UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
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 number 0-15512.
ALPNET, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0356708
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4460 South Highland Drive Suite #100
Salt Lake City, Utah 84124-3543
(Address of principal executive offices) (Zip Code)
(801) 273-6600
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of the registrant's no par value Common Stock
as of November 11, 1996 was 16,647,869.
ALPNET, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Statements of Operations--Three months ended September 30, 1996
and 1995, and Nine months ended September 30, 1996 and 1995 . . . .
Consolidated Balance Sheets--September 30, 1996 and December 31, 1995
Consolidated Statements of Cash Flows--Nine months ended September 30, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements--September 30, 1996 . . . .
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . .
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
ITEM 1: . . . . CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
ALPNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
Thousands of dollars and shares 1996 1995 1996 1995
<S> <C> <C> <C> <C>
SALES OF SERVICES $7,545 $7,386 $23,058 $19,751
OPERATING EXPENSES:
Cost of services sold 6,099 5,510 17,990 15,567
Selling, general and administrative
expenses 1,204 1,261 3,664 3,116
Development costs 60 49 142 131
Amortization of goodwill 90 93 269 279
Total operating expenses 7,453 6,913 22,065 19,093
OPERATING INCOME 92 473 993 658
Interest expense, net 40 55 101 160
Income before income taxes 52 418 892 498
Income taxes 30 70 178 130
NET INCOME $ 22 $ 348 $ 714 $ 368
NET INCOME PER SHARE $ .001 $ .015 $ .028 $ .016
Weighted average shares of Common
Stock and Common Stock equivalents
outstanding 26,344 22,868 25,856 22,422
See accompanying notes.
</TABLE>
<TABLE>
ALPNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
September 30 December 31
Thousands of dollars 1996 1995
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,645 $ 1,033
Trade accounts receivable, less allowance of
$247 in 1996 and $156 in 1995 4,928 4,978
Work-in-process 506 340
Prepaid expenses and other 1,079 707
Total current assets 8,158 7,058
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS:
Office facilities and leasehold
improvements 139 144
Equipment 4,363 3,833
4,502 3,977
Less accumulated depreciation and
amortization 3,040 2,997
Net property, equipment and leasehold
improvements 1,462 980
OTHER ASSETS:
Goodwill, less accumulated amortization
of $3,143 in 1996 and $2,924 in 1995 5,863 6,250
Other 235 161
Total other assets 6,098 6,411
TOTAL ASSETS $15,718 $14,449
See accompanying notes.
</TABLE>
<TABLE>
ALPNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)--continued
<CAPTION>
September 30 December 31
Thousands of dollars and shares 1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable to banks $ 1,304 $ 1,156
Accounts payable 1,786 1,636
Accrued payroll and related benefits 748 665
Other accrued expenses 898 813
Deferred revenue 366 254
Income taxes payable 47 18
Current portion of long-term debt 142 94
Current portion of long-term debt to affiliates 39 42
Guarantee liability (Note 3) - 220
Total current liabilities 5,330 4,898
Long-term debt, less current portion 186 115
Long-term debt to affiliates, less current portion 69 105
SHAREHOLDERS' EQUITY:
Convertible Preferred Stock, no par value;
authorized 2,000 shares; issued and
outstanding 1,131 shares in 1996 and 1995 3,127 3,127
Common Stock, no par value; authorized
40,000 shares; issued and outstanding
16,648 shares in 1996 and 16,199 shares
in 1995 39,196 38,954
Accumulated deficit (30,615) (31,329)
Equity adjustment from foreign currency translation (1,575) (1,421)
Total shareholders' equity 10,133 9,331
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $15,718 $14,449
See accompanying notes.
