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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
For the fiscal year ended October 30, 1998
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ____________ to _____________________
Commission File No. 0-29396
AUTOLOGIC INFORMATION INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3855697
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(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)
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(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[ ]
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, 1999 (based on the closing price on the NASDAQ
National Market on that date) was approximately $9,800,000 (based on the number
of shares outstanding on that date, exclusive of all shares held beneficially by
Registrant's 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, 1999 was
5,787,970.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 1999 Annual Meeting are
incorporated by reference into Part III 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 image-setting, 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, although it continues to take
steps to expand into niche portions of the lower-volume, less time-sensitive
portion of the commercial publishing and electronic document transmission
markets. 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.
Forward Looking Statement Disclosure
In order to keep investors informed of the Company's future plans and
objectives, this Annual Report on Form 10-K (and other reports and statements
issued by the Company and its officers from time to time) contains 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, 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, and dependence on third parties for some components (see
"Manufacturing and Assembly", below); risks inherent in new product
introductions, such as start-up delays, uncertainty of customer acceptance (see
"Products and Services", "Customers" and "Research and Development" 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
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Discussion and Analysis of Financial Condition and Results of Operations", the
Company's ability, and the ability of certain of its customers and suppliers and
others to successfully and timely complete their Year 2000 compliance programs
(See "Management's Discussion and Analysis of financial Condition and Results of
Operations", and the impact of the introduction of the Euro currency (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 hereafter filed with
the Securities and Exchange Commission. The Company does not assume an
obligation to update the factors discussed in this Annual Report.
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 as a result of 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 1998 AND 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
was 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 were 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 in
1996, (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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Products and Services
aii's systems provide production solutions which consist of computers and
internally produced software 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 used by aii
customers. The objective of these products is the production of deadline
oriented newspapers and commercial printing products. The principal imaging
device sold by aii is the 3850 film recorder which it manufactures. During
fiscal 1998, the Company completed development of a 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 using lower skill
level employees. 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. As technologies change and new products
come on the market, aii's products remain compatible with and complementary to a
customer's previously installed systems. aii provides customer service for its
products worldwide, with trained technicians and spare parts inventories either
directly or through its distribution network. 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
percentage contribution of systems and equipment sales and of technical support
and service revenues to the total revenues of aii and, for fiscal year 1996,
nine months of combined operations and three months of Autologic's operations on
a "stand-alone" basis:
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<TABLE>
<CAPTION>
For the Fiscal Year Ended
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October 30, October 31, November 1,
1998 1997 1996
<S> <C> <C> <C>
Systems and equipment sales 69% 67% 72%
Technical support and service revenues 31% 33% 28%
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100% 100% 100%
----- ------ -----
</TABLE>
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 Adobe(R) and Harlequin
Ltd.'s implementation of the PostScript page description language (the
programming language which has become a publishing industry standard). aii has
expanded its RIP and server offerings to include Adobe's PDF and PostScript3
technology. 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. Furthermore, aii designs and manufactures its 3850 family of laser
imagers and purchases other models of imagers for resale to customers.
COMPUTER-TO-PLATE. During fiscal 1998, aii delivered its initial APS 3850
Computer-to-Plate (CTP) imaging systems to newspaper customers in the UK and
Germany. 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 reduction of demand for film imagesetters such as
the 3850. The CTP 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. The CTP imager addresses the needs of
newspaper customers which want to eliminate the film processing step to improve
deadlines, improve print quality and reduce costs. The Company believes that
this CTP 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, 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. This system ensures that the retail ad is
produced and published on time using correct information.
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
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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. This
technology is being enhanced to include the newest computer technology available
as a "goal based" delivery system.
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 telecommunication 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 Titanic, Armageddon, Pleasantville and Practical
Magic. Over two million frames (more than 20 hours of screen time) have been
produced by APS Laser Cinema Recorders since January 1997.
XITRON, INC. Xitron, Inc., ("Xitron"), 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 by the
Company and 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; and Burlington, Massachusetts and has
offices throughout the United States and in parts of Europe, Latin America, the
Pacific Rim and the Middle East.
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Elsewhere, distributors and agents sell and service aii products within their
respective territories. Domestically, aii offers a variety of support solutions
to its customers.
aii believes its products enjoy an excellent reputation for high performance,
image quality and reliability in high volume production environments. However,
aii's customers produce deadline oriented products, and its customers rely
heavily on the Company for technical support and services.
Marketing and Sales
Marketing and sales 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 both domestic and international trade shows each year to demonstrate
and sell its equipment and to interact with customers and prospects regarding
future needs.
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 1998, aii sold its products and
provided service for its products to more than 1,800 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 has business relationships with all of the major newspaper chains
worldwide.
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 $33.4 million in
fiscal 1998, $38.4 million in fiscal 1997, and $46.2 million in fiscal 1996.
Foreign sales are affected by the relative strength of the U.S. dollar against
currencies of its customers and competitors. (See Note J - Industry Segment and
Geographic Information, page 38).
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
1998, newspapers experienced increased advertising revenues and increased page
counts. These developments and the effect of the Year 2000 issue on older
equipment, whereby certain older equipment may not correctly process date
information after 1999, has required the replacement of certain equipment and
has had a positive
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effect on the Company as newspapers make additional capital expenditures. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".)
Backlog
aii's backlog of orders believed to be firm as of October 30, 1998 was $9.1
million, as compared to $10.1 million as of October 31, 1997 (which included
$2.4 million for laser cinema recorders) and $7.1 million as of November 1,
1996. All of the Company's backlog is expected to be filled during fiscal 1999.
Manufacturing and Assembly
aii's products are manufactured and assembled principally at the Company's
leased facilities owned by Volt 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; however, 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 continuing to be
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 that involve 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 Xitron 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.
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 17% 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 1998 was approximately $6.8 million, during fiscal 1997
was approximately $6.3 million and during fiscal 1996 was approximately $4.3
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).
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 by aii can be successfully and profitably marketed.
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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 Xitron;
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 new products such as
the 3850 Computer-to-Plate system for its customer and market segment.
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 in fiscal 1997 and fiscal
1998, but there can be no assurance that this trend will continue or that the
Company can continue current margin levels.
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.
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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 material 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 15, 1999, aii had 433 full-time employees, of which 327 were in
the United States and Canada and 106 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 15,
1999, 74 were engaged in research, product development and engineering; 80 in
sales and marketing; 145 in customer support; 74 in manufacturing; and 60 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. 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.
10
<PAGE> 11
ITEM 2. PROPERTIES
aii's principal facilities are located in approximately 134,000 square feet of
leased space owned by Volt 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. aii is
currently negotiating the lease renewal; and until such time as this is
completed, the lease will continue on existing terms on a month-to-month basis.
aii also leases space in Ann Arbor, Michigan (7,600 square feet under a lease
that expires in 2000), where Xitron is located; Norcross, Georgia (2,400 square
feet under a lease that expires in 2001), 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; and 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), most of Triple-I's former
headquarters in Los Angeles, California (52,000 square feet) remains unused. aii
also maintains sales and service offices at various foreign locations (an
aggregate of 45,000 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, 74, has been Chief Executive Officer and Chairman of the Board of
the Company since January 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, 54, has been President of the Company since March 1997 and
has been Chief Operating Officer and Vice Chairman of the Board of the Company
since January 1996. He has served as a Director of the Company since November
1995. He served as President of Autologic from 1990 until the Merger. Prior to
that, he served as Senior Vice President-Engineering of Autologic from 1989 to
1990 and Vice President-Engineering from 1986 to 1989.
ANTHONY F. MARRELLI, 51, joined the Company as Chief Financial Officer in
November 1996 and became Vice President on January 1997. Prior to joining the
Company, he served in a senior financial capacity for
11
<PAGE> 12
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the Nasdaq Stock Market's National
Market (NASDAQ Symbol--AIII). The following table sets forth the high and low
prices of the Company's common stock as reported by NASDAQ, and reflects
interdealer prices, without retail mark-up, mark-down or commission:
<TABLE>
<CAPTION>
November 1- October 30 November 2 - October 31
1998 1997
--------------------- ------------------------
Fiscal Period High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $ 7 7/8 $ 6 3/4 $ 6 1/8 $ 4 1/4
Second Quarter 8 5/8 6 13/16 5 1/2 3 7/8
Third Quarter 6 15/16 5 1/2 6 3/4 4 1/4
Fourth Quarter 5 1/2 2 3/4 8 5 7/8
</TABLE>
The approximate number of record holders of the Company's common stock at
January 15, 1999 was 654.
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.
12
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as of and for the five years ended October
30, 1998 have been derived from the Company's consolidated 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 30, October 31, November 1, November 3, October 28,
1998 1997 1996 1995(3) 1994
-------- -------- -------- -------- --------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Results:
Revenues $ 87,616 $ 84,626 $ 88,880 $ 70,405 $ 65,323
-------- -------- -------- -------- --------
Operating profit (loss)
from continuing operations (1) 4,721 3,107 $ (3,223) $ (1,787) $ (847)
Interest on debt to Volt (2) -- (2) (583) (2,591) (1,962)
Other (expense) income (158) 23 (632) 270 (132)
-------- -------- -------- -------- --------
Income (loss) from continuing
operations before income taxes 4,563 3,128 (4,438) (4,108) (2,941)
Income tax provision 2,049 1,473 125 877 521
-------- -------- -------- -------- --------
Income (loss) from continuing
operations $ 2,514 $ 1,655 $ (4,563) $ (4,985) $ (3,462)
Loss from discontinued operations -- (203) (428) -- --
-------- -------- -------- -------- --------
Net income (loss) $ 2,514 $ 1,452 $ (4,991) $ (4,985) $ (3,462)
======== ======== ======== ======== ========
Basic and diluted earnings (loss) per share
from continuing operations $ 0.43 $ 0.28 $ (0.88) $ (1.49) $ (1.03)
Basic and diluted loss per share
from discontinued operations -- (0.03) (0.08) -- --
-------- -------- -------- -------- --------
Basic and diluted earnings (loss) per share $ 0.43 $ 0.25 $ (0.96) $ (1.49) $ (1.03)
======== ======== ======== ======== ========
Total assets $ 56,254 $ 53,596 $ 59,285 $ 31,691 $ 30,215
</TABLE>
(1) Includes expenses charged by Volt of $992 (1998), $1,048 (1997), $1,246
(1996), $2,601 (1995) and $2,538 (1994).
(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 was substantially eliminated following the Merger.
(3) The 1995 fiscal year was comprised of 53 weeks; fiscal years 1994, 1996,
1997 and 1998 were each comprised of 52 weeks.
(4) No dividends have been declared by aii or Autologic during the five
years ended October 30, 1998.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
As set forth in Note B in the accompanying consolidated financial statements, on
January 29, 1996, Volt Information Sciences, Inc. ("Volt") assigned the capital
stock of certain of Volt's foreign subsidiaries to the Company and each of
Autologic, Inc. (together with such foreign subsidiaries, "Autologic") and
Information International, Inc. ("Triple-I") were merged into the Company (such
transactions being collectively referred to as the "Merger"). The acquisition of
Autologic and the Volt subsidiaries has been accounted for under the pooling of
interest method of accounting and the acquisition of Triple-I was accounted for
under the purchase method of accounting. Accordingly, the Company's reported
results of operations for all periods prior to January 29, 1996 reflect only the
results of operations of Autologic. In addition, results prior to the Merger do
not give effect to the elimination of interest theretofore charged by Volt to
Autologic on intercompany borrowings (which were contributed to Autologic's
capital prior to the Merger), the reduction in rent of a facility leased from
Volt (under a new lease entered into in connection with the Merger), or cost
savings from the aggregate amounts incurred by Autologic and Triple-I separately
(such as from staff and facilities reductions and the ability of existing staff
to absorb general and administrative functions previously provided by Volt and
charged to Autologic) and other synergies implemented since the Merger.
