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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 July 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 September 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>
July 28, October 29,
2000 1999
----------- -----------
(Unaudited)
ASSETS (Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 12,117 $ 13,421
Accounts receivable less allowance for doubtful
accounts of $1,188 (2000) and $1,501 (1999) 13,899 12,478
Inventories-See Note C 12,548 11,037
Deferred income tax benefit-See Note D 4,272 4,380
Prepaid expenses and other assets 1,455 1,460
--------- ---------
Total current assets 44,291 42,776
PROPERTY AND EQUIPMENT, at cost net of
accumulated depreciation and amortization
of $8,032 (2000) and $7,150 (1999) 4,662 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 $2,477 (2000)
and $2,065 (1999)-See Note B 276 688
OTHER ASSETS 54 60
--------- ---------
$ 53,051 $ 52,681
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,947 $ 4,242
Payable to Volt-See Notes E and F 126 84
Accrued payroll and related liabilities 3,160 3,291
Accrued expenses 1,995 2,148
Customer advances 6,257 5,194
Income taxes payable 197 598
--------- ---------
Total current liabilities 15,682 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 (75,309) (75,554)
--------- ---------
37,369 37,124
--------- ---------
$ 53,051 $ 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 Nine Months Ended
-------------------------- -------------------------
July 28, July 30, July 28, July 30,
2000 1999 2000 1999
-------- --------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES
Systems and equipment $ 15,259 $ 10,349 $ 38,948 $ 36,088
Customer service and support 5,991 6,231 18,217 18,856
-------- -------- -------- --------
21,250 16,580 57,165 54,944
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES
Cost of systems and equipment 9,445 5,798 22,969 19,658
Cost of customer service and support 4,000 4,571 12,130 14,294
-------- -------- -------- --------
Gross margin 7,805 6,211 22,066 20,992
Operating expenses 7,425 7,807 21,214 22,470
Charges from Volt-See Notes E and F
Rent 194 194 582 582
General and administrative 9 9 27 27
-------- -------- -------- --------
OPERATING INCOME (LOSS) 177 (1,799) 243 (2,087)
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest income 180 102 489 340
Foreign exchange loss (24) (123) (105) (202)
Other, net (69) 15 (144) (45)
-------- -------- -------- --------
87 (6) 240 93
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAXES 264 (1,805) 483 (1,994)
INCOME TAX (PROVISION) BENEFIT-See Note D (134) 352 (238) 440
-------- -------- -------- --------
NET INCOME (LOSS) $ 130 $ (1,453) $ 245 $ (1,554)
======== ======== ======== ========
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE-See Note G $ 0.02 $ (0.25) $ 0.04 $ (0.27)
======== ======== ======== ========
Average number of shares outstanding - Basic and 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 nine months (unaudited) -- -- -- 245
--------- --------- --------- ---------
Balance at July 28, 2000 (unaudited) 5,787,970 $ 58 $ 112,620 $ (75,309)
========= ========= ========= =========
</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 Nine Months Ended
-------------------------
July 28, July 30,
2000 1999
-------- --------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 245 $ (1,554)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 1,656 1,684
Amortization 412 414
Provision for doubtful accounts 118 244
Gain on foreign currency translation (246) (251)
Loss (gain) on dispositions of property and equipment 213 (19)
Deferred income taxes 108 (6)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,254) 2,736
(Increase) decrease in inventories (1,511) 592
Decrease (increase) in prepaid expenses and other assets 4 (669)
Decrease in accounts payable (79) (2,155)
Decrease in accrued expenses (101) (1,555)
Increase in customer advances 1,345 1,091
Decrease in income taxes payable (401) (356)
Increase (decrease) in payable to Volt 42 (55)
-------- --------
NET CASH (APPLIED TO) PROVIDED BY
OPERATING ACTIVITIES (449) 141
-------- --------
CASH FLOWS APPLIED TO INVESTING ACTIVITIES
Purchases of property and equipment (1,142) (1,448)
-------- --------
NET CASH APPLIED TO INVESTING ACTIVITIES (1,142) (1,448)
-------- --------
Effect of exchange rate changes on cash 287 437
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,304) (870)