</TABLE>
<TABLE>
ALPNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Nine Months Ended September 30
Thousands of dollars 1996 1995
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 714 $368
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of property,
equipment and leasehold improvements 302 266
Amortization of goodwill 269 279
Other (42) 11
Changes in operating assets and liabilities:
Trade accounts receivable (29) (641)
Accounts payable and accrued expenses 392 226
Other (413) 49
Net cash provided by operating activities 1,193 558
INVESTING ACTIVITIES:
Purchase of property, equipment and
leasehold improvements (832) (266)
FINANCING ACTIVITIES:
Proceeds from notes payable to banks 376 375
Principal payments on notes payable to banks (228) (354)
Proceeds from long-term debt, including debt to affiliates 164 11
Principal payments on long-term debt, including debt to affiliates (75) (87)
Proceeds from issuance of common stock, net of related costs - 191
Proceeds from exercise of stock options 22 -
Net cash provided by financing activities 259 136
Effect of exchange rate changes on cash (8) 14
NET INCREASE IN CASH AND CASH EQUIVALENTS 612 442
Cash and cash equivalents at beginning of period 1,033 344
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,645 $786
CASH PAID DURING THE PERIOD FOR:
Interest $ 106 $165
Income taxes 162 71
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Effective August 1995, the Company issued 87,339 shares of Convertible Preferred Stock in exchange for
long-term debt to affiliates.
See accompanying notes.
</TABLE>
ALPNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1996
1. BASIS OF PRESENTATION
ALPNET, Inc. and its subsidiaries (the "Company") form a worldwide network
dedicated to providing specialized language services for businesses engaged
in international trade. The Company has combined computer translation
technology with experienced human translators and other language and
technical professionals in its worldwide network to provide a full spectrum
of services to fulfill the language needs of customers in international
business.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information
and footnote disclosures required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for
the periods presented are not necessarily indicative of the results that may
be expected for the respective complete years. For further information,
refer to the Consolidated Financial Statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1995.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Certain amounts for the nine-month period ended September 30, 1995 have been
reclassified to conform to the 1996 presentation.
2. INCOME TAXES
The Company files a consolidated U.S. Federal income tax return which
includes all domestic operations. Tax returns for states within the U.S. and
for foreign subsidiaries are filed in accordance with applicable laws.
Fluctuations in the amount of income taxes arise primarily from the varying
combinations of taxable income and losses of the Company's subsidiaries in
the various domestic and foreign tax jurisdictions, including the utilization
of net operating loss carryforwards in many of these jurisdictions.
3. ACQUISITION GUARANTEE LIABILITY
In 1988, the Company acquired its German subsidiary for a combination of cash
and shares of the Company's Common Stock. The acquisition agreement required
the Company to give additional consideration if the value of the shares of
Common Stock did not reach an agreed-upon level within a specified period
following the acquisition, and remain at that level until the former owner
was able to sell the shares of the Company's Common Stock for an amount equal
to the purchase price stipulated in the acquisition agreement. As a result
of this requirement, the Company issued additional shares to the former owner
in 1990.
In 1993, the Company and the former owner entered into an agreement which
amended the original acquisition agreement. This agreement waived the
requirement to pay any additional consideration if the value of all shares of
Common Stock previously issued reached the stipulated purchase price on or
before September 30, 1994 (which date was subsequently extended to September
30, 1996). Had the stock value never reached such amount, the Company would
have been required to pay interest on the stock value deficiency beginning on
September 30, 1996.
As a result of this waiver agreement, the Company recorded a guarantee
liability for the stock value deficiency, calculated based on the trading
value per share of the Company's Common Stock as compared to the guaranteed
value at the balance sheet dates. An adjustment to shareholders' equity was
also recorded for the same amounts.
In May 1996, an increase in the market price of ALPNET Common Stock allowed
this liability to be fully satisfied without any additional cash payment or
issuance of stock by the Company.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis should be read in conjunction
with the Consolidated Financial Statements and notes thereto.
FOREIGN OPERATIONS
The Company serves its customers from 33 wholly-owned offices in 15 countries.
The operations of the Company are predominantly located outside the U.S.
