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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 (No Fee Required) For the quarter ended April 28, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) For the transition period from
________________________ to _______________________
Commission File No. 0-29396
AUTOLOGIC INFORMATION INTERNATIONAL, INC.
-----------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3855697
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1050 Rancho Conejo Boulevard, Thousand Oaks, CA 91320
------------------------------------------------ -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 498-9611
Not Applicable
-----------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of common stock outstanding as of June 1, 2000 was
5,787,970.
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PART I - FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 28, October 29,
2000 1999
----------- ----------
(Unaudited)
ASSETS (Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 13,228 $ 13,421
Accounts receivable less allowance for doubtful
accounts of $1,128 (2000) and $1,501 (1999) 13,085 12,478
Inventories-See Note C 11,932 11,037
Deferred income tax benefit-See Note D 4,205 4,380
Prepaid expenses and other assets 1,679 1,460
--------- ---------
Total current assets 44,129 42,776
PROPERTY AND EQUIPMENT, at cost net of
accumulated depreciation and amortization
of $7,923 (2000) and $7,150 (1999) 4,870 5,389
DEFERRED INCOME TAX BENEFIT-See Note D 3,768 3,768
EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED, net of amortization of $2,341 (2000)
and $2,065 (1999)-See Note B 412 688
OTHER ASSETS 164 60
--------- ---------
$ 53,343 $ 52,681
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,196 $ 4,242
Payable to Volt-See Notes E and F -- 84
Accrued payroll and related liabilities 3,310 3,291
Accrued expenses 1,867 2,148
Customer advances 7,636 5,194
Income taxes payable 95 598
--------- ---------
Total current liabilities 16,104 15,557
STOCKHOLDERS' EQUITY-See Notes B and G
Preferred stock, par value $0.01
Authorized-1,000,000 shares; issued - none -- --
Common stock, par value $0.01
Authorized - 12,000,000 shares; issued and
outstanding 5,787,970 shares in 2000 and 1999 58 58
Paid-in capital 112,620 112,620
Accumulated deficit (75,439) (75,554)
--------- ---------
37,239 37,124
--------- ---------
$ 53,343 $ 52,681
========= =========
</TABLE>
See accompanying notes
2
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AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- -------------------------
April 28, April 30, April 28, April 30,
2000 1999 2000 1999
--------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES
Systems and equipment $ 12,154 $ 12,993 $ 23,689 $ 25,739
Customer service and support 6,113 6,575 12,226 12,625
--------- --------- --------- ---------
18,267 19,568 35,915 38,364
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
Cost of systems and equipment 6,918 6,948 13,524 13,860
Cost of customer service and support 4,010 5,206 8,130 9,723
--------- --------- --------- ---------
Gross margin 7,339 7,414 14,261 14,781
Operating expenses 7,015 7,484 13,789 14,663
Charges from Volt-See Note E and F
Rent 194 194 388 388
General and administrative 9 9 18 18
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 121 (273) 66 (288)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest income 162 111 309 238
Foreign exchange loss (11) (30) (81) (79)
Other, net (85) (48) (75) (60)
--------- --------- ---------
66 33 153 99
--------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAXES 187 (240) 219 (189)
INCOME TAX (PROVISION) BENEFIT -See Note D (90) 109 (104) 88
--------- --------- --------- ---------
NET INCOME (LOSS) $ 97 $ (131) $ 115 $ (101)
========= ========= ========= =========
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE-See Note G $ 0.02 $ (0.02) $ 0.02 $ (0.02)
========= ========= ========= =========
Average number of shares outstanding - Basic 5,788 5,788 5,788 5,788
========= ========= ========= =========
Average number of shares outstanding - Diluted 5,788 5,788 5,788 5,788
========= ========= ========= =========
</TABLE>
See accompanying notes
3
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AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
$0.01 Par Value
------------------------ Paid-In Accumulated
Shares Amount Capital Deficit
--------- --------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at October 29, 1999 5,787,970 $ 58 $ 112,620 $ (75,554)
Net income for the six months (unaudited) -- -- -- 115
--------- --------- --------- ---------
Balance at April 28, 2000 (unaudited) 5,787,970 $ 58 $ 112,620 $ (75,439)
========= ========= ========= =========
</TABLE>
See accompanying notes
4
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AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
