UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For The Three Months Ended February 4, 2001
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 the Registrant's common stock, $.10 par value,
outstanding as of March 11, 2001 was 15,209,365.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three Months Ended February 4, 2001 and January 28, 2000 3
Condensed Consolidated Balance Sheets -
February 4, 2001 and November 3, 2000 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended February 4, 2001 and January 28, 2000 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 18
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE 19
-2-
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
---------------------------------
February 4, January 28,
2001 2000
------------ ------------
(Dollars in thousands, except per share data)
NET SALES:
Sales of services $ 509,178 $ 482,512
Sales of products 16,757 17,603
------------ ------------
525,935 500,115
------------ ------------
COSTS AND EXPENSES:
Cost of sales
Services 487,099 455,795
Products 10,126 10,446
Selling and administrative 18,751 17,624
Research, development and engineering 2,436 2,586
Depreciation and amortization 7,110 5,980
------------ ------------
525,522 492,431
------------ ------------
OPERATING PROFIT 413 7,684
OTHER INCOME (EXPENSE):
Interest income 358 422
Other income-net 69 68
Foreign exchange loss-net--Note J (96) (183)
Interest expense (4,073) (2,301)
------------ ------------
(Loss) income before income taxes and minority interests (3,329) 5,690
Income tax benefit (provision) 1,301 (2,317)
Minority interests in net loss of consolidated subsidiaries 143 245
------------ ------------
NET (LOSS) INCOME ($ 1,885) $ 3,618
============ ============
Per Share Data
--------------
Net (loss) income per share-Basic and Diluted ($ 0.12) $ 0.24
============ ============
Weighted average number of shares-Basic--Note G 15,208,770 15,041,054
============ ============
Weighted average number of shares-Diluted--Note G 15,208,770 15,175,538
============ ============
See accompanying notes to condensed consolidated financial statements.
-3-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
February 4, November 3,
2001 2000 (a)
--------- ---------
(Unaudited)
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 36,860 $ 34,099
Short-term investments 3,542 3,570
Trade accounts receivable less allowances of $8,762 (2001) and 431,206 448,812
$8,952 (2000)
Inventories--Note B 70,250 75,729
Deferred income taxes 12,665 12,563
Prepaid expenses and other assets 18,059 17,689
--------- ---------
TOTAL CURRENT ASSETS 572,582 592,462
Investment in joint venture--Note F 3,449 3,788
Investment in securities 69 86
Property, plant and equipment less allowances for depreciation
and amortization of $65,744 (2001) and $63,990 (2000)--Note D 100,259 96,325
Deposits and other assets 6,898 7,399
Intangible assets-net of accumulated amortization of $15,473 (2001) and
$25,133 (2000)--Note H 43,316 44,768
--------- ---------
TOTAL ASSETS $ 726,573 $ 744,828
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks--Note C $ 148,241 $ 144,054
Current portion of long-term debt--Note D 13,474 13,699
Accounts payable 126,857 148,341
Accrued wages and commissions 51,151 54,702
Accrued taxes other than income taxes 21,090 16,373
Accrued interest and other accruals 13,138 17,330
Customer advances and other liabilities 36,769 25,241
Income taxes 888 8,809
--------- ---------
TOTAL CURRENT LIABILITIES 411,608 428,549
Long-term debt--Note D 32,297 32,297
Deferred income taxes 5,010 4,495
Minority interests 15,989 16,132
STOCKHOLDERS' EQUITY--Notes C, D and E
Preferred stock, par value $1.00; Authorized--500,000 shares; issued--none
Common stock, par value $.10; Authorized--30,000,000 shares; issued --
15,209,365 shares (2001) and 15,208,015 shares (2000) 1,521 1,521
Paid-in capital 40,887 40,862
Retained earnings 220,037 221,922
Accumulated comprehensive loss (776) (950)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 261,669 263,355
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 726,573 $ 744,828
========= =========
(a) The Balance sheet at November 3, 2000 has been derived from the audited
financial statements at that date. See accompanying notes to condensed
consolidated financial statements.
