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 Nine Months Ended July 29, 1994
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.)
1221 Avenue of the Americas, New York, New York 10020
- - ---------------------------------------------------- -----------
(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
September 10, 1994 was 4,803,026.
2
PART I - Financial Information
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended Three Months Ended
--------------------------- ---------------------------
July 29, July 30, July 29, July 30,
1994 1993 1994 1993
---------- ---------- --------- ---------
(Dollars in thousands)
REVENUES:
Sales of services $426,025 $357,512 $149,999 $124,670
Sales of products 44,151 38,986 15,938 14,364
Equity in income of joint
ventures--Note F 3,246 4,420 2,256 1,708
Gain on sale of a joint
venture--Note F 9,770
Interest income 944 1,036 402 275
Gains (losses) on sale
of securities (7) 168 1
Other income (expense),
net--Note B (418) 1,083 (217) 316
--------- --------- --------- ---------
483,711 403,205 168,379 141,333
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of sales
Services--Note J 395,499 335,143 137,803 116,750
Products 28,379 23,872 9,997 8,577
Selling and administrative 29,755 27,890 10,098 9,994
Research, development
& engineering 5,863 5,281 2,286 1,743
Depreciation and amortization 7,961 7,671 2,657 2,508
Foreign exchange (gain)
loss - net 45 162 (76) 26
Interest 5,766 8,149 1,728 2,703
--------- --------- --------- ---------
473,268 408,168 164,493 142,301
--------- --------- --------- ---------
Income (loss) before income tax
provision (benefit), extraordinary
item and cumulative effect of
a change in accounting 10,443 (4,963) 3,886 (968)
Income tax provision (benefit)
--Note H 4,311 (1,640) 1,592 (313)
--------- --------- --------- ---------
Income (loss) before extraordinary
item and cumulative effect of
a change in accounting 6,132 (3,323) 2,294 (655)
Extraordinary item--Note I (271) (82)
Cumulative effect of a change
in accounting for income
taxes--Note H 959
--------- --------- --------- ---------
Net income (loss) $5,861 $(2,364) $2,212 $(655)
========= ========= ========= =========
(Per Share Data)
Income (loss) before extraordinary
item and cumulative effect of
a change in accounting $1.28 $(.69) $.48 $(.14)
Extraordinary item (.06) (.02)
Cumulative effect of a change
in accounting for income taxes .20
--------- --------- --------- ---------
Net income (loss) $1.22 $(.49) $.46 $(.14)
========= ========= ========= =========
Number of shares used in computation
-- Note G 4,802,652 4,797,809 4,803,026 4,802,026
========= ========= ========= =========
See accompanying notes.
- 2 -
3
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
July 29, October 29,
1994 1993 (a)
----------- ------------
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $26,112 $41,081
Short-term investments at
lower of cost or market 5,652 2,260
Trade accounts receivable
less allowances of $3,983 (1994)
and $3,960 (1993)--Note B 81,212 73,724
Inventories--Note C 26,993 28,539
Recoverable income taxes 3,169 4,695
Deferred income taxes 5,002 3,402
Prepaid expenses and other assets 5,677 5,121
-------- --------
TOTAL CURRENT ASSETS 153,817 158,822
MARKETABLE SECURITIES--at lower
of cost or market 4,130 5,502
INVESTMENTS in joint ventures--Note F 13,223 15,337
PROPERTY, PLANT AND EQUIPMENT--
at cost--Note D
Land and buildings 33,326 33,192
Machinery and equipment 42,778 41,767
Leasehold improvements 2,776 2,393
-------- --------
78,880 77,352
Less allowances for depreciation
and amortization 30,741 30,709
-------- --------
48,139 46,643
DEPOSITS, RECEIVABLES AND
OTHER ASSETS 1,982 3,652
INTANGIBLE ASSETS--net of accumulated
amortization of $3,347 (1994)
and $2,901 (1993) 5,490 5,936
-------- --------
$226,781 $235,892
======== ========
July 29, October 29,
1994 1993 (a)
-------------- ---------------
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Notes payable to banks $6,852 $6,207
Current portion of long-term
debt--Note D 15,400 20,000
Accounts payable 24,148 26,402
Accrued expenses
Wages and commissions 18,199 17,268
Taxes other than income taxes 7,817 5,954
Insurance 16,750 9,344
Other 3,768 5,995
Customer advances and other liabilities 13,883 6,563
-------- --------
TOTAL CURRENT LIABILITIES 106,817 97,733
LONG-TERM DEBT--Note D 32,784 58,095
DEFERRED INCOME TAXES 3,273 2,386
-------- --------
142,874 158,214
STOCKHOLDERS' EQUITY--Notes
D, E and F
Preferred stock, par value $1.00
Authorized--500,000 shares;
issued--none
Common stock, par value $.10
Authorized--15,000,000 shares;
issued - 7,789,580 shares 779 779
Paid-in capital 43,830 43,823
Retained earnings 85,743 79,882
Unrealized loss on marketable securities (25)
Unrealized foreign currency
translation adjustment (331) (706)
-------- --------
129,996 123,778
Less common stock held in treasury
at cost--2,986,554 shares (1994)
and 2,987,554 shares (1993) 46,089 46,100
-------- --------
83,907 77,678
-------- --------
$226,781 $235,892
======== ========
(a) The Balance Sheet at October 29, 1993 has been derived from the audited
financial statements at that date.