-------------------------
April 28, April 30,
2000 1999
--------- ---------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 115 $ (101)
Adjustments to reconcile net income (loss) to net
cash provided by (applied to) operating activities:
Depreciation 1,120 1,149
Amortization 276 276
Provision for doubtful accounts 6 208
Gain on foreign currency translation (353) (338)
Loss (gain) on dispositions of property and equipment 156 (129)
Deferred income taxes 175 20
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,304) 1,716
Increase in inventories (895) (815)
Increase in prepaid expenses and other assets (327) (1,284)
Decrease in accounts payable (837) (1,379)
Decrease in accrued expenses (131) (884)
Increase in customer advances 2,781 382
Decrease in income taxes payable (503) (219)
Decrease in payable to Volt (84) (202)
--------- ---------
NET CASH PROVIDED BY (APPLIED TO)
OPERATING ACTIVITIES 195 (1,600)
--------- ---------
CASH FLOWS APPLIED TO INVESTING ACTIVITIES
Purchases of property and equipment (757) (850)
--------- ---------
NET CASH APPLIED TO INVESTING ACTIVITIES (757) (850)
--------- ---------
Effect of exchange rate changes on cash 369 580
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (193) (1,870)
Cash and cash equivalents, beginning of period 13,421 11,871
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,228 $ 10,001
========= =========
SUPPLEMENTAL CASH TRANSACTIONS
Cash paid during the period:
Interest $ -- $ --
Income taxes $ 429 $ 262
</TABLE>
See accompanying notes
5
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AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and Article 10 of
Regulation S-X and, therefore, do not include all information and footnotes
required by accounting principles generally accepted in the United States for
complete financial statements. However, in the opinion of management, the
accompanying unaudited condensed consolidated financial statements contain all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation of the Company's financial position at April 28, 2000 and
results of operations for the three months and six months ended April 28, 2000
and April 30, 1999, and cash flows for the six months ended April 28, 2000 and
April 30, 1999. Operating results for interim periods are not necessarily
indicative of the results that may be expected for a full fiscal year.
These statements should be read in conjunction with the financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended October 29, 1999. The accounting policies used in preparing these
financial statements are the same as those described in that Report. The
Company's fiscal year ends on the Friday nearest October 31 and its fiscal
quarters end on the Friday nearest the last day of January, April and July. The
2000 fiscal year will contain 53 weeks compared with 52 weeks in fiscal year
1999.
NOTE B--FORMATION OF THE COMPANY AND MERGER
The Company was incorporated in Delaware on September 5, 1995 as a wholly-owned
subsidiary of Volt Information Sciences, Inc. ("Volt"). On January 29, 1996,
pursuant to the terms of an Agreement and Plan of Merger dated October 5, 1995,
as subsequently amended (the "Merger Agreement"), among the Company, Volt and
Information International, Inc. ("Triple-I"), Volt contributed to the capital of
Autologic, Incorporated ("Autologic") and certain foreign subsidiaries of Volt
("Volt Subsidiaries") the amounts Autologic or such subsidiaries owed to Volt
and, subsequent thereto, caused Autologic to merge with and into the Company.
Volt also assigned to the Company all of the issued and outstanding shares of
the Volt Subsidiaries. In addition, pursuant to the Merger Agreement, on January
29, 1996, following approval by its stockholders, Triple-I merged with and into
the Company.
As the Company, Autologic and the Volt Subsidiaries were under common control,
the merger of Autologic and the transfer of the stock of the Volt Subsidiaries
to the Company has been accounted for on a pooling of interest basis. The merger
of Triple-I has been accounted for under the purchase method of accounting and,
accordingly, the purchase price, which was based on the quoted market price of
the Triple-I common stock at the time the general terms of the acquisition were
agreed to and announced, plus the value of stock options issued in exchange for
outstanding stock options of Triple-I, has been allocated to net assets based
upon their estimated fair values. The $2,753,000 excess of the purchase price
over the estimated fair value of Triple-I's identifiable assets, including the
estimated future tax benefits of Triple-I's net operating loss carryforwards and
deductible temporary differences, was recorded on the effective date of the
merger and is being amortized over a five-year period.