Accordingly, results of operations prior to January 29, 1996 are not comparable
to the results of 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 30, 1998 (52 weeks) compared to the fiscal year ended
October 31, 1997 (52 weeks)
Results of Operations
In fiscal 1998, revenues increased by $2,990,000, or 3.5%, to $87,616,000. The
increase in revenues resulted from a $4,024,000, or 7.1%, increase in sales of
systems and equipment partially offset by a decrease of $1,034,000, or 3.6%, in
customer service sales. The increase in sales of systems and equipment was due
primarily to increased domestic sales, partially offset by decreased sales in
foreign markets. The increased domestic sales were due to increased demand and
customer purchases to replace older equipment. Most of the international decline
was due to lower sales in the Pacific Rim as a result of the Asian Economic
problems, which may continue to impair sales in the region until the Pacific Rim
economies strengthen. The decrease (which occurred in the first quarter of
fiscal 1998) in customer service sales was due primarily to a decline in
contract service revenue, the effects of the stronger US dollar on currency
conversion of international contracts and lower customer service part sales.
Gross margins improved 3/10 of a percentage point from 40.2% in fiscal year 1997
to 40.5% in fiscal year 1998. The gross margin improvement was due to systems
and equipment, the gross margins of which increased 2/10 of a percentage point
from 46.5% in fiscal 1997 to 46.7% in fiscal 1998, offset by customer service
margins which decreased 1.0 percentage point from 27.6% in fiscal 1997 to 26.6%
in fiscal 1998. The improvement in systems' margins was due principally to the
sale of a greater proportion of higher margin products. However, the imaging
systems segment of the prepress industry continues to be affected by rapid
technological change and other factors, which leads to intense price competition
and may affect the Company's ability to maintain margins in the future. Sales in
fiscal 1998 of equipment introduced in the last three years comprised
approximately 88% of equipment sales. The decrease in customer service margins
was due primarily to slightly higher material costs.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Operating expenses decreased by $766,000, or 3.4%, from $22,215,000 in fiscal
1997 to $21,449,000 in fiscal 1998. Also, expressed as a percentage of sales,
operating expenses decreased 1.7 percentage points, from 26.2 % in fiscal 1997
to 24.5% in fiscal 1998. The decrease in operating expenses was due primarily to
lower sales and marketing expenditures.
Research, development and engineering expenditures in fiscal 1998 increased
$594,000, or 7.5%, to $8,512,000 from $7,918,000 in fiscal 1997. Expressed as a
percentage of sales, these expenses increased 3/10 of a percentage point from
9.4%, in fiscal 1997 to 9.7%, in fiscal 1998. The increase was due primarily to
development costs incurred in connection with the development of a proprietary
computer to plate product.
Interest income increased $206,000, or 69.1%, from $298,000 in fiscal 1997 to
$504,000 in fiscal 1998. The increase in interest income is due from a higher
average (over the twelve-month period) cash balance in fiscal 1998 than in the
comparable period in the prior year.
A foreign exchange loss of $560,000 was realized in fiscal 1998 compared to a
gain of $125,000 in fiscal 1997. The loss in 1998 was due to unfavorable, and
the gain in 1997 was due to favorable, currency movements in the foreign
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 $298,000 in fiscal 1998 compared to the prior year due
to a decrease in several items of expense in this category.
The effective income tax rate was 44.9% in fiscal 1998 and 47.1% in fiscal 1997
and, in each case, was higher than the Federal statutory tax rate of 34%
primarily due to state taxes, non-tax deductible goodwill amortization and
foreign tax rates that generally are higher than United States rates. See Note E
of Notes to Consolidated Financial Statements for information concerning the
Company's effective tax rates for fiscal 1998 and 1997.
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 included $1,600,000 of non-recurring expenses). Included in the
loss for the year ended November 1, 1996 were 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, partially 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 businesses (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.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Continued
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
maintain 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.
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 Triple-I's 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 N
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.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
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.
Liquidity and Capital Resources
During fiscal year 1998, cash was provided by operating activities in the amount
of $4,897,000, provided primarily from the Company's profit of $2,514,000 for
fiscal 1998 and non-cash charges aggregating $4,570,000. Non-cash charges
primarily consisted of depreciation of $2,211,000, amortization of $552,000, a
provision for doubtful accounts of $196,000, a loss on foreign currency
translation of $298,000, and deferred income tax charge of $1,266,000. A
decrease in prepaid expenses and other assets of $1,313,000 along with an
increase in accrued expenses, including accrued payroll and related liabilities,
and accrued restructuring costs aggregating $210,000 and customer advances of
$391,000, generated additional positive cash flow of $1,914,000. Operating cash
was used primarily to increase accounts receivable by $673,000 and inventory by
$3,081,000 and reduce accounts payable and payables to Volt by $640,000 and
$63,000 respectively.
Investing activities used net cash of $2,154,000, with $2,299,000 being expended
for the purchase of property and equipment, while $145,000 was received from the
disposal of property and equipment.
As a result of the foregoing, during fiscal 1998, cash and cash equivalents
increased by $2,419,000. The Company's working capital as of October 30, 1998
was $39,933,00, which included $11,871,000 in cash and cash equivalents. These
resources are anticipated to be sufficient to meet the Company's liquidity and
capital needs for the near term in the normal course of business.
As the Company's current cash resources are considered adequate and management
believes that similar agreements with similar terms will be available in the
future, if necessary, the Company's revolving line of credit was allowed to
expire on its one-year anniversary date.
The Company has a liability for restructuring costs incurred prior to the merger
in the amount of $1,014,000 at October 30, 1998. The accrued amount provides for
the estimated costs related to the closing of certain facilities of Triple-I.
The liability is being funded through operating cash flows and is expected to be
paid in its entirety in fiscal 1999.
Year 2000 Compliance
The Year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer 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, causing disruptions in operations.
aii's STATE OF READINESS. The Company is affected in the processing of data
relating to the Year 2000 and beyond by 1) its own internal computer information
systems, 2) by third parties with which it has business relationships and 3)
both its current and discontinued products, which are in production usage at
customer sites. The Company has undertaken various initiatives intended to
ensure that its computer equipment and software (both internally and throughout
its produce line) will function properly with respect to dates in the Year 2000
and thereafter. For this purpose, the term "computer equipment and software"
includes systems that are commonly thought of as information technology ("IT")
systems. Non-IT systems refers to other miscellaneous
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
systems, not thought of as IT systems, such as alarm systems, fax machines, etc.
Both IT and non-IT systems may contain embedded technology, which complicates
the Company's Year 2000 identification, assessment, remediation and testing
efforts. The Company currently anticipates that its Year 2000 efforts, which
began in January of 1997, will be completed by May 1999. The following table
sets forth the percentage of completion of the Company's Year 2000 initiatives,
as well as the Company's progress and anticipated completion dates, as of
October 30, 1998:
<TABLE>
<CAPTION>
Time Percent
Year 2000 Initiatives Table Complete
- --------------------- ----- --------
<S> <C> <C> <C>
Internal Systems:
Initial IT system identification 1/97 - 10/98 100%
Initial IT system assessment 1/97 - 10/98 100%
Remediation and testing central system 1/97 - 5/98 100%
Conversion of desktop PCs 1/97 - 5/99 70%
Identification regarding non-IT issues 1/97 - 5/98 100%
Assessment regarding non-IT issues 1/97 - 5/99 65%
Product Line:
Initial IT system identification 1/97 - 1/98 100%
Initial IT system assessment 10/97 - 6/98 100%
Remediation and testing 1/97 - 5/99 95%
</TABLE>
INFORMATION TECHNOLOGY (IT). In a corporate-wide Year 2000 readiness analysis
completed in 1997, individual business units were required to formally develop a
plan to achieve Year 2000 compliance. Each plan consisted of an evaluation of
the compliance status of internal IT systems and an identification of specific
hardware and software compliance issues.
The readiness target date for all business units was December 31, 1998, with
units expected to be fully compliant by then. All business units have completed
their reviews and have replaced or modified applications found to be
noncompliant.
aii has a number of network-connected desktop PCs which are not compliant. An
upgrade program is in place and is expected to be completed by May 1999 at an
estimated cost of $75,000 for testing and replacement.
NON-IT. With respect to non-IT issues, a project coordinator is working with the
Company's facilities management to ensure premises issues are addressed in
Company owned and leased properties in the United States. Outside of the U.S.,
local division managers have been instructed to address this issue.
The Company has some risk on a location by location basis related to the
possible failure of government agencies, public utilities and providers of
telecommunication and transportation services. Due to the Company's dispersion
of facilities, the largest concentrated risks in this regard are in Thousand
Oaks and Boston.
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
COMPANY PRODUCTS. The Company established a policy that all current products be
Year 2000 compliant and that its quality assurance personnel test all new
releases of software and hardware for Year 2000 compliance.
All current product from the Company has been successfully tested for Year 2000
compliance. The Company has published and periodically updated a product
compliance list. Users of old, non-compliant equipment have been notified. Users
operating older revision levels of current products have been notified of the
requirement to upgrade, if required.
THIRD PARTIES. Third parties having a material relationship with the Company
have Year 2000 issues to address and resolve. Such third parties include
suppliers, financial institutions, governmental agencies, telecommunication and
insurance carriers. An aspect of the Company's project is to identify the third
parties and contact them to seek written assurance as to the third parties'
anticipation of being Year 2000 compliant. The nature of the Company's follow-up
depends upon its assessment of the reason and the materiality of the effect of
non-compliance by third parties on the Company.
During 1998, compliance questionnaires were sent to all major suppliers and
other third parties with whom the Company does business. As of October 30, 1998,
90% of major suppliers have responded with 70% responding they are compliant and
20% in the process of becoming Year 2000 complaint. Further follow-up efforts
are being made for the 10% that have not replied and alternative Year 2000
compliant suppliers are being identified. In addition, compliance questionnaires
were also sent to other third parties the Company does business with, such as
financial institutions, telecommunications and insurance companies. A response
rate of close to 100% has been achieved, with approximately 80% of respondents
indicating they are year 2000 complaint and the remaining 20% in the process of
becoming compliant with a deadline of no later than mid-1999. However, the
Company has no means of ensuring that such third parties will be Year 2000
ready. The inability of third parties to complete their Year 2000 resolution
process in a timely fashion could materially impact the Company. The effect of
non-compliance by third parties is not determinable.
COSTS TO ADDRESS aii's YEAR 2000 ISSUES. The Company's Year 2000 remediation
costs for all business units are projected to be approximately $834,000. At this
time, the Company's actual and estimated future costs for internal systems and
its product lines are as follows:
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
<TABLE>
<CAPTION>
Costs Estimated Total
through 10/30/98 Future Costs Costs
---------------- ------------ -----
Internal Systems:
<S> <C> <C> <C>
Hardware $ 15,000 $150,000 $165,000
Software 386,500 85,000 471,500
--------- -------- --------
Total 401,500 235,000 636,500
Product Line:
Hardware $ 36,500 $ 4,000 $ 40,500
Software 69,000 88,000 157,000
--------- -------- --------
Total 105,500 92,000 197,500
Total Company $ 507,000 $327,000 $834,000
========= ======== ========
</TABLE>
Included in the actual costs through October 30, 1998 under internal systems -
software is the cost of a new corporate business system of $345,000 which was
installed during fiscal years 1996 and 1997 and which has been capitalized. In
addition to addressing Year 2000 issues, the business system was installed to
streamline the Company's operations and provide better management information.
