<PAGE> 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 Three Months Ended February 2, 1996
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 March
11, 1996 was 9,687,543.
<PAGE> 2
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
Three Months Ended February 2, 1996 and
January 27, 1995 3
Condensed Consolidated Balance Sheets
February 2, 1996 and November 3, 1995 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended February 2, 1996 and January 27, 1995 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations Three Months
Ended February 2, 1996 Compared to the Three Months
Ended January 27, 1995 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE 20
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
February 2, January 27,
1996 1995
----------- -----------
(Dollars in thousands)
<S> <C> <C>
REVENUES
Sales of services $ 208,477 $ 167,518
Sales of products 16,336 15,778
Equity in net loss of joint ventures--Note F (1,957) (1,448)
Interest income 605 480
Gain on sale of interest in subsidiaries--Note I 3,666
Other expense - net--Note B (517) (268)
----------- -----------
226,610 182,060
----------- -----------
COSTS AND EXPENSES
Cost of sales
Services 192,595 152,305
Products 12,470 10,405
Selling and administrative 11,449 9,751
Research, development & engineering 1,943 1,804
Depreciation and amortization 3,188 2,796
Minority interest in net loss
of consolidated subsidiaries--Note I 69
Foreign exchange (gain) loss - net 140 (59)
Interest expense 1,155 1,686
----------- -----------
223,009 178,688
----------- -----------
Income before income tax provision 3,601 3,372
Income tax provision--Note H 1,334 1,349
----------- -----------
Net income $ 2,267 $ 2,023
=========== ===========
(Per Share Data)
Net income $ .23 $ .21
=========== ===========
Number of shares used in computation--
Note G 9,673,803 9,608,408
=========== ===========
</TABLE>
See accompanying notes.
- 3 -
<PAGE> 4
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
February 2, November 3,
1996 1995 (a)
---- --------
(Dollars in thousands)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 34,793 $ 25,350
Short-term investments 2,359 1,047
Trade accounts receivable less allowances of
$5,132 (1996) and $3,943 (1995)--Note B 99,988 111,696
Inventories--Note C 32,905 28,207
Deferred income taxes 10,651 8,711
Prepaid expenses and other assets 5,915 7,204
-------- --------
TOTAL CURRENT ASSETS 186,611 182,215
INVESTMENTS IN SECURITIES 2,324 4,136
INVESTMENTS IN JOINT VENTURES--Note F 14,139 13,903
PROPERTY, PLANT AND EQUIPMENT--
at cost--Note D
Land and buildings 33,639 33,591
Machinery and equipment 61,063 51,233
Leasehold improvements 2,918 2,818
-------- --------
97,620 87,642
Less allowances for depreciation
and amortization 35,999 32,057
-------- --------
61,621 55,585
DEPOSITS, RECEIVABLES AND OTHER ASSETS 1,100 2,764
INTANGIBLE ASSETS--net of accumulated
amortization of $4,417 (1996) and $4,181
(1995)--Note I 16,305 5,408
$282,100 $264,011
======== ========
</TABLE>
<TABLE>
<CAPTION>
February 2, November 3,
1996 1995 (a)
---- --------
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Notes payable to banks $ 5,776 $ 5,154
Current portion of long-term debt--Note D 2,799 2,000
Accounts payable 29,851 30,786
Accrued expenses
Wages and commissions 23,316 23,403
Taxes other than income taxes 11,707 10,059
Insurance 18,606 18,893
Other 10,388 6,686
Customer advances and other liabilities 16,211 15,250
Income taxes 1,056 12,401
--------- ---------
TOTAL CURRENT LIABILITIES 119,710 124,632
LONG-TERM DEBT--Note D 31,116 28,819
DEFERRED INCOME TAXES 354 3,433
--------- ---------
151,180 156,884
MINORITY INTEREST--Note I 21,077
STOCKHOLDERS' EQUITY--Notes
D, E, F, and G
Preferred stock, par value $1.00
Authorized--500,000 shares;
issued--none
Common stock, par value $.10
Authorized--15,000,000 shares;
issued - 9,687,543 shares (1996)
and 9,664,794 shares (1995) 969 966
Paid-in capital 27,666 27,098
Retained earnings 81,424 79,157
Unrealized foreign currency
translation adjustment (267) (168)
Unrealized gain on
marketable securities 51 74
--------- ---------
109,843 107,127
$ 282,100 $ 264,011
========= =========
</TABLE>
(a) The Balance Sheet at November 3, 1995 has been derived from the audited
financial statements at that date.
