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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 29, 1999
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 13-385569
(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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($0.01 par value)
------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
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. [X]
The aggregate market value of the common stock held by non-affiliates of the
Registrant as of January 14, 2000 (based on the closing price on the NASDAQ
National Market on that date) was approximately $6,526,000 (based on the number
of shares outstanding on that date, exclusive of all shares held beneficially by
executive officers, directors and their spouses, without conceding that all such
persons are "affiliates" of the Registrant, and by Registrant's 59%
shareholder).
The number of shares of common stock outstanding as of January 14, 2000 was
5,787,970.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 2000 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 pre-press production steps in
the publishing process. aii believes that it is an industry leader in pre-press
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, such as newspapers, although it
also sells to niche portions of the lower-volume, less time-sensitive portion of
the commercial publishing and electronic document transmission 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 and Latin
America (see "Management's Discussion and Analysis of Financial Condition
and Results of Operations")
- - 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)
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- - 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)
- - the Company's ability to generate cash flows and obtain financing to
support its operations and growth (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations")
- - 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".
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, proofing devices, platemakers and document distribution systems used by
aii's customers. The objective of these products is the production of
deadline-oriented newspapers and commercial printing products. The principal
imaging devices manufactured by aii are the 3850 film imager and the 3850 line
of Computer-to-Plate (CTP) imagers. During fiscal 1999, the Company completed
development of additional CTP imagers and the 3850 wide format film imager for
the newspaper market based on the Company's 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 allowing the
customer to use 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 pre-press 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
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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 to 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.
<TABLE>
<CAPTION>
For the Fiscal Year Ended
--------------------------------------
October 29, October 30, October 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Systems and equipment sales 65% 69% 67%
Technical support and service revenues 35% 31% 33%
--- --- ---
100% 100% 100%
--- --- ---
</TABLE>
The Company's principal products and services 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.
COMPUTER-TO-PLATE. The Company's CTP design is based on the Company's existing
3850 film recorder technology and manufacturing capability with significant
commonality with the imagers currently in full production at aii. The CTP design
allows the image to be transferred directly to the printing plate versus to film
then to the plate. The CTP imager addresses the needs of newspaper customers
that 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.
During fiscal 1999, aii began delivering APS 3850 CTP imaging systems to
newspaper customers in the UK and Germany. 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 existing 3850 film imager.
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AD MANAGEMENT. The production and printing of advertisements has changed
dramatically over the last several 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
pre-press 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 imaging and identify production
bottlenecks. The Company's server products are being enhanced by the
incorporation of Adobe and other software technology.
TELECOMMUNICATIONS SYSTEMS. aii's APSCOM document distribution system links
different steps of the publishing process via local access networks (LANs), wide
access networks (WANs) and satellite. 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, work flow automation and job tracking.
INTERFACE PRODUCTS. Interface products are hardware and software products that
facilitate the interfacing of a wide range of pre-press 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 pre-press products
manufactured by others. The customer is then able to create a fully integrated
publishing system, maximizing its previous investments while facilitating the
adoption of newer, open technologies.
XITRON, INC. Xitron, Inc., ("Xitron"), a wholly owned subsidiary of the Company,
sells RIP's, imager interfaces, server software and other imager integration
products to OEM's, distributors and other third party resellers. Through these
alternate channels, products based on aii's technologies are made available to
different market segments, primarily commercial, and smaller volume users.
Xitron's products are unique and distinct from the aii system products.
Procurement, support, engineering and other functions are shared by the Company
and Xitron to reduce costs.
OTHER PRODUCTS. The Company manufactures and distributes other products, which
do not materially contribute to the Company's revenues in fiscal 1999.
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 Norcross, Georgia; Burlington, Massachusetts and offices throughout the
United States and
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in parts of Europe, Latin America, the Pacific Rim and the Middle East.
Elsewhere, distributors and agents sell and service aii products within their
respective territories. Domestically, aii offers a variety of support solutions
to its customers, ranging from Help Desk to full support agreements, 24 hours a
day.
aii products enjoy an excellent reputation for high performance, image quality
and reliability in high volume production environments. aii's customers produce
deadline oriented products, and its customers rely heavily on the Company for
technical support and services.
Marketing and Sales
Sales of aii's products within the United States, Mexico and Canada are provided
by aii's direct sales force. In Latin America, sales are made through
distributors directed from aii's headquarters in Thousand Oaks, California. In
Europe and Asia/Pacific, sales are made by direct sales force and distributors.
The European headquarters is located 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 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.
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 $26.3 million in fiscal 1999, $33.4
million in fiscal 1998, and $38.4 million in fiscal 1997. Foreign sales are
affected by the relative strength of the U.S. dollar against currencies of its
customers and competitors. (See "Customers", below, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and Note J of Notes
to Consolidated Financial Statements).
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 sold to the newspaper publishing industry, the
commercial printing industry and to organizations having internal publishing
facilities. In fiscal 1999, aii sold its products and provided service for its
products to more than 1,900 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 most of the major newspaper chains worldwide.
At times, aii's marketplace has been adversely affected by general economic
recessions in the United States and in other countries where aii's products are
sold. A significant portion of aii's business is in the newspaper publishing
industry, which itself has experienced significant downturns during recessions.
Newspapers continuously seek to reduce costs and expenditures to offset
increased newsprint costs, intense competition for advertising revenues by
electronic media and other periodicals, 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. International sales,
particularly in Latin America during 1999 and the Far East since 1998, have been
weak; and US sales decreased significantly from last year's level, with
customers delaying purchases until after the Year 2000 boundary of December 31,
1999, and a decline in 3850 film imagers without a concurrent increase in CTP
sales. (See "Management's Discussion and Analysis of Financial Condition and
Results of Operations")
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Backlog
aii's backlog of orders believed to be firm as of October 29, 1999 was $9.2
million, as compared to $9.1 million as of October 30, 1998 and $10.1 million as
of December 31, 1997 (which included $2.4 million for Laser Cinema Recorders).
All of the Company's backlog is expected to be filled during fiscal 2000.
Manufacturing and Assembly
All of aii's products are manufactured and assembled at the Company's leased
facilities, owned by Volt, in Thousand Oaks, California. The components of aii's
products are central processing units, 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. 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. For the Company's 3850 film imager, 3850 CTP imager 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.
