<PAGE> 1
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 January 27, 1996
Commission file number 1-683
AM International, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 34-0054940
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9399 W. Higgins Rd., Suite 900, Rosemont, Illinois 60018
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(Address of principal executive offices) (Zip Code)
(847) 292-0600
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(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.
Yes X 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.
Yes X 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 March 6, 1996.
<PAGE> 2
AM INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Statement of
Operations for the Three Months and Six Months
Ended January 27, 1996 and January 28, 1995 1
Condensed Consolidated Balance Sheet
as of January 27, 1996 and
July 31, 1995 2
Condensed Consolidated Statement of
Cash Flows for the Six Months Ended
January 27, 1996 and January 28, 1995 3
Notes to Condensed Consolidated Financial
Statement 4 - 7
Item 2 - Management Discussion and Analysis of
Results of Operations and Financial Condition 8 - 14
PART II - Other Information
Item 1- Legal Proceedings
Item 6 - Exhibits and Reports on Form 8 - K 14
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
AM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(Dollars in thousands except ---------------------------------- ----------------------------------
per share amounts) JANUARY 27, 1996 JANUARY 28, 1995 JANUARY 27, 1996 JANUARY 28, 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUES $80,965 $123,097 $177,415 $239,079
COST OF SALES 61,376 90,178 132,140 172,638
GROSS MARGIN 19,589 32,919 45,275 66,441
OPERATING EXPENSES:
Selling, general and administrative 22,725 27,136 49,084 55,275
Reseach, development, and engineering 3,349 3,585 6,706 6,726
------- -------- -------- --------
TOTAL OPERATING EXPENSES 26,074 30,721 55,790 62,001
OPERATING INCOME (LOSS) (6,485) 2,198 (10,515) 4,440
Non-operating income (expense):
Interest income 101 109 236 337
Interest expense (1,391) (1,231) (2,685) (2,404)
Other expense, net (330) (567) (521) (985)
------- -------- -------- --------
Income (loss) before taxes (8,105) 509 (13,485) 1,388
Income tax (expense) benefit (625) (253) 985 (833)
------- -------- -------- --------
NET INCOME (LOSS) $(8,730) $256 $(12,500) $555
======= ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE $(1.25) $0.04 $(1.78) $0.08
======= ======== ======== ========
Weighted Average shares of Common
Stock outstanding (in thousands) 7,009 7,009 7,009 7,024
======= ======== ======== ========
</TABLE>
The Notes to Condensed Consolidated Financial Statements are an integral part of
these financial statements.
<PAGE> 4
AM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 27, 1996 JULY 31, 1995
---------------- -------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 11,009 $ 19,908
Accounts receivable, net 39,931 86,466
Inventories, net 62,032 70,961
Prepaid expenses and other assets 16,520 18,302
-------- --------
TOTAL CURRENT ASSETS 129,492 195,637
Property, plant and equipment, net 27,994 32,662
Excess reorganization value 40,544 27,105
Other assets, net 13,405 22,260
-------- --------
TOTAL ASSETS $211,435 $277,664
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current maturities of
long-term debt $ 18,708 $ 12,764
Accounts payable 39,548 55,343
Service contract deferred income 14,797 23,984
Payroll related expenses 14,386 24,038
Other 55,478 56,179
-------- --------
TOTAL CURRENT LIABILITIES 142,917 172,308
Long-term debt 12,215 23,205
Other long-term liabilities 21,076 31,451
-------- --------
TOTAL LIABILITIES $176,208 $226,964
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 40 million shares
authorized; 7,010,000 issued $ 160 $ 160
Capital in excess of par value 35,775 35,547
Less: treasury stock, at cost; 1,280 shares (6) (6)
Warrants, 1,095,000 issued;
exercise price of $18.00 383 383
Accumulated earnings (deficit) (1,235) 11,265
Cumulative translation adjustment 150 3,351
-------- --------
TOTAL SHAREHOLDERS' EQUITY 35,227 50,700
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $211,435 $277,664
======== ========
</TABLE>
The Notes to Condensed Consolidated Financial Statements are an integral part
of these financial statements.