Accordingly, the Company is subject to the effects of foreign currency exchange
rate fluctuations among U.S. dollars, Canadian dollars, British pounds sterling,
German marks and other European and Asian currencies. For all of the Company's
foreign subsidiaries, the functional currency has been determined to be the
local currency. Accordingly, assets and liabilities are translated at period-
end exchange rates, and operating statement items are translated at average
exchange rates prevailing during the period. The resultant cumulative foreign
currency adjustments to the assets and liabilities are recorded as a separate
component of shareholders' equity. For the first nine months of 1996, the
foreign currency equity adjustment was negative $150,000 compared to a positive
adjustment of $300,000 for the first nine months of 1995. When the U.S. dollar
strengthens against foreign currencies, the shareholders' equity adjustment for
the Company normally is negative since the net assets denominated in foreign
currencies are translated into fewer U.S. dollars. This is what has occurred in
1996, whereas in 1995, the major foreign currencies affecting the Company
strengthened as compared to the U.S. dollar. As of September 30, 1996, the
cumulative net effect to the Company of the equity adjustment from movements in
foreign currency exchange rates was a reduction of $1.6 million in shareholders'
equity. A significant portion of the cumulative foreign currency adjustment
relates to changes in the recorded amount of goodwill.
Because most of the Company's operations are located outside the U.S., and its
foreign operations' financial results must be translated into U.S. dollars, the
Company's actual and reported financial results and financial condition are
susceptible to movements in foreign currency exchange rates. Since the Company
has relatively few long-term monetary assets and liabilities denominated in
currencies other than the U.S. dollar, it does not have any ongoing hedging
programs in place to manage currency risk.
RESULTS OF OPERATIONS
The following paragraphs discuss results of operations for the three- and nine-
month periods ended September 30, 1996 as compared with the three- and nine-
month periods ended September 30, 1995, including the significant effects of
fluctuating foreign currency exchange rates.
The Company reported net income of $22,000 for the three months ended September
30, 1996 compared to net income of $348,000 for the three months ended September
30, 1995. If foreign currency exchange rates for 1996 had remained unchanged
from 1995, the Company would have reported net income of $25,000 instead of
$22,000 and therefore currency exchange rate fluctuations had an immaterial
effect on net income in the third quarter of 1996.
The Company reported net income of $714,000 for the nine months ended September
30, 1996 compared to $368,000 for the nine months ended September 30, 1995. If
foreign currency exchange rates for 1996 had remained unchanged from 1995, the
Company would have reported net income of $770,000 instead of $714,000.
Sales of services were $7.5 million for the three months ended September 30,
1996 compared to $7.4 million for the three months ended September 30, 1995.
The $100,000 increase in reported sales for 1996 consisted of an increase in
sales volume of approximately $300,000 and an approximate $200,000 decrease due
to currency exchange rate variances.
Sales of services were $23.1 million for the nine months ended September 30,
1996 compared to $19.8 million for the nine months ended September 30, 1995.
The $3.3 million increase in reported sales from 1995 to 1996 consisted of an
increase in sales volume of $3.9 million and a decrease of $600,000 due to
currency exchange rate variances. The increases in sales volume in 1996 over
1995 are due to increases in sales in nearly all markets in which the Company
has a presence, but most particularly in the Company's North American, U.K. and
Singapore offices. Contributions from new offices, particularly in the
Netherlands and in Japan also boosted sales in 1996 over 1995.
The increase in sales volume is a result of generally expanding needs for
language related services in an increasingly global marketplace where more and
more businesses are entering foreign markets and becoming involved in worldwide
trade. An example of this is the software industry which has significant and
increasing needs for product localization services such as those provided by the
Company. Also having a beneficial effect on sales levels is the Company's
increasing emphasis on online services (including the Internet) both as a
marketing tool and as a means to communicate with and interact with clients.
Management believes that international trade agreements such as the North
American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and
Trade (GATT) have also had a positive effect on demand for the language services
provided by the Company.
