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 Six Months Ended April 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
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, 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 June 2,
2000 was 15,179,645.
2
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Income - Six Months
and Three Months Ended April 28, 2000 and April 30, 1999 3
Condensed Consolidated Balance Sheets - April 28, 2000
and October 29, 1999 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended April 28, 2000 and April 30, 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 21
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURE 24
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PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended Three Months Ended
------------------------------ ----------------------------
April 28, April 30, April 28, April 30,
2000 1999 2000 1999
---------- ---------- -------- ------------
(Dollars in thousands, except per share data)
NET SALES:
Sales of services $1,000,426 $ 983,948 $517,914 $512,770
Sales of products 35,823 38,247 18,220 19,503
----------- ---------- -------- --------
1,036,249 1,022,195 536,134 532,273
----------- ---------- -------- --------
COSTS AND EXPENSES:
Cost of sales
Services 934,301 934,408 478,506 482,649
Products 21,061 23,035 10,615 11,782
Selling and administrative 40,467 34,187 22,843 18,755
Research, development and engineering 5,773 5,051 3,187 2,659
Depreciation and amortization 11,930 11,690 5,950 5,983
----------- ---------- -------- --------
1,013,532 1,008,371 521,101 521,828
----------- ---------- -------- --------
OPERATING PROFIT 22,717 13,824 15,033 10,445
OTHER INCOME (EXPENSE):
Interest income 790 946 368 386
Other (loss) income - net (456) 69 (524) 147
Gain on sale of joint venture--Note E 1,272
Foreign exchange (loss) gain - net (79) (208) 104 (79)
Interest expense (4,455) (4,105) (2,154) (2,079)
----------- ---------- -------- --------
Income before income taxes and minority interests 18,517 11,798 12,827 8,820
Income tax provision (7,661) (4,130) (5,344) (3,461)
Minority interests in net loss
of consolidated subsidiaries 484 572 239 319
----------- ---------- -------- --------
NET INCOME $ 11,340 $ 8,240 $ 7,722 $ 5,678
=========== ========== ======== ========
Per Share Data
Basic:
Net income per share $0.75 $0.55 $0.51 $0.38
========== ========== ========== ==========
Weighted average number of shares--Note F 15,080,214 15,018,426 15,119,373 15,025,345
========== ========== ========== ==========
Diluted:
Net income per share $0.74 $0.54 $0.50 $0.38
========== ========== ========== ==========
Weighted average number of shares--Note F 15,254,728 15,129,750 15,333,917 15,089,546
========== ========== ========== ==========
See accompanying notes.
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VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
April 28, October 29,
2000 1999(a)
--------- ---------
ASSETS (Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 32,717 $ 32,402
Short-term investments 3,053 2,609
Trade accounts receivable less allowances of $9,340 (2000) and $7,941 (1999) 366,933 364,461
Inventories--Note B 73,504 61,116
Deferred income taxes 4,454 6,874
Prepaid expenses and other assets 12,518 9,585
-------- --------
TOTAL CURRENT ASSETS 493,179 477,047
Investment in joint venture--Note E 3,661 1,297
Investment in securities 318 162
Property, plant and equipment less allowances for depreciation and amortization
of $57,257 (2000) and $55,937 (1999)--Note C 88,950 78,168
Deferred income taxes and other assets 12,481 11,185
Intangible assets-net of accumulated amortization of $21,892 (2000) and
$18,689 (1999)--Note G 47,283 50,470
-------- --------
$645,872 $618,329
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks--Note C $ 81,722 $ 68,498
Current portion of long-term debt--Note C 12,199 12,654
Accounts payable 124,386 127,781
Accrued wages and commissions 50,971 49,209
Other accruals 32,866 33,616
Customer advances and other liabilities 34,316 22,442
Income taxes 4,412 11,146
-------- --------
TOTAL CURRENT LIABILITIES 340,872 325,346
LONG-TERM DEBT--Note C 44,496 45,728
MINORITY INTERESTS 16,563 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 and
Outstanding--15,179,645 shares (2000) and 15,032,446 shares (1999) 1,518 1,503
Paid-in capital 40,218 37,696
Retained earnings 202,557 191,217
Accumulated other comprehensive loss (352) (420)
-------- --------
243,941 229,996
-------- --------
$645,872 $618,329
======== ========
(a) The Balance Sheet at October 29, 1999 has been derived from the audited
financial statements at that date.