-4-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
----------------------------
February 4, January 28,
2001 2000
----------- ----------
(Dollars in thousands)
CASH PROVIDED BY (APPLIED TO) OPERATING ACTIVITIES
Net (loss) income ($ 1,885) $ 3,618
Adjustments to reconcile net (loss) income to cash provided by (applied to)
operating activities:
Depreciation and amortization 7,110 5,980
Equity in net loss of joint venture 338 29
Minority interests (143) (245)
Accounts receivable provisions 1,628 1,512
Loss (gain) on foreign currency translation 258 (25)
Deferred income tax provision 340 581
Other 33 37
Changes in operating assets and liabilities:
Decrease in accounts receivable 16,295 6,694
Decrease (increase) in inventories 5,479 (672)
Increase in prepaid expenses and other current assets (955) (1,355)
Decrease (increase) other assets 1,060 (728)
Decrease in accounts payable (21,657) (18,481)
(Decrease) increase in accrued expenses (2,796) 2,639
Increase in customer advances and other liabilities 11,209 13,534
Decrease in income taxes payable (7,921) (4,755)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 8,393 $ 8,363
-------- --------
-5-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)--Continued
Three Months Ended
------------------------------
February 4, January 28,
2001 2000
----------- -----------
(Dollars in thousands)
CASH (APPLIED TO) PROVIDED BY INVESTING ACTIVITIES
Sales of investments $ 225 $ 1,109
Purchases of investments (315) (1,251)
Investment in joint venture (100)
Proceeds from disposals of property, plant and equipment 201 393
Purchases of property, plant and equipment (9,601) (8,301)
Other (48) (75)
-------- --------
NET CASH APPLIED TO INVESTING ACTIVITIES (9,538) (8,225)
-------- --------
CASH (APPLIED TO) PROVIDED BY FINANCING ACTIVITIES
Payment of long-term debt (225) (225)
Exercise of stock options 25 129
Increase (decrease) in notes payable to banks 4,182 (4,522)
-------- --------
NET CASH PROVIDED BY (APPLIED TO) FINANCING ACTIVITIES 3,982 (4,618)
-------- --------
Effect of exchange rate changes on cash (76) 51
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,761 (4,429)
Cash and cash equivalents, beginning of period 34,099 32,402
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 36,860 $ 27,973
======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the period:
Interest expense $ 3,107 $ 1,412
Income taxes, net of refunds $ 6,279 $ 6,465
See accompanying notes to condensed consolidated financial statements.
-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
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 February 4, 2001 and consolidated
results of operations and consolidated cash flows for the three months ended
February 4, 2001 and January 28, 2000. 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 November 3, 2000. The accounting policies used in preparing these
financial statements are the same as those described in that Report. In 2001,
the Company's fiscal year will end on Sunday, November 4, 2001 and thereafter on
the Sunday nearest October 31. The fiscal year 2001 will contain 52 weeks
compared to 53 weeks (one additional week in the fourth quarter) in fiscal year
2000.
Note B--Inventories
Inventories consist of:
February 4, November 3,
2001 2000
----------- -----------
(Dollars in thousands)
Services:
Accumulated unbilled costs on service contracts $59,316 $64,585
------- -------
Products:
Materials 7,103 7,583
Work-in-process 1,834 1,548
Service parts 668 928
Finished goods 1,329 1,085
------- -------
10,934 11,144
------- -------
Total $70,250 $75,729
======= =======
The cumulative amounts billed under service contracts, at February 4, 2001 and
November 3, 2000, of $11.9 million and $9.3 million, respectively, are credited
against the related costs in inventory.
-7-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note C--Short-Term Borrowings
At February 4, 2001, the Company had credit lines with domestic and foreign
banks which provide for unsecured borrowings and letters of credit up to an
aggregate of $157.4 million, including $72.5 million under a syndicated
unsecured revolving credit agreement, expiring in January 2002 ("Multi-year
Revolver") and an additional $72.5 million syndicated unsecured revolving credit
agreement ("364-day Revolver"). On August 17, 2000, the Company amended its
Multi-year Revolver and amended and restated its 364-day Revolver to, among
other things, extend its maturity to August 2001. The Company expects that the
two revolving credit facilities will be renewed. The Chase Manhattan Bank and
Fleet Bank, N.A. are serving as co-agents for both facilities. Borrowings under
the two revolvers bear interest at various interest rates, with the Company
having the option to select the most favorable rate at the time of borrowing.