<PAGE> 5
AM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Six Months
ended ended
January 27, 1996 January 28, 1995
---------------- ----------------
<S> <C> <C>
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $(12,500) $ 555
ADJUSTMENTS TO RECONCILE NET INCOME
TO CASH FLOW FROM OPERATING
ACTIVITIES:
Depreciation of property, plant and
equipment 1,548 1,976
Amortization of other assets 892 944
Tax benefit from operating loss
carryforwards 0 138
Change in assets and liabilities:
Accounts receivable, net 13,789 7,716
Inventory, net (6,799) (2,495)
Prepaids and other current assets (2,453) (2,597)
Accounts payable and accruals (7,206) (10,412)
Customer Advances 4,883 (7,644)
Other, net (2,391) (4,457)
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES (10,237) (16,276)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,896) (2,606)
Divestitures of Operations (4,190) 0
Proceeds from disposition of PP&E 6,822 0
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES (2,264) (2,606)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings/(payments) under short-
term borrowing agreements (7,019) 2,694
Principal borrowings/(payments) of
long-term debt (3,259) (3,127)
Deferred Stock awards 228 0
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES (3,988) (433)
-------- --------
Effect of exchange rate changes on cash (386) 165
-------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (8,899) (19,150)
Cash and cash equivalents at beginning
of period 19,908 25,959
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,009 $ 6,809
======== ========
</TABLE>
The Notes to Condensed Consolidated Financial Statements are an integral part of
these financial statements.
<PAGE> 6
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 but 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 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>
<CAPTION>
January 27, 1996 July 31, 1995
---------------- -------------
<S> <C> <C>
U.S.:
Revolving Credit Facility $ 7,514 $ 0
General Unsecured Claims & Priority Tax Claims 16,910 21,047
Capital Leases 5,324 1,896
------- -------
TOTAL U.S. 29,748 22,943
------- -------
FOREIGN:
Divested Operations 0 11,685
Canada, Japan 0 0
Capital Leases 1,175 1,341
------- -------
TOTAL FOREIGN 1,175 13,026
------- -------
CONSOLIDATED $30,923 $35,969
======= =======
CLASSIFIED IN THE CONSOLIDATED BALANCE SHEET
AS FOLLOWS:
Short-term $18,708 $12,764
Long-term 12,215 23,205
------- -------
CONSOLIDATED $30,923 $35,969
------- -------
</TABLE>
<PAGE> 7
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 January 27, 1996, the calculated borrowing base was
approximately $16,000. 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 January 27, 1996
the Company had borrowings of $7,514 under the Revolving Credit Facility and
was utilizing $3,419 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 January 27, 1996, the interest rate was
10.25%. The agreement contains restrictive covenants limiting investments in
foreign subsidiaries, 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. The Company has or would have violated
certain restrictive financial covenants in its first two fiscal quarters of
1996, however the Company has received waivers of these violations from its
lenders. The Company's current projections indicate that the Company may not
meet future income related restrictive financial covenants as defined in its
credit agreement and the Company plans to seek further waivers from its lenders
in the event a default arises in the future. Based on current projections, the
Company believes that current cash balances and the continuation of the
Company's credit facilities, assuming receipt of the necessary waivers, provide
the Company with capital resources and liquidity which would be sufficient for
its operations, including required principal and interest payments to holders
of general and unsecured claims and priority tax claims. There can be no
assurances that the Company will be able to obtain additional waivers under the
credit facility, be able to renew or replace the facility upon its expiration
or meet its projections.
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 January 27, 1996 the Company had
$2,312 of restricted cash which primarily pertains to the settlement of
disputed claims in accordance with the Plan.
During February, 1996, the Company sold its AM Multigraphics European
subsidiaries located in the Netherlands, France and Belgium, and exited its AM
Multigraphics subsidiary in the United Kingdom by placing the operation in 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
<PAGE> 8
purchase the Common Stock are awarded at a price not less than 100% of
the market price on the date of grant, become excercisable at various dates
generally from one to four years after the date of grant, and expire ten years
after the date of grant. At January 27, 1996 options to purchase 587,700
shares were outstanding at option prices ranging from $4.438 to $12.125.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company received creditor claims during its bankruptcy proceedings of which
approximately $49,000 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 quarter ended January 27, 1996 the
Company expunged or settled approximately $149 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. 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 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 January 27, 1996,
the balance on such receivables for which the Company is contingently liable
was $3,530 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 $1,898 at January 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 January 27, 1996 and July 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
January 27, 1996 July 31, 1995
---------------- -------------
<S> <C> <C>
Raw Materials $ 1,929 $ 2,812
Work in process and finished goods 60,103 68,149
------- -------
Total Inventories, net $62,032 $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 $7,323
at January 27, 1996 and $7,317 at July 31, 1995.