See accompanying notes.
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VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
April April
28, 2000 30, 1999
-------- --------
(Dollars in thousands)
CASH PROVIDED BY (APPLIED TO) OPERATING ACTIVITIES
Net income $11,340 $ 8,240
Adjustments to reconcile net income to cash provided by (applied to)
operating activities:
Depreciation and amortization 11,930 11,690
Gain on sale of joint venture (1,272)
Equity in net loss of joint venture 428 6
Minority interests (484) (572)
Accounts receivable provisions 4,214 1,990
Loss (gain) on foreign currency translation 19 (166)
Deferred income tax provision (benefit) 1,894 (695)
Other 89 105
Changes in operating assets and liabilities:
Increase in accounts receivable (8,382) (3,863)
Increase in inventories (12,388) (9,236)
Increase in prepaid expenses and other current assets (3,226) (2,904)
(Increase) decrease in other assets (920) 81
Decrease in accounts payable (2,731) (52)
Increase (decrease) in accrued expenses 2,223 (1,932)
Increase in customer advances and other liabilities 12,256 4,465
Decrease in income taxes payable (6,383) (2,485)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,879 3,400
-------- --------
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VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)--Continued
Six Months Ended
------------------------
April April
28, 2000 30, 1999
--------- --------
(Dollars in thousands)
CASH PROVIDED BY (APPLIED TO) INVESTING ACTIVITIES
Sales of investments $ 1,857 $ 2,408
Purchases of investments (2,165) (3,101)
Investment in joint venture (2,792) (1,330)
Acquisitions (67) (38,751)
Proceeds from disposals of property, plant and equipment 741 145
Purchases of property, plant and equipment (20,393) (12,231)
Other investments (322) (230)
-------- --------
NET CASH APPLIED TO INVESTING ACTIVITIES (23,141) (53,090)
-------- --------
CASH PROVIDED BY (APPLIED TO) FINANCING ACTIVITIES
Payment of long-term debt (1,955) (699)
Exercise of stock options 1,979 21
Increase in notes payable to banks 13,678 42,027
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 13,702 41,349
-------- --------
Effect of exchange rate changes on cash (125) 447
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 315 (7,894)
Cash and cash equivalents, beginning of period 32,402 31,625
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $32,717 $23,731
======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the period:
Interest, including $362 capitalized in 2000 and $58 capitalized in 1999 $ 4,909 $ 4,150
Income taxes, net of refunds $11,657 $ 6,216
Obligation incurred in connection with the purchase and support of
an Enterprise Resource Planning System $ 4,334
See accompanying notes.
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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 April 28, 2000, consolidated
results of operations for the six and three months ended April 28, 2000 and
April 30, 1999 and consolidated cash flows for the six months ended April 28,
2000 and April 30, 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 fiscal year 1999.
