstanding as of January 15, 1998 was
5,787,970.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 1998 Annual Meeting are
incorporated by reference into Part III of this Report. and Part II of this
Report.
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PART I
ITEM 1. BUSINESS
Autologic Information International, Inc. and its subsidiaries (collectively
"aii" or the "Company") design, develop, manufacture, assemble, integrate,
market, sell and service computerized imagesetting, publication systems
equipment and software that automate the various prepress production steps in
the publishing process. aii believes that it is an industry leader in prepress
systems. aii's products are primarily marketed and sold to the newspaper
publishing industry, the commercial printing industry and other organizations
having internal publishing facilities. aii has traditionally focused its efforts
on high-volume and deadline-driven customers. The Company is seeking to utilize
its core capabilities to expand into the lower-volume, less time-sensitive
portion of the commercial publishing and electronic document transmission
markets, while retaining a leadership role in its primary market. Although
competition is more intense in these additional markets, they are expanding
markets and the Company believes that significant opportunities exist therein.
The Company's strategy to meet this competition is to enter niche markets where
the Company's strengths can most effectively meet customers' requirements.
History
aii was incorporated in Delaware on September 15, 1995 as Autologic,
Incorporated and changed its name on November 8, 1995. On January 29, 1996, Volt
Information Sciences, Inc. ("Volt") caused its wholly-owned California
subsidiary, also named Autologic, Incorporated ("Autologic"), to be merged with
and into aii and simultaneously caused all of the capital stock of certain
foreign subsidiaries of Volt (whose business was related to that of Autologic)
to be transferred to aii. Also, on January 29, 1996, Information International,
Inc. ("Triple-I"), a publicly held company, was, pursuant to a vote of its
stockholders, also merged with and into aii, as a result of which the former
owners of Triple-I became the owners of 41% (with Volt owning the remaining 59%)
of the then outstanding common stock of aii. The Merger Agreement among
Triple-I, Autologic and Volt provides that upon the issuance of 1,000 shares of
common stock by the Company upon the exercise of stock options granted by
Triple-I prior to the Merger, 590 shares of common stock are to be issued to
Volt under the terms of the Merger Agreement to partially offset the dilution
caused by the option exercises. Such option exercises have not, to date, been
material and Volt's present ownership remains at approximately 59% of aii's
outstanding common stock. The foregoing formation transactions are collectively
referred to as the "Merger".
RESULTS OF OPERATIONS FOR FISCAL 1997 REFLECTS THE OPERATIONS OF aii (THE
COMBINED OPERATIONS OF AUTOLOGIC AND TRIPLE-I). SINCE THE MERGER OCCURRED ON
JANUARY 29, 1996, RESULTS OF OPERATIONS FOR FISCAL 1996 REFLECT ONLY NINE MONTHS
OF COMBINED OPERATIONS AND THREE MONTHS (NOVEMBER 4, 1995 THROUGH JANUARY 29,
1996) OF AUTOLOGIC'S OPERATIONS ON A "STAND ALONE" BASIS. RESULTS FOR FISCAL
YEARS PRIOR TO 1996 REFLECT ONLY THE OPERATIONS OF AUTOLOGIC AND DO NOT REFLECT
THE OPERATIONS OF TRIPLE-I. ACCORDINGLY, THE COMPANY BELIEVES THAT INFORMATION
CONTAINED HEREIN WHICH COMPARES RESULTS FOR PERIODS BEFORE AND AFTER THE MERGER
ARE NOT COMPARABLE AS THEY DO NOT REFLECT COMPARABLE BUSINESS STRUCTURES. IN
ADDITION, DURING THE PERIOD SUBSEQUENT TO THE MERGER (PRIMARILY IN FISCAL 1996
AND, TO A SIGNIFICANTLY LESSER EXTENT, IN FISCAL 1997), THE COMPANY EFFECTED
VARIOUS RESTRUCTURINGS THAT RESULTED IN THE INCURRENCE OF CERTAIN NON-RECURRING
CHARGES TO EARNINGS WHICH ALSO AFFECTS THE COMPARABILITY OF RESULTS OF
OPERATIONS FOR THE REPORTED PERIODS. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" IN ITEM 7 OF THIS REPORT.
The purpose of the Merger was to produce cost savings and synergies to help the
combined entity face the intense competition that each of Autologic and Triple-I
were facing separately. While actions taken by aii following the Merger have, in
fact, resulted in significant cost savings, competitive pressures have further
increased, resulting in increased price competition on some products. In
addition (i) although workforce reductions have been implemented to eliminate
duplicate staffs (reducing the workforce by 26% since the Merger) and to further
reduce overhead costs, in a few areas, certain specialized employees left the
Company's employ, which caused delays in developing certain new products, (ii)
aii's increased size (over that of Autologic and Triple-I individually) has
enabled it to increase its purchasing power beginning in fiscal 1997 and (iii)
although aii has combined various facilities and other aspects of the businesses
of Autologic and Triple-I, it has not yet been able to sublet Triple-I's former
headquarters in Los Angeles, while the Company is actively marketing that
property.
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Management continues to take steps to address these issues, including
expanding aii's revenue base through the utilization of its core capabilities to
expand into niche portions of the lower-volume, less time sensitive commercial
publishing and electronic document transmission markets. A new product, the
Laser Cinema Recorder ("LCR") was introduced during the year. The machine is
used to create master motion picture film from computer generated images and has
been used in a number of recent major motion pictures such as Warner Brother's
"Batman and Robin" and "Contact"; Universal's "Dante's Peak"; Fox/Paramount's
"Titanic"; and Buena Vista's "Con Air", "George of the Jungle", and "Grosse
Pointe Blank". Increased shipment of LCR units are expected during the coming
year. The Company continues to further reduce manufacturing costs by
implementing product modifications and negotiating better prices with its
suppliers, and reducing other costs. However, there can be no assurances that
the Company's efforts will be successful.
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. Although the Company believes that its expectations are based on reasonable
assumptions, these 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 that could cause or
contribute to such differences include, but are not limited to, the Company's
ability to effectuate further the synergies and costs savings intended by the
Merger, general economic and business conditions in the United States and in the
overseas markets where the Company distributes products, including the impact of
the major economic problems currently occurring in Asia; the impact of the
strengthening dollars in international prices (see "Customers", below); the
Company's ability to successfully expand its market base beyond its traditional
newspaper market (see "Customers", below); potential changes in customer
spending and purchasing policies and practices (see "Customers", below); the
continuing availability of components, sub-assemblies, parts and end items,
risks inherent in new product introductions, such as start-up delays,
uncertainty of customer acceptance and dependence on third parties for some
components (see "Manufacturing and Assembly", below); the Company's ability to
maintain superior technological capability (see "Research and Development",
below); 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 and achieve customer acceptance, in markets characterized
by rapidly changing technology and frequent new product introductions (see
"Research and Development", below); the Company's ability to meet competition in
its highly competitive markets with minimal impact on prices and margins (see
"Competition", below); 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 (see "Employees", below);
and the Company's ability to generate cash flows and obtain financing to support
its operations and growth (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations"). These and certain other factors
are discussed from time to time in this Annual Report on Form 10-K and other
Company reports thereafter and hereafter filed with the Securities and Exchange
Commission, including this Report, although the Company does not assume an
obligation to update the factors discussed in this Annual Report.
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Products and Services
In general, aii's systems consist of computers and computer-based products used
for scanning images, storing and retrieving computerized text and images,
rasterizing of the text and images and controlling output of those elements to
various output devices, such as laser imaging systems, proofers, platemakers and
document distribution systems. The principal imaging device sold by the Company
is the 3850 film recorder which is manufactured by aii. The Company is currently
in the process of developing its own proprietary computer-to-plate imager for
the newspaper market based on its existing imaging and manufacturing technology.
The Company also manufactures a scanner, the APS 3750, and a variety of hardware
and software interface products that enable different computers and other
products to communicate and transfer information efficiently. To meet the
specific requirements of its customers, the Company's products can be integrated
into complete systems, integrated with a customer's existing products (whether
previously purchased from aii or from another vendor), or sold and used
individually as "stand alone" units.
aii's systems are available in a variety of hardware and software configurations
on a broad base of computer hardware platforms which allow them to be structured
to meet the individual needs of members of the prepress industry, including
publishers of newspapers, telephone directories, magazines, books, directories,
catalogues, yearbooks, print advertising, checks, and other quality graphic art
printed products. To satisfy this diverse customer base, aii offers a wide
variety of production control and imaging systems, each designed to satisfy
specific speed, page size and output quality requirements, depending on the
customer's requirements for final publication. These systems normally output
either to film or photographic paper (both of which are then used to make
printing press plates) or the printing press plates themselves. Each component
is designed with a view to accommodate future system expansion.
aii's family of products is based on the "open system" concept of total product
line integration, enabling the Company's current products to be integrated with
the current products of aii and other vendors, as well as with many older
systems still in use by aii's customers and, as technologies change and new
products come on the market, they remain compatible with and complementary to a
customer's previously installed systems. To ensure customer service for its
products on a worldwide basis, aii maintains, either itself or through its
distribution network, offices worldwide with trained technicians and spare parts
inventories. aii's service and support network provides remote diagnostics and
on-line assistance using state-of-the-art telecommunication links, as well as
on-site repair capabilities. aii also provides a full range of customer
education and training programs on the hardware and software components of the
systems it sells.
The following table shows, for the last three fiscal years, the relative
contribution of systems and equipment sales and of technical support and service
revenues to the total revenues of aii and, for the period prior to January 29,
1996, of Autologic :
<TABLE>
<CAPTION>
For the Fiscal Year Ended
-------------------------
October 31, November 1, November 3,
1997 1996 1995
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(Dollars in thousands)
<S> <C> <C> <C>
Systems and equipment sales 67% 72% 74%
Technical support and service revenues 33% 28% 26%
--- --- ---
100% 100% 100%
--- --- ---
</TABLE>
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The Company's principal product and service lines are:
LASER IMAGING SYSTEMS. Laser imaging systems incorporate text and graphics and
image them on film or plates which can be used for printing. They consist of one
or more raster image processors ("RIPs"), which interpret page description
instructions of what the printed page will look like, and one or more output
recorders, which use lasers to image onto film or printing press plate material.
aii offers a family of high performance RIPs based on Harlequin Ltd.'s
implementation of the PostScript page description language (the programming
language which has become a publishing industry standard). aii has also expanded
its RIP and server offerings to include Adobe's PDF and PostScript3 technology
in its product line. RIPs are interfaced to a variety of output recorders (which
are either manufactured by aii or purchased from other manufacturers) to form
complete laser imaging systems (for the simplest system, one RIP and one output
recorder together constitutes one laser imager). aii also integrates imagers,
proofers, scanners and platemakers of other manufacturers to create complete
systems to satisfy customer requirements in various segments of the publishing
industry. aii designs and manufactures its 3850 family of laser imagers and
purchases other models of imagers for resale to customers.
COMPUTER-TO-PLATE. The Company announced the APS 3850 Computer-to-Plate ("CTP")
Imaging System at a European newspaper trade show held in Amsterdam in October
1997. CTP is an emerging imaging technology enabled by customer progress in
digital workflow, data transmission, and conversion to open systems - all areas
in which aii has product offerings. The Company expects that the demand for CTP
imagers will grow over the coming years, including replacement of older
equipment, accompanied by a moderation of demand for film imagesetters such as
the 3850. The combined CTP and film setter sales will represent an increase over
today's sales volumes. The design is based on the Company's 3850 film recorder
technology and manufacturing capability with significant commonality with the
imagers currently in full production at aii. Initial deliveries are scheduled
for aii's second quarter of fiscal year 1998 with full production in the later
part of the year. The CTP imager will address the needs of newspapers which want
to eliminate the film processing step to improve deadlines, improve print
quality and reduce costs. The Company believes that this imaging system is a
natural addition to aii's existing and future workflow offerings.
AD MANAGEMENT. The production and printing of advertisements has changed
dramatically over the last few years. Third party software, networks, scanners
and other open system products have revolutionized ad creation. However, as
these are an ad hoc set of tools, the problems of management and tracking of ad
production has become a significant problem for publishers. aii's Ad Manager, an
ad management system, provides database storage and management, OPI (open
prepress interface) graphics insertion, process tracking, ad element tracking,
and ad creation management tools to enable publishers to keep track of all ads
as they are being created and to manage the process.
GRAPHICS SERVERS AND CONTROLLERS. Graphics servers and controllers are
computer-based systems which store and retrieve high resolution images and
graphic elements, merge those images and elements with other components into
page description instructions and control and optimize the flow of page
description instructions among multiple RIPs and multiple laser imaging systems.
