1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
/ X / Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For The Three Months Ended January 28, 2000
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 No. 1-9232
VOLT INFORMATION SCIENCES, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
New York 13-5658129
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
560 Lexington Avenue, New York, New York 10022
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 704-2400
1221 Avenue of the Americas, New York, New York 10020
- --------------------------------------------------------------------------------
(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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
The number of shares of common stock, $.10 par value, outstanding as of March 3,
2000 was 15,084,845.
2
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income -
Three Months Ended January 28, 2000 and January 29, 1999 3
Condensed Consolidated Balance Sheets - January 28, 2000
and October 29, 1999 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended January 28, 2000 and January 29, 1999 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Qualitative and Quantitative Disclosures about Market Risk 19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURE 21
-2-
3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
-----------------------------
January January
28, 2000 29, 1999
-------- --------
(Dollars in thousands, except per share data)
NET SALES:
Sales of services $ 482,512 $ 471,178
Sales of products 17,603 18,744
------------ ------------
500,115 489,922
------------ ------------
COSTS AND EXPENSES:
Cost of sales
Services 455,795 451,759
Products 10,446 11,253
Selling and administrative 17,624 15,432
Research, development and engineering 2,586 2,392
Depreciation and amortization 5,980 5,707
------------ ------------
492,431 486,543
------------ ------------
OPERATING PROFIT 7,684 3,379
OTHER INCOME (EXPENSE):
Interest income 422 560
Other income (expense) - net 68 (78)
Gain on sale of joint venture--Note E 1,272
Foreign exchange loss - net (183) (129)
Interest expense (2,301) (2,026)
------------ ------------
Income before income taxes and minority interests 5,690 2,978
Income tax provision (2,317) (669)
Minority interests in net loss of consolidated subsidiaries 245 253
------------ ------------
NET INCOME $ 3,618 $ 2,562
============ ============
Per Share Data
--------------
Net income per share - Basic and Diluted $ 0.24 $ 0.17
============ ============
Weighted average number of shares - Basic--Note F 15,041,054 15,011,508
============ ============
Weighted average number of shares - Diluted--Note F 15,175,538 15,169,955
============ ============
See accompanying notes.
-3-
4
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
January October
ASSETS 28, 2000 29, 1999 (a)
-------- ------------
(Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 27,973 $ 32,402
Short-term investments 2,826 2,609
Trade accounts receivable less allowances of $8,697 (2000) and $7,941 (1999) 355,726 364,461
Inventories--Note B 61,784 61,116
Deferred income taxes 6,001 6,874
Prepaid expenses and other assets 10,776 9,585
--------- ---------
TOTAL CURRENT ASSETS 465,086 477,047
Investment in joint venture 1,368 1,297
Investment in securities 328 162
Property, plant and equipment less allowances for depreciation and amortization
of $56,023 (2000) and $55,937 (1999)--Note C 81,659 78,168
Deferred income taxes and other assets 12,262 11,185
Intangible assets-net of accumulated amortization of $20,287 (2000)
and $18,689 (1999) 48,866 50,470
--------- ---------
$609,569 $618,329
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks--Note C $ 63,850 $ 68,498
Current portion of long-term debt--Note C 12,654 12,654
Accounts payable 109,069 127,781
Accrued wages and commissions 48,316 49,209
Accrued taxes other than income taxes 18,623 16,048
Accrued interest and other accruals 17,814 17,568
Customer advances and other liabilities 35,880 22,442
Income taxes 6,402 11,146
--------- ---------
TOTAL CURRENT LIABILITIES 312,608 325,346
LONG-TERM DEBT--Note C 45,503 45,728
MINORITY INTERESTS 17,015 17,259
STOCKHOLDERS' EQUITY--Notes C and D
Preferred stock, par value $1.00; Authorized--500,000 shares; issued--none
Common stock, par value $.10; Authorized--30,000,000 shares; issued--
15,063,645 shares (2000) and 15,032,446 shares (1999) 1,506 1,503
Paid-in capital 38,380 37,696
Retained earnings 194,835 191,217
Accumulated other comprehensive loss (278) (420)
--------- ---------
234,443 229,996
--------- ---------
$609,569 $618,329
========= =========
(a) The Balance Sheet at October 29, 1999 has been derived from the audited
financial statements at that date.
