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 March 31, 1997
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 May 12, 1997 was 18,536,196.
ALPNET, INC. AND SUBSIDIARIES
INDEX
<TABLE>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Statements of Operations--Three months ended March 31, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets--March 31, 1997 and December 31, 1996 . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows--Three months ended March 31, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements--March 31, 1997 . . . . . . . . . . . . . . . . . .
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 March 31
Thousands of dollars and shares 1997 1996
<S> <C> <C>
SALES OF SERVICES $8,767 $6,488
OPERATING EXPENSES:
Cost of services sold 7,421 5,163
Selling, general and administrative
expenses 1,614 1,087
Development costs 108 50
Amortization of goodwill 98 90
Total operating expenses 9,241 6,390
OPERATING INCOME (LOSS) (474) 98
Interest expense, net 57 33
Income (loss) before income taxes (531) 65
Income taxes 45 36
NET INCOME (LOSS) $ (576) $ 29
NET INCOME (LOSS) PER SHARE $(.032) $ .001
Weighted average shares of Common
Stock and Common Stock equivalents
outstanding 18,029 25,544
See accompanying notes.
</TABLE>
<TABLE>
ALPNET, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
<CAPTION>
March 31 December 31
Thousands of dollars 1997 1996
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 919 $ 1,034
Trade accounts receivable, less allowance of
$248 in 1997 and $219 in 1996 6,960 6,529
Work-in-process 560 487
Prepaid expenses and other 859 949
Total current assets 9,298 8,999
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS:
Office facilities and leasehold
improvements 313 318
Equipment 5,143 4,789
5,456 5,107
Less accumulated depreciation and
amortization 3,593 3,236
Net property, equipment and leasehold
improvements 1,863 1,871
OTHER ASSETS:
Goodwill, less accumulated amortization
of $3,303 in 1997 and $3,380 in 1996 6,094 6,087
Other 279 310
Total other assets 6,373 6,397
TOTAL ASSETS $17,534 $17,267
See accompanying notes.
</TABLE>
<TABLE>
ALPNET, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)--continued
<CAPTION>
March 31 December 31
Thousands of dollars and shares 1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable to banks $ 2,667 $ 1,959
Accounts payable 2,100 2,225
Accrued payroll and related benefits 789 922
Other accrued expenses 1,263 897
Deferred revenue 385 391
Income taxes payable 110 53
Current portion of long-term debt 356 203
Total current liabilities 7,670 6,650
Long-term debt, less current portion 521 262
Commitments and contingencies (note 6)
SHAREHOLDERS' EQUITY:
Convertible Preferred Stock, no par value;
authorized 2,000 shares; issued and
outstanding 615 shares in 1997 and 719
shares in 1996 1,808 2,095
Common Stock, no par value; authorized
40,000 shares; issued and outstanding
18,536 shares in 1997 and 17,883 shares
in 1996 40,515 40,228
Accumulated deficit (31,309) (30,733)
Equity adjustment from foreign currency translation (1,671) (1,235)
Total shareholders' equity 9,343 10,355
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $17,534 $17,267
See accompanying notes.
</TABLE>
<TABLE>
ALPNET, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
Three Months Ended March 31
Thousands of dollars 1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (576) $ 29
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization of property,
equipment and leasehold improvements 166 93
Amortization of goodwill 98 90
Other 56 (36)
Changes in operating assets and liabilities, net of effect
of acquisition:
Trade accounts receivable (416) 417
Accounts payable and accrued expenses 199 103
Other 46 (270)
Net cash provided by (used in) operating activities (427) 426
INVESTING ACTIVITIES:
Purchase of property, equipment and
leasehold improvements (183) (104)
Payment for acquisition, net of cash acquired (508) -
Net cash used in investing activities (691) (104)
FINANCING ACTIVITIES:
Proceeds from notes payable to banks 771 355
Principal payments on notes payable to banks (13) (261)
Proceeds from long-term debt 395 -
Principal payments on long-term debt (115) (35)
Net cash provided by financing activities 1,038 59
Effect of exchange rate changes on cash (35) (6)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (115) 375
Cash and cash equivalents at beginning of period 1,034 1,033
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 919 $1,408
CASH PAID DURING THE PERIOD FOR:
Interest $57 $33
Income taxes 8 42
See accompanying notes.