Except for hardware costs, all other costs will be expensed as incurred.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES. The Company's management believes it
has an effective program in place to resolve the Year 2000 issue in a timely
manner. As noted above, the Company has not yet completed all necessary phases
of the Year 2000 program. In addition, disruption in the economy in general
resulting from Year 2000 issues could also materially adversely affect the
Company. The amount of potential liability and lost revenue cannot be reasonably
estimated at this time. All Company internal systems are currently Year 2000
compliant except for a number of network-connected PCs previously mentioned. In
addition, the Company has thoroughly reviewed its product line to assist its
customers with the Year 2000 issue. The Company believes that its current
products 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 $197,500 to develop). The Company
believes that a majority of its discontinued products are also Year 2000
compliant. However, certain of its older products, the sale for which were
discontinued several years ago, may not be year 2000 compliant. The Company
believes such products are not under warranty and the Company does not intend to
renew its one-year service contracts 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.
THE COMPANY'S CONTINGENCY PLANS. Although the Company believes both its internal
systems and product line are Year 2000 compliant, contingency plans have been
made. Preparations are in process to have a team of technicians available to
assist customers with software and hardware which may have Year 2000 "bugs" not
revealed until after December 31, 1999 despite testing. The Company anticipates
handling these situations with immediate program fixes, swapped backup hardware
or process work around. The Company does not anticipate that problems of this
nature will be significant due to thorough testing of its product line and
advance notification to its customers.
20
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Impact of the Euro
Several European countries have adopted, and others are expected to adopt, a
Single European Currency (the "Euro") as of January 1, 1999 with a transition
period continuing through January 1, 2002. The Company is reviewing the
anticipated impact the Euro may have on its internal systems and on its
competitive environment. The Company believes its internal systems will be Euro
capable without material modification cost. Further, the Company does not expect
the introduction of the Euro currency to have a material adverse impact on the
Company's financial position or results of operations.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements (refer to "Forward-Looking Statement
Disclosure" on page 2). The Company is exposed to market risk related to changes
in interest rates, foreign currency exchange rates and derivative financial
instruments.
aii maintains a portfolio of highly liquid cash equivalents maturing in three
months or less as of the date of purchase. Given the short-term nature of these
investments, and that the Company has no borrowings outstanding, the Company is
not subject to significant interest rate risk.
A significant portion of aii's operations consists of sales activities in
foreign locations as the Company sells its products worldwide. The Company's
financial results, therefore, could be significantly impacted by factors such as
changes in foreign currency exchange rates or weak economic conditions in
foreign markets. Since all of aii's sales are denominated in U.S. dollars, the
Company's foreign operations are net payers of currencies other than the U.S.
dollar. As such, the Company's operating results may be adversely affected by
the impacts of weaker foreign currencies relative to the U.S. dollar. To
mitigate the short-term effect of changes in currency exchange rates on its
foreign currency based expenses and receivables, the Company purchases foreign
currency option contracts to hedge the adverse impact of currency fluctuations
on its foreign currency receivables and firm commitments.
21
<PAGE> 22
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. and subsidiaries as of October 30, 1998 and
October 31, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended October 30, 1998. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Autologic
Information International, Inc. and subsidiaries at October 30, 1998 and October
31, 1997, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended October 30, 1998 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 9, 1998
22
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 30, October 31,
1998 1997
--------- ---------
(Dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents-See Notes C and M $ 11,871 $ 9,452
Accounts receivable less allowance for doubtful
accounts of $1,844 (1998) and $1,828 (1997)-See Note M and Schedule II 17,928 17,529
Inventories-See Notes C and D 11,310 8,229
Deferred income taxes -See Notes C and E 3,829 4,085
Prepaid expenses and other assets 1,354 2,670
--------- ---------
Total current assets 46,292 41,965
PROPERTY AND EQUIPMENT, at cost net of
accumulated depreciation and amortization
of $6,086 (1998) and $5,462 (1997)-See Note C 5,827 5,931
DEFERRED INCOME TAXES -See Notes C and E 2,823 3,833
EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED, net of accumulated amortization of $1,516 (1998)
and $964 (1997)-See Notes B and C 1,237 1,789
OTHER ASSETS 75 78
--------- ---------
$ 56,254 $ 53,596
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable-See Note M $ 4,877 $ 5,372
Payable to Volt-See Note N 202 265
Accrued payroll and related liabilities 3,914 3,165
Accrued expenses 1,458 1,752
Accrued restructuring costs-See Notes B and H 1,014 1,521
Customer advances 4,501 4,103
Income taxes payable-See Notes C and E 356 --
--------- ---------
Total current liabilities 16,322 16,178
COMMITMENTS AND CONTINGENCIES-See Notes H, I and N
STOCKHOLDERS' EQUITY-See Notes B, C, E, F and N
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 at 1998 and 1997 58 58
Paid-in capital 112,620 112,620
Accumulated deficit (72,746) (75,260)
--------- ---------
39,932 37,418
--------- ---------
$ 56,254 $ 53,596
========= =========
</TABLE>
See accompanying notes.
23
<PAGE> 24
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------
October 30, October 31, November 1,
1998 1997 1996
----------- ----------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C>
REVENUES-See Note C
Systems and equipment $ 60,679 $ 56,655 $ 63,607
Customer service and support 26,937 27,971 25,273
-------- -------- --------
87,616 84,626 88,880
-------- -------- --------
OPERATING COSTS AND EXPENSES
Cost of systems and equipment 32,338 30,311 41,065
Cost of customer service and support 19,784 20,258 20,076
-------- -------- --------
Gross margin 35,494 34,057 27,739
Operating expenses 21,449 22,215 21,635
Research, development and engineering 8,512 7,918 7,381
Restructuring charge-See Note B -- -- 700
Charges from Volt-See Notes B and N
Rent 776 781 1,022
General and administrative 36 36 224
-------- -------- --------
OPERATING INCOME (LOSS) FROM
CONTINUING OPERATIONS 4,721 3,107 (3,223)
-------- -------- --------
OTHER INCOME (EXPENSE)
Interest income 504 298 357
Interest expense charged by Volt-See Note N -- (2) (583)
Foreign exchange gain (loss)-See Notes C and M (560) 125 (544)
Other, net (102) (400) (445)
-------- -------- --------
(158) 21 (1,215)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 4,563 3,128 (4,438)
INCOME TAX PROVISION-See Notes C and E 2,049 1,473 125
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 2,514 1,655 (4,563)
LOSS FROM DISCONTINUED OPERATIONS-See Note O -- (203) (428)
-------- -------- --------
NET INCOME (LOSS) $ 2,514 $ 1,452 $ (4,991)
======== ======== ========
BASIC AND DILUTED EARNINGS (LOSS) PER
SHARE - CONTINUING OPERATIONS $ 0.43 $ 0.28 $ (0.88)
BASIC AND DILUTED LOSS PER SHARE -
DISCONTINUED OPERATIONS -- (0.03) (0.08)
-------- -------- --------
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE-See Note C $ 0.43 $ 0.25 $ (0.96)
======== ======== ========
Average number of shares outstanding - Basic 5,788 5,788 5,221
======== ======== ========
Average number of shares outstanding - Diluted 5,789 5,788 5,221
======== ======== ========
</TABLE>
See accompanying notes
24
<PAGE> 25
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS 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 November 4, 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 O (10,500) -- (45) -- (45)
Issuance of stock to Volt with respect
to the exercise of employee 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
Net income for the year -- -- -- 2,514 2,514
---------- ---------- ---------- ---------- ----------
Balance at October 30, 1998 5,787,970 $ 58 $ 112,620 $ (72,746) $ 39,932
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes
25
<PAGE> 26
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
October 30, October 31, November 1,
1998 1997 1996
----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,514 $ 1,452 $(4,991)
Adjustments to reconcile net income (loss) to net cash
provided by (applied to) operating activities:
Depreciation 2,211 2,241 2,290
Amortization 552 551 413
Provision for doubtful accounts 196 508 1,096
Losses (gains) on foreign currency
translation 298 (242) (231)
Losses (gains) on dispositions of
property and equipment 47 (63) 24
Deferred income taxes 1,266 1,433 (1,348)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (673) 2,959 (2,464)
(Increase) decrease in inventories (3,081) 4,072 6
Decrease (increase) in prepaid expenses
and other assets 1,313 (1,564) 384
(Decrease) increase in accounts payable (640) (4,816) 3,487
Increase (decrease) in accrued expenses,
accrued payroll and related liabilities,
and accrued restructuring costs 210 (1,120) (1,293)
Increase (decrease) in customer advances 391 771 (176)
Increase (decrease) in income taxes payable 356 (1,174) 37
(Decrease) increase in payable to Volt (63) (506) 771
------- ------- -------
Net cash provided by (applied to) continuing operations 4,897 4,502 (1,995)
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 $ 4,897 $ 4,624 $(1,774)
------- ------- -------
</TABLE>
Continued on next page
26
<PAGE> 27
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
October 30, October 31, November 1,
1998 1997 1996
----------- ----------- -----------
(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 145 182 --
Purchases of property and equipment (2,299) (2,246) (2,931)
-------- -------- --------
NET CASH (APPLIED TO) PROVIDED BY
INVESTING ACTIVITIES (2,154) (2,064) 5,833
-------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Decrease in notes payable to banks -- -- (670)
Proceeds from exercise of stock options -- -- 206
-------- -------- --------
NET CASH APPLIED TO
FINANCING ACTIVITIES -- -- (464)
-------- -------- --------
Effect of exchange rate changes on cash (324) 759 (4)
-------- -------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 2,419 3,319 3,591
Cash and cash equivalents, beginning of period 9,452 6,133 2,542
-------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 11,871 $ 9,452 $ 6,133
======== ======== ========
SUPPLEMENTAL CASH TRANSACTIONS
Cash paid during the period:
Interest expense $ 9 $ 10 $ 12
Income tax $ 256 $ 1,621 $ 1,258
</TABLE>
SUPPLEMENTAL NON-CASH TRANSACTIONS
During 1998 and 1997, the Company wrote off fully depreciated fixed assets of
approximately $1,375,000 and $1,145,000, respectively.
On January 2, 1997, the Digiflex division of the Company was disposed of in
exchange for 10,500 shares of AII stock. (See Note O)
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
27
<PAGE> 28
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 30, 1998, 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 30, 1998.
28
<PAGE> 29
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 merger, 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. The
liability for restructuring costs incurred prior to the merger ($1,014,000 at
October 30, 1998 and $1,521,000 at October 31, 1997) 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>
(Unaudited)
For the Fiscal Year Ended
-------------------------
November 1,
1996
(Dollars in thousands, except per share amounts)
<S> <C>
Revenues $ 99,013
Loss from continuing operations (1,702)
Net loss (2,017)
Basic and diluted loss from
continuing operations per share (0.33)
Basic and diluted net loss per share (0.39)
</TABLE>
29
<PAGE> 30
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 1998, 1997 and 1996 fiscal years were each
comprised of 52 weeks.
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 continue to 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: The Company accounts for its stock-based compensation
arrangements under the provisions of APB Opinion No. 25, "Accounting for Stock
Issued to Employees" (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: 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. No such
impairment indicators have been identified by the Company. 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.
30
<PAGE> 31
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>
1998 1997
-------------------------------------- --------------------------------------
Property Property
and Lease- and Lease-
Equipment hold Total Equipment hold Total
--------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Property and equipment, at cost $ 9,916 $ 1,997 $ 11,913 $ 10,052 $ 1,341 $ 11,393
Accumulated depreciation
and amortization (5,615) (471) (6,086) (5,145) (317) (5,462)
-------- -------- -------- -------- -------- --------
Net property and equipment $ 4,301 $ 1,526 $ 5,827 $ 4,907 $ 1,024 $ 5,931
======== ======== ======== ======== ======== ========
</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 (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 $1,300,000,
$1,500,000 and $1,300,000 for the years ended October 30, 1998, October 31, 1997
and November 1, 1996, respectively.