See accompanying notes.
- 3 -
4
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
--------------------------------
July 29, July 30,
1994 1993
----------- -------------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $5,861 $(2,364)
Adjustments to reconcile net
income (loss) to cash
provided by operating activities:
Extraordinary item 271
Cumulative effect of a change
in accounting (959)
Depreciation and amortization 7,961 7,671
Equity in income of joint ventures (3,246) (4,420)
Gain on sale of a joint
venture (9,770)
Distributions from joint
ventures 1,153 2,572
Accounts receivable provisions 1,432 1,387
Amortization of deferred
debenture costs, debt
discounts and other
deferred charges 534 470
(Gains) losses on foreign
currency translation 204 (936)
Gains on dispositions of fixed assets (1) (19)
Deferred income tax expense (benefit) (953) 115
(Gains) losses on sales of securities 7 (168)
Other 28 (6)
Changes in operating assets and liabilities:
Increase in accounts receivable (9,185) (2,344)
(Increase) decrease in inventories 1,546 (3,678)
(Increase) decrease in recoverable income taxes 1,700 (3,342)
Increase in prepaid expenses and other current assets (535) (1,312)
Decrease in deposits, receivables and other assets 1,252 6,103
Decrease in accounts payable (516) (1,257)
Increase in accrued expenses 7,979 988
Increase in customer advances and other liabilities 7,241 6,539
Decrease in income taxes payable (417)
--------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 12,963 4,623
--------- ---------
- 4 -
5
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--CONTINUED
(UNAUDITED)
Nine Months Ended
-----------------------------
July 29, July 30,
1994 1993
--------- ---------
(Dollars in thousands)
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of investments 6,851 1,827
Maturities of investments 1,949 800
Purchases of investments (10,888) (6,316)
Proceeds from disposal of property, plant and equipment 86 126
Purchases of property, plant and equipment (11,326) (6,277)
Investment in joint venture (1,690)
Proceeds from the sale of a joint venture 16,383
-------- --------
NET CASH PROVIDED BY (APPLIED TO)
INVESTING ACTIVITIES 1,365 (9,840)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt (30,000) (5,045)
Proceeds from notes payable to banks 931 1,354
-------- --------
NET CASH APPLIED TO FINANCING ACTIVITIES (29,069) (3,691)
-------- --------
Effect of exchange rate changes on cash (228) 542
-------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (14,969) (8,366)
Cash and cash equivalents, beginning of period 41,081 28,557
-------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $26,112 $20,191
======== ========
SUPPLEMENTAL INFORMATION
Cash Paid
Interest $8,196 $10,457
Income taxes (net of refunds) $3,582 $2,037
See accompanying notes.
- 5 -
6
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
necessary for a fair presentation of financial position, results of operations
and cash flows in conformity with generally accepted accounting principles. 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
financial position at July 29, 1994 and results of operations for the nine and
three months ended July 29, 1994 and July 30, 1993 and cash flows for the nine
months ended July 29, 1994 and July 30, 1993. Operating results for the nine
and three months ended July 29, 1994 are not necessarily indicative of the
results that may be expected for the fiscal year ending October 28, 1994.
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, 1993. The accounting policies used in preparing these
financial statements are the same as those described in the Company's Annual
Report on Form 10-K.
The Company's fiscal year ends on the Friday nearest October 31.
Note B--Accounts Receivable
In October 1993, the Company entered into a three-year agreement to sell, on a
limited recourse basis, up to $25,000,000 of undivided interests in a
designated pool of certain eligible accounts receivable. As collections reduce
previously sold undivided interests, new receivables may be sold up to the
$25,000,000 level. At July 29, 1994, $25,000,000 of accounts receivable has
been sold under this agreement. The sold accounts receivable are reflected as
a reduction of receivables in the accompanying balance sheets. The Company
pays fees based on the purchaser's borrowing costs incurred on short-term
commercial paper which financed the purchase of receivables. Other income
(expense) in the accompanying 1994 statements of operations reflects $1,118,000
and $410,000 for such fees in the nine and three months ended July 29, 1994,
respectively.
