<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 The Three Months Ended January 31, 1997
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
13, 1997 was 9,721,566.
<PAGE> 2
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
Three Months Ended January 31, 1997 and February 2, 1996 3
Condensed Consolidated Balance Sheets
January 31, 1997 and November 1, 1996 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended January 31, 1997 and February 2, 1996 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 January 31, 1997, Compared to the
Three Months Ended February 2, 1996 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURE 21
</TABLE>
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
------------------
January 31, February 2,
1997 1996
------------ -----------
(Dollars in thousands)
<S> <C> <C>
REVENUES
Sales of services $ 270,824 $ 208,477
Sales of products 17,976 16,336
Equity in net income (loss) of joint ventures--Note F 2,652 (1,957)
Interest income 312 605
Gain on sale of interest in subsidiaries--Note I 3,666
Other income (expense) - net--Note B 174 (517)
------------ -----------
291,938 226,610
------------ -----------
COSTS AND EXPENSES
Cost of sales
Services 253,616 192,595
Products 11,112 12,470
Selling and administrative 11,898 11,358
Research, development & engineering 2,947 1,943
Depreciation and amortization 5,058 3,417
Foreign exchange (gain) loss - net (295) 140
Interest expense 1,495 1,155
------------ -----------
285,831 223,078
------------ -----------
Income from continuing operations before income
taxes and items shown below 6,107 3,532
Minority interests in net loss of consolidated
subsidiaries -Note I 472 69
Income tax provision--Note H 1,538 1,334
------------ -----------
Income from continuing operations 5,041 2,267
Loss from discontinued operations--Note J (119)
------------ -----------
NET INCOME $ 4,922 $ 2,267
============ ===========
</TABLE>
<TABLE>
<CAPTION>
(Per Share Data)
<S> <C> <C>
Income from continuing operations $ .50 $ .23
Loss from discontinued operations (.01)
------------ -----------
Net income $ .49 $ .23
============ ===========
Number of shares used in computation
--Note G 10,011,890 9,673,803
============ ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
January 31, November 1,
1997 1996(a)
-------- --------
(Dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,359 $ 13,277
Short-term investments 4,385 4,458
Trade accounts receivable less allowances of
$5,314 (1997) and $5,191 (1996)--Note B 175,183 170,484
Inventories--Note C 31,396 31,646
Deferred income taxes 11,733 11,757
Prepaid expenses and other assets 8,699 11,524
-------- --------
TOTAL CURRENT ASSETS 242,755 243,146
INVESTMENTS IN SECURITIES 3,000
INVESTMENT IN JOINT VENTURE-- Note F 10,487 11,179
PROPERTY, PLANT AND EQUIPMENT--
at cost--Note D
Land and buildings 33,571 33,589
Machinery and equipment 67,721 65,778
Leasehold improvements 4,589 4,263
-------- --------
105,881 103,630
Less allowances for depreciation
and amortization 41,877 38,761
-------- --------
64,004 64,869
DEPOSITS, RECEIVABLES AND OTHER ASSETS 1,446 1,459
DEFERRED INCOME TAXES 1,754 1,034
INTANGIBLE ASSETS--net of accumulated
amortization of $7,187 (1997) and $6,459
(1996)--Note I 14,728 15,457
-------- --------
$338,174 $337,144
======== ========
</TABLE>
<TABLE>
<CAPTION>
January 31, November 1,
1997 1996(a)
--------- ---------
(Dollars in thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Notes payable to banks $ 4,012 $ 5,414
Current portion of long-term debt--Note D 1,949 1,949
Accounts payable 31,701 43,345
Accrued expenses
Wages and commissions 27,982 29,998
Taxes other than income taxes 13,828 12,149
Insurance 10,070 9,334
Other 9,147 8,229
Customer advances and other liabilities 23,896 16,215
Income taxes 3,902 3,022
--------- ---------
TOTAL CURRENT LIABILITIES 126,487 129,655
LONG-TERM DEBT--Note D 56,620 57,395
--------- ---------
183,107 187,050
MINORITY INTERESTS--Note I 19,257 19,857
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--30,000,000 shares;
issued 9,721,566 shares (1997)