They also monitor and report the status of page imaging and production
bottlenecks or problems with any specific job or piece of equipment, which can
then be corrected. The Company's server products are being enhanced to
incorporate Adobe technology.
TELECOMMUNICATIONS SYSTEMS. The Company's APSCOM telecommunications system links
different types of computer and prepress products through telephone and other
communications lines (when they are not physically located together). Precision
laser scanners, graphics servers and laser imaging systems are linked together
by computer-controlled devices to permit the management, transmission, receipt
and remote production of graphic arts quality ads, photography and complete
pages via satellite, integrated services digital networks, microwaves and
high-speed telephone services throughout the world. The APSCOM system meets
customer needs created by the decentralization of the publishing industry, which
has resulted in many new printing facilities being built at a distance from the
editorial center. As a result, publishing products are often created and edited
at a central site and then electronically distributed to many printing plants
worldwide for printing and distribution. APSCOM permits the capture,
compression, transmission, decompression, storage, editing and imaging of text
and graphics files in a variety of industry standard file formats.
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INTERFACE PRODUCTS. Interface products are hardware and software products which
facilitate the interfacing of a wide range of prepress products from multiple
sources where long distance telecommunications systems are not required. aii has
developed a system architecture which allows RIPs to interface to multiple types
of imaging devices. aii's hardware and software interfaces permit aii products
to interface with other aii products, as well as with prepress products
manufactured by others. The customer is then able to create a tightly integrated
publishing system, maximizing its previous investments while facilitating the
adoption of newer, open technologies.
APS LASER CINEMA RECORDER. The APS Laser Cinema Recorder ("LCR") is an "output"
device that images directly onto 35mm film and Vista Vision motion picture film
formats. These film formats, unlike graphic arts films used in other aii
recorders, are used in the video and cinema industries. Studios (which process
their own recordings) and post production houses (operating as service bureaus
for outside studios) use the LCR when there are requirements for large scale
digital motion picture post production work. There is an increasing demand for
digital post production work and digital effects onto film due to special
effects, the increase in animation and graphics manipulation requirements within
the video and cinema industries. Older recorders (CRT technology) required two
steps for imaging and two generations of film thereby causing quality
degradation and slow turnaround. The APS Laser Cinema Recorder (laser
technology) images in one step, with greater light energy and a much sharper
spot thereby providing higher quality, improved color fidelity, and
significantly improved throughput speeds. Feature movies or films that have
incorporated LCR images include Warner Brother's "Batman and Robin" and
"Contact"; Universal's "Dante's Peak"; Fox/Paramount's "Titanic"; and Buena
Vista's "Con Air", "George of the Jungle", and "Grosse Pointe Blank". Over one
million frames (more than 10 hours of screen time) have been produced by APS
Laser Cinema Recorders since January 1997.
XITRON, INC. Xitron, Inc. is a wholly owned subsidiary of the Company, sells
RIP's, imager interfaces, server software and imager integration services to
OEM's, distributors and other third party resellers. Xitron is the Company
vehicle for selling to the lower end of the pre-press markets through a
different distribution and support approach. Xitron's products are unique and
distinct from the aii system products, but procurement contracts, support
agreements, engineering developments and other services are shared with Xitron
to minimize effort and reduce costs.
TECHNICAL SUPPORT AND SERVICE. aii maintains a worldwide technical support and
service organization which supports and services aii's products. Technical
support is headquartered in Thousand Oaks, California, with regional facilities
in Ann Arbor, Michigan; Norcross, Georgia; Burlington, Massachusetts and has
offices throughout the United States and in parts of Europe, Latin America, the
Pacific Rim and the Middle East. Elsewhere, distributors and agents sell and
service aii products within their respective territories.
aii believes its products enjoy a good reputation for high performance, image
quality and reliability in high volume production environments.
Marketing and Sales
Marketing and sale of aii's products within the United States, Mexico and Canada
is provided by aii's direct sales force. In Latin America, sales are made by
distributors directed from aii's headquarters in Thousand Oaks, California.
Marketing and sales are conducted by aii's direct sales force in some parts of
Europe and Australia, and through independent foreign distributors elsewhere.
aii has a European operations headquarters near London, England, which manages
aii's European operations in the United Kingdom, France, Germany, Spain, Sweden
and Israel and selects, trains and supports distributors for other European,
Mid-Eastern and African countries. aii's Pacific operations headquarters in
Sydney, Australia provides a similar function for Australia, New Zealand, Asia
and the Pacific Rim countries. Both European and Pacific operations report to
aii's corporate headquarters in California.
aii attends trade shows, each year, both domestic and international, to
demonstrate and sell its equipment and to interact with customers and prospects
regarding future needs.
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Customers
aii's products are primarily marketed and sold to the newspaper publishing
industry, the commercial printing industry and other organizations having
internal publishing facilities. In fiscal 1997, aii sold its products and
provided service for its products to more than 1,700 customers worldwide, none
of whom accounted for more than 10% of aii's revenues. aii typically maintains
ongoing relationships with its customers, providing additional products,
additions, enhancements, service, support and spare parts for the life of the
product.
aii's products are manufactured and assembled principally in the United States
and are sold to end users abroad both by the Company (including certain foreign
subsidiaries and operations of the Company) and by unaffiliated foreign
distributors. Sales made outside the United States by aii of products
manufactured or assembled in the United States, together with export sales by
aii directly to unaffiliated foreign customers, amounted to $38.4 million in
fiscal 1997, $46.2 million in fiscal 1996, and $36.2 million in fiscal 1995.
Foreign sales are affected by the relative strength of the U.S. dollar against
currencies of its customers and competitors.
At times in the past, both Autologic and Triple-I were adversely affected by
general economic recessions in the United States and in other countries where
aii's products are sold. In addition, a significant portion of aii's business is
in the newspaper publishing industry, which has, at times in the past,
experienced significant downturns during recessions. Newspapers continuously
seek to reduce costs and expenditures to offset increased newsprint costs,
intense competition for advertising revenues and reduced readership of the
smaller number of newspapers, especially in the United States. These factors
have resulted, at times, in reductions in equipment purchases by aii's
traditional customers, adversely affecting aii's performance. However, during
1997, newspapers experienced increased advertising revenues and increased page
counts. These developments and the effect of the Year 2000 issue on older
equipment which cannot correctly process date information after 1999 could
require replacement of equipment and may have a positive effect on the Company
as newspapers make additional capital expenditures.
Backlog
aii's backlog of orders believed to be firm as of October 31, 1997 was $10.1
million, including $2.4 million for Laser Cinema Recorders (which the Company
introduced in 1997), as compared to $7.1 million as of November 1, 1996 and
Autologic's backlog of $5.9 million as of November 3, 1995. All of the Company's
backlog is expected to be filled during fiscal 1998.
Manufacturing and Assembly
aii's products are manufactured and assembled principally at the Company's
leased facilities in Thousand Oaks, California. The general components of aii's
products are primarily central processing units, imagers, disk drives, memory,
network interfaces and scanners, each of which are generally available from
numerous suppliers under various types of purchasing relationships. These are
either purchased as complete units or are assembled from sub-assemblies, parts
and end items produced by others, most of which are also available from numerous
suppliers. For the Company's 3850 film recorder and APS 3750 scanner, optics and
some other unique products are only available from a few suppliers but there are
no current shortages, although there are typically long lead times for some
products. Certain major components of the LCR are available from only one
supplier, however alternatives are being explored. aii is not dependent upon any
particular supplier for its overall product lines and is not dependent on the
products of any specific vendor in order to conduct its business activities. aii
manufactures its 3850 imager family of products, as well as other parts and
sub-assemblies, in particular, those with a high degree of complexity or special
functions not available from external sources.
Research and Product Development
aii is engaged in a considerable amount of research and product development,
principally in the field of hardware and software engineering, which is
performed at its facilities in Thousand Oaks, California; Burlington,
Massachusetts; and at the facilities of its Xitron subsidiary in Ann Arbor,
Michigan. The markets in which aii competes are marked by rapidly changing
technology. As a result, the Company's success will continue to depend, in part,
upon its ability to maintain a superior technological capability, foresee
changes and continue to identify, develop and commercialize innovative and
competitive products and systems.
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Except in certain instances involving customer requested enhancements and, on
occasion, except for specific products developed at the request of a customer,
all research, product development and engineering is Company-sponsored.
Approximately 15% of aii's employees are technical professionals, most of whom
have professional degrees. Collectively, these employees spend the majority of
their time engaged in the engineering and development of new products, and the
balance of their time in support and improvement of existing systems, including
new options and features. The amount expended by aii for product development
activities during fiscal 1997 was approximately $6.3 million, during fiscal 1996
was approximately $4.3 million and during fiscal 1995 was approximately $3.0
million (such expenditures for fiscal 1996 reflect nine months of combined
operations of Autologic and Triple-I while three months of Autologic's
operations on a "stand alone" basis and expenditures for 1995 reflect only the
operations of Autologic and do not reflect the operations of Triple-I).
Nevertheless, there can be no assurance that aii will be successful in
developing new or improved products to address changing technological
requirements, that aii can introduce such products on a timely basis, that aii's
existing products will continue to be competitive, that aii will be able to
adapt existing products to technological change and competition, or that
products that are developed can be successfully and profitably marketed.
Furthermore, technology changes may affect aii's ability to sell its inventories
at appropriate margins and/or require write-offs or write-downs of inventories.
Competition
The Company operates in a highly competitive marketplace with many competitors.
aii's position in its markets depends largely upon its reputation, the quality,
design and pricing of its products, its ability to maintain high level
technological capabilities, foresee market changes and continue to identify,
develop and commercialize innovative and competitive products and systems, and
the timeliness of its deliveries and its field service. Technological
advancements, "open system" architecture (which allow customers to assemble
standardized component products themselves from several different sources) and
general market conditions have increased price competition. A number of firms,
some of which are substantially larger and have substantially greater financial
resources than aii, manufacture one or more prepress products competing with
each of aii's prepress products. Some of these competitors sell their products
as complete prepress systems, for some of which aii has no competing systems.
Other competitors grant significant discounts of their products which compete
with aii's products in order to promote sales of ancillary products as to which
aii has no competing product. In an endeavor to counter these trends, aii has
expanded its product offerings to encompass a wider range of price/performance
options and is seeking to utilize the dealer channels being developed by its
Xitron subsidiary; however, there can be no assurances that these efforts will
prove successful.
As a result of this intense competition, as well as changing patterns of
customer purchasing which have produced an industry-wide trend toward the
purchase of open systems, the industry, including aii, has experienced downward
pressure on profit margins on sales of equipment and software. In addition,
aii's base models of 3850 imagers (the only line of imagers manufactured by the
Company), introduced by Triple-I approximately five years ago, is subject to
intense competition from products developed by competitors, resulting in
downward pressures on profit margins. The Company has introduced improved
versions of its 3850 imagers and is seeking to reduce costs to improve profit
margins. However, it is likely that competition will continue to increase and
that the downward pressures on gross profit margins on aii's sales of systems
and equipment will continue. To counter this pattern, the Company is striving to
reduce costs while designing and marketing cost justifiable products for its
customer and market segment (See "Employees", below).
Gross profit margins on customer services have likewise been under considerable
pressure in recent years. The pressure on customer service gross profit margins
is attributable, in part, to the industry trend towards using "open systems"
which enable the user to service some equipment in-house and, because such
products are more software oriented, obtain some service from aii through remote
data transfer rather than on-site. Steps taken during fiscal 1997 resulted in
improved customer service gross profit margins for aii but there can be no
assurance that this trend will continue or that the Company can continue current
margin levels.
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Patents and Trademarks
aii holds several patents and trademarks related to its products; however, it
does not believe that any of these are material to aii's business. aii is also a
licensee of technology from many of its suppliers, none of which, individually,
is considered material to aii's business.
Seasonality and Working Capital
Sales are generally lower in the months of November and December due to the
holiday season, which is a peak publishing period when customers are reluctant
to install and test new equipment.
Because lead times in the industry in filling customer orders are becoming
shorter, while lead times in offering certain specialized components are not
being reduced, manufacturers, including aii, may experience a greater dependence
than in the past on accurate short-term sales forecasts in order to avoid
carrying an excess of inventory at any given time which could require the need
for additional working capital or, in the event that a product or products
becomes obsolete, could lead to inventory write-downs or write-offs. There can
be no assurance, given the rapid pace of changes in technology at which new
products are introduced in the market that aii will not in the future experience
either excess inventory (and a concomitant need for additional operating funds)
or obsolescence of inventory. Any such write-offs or write-downs could have a
materially adverse effect on aii's results of operations for the quarterly or
annual periods in which any such loss occurs, as well as on aii's financial
position.