See accompanying notes.
- 4 -
<PAGE> 5
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
February 2, January 27,
1996 1995
------------ -----------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,267 $ 2,023
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,188 2,796
Gain on sale of interest in subsidiaries (3,666)
Equity in net loss of joint ventures 1,957 1,448
Minority interest 69
Accounts receivable provisions 576 625
Amortization of deferred debenture costs,
debt discounts and other deferred expenses 274 202
Gains on foreign currency translation (257) (94)
(Gains) losses on dispositions of property,
plant, and equipment (25) 52
Deferred income tax provision (benefit) 859 (1,118)
Changes in operating assets and liabilities,
net of effect from acquisitions:
(Increase) decrease in accounts receivable 15,767 (3,673)
(Increase) decrease in inventories (1,946) 6,131
(Increase) decrease in prepaid expenses
and other current assets 1,178 (1,123)
(Increase) decrease in other assets 1,693 (974)
Decrease in accounts payable (4,676) (7,066)
Increase (decrease) in accrued expenses (59) 2,899
Increase in customer advances and
other liabilities 107 3,508
Increase (decrease) in income taxes payable (11,345) 2,036
-------- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 5,961 7,672
-------- -------
</TABLE>
- 5 -
<PAGE> 6
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)--Continued
<TABLE>
<CAPTION>
Three Months Ended
------------------
February 2, January 27,
1996 1995
------------- -------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of investments 1,047 7,000
Purchases of investments (1,061) (4,718)
Investment in joint venture (2,360) (1,387)
Cash of acquired subsidiaries, less transaction costs 8,421
Acquisition of subsidiary (1,006)
Proceeds from disposals of property, plant and
equipment 63 123
Purchases of property, plant and equipment (2,769) (2,493)
-------- --------
NET CASH PROVIDED BY (APPLIED TO)
INVESTING ACTIVITIES 2,335 (1,475)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt (500) (500)
Exercise of stock options 71 22
Increase in notes payable to banks 823 473
-------- --------
NET CASH PROVIDED BY (APPLIED TO)
FINANCING ACTIVITIES 394 (5)
-------- --------
Effect of exchange rate changes on cash 753 (31)
-------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 9,443 6,161
Cash and cash equivalents, beginning of period 25,350 17,049
-------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 34,793 $ 23,210
======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the period:
Interest expense $ 1,836 $ 2,571
Income taxes $ 11,697 $ 336
</TABLE>
See accompanying notes.
- 6 -
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note A--Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and Article 10 of
Regulation S-X and, therefore, do not include all information and footnotes
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 February 2, 1996 and results of operations and cash flows
for the three months ended February 2, 1996 and January 27, 1995. Operating
results for the three months ended February 2, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ending
November 1, 1996.
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, 1995. The accounting policies used in preparing these
financial statements are the same as those described in the Company's Annual
Report.
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. In March 1995, the limit was
increased to $45,000,000 and the agreement was extended to March 1998. As
collections reduce previously sold undivided interests, new receivables may be
sold up to the $45,000,000 level. At February 2, 1996 and November 3, 1995,
$30,000,000 of accounts receivable had 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 primarily on the
purchaser's borrowing costs incurred on short-term commercial paper which
financed the purchase of receivables. Other expense in the accompanying 1996 and
1995 statements of income include fees related to the agreement of $541,000 and
$312,000, 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.