and 9,692,143 shares (1996) 972 969
Paid-in capital 28,560 27,763
Retained earnings 106,427 101,505
Cumulative foreign currency
translation adjustment (153) (4)
Unrealized gain on marketable securities 4 4
--------- ---------
135,810 130,237
--------- ---------
$ 338,174 $ 337,144
========= =========
</TABLE>
(a) The Balance Sheet at November 1, 1996 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
------------------
January 31, February 2,
1997 1996
-------- --------
(Dollars in thousands)
<S> <C> <C>
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
Net income $ 4,922 $ 2,267
Adjustments to reconcile to cash (used in) provided
by operating activities:
Loss from discontinued operations 119
Depreciation and amortization 5,058 3,417
Gain on sale of interest in subsidiaries (3,666)
Equity in net (income) loss of joint ventures (2,652) 1,957
Minority interests (472) (69)
Accounts receivable provisions 843 576
Gains on foreign currency translation (243) (257)
Gains on dispositions of property,
plant and equipment (25)
Deferred income tax (benefit) provision (473) 859
Other 26 183
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (6,122) 15,767
Decrease (increase) in inventories 12 (1,946)
(Increase) decrease in prepaid expenses
and other current assets (21) 1,178
(Increase) decrease in other assets (20) 1,693
Decrease in accounts payable (11,309) (4,676)
Increase (decrease) in accrued expenses 557 (59)
Increase in customer advances and
other liabilities 5,203 107
Increase (decrease) in income taxes payable 837 (11,345)
-------- --------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES (3,735) 5,961
-------- --------
</TABLE>
5
<PAGE> 6
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)--Continued
<TABLE>
<CAPTION>
Three Months Ended
------------------
January 31, February 2,
1997 1996
-------- --------
(Dollars in thousands)
<S> <C> <C>
CASH PROVIDED BY INVESTING ACTIVITIES
Maturities of investments 2,443 1,047
Purchases of investments (5,366) (1,061)
Investments in joint ventures (151) (2,360)
Cash of acquired subsidiaries, less transaction costs 8,421
Acquisition of subsidiary (1,006)
Proceeds from disposals of property, plant and equipment 29 63
Purchases of property, plant and equipment (3,909) (2,769)
Proceeds from sale of joint venture 10,115
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 3,161 2,335
-------- --------
CASH (APPLIED TO) PROVIDED BY
FINANCING ACTIVITIES
Payment of long-term debt (775) (500)
Exercise of stock options 300 71
(Decrease) increase in notes payable to banks (1,222) 823
-------- --------
NET CASH (APPLIED TO) PROVIDED BY
FINANCING ACTIVITIES (1,697) 394
-------- --------
Effect of exchange rate changes on cash 353 753
-------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,918) 9,443
Cash and cash equivalents, beginning of period 13,277 25,350
-------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 11,359 $ 34,793
======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the period:
Interest expense $ 543 $ 1,836
Income taxes, net of refunds $ 988 $ 11,697
</TABLE>
See accompanying notes.
<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 January 31, 1997 and results of operations and cash flows
for the three months ended January 31, 1997 and February 2, 1996. Operating
results for the three months ended January 31, 1997 are not necessarily
indicative of the results that may be expected for the fiscal year ending
October 31, 1997.
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 1, 1996. 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 January 31, 1997 and November 1, 1996,
$5,000,000 and $13,000,000, respectively, of interests in 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
income (expense) in the accompanying statements of income includes fees related
to the agreement for the three month periods ended January 31, 1997 and February
2, 1996, of $227,000 and $541,000, 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, in the agreement, or exceeds a maximum
ratio of debt to tangible net worth.