The purchaser may terminate the agreement on a minimum of six months' notice.
In addition, the agreement may be terminated if the Company does not maintain a
minimum tangible net worth, as defined, or exceeds a maximum ratio of debt to
tangible net worth.
- 6 -
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--CONTINUED
Note C--Inventories
Inventories consist of:
July 29, October 29,
1994 1993
--------- ----------
(Dollars in thousands)
Services:
Accumulated unbilled costs on:
Service contracts $9,015 $9,818
Long-term contracts 9,097 11,409
------- -------
18,112 21,227
------- -------
Products:
Materials 1,731 1,497
Work-in-progress 1,696 942
Service parts 1,214 968
Finished goods 4,240 3,905
------- -------
8,881 7,312
------- -------
Total $26,993 $28,539
======= =======
The cumulative amounts billed, principally under long-term contracts, of
$88,201,000 at July 29, 1994 and $53,371,000 at October 29, 1993 are credited
against the related costs in inventory. Substantially all of the amounts
billed have been collected.
- 7 -
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--CONTINUED
Note D--Long-Term Debt
Long-term debt consists of the following:
July 29, October 29,
1994 1993
--------- --------
(Dollars in thousands)
12-3/8% Senior Subordinated
Debentures, due July 1, 1998--
net of unamortized discount of
$71,000 - 1994 and $160,000 - 1993 (a) $32,784 $62,695
Mortgage Payable, due
December 22, 1994 (b) 15,400 15,400
------- -------
48,184 78,095
Less amounts due within one year 15,400 20,000
------- -------
Long-Term Debt $32,784 $58,095
======= =======
(a) The debentures provide for interest to be paid semi-annually on January 1
and July 1 and are redeemable at the option of the Company in whole or in part,
at 100% plus accrued interest. In October 1993, as a result of a financing
agreement (see Note B), the Company called for the redemption and, in November
1993, redeemed $20,000,000 principal amount of debentures. In May 1994, the
Company redeemed an additional $10,000,000 of the debentures which, together
with previously redeemed and repurchased debentures, satisfied all future
sinking fund requirements. The early redemptions, at par, resulted in an
extraordinary loss of $271,000, net of income taxes, due to the write-off of
related discount and issuance costs. The remaining $32,855,000 principal
amount is due July 1, 1998. The debentures are subordinated to all existing and
future senior indebtedness (as defined) of the Company. At July 29, 1994, the
amount available for dividends, pursuant to the terms of the indenture under
which the debentures are issued, was $20,582,000 and, if no dividend payments
are made, the amount available for capital stock repurchases was $30,582,000.
However, under the terms of the financing agreement (see Note B), at July 29,
1994, only $12,863,000 was available for such restricted payments.
(b) The mortgage payable, secured by a deed of trust on land and a building
(book value at July 29, 1994 - $14,900,000), bears interest at 1/2% per annum
above the Chemical Bank base rate or 1-1/2% per annum above LIBOR plus certain
additional charges, at the option of the Company. Interest (5.3% at July 29,
1994) is payable monthly with no principal payments required until maturity at
December 22, 1994. The obligation is of a subsidiary and is guaranteed by the
Company. The Company has reached an agreement in principle to refinance
$10,000,000 of the $15,400,000 mortgage liability, the balance of which will be
repaid by the Company.
- 8 -
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--CONTINUED
Note E--Stockholders' Equity
Changes in the major components of Stockholders' Equity for the nine months
ended July 29, 1994 are as follows:
Common Paid-In Retained Treasury
Stock Capital Earnings Stock
------- ------- -------- --------
(Dollars in thousands)
Balance at October 29, 1993 $779 $43,823 $79,882 $(46,100)
Stock award-1,000 shares 7 11
Net income for the nine months 5,861
-------- -------- -------- --------
Balance at July 29, 1994 $779 $43,830 $85,743 $(46,089)
======== ======== ======== ========
The other components of Stockholders' Equity are a valuation allowance for the
unrealized loss on marketable securities and an unrealized foreign currency
translation adjustment due to the Company's investment in its Australian joint
venture, whose functional currency is the Australian dollar.
Note F--Summarized Financial Information of Joint Ventures
In July 1994, the Company entered into a long-term joint venture agreement to
publish the official White Pages, Yellow Pages and Street Guides for Rio de
Janeiro. The Company paid $1,690,000 to acquire a 50% interest in Telelistas
Editora Ltda., a Brazilian company which recently obtained a contract to
publish Rio's telephone directories on behalf of TELERJ, the government-owned
telephone company in Rio. The agreement requires the Company to invest up to
an additional $6,500,000 (representing 75% of the agreed initial financing by
the venturers) in the joint venture over the next twelve months as well as to
provide technology, expertise and key personnel in directory production, sales
and marketing.