31
<PAGE> 32
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Per Share Data: During fiscal 1998, the Company adopted SFAS No. 128, "Earnings
Per Share," which required a change in the method used to compute earnings per
share. 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 prior accounting
rules, reflects the dilution to earnings that would occur if stock options and
other dilutive securities resulted in the issuance of common stock. As required
by SFAS No. 128, all prior period amounts have been restated to conform to the
new presentation. Substantially all common stock equivalent shares from stock
options (159,000, 216,500 and 489,500, in fiscal 1998, 1997 and 1996,
respectively) have been excluded from the computation of diluted earnings per
share because the effect would be antidilutive.
Comprehensive Income: In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income". 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 SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". 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.
Software Revenue Recognition
In October 1997, the American Institute of Certified Public Accountants issued
SOP 97-2, "Software Revenue Recognition," which provides guidance on applying
generally accepted accounting principles in recognizing revenue on software
transactions and will supersede SOP 91-1. The Company will be required to apply
the provisions of SOP 97-2 to transactions entered into during fiscal 1999.
Management anticipates that the adoption of this guidance will not have a
material impact on its financial condition or results of operations, because the
Company believes that its current revenue recognition policies comply with the
provisions of SOP 97-2.
Accounting for Derivatives
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of SFAS No. 133
will have a significant effect on earnings or the financial position of the
Company.
32
<PAGE> 33
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE D--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
October 30, October 31,
1998 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
Service parts $ 1,818 $ 2,318
Materials 5,671 3,653
Work-in-process 2,713 965
Finished goods 1,108 1,293
------- -------
$11,310 $ 8,229
======= =======
</TABLE>
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 30, October 31, November 1,
1998 1997 1996
------- ------- -------
(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 $ 4,795 $ 2,198 $(5,526)
Foreign (232) 930 1,088
------- ------- -------
$ 4,563 $ 3,128 $(4,438)
======= ======= =======
Income tax provision (benefit) includes:
Current:
Federal $ 177 $ -- $ 11
Foreign 455 40 1,475
State and local 151 -- (13)
------- ------- -------
Total current 783 40 1,473
------- ------- -------
Deferred:
Federal 1,513 829 (561)
Foreign (316) 515 (663)
State and local 69 89 (124)
------- ------- -------
Total deferred 1,266 1,433 (1,348)
------- ------- -------
Total income tax provision $ 2,049 $ 1,473 $ 125
======= ======= =======
</TABLE>
33
<PAGE> 34
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE E--INCOME TAXES--Continued
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 30, October 31, November 1,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% (34.0%)
Loss without federal tax benefit -- -- 27.8
Tax effect of foreign operations 1.6 1.4 2.6
State taxes 3.2 3.0 2.3
Goodwill 4.1 6.0 2.7
Other - net 2.0 2.7 1.4
------ ------ ------
Effective tax rate 44.9% 47.1% 2.8%
====== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of changes in the temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
October 30, October 31,
1998 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 584 $ 568
Inventory valuation 1,385 1,576
Net operating loss carryforwards 2,604(a) 3,884
Vacation accruals 474 396
Foreign asset basis and credits 1,058 387
Warranty accruals 235 181
Other -- Net 312 926
------ ------
Total deferred tax assets $6,652 $7,918
====== ======
Balance sheet classification:
Current assets $3,829 $4,085
Non-current assets 2,823 3,833
------ ------
Total deferred tax assets $6,652 $7,918
====== ======
</TABLE>
(a) As of October 30, 1998, the Company had a tax benefit relating to a net
operating loss carryforward of $2,604,000, of which $554,000 expires in 2009,
$1,204,000 expires in 2011, $846,000 expires in 2012.
As of October 30, 1998, certain affiliates had undistributed earnings
aggregating $1,827,000, 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 should be available to reduce some or all of the U.S. liability.
34
<PAGE> 35
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 a
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 grants under this plan at October 30, 1998 were 224,500 shares (218,500
shares at October 31, 1997, and 108,750 shares at November 1, 1996).
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 grants under this plan
at October 30, 1998 were 71,000 shares (63,000 shares at October 31, 1997 and
59,000 shares at November 1, 1996).
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 common stock, granted to officers of Volt.
Options to purchase 18,000 shares were granted at $13.20 per share, which
exceeded market value at the date of grant, and the remaining 22,500 were
granted at $12.00 per share, market value at the date of grant. There were
27,000 shares (26,500 shares at October 31, 1997 and 17,500 at November 1, 1996)
available for future grants under the plan at October 30, 1998.
35
<PAGE> 36
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>
Outstanding, November 4, 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
Granted -- -- -- -- 4,000 3.75
Expired (30,500) 8.00 -- -- -- --
Forfeited (18,500) 8.39 (8,000) 9.38 (4,500) 12.00
------- ------ ------
Outstanding, October 30, 1998 36,000 $ 7.92 -- $ -- 123,000 $11.75
====== ====== ========
</TABLE>
Price ranges of outstanding and exerciseable options as of October 30, 1998 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> <C>
Employees' Plan
$7.75 - 9.25 36,000 1 $7.92 36,000 $7.92
New Plan
$3.75 - 4.50 6,500 9 $4.04 2,500 $4.50
$12.00 - 13.20 116,500 6 $12.19 116,500 $12.19
</TABLE>
36
<PAGE> 37
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 October 30,
1998, options to purchase 155,000 shares were exerciseable at a weighted average
price of $11.07 per share.
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees", to account for the stock option plan. No compensation cost
is recognized because all option exercise prices have been equal to at least 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, "Accounting and Disclosure for Stock Based
Compensation", pro forma net income (loss) in thousands and earnings per share
would have been:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Pro forma net income (loss) $ 2,512 $ 1,297 $ (5,465)
Pro forma basic and diluted
earnings (loss) per share $ 0.43 $ 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
1998, 1997 and 1996: Risk-free interest rates of 4.4%, 6% and 6%, respectively,
expected volatility of .67, .81 and .81, respectively, an expected life of the
options of 3 years and no dividends. These assumptions resulted in weighted
average fair values of $2.45, $2.82 and $7.49 per share for stock options
granted in 1998, 1997 and 1996, respectively. For purposes of pro forma
disclosure, the estimated fair value of options is amortized over the options'
vesting period.
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.
37
<PAGE> 38
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE H--COMMITMENTS
Future minimum rental commitments as of October 30, 1998 for all noncancelable
operating leases, including commitments totaling $1,014,000 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>
1999 $ 2,233 $ 2,095 $ 138
2000 829 751 78
2001 546 505 41
2002 387 384 3
2003 267 267 --
Thereafter 1,093 1,093 --
</TABLE>
Rental expense for all operating leases for fiscal years 1998, 1997 and 1996 was
$2,056,000, $1,960,000 and $2,077,000, respectively. Many of the leases also
require the Company to pay property taxes, insurance and ordinary repairs and
maintenance. (See Note N)
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 of 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 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.
38
<PAGE> 39
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 30, October 31, November 1,
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Revenues:
United States:
Unaffiliated United States customers $ 47,829 $ 39,258 $ 34,635
Affiliated United States customers 388 453 758
Export sales, unaffiliated foreign customers,
principally in Canada, South and
Central America 9,038 8,469 8,798
Export sales-interarea transfers 11,392 14,335 18,484
-------- -------- --------
68,647 62,515 62,675
Europe:
Unaffiliated customers
Germany 6,424 8,978 10,497
Other countries 15,747 15,867 21,431
-------- -------- --------
22,171 24,845 31,928
Australia:
Unaffiliated customers 7,602 10,847 12,116
Canada:
Unaffiliated customers 589 754 645
Eliminations-interarea transfers (11,392) (14,335) (18,484)
-------- -------- --------
$ 87,617 $ 84,626 $ 88,880
-------- -------- --------
Operating profit (loss):
United States $ 3,556 $ 1,314 $ (5,359)
Germany 631 1,119 837
Other European countries 369 275 585
Australia (211) 272 754
Canada 239 106 331
Eliminations 137 21 (371)
-------- -------- --------
$ 4,721 $ 3,107 $ (3,223)
======== ======== ========
Identifiable assets:
United States $ 48,606 $ 43,576 $ 48,838
Germany 4,542 4,407 4,145
Other European countries 5,973 6,814 10,032
Australia 4,231 3,959 3,453
Canada 720 1,246 1,112
Eliminations (7,818) (6,406) (8,295)
-------- -------- --------
$ 56,254 $ 53,596 $ 59,285
======== ======== ========
Liabilities of entities comprising the Company's
foreign operations $ 5,598 $ 4,129 $ 5,663
======== ======== ========
</TABLE>
39
<PAGE> 40
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 30, 1998 and October 31, 1997. Each quarter contains
thirteen weeks.
<TABLE>
<CAPTION>
Fiscal 1998 Quarters
--------------------
First Second Third Fourth
------- ------- ------- -------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $18,042 $22,548 $22,266 $24,760
Gross profit 7,670 8,646 9,203 9,975
Income from continuing
operations 13 690 710 1,101
------- ------- ------- -------
Net income $ 13 $ 690 $ 710 $ 1,101
======= ======= ======= =======
Basic and diluted earnings
per share $ -- $ 0.12 $ 0.12 $ 0.19
======= ======= ======= =======
</TABLE>
<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
======== ======== ======== ========
Basic and diluted earnings (loss) per share:
Continuing operations $ (0.09) $ 0.08 $ 0.14 $ 0.16
Discontinued operations (0.04) -- -- --
-------- -------- -------- --------
Basic and diluted earnings
(loss) per share $ (0.13) $ 0.08 $ 0.14 $ 0.16
======== ======== ======== ========
</TABLE>
Sales are generally highest in the fourth quarter when customers are preparing
for their high-volume production period and lowest 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.
40
<PAGE> 41
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
30, 1998, 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 gains 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 30,
1998, the Company owned options, all of which expire in the first quarter of
fiscal 1999, purchased at a cost of $118,800, to exchange various European
currencies for U.S. dollars, in the aggregate notional amount of $5,500,000.
There are no unrealized gains or losses on these contracts at such date. The
counterparty to the currency option contracts is a major bank. 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 30, 1998 and October 31, 1997 due to the relatively short maturity
of these instruments.
41
<PAGE> 42
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE N--RELATED PARTY TRANSACTIONS WITH 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, 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, which expired in fiscal 1998. There were no
borrowings under the line in fiscal 1998.
In addition to the above costs, Volt pays certain insurance premiums and incurs
certain other costs on behalf of the Company and is reimbursed by the Company,
which benefits from Volt's greater purchasing power. Such costs are reflected in
the Company's results of operations.
The Company incurred $36,000, $36,000 and $27,000 in legal fees payable to Volt
for the years ended October 30, 1998, October 31, 1997 and November 1, 1996,
respectively, under a $3,000 per month retainer arrangement that provides the
Company access to Volt's in-house legal staff.