The Company competes on the basis of quality, service and geographical proximity
to clients and potential clients, and has opened several new offices in recent
years -- including a new office in Tokyo in 1996 -- in order to increase its
market share in what management believes has been and will continue to be a
growth industry. The intense price competition which the Company encountered
throughout 1994 and 1995 continues to limit the prices the Company can charge in
the marketplace, and the industry pricing situation appears to have improved
only marginally in 1996 compared to 1995.
The following table shows a comparison of sales of services in each of the
Company's significant geographic areas for each of the nine month periods ended
September 30, 1996 and 1995, along with the effect of foreign currency exchange
rate fluctuations on sales between periods. Intercompany sales are normally
billed on a margin-sharing basis. All intercompany sales are eliminated in
determining the totals.
<TABLE>
<CAPTION>
Thousands of dollars
Increase (Decrease) in
Nine Months Sales of Services due to Total
Ended September 30 Sales Currency Increase
1996 1995 Volume Fluctuations (Decrease)
<S> <C> <C> <C> <C> <C>
United States $ 3,455 $ 1,911 $1,544 $ - $1,544
Canada 3,248 2,815 420 13 433
Europe 18,891 16,129 3,469 (707) 2,762
Asia 2,582 1,801 786 (5) 781
Eliminations (5,118) (2,905) (2,278) 65 (2,213)
Total Sales $23,058 $19,751 $3,941 $(634) $3,307
</TABLE>
As shown in the above table, every major geographical region reported increased
sales in 1996 over 1995.
In the U.S., sales can fluctuate widely from period to period due to industry
conditions which are often less predictable and stable than those found in many
of the Company's foreign markets. Such conditions are characterized by the
relative inexperience of many U.S. companies in translation and localization of
language, as it relates to international business, and clients which may not be
sophisticated in the nuances of marketing to foreign countries and the
importance of related language issues. These factors, along with the
unpredictable timing and the nonrecurring nature of many large translation
projects for U.S. companies, contribute to a deficiency of customers who reorder
on a regular basis. In addition, the entrance into the U.S. market of European
competitors trying to expand their revenues, has had a tendency to depress the
profitability of work performed by the Company for U.S. clients. Despite these
factors, U.S. sales increased significantly from 1995 to 1996, due largely to a
rise in the number and size of projects for existing and new clients, especially
software localization services for companies in the computer hardware, software
development and training industries. Much of this increase is due to aggressive
sales and marketing efforts initiated late in 1995 and which have continued
throughout 1996.
The increase in sales in Canada was due primarily to ongoing aggressive
marketing and sales efforts, the procurement of new large long-term contracts
and increased international trading. These increases in sales have occurred
despite continuing economic and political challenges in Canada, which are still
present and which could eventually depress sales if the economy and the strength
of the Canadian dollar decline or if the political situation deteriorates in the
future.
In 1996, sales in Europe of $18.9 million represented approximately 67% of the
Company's total worldwide sales and grew by $2.8 million over 1995 sales levels,
or by 17% year over year. Sales increased in every European country in which
the Company has offices, except for Germany which experienced a 1% decline from
the prior year, primarily because of lower first quarter 1996 results than in
the first quarter of 1995. Most of the increase in Europe was a result of
growth in the U.K. (24% growth rate, which would have been 28% absent the
negative effect of foreign currency exchange rate variances). Together, the
U.K. and Germany accounted for over 84% of Europe's total sales in 1996 and 88%
in 1995.
The high rate of growth in sales in the U.K. is due to several factors,
including significantly increased orders from the Company's largest client; a
healthy local economy; the Company's growing reputation for providing quality
service; expansion of sales efforts in all offices, including the smaller
regional offices in the central and northern areas of Great Britain; an
experienced and dedicated management and production team which has been in place
for several years; the growing revenues of the London sales office which was
opened in early 1995; and the expansion of the Glasgow office in late 1995 when
the Company acquired a local translation company to supplement the sales of the
existing office in that city. Over the long-term, management expects sales in
the U.K. to continue to grow, but at a smaller growth rate. The actual rate of
growth will depend on many factors which are subject to constant change. In
particular, sales in this country are greatly dependent upon the number and size
of orders from large clients.