The revolving credit facilities provide for, among other things, the maintenance
of various financial ratios and covenants, including a requirement that the
Company maintain a consolidated net worth, as defined, of $110.0 million, plus
50% of consolidated net income for each completed fiscal year after fiscal 1997,
resulting in a requirement at February 4, 2001 to maintain consolidated net
worth of $170.3 million. The Company's consolidated net worth at February 4,
2001 was $261.7 million. The revolving credit agreements also contain certain
limitations on the extent to which the Company and its subsidiaries may incur
additional indebtedness, grant liens and sell assets. The Company from time to
time may also borrow under uncommitted facilities from various banks. At
February 4, 2001, the Company had total outstanding bank borrowings of $148.2
million of which $128.0 million was borrowed under the two revolving credit
facilities.
Note D --Long-Term Debt
Long-term debt consists of the following:
February 4, November 3,
2001 2000
----------- -----------
(Dollars in thousands)
7.92% Senior Notes (a) $40,000 $40,000
Term loan (b) 2,175 2,400
Notes payable (c) (d) 3,596 3,596
------- -------
45,771 45,996
Less amounts due within one year 13,474 13,699
------- -------
Total long-term debt $32,297 $32,297
======= =======
(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, which began in
August 2000. In March 2000, the Company entered into a series of interest 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 7.5% at November 3, 2000. In December 2000, the Company
terminated the swap agreements. The fair value of the agreements at termination
of $498,000 was paid to the Company and will reduce interest expense over the
remaining term the notes are outstanding. The notes were issued pursuant to Note
Purchase Agreements, which contain various affirmative and negative covenants.
One such covenant requires the Company to maintain a level of consolidated net
worth which, under the formula in the agreements, was $153.6 million at February
4, 2001. However, the terms of the Company's revolving credit agreements require
the Company to maintain a consolidated net worth of $170.3 million at February
4, 2001(see Note C).
-8-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note D --Long-Term Debt--Continued
(b) In October 1994, the Company entered into a $10.0 million loan agreement
with Fleet Bank, N.A., which is secured by a deed of trust on land and buildings
(carrying amount at February 4, 2001-$13.2 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 $249,000 at February 4, 2001, is guaranteed by the
Company, and is being repaid in semi-annual payments of $249,000, plus interest
calculated at LIBOR (4.8% at February 4, 2001) plus 0.25%, through March 15,
2001.
(d) On February 9, 1999, the Company entered into a $5.6 million Installment
Payment Agreement to finance the purchase and support of an Enterprise Resource
Planning system for internal use, which has been capitalized and is being
amortized over a five to seven year period. The Agreement provides for interest
calculated at 6%, and principal amortization in five equal annual installments
of $1.3 million. The first payment was made in February 1999, with the final
payment due in February 2003.
Note E--Stockholders' Equity
Changes in the major components of stockholders' equity for the three months
ended February 4, 2001 are as follows:
Common Paid-In Retained
Stock Capital Earnings
-------- -------- --------
(Dollars in thousands)
Balance at November 3, 2000 $ 1,521 $ 40,862 $221,922
Net loss for the three months ($1,885)
Stock options exercised - 1,350 shares 25
-------- -------- --------
$ 1,521 $ 40,887 $220,037
======== ======== ========
Another component of stockholders' equity, the accumulated other comprehensive
loss, consists of a cumulative unrealized foreign currency translation
adjustment of $365,000 and $550,000 at February 4, 2001 and November 3, 2000,
respectively, and an unrealized loss in marketable securities of $411,000 and
$400,000 at February 4, 2001 and November 3, 2000, respectively. Changes in
these items, net of income taxes, are included in the calculation of
comprehensive (loss) income as follows:
Three Months Ended
-----------------------------
February 4, January 28,
2001 2000
----------- -----------
(Dollars in thousands)
Net (loss) income ($1,885) $ 3,618
Foreign currency translation adjustments-net 185 38
Unrealized (loss) gain on marketable securities-net (11) 104
------- -------
Total comprehensive (loss) income ($1,711) $ 3,760
======= =======
-9-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note F--Joint Venture
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. Additional acquisitions by the joint venture have been
curtailed. In the first quarter of fiscal 2001, sales of the venture were $1.0
million and the Company's portion of the loss sustained was $0.3 million.