See accompanying notes.
-4-
5
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
-------------------------
January January
28, 2000 29, 1999
-------- --------
(Dollars in thousands)
CASH PROVIDED BY (APPLIED TO) OPERATING ACTIVITIES
Net income $ 3,618 $ 2,562
Adjustments to reconcile net income to cash provided by (applied to)
operating activities
Depreciation and amortization 5,980 5,707
Gain on sale of joint venture (1,272)
Equity in net loss of joint venture 29
Minority interests (245) (253)
Accounts receivable provisions 1,512 1,305
Loss on foreign currency translation (25) (106)
Deferred income tax provision (benefit) 581 (311)
Other 37 38
Changes in operating assets and liabilities:
Decrease in accounts receivable 6,694 13,005
Increase in inventories (672) (3,574)
Increase in prepaid expenses and other current assets (1,355) (1,272)
(Increase) decrease in other assets (728) 170
Decrease in accounts payable (18,481) (12,305)
Increase in accrued expenses 2,639 704
Increase in customer advances and other liabilities 13,534 6,380
Decrease in income taxes payable (4,755) (4,200)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,363 6,578
-------- --------
-5-
6
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)--Continued
Three Months Ended
-------------------------
January January
28, 2000 29, 1999
-------- --------
(Dollars in thousands)
CASH (APPLIED TO) PROVIDED BY INVESTING ACTIVITIES
Sales of investments 1,109 961
Purchases of investments (1,251) (1,260)
Acquisitions (37,974)
Investment in joint venture (100)
Proceeds from disposals of property, plant and equipment 393 71
Purchases of property, plant and equipment (8,301) (2,987)
Other (75) (34)
-------- --------
NET CASH APPLIED TO INVESTING ACTIVITIES (8,225) (41,223)
-------- --------
CASH (APPLIED TO) PROVIDED BY FINANCING ACTIVITIES
Payment of long-term debt (225) (225)
Exercise of stock options 129 16
(Decrease) increase in notes payable to banks (4,522) 29,599
-------- --------
NET CASH (APPLIED TO) PROVIDED BY FINANCING ACTIVITIES (4,618) 29,390
-------- --------
Effect of exchange rate changes on cash 51 214
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,429) (5,041)
Cash and cash equivalents, beginning of period 32,402 31,625
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $27,973 $ 26,584
======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the period:
Interest expense $ 1,412 $ 1,094
Income taxes, net of refunds $ 6,465 $ 3,805
See accompanying notes.
-6-
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note A--Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and Article 10 of
Regulation S-X and, therefore, do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the
Company's consolidated financial position at January 28, 2000 and consolidated
results of operations and consolidated cash flows for the three months ended
January 28, 2000 and January 29, 1999. Operating results for interim periods are
not necessarily indicative of the results that may be expected for the fiscal
year.
These statements should be read in conjunction with the financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended October 29, 1999. The accounting policies used in preparing these
financial statements are the same as those described in that Report. The
Company's fiscal year ends on the Friday nearest October 31. The 2000 fiscal
year will contain 53 weeks (one additional week in the fourth quarter) compared
with 52 weeks in fiscal year 1999.
Note B--Inventories
Inventories consist of:
January October
28, 2000 29, 1999
-------- --------
(Dollars in thousands)
Services:
Accumulated unbilled costs on service contracts $50,324 $50,079
------- -------
Products:
Materials 7,201 6,205
Work-in-process 1,606 1,910
Service parts 1,104 1,170
Finished goods 1,549 1,752
------- -------
11,460 11,037
------- -------
Total $61,784 $61,116
======= =======
The cumulative amounts billed under service contracts, at January 28, 2000 and
October 29, 1999, of $8.9 million and $2.5 million, respectively, are credited
against the related costs in inventory.