<PAGE> 9
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 net to an
immaterial amount, have been included in current liabilities in the condensed
consolidated Balance Sheet as of January 27, 1996. The effect of this
transaction on the Balance Sheet can be summarized as follows:
<TABLE>
<CAPTION>
Less:
Historical European As Reported Pro Forma
Jan. 27, 1996 Subsidiaries Jan. 27, 1996 July 31, 1995
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Current Assets 163,439 33,947 129,492 141,815
Property, plant and equipment, net 31,189 3,195 27,994 28,367
Excess reorganization value 30,813 (9,731) 40,544 42,007
Other assets, net 16,448 3,043 13,405 13,649
---------------------------------------------------------------------
TOTAL ASSETS $241,889 $30,454 $211,435 $225,838
=====================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities 167,624 24,707 142,917 135,720
Long-term Debt 14,768 2,553 12,215 17,050
Other long-term liabilities 23,621 2,545 21,076 23,995
---------------------------------------------------------------------
$206,013 $29,805 $176,208 $176,765
---------------------------------------------------------------------
SHAREHOLDERS' EQUITY 35,876 649 35,227 49,073
---------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $241,889 $30,454 $211,435 $225,838
=====================================================================
</TABLE>
The column titled European Subsidiaries includes the effects of exiting all of
the AM Multigraphics European subsidiaries (i.e. the Netherlands, France,
Belgium, UK, Germany and Switzerland subsidiaries), as well as the Australian
subsidiary. The effects of the transaction include the disposal of all assets
and liabilities of those subsidiaries. There was no gain or loss recorded as
a result of the exit of the AM Multigraphics European subsidiaries as all costs
related to the exit were previously reserved. The July 31, 1995 Pro Forma
information is presented on a consistent basis for comparative purposes.
The Consolidated Statement of Operations for the three and six months ended
January 27, 1996 does not include the effects of this transaction. For Pro
Forma information regarding the effects of this transaction on the Consolidated
Statement of Operations, please refer to the Company's Form 8-K dated March 7,
1996.
<PAGE> 10
Item 2 - Management's Discussion and Analysis of Results of Operations and
Financial Condition.
AM INTERNATIONAL, INC.
QUARTERLY REPORT
JANUARY 27, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS
The discussion of the results of operations and financial condition presented
below should be read in conjunction with Management's Discussion and Analysis
included in the Company's Annual Report to Shareholders for the year ended July
31, 1995.
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 27, January 28, January 27, January 28,
1996 1995 1996 1995
------ ------ ------ ------
($ in millions)
<S> <C> <C> <C> <C>
Revenues $81.0 $123.1 $177.4 $239.1
Gross Margin 19.6 32.9 45.3 66.4
% 24.2% 26.7% 25.5% 27.8%
Selling, General & Admin. Expenses 22.7 27.1 49.1 55.2
Research, Development & Engineering 3.3 3.6 6.7 6.7
------ ------ ------ ------
Operating Income (Loss) $(6.5) $2.2 $(10.5) $4.5
Interest, Net 1.3 1.1 2.5 2.1
Other Non-Operating Expenses 0.3 0.5 0.5 1.0
Taxes (expense) benefit (0.6) (0.3) 1.0 (0.8)
------ ------ ------ ------
Net Income (Loss) $(8.7) $0.3 $(12.5) $0.6
====== ====== ====== ======
</TABLE>
SUMMARY
SECOND QUARTER
The consolidated net loss for the quarter ended January 27, 1996 was $8.7
million ($1.25 per common share) as compared with a net profit of $0.3 million
($0.04 per common share) for the comparable prior year quarter.
Revenues for the second quarter of 1996 were $81.0 million as compared to
$123.1 million in the corresponding period in fiscal 1995. The decline was
distributed through all of the Company's segments, with Sheridan Systems
accounting for $18.5 million, AM Multigraphics - North America accounting for
$5.5 million and discontinued AM Multigraphic foreign subsidiaries accounting
for $16.8 million. The decrease at Sheridan Systems stemmed from a low
beginning backlog and weak market demand for bindery systems. The AM
Multigraphics decrease
<PAGE> 11
was attributable to long term erosion of market demand for traditional
duplicator products and services due to inroads by competition.
