SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended April 27, 1996
Commission file number 1-683
AM International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 34-0054940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9399 W. Higgins Rd., Suite 900, Rosemont, Illinois 60018
(Address of principal executive offices) (Zip Code)
(847) 292-0600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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 such reports), and (2) has been subject to such filing requirements for
the past 90 days.
X Yes No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
X Yes No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
7,010,000 shares (including 1,280 treasury shares) of Registrant's
Common Stock, $.01 par value, were outstanding as of June 10, 1996.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
AM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
April April April April
27, 29, 27, 29,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $82,181 $127,775 $259,596 $366,854
Cost of Sales 63,183 91,431 195,323 264,069
Gross Margin 18,998 36,344 64,273 102,785
Operating expenses:
Selling, general and
administrative 12,266 30,083 61,350 85,269
Research,development
and engineering 2,565 3,351 9,271 10,077
Total Operating Expenses 14,831 33,434 70,621 95,346
Operating income (loss) 4,167 2,910 (6,348) 7,439
Non-operating income (expense):
Interest income 127 101 363 438
Interest expense (1,128) (1,352) (3,813) (3,756)
Other expense, net (748) (554) (1,269) (1,628)
Income (loss) before taxes 2,418 1,105 (11,067) 2,493
Income tax (expense)benefit (1,088) (932) (103) (1,765)
Net Income (loss) $1,330 $173 $(11,170) $728
Net Income (loss)
Per Common Share $0.19 $0.02 $(1.59) $0.10
Weighted Average shares
of Common Stock outstanding
(in thousands) 7,009 7,009 7,009 7,025
<FN>
The Notes to Condensed Consolidated Financial Statements are
an intergal part of these financial statments.
</TABLE>
<PAGE>
<TABLE>
AM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
April July
27, 31,
1996 1995
(Dollars in thousands, except per share amounts)
<CAPTION>
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $7,419 $19,908
Accounts receivable, net 45,078 86,466
Inventories,net 57,244 70,961
Prepaid expenses and other assets 16,060 18,302
Total current assets 125,801 195,637
Property, plant and equipment, net 28,390 32,662
Excess reorganization value 39,956 27,105
Other assets, net 11,271 22,260
Total assets $205,418 $277,664
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and current $18,241 $12,764
maturities of long-term debt
Accounts payable 43,083 55,343
Service contract deferred income 13,088 23,984
Payroll related expenses 13,719 24,038
Other 48,582 56,179
Total current liabilites 136,713 172,308
Long-term debt 12,577 23,205
Other long-term liabilities 19,760 31,451
Total liabilites $169,050 $226,964
Commitments and Contingencies (Note 4)
Shareholders' equity:
Common stock, $.01 par value; 40 million
shares authorized; 7,010,00 issued $160 $160
Capital in excess of par value 35,775 35,547
Less: treasury stock, at cost; 1,280 (6) (6)
shares
Warrants, 1,095,000 issued, excercise 383 383
price of $18.00
Accumulated earnings (deficit) 95 11,265
Cumulative translation adjustment (39) 3,351
Total shareholders' equity 36,368 50,700
Total liabilities and shareholders' $205,418 $277,664
equity
<FN>
The Notes to Condensed Consolidated Financial Statements
are an intergal part of these financial statments.
</TABLE>
<PAGE>
<TABLE>
AM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
April April
27, 1996 29, 1995
(Dollars in thousands)
<CAPTION>
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(11,170) $728
Adjustments to reconcile net income to
cash flow from operating activities:
Depreciation of property, plant and 2,365 2,980
equipment
Amortization of other assets 1,489 1,400
Tax benefit from operating loss 0 1,154
carryforwards
Change in assets and liabilities:
Accounts receivable, net 8,257 8,942
Inventory, net (2,150) 3,758
Prepaids and other current assets (1,989) (2,180)
Accounts payable and accruals (10,274) (17,000)
Customer advances 3,177 (10,572)
Other, net (2,271) (5,028)
Cash flow from operating activities (12,566) (15,818)
Cash flows from investing activities:
Capital expenditures (6,150) (3,555)
Divestitures of operations (4,190) 0
Proceeds from dispostion of PP&E 6,822 0
Cash flow from investing activities (3,518) (3,555)
Cash flows from financing activities:
Net borrowings/(payments) under 9,592 6,676
short-term borrowing agreements
Principal borrowings/(payments) of (5,937) (4,166)
long-term debt
Deferred stock awards 228 0
Cash flow from financing activities 3,883 2,510
Effect of exchange rate changes on cash (288) 804
Increase (decrease) in cash and cash (12,489) (16,059)
equivalents
Cash and cash equivalents at beginning 19,908 25,959
of period
Cash and cash equivalents at end of $7,419 $9,900
period
<FN>
The Notes to Condensed Consolidated Financial Statements are
an intergal part of these financial statments.