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note C--Inventories
Inventories consist of:
<TABLE>
<CAPTION>
January 31, November 1,
1997 1996
------- -------
(Dollars in thousands)
<S> <C> <C>
Services:
Accumulated unbilled costs on:
Service contracts $19,255 $17,651
Long-term contracts 1,589 1,694
------- -------
20,844 19,345
------- -------
Products:
Materials and work-in-process 6,596 7,911
Service parts 2,110 2,396
Finished goods 1,846 1,994
------- -------
10,552 12,301
------- -------
Total $31,396 $31,646
======= =======
</TABLE>
The cumulative amounts billed, principally under long-term contracts at January
31, 1997 and November 1, 1996 of $5,823,000 and $3,418,000, respectively, are
credited against the related costs in inventory. Substantially all of the
amounts billed have been collected. Inventories have been reduced by valuation
allowances and accumulated amortization of rotable spare parts of $15,600,000
and $15,514,000 at January 31, 1997 and November 1, 1996, respectively.
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note D--Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 31, November 1,
1997 1996
------- -------
(Dollars in thousands)
<S> <C> <C>
7.92% Senior Notes (a) $50,000 $50,000
Term loan (b) 5,775 6,000
Notes payable (c) & (d) 2,794 3,344
------- -------
58,569 59,344
Less amounts due within one year 1,949 1,949
------- -------
Total long-term debt $56,620 $57,395
======= =======
</TABLE>
(a) On August 28, 1996, the Company issued $50,000,000 of Senior Notes in a
private placement with institutional investors. The notes, which have a term of
eight years, bear interest at 7.92% per annum, payable semi-annually on February
28 and August 28, and provide for amortization of principal in five equal annual
installments, beginning in August 2000. The notes were issued pursuant to Note
Purchase Agreements, which contain various affirmative and negative covenants,
the most restrictive of which requires the Company to maintain a consolidated
net worth of $93,225,000.
(b) In October 1994, the Company entered into a $10,000,000 loan agreement with
Fleet Bank, which is secured by a deed of trust on land and buildings (book
value at January 31, 1997 - $14,872,000). The loan, which bears interest at
7.86% per annum, requires principal payments of $225,000 per quarter and a final
payment of $1,725,000 due October 2001.
(c) Includes a note payable (which bears interest at 90 day commercial paper
rates) for $550,000, due on January 2, 1998.
(d) An unsecured loan of $2,493,000 from Chase Manhattan Bank was made to a
foreign subsidiary on January 18, 1996 to finance the acquisition of a printing
press. The five-year loan, guaranteed by the Company, is to be repaid in
semi-annual payments of $249,000, plus interest calculated at LIBOR (5.5%
January 31, 1997) plus .25%, through September 15, 2001.
<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 January 31, 1997 are as follows:
<TABLE>
<CAPTION>
Common Paid-In Retained
Stock Capital Earnings
----- ------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at November 1, 1996 $ 969 $ 27,763 $101,505
Net income for the three months 4,922
Issuance of 12,423 shares to ESOP 1 499
Stock options exercised - 16,000 shares 2 269
Stock award - 1,000 shares 29
-------- -------- --------
Balance at January 31, 1997 $ 972 $ 28,560 $106,427
======== ======== ========
</TABLE>
The other components of stockholders' equity are the unrealized gain on
marketable securities and the cumulative unrealized foreign currency translation
adjustment due to the Company's European subsidiary and its investment in its
Australian joint venture, whose functional currencies are the local currencies.
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 share of the
venture to Telstra at a formula price based on various factors, including
earnings.
In January 1997, the Company sold its interest in Telelistas Editora Ltda.,
("Telelistas"), a Brazilian joint venture, which is the official publisher of
telephone directories in Rio de Janeiro for the government-owned telephone
company. Due to the Company's guarantee of certain venture's obligations, the
gain on the sale of approximately $2,550,000, has been deferred until such
guarantees are repaid. However, income earned by the venture of $3,192,000,
through the date of sale are included in Equity in net income (loss) of joint
ventures.
