Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
($.10 par value)
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 and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $464,000 as of December 31, 1995.
The number of shares of the registrant's Common Stock outstanding was
1,130,478 as of December 31, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive Proxy Statement to be filed pursuant to Regulation 14A for
the fiscal year ended December 31, 1995 is incorporated herein by reference
in Part III, Items 11-13 of Form 10-K. The Proxy Statement will be filed
with the Securities and Exchange Commission within 120 days after the close
of the registrant's most recent calendar year.
ITEM 1. BUSINESS
Auto-Graphics, Inc. provides software products and processing services to
information and database publishers. These products and services are used to
create, maintain and distribute information databases through printed and/or
electronic reference products. Electronic products include Compact Disc (CD-
ROM) and Client/Server software systems(Internet/Web).
The Company provides state and local government customers with products and
outsourced services to maintain, publish and distribute bibliographic
databases of library holdings and to manage interlibrary loan systems.
Traditional commercial and corporate publishers use the Company's services to
produce and distribute print and electronic products such as dictionaries,
encyclopedias, Bibles, price catalogs and other reference works.
In recent years, Auto-Graphics has made a major investment in the development
of online client/server software products and client-shared Internet/Web
services. In 1993, the Company launched the development of an umbrella
concept called Impact/ONLINE[tm] for Internet distribution services. This
capability has been successfully applied to a range of applications including
the outsourcing by several statewide library consortia to Auto-Graphics of
complete system design, development, management, maintenance and operation of
a web site for each customer. During the last eighteen months, the Company
has received orders for five statewide and three regional Impact/ONLINE[tm]
systems comprising over 1,500 libraries.
The Company's Impact/ONLINE[tm] products include:
Impact/ONLINE WebPAC[tm] enables patrons, directly from home, school and office
to search a database over the Internet using any Web Browser such as Netscape
Navigator or Microsoft Explorer.
Impact/ONLINE ILL[tm] automates initiation, tracking and management of
interlibrary borrowing and lending.
Impact/ONLINE CAT[tm] for creating and maintaining the bibliographic database.
Impact/NET[tm] for configuring, installing and managing Internet resources.
Impact/ACCESS[tm] for patron access to licensed commercial databases.
Impact/SLims[tm], a small library information management system, which operates
on a personal computer and integrates patron access catalog, circulation
control and inventory management.
The Company's software products and processing services continue to leverage
technology and experience gained over more than 45 years of service to
publishers most of whom continue to distribute information via print and CD-
ROM media. Auto-Graphics provides standard and custom products and services
for database management, electronic composition and CD-ROM search and
retrieval. These software products include:
SGML Smart Editor System(SES) provides publishers with full editorial
capabilities to create and maintain data in SGML format.
Impact[tm]/CD-ROM is a system to provide search and retrieval capabilities for
CD-ROMs.
Impact[tm]/SGML upgrades CD products to Windows and operates on SGML formatted
data files.
A specialized database service for the wholesale heating, ventilation, air
conditioning and refrigeration(HVACR) industry is provided in conjunction with
Datacat, Inc., which is 50 percent owned by Auto-Graphics. The Company is a
supplier of software and production services to Datacat for HVACR parts
catalogs. <F1> (See Note 1 of "Notes to Financial Statements.")
Company Background
The Company was formed in 1950 and incorporated in 1960 in the state of
California. No single customer represents more than 10% of net sales.
Management believes that the loss of any single customer or vendor would
not have a material adverse effect on the business of the Company. Hardware
sales are not material to the Company's business, representing less than 10%
of sales, and are not considered important to the future of the Company.
Backlog cannot be stated in a useful manner, as contracts are normally
statements of specifications and unit prices rather than total sales volume.
The software and computerized database processing services business is highly
competitive. There are no definitive market share statistics available. The
Company first introduced computerized database services in 1964, and believes
that it has been offering such services longer than any of its existing
competitors. Many competitors are smaller and local in character, but some
are larger and national with greater financial resources than the Company.
Contracts for computerized database publishing services and the purchase/lease
of equipment are typically awarded according to the results of market pricing,
competitive bidding, technical capability and past performance.
Marketing Offices/Employees
The Company has marketing representatives and service centers located in
California, Connecticut, Illinois, Maryland, Massachusetts, Missouri, and
New Jersey. The Company currently employs approximately 120 persons.