</TABLE>
<PAGE>
AM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share)
Note 1 - Basis of Presentation
The Condensed Consolidated Financial Statements included here have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and do not include all information and
footnotes required by generally accepted accounting principles. In the opinion
of management, the Condensed Consolidated Financial Statements reflect all
adjustments, which are of a normal recurring nature, necessary for fair
presentation. Certain prior year amounts have been reclassified to conform with
the current year presentation. The accompanying Condensed Consolidated
Financial Statements should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto included in the Company's
Annual Report on Form 10-K for the year ended July 31, 1995.
Note 2 - Borrowing Arrangements
The Company's short and long - term borrowings are comprised of the following:
<TABLE>
April July
27, 31,
1996 1995
<S> <C> <C>
U.S.:
Revolving Credit Facility $10,087 $0
General Unsecured Claims & 14,671 21,047
Priority Tax Claims
Capital Leases 5,021 1,896
Total U.S. 29,779 22,943
Foreign:
Divested AM Multigraphics 0 11,685
Subsidiaries
Canada, Japan 0 0
Capital Leases 1,039 1,341
Total Foreign 1,039 13,026
Consolidated $30,818 $35,969
</TABLE>
<PAGE>
Note 2 - Borrowing Arrangements (continued)
The Company maintains a $25,000 three year secured domestic Revolving Credit
Facility (subject to borrowing base limitations) which expires October 12, 1996
with BT Commercial Corporation and LaSalle National Bank. The Revolving Credit
Facility includes a $10,000 sub-facility for the issuance of letters of credit.
As of April 27, 1996, the calculated borrowing base was approximately $16,000.
The lenders have agreed that the Company may, under certain circumstances,
borrow up to $2,500 above the borrowing base limitation which would otherwise
apply, with any such loans made above this limitation being payable by the
Company immediately upon demand by the lenders and in any case, not later than
July 15, 1996. As security for utilizations of the Revolving Credit Facility,
the Company granted a security interest and general lien upon its domestic
assets excluding Sheridan Systems inventories. As of April 27, 1996 the Company
had borrowings of $10,087 under the Revolving Credit Facility and was utilizing
$3,222 of the facility to secure outstanding letters of credit. Interest is
charged at a rate which is 1.75% in excess of the prime lending rate of Bankers
Trust Company. Letter of credit fees are 2.5% per annum plus a 0.5% facing fee
on standby letters of credit and 1.5% per annum on commercial documentary
letters of credit. As of April 27, 1996, the interest rate was 10.0%.
The agreement contains restrictive covenants limiting capital expenditures,
restricting the payment of dividends and other payments and providing for
quarterly measures of pretax net income and interest coverage, among other
things. In addition, the agreement limits the Company's ability to borrow or to
request letters of credit following a material adverse change as determined by
the lenders. The Company violated certain restrictive financial covenants in
its first two fiscal quarters of 1996, however the Company received waivers of
these violations from its lenders. The Company believes that it has complied
with the financial covenants for the quarter ended April 27, 1996. However the
lenders do not concur with the Company's certificate of compliance in that they
contend that certain income recorded by the Company, which related to the
settlement of legal disputes which had been previously reserved, should be
excluded from certain calculations and they have notified the Company that they
retain all rights and remedies available to them under the Revolving Credit
Agreement in the event of a default. Based on current projections, the Company
expects that its cash resources and current revolving credit facility will not
provide sufficient capital resources and liquidity for the next twelve-month
period. The Company is exploring a variety of strategic and financial
alternatives to meet its liquidity needs. The Company has retained Bear,
Stearns & Co. Inc. to act as its financial advisor in connection with the
proposed Heidelberg transaction, in addition to certain other potential
strategic alternatives. On June 11, 1996 the Company announced that it has
executed a non-binding letter of intent with Heidelberger Druckmaschinen AG for
the sale of substantially all of the assets of the Company's Sheridan Systems
Division. The total cash purchase price for the transaction is anticipated to
be $56 million, subject to adjustments (see Note 6). The Company intends to use
the proceeds to reduce liabilities and provide working capital. In addition, the
Company is seeking to obtain new revolving credit facilities or the consummation
<PAGE>
of another transaction which would provide capital resources to the Company.