In Germany, the overall economy grew at a mild pace during most of 1995, but
slowed considerably late in 1995. This slowdown has continued into 1996 as
evidenced by the unemployment rate which has increased to post WWII highs as
many companies and industries have reduced employment. The first quarter of
1996 was particularly poor in terms of economic strength. Due to the effects of
the overall economic slowdown, the Company's sales in Germany decreased from
1995 to 1996. As noted earlier, the decrease was 1%, but if the negative effect
of foreign currency exchange rate variances were eliminated, a growth in sales
of 5% would have been reported. The uncertain economic conditions in Germany
will undoubtedly have some effect on the Company's ability to grow sales in this
market in the foreseeable future.
In addition to the new London office and the expansion of the Glasgow office in
1995, the Company opened offices in the Netherlands and in Ireland in late 1995.
These new offices, along with the investments made in human and equipment
resources in existing offices in recent years, are expected to help the Company
grow its revenues in Europe as demand for language services in this region
continues to expand.
Sales in Asia of $2.6 million in 1996 grew by 43% over 1995 levels, with all of
this increase due to actual volume increases. The Company expanded its Asian
presence in 1995 by adding an office in The People's Republic of China. Since
its opening, the China office has functioned only as a production facility for
sales made in other offices of the Company, but China is expected to begin to
sell to local companies in 1997 and contribute to the growth of sales in Asia in
coming years. While Hong Kong's sales decreased substantially as an indirect
result of the uncertainty over the impending political changes in 1997, sales in
1996 in Singapore and Korea increased significantly over 1995 levels.
The Company opened an office in Tokyo in early 1996 which has served primarily
as a production facility for sales made elsewhere in the Company, and has
therefore helped other offices sell to new and existing clients which have needs
for Japanese language services. Management expects this office to begin selling
to Japanese clients in 1997, which is expected to help accelerate sales growth
in Asia in 1997. Management also expects the increased demand for Asian
language services to continue as many Asian countries are experiencing very high
economic growth rates and the interest in Asia from the business communities in
the U.S., Europe and elsewhere remains high.
The Company's business can be impacted dramatically by changes in the strength
of the economies of the countries in which it has a presence and results of
operations are highly influenced by general economic trends. Moreover, sales --
and profitability -- are increasingly affected by the number and size of larger
and more complicated projects and management expects quarterly results to
fluctuate somewhat more widely in the future than in the past, because of the
increasing number of such projects. While quarterly results will fluctuate,
management believes the Company s ability to capture increasing sales in an
expanding market will result in overall long-term growth.
Cost of services sold as a percentage of sales of services has fluctuated
primarily as a result of competition in the marketplace and the volume and
nature of direct production costs of project sales in each year, especially
large projects covering several accounting periods. While some relief from
severe price competition has been observed recently, management expects
competitive pricing pressures to continue in the foreseeable future. Based on
current trends, pricing pressures are not expected to intensify significantly
beyond current levels. The Company is continuing its efforts to contain costs
to offset the effects of these pricing pressures. These efforts include more
effective utilization of the Company's proprietary software on medium- to
smaller-sized projects to improve the productivity of translators.
Selling, general and administrative expenses increased 18% for the first nine
months of 1996 over the first nine months of 1995, primarily as a result of high
expenses in the second quarter of this year. The increase was due to several
factors, including the overall growth of existing offices and the opening of new
offices, including Tokyo which incurred a very high level of start-up costs
related to the high cost of doing business in Japan and the large size of this
new office; increased marketing and sales efforts in all of the Company's
markets, including the hiring of a new corporate vice president of sales and
marketing in late 1995 and the publishing of a significant volume of new sales
and marketing materials; certain costs related to reorganizing some of the
Company's underperforming offices; and to a lesser extent, the effect of
increased corporate overhead costs related to the Company's growth.