NOTE C--INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
April 28, October 29,
2000 1999
--------- ----------
(Dollars in thousands)
<S> <C> <C>
Service parts $ 1,007 $ 1,170
Materials 7,303 6,205
Work-in-process 2,129 1,910
Finished goods 1,493 1,752
--------- ---------
$ 11,932 $ 11,037
========= =========
</TABLE>
6
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AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
NOTE D--INCOME TAXES
Income taxes are provided using the liability method. Significant components of
the income tax provision (benefit) attributable to operations are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- -------------------------
April 28, April 30, April 28, April 30,
2000 1999 2000 1999
--------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Current Taxes:
Federal $ (211) $ 13 $ 25 $ 70
State and local 1 18 37 52
Foreign (43) (177) (133) (230)
--------- --------- --------- ---------
Total current (253) (146) (71) (108)
--------- --------- --------- ---------
Deferred Taxes:
Federal 313 57 163 46
State and local 30 (20) 12 (26)
Foreign -- -- -- --
--------- --------- --------- ---------
Total deferred 343 37 175 20
--------- --------- --------- ---------
Total income tax provision (benefit) $ 90 $ (109) $ 104 $ (88)
========= ========= ========= =========
</TABLE>
Deferred income taxes reflect the net tax effects of changes in the temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
As described in Note B, as of the date of the mergers, a deferred tax asset was
established representing the estimated future tax benefit anticipated to be
realized from the use of Triple-I's net operating loss carryforward and
deductible temporary differences and the Company's deductible temporary
differences existing at the date of mergers to reduce anticipated taxable income
of the Company to be realized subsequent to the mergers. The Company believes
that it is more likely than not that such tax benefits will be realized based on
the combined companies' past and anticipated future results of operations and
after considering provisions of the tax law, such as the change in ownership
provisions, that restrict the future use of Triple-I's tax benefits.
NOTE E--CHARGES FROM VOLT
Volt incurs certain costs on behalf of the Company which are reflected in the
results of operations. In addition, during the six months ended April 28, 2000
and April 30, 1999, the Company incurred $18,000 in legal fees payable to Volt
under a $3,000 per month retainer arrangement that provides the Company access
to Volt's in-house legal staff.
7
<PAGE> 8
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
NOTE F--RELATED PARTY TRANSACTIONS
A three-year lease, commencing on the effective date of the mergers, was entered
into between the Company, as lessee, and a wholly-owned subsidiary of Volt, as
lessor, for space previously occupied by Autologic as its headquarters and
manufacturing facility in Thousand Oaks, California. Pursuant to the terms of
the lease, as amended in December 1996, the Company's Board of Directors
established a new rental rate based on prevailing rates in the general area,
which resulted in a slight decrease in rent. The lease also provides for the
Company to pay all real estate taxes, insurance, utilities and repairs related
to the facility. The Company and the Landlord have continued to operate under
the terms of the lease since its expiration in January 1999. During the six
months ended April 28, 2000 and April 30, 1999, the Company paid rent to Volt of
$388,000.
NOTE G--PER SHARE DATA
The Company calculates per share data in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share." (SFAS No. 128). Under SFAS
No. 128, earnings per share data is calculated for basic and diluted earnings
per share. 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 reflects the dilution to earnings
that would occur if stock options and other dilutive securities resulted in the
issuance of common stock. Substantially all common stock equivalent shares from
stock options (326,900 and 341,500 in 2000 and 1999, respectively) have been
excluded from the computation of diluted earnings per share because the effect
would be antidilutive, since the option prices were greater than the average
market prices of the Company's common stock during the periods presented and,
for the reported fiscal 1999 periods, the Company reported a loss.
NOTE H--REVENUE RECOGNITION
Revenues are recognized when products are shipped and services are rendered,
less estimated returns and warranty costs for which provisions are made at the
time of sale. The Company also generates revenues from support and maintenance
contracts, which generally provide for the Company to provide technical support
and maintenance to its customers on its products. Support and maintenance
revenues are recognized ratably over the contract periods.
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition." The SEC Staff addresses several issues in SAB No.
101, including the timing for recognizing revenue derived from selling
arrangements that involve contractual customer acceptance provisions, and
installation of the product occurs after shipment and transfer of title. The
Company's existing revenue recognition policy is to recognize revenue at the
time the customer takes title to the product, generally at the time of shipment.