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 and 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.
Almost all of aii's research, product development and engineering is
Company-sponsored, the exception being the funded development of special
features by major customers. Approximately 14% 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 development of new
products, with the balance of their time in sustaining engineering and
improvement of existing systems. The amount expended by aii for product
development activities during fiscal 1999 was approximately $8.3 million, during
fiscal 1998 was approximately $6.8 million and during fiscal 1997 was
approximately $6.3 million.
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.
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's marketplace is highly competitive. aii's position in the
marketplace depends on the quality, design, pricing of its products and
reputation. Technological advancements, architecture based on standardized
components and general market conditions have increased price competition. A
number of firms, with substantially greater financial resources than aii,
deliver one or more pre-press products competing with aii's
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pre-press products. Some of these competitors sell their products as complete
pre-press systems, for some of which aii has no competing systems. Other
competitors grant significant sales price 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 continues to seek 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 standard 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, introduced approximately six 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 and wide format film imager systems
for its market segment. Despite these efforts, there can be no assurance that
the Company can return to profitability.
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 standard
components such as PCs, which has enabled the user to service some equipment
in-house.
Patents and Trademarks
aii holds several patents and trademarks related to its products; however, it
does not believe that any of these are material to aii's business. aii is also a
licensee of technology from many of its suppliers, none of which, individually,
is considered material to aii's business.
Seasonality and Working Capital
Sales are generally lower in the months of November and December due to the
holiday season, which is a peak publishing period when customers are reluctant
to install and test new equipment and during 1999 were further impacted by
concerns about Year 2000 issues.
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. With foreign sales, the Company is subject to the
Foreign Corrupt Practices Act and export controls, with which it believes it is
in
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compliance. The export of certain technologies are restricted. In the countries
where aii currently sells its hardware and software products, these sales are
made pursuant to general Export Administration regulations. 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 14, 2000, aii had 408 full-time employees, of which 310 were based
in the United States and Canada and 98 were based in international offices. Of
these employees, 64 were engaged in research, product development and
engineering; 64 in sales and marketing; 142 in customer support; 78 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.
ITEM 2. PROPERTIES
aii's principal facilities are located in approximately 134,000 square feet of
leased space in Thousand Oaks, California, which houses the Company's 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 that expired in
January 1999, the rent for which was based upon prevailing rentals charged in
the area at the time of its last extension. The lease has continued 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 September 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. aii also maintains sales and service offices at various foreign
locations (an aggregate of 45,000 square feet under leases which expire from
1999 to 2010).
aii believes that its facilities and equipment are well maintained and adequate
to meet its current requirements.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Executive Officers
WILLIAM SHAW, 75, has been Chief Executive Officer, Chairman of the Board and
Director 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, 55, 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, 52, 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 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>
October 31 - October 29 November 1 - October 30
1999 1998
--------------- -------------------
Fiscal Period High Low High Low
------ ------ -------- --------
<S> <C> <C> <C> <C>
First Quarter $5 $3 3/4 $7 7/8 $6 3/4
Second Quarter 5 1/4 4 1/2 8 5/8 6 13/16
Third Quarter 5 3 3/4 6 15/16 5 1/2
Fourth Quarter 4 3/4 2 1/4 5 1/2 2 3/4
</TABLE>
The approximate number of record holders of the Company's common stock at
January 14, 2000 was 630.
No cash dividends have been declared by aii 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.
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as of and for the five years ended October
29, 1999 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 1995 fiscal year 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 29, October 30, October 31, November 1, November 3,
1999 1998 1997 1996 1995(3)
-------- -------- -------- -------- --------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Results:
Revenues $ 72,658 $ 87,616 $ 84,626 $ 88,880 $ 70,405
-------- -------- -------- -------- --------
Operating (loss) profit
from continuing operations (1) (3,570) 4,721 $ 3,107 $ (3,223) $ (1,787)
Interest on debt to Volt (2) -- -- (2) (583) (2,591)
Other (expense) income (67) (158) 23 (632) 270
-------- -------- -------- -------- --------
(Loss) income from continuing
operations before income taxes (3,637) 4,563 3,128 (4,438) (4,108)
Income tax (benefit) provision (829) 2,049 1,473 125 877
-------- -------- -------- -------- --------
(Loss) income from continuing
operations (2,808) 2,514 1,655 (4,563) (4,985)
Loss from discontinued operations -- -- (203) (428) --
-------- -------- -------- -------- --------
Net (loss) income $ (2,808) $ 2,514 $ 1,452 $ (4,991) $ (4,985)
======== ======== ======== ======== ========
Basic and diluted (loss) earnings per share
from continuing operations $ (0.49) $ 0.43 $ 0.28 $ (0.88) $ (1.49)
Basic and diluted loss per share
from discontinued operations -- -- (0.03) (0.08) --
-------- -------- -------- -------- --------
Basic and diluted (loss) earnings per share $ (0.49) $ 0.43 $ 0.25 $ (0.96) $ (1.49)
======== ======== ======== ======== ========
Total assets $ 52,681 $ 56,254 $ 53,596 $ 59,285 $ 31,691
</TABLE>
(1) Includes rent and other expenses charged by Volt of $1,036 (1999), $992
(1998), $1,371 (1997), $1,246 (1996) and $2,601 (1995).
(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 1996, 1997,
1998 and 1999 were each comprised of 52 weeks.
(4) No dividends have been declared by aii or Autologic during the five years
ended October 29, 1999.
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
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 29, 1999 (52 WEEKS) COMPARED TO THE FISCAL YEAR ENDED
OCTOBER 30, 1998 (52 WEEKS)
Results of Operations
In fiscal 1999, revenues decreased by $14,958,000, or 17.1%, to $72,658,000. The
decrease in revenues resulted from a $13,221,000, or 21.8%, decrease in sales of
systems and equipment and a decrease of $1,737,000, or 6.4%, in customer service
sales. The decrease in sales of systems and equipment was due to decreased
foreign, principally in Latin America, and domestic sales. The lower domestic
sales were due to the postponement of purchases by customers awaiting a
determination of whether any Year 2000 issues would arise, a decline in sales of
the Company's Laser Cinema Recorder (LCR) and a decline in sales of 3850 film
imagers without a concurrent increase in Computer-to-Plate (CTP) sales. CTP
products were designed as an enhancement upon the 3850 film imager. Comparative
sales were also effected by the fact that, in fiscal 1998, many customers
increased their purchases to replace older equipment. Customers who had replaced
and tested their systems were deferring making new purchases in 1999 until after
December 31, 1999 to avoid Year 2000 concerns. The lower sales in Latin America
and a continued weakness of sales in the Far East since fiscal 1998 were the
result of the economic problems in these regions, and may continue to impact
sales until these foreign economies strengthen. The decline in LCR sales is due
primarily to competition and a general softness in the market. Customer service
and support sales decreased, primarily domestically, as older, proprietary, full
service contracts have been replaced with new systems (due to the Year 2000
upgrading) that require less maintenance and, as a result, generate lower
service and support revenue.