-7-
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note C--Long-Term Debt and Financing Arrangements
Long-term debt consists of the following:
January October
28, 2000 29, 1999
-------- --------
(Dollars in thousands)
7.92% Senior Notes (a) $50,000 $50,000
Term loan (b) 3,075 3,300
Notes payable (c)(d) 5,082 5,082
------- -------
58,157 58,382
Less amounts due within one year 12,654 12,654
------- -------
Total long-term debt $45,503 $45,728
======= =======
(a) On August 28, 1996, the Company issued $50.0 million of Senior Notes in a
private placement with institutional investors. The notes bear interest at 7.92%
per annum, payable semi-annually on February 28 and August 28, and provide for
amortization of principal in five equal annual installments, beginning in August
2000. The notes were issued pursuant to Note Purchase Agreements, which contain
various affirmative and negative covenants. One such covenant requires the
Company to maintain a level of consolidated net worth which, under the formula
in the agreements, was $138.1 million at January 28, 2000. However, the terms of
the Company's revolving Credit Agreement require the Company to maintain a
consolidated net worth of $154.8 million at January 28, 2000 (see below).
(b) In October 1994, the Company entered into a $10.0 million loan agreement
with Fleet Bank, N.A., which is secured by a deed of trust on land and buildings
(book value at January 28, 2000 - $13.5 million). The loan, which bears interest
at 7.86% per annum, requires principal payments of $225,000 per quarter and a
final payment of $1.7 million in October 2001.
(c) A loan of $2.5 million from The Chase Manhattan Bank was made to a foreign
subsidiary on January 18, 1996 to finance the acquisition of a printing press.
The loan, with a balance of $748,000 at January 28, 2000, is guaranteed by the
Company, and is being repaid in semi-annual payments of $249,000, plus interest
calculated at LIBOR (5.88% at January 28, 2000) plus 0.25%, through March 15,
2001.
(d) On February 9, 1999, the Company entered into a $5.6 million Installment
Payment Agreement to finance the purchase and support of an Enterprise Resource
Planning System for internal use. The system has been capitalized and will be
amortized over a seven year period. The Agreement provides for interest,
calculated at 6%, and principal amortization in five equal annual installments
of $1.3 million; the first payment was made in February 1999, with the final
payment due in February 2003.
In addition, on July 2, 1997, the Company entered into a $75.0 million,
three-year, syndicated, unsecured, revolving Credit Agreement ("Credit
Agreement") with a group of banks for which The Chase Manhattan Bank ("Chase")
and Fleet Bank, N.A. are serving as co-agents. In December 1998, the Company
amended and restated the Credit Agreement to extend it to January 2002.
Borrowings under the facility bear interest at various interest rates, with the
Company having the option to select the most favorable rate at the time of the
applicable borrowing. The Credit Agreement provides for, among other things, the
maintenance of various financial ratios and
-8-
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note C--Long-Term Debt and Financing Arrangements--Continued
covenants, including a requirement that the Company maintain consolidated net
worth (as defined) of $110.0 million, plus 50% of consolidated net income for
each completed fiscal year (resulting in a requirement at January 28, 2000 to
maintain consolidated net worth of $154.8 million) and certain limitations on
the extent to which the Company and its subsidiaries may incur additional
indebtedness, liens and as to the sale of assets. The Company had total
outstanding bank borrowings of $63.8 million at January 28, 2000, of which $57.7
million was borrowed under the Credit Agreement.
On November 29, 1999, the Company entered into an additional $25 million,
syndicated unsecured revolving credit agreement with a group of banks and the
same co-agents and terms as the Credit Agreement. This agreement expires on
November 27, 2000.
Note D--Stockholders' Equity
Changes in the major components of stockholders' equity for the three months
ended January 28, 2000 are as follows:
Common Paid-In Retained
Stock Capital Earnings
-------- -------- --------
Balance at October 29, 1999 $1,503 $37,696 $191,217
Net income for the three months 3,618
Contribution of 24,939 shares to ESOP 2 556
Stock options exercised - 6,260 shares 1 128
-------- -------- --------
Balance at January 28, 2000 $1,506 $38,380 $194,835
======== ======== ========
Another component of stockholders' equity, the accumulated other comprehensive
loss, consists of a cumulative unrealized foreign currency translation
adjustment of $24,000 and $62,000 at January 28, 2000 and October 29, 1999,
respectively, and an unrealized loss in marketable securities of $254,000 and
$358,000 at January 28, 2000 and October 29, 1999, respectively. Changes in
these items, net of income taxes, are included in the calculation of
comprehensive income as follows:
Three Months Ended
------------------
January January
28, 2000 29, 1999
-------- --------
Net income $3,618 $2,562
Foreign currency translation adjustments - net 38 (76)
Unrealized gain (loss) on marketable securities - net 104 (411)
------- -------
Total comprehensive income $3,760 $2,075
======= =======
-9-
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note E--Joint Ventures
The Company owns a 50% interest in westVista Advertising Services, a joint
venture with a subsidiary of TELUS Corporation. The venture was formed in fiscal
1998 for the acquisition or establishment and subsequent operation of one or
more businesses engaged in the publication of telephone directories in the
western United States. During fiscal 1999, the venture made its first
acquisition, purchasing eleven community Yellow Pages directories. In the first
quarter of fiscal 2000, sales of the venture were $1.3 million and the Company's
portion of the loss sustained was $29,000. In addition, on March 2, 2000 the
venture acquired seven additional community Yellow Pages directories at a cost
of $4.8 million.