The Company routinely meets its installation obligations and obtains customer
acceptance. Applying the requirements of SAB No. 101 to the present selling
arrangements may result in a change in the Company's accounting policy for
revenue recognition and the deferral of the recognition of revenue from such
sales until installation is complete and accepted by the customer. The effect of
the change, if any, must be recognized as a cumulative effect of a change in
accounting no later than the Company's first quarter of its fiscal year ending
on November 2, 2001. To the extent SAB No. 101 is relevant to its future sales
arrangements, the Company intends to adopt the new accounting on November 4,
2000. At the current time, it is not possible to determine the effect this
change will have on the results of operations of the Company. However,
management believes the effects on liquidity, cash flow and financial position
will not be material. The Company is also considering potential changes to its
standard contracts for sales that could mitigate the impact of SAB No. 101.
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.
8
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ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
In order to keep investors informed of the Company's future plans and
objectives, this report (and other reports and statements issued by the Company
and its officers from time to time) 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". These
statements generally contain words such as "may," "should," "seeks," "believes,"
"expects," "anticipates," intends," "plans," "estimates," "projects,"
"strategies" and similar expressions or the negative of those words. 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 that have occurred in Asia and Latin
America;
- the impact of the strengthening dollars in international prices;
- the Company's ability to successfully expand its market base beyond its
traditional newspaper market;
- potential changes in customer spending and purchasing policies and
practices;
- the continuing availability of components, sub-assemblies, parts and end
items on reasonable terms, and dependence on third parties for some
components;
- risks inherent in new product introductions, such as start-up delays,
uncertainty of customer acceptance;
- the success of the Company's new Computer-to-Plate (CTP) imager;
- the Company's ability to maintain superior technological capability;
- 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;
- the Company's ability to meet competition in its highly competitive markets
with minimal impact on prices and margins;
- 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;
- the Company's ability to generate cash flows and obtain financing to support
its operations and growth; and,
- the impact of the introduction of the Euro currency in countries where it
has not already been introduced.
Results of Operations
Three months ended April 28, 2000 compared to three months ended April 30, 1999
In the three-month period ended April 28, 2000, revenues decreased by
$1,301,000, or 6.6%, from the three-month period ended April 30, 1999 due to a
decrease of $839,000, or 6.5%, in sales of systems and equipment and a decrease
of $462,000, or 7.0%, in customer service and support sales. The decrease in
systems and equipment sales both domestically and in Europe was primarily a
result of shipments of the Company's new Computer-to-Plate imager at a slower
pace than shipments of the 3850 film imager last year. In addition, the
continuing adverse business conditions in the Far East accounted for lower
international sales during the three-month period. The decrease in customer
service and support sales was due to a decline in new service contracts as a
result of the lower systems and equipment sales domestically.
Gross margins increased 2.3 percentage points due to higher service and support
margins, which increased 13.6 percentage points (from 20.8% to 34.4%), partially
offset by lower margins on systems and equipment, which decreased 3.4 percentage
points (from 46.5% to 43.1%). The increase in service and support margins was
due to higher margins domestically due to lower spare and warranty costs during
the period. The decrease in systems and equipment margins was due to discounting
in response to competition and slightly higher manufacturing costs during the
period. The higher manufacturing costs resulted from higher material costs for
3850
9
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film imagers due to lower production volumes, less price breaks provided by
vendors and unfavorable manufacturing variances associated with the roll-out of
the Company's new wide versions of the 3850 film imager and CTP. Typically,
manufacturing variances are high on new products. However, as the production
quantity increases the material and labor variances are expected to reduce.
Operating expenses decreased by $469,000 from $7,484,000 in the three months
ended April 30, 1999 to $7,015,000 in the three months ended April 28, 2000 due
primarily to cost-cutting measures implemented by the Company. In February 2000,
the Company terminated all sales and engineering activities on its Laser Cinema
Recorder, which should generate annual savings of $400,000. The Laser Cinema
Recorder had been used in the production of many major motion pictures over the
past three years. However, sales of the product had never reached business plan
expectations. The Company will continue to provide field service, technical
support, spare parts, and other support to existing users. Also in February
2000, the Company implemented a 6% worldwide reduction in staffing, which should
save approximately $1.8 million annually. In addition, engineering costs
decreased as development expenses wind down on the CTP and wide 3850 film
imager. Operating expenses as a percentage of sales increased by .2 percentage
points (from 38.2% to 38.4%) due to the lower sales volume despite the reduction
in the level of expenses.
The $51,000 increase in interest income is due to a higher average (over the
three-month period) cash balance and slightly higher prevailing interest rates
in the second quarter fiscal 2000 than in the comparable period in the prior
year.