As of October 30, 1998 and October 31, 1997, the Company had a $202,000 and
$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 30, October 31, November 1,
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Balance payable at beginning $ 265 $ 771 $ 88,109
Charges from Volt:
Rent 776 781 1,022
General and administrative -- -- 197
Legal 36 36 27
Interest -- 2 583
Temporary staffing 180 231 --
PP & E capital purchases -- 321 --
-------- -------- --------
992 1,371 1,829
-------- -------- --------
Reimbursable expenditures paid by Volt
on behalf of Autologic or the Company:
Insurance -- 246 719
Real estate taxes 121 79 79
Foreign currency option premiums,
net of gains - See Note M 167 (389) 256
Other 210 374 180
-------- -------- --------
498 310 1,234
-------- -------- --------
Contribution to capital of amounts payable to Volt -- (89,525) --
Sales to Volt (379) (453) (758)
Cash transfers paid to Volt (1,174) (1,734) (118)
-------- -------- --------
Balance payable at end of year $ 202 $ 265 $ 771
======== ======== ========
Average balance payable during the year $ 119 $ 230 $ 11,883
======== ======== ========
</TABLE>
42
<PAGE> 43
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE N--RELATED PARTY TRANSACTIONS WITH VOLT--Continued
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 30, 1998, the Company paid
rent to Volt of $776,000 in 1998, $781,000 in 1997 and $1,022,000 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.
During fiscal year 1998 the Company's United Kingdom subsidiary agreed to
provide certain on-going financial services to Volt's European subsidiaries, for
which Volt paid the Company the sum of $73,567 during the fiscal year. The
Company believes such sum is fair and reasonable for the services provided.
On May 15, 1997, the Company obtained a revolving line of credit, which was
guaranteed by Volt in the amount of $2,250,000 with Wells Fargo Bank. Under the
terms and conditions of the line of credit, the Company could borrow, repay and
re-borrow, from time to time, up to the full amount of the line, with interest
at the higher of the bank's prime rate or the Federal Funds Rate plus .5%. There
were no borrowings made under this agreement throughout its one-year term. The
revolving line of credit was allowed to expire on its one-year anniversary date,
as the Company's current cash resources are considered adequate and management
believes that similar agreements with similar terms will be available in the
future, if necessary.
NOTE O--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 third 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.
43
<PAGE> 44
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 with the Securities and Exchange Commission
within 120 days after the close of its fiscal year ended October 30, 1998, and
is hereby incorporated by reference to such Proxy Statement.
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 23
Consolidated Statements of Operations--Years ended October 31, 1997,
November 1, 1996 and November 3, 1995 24
Consolidated Statements of Stockholders' Equity--Years ended
October 31, 1997, November 1, 1996 and November 3, 1995 25
Consolidated Statements of Cash Flows--Years ended October 31,
1997,
November 1, 1996 and November 3, 1995 26
Notes to Consolidated Financial Statements. 28
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>
44
<PAGE> 45
14(a)(3) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
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 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 Employees' Incentive Stock Option Plan, as
extended, amended and assumed by the Company and amended through
November 5, 1998.
</TABLE>
45
<PAGE> 46
14(a)(3) Exhibits--Continued
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
10.2(b)*+ Triple-I's 1985 Directors' Stock Option Plan, as assumed by the
Company and amended through November 5, 1998.
10.2(c)*+ The Company's 1995 Stock Option Plan as amended through
September 18, 1998.
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 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.)
10.5 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
</TABLE>
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 30, 1998.
- --------------
* Filed herewith
+ Management contract or compensation plan or arrangement
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 15, 1999
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 15, 1999
- ---------------------------------------
William Shaw Director and Chief Executive Officer
/s/Dennis D. Doolittle Vice Chairman of the Board, January 15, 1999
- ---------------------------------------
Dennis D. Doolittle Director and President
/s/Anthony F. Marrelli Chief Financial Officer January 15, 1999
- ---------------------------------------
Anthony F. Marrelli
/s/ Ian T. B. Young Controller and Principal Accounting January 15, 1999
- ---------------------------------------
Ian T. B. Young Officer
/s/James J. Groberg Director January 15, 1999
- ---------------------------------------
James J. Groberg
/s/Jerome Shaw Director January 15, 1999
- ---------------------------------------
Jerome Shaw
/s/ Alden L. Edwards Director January 15, 1999
- ---------------------------------------
Alden L. Edwards
/s/ EuGene L. Falk Director January 15, 1999
- ---------------------------------------
EuGene L. Falk
/s/ Paul H. McGarrell Director January 15, 1999
- ---------------------------------------
Paul H. McGarrell
/s/ Leroy M. Bell Director January 15, 1999
- ---------------------------------------
Leroy M. Bell
</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
of Period Expenses Accounts Deductions of Period
--------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Description
- -----------
Year ended October 30, 1998:
Deducted from asset accounts:
Allowance for uncollectible
accounts $1,828,000 $ 196,000(1) $ 180,000(3) $1,844,000
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
</TABLE>
(1) Includes a foreign currency translation gain of $13,000 (1998), loss of
$64,000 (1997) and a gain of $4,000 (1996).
(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 10.2(a)
AUTOLOGIC INFORMATION INTERNATIONAL, INC.
1976 EMPLOYEES' INCENTIVE STOCK OPTION PLAN
(As amended through November 5, 1998)
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C>
1. Purpose of the Plan 1
2. Administration of the Plan 1
3. Stock Subject to the Plan 2
4. Participation under the Plan 2
5. Optionholder Not to be Deemed
Stockholder Until Issue of Shares 3
6. Option Price 3
7. Period of Option 3
8. Payment for Stock 3
9. Restrictions on Assignment and
Exercise of Option 4
10. Provisions Against Dilution 4
11. Reservation of Stock and Provisions
Relation to Issuance 6
12. Amendment of the Plan 6
13. Miscellaneous 7
14. Effective Date of Plan 7
15. Duration of the Plan 7
</TABLE>
<PAGE> 3
1976 EMPLOYEES' INCENTIVE STOCK OPTION PLAN
OF
AUTOLOGIC INFORMATION INTERNATIONAL, INC.
(As amended through November 5, 1998)
1. Purpose of the Plan. The purpose of this Plan is to benefit
Autologic Information International, Inc. (The "Company") and its shareholders
by encouraging and facilitating ownership of its stock by officers and other key
employees of the Company and of its parents and subsidiaries, if any, who are
primarily responsible for management and growth of the Company or who otherwise
materially contribute to the successful conduct and direction of its business.
By encouraging such officers and other key employees to acquire or increase
their ownership of its stock, the Company seeks to attract and retain in its
employ persons of exceptional competence, to furnish an added incentive for them
to increase their efforts on behalf of the Company, and to gain for the Company
the advantages inherent in key employees having a sense of proprietorship.
2. Administration of the Plan. The Plan shall be administered by the
Board of Directors which, to the extent it shall determine, may delegate its
powers with respect to the administration of the Plan to a committee of the
Board of Directors (the "Committee") consisting of not less than two directors
(or such greater number as required by law), each of whom shall be a
"non-employee director" within the meaning of Rule 16b-3 (or any successor rule
or regulation) promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). All references in the Plan to determinations or actions by
the Committee shall be deemed to include determinations and actions by the Board
of Directors. Members of the Committee shall serve during the pleasure of the
Board of Directors. A majority of the members of the Committee shall constitute
a quorum. Any decision or determination reduced to writing and signed by all of
the
<PAGE> 4
members of the Committee then in office shall be fully as effective as if the
action had been taken by unanimous vote at a meeting duly called and held. The
Committee is authorized to interpret the Plan and options granted thereunder, to
adopt, amend and rescind rules and regulations for the administration of the
Plan and to make all other determinations necessary or advisable for such
administration, and its decisions shall be conclusive unless otherwise
determined by the Board of Directors. The Company shall effect the grant of
options under the Plan in accordance with determinations made by the Committee
pursuant to the provisions of the Plan, by execution of instruments in writing
in form approved by the Committee.
3. Stock Subject to the Plan. The aggregate number of shares of
Common Stock which may be issued under the 1976 Plan shall not exceed nine
hundred and fifty thousand (950,000) shares except as such total amount may be
adjusted pursuant to Section 10 hereof. Such shares shall be made available from
authorized, unissued or reacquired Common Stock. If for any reason any option
under the Plan terminates in whole or in part unexercised, shares covered by
such terminated option may be again subject to an option under this Plan.
4. Participation under the Plan. The Committee may, in its
discretion, from time to time, while the Plan shall be in effect, grant options
hereunder to purchase shares of the Common Stock of the Company, which options
may be incentive stock options ("ISOs"), within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), or options which do
not qualify as ISOs. The Committee, in granting options pursuant hereto, shall
act with reference to the purposes of the Plan as set forth in Section 1 hereof
and shall grant options only to key employees of the Company and of parents and
subsidiaries, if any, of the Company (within the meaning of Section 424(e) and
(f), respectively, of the Code). The term "employees" shall include officers of
the Company and of its parents and subsidiaries, if any, and shall include
directors who are also employees of the Company or of any parent or subsidiary
of the
2
<PAGE> 5
Company. The terms "Common Stock" as used in the Plan includes the Common Stock
of the Company (or any class of stock which is then the junior stock of the
Company whether designated as Common or otherwise) as described in the
Certificate of Incorporation of the Company, as presently in effect or hereafter
amended.
5. Optionholder Not to be Deemed Stockholder Until Issue of Shares.
No person by virtue of the granting to him of an option hereunder be deemed to
be a holder of any shares purchasable thereunder or to be entitled to the rights
or privileges of a holder of such shares unless and until such person shall have
exercised his option with respect to such shares and the same shall have been
issued to him.
6. Option Price. The purchase price per share under each option
granted under this Plan shall be determined by the Committee but shall not be
less than 100 percent of the fair market value of the stock at the time such
option is granted; provided, however, that the exercise price of an ISO granted
to an optionee who owns (or is deemed to own under Section 424(d) of the Code)
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company, or of a parent or subsidiary of the Company, shall be
not less than 110% of the fair market value of the stock at the time such option
is granted.
7. Period of Option. The term of each option granted pursuant to the
Plan shall be such term as is established by the Committee, in its sole
discretion; provided, however, that the term of each ISO granted pursuant to the
Plan shall be for a period not exceeding 10 years from the date of grant
thereof; and further, provided, that if, at the time an ISO is granted, the
optionee owns (or is deemed to own under Section 424(d) of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, of a parent or subsidiary of the Company, the term of the
ISO shall be for a period not exceeding five years from the date of grant.
Options shall be subject to earlier termination as hereinafter provided.
3
<PAGE> 6
8. Payment for Stock. Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares with respect to
which the option is to be exercised, together with (a) certified check, bank
draft or postal or express money order payable to the order of the Company for
an amount equal to the option price of such shares, or (b) with the consent of
the Committee, shares of Common Stock of the Company having a fair market value
equal to the option price of such shares, or (c) with the consent of the
Committee, a combination of (a) and (b). As promptly as practicable after
receipt of such written notification and payment, the Company shall deliver to
the optionee certificates for the number of shares with respect to which such
option has been so exercised, issued in the optionee's name.
9. Restrictions on Assignment and Exercise of Option. Each option
granted under the Plan shall not be transferable by the person to whom it is
granted otherwise than by will or the laws of descent and distribution and shall
be exercisable, during such person's lifetime, only by him, and by him only
while he is an employee of the Company or of a parent or subsidiary of the
Company, except that in the event the employment of such person terminates
because of his death or because of his retirement under any retirement plan of
the Company or of a parent or subsidiary or because of any other reason
(including without limitation disability, but not including dismissal for cause)
approved by the Committee in each case, such person or his executors,
administrators, heirs or legatees, as the case may be, shall have the right to
exercise such option within three (3) months after the date he ceases to be an
employee of the Company, or such parent or subsidiary (but not later than the
termination date of the option) with respect to the shares as to which, at the
time of such cessation of employment, the person to whom such option was granted
then had the right to exercise such option.