Note B--Inventories
Inventories consist of:
April October
28, 2000 29, 1999
-------- --------
(Dollars in thousands)
Services:
Accumulated unbilled costs on:
Service contracts $61,572 $50,079
------- -------
Products:
Materials 7,303 6,205
Work-in-process 2,129 1,910
Service parts 1,007 1,170
Finished goods 1,493 1,752
------- -------
11,932 11,037
------- -------
Total $73,504 $61,116
======= =======
The cumulative amounts billed, principally under service contracts at April 28,
2000 and October 29, 1999, of $13.5 million and $2.5 million respectively, are
credited against the related costs in inventory.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note C--Long-Term Debt and Financial Arrangements
Long-term debt consists of the following:
April October
28, 2000 29, 1999
-------- --------
(Dollars in thousands)
7.92% Senior Notes (a) $50,000 $50,000
Term loan (b) 2,850 3,300
Notes and other obligations payable (c) & (d) 3,845 5,082
------- -------
56,695 58,382
Less amounts due within one year 12,199 12,654
------- -------
Total long-term debt $44,496 $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. In March 2000, the Company entered into a series of interest rate swap
agreements, which effectively converted these notes, through their maturity,
from fixed to floating rate debt. The swap rates are based on LIBOR, reset
quarterly, and averaged 7.0% at April 28, 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 a formula, was $138.1 million at April 28,
2000. However, the terms of the Company's revolving Credit Agreement required
the Company to maintain a consolidated net worth of $154.8 million at April 28,
2000 (see below).
(b) In October 1994, the Company entered into a $10.0 million loan agreement
with Fleet Bank, which is secured by a deed of trust on land and buildings (book
value at April 28, 2000 - $13.4 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 $499,000 at April 28, 2000, is guaranteed by the
Company, and is being repaid in semi-annual payments of $249,000, plus interest
calculated at LIBOR (6.25% at April 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 purchase and maintain 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 amortization of 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
borrowing. The Credit Agreement provides for, among other things, the
maintenance of various financial ratios and 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 April 28, 2000 to maintain
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note C--Long-Term Debt and Financial Arrangements--Continued
consolidated net worth of $154.8 million), and certain limitations on the extent
to which the Company and its subsidiaries may incur additional indebtedness and
liens and as to sales of assets. 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. The Company had total outstanding bank
borrowings of $81.7 million at April 28, 2000, of which $75.5 million was
borrowed under the two credit agreements.
Note D--Stockholders' Equity
Changes in the major components of stockholders' equity for the six months ended
April 28, 2000 are as follows:
Common Paid-In Retained
Stock Capital Earnings
------ ------- --------
(Dollars in thousands)
Balance at October 29, 1999 $1,503 $37,696 $191,217
Net income for the six months 11,340
Issuance of 24,939 shares to ESOP 2 556
Stock options exercised - 122,260 shares 13 1,966
------ ------- --------
Balance at April 28, 2000 $1,518 $40,218 $202,557
====== ======= ========
Another component of stockholders' equity, the accumulated other comprehensive
loss, consists of cumulative unrealized foreign currency translation adjustments
of $92,000 and $62,000 at April 28, 2000 and October 29, 1999, respectively, and
unrealized losses in marketable securities of $260,000 and $358,000 at April 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:
Six Months Ended Three Months Ended
----------------------- ------------------------
April 28, April 30, April 28, April 30,
2000 1999 2000 1999
------- ------ ------ -------
(Dollars in thousands)
Net income $11,340 $8,240 $7,722 $5,678
Foreign currency translation adjustments - net (30) (118) (68) (42)
Unrealized gains (losses) on marketable securities - net 98 (634) (6) (223)
------- ------ ------ ------
Total comprehensive income $11,408 $7,488 $7,648 $5,413
======= ====== ====== ======
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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 at a cost of
$2.6 million. On March 2, 2000, the venture acquired seven additional community
Yellow Pages directories at a cost of $4.8 million. In the first six months of
fiscal 2000, sales of the venture were $93,700 and the Company's portion of the
loss sustained was $428,000.
In the first quarter of 1999, the Company recognized $1.3 million 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.