For the quarter ended September 30, 1996, selling, general and administrative
expenses decreased marginally from the same quarter in 1995, due in part to the
favorable resolution of certain matters involving primarily employee-related
costs and rents (totalling approximately $100,000). Management expects selling,
general and administrative expenses to resume an upward trend in the final
quarter of 1996 as compared to the third quarter of 1996 and the fourth quarter
of 1995, due to the overall growth of the Company.
Development costs were $60,000 for the three months ended September 30, 1996
compared to $49,000 for the three months ended September 30, 1995. For the
first nine months of 1996, development costs were $142,000, compared to $131,000
for the same period in 1995. Development costs are related to the upgrading and
expansion of the Company's proprietary language translation software developed
in the early years of the Company's existence, as well as efforts related to the
development and expansion of the Company's online language service product
offering. The Company expects future development costs to increase somewhat (as
compared to both 1995 and 1996 levels), most notably because of the requirements
related to online services, including the Internet.
Fluctuations in the amount of goodwill amortization resulted from foreign
currency exchange rate fluctuations from year to year.
Net interest expense for the first nine months of 1996 was $101,000, which was
$59,000 less than for the same period in 1995, and there was a similar reduction
of interest expense for the third quarter of 1996 as compared to the third
quarter of 1995 ($40,000 compared to $55,000). The decreases were due to
reductions in the Company's overall debt levels, most notably the conversion of
$243,000 of debt to an affiliate to convertible Preferred Stock in August 1995.
While interest expense in future periods is expected to increase marginally over
recent levels as the Company has increased its long-term debt to finance certain
equipment purchases, such increases are not expected to be significant.
The U.S. parent company and each of its subsidiaries are separate legal and
taxable entities subject to the domestic or foreign taxes pertaining to
operations in their respective jurisdictions. For tax purposes, the U.S. parent
company and most of its subsidiaries have unused net operating losses from prior
years which can be utilized to reduce future years taxable income of the
respective entities. The availability of these net operating losses is governed
by applicable domestic and foreign tax rules and regulations, some of which
limit the utilization of such losses due to minimum tax requirements and other
provisions. Income tax expense as presented in the Consolidated Financial
Statements represents the combined income tax expense and income tax credits of
each of the entities of the Company.
After consideration of the effect of the utilization of net operating loss
carryforwards, income tax expense was $178,000 for the first nine months of 1996
($30,000 for the third quarter), compared to $130,000 for the first nine months
of 1995 ($70,000 for the third quarter). Fluctuations in the amount of income
taxes arise primarily from the varying combinations of income and losses of the
Company's subsidiaries in the various domestic and foreign tax jurisdictions,
including the utilization of net operating loss carryforwards in many of these
jurisdictions.
LIQUIDITY AND SOURCES OF CAPITAL
For the first nine months of 1996, the Company had a net positive cash flow from
operations of approximately $1,190,000 compared with a positive cash flow from
operations in the first nine months of 1995 of $560,000. In 1996 and 1995, the
Company's investing activities consisted primarily of the acquisition of
equipment needed to maintain or upgrade production capability. Financing
activities for both periods consisted primarily of fluctuations in the amounts
utilized under bank lines of credit used to finance the Company's working
capital needs, and in 1996, increases in long-term debt to finance the
acquisition of equipment needed for new and expanding offices.
As of September 30, 1996, the Company's cash and cash equivalents were
approximately $1,645,000 representing an increase of approximately $600,000
during the first nine months of 1996. At September 30, 1996, the Company had
working capital of approximately $2.8 million, compared to working capital of
approximately $2.2 million at December 31, 1995.