Gross margins decreased 3.7 percentage points from 40.5% to 36.8% due to lower
systems and equipment margins and lower customer service margins. Systems and
equipment margins decreased 3.3 percentage points from 46.7% to 43.4% due to
higher manufacturing costs associated with the roll-out of the Company's new
wide versions of its CTP and film recorder products. Customer service margins
decreased by 2.1 percentage points from 26.6% to 24.5% due to lower revenue and
higher warranty costs.
Operating expenses decreased by $1,492,000, or 7.0%, from $21,449,000 in fiscal
1998 to $19,957,000 in fiscal 1999. The decrease in operating expenses was due
primarily to lower sales and somewhat lower marketing expenses and cost- cutting
measures implemented by the Company in October 1999. Expressed as a percentage
of sales however, operating expenses increased 3.0 percentage points from 24.5%
to 27.5%.
Research, development and engineering expenditures in fiscal 1999 increased
$1,058,000, or 12.4%, to $9,570,000 from $8,512,000 in fiscal 1998. Expressed as
a percentage of sales, these expenses increased 3.5 percentage points from 9.7%
to 13.2%. The increase was due primarily to development costs incurred in
connection with the major development of a proprietary CTP product and a wide
version of both the CTP and 3850 film recorder.
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Continued
Interest income remained the same in fiscal 1999 as in fiscal 1998 at $504,000.
During fiscal 1999, the Company had higher average (over the twelve-month
period) cash balances, which offset lower average rates of return, compared to
fiscal 1998.
A foreign exchange loss of $292,000 was realized in fiscal 1999 compared to
$560,000 in fiscal 1998. The loss in both years was due to unfavorable currency
movements in the foreign currency markets. The impact of the currency movements
was mitigated by the Company's policy of purchasing foreign currency options to
reduce the potential impact from foreign currency changes on the Company's
foreign currency receivables and firm commitments (see Note M to Consolidated
Financial Statements).
The Company's effective tax benefit rate was 22.8% in fiscal 1999 compared to a
tax provision rate of 44.9% in fiscal 1998. The benefit rate in fiscal 1999 is
lower than the tax provision rate in fiscal 1998 primarily due to the greater
effect of foreign tax expenses, which partially offset the domestic tax benefit.
(See Note E to Consolidated Financial Statements).
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 pre-press 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.
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.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
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 was 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 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).
Liquidity and Capital Resources
During fiscal 1999, operating activities provided $2,814,000 of cash flows
resulting from non-cash charges of $1,492,000 and changes in operating assets
and liabilities of $4,130,000 offset by the net loss for the period of
$2,808,000.
The non-cash charges of $1,492,000 consisted of depreciation of $2,258,000,
amortization of $549,000 and a provision for doubtful accounts of $522,000,
partially offset by a gain on foreign currency translation of $341,000 and
increases in deferred income tax assets of $1,496,000.
Changes in operating assets and liabilities provided $4,130,000 in cash flows,
net. Cash flows were provided by decreases in receivables of $4,570,000 (due to
lower sales year over year and increased collection efforts), inventories of
$273,000 and increases in customer advances of $786,000 and income taxes payable
of $242,000. Cash was used to increase prepaid expenses and other assets $90,000
and to decrease accounts payable $427,000, accrued expenses $1,106,000 and
payable to Volt by $118,000.
Investing activities used cash of $1,689,000 for the purchase of property and
equipment, primarily for computer equipment of $633,000 and leasehold
improvements of $438,000. The Company has no unusual or significant expenditures
planned for fiscal year 2000.
As a result of the foregoing, during fiscal 1999, cash and cash equivalents
increased by $1,550,000. The Company's working capital as of October 29, 1999
was $27,219,000, which includes $13,421,000 in cash and cash equivalents. These
resources are anticipated to be sufficient to meet the Company's liquidity and
capital needs in the normal course of business.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Year 2000 Status Report
Year 2000 issues were 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 have resulted in a major system
failure or miscalculations, causing disruptions in operations.
The Company was exposed 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 undertook various initiatives to ensure that its computer equipment and
software (both internally and throughout its produce line) would function
properly with respect to dates in the Year 2000 and thereafter. For this
purpose, the term "computer equipment and software" included systems that are
commonly thought of as information technology ("IT") systems. Non-IT systems
refers to other miscellaneous 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 complicated the Company's Year 2000 identification,
assessment, remediation and testing efforts.
The Company's Year 2000 efforts, which began in January of 1997, have been
successfully completed; and as of January 14, 2000, the Company has not
experienced any significant problems.
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. All
business units completed their reviews and replaced or modified applications
found to be non-compliant.
aii had a number of network-connected desktop PCs which were not compliant. An
upgrade program was completed in December 1999 at a cost of $85,000 for testing
and replacement.
NON-IT. With respect to non-IT issues, a project coordinator worked with the
Company's facilities management to ensure premises issues were addressed in
Company owned and leased properties in the United States. Outside of the U.S.,
local division managers addressed this issue.
The Company had some risk on a location by location basis if there were failures
of government agencies, public utilities and providers of telecommunication and
transportation services to be Year 2000 compliant. Due to the Company's
dispersion of facilities, the largest concentrated risks in this regard were in
Thousand Oaks, California and Boston, Massachusetts. As of January 14, 2000
there have been no major problems reported.