Regulation
The industry in which aii operates is not subject to specific industry
government regulations. In connection with foreign sales, the Company is subject
to the Foreign Corrupt Practices Act and export controls, with each of which it
believes it is in compliance. The export of certain technologies are restricted.
At the present time and with respect to the countries in which aii currently
sells its products, the sale of its current products, both hardware and
software, are permitted pursuant to a general export license. If the Company
began selling to countries designated by the United States as sensitive, such
sales could be subject to more restrictive export regulations.
Compliance with applicable Federal, state and local environmental laws and
regulations has not had, and aii believes that compliance with such laws and
regulations in the future will not have, a material effect on aii's earnings,
capital expenditures or competitive position.
Employees
As of January 16, 1998, aii had 410 full-time employees, of which 306 were in
the United States and Canada and 104 were in international offices, as compared
to a combined work force (of Autologic and Triple-I) of 543 full-time employees,
of which 437 were in the United States and Canada and 106 were in international
offices, prior to the Merger. Of the Company's employees, as of January 16,
1998, 60 were engaged in research, product development and engineering; 82 in
sales and marketing; 141 in customer support; 66 in manufacturing; and 61 in
administration.
The Company's success is dependent, in part, upon its ability to attract and
retain technologically qualified personnel who possess the specialized skills
required by aii, particularly in the areas of research and development and
customer support, for which there is substantial competition. Although aii has
not had and does not anticipate any shortages of most categories of technical
personnel at this time, the loss of certain key employees in specialized fields
following the Merger resulted in some delays in completing certain new products.
There can be no assurance that aii will continue to be successful in recruiting
and retaining personnel of the requisite caliber and in adequate numbers.
Management currently believes that its relations with its employees is good.
9
<PAGE> 10
ITEM 2. PROPERTIES
aii's principal facilities are located in approximately 134,000 square feet of
leased space in Thousand Oaks, California, which houses its principal executive
offices, its manufacturing, engineering and computer software development
operations, and its west coast servicing facilities. These facilities are leased
from a subsidiary of Volt under a lease which expires in January 1999 at a
rental which is to be based upon prevailing rentals charged in the area.
Pursuant to the terms of the lease, as amended, in December 1996, aii'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, aii'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.
aii also leases space in Ann Arbor, Michigan (7,600 square feet under a lease
that expires in 2000), where its Xitron subsidiary is located; Norcross, Georgia
(3,300 square feet under a lease that expires in 1998), which serves as a
regional service office; Burlington, Massachusetts (15,500 square feet under a
lease that expires in 2001), which serves as regional sales and service office,
as well as a research and development facility; Des Plaines, Illinois (2,000
square feet under a lease that expires in 2001), which serves as a regional
service office. While still under lease by aii at least until October 1999
(provided a right to cancel the lease at that time is exercised), Triple-I's
former headquarters in Los Angeles, California (52,000 square feet) is being
marketed for sub-lease. aii also maintains sales and service offices at various
foreign locations (an aggregate of 43,000 square feet under leases which expire
from 1998 to 2010).
aii believes that its facilities and equipment are well maintained and adequate
to meet its current requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently party to any material litigation or proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Executive Officers
WILLIAM SHAW, 73, has been Chief Executive Officer and Chairman of the Board of
the Company since January 24, 1996. He is also a founder of Volt, serving as its
President and Chairman of the Board for more than the past five years and has
been employed in executive capacities by Volt and its predecessors for over
forty years. He is the brother of Jerome Shaw, a Director of the Company.
DENNIS D. DOOLITTLE, 53, has been President of the Company since March 3, 1997
and has been Chief Operating Officer and Vice Chairman of the Board of the
Company since January 24, 1996. He has served as a Director of the Company since
November 13, 1995. He served as President of Autologic from 1990 until the
Merger. Prior to that he served as Senior Vice President-Engineering from 1989
to 1990 and Vice President-Engineering from 1986 to 1989 of Autologic.
ANTHONY F. MARRELLI, 50, joined the Company as Chief Financial Officer in
November 1996 and became Vice President on January 6, 1997. Prior to joining the
Company, he served in a senior financial capacity for several publicly traded
and privately owned companies from June 1980 to November 1996. From June 1974 to
June 1980, Mr. Marrelli was a practicing public accountant with the firm of
Coopers & Lybrand. Mr. Marrelli is a Certified Public Accountant in the State of
California.
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the NASDAQ National Market (NASDAQ
Symbol--aiiI). The following table sets forth the high and low prices of the
Company's common stock (periods prior to January 29, 1996 reflect market prices
of Triple-I on a "stand alone" basis) as reported by NASDAQ, and reflects
interdealer prices, without retail mark-up, mark-down or commission:
<TABLE>
<CAPTION>
November 2 - October 31 January 1 - November 1
1997 1996
----------------------- ----------------------
Fiscal Period High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $6 1/8 $4 1/4 $12 $9
Second Quarter 5 1/2 3 7/8 10 1/2 7 3/4
Third Quarter 6 3/4 4 1/4 8 1/2 7 1/2
Fourth Quarter 8 5 7/8 8 1/2 5 1/2
</TABLE>
The approximate number of record holders of the Company's common stock at
January 15, 1998 was 690.
No cash dividends have been declared by aii or its predecessors during the
reported periods. The Company does not anticipate paying cash dividends, but
intends to retain any future earnings for reinvestment in its business. Any
future determination to pay cash dividends will be at the discretion of the
Company's Board of Directors and will be dependent upon the Company's financial
condition, results of operations, capital requirements, terms of any debt
instruments then in effect and such other factors as the Company's Board of
Directors may deem relevant at the time.
11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as of and for the five years ended October
31, 1997 have been derived from the financial statements which have been audited
by Ernst & Young LLP, independent auditors. Since the Merger occurred on January
29, 1996, results of operations for fiscal 1996 reflect only nine months of
combined operations and three months (November 4, 1995 through January 29, 1996)
of Autologic's operations on a "stand alone" basis. Results for fiscal years
prior to 1996 reflect only the operations of Autologic and do not reflect the
operations of Triple-I. Accordingly, the Company believes that information
contained herein which compares results for periods before and after the Merger
are not comparable as they do not reflect comparable business structures. In
addition, during the period subsequent to the Merger (primarily in fiscal 1996
and, to a significantly lesser extent, in fiscal 1997), the Company effected
various restructurings that resulted in the incurrence of certain non-recurring
charges to earnings which also affects the comparability of results of
operations for the reported periods. The selected financial data of the Company
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company and the notes thereto.
<TABLE>
<CAPTION>
As of and for the Fiscal Year Ended
-----------------------------------
October 31, November 1, November 3, October 28, October 29,
1997 1996 1995(3) 1994 1993
---- ---- ------- ---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Results:
Revenues $ 84,626 $ 88,880 $ 70,405 $ 65,323 $ 59,340
-------- -------- -------- -------- --------
Operating profit (loss)
from continuing operations (1) 3,107 (3,223) $ (1,787) $ (847) $ (203)
Interest on debt to Volt (2) (2) (583) (2,591) (1,962) (1,793)
Other income (expense) 23 (632) 270 (132) (492)
-------- -------- -------- -------- --------
Income (loss) from continuing
operations before income taxes 3,128 (4,438) (4,108) (2,941) (2,488)
Income tax provision 1,473 125 877 521 132
-------- -------- -------- -------- --------
Income (loss) from continuing
operations $ 1,655 $ (4,563) $ (4,985) $ (3,462) $ (2,620)
Loss from discontinued operations (203) (428) -- -- --
-------- -------- -------- -------- --------
Income (loss) before cumulative effect
of a change in accounting 1,452 (4,991) (4,985) (3,462) (2,620)
Cumulative effect of a change in
accounting for income taxes -- -- -- -- 186
-------- -------- -------- -------- --------
Net income (loss) $ 1,452 $ (4,991) $ (4,985) $ (3,462) $ (2,434)
======== ======== ======== ======== ========
Net income (loss) per share from
continuing operations $ 0.28 $ (0.88) $ (1.49) $ (1.03) $ (0.79)
Net loss per share from
discontinued operations (0.03) (0.08) -- -- --
-------- -------- -------- -------- --------
Net income (loss) per share $ 0.25 $ (0.96) $ (1.49) $ (1.03) $ (0.79)
======== ======== ======== ======== ========
Total assets $ 53,596 $ 59,285 $ 31,691 $ 30,215 $ 26,209
</TABLE>
(1) Includes expenses charged from Volt of $1,048 (1997), $1,246 (1996), $2,601
(1995), $2,538 (1994), and $2,061 (1993).
(2) A substantial portion of indebtedness to Volt was incurred prior to 1987.
All indebtedness to Volt was contributed to Autologic's capital upon
completion of the Merger. Accordingly, interest on such indebtedness has
been substantially eliminated following the Merger.
(3) The 1995 fiscal year was comprised of 53 weeks; fiscal years 1993, 1994,
1996 and 1997 were each comprised of 52 weeks.
(4) No dividends have been declared by aii or Autologic during the five years
ended October 31, 1997.
12
<PAGE> 13
ITEM 7. 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 lease 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. Accordingly, results prior to January 29, 1996 are not reflective of the
operations of the Company subsequent to such date.
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.
Fiscal year ended October 31, 1997 (52 weeks) compared to the fiscal year ended
November 1, 1996 (52 weeks)
Results of Operations
The Company had income before taxes and discontinued operations of $3,128,000 in
1997 compared to a loss before taxes and discontinued operations of $4,438,000
in 1996 (which, as reflected below, included $1,600,000 of non-recurring
expenses). Included in the loss for the year ended November 1, 1996 was interest
expense of $583,000 on loans from Volt (which are no longer outstanding), rent
of $1,022,000 (which was reduced to $781,000 after the merger), a restructuring
charge of $700,000 in connection with the Merger, and general and administrative
expense of $224,000 to Volt (the services related to which are, since the
Merger, being substantially performed by the Company's internal staff and, to
some extent, by third party providers).
In fiscal 1997, revenues decreased by $4,254,000, or 4.8%, to $84,626,000. The
decrease in revenues resulted from a $6,952,000, or 10.9%, decrease in sales of
systems and equipment offset by an increase of $2,698,000, or 10.7%, in customer
service sales. Had the Merger occurred at the beginning of fiscal 1996, 1996
sales would have been $99,013,000. The decrease in sales of systems and
equipment was due primarily to a general softness in the European and Pacific
markets. 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) and increased customer network server sales. International revenues
(shipments and support services to customers located outside the U.S.) decreased
as a percentage of revenues, from 60.2% in fiscal 1996 to 53.1% in fiscal 1997.
Gross margins improved 9 percentage points, from 31.2% in fiscal year 1996 to
40.2% in fiscal year 1997. The gross margin improvement relates to systems and
equipment which increased 11.1 percentage points to 46.5% and customer service
which increased 7 percentage points to 27.6%. The improvement in system's
margins was due primarily to less discounting of imaging systems than in the
prior year and lower manufacturing costs. However, the imaging systems segment
of the prepress industry continues to be affected by rapid technological change,
open systems architecture, increased third party distribution and oversupply,
which leads to intense price competition and may affect the Company's ability to
improve margins in the future. Sales in fiscal 1997 of equipment introduced
within the last three years comprised approximately 86% of equipment sales. The
improvement in customer service margins was due principally to consolidation of
staff since the Merger, increased gross margin on spare parts and the increase
in customer network server sales.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Continued
Operating expenses increased by $580,000, or 2.7%, to $22,215,000 in fiscal
1997. Expressed as a percentage of sales, operating expenses increased from
24.3% in fiscal 1996 to 26.2% in fiscal 1997 due primarily to a decline in sales
and the slightly higher level of expenditures in administrative expense and the
inclusion of four quarters of goodwill amortization relating to the Merger in
fiscal 1997 ($551,000) compared to three quarters ($413,000) in fiscal 1996.
Research, development and engineering expenditures in fiscal 1997 increased
$537,000, or 7.3%, to $7,918,000 from $7,381,000 in fiscal 1996. Expressed as a
percentage of revenues, these expenses increased from 8.3% in fiscal year 1996
to 9.4% in fiscal 1997. The increase was due primarily to the overall product
line which was expanded as result of the Merger with 3850, GRAFIXnet, server and
AdManager products added to the existing Autologic product line and development
costs incurred in connection with the development of a proprietary computer to
plate product.