Six Months Ended Three Months Ended
----------------------------- -----------------------------
April 28, April 30, April 28, April 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
Numerator for basic and diluted earnings
per share - net income (A) $11,340 $8,240 $7,722 $5,678
======= ====== ====== ======
Denominator for basic earnings per share -
weighted average number of shares (B) 15,080,214 15,018,426 15,119,373 15,025,345
Effect of dilutive securities:
Employee stock options 174,514 111,324 214,544 64,201
---------- ---------- ---------- ----------
Denominator for diluted earnings per share -
adjusted weighted average number of shares (C) 15,254,728 15,129,750 15,333,917 15,089,546
========== ========== ========== ==========
Basic net income per share - (A)/(B) $0.75 $0.55 $0.51 $0.38
===== ===== ===== =====
Diluted net income per share - (A)/(C) $0.74 $0.54 $0.50 $0.38
===== ===== ===== =====
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note F--Per Share Data--Continued
Other options to purchase 29,000 and 590,778 shares of the Company's common
stock were outstanding at April 28, 2000 and April 30, 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
Company's common stock and, therefore, the effect would be antidilutive.
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 paid and payable are not considered material to the Company.
In December 1998, the Company acquired Gatton Computing Group Limited, now known
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 the 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 six and three months ended April
28, 2000 and April 30, 1999 included on page 12 of this report are an integral
part of these financial statements.
During the six months ended April 28, 2000, consolidated assets increased by
$27.5 million, primarily as a result of increased accounts receivable and
inventories in the Telecommunications Services and Telephone Directory segments,
as well as corporate capitalized costs related to the installation of an
Enterprise Resource Planning system. These increases were partially offset by a
decrease in the Staffing Services' accounts receivable.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS AND THREE MONTHS ENDED APRIL 28, 2000 COMPARED
TO THE SIX MONTHS AND THREE MONTHS ENDED APRIL 30, 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 Six Months Ended For the Three Months Ended
------------------------------ --------------------------
April 28, April 30, April 28, April 30,
2000 1999 2000 1999
----------- ----------- --------- ---------
(Dollars in thousands)
Net Sales
- ---------
Staffing Services $ 804,634 $ 818,288 $ 413,777 $ 431,001
Telephone Directory 34,915 35,366 20,630 16,996
Telecommunications Services 136,681 81,228 71,571 45,226
Computer Systems 31,954 51,994 16,268 21,320
Electronic Publication and Typesetting Systems 35,914 38,364 18,266 19,568
Elimination of intersegment sales (7,849) (3,045) (4,378) (1,838)
---------- ---------- --------- ---------
Total Net Sales $1,036,249 $1,022,195 $ 536,134 $ 532,273
========== ========== ========= =========
Segment Operating Profit (Loss):
- --------------------------------
Staffing Services $ 22,441 $ 16,236 $ 13,245 $ 10,318
Telephone Directory (4,294) (1,762) (846) (429)
Telecommunications Services 10,466 4,410 5,535 3,281
Computer Systems 2,421 3,123 1,288 1,674
Electronic Publication and Typesetting Systems (726) (1,080) (275) (669)
---------- ---------- --------- ---------
Total Segment Operating Profit 30,308 20,927 18,947 14,175
General corporate expenses (7,591) (7,103) (3,914) (3,730)
---------- ---------- --------- ---------
Total Operating Profit 22,717 13,824 15,033 10,445
Interest and other income (loss)- net 334 1,015 (156) 533
Gain on sale of joint venture 1,272
Foreign exchange (loss) gain - net (79) (208) 104 (79)
Interest expense (4,455) (4,105) (2,154) (2,079)
---------- ---------- --------- ---------
Income Before Income Taxes and Minority Interests $ 18,517 $ 11,798 $ 12,827 $ 8,820
========== ========== ========= =========
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
SIX MONTHS AND THREE MONTHS ENDED APRIL 28, 2000 COMPARED
TO THE SIX MONTHS AND THREE MONTHS ENDED APRIL 30, 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 products and 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
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
SIX MONTHS ENDED APRIL 28, 2000 COMPARED
TO THE SIX MONTHS ENDED APRIL 30, 1999
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 six-month period of fiscal 2000, net sales were $1.0 billion. Sales
increased from the comparable period in fiscal 1999 by $14.1 million, or 1%. The
increase in 2000 net sales resulted primarily from a $55.5 million increase in
sales by the Telecommunications Services segment, partially offset by a decrease
in sales of $20.0 million by the Computer Systems segment and a $13.7 million
decrease by the Staffing Services segment.