Consolidated retained earnings at January 31, 1997 included $5,008,000,
representing the undistributed earnings of the Australian joint venture. United
States income taxes have been provided for the anticipated remittance of such
earnings.
<PAGE> 11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note F--Summarized Financial Information of Joint Ventures--(Continued)
The following summarizes the financial information of the joint ventures:
<TABLE>
<CAPTION>
January 31, 1997 November 1, 1996
---------------- ----------------
(Dollars in thousands)
Company's Company's
Total Equity Total Equity
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current assets $ 171,113 $ 308,561
Noncurrent assets 14,930 16,275
Current liabilities (129,057) (257,310)
Due to Volt (754) $ 754
Noncurrent liabilities (189) (209)
--------- ---------
Equity of combined joint ventures $ 56,797 $ 66,563
========= =========
Equity of Australian joint venture (a) $ 56,797 $ 10,487 $ 62,227 11,179
Equity of Brazilian joint venture 4,336 4,153
--------- --------- --------- ---------
$ 56,797 $ 66,563
========= =========
Total investments in and advances to joint ventures 10,487 16,086
Included in prepaid expenses and other assets (b) 4,907
--------- ---------
Investment in joint venture $ 10,487 $ 11,179
========= =========
</TABLE>
(a) Pursuant to the 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) The advances to and equity in the Brazilian joint venture at November 1,
1996 is included in the prepaid expenses and other assets due to the sale of the
Company's interest in January 1997.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------
January 31, 1997 February 2, 1996
-------------------------- --------------------------
(Dollars in thousands)
Company's Company's
Total Equity Total Equity
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 104,477 $ 62,896
Costs and expenses 107,869 73,892
Income tax benefit (2,256) (3,271)
--------- ---------
Net loss $ (1,136) $ (7,725)
========= =========
Net loss of Australian joint venture $ (4,328) $ (540) $ (6,038) $ (749)
Net income (loss) of Brazilian joint venture 3,192 3,192 (1,687) (1,208)
--------- --------- --------- ---------
$ (1,136) $ (7,725)
========= =========
Company's equity in net income (loss) of joint ventures $ 2,652 $ (1,957)
--------- ---------
</TABLE>
<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.
Note H--Income Taxes
Significant components of the income tax provision (benefit) attributable to
operations are as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
January 31, February 2,
1997 1996
------- -------
(Dollars in thousands)
<S> <C> <C>
Current:
Federal $ 1,650 $ 203
Foreign 58 (182)
State and local 303 454
------- -------
2,011 475
------- -------
Deferred:
Federal (397) 803
State and local (76) 56
------- -------
(473) 859
------- -------
$ 1,538 $ 1,334
======= =======
</TABLE>
Note I--Acquisition and Sale of Subsidiaries
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.
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 59% interest in Triple-I
and a corresponding sale of a 41% interest in Autologic to the former
shareholders of Triple-I. The accompanying 1996 financial statements include the
accounts of AII with the former Triple-I shareholders' 41% interest 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 condensed
consolidated statements 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 asset of $5,215,000 with
a corresponding increase in the minority interest. In addition, the purchase of
the assets of Triple-I resulted in an intangible of $3,847,000. These
intangibles are being amortized over a period of five years. In connection with
the
<PAGE> 13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note I--Acquisition and Sale of Subsidiaries (Continued)
merger, Autologic restructured its operations and incurred a charge of $700,000
related principally to a reduction in workforce as a result of the merger. 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 acquisition had occurred at the
beginning of the fiscal 1996 first quarter with pro forma adjustments to give
effect to amortization of intangibles, minority interest in operations and
certain income tax adjustments. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the acquisition occurred on
the date indicated or which may result in the future.
<TABLE>
<CAPTION>
Three Months Ended
------------------
February 2,
1996
----
(Dollars in thousands, except
per share amounts)
<S> <C>
Revenue $237,331
Net income $ 3,265
Net income per share $ .34
</TABLE>
Note J--Discontinued Operations
During the first quarter of 1997, the Company disposed of the assets and
discontinued Digiflex, its advertisement delivery operation. Digiflex, a
division of AII, was acquired at the end of January 1996. The loss from
discontinued operations represents the Company's portion (59%) of the operating
loss and loss on disposal, related to Digiflex. No income tax benefits have
been allocated to the loss.