ITEM 2. PROPERTIES
The Company leases its corporate office and production facilities constituting
approximately 29,000 square feet located at 3201 Temple Avenue, Pomona,
California 91768. The facility has been custom designed for the Company's
purposes, is fully utilized and should be adequate for the Company's needs
for the foreseeable future. The facility is currently leased to the Company
through June 1996 under the first of two five-year renewal options. <F6> (See
Note 6 of "Notes to Financial Statements" and Item 13. "Certain Relationships
and Related Transactions.")
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Stock quotations 1995 1995 1995 1995 1994 1994 1994 1994
Bid Bid Asked Asked Bid Bid Asked Asked
Price Range High Low High Low High Low High Low
1st Quarter 1 1/8 1 1 1/4 1 1/8 2 2 2 2
2nd Quarter 1 5/8 1 2 1/8 1 5/8 1 15/16 1 5/8 2 1/4 1 5/8
3rd Quarter 1 15/32 1 5/16 1 5/8 1 15/32 2 1 5/8 2 3/8 1 5/8
4th Quarter 1 7/8 1 3/8 2 3/8 1 7/8 1 7/16 1 1/8 1 3/4 1 1/8
The Company's Common Stock ($.10 par value) is traded in the over-the-counter
market under the symbol "AUGR" (Cusip Number 05272510). The quotations as
published by the National Quotation Bureau, Inc. represent the highest and
lowest bid and asked prices quoted by broker/dealers making a market in the
Company's Common Stock. Prices quoted do not include retail markup, markdown
or commissions and may not reflect actual transactions in shares of the
Company's stock.
As of December 31, 1995, the number of holders of record of the Company's
Common Stock was 265. The Company has never paid a cash dividend and there
are no plans to do so in the near future. <F3> (See Note 3 of "Notes to
Financial Statements" for information as to the loan restriction on the
payment of cash dividends.)
ITEM 6. SELECTED FINANCIAL DATA
Dollar amounts in thousands except per share data.
Years Ended December 31
Operating results: 1995 1994 1993 1992 1991
Net sales $ 9,559 $ 9,165 $ 9,678 $ 9,362 $10,018
Net income 194 158 132 28 8
Net income per share .16 .12 .10 .02 .01
At year-end:
Total assets 6,688 6,106 5,841 6,637 7,113
Long-term debt 1,906 1,696 1,592 1,750 1,799
No cash dividends have been declared.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General and Future Business Trends
Liquidity and Capital Resources
The Company has a revolving credit agreement with a bank, under which
borrowings are secured by accounts receivable, whereby the Company may
borrow against its eligible accounts receivable up to a maximum of $1,000,000
($1,000,000 available at December 31, 1995). Management believes that the
current line of credit, which is renewed annually in May, will again be
renewed in 1996, and is sufficient to handle cyclical working capital needs.
<F2> (See Note 2 of "Notes to Financial Statements.")
The Company also has a capital line of credit agreement with the bank
providing for maximum borrowings of $2,250,000 ($4,000 available at
December 31, 1995). The capital line of credit may be used for the purchase
of equipment and software, and financing of up to $500,000 in internal
software development costs. The bank line of credit is renewed annually in
May, and management believes that the current line of credit will again be
renewed in 1996. Management does not currently believe that increased credit
will be required to finance planned capital expenditures in 1996 which are
estimated at $1,000,000, to be used to upgrade computers, production equipment
and for software development. <F3> (See Note 3 of "Notes to Financial
Statements.")
In 1993, the Company initiated several major new product (software)
development programs. Estimated investments in the Company's SGML Smart Editor
System and Impact[tm]/SGML CD-ROM may exceed $500,000 and enhance
competitiveness of the product with new features. In addition, the Company
announced and initiated the development of the next generation of the
Impact[tm] product line called Impact/ONLINE[tm]. Impact/ONLINE[tm] has been
released and now includes modules for public access catalogs, online
cataloging, interlibrary loan, and access via Internet to other databases.
The estimated investment in Impact/ONLINE[tm] may total $1,000,000. Funding
for these investments is expected to be provided by a combination of
internally generated funds, bank financing, and possibly additional outside
capital investment.
Results of Operations
1995 net sales increased $394,000 to $9,559,000. The increase in sales was
due to market acceptance of the Company's new products: SGML Smart Editor
System, Impact[tm]/SGML CD-ROM and Impact/ONLINE[tm] products. Sales prices
remained flat and in some cases declined due to competitive pressures in some
markets. Gross margins continued to improve to 38.2% in 1995, up from 32.3%
in 1994 due to the new products, continuing cost reduction measures and
productivity gains. The Company's focus on improving marketing and sales
resulted in higher selling expenses up $596,000 for additional sales
management and sales personnel, promotional and administrative expenses.