Gross margin for the second quarter of $19.6 million was $13.3 million lower
than the prior year comparable period. The gross margin rate decreased 2.5
percentage points to 24.2% in the same period. The lower margin was primarily
attributable to the decreased revenue level and the shift in product mix
at AM Multigraphics to distributed products from higher margin manufactured
offset duplicator products had a negative impact on the margin rate. The
transition at AM Multigraphics to lower margin distributed products is expected
to continue.
Selling, general and administrative expenses in the second quarter decreased
$4.4 million to $22.7 million from the prior year level. The decrease was due
to cost reduction actions which the Company has taken due to the declining
revenue level and the transition to a distribution cost structure at AM
Multigraphics as the Company phases out manufacturing operations at AM
Multigraphics.
The Company has announced further actions designed to improve results which
include further headcount reductions and field facility closures. A reduction
of 200 personnel is scheduled to be completed in the third quarter. In
addition, the Company has completed its program to eliminate unprofitable AM
Multigraphics foreign subsidiaries with the February 1996 exit of the
AM Multigraphics operations in the Netherlands, Belgium, France and the United
Kingdom.
The operating loss of $6.5 million for the second quarter of 1996 compared
unfavorably with the $2.2 million profit in the prior year comparable period.
The loss and reduction in income was primarily due to lower revenue and gross
margin levels in all operations.
The Company recorded an income tax expense of $0.6 million during the 1996
second quarter despite the pre-tax loss in the quarter. The expense was taken
to reduce the year to date benefit which the Company has recorded based on a
revised outlook for the full year result.
SIX MONTHS
For the six month period ended January 27, 1996 the Company had a net loss of
$12.5 million ($1.78 per common share) as compared with a net profit of $0.6
million ($0.08 per common share) in the prior year comparable period.
Revenues for the current year of $177.4 million have decreased by $61.7
million from the prior year. The decrease in revenues occurred in each of the
Company's segments. The most significant portions of the decrease in revenues
were the $24.4 million decrease at Sheridan Systems and the $27.0 million
decrease in the divested AM Multigraphics foreign subsidiary operations.
Sheridan Systems decrease was due to a low beginning backlog and weak market
demand for bindery systems which has continued throughout the period. Orders
for Sheridan Systems products improved during the second quarter ended January
27,1996 and backlog ended the quarter at $46.1 million, up from $33.4 million
at the end of the first quarter. The backlog remains significantly below
historic levels and the Company believes that demand for bindery systems will
lag previous years' levels. The Sheridan Systems segment has historically been
subject to cyclical market demand and due to the sizable nature of individual
orders, quarter to quarter variations in revenues and margins are to be
expected. In addition, future revenues will be impacted by the divestitures of
the AM Multigraphic foreign operations as previously described.
<PAGE> 12
Gross margin of $45.3 million was $21.1 million below the level of the
comparable prior year period. The decrease in gross margin was primarily due to
lower revenue and a decreasing margin rate in the AM Multigraphics segment as
the product mix shifts toward lower margin distributed products from higher
margin manufactured items which have had declining market demand.
Selling, general and administrative expenses decreased $6.1 million as compared
with the prior year period. The decrease has resulted from headcount reductions
and other measures to reduce operating costs in response to lower revenue
levels. The Company's headcount, following the February 1996 divestitures of
the AM Multigraphics foreign subsidiaries, was approximately 2000 as compared
with approximately 2900 in July, 1995 although most of the domestic reductions
occurred in the second quarter.
The operating loss for the current year period was $10.5 million versus a
profit of $4.5 million in the prior year. The decrease in operating profit was
primarily attributable to lower revenues and margins which were not fully
offset by expense reductions.
SHERIDAN SYSTEMS
Results for the quarter and six month period ended January 27, 1996 and January
28, 1995 were:
<TABLE>
<CAPTION>
Quarter Ended Six Months
January 27, 1996 January 28, 1995 January 27, 1996 January 28,1995
---------------- ---------------- ---------------- ---------------
($ in millions)
<S> <C> <C> <C> <C>
Revenues $21.5 $40.0 $53.5 $80.9
Operating Income (Loss) (1.3) 2.5 (0.5) 7.6
Backlog 46.1 69.8 46.1 69.8
</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.