- 7 -
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note C--Inventories
Inventories consist of:
<TABLE>
<CAPTION>
February 2, November 3,
1996 1995
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Services:
Accumulated unbilled costs on:
Service contracts $17,236 $15,909
Long-term contracts 3,827 2,980
------- -------
21,063 18,889
------- -------
Products:
Materials and work-in-process 6,570 4,818
Service parts 1,683 1,124
Finished goods 3,589 3,376
------- -------
11,842 9,318
------- -------
Total $32,905 $28,207
======= =======
</TABLE>
The cumulative amounts billed under service and long-term contracts of
$2,240,000 at February 2, 1996 and $3,469,000 at November 3, 1995 are credited
against the related costs in inventory. Substantially all of the amounts billed
have been collected.
- 8 -
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note D--Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
February 2, November 3,
1996 1995
----------- -----------
(Dollars in thousands)
<S> <C> <C>
12-3/8% Senior Subordinated Debentures, due
July 1, 1998--net of unamortized discount of
$33,000 - 1996 and $36,000 - 1995 (a) $22,822 $22,819
Term loan (b) 7,500 8,000
Notes payable (c) (d) 3,593
------- -------
33,915 30,819
Less amounts due within one year 2,799 2,000
------- -------
Total long-term debt $31,116 $28,819
======= =======
</TABLE>
(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. The debentures are subordinated to all existing
and future senior indebtedness (as defined) of the Company. At February 2, 1996,
the amount available for dividends, pursuant to the terms of the indenture under
which the debentures are issued, was $33,593,000 and, if no dividend payments
are made, the amount available for capital stock repurchases was $43,593,000.
However, under the terms of the term loan agreement, at such date, only
$28,230,000 was available for such payments (see (b) below).
(b) In October 1994, the Company entered into a $10,000,000 five-year loan
agreement with National Westminster Bank, which is secured by a deed of trust on
land and buildings (book value at February 2, 1996 - $15,292,000). The term loan
bears interest at 7.86% per annum and is repayable in twenty quarterly principal
installments of $500,000, together with interest. In October 1996, if certain
conditions are met, the loan may be extended for two years with a subsequent
reduction of principal payments to $225,000 per quarter and a final payment of
$1,725,000 due October, 2001. The agreement contains various financial
covenants, the most restrictive of which requires the Company to maintain a
tangible net worth of $86,000,000.
(c) Includes two notes payable (which bear interest at 90 day commercial paper
rates) each for $550,000, due on January 2, 1997 and January 2, 1998,
respectively.
(d) An unsecured loan of $2,493,000 from Chemical Bank was made to a foreign
subsidiary on January 18, 1996 to finance a printing press. The five-year loan,
guaranteed by the Company, is to be repaid in ten semi-annual payments including
interest calculated at LIBOR (5.4% at February 2, 1996) plus .25% beginning
September 15, 1996.
- 9 -
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note E--Stockholders' Equity
Changes in the major components of stockholders' equity for the three months
ended February 2, 1996 are as follows:
<TABLE>
<CAPTION>
Common Paid-In Retained
Stock Capital Earnings
----- ------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at November 3, 1995 $966 $27,098 $79,157
Net income for the three months 2,267
Issuance of 18,349 shares to ESOP 2 498
Stock options exercised - 4,400 shares 1 70
---- ------- -------
Balance at February 2, 1996 $969 $27,666 $81,424
==== ======= =======
</TABLE>
The other components of stockholders' equity are the unrealized gain on
marketable securities and the 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
The Company owns 12-1/2% of the voting stock of Pacific Access Pty. Ltd.
("Pacific Access"), an international joint venture in Australia. This venture,
which commenced operations in July 1991, assumed responsibility throughout
Australia for the marketing, sales and compilation functions of all yellow pages
directories of Telstra Corporation Ltd., ("Telstra"), the Australian
government-owned telephone company, under the terms of a twelve-year contract.
The venture produces a major portion of its revenues and significantly all of
its profits in the Company's second and third fiscal quarters. Telstra owns 50%
of the voting stock of Pacific Access. In the event of a change in control of
the Company, as defined, the Company may be required to sell its shares in the
venture to Telstra at a formula price based on various factors, including
earnings.
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. As of February 2, 1996, the Company has made investments in and loans
aggregating $9,929,000 to Telelistas Editora Ltda., a Brazilian company which
has a contract to publish Rio's telephone directories on behalf of TELERJ, the
government-owned telephone company. Such agreement resulted in the acquisition
of a 50% interest in the common shares together with 75% of the issued preferred
stock. The agreement, as amended, requires the Company to invest additional
amounts in the joint venture, as well as provide technology, expertise and key
personnel in directory production, sales and marketing.