The Company's pretax income before minority interests increased by $6.7 million,
or 57%, to $18.5 million in 2000. The operating profit of the Company's segments
increased by $9.4 million, or 45%, to $30.3 million in 2000. The increase in
operating profit resulted primarily from a $6.2 million increase by the Staffing
Services segment and a $6.1 million increase by the Telecommunications Services
segment, partially offset by a $2.5 million decrease by the Telephone Directory
segment.
Consolidated 1999 results included a gain on the sale of a joint venture of $1.3
million (see Note E of Notes to Consolidated Financial Statements of this
Report).
Results of Operations - By Segment
Sales of the Staffing Services segment decreased by $13.7 million, or 2%, to
$804.6 million in 2000 and its operating profit increased by $6.2 million, or
38%, to $22.4 million, compared with $16.2 million in 1999. High-margin
recruited revenue increased $75.8 million, or 13%, with approximately $63.6
million of the increase coming from sales with existing customers, partially the
result of enhanced run rates under two contracts. This increase was more than
offset by a decrease in managed service revenue of $89.4 million, or 36%, due
primarily to an increase in the number of associate vendors who have agreed,
under non-recourse agreements, to be paid subject to the receipt of the
customers' payment to the Company, the revenue from which is not required to be
reported as sales. Total invoicing to customers increased by 7% to $999.4
million in the six months of fiscal 2000. 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 2.0% to 2.8%.
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15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
SIX MONTHS ENDED APRIL 28, 2000 COMPARED
TO THE SIX MONTHS ENDED APRIL 30, 1999--Continued
Results of Operations - By Segment--Continued
The Telephone Directory segment's sales decreased by $451,000, or 1%, to $34.9
million in fiscal 2000 and its operating loss increased to $4.3 million in 2000
from a loss of $1.8 million in 1999. The sales decrease was primarily due to
decreases in printing sales in Uruguay of $1.3 million and the segment's
Viewtech division sales of $969,000, partially offset by an increase in
independent directory publishing sales of $1.0 million, which included the
publication of the segment's toll-free directory. The increase in operating loss
was the result of the decreased sales, increased costs, including a revised
compensation structure, resulting from strategic initiatives in publishing
yellow page directories designed to increase future advertising revenue and a
charge of $867,000, in the first quarter, for a Viewtech customer receivable
deemed uncollectable due to a bankruptcy filing.
The Telecommunications Services segment's sales increased by $55.5 million, or
68%, to $136.7 million in fiscal year 2000 and its operating profit increased by
$6.1 million, or 137%, to $10.5 million in fiscal 2000 compared to $4.4 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 projects 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 decrease in overhead of 6.7 percentage points partially
offset by a decrease in gross margins of 3.6 percentage points, primarily due to
reserves booked for cost overruns on one of the Business Systems division's
projects.
The Computer Systems segment's sales decreased by $20.0 million, or 39%, to
$32.0 million in 2000 and its operating profit decreased to $2.4 million from
$3.1 million in 1999. The decrease was primarily due to the recognition in
fiscal 1999 of an operator services system in Holland, which was accounted for
under the completed contract method of accounting. Revenues for this contract
were $25.9 million. The decreases in revenue and operating profit were partially
offset in fiscal 2000 by an increase in customer utilization of the segment's
transaction-based DirectoryExpress/InfoExpress systems, which passed the ten
million monthly transaction mark, as well as increased workstation and software
sales.
The Electronic Publication and Typesetting Systems segment's sales decreased by
$2.5 million, or 6%, to $35.9 million in fiscal 2000 and its operating loss
decreased by $354,000, or 33%, to $726,000. 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 during the first quarter, lower sales in Europe and
continuing adverse business conditions in Latin America and the Far East. The
lower European and domestic sales resulted from reduced shipments of the
segment's new Computer-to-Plate product in fiscal year 2000 compared with
shipments in 1999 of film imager products. The decrease in operating loss was
due to an increase in service and support gross margins of 10.5 percentage
points due to lower spare parts and warranty costs and cost reductions, which
decreased overhead by $874,000. 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 91% 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.