10. Provisions Against Dilution. If the Common Stock of the Company
shall at any time be changed by declaration of a stock dividend or other
distribution (which exceeds five percent (5%) of the total number of shares of
Common Stock outstanding at
4
<PAGE> 7
the close of business on the date fixed for the determination of stockholders
entitled to receive such stock dividend or distribution), split-up, combination
of shares, recapitalization, merger in which the Company is the surviving
corporation, the number and kind of shares subject to this Plan or subject to
any options theretofore granted, and the option prices per share shall be
appropriately and equitably adjusted to the extent necessary, as determined by
the Committee, to maintain the proportionate number of shares without changing
the aggregate option price.
In the event of (a) the liquidation or dissolution of the Company, or
(b) a merger in which the Company is not the surviving corporation or a
consolidation, any outstanding options shall terminate upon the earliest of any
such event, unless other provision is made therefor in the transaction.
No fractions of or fractional shares shall be purchasable or
delivered upon purchase hereunder.
11. Reservation of Stock and Provisions Relation to Issuance. The
Company shall, while any option granted hereunder is outstanding, reserve and
keep available, out of shares of its authorized and unissued stock or reacquired
shares, such number of shares of its stock subject hereto as shall be sufficient
to satisfy the requirements of all such options; shall, promptly upon the
exercise of any option, comply the terms thereof; and shall pay all federal
original issue taxes on shares issued thereunder and all other fees or expenses
necessarily incurred by the Company in connection therewith.
12. Amendment of the Plan. The Board of Directors may, in its
discretion, at any time or from time to time while the Plan is operative, make
changes therein or amendments thereto which, in its option, are not inconsistent
with the purposes of the Plan as set forth in Section 1 hereof except that,
without the approval of stockholders, (1) the aggregate number of shares
issuable pursuant to options granted under the Plan shall not, subject to the
provisions of Section 10 hereof, exceed the number specified in Section 3
hereof, (2) the minimum option price, determined in accordance with the
5
<PAGE> 8
provisions of Section 6 hereof, shall not be decreased by the Board of
Directors, and (3) the class of employees eligible to receive options under the
Plan shall not be changed by the Board of Directors; and provided further,
however, that no change or amendment shall affect rights under any option
granted hereunder while the same is outstanding without the consent of the
holder of such option.
13. Miscellaneous. Nothing contained in the Plan, or in any option
granted hereunder, shall be deemed to affect in any way the terms upon which any
officer or employee of the Company or of any parent or subsidiary of the Company
is employed or to constitute in any respect any, or part of any, employment
contract with any officer, employee or option-holder and neither the adoption of
the Plan nor any provisions thereof shall be deemed to confer any rights on any
employee or officer of the Company.
Nothing in the Plan nor in the adoption or approval thereof shall be
deemed a limitation upon any right or power which the Board of Directors may now
or hereafter have under the Certificate of Incorporation or the By-Laws of the
Company, or any amendment thereof.
14. Effective Date of Plan. The Plan shall become effective upon its
adoption by the Board of Directors within twelve months before or after the date
it is approved by the vote of at least a majority of the outstanding Common
Stock of the Company.
15. Duration of the Plan. This Plan shall remain in effect until all
shares subject or which may become subject to the Plan shall have been purchased
pursuant to options granted under the Plan; provided that options under the Plan
for 250,000 shares authorized for issuance under the Plan at the time of its
adoption in 1976 must be granted within ten (10) years from the effective date
of the Plan and, provided further, that options for an additional 200,000 shares
authorized for issuance under the Plan in 1985 must be granted prior to May 14,
1995 and provided further that options for an additional 250,000 shares
authorized for issuance in 1989 must be granted prior to May 14, 1995
6
<PAGE> 9
and provided further that options for an additional 250,000 shares authorized
for issuance in 1992 must be granted prior to August 18, 2002. Notwithstanding
the foregoing, the Board of Directors may, in its discretion, terminate the Plan
at any time, but such termination shall not affect in any rights under any
option which may have been granted under the Plan prior to such termination.
7
<PAGE> 1
EXHIBIT 10.2(b)
INFORMATION INTERNATIONAL, INC.
DIRECTORS' STOCK OPTION PLAN
(AS AMENDED THROUGH NOVEMBER 5, 1998)
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
1. Purpose of the Plan 1
2. Administration 1
3. Stock Subject to the Plan 1
4. Participation 2
5. Optionholder Not to be Deemed
Stockholder Until Issue of Shares 2
6. Option Price 2
7. Period of Option 3
8. Payment for Stock 3
9. Restrictions on Assignment and
Exercise of Option 4
10. Provisions Against Dilution 5
11. Reservation of Stock and Provisions
Relation to Issuance 6
12. Amendment of the Plan 6
13. Miscellaneous 6
14. Effective Date 7
15. Duration of the Plan 7
16. Application to Options
Previously Granted 7
</TABLE>
<PAGE> 3
DIRECTORS STOCK OPTION PLAN
INFORMATION INTERNATIONAL, INC.
1. Purpose of the Plan.The purpose of this Plan is to benefit
Information International, Inc. (the "Company") and its shareholders by
encouraging and facilitating ownership of its stock by, and to give appropriate
recognition to, Directors of the Company who share responsibility for the
Company's growth and profitability but who, because they are not employees of
the Company, are not eligible to participate in the Company's existing stock
option plan. By encouraging such Directors to acquire or increase their
ownership of its stock, the Company seeks to gain for the Company the advantages
inherent in Directors having a sense of proprietorship.
2. Administration. This Plan shall be administered by a Committee of not
less than two members of the Board of Directors. Members of the Committee shall
be elected annually. Members of the Committee shall be elected annually. Members
of the Committee may not have received a stock option grant under any Company
Plan during the prior year or while serving on the Committee. The Committee is
authorized to interpret the Plan and options granted thereunder, to adopt, amend
and rescind rules and regulations for the administration of the Plan and to make
all other determinations necessary or advisable for such administration. The
Company shall effect the grant of options under the Plan in accordance with
determinations made by the Committee pursuant to the provisions of the Plan, by
execution of instruments in writing in form approved by the Committee.
3. Stock Subject to the Plan. The aggregate number of shares of Common
Stock which may be issued under options granted under the Plan shall not exceed
eighty thousand (80,000) shares except as such total amount may be adjusted
pursuant to Section 10 hereof. Such shares shall be made available from
authorized unissued or reacquired Common Stock. If for any reason any option
<PAGE> 4
under the Plan terminates in whole or in part unexercised, shares covered by
such terminated option may be again subjected to an option under the Plan.
4. Participation. The Board of Directors may, in its discretion, from
time to time, while the Plan shall be in effect, grant options hereunder to
purchase shares of the Common Stock of the Company only to Directors of the
Company who are not also employees of the Company or of any parent or subsidiary
of the Company. The term "Common Stock" as used in the Plan includes the Common
Stock of the Company (or any class of stock which is then the junior stock of
the Company whether designated as Common or otherwise) as described in the
Certificate of Incorporation of the Company, as presently in effect or hereafter
amended.
5. Optionholder Not to be Deemed Stockholder Until Issue of Shares. No
person shall by virtue of the granting to him of an option hereunder be deemed
to be a holder of any shares purchasable thereunder or to be entitled to the
rights or privileges of a holder of such shares unless and until such person
shall have exercised his option with respect to such shares and the same shall
have been issued to him.
6. Option Price. The purchase price per share under each option granted
under the Plan, and the terms of such option, shall be determined by the Board
of Directors. Such purchase price shall not be less than 100 percent of the fair
market value of the stock at the time such option is granted. In the event of
any extension of the term for exercise of any option granted under the Plan, the
purchase price at the time such option was granted shall be the purchase price
per share under such option.
7. Period of Option. No option granted under the Plan shall be excisable
prior to the expiration of one year from the date of granting thereof unless
otherwise specifically authorized by
-2-
<PAGE> 5
the Directors in their sole discretion and except as otherwise provided in
Section 10. No option granted under the Plan may be exercised after the
expiration of ten years from the date of grant. Subject to the foregoing, each
option granted under the Plan shall be exercisable at any time and from time to
time during each twelve-month period following the first annual anniversary of
the date of the granting thereof with respect to not more than twenty-five
percent (25%) of all the shares originally purchasable under such option and,
with respect to options granted on or after November 2, 1998, not more than
twenty percent (20%) of all shares originally purchasable under such option;
provided, however, that if during any such twelve-month period such option is
not exercised with respect to any shares with respect to which it is exercisable
during such period, such option also may be exercised with respect to such
shares at any time and from time to time thereafter, but not after the
expiration of ten (10) years from such granting date. The expiration date of any
outstanding option which has a term of less than ten years may be changed upon
approval of the Board and consent of the holder of such option to a date which
is not later than the tenth anniversary of the date of grant of such option.
8. Payment for Stock. Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares as to which the
option is to be exercised, together with (a) a certified check, bank draft or
postal or express money order payable to the order of the Company for an amount
equal to the option price of such shares, (b) with the consent of the Board,
shares of Common Stock of the Company having a fair market value equal to the
option price of such shares, or (c) with the consent of the Board, a combination
of (a) and (b). As promptly as practicable after receipt of such written
notification and payment, the Company shall deliver to the
-3-
<PAGE> 6
optionee certificates for the number of shares with respect to which such option
has been so exercised, issued in the optionee's name.
9. Restrictions on Assignment and Exercise of Option. Each option
granted under this Plan shall not be transferrable by the person to whom it is
granted otherwise than by will or the laws of descent and distribution and shall
be exercisable, during such person's lifetime, only by him and by him only while
he is a Director of the Company, except that in the event the term of office of
such person terminates because of his death or because of any other reason
except removal for cause, such person, executors, administrators, heirs or
legatees, as the case may be, shall have the right to exercise such option
within three (3) months after the date he ceases to be a Director of the Company
(but not later than the termination date of the option) with respect to the
shares as to which, at the time of such cessation of his term of office, the
person to whom such option was granted then had the right to exercise such
option.
10. Provisions Against Dilution. If the number of shares of Common Stock
of the Company shall at any time be increased or decreased by declaration of a
stock dividend or other distribution (which exceeds five percent (5%) of the
total number of shares of Common Stock outstanding at the close of business on
the date fixed for the determination of stockholders entitled to receive such
stock dividend or distribution), split-up, combination of shares,
recapitalization, or merger or consolidation in which the Company is the
surviving corporation, the number and kind of shares subject to this Plan or
subject to any options theretofore granted, and the option prices per share,
shall be appropriately and equitably adjusted to the extent necessary, as
determined by the Board of Directors, to maintain the proportionate number of
shares without changing the aggregate option price.
-4-
<PAGE> 7
Notwithstanding anything in Section 7 to the contrary any outstanding
options shall become immediately exercisable upon the occurrence of any of the
following events unless the Board of Directors in its sole discretion determines
by majority vote that it would not be in the best interests of the Company under
all the circumstances existing at such time to permit early exercise of options:
(1) If any person (other than the Company) who does not own more
than 10% of the Company's stock on June 24, 1992 acquires 10% or more of
such stock on or after that date.
(2) If any person other than the Company who owns more than 10%
of the Company's stock on June 24, 1992 acquires any additional shares
of stock.
(3) In the event of a dissolution or liquidation of the Company
or merger or consolidation in which the Company is not the surviving
corporation. Nothing herein contained shall prevent the assumption of an
option or the substitution therefor of a new option by the surviving
corporation.
(4) If the Company or one or more of its affiliates shall sell
or otherwise transfer 50% of the assets or earning power of the Company
and its subsidiaries (taken as a whole).
The existence of this Plan, or of options hereunder, shall not in any way
prevent any transaction described herein. Options may be exercisable in whole or
in part provided that no option may be exercised after ten years from the date
of its grant.