COMPANY PRODUCTS. In 1997, 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 were successfully tested for Year 2000
compliance. The Company published and periodically updated a product compliance
list. Users of old, non-compliant equipment were notified. Users operating older
revision levels of current products were notified of the requirement to upgrade,
if required. As of January 14, 2000 there have been no major problems reported.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Continued
THIRD PARTIES. Third parties having a material relationship with the Company
could also have Year 2000 issues to address and resolve. Such third parties
included suppliers, financial institutions, governmental agencies,
telecommunication and insurance carriers. An aspect of the Company's project was
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 depended upon its assessment of the reason and the
materiality of the effect of non-compliance by third parties on the Company.
During 1998 and 1999, compliance questionnaires were sent to all major suppliers
and other third parties with whom the Company does business. Virtually all major
domestic suppliers had responded with 93% responding they were compliant and 6%
responding that they were in the process of becoming Year 2000 complaint. Those
that did not reply were replaced with compliant sources. In addition, compliance
questionnaires were also sent to other third parties with whom the Company does
business, such as financial institutions, telecommunications and insurance
companies. Of those third parties, a response rate of 100% was achieved, with
approximately 76% of respondents indicating they were Year 2000 complaint and
the remaining indicating that they were in the process of becoming compliant.
Outside of the United States, local division managers were instructed to address
major suppliers and other third parties. As of January 14, 2000, the Company had
not encountered any material problems interfacing with third-party systems.
COSTS TO ADDRESS aii'S YEAR 2000 ISSUES. The Company's Year 2000 program
incurred remediation costs for all business units of $722,400, as follows:
<TABLE>
<CAPTION>
Internal Systems Product Line Total Costs
---------------- ------------ -----------
<S> <C> <C> <C>
Hardware $132,000 $ 37,500 $169,500
Software 444,300 108,600 552,900
-------- -------- --------
Total Company $576,300 $146,100 $722,400
======== ======== ========
</TABLE>
Included in the costs 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 were expensed as incurred.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES. The Company implemented an effective
program to resolve the Year 2000 issue in a timely manner. In addition,
disruption in the economy in general resulting from Year 2000 issues and the
failure of third parties, over whom the Company had no control, to become timely
Year 2000 compliant has not, at this time, materially adversely affect the
Company. 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. 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 did not 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 offered a new, Year 2000 compliant product
which could be purchased as a replacement for the older product that is not Year
2000 compliant, along with annual maintenance agreements. As of January 14,
1999, the Company had not received any material warranty claims with respect to
its older, non-compliant products.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Continued
THE COMPANY'S CONTINGENCY PLANS. Although the Company believed both its internal
systems and product line were Year 2000 compliant, contingency plans were made.
A team of technicians were 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 had anticipated handling these situations with
immediate program fixes, swapped backup hardware or process work-around
solutions. As of January 14, 2000, the Company has not experienced any
significant problems in its internal systems or product line.
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.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
aii 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, 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 aii's operations consists of sales activities in
foreign locations, as the Company sells its products worldwide. The Company's
financial results, therefore, can be significantly impacted by factors such as
changes in foreign currency exchange rates or weak economic conditions in
foreign markets, such as is currently being experienced in Latin America and the
Far East. Since all of aii'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 that changes in currency rates would
not have a significant impact on the Company's results of operations.
17
<PAGE> 18
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Autologic Information International, Inc.
We have audited the accompanying consolidated balance sheets of Autologic
Information International, Inc. and subsidiaries as of October 29, 1999 and
October 30, 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended October 29, 1999. 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 29, 1999 and October
30, 1998, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended October 29, 1999 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, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Woodland Hills, California
December 10, 1999
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 29, October 30,
1999 1998
--------- ---------
(Dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents-See Notes C and M $ 13,421 $ 11,871
Accounts receivable less allowance for doubtful
accounts of $1,501 (1999) and $1,844 (1998)-See Note M and Schedule II 12,478 17,928
Inventories-See Notes C and D 11,037 11,310
Deferred income taxes -See Notes C and E 4,380 3,829
Prepaid expenses and other assets 1,460 1,354
--------- ---------
Total current assets 42,776 46,292
PROPERTY AND EQUIPMENT, at cost net of
accumulated depreciation and amortization
of $7,150 (1999) and $6,086 (1998)-See Note C 5,389 5,827
DEFERRED INCOME TAXES -See Notes C and E 3,768 2,823
EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED, net of accumulated amortization of $2,065 (1999)
and $1,516 (1998)-See Notes B and C 688 1,237
OTHER ASSETS 60 75
--------- ---------
$ 52,681 $ 56,254
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,242 $ 4,877
Payable to Volt-See Note N 84 202
Accrued payroll and related liabilities 3,291 3,914
Accrued expenses 2,148 1,458
Accrued restructuring costs-See Notes B -- 1,014
Customer advances 5,194 4,501
Income taxes payable-See Notes C and E 598 356
--------- ---------
Total current liabilities 15,557 16,322
COMMITMENTS AND CONTINGENCIES-See Notes H, I and N
STOCKHOLDERS' EQUITY-See Notes B, C and F
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 (1999 and 1998) 58 58
Paid-in capital 112,620 112,620
Accumulated deficit (75,554) (72,746)
--------- ---------
37,124 39,932
--------- ---------
$ 52,681 $ 56,254
========= =========
</TABLE>
See accompanying notes
19
<PAGE> 20
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
October 29, October 30, October 31,
1999 1998 1997
-------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C>
REVENUES-See Note C
Systems and equipment $ 47,458 $ 60,679 $ 56,655
Customer service and support 25,200 26,937 27,971
-------- -------- --------
72,658 87,616 84,626
-------- -------- --------
OPERATING COSTS AND EXPENSES
Cost of systems and equipment 26,867 32,338 30,311
Cost of customer service and support 19,022 19,784 20,258
-------- -------- --------
Gross margin 26,769 35,494 34,057
Operating expenses 19,957 21,449 22,215