1995 net income improved to $194,000 a 23% increase and earnings per share
improved 39% to $0.16 due partially to stock repurchases. Working capital
declined in 1995 due to higher accounts payable at year-end and higher than
average customer deposits. Cash flow from operations improved to $1,623,000
in 1995, up 84% from $881,000 in 1994. Improvements in liquidity and reduced
leverage are expected in 1996.
1996 net sales revenues (excluding equipment) are expected to improve due to
the Company's new products. The favorable mix of expected product sales,
implemented cost reduction measures and productivity improvements should
result in higher earnings and improved cash flow from operations in 1996.
Impact of Inflation
Historical dollar accounting does not reflect changing costs for operations,
the future cost for expansion and the changing purchasing power of the dollar.
Inflation generally impacts the Company in a negative manner, as prices
cannot be adjusted quickly due to the contract nature of the business, while
costs of personnel, materials and other purchases tend to escalate more
rapidly. However, inflation is not anticipated to have a material effect on
the Company's business in the near future.
Adopted and Pending Financial Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which the
Company adopted beginning in 1995. The standard establishes principles of
financial accounting and reporting for situations where information indicates
that a company might be unable to recover, through future operations or sale,
the carrying amount of long-lived assets, identifiable intangibles, and
goodwill related to those assets. With the adoption of this Standard, the
Company is required to review long-lived assets, identifiable intangibles,
and related goodwill to determine whether any indicators of impairment are
present and, if present to recognize an impairment loss based on the excess
of the carrying amount of the assets over their fair market value. <F1> See
Note 1 of "Notes to Financial Statements."
1995 as compared to 1994
Liquidity and Capital Resources
Working capital decreased $429,000 in 1995. Accounts receivable decreased by
$73,000. The average collection period for accounts receivable was unchanged
at 70 days in 1995 and 1994. Long-term debt was increased by $210,000. The
revolving credit line borrowings were zero in 1995 and 1994. Capital
expenditures increased in 1995 to $1,559,000, up from $919,000 in 1994, an
increase of 70%.
Results of Operations
Net Sales increased $394,000 or 4.3%.
Cost of Sales decreased $297,000 or 5%. Gross Margin increased from 32.3% in
1994 to 38.2% of net sales in 1995.
Sales, General & Administrative Expenses increased $596,000 or 23.6% in 1995
as a result of increased sales and marketing expense for additional sales
personnel, new product promotions and a reorganization of the sales and
marketing departments. As a percentage of sales, SG&A increased to 32.7% in
1995 from 27.6% in 1994.
Other Income reflects interest income, royalties, and cost recovery from
tenants for facilities and services provided by the Company.
Net Interest Expense increased $30,000 or 16% in 1995 due to higher interest
rates on higher average borrowings during the year.
Net Income increased $36,000 from $158,000 in 1994 to $194,000 or 23% in 1995
and earnings per share increased to $0.16 per share in 1995 up from $0.12 per
share in 1994, a 39% increase.
1994 as compared to 1993
Liquidity and Capital Resources
Working capital increased $324,000 in 1994. Accounts receivable increased by
$182,000. The average collection period for accounts receivable was unchanged
at 70 days in 1994 and 1993. Long-term debt increased by $104,000. The
revolving credit line was reduced to zero in 1994 and 1993. Capital
expenditures were $919,000 in 1994.
Results of Operations
Net Sales decreased $513,000 or 5.3%.
Cost of Sales decreased $725,000 or 10.5%. Gross Margin increased from 28.4%
in 1993 to 32.3% of net sales in 1994.
Sales, General & Administrative Expenses increased $139,000 or 5.8% in 1994
as a result of the Company's increased focus on sales and marketing, and new
product promotion. As a percentage of sales, SG&A increased to 27.6% in 1994
from 24.7% in 1993.
Other Income reflects interest income, royalties, and cost recovery from
tenants for facilities and services provided by the Company.
Net Interest Expense declined $14,000 or 7% in 1994 due to lower average
borrowings.
Net Income increased $26,000 from $132,000 in 1993 to $158,000 or 20% in 1994
and earnings per share increased to $0.12 per share in 1994.
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Auto-Graphics, Inc.
We have audited the accompanying balance sheets of Auto-Graphics, Inc. as of
December 31, 1995 and 1994, and the related statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Auto-Graphics, Inc. at
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Riverside, California
March 12, 1996
AUTO-GRAPHICS, INC.