The Company's primary working capital requirements relate to the funding of
accounts receivable. The Company funds some of its working capital needs with
various lines of credit with banks in Canada, the U.K., Germany and Spain. Most
of the lines of credit are secured by accounts receivable and other assets of
the respective subsidiaries. As of September 30, 1996, the Company had unused
amounts under these lines of credit of approximately $800,000. The Company
believes that the available amounts under these lines of credit, along with
current working capital, are sufficient to fund the Company's operations at
current levels as well as enable the Company to grow at a modest level without
seeking significant new sources of capital. Most of the Company's credit
facilities are subject to annual renewals and the Company expects them to be
renewed on substantially the same terms as those which currently exist. Some of
the banks which have loaned funds to the Company's subsidiaries under the credit
facilities noted above, have placed certain limits on the flow of cash outside
the respective countries. Such limitations have not been an undue burden to the
Company in the past, nor are they expected to be unduly burdensome in the
foreseeable future.
The Company has no present significant commitments for capital expenditures,
which generally consist of computer equipment and related peripheral hardware
and software. A lesser but increased portion of expenditures in 1996 was for
office furniture to equip new and growing offices. Likewise, the level of
capital additions in 1996 increased significantly from 1995 due to expansion of
existing offices and new offices opened in late 1995 and in 1996. Capital
expenditures in future periods are expected to vary according to the overall
growth of the Company. The Company plans to acquire and place additional
translation services workstations in its offices in connection with future
orders from customers, as such orders are received. The Company expects to
continue to finance a certain portion of future equipment costs through various
bank and leasing sources.
While there are no material current commitments, the Company may open additional
offices in strategic locations worldwide, as customer demands dictate and
opportunities arise. The costs to open most offices in recent years have
generally not been substantial and have been primarily related to the
procurement of computers and other translation-related equipment and, in certain
instances, for office premises. The Tokyo office was an exception to this
general situation, due both to the larger size of this office and the high cost
of doing business in Japan. The costs of any additional offices to be opened in
the future can also be expected to vary based on size and location and could
require certain amounts of cash beyond what can be generated through operations,
depending on profitability.
The Company believes it has the ability to issue additional equity securities if
necessary, but does not currently have any firm plans to do so. In past years,
the Company has relied on major shareholders of the Company to fund certain
obligations, but the Company does not anticipate using this source of capital in
the foreseeable future.
Management believes that current working capital and available lines of credit,
together with management s expectations of increased revenues and ongoing plans
to control expenses, will enable the Company to meet its financial obligations
during 1996 and into 1997. It is more difficult to assess cash flows throughout
1997 and beyond and the ability of the Company to meet its commitments without
additional sources of capital is directly related to the Company's operations
providing a positive cash flow. Should the Company's operations fail to provide
adequate funds to enable it to meet its future financial obligations, management
has the option, because of the Company's organizational structure, to cut costs
by selectively eliminating operations which are not contributing to the Company
financially.
Inflation has not been a significant factor in the Company s operations;
competition, however, has been and is expected to remain a major factor. To the
extent permitted by competition and general economic and market conditions, the
Company will pass on increased costs from inflation and operations to customers
by increasing prices.
Due to prior years' operating losses, the Company and many of its subsidiaries
have net operating loss carryforwards available to offset future taxable income
in the various countries in which the Company operates. As a result, the
Company historically has not had significant income tax liabilities requiring
the expenditure of cash. Due to currently available net operating loss
carryforwards, the Company expects this general trend to continue through the
balance of 1996 and for several years into the future. Substantially all of the
Company's deferred tax assets at September 30, 1996 were comprised of net
operating loss carryforwards for which the Company has provided allowances. The
ability of the Company to utilize these loss carryforwards in the future is
dependent on profitable operations in the various countries in which loss
carryforwards exist and the specific rules and regulations governing the
utilization of such losses, including the dates by which the losses must be
used.