There can be no assurances that the Company can consummate the transaction with
Heidelberger Druckmaschinen AG, be able to renew or replace the existing
Revolving Credit Facility upon its expiration or enter into any other
transaction which would provide additional cash resources to the Company.
On October 13, 1993 the Company concluded a reorganization when the United
States Bankruptcy Court for the District of Delaware confirmed the Company's
Plan of Reorganization (Plan). The Plan provides that holders of allowed
general unsecured claims receive cash payments toward satisfaction of the full
amount of their claims in equal quarterly payments payable on the last business
day of each calendar quarter ending after October 13, 1993 over a five-year
period, together with interest at 5% per annum. Holders of priority tax claims
are paid 10% of the allowed claim together with accrued and unpaid interest at
8% per annum on the then outstanding amount on each anniversary of October 13,
1993 which occurs prior to the sixth anniversary of the date of assessment and
the balances of such claims along with accrued and unpaid interest on the sixth
anniversary. For financial reporting purposes interest on general unsecured
claims has been imputed at 9% per annum. At April 27, 1996 the Company had $851
of restricted cash which primarily pertains to the settlement of disputed claims
in accordance with the Plan.
In February 1996, the Company completed the exit of its AM Multigraphics
European subsidiaries with the sale of its subsidiaries in the Netherlands,
France and Belgium, and the placement of the AM Multigraphics UK holding company
into an Administration Proceeding. See Note 6.
Note 3 - Capital Structure
The Company has outstanding Warrants to purchase 1,095,000 shares of Common
Stock. The Warrants are exercisable at $18.00 per share and expire on October
15, 1996. In addition, the Company's 1994 Long Term Incentive Plan provides for
the issuance of 1,400,000 shares of new $0.01 par value Common Stock. Options
to purchase the Common Stock are awarded at a price not less than 100% of the
market price on the date of grant, become exercisable at various dates generally
from one to four years after the date of grant, and expire ten years after the
date of grant. At April 27, 1996 options to purchase 511 shares were
outstanding at option prices ranging from $2.130 to $12.125.
Note 4 - Commitments and Contingencies
The Company received creditor claims during its bankruptcy proceedings of which
approximately $31,600 remain in dispute at the date of this Report. Although
the disputed claims are in many cases in excess of recorded reserves, the
Company believes that many of the claims are duplicative, erroneous or
exaggerated and the Company believes it has valid defenses to the claims. The
Company has filed objections to these disputed claims in the United States
Bankruptcy Court in Delaware. During the third quarter and through the date of
this report the Company expunged or settled approximately $17,400 in disputed
claims for amounts within previously established reserves. The disputed claims
are primarily comprised of environmental and product liability claims. The
Company has been notified of various environmental matters in connection with
certain current or former Company locations in Connecticut, Illinois, Ohio,
Indiana, Pennsylvania, and Rhode Island. In the third quarter of the current
year the Company recorded a $2.8 million favorable adjustment due to the
resolution of legal disputes which had been previously reserved. The Company is
also involved in various other administrative and legal proceedings incidental
to its business, including product liability and general liability lawsuits
against which the Company is partially insured. At the present time, it is
management's opinion, based on information available to the Company and
management's experience in such matters, that the resolution of these legal
<PAGE>
proceedings is not expected to have a material adverse effect on the Company's
financial condition, results of operations or liquidity.
The Company has sold certain receivables related to machine sales, subject to
limited recourse provisions and repurchase provisions. At April 27, 1996, the
balance on such receivables for which the Company is contingently liable was
$4,014 net of provisions for any anticipated losses.
Note 5 - Components of Certain Balance Sheet Accounts
The allowance for doubtful accounts deducted from accounts receivable in the
Condensed Consolidated Balance Sheet was $1,875 at April 27, 1996 and $5,314 at
July 31, 1995.
Inventories are valued at the lower of cost, which includes material, labor and
overhead determined by the first-in, first-out, (FIFO) method, or market.
Inventories at April 27, 1996 and July 31, 1995 consisted of the following:
<TABLE>
April 27, July 31,
1996 1995
<S> <C> <C>
Raw materials $1,872 $2,812
Work in process and finished 55,372 68,149
goods
Total Inventories, net $57,244 $70,961
</TABLE>
Inventories and cost of goods sold reported in the interim financial statements
are based, in part, on accounting estimates relating to inventory obsolescence
and differences between book inventories and physical inventories.