</TABLE>
ALPNET, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1997
1. BASIS OF PRESENTATION
ALPNET, Inc. (the "Company") is a United States publicly-owned corporation
with multinational operations. The Company provides language translation,
product localization, and multilingual publishing services to businesses
engaged in international trade. The principal markets for the Company's
services are North America, Western Europe, and Asia.
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,
1996.
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
2. ACQUISITION
In January 1997, the Company acquired all of the outstanding stock of
CompuType Ltd., a U.K.-based provider of specialty desktop publishing and
pre-press services, in a transaction accounted for as a purchase. The
acquisition cost of approximately $550,000 was paid in cash, and exceeded the
fair values of the net assets acquired by approximately $400,000, which was
recorded as goodwill and which is being amortized on the straight-line method
over 12 years. The acquisition was financed primarily by (1) a UK pound
200,000 (approximately $320,000) unsecured term loan with the Company's U.K.
bank, repayable over 5 years, bearing interest at approximately 9%; and (2)
an increase of 100,000 UK pounds (approximately $160,000) in the Company's
credit facility with this bank. CompuType's results of operations have been
included with the Company's consolidated financial results from February 1997
forward. CompuType's 1997 sales, included in consolidated sales of services
for the period ended March 31, 1997, were approximately $330,000.
3. BORROWINGS
The Company obtained a line of credit with a U.S. financial institution in
January 1997 which has a maximum limit of $500,000, bears interest at
approximately 9% and is collateralized by U.S.-based accounts receivable. At
March 31, 1997, approximately $310,000 was borrowed under this credit
facility. Also, in May 1997, the Company's secured credit facility with a
German bank was increased from a maximum limit of DM 600,000 (approximately
$360,000) to a maximum limit of DM 750,000 (approximately $450,000).
4. EQUITY TRANSACTIONS
In March 1997, the Company issued 652,035 shares of Common Stock upon
conversion of 47,647 shares of series B Convertible Preferred Stock and
56,566 shares of series C Convertible Preferred Stock. The Preferred Stock
was convertible at the option of the holder into three shares of the
Company's Common Stock for series B and nine shares of the Company's Common
Stock for series C.
5. 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 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.
6. CONTINGENT LIABILITY
In 1997, the Company's French subsidiary terminated certain of its employees,
some of whom initiated immediate legal actions in the French legal system
which handles employment-related matters. Subsequently, other former
employees also initiated similar actions. In 1996, approximately $50,000 of
statutorily-required costs related to the 1997 terminations were expensed. In
1997, an additional $75,000 was expensed related to the legal actions taken
by specific employees.
The Company believes it has complied with all aspects of French labor
regulations in terminating the employees and intends to defend its actions
vigorously. While the ultimate outcome of this matter cannot be determined,
management, based on the opinion of its legal counsel, does not expect that
the outcome of the legal actions will have a material adverse effect on the
Company's results of operations or financial position.
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 13 countries.
The operations of the Company are predominantly located outside the U.S. and the
Company is subject to the effects of foreign currency exchange rate
fluctuations. 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 year-end exchange rates, and operating statement
items are translated at weighted-average exchange rates prevailing during the
year. The resultant cumulative foreign currency adjustments to the assets and
liabilities are recorded as a separate component of shareholders' equity. The
first quarter 1997 foreign currency equity adjustment was negative $436,000
compared to a negative adjustment of $191,000 for the first quarter of 1996.
Generally, when the major foreign currencies affecting the Company weaken as
compared to the U.S. dollar, the shareholders' equity adjustment is negative
since the net assets denominated in foreign currencies are translated into fewer
U.S. dollars. This occurred in both 1997 and 1996. As of March 31, 1997, the
cumulative net effect to the Company of the equity adjustment from movements in
foreign currency exchange rates was a reduction of $1.7 million in shareholders'
equity. A significant portion of the cumulative foreign currency adjustment
relates to changes in the recorded amount of goodwill.