No fractions of or fractional shares shall be purchasable or
delivered upon purchase hereunder.
11. Reservation of Stock and Provisions Relating to Issuance. The Company shall,
while any option granted hereunder is outstanding, reserve and keep available,
out of shares of its
-5-
<PAGE> 8
authorized and unissued stock or reacquired shares, such number of shares of its
stock subject hereto as shall be sufficient to satisfy the requirements of all
such options; shall, promptly upon the exercise of any option, comply with the
terms thereof; and shall pay all original issue taxes on shares issued
thereunder and all other fees or expenses necessarily incurred by the Company in
connection therewith.
12. Amendment of the Plan. The Board of Directors may, in its
discretion, at any time or from time to time while the Plan is operative, make
changes therein or amendments thereto which, in its opinion, are not
inconsistent with the purposes of the Plan as set forth in Section 1 hereof
except that, without the approval of stockholders, (1) the aggregate number of
shares issuable pursuant to options granted under the Plan shall not, subject to
the provisions of Section 10 hereof, exceed the number specified in Section 3
hereof, (2) the minimum option price, determined in accordance with the
provisions of Section 6 hereof, shall not be decreased by the Board of
Directors, and (3) the class of persons eligible to receive options under the
Plan shall not be changed by the Board of Directors; and provided further,
however, that no change or amendment shall affect rights under any option
granted hereunder while the same is outstanding without the consent of the
holder of such option.
13. Miscellaneous. Nothing contained in this Plan, or in any option
granted hereunder, shall be deemed to affect any way the terms upon which any
Director of the Company shall hold office or to constitute in any respect any,
or part of any, employment contract with any option holder and neither the
adoption of the Plan nor any provisions thereof shall be deemed to confer any
rights on any Director of the Company.
-6-
<PAGE> 9
Nothing in the plan nor in the adoption or approval thereof shall be
deemed a limitation upon any right or power which the Board of Directors may now
or hereafter have under the Certificate of Incorporation or the By-Laws of the
Company, or any amendment thereof.
14. Effective Date. This Amendment shall become effective upon approval
thereof by the Directors and Subsidiaries of the Company and, when so approved,
this Amendment shall be deemed to be in full force and effect.
15. Duration of the Plan. This Plan shall remain in effect until all
shares subject or which may become subject to the Plan shall have been purchased
pursuant to options granted under the Plan; provided that options under the Plan
must be granted within ten (10) years from the effective date of the latest
amendment.
Notwithstanding the foregoing, the Board of Directors may, in its
discretion, terminate the Plan at any time, but such termination shall not
affect in any way rights under any option which may have been granted under the
Plan prior to such termination.
16. Application to Options Previously Granted. The provisions of this
Plan shall be applicable to, and govern, all options heretofore granted to
Directors, pursuant to the Directors' Stock Option Plan as heretofore in effect
prior to the amendment of said Plan, effective June 24, 1992.
-7-
<PAGE> 1
EXHIBIT 10.2(c)
1995 STOCK OPTION PLAN
OF
AUTOLOGIC INFORMATION INTERNATIONAL, INC.
(As amended through September 18, 1998)
-1-
<PAGE> 2
1995 STOCK OPTION PLAN
OF
AUTOLOGIC INFORMATION INTERNATIONAL, INC.
(As amended through September 18, 1998)
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is designed
to provide an incentive to key employees (including directors and officers who
are key employees) and to consultants of Autologic Information International,
Inc., a Delaware corporation (the "Company") or any of its Subsidiaries (as
defined in Paragraph 19) or a Parent (as defined in Paragraph 19), and to offer
an additional inducement in obtaining the services of such persons. The Plan
provides for the grant of "incentive stock options" ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and nonqualified stock options which do not qualify as ISOs ("NQSOs"), but the
Company makes no representation or warranty, express or implied, as to the
qualification of any option as an "incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph 12,
the aggregate number of shares of common stock, $.01 par value per share, of the
Company ("Common Stock") for which options may be granted under the Plan shall
not exceed 150,000. Such shares of Common Stock may, in the discretion of the
Board of Directors of the Company (the "Board of Directors"), consist either in
whole or in part of authorized but unissued shares of Common Stock or shares of
Common Stock held in the treasury of the Company. Subject to the provisions of
Paragraph 13, any shares of Common Stock subject to an option which for any
reason expires, is canceled or is terminated unexercised or which ceases for any
reason to be exercisable shall again become available for the granting of
options under the Plan. The Company shall at all times during the term of the
Plan reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board of Directors which, to the extent it shall determine, may delegate its
powers with respect to the administration of the Plan to a committee of the
Board of Directors (the "Committee") consisting of not less than two directors
(or such greater number as may be required by law), each of whom shall be a
"disinterested person" within the meaning of Rule 16b-3 (or any successor rule
or regulation) promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"). All references to determinations or actions by the Committee
shall be deemed to include determinations and actions by the Board of Directors.
A majority of the members of the Committee shall constitute a quorum, and the
acts of a majority of the members present at any meeting at which a quorum is
present, and any acts approved in writing by all members without a meeting,
shall be the acts of the Committee.
-2-
<PAGE> 3
Subject to the express provisions of the Plan, the Committee shall have
the authority, in its sole discretion: to determine the key employees and
consultants who shall be granted options; the times when options shall be
granted; whether an option shall be an ISO or a NQSO; the number of shares of
Common Stock to be subject to each option; the term of each option; the date
each option shall become exercisable; whether an option shall be exercisable in
whole, in part or in installments and, if in installments, the number of shares
of Common Stock to be subject to each installment, whether the installments
shall be cumulative, the date each installment shall become exercisable and the
term of each installment; whether to accelerate the date of exercise of any
option or installment; whether shares of Common Stock may be issued upon the
exercise of an option as partly paid and, if so, the dates when future
installments of the exercise price shall become due and the amounts of such
installments; the exercise price of each option; the form of payment of the
exercise price; whether to restrict the sale or other disposition of the shares
of Common Stock acquired upon the exercise of an option and, if so, whether to
waive any such restriction; whether to subject the exercise of all or any
portion of an option to the fulfillment of contingencies as specified in the
contract referred to in Paragraph 11 (the "Contract"), including without
limitation, contingencies relating to entering into a covenant not to compete
with the Company, any of its Subsidiaries or a Parent, to financial objectives
for the Company, any of its Subsidiaries or a Parent, a division of any of the
foregoing, a product line or other category, and/or the period of continued
employment of the optionee with the Company, any of its Subsidiaries or a
Parent, and to determine whether such contingencies have been met; whether an
optionee is Disabled (as defined in Paragraph 19); the amount, if any, necessary
to satisfy the Company's obligation to withhold taxes or other amounts; the fair
market value of a share of Common Stock; to construe the respective Contracts
and the Plan; with the consent of the optionee, to cancel or modify an option,
provided, that the modified provision is permitted to be included in an option
granted under the Plan on the date of the modification, and further, provided,
that in the case of a modification (within the meaning of Section 424(h) of the
Code) of an ISO, such option as modified would be permitted to be granted on the
date of such modification under the terms of the Plan; to prescribe, amend and
rescind rules and regulations relating to the Plan; and to make all other
determinations necessary or advisable for administering the Plan. Any
controversy or claim arising out of or relating to the Plan, any option granted
under the Plan or any Contract shall be determined unilaterally by the Committee
in its sole discretion. The determinations of the Committee on the matters
referred to in this Paragraph 3 shall be conclusive and binding on the parties.
No member or former member of the Committee shall be liable for any action,
failure to act or determination made in good faith with respect to the Plan or
any option hereunder.
4. ELIGIBILITY. The Committee may from time to time, in its sole
discretion, consistent with the purposes of the Plan, grant options to key
employees (including officers and directors who are key employees) of, and to
consultants to, the Company or any of its Subsidiaries or a Parent. Such options
granted shall cover such number of shares of Common Stock as the Committee may
determine, in its sole discretion; provided, however, that the
-3-
<PAGE> 4
maximum number of shares subject to options that may be granted to any employee
or consultant during any calendar year under the Plan (the "162(m) Maximum")
shall not exceed 50,000 shares; and further, provided, that the aggregate market
value (determined at the time the option is granted in accordance with Paragraph
5) of the shares of Common Stock for which any eligible employee may be granted
ISOs under the Plan or any other plan of the Company, or of a Parent or a
Subsidiary of the Company, which are exercisable for the first time by such
optionee during any calendar year shall not exceed $100,000. Such limitation
shall be applied by taking ISOs into account in the order in which they were
granted. Any option (or the portion thereof) granted in excess of such amount
shall be treated as a NQSO.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Committee in its sole discretion;
provided, however, that the exercise price of an ISO shall not be less than the
fair market value of the Common Stock subject to such option on the date of
grant; and further, provided, that if, at the time an ISO is granted, the
optionee owns (or is deemed to own under Section 424(d) of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, of any of its Subsidiaries or of a Parent, the exercise
price of such ISO shall not be less than 110% of the fair market value of the
Common Stock subject to such ISO on the date of grant.
The fair market value of a share of Common Stock on any day shall be (a)
if the principal market for the Common Stock is a national securities exchange,
the average of the highest and lowest sales prices per share of Common Stock on
such day as reported by such exchange or on a composite tape reflecting
transactions on such exchange, (b) if the principal market for the Common Stock
is not a national securities exchange and the Common Stock is quoted on The
Nasdaq Stock Market ("Nasdaq"), and (i) if actual sales price information is
available with respect to the Common Stock, the average of the highest and
lowest sales prices per share of Common Stock on such day on Nasdaq, or (ii) if
such information is not available, the average of the highest bid and lowest
asked prices per share of Common Stock on such day on Nasdaq, or (c) if the
principal market for the Common Stock is not a national securities exchange and
the Common Stock is not quoted on Nasdaq, the average of the highest bid and
lowest asked prices per share of Common Stock on such day as reported on the OTC
Bulletin Board Service or by National Quotation Bureau, Incorporated or a
comparable service; provided, however, that if clauses (a), (b) and (c) of this
Paragraph are all inapplicable, or if no trades have been made or no quotes are
available for such day, the fair market value of the Common Stock shall be
determined by the Board by any method consistent with applicable regulations
adopted by the Treasury Department relating to stock options.
6. TERM. The term of each option granted pursuant to the Plan shall be
such term as is established by the Committee, in its sole discretion; provided,
however, that the term of each ISO granted pursuant to the Plan shall be for a
period not exceeding 10 years from the date of grant thereof; and further,
provided, that if, at the time an ISO is granted, the optionee owns (or is
deemed to own under Section 424(d) of the Code) stock possessing more than 10%
of
-4-
<PAGE> 5
the total combined voting power of all classes of stock of the Company, of any
of its Subsidiaries or of a Parent, the term of the ISO shall be for a period
not exceeding five years from the date of grant. Options shall be subject to
earlier termination as hereinafter provided.
7. EXERCISE. An option (or any part or installment thereof), to the
extent then exercisable, shall be exercised by giving written notice to the
Company at its principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due on exercise if the Contract permits installment
payments) (a) in cash or by certified check or (b) if the applicable Contract
permits, with previously acquired shares of Common Stock having an aggregate
fair market value on the date of exercise (determined in accordance with
Paragraph 5) equal to the aggregate exercise price of all options being
exercised, or with any combination of cash, certified check or shares of Common
Stock.