The $241,000 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 O
of Notes to Condensed consolidated Financial Statements.)
The $188,000 reduction in General and Administrative charges by Volt is due to a
decrease in charges from Volt which, since the Merger, are being substantially
performed by the Company's internal staff and, to some extent, by third party
providers. Such internal staff and third party provider costs are reflected in
operating expenses.
The $59,000 decrease in interest income was principally due to a lower average
(over the twelve month period) cash balance in fiscal 1997 than in the
comparable period in the prior year.
A foreign exchange gain of $125,000 was realized in fiscal 1997 compared to a
loss in 1996 of $544,000. The gain in 1997 was due to favorable, and the loss in
1996 was due to unfavorable, currency movements in the European currency
markets. To reduce the potential adverse impact from foreign currency changes on
the Company's foreign currency receivable and firm commitments, foreign currency
options are purchased. (See Note M of Notes to Consolidated Financial
Statements).
Other expenses decreased $45,000 in fiscal 1997 compared to the prior year due
to a decrease in several items of expense in this category.
The effective rate of 47.1% in fiscal 1997 is higher than the Federal Statutory
Tax Rate of 34.0% primarily due to state taxes and non-tax deductible goodwill
amortization. In fiscal 1996, the Company reflected a tax provision despite a
loss, primarily because operating losses incurred by Autologic prior to the
Merger were utilized by Volt. See Note E of Notes to Consolidated Financial
Statements for information concerning the Company's effective tax rates for
fiscal year 1997 and 1996.
Year ended November 1, 1996 (52 weeks) compared to the year ended November 3,
1995 (53 weeks).
Results of Operations
Included in the loss for the twelve months ended November 1, 1996 were the
following non-recurring expenses (aggregating $1,600,000) incurred by Autologic
(and, accordingly, reflected in the Company's financial statements) during the
first three months of fiscal 1996 (ended February 2, 1996) and prior to the
Merger: (1) restructuring charges of approximately $700,000 related principally
to the reduction of Autologic's workforce and the restructuring of its
operations in connection with the Merger; (2) interest expense charged by Volt
of $583,000 (which has been eliminated as a result of Volt's contribution of the
underlying indebtedness to Autologic's capital prior to the Merger); (3) charges
from Volt to Autologic for rent of $419,000 (which rent would have been $201,300
in fiscal 1997 had the Merger been completed at the beginning of fiscal 1996);
(4) charges from Volt for general and administrative services of $197,000 (the
services related to which are, since the Merger, being substantially performed
by the Company's internal staff and, to some extent, third party providers).
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Continued
The results of operations for period prior to February 3, 1996 do not give
effect to amortization expense of approximately $137,500 per fiscal quarter
(being incurred for five years commencing with the quarter beginning February 3,
1996) of excess purchase price over the estimated fair value of Triple-I's
identifiable assets.
The Company had a loss before taxes and discontinued operations of $4,438,000 in
1996 compared to a pretax loss of $4,108,000 in 1995. Included in the loss for
the year ended November 3, 1995 was interest expense of $2,591,000 on loans from
Volt (which are no longer outstanding), rent of $1,702,000 (which would have
been reduced to approximately $804,000 had the Merger arrangements then been in
effect) and general and administrative expense of $899,000 (the services related
to which are, since the Merger, being substantially performed by the Company's
internal staff and, to some extent, by third party providers).
In fiscal 1996, revenues increased by $18,475,000, or 26.2%, to $88,880,000. The
increase in revenues resulted from a $11,340,000, or 21.7%, increase in sales of
systems and equipment and an increase of $7,135,000, or 39.3%, in customer
service sales. The increase in revenues resulted primarily from the integration
of the two businesses (thus adding Triple-I's revenues to Autologic's revenues).
Had the Merger occurred at the beginning of fiscal year 1995, sales in 1996
would have been $99,013,000 compared to sales of $104,643,000 in 1995 (see Note
B). The decrease of $5,630,000, or 5.4%, was primarily due to the phase out of
the Camex product line which was basically discontinued by Triple-I in fiscal
year 1995. Camex specialized in sales of display advertising systems.
Gross margins decreased by 3% relating to systems and equipment, which was
partially offset by an 11.1% gross margin increase in customer service and
support. The decrease in system's margin was due primarily to discounting
imaging systems in response to competition. The imaging systems segment of the
prepress industry is affected by rapid technological change (with sales in
fiscal 1996 of equipment introduced within the last three years comprised
approximately 98% of equipment sales), open systems architecture, increased
third party distribution, and oversupply, which leads to intense price
competition, The improvement in customer service margins was due principally to
consolidation of staff since the Merger, increased gross margin on spare parts,
and increased custom network server sales.
Operating expense increased by $4,832,000, or 28.8%, to $21,635,000 in fiscal
year 1996. These expenses expressed as a percentage of sales increased (from
23.9% for Autologic alone in fiscal 1995 to 24.3% for fiscal year 1996) as
combined sales of Autologic and Triple-I did not increase by the same percentage
as did the overall increase in selling and administrative expense (which were
incurred in expectation of anticipated revenue levels).
Research, development and engineering expenditures in fiscal 1996 increased
$3,177,000, or 75.6%, to $7,381,000 from $4,204,000 for Autologic alone in the
prior year. Expressed as a percentage of revenues, these expenses increased from
6.0% in fiscal year 1995 to 8.3% in fiscal 1996, as combined sales of Autologic
and Triple-I did not increase by the same percentage as did research,
development and engineering expenditures. The overall product line was expanded
as a result of the Merger with 3850, GRAFIXnet, server and AdManager products
added to the existing Autologic product line.
Interest income increased by $214,000 to $357,000 from $143,000 for Autologic
alone in fiscal year 1995 primarily from the investment of Triple-I funds
acquired by the Company in the Merger.
Interest expense charged by Volt decreased by $2,008,000 resulting from the
contribution by Volt to Autologic of intercompany borrowings of Autologic prior
to the Merger. Interest expense reported represents such interest for the period
prior to the contribution of such indebtedness by Volt.
The foreign exchange loss in fiscal 1996 resulted from the cost of foreign
currency options purchased to minimize the potential adverse impact on foreign
currency receivables and sales in order to protect against the dollar
strengthening against foreign currencies and, to a lesser extent, losses on
currencies not hedged.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Continued
Other expenses include a first quarter $180,000 charge related to a lawsuit and
miscellaneous expenses.
The tax provision in fiscal 1995 relates to taxes on foreign earnings without
U.S. tax benefit. U.S. net operating losses incurred by Autologic were utilized
by Volt prior to the Merger.
Liquidity and Capital Resources
During fiscal year 1997, cash was provided by operating activities in the amount
of $4,624,000. Cash was provided primarily from the Company's profit of
$1,452,000 for fiscal 1997 and non-cash charges aggregating $4,428,000. Non-cash
charges consisted of depreciation and amortization of $2,792,000, a provision
for doubtful accounts of $508,000, and a deferred income tax charge of
$1,433,000, offset by a gain of $242,000 on foreign currency translation and a
gain of $63,000 on disposition of property and equipment. Accounts receivable
and inventories were reduced by $2,959,000 and $4,072,000, respectively,
generating a positive cash flow of $6,873,000 which was used primarily to
increase prepaid expenses and other assets by $1,564,000 and reduce accounts
payable, accrued expenses, accrued payroll and related liabilities and accrued
restructuring costs, and income taxes payable by $4,816,000, $1,120,000 and
$1,174,000, respectively.
Investing activities used net cash of $2,064,000, with $2,246,000 being expended
for the purchase of property and equipment, being offset in part by $182,000
received from the disposal of property and equipment.
As a result of the foregoing, during fiscal 1997, cash and equivalents increased
by $3,319,000. The Company's working capital as of October 31, 1997 was
$25,787,000, which included $9,452,000 in cash and cash equivalents. These
resources, along with the credit facility from Wells Fargo Bank, discussed
below, are anticipated to be sufficient to meet the Company's liquidity and
capital needs for the near term in the normal course of business.
On May 15, 1997, the Company obtained a revolving line of credit, which is
guaranteed by Volt, in the amount of $2,250,000 with Wells Fargo Bank. Under the
terms and conditions of the line of credit, the Company may borrow from time to
time up to the full amount of the line with an interest at the higher of the
bank's prime rate or the Federal Funds Rate plus .5%. There were no borrowings
outstanding under this agreement as of October 31, 1997.
The Company has a liability for restructuring costs incurred prior to the merger
in the amount of $1,521,000 at October 31, 1997. The accrued amount provides for
the estimated costs related to the closing of certain facilities of Triple-I.
The liability will be funded through operating cash flows and is expected to be
paid down as follows: $594,000 in fiscal 1998 and $927,000 in fiscal 1999.
As part of the consolidation of operations and facilities, the Company's Board
of Directors had approved the expenditure of up to $1,000,000 for
communications, facilities and fixtures for plant renovation. As of October 31,
1997, the renovations have been completed at a cost of approximately $1,000,000
and no further expenditures are anticipated. 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.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Continued
Year 2000 Issues
The Company has conducted a comprehensive review of its internal computer
systems, 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 an implementation 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. The total Year 2000 project cost is estimated at approximately
$150,000, which includes $110,000 for the purchase of new software that will be
capitalized and $40,000 that will be expensed as incurred. To date, the Company
has incurred $25,000 primarily for assessment of the Year 2000 issue and the
development of a modification plan.
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 project is expected to be completed not later than August 1998, which is
prior to any anticipated impact on its operating systems. 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. However, if such modifications are not made,
or are not completed timely, the Year 2000 issue could have a material impact on
the operations of the Company.
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 is in the process of reviewing 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 $150,000 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.
17
<PAGE> 18
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
Autologic Information International, Inc.
We have audited the accompanying consolidated balance sheets of Autologic
Information International, Inc. as of October 31, 1997 and November 1, 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended October 31, 1997. Our
audits also included the financial statement schedule listed in the index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Autologic Information International, Inc. at October 31, 1997 and November 1,
1996, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended October 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Woodland Hills, California
December 10, 1997
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, November 1,
1997 1996
--------- ---------
(Dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents-See Notes C and M $ 9,452 $ 6,133
Accounts receivable less allowance for doubtful
accounts of $1,828 (1997) and $2,221 (1996)-
See Note M and Schedule II 17,529 21,761
Inventories-See Notes C and D 8,229 12,301
Deferred income tax benefit-See Notes C and E 4,085 5,797
Prepaid expenses and other assets 2,670 1,093
--------- ---------
Total current assets 41,965 47,085
PROPERTY AND EQUIPMENT, at cost net of
accumulated depreciation and amortization
of $5,462 (1997) and $5,084 (1996)-See Note C 5,931 6,212
DEFERRED INCOME TAX BENEFIT-See Notes C and E 3,833 3,554
EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED, net of amortization of $964 (1997)
and $413 (1996)-See Notes B and C 1,789 2,340
OTHER ASSETS 78 94
--------- ---------
$ 53,596 $ 59,285
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable-See Note M $ 5,372 $ 10,311
Payable to Volt-See Note N 265 771
Accrued payroll and related liabilities 3,165 3,596
Accrued expenses 1,752 1,686
Accrued restructuring costs-See Note B 1,521 2,334
Customer advances 4,103 3,402
Income taxes payable-See Notes C and E -- 1,174
--------- ---------
Total current liabilities 16,178 23,274
COMMITMENTS AND CONTINGENCIES-See Notes H, I and O
STOCKHOLDERS' EQUITY-See Notes B, C, E, F and G
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 1997 and
5,793,870 in 1996 58 58
Paid-in capital 112,620 112,665
Accumulated deficit (75,260) (76,712)
--------- ---------
37,418 36,011
--------- ---------
$ 53,596 $ 59,285
========= =========
</TABLE>
See accompanying notes.