In the first quarter of 1997, the Company recorded a net benefit of $88,000 for
gains on foreign exchange transactions. Substantially all of this benefit was
recorded in the U.K. and a majority of the U.K. gain resulted from a weakening
of the UK pound from December 31, 1996 to March 31, 1997. Because the Company's
U.K. subsidiary had a large amount of US$ denominated receivables outstanding as
of December 31, 1996, the Company recorded a significant unrealized loss on
these receivables in 1996. The strengthening of the US$ against the UK pound in
1997 has meant that most of that loss was not realized. In the first quarter of
1996, exchange adjustments resulting from foreign currency transactions which
were included in the determination of net income were not material.
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 months
ended March 31, 1997 as compared with the three months ended March 31, 1996,
including the significant effects of fluctuating foreign currency exchange
rates.
The Company reported a net loss of $576,000 for the three months ended March 31,
1997, compared to net income of $29,000 for the first three months of 1996. If
foreign currency exchange rates for 1997 had remained unchanged from 1996, the
Company would have recorded a net loss of $622,000 instead of $576,000 and
therefore currency exchange rate fluctuations had a positive effect on reported
first quarter 1997 results.
Sales of services were $8.8 million for the three months ended March 31, 1997,
compared to $6.5 million for the three months ended March 31, 1996. The $2.3
million increase in reported sales for 1997 consisted of an increase in sales
volume of $2.4 million and a decrease of $147,000 due to currency exchange rate
variances. The increase in sales volume in the first quarter of 1997 over the
first quarter of 1996 is 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 and German offices. Contributions from new offices, especially in the
Netherlands and Japan, also boosted sales in 1997 over 1996, as did sales
attributable to CompuType, a U.K. company acquired in January 1997.
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.
The Company competes on the basis of capability, quality, service and
geographical proximity to clients and potential clients. The Company has opened
several new offices and expanded existing offices in recent years 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 in prior years continues to limit the prices the Company can charge
in the marketplace. The industry pricing situation has not changed materially
in 1997 compared to 1996.
The following table shows a comparison of sales of services in each of the
Company's significant geographic areas for the three months ended March 31, 1997
and 1996, 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
Three Months Sales of Services due to Total
Ended March 31 Sales Currency Increase
1997 1996 Volume Fluctuations (Decrease)
<S> <C> <C> <C> <C> <C>
United States $1,874 $ 669 $1,205 $ - $1,205
Canada 1,287 962 316 9 325
Europe 6,287 5,389 1,112 (214) 898
Asia 874 575 333 (34) 299
Eliminations (1,555) (1,107) (540) 92 (448)
Total Sales $8,767 $6,488 $2,426 $(147) $2,279
</TABLE>
As shown in the above table, every major geographical region reported increased
sales in 1997 over 1996. Significant changes in sales levels in the major
geographic regions are discussed in the following paragraphs.
SALES OF SERVICES BY GEOGRAPHIC AREA
U.S. sales increased $1.2 million or 180% in 1997 over 1996. Historically, U.S.
sales have fluctuated widely from period to period due to industry conditions
which were often less predictable and stable than those found in some of the
Company's foreign markets. Such conditions were characterized by the relative
inexperience of many U.S. companies in translation and localization of language,
as it related to international business, and clients which were not
sophisticated in the nuances of marketing to foreign countries and thus unaware
of 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, resulted in an order stream which has varied from
period to period, but which has improved dramatically over the past year.
U.S. sales increased significantly from 1996 to 1997, 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 computer-based training industries. Much of this increase is
due to aggressive sales and marketing efforts initiated in late 1995 and early
1996. Management expectations for the U.S. are for a general continuation of
growth in sales, especially to the computer and computer-based training
industries, but the predictability and timing of actual orders from clients is
uncertain and the high growth rate of 180% achieved in the first quarter of 1997
is unlikely to be sustained throughout the year.
Canada's reported sales for 1997 represented an increase over 1996 of 34%,
almost all of which is related to actual increases in sales volume with very
little effect from fluctuating foreign currency exchange rates. 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 continued
economic and political challenges in Canada, which are still present and which
could eventually depress sales if the economy or the political situation
deteriorates in the future. Nevertheless, due primarily to several new large
multi-year contracts, which were negotiated in 1996, but which didn't begin
until 1997, management believes it is likely that 1997 revenues in Canada will
continue to exceed 1996 levels.