Effective February 1994, the Company's 50% interest in Pacific Volt Information
Systems, a joint venture with a subsidiary of Pacific Bell Directory was
redeemed by the joint venture for approximately $16,400,000. Pacific Volt
Information Systems composes telephone directories in California for Pacific
Bell Directory under a contract expiring December 31, 1996. The sale of the
Company's interest resulted in a gain of $9,770,000 ($5,760,000, net of income
taxes, or $1.20 per share).
- 9 -
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--CONTINUED
Note F--Summarized Financial Information of Joint Ventures--(Continued)
The Company owns a 12-1/2% interest in a corporate joint venture formed in
1991 with Telstra Corporation Ltd. (Telstra), the Australian Government-owned
telephone company, and others. The joint venture assumed the responsibility
throughout Australia for the marketing, sales, and compilation functions of all
yellow page directories for Telstra under the terms of a twelve-year contract.
The agreement for the venture provided that the Company's share of profits or
losses from the joint venture in its initial term of operations through April
30, 1993 could exceed 12-1/2%, based on sales levels achieved. During the nine
months ended July 30, 1993 based on the venture's sales, the Company's share of
the venture's profits amounted to $2,391,000, of which $740,000 exceeded
12-1/2% of the venture's net income. The venture earns a major portion of its
revenues and significantly all of its profits in the Company's second and third
fiscal quarters. The Company's equity in income of the joint ventures for the
nine months ended July 30, 1993 also reflects the reversal of a tax liability
as a result of the completion of a tax examination of a 50% owned inactive
Australian joint venture.
Consolidated retained earnings at July 29, 1994 included $5,176,000
representing the undistributed earnings of the joint ventures. Income taxes
have been paid or provided for on such earnings.
The following summarizes the financial information of the joint ventures:
July 29, 1994 October 29, 1993
--------------------------------- ---------------------------------
(Dollars in thousands)
Company's Company's
Total Equity Total Equity
---------- ------------ ----------- ------------
Current assets $265,555 $191,302
Noncurrent assets 16,061 17,852
Current liabilities (217,426) (160,110)
-------- --------
Equity of combined joint ventures $64,190 $49,044
======== ========
Equity of Australian joint ventures (a) $61,289 $11,559 $35,789 $8,670
Equity of Brazilian joint venture (b) 2,901 1,664
Equity of United States joint venture 13,255 6,627
Other capitalized costs, net 40
-------- -------- -------- --------
$64,190 $49,044
======== ========
Investments in joint ventures $13,223 $15,337
======== ========
(a)-Pursuant to the Australian venture agreement, the initial capital
contributions of all venturers, other than Telstra, exceeded their
proportionate share of ownership interest in the corporate joint venture. The
agreement provides that, upon liquidation of the venture, the venturers will be
entitled to recover such excess contributions from the net assets of the
venture.
(b)-Pursuant to the Brazilian joint venture agreement, the initial
contributions of the Company will exceed its proportionate share of ownership
interest in the joint venture. The agreement provides that as net assets of
the joint venture become available, or upon liquidation of the joint venture,
the Company will be entitled to recover such excess contributions from the net
assets of the joint venture.
- 10 -
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--CONTINUED
Note F--Summarized Financial Information of Joint Ventures--(Continued)
Nine Months Ended
--------------------------------------------------------------------------
July 29, 1994 July 30, 1993
------------------------------- ---------------------------
(Dollars in thousands)
Company's Company's
Total Equity Total Equity
-------- ------------ --------- ------------
Revenues $414,247 $386,066
Costs and expenses 380,414 361,098
Income tax provision 11,304 10,014
-------- --------
Income before cumulative effect of
a change in accounting 22,529 14,954
Cumulative effect of a change in
accounting for Australian
income taxes (a) 5,688
-------- --------
Net income $22,529 $20,642
======== ========
Income of Australian joint
ventures before cumulative effect
of a change in accounting $21,109 $2,611 $11,535 $2,710
Net loss of Brazilian joint venture (52) (26)
Net income of United States
joint venture 1,472 661 3,419 1,710
-------- -------- -------- --------
$22,529 $14,954
======== ========
Company's equity in income of
joint ventures $3,246 $4,420
======== ========
(a) During the first quarter of fiscal 1993, the Company's Australian corporate
joint venture changed its method of accounting for income taxes by adopting the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The cumulative effect of the change increased the joint venture's
income by $5,688,000, due to its ability to recognize deferred Australian tax
assets as permitted by Statement No. 109. The Company's portion of this
increase in income, net of United States taxes, is $432,000 and is included in
the Company's cumulative effect of a change in accounting for income taxes (see
Note H).