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS DEC-31-1995 DEC-31-1994
Current assets:
Cash $ 106,518 $ 80,852
Accounts receivable 1,979,245 2,051,764
less allowance for
doubtful accounts ($38,000 in
1995 and 1994)
Unbilled production costs 232,517 217,111
Finished goods 60,946 55,189
Other 168,616 198,040
Total current assets 2,547,842 2,602,956
Equipment and leasehold improvements at cost 7,986,491 6,645,125
Less accumulated depreciation 4,057,170 3,338,152
Net equipment and leasehold improvements 3,929,321 3,306,973
Other assets 210,543 196,187
Total Assets $ 6,687,706 $ 6,106,116
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 524,431 $ 291,166
Deferred Income 490,167 328,413
Accrued expenses 38,585 166,823
Accrued payroll and related liabilities 187,901 135,675
Current portion of long-term debt 505,000 450,000
Total current liabilities 1,746,084 1,372,077
Long-term debt, less current portion 1,905,881 1,695,881
Deferred taxes based on income 593,939 487,432
Total liabilities 4,245,904 3,555,390
Commitments and contingencies <F5>
(See Note 5 of "Notes to Financial
Statements.")
Stockholders' equity:
Common stock 113,048 128,008
$.10 par value,
4,000,000 shares authorized,
1,130,478 shares issued and
outstanding in 1995, and
1,280,078 shares issued and
outstanding in 1994
Capital in excess of par value 1,151,092 1,197,717
Retained earnings 1,177,662 1,225,001
Total stockholders' equity 2,441,802 2,550,726
Total Liabilities/Equity $ 6,687,706 $ 6,106,116
<FN>
See accompanying notes.
AUTO-GRAPHICS, INC.
STATEMENTS OF INCOME
Years ended December 31, 1995, 1994, 1993
1995 1994 1993
Net sales $ 9,559,107 $ 9,164,849 $ 9,677,932
Costs and expenses
Cost of sales 5,908,075 6,205,379 6,930,173
Selling, general and administrative 3,124,978 2,528,682 2,389,591
Interest 221,703 191,532 205,030
Total Expense 9,254,756 8,925,593 9,524,794
Income from operations 304,351 239,256 153,138
Other income 53,819 54,922 81,322
Income before taxes based on income 358,170 294,178 234,460
Provision for taxes based on income 164,000 136,000 102,000
Net income $ 194,170 $ 158,178 $ 132,460
Net income per share $ .16 $ .12 $ .10
STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1995, 1994, 1993
Common Common Capital in
Stock Stock Excess of Retained
Shares Amount Par Value Earnings
Balances
at January 1, 1993 1,307,166 $ 130,717 $1,247,935 $ 934,363
Net income - - - 132,460
Common stock purchased and retired (2,300) (230) (4,370) -
Balances
at December 31, 1993 1,304,866 130,487 1,243,565 1,066,823
Net income - - - 158,178
Common stock purchased and retired (24,788) (2,479) (45,848) -
Balances
at December 31, 1994 1,280,078 128,008 1,197,717 1,225,001
Net income - - - 194,170
Common stock purchased and retired (149,600) (14,960) (46,625) (241,509)
Balances
at December 31, 1995 1,130,478 $ 113,048 $1,151,092 $1,177,662
<FN>
See accompanying notes.
AUTO-GRAPHICS, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994, 1993
Cash flows from operating activities: 1995 1994 1993
Net income $ 194,170 $ 158,178 $ 132,460
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 1,001,821 961,486 975,395
Provision for losses on accounts receivable - - (30,000)
(Increase)/decrease in accounts receivable 72,519 (182,083) 254,812
(Increase)/decrease in unbilled production costs (15,406) (60,747) 144,322
(Increase)/decrease in finished goods inventory (5,757) 8,837 (14,847)
(Increase)/decrease in other current assets 29,424 (71,743) 83,345
(Increase)/decrease in other assets (79,355) 15,545 (23,032)
Increase/(decrease) in accounts payable 233,265 (128,645) 108,429
Increase in deferred income 161,754 77,188 36,815
Increase/(decrease) in accrued expenses (70,262) 80,435 (74)
Increase/(decrease) in accrued payroll
and related liabilities 52,226 (34,795) 38,965
Increase/(decrease) in interest and
income taxes payable (57,976) (14,880) 75,754
Increase in deferred taxes 106,507 72,076 33,625
Net cash provided by operating activities 1,622,930 880,852 1,815,969
Cash flows from investing activities:
Capital expenditures (1,559,170) (918,752) (583,681)
Net cash used in investing activities (1,559,170) (918,752) (583,681)
Cash flows from financing activities:
Borrowings under long-term debt 715,000 554,000 292,000
Principal payments under debt agreements ( 450,000) (450,000) (484,086)
Net repayments under line-of-credit agreement - - (1,025,000)
Repurchase of capital stock (303,094) (48,327) (4,600)
Net cash provided by (used in) financing activities (38,094) 55,673 (1,221,686)
Net increase in cash 25,666 17,773 10,602
Cash at beginning of year 80,852 63,079 52,477
Cash at end of year $ 106,518 $ 80,852 $ 63,079
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 221,703 $ 191,532 $ 205,030
Income taxes 100,883 98,804 (13,345)
<FN>
See accompanying notes.