Research, development and engineering 9,570 8,512 7,918
Charges from Volt-See Notes B and N
Rent 776 776 781
General and administrative 36 36 36
-------- -------- --------
OPERATING (LOSS) INCOME FROM
CONTINUING OPERATIONS (3,570) 4,721 3,107
-------- -------- --------
OTHER INCOME (EXPENSE)
Interest income 504 504 298
Interest expense charged by Volt-See Note N -- -- (2)
Foreign exchange (loss) gain-See Notes C and M (292) (560) 125
Other, net (279) (102) (400)
-------- -------- --------
(67) (158) 21
-------- -------- --------
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (3,637) 4,563 3,128
INCOME TAX (BENEFIT) PROVISION -
See Notes C and E (829) 2,049 1,473
-------- -------- --------
(LOSS) INCOME FROM CONTINUING OPERATIONS (2,808) 2,514 1,655
LOSS FROM DISCONTINUED OPERATIONS-See Note O -- -- (203)
-------- -------- --------
NET (LOSS) INCOME $ (2,808) $ 2,514 $ 1,452
======== ======== ========
BASIC AND DILUTED (LOSS) EARNINGS PER
SHARE - CONTINUING OPERATIONS $ (0.49) $ 0.43 $ 0.28
BASIC AND DILUTED LOSS PER SHARE -
DISCONTINUED OPERATIONS -- -- (0.03)
-------- -------- --------
BASIC AND DILUTED (LOSS) EARNINGS
PER SHARE-See Note C and F $ (0.49) $ 0.43 $ 0.25
======== ======== ========
Average number of shares outstanding - Basic 5,788 5,788 5,788
======== ======== ========
Average number of shares outstanding - Diluted 5,788 5,789 5,788
======== ======== ========
</TABLE>
See accompanying notes
20
<PAGE> 21
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 2, 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
Net loss for the year -- -- -- (2,808) (2,808)
---------- ---------- ---------- ---------- ----------
Balance at October 29, 1999 5,787,970 $ 58 $ 112,620 $ (75,554) $ 37,124
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes
21
<PAGE> 22
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
October 29, October 30, October 31,
1999 1998 1997
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $(2,808) $ 2,514 $ 1,452
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 2,258 2,211 2,241
Amortization 549 552 551
Provision for doubtful accounts 522 196 508
(Gains) losses on foreign currency translation (341) 298 (242)
(Gains) losses on dispositions of property and equipment -- 47 (63)
(Increase) decrease in deferred income taxes (1,496) 1,266 1,433
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 4,570 (673) 2,959
Decrease (increase) in inventories 273 (3,081) 4,072
(Increase) decrease in prepaid expenses and other assets (90) 1,313 (1,564)
Decrease in accounts payable (427) (640) (4,816)
(Decrease) increase in accrued expenses,
accrued payroll and related liabilities,
and accrued restructuring costs (1,106) 210 (1,120)
Increase in customer advances 786 391 771
Increase (decrease) in income taxes payable 242 356 (1,174)
Decrease in payable to Volt (118) (63) (506)
------- ------- -------
Net cash provided by continuing operations 2,814 4,897 4,502
Loss on sale of discontinued operations -- -- 75
Loss from discontinued operations -- -- 128
Net cash applied to discontinued operations -- -- (81)
------- ------- -------
Net cash provided by discontinued operations -- -- 122
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,814 $ 4,897 $ 4,624
------- ------- -------
</TABLE>
Continued on next page
22
<PAGE> 23
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Year Ended
------------------------------------------
October 29, October 30, October 31,
1999 1998 1997
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property
and equipment -- 145 182
Purchases of property and equipment (1,808) (2,299) (2,246)
-------- -------- --------
NET CASH APPLIED TO
INVESTING ACTIVITIES (1,808) (2,154) (2,064)
-------- -------- --------
Effect of exchange rate changes on cash 544 (324) 759
-------- -------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,550 2,419 3,319
Cash and cash equivalents, beginning of period 11,871 9,452 6,133
-------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 13,421 $ 11,871 $ 9,452
-------- -------- --------
SUPPLEMENTAL CASH TRANSACTIONS
Cash paid during the period:
Interest expense $ 1 $ 9 $ 10
Income tax $ 487 $ 256 $1, 621
SUPPLEMENTAL NON-CASH TRANSACTIONS
</TABLE>
During 1999, 1998 and 1997, the Company wrote off fully depreciated fixed assets
of approximately $700,000, $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 outstanding shares of aii stock. (See Note O)
See accompanying notes
23
<PAGE> 24
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--DESCRIPTION OF BUSINESS
Autologic Information International, Inc. and its subsidiaries (collectively
"aii" or the "Company") design, develop, manufacture, assemble, integrate,
market, sell and service computerized image-setting and publication systems
equipment and software that automate the various pre-press 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"), each of Autologic and Triple-I
were merged into the Company and Volt contributed to the Company the capital of
certain foreign subsidiaries of Volt (collectively, the "Merger").
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 for 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 29, 1999, 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 29, 1999.
24
<PAGE> 25
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE B--FORMATION OF THE COMPANY AND MERGER--Continued
As the Company, Autologic and the Volt Subsidiaries were under common control,
the merger of Autologic and the transfer of the stock of the Volt Subsidiaries
to the Company has been accounted for on a pooling of interest basis.
Accordingly, the assets and liabilities of such entities and their stockholders'
equity accounts have been accounted for at their historical carrying amounts.
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. A liability for restructuring costs
incurred prior to the Merger ($1,014,000 at October 30, 1998) provided for
estimated costs related to closing of certain facilities of Triple-I. During
fiscal 1999, all remaining restructuring costs were settled and the liability
was eliminated.
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 1999, 1998 and 1997 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" (Note F).
Revenue Recognition: Revenues are recognized when products are shipped and
services are rendered. 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.
25
<PAGE> 26
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
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.
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>
1999 1998
----------------------------------- -------------------------------------
Property Property
and Lease- and Lease-
Equipment hold Total Equipment hold Total
------ ----- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Property and equipment, at cost 10,066 2,473 12,539 $ 9,916 $ 1,997 $ 11,913
Accumulated depreciation
and amortization (6,143) (1,007) (7,150) (5,615) (471) (6,086)
------ ----- ------ -------- -------- --------
Net property and equipment 3,923 1,466 5,389 $ 4,301 $ 1,526 $ 5,827
====== ====== ====== ====== ======== ======
</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 $1,400,000,
$1,300,000 and $1,500,000 for the years ended October 29, 1999, October 30, 1998
and October 31, 1997, respectively.
26
<PAGE> 27
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
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. In 1999 and 1997
all, and in 1998 all but 1,000 common stock equivalent shares from stock options
(332,500, 159,000 and 216,500 in 1999, 1998 and 1997, 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 years and, in the 1999
periods, due to the loss sustained.