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16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
SIX MONTHS ENDED APRIL 28, 2000 COMPARED
TO THE SIX MONTHS ENDED APRIL 30, 1999--Continued
Results of Operations - Other
Other items, discussed on a consolidated basis, affecting results of operations
for the six-month period were:
Selling and administrative expenses increased by $6.3 million, or 18%, to $40.5
million in 2000 to support the increased sales activities of the Staffing
Services and Telecommunications Services segments and initiatives taken by the
Telephone Directory segment. These expenses, expressed as a percentage of
sales, were 3.9% in 2000 and 3.3% in 1999.
Research, development and engineering increased by $722,000, or 14%, to $5.8
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 $240,000, or 2%, to $11.9 million in
2000. The 2000 increase was attributable to amortization of intangibles, due to
acquisitions made during fiscal 1999.
Interest income decreased by $156,000, or 16%, to $790,000 in 2000, primarily
due to a decrease in funds available for investment.
The other loss of $456,000 in fiscal 2000 is primarily due to the Company's
share in the start-up losses of its new joint venture, westVista Advertising
Services.
In the first quarter of 1999, the Company recognized $1.3 million 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 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 fiscal 2000 was $79,000, compared to $208,000 in
1999. This decrease was due to favorable currency movements in the European
markets. To reduce the potential adverse impact from foreign currency changes on
the Company's foreign receivables, sales and firm commitments, foreign currency
options are generally purchased on the last day of each quarter.
Interest expense increased by $350,000, or 9%, to $4.5 million in 2000. The
increase is the result of the Company's 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 and higher interest
rates, partially offset by a decrease in financing costs incurred by the
Company's Uruguayan division.
The Company's effective tax rate was increased to 41.4% in 2000 from 35% in
1999. The lower effective tax rate in 1999 resulted from the non-taxable gain on
the sale of a Brazilian joint venture.
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17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED APRIL 28, 2000 COMPARED
TO THE THREE MONTHS ENDED APRIL 30, 1999
Results of Operations - Summary
In the second quarter of fiscal 2000, net sales increased from the comparable
period in fiscal 1999 by $3.9 million, or 1%, to $536.1 million. The increase in
2000 net sales resulted primarily from a $26.3 million increase in sales by the
Telecommunications Services segment, partially offset by a decrease in sales of
$17.2 million by the Staffing Services segment and a $5.1 million decrease by
the Computer Systems segment.
The Company's pretax income before minority interests increased by $4.0 million,
or 45%, to $12.8 million in 2000. The operating profit of the Company's segments
increased by $4.8 million, or 34%, to $18.9 million in 2000. The increase in
operating profit resulted primarily from a $2.9 million increase by the Staffing
Services segment and a $2.3 million increase by the Telecommunications Services
segment.
Results of Operations - By Segment
Sales of the Staffing Services segment decreased by $17.2 million, or 4%, to
$413.8 million in 2000 and its operating profit increased by $2.9 million, or
28%, to $13.2 million, compared with $10.3 million in 1999. High-margin
recruited revenue increased $33.6 million, or 11%, with approximately $28.4
million of the increase coming from sales with existing customers, partially the
result of enhanced run rates under two contracts. This increase was more than
offset by a decrease in managed service revenue of $50.8 million, or 39%, due
primarily to an increase in the number of associate vendors who have agreed,
under non-recourse agreements, to be paid subject to the receipt of the
customers' payment to the Company, revenue which is not required to be reported
as sales. Total invoicing to customers increased by 4% to $515.9 million in the
second quarter of fiscal 2000. 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 2.4% to
3.2%.