19
<PAGE> 20
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
October 31, November 1, November 3,
1997 1996 1995
---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C>
REVENUES-See Note C
Systems and equipment $ 56,655 $ 63,607 $ 52,267
Customer service and support 27,971 25,273 18,138
-------- -------- --------
84,626 88,880 70,405
-------- -------- --------
OPERATING COSTS AND EXPENSES
Cost of systems and equipment 30,311 41,065 32,164
Cost of customer service and support 20,258 20,076 16,420
Operating expenses 22,215 21,635 16,803
Research, development and engineering 7,918 7,381 4,204
Restructuring charge-See Note B -- 700 --
Charges from Volt-See Notes B and N
Rent 781 1,022 1,702
General and administrative 36 224 899
-------- -------- --------
81,519 92,103 72,192
-------- -------- --------
OPERATING INCOME (LOSS) FROM
CONTINUING OPERATIONS 3,107 (3,223) (1,787)
-------- -------- --------
OTHER INCOME (EXPENSE)
Interest income 298 357 143
Interest expense charged by Volt-See Note N (2) (583) (2,591)
Foreign exchange gain (loss)-See Notes C and M 125 (544) 182
Other, net (400) (445) (55)
-------- -------- --------
21 (1,215) (2,321)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 3,128 (4,438) (4,108)
INCOME TAX PROVISION-See Notes C and E 1,473 125 877
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 1,655 (4,563) (4,985)
LOSS FROM DISCONTINUED OPERATIONS-See Note P (203) (428) --
-------- -------- --------
NET INCOME (LOSS) $ 1,452 $ (4,991) $ (4,985)
======== ======== ========
NET INCOME (LOSS) PER SHARE
CONTINUING OPERATIONS $ 0.28 $ (0.88) $ (1.49)
NET LOSS PER SHARE
DISCONTINUED OPERATIONS (0.03) (0.08) --
-------- -------- --------
NET INCOME (LOSS) PER SHARE-See Note C $ 0.25 $ (0.96) $ (1.49)
======== ======== ========
Average weighted shares outstanding 5,787 5,221 3,337
======== ======== ========
</TABLE>
See accompanying notes
20
<PAGE> 21
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
$0.01 Par Value
----------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at October 28, 1994 -- $ 133 $ 1,535 $(66,736) $(65,068)
Net loss for the year -- -- -- (4,985) (4,985)
---------- ----- --------- -------- --------
Balance at November 3, 1995 -- 133 1,535 (71,721) (70,053)
Contribution to capital of amounts
payable to Volt-See Note B -- -- 89,525 -- 89,525
Issuance of 3,337,000 shares of
common stock to Volt in connection
with merger of Autologic, Inc. and
transfer of stock of Volt
subsidiaries-See Note B 3,337,000 (100) 100 -- --
Issuance of 2,429,870 shares of common
stock to Triple-I stockholders to
purchase the net assets of Triple-I,
net of expenses related to registering
shares-See Note B 2,429,870 25 20,272 -- 20,297
Value of stock options issued by the
Company in exchange for outstanding
stock options issued by Triple-I-
See Note B -- -- 1,027 -- 1,027
Stock issued upon exercise of stock
options 27,000 -- 206 -- 206
Net loss for the year -- -- -- (4,991) (4,991)
---------- ----- --------- -------- --------
Balance at November 1, 1996 5,793,870 $ 58 $ 112,665 $(76,712) $ 36,011
Retirement of stock in connection
with sale of Digiflex operation-
See Note P (10,500) -- (45) -- (45)
Issuance of stock to Volt with respect
to the exercise of stock options-
See Note B 4,600 -- -- -- --
Net income for the year -- -- -- 1,452 1,452
---------- ----- --------- -------- --------
Balance at October 31, 1997 5,787,970 $ 58 $ 112,620 $(75,260) $ 37,418
========== ===== ========= ======== ========
</TABLE>
See accompanying notes
21
<PAGE> 22
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
October 31, November 1, November 3,
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,452 $(4,991) $(4,985)
Adjustments to reconcile net income (loss)
to net cash provided by (applied to)
operating activities:
Depreciation 2,241 2,290 1,489
Amortization 551 413 --
Provision for doubtful accounts 508 1,096 184
(Gains) losses on foreign currency
translation (242) (231) 159
(Gains) losses on dispositions of
property and equipment (63) 24 (30)
Deferred income tax provision (benefit) 1,433 (1,348) 134
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 2,959 (2,464) 82
Decrease (increase) in inventories 4,072 6 (1,877)
(Increase) decrease in prepaid expenses
and other assets (1,564) 384 342
(Decrease) increase in accounts payable (4,816) 3,487 887
(Decrease) increase in accrued expenses,
accrued payroll and related liabilities,
and accrued restructuring costs (1,120) (1,293) 140
Increase (decrease) in customer advances 771 (176) 484
(Decrease) increase in income taxes payable (1,174) 37 342
(Decrease) increase in payable to Volt (506) 771 4,338
------- ------- -------
Net cash provided by (applied to) continuing
operations 4,502 (1,995) 1,689
Loss on sale of discontinued operations 75 -- --
Loss from discontinued operations 128 428 --
Net cash applied to discontinued operations (81) (207) --
------- ------- -------
Net cash provided by discontinued operations 122 221 --
NET CASH PROVIDED BY (APPLIED TO)
OPERATING ACTIVITIES $ 4,624 $(1,774) $ 1,689
======= ======= =======
</TABLE>
Continued on next page
22
<PAGE> 23
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
October 31, November 1, November 3,
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES
Cash of acquired companies (Triple-I) $ -- $ 8,764 $ --
Proceeds from disposal of property
and equipment 182 -- 408
Purchases of property and equipment (2,246) (2,931) (1,590)
------- ------- -------
NET CASH (APPLIED TO) PROVIDED BY
INVESTING ACTIVITIES (2,064) 5,833 (1,182)
------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase (decrease) in notes payable to banks -- (670) 113
Proceeds from exercise of stock options -- 206 --
------- ------- -------
NET CASH (APPLIED TO) PROVIDED BY
FINANCING ACTIVITIES -- (464) 113
------- ------- -------
Effect of exchange rate changes on cash 759 (4) (320)
------- ------- -------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 3,319 3,591 300
Cash and cash equivalents, beginning of period 6,133 2,542 2,242
------- ------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 9,452 $ 6,133 $ 2,542
======= ======= =======
SUPPLEMENTAL CASH TRANSACTIONS Cash paid
during the period:
Interest expense $ 10 $ 12 $ 54
Income tax $ 1,621 $ 1,258 $ 439
</TABLE>
SUPPLEMENTAL NON-CASH TRANSACTIONS
During 1997, the Company wrote off fully depreciated fixed assets of
approximately $1,145,000.
On January 2, 1997, the Digiflex division of the Company was disposed of in
exchange for 10,500 shares of aii stock. (See Note P)
On January 29, 1996, Volt contributed to the capital of the Company
approximately $89,525,000 in amounts owed to Volt. (See Note B)
On January 29, 1996, the Company issued 3,337,000 shares of common stock to Volt
for Autologic and other Volt subsidiaries. This transaction was accounted for at
historical cost because of consolidation of companies under common control. (See
Note B)
On January 29, 1996, the Company issued 2,429,870 shares of common stock with an
aggregate value of approximately $20,297,000 in the acquisition of Triple-I.
(See Note B)
See accompanying notes
23
<PAGE> 24
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--DESCRIPTION OF BUSINESS
Autologic Information International, Inc. and its subsidiaries (collectively
"aii" or the "Company") design, develop, manufacture, assemble, integrate,
market, sell and service computerized image-setting and publication systems
equipment and software that automate the various prepress production steps in
the publishing process. The products are primarily marketed and sold to the
newspaper publishing industry, the commercial printing industry and other
organizations having internal publishing facilities.
NOTE B--FORMATION OF THE COMPANY AND MERGER
The Company was incorporated in Delaware on September 5, 1995 as a wholly-owned
subsidiary of Volt Information Sciences, Inc. ("Volt"). On January 29, 1996,
pursuant to the terms of an Agreement and Plan of Merger (the "Merger
Agreement") dated October 5, 1995, as subsequently amended, among the Company,
Volt, Autologic, Incorporated (a subsidiary of Volt, "Autologic") and
Information International, Inc. ("Triple-I"), both Autologic and Triple-I were
merged into the Company and Volt contributed to the Company the capital of
certain foreign subsidiaries of Volt ("Volt Subsidiaries").
Pursuant to the Merger Agreement, Volt, through its wholly-owned subsidiary Nuco
I, Ltd., received 3,337,000 shares of the Company's common stock and the
stockholders of Triple-I received 2,429,870 shares of the Company's common
stock, based on one share of the Company being issued for each outstanding share
of Triple-I (including 58,500 shares issued to Volt as a result of Triple-I
common stock owned by Volt prior to the merger).
On June 25, 1995, the date the general terms of the merger were agreed to and
announced, Triple-I had outstanding options to purchase approximately 594,000
shares of its common stock. In accordance with Triple-I's stock option plans,
each outstanding Triple-I option automatically became fully vested and
immediately exerciseable upon consummation of the merger. As part of the Merger
Agreement, the parties agreed to a formula to limit the dilution of Volt's
percentage ownership in the Company as a result of the exercise of those
Triple-I options. Under that formula, Volt is to receive 100 shares of the
Company's common stock for every 590 shares of the Company common stock issued
with respect to Triple-I options exercised subsequent to June 25, 1995, up to a
maximum of 100,000 shares. Between June 25, 1995 and October 31, 1997, 51,250
shares have been issued upon the exercise of Triple-I options, and Volt has
received 8,600 shares of the Company's common stock with respect to such
exercises. Accordingly, Volt owned beneficially 3,400,186 shares (59%) of the
Company's common stock as of October 31, 1997.
24
<PAGE> 25
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE B--FORMATION OF THE COMPANY AND MERGER--Continued
As the Company, Autologic and the Volt Subsidiaries were under common control,
the merger of Autologic and the transfer of the stock of the Volt Subsidiaries
to the Company has been accounted for on a pooling of interest basis.
Accordingly, the assets and liabilities of such entities and their stockholders'
equity accounts have been accounted for at their historical carrying amounts and
the accompanying statement of operations reflects the results of operations of
such entities for such periods. The merger of Triple-I has been accounted for
under the purchase method of accounting and, accordingly, the purchase price,
which was based on the quoted market price of the Triple-I common stock at the
time the general terms of the acquisition were agreed to and announced, plus the
value of stock options issued in exchange for outstanding stock options of
Triple-I, has been allocated to net assets based upon their estimated fair
values. A $2,753,000 excess of the purchase price over the estimated fair 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
the mergers, which was limited to five days of operations for the first quarter
of 1996, but are included for the second, third and fourth quarters of 1996 as
well as for all of fiscal 1997. The liability for restructuring costs incurred
prior to the merger ($1,521,000 at October 31, 1997 and $2,334,000 at November
1, 1996) provides for estimated costs related to closing of certain facilities
of Triple-I.
The accompanying statement of operations for the fiscal year ended November 1,
1996 includes a first quarter charge of $700,000 related principally to the
reduction of Autologic's workforce and the restructuring of Autologic's
operations in connection with the merger.
The following pro forma information presents a summary of consolidated results
of operations of the Company as if the 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 and a portion of rent previously charged by Volt (to reflect
reduced rent charged by Volt after the merger), 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 Fiscal Year Ended
-------------------------
November 1, November 3,
1996 1995
---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C>
Revenues $99,013 $104,643
Loss from continuing
operations (1,702) (1,037)
Net loss (2,017) (2,458)
Loss from continuing
operations per share (0.33) (0.18)
Net loss per share (0.39) (0.43)
</TABLE>
25
<PAGE> 26
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year: The Company's fiscal year consists of the 52 or 53 weeks ending on
the Friday nearest October 31. The 1997 and 1996 fiscal years were comprised of
52 weeks, compared with 53 weeks in fiscal year 1995.
Consolidation: The consolidated financial statements include the accounts of the
Company and its subsidiaries after elimination of all significant intercompany
balances and transactions. Certain reclassifications of prior year amounts have
been made for purposes of consistent presentation.
Estimates and Assumptions: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
As of the date of the merger, 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 the
merger to reduce anticipated taxable income of the Company to be realized
subsequent to the merger. 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.
Stock Based Compensation: Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), encourages, but does
not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion No. 25"). The Company has, however, adopted the
disclosure-only provisions of SFAS No. 123 (See Note F).
Revenue Recognition: Revenues are recognized when products are shipped and
services are rendered.
Cash Equivalents: Cash equivalents consist of investments in short-term, highly
liquid securities having an initial maturity of three months or less.
Inventories: Inventories are stated at the lower of cost (first-in first-out) or
market.
Long-Lived Assets: In fiscal 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121). The Company
reviews for the impairment of long-lived assets and certain identifiable
intangibles whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Under SFAS No. 121, an
impairment loss would be recognized when estimated future cash flows expected to
result from the use of the asset and its eventual disposition are less than its
carrying amount. No such impairment losses have been identified by the Company.