Note G--Per Share Data
In calculating basic earnings per share, the dilutive effect of stock options
are excluded. Diluted earnings per share are computed on the basis of the
weighted average number of shares of common stock outstanding and the assumed
exercise of dilutive outstanding stock options based on the treasury stock
method.
Three Months Ended
-------------------------------
February 4, January 28,
2001 2000
----------- ----------
Denominator for basic earnings per share -
Weighted average number of shares 15,208,770 15,041,054
Effect of dilutive securities:
Employee stock options -- 134,484
---------- ----------
Denominator for diluted earnings per share -
Adjusted weighted average number of shares 15,208,770 15,175,538
========== ==========
Due to a pre-tax loss in the first quarter of fiscal 2001, none of the options
to purchase 586,211 shares of the Company's common stock were included in the
computation of diluted earnings per share because the effect would be
antidilutive.
Options to purchase 201,385 shares of the Company's common stock were
outstanding at January 28, 2000, but were not included in the computation of
diluted earnings per share because the options' exercise price was greater than
the average market price of the common shares.
Note H--Acquisitions
In December 2000, the Company's 59% owned publicly-held subsidiary, Autologic
Information International, Inc., acquired the assets of a distributor of
prepress equipment. The assets acquired include inventory and certain fixed
assets. The amounts are not considered material to the Company.
-10-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note H--Acquisitions--Continued
In December 1999, the Company completed its purchase of the Wired Services and
Professional Staffing divisions of two Lucent Technologies subsidiaries. The
Wired Services division installs cable, wire and small telecommunications
systems for businesses, and the Professional Staffing division provides
technical, management and administrative personnel for temporary assignments.
The Company paid cash for inventory and equipment with limited additional
consideration due based on future sales of the Wired Services division. The
amounts are not considered material to the Company.
Note I--Segment Disclosures
Financial data concerning the Company's sales and segment operating profit
(loss) by reportable operating segment for the three months ended February 4,
2001 and January 28, 2000 included on page 12 of this report are an integral
part of these financial statements.
During the three months ended February 4, 2001, consolidated assets decreased by
$18.3 million, primarily due to decreased accounts receivable and inventories in
the Telecommunications Services segment partially offset by increased
inventories and other current assets in the Telephone Directory segment.
Note J--Derivative Financial Instruments
As of November 4, 2000, the Company adopted Financial Accounting Standards Board
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
(Statement 133) which was issued in June 1998 and its amendments Statements 137,
Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133 and 138, Accounting for Derivative
Instruments and Certain Hedging Activities issued June 1999 and June 2000,
respectively (collectively referred to Statement 133).
The Company enters into derivative financial instruments only for hedging
purposes. As a result of the adoption of Statement No. 133, the Company
recognizes all derivative financial instruments, such as interest rate swap
contracts and foreign currency options and exchange contracts, in the
consolidated financial statements at fair value regardless of the purpose or
intent for holding the instrument. Changes in the fair value of derivative
financial instruments are either recognized periodically in income or
stockholders' equity as a component of comprehensive income depending on whether
the derivative financial instrument qualifies for hedge accounting, and if so,
whether if qualifies as a fair value hedge or cash flow hedge. Generally,
changes in fair values of derivatives accounted for as fair value hedges are
recorded in income along with the portions of the changes in the fair values of
the hedged items that relate to the hedged risks. Changes in fair values of
derivatives accounted for as cash flow hedges, to the extent they are effective
as hedges, are recorded in other comprehensive income net of deferred taxes.
Changes in fair values of derivatives not qualifying as hedges are reported in
income.
Since the Company's foreign currency options are purchased during and generally
settled on the last weekday of each fiscal quarter, and interest rate swaps are
recorded at fair value, the adoption of Statement 133 had no material effect on
the Company's consolidated financial position or results of operations.
-11-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 4, 2001 COMPARED
TO THE THREE MONTHS ENDED JANUARY 28, 2000
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 makes no
predictions or estimates as to future operations and no inferences as to future
operations should be drawn.