SECOND QUARTER
Revenues of $21.5 million were $18.5 million below the comparable prior year
period. Revenues from shipments of bindery systems accounted for $15.4 million
of the decline with the balance of the variance attributable to the July 1995
divestiture of the forms press, sheet fed and AIP service and parts businesses.
The decrease in bindery system revenues resulted from a lower beginning backlog
of orders and continued weakness in market demand. The market demand for
bindery systems is expected to continue to lag previous years' levels due to a
combination of factors which include a slowing U.S. economy, weakness in retail
sales and higher newsprint costs which have led to a reduction in catalogs and
mailers, resulting in lower volume for printers.
Gross margin of $5.4 million was $4.2 million below the prior year for the
second quarter although the gross margin rate improved due to a favorable
product mix and cost reduction efforts. The lower level of gross margin was
primarily due to the decreased revenue level. Operating expenses decreased 8%
as compared to the prior year due to headcount reductions and cost reduction
measures. Included in the current quarter's expenses was a $0.8 million charge
for a 100 person headcount reduction. This headcount reduction, a plant shut
down and other expense reduction initiatives were implemented in response to
the lower market demand.
<PAGE> 13
The operating loss of $1.3 million resulted from the low revenue level which
was not fully offset by an improved gross margin rate and expense reductions.
Backlog as of January 27, 1996 was $46.1 million and increased from the $33.4
million which existed at the end of the Company's first fiscal quarter. The
current backlog remains below historical levels due to the lower market demand,
reduced cycle times and shorter lead times demanded by the market.
SIX MONTHS
Revenues of $53.5 million for the six month period ended January 27, 1996 were
$27.5 million lower than the comparable prior year period. For reasons
consistent with those described in the earlier section of this report, bindery
systems revenues accounted for $19.0 million of the variance to the prior year.
In addition, the previously described divested service businesses accounted for
$7.3 million of the variance. The market trends and lower backlog levels
described earlier are also applicable to the year to date result.
Gross margin of $14.5 million was $7.8 million lower than the prior year period
due to the lower revenue level. Operating expenses were slightly higher due to
increased spending on research, development and engineering. Due to the lower
revenues and related decline in gross margin, Sheridan Systems incurred an
operating loss of $0.5 million for the six month period.
AM MULTIGRAPHICS - NORTH AMERICA
Results for the quarter and six month period ended January 27, 1996 and January
28, 1995 were:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
January 27, 1996 January 28, 1995 January 27, 1996 January 28, 1995
---------------- ---------------- ---------------- ----------------
($ in millions)
<S> <C> <C> <C> <C>
Revenues $34.0 $39.5 $70.9 $76.4
Operating Income (Loss) (1.8) 0.3 (2.6) 0.8
</TABLE>
The AM Multigraphics - North American business segment serves the graphics arts
industry by distributing an extensive range of sheet-fed offset duplicating
presses, digital color printing equipment, pre and post press equipment, and a
wide range of supplies and technical services.
SECOND QUARTER
Revenues of $34.0 million were $5.5 million below the comparable prior year
quarter. The revenue decrease was primarily in the sales of traditional
duplicator machines and the related technical services provided to users of
duplicating machines. The lower revenues from duplicator products and services
is consistent with longer term trends for these products. The decline in market
demand for traditional duplicator products has been spurred in large part by
inroads from competing technologies. The AM Multigraphics segment has continued
to focus its efforts on the transition from being a manufacturer of duplicating
equipment and supplies to being a broad based distributor of equipment,
supplies and services to the graphic arts markets it serves.
<PAGE> 14
During the quarter ended January 27, 1996 the AM Multigraphics - North American
segment 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. In addition, the operations have made significant strides in
implementing new information management systems with major portions of the
systems to be activated during the upcoming third fiscal quarter which will
enable better customer service. These strategic changes are being implemented
as part of AM Multigraphics transition from a manufacturer to a graphics arts
distribution business.
