<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 Six Months Ended May 2, 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 June 6,
1997 was 14,790,013.
<PAGE> 2
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Income Six Months
and Three Months Ended May 2, 1997 and May 3, 1996 3
Condensed Consolidated Balance Sheets
May 2, 1997 and November 1, 1996 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended May 2, 1997 and May 3, 1996 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations Six Months and Three Months Ended May 2, 1997,
Compared to the Six Months and Three Months Ended May 3, 1996 15
<CAPTION>
PART II - OTHER INFORMATION
<S> <C> <C>
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURE 25
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
----------------- ------------------
May 2, May 3, May 2, May 3,
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
REVENUES:
Sales of services $ 596,658 $ 434,950 $ 325,834 $ 226,473
Sales of products -- Note I 37,845 42,065 19,869 25,729
Equity in net income (loss) of joint ventures--Note F 3,600 (1,783) 948 174
Interest income 589 1,182 277 577
Gain on sale of interest in subsidiaries--Note H 3,666
Other income (expense) - net--Note B 188 (716) 14 (199)
------------ ------------ ------------ ------------
638,880 479,364 346,942 252,754
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales
Services -- Note J 554,566 398,640 300,950 206,045
Products -- Note I 22,740 28,137 11,628 15,666
Selling and administrative 24,872 24,087 12,974 12,729
Research, development & engineering 6,033 5,657 3,086 3,715
Depreciation and amortization 10,173 7,775 5,115 4,358
Foreign exchange (gain) loss - net (179) 277 116 137
Interest expense 2,922 2,360 1,427 1,205
------------ ------------ ------------ ------------
621,127 466,933 335,296 243,855
------------ ------------ ------------ ------------
Income from continuing operations before income
taxes and items shown below 17,753 12,431 11,646 8,899
Minority interests in net loss (income) of
consolidated subsidiaries--Note H 541 (98) 69 (167)
Income tax provision 6,119 5,035 4,581 3,701
------------ ------------ ------------ ------------
Income from continuing operations 12,175 7,298 7,134 5,031
Loss from discontinued operations--Note I (119) (100) (100)
------------ ------------ ------------ ------------
NET INCOME $ 12,056 $ 7,198 $ 7,134 $ 4,931
============ ============ ============ ============
(Per Share Data)
Income from continuing operations $ 0.81 $ 0.50 $ 0.47 $ 0.35
Loss from discontinued operations (0.01) (0.01) (0.01)
------------ ------------ ------------ ------------
Net income $ 0.80 $ 0.49 $ 0.47 $ 0.34
------------ ------------ ------------ ------------
Number of shares used in computation--Note G 15,026,700 14,521,010 15,035,564 14,531,315
============ ============ ============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
May 2, November 1,
1997 1996 (a)
-------- --------
ASSETS (Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 23,617 $ 13,277
Short-term investments 2,103 4,458
Trade accounts receivable less allowances of $5,252 (1997) and $5,191 (1996)--Note B 187,652 170,484
Inventories--Note C 33,080 31,646
Deferred income taxes 11,964 11,757
Prepaid expenses and other assets 10,285 11,524
-------- --------
TOTAL CURRENT ASSETS 268,701 243,146
Investment in securities 3,000
Investment in joint venture--Note F 11,503 11,179
Property, plant and equipment less allowances for depreciation and amortization
of $43,511 (1997) and $38,761 (1996)--Note D 63,531 64,869
Deferred income taxes and other assets 4,462 2,493
Intangible assets-net of accumulated amortization of $7,913 (1997) and $6,459
(1996)--Note H 14,163 15,457
-------- --------
$365,360 $337,144
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $ 7,157 $ 5,414
Current portion of long-term debt--Note D 1,949 1,949
Accounts payable 44,447 43,345
Accrued wages and commissions 31,257 29,998
Other accruals 32,948 29,712
Customer advances and other liabilities 23,797 16,215
Income taxes 2,084 3,022
-------- --------
TOTAL CURRENT LIABILITIES 143,639 129,655
Long-term debt--Note D 56,146 57,395
-------- --------
199,785 187,050