A foreign exchange loss of $11,000 was realized in the three-month period ended
April 28, 2000, compared to a loss in the same period in 1999 of $30,000. The
loss in both periods was due to unfavorable currency movements in the European
and Pacific Rim currency markets. To reduce the potential impact from foreign
currency changes on the Company's foreign currency receivables and firm
commitments, foreign currency options are purchased.
The Company's effective tax rate was 48.1% for the three months ended April 28,
2000 compared to a 45.4% benefit tax rate for the comparable prior year period
due primarily to higher foreign taxes.
Six months ended April 28, 2000 compared to six months ended April 30, 1999
In the six month period ended April 28, 2000, revenues decreased by $2,449,000,
or 6.4%, from the six-month period ended April 30, 1999 due to a decrease of
$2,050,000, or 8.0%, in sales of systems and equipment, and a decrease of
$399,000, or 3.2% in customer service and support sales. The decrease in systems
and equipment sales both domestically and internationally was primarily due to
the Y2K millennium boundary, as users who had finished testing and qualifying
their systems during the first quarter decreased the level of purchases. The
continuing adverse business conditions in the Far East also contributed to the
lower international sales during the six-month period. In addition, lower sales
in Europe were the result of shipments of the Company's new CTP imager at a
slower pace than shipments of the 3850 film imager last year. CTP products were
designed as an enhancement of the 3850 film imager. Presently the price of CTP
plates is relatively high, which has delayed many potential users from investing
in the CTP technology. As this technology becomes more widespread, plate prices
should decline and sales of CTP equipment should increase on a worldwide basis.
The decrease in customer service and support sales was due to a decline in
service contracts being issued as a result of the lower systems and equipment
sales domestically.
Gross margins increased 1.2 percentage points due to higher service and support
margins, which increased 10.5 percentage points (from 23.0% to 33.5%) partially
offset by lower margins on systems and equipment, which decreased 3.3 percentage
points (from 46.2% to 42.9%). The increase in service and support margins was
due to higher margins domestically due to lower spare and warranty costs during
the period. The decrease in systems and equipment margins was due to discounting
in response to competition and slightly higher manufacturing costs during the
period. The higher manufacturing costs resulted from higher material costs for
3850 imagers due to lower production volumes, less price breaks provided by
vendors and unfavorable manufacturing variances associated with the roll-out of
the Company's new wide versions of the 3850 film imager and CTP. Typically,
manufacturing variances are high on new products. However, as the production
quantity increases the material and labor variances are expected to reduce.
Operating expenses decreased by $874,000 from $14,663,000 in the six months
ended April 30, 1999 to $13,789,000 in the six months ended April 28, 2000 due
primarily to cost cutting measures implemented by the Company beginning in
October 1999. As part of its ongoing cost-cutting initiatives, the Company also
implemented a 6% worldwide reduction in staffing in February 2000. Total
personnel was reduced by 25, with the majority of the layoffs occurring in the
Company's Thousand Oaks facility. The Company estimates the annual savings from
the layoff and other cost cutting measures to be approximately $1.8 million
annually. In addition, in February 2000, the Company terminated sales and
engineering activities on its Laser Cinema Recorder, which should generate
annual savings of approximately $400,000. In addition, engineering costs
decreased as development expenses wind down on the CTP and
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wide 3850 film imager. Operating expenses expressed as a percentage of sales
increased .2 percentage points (from 38.2% to 38.4%) due to the lower sales
volume, despite a decline in the level of expenditures.
The $71,000 increase in interest income is due to a higher average (over the
six-month period) cash balance and slightly higher prevailing interest rates in
the fiscal 2000 period than in the comparable period in the prior year.
A foreign exchange loss of $81,000 was realized in the six-month period ended
April 28, 2000, compared to a loss in the same period in 1999 of $79,000. The
loss in both periods was due to unfavorable currency movements in the European
and Pacific Rim currency markets. To reduce the potential impact from foreign
currency changes on the Company's foreign currency receivables and firm
commitments, foreign currency options are purchased.
The Company's effective tax rate was 47.5% for the six months ended April 28,
2000 compared to a 46.6% benefit tax rate for the comparable prior year period
due primarily to higher foreign taxes.