Three Months Ended
--------------------------------------------------------------------------
July 29, 1994 July 30, 1993
-------------------------------- -------------------------------
(Dollars in thousands)
Company's Company's
Total Equity Total Equity
----------- ---------- ----------- ---------
Revenues $212,101 $189,444
Costs and expenses 183,808 168,588
Income tax provision 9,659 9,662
-------- --------
Net income $ 18,634 $ 11,194
======== ========
Net income of Australian joint
ventures $ 18,686 $ 2,282 $ 9,964 $ 1,093
Net loss of Brazilian joint venture (52) (26)
Net income of United States joint
venture 1,230 615
-------- -------- -------- --------
$18,634 $11,194
======== ========
Company's equity in net income of
joint ventures $2,256 $1,708
======== ========
- 11 -
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--CONTINUED
Note G--Per Share Data
The computation of per share data for the nine and three months ended July 29,
1994 and July 30, 1993 include only the weighted average number of shares of
Common Stock outstanding. Outstanding stock options have not been included in
the computation since inclusion would not have a material effect.
Note H--Income Taxes
Effective October 31, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Prior to the
adoption of Statement No. 109, income tax expense was determined using the
liability method prescribed by Statement No. 96, which is superseded by
Statement No. 109. Among other changes, Statement No. 109 changes the
recognition and measurement criteria for deferred tax assets included in
Statement No. 96.
As permitted by Statement No. 109, the Company has elected not to restate the
financial statements of any prior years. The cumulative effect of adopting
Statement No. 109 at the beginning of fiscal 1993 was to increase net income by
$959,000 or $.20 per share, including $432,000 attributable to a corporate
joint venture (see Note F).
Significant components of the income tax provision (benefit) attributable to
operations are as follows:
Nine Months Ended Three Months Ended
------------------------------- -------------------------------
July July July July
29, 1994 30, 1993 29, 1994 30, 1993
-------- -------- -------- --------
(Dollars in thousands)
Current:
Federal $3,837 $(1,880) $1,852 $(480)
Foreign 439 207 207 28
State and local 988 (82) 446 (19)
------ ------- ------ -----
5,264 (1,755) 2,505 (471)
------ ------- ------ -----
Deferred:
Federal (691) 110 (653) 151
State and local (262) 5 (260) 7
------ ------- ------ -----
(953) 115 (913) 158
------ ------- ------ -----
Total $4,311 $(1,640) $1,592 $(313)
====== ======= ====== =====
- 12 -
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--CONTINUED
Note I--Extraordinary Item
The extraordinary charge to earnings in the nine months ended July 29, 1994 is
the result of the early redemption at par of $30,000,000 face value of the
Company's 12-3/8% Subordinated Debentures. The charge was due to the related
discount and issuance costs and is net of an income tax benefit of $157,000.
Note J--Significant Item Included in Operations
The results of operations for the third quarter and nine months of fiscal 1993
included a $2,100,000 ($.28 per share) provision for a loss due to costs not
recoverable under a major contract of the Computer Systems segment.
- 13 -
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information which appears below relates to 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 such
future operations should be drawn.
The following summarizes the results of operations by segment:
FOR THE NINE FOR THE THREE
MONTHS ENDED MONTHS ENDED
------------ ------------
July July July July
29, 1994 30, 1993 29, 1994 30, 1993
-------- -------- -------- --------
(Dollars in thousands)
Revenues:
- - --------
Technical Services and
Temporary Personnel $317,395 $246,802 $111,703 $86,844
Electronic Publication
and Typesetting Systems 44,651 40,647 16,090 14,730
Telephone Directory 47,328 52,244 17,655 19,358
Engineering and Construction 38,593 32,942 13,164 10,079
Computer Systems 25,483 28,837 8,434 9,604
Equity in income of
joint ventures 3,246 4,420 2,256 1,708
Gain on sale of a
joint venture 9,770
Interest and other
income, net 519 2,287 186 591
Elimination of intersegment
revenues (3,274) (4,974) (1,109) (1,581)
-------- -------- -------- --------
$483,711 $403,205 $168,379 $141,333
======== ======== ======== ========
Income (Loss) Before Income Tax Provision (Benefit),
- - ----------------------------------------------------
Extraordinary Item and Cumulative Effect of a
- - ---------------------------------------------
Change in Accounting:
- - ---------------------
Operating Profit (Loss):
- - ------------------------
Technical Services and
Temporary Personnel $10,442 $4,636 $4,379 $1,670
Electronic Publication and
Typesetting Systems 574 184 210 406
Telephone Directory 1,616 2,183 1,255 2,347
Engineering and Construction 341 (1,043) 562 (458)
Computer Systems (3,294) (2,382) (1,013) (2,249)
Eliminations 1 (368) (12) (22)
-------- -------- -------- --------
Total Operating Profit 9,680 3,210 5,381 1,694
Equity in income of
joint ventures 3,246 4,420 2,256 1,708
Gain on sale of a
joint venture 9,770
Interest and other
income, net 519 2,287 186 591
General corporate expenses (6,961) (6,569) (2,285) (2,232)
Interest expense (5,766) (8,149) (1,728) (2,703)
Foreign exchange gain
(loss), net (45) (162) 76 (26)
-------- -------- -------- --------
Income (Loss) Before Income
Tax Provision (Benefit),
Extraordinary Item and
Cumulative Effect of a
Change in Accounting $10,443 $(4,963) $3,886 $(968)
======== ======== ======== ========
- 14 -
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NINE MONTHS ENDED JULY 29, 1994 COMPARED
TO THE NINE MONTHS ENDED JULY 30, 1993
In the nine month period of 1994, revenues increased by $80,506,000 or 20% to
$483,711,000 and the income before income taxes, an extraordinary item and, in
1993, the cumulative effect of a change in accounting was $10,443,000 in 1994
compared to a loss of $4,963,000 in 1993.