Comprehensive Income: While SFAS No. 130 was adopted in the year ended October
29, 1999, there were no items of comprehensive income and no impact on the
Company's results of operations for the years ended October 29, 1999, October
30, 1998 and October 31, 1997, and therefore no further disclosures have been
made.
Segment Reporting: In June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". This statement
establishes standards for the way companies report information about operating
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Based on the provisions of SFAS 131 and the manner in which its chief
operating decision maker analyzes the business, the Company has determined that
it does not have separately reportable operating segments (see Note J).
Accounting for Derivatives: In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 137, which is required to be adopted in years beginning after June 15,
2000. 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.
27
<PAGE> 28
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE D--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
October 29, October 30,
1999 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
Service parts $ 1,170 $ 1,818
Materials 6,205 5,671
Work-in-process 1,910 2,713
Finished goods 1,752 1,108
-------- --------
$ 11,037 $ 11,310
======== ========
</TABLE>
NOTE E--INCOME TAXES
<TABLE>
<CAPTION>
For the Fiscal Year Ended
October 29, October 30, October 31,
1999 1998 1997
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
The components of (loss) income from
continuing operations before income
taxes based on the location of operations,
consist of the following:
Domestic $(3,366) $ 4,795 $ 2,198
Foreign (271) (232) 930
------- ------- -------
$(3,637) $ 4,563 $ 3,128
======= ======= =======
Income tax (benefit) provision includes:
Current:
Federal $ 13 $ 177 $ --
Foreign 623 455 40
State and local 31 151 --
------- ------- -------
Total current 667 783 40
------- ------- -------
Deferred:
Federal $(1,048) $ 1,513 $ 829
Foreign (310) (316) 515
State and local (138) 69 89
------- ------- -------
Total deferred (1,496) 1,266 1,433
------- ------- -------
Total income tax (benefit) provision $ (829) $ 2,049 $ 1,473
======= ======= =======
</TABLE>
28
<PAGE> 29
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 29, October 30, October 31,
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Statutory rate (34.0)% 34.0% 34.0%
Tax effect of foreign operations 6.7 1.6 1.4
State taxes (1.9) 3.2 3.0
Goodwill 5.1 4.1 6.0
Other - net 1.3 2.0 2.7
----- ---- ----
Effective tax rate (22.8)% 44.9% 47.1%
===== ==== ====
</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 29, October 30,
1999 1998
------ ------
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 566 $ 584
Inventory valuation 1,866 1,385
Net operating loss carryforwards 3,345 2,604
Vacation accruals 495 474
Foreign asset basis 1,013 702
Foreign tax credits 518 356
Warranty accruals 302 235
Other -- Net 43 312
------ ------
Total deferred tax assets $8,148 $6,652
====== ======
Balance sheet classification:
Current assets $4,380 $3,829
Non-current assets 3,768 2,823
------ ------
Total deferred tax assets $8,148 $6,652
====== ======
</TABLE>
As of October 29, 1999, the Company had a net operating loss carryforward of
$8,989,000, of which $1,764,000 expires in 2009, $3,169,000 expires in 2011,
$2,224,000 expires in 2012 and $1,832,000 expires in 2013.
As of October 29, 1999, certain foreign subsidiaries had undistributed earnings
aggregating $1,987,000, 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.
29
<PAGE> 30
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE E--INCOME TAXES--Continued
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.
NOTE F--STOCK OPTIONS
The Company assumed the Triple-I 1976 Employees' Stock Option Incentive Plan
("Employees' Plan" as amended November 5, 1998) and the Triple-I 1992 Directors'
Stock Option Plan ("Directors' Plan" as amended November 5, 1998), and has
established the 1995 Employees' Incentive Stock Option Plan ("1995 Plan" as
amended September 18, 1998). Since the assumption of the Triple-I plans, shares
of the Company have been issued instead of the shares of Triple-I. A summary of
each of these plans follows:
Employees' Plan: The plan provides for the granting, until August 2002, of
options to acquire up to 950,000 shares of common stock at a price equal to at
least 100% of the fair market value of the Company's stock on the date of grant.
Options may have terms up to ten years and may be exercised commencing one year
after the date of grant. Options to purchase 173,000 shares at $4.25 per share,
market value at the date of grant, were granted in fiscal 1999, of which 48,500
were to officers of Volt, most of which were to parties who are also officers
and board members of Autologic. Available for future grants under this plan at
October 29, 1999 were 55,500 shares (224,500 shares at October 30, 1998 and
218,500 shares at October 31, 1997).
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 20% of the number of shares
originally subject to the option annually, on a cumulative basis commencing one
year after the date of grant. Included in options granted in fiscal 1999 were
options to purchase 20,000 shares, at market value, of the Company's common
stock, granted to non-employee directors. Available for future grants under this
plan at October 29, 1999 were 51,000 shares (71,000 shares at October 30, 1998
and 63,000 shares at October 31, 1997).
1995 Plan: The plan 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 and its subsidiaries.
Options may have terms up to ten years. Available for future grants under the
plan at October 29, 1999 were 28,000 shares (27,000 shares at October 30, 1998
and 26,500 at October 31, 1997).
30
<PAGE> 31
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 1995 Plan
----------------------- ---------------------- -----------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
----------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, November 2, 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
Granted 173,000 4.25 20,000 4.25 -- --
Expired (13,500) 8.19 -- -- -- --
Forfeited (5,000) 5.00 -- -- (1,000) 12.00
-------- ------ -------
Outstanding, October 29, 1999 190,500 $ 4.65 20,000 $ 4.25 122,000 $ 11.75
-------- ------ -------
</TABLE>
Price ranges of outstanding and exerciseable options as of October 29, 1999 are
summarized below:
<TABLE>
<CAPTION>
Outstanding Options Exerciseable Options
-------------------------------- ---------------------
Number Remaining Weighted Number Weighted
Range of of Life Average of Average
Exercise Prices Shares (Years) Price Shares Price
------- --------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
Employees' Plan
$7.75 - 7.75 21,500 1 $7.75 21,500 $ 7.75
$4.25 - 4.25 169,000 9 4.25 -- --
Directors' Plan
$4.25 - 4.25 20,000 9 4.25 -- --
1995 Plan
$3.75 - 4.50 6,500 8 4.04 3,300 4.32
$12.00 - 13.20 115,500 5 $12.19 115,500 $12.19
</TABLE>
31
<PAGE> 32
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F--STOCK OPTIONS--Continued
At October 29, 1999, options to purchase 140,300 shares were exercisable at a
weighted average price of $11.32 per share.