The Committee may, in its sole discretion, permit payment of the
exercise price of an option by delivery by the optionee of a properly executed
notice, together with a copy of his irrevocable instructions to a broker
acceptable to the Committee to deliver promptly to the Company the amount of
sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of an option
shall not have the rights of a stockholder with respect to such shares of Common
Stock until the date of issuance of a stock certificate to him for such shares;
provided, however, that until such stock certificate is issued, any optionee
using previously acquired shares of Common Stock in payment of an option
exercise price shall continue to have the rights of a stockholder with respect
to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly
provided in the applicable Contract, any optionee whose relationship with the
Company, its Parent and Subsidiaries as an employee or a consultant has
terminated for any reason (other than as a result of the optionee's death or
Disability) may exercise such option, to the extent exercisable on the date of
such termination, at any time within three months after the date of termination,
but not thereafter and in no event after the date the option would otherwise
have expired; provided, however, that if such relationship is terminated either
(a) for cause, or (b) without the consent of the Company, such option shall
terminate immediately.
For the purposes of the Plan, an employment relationship shall be deemed
to
-5-
<PAGE> 6
exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual on military, sick
leave or other bona fide leave of absence shall continue to be considered an
employee for purposes of the Plan during such leave if the period of the leave
does not exceed 90 days, or, if longer, so long as the individual's right to
reemployment with the Company (or a related corporation) is guaranteed either by
statute or by contract. If the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed by statute or by contract,
the employment relationship shall be deemed to have terminated on the 91st day
of such leave.
Except as may otherwise be expressly provided in the applicable
Contract, options granted under the Plan shall not be affected by any change in
the status of the optionee so long as the optionee continues to be an employee
of, or a consultant to, the Company, or any of the Subsidiaries or a Parent
(regardless of having changed from one to the other or having been transferred
from one corporation to another).
Nothing in the Plan or in any option granted under the Plan shall confer
on any optionee any right to continue in the employ of, or as a consultant to,
the Company, any of its Subsidiaries or a Parent, or interfere in any way with
any right of the Company, any of its Subsidiaries or a Parent to terminate the
optionee's relationship at any time for any reason whatsoever without liability
to the Company, any of its Subsidiaries or a Parent.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be
expressly provided in the applicable Contract, if an optionee dies (a) while he
is an employee of, or consultant to, the Company, any of its Subsidiaries or a
Parent, (b) within three months after the termination of such relationship
(unless such termination was for cause or without the consent of the Company) or
(c) within one year following the termination of such relationship by reason of
the optionee's Disability, his option may be exercised, to the extent
exercisable on the date of his death, by his Legal Representative (as defined in
Paragraph 19) at any time within one year after death, but not thereafter and in
no event after the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the applicable
Contract, any optionee whose relationship as an employee of, or consultant to,
the Company, its Parent and Subsidiaries has terminated by reason of such
optionee's Disability may exercise his option, to the extent exercisable upon
the effective date of such termination, at any time within one year after such
date, but not thereafter and in no event after the date the option would
otherwise have expired.
10. COMPLIANCE WITH SECURITIES LAWS. The Committee may require, in its
sole discretion, as a condition to the exercise of any option that either (a) a
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), with
-6-
<PAGE> 7
respect to the shares of Common Stock to be issued upon such exercise shall be
effective and current at the time of exercise, or (b) there is an exemption from
registration under the Securities Act for the issuance of the shares of Common
Stock upon such exercise. Nothing herein shall be construed as requiring the
Company to register shares subject to any option under the Securities Act or to
keep any Registration Statement effective or current.
The Committee may require, in its sole discretion, as a condition to the
exercise of any option that the optionee execute and deliver to the Company his
representations and warranties, in form, substance and scope satisfactory to the
Committee, which the Committee determines are necessary or convenient to
facilitate the perfection of an exemption from the registration requirements of
the Securities Act, applicable state securities laws or other legal requirement,
including without limitation that (a) the shares of Common Stock to be issued
upon the exercise of the option are being acquired by the optionee for his own
account, for investment only and not with a view to the resale or distribution
thereof, and (b) any subsequent resale or distribution of shares of Common Stock
by such optionee will be made only pursuant to (i) a Registration Statement
under the Securities Act which is effective and current with respect to the
shares of Common Stock being sold, or (ii) a specific exemption from the
registration requirements of the Securities Act, but in claiming such exemption,
the optionee shall prior to any offer of sale or sale of such shares of Common
Stock provide the Company with a favorable written opinion of counsel
satisfactory to the Company, in form, substance and scope satisfactory to the
Company, as to the applicability of such exemption to the proposed sale or
distribution.
In addition, if at any time the Committee shall determine, in its sole
discretion, that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition to, or in connection with, the granting
of an option or the issue of shares of Common Stock thereunder, such option may
not be exercised in whole or in part unless such listing, qualification, consent
or approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any other
provision of the Plan, in the event of a stock dividend, split-up, spin-off,
combination, reclassification, recapitalization, merger in which the Company is
the surviving corporation, or exchange of shares or the like, which results in a
change in the number or kind of shares of Common Stock which are outstanding
immediately prior to such event, the aggregate number and kind of shares subject
to each outstanding option shall be adjusted, as of the payment date or
effective date (as the case may be) of such event, in the same manner as would
be made
-7-
<PAGE> 8
with respect to the number and kind of shares of a stockholder of the Company
who immediately prior to such event actually owned the same number and kind of
shares that are subject to the option, and the exercise price of each option
shall be adjusted such that the aggregate exercise price of such option shall
remain unchanged. In addition, the aggregate number and kind of shares subject
to the Plan and the 162(m) Maximum shall be adjusted in the same manner.
Notwithstanding the foregoing, such adjustments may provide for the elimination
of fractional shares which might otherwise be subject to an option without
payment therefor. All such adjustments shall be made by the Board of Directors,
whose determination shall be conclusive and binding on all parties.
In the event of (a) the liquidation or dissolution of the Company, or
(b) a merger in which the Company is not the surviving corporation or a
consolidation, any outstanding options shall terminate upon the earliest of any
such event, unless other provision is made therefor in the transaction.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by the
Board of Directors on November 6, 1995 and approved by stockholders on November
6, 1995. No option may be granted under the Plan after November 5, 2005. The
Board of Directors, without further approval of the Company's stockholders, may
at any time suspend or terminate the Plan, in whole or in part, or amend it from
time to time in such respects as it may deem advisable, including, without
limitation, in order that ISOs granted hereunder meet the requirements for
"incentive stock options" under the Code, to comply with the provisions of Rule
16b-3, Section 162(m) of the Code, or any change in applicable law, regulations,
rulings or interpretations of administrative agencies; provided, however, that
no amendment shall be effective without the requisite prior or subsequent
stockholder approval which would (a) except as contemplated in Paragraph 12,
increase the maximum number of shares of Common Stock for which options may be
granted under the Plan or the 162(m) Maximum, (b) materially increase the
benefits accruing to participants under the Plan or (c) change the eligibility
requirements to receive options hereunder. No termination, suspension or
amendment of the Plan shall, without the consent of the holder of an existing
and outstanding option affected thereby, adversely affect his rights under such
option. The power of the Committee to construe and administer any options
granted under the Plan prior to the termination or suspension of the Plan
nevertheless shall continue after such termination or during such suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the optionee,
only by the optionee or his Legal Representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process, and any such attempted
assignment, transfer, pledge, hypothecation or disposition shall be null and
void ab initio and of no force or effect.
-8-
<PAGE> 9
15. WITHHOLDING TAXES. The Company may withhold (a) cash, (b) subject to
any limitations under Rule 16b-3, shares of Common Stock to be issued with
respect thereto having an aggregate fair market value on the exercise date
(determined in accordance with Paragraph 5), or (c) any combination thereof, in
an amount equal to the amount which the Committee determines is necessary to
satisfy the Company's obligation to withhold Federal, state and local income
taxes or other amounts incurred by reason of the grant or exercise of an option,
its disposition, or the disposition of the underlying shares of Common Stock.
Alternatively, the Company may require the holder to pay to the Company such
amount, in cash, promptly upon demand. The Company shall not be required to
issue any shares of Common Stock pursuant to any such option until all required
payments have been made.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend or
legends upon the certificates for shares of Common Stock issued upon exercise of
an option under the Plan and may issue such "stop transfer" instructions to its
transfer agent in respect of such shares as it determines, in its discretion, to
be necessary or appropriate to (a) prevent a violation of, or to perfect an
exemption from, the registration requirements of the Securities Act and any
applicable state securities laws, (b) implement the provisions of the Plan or
any agreement between the Company and the optionee with respect to such shares
of Common Stock, or (c) permit the Company to determine the occurrence of a
"disqualifying disposition," as described in Section 421(b) of the Code, of the
shares of Common Stock issued or transferred upon the exercise of an ISO granted
under the Plan.
The Company shall pay all issuance taxes with respect to the issuance of
shares of Common Stock upon the exercise of an option granted under the Plan, as
well as all fees and expenses incurred by the Company in connection with such
issuance.
17. USE OF PROCEEDS. The cash proceeds from the sale of shares of Common
Stock pursuant to the exercise of options under the Plan shall be added to the
general funds of the Company and used for such corporate purposes as the Board
of Directors may determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation (as defined in Paragraph
19) or assume the prior options of such Constituent Corporation.
19. DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) Constituent Corporation. The term "Constituent Corporation"
-9-
<PAGE> 10
shall mean any corporation which engages with the Company, any of its
Subsidiaries or a Parent in a transaction to which Section 424(a) of the Code
applies (or would apply if the option assumed or substituted were an ISO), or
any Parent or any Subsidiary of such corporation.
(b) Disability. The term "Disability" shall mean a permanent and
total disability within the meaning of Section 22(e)(3) of the Code.
(c) Legal Representative. The term "Legal Representative" shall
mean the executor, administrator or other person who at the time is entitled by
law to exercise the rights of a deceased or incapacitated optionee with respect
to an option granted under the Plan.
(d) Parent. The term "Parent" shall have the same definition as
"parent corporation" in Section 424(e) of the Code.
(e) Subsidiary. The term "Subsidiary" shall have the same
definition as "subsidiary corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, such options as may be
granted hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflict
of law provisions.
Neither the Plan nor any Contract shall be construed or interpreted with
any presumption against the Company by reason of the Company causing the Plan or
Contract to be drafted. Whenever from the context it appears appropriate, any
term stated in either the singular or plural shall include the singular and
plural, and any term stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or unenforceability
of any provision in the Plan or any Contract shall not affect the validity,
legality or enforceability of any other provision, all of which shall be valid,
legal and enforceable to the fullest extent permitted by applicable law.
-10-
<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 of the Company as of January 15,
1999 (exclusive of certain subsidiaries which, if considered in the aggregate,
would not, as of October 30, 1998, 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 1997, are included as consolidated
subsidiaries in the Registrant's consolidated financial statements as of October
30, 1998.
<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 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 and Form S-4 No. 33-99278) and in the related Prospectuses
of our report dated December 9, 1998, with respect to the consolidated financial
statements and schedule of Autologic Information International, Inc. and
subsidiaries included in its Annual Report (Form 10-K) for the year ended
October 30, 1998.
Ernst & Young LLP
Woodland Hills, California
January 21, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-30-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-30-1998
<CASH> 11,871
<SECURITIES> 0
<RECEIVABLES> 17,928
<ALLOWANCES> 0
<INVENTORY> 11,310
<CURRENT-ASSETS> 46,292
<PP&E> 5,827
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,254
<CURRENT-LIABILITIES> 16,322
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 39,874
<TOTAL-LIABILITY-AND-EQUITY> 56,254
<SALES> 87,616
<TOTAL-REVENUES> 87,616
<CGS> 52,122
<TOTAL-COSTS> 82,895
<OTHER-EXPENSES> (158)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,563
<INCOME-TAX> 2,049
<INCOME-CONTINUING> 2,514
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,514
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