The Technical Services and Temporary Personnel segment's sales increased by
$70,593,000 or 29% to $317,395,000 in 1994 and its operating profit increased
by $5,806,000 to $10,442,000 in 1994. The increase in sales was attributable
to increased business over a broad spectrum, primarily with existing customers.
The operating profit increased due to the increased sales throughout the
segment and improved gross margins in the Temporary Personnel division
partially offset by higher overhead to support the sales increase. Competition
is intense, and although some contracts entered into range from a few months to
several years, most are of a relatively short duration. Although the markets
for the segment's services include a broad range of industries throughout the
United States, general economic difficulties in specific geographic areas or
industrial sectors have in the past, and could in the future, affect the
profitability of this segment.
Sales of the Electronic Publication and Typesetting Systems segment increased
by $4,004,000 or 10% to $44,651,000 in 1994 and its operating profit was
$574,000 compared to $184,000 in 1993. The sales increase was in both the
domestic and overseas markets. The increase in profit was due to the increased
sales and reduced development and administrative costs partially offset by
lower gross margins. The markets in which the segment competes are marked by
rapidly changing technology and, while the Company continues to invest in
research and development, there is no assurance that this segment's present or
future products will be competitive, that the segment will continue to develop
new products or that such present products or new products can be successfully
marketed.
The Telephone Directory segment's sales decreased by $4,916,000 or 9% to
$47,328,000 in 1994 while its operating profit was $1,616,000 compared to
$2,183,000 in 1993. The higher level of sales in 1993 was primarily due to the
sale of automated directory management systems which accounted for 16% of the
segment's sales in 1993. Sales of the telephone directory production
operations increased due to increased volume with existing customers. The
DataNational division, which publishes independent directories, reported a
revenue increase of $1,996,000 which included the first publication of two new
community directories in a new market. Profitability declined due to lower
gross margins caused by a change in the business mix and fewer high margin
system sales than in 1993. The Directory segment's services are rendered under
various short and long-term contracts. Certain contracts expire in fiscal
years 1994 through 2001 and there can be no assurance that they will be renewed
or renewed on similar terms.
- 15 -
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NINE MONTHS ENDED JULY 29, 1994 COMPARED TO
THE NINE MONTHS ENDED JULY 30, 1993--(CONTINUED)
The Engineering and Construction segment's sales increased by $5,651,000 or 17%
to $38,593,000 in 1994 and its operating profit was $341,000 compared to a
loss of $1,043,000 in 1993. The sales increase was due primarily to increased
sales in the construction and business system areas. Profitability increased
due to the increased sales and improved gross margins. This segment operates
in the intensely competitive telephone plant construction, interconnect and
engineering markets and there can be no assurance that profitability will
continue.
Sales of the Computer Systems segment decreased by $3,354,000 or 12% to
$25,483,000 in 1994 and the segment's operating loss increased by $912,000 to
$3,294,000 in 1994 compared to a loss of $2,382,000 in 1993. The decrease in
sales was due primarily to the completion of several large contracts in 1993.
The operating loss in 1993 included a charge of $2,100,000 to provide for costs
not recoverable under a Delta Operator Services System (DOSS) contract. The
operating loss increased in 1994 due to the lower sales, lower gross margins
and higher overhead costs incurred as a result of establishing additional
facilities in 1993 to develop and market new products and increased marketing,
support and administrative costs related to the existing product line,
including DOSS.