Three Months Ended
-------------------------------
February 4, January 28,
2001 2000
----------- -----------
(Dollars in thousands)
Net Sales:
Staffing Services
Traditional Staffing $340,092 $316,914
Managed Services 183,789 166,669
--------- ---------
Total Gross Sales 523,881 483,583
Less: Non-recourse Managed Services (108,580) (92,726)
--------- ---------
Net Staffing Services Sales 415,301 390,857
Telephone Directory 13,157 14,285
Telecommunications Services 70,906 65,110
Computer Systems 15,266 15,686
Electronic Publication and Typesetting Systems 16,776 17,648
Elimination of intersegment sales (5,471) (3,471)
--------- ---------
Total Net Sales $525,935 $500,115
========= =========
Segment Operating Profit (Loss):
Staffing Services $2,042 $9,196
Telephone Directory (1,001) (3,448)
Telecommunications Services 2,736 4,931
Computer Systems 1,713 1,133
Electronic Publication and Typesetting Systems (231) (451)
--------- ---------
5,259 11,361
General corporate expenses (4,846) (3,677)
--------- ---------
Total Operating Profit 413 7,684
Interest and other income 427 490
Foreign exchange loss-net (96) (183)
Interest expense (4,073) (2,301)
--------- ---------
Income Before (Loss) Income Taxes and Minority Interests ($3,329) $5,690
========= =========
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED FEBRUARY 4, 2001 COMPARED
TO THE THREE MONTHS ENDED JANUARY 28, 2000--Continued
Forward-Looking Statements Disclosure
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 "forwarding-looking statements." 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:
o general economic, competitive and other business conditions, including the
effects of any downturn in the U.S. economy
o continued financial strength of the Company's customers, some of which
have announced unfavorable financial results and lowered financial
expectations for the near term
o the degree and timing of obtaining new contracts and the rate of renewals
of existing contracts, as well as customers' degree of utilization of the
Company's services
o material changes in demand from larger customers, including those with
which the Company has national contracts
o the effect of litigation by temporary employees against temporary help
companies and the customers with which they do business
o any decrease in the rate of unemployment and higher wages sought by
temporary workers, especially those in certain technical fields
particularly characterized by labor shortages, which could adversely
affect the Company's ability to meet its customers' demands and the
Company's profit margins
o changes in customer attitudes toward use of outsourcing and temporary
personnel
o the Company's staffing services' ability to recruit qualified employees to
satisfy customer requirements
o the Company's ability to attract and retain certain classifications of
technologically qualified personnel for its own use, particularly in the
areas of research and development and customer service.
o the Company's ability to meet competition in highly competitive markets
with minimal impact on margins
o the degree of price competition and pressure on margins
o the Company's ability to maintain superior technological capability
o 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
o the Company's performance on contracts
o the Company's ability to achieve customer acceptance of its products and
systems in markets characterized by rapidly changing technology and
frequent new product introductions
o risks inherent in new product introductions, such as start-up delays, cost
overruns and uncertainty of customer acceptance
o the timing of customer acceptances of systems
o the Company's dependence on third parties for some product components
o changes in laws, regulations and government policies
o the degree and effects of inclement weather
These and certain other factors are discussed in the Company's Annual Report on
Form 10-K for the fiscal year ended November 3, 2000 and, from time-to-time, in
the Company's other reports filed with the Securities and Exchange Commission.
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED FEBRUARY 4, 2001 COMPARED
TO THE THREE MONTHS ENDED JANUARY 28, 2000 --Continued
Results of Operations - Summary
In the three-month period of fiscal 2001, net sales increased by $25.8 million,
or 5%, to $525.9 million from the comparable period in fiscal 2000. The increase
in fiscal 2001 net sales resulted primarily from a $24.4 million increase in
sales by the Staffing Services segment and a $5.8 million increase in sales by
the Telecommunications Services segment, partially offset by decreases in sales
by the other three segments.