[FN]
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
<F1>
1. Summary of significant accounting policies and description of business.
Description of Business
Auto-Graphics, Inc. provides software products and processing services to
information and database publishers. These products and services are used to
create, maintain and distribute information databases through printed and/or
electronic reference products. Electronic products include Compact Disc (CD-
ROM) and Client/Server software systems(Internet/Web).
Unbilled Production Costs
Costs associated with work in process inventory including labor, materials,
supplies, and overhead (excluding selling, general and administrative
expenses) are stated at the lower of cost or net realizable value and are
removed from inventory on an average unit cost basis.
Finished Goods
Finished goods inventory consists primarily of computer and CD-ROM equipment
held for sale and related spare parts and is stated at the lower of average
cost or market.
Equipment and Leasehold Improvements
Valuation of equipment and leasehold improvements is based on historical cost.
Equipment and leasehold improvements at December 31, 1995 and 1994 consist of
the following:
1995 1994
Equipment $3,449,380 $3,007,106
Computer software 3,861,623 2,964,629
Furniture and fixtures 429,147 427,049
Leasehold improvements 246,341 246,341
Total equipment and leasehold improvements 7,986,491 6,645,125
Less accumulated depreciation and amortization 4,057,170 3,338,152
Net equipment and leasehold improvements $3,929,321 $3,306,973
Depreciation and Amortization
Depreciation commences in the year the asset is placed in and/or available for
service or sale based on the half-year convention method. Depreciation is
based on the straight-line method over the estimated useful life of the asset
or revenue ratio method. Depreciation and amortization was $1,002,000 in 1995
($961,000 in 1994 and $975,000 in 1993). The following estimated useful
lives are generally observed for the respective asset categories:
Equipment - 5 to 15 years
Computer software - 5 to 7 years (see below)
Furniture and fixtures - 5 to 10 years
Leasehold improvements - the lesser of 5 to 15 years or the lease term
Certain costs incurred related to the development and purchase of computer
software are capitalized and amortized in accordance with Statement of
Financial Accounting Standards No. 86. Amortization is based on a ratio of
current and future revenues (the ratio method). In 1995, $964,000 was
capitalized ($517,000 in 1994 and $284,000 in 1993), of which $124,000 was
purchased software and $840,000 was the cost of internally developed software.
Equipment and leasehold improvements include computer software with an
unamortized balance of approximately $2,125,000 at December 31, 1995 and
approximately $1,548,000 in 1994. Amortization of computer software was
approximately $387,000 in 1995, $337,000 in 1994, and $284,000 in 1993.
Other Assets
Investment in Datacat, Inc.
In 1990, the Company acquired a 50% interest in Datacat, Inc. Datacat was
formed to market a new technology developed by the Company for the production
of parts catalogs for the wholesale heating, ventilation and air conditioning,
and refrigeration (HVACR) industry. The investment has been accounted for
using the equity method wherein equity in the losses of Datacat have been
offset against investments in and advances to Datacat and the balance reduced
to zero. Losses in excess of investments and advances of approximately
$125,000 have not been recognized and will be applied to subsequent earnings
as they are realized. The Company has not guaranteed the obligations of
Datacat, and is not presently obligated to provide any further financial
support to Datacat beyond that already provided.
Prepaid Database Assets
Certain non-recurring incremental and direct production costs are incurred to
initially implement new computerized databases for customers. These costs
are associated with providing billable repetitive services and/or projects
for specific customers over contract periods exceeding one year. The costs
are stated at the lower of cost or estimated net realizable value and are
charged to cost of sales over the contract period which services will be
provided, generally three to six years. Management believes it is probable
that these costs will be recovered from related future revenues. The current
portion of estimated Prepaid Database Assets ($69,000 in 1995, $69,000 in
1994, and $48,000 in 1993) is included in Unbilled Production Costs.