The first DOSS contract, which is with a major telephone company, was entered
into in 1991. Delivery and installation at the customer's premises began
during fiscal 1992 and continued through the third quarter of fiscal 1994. The
system has been installed at most of the intended sites and is being utilized
commercially by the customer. The Company has received acceptance of the first
half of the system in the third quarter of fiscal 1994 and expects acceptance
of the second half in the fourth quarter of fiscal 1994 at which time revenue
will be recognized. Acceptance will have no effect on operating profit.
During 1992, Volt Delta also entered into a second contract for DOSS with
another major telecommunications customer; and, in 1993, a pilot system was
installed which is being used commercially. Orders have been received in 1994
for a follow-up production system. In fiscal years 1993 and 1994, the segment
was awarded several additional contracts, one of which is anticipated to be
completed in the forth quarter of fiscal 1994. There can be no assurance that
the Company will be able to obtain additional contracts or additional orders
under existing contracts.
- 16 -
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NINE MONTHS ENDED JULY 29, 1994 COMPARED TO
THE NINE MONTHS ENDED JULY 30, 1993--(CONTINUED)
The Company's share of the income of its joint ventures was $3,246,000 for the
nine months of 1994, a decrease of $1,174,000 or 27% from 1993. The Company's
portion of the income of the Australian joint ventures was $2,611,000 in 1994
compared to $2,710,000 in 1993. During the nine months of fiscal 1993, the
Company's share of profits from its Australian joint venture exceeded its
12-1/2% ownership percentage by $740,000 under an arrangement which ended April
30, 1993. Exclusive of such amounts, the Company's share of profits increased
by $641,000 in 1994 due to increased earnings in 1994 of the venture due to
higher revenue from the sale of yellow page directory advertising. Effective
February 1994, the Company sold its 50% interest in Pacific Volt Information
Systems, a joint venture, for approximately $16,400,000. The sale resulted in
a pretax gain of $9,770,000. As a result of the sale, the equity in income of
joint ventures for the current nine months includes only four months of income
attributable to this joint venture. In July 1994, the Company entered into a
long-term joint venture agreement to publish the official White Pages, Yellow
Pages and Street Guides for Rio de Janeiro. The Company acquired a 50%
interest in Telelistas Editora Ltda., a Brazilian company which recently
obtained a contract to publish Rio's telephone directories on behalf of TELERJ,
the government-owned telephone company in Rio. See Note F of Notes to
Condensed Consolidated Financial Statements for additional information.
Interest and other income, net decreased by $1,768,000 to $519,000, due
primarily to fees incurred in 1994 in conjunction with the sale of accounts
receivable (see Note B).
General corporate expenses increased by 6% to $6,961,000 in 1994 principally
due to costs incurred in relocating the Corporate offices.
Interest expense decreased by $2,383,000 or 29% to $5,766,000 in 1994 compared
to 1993 due to the early redemption of $30,000,000 of the Company's 12-3/8%
Subordinated Debentures and a reduction in the principal amount of a mortgage
loan.
Research, development and engineering costs increased by $582,000 or 11% to
$5,863,000 in 1994 due to increased product development by the Computer Systems
segment, partially offset by decreases in the Telephone Directory and
Electronic Publication and Typesetting Systems segments.
- 17 -
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 29, 1994 COMPARED TO
THE THREE MONTHS ENDED JULY 30, 1993
In the third quarter of 1994, revenues increased by $27,046,000 or 19% to
$168,379,000 and income before taxes was $3,886,000 in 1994 compared to a loss
of $968,000 in 1993.
The Technical Services and Temporary Personnel segment's sales increased by
$24,859,000 or 29% to $111,703,000 and its operating profit increased by
$2,709,000 to $4,379,000 in 1994. The increase in sales was due to additional
business throughout the segment primarily with existing customers and the
operating profit increase was due to the increased sales volume and improved
gross margins partially offset by increases in overhead to support the
additional sales.
Sales of the Electronic Publication and Typesetting Systems segment increased
by $1,360,000 or 9% to $16,090,000 in 1994 while its operating profit decreased
by 48% to $210,000 compared to $406,000 in 1993. The sales increase was
attributable to both the domestic and overseas markets. The decline in profit
was due to lower gross margins as a result of product mix and competitive
pressures.
The Telephone Directory segment's sales decreased by $1,703,000 or 9% to $
17,655,000 in 1994 while its operating profit decreased by $1,092,000 or 47% to
$1,255,000. The sales decrease was due to reduced sales of graphic
workstations and the absence, in 1994, of revenue from the sales of automated
directory management systems. The decrease in operating profit compared to
last year was due to lower margins as a result of a change in the mix of
business among the segment's operations.
The Engineering and Construction segment's sales increased by $3,085,000 or 31%
to $13,164,000 and the operating profit was $562,000 compared to a loss of
$458,000 in 1993. The sales and operating profit increases were due to volume
increases in the construction and business systems operations.