<PAGE> 14
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THE THREE MONTHS ENDED FEBRUARY
2, 1996
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.
The following summarizes the unaudited results of operations by segment:
<TABLE>
<CAPTION>
Three Months Ended
January 31, February 2,
1997 1996
----------- ----------
(Dollars in thousands)
<S> <C> <C>
Revenues:
Technical Services and Temporary Personnel $210,592 $155,699
Telephone Directory 14,894 13,569
Telecommunications Services 28,068 19,491
Computer Systems 19,040 20,607
Electronic Publication and Typesetting Systems 18,094 16,547
Equity in net income (loss) of joint ventures 2,652 (1,957)
Gain on sale of interest in subsidiaries 3,666
Interest and other income-net 486 88
Elimination of intersegment revenues (1,888) (1,100)
-------- --------
$291,938 $226,610
======== ========
Income from Continuing Operations Before
Minority Interests and Income Taxes
Operating Profit (Loss):
Technical Services and Temporary Personnel $ 4,150 $ 5,444
Telephone Directory (681) (1,010)
Telecommunications Services 3,364 1,361
Computer Systems 898 2,138
Electronic Publication and Typesetting Systems (1,026) (2,410)
Elimination (12) 2
-------- --------
Total Operating Profit 6,693 5,525
Equity in net income (loss) of joint ventures 2,652 (1,957)
Gain on sale of interest in subsidiaries 3,666
Interest and other income-net 486 88
General corporate expenses (2,524) (2,495)
Interest expense (1,495) (1,155)
Foreign exchange gain (loss)--net 295 (140)
-------- --------
Income from Continuing Operations Before
Minority Interests and Income Taxes $ 6,107 $ 3,532
======== ========
</TABLE>
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Continued
THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THE THREE MONTHS ENDED FEBRUARY
2, 1996--Continued
This discussion and analysis contains forward-looking statements which, in
addition to assuming a continuation of the degree and timing of customer
utilization and rate of renewals of contracts with the Company at historical
levels, are subject to a number of known and unknown risks that, in addition to
general economic, competitive and other business conditions, could cause actual
results, performance and achievements to differ materially from those described
or implied in the forward-looking statements.
These and certain other factors may be discussed in the Company's Annual Report
on Form 10-K for the year ended November 1, 1996 and in reports thereafter filed
with the Securities and Exchange Commission, including in this Report.
Results of Operations - Summary
In the three-month period of fiscal 1997, revenues increased by $65,328,000, or
29%, from fiscal 1996, as sales increased by $63,987,000, or 28%. Revenues in
1997 included the Company's portion of joint venture earnings of $2,652,000,
compared with a loss in 1996 of $1,957,000. 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 1997 sales resulted primarily
from a $54,893,000 increase in sales of the Technical Services and Temporary
Personnel segment and a $8,577,000 increase in sales of the Telecommunications
Services segment.
The Company's 1997 pretax income from continuing operations before minority
interests increased by $2,575,000 or 73% to $6,107,000. The 1997 income included
an increase of $4,609,000 in the Company's portion of joint venture earnings
while the 1996 income included the $3,666,000 pretax gain discussed above. The
operating profit of the Company's segments increased by 21% or $1,168,000 to
$6,693,000 in 1997. The principal increases in the segments' operating profit
were from the Telecommunications Services segment, with an increase of 147% or
$2,003,000 to $3,364,000 and the Electronic Publication and Typesetting Systems
segment, whose operating loss was reduced to $1,026,000, compared to a loss of
$2,410,000 in 1996. The improvements in operating profit were partially offset
by decreases of 24% or $1,294,000 sustained by the Technical Services and
Temporary Personnel segment and 58% or $1,240,000 sustained by the Computer
Systems segment.