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees," to account for options granted under the stock option
plans. 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 (loss) income (in
thousands) and earnings per share would have been:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net (loss) income $ (2,955) $ 2,512 $ 1,297
Pro forma basic and diluted
(loss) earnings per share $ (0.51) $ 0.43 $ 0.22
</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
1999, 1998, and 1997: Risk-free interest rates of 6%, 4.4%, and 6%,
respectively, expected volatility of .69, .67, and .81, respectively, an
expected life of the options of 3 years and no dividends. These assumptions
resulted in weighted average fair values of $2.82, $2.45, and $2.82 per share
for stock options granted in 1999, 1998, and 1997, 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.
32
<PAGE> 33
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE H--COMMITMENTS
Future minimum rental commitments as of October 29, 1999 for all noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
Fiscal Office
Year Total Space Equipment
------ ----- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C>
2000 1,706 1,544 162
2001 654 515 139
2002 456 385 71
2003 287 261 26
2004 183 178 5
Thereafter 892 892 --
</TABLE>
Rental expense for all operating leases for fiscal years 1999, 1998 and 1997 was
$1,799,000, $2,056,000 and $1,960,000, 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--OPERATING SEGMENTS
The Company operates in one principal operating 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 pre-press 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 the specified area.
33
<PAGE> 34
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE J--OPERATING SEGMENTS--Continued
The following table contains information relating to the Company's operations in
various geographical areas:
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
October 29, October 30, October 31,
1999 1998 1997
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Revenues:
United States:
Unaffiliated United States customers $ 36,693 $ 47,829 $ 39,258
Affiliated United States customers 197 388 453
Export sales, unaffiliated foreign customers,
principally in Canada, South and
Central America 5,350 9,038 8,469
Export sales-interarea transfers 10,054 11,392 14,335
-------- -------- --------
55,294 68,647 62,515
Europe:
Unaffiliated customers
Germany 8,654 6,424 8,978
Other countries 11,918 15,747 15,867
-------- -------- --------
20,572 22,171 24,845
Australia:
Unaffiliated customers 6,046 7,602 10,847
Canada:
Unaffiliated customers 800 589 754
Eliminations-interarea transfers (10,054) (11,392) (14,335)
-------- -------- --------
$ 72,658 $ 87,617 $ 84,626
-------- -------- --------
Operating (loss) profit:
United States (4,675) $ 3,556 $ 1,314
Germany 1,231 631 1,119
Other European countries (194) 369 275
Australia (473) (211) 272
Canada 416 239 106
Eliminations 125 137 21
-------- -------- --------
$ (3,570) $ 4,721 $ 3,107
======== ======== ========
Identifiable assets:
United States $ 46,869 $ 48,606 $ 43,576
Germany 3,886 4,542 4,407
Other European countries 4,932 5,973 6,814
Australia 3,466 4,231 3,959
Canada 765 720 1,246
Eliminations (7,237) (7,818) (6,406)
-------- -------- --------
$ 52,681 $ 56,254 $ 53,596
======== ======== ========
Liabilities of entities comprising the Company's
foreign operations $ 4,973 $ 5,598 $ 4,129
======== ======== ========
</TABLE>
34
<PAGE> 35
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 29, 1999 and October 30, 1998. Each quarter contains
thirteen weeks.
<TABLE>
<CAPTION>
Fiscal 1999 Quarters
First Second Third Fourth
-------- -------- -------- --------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 18,796 $ 19,568 $ 16,580 $ 17,714
Gross profit 7,367 7,414 6,211 5,777
Income (loss) from continuing
operations 30 (131) (1,453) (1,254)
-------- -------- -------- --------
Net income (loss) $ 30 $ (131) $ (1,453) $ (1,254)
======== ======== ======== ========
Basic and diluted (loss)
per share: $ -- $ (.02) $ (0.25) $ (0.22)
======== ======== ======== ========
</TABLE>
<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>
Sales are generally highest in the fourth fiscal quarter when customers are
preparing for their high-volume production period and lowest in the first fiscal
quarter due to the holiday season, which is a peak publishing period when
customers are reluctant to install and test new equipment.
35
<PAGE> 36
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 pre-tax 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
29, 1999, 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 29,
1999, the Company owned options, all of which expire in the first quarter of
fiscal 2000, purchased at a cost of $80,925, to exchange various European
currencies for U.S. dollars, in the aggregate notional amount of $4,000,000.
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 29, 1999 and October 30, 1998 due to the relatively short maturity
of these instruments.
36
<PAGE> 37
AUTOLOGIC INFORMATION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE N--RELATED PARTY TRANSACTIONS WITH VOLT
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 in legal fees each year, payable to Volt for the
years ended October 29, 1999, October 30, 1998 and October 31, 1997 under a
$3,000 per month retainer arrangement that provides the Company access to Volt's
in-house legal staff.
As of October 29, 1999, October 30, 1998 and October 31, 1997, the Company had
$84,000, $202,000 and $265,000, respectively, payable to Volt.
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 29, October 30, October 31,
1999 1998 1997
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Balance payable at beginning $ 202 $ 265 $ 771
Charges from Volt:
Rent 776 776 781
Interest --- -- 2
Legal 36 36 36
Temporary staffing 224 180 231
Capital asset purchases -- -- 321
------- ------- -------
1,036 992 1,371
------- ------- -------
Expenditures paid by Volt
on behalf of and reimburseable by the Company:
Insurance 79 -- 246
Real estate taxes 84 121 79
Foreign currency option premiums,
net of gains - See Note M (91) 167 (389)
Other 356 210 374
------- ------- -------
428 498 310
------- ------- -------
Sales to Volt (196) (379) (453)
Cash transfers paid to Volt (1,386) (1,174) (1,734)
------- ------- -------
Balance payable to Volt at end of year $ 84 $ 202 $ 265
======= ======= =======
Average quarterly balance payable to Volt during the year $ 88 $ 119 $ 230
======= ======= =======
</TABLE>
37
<PAGE> 38
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
Merger, 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. The
Company paid rent to Volt of $776,000 in 1999, $776,000 in 1998 and $781,000 in
1997. The lease, which expired in January 1999 and which was based on prevailing
rentals in the area, has continued on a month-to-month basis. The lease also
provides for the Company to pay all real estate taxes, insurance, utilities and
repairs related to the facility. The Company believes these sums are fair and
reasonable for the premises.