Minority interests--Note H 19,188 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 14,760,264 shares (1997) and 9,692,143 shares (1996) 1,476 969
Paid-in capital 31,309 27,763
Retained earnings 113,561 101,505
Other 41
-------- --------
146,387 130,237
-------- --------
$365,360 $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>
Six Months Ended
-------------------------
May 2, May 3,
1997 1996
-------- --------
(Dollars in thousands)
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 12,056 $ 7,198
Adjustments to reconcile to cash provided by
(used in) operating activities:
Loss from discontinued operations 119 100
Depreciation and amortization 10,173 7,775
Gain on sale of interest in subsidiaries (3,666)
Equity in net (income) loss of joint ventures (3,600) 1,783
Minority interests in net (loss) income of consolidated subsidiaries (541) 98
Accounts receivable provisions 1,559 1,325
Gains on foreign currency translation (426) (503)
Gains on dispositions of property, plant and equipment (131)
Deferred income tax (benefit) provision (561) 1,513
Other (11) (231)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (19,724) 9,008
(Increase) decrease in inventories (1,615) 1,402
Increase in prepaid expenses and other current assets (1,705) (851)
(Increase) decrease in other assets (1,393) 1,646
Increase (decrease) in accounts payable 1,090 (5,488)
Increase (decrease) in accrued expenses 5,041 (5,380)
Increase in customer advances and other liabilities 1,459 1,474
Decrease in income taxes payable (981) (11,607)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 940 5,465
-------- --------
</TABLE>
5
<PAGE> 6
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)--Continued
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
May 2, May 3,
1997 1996
-------- --------
(Dollars in thousands)
<S> <C> <C>
CASH PROVIDED BY (APPLIED TO) INVESTING ACTIVITIES
Maturities of investments 4,830 2,108
Purchases of investments (5,469) (2,122)
Investment in joint venture (151) (5,838)
Cash of acquired subsidiaries, less transaction costs 8,421
Acquisition of subsidiary (1,006)
Proceeds from disposals of property, plant and equipment 202 49
Purchases of property, plant and equipment (7,603) (10,316)
Proceeds from sale of joint venture 10,115
Deferred gain on sale of joint venture 2,550
-------- --------
NET CASH PROVIDED BY (APPLIED TO)
INVESTING ACTIVITIES 4,474 (8,704)
-------- --------
CASH PROVIDED BY FINANCING ACTIVITIES
Payment of long-term debt (1,249) (1,000)
Exercise of stock options 3,553 71
Increase in minority interests 154
Increase in notes payable to banks 2,027 920
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,331 145
-------- --------
Effect of exchange rate changes on cash 595 1,188
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 10,340 (1,906)
Cash and cash equivalents, beginning of period 13,277 25,350
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 23,617 $ 23,444
======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the period:
Interest expense $ 4,400 $ 2,354
Income taxes, net of refunds $ 6,176 $ 15,312
</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
consolidated financial position at May 2, 1997 and consolidated results of
operations for the six and three months ended May 2, 1997 and May 3, 1996 and
consolidated cash flows for the six months ended May 2, 1997 and May 3, 1996.
Operating results for the six and three months ended May 2, 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 that Report.
The 1996 financial statements have been restated to conform with the current
year's presentation.
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, which was
amended in March 1995 to extend through March 1998, to sell, on a limited
recourse basis, up to $45,000,000 of undivided interests in a designated pool of
certain eligible accounts receivable. At November 1, 1996, $13,000,000 of
interests in accounts receivable had been sold under this agreement; none were
sold at May 2, 1997. 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 1997 and 1996 statements of income includes fees related to the
agreement of $262,000 and $1,058,000 for the six months ended, and $35,000 and
$517,000 for the three months ended May 2, 1997 and May 3, 1996, 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.