In 1997, sales in Europe of $6.3 million represented approximately 61% of the
Company's consolidated sales and grew by $900,000 over 1996 sales levels, or by
17% year over year (21% absent the effects of fluctuating foreign currency
exchange rates). Sales increased in every European country in which the Company
has offices, except in Spain, which experienced a 22% decline, and in
Switzerland, which was closed at the end of 1996. Most of the increase in
European sales was the result of a 34% growth rate in Germany, which is the
Company's second largest single market, and in the Netherlands, which recorded
sales of approximately $250,000 in 1997 but had essentially no sales in 1996.
The U.K., the Company's largest market, experienced only a 3% increase in sales
from 1996 to 1997. The U.K. and Germany accounted for 86% of Europe's total
sales in 1997, compared to 87% in 1996.
The U.K. growth rate of 3% is much lower than the growth rates experienced in
recent years and was due primarily to decreased sales from the Company's largest
client as this client reduced the number and size of purchase orders in 1997
from historical levels. This decrease was tempered by the sales of CompuType, a
company acquired in January 1997 (see note 2 to the Consolidated Financial
Statements). Primarily because of the acquisition of CompuType, management
expects reported sales in the U.K. to continue to increase, but the actual rate
of increase 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, a high rate of growth was achieved in 1997, compared to the first
quarter of 1996. Due largely to a very sluggish economy, evidenced by the
unemployment rate which increased to post WWII highs in 1996, the Company's
sales in Germany were unusually low in early 1996. Despite the ongoing effects
of the economic slowdown, sales were strong in 1997, as management increased its
sales and marketing efforts, including certain sales of lower-margin services,
to more effectively utilize capacity. While management is expecting revenue
growth to continue in 1997, the uncertain economic conditions in Germany will
likely have a dampening effect on the Company's ability to increase sales.
The Company opened offices in the Netherlands and in Ireland in late 1995 and in
Belgium in late 1996. The Belgium office is a high volume, high quality
production facility servicing the needs of other ALPNET offices. The other new
offices, along with the investments made in human and equipment resources in
existing offices in recent years, are expected to help the Company increase its
revenues in Europe as demand for language services in this region continues to
expand.
Sales in Asia of $874,000 in 1997 grew by 52% over 1996 levels, with relatively
little effect from currency exchange rate fluctuations. The Company
significantly expanded its Asian presence in late 1995 by adding an office in
The People's Republic of China and in early 1996 by opening an office in Tokyo.
Also, the Company's offices in Singapore and Korea were expanded significantly
during the later half of 1996. 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 the future
and contribute to the growth of sales in Asia in coming years. The Company's
Tokyo office has also 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 that have needs for Japanese language services. This office has
begun to sell to Japanese clients in 1997, which is expected to help further
accelerate sales growth in Asia in 1997.
While the growth rate in Asian sales was high from 1996 to 1997, in general the
capacity developed in 1996 was underutilized in the first quarter of 1997 and
contributed to the operating loss sustained in the quarter. Management does not
expect this underutilization situation to continue, due to increases in customer
orders for work to be produced into the major Asian languages. The Company will
close its Hong Kong office in May 1997 as a result of continuing losses and
declining strategic importance. Sales of this office were not material in
either 1997 or in 1996, but a provision of approximately $50,000 was recorded in
the first quarter of 1997 to recognize the costs of closing the office. Other
Asian offices are now producing most of the Chinese work historically done by
the Hong Kong office.
Management 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 complex multi-language projects. During the year 1996, the Company
experienced significant fluctuations in quarterly sales and profitability levels
largely as a result of the increasing number of such projects. Management
expects this trend to continue in 1997. Nevertheless, the Company expects to be
able to capture increased sales in an expanding market which is expected to
result in overall long-term sales growth.
COST OF SERVICES SOLD
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. In the first quarter of
1997, margins were negatively affected by underutilization of capacity,
especially in Asia, and to a lesser extent by a higher proportion of low margin
work in certain geographic areas. Management expects competitive pricing
pressures to continue in the foreseeable future, and perhaps even intensify as a
possible result of several recent mergers of small and mid-sized translation
companies. 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 small-sized
projects to improve the productivity of translators, and the development of
stronger partnerships with clients to enable the Company to provide higher
margin solution-based services to clients.