26
<PAGE> 27
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Property and Equipment: Property and equipment are stated at cost, net of
depreciation and amortization which are provided on the straight-line method
over their estimated useful lives, generally as follows:
Equipment - 3 to 7 years
Leasehold improvements - length of lease or life of asset, whichever is
shorter.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- ---------------------------------
Property Property
and Lease- and Lease-
Equipment hold Total Equipment hold Total
-------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Property and equipment, at cost $ 10,052 $ 1,341 $ 11,393 $ 9,977 $ 1,319 $ 11,296
Accumulated depreciation
and amortization (5,145) (317) (5,462) (4,869) (215) (5,084)
-------- ------- -------- ------- ------- --------
Net property and equipment $ 4,907 $ 1,024 $ 5,931 $ 5,108 $ 1,104 $ 6,212
======== ======= ======== ======= ======= ========
</TABLE>
Intangible Assets: Intangible assets principally consist of the unamortized
balances of the excess of cost over the fair value of the net assets of
companies acquired. The intangibles are being amortized using the straight-line
method over five years. (See Note B)
Income Taxes: Income taxes are provided using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." (See Note E)
Translation of Foreign Currencies: The U.S. dollar is the Company's functional
currency throughout the world. Foreign currency gains and losses resulting from
the translation of the foreign currency financial statements of certain
subsidiaries and foreign currency transactions are included in the results of
operations.
Foreign Exchange Contracts: Gains and losses on foreign currency option and
forward contracts designated as hedges of existing assets and liabilities and of
identifiable firm commitments are deferred and included in measurement of the
related foreign currency transaction. (See Note M)
Advertising: The Company expenses the production cost of advertising the first
time the advertising takes place. Advertising expense totaled $1,500,000,
$1,300,000 and $1,500,000 for the years ended October 31, 1997, November 1, 1996
and November 3, 1995, respectively.
27
<PAGE> 28
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
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 ("FASB") issued
Statement No. 128, "Earnings per Share,"("SFAS No. 128") which is required to be
adopted by the Company for all accounting periods in fiscal year 1998.
Commencing with its first fiscal quarter in fiscal 1998, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. SFAS No. 128 simplifies the calculation of
earnings per share data by replacing primary and fully diluted earnings per
share with basic and diluted earnings per share, respectively. Basic earnings
per share excludes dilutive securities including stock options, and is
calculated using the weighted average common shares outstanding for the period.
Diluted earnings per share, which is generally consistent with the fully diluted
calculation under present accounting rules, reflects the dilution to earnings
that would occur if stock options and other dilutive securities resulted in the
issuance of common stock. The Company anticipates that prior period earnings per
share, when restated for SFAS No. 128, will remain unchanged. If the Company had
been permitted to adopt SFAS No. 128 in fiscal 1997, there would have been no
change in the amount reported as income from continuing operations per common
share. The Company does not expect the impact of SFAS No. 128 on fully diluted
earnings per share to be material on future calculations.
Comprehensive Income: In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
The provisions of SFAS No. 130 require companies to classify items of
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and capital in excess of par value in the consolidated financial
statements. The Company's comprehensive income items are not currently material;
accordingly, the effect of adopting this statement is not expected to be
significant when it becomes effective for fiscal 1999.
Segment Reporting: In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131"). Under the provisions of SFAS No. 131,
public business enterprises must report financial and descriptive information
about its reportable segments. Management is currently studying and analyzing
SFAS No. 131 as well as the Company's operations to determine all of the
Company's reportable segments. This statement will be effective for fiscal 1999
and will have no impact on the Company's consolidated results of operations,
financial position or cash flows.
NOTE D--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
October 31, November 1,
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Service parts $ 2,318 $ 2,396
Materials 3,653 5,257
Work-in-process 965 2,654
Finished goods 1,293 1,994
------- -------
$ 8,229 $12,301
======= =======
</TABLE>
28
<PAGE> 29
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE E--INCOME TAXES
Prior to the Merger, Autologic and its subsidiaries were included in the
consolidated federal income tax return of Volt and were therefore jointly and
severally liable with Volt for any income taxes payable by the consolidated
group. Volt has agreed to indemnify the Company against any loss or liability
that may result from such inclusion. Federal income taxes were provided for in
the accompanying consolidated financial statements as if the Company and its
domestic subsidiary had filed their own consolidated income tax returns prior to
the Merger.
<TABLE>
<CAPTION>
For the Fiscal Year Ended
---------------------------------------
October 31, November 1, November 3,
1997 1996 1995
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
The components of income (loss) from
continuing operations before income taxes
based on the location of operations,
consist of the following:
Domestic $ 2,198 $(5,526) $(7,442)
Foreign 930 1,088 3,334
------- ------- -------
$ 3,128 $(4,438) $(4,108)
======= ======= =======
Income tax provision (benefit) includes:
Current:
Federal $ -- $ 11 $ --
Foreign 40 1,475 739
State and local -- (13) 4
------- ------- -------
Total current 40 1,473 743
------- ------- -------
Deferred:
Federal 829 (561) --
Foreign 515 (663) 134
State and local 89 (124) --
------- ------- -------
Total deferred 1,433 (1,348) 134
------- ------- -------
Total income tax provision $ 1,473 $ 125 $ 877
======= ======= =======
</TABLE>
The consolidated effective tax rates are different than the U.S. Federal
statutory rate. The differences result from the following:
<TABLE>
<CAPTION>
For the Fiscal Year Ended
---------------------------------------
October 31, November 1, November 3,
1997 1996 1995
---- ----- -----
<S> <C> <C> <C>
Statutory rate 34.0% (34.0%) (34.0%)
Loss without federal tax benefit -- 27.8 47.8
Tax effect of foreign operations 1.4 2.6 5.9
State taxes 3.0 2.3 0.1
Goodwill 6.0 2.7 --
Other - net 2.7 1.4 1.3
---- ----- -----
Effective tax rate 47.1% 2.8% 21.1%
==== ===== =====
</TABLE>
29
<PAGE> 30
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE E--INCOME TAXES--Continued
Deferred income taxes reflect the net tax effects of changes in the temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
Otober 31, November 1,
1997 1996
------ ------
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 568 $ 741
Inventory valuation 1,576 2,843
Net operating loss carryforwards 3,884(a) 2,764
Worthless stock deduction -- 1,190(b)
Vacation accruals 396 329
Foreign asset bases 387 756
Warranty accruals 181 263
Accelerated depreciation -- 22
Other -- Net 926 443
------ ------
Total deferred tax assets 7,918 9,351
Valuation allowance -- --
------ ------
Net deferred tax assets 7,918 9,351
Balance sheet classification:
Current assets 4,085 5,797
Non-current assets 3,833 3,554
------ ------
Total deferred tax assets $7,918 $9,351
====== ======
</TABLE>
(a) As of October 31, 1997, the Company had a tax benefit relating to a net
operating loss carryforward of $3,884,000 of which $544,000 expires in 2008,
$1,162,000 expires in 2009, $688,000 expires in 2011, and $1,490,000 expires in
2012.
(b) The worthless stock deduction of $1,190,000 relates to the Company's French
subsidiary which was liquidated in fiscal year 1997.
As of October 31, 1997, certain affiliates had undistributed earnings
aggregating $1,537,000 which are considered permanently invested; accordingly,
no federal income taxes have been provided. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practical because foreign
tax credits would be available to reduce the same portion of the U.S. liability.
30
<PAGE> 31
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F--STOCK OPTIONS
The Company has adopted the Triple-I 1976 Employees' Stock Option Incentive Plan
("Employees' Plan") and the Triple-I 1992 Directors' Stock Option Plan
("Directors' Plan"), and has established a 1995 Employees' Incentive Stock
Option Plan ("New Plan"). Under the former Triple-I plans, shares of the Company
will now be issued instead of the shares of Triple-I. A summary of each of these
plans follows:
Employees' Plan: The plan provides for the granting, until August 2002, of
options to acquire up to 950,000 shares of common stock at a price equal to at
least 100% of the fair market value of the Company's stock on the date of grant.
Options may be exercised during the four year period commencing one year after
the date of grant to the extent of 25% of the number of shares originally
subject to the option annually, on a cumulative basis. Shares available for
future grant under this plan at October 31, 1997 were 218,500 shares (108,750 at
November 1, 1996 and 80,250 shares at November 3, 1995).
Directors' Plan: The plan provides for the granting, until May 2004 or ten years
from the effective date of the last amendment to the plan, of options to acquire
up to 80,000 shares of common stock at a price equal to at least 100% of the
fair market value of the Company's stock on the date of grant. Options granted
have a term of ten years and vest at the rate of 25% of the number of shares
originally subject to the option annually, on a cumulative basis commencing one
year after the date of grant. Shares available for future grant under this plan
at October 31, 1997 were 63,000 shares (59,000 shares at November 1, 1996 and
55,000 shares at November 3, 1995).
New Plan: The Company has adopted a stock option plan that provides for the
granting, until November 2005, of options to purchase up to 150,000 shares of
the Company's common stock at a price equal to at least 100% of the fair market
value of the Company's common stock on the date of grant to employees or
consultants of the Company, its subsidiaries and Volt. Options may have terms up
to ten years. Included in options granted in fiscal 1996 were options to
purchase 40,500 shares of the Company's common stock, granted to officers of
Volt Options for 18,000 shares were granted at $13.20 per share, which exceeded
market value, and the remaining 22,500 shares were granted at $12.00 per share,
market value at the date of grant. There were 26,500 shares (17,500 at November
1, 1996) available for future grants under the plan at October 31, 1997.
31
<PAGE> 32
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F--STOCK OPTIONS--Continued
Options Outstanding:
<TABLE>
<CAPTION>
Employees' Plan Directors' Plan New Plan
----------------- ----------------- --------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
-------- ---- ------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, October 28, 1994 522,500 $8.22 66,000 $ 10.39 -- --
Granted 171,750 7.75 -- -- -- --
Exercised (13,750) 7.35 (9,000) 7.25 -- --
Expired -- -- (16,000) 13.50 -- --
Forfeited (145,750) 9.11 (25,000) 10.18 -- --
-------- ------- -------
Outstanding, November 3, 1995 534,750 7.85 16,000 9.38 -- --
Granted -- -- -- -- 135,000 $12.16
Exercised (40,000) 7.60 -- -- -- --
Forfeited (149,750) 7.51 (4,000) 11.50 (2,500) 12.00
-------- ------- -------
Outstanding, November 1, 1996 345,000 8.02 12,000 8.67 132,500 12.16
Granted -- -- -- -- 2,500 4.50
Expired (59,000) 7.66 -- -- -- --
Forfeited (201,000) 8.12 (4,000) 7.25 (11,500) 12.00
-------- ------- -------
Outstanding, October 31, 1997 85,000 $8.05 8,000 $ 9.38 123,500 $12.02
======== ======= =======
</TABLE>
Price ranges of outstanding and exerciseable options as of October 31, 1997 are
summarized below:
<TABLE>
<CAPTION>
Outstanding Options Exerciseable Options
----------------------------- --------------------
Number Remaining Weighted Number Weighted
Range of of Life Average of Average
Exercise Prices Shares (Years) Price Shares Price
--------------- ------ ------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
Employees' Plan
$7.75 - 9.25 85,000 1 $8.05 85,000 $8.05
Directors' Plan
$7.25 - 11.50 8,000 3 $9.38 8,000 $9.38
New Plan
$4.50 2,500 9 $4.50 -- --
$12.00 - 13.20 121,000 8 $12.18 121,000 $12.18
</TABLE>
32
<PAGE> 33
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F--STOCK OPTIONS--Continued
Pursuant to the merger agreement, all options outstanding at January 29, 1996
under the Employee's and Directors' Plan became exerciseable. At November 1,
1996, options to purchase 357,000 shares were exerciseable at a weighted average
price of $8.05 per share.
The Company has elected to follow APB Opinion No. 25 to account for the stock
option plan (See Note C). No compensation cost is recognized because the option
exercise price is equal to the market price of the underlying stock on the date
of grant. Had compensation cost for this plan been determined at the grant dates
for awards under the optional method provided for by SFAS No. 123, pro forma net
income (loss) in thousands and earnings per share would have been:
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Pro forma net income (loss) $1,297 $(5,465)
Pro forma earnings (loss) per share $ 0.22 $ (1.05)
</TABLE>
The fair value of each option grant is estimated using the Black-Scholes option
pricing model with the following weighted-average assumptions used for grants in
1997 and 1996: Risk-free interest rate of 6%, expected volatility of .81, an
expected life of the options of 3 years and no dividends. These assumptions
resulted in weighted average fair values of $2.82 and $7.49 per share for stock
options granted in 1997 and 1996, respectively. For purposes of pro forma
disclosure, the estimated fair value of options is amortized over the options'
vesting period. Since the fair value method of accounting applies only to
options granted in fiscal years 1996 and 1997, the pro forma effect may not be
fully reflected until 1998.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options. The Company's employee stock options have
characteristics significantly different from those of traded options such as
vesting restrictions and extremely limited transferability. In addition, the
assumptions used in option valuation models (see above) are highly subjective,
particularly the expected stock price volatility of the underlying stock.