In the first quarter of 1999, the Company recognized $1,272,000 of a previously
deferred $2.0 million gain on the sale in 1997 of its interest in a Brazilian
joint venture. In connection with the sale, the Company granted credit with
respect to the printing of telephone directories by the Company's Uruguayan
division. During the 1999 first quarter, the venture repaid certain of its
obligations. During the remainder of 1999, the venture repaid substantially all
of the balance of its obligations.
Note F--Per Share Data
In calculating basic earnings per share, the dilutive effect of stock options
are excluded. Diluted earnings per share are computed on the basis of the
weighted average number of shares of common stock outstanding and the assumed
exercise of dilutive outstanding stock options based on the treasury stock
method.
Three Months Ended
---------------------------
January January
28, 2000 29, 1999
-------- --------
(Dollars in thousands, except per share data)
Numerator for basic and diluted earnings
per share - net income(A) $ 3,618 $ 2,562
=========== ===========
Denominator for basic earnings per share -
weighted average number of shares(B) 15,041,054 15,011,508
Effect of dilutive securities:
Employee stock options 134,484 158,447
----------- -----------
Denominator for diluted earnings per share -
adjusted weighted average number of shares(C) 15,175,538 15,169,955
=========== ===========
Basic net income per share - (A)/(B) $ 0.24 $ 0.17
=========== ===========
Diluted net income per share - (A)/(C) $ 0.24 $ 0.17
=========== ===========
Options to purchase 201,385 and 111,300 shares of the Company's common stock
were outstanding at January 28, 2000 and January 29, 1999, respectively, but
were not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
shares and, therefore, the effect would be antidilutive.
-10-
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note G--Acquisitions
In December 1999, the Company completed its purchase of the Wired Services and
Professional Staffing divisions of two Lucent Technologies subsidiaries. The
Wired Services division installs cable, wire and small telecommunications
systems for businesses, and the Professional Staffing division provides
technical, management and administrative personnel for temporary assignments.
The Company paid cash for inventory and equipment with limited additional
consideration due based on future sales of the Wired Services division. The
amounts are not considered material to the Company.
In December 1998, the Company acquired Gatton Computing Group Limited, now
referred to as Volt Europe, a provider of Information Technology ("IT")
contractor resourcing services and IT managed services in the United Kingdom and
continental Europe. The purchase price was $35.9 million in cash. Headquartered
near London, England, Volt Europe offers IT services which include temporary IT
contract consultants, specifically tailored recruitment services, and systems
development, maintenance and technical support services. The Company borrowed
$35.0 million under its revolving Credit Agreement to finance this acquisition.
Note H--Segment Disclosures
Financial data concerning the Company's sales and segment operating profit
(loss) by reportable operating segment for the three months ended January 28,
2000 and January 29, 1999 included on page 12 of this report are an integral
part of these financial statements.
During the three months ended January 28, 2000, consolidated assets decreased by
$8.8 million with no significant change in assets of any of the Company's
operating segments.
-11-
12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 28, 2000 COMPARED
TO THE THREE MONTHS ENDED JANUARY 29, 1999
The information which appears below relates to current and prior periods, the
results of operations for which periods are not necessarily indicative of the
results which may be expected for any subsequent periods. Management has made no
predictions or estimates as to future operations and no inferences as to future
operations should be drawn.