OTHER COSTS AND EXPENSES
Selling, general and administrative expenses were $1.6 million in 1997 and
increased over the prior year level by 48%. These increases were due to several
factors, including the overall growth of existing offices and the opening of new
offices; increased marketing and sales efforts in all of the Company's markets;
certain costs related to reorganizing and closing 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.
Development costs were $108,000 in 1997 compared to $50,000 in 1996.
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 has
enhanced certain features of its software and made it compatible with more of
the ever-increasing types and versions of software being developed by the
software industry which are being used by clients and potential clients. The
Company expects development costs for the remainder of 1997 to continue to be
higher than 1996 levels, primarily because of the ongoing need to ensure the
Company's technology is compatible with the software commonly used by
businesses.
Fluctuations in the amount of goodwill amortization resulted from foreign
currency exchange rate fluctuations from year to year and from the Company's
acquisition of CompuType in January 1997, which increased goodwill amortization
by about $3,000 per month.
Net interest expense was $57,000 in 1997, which was $24,000 higher than in 1996.
The increase was due primarily to higher average balances outstanding under
revolving lines of credit, caused by growth in sales and related accounts
receivable; increases in long-term debt used to finance certain equipment
purchases; and a term loan obtained in January 1997 to finance a portion of the
CompuType acquisition. Interest expense in future periods is expected to
increase somewhat over recent levels as the Company plans to increase borrowings
under revolving lines of credit as sales grow, and to continue to use long-term
debt to finance certain equipment purchases. Also, any investments beyond
modest requirements related to sales growth could require additional debt or
equity financing which would impact future levels of interest expense.
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
all of the entities of the Company.
After consideration of the effect of the utilization of net operating loss
carryforwards, income tax expense was $45,000 in 1997, compared to $36,000 in
1996. 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 those jurisdictions. The U.S. parent
company has no net operating loss carryforwards for state income tax purposes.
LIQUIDITY AND SOURCES OF CAPITAL
In the first quarter of 1997, the Company had a negative cash flow from
operations of approximately $430,000 compared with a positive cash flow from
operations in the first quarter of 1996 of $430,000. In 1997, the Company's
investing activities consisted of the acquisition of CompuType (see note 2 to
the Consolidated Financial Statements) and the acquisition of equipment needed
to maintain or upgrade production capability. In 1996, investing activities
consisted primarily of the acquisition of equipment.
Financing activities for both periods included fluctuations in the amounts
utilized under bank lines of credit used to finance the Company's working
capital needs, and changes in outstanding debt used to finance equipment
purchases. Additionally, in 1997 the Company obtained a long-term unsecured
loan for approximately $320,000 used to finance a portion of the CompuType
acquisition. In 1997, the Company's non-cash financing activities included the
conversion by a shareholder of certain of the Company's Preferred Stock to
Common Stock, as described in more detail in note 4 to the Consolidated
Financial Statements.
As of March 31, 1997, the Company's cash and cash equivalents were approximately
$900,000, representing a decrease of approximately $100,000 during the first
quarter of 1997. At March 31, 1997, the Company had working capital of
approximately $1.6 million compared to $2.3 million at December 31, 1996. The
decrease in working capital during the quarter was attributable primarily to the
net loss incurred in the period.
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 financial institutions in the U.S., Canada, the
U.K., Germany and Spain. Most of the lines of credit are secured by accounts
receivable and other assets of the Company or its subsidiaries. As of March 31,
1997, the Company had unused amounts under these lines of credit of
approximately $360,000. Additionally, in May 1997, the Company's borrowing
capacity under a credit facility with a German bank was increased by
approximately $90,000 (see note 3 to the Consolidated Financial Statements).
The Company believes the available amounts under these lines of credit, along
with current working capital, are sufficient to fund the Company's operations at
current levels provided the Company can return to profitability soon, as well as
enable the Company to grow at a modest level, without the need to seek
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. In addition, the
Company expects to be able to increase the maximum amounts which can be borrowed
under credit facilities if the Company's sales increase and if the Company can
remain profitable over the long term. Some of the banks which have loaned funds
to the Company's subsidiaries under the credit facilities referred to 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. 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 finance a certain portion of future equipment costs through
bank and/or leasing sources, similar to the financing arrangements entered into
in recent periods.