Cash and cash equivalents, beginning of period 13,421 11,871
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,117 $ 11,001
======== ========
SUPPLEMENTAL CASH TRANSACTIONS
Cash paid during the period:
Income tax $ 666 $ 482
</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 July 28, 2000 and
results of operations for the three months and nine months ended July 28, 2000
and July 30, 1999, and cash flows for the nine months ended July 28, 2000 and
July 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>
July 28, October 29,
2000 1999
-------- -----------
(Dollars in thousands)
<S> <C> <C>
Service parts $ 941 $ 1,170
Materials 8,388 6,205
Work-in-process 1,975 1,910
Finished goods 1,244 1,752
-------- --------
$ 12,548 $ 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 For the Nine
Months Ended Months Ended
----------------------- -----------------------
July 28, July 30, July 28, July 30,
2000 1999 2000 1999
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Current Taxes:
Federal $ 126 $ (516) $ 151 $ (446)
State and local 28 (49) 65 3
Foreign 47 239 (86) 9
------ ------ ------ ------
Total current 201 (326) 130 (434)
------ ------ ------ ------
Deferred Taxes:
Federal (60) (18) 103 28
State and local (7) (8) 5 (34)
Foreign -- -- -- --
------ ------ ------ ------
Total deferred (67) (26) 108 (6)
------ ------ ------ ------
Total income tax provision (benefit) $ 134 $ (352) $ 238 $ (440)
====== ====== ====== ======
</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 and for which the Company reimburses Volt. In addition,
during the nine months ended July 28, 2000 and July 30, 1999, the Company
incurred $27,000 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 on January 28, 1999, although there
have been discussions to modify the lease. During each of the nine months ended
July 28, 2000 and July 30, 1999, the Company paid rent to Volt of $582,000.
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 (306,500 and 331,500 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 quarters and, for the
reported 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 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
<PAGE> 9
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.
Three months ended July 28, 2000 compared to three months ended July 30, 1999
Results of Operations
In the three month period ended July 28, 2000, revenues increased by $4,670,000,
or 28.2%, due to an increase of $4,910,000, or 47.4%, in sales of systems and
equipment, offset, in part, by a decrease of $240,000, or 3.9%, in customer
service and support sales. The increase in systems and equipment sales was due
primarily to sales of the Company's new Wide Computer-to-Plate (CTP) product to
Latin American and European customers during the three-month period. The
decrease in customer service and support sales was due to a decline
internationally, as new equipment sales are still under warranty and therefore
do not yet require service contracts.
Gross margins decreased .8 percentage points (from 37.5% to 36.7%), due to lower
margins on systems and equipment which decreased 5.9 percentage points (from
44.0% to 38.1%), higher service and support margins which increased 6.6
percentage points (from 26.6% to 33.2%), The decrease in systems and equipment
margins was due primarily 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 film imagers due to lower
production volumes, lower volume discounts provided by vendors and unfavorable
manufacturing variances
9
<PAGE> 10
associated with the roll-out of the Company's new wide versions of the 3850 film
imager and Computer-to-Plate (CTP). Typically, manufacturing variances are high
on new products. However, as the production quantity increases, the material and
labor variances are expected to reduce. The increase in service and support
margins was due to higher margins domestically due to lower spare and warranty
costs during the period.
Operating expenses decreased by $382,000 from $7,807,000 in fiscal 1999 to
$7,425,000 in fiscal 2000 due primarily to cost cutting measures implemented by
the Company in October 1999 and February 2000 discussed below. In addition,
engineering costs decreased as development expenses wind down on the CTP and
wide 3850 film imagers. Operating expenses as a percentage of sales decreased by
12.2 percentage points (from 47.1% to 34.9%) as a result of the cost control
measures previously mentioned, and higher sales revenue levels.