The Telephone Directory segment's sales increased by $3.6 million, or 21%, to
$20.6 million in fiscal 2000, and its operating loss increased to $846,000 in
2000 from a loss of $429,000 in 1999. The sales increase was primarily due to
increases in independent directory publishing sales of $3.2 million. The
increase in operating loss was the result of a decrease in gross margin and an
increase in overhead due to higher costs resulting from strategic initiatives in
publishing community yellow page directories designed to increase future
advertising revenue.
The Telecommunications Services segment's sales increased by $26.3 million, or
58%, to $71.6 million in fiscal year 2000, and its operating profit increased by
$2.3 million, or 69%, to $5.5 million in fiscal 2000 compared to $3.3 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 projects, cross-connect
box projects and the new wired services division. The increase in operating
profit was the result of the increase in sales and a decrease in overhead of 6.1
percentage points partially offset by a decrease in gross margins of 3.9
percentage points, primarily in the Business Systems division.
The Computer Systems segment's sales decreased by $5.1 million, or 24%, to $16.3
million in 2000 and its operating profit decreased by 23% to $1.3 million from
$1.7 million in 1999. The decrease in sales was primarily due to the
recognition, in the second quarter of fiscal 1999, of an operator services
system in Holland of $7.1 million, which was accounted for under the completed
contract method of accounting. An increase in customer utilization of the
segment's transaction-based DirectoryExpress/InfoExpress systems, as well as
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18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED APRIL 28, 2000 COMPARED
TO THE THREE MONTHS ENDED APRIL 30, 1999--Continued
Results of Operations - By Segment -- Continued
increased workstation and software sales, contributed to the segment's operating
profit.
The Electronic Publication and Typesetting Systems segment's sales decreased by
$1.3 million, or 7%, to $18.3 million in fiscal 2000 and its operating loss
decreased by $394,000, or 59%, to $275,000 in fiscal 2000. The decrease in sales
resulted primarily from a 7% decrease in both customer service/support sales and
systems/equipment sales. The lower systems and equipment sales were due to
reduced shipments in the United States and Europe of the segment's new
Computer-to-Plate product in fiscal year 2000 compared with shipments in the
1999 second quarter of film imager products and continuing adverse business
conditions in the Far East. The decrease in customer service and support sales
was due to a decline in service contracts issued as a result of the lower
systems and equipment sales. The decrease in operating loss was due to an
increase in service and support gross margins of 13.6 percentage points due to
lower spare parts and warranty costs. A staff reduction and other
cost-containment measures decreased overhead by $470,000.
Results of Operations - Other
Other items, discussed on a consolidated basis, affecting results of operations
for the three-month periods were:
Selling and administrative expenses increased by $4.1 million, or 22%, to $22.8
million in 2000 to support the increased sales activities and initiatives taken
by the Telephone Directory segment. These expenses, expressed as a percentage
of sales, were 4.3% in 2000 and 3.5% in 1999.
Research, development and engineering increased by $528,000, or 20%, to $3.2
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.
Interest income decreased by $18,000, or 5%, to $368,000 in 2000, primarily due
to a decrease in funds available for investment.
The other loss of $524,000 in fiscal 2000 is primarily due to the Company's
share in the start-up losses of its new joint venture, westVista Advertising
Services.
The foreign exchange gain in fiscal 2000 was $104,000, compared to a loss of
$79,000 in 1999, as a result of favorable currency movements in the European
markets. To reduce the potential adverse impact from foreign currency changes on
the Company's foreign receivables, sales and firm commitments, foreign currency
options are generally purchased on the last day of each quarter.
Interest expense increased by $75,000, or 4%, to $2.2 million in 2000. The
increase is the result of the Company's borrowing under its revolving Credit
Agreement to support the increased working capital requirements of the Company
and higher interest rates, partially offset by a decrease in financing costs
incurred by the Company's Uruguayan division and the effect of interest rate
swap agreements.