The following is a summary of the long-term portion of the prepaid
database costs for the three years ended December 31, 1995:
Balance at Net
Beginning Transfers Balance at
of Year at Cost End of Year
1995: $104,000 $(15,000) $ 89,000
1994: 165,000 (61,000) 104,000
1993: 213,000 (48,000) 165,000
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121, Accounting for the Impairment of
Long-Lived Assets, which the Company adopted beginning of 1995. The Standard
requires the Company to review the carrying amount of long-lived assets,
identifiable intangibles, and related goodwill to determine whether any
indicators of impairment are present. At December 31, 1995 the Company's
review of it's long-lived assets showed no indications of loss or impairment
and, therefore, has not had a material effect on the Company's financial
position or results of operations.
Income Recognition
Revenues are recognized as services are rendered or when finished goods are
shipped to customers. Certain future software support costs are accrued in
accordance with AICPA Statement of Position (SOP) 91-1. The financial
statements are prepared using management estimates and assumptions in
conformity with generally accepted accounting principles and AICPA Statement
of Position (SOP) 94-6.
Net Income Per Share
Per share calculations are based on the weighted average number of shares of
common stock outstanding during each year.
<F2>
2. Note Payable to Bank.
The Company has a revolving credit agreement under which borrowings are
secured by accounts receivable, whereby the Company may borrow against its
eligible accounts receivable up to a maximum of $1,000,000 ($1,000,000
available at December 31, 1995) with interest at .5% above the bank prime
rate (9.0% at December 31, 1995). The credit facility is renewable annually
in May. There was no outstanding balance at December 31, 1995 or
December 31, 1994. During the year ended December 31, 1995, the approximate
average borrowings outstanding were $241,000 ($386,000 in 1994), the
approximate weighted average interest rate was 9.3% (7.9% in 1994, and the
maximum amount of month-end borrowings outstanding was $675,000 ($700,000 in
1994). The averages were computed based on the borrowings outstanding and
the applicable interest rate at the end of each month. There are no
compensating balance requirements, commitment fees or note guarantors. This
agreement contains the same loan covenants as the equipment line of credit
note payable. At December 31, 1995, the Company was in compliance with its
loan covenants.
<F3>
3. Long-term Debt.
Long-term debt at December 31, 1995 and 1994 consists of the following:
1995 1994
Capital line of credit (note payable to bank)
due in monthly installments of
$37,500 plus interest at prime plus
.75% (9.25% at December 31, 1995)
through 1999; secured by software,
equipment, and leasehold improvements
with a net book value of approximately
$3,929,000 at December 31, 1995. $2,245,881 $2,145,881
Note Payable to stockholder due in annual
installments of $55,000 plus interest at
5.5% per annum 165,000 -
Total long-term debt $2,410,881 $2,145,881
Less current portion 505,000 450,000
$1,905,881 $1,695,881
<FN>
Maturities of Long-Term Debt due after one year are: 1996--$505,000;
1997--$505,000; 1998--$505,000; 1999--$450,000 and 2000--$446,000.
The capital line of credit note payable at December 31, 1995 provides for
maximum borrowings of $2,250,000 for the purchase of equipment and software,
and financing of up to $500,000 in internal software development costs. The
unused portion ($4,000 at December 31, 1995) of the capital line of credit is
subject to renewal of the capital line of credit facility annually in May.
Among other requirements, the capital line of credit note payable requires
the Company to maintain minimum ratios of current assets to current
liabilities, debt to equity and cash flow to debt service, minimum working
capital and equity amounts, limits capital expenditures and capital lease
obligations and prohibits the payment of cash dividends. There are no
commitment fees, compensating balance requirements or note guarantors. At
December 31, 1995, the Company was in compliance with its loan covenants.
In June, 1995, the Company entered into a stock repurchase agreement with a
former employee and officer of the Company, whereby the Company agreed to
purchase and retire, in 1995, 115,000 of 141,000 shares of Company stock
owned by the stockholder. The total transaction cost of $230,000 will be
paid in four annual installments beginning in 1995 plus interest of 5.5% per
annum ($65,000 paid in June 1995, and $55,000 to be paid in June 1996, 1997
and 1998).