Accumulated depreciation deducted from property, plant and equipment was $8,156
at April 27, 1996 and $7,317 at July 31, 1995.
Note 6 - Divestitures
In February 1996, the Company completed the exit of its AM Multigraphics
European subsidiaries with the sale of its subsidiaries in the Netherlands,
France and Belgium and the placement of the Company's AM Multigraphics UK
holding company into an Administration Proceeding. The sale of the subsidiaries
in the Netherlands, France and Belgium required the Company to provide
consideration of approximately $3 million in the form of cash and other assets.
The assets and liabilities of these operations, which netted to an immaterial
amount, were included in current liabilities. There was no gain or loss
recorded as a result of the exit of the AM Multigraphics subsidiaries as all
costs related to the exit were previously recorded. For Pro Forma information
regarding the effects of this transaction on the Consolidated Statement of
Operations, please refer to the Company's Form 8-K dated March 7, 1996.
On June 11, 1996 the Company executed a non-binding letter of intent with
Heidelberger Druckmaschinen AG of Heidelberg, Germany for the sale of
substantially all of the assets of the Company's Sheridan Systems Division.
Sheridan Systems had revenues of $182 million in the fiscal year ended July 31,
1995. The non-binding letter of intent contemplates that the parties will work
toward the execution of a definitive asset purchase agreement in June, 1996 and
the closing of the transaction in August, 1996. The total cash purchase price
for the transaction is anticipated to be $56 million, subject to adjustments.
The signing of the binding agreement is dependent on, among other things, the
result of Heidelberg's continuing review of the Sheridan Systems Division as
well as the approvals of such agreement by the respective Boards of the Company
and Heidelberg, as well as those of a Heidelberg affiliate. The closing would
be subject to various conditions, including receipt of the affirmative vote of
at lease a majority of the shareholders of AM International, Inc. and receipt of
appropriate government approvals or consents, among others. The Company intends
to use the proceeds to reduce liabilities and provide working capital.
<PAGE>
Item 2 - Management's Discussion and Analysis of Results of Operations and
Financial Condition.
AM INTERNATIONAL, INC.
QUARTERLY REPORT
April 27, 1996
Management's Discussion and Analysis
The discussion of the results of operations and financial condition presented
below should be read in conjunction with Management's Discussion and Analysis
included in the Company's Annual Report to Shareholders for the year ended July
31, 1995.
Consolidated Results of Operations
<TABLE>
Three Months Ended Nine Months Ended
April, April April April
27 29, 27, 29,
1996 1995 1996 1995
($ in millions)
<CAPTION>
<S> <C> <C> <C> <C>
Revenues $82.2 $127.8 $259.6 $366.9
Gross Margin 19.0 36.3 61.3 102.8
% 23.1% 28.4% 24.8% 28.0%
Selling, General & Admin.
Expenses 21.3 30.1 61.4 85.3
Research, Development &
Engineering 2.6 3.3 9.3 10.1
Operating Income (Loss) $4.2 $2.9 $(6.3) $7.4
Interest, Net 1.0 1.3 3.5 3.3
Other Non-Operating
Expenses 0.7 0.5 1.3 1.6
Taxes (expense) benefit (1.1) (0.9) (0.1) (1.8)
Net Income (Loss) $1.3 $0.2 $(11.2) $0.7
</TABLE>
SUMMARY
Third Quarter
The net income for the quarter ended April 27, 1996 was $1.3 million ($0.19 per
common share) as compared with a net income of $0.2 million ($0.02 per common
share) for the comparable prior year quarter.
Revenues for the third quarter of $82.2 million were $45.6 million below the
corresponding prior year period. The prior divestitures of unprofitable
components of the Company's AM Multigraphics foreign operations accounted for
$35.4 million of the revenue decline.
<PAGE>
Sheridan Systems revenues decreased by $7.5 million due to weak market demand,
particularly for bindery systems. AM Multigraphics revenues were $2.8 million
lower in comparison to the prior year period due to the long term erosion of
market demand for the Company's traditional manufactured duplicator products and
services which have resulted from inroads by competing technologies.