As a result of the funding requirements, during the start-up period, the Company
is recognizing 75% of the losses incurred by the venture. At such time as the
venture becomes profitable, the Company will recognize 75% of the venture's net
income until start-up losses are recovered and 50% of any profits subsequent
thereto.
- 10 -
<PAGE> 11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note F--Summarized Financial Information of Joint Ventures--(Continued)
Consolidated retained earnings at February 2, 1996 included $4,205,000,
representing the undistributed earnings of the Australian joint venture. Income
taxes have been paid or provided on such earnings.
<TABLE>
<CAPTION>
February 2, 1996 November 3, 1995
----------------------------- ------------------------
(Dollars in thousands)
Company's Company's
Total Equity Total Equity
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Current assets $174,317 $270,495
Non-current assets 16,395 17,207
Current liabilities (137,387) (227,749)
Non-current liabilities (240) (259)
-------- -------
Equity of combined joint ventures $ 53,085 $ 59,694
======== ========
Equity of Australian joint venture (a) $ 48,409 $ 9,519 $ 55,733 $10,436
Equity of Brazilian joint venture 4,676 4,620 3,961 3,467
-------- ------- -------- -------
$ 53,085 $ 59,694
======== ========
Investments in joint ventures $14,139 $13,903
======= =======
</TABLE>
(a)-Pursuant to the Australian joint 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.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------
February 2, 1996 January 27, 1995
-------------------------------- ------------------------
(Dollars in thousands)
Company's Company's
Total Equity Total Equity
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenues $62,896 $70,782
Costs and expenses 73,892 79,104
Income tax benefit (3,271) (2,047)
------- -------
Net loss $(7,725) $(6,275)
======= =======
Net loss of Australian joint venture $(6,038) $ (749) $(5,032) $ (629)
Net loss of Brazilian joint venture (1,687) (1,208) (1,243) (819)
------- ------ ------- -------
$(7,725) $(6,275)
======= =======
Company's equity in net loss of joint ventures $(1,957) $(1,448)
======= =======
</TABLE>
- 11 -
<PAGE> 12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note G--Per Share Data
Per share data are computed on the basis of the weighted average number of
shares of common stock outstanding and, if applicable, the assumed exercise of
dilutive outstanding stock options based on the treasury stock method. Per share
data have been adjusted for the three months ended January 27, 1995, for the
effect of a two-for-one-stock split distributed on October 6, 1995.
Note H--Income Taxes
Significant components of the income tax expense (benefit) attributable to
operations are as follows:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
February 2, January 27,
1996 1995
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Current:
Federal $203 $1,658
Foreign (182) 212
State and local 454 597
------ ------
475 2,467
------ ------
Deferred:
Federal 803 (902)
State and local 56 (216)
------ ------
859 (1,118)
------ ------
$1,334 $1,349
====== ======
</TABLE>
Note I--Acquisition and Sale of Subsidiaries
On November 15, 1995, the Company acquired a technical services business for
$2,106,000 in cash and notes which resulted in an increase in intangible assets
of $2,052,000. The effect on operations for the three months ended January 27,
1995, assuming the acquisition occurred at the beginning of such period, is not
material.
On January 29, 1996, the Company merged its wholly-owned subsidiary, Autologic,
Incorporated and related foreign subsidiaries ("Autologic"), representing its
Electronic Publication and Typesetting Systems segment, with Information
International, Inc. ("Triple- I"), resulting in the formation of a new publicly
traded company, Autologic Information International, Inc. ("AII"). Triple-I was
a publicly traded company in the business of electronic publishing prepress
systems.
- 12 -
<PAGE> 13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note I--Acquisition and Sale of Subsidiaries (Continued)
In connection with the merger, the stockholders of Triple-I received 41% of
AII's common stock based on one share of AII being issued for each outstanding
share of Triple-I and the Company received 59% of the outstanding shares of AII
common stock.