The net income in the three months of 1997 was $4,922,000, compared to net
income of $2,267,000 in the three months of 1996.
Results of Operations - By Segment
The Technical Services and Temporary Personnel segment's sales increased by
$54,893,000, or 35%, in 1997 to $210,592,000, while the segment's operating
profit decreased by $1,294,000 or 24%, to $4,150,000, compared with $5,444,000
in 1996. Approximately $15,230,000, or 28% of the segment's 1997 sales increase
was due to pass-through costs primarily related to the use of subcontractors to
service large national contracts billed without a mark-up, and $15,000,000 was
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Continued
THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THE THREE MONTHS ENDED FEBRUARY
2, 1996--Continued
Results of Operations - By Segment -- Continued
from business with new customers. The remainder of the increase was with
existing customers, partially offset by a $7,721,000 sales decrease due to a
high margin customer which no longer requires the segment's services. The
decrease in the segment's operating profit was due to higher overhead costs and
a decrease in gross margin of approximately 1.2 percentage points, partially
offset by the increase in sales volume. Overhead costs have increased due to
start-up costs related to new offices and staffing for recently won national
accounts, which are in the initial stages of their contracts. One-half of the
1.2 percentage point decrease in gross margin was due to higher subcontractor
usage billed without a mark-up. The loss of the high margin customer discussed
above and lower margins on additional business with the large national
contracts accounted for the remainder of the gross margin decline. As revenues
from these new contracts reach their anticipated levels in the second half of
fiscal 1997, operating profits should increase.
The Telephone Directory segment's sales increased by $1,325,000, or 10%, to
$14,894,000 in fiscal 1997, and its operating loss was reduced by $329,000 to
$681,000. The sales increase is due to a $536,000 increase in telephone
directory production volume and a $2,061,000 increase in Uruguayan printing
volume, partially offset by a decrease in independent directory sales of
$1,678,000. The decrease in independent directory sales is due to a large
directory which was published in the first quarter of 1996, but which will be
published in the second quarter of fiscal 1997. The decrease in the operating
loss in 1997 was due to the higher volume of telephone directory production and
Uruguayan printing and the absence, in 1997, of start-up costs incurred in 1996.
This segment's services are rendered under various short and long-term
contracts. A contract with one customer, which accounted for 24% of the
segment's revenues for the first quarter of fiscal 1997, is scheduled to expire
on December 31, 1997, with the customer having renewal options. However, the
segment has obtained several significant new contracts which have begun in
fiscal 1997. Other contracts are scheduled to expire in 1997 through 2001.
The Telecommunications Services segment's sales increased by 44%, or $8,577,000
to $28,068,000 in fiscal 1997 and its operating profit increased by 147%, or
$2,003,000 to $3,364,000 in fiscal 1997. The sales increase was due to a 32%
increase in the Construction division and a 48% increase in the Business Systems
division. The sales increases resulted from increased business with existing
customers, principally large telecommunications companies that are expanding and
upgrading their capabilities. Operating results improved due to the increased
sales volume, an increase in gross margin and a decrease in overhead costs
expressed as a percentage of sales.
The Computer Systems segment's sales decreased by $1,567,000, or 8%, to
$19,040,000 in 1997 and its operating profit was $898,000, compared with
$2,138,000 in 1996. The decrease in sales and operating profit was primarily due
to decreased sales and profits on customer acceptance of Delta Operating Service
Systems in 1997, compared to 1996, and decreased sales and profits on
conservation services to utilities due to the phase-out under a large contract
with a customer who no longer requires the segment's services. Under the
completed contract method of accounting used by
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Continued
THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THE THREE MONTHS ENDED FEBRUARY
2, 1996--Continued
Results of Operations - By Segment -- Continued
this segment, revenues together with related costs are recognized in income upon
acceptance by the customer. 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.