The Company's first quarter fiscal 2001 pre-tax loss before minority interests
was $3.3 million, compared to net income of $5.7 million in fiscal 2000. The
operating profit of the Company's segments decreased to $5.3 million in the
first quarter of fiscal 2001 from $11.4 million in the first quarter of fiscal
2000. The decrease in operating profit resulted primarily from a $7.2 million
decrease in the Staffing Services segment and a $2.2 million decrease in the
Telecommunications Services segment partially offset by a $2.4 million reduction
in operating loss by the Telephone Directory segment, a $0.6 million increase in
operating profit by the Computer Systems segment and a $0.3 million reduction in
operating loss by the Electronic Publication and Typesetting Systems segment.
The Company incurred a net loss of $1.9 million in the first three months of
fiscal 2001 compared to net income of $3.6 million in the first three months of
fiscal 2000.
Results of Operations- By Segment
Sales of the Staffing Services Segment increased by $24.4 million, or 6%, to
$415.3 million in fiscal 2001, while its operating profit decreased by $7.2
million to $2.0 million in fiscal 2001 from $9.2 million in fiscal 2000. The
increase in sales was primarily due to a $24.2 million increase in Technical
Placements' traditional staffing business, and an $8.7 million increase in the
segment's professional employer services (PEO), partially offset by a $9.5
million decrease in Commercial and Light Industrial traditional staffing
revenue.
The Commercial and Light Industrial division of the Staffing Services segment
was adversely affected by the nation's economic decline. The division posted a
loss of $1.8 million on sales of $138.6 million during the quarter versus an
operating profit of $3.1 million on sales of $141.4 million for the first
quarter of fiscal 2000. Traditional temporary recruited revenue of the division,
excluding lower margin managed service and PEO revenue, declined to $121.6
million in the first quarter of fiscal 2001 from $131.1 million in the
comparative quarter of the previous year. In addition, the added overhead that
the division incurred, based on the 9.5% growth in traditional staffing revenue
that the division had experienced the previous year and in anticipation of
continued growth, further adversely affected the division's quarterly
performance. The division has instituted a series of initiatives designed to
reduce overhead as a percentage of sales and increase its profitability.
The Technical Placement division reported first quarter sales of $276.7 million,
an 11% increase over the $249.5 million in sales the first quarter of the
previous year. First quarter fiscal 2001 Technical Placement operating profit
was $3.8 million, compared to $6.1 million in the comparable fiscal 2000
quarter. Increased overhead expense associated with both the opening of
additional project management outsourcing facilities and fiscal 2000's increased
revenue, and reduced higher margin sales from a major customer, negatively
impacted operating results. In addition, implementation costs associated with
the development of the new ProcureStaff subsidiary also affected the segment
profitability.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED FEBRUARY 4, 2001 COMPARED
TO THE THREE MONTHS ENDED JANUARY 28, 2000--Continued
Results of Operations - By Segment--Continued
A significant percentage of the most successful Staffing Services regions are
reliant on customers in the telecommunications and information technology
segments. Many of these companies have reduced their staffing requirements as a
result of financial considerations and economic uncertainties. While Staffing
Services results will rest largely with the ability of these customers to
rebound in their own markets, the segment's focus on the control of overhead and
obtaining higher-margin permanent placement business should lessen the impact of
any decline in traditional sales.
The Telephone Directory segment's sales decreased by $1.1 million, or 8%, to
$13.2 million in fiscal 2001 and its operating loss decreased to $1.0 million in
fiscal 2001 from a loss of $3.4 million in fiscal 2000. The segment
traditionally reports losses during the first quarter due to the publication
schedule of its community directory operations, with profits in the latter
portion of the fiscal year. The sales decrease was primarily due to decreases in
independent directory and toll-free directory publishing sales of $2.3 million,
partially offset by an increase in printing sales in Uruguay of $1.4 million.
The decrease in operating loss was due to the completion of the community
directory division's restructure, re-scoping of its directories and the absence
in fiscal 2001 of a charge of $0.9 million for a customer receivable deemed
uncollectable due to a bankruptcy filing in fiscal 2000.
The Telecommunications Services segment's sales increased by $5.8 million, or
9%, to $70.9 million in fiscal 2001, while its operating profit decreased to
$2.7 million in fiscal 2001, compared with $4.9 million in fiscal 2000. The
results of the segment were hampered by the inability of infrastructure
companies to obtain capital to fund construction plans for their network
expansion. Although sales increased in all of the segment's divisions, a
decrease of $10.4 million in higher margin long haul fiber construction revenue
adversely effected operating profit. However, major telecommunications equipment
manufacturers and telephone operating companies have accelerated the outsourcing
of engineering and installation work. This additional business, while not at
comparable margins to long haul construction, resulted in increased revenues.