The merger has been accounted for as a purchase of a 41% interest in Triple-I
and a corresponding sale of a 59% interest in Autologic to the former
shareholders of Triple-I. The accompanying 1996 financial statements include the
accounts of Autologic and Triple-I with the former Triple-I shareholders 41% in
AII shown as a Minority Interest in the Condensed Consolidated Balance Sheet.
The results of operations of Triple-I are included in the accompanying
consolidated statement of income since the date of acquisition. The sale of 41%
of Autologic resulted in a pretax gain of $3,666,000, net of transaction costs
and also resulted in 41% of Autologic's assets being reflected in the 1996
balance sheet at fair value, resulting in an intangible of $5,215,000 with a
corresponding increase in the minority interest. Amortization of such intangible
will be charged to the Minority Interest. In addition, the purchase of the
assets of Triple-I resulted in an intangible of $3,847,000. Such intangible will
be amortized over a period of five years.
In connection with the merger, Autologic restructured its operations and
included a charge of $700,000 related principally to the termination of
employees. Such charge is included in the results of operations for the three
months ended February 2, 1996.
The following unaudited pro forma information presents a summary of consolidated
results of operations as if the acquisitions had occurred at the beginning of
the respective periods with pro forma adjustments to give effect to amortization
of intangibles, minority interest share in operations and certain income tax
adjustments. The pro forma financial information is not necessarily indicative
of the results of operations as they would have been had the transactions been
effected on the assumed dates, or of future results of operations of the
consolidated entities.
<TABLE>
<CAPTION>
Three Months Ended
------------------
February 2, January 27,
1996 1995
----------- -----------
(Dollars in thousands, except
per share amounts)
<S> <C> <C>
Revenue $237,331 $192,515
Income from continuing operations $ 3,265 $ 2,479
Net income $ 3,265 $ 1,479
Income from continuing operations per share $ .34 $ .25
Net income per share $ .34 $ .15
</TABLE>
- 13 -
<PAGE> 14
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 2, 1996 COMPARED
TO THE THREE MONTHS ENDED JANUARY 27, 1995
The information which appears below relates to prior periods, the results of
which are not necessarily indicative of the results which may be expected for
any subsequent periods.
The following summarizes the results of operations by segment:
<TABLE>
<CAPTION>
For The Three Months Ended
--------------------------
February 2, January 27,
1996 1995
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Revenues:
Technical Services and Temporary Personnel $ 155,699 $ 118,918
Electronic Publication and Typesetting Systems 16,547 16,000
Telephone Directory 13,569 12,662
Engineering and Construction 19,491 14,603
Computer Systems 20,607 22,251
Equity in net loss of joint ventures (1,957) (1,448)
Gain on sale of interest in subsidiaries 3,666
Interest and other income-net 88 212
Elimination of intersegment revenues (1,100) (1,138)
--------- ---------
$ 226,610 $ 182,060
========= =========
Income Before Income Taxes
Operating Profit (Loss):
Technical Services and Temporary Personnel $ 5,444 $ 4,947
Electronic Publication and Typesetting Systems (2,410) 280
Telephone Directory (1,010) (1,032)
Engineering and Construction 1,361 344
Computer Systems 2,138 4,094
Eliminations 71 (22)
--------- ---------
Total Operating Profit 5,594 8,611
Equity in net loss of joint ventures (1,957) (1,448)
Gain on sale of interest in subsidiaries 3,666
Interest and other income-net 88 212
General corporate expenses (2,495) (2,376)
Interest expense (1,155) (1,686)
Foreign exchange gain (loss)--net (140) 59
--------- ---------
Income Before Income Taxes $ 3,601 $ 3,372
========= =========
</TABLE>
- 14 -
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED FEBRUARY 2, 1996 COMPARED
TO THE THREE MONTHS ENDED JANUARY 27, 1995--Continued
Results of Operations - Summary
In the three-month period of fiscal 1996, revenues increased by $44,550,000, or
24%, from fiscal 1995, as sales increased by $41,517,000, or 23%. Revenues in
the 1996 period included a gain of $3,666,000 from the sale of an interest in
the Company's Electronic Publication and Typesetting Systems segment. The
increase in sales resulted primarily from a $36,781,000 increase in sales of the
Technical Services and Temporary Personnel segment and a $4,888,000 increase in
sales of the Construction and Engineering segment.