Gross margin for the quarter ended April 27, 1996 of $19.0 million was $17.3
million lower than the comparable prior year period. The divested AM
Multigraphics foreign operations accounted for $9.6 million of the decline. The
balance of the decrease in margin was primarily in the Sheridan Systems segment
due to the lower revenue level. The gross margin rate of 23.1% decreased by 5.1
percentage points from the prior year period due largely to the lower volume
which negatively impacted the absorption of fixed overhead costs at Sheridan
Systems and an unfavorable product mix at AM Multigraphics from a shift in sales
of higher margin manufactured products to lower margin distributed products.
Selling, general and administrative expenses in the third quarter decreased by
$17.8 million from the prior year. Of the decrease, $10.5 million was
attributable to the divested AM Multigraphics foreign operations. The balance
of the decrease was primarily due to lower headcount and other expense
reductions which the Company has implemented. The expense reductions have been
taken in response to lower volume and as part of a restructuring of the
continuing AM Multigraphics operations which are in the process of transitioning
from a manufacturing organization to a distribution organization. The third
quarter expenses included a $2.8 million favorable adjustment due to the
resolution of legal disputes which had been previously reserved.
The operating income of $4.2 million compared favorably to the prior year period
due primarily to the inclusion of the $2.8 million adjustment to expenses from
the settlement of previously reserved legal disputes.
Nine Months
For the nine month period ended April 27, 1996 the Company had a net loss of
$11.2 million ($1.59 per common share) as compared with a net profit of $0.7
million ($0.10 per common share) in the prior year comparable period.
Revenues for the current year nine month period of $259.6 million have decreased
by $107.3 million from the prior year. The divested foreign operations of AM
Multigraphics accounted for $62.3 million of the decrease. Sheridan Systems
revenues have declined by $34.5 million due to a low beginning backlog and weak
market demand for bindery systems which has continued throughout the period.
The current backlog of $38.5 million decreased $7.6 million during the most
recent quarter and remains significantly below historic levels. The Company
believes that demand for bindery systems will continue to lag previous years'
levels. The Sheridan Systems segment has historically been subject to cyclical
demand and due to the sizable nature of individual orders, quarter to quarter
variations in revenues and margins are to be expected. AM Multigraphics
revenues of $132.7 million were 7% below the prior year period due to the
eroding demand for the Company's manufactured duplicator machines, supplies and
services, which have not been fully offset by newly added distributed products.
<PAGE>
Gross margin of $64.3 million was $38.5 million below the prior year. Nearly
half of the gross margin decrease was due to the divestitures of the foreign
operations of AM Multigraphics. Lower revenues in continuing operations and a
shifting product mix at AM Multigraphics to lower margin distributed items from
the historically higher margin manufactured products accounted for the balance
of the gross margin decrease.
Selling, general and administrative expense of $61.3 million have decreased by
$24.0 million as compared with the prior year. The divested foreign operations
accounted for $16.9 million of the decrease. The balance of the decrease was
due to headcount reductions and other cost reduction measures which have been
implemented in response to lower market demand. In addition the Company
recorded a $2.8 million favorable adjustment in the third quarter due to the
favorable of resolution of legal disputes which had been previously reserved.
The operating loss of $6.3 million resulted from lower revenue and gross margin
levels which were not fully offset by expense reductions.
SHERIDAN SYSTEMS
Results for the quarter and nine month period ended April 27, 1996 and April 29,
1995 were:
<TABLE>
Quarter Ended Nine Months
April 27, April 29, April 27, April 29,
1996 1995 1996 1995
($ in millions)
<CAPTION>
<S> <C> <C> <C> <C>
Revenues $37.8 $45.3 $91.3 $126.2
Operating Income 1.0 5.1 0.5 12.7
Backlog 38.5 57.8 38.5 57.8
</TABLE>
The Sheridan Systems business segment serves the printing and newspaper
publishing industries by providing bindery systems and newspaper mailroom
systems. The products sold by Sheridan Systems are largely capital equipment
items and market demand has historically been cyclical. Orders in this business
segment can be in the millions of dollars and therefore revenues, margins and
customer backlogs may vary significantly.
Third Quarter
Revenues of $37.8 million were $7.5 million below the corresponding prior year
period. Revenues from shipments of bindery systems decreased $13.6 million ,
while revenues from newspaper mailroom systems increased by $9.2 million. The
balance of the revenue variance was attributable to the July 1995 divestiture of
the forms press, sheet fed and AIP service and parts businesses. The decline in
bindery system revenues resulted from continued weakness in market demand.
Market demand for bindery systems has continued to lag the previous year's level
due to a combination of factors which include a reduction in printed product for
magazines, catalogs and direct mail as the retail sector of the U.S. economy has
remained weak and there exists excess capacity in the printing industry.