Gross margin decreased to $7.6 million from $10.4 million in the prior year
second quarter. The decrease was primarily the result of lower sales volume,
although the transition to a greater reliance on lower margin distributed
products contributed to the decrease. Operating expenses decreased to $9.4
million in the current quarter for a reduction of 7% as compared with the prior
year. Reductions in headcount and facilities accounted for the lower expense
level. The AM Multigraphics transition from their historic manufacturing cost
structure to a structure consistent with the distribution strategy is underway
and accounts for the lowering of selling, general and administrative expense.
An additional reduction of 100 personnel is in process combined with further
reductions in field facilities. The costs of the transition have been
previously anticipated and current period earnings were not affected. In the
second quarter ended January 27, 1996 there was an operating loss of $1.8
million due to the lower volume and decreasing gross margin which was not fully
offset by expense reductions.
SIX MONTHS
For the six month period ended January 27, 1996 revenues of $70.9
million were $5.5 million below the comparable prior year period. The decrease
in revenues occurred during the Company's second quarter and has been
previously described. AM Multigraphics traditional product line of offset
duplicating equipment, supplies and services, largely manufactured by the
Company, has been in long term decline due to inroads by competing
technologies. In response to this decline, the Company has elected to
transition out of manufacturing and provide a wide array of products and
services to its customers as a distributor. The Company is actively adding
state of the art products to distribute while transitioning its organization to
being a cost effective distribution business serving the graphics arts
industry. These efforts to add new products have increased expense levels but
to date these new products have not contributed significantly to the Company's
revenues.
Gross margin decreased $3.9 million to $17.2 million in the current year to
date result. The decrease was attributable to lower volume and a declining
margin rate as the Company increasingly relies on lower margin distributed
products. Operating expenses have decreased by $0.6 million to $19.8 million
through cost reduction efforts. During this period, investments have continued
to be made in building capabilities to sell and service digital products. There
was an operating loss of $2.6 million in the period due to the lower volume and
decreased margin which was only partially offset by lower expense levels.
<PAGE> 15
AM MULTIGRAPHICS - INTERNATIONAL
Results for the quarter and six month period ended January 27, 1996 and January
28, 1995 were:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
January 27, 1996 January 28, 1995 January 27, 1996 January 28, 1995
---------------- ---------------- ---------------- ----------------
($ in millions)
<S> <C> <C> <C> <C>
Revenues
- Continuing Subsidiary (Japan) $7.1 $8.2 $13.3 $14.9
- Divested Subsidiaries 18.6 35.4 40.0 67.0
---- ---- ----- ----
- Total 25.7 43.6 53.3 81.9
Operating Income
- Continuing Subsidiary (Japan) (0.1) 0.4 (0.8) (0.0)
- Divested Subsidiaries (2.1) (0.1) (4.2) (2.1)
----- ----- ----- -----
- Total (2.2) 0.3 (5.0) (2.1)
</TABLE>
The AM Multigraphics - International operations serve certain foreign graphic
arts markets primarily through wholly owned subsidiaries (the exception, AM
Japan is 67% owned). The subsidiaries distribute an extensive range of
sheet-fed offset duplicating presses, digital color printing equipment, pre and
post press equipment, and a wide range of supplies and technical services.
The Company has previously concluded that it should exit unprofitable AM
Multigraphics foreign operations and has been in the process of implementing
this strategy over the past few years. The foreign subsidiary operations have,
by and large, not been profitable due to declining revenues and margins which
have resulted from inroads by competing technologies and a highly competitive
market. A number of restructurings have been undertaken to reduce expenses,
but have not resulted in sufficient expense reduction due to the high cost of
implementing foreign restructuring actions and other statutory or customary
restrictions which limit the magnitude and timeliness of actions.
SECOND QUARTER/ SIX MONTHS
In February, 1996 the Company completed its announced intention to exit the
unprofitable AM Multigraphics European operations. The Company sold its
subsidiary operations located in the Netherlands, France and Belgium to a
management group. The AM Multigraphics subsidiary located in the United Kingdom
initiated an Administration Proceeding which will lead ultimately to its
divestiture from the Company. The Company's existing reserves for the
anticipated disposal of these operations were adequate and no loss was
recognized on these divestitures. In October, 1995 the Company divested its
subsidiaries in Germany and Switzerland. The Company no longer has AM
Multigraphics subsidiaries in Europe. The Company does continue to maintain its
Sheridan Systems operation in Slough, England which was unaffected by the
transactions.