During fiscal year 1999 and 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 $44,527 and $73,567 respectively. The
Company believes these sums are fair and reasonable for the services provided.
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 common 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.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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 29, 1999, and
is hereby incorporated by reference to such Proxy Statement.
38
<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 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 29, 1999 and October 30, 1998 21
Consolidated Statements of Operations--Years ended October 29, 1999,
October 30, 1998 and October 31, 1997 22
Consolidated Statements of Stockholders' Equity--Years ended
October 29, 1999, October 30, 1998 and October 31, 1997 23
Consolidated Statements of Cash Flows--Years ended October 29, 1999,
October 30, 1998 and October 31, 1997 24
Notes to Consolidated Financial Statements 26
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 account 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>
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.)
</TABLE>
39
<PAGE> 40
14(a)(3) Exhibits (Continued)
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
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. (Incorporated by reference to Exhibit 10.2(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended October 30,
1998, file No. 0-29396).
10.2(b)+ Triple-I's 1985 Directors' Stock Option Plan, as assumed by the
Company and amended through November 5, 1998. (Incorporated by
reference to Exhibit 10.2(b) to the Company's Annual Report on Form
10-K for the fiscal year ended October 30, 1998, file No. 0-29396).
10.2(c)+ The Company's 1995 Stock Option Plan as amended through September 18,
1998. (Incorporated by reference to Exhibit 10.2(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended October 30,
1998, file No. 0-29396).
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>
- ----------
* Filed herewith
+ Management contract or compensation plan or arrangement
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 29, 1999.
40
<PAGE> 41
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 20, 2000
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 20, 2000
- --------------------------------- Director and Chief Executive Officer
William Shaw
/s/Anthony F. Marrelli Chief Financial Officer January 20, 2000
- ---------------------------------
Anthony F. Marrelli
/s/ Ian T. B. Young Controller and Principal Accounting January 20, 2000
- --------------------------------- Officer
Ian T. B. Young
/s/Dennis D. Doolittle Director January 20, 2000
- ---------------------------------
Dennis D. Doolittle
/s/James J. Groberg Director January 20, 2000
- ---------------------------------
James J. Groberg
/s/Jerome Shaw Director January 20, 2000
- ---------------------------------
Jerome Shaw
/s/ Alden L. Edwards Director January 20, 2000
- ---------------------------------
Alden L. Edwards
/s/ EuGene L. Falk Director January 20, 2000
- ---------------------------------
EuGene L. Falk
/s/ Paul H. McGarrell Director January 20, 2000
- ---------------------------------
Paul H. McGarrell
/s/ Leroy M. Bell Director January 20, 2000
- ---------------------------------
Leroy M. Bell
</TABLE>
41
<PAGE> 42
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 29, 1999:
Deducted from asset accounts:
Allowance for uncollectible
accounts $1,844,000 $511,000(1) -- $854,000(2) $1,501,000
Year ended October 30, 1998:
Deducted from asset accounts:
Allowance for uncollectible
accounts $1,828,000 $196,000(1) -- $180,000(2) $1,844,000
Year ended October 31, 1997:
Deducted from asset accounts:
Allowance for uncollectible
accounts $2,221,000 $508,000(1) -- $901,000(2) $1,828,000
</TABLE>
(1) Includes a foreign currency translation loss of $11,000 (1999), gain of
$13,000 (1998) and a loss of $64,000 (1997).
(2) Write-off of uncollectible accounts, net of recoveries.
S-1
<PAGE> 43
Exhibit Index
<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. (Incorporated by reference to Exhibit 10.2(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended October 30,
1998, file No. 0-29396.)
10.2(b)+ Triple-I's 1985 Directors' Stock Option Plan, as assumed by the
Company and amended through November 5, 1998. (Incorporated by
reference to Exhibit 10.2(b) to the Company's Annual Report on Form
10-K for the fiscal year ended October 30, 1998, file No. 0-29396.)
10.2(c)+ TheCompany's 1995 Stock Option Plan as amended through September 18,
1998. (Incorporated by reference to Exhibit 10.2(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended October 30,
1998, file No. 0-29396.)
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>
- ----------
* Filed herewith
+ Management contract or compensation plan or arrangement
<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 14,
2000 (exclusive of certain subsidiaries which, if considered in the aggregate,
would not, as of October 29, 1999, 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 1999, are included as consolidated
subsidiaries in the Registrant's consolidated financial statements as of October
29, 1999.
<TABLE>
<CAPTION>
Jurisdiction
of
Name (1) Incorporation
- -------- -------------
<S> <C>
Xitron, Incorporated Michigan
Xitron Pty Limited Australia
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) Each named subsidiary is wholly owned directly 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 Statement (Form
S-3/A No. 333-11547) and in the related Prospectus of our report dated December
10, 1999, 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 29, 1999.
Ernst & Young LLP
Woodland Hills, California
January 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-29-1999
<PERIOD-START> OCT-31-1998
<PERIOD-END> OCT-29-1999
<CASH> 13,421
<SECURITIES> 0
<RECEIVABLES> 12,478
<ALLOWANCES> 0
<INVENTORY> 11,037
<CURRENT-ASSETS> 42,776
<PP&E> 5,389
<DEPRECIATION> 0
<TOTAL-ASSETS> 52,681
<CURRENT-LIABILITIES> 15,557
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 37,066
<TOTAL-LIABILITY-AND-EQUITY> 52,681
<SALES> 72,658
<TOTAL-REVENUES> 72,658
<CGS> 45,889
<TOTAL-COSTS> 76,228
<OTHER-EXPENSES> (67)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,637)
<INCOME-TAX> (829)
<INCOME-CONTINUING> (2,808)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,808)
<EPS-BASIC> (.49)
<EPS-DILUTED> (.49)
</TABLE>