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note C--Inventories
Inventories consist of:
<TABLE>
<CAPTION>
May 2, November 1,
1997 1996
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Services:
Accumulated unbilled costs on:
Service contracts $22,448 $17,651
Long-term contracts 1,359 1,694
------- -------
23,807 19,345
------- -------
Products:
Materials and work-in-process 5,430 7,911
Service parts 2,092 2,396
Finished goods 1,751 1,994
------- -------
9,273 12,301
------- -------
Total $33,080 $31,646
======= =======
</TABLE>
The cumulative amounts billed, principally under long-term contracts, at May 2,
1997 and November 1, 1996, of $10,828,000 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 $16,249,000
and $15,514,000 at May 2, 1997 and November 1, 1996, respectively.
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>
May 2, November 1,
1997 1996
----------- -----------
(Dollars in thousands)
<S> <C> <C>
7.92% Senior Notes (a) $50,000 $50,000
Term loan (b) 5,550 6,000
Notes payable (c) & (d) 2,545 3,344
------- -------
58,095 59,344
Less amounts due within one year 1,949 1,949
------- -------
Total long-term debt $56,146 $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 May 2, 1997 - $14,722,000). 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. The balance at November 1, 1996
included two notes payable, each for $550,000.
(d) An unsecured loan of $2,493,000 from The 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% May 2,
1997) plus .25%, through September 15, 2001.
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 six months ended
May 2, 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 six months 12,056
Issuance of 12,423 shares to ESOP 1 499
Stock options exercised - 134,610 shares 14 3,510
Stock award - 1,000 shares 29
Issuance of 4,920,088 shares of common stock
resulting from three-for-two stock split 492 (492)
------- -------- --------
Balance at May 2, 1997 $ 1,476 $ 31,309 $113,561
======= ======== ========
</TABLE>
On April 17, 1997, the Board of Directors declared a three-for-two stock split
of the Company's common stock distributed on May 27, 1997 to shareholders of
record as of the close of business on May 12, 1997. The balance sheet at May 2,
1997 has been adjusted to reflect these transactions.
The other components of stockholders' equity are an unrealized gain on
marketable securities and a 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 of the 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.
10
<PAGE> 11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note F--Summarized Financial Information of Joint Ventures (Continued)
Consolidated retained earnings at May 2, 1997 included $5,971,000, representing
the undistributed earnings of the Australian joint venture. United States income
taxes have been provided for the anticipated remittance of such earnings.
The following summarizes the financial information of the joint ventures:
<TABLE>
<CAPTION>
May 2, 1997 November 1, 1996
----------- ----------------
(Dollars in thousands)
Company's Company's
Total Equity Total Equity
--------- --------- ------- -------
<S> <C> <C> <C> <C>
Current assets $ 197,805 $ 308,561
Noncurrent assets 15,176 16,275
Current liabilities (147,655) (257,310)
Due to Volt (754) $ 754
Noncurrent liabilities (174) (209)
------- -------
Equity of combined joint ventures $ 65,152 $ 66,563
======= =======
Equity of Australian joint venture (a) $ 65,152 $ 11,503 $62,227 11,179
Equity of Brazilian joint venture 4,336 4,153
--------- --------- ------- ------
$65,152 $66,563
======= =======
Total investments in and advances to joint ventures 11,503 16,086
Included in prepaid expenses and other assets (b) 4,907
--------- -------
Investment in joint venture $ 11,503 $11,179
======= ======
</TABLE>
(a) Pursuant to the venture agreement, the initial capital contributions of all
ventures, 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.