The following summarizes the Company's unaudited results of operations by
segment:
For the Three Months Ended
--------------------------
January January
28, 2000 29, 1999
-------- --------
(Dollars in thousands)
Net Sales:
- ----------
Staffing Services $390,857 $387,287
Telephone Directory 14,285 18,370
Telecommunications Services 65,110 36,002
Computer Systems 15,686 30,674
Electronic Publication and Typesetting Systems 17,648 18,796
Elimination of intersegment sales (3,471) (1,207)
-------- --------
Total Net Sales $500,115 $489,922
======== ========
Segment Operating Profit (Loss):
- --------------------------------
Staffing Services $ 9,196 $ 5,918
Telephone Directory (3,448) (1,333)
Telecommunications Services 4,931 1,129
Computer Systems 1,133 1,449
Electronic Publication and Typesetting Systems (451) (411)
-------- --------
Total Segment Operating Profit 11,361 6,752
General corporate expenses (3,677) (3,373)
-------- --------
Total Operating Profit 7,684 3,379
Gain on sale of joint venture 1,272
Interest and other income - net 490 482
Interest expense (2,301) (2,026)
Foreign exchange loss - net (183) (129)
-------- --------
Income Before Income Taxes and
Minority Interests $ 5,690 $ 2,978
======== ========
-12-
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED JANUARY 28, 2000 COMPARED
TO THE THREE MONTHS ENDED JANUARY 29, 1999--Continued
Forward-Looking Statements Disclosure
- -------------------------------------
In order to keep the Company's shareholders and investors informed of the
Company's future plans and objectives, this Report and other reports and
statements issued by the Company and its officers, from time-to-time, contain
certain statements concerning the Company's future plans, objectives,
performance, intentions and expectations that are, or may be deemed to be,
"forward-looking statements". The Company's ability to do this has been fostered
by the Private Securities Litigation Reform Act of 1995, which provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information so long as those statements are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those discussed in the statement. The
Company believes that it is in the best interests of its shareholders to take
advantage of the "safe harbor" provisions of that Act.
Although the Company believes that its expectations are based on reasonable
assumptions, these forward-looking statements are subject to a number of known
and unknown risks and uncertainties that could cause the Company's actual
results, performance and achievements to differ materially from those described
or implied in the forward-looking statements. These risks and uncertainties
include, but are not limited to:
- - general economic, competitive and other business conditions
- - the degree and timing of obtaining new contracts and the rate of renewals
of existing contracts, as well as customers' degree of utilization of the
Company's services
- - material changes in demand from larger customers, including those with
which the Company has national contracts
- - the effect of litigation by temporary employees against temporary help
companies and the customers with whom they do business
- - decreasing rates of unemployment and higher wages sought by temporary
workers, especially those in certain technical fields particularly
characterized by labor shortages
- - changes in customer attitudes toward outsourcing and temporary personnel
- - the Company's ability to recruit qualified employees to satisfy customer
requirements for the Company's staffing services
- - the Company's ability to meet competition in its highly competitive markets
with minimal impact on margins
- - intense price competition and pressure on margins
- - the Company's ability to maintain superior technological capability
- - the Company's ability to foresee changes and to identify, develop and
commercialize innovative and competitive products and systems in a timely
and cost effective manner
- - the Company's ability to achieve customer acceptance of such products and
systems in markets characterized by rapidly changing technology and
frequent new product introductions
- - risks inherent in new product introductions, such as start-up delays, cost
overruns and uncertainty of customer acceptance
- - the Company's dependence on third parties for some product components
- - changes in laws, regulations and government policies, particularly in the
area of staffing services and export controls
- - the Company's performance on contracts
- - the degree and effects of inclement weather on the Telecommunications
Services segment
-13-
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED JANUARY 28, 2000 COMPARED
TO THE THREE MONTHS ENDED JANUARY 29, 1999--Continued
Forward-Looking Statements Disclosure--Continued
- ------------------------------------------------
- - the timing of customer acceptances of systems
- - the Company's ability to attract and retain certain classifications of
technologically qualified personnel, particularly in the areas of research
and development and customer service
These and certain other factors are discussed in the Company's Annual Report on
Form 10-K for the fiscal year ended October 29, 1999, and from time to time
hereafter in the Company's other reports filed with the Securities and Exchange
Commission.