Sales of the Computer Systems segment decreased by $1,170,000 or 12% to
$8,434,000 in 1994. The segment sustained an operating loss of $1,013,000 in
1994 compared to a loss of $2,249,000 in 1993. The decrease in sales is due to
the completion of several large contracts in 1993. The operating loss in 1993
included a charge of $2,100,000 to provide for costs not recoverable under a
Delta Operator Services System contract. Results in 1994 reflect higher
development, marketing and support costs.
- 18 -
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 29, 1994 COMPARED TO
THE THREE MONTHS ENDED JULY 30, 1993--(CONTINUED)
The Company's share of the income of its joint ventures was $2,256,000 in the
third quarter of 1994, an increase of $548,000 or 32% from the third quarter of
1993. The Company's portion of the income of the Australian joint venture was
$2,282,000 in 1994 compared to $1,093,000 in 1993 due principally to the joint
venture's increased revenue from the sale of yellow page directory advertising
accompanied by a reduction in certain costs. In the second quarter of 1994,
the Company sold its 50% interest in Pacific Volt Information Systems, a United
States joint venture, which accounted for $615,000 of equity in income of joint
ventures in last year's third quarter.
Interest and other income, net decreased by $405,000 to $186,000 due primarily
to fees incurred in 1994 in conjunction with the sale of accounts receivable
(see Note B).
Interest expense decreased by $975,000 or 36% to $1,728,000 in 1994 compared to
1993 due to the early redemption of $30,000,000 of the Company's 12-3/8%
Subordinated Debentures and reductions in the principal amount of a mortgage
loan.
Research, development and engineering costs increased by $543,000 or 31% to
$2,286,000 in 1994 due primarily to increased product development by the
Computer Systems segment.
- 19 -
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Source of Capital
Cash and cash equivalents decreased by $14,969,000 in the nine months ended
July 29, 1994 to $26,112,000 due primarily to the redemption, at par, of
$30,000,000 of Subordinated Debentures and the expenditure of $11,326,000 for
purchases of property, plant and equipment partially offset by $16,383,000
received from the sale of the Company's 50% interest in a joint venture and
$12,963,000 of funds provided from operations.
Working capital decreased by $14,089,000 in the nine months to $47,000,000 at
July 29, 1994 primarily due to the inclusion in current liabilities of a
$15,400,000 mortgage payable and the redemption of $10,000,000 of debentures,
partially offset by $16,383,000 received from the sale of the Company's
investment in a joint venture.
The Company believes that its current financial position, working capital and
future cash flow will be sufficient to fund operations and satisfy its debt
obligations. The Company has a line of credit with a domestic bank at July 29,
1994 of approximately $7 million, which expires October 31, 1994, unless
renewed. The Company has reached an agreement in principle to refinance
$10,000,000 of the $15,400,000 mortgage liability which is due in December
1994. The balance will be repaid by the Company.
In the nine months ended July 29, 1994, the Company's investment portfolio was
increased by $2,020,000 and at July 29, 1994 included investments carried at
their market value of $9,782,000.
The Company expects to invest an additional $6,500,000 over the next twelve
months in its new Brazilian joint venture (see Note F). There are no other
material capital commitments. The Company may determine from time to time in
the future to buy additional shares of its Common Stock and Debentures in the
market or in privately negotiated transactions.
- 20 -
21
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's 1994 Annual Meeting of Shareholders held on June 10, 1994,
Shareholders:
(a) elected the following to serve as Class I directors to serve until the
Company's 1996 Annual Meeting of Shareholders and until their respective
successors are elected and qualified, by the following vote:
For Vote Withheld
---------- -------------
Irwin B. Robins 3,403,347 45,418
John R. Torell, III 3,403,347 45,418
Mark N. Kaplan 3,403,347 45,418
(b) ratified the action of the Board of Directors in appointing Ernst & Young
as the Company's independent public accountants for the Company's fiscal year
ending October 28, 1994, by the following vote:
For Against Abstain
---------- --------- -------
3,427,500 6,172 15,093
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 Financial Data Schedule
(b) Reports on Form 8-K
The only Report on Form 8-K filed during the quarter ended July 29, 1994 was a
report dated July 7, 1994 (date of earliest event reported), reporting Item 5.
Other Events.
- 21 -
22
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VOLT INFORMATION SCIENCES, INC.
(Registrant)
BY: s/ Jack Egan
-----------------------------
Date: September 9, 1994 Jack Egan
Vice President - Corporate Accounting
(Principal Accounting Officer)
- 22 -
23
EXHIBIT INDEX
15.01 Letter from Ernst & Young LLP.
15.02 Letter from Ernst & Young LLP regarding interim financial information.
27 Financial Data Schedule