The Company's pretax income was $3,601,000 in 1996, compared to $3,372,000 in
1995. The 1996 income included the $3,666,000 pretax gain discussed above. The
operating profit of the Company's segments decreased by $3,017,000 to $5,594,000
in 1996. The principal decreases in the segments' operating income were from the
Electronic Publication and Typesetting Systems segment, with a decrease of
$2,690,000 to a loss of $2,410,000 and the Computer Systems segment, with a
decrease of $1,956,000 to a profit of $2,138,000 partially offset by the
Engineering and Construction segment, where the $1,361,000 profit represented a
$1,017,000 favorable change from 1995.
Net income in the three months of 1996 was $2,267,000, compared to a net income
of $2,023,000 in the three months of 1995.
Results of Operations - By Segment
The Technical Services and Temporary Personnel segment's sales increased by
$36,781,000, or 31%, in 1996 to $155,699,000 and the segment's operating profit
increased by $497,000, or 10%, to $5,444,000 compared to $4,947,000 in 1995. The
segment will no longer provide services to one customer which accounted for
$6,300,000, or 4% of the segment's 1996 sales. Approximately $5,800,000 of the
segment's sales increase in 1996 was the result of business with new customers.
In addition, $8,000,000, or 22% of the sales increase was due to pass-through
costs primarily related to subcontractors to service large national contracts.
The increase in the segment's operating profit was due to the increased sales
volume, partially offset by a decrease in gross margin of approximately 1
percentage point, primarily due to higher subcontractor usage, billed without a
mark-up, and an increase in unemployment insurance costs.
The Electronic Publication and Typesetting Systems segment's sales increased by
$547,000, or 3%, to $16,547,000 in 1996, while the segment incurred an operating
loss of $2,410,000, compared to a profit of $280,000 in 1995. The sales increase
was primarily due to increased equipment sales in the European and Pacific
markets. The decrease in operating profit was due to a reduction in the gross
margin of 10 percentage points and a .7 percentage point increase in total
operating expenses expended per sales dollar, partially offset by the increased
sales volume. The decrease in the gross margin percentage resulted from a change
in the product mix (a decrease in sales of some high margin products and an
increase in sales of some low margin items which are in direct competition with
other manufacturers' products). In addition, the segment incurred $700,000 of
restructuring
- 15 -
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED FEBRUARY 2, 1996 COMPARED
TO THE THREE MONTHS ENDED JANUARY 27, 1995--Continued
charges and experienced a temporary delay in shipments due to the merger with
Triple-I. (See Note I). The markets in which the segment competes are marked by
rapidly changing technology, with sales in fiscal 1996 of equipment introduced
within the last three years comprising approximately 94% of equipment sales.
The Telephone Directory segment's sales increased by $907,000, or 7%, to
$13,569,000 in fiscal 1996, while the segment incurred an operating loss of
$1,010,000, a decrease of $22,000, as compared to a loss of $1,032,000 in 1995.
The sales increase is due to a $329,000 increase in telephone directory
production volume and an increase in independent directory sales by the
segment's DataNational division of 23%. The operating losses in 1996 and 1995
were due to start-up losses incurred in the automated production of newspaper
display advertisements, costs to enter a new regional independent directory
market and higher operating costs in the Uruguayan printing operation, partially
offset in 1996, by higher telephone directory production revenue. This segment's
services are rendered under various short and long-term contracts. Certain
contracts expire in fiscal 1996 through 2000, and there can be no assurance that
they will be renewed on similar terms or replaced.
The Engineering and Construction segment's sales increased by $4,888,000 to
$19,491,000 in fiscal 1996 and its operating profit was $1,361,000, an increase
of $1,017,000, as compared to $344,000 in 1995. The sales increase was due to a
53% increase in the construction division partially offset by a 4% decrease in
the business systems division. Operating results improved due to the increased
sales volume and a 7 percentage point decrease in overhead expended per sales
dollar, partially offset by a reduction in the gross margin of 2 percentage
points.