As described in more detail in note 2 to the Consolidated Financial Statements,
in January 1997 the Company acquired a U.K.-based business for cash of
approximately $550,000, most of which was financed. While there are no current
commitments or plans, the Company may also open additional offices in strategic
locations or pursue other acquisitions worldwide, as client demands dictate and
opportunities arise. The costs to open most offices 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, opened in early 1996, was an exception to this
general situation, due both to the larger size of that 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 the amount that can be generated through
operations, depending on profitability.
As of December 31, 1996, the Company closed its Switzerland office and in May
1997 will close its Hong Kong office. In addition, a restructuring of the Paris
office took place in early 1997. These office closures and the restructuring
have had or will have a negative effect on cash flow of approximately $200,000.
No other significant office closures or restructurings are currently planned.
The Company believes it has the ability to issue additional debt or 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 has no firm commitments from, nor are
there any obligations of, any such shareholders to provide any debt or equity
funds to the Company. In order for the Company to fund investments beyond
modest growth in operations, such as for significantly new or expanded services
or product lines, additional debt or equity funds will likely be required.
Management believes that current working capital and available lines of credit,
together with increased revenues, will enable the Company to meet its financial
obligations during 1997. It is more difficult to assess cash flows beyond 1997
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, as was done by closing the Switzerland office in 1996 and the Hong
Kong office in May 1997.
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 clients 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 1997
and for several years into the future, for those offices acquired many years ago
and which have sustained large losses in previous years. The levels of net
operating losses available to offset future taxable income are generally much
lower for the new offices opened in recent years.
Substantially all of the Company's deferred tax assets at March 31, 1997 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 not based
on historical data are forward looking, including for example, information about
future sales growth in various countries in future periods; expected changes in
the levels of various expenses, including income taxes; the Company's plans for
future investments in new offices, services, or products; and financing plans
and expectations.
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 or expected 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 constantly changing general economic and political conditions in all of the
various countries in which the Company has operations, the impact of competitive
services and pricing, uncertainties caused by clients (including the timing of
projects and changes in the scope of services requested), or other risks and
uncertainties that may be disclosed from time to time in future public
statements or in documents filed with the Securities and Exchange Commission.
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
27 Financial Data Schedule
(b) The Company has filed the following reports on Form 8-K during the
three months ended March 31, 1997.
Date of
Report Item Reported
03/13/97 ALPNET Announces Unaudited 1996 Results and ALPNET Announces 20%
Increase in Sales
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: 12 May 1997 \s\ Thomas F. Seal
Thomas F. Seal
President and Chief Executive Officer
Date: 12 May 1997 \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 March 31
(Thousands of dollars and shares) 1997 1996
<S> <C> <C>
Net income (loss) $(576) $29
Weighted average shares of
Common Stock outstanding 18,029 16,200
Shares of Common Stock issuable
upon conversion of Convertible
Preferred Stock - 7,423
Shares of Common Stock issuable upon
exercise of employee stock options - 1,921
Total shares of Common Stock and
Common Stock equivalents 18,029 25,544
Net income (loss) per share $(.032) $.001
<FN>
(1) Primary and fully diluted per share earnings are substantially the same for each period presented.
(2) Common Stock equivalents were anti-dulutive in 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 919
<SECURITIES> 0
<RECEIVABLES> 7208
<ALLOWANCES> 248
<INVENTORY> 0
<CURRENT-ASSETS> 9298
<PP&E> 5456
<DEPRECIATION> 3593
<TOTAL-ASSETS> 17534
<CURRENT-LIABILITIES> 7670
<BONDS> 521
0
1808
<COMMON> 40515
<OTHER-SE> (32980)
<TOTAL-LIABILITY-AND-EQUITY> 17534
<SALES> 8767
<TOTAL-REVENUES> 8767
<CGS> 7421
<TOTAL-COSTS> 7421
<OTHER-EXPENSES> 206
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> (531)
<INCOME-TAX> 45
<INCOME-CONTINUING> (576)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (576)
<EPS-PRIMARY> (.032)
<EPS-DILUTED> (.032)
</TABLE>