Results of Operations - Summary
- -------------------------------
In the three-month period of fiscal 2000, net sales increased by $10.2 million,
or 2%, to $500.1 million from the comparable period in fiscal 1999. The increase
in 2000 net sales resulted primarily from a $29.1 million increase in sales by
the Telecommunications Services segment and a $3.6 million increase in sales by
the Staffing Services segment, partially offset by a decrease in sales of $15.0
million by the Computer Systems segment and decreases in sales by the other two
segments.
The Company's 2000 pretax income before minority interests increased by $2.7
million, or 91%, to $5.7 million. The operating profit of the Company's segments
increased by $4.6 million, or 68%, to $11.4 million in 2000. While the
Telecommunications Services segment and Staffing Services segment significantly
increased their operating profits, a decrease in the other three segments
partially offset these gains.
Consolidated 1999 results included a gain on the sale of a joint venture of
$1,272,000 (see Note E of Notes to Condensed Consolidated Financial Statements
of this Report).
Net income in the first three months of 2000 was $3.6 million, compared with net
income of $2.6 million in the first three months of 1999.
Results of Operations - By Segment
- ----------------------------------
Sales of the Staffing Services segment increased by $3.6 million, or 1%, to
$390.9 million in 2000 and its operating profit increased by $3.3 million, or
55%, to $9.2 million, compared with $5.9 million in 1999. Traditional recruited
and direct placement staffing revenue increased $42.2 million, or 16%, with
approximately $35.2 million of the increase coming from sales with existing
customers. This increase was substantially offset by a decrease in managed
service revenue of $38.6 million, or 33%, due to an increase in the amount of
associate vendors who have agreed to be paid subject to the receipt of the
customers' payment to the Company. The increase in the segment's operating
profit was due to the increase in higher margin traditional staffing sales. The
increase in gross margin, due to the higher proportion of recruited and direct
placement business, was partially offset by an increase in overhead to service
customers. As a percentage of sales, operating margins increased from 1.5% to
2.4%.
-14-
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED JANUARY 28, 2000 COMPARED
TO THE THREE MONTHS ENDED JANUARY 29, 1999--Continued
Results of Operations - By Segment--Continued
- ---------------------------------------------
The Telephone Directory segment's sales decreased by $4.1 million, or 22%, to
$14.3 million in fiscal 2000 and its operating loss increased to $3.4 million in
2000 from a loss of $1.3 million in 1999. The sales decrease was primarily due
to decreases in independent directory publishing sales of $2.2 million, which
included the publication of the segment's toll-free directory, and printing
sales in Uruguay of $1.4 million. The increase in operating loss was the result
of the decreased sales, increased costs to reposition the segment's toll-free
directory to a multi-media product and a charge of $867,000 for a customer
receivable deemed uncollectable due to a bankruptcy filing.
The Telecommunications Services segment's sales increased by $29.1 million, or
81%, to $65.1 million in fiscal year 2000 and its operating profit increased by
$3.8 million to $4.9 million in fiscal 2000 compared with $1.1 million in 1999.
All of the segment's divisions reported significant increases in sales as a
result of increased revenue from long-haul fiber optic and cross-connect box
projects as well as additional increased business from several major customers.
The increase in operating profit was the result of the increase in sales and a
7.6 percentage point reduction in overhead expressed as a percentage of sales,
offset by a decrease in gross margins of 3.1 percentage points, primarily due to
cost overruns on a Business Systems division's project.
The Computer Systems segment's sales decreased by $15.0 million, or 49%, to
$15.7 million in 2000 and its operating profit decreased to $1.1 million from
$1.5 million in 1999. The decreases were primarily due to the recognition in
fiscal 1999 of the first phase of an operator services system in Holland which
was accounted for under the completed contract method of accounting. Revenues
and operating profit for this contract were $19.0 million and $2.3 million,
respectively. The decreases in revenue and operating profit were partially
offset in fiscal 2000 by an increase in customer utilization of the segment's
DirectoryExpress system as well as increased workstation and software sales.