The Electronic Publication and Typesetting Systems segment's sales increased by
$1,547,000, or 9%, to $18,094,000 in 1997, while the segment incurred an
operating loss of $1,026,000, compared to a loss of $2,410,000 in 1996. Since
January 29, 1996, the segment has been comprised of the Company's former
Autologic, Incorporated subsidiary and related foreign subsidiaries
("Autologic"), which were merged on that date with Information International
Incorporated ("Triple-I") as a publicly held company. (See Note I in the Notes
to Condensed Consolidated Financial Statements). The results of operations for
the first quarter 1996 reflect the results of Autologic on a stand-alone basis,
while results for fiscal 1997 reflect the merged operations. The fiscal 1997
sales increase resulted primarily from the integration of the two businesses.
The decrease in operating loss in 1997 was due to a 13 percentage point increase
in gross margins, increased sales volume and a $700,000 restructuring charge
related to the merger recorded in 1996, partially offset by a 7 percentage point
increase in total operating expenses expended per sales dollar. The fiscal 1997
increase in operating expenses included a 46% increase in engineering, research
and development and a 19% increase in selling and administrative expenses. These
expenses increased at a greater rate than sales in 1997 due to the development
of additional new products and expansion into new markets. The first quarter of
1997 also included charges of $534,000 for amortization of intangibles resulting
from the merger which had no counterpart in 1996. The markets in which the
segment competes are marked by rapidly changing technology, with sales in
fiscal 1997 of equipment introduced within the last three years comprising
approximately 91% of equipment sales.
Results of Operations - Other
Other items, discussed on a consolidated basis, affecting the results of
operations for the three-month periods were:
Interest income decreased by $293,000, or 48%, in 1997, primarily due to the
reduction of funds available for investment. Excess funds were used to reduce
sales of receivables under the Company's securitization program.
Other income (expense) changed favorably by $691,000 in 1997 primarily due to
$314,000 of lower fees paid resulting from the reduced level of sales of
receivables under the Company's securitization program and an increase in sundry
income.
The Company's share of the net income of its joint ventures was $2,652,000 in
1997, as compared to a loss of $1,957,000 in 1996. The improvement was due to an
increase in the Company's share of net income of its' Brazilian joint venture
and a decrease in the Company's share of the net loss of
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Continued
THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THE THREE MONTHS ENDED FEBRUARY
2, 1996--Continued
Results of Operations - Other -- Continued
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.
In January 1997, the Company sold its interest in its' Brazilian joint venture.
Due to the guarantee of certain of the venture's obligations, the gain on the
sale of approximately $2,550,000 will be deferred until such guarantees are
released. However, income earned by the venture, due to the publication of the
Yellow Pages directory in Rio de Janeiro, through the date of sale are included
in Equity in net income (loss) of joint ventures.
Selling and administrative expenses increased by $540,000, or 5%, to $11,898,000
in 1997 to support the increase in sales. However, these expenses expressed as a
percentage of sales decreased to 4% in 1997 from 5% in 1996.
Research, development and engineering expenditures increased by $1,004,000, or
52%, to $2,947,000 in 1997. The increase was due to additional product
development by the Electronic Publication and Typesetting Systems and the
Computer Systems segments.
Depreciation and amortization increased by $1,641,000, or 48%, to $5,058,000 in
1997. The increase was due to increased fixed asset expenditures in fiscal 1996
and the amortization of intangibles which resulted from the 1996 Autologic
transaction.
The foreign exchange gain was $295,000 in fiscal 1997 compared to a loss in 1996
of $140,000. The gain in 1997 was due to favorable, and the loss in 1996 was due
to unfavorable, currency movements in the European currency markets. To reduce
the potential adverse impact from foreign currency changes on the Company's
foreign currency receivables, sales and firm commitments, foreign currency
options and forward contracts are purchased.
Interest expense increased by $340,000, or 29%, to $1,495,000 in 1997. The
increase was primarily due to an increase in long-term debt by the issuance in a
private placement in August 1996 of $50,000,000 of 7.92% Senior Notes, offset by
the retirement of $22,855,000 of 12-3/8% Debentures in September 1996 .