The Company's effective tax rate was increased to 41.7% in 2000 from 39.2% in
1999. The lower effective tax rate in 1999 resulted from increased profits from
foreign subsidiaries, which are taxed at a lower rate, and higher general
business tax credits.
-18-
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Sources of Capital
Cash and cash equivalents increased by $315,000 to $32.7 million in the six
months ended April 28, 2000. Primary among the factors providing $9.9 million in
cash from operating activities was the Company's net income of $11.3 million,
augmented by $11.9 million of depreciation and amortization and a $12.3 million
increase in customer advances and other liabilities. The principal uses of cash
in operating activities were increases in the levels of inventory of $12.4
million and accounts receivable of $8.4 million and a decrease in income taxes
payable of $6.4 million.
The principal use of cash applied in investing activities of $23.1 million was
the expenditure of $20.4 million for property, plant and equipment and $2.8
million for investments in joint ventures.
Financing activities provided $13.7 million of cash from the increase in bank
borrowings principally to support the increased working capital requirements of
the Company and for additional investments in the Company's joint ventures.
At April 28, 2000, the Company had $112.7 million of credit lines with banks, of
which $75 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 and $25.0 million is under a credit agreement expiring in November 2000.
The Company had total outstanding bank borrowings of $81.7 million at April 28,
2000 under these lines (see Note C in the Notes to Condensed Consolidated
Financial Statement).
The Company believes that its current financial position, working capital,
future cash flows and credit lines will be sufficient to fund its presently
contemplated operations and satisfy its debt obligations.
The Company is currently in the process of installing a front-end system that
will provide enhanced financial, accounting, human resources, customer and
management reporting. The cost incurred through April 28, 2000 for this new
enterprise resource planning system, including the purchase and/or lease of
software and hardware, three years of support and the initial implementation
phase was $21.4 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 (see Note
C in the Notes to Condensed Consolidated Financial Statements). In addition to
the above, the Company has a commitment of $2.5 million for outside services to
support the design, development and implementation stages. The Company has no
other material capital commitments.
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20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
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 that the effects of adopting this new standard in fiscal 2001 will be
material.
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.
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21
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 $112.7 million. At April 28, 2000, the Company had borrowings totaling $81.7
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 should be offset to some
extent by a corresponding increase in interest income from cash equivalents.
In March 2000, the Company entered into a series of interest rate swap
agreements which effectively converted $50.0 million of its $56.7 million of
long-term debt, through its maturity, from fixed to floating rate debt.
Therefore, interest expense on this debt is affected by the general level of
interest rates.
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
$3.4 million; $3.1 million of these investments are held for the benefit of
participants in a non-qualified deferred compensation plan with no risk to the
Company.
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 borrowing funds in local currency to
reduce net assets and the exposure of these assets to currency fluctuations (but
which may result in higher interest costs), and 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 April
28, 2000, the Company had purchased foreign currency options in the aggregate
notional amount of $5.0 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.
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22
PART II - OTHER INFORMATION
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 2000 Annual Meeting of Shareholders held on April 18, 2000,
shareholders:
(a) elected the following to serve as directors of the Company until the 2002
Annual Meeting of the Shareholders by the following votes:
For Vote Withheld
--- -------------
Steven A. Shaw 13,123,472 178,416
Irwin B. Robins 13,124,979 176,909
Lloyd Frank 13,124,928 176,960
Mark Kaplan 13,125,544 176,344
(b) ratified the action of the Board of Directors in appointing Ernst & Young
LLP as the Company's independent public accountants for the fiscal year
ending November 3, 2000 by the following vote:
For: 13,290,723 Against: 3,772 Abstain: 7,393
There were no broker non-votes on any of the matters voted upon.
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23
PART II - OTHER INFORMATION--Continued
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:
No Reports on Form 8-K were filed during the quarter ended April 28, 2000.
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24
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: June 8, 2000 JACK EGAN
Vice President - Corporate Accounting
(Principal Accounting Officer)
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25
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).