Because changes in these subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not provide
a reliable single measure of the fair value of its employee stock options.
NOTE G--PREFERRED STOCK
The preferred stock authorized is issuable in one or more series from time to
time at the discretion of the Company's Board of Directors. The Board is
authorized, with respect to each series, to fix its designation, powers,
preferences, rights and limitations.
33
<PAGE> 34
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE H--COMMITMENTS
Future minimum rental commitments as of October 31, 1997 for all noncancelable
operating leases, including commitments totaling $1,688,000, reserved for as
part of the restructuring costs are as follows:
<TABLE>
<CAPTION>
Fiscal Office
Year Total Space Equipment
---- ----- ----- ---------
(Dollars in thousands)
<S> <C> <C> <C>
1998 $2,289 $2,135 $154
1999 2,562 2,477 85
2000 614 578 36
2001 288 288 --
2002 217 217 --
Thereafter 950 950 --
</TABLE>
Rental expense for all operating leases for fiscal years 1997, 1996 and 1995 was
$1,960,000, $2,077,000 and $2,846,000, respectively. Many of the leases also
require the Company to pay property taxes, insurance and ordinary repairs and
maintenance. (See Note O)
NOTE I--CONTINGENCIES
The Company is currently involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such claims and actions will not have a materially adverse effect
on the Company's financial position or results or operations.
NOTE J--INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one principal industry segment which consists of
designing, developing, manufacturing, assembling, integrating, marketing,
selling and servicing of computerized image setting and publication systems and
equipment and software that automate the various prepress production steps in
the publishing process. The Company products are primarily marketed and sold to
the newspaper publishing industry, the commercial printing industry and other
organizations having internal publishing facilities. Foreign operations are
conducted through the Company's subsidiaries. Export sales from the United
States to such entities are generally priced above cost but below end-user
prices.
Operating profit is comprised of total revenues less operating expenses. In
computing operating profit, none of the following items have been added or
deducted: interest expense, interest income, foreign exchange gain (loss), other
income (expense) and income taxes. Identifiable assets of geographic areas are
those assets that are used in the Company's operations in such areas.
34
<PAGE> 35
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE J--INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION--Continued
The following table contains information relating to the Company's operations in
various geographical areas:
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
October 31, November 1, November 3,
1997 1996 1995
---- ---- ----
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Revenues:
United States:
Unaffiliated United States customers $ 39,258 $ 34,635 $ 26,959
Affiliated United States customers 453 758 798
Export sales, unaffiliated foreign customers,
principally in Canada, South and
Central America 8,469 8,798 3,536
Export sales-interarea transfers 14,335 18,484 17,305
-------- -------- --------
62,515 62,675 48,598
Europe:
Unaffiliated customers
Germany 8,978 10,497 9,909
Other countries 15,867 21,431 15,999
-------- -------- --------
24,845 31,928 25,908
Australia:
Unaffiliated customers 10,847 12,116 12,623
Canada:
Unaffiliated customers 754 645 581
Eliminations-interarea transfers (14,335) (18,484) (17,305)
-------- -------- --------
$ 84,626 $ 88,880 $ 70,405
======== ======== ========
Operating profit (loss):
United States $ 1,314 $ (5,359) $ $ (5,298)
Germany 1,119 837 1,500
Other European countries 275 585 521
Australia 272 754 1,373
Canada 106 331 143
Eliminations 21 (371) (26)
-------- -------- --------
$ 3,107 $ (3,223) $ (1,787)
======== ======== ========
Identifiable assets:
United States $ 43,576 $ 48,838 $ 13,563
Germany 4,407 4,145 5,163
Other European countries 6,814 10,032 7,726
Australia 3,959 3,453 4,459
Canada 1,246 1,112 1,117
Eliminations (6,406) (8,295) (337)
-------- -------- --------
$ 53,596 $ 59,285 $ 31,691
======== ======== ========
Liabilities of entities comprising the Company's
foreign operations $ 4,129 $ 5,663 $ 6,636
======== ======== ========
</TABLE>
35
<PAGE> 36
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE K--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
fiscal years ended October 31, 1997 and November 1, 1996. Each quarter contains
thirteen weeks.
<TABLE>
<CAPTION>
Fiscal 1997 Quarters
--------------------
First Second Third Fourth
-------- ------- ------- -------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 18,095 $19,913 $22,314 $24,304
Gross profit 6,654 8,101 9,074 10,228
Income (loss) from continuing
operations (525) 440 825 915
Loss from discontinued operations (203) -- -- --
-------- ------- ------- -------
Net income (loss) $ (728) $ 440 $ 825 $ 915
======== ======= ======= =======
Income (loss) per share:
Continuing operations $ (0.09) $ 0.08 $ 0.14 $ 0.16
Discontinued operations (0.04) -- -- --
-------- ------- ------- -------
Net income (loss) $ (0.13) $ 0.08 $ 0.14 $ 0.16
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1996 Quarters
--------------------
First(a) Second Third Fourth
-------- -------- -------- --------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 16,547 $ 25,833 $ 21,499 $ 25,001
Gross profit 3,690 9,549 7,340 7,160
Income (loss) from continuing
operations (3,747) 1,010 (523) (1,303)
Loss from discontinued operations -- (170) (155) (103)
-------- -------- -------- --------
Net income (loss) $ (3,747) $ 840 $ (678) $ (1,406)
======== ======== ======== ========
Income (loss) per share:
Continuing operations $ (1.06) $ 0.18 $ (0.09) $ (0.22)
Discontinued operations -- (0.03) (0.03) (0.02)
-------- -------- -------- --------
Net income (loss) $ (1.06) $ 0.15 $ (0.12) $ (0.24)
======== ======== ======== ========
</TABLE>
(a) Does not includes operations of Triple-I acquired under the purchase method
of accounting on January 29, 1996.
Sales are generally lower in the first quarter due to the holiday season, which
is a peak publishing period when customers are reluctant to install and test new
equipment.
36
<PAGE> 37
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE L--EMPLOYEE BENEFITS
The Company has a savings plan which permits eligible employees to make
contributions on a pretax salary reduction basis in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. The Company does not
match employees' contributions.
NOTE M--FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily cash investments and accounts receivable. At October
31, 1997, the Company's cash investments were primarily in investment grade,
short-term instruments. Concentrations of credit risk with respect to the
receivables are limited due to the large number of customers in the Company's
customer base and their dispersion across different industries and geographic
areas. The Company makes periodic evaluations of the credit worthiness of its
customers financial condition and generally requires a deposit upon acceptance
of the order.
The Company purchases foreign currency option contracts to hedge the adverse
impact on its foreign currency receivables when the dollar strengthens against
the related foreign currencies. Foreign exchange (gains) losses in the
accompanying statements of operations include (1) any gain on option contracts,
which are recognized in income in the same period as losses on the hedged
receivables and reduced dollar amount of sales and (2) the premium cost of
option contracts, which is amortized over the contract period. At October 31,
1997, the Company had purchased options, all of which expire in the first
quarter of fiscal 1998, at a cost of $129,000, to exchange various European
currencies for U.S. dollars, in the aggregate notional amount of $4,500,000.
There are no unrealized gains or losses on these contracts at such date.
Counterparties to the currency option contracts are major banks. Credit loss
from counterparty nonperformance is not anticipated.
The carrying amount of financial instruments, including cash and cash
equivalents, accounts receivable and accounts payable, approximated fair value
as of October 31, 1997 and November 1, 1996 due to the relatively short maturity
of these instruments.
37
<PAGE> 38
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE N--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 to Volt on a non-compounding basis. Since the
merger, the rent has been significantly reduced (see Note O), 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, interest charged by Volt has
ceased except for interest payments on a line of credit from Volt to the Company
established pursuant to the Merger Agreement.
In addition to the above costs, Volt pays insurance premiums and incurs other
costs on behalf of the Company. Such costs are reflected in the Company's
results of operations.
During the fiscal year ended October 31, 1997, the Company incurred $36,000 in
legal fees payable to Volt under a $3,000 per month retainer arrangement that
provides the Company access to Volt's in-house legal staff.
As of October 31, 1997, the Company had a $265,000 payable to Volt due as a
result of post-merger activity.
The Company sells equipment and service to Volt for resale and internal use.
These sales to Volt, if for resale, are priced at approximately 80% of normal
end-user prices and, if for internal use, at normal end-user prices.
The following is an analysis of the intercompany account with Volt.
<TABLE>
<CAPTION>
For the Fiscal Year Ended
-------------------------
October 31, November 1, November 3,
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Balance payable at beginning $ 771 $ 88,109 $ 83,771
Charges from Volt:
Rent 781 1,022 1,702
General and administrative -- 197 899
Legal 36 27 --
Interest 2 583 2,591
Temporary staffing 231 -- --
PP & E capital purchases 321 -- --
------- -------- --------
1,371 1,829 5,192
------- -------- --------
Reimbursable expenditures paid by Volt
on behalf of Autologic or the Company:
Insurance 246 719 1,639
Real estate taxes 79 79 78
Foreign currency option premiums,
net of gains - See Note M (389) 256 107
Other 374 180 203
------- -------- --------
310 1,234 2,027
------- -------- --------
Contribution to capital of amounts
payable to Volt -- (89,525) --
Sales to Volt (453) (758) (798)
Cash transfers paid to Volt (1,734) (118) (2,083)
------- -------- --------
Balance payable at end of year $ 265 $ 771 $ 88,109
======= ======== ========
Average balance payable during the year $ 230 $ 11,883 $ 85,799
======= ======== ========
</TABLE>
38
<PAGE> 39
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE O--OTHER RELATED PARTY TRANSACTIONS
A three-year lease, commencing on January 29, 1996, 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 merger through October 31, 1997, the Company paid
rent to Volt of $781,000 in 1997 and $604,000 in 1996. Pursuant to the terms of
the lease, as amended in December 1996, the Company's Board of Directors
established a new rental rate based on prevailing rates in the general area,
which resulted in a slight decrease in rent. During the remaining term of the
lease, the Company's Board of Directors may again, unilaterally, but in good
faith and utilizing certain reasonableness standards, redetermine whether there
should be a further increase or decrease in the base rent and/or increase (if
the space is then available) or decrease the amount of rented space. The lease
also provides for the Company to pay all real estate taxes, insurance, utilities
and repairs related to the facility.
On May 15, 1997, the Company obtained a revolving line of credit, which is
guaranteed by Volt (and replaces Volt's obligation to directly provide such line
of credit), in the amount of $2,250,000 with Wells Fargo Bank. Advances under
the line of credit bear interest at the higher of the prime interest rate or the
federal funds rate plus 0.5%. There were no borrowings outstanding under this
line of credit as of October 31, 1997.
NOTE P--DISCONTINUED OPERATIONS
During the first quarter of fiscal 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 thrid party. The loss from discontinued
operations for the twelve months ended October 31, 1997 includes an operating
loss of $128,000 on revenues of $82,000 and a loss on disposal of $75,000; no
income tax benefits have been allocated to the loss in 1997. The results of
operations for the period ended November 1, 1996 have been restated to reflect
the discontinued operation. The loss from the discontinued operation for the
twelve months ended November 1, 1996 includes an operating loss of $428,000, net
of a tax benefit of $262,000, on revenues of $356,000.
39
<PAGE> 40
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
The information called for by Part III (Items 10, 11, 12 and 13) of Form 10-K
(except information as to the Company's executive officers, which information
follows Item 4 in this Report) will be included in the Company's Proxy Statement
which the Company intends to file within 120 days after the close of its fiscal
year ended October 31, 1997, and is hereby incorporated by reference to such
Proxy Statement.
40
<PAGE> 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FROM 8-K
14(a)(1). Financial Statements
The following consolidated financial statements are included in Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets--October 31, 1997 and November 1, 1996 19
Consolidated Statements of Operations--Years ended October 31, 1997,
November 1, 1996 and November 3, 1995 20
Consolidated Statements of Stockholders' Equity--Years ended
October 31, 1997, November 1, 1996 and November 3, 1995 21
Consolidated Statements of Cash Flows--Years ended October 31, 1997,
November 1, 1996 and November 3, 1995 22
Notes to Consolidated Financial Statements. 24
14(a)(2). Financial Statement Schedule
The following consolidated financial statement schedule is
included in response to Item 14(d)
Schedule II--Valuation and qualifying accounts S-1
Other schedule (Nos I, III, IV and V) for which provision is made in
the applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are not
applicable and, therefore, have been omitted.