The Computer Systems segment's sales decreased by $1,644,000, or 7%, to
$20,607,000 in 1996 and its operating profit was $2,138,000, as compared to
$4,094,000 in 1995. The decrease in sales and operating profit was primarily due
to higher sales and profits on customer acceptance of Delta Operating Service
Systems (DOSS) in 1995, compared to 1996, partially offset by increased sales
and profits on conservation services to utilities. Under the completed contract
method of accounting used by this segment, revenues together with related costs
are recognized in income upon acceptance by the customer. Deliveries and
installations under other DOSS contracts continue and customer acceptances are
anticipated later in 1996. Profitability rates on such contracts are not
anticipated to be at the same levels as those earned on the DOSS contracts
accepted in fiscal 1995. This segment's results on a quarter-to-quarter basis
are highly dependent on the acceptance by customers under contract for the
segment's directory assistance systems, which occurs periodically rather than
evenly.
- 16 -
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED FEBRUARY 2, 1996 COMPARED
TO THE THREE MONTHS ENDED JANUARY 27, 1995--Continued
Results of Operations: Other
Other items, discussed on a consolidated basis, affecting the results of
operations for the three-month periods were:
Interest income increased by $125,000, or 26%, in 1996. The increase was
primarily due to additional funds invested.
The Company's equity in the net loss of its joint ventures was $1,957,000 in
1996, as compared to a loss of $1,448,000 in 1995. The increase was due to the
start-up and foreign currency related losses incurred by the Company's Brazilian
joint venture which began operations in July 1994. The Company's share of the
net loss of its Australian joint venture, which produces a major portion of its
revenues and significantly all of its profit in the Company's second and third
fiscal quarters, increased by $120,000 due to lower revenues.
Selling and administrative expenses increased by $1,698,000, or 17%, to
$11,449,000 in 1996 to support the increase in sales. However, these expenses
expressed as a percentage of sales were 5% in 1996 and 1995.
Research, development and engineering expenditures increased by $139,000, or 8%,
to $1,943,000 in 1996. The increase was due to additional product development by
the Computer Systems segment.
Depreciation and amortization increased by $392,000, or 14%, to $3,188,000 in
1996. The increase was due to increased fixed asset expenditures in fiscal 1994,
1995 and the three months of 1996.
Interest expense decreased by $531,000, or 31%, to $1,155,000 in 1996. The
decrease was primarily due to the redemption of $10,000,000, in May 1995 of the
Company's 12-3/8% Subordinated Debentures.
The Company's effective tax rate was reduced to 37% in 1996, from 40% in 1995.
The 1996 tax provision reflects full utilization of foreign tax credits
generated while such use in 1995 was limited due to tax code limitations.
- 17 -
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED FEBRUARY 2, 1996 COMPARED
TO THE THREE MONTHS ENDED JANUARY 27, 1995--Continued
Liquidity and Source of Capital
Cash and cash equivalents increased by $9,443,000 in 1996 to $34,793,000, and
working capital increased by $9,318,000 to $66,901,000. Cash flows from
operating activities for the three months ended February 2, 1996 were
$5,961,000. Many factors, reflected in the accompanying Consolidated Statements
of Cash Flows affected the amount of cash flows from operating activities.
Primary among the factors providing cash flows to operating activities in 1996
were the reduction in accounts receivable of $15,767,000 and the non-cash
expense of $3,188,000 for depreciation and amortization, partially offset by the
payment of income taxes of $11,697,000.
The principal factor in the cash provided by investing activities of $2,335,000
was the cash balance resulting from the acquisition of a subsidiary of
$8,421,000, net of transaction costs, partially offset by net increases in
property, plant and equipment of $2,706,000 and investment in joint ventures of
$2,360,000.
In addition to its cash and cash equivalents, at February 2, 1996, the Company's
investment portfolio, primarily U.S. Treasury Notes and certificates of deposit,
had a carrying value of $4,683,000. The Company also has a $10,000,000 credit
line with a domestic bank under a revolving credit agreement which expires
August 1, 1997, unless renewed. The Company had outstanding bank borrowing under
that line of $5,776,000 at February 2, 1996. In addition, at February 2, 1996,
the Company had the right to sell up to $15,000,000 of additional interest in
receivables under its existing sales program.