<PAGE>
Gross margin of $7.7 million was $5.9 million below the prior year third
quarter. The reduction in gross margin was attributable to lower volume, higher
customer discounts and a less favorable product mix. Partially offsetting the
lower gross margin was a reduction in operating expenses of $1.8 million as
compared with the prior year quarter. The lower expense level has been achieved
through headcount reductions and cost reduction measures. As compared with the
prior year quarter, headcount has been reduced by 180 or 20%. The headcount
reduction, an earlier plant shut down and other expense reduction initiatives
were implemented in response to the lower market demand.
For the quarter, Sheridan Systems had operating income of $1.0 million as
compared with $5.1 million in the prior year period. The reduction in operating
income resulted from the lower revenue level and decreased gross margin which
was not fully offset by expense reductions.
Backlog as of April 27, 1996 was $38.5 million and had decreased from the $46.1
million which existed at the end of the Company's second fiscal quarter. The
current backlog remains below historical levels due to the continued lower
market demand, reduced cycle times and shorter lead times demanded by the
market.
Nine Months
Revenues of $91.3 million for the nine month period ended April 27, 1996 were
$34.8 million lower than the comparable prior year period. The revenue decline
has primarily been in bindery systems, which has accounted for $31.6 million of
the shortfall. Weak market demand, for reasons described in the discussion of
the third quarter, accounted for the variance to prior year. Revenues from sales
of newspaper mailroom systems have increased $8.1 million in comparison to the
prior year. The divestiture of the forms press , sheet fed parts and AIP
service and supply business in July 1995 led to a $10.4 million decrease in
revenues. The market trends and lower backlog levels described earlier are also
applicable to the year to date result.
Gross margin of $22.2 million was $13.6 million lower than the prior year period
due primarily to the reduced revenue level. The gross margin rate of 24.3% has
declined 4.1 percentage points as compared to the prior year period. The
decrease in margin rate was attributable to the lower volume, which unfavorably
impacted the absorption of manufacturing costs, higher customer discounts and a
less favorable product mix. Operating expenses of $21.8 million were $1.4
million favorable to the prior year period due to headcount reductions and other
expense reduction initiatives which have been taken due to the lower volume.
Due to the lower revenues and related decline in gross margin, Sheridan Systems'
operating income of $0.5 million was $12.2 million below the prior year nine
month period.
<PAGE>
AM MULTIGRAPHICS
Results for the quarter and nine month period ended April 27, 1996 and April 29,
1995 were:
<TABLE>
Quarter Ended Nine Months Ended
April April April April
27, 29, 27, 29,
1996 1995 1996 1995
($ in millions)
<CAPTION>
<S> <C> <C> <C> <C>
Revenues $45.1 $48.0 $132.7 $143.4
Operating Income(Loss) 0.2 (0.1) (3.3) 0.6
</TABLE>
The AM Multigraphics business segment serves the graphics arts industries in
North America and Japan by distributing an extensive range of sheet fed offset
duplicating presses, digital printing equipment, pre and post press equipment,
and a wide range of supplies and technical services.
Third Quarter
Revenues of $45.1 million were $2.9 million under the prior year comparable
period. The revenue decrease occurred primarily in sales of traditional
duplicator machines and the related supplies and technical services. The lower
revenues from duplicator products and services were consistent with longer term
trends for these products. The decline in market demand for the Company's
manufactured duplicator products has been the result of inroads made by
competing printing technologies. The AM Multigraphics segment has focused its
efforts on becoming a broad based distributor of equipment, supplies and
services to the graphic arts markets and is transitioning out of manufacturing.
The Company has efforts underway to phase out its manufacturing operations,
expand its product offering through new distribution agreements and transition
its organization structure and capabilities to function as an efficient
distribution business.
Third quarter gross margin of $11.3 million was $1.8 million unfavorable to the
comparable prior year period. The decline in gross margin was primarily due to
lower volume and a changing product mix which included a higher proportion of
lower margin, non-manufactured products. The shift in product mix was consistent
with the Company's strategy to rely more on distributed products which tend to
have lower gross margins. The decrease in gross margin was offset by reductions
in selling, general and administrative expenses, which have resulted from the
transition away from manufacturing, decreased headcount and increased
operational efficiencies. Operating income of $0.2 million was $0.3 million
favorable to the prior year period due to the expense reductions which have
offset lower gross margin.