</TABLE>
41
<PAGE> 42
14(a)(3) Exhibits
Exhibit Description
2.1 Agreement and Plan of Merger, dated as of October 5, 1995, as amended
as of November 10, 1995 and December 7, 1995, among Volt Information
Sciences, Inc., Autologic Information International, Inc. (formerly
Autologic, Incorporated) and Information International, Inc.
(Incorporated by reference to Appendix I to the Company's Consent
Statement/Prospectus contained in Amendment No. 2 to the Company's
Registration Statement on Form S-4, No. 333-99278.)
4.1 Restated Certificate of Incorporation of the Company as filed with the
Secretary of State of the State of Delaware on November 8, 1995.
(Incorporated by reference to Exhibit No. 4.1 in the initial filing of
the Company's Registration Statement on Form S-4, No. 333-99278).
4.2 Amended and Restated Bylaws of the Company. (Incorporated by reference
to Exhibit No. 4.2 in the initial filing of the Company's Registration
Statement on Form S-4, No. 333-99278).
10.1(a)+ Employment Agreement between the Company and Alden Edwards.
(Incorporated by reference to Exhibit 10.1(a) to Amendment No. 1 to the
Company's Registration Statement on Form S-4, No. 333-99278.)
10.1(b)+ Employment Agreement between the Company and Dennis Doolittle.
(Incorporated by reference to Exhibit 10.1(b) to Amendment No. 1 to the
Company's Registration Statement on Form S-4, No.
333-99278.)
10.2(a)+ Triple-I's 1976 Employee's Incentive Stock Option Plan, as extended,
amended and assumed by the Company. (Incorporated by reference to
Exhibit 10.2(a) to Amendment No. 1 to the Company's Registration
Statement on Form S-4, No. 333-99278.)
42
<PAGE> 43
14(a)(3) Exhibits--Continued
Exhibit Description
10.2(b)+ Triple-I's 1985 Director's Stock Option Plan, as assumed by the
Company. (Incorporated by reference to Exhibit 10.2(b) to Amendment No.
1 to the Company's Registration Statement on Form S-4, No. 333-99278.)
10.2(c)+ The Company's 1995 Stock Option Plan. (Incorporated by reference to
Exhibit 10.2(c) to Amendment No. 1 to the Company's Registration
Statement on Form S-4, No. 333-99278.)
10.3 Lease between the Company and Volt Realty Two, Inc. (Incorporated by
reference to Exhibit 10.3 to Amendment No. 1 to the Company's
Registration Statement on Form S-4, No. 333-99278.)
10.4 Shareholders' Stock Voting Agreement among Volt Information Sciences,
Inc., Charles Ying, Leroy Bell, John Kountz and Ralph Roth.
(Incorporated by reference to Exhibit 10.4 in the initial filing of the
Company's Registration Statement on Form S-4, No. 333-99278.)
10.5 Registration Rights Agreement between Volt Information Sciences, Inc.
and the Company. (Incorporated by reference to Exhibit 10.5 to
Amendment No. 1 to the Company's Registration Statement on Form S-4,
No. 333-99278.)
10.6 Registration Rights Agreement among Fidelity International Limited, FMR
Corp., American and Fidelity Special Situations Trust and the Company.
(Incorporated by reference to Exhibit 10.6 to Amendment No. 2 to the
Company's Registration Statement on Form S-4, No. 333-99278.)
21.1* Subsidiaries of the Company.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
27* Financial Data Schedule
- ----------------------
* Filed herewith
+ Management contract or compensation plan or arrangement
43
<PAGE> 44
Exhibit Index
Exhibit Description
2.1 Agreement and Plan of Merger, dated as of October 5, 1995, as amended
as of November 10, 1995 and December 7, 1995, among Volt Information
Sciences, Inc., Autologic Information International, Inc. (formerly
Autologic, Incorporated) and Information International, Inc.
(Incorporated by reference to Appendix I to the Company's Consent
Statement/Prospectus contained in Amendment No. 2 to the Company's
Registration Statement on Form S-4, No. 333-99278.)
4.1 Restated Certificate of Incorporation of the Company as filed with the
Secretary of State of the State of Delaware on November 8, 1995.
(Incorporated by reference to Exhibit No. 4.1 in the initial filing of
the Company's Registration Statement on Form S-4, No. 333-99278).
4.2 Amended and Restated Bylaws of the Company. (Incorporated by reference
to Exhibit No. 4.2 in the initial filing of the Company's Registration
Statement on Form S-4, No. 333-99278).
10.1(a)+ Employment Agreement between the Company and Alden Edwards.
(Incorporated by reference to Exhibit 10.1(a) to Amendment No. 1 to the
Company's Registration Statement on Form S-4, No. 333-99278.)
10.1(b)+ Employment Agreement between the Company and Dennis Doolittle.
(Incorporated by reference to Exhibit 10.1(b) to Amendment No. 1 to the
Company's Registration Statement on Form S-4, No.
333-99278.)
10.2(a)+ Triple-I's 1976 Employee's Incentive Stock Option Plan, as extended,
amended and assumed by the Company. (Incorporated by reference to
Exhibit 10.2(a) to Amendment No. 1 to the Company's Registration
Statement on Form S-4, No. 333-99278.)
44
<PAGE> 45
Exhibit Index--Continued
Exhibit Description
10.2(b)+ Triple-I's 1985 Director's Stock Option Plan as assumed by the Company.
(Incorporated by reference to Exhibit 10.2(b) to Amendment No. 1 to the
Company's Registration Statement on Form S-4, No.
333-99278.)
10.2(c)+ The Company's 1995 Stock Option Plan. (Incorporated by reference to
Exhibit 10.2(c) to Amendment No. 1 to the Company's Registration
Statement on Form S-4, No. 333-99278.)
10.3 Lease between the Company and Volt Realty Two, Inc. (Incorporated by
reference to Exhibit 10.3 to Amendment No. 1 to the Company's
Registration Statement on Form S-4, No. 333-99278.)
10.4 Shareholders' Stock Voting Agreement among Volt Information Sciences,
Inc., Charles Ying, Leroy Bell, John Kountz and Ralph Roth.
(Incorporated by reference to Exhibit 10.4 in the initial filing of the
Company's Registration Statement on Form S-4, No. 333-99278.)
10.5 Registration Rights Agreement between Volt Information Sciences, Inc.
and the Company. (Incorporated by reference to Exhibit 10.5 to
Amendment No. 1 to the Company's Registration Statement on Form S-4,
No. 333-99278.)
10.6 Registration Rights Agreement among Fidelity International Limited, FMR
Corp., American and Fidelity Special Situations Trust and the Company.
(Incorporated by reference to Exhibit 10.6 to Amendment No. 2 to the
Company's Registration Statement on Form S-4, No. 333-99278.)
21.1* Subsidiaries of the Company.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
27* Financial Data Schedule
- ----------------------
* Filed herewith
+ Management contract or compensation plan or arrangement
45
<PAGE> 46
14(b). Reports on Form 8-K
There were no Reports on Form 8-K filed during the fourth quarter of the year
ended October 31, 1997.
UNDERTAKING
The Company hereby undertakes to furnish to the Securities and Exchange
Commission, upon request, all constituent instruments defining the rights of
holders of long-term debt of the Company and its consolidated subsidiaries not
filed herewith. Such instruments have not been filed since none are, nor are
being, registered under Section 12 of the Securities Exchange Act of 1934 and
the total amount of securities authorized under any such instruments does not
exceed 10% of the total assets of the Company and its subsidiaries on a
consolidated basis.
46
<PAGE> 47
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
January 29, 1998
BY: /s/ William Shaw
-------------------------------------
William Shaw
Chairman of the Board, Director and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/William Shaw Chairman of the Board, January 29, 1998
- --------------------------- Director and Chief Executive Officer
William Shaw
/s/Dennis D. Doolittle Vice Chairman of the Board, January 29, 1998
- --------------------------- Director and President
Dennis D. Doolittle
/s/Anthony F. Marrelli Chief Financial Officer January 29, 1998
- ---------------------------
Anthony F. Marrelli
/s/John S. Griffin Controller and Principal Accounting January 29, 1998
- --------------------------- Officer
John S. Griffin
/s/James J. Groberg Director January 29, 1998
- ---------------------------
James J. Groberg
/s/Jerome Shaw Director January 29, 1998
- ---------------------------
Jerome Shaw
/s/ Alden L. Edwards Director
- ---------------------------
Alden L. Edwards
/s/ Gene Falk Director
- ---------------------------
Gene Falk
/s/ Paul McGarrell Director
- ---------------------------
Paul McGarrell
/s/ Leroy Bell Director
- ---------------------------
Leroy Bell
/s/ Brian LeClair Director
- ---------------------------
Brian LeClair
</TABLE>
47
<PAGE> 48
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- ---------- --------------------------- ---------- -----------
Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------- ---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year ended October 31, 1997:
Deducted from asset accounts:
Allowance for uncollectible
accounts $2,221,000 $ 508,000(1) -- $901,000(3) $1,828,000
Year ended November 1, 1996:
Deducted from asset accounts:
Allowance for uncollectible
accounts $ 651,000 $1,096,000(1) $849,000(2) $375,000(3) $ 2,221,000
Year ended November 3, 1995:
Deduction from asset accounts:
Allowance for uncollectible
accounts $1,008,000 $ 184,000(1) $541,000(3) $ 651,000
</TABLE>
(1) Includes a foreign currency translation loss of $64,000 (1997), gain of
$4,000 (1996) and a loss of $5,000 (1995).
(2) Pertains to the opening balance of Triple-I acquired on January 29, 1996.
(3) Write-off of uncollectible accounts, net of recoveries.
S-1
<PAGE> 1
EXHIBIT 21.1
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT 21.1--SUBSIDIARIES OF THE REGISTRANT
The following is a list of the subsidiaries and joint ventures of the Company as
of January 17, 1998 (exclusive of certain subsidiaries which, if considered in
the aggregate, would not, as of October 31, 1997, constitute a significant
subsidiary within the meaning of Rule 1-02(v) of Regulation S-X). All of such
subsidiaries, to the extent they were active during fiscal 1996, are included as
consolidated subsidiaries in the Registrant's consolidated financial statements
as of October 31, 1997.
<TABLE>
<CAPTION>
Jurisdiction
of
Name (1) Incorporation
- -------- -------------
<S> <C>
Xitron, Incorporated Michigan
Autologic Triple-I, Inc. Canada
Autologic Information International, Limited United Kingdom
Autologic Information International, A.B. Sweden
Autologic Information International, Ltd. Israel
Autologic Information International, Pty Limited Australia
Information International Incorporated Ltd. United Kingdom
Information International Incorporated S.A. France
Information International Overseas Corporation California
Information International Foreign Sales Corporation Guam
Autologic Information International Ltd. Nevada
</TABLE>
- --------------------
(1) Except as noted, each named subsidiary is wholly owned, directly or
indirectly, by the Company, except that in the case of certain foreign
subsidiaries, qualifying shares may be registered in the name of directors
and/or other subsidiaries of the Company.
<PAGE> 1
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-12991) pertaining to the 1976 Employees' Incentive Stock
Option Plan and (Form S-8 No. 333-11565) pertaining to the 1995 Stock Option
Plan and to the incorporation by reference in the Registration Statements (Form
S-3/A No. 333-11547, Form S-3 No. 333-11547, and Form S-4 No. 33-99278) and in
the related Prospectuses of our report dated December 10, 1997, with respect to
the consolidated financial statements and schedule of Autologic Information
International, Inc. included in its Annual Report (Form 10-K) for the year ended
October 31, 1997.
Ernst & Young LLP
Woodland Hills, California
January 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-02-1996
<PERIOD-END> OCT-31-1997
<CASH> 9,452
<SECURITIES> 0
<RECEIVABLES> 17,529
<ALLOWANCES> 0
<INVENTORY> 4,085
<CURRENT-ASSETS> 41,965
<PP&E> 5,935
<DEPRECIATION> 0
<TOTAL-ASSETS> 53,596
<CURRENT-LIABILITIES> 16,178
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 37,360
<TOTAL-LIABILITY-AND-EQUITY> 53,596
<SALES> 84,626
<TOTAL-REVENUES> 84,626
<CGS> 0
<TOTAL-COSTS> 81,519
<OTHER-EXPENSES> 21
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,128
<INCOME-TAX> 1,473
<INCOME-CONTINUING> 1,655
<DISCONTINUED> (203)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,452
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