CAUTIONARY STATEMENT
The statements in this Management's Discussion and Analysis that are forward
looking, including for example, information about future sales growth in various
countries in future periods, are based on current expectations and actual
results may differ materially. Forward looking statements contained in this
Management's Discussion and Analysis involve numerous risks and uncertainties
that could cause actual results to be materially different from estimated
results. Such risks and uncertainties include, among many others, fluctuating
foreign currency exchange rates, changing levels of demand for the Company's
services, the effect of changing general economic and political conditions in
all of the various countries in which the Company has operations, and the impact
of competitive services and pricing. As a result, no assurance can be given as
to future results.
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
11 Statement Re: Computation of Per Share Earnings
21 List of All Subsidiaries of the Company
27 Financial Data Schedule
(b) The Company has filed the following reports on Form 8-K during the
three months ended September 30, 1996.
Date of
Report Item Reported
07/30/96 ALPNET Announces Record Second Quarter 1996 Results
SIGNATURES
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.
ALPNET, INC.
Registrant
Date: November 11, 1996 \s\ Thomas F. Seal
Thomas F. Seal
President and Chief Executive Officer
Date: November 11, 1996 \s\ D. Kerry Stubbs
D. Kerry Stubbs
Chief Financial Officer
E X H I B I T 1 1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
(Thousands of dollars and shares) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income $ 22 $ 348 $ 714 $ 368
Weighted average shares of Common
Stock outstanding 16,647 15,847 16,411 15,657
Shares of Common Stock issuable upon
conversion of Convertible Preferred Stock 7,423 7,021 7,423 6,765
Shares of Common Stock issuable upon
exercise of employee stock options 2,274 - 2,022 -
Total shares of Common Stock and
Common Stock equivalents 26,344 22,868 25,856 22,422
Net income per share $ .001 $ .015 $ .028 $ .016
<FN>
(1) Primary and fully diluted per share earnings are substantially the same for each period presented.
</FN>
</TABLE>
E X H I B I T 2 1
LIST OF ALL SUBSIDIARIES OF THE COMPANY
<TABLE>
All subsidiaries are wholly-owned.
<CAPTION> Date of
Place of Incorporation
Name Incorporation or Acquisition
<S> <C> <C>
ALPNET, S.A. Switzerland June 21, 1984
Automated Language Processing Systems, Ltd. Canada November 17, 1986
a.l.p. Services, Inc. Utah, USA November 25, 1987
A.L.P. SERVICES SARL France November 30, 1987
INTERDOC SARL France November 30, 1987
Automated Language Processing Services, Ltd. England December 2, 1987
ALPNET GmbH Germany January 11, 1988
Multiscript International Inc. Canada January 15, 1988
Dr. W.D. Haehl GmbH Germany January 29, 1988
Interlingua Group Ltd. England March 31, 1988
ALPNET U.K. Ltd. England March 31, 1988
Interlingua S.L. Spain March 31, 1988
Interlingua Language Services Ltd. Hong Kong March 31, 1988
ALPNET Singapore Pte. Ltd. Singapore March 31, 1988
ALPNET Ireland Ltd. Ireland August 18, 1995
Translation Services Bureau Ltd. Scotland October 31, 1995
AOLI Network Technology Ltd. China December 12, 1995
ALPNET Netherlands BV The Netherlands February 12, 1996
ALPNET Belgium Belgium September 16, 1996
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1645
<SECURITIES> 0
<RECEIVABLES> 5175
<ALLOWANCES> 247
<INVENTORY> 0
<CURRENT-ASSETS> 8158
<PP&E> 4502
<DEPRECIATION> 3040
<TOTAL-ASSETS> 15718
<CURRENT-LIABILITIES> 5330
<BONDS> 255
0
3127
<COMMON> 39196
<OTHER-SE> (32190)
<TOTAL-LIABILITY-AND-EQUITY> 15718
<SALES> 23058
<TOTAL-REVENUES> 23058
<CGS> 17990
<TOTAL-COSTS> 17990
<OTHER-EXPENSES> 411
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> 892
<INCOME-TAX> 178
<INCOME-CONTINUING> 714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 714
<EPS-PRIMARY> .028
<EPS-DILUTED> .028
</TABLE>