The Electronic Publication and Typesetting Systems segment's sales decreased by
$1.1 million, or 6%, to $17.6 million in fiscal 2000, and its operating loss
increased to $451,000 in 2000 from a loss of $411,000 in 1999. The decrease in
sales resulted primarily from a decrease of domestic and international sales of
systems and equipment. The lower sales were due to the postponement of capital
expenditures due to Year 2000 issues, lower sales in Europe and adverse business
conditions in Latin America and the Far East. The lower European sales resulted
from reduced shipments of the segment's new Computer-to-Plate product in fiscal
year 2000 compared with shipments in the 1999 first quarter of film imager
products. The increase in operating loss was due to the lower sales volume
partially offset by cost reductions, which lowered the segment's overhead by
$418,000. The markets in which the segment competes are marked by rapidly
changing technology, with sales in fiscal 2000 of equipment introduced within
the last three years comprising approximately 88% of equipment sales. Although
cost reductions are being realized, there can be no assurances that the segment
will return to profitability within the near term.
-15-
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED JANUARY 28, 2000 COMPARED
TO THE THREE MONTHS ENDED JANUARY 29, 1999--Continued
Results of Operations - Other
- -----------------------------
Other items, discussed on a consolidated basis, affecting the results of
operations for the three-month periods were:
Selling and administrative expenses increased by $2.2 million, or 14.2%, to
$17.6 million in 2000 to support the increased sales levels. These expenses,
expressed as a percentage of sales, were 3.5% in 2000 and 3.1% in 1999.
Research, development and engineering increased by $194,000, or 8%, to $2.6
million in 2000. The increase in 2000 was primarily due to product development
in the Computer Systems segment offset by reductions in the other segments.
Depreciation and amortization increased by $273,000, or 5%, to $6.0 million in
2000. The 2000 increase was attributable to amortization of intangibles, due to
acquisitions made in 1999.
Interest income decreased by $138,000, or 25%, to $422,000 in 2000, primarily
due to a decrease of funds available for investment.
In the first quarter of 1999, the Company recognized $1,272,000 of a previously
deferred $2.0 million gain on the sale in 1997 of its interest in a Brazilian
joint venture. In connection with the sale, the Company granted credit with
respect to the printing of telephone directories by the Company's Uruguayan
division. During the 1999 first quarter, the venture repaid certain of its
obligations. During the remainder of 1999, the venture repaid substantially all
of the balance of its obligations.
The foreign exchange loss in the first quarter of 2000 was $183,000, compared to
$129,000 in 1999. The losses were due to unfavorable currency movements in the
European currency markets. To reduce the potential adverse impact from foreign
currency changes on the Company's foreign currency receivables, sales and firm
commitments, foreign currency options are purchased, generally, on the last day
of each quarter.
Interest expense increased by $275,000, or 14%, to $2.3 million in 2000. The
increase is the result of the Company borrowing under its revolving Credit
Agreement to finance the December 1998 acquisition of Volt Europe and to support
the increased working capital requirements of the Company.
The Company's effective tax rate was increased to 40.7% in 2000 from 22.5% in
1999. The low effective tax rate in 1999 resulted from the non-taxable gain on
the sale of a Brazilian joint venture.
-16-
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Sources of Capital
- --------------------------------
Cash and cash equivalents decreased by $4.4 million to $28.0 million in the
three months ended January 28, 2000. Operating activities provided $8.4 million
of cash flows in 2000. Primary among the factors providing cash flows from
operating activities in 2000 were the Company's net income of $3.6 million,
augmented by $6.0 million of depreciation and amortization, a decrease in the
level of accounts receivable of $6.7 million and an increase of $13.5 million in
customer advances and other liabilities. The principal use of cash in operating
activities for the three months ended January 28, 2000 was $18.5 million to
reduce the level of accounts payable and a $4.8 million reduction in income
taxes payable.
The principal factor in the cash applied to investing activities of $8.2 million
was the expenditure of $8.3 million for property, plant and equipment.
A repayment of $4.5 million of bank loans was the principal factor in the cash
applied to financing activities of $4.6 million.
At January 28, 2000, the Company had $113.0 million of credit lines with banks,
of which $75.0 million is under a revolving Credit Agreement that is not
scheduled to expire until January 2002 and may, subject to meeting certain
conditions, be renewed. An additional $25.0 million is under a credit agreement
expiring in November 2000. The Company had total outstanding bank borrowings of
$63.8 million at January 28, 2000 under these lines (see Note C in the Notes to
Condensed Consolidated Financial Statements).