<PAGE>
Nine Months
For the nine month period ending April 27, 1996 revenues of $132.6 million were
$11.8 million below the comparable prior year period. The decrease in revenues
occurred primarily due to lower sales of manufactured duplicator equipment,
supplies and services. The decline in market demand for these duplicator
products has been due to inroads by competing technologies. As previously
stated, in response to this long term trend, the Company has elected to
transition out of manufacturing and to provide, as a distributor, a wide array
of products and services to its customers. The Company is actively adding state
of the art products to distribute while it is in the process of transitioning
its organization to being a cost effective distribution business serving the
graphic arts industry. During the second quarter, the Company completed the sale
of its Mt. Prospect, IL. manufacturing, distribution and headquarters facility.
This sale enabled the headquarters and distribution operations to relocate to
lower cost, more efficiently sized facilities in the nearby area.
Gross margin of $31.6 million for the nine months declined by $6.7 million from
the comparable prior year period. As described in the discussion of the third
quarter results, the lower gross margin primarily resulted from the decrease in
volume and a shift in product mix to lower margin, distributed products.
Operating expenses were reduced $2.9 million from the comparable prior year
period, but the reduction, year to date, was not sufficient to offset the lower
gross margin. Throughout the year, the Company has implemented measures to
reduce cost and improve efficiencies, although the full benefit of these actions
is not reflected in the total expense level through the first nine months of the
current fiscal year. AM Multigraphics has an operating loss of $3.3 million for
the nine months ended April 27, 1996 as compared with an operating profit of
$0.6 million in the comparable prior year period. The reduction in operating
profit resulted from the lower revenues and gross margins which were not fully
offset by expense reductions.
<PAGE>
AM MULTIGRAPHICS - DIVESTED SUBSIDIARIES
Results for the quarter and nine month period ended April 27, 1996 and April 29,
1995 were:
<TABLE>
Quarter Ended Nine Months Ended
April 27, April 29, April 27, April 29,
1996 1995 1996 1995
($ in millions)
<CAPTION>
<S> <C> <C> <C> <C>
Revenues $0 $35.4 $40.0 $102.3
Operating Income
$0 $(1.0) $(4.2) $(3.1)
</TABLE>
The Company had previously concluded that it should exit the unprofitable AM
Multigraphics foreign operations and had been in the process of implementing
this strategy over the past few years. The operations had not been profitable
due to declining revenues and margins which primarily resulted from inroads by
competing technologies and a highly competitive market. The Company undertook a
number of initiatives in an attempt to reduce expense levels and return the
operations to sustainable profit levels. These actions were not successful due
to high implementation costs and various customary and statutory restrictions
which limited the magnitude of the restructurings and the timeliness of the
actions.
The AM Multigraphics foreign subsidiaries served certain foreign graphic arts
markets. The subsidiaries were wholly owned and operated in the United Kingdom,
the Netherlands, Belgium, France, Germany, Switzerland and Australia. The
subsidiaries distributed an extensive range of sheet-fed offset duplicating
presses, digital printing equipment, pre and post press equipment, and a wide
range of supplies and technical services.
In February, 1996 the Company completed its program of exiting unprofitable
foreign operations through the sale of its operations in the Netherlands, France
and Belgium and the AM Multigraphics United Kingdom subsidiary commenced an
Administrative Proceeding which will ultimately lead to the divestiture of the
United Kingdom operation. The Company's existing reserves were adequate for the
disposal of these operations and no gain or loss was recognized on these
divestitures.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $7.4 million as of April 27, 1996
as compared with $19.9 million on July 31, 1995 resulting in a reduction of
$12.5 million. In addition to the reduction in cash balances, net short term
borrowings increased $9.6 million for the nine month period ended April 27,
1996.
<PAGE>
The primary sources of cash from operating activities were a reduction in
accounts receivable of $8.3 million and an increase in customer advances of $3.2
million. The reduction in accounts receivable was the result of the collection
of comparatively higher outstanding balances which existed at July 31, 1995 due
to a strong fourth quarter revenue level.
The primary uses of cash in operating activities were the net loss of $11.2
million , a reduction of accrued liabilities of $10.3 million and a reduction
in deferred service contact income of $4.3 million. The reduction in accrued
liabilities related primarily to payments made for restructuring initiatives,
year end profit sharing payments, commissions and compensation payments, and
warranty and installation expenses. The reduction in deferred service contract
income was the result of a declining installed based of offset duplicating
equipment.