The $78,000 increase in interest income is due to a higher average (over the
comparable three-month period) cash balance and slightly higher interest rate in
the fiscal 2000 period than in the comparable period in the prior year.
A foreign exchange loss of $24,000 was realized in the three-month period ended
July 28, 2000, compared to a loss in the similar period in 1999 of $123,000. 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 50.8% for the three months ended July 28,
2000 compared to a 19.5% benefit tax rate for the comparable prior year period
due primarily to higher foreign taxes.
Nine months ended July 28, 2000 compared to nine months ended July 30, 1999
Results of Operations
In the nine month period ended July 28, 2000, revenues increased by $2,221,000,
or 4.0%, due to an increase of $2,860,000, or 7.9%, in sales of systems and
equipment, offset by a decrease of $639,000, or 3.4%, in customer service and
support sales. The increase in systems and equipment sales was primarily due to
increased sales of the Company's new wide CTP in Latin America and Europe.
Presently the price of CTP plates is relatively high, which has delayed many
potential users, domestically, 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 domestic service contracts being
issued as a result of the lower systems and equipment sales domestically.
Gross margins increased .4 percentage points (from 38.2% to 38.6%) due to higher
service and support margins, which increased 9.2 percentage points (from 24.2%
to 33.4%), offset by lower margins on systems and equipment which decreased 4.5
percentage points (from 45.5% to 41.0%). 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, lower volume
discounts 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 $1,256,000 from $22,470,000 in fiscal 1999 to
$21,214,000 in fiscal 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 implemented a 6% worldwide reduction in staffing in
February 2000. Total personnel were 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. In addition, in February 2000, the Company
terminated sales and engineering activities on its Laser Cinema Recorder, which
is expected to generate annual savings of approximately $400,000. In addition,
engineering costs decreased as development expenses wind down on the CTP and
wide 3850 film imager. Operating expenses expressed as a percentage of sales
decreased 3.8 percentage points (from 40.9% to 37.1%) due to the lower level of
expenditures and higher sales volume.
10
<PAGE> 11
The $149,000 increase in interest income is due to a higher average (over the
comparable nine-month period) cash balance and slightly higher interest rates in
the fiscal 2000 period than in the comparable period in the prior year.
A foreign exchange loss of $105,000 was realized in the nine-month period ended
July 28, 2000, compared to a loss in the same period in 1999 of $202,000. 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 49.3% for the nine months ended July 28,
2000 compared to a 22.1% benefit tax rate for the comparable prior year period
due primarily to higher foreign taxes.
Liquidity and Capital Resources
As of July 28, 2000, the Company had cash and cash equivalents of $12,117,000
and working capital of $28,609,000. During the nine months ended July 28, 2000,
the Company's operating activities used cash of $449,000 primarily due to
changes in operating assets and liabilities of $2,955,000, offset in part by
cash provided by net income of $245,000 and net non-cash charges related
primarily to depreciation and amortization of $2,261,000. The changes in
operating assets and liabilities resulted primarily from increases in accounts
receivable ($2,254,000) and inventories ($1,511,000) and decreases in income
taxes payable ($401,000) and accrued expenses ($101,000), partially offset by
increases in customer advances of $1,345,000. 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 in the
third quarter of fiscal 2000 as compared to 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.
Investing activities used cash of $1,142,000 for the purchase of property and
equipment.
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.
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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.
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.
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.
PART II - OTHER INFORMATION
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<S> <C>
15 Independent Accountants' Report on Review of Interim
Financial Information from Ernst & Young LLP
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
The only Report on Form 8-K filed by the Company during the quarter for
which this Report is filed was dated (date of earliest event reported) June 13,
2000 reporting under Item 5, Other Events, and Item 7, Financial Statements and
Exhibits. No financial statements were filed with that Report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AUTOLOGIC INFORMATION INTERNATIONAL, INC.
Dated: Thousand Oaks, California
September 8, 2000
BY: /s/ Anthony F. Marrelli
------------------------------------------
Anthony F. Marrelli
Vice President and Chief Financial Officer
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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