Liquidity and Capital Resources
As of April 28, 2000, the Company had cash and cash equivalents of $13,228,000
and working capital of $28,025,000. During the six months ended April 28, 2000,
the Company's operating activities provided cash of $195,000, primarily from the
Company's net income for the period ($115,000) supplemented by net non-cash
charges, primarily from depreciation and amortization of $1,380,000, partially
offset by net cash of $1,300,000 used as a result of changes in operating assets
and liabilities. The changes in operating assets and liabilities resulted
primarily from increases in accounts receivable ($1,304,000), inventories
($895,000) and prepaid expenses ($327,000) and decreases in accounts payable and
accrued expenses ($968,000), income taxes payable ($503,000) and amounts payable
to Volt ($84,000), partially offset by an increased in customer advances of
$2,781,000. The increase in customer advances was due primarily to orders in
Europe for the Company's new wide version CTP product. The increase in accounts
receivable was due to higher sales than in the fourth quarter of fiscal 1999.
The increase in inventories was due to the build up of inventory to meet the
increased backlog of orders for the wide CTP. The decline in accounts payable
and accrued expenses resulted from a smaller accrual for inventory purchases and
a reduction in accrued sales tax.
Investing activities used $757,000 for the purchase of property and equipment.
There are no major capital expenditures anticipated during the balance of the
fiscal year.
The Company believes that its cash on hand will be sufficient to meet the
Company's liquidity and capital needs in the normal course of business.
The Effect of New Accounting Pronouncements
In June 1998, the FASB issued Statement 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). The provisions of SFAS No.
133 require companies to record all derivative instruments as assets or
liabilities, measured at fair value. In June 1999, the FASB issued Statement
137, which deferred the effective date of SFAS No. 133. The Company does not
expect that the effects of adopting this new standard in fiscal 2001 will be
material.
Impact of the Euro
Several European countries have adopted as of January 1, 1999, and others are
expected to adopt, a Single European Currency (the "Euro") with a transition
period continuing through January 1, 2002. The Company believes, based on its
experience to date, that its internal systems are, and will continue to be, Euro
compatible without material modification cost. Further, the Company has not
experienced to date, and 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.
11
<PAGE> 12
ITEM 3--QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates,
foreign currency exchange rates and derivative financial instruments. To reduce
the potential impact from foreign currency changes on the Company's foreign
currency receivables and firm commitments, foreign currency options are
purchased.
The Company maintains a portfolio of highly liquid cash equivalents maturing in
three months or less from 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 principal risk. However, the Company's
yield return on future short-term investments could be affected at the time of
reinvestment as a result of intervening events. The Company presently has no
borrowings and, accordingly, does not purchase interest rate swaps or other
instruments to hedge against interest rate fluctuations.
A significant portion of the Company'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 the Company's sales are denominated in U.S.
dollars, the Company's foreign operations are net payers in 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.
Management believes that, due to its currency option positions, changes in
currency rates would not have a significant impact on the Company's results of
operations.
PART II. OTHER INFORMATION
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 2000 Annual Meeting of Shareholders held on April 17, 2000,
stockholders:
(a) Elected the following to serve as directors of the Company to serve until
the 2001 Annual Meeting of the Stockholders, by the following votes:
<TABLE>
<CAPTION>
For Votes Withheld
--------- --------------
<S> <C> <C>
Leroy M. Bell 5,472,174 222,240
Dennis D. Doolittle 5,472,211 222,203
Alden L. Edwards 5,472,232 222,182
EuGene L. Falk 5,471,332 223,082
James J. Groberg 5,468,060 226,354
Paul H. McGarrell 5,471,331 223,083
Jerome Shaw 5,468,960 225,454
William Shaw 5,468,960 225,454
</TABLE>
(b) Ratified the action of the Board of Directors in appointing Ernst & Young
LLP as the Company's independent public accountants for the fiscal year ending
November 3, 2000 by the following vote:
For: 5,691,852 Against: 271 Abstain: 2,291
12
<PAGE> 13
ITEM 5--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<S> <C>
15 Independent Accountants' Report on Review of Interim Financial
Information from Ernst & Young LLP
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended April 28,
2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AUTOLOGIC INFORMATION INTERNATIONAL, INC.
Dated: Thousand Oaks, California
June 9, 2000
BY:/s/ Anthony F. Marrelli
--------------------------------------
Anthony F. Marrelli
Vice President and Chief Financial
Officer
13
<PAGE> 14
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
15 Independent Accountants' Report on Review of Interim Financial
Information from Ernst & Young LLP
27 Financial Data Schedule
</TABLE>
14