In addition, the divested AM Multigraphics foreign subsidiaries had cash
balances of $4.2 million when they were exited. Capital expenditures of $6.2
million were partially offset by depreciation and amortization of $3.8 million.
The capital expenditures were primarily to upgrade systems and equipment and for
leasehold improvements. The Company received $6.8 million in proceeds for the
sale of its AM Multigraphics headquarters, manufacturing and distribution
facility in Mt. Prospect, Illinois.
The $9.6 million increase in short term borrowings was required to fund the net
loss, an increase in working capital and required payments to holders of
general unsecured claims and priority tax claims under the Company's Plan of
Reorganization.
The Company's principal credit facility is its $25.0 million revolving credit
facility. The utilizations under this facility are limited by a calculated
borrowing base which as of April 27, 1996 was approximately $16.0 million.
Although the Company has taken steps designed to reduce its use of cash (such as
expense reductions and, in recent months, reducing purchases of inventory),
based on current projections, the Company expects that its cash resources and
current revolving credit facility will not provide sufficient capital resources
and liquidity for the next twelve-month period. The Company is exploring a
variety of strategic and financial alternatives to meet its liquidity needs.
The Company has retained Bear, Stearns & Co. Inc. to act as its financial
advisor in connection with the proposed Heidelberg transaction, in addition to
certain other potential strategic alternatives. On June 11, 1996 the Company
announced that it has executed a non-binding letter of intent with Heidelberger
Druckmaschinen AG for the sale of substantially all of the assets of the
Company's Sheridan Systems Division. The total cash purchase price for the
transaction is anticipated to be $56 million, subject to adjustments (see Note
6). The Company intends to use the proceeds to reduce liabilities and provide
working capital. In addition, the Company is seeking to obtain new revolving
credit facilities or the consummation of another transaction which would provide
capital resources to the Company. There can be no assurances that the Company
can consummate the transaction with Heidelberger Druckmaschinen AG, be able to
renew or replace the existing Revolving Credit Facility upon its expiration or
enter into any other transaction which would provide additional cash resources
to the Company.
<PAGE>
PART II OTHER INFORMATION
Item 5 - Other Information
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Certain statements in this filing, and elsewhere (such as in other filings
by the Company with the Securities and Exchange Commission, press releases,
presentations by the Company or its management and oral statements) constitute
forward-looking statements`` within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, (i)
the demand for the Company's products, including the cyclical nature of demand
for the products of the Company's Sheridan Systems Division, (ii) the pace of
technological change, (iii) the results of the Company's efforts with respect to
its AM Multigraphics business to phase out its manufacturing operations, expand
its product offering through new distribution agreements and transition its
organization structure and capabilities to function as an efficient distribution
business, (iv) the outcome of the Company's continuing product development
efforts in its Sheridan Systems Division business, (v) the resolution of
disputed claims involving the Company relating to its bankruptcy proceedings or
other matters, (vi) the outcome of the contemplated sale of substantially all of
the Sheridan Systems Division, (vii) the extent to which adequate financing is
available (including the Company's relationship with its current bank lenders
and the outcome of its efforts to procure new credit facilities), and (viii) the
outcome of any or the Company's efforts with respect to other strategic or
financial alternatives.
Item 6 - Exhibits
27. Financial Data Schedule
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AM INTERNATIONAL, INC.
Date: June 11, 1996 /s/Thomas D. Rooney
Thomas D. Rooney
Vice President and Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> APR-27-1996
<CASH> 7,419
<SECURITIES> 0
<RECEIVABLES> 46,953
<ALLOWANCES> (1,875)
<INVENTORY> 57,244
<CURRENT-ASSETS> 16,060
<PP&E> 36,546
<DEPRECIATION> (8,156)
<TOTAL-ASSETS> 205,418
<CURRENT-LIABILITIES> 136,713
<BONDS> 0
0
0
<COMMON> 160
<OTHER-SE> 36,208
<TOTAL-LIABILITY-AND-EQUITY> 205,418
<SALES> 259,596
<TOTAL-REVENUES> 259,596
<CGS> 169,291
<TOTAL-COSTS> 195,323
<OTHER-EXPENSES> 70,621
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,813
<INCOME-PRETAX> (11,067)
<INCOME-TAX> (103)
<INCOME-CONTINUING> (11,170)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,170)
<EPS-PRIMARY> (1.59)
<EPS-DILUTED> (1.59)
</TABLE>