The Computer Systems segment's sales decreased by $0.4 million, or 3%, to $15.3
million in fiscal 2001 while its operating profit increased to $1.7 million in
fiscal 2001 from $1.1 million in fiscal 2000. This growth in operating profit
was the result of increases in sales and gross margins of the segment's
transaction based information services.
The Electronic Publication and Typesetting Systems segment's sales decreased by
$0.9 million, or 5%, to $16.8 million in fiscal 2001, and its operating loss
decreased to $0.2 million in 2001 from a loss of $0.5 million in fiscal 2000.
Although sales of the segment's Computer to Plate imagesetters increased,
equipment and system sales were comparable to prior year's quarter. The decrease
in sales resulted primarily from a decline in domestic and European customer
service sales as a result of lower spare parts sales, billable services and a
reduction in service contracts on legacy systems. The decrease in operating loss
was the result of an $0.8 million reduction in overhead due primarily to cost
cutting measures implemented in fiscal 2000 after the first quarter, partially
offset by a decrease in gross margins of 1.6 percentage points due to lower
sales and discounting in response to competition and slightly higher
manufacturing costs. Included in each quarter are amortization charges of $0.5
million related to goodwill that was fully amortized at February 4, 2001.
Although cost reductions are being realized, there can be no assurances that the
segment will be profitable in the near term.
-15-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED FEBRUARY 4, 2001 COMPARED
TO THE THREE MONTHS ENDED JANUARY 28, 2000--Continued
Results of Operations - Other
Other items, discussed on a consolidated basis, affecting the results of
operations for the three-month periods were:
Selling and administrative expenses increased by $1.1 million, or 6%, to $18.8
million in fiscal 2001 to support the increased sales levels. These expenses,
expressed as a percentage of sales, were 3.6 % in fiscal 2001 and 3.5% in fiscal
2000.
Research, development and engineering decreased by $0.2 million, or 6 %, to $2.4
million in fiscal 2001. The decrease in fiscal 2001 was primarily due to a
reduction in product development in the Electronic Publication and Typesetting
Systems segment as new products were completed and introduced to customers
partially offset by increased costs associated with the Computer Systems segment
to upgrade its products and services.
Depreciation and amortization increased by $1.1 million, or 19%, to $7.1 million
in fiscal 2001. The increase was attributable to amortization of a new
accounting and back office Enterprise Resource Planning system.
Interest income decreased by $0.1 million, or 15%, to $0.4 million in fiscal
2001, primarily due to a decrease in funds available for investment.
The foreign exchange loss in the first quarter of fiscal 2001 was $0.1 million
compared to $0.2 million in fiscal 2000. The reduction was a result of favorable
currency movements in the European currency markets. To reduce the potential
adverse impact from foreign currency changes on the Company's foreign currency
receivables, sales and firm commitments, foreign currency options are purchased
during and generally settled on the last weekday of each quarter.
Interest expense was $4.1 million in fiscal 2001 compared with $2.3 million in
fiscal 2000. The increase is the result of higher borrowing under the Company's
revolving credit agreements to support the increased working capital
requirements of the Company. Although there can be no assurances, interest
expense is expected to be reduced during the remainder of the fiscal year as
account receivable balances and borrowings, which are traditionally highest
during the Company's first quarter, are reduced with increased emphasis on
collections.
The Company's effective tax rate was a 39.1% benefit in fiscal 2001 compared to
a 40.7 % provision in fiscal 2000.
Liquidity and Sources of Capital
Cash and cash equivalents increased by $2.8 million to $36.9 million in the
three months ended February 4, 2001. Operating activities, exclusive of changes
in operating assets and liabilities, produced $7.7 million of cash, as the
Company's net loss of $1.9 million included non-cash charges primarily for
depreciation and amortization of $7.1 million and accounts receivable provisions
of $1.6 million. Changes in operating assets and liabilities produced
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Sources of Capital--Continued
$0.7 million of cash, net, principally due to cash provided by decreases in the
levels of accounts receivable of $16.3 million and inventories of $5.5 million
and an increase of $11.2 million in customer advances, partially offset by $24.5
million of expenditures to reduce the level of accounts payable and accrued
expenses and $7.9 million used to reduce income taxes payable.