<F4>
4. Taxes Based on Income.
The provision for taxes based on income is composed of:
1995 1994 1993
Current taxes based on income
Federal $ 32,000 $ 47,000 $ 51,000
State 38,000 28,000 10,000
Foreign - 8.000 1,000
Total 70,000 83,000 62,000
Deferred taxes based on income
Federal 94,000 49,000 26,000
State - 4,000 14,000
Total 94,000 53,000 40,000
$164,000 $136,000 $102,000
A reconciliation of the provision for taxes based on income follows:
1995 1994 1993
Statutory federal income tax $122,000 $100,000 $ 80,000
State tax, net of federal benefit/other 24,400 21,000 11,000
Tax effect of insurance premiums on officers' lives 4,200 500 5,000
Tax effect of exclusion on meals and entertainment
(50% in 1995 and 1994, 20% in 1993) 13,400 14,500 6,000
$164,000 $136,000 $102,000
The deferred tax assets and liabilities are composed of:
1995 1994 1993
Deferred tax liabilities:
Tax over book depreciation $594,000 $487,000 $415,000
Deferred tax assets - current:
Bad debts/accrued vacation/other 66,000 57,000 29,000
Investment tax credit - 14,000 18,000
Net operating loss carryforward - - 7,000
State taxes 10,000 11,000 8,000
Total deferred tax assets - current 76,000 82,000 62,000
Valuation allowance 0 0 0
Net deferred tax assets - current 76,000 82,000 62,000
Net deferred tax liability $518,000 $405,000 $353,000
Investment tax credits are accounted for using the flow-through method.
There was no investment tax credit carryforward available for tax purposes at
December 31, 1995. Statutory federal income tax rates used are 34% in 1995,
1994 and 1993.
In December 1991, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes, which
the Company adopted at the beginning of 1993. The Standard requires that the
Company use the liability method of accounting for income taxes. Adopting
the Standard has not had a material effect on the Company's financial position
or results of operations.
<F5>
5. Commitments and Contingencies.
The Company incurred total facilities and equipment lease and rental expense
of approximately $486,000 in 1995, $443,000 in 1994, and $449,000 in 1993.
The Company is obligated under certain noncancellable operating leases for
office facilities and equipment.
Approximate minimum lease commitments (in thousands) are as follows:
Operating
Year Leases
1996 $ 250
1997 26
1998 17
Total minimum
lease payments $ 293
<F6>
6. Related Party Transactions.
The Company leases its corporate office and production facility from a limited
partnership owned by two principal officer/stockholders of the Company payable
at $37,345 per month (plus expenses and applicable increases based on the
consumer price index) through June 1996 under the first of two five-year
renewal options. The five-year lease with options, which was entered into in
June 1986, was approved and authorized by the independent members of the
Company's Board of Directors. (See Item 13. "Certain Relationships and
Related Transactions.")
During 1995, the Company sold processing services of $529,000 to Datacat, Inc.
for resale to Datacat's customers. At December 31, 1995, net accounts
receivable from and advances to this affiliate totaled $73,000. <F1> (See
Note 1 of "Notes to Financial Statements.")
The Company entered into a stock repurchase agreement with a former employee
and officer of the Company, Douglas K. Bisch, whereby the Company agreed to
purchase and retire, over a seven year period, 156,000 of 171,000 shares of
Company stock owned by Mr. Bisch. The total transaction cost of $825,000
includes stock, non-competition and consulting fees. In January 1995, the
Company purchased and retired the first block of 15,600 shares.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of, and the positions and
offices within the Company presently held by, all directors and executive
officers of the Company:
Name Age Position
Douglas K. Bisch 74 Director. Has served in management capacities for
more than ten years.
Robert H. Bretz 52 Director and Assistant Secretary. Attorney who has
acted as the Company's outside general
legal counsel for more than ten years.
Robert S. Cope 60 Director, President and Treasurer. Has served in
those capacities for more than ten years.
Directors serve until their successors are elected and qualified at the annual
meeting of stockholders. All executive officers serve at the discretion of
the Company's Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
A definitive Proxy Statement will be filed with the Securities and Exchange
Commission ("the Commission") pursuant to Regulation 14A within 120 days after
the close of the Company's most recent calendar year and, accordingly, Item 11
is incorporated by reference to said definitive Proxy Statement. The Proxy
Statement includes information covering this item under the caption
"Compensation of Executive Officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A definitive Proxy Statement will be filed with the Securities and Exchange
Commission ("the Commission") pursuant to Regulation 14A within 120 days after
the close of the Company's most recent calendar year and, accordingly, Item 12
is incorporated by reference to said definitive Proxy Statement. The Proxy
Statement includes information covering this item under the caption "Security
Ownership of Certain Beneficial Owners and Management" and "Nominees for
Election as Directors."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A definitive Proxy Statement will be filed with the Securities and Exchange
Commission ("the Commission") pursuant to Regulation 14A within 120 days after
the close of the Company's most recent calendar year and, accordingly, Item 13
is incorporated by reference to said definitive Proxy Statement. The Proxy
Statement includes information covering this item under the caption "Certain
Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial statements and financial statement schedules and exhibits:
(1) Financial Statements: See Item 8. "Financial Statements."