The Company's effective tax rate was reduced to 25% in 1997 from 37% in 1996
principally due to the Company's share of the net income of its Brazilian joint
venture in fiscal 1997 which was able to be offset against previous joint
venture losses for which no tax benefit had been recognized.
Liquidity and Sources of Capital
Cash and cash equivalents decreased by $1,918,000 in 1997 to $11,359,000, and
working capital increased by $2,777,000 to $116,268,000. Operating activities
used $3,070,000 of cash flows in the first quarter of fiscal 1997. Primary among
the factors providing cash flows to operating activities for the three months
ended January 31, 1997 were the Company's net income of $4,922,000, augmented
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Continued
THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THE THREE MONTHS ENDED FEBRUARY
2, 1996--Continued
Liquidity and Sources of Capital--Continued
by $5,058,000 of depreciation and amortization and increases in customer
advances and other liabilities of $5,203,000, primarily due to the deferral of
the gain on the sale of the Brazilian joint venture totaling $2,550,000 (See
Note F in the Notes to the Condensed Consolidated Financial Statements). Among
the principal uses of cash in operating activities for the three months ended
January 31, 1997, were an increase in the level of accounts receivable of
$6,122,000, due to an $8,000,000 reduction in interests in accounts receivable
sold at January 31, 1997 as compared to November 1, 1996 under the Company's
securitization program. (See Note B in the Notes to the Condensed Consolidated
Financial Statements) and a decrease in accounts payable of $11,309,000, was
due to the timing of vendor payments.
The principal factor in the cash provided by investing activities of $3,161,000
were proceeds of $10,115,000 on the sale of the Brazilian joint venture,
partially offset by expenditures for property, plant and equipment of $3,909,000
and the purchase of an investment for $3,000,000.
In addition to its cash and cash equivalents, at January 31, 1997, the Company's
short-term investment portfolio, primarily U.S. treasury notes and certificates
of deposit, had a carrying value of $4,385,000. 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
borrowings under that line of $1,842,000 at January 31, 1997. In addition, at
January 31 1997, the Company had the ability to sell up to $40,000,000 of
additional interest in receivables under its existing securitization 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
shares of its common stock.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which establishes a fair value based method of accounting for
stock-based compensation plans. As permitted by SFAS 123, the Company has
determined it will adopt the disclosure-only provision of SFAS 123 and will
otherwise continue to report under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
<PAGE> 20
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
15.01 Letter from Ernst & Young LLP
15.02 Letter from Ernst & Young LLP regarding interim financial information.
27.01 Financial Data Schedule
(b) Reports on Form 8-K:
The only Report on Form 8-K filed during the quarter ended January 31, 1997 was
a report dated January 9, 1997 (date of earliest event reported) reporting Item
5. Other events and Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits. No financial statements or pro forma financial
information were filed with that Report.
<PAGE> 21
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 13, 1997 JACK EGAN
Vice President - Corporate Accounting
(Principal Accounting Officer)
<PAGE> 1
March 14, 1997
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. 33-18565 on Form S-8 dated
December 14, 1987 and Registration Statement No. 333 - 13369 on Form S-8 dated
October 3, 1996 of Volt Information Sciences, Inc., of our report dated March 5,
1997 relating to the unaudited condensed consolidated interim financial
statements of Volt Information Sciences, Inc. which are included in it's Form
10-Q for the quarter ended January 31, 1997.
Pursuant to Rule 436(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
<PAGE> 1
[ERNST & YOUNG LLP LETTERHEAD]
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 January 31, 1997 and
the related condensed consolidated statements of income and cash flows for the
three month periods ended January 31, 1997 and February 2, 1996. 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 of Volt Information Sciences, Inc. as
of November 1, 1996, and the related consolidated statements of income and cash
flows for the year then ended, not presented herein, and in our report dated
January 8, 1997, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of November 1, 1996, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Ernst & Young LLP
March 5, 1997
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