<PAGE> 16
As of January 27, 1996 the AM Multigraphic operation in Japan (AM Japan) is the
only continuing operation reported as a "continuing subsidiary". The divested
operations include the aforementioned subsidiaries, and in comparison to the
prior year, the divested operations also include the 1995 divestiture of AM
Australia.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet as of January 27, 1996 reflects the divestitures of
the AM Multigraphics European subsidiaries in the Netherlands, Belgium, France
and the United Kingdom. The following discussion of cash flow excludes the
activities of the divested operations.
The Company's cash and investments were $11.0 million as of January 27, 1996 as
compared with a balance of $19.9 million on July 31, 1995 resulting in a
reduction in cash and investments of $8.9 million. In addition to the reduction
in cash balances, net borrowings increased $6.7 million for the six month
period ended January 27, 1996.
The primary sources of cash from operating activities were a reduction in
accounts receivable of $13.8 million and an increase in customer advances of
$4.9 million. The reduction in accounts receivable was the result of the
collection of higher customer balances as of July 31, 1995 due to strong
billings in the fourth quarter of fiscal 1995. The increase in customer
deposits reflects the improved level of new orders in the Company's quarter
ended January 27, 1996.
The primary uses of cash in operating activities were: the net loss of $12.5
million; an increase in inventory of $6.8 million which was due to the
anticipation of higher production levels which have not been realized due to
lower market demand; and, a reduction in accounts payable and accrued
liabilities of $7.2 million for restructuring costs and year end profit
sharing, commission and compensation payments.
In addition, the divested AM Multigraphics foreign subsidiaries had cash
balances of $4.2 million when they were disposed. Capital expenditures of $7.8
million were partially offset by depreciation and amortization of $2.4 million.
In addition the Company received $6.8 million in proceeds from the sale of its
Mt. Prospect facility. The capital expenditures were primarily to upgrade
systems and equipment and for leasehold improvements.
An increased debt level was required to fund the higher working capital levels
and the net loss. The Company's principal credit facility is its $25.0 million
revolving credit facility. The borrowings under this facility are limited by a
calculated borrowing base as defined in the agreement. As of January 27, 1996
the calculated borrowing base was approximately $16.0 million. The Company has
or would have violated certain restrictive financial covenants in its first two
fiscal quarters of 1996, however the Company has received waivers of these
violations from its lenders. The current revolving credit facility expires on
October 12, 1996. The Company plans to negotiate a new revolving credit
facility to replace the present facility during fiscal year 1996. The Company's
current projections indicate that the Company may not meet future restrictive
financial covenants as defined in its credit agreement and the Company plans to
seek further waivers from its lenders in the event a default arises in the
future. Based on current projections, the Company believes that current cash
balances and the continuation of the Company's credit facilities, assuming
receipt of the necessary waivers, provide the Company with capital resources
and liquidity which would be sufficient for its operations, including required
principal and interest payments to holders of general and unsecured claims and
priority tax claims. There can be no assurances that the Company will be able
to obtain additional waivers under the credit facility, be able to renew or
replace this facility upon its expiration or meet its projections.
<PAGE> 17
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: March 7, 1996 /s/Thomas D. Rooney
------------- -------------------
Thomas D. Rooney
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> OCT-29-1995
<PERIOD-END> JAN-27-1996
<CASH> 11,009
<SECURITIES> 0
<RECEIVABLES> 41,829
<ALLOWANCES> 1,898
<INVENTORY> 76,415
<CURRENT-ASSETS> 129,492
<PP&E> 27,994
<DEPRECIATION> 0
<TOTAL-ASSETS> 211,435
<CURRENT-LIABILITIES> 142,947
<BONDS> 0
<COMMON> 160
0
0
<OTHER-SE> 35,067
<TOTAL-LIABILITY-AND-EQUITY> 211,435
<SALES> 80,965
<TOTAL-REVENUES> 80,965
<CGS> 61,376
<TOTAL-COSTS> 61,376
<OTHER-EXPENSES> 26,074
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,290
<INCOME-PRETAX> (8,105)
<INCOME-TAX> (625)
<INCOME-CONTINUING> (8,730)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,730)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> (1.25)
</TABLE>