(2) All schedules are omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
financial statements, including the notes thereto.
(3) Exhibits:
3.1 Articles of Incorporation of Auto-Graphics, Inc., as amended
(incorporated by reference as filed with the SEC as Exhibit 3.1 to
Item 14(a) in the registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989).
3.2 Bylaws, as amended (incorporated by reference as filed with the SEC
as Exhibit 3.2 to Item 14(a) in the registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989).
10.1 Second Amended and Restated Revolving Credit Agreement, Accounts and
Equipment, between THE BANK OF CALIFORNIA, N.A. and AUTO-GRAPHICS,
INC. dated August 28, 1992 (incorporated by reference as filed with
the SEC as Exhibit 10.1 to Item 14(a) in the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992).
10.2 Equipment Revolving Note between THE BANK OF CALIFORNIA, N.A. and
AUTO-GRAPHICS, INC. dated August 28, 1992 (incorporated by
reference as filed with the SEC as Exhibit 10.2 to Item 14(a) in the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
10.3 Revolving Credit Note between THE BANK OF CALIFORNIA, N.A. and
AUTO-GRAPHICS, INC. dated June 13, 1994 (incorporated by reference
as filed with the SEC as Exhibit 10.3 to Item 14(a) in the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).
10.4 Security Agreement (Accounts) between THE BANK OF CALIFORNIA, N.A.
and AUTO-GRAPHICS, INC. dated June 13, 1994 (incorporated by
reference as filed with the SEC as Exhibit 10.4 to Item 14(a) in
the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994).
10.5 Amendment to Second Amended and Restated Revolving Credit Agreement,
Accounts and Inventory, between THE BANK OF CALIFORNIA, N.A. and
AUTO-GRAPHICS, INC. dated January 27, 1995.
10.6 Modification to Equipment Revolving Note between THE BANK OF
CALIFORNIA, N.A. and AUTO-GRAPHICS, INC. dated June 13, 1994
(incorporated by reference as filed with the SEC as Exhibit 10.6 to
Item 14(a) in the registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
10.7 Agreement between Gannam/Kubat Publishing, Inc. and Auto-Graphics,
Inc. regarding Datacat, Inc. dated June 12, 1990 (incorporated by
reference as filed with the SEC as Exhibit 10.6 to Item 14(a) in the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
10.8 Lease Agreement between 664 Company and Auto-Graphics, Inc. dated
May 27, 1986 (incorporated by reference as filed with the SEC as
Exhibit 10.7 to Item 14(a) in the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1990).
10.9 Agreement by, between and among Auto-Graphics, Inc. and Douglas K.
and Ruth T. Bisch executed February 15, 1995 (incorporated by
reference as filed with the SEC as Exhibit 10.9 to Item 14(a) in the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).
10.10 Amendment to Second Amended and Restated Revolving Credit Agreement,
Accounts and Inventory, between THE BANK OF CALIFORNIA, N.A. and
AUTO-GRAPHICS, INC. dated June 9, 1995.
10.11 Amendment to Second Amended and Restated Revolving Credit Agreement,
Accounts and Inventory, between THE BANK OF CALIFORNIA, N.A. and
AUTO-GRAPHICS, INC. dated July 3, 1995.
10.12 Amendment to Second Amended and Restated Revolving Credit Agreement,
Accounts and Inventory, between THE BANK OF CALIFORNIA, N.A. and
AUTO-GRAPHICS, INC. dated September 30, 1995.
10.13 Stock Purchase Agreement by, between and among Auto-Graphics, Inc.
and Cary A. and Geri W. Marshall executed June 13, 1995.
(b) The Company has not filed any reports on Form 8-K during the last quarter
of the period covered by this Report.
(c) The following document is filed herewith for information purposes, but is
not part of this Annual Report, except as otherwise indicated: None.
(d) None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AUTO-GRAPHICS, INC.
(Registrant)
Date: 3/25/95 By ss/ Robert S. Cope
Robert S. Cope, President, Treasurer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacity and on the dates indicated.
Date: 3/25/95 By ss/ Robert S. Cope
Robert S. Cope, President, Treasurer
and Director
Date: 3/25/95 By ss/ Daniel E. Luebben
Daniel E. Luebben, Secretary and
Chief Financial Officer
Date: 3/25/95 By ss/ Robert H. Bretz
Robert H. Bretz, Director