The Company believes that its current financial position, working capital,
future cash flows and credit lines are sufficient to fund its presently
contemplated operations and satisfy its debt obligations.
The Company is currently in the process of installing an Enterprise Resource
Planning System for internal use to satisfy the Company's ongoing technology
requirements. The cost incurred through January 28, 2000 of this new system,
including the purchase and/or lease of software and hardware, three years of
support and the initial implementation phase is $19.2 million, a significant
portion of which has been capitalized and will be amortized over a seven year
period. A significant portion of this amount has been financed over a three to
four year period by vendors. In addition to the above, the Company has a
commitment of $3.0 million for outside services to support the design,
development and implementation stages. The Company has no other material capital
commitments.
The Effect of New Accounting Pronouncements
- -------------------------------------------
In June 1998, the FASB issued Statement 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). The provisions of SFAS No.
133 require companies to record all derivative instruments as assets or
liabilities, measured at fair value. In June 1999, the FASB issued Statement
137, which deferred the effective date of SFAS No. 133. The Company does not
expect the effects of adopting this new standard in fiscal 2001 will be
material.
-17-
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Impact of Year 2000
- -------------------
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology or non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. During the past
three fiscal years, the Company expensed approximately $6.0 million in
connection with remediating its systems. The Company is not aware of any
material problems resulting from Year 2000 issues, either with its products, its
internal systems, or the products and services of third parties. The Company
will continue to monitor its mission critical computer applications and those of
its suppliers and vendors throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
-18-
19
ITEM 3 - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk exposure in the following areas:
Interest Rate Market Risk
The Company has cash equivalents on which interest income is earned at variable
rates. The Company also has credit lines with various domestic and foreign banks
which provide for unsecured borrowings and letters of credit up to an aggregate
of $113 million. At January 28, 2000, the Company had borrowings totaling $63.8
million under these agreements. The interest rates on these borrowings are
variable and, therefore, interest expense and interest income are affected by
the general level of U.S. and foreign interest rates. Increases in interest
expense resulting from an increase in interest rates would be offset to some
extent by a corresponding increase in interest income from cash equivalents.
The Company's total long-term debt of $58.2 million at January 28, 2000 consists
substantially of borrowings at fixed interest rates, and the Company's interest
expense related to these borrowings is not exposed to changes in interest rates
in the near term.
Equity Price Risk
The Company holds short-term investments in mutual funds for the Company's
deferred compensation plan, and non-current investments consisting of a
portfolio of equity securities. The total market value of these investments is
$3.2 million and based on this value, the Company does not believe that its
exposure to market risk from these investments is material.
Foreign Exchange Market Risk
The Company has a number of overseas subsidiaries and is, therefore, subject to
exposure from the risk of currency fluctuations as the value of the foreign
currency fluctuates against the dollar, which may impact reported earnings. The
Company attempts to reduce these risks by utilizing foreign currency option
contracts to hedge the adverse impact on foreign currency receivables and sales
when the dollar strengthens against the related foreign currency. At January 28,
2000, the Company had purchased foreign currency options in the aggregate
notional amount of $5.4 million, which approximated its exposure in foreign
currencies at that date. The Company does not believe that it is exposed to
material foreign exchange market risk.
-19-
20
PART II - OTHER INFORMATION
ITEM 6-- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
15.01 Letter from Ernst & Young LLP
15.02 Letter from Ernst & Young LLP regarding interim financial information
27.01 Financial Data Schedule (filed with electronic version only)
(b) Reports on Form 8-K:
The only Report on Form 8-K filed during the quarter ended January 28, 2000 was
a report dated November 16, 1999 (date of earliest event reported) reporting
Item 5, Other Events and Item 7, Financial Statements and Exhibits. No financial
statements were filed with that Report.
-20-
21
SIGNATURE
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.
VOLT INFORMATION SCIENCES, INC.
(Registrant)
BY:/s/ JACK EGAN
--------------------------
Date: March 9, 2000 JACK EGAN
Vice President - Corporate Accounting
(Principal Accounting Officer)
-21-
22
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
15.01 Letter from Ernst & Young LLP
15.02 Letter from Ernst & Young LLP regarding interim financial information.
27.01 Financial Data Schedule (filed with electronic version only).