The principal factor in the cash applied to investing activities was the
expenditure of $9.6 million for property, plant and equipment.
An increase of $4.2 million in bank loans was the principal factor in the cash
provided by financing activities of $4.0 million.
At February 4, 2001, the Company had $157.4 million of credit lines with banks,
of which $72.5 million is under a revolving credit agreement ("Multi-year
Revolver") that is scheduled to expire in January 2002 and $72.5 million is
under a 364-day revolving credit agreement ("364-day Revolver") that is
scheduled to expire in August 2001. The Company had outstanding bank borrowings
of $133.2 million at February 4, 2001 under these lines (see Note C in the Notes
to Condensed Consolidated Financial Statements). The Company expects that the
two revolving credit agreements will be renewed.
In addition, the Company maintains uncommitted credit facilities with banks. At
February 4, 2001, these facilities amounted to $30 million, with $15 million
scheduled to expire on March 31, 2001 and $15 million in December 2001. The
Company had outstanding bank borrowings at February 4, 2001 of $15 million under
these facilities.
The Company believes that its current financial position, working capital,
future cash flows and credit lines are sufficient to fund its presently
contemplated operations and satisfy its debt obligations. The Company intends to
seek additional financing to further its ability to expand its business.
However, there can be no assurances that the Company will be able to renew its
existing credit facilities, obtain additional financing or what terms may be
available.
In fiscal 2000, the Company began development of a new internet-based Front End
System designed to improve efficiency and connectivity in the recruiting,
assignment, customer maintenance, and other functions in the branch offices of
the Staffing Services segment. The total costs to develop and install this
system are anticipated to be approximately $16 million, of which $2.2 million
has been incurred to date. The Company has no other material capital
commitments.
The Effect of New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
provides guidance on the recognition, presentation and disclosure of revenues in
financial statements and requires adoption no later than the fourth quarter of
fiscal 2001. The Company has evaluated the impact of SAB101 and the
interpretations thereunder and has determined that SAB 101 has no effect on the
Company's consolidated financial position or results of operations.
-17-
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 ($36.9 million at February 4, 2001) 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 $157.4 million. At February 4, 2001,
the Company had borrowings totaling $148.2 million under these agreements and
uncommitted credit facilities. 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 could impact the Company's
results of operations. For example, a 1% increase in prevailing interest rates
could cause net interest expense to increase by $1.1 million. The Company policy
is to take actions that would mitigate such risk when appropriate.
The Company's total long-term debt of $45.8 million at February 4, 2001 consists
substantially of borrowings at fixed interest rates, and the Company's interest
expense related to these borrowings is not exposed to changes in interest rates
in the near term. In March 2000, the Company entered into a series of interest
swap agreements, which effectively converted $40.0 million of long-term debt,
through maturity, from fixed to floating rate debt. Therefore, interest expense
on the debt was affected by the general level of interest rates. In December
2000, the Company terminated the swap agreements. The fair value of the
agreements at termination of $0.5 million was paid to the Company and will
reduce interest expense over the remaining term the notes are outstanding.
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. At February 4, 2001, the total market value of
these investments is $3.6 million, with $3.5 million of these investments being
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 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 February 4,
2001, the Company had purchased foreign currency options in the aggregate
notional amount of $3.5 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.
-18-
PART II - OTHER INFORMATION
ITEM 6-- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
15.01 Letter from Ernst & Young LLP
15.02 Letter from Ernst & Young LLP regarding interim financial information
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter ended February 4, 2001.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VOLT INFORMATION SCIENCES, INC.
(Registrant)
BY: /s/ JACK EGAN
------------------------------
Date: March 16, 2001 JACK EGAN
Vice President - Corporate Accounting
(Principal Accounting Officer)
-19-
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------
15.01 Letter from Ernst & Young LLP
15.02 Letter from Ernst & Young LLP regarding interim financial information.