The Company believes that its current financial position, working capital and
future cash flows will be sufficient to fund its presently contemplated
operations and satisfy its debt obligations. The company has no material capital
commitments. The Company may determine, from time-to-time in the future, to buy
additional shares of its common stock and/or debentures in the market or in
privately negotiated transactions.
- 18 -
<PAGE> 19
PART II - OTHER INFORMATION
Items 1 through 5 were not applicable.
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:
The only report on Form 8-K filed during the quarter ended February 2,
1996 was a report dated January 29, 1996 (date of earliest event reported),
reporting Item 2. Acquisition or Disposition of Assets, and Item 7. Financial
Statements and Exhibits filing the following financial statements:
(i) The combined audited financial statements of Autologic,
Incorporated and Affiliates:
Combined Balance Sheets as at October 28, 1994 and
November 3, 1995, Combined Statements of Operations
for the years ended October 29, 1993, October 28, 1994
and November 3, 1995, Combined Statements of Parent's
Investment and Statements of Cash Flows for the years
ended October 29, 1993, October 28, 1994 and November
3, 1995.
(ii) The consolidated financial statements of Information
International, Inc.: Consolidated Balance Sheets as at
April 30, 1993, December 31, 1993 and 1994 (audited) and
September 30, 1995 (unaudited); Consolidated Statements
of Operations, Consolidated Statements of Shareholders'
Equity and Consolidated Statements of Cash Flows of
Information International, Inc. for the periods ended
April 30, 1992 and 1993, December 31, 1993 and 1994
(audited) and September 30, 1994 and 1995 (unaudited).
- 19 -
<PAGE> 20
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
(Signature)
Date: March 14, 1996 JACK EGAN
Vice President - Corporate
Accounting
(Principal Accounting Officer)
- 20 -
<PAGE> 21
EXHIBIT INDEX
Exhibit No. Description
- ---------- ------------
15.01 Letter from Ernst & Young LLP.
15.02 Letter from Ernst & Young LLP regarding interim
financial information.
27 Financial Data Schedule.
<PAGE> 1
ERNST & YOUNG LLP 787 Seventh Avenue Phone 212-773-3000
New York, New York 10019
INDEPENDENT ACCOUNTANTS' REPORT ON REVIEW OF INTERIM
FINANCIAL INFORMATION
Board of Directors
Volt Information Sciences, Inc.
We have reviewed the accompanying unaudited condensed consolidated balance sheet
of Volt Information Sciences, Inc. and subsidiaries as of February 2, 1996 and
the related condensed consolidated statements of income and cash flows for the
three month periods ended February 2, 1996 and January 27, 1995. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, which will be performed for the full
year with the objective of expressing an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the condensed consolidated interim financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of November 3, 1995, and the
related consolidated statements of income and cash flows for the year then
ended, not presented herein; and in our report dated January 2, 1996, we
expressed an unqualified opinion on these consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of November 3, 1995, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
Ernst & Young LLP
March 8, 1996
<PAGE> 1
March 14, 1996
Securities and Exchange Commission
Washington, DC 20549
We are aware of the incorporation by reference in Post-Effective Amendment No. 2
to Registration Statement No. 2-75618 on Form S-8 dated September 12, 1988, Post
Effective Amendment No. 3 to Registration Statement No. 2-70180 on Form S-8
dated April 8, 1983, Registration Statement No. 2-88018 on Form S-3 dated
December 1, 1983 and Registration Statement No. 33-18565 on Form S-8 dated
December 14, 1987 of Volt Information Sciences, Inc., of our report dated March
8, 1996 relating to the unaudited condensed consolidated interim financial
statements of Volt Information Sciences, Inc. which are included in its Form
10-Q for the quarter ended February 2, 1996.
Pursuant to Rule 43(c) of the Securities Act of 1933, our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
Ernst & Young LLP
New York, New York
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