11
<PAGE> 12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note F--Summarized Financial Information of Joint Ventures--(Continued)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------------------------------
May 2,1997 May 3,1996
---------- ----------
(Dollars in thousands)
Company's Company's
Total Equity Total Equity
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 255,507 $ 221,695
Costs and expenses 246,494 220,864
Income tax provision 2,324 1,309
--------- ---------
Net income (loss) $ 6,689 $ (478)
--------- ---------
Net income of Australian joint venture $ 3,497 $ 408 $ 2,168 $ 245
Net income (loss) of Brazilian joint venture 3,192 3,192 (2,646) (2,028)
--------- --------- --------- -------
$ 6,689 $ (478)
--------- --------
Company's equity in net income (loss) of joint ventures $ 3,600 $(1,783)
========= ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------
May 2,1997 May 3,1996
---------- ----------
(Dollars in thousands)
Company's Company's
Total Equity Total Equity
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $151,030 $158,799
Costs and expenses 138,625 146,972
Income tax provision 4,580 4,580
-------- --------
Net income $ 7,825 $ 7,247
-------- --------
Net income of Australian joint venture $ 7,825 $ 948 $ 8,206 $ 994
Net loss of Brazilian joint venture (959) (820)
-------- ----- -------- --------
$ 7,825 $ 7,247
-------- --------
Company's equity in net income of joint ventures $ 948 $ 174
===== ========
</TABLE>
12
<PAGE> 13
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 six and three months ended May 2, 1997 and May
3, 1996 for the effect of a three-for-two stock split declared on April 17, 1997
and distributed on May 27, 1997 to shareholders of record as of the close of
business on May 12, 1997.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share," which is required to be adopted by the Company in
fiscal year 1998. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating "basic" earnings per share,
the dilutive effect of stock options will be excluded. Basic earnings per share
will be slightly higher than per share data reported in the accompanying
financial statements.
Note H--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,
and AII is, 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 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 sheets. 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 merger, Autologic restructured its operations and incurred a charge of
$700,000 related principally to a reduction in Autologic's workforce as a result
of the merger. Such charge is included in the results of operations for the six
months ended May 3, 1996.
13
<PAGE> 14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note H--Acquisition and Sale of Subsidiaries (Continued)
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 interests 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>
Six Months Ended
----------------
May 3,
1996
----
(Dollars in thousands, except
per share amounts)
<S> <C>
Revenue $490,196
Net income $7,703
Net income per share $0.53
Note I--Discontinued Operations
</TABLE>
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 1997 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 1997 loss. The loss from discontinued operations for the six
months ended May 3, 1996 includes the Company's portion of an operating loss of
$170,000, net of a $105,000 tax benefit, on revenues of $111,000. The 1996
amounts have been restated to conform with the current year's presentation.
Note J--Significant Item in Operating Results
Net income for the six and three months ended May 3, 1996 include a cost
reduction of $2,625,000 ($1,600,000, net of taxes), or $0.11 per share, and
$2,029,000 ($1,236,000, net of taxes), or $0.09 per share, respectively, as a
result of an agreement to pay a premium to an insurance carrier to close out
prior years' retrospective insurance policies at an amount less than related
liabilities for workers' compensation insurance previously provided by the
Company. This adjustment had a favorable impact on the operating profit of the
Technical Services and Temporary Personnel segment for the six and three months
ended May 3, 1996 of $2,100,000 and $1,645,000, respectively. In addition, due
to a new arrangement with its insurance carrier, the Company's ongoing premiums
have been at a significantly lower rate.
14
<PAGE> 15
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS AND THREE MONTHS ENDED MAY 2, 1997 COMPARED
TO THE SIX MONTHS AND THREE MONTHS ENDED MAY 3, 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>
For the Six For the Three
Months Ended Months Ended
------------ ------------
May 2, May 3, May 2, May 3,
1997 1996 1997 1996
--------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues:
Technical Services and Temporary Personnel $ 462,474 $ 325,922 $ 251,882 $ 170,223
Telephone Directory 36,912 30,296 22,018 16,727
Telecommunications Services 63,323 42,542 35,255 23,051
Computer Systems 37,775 37,884 18,735 17,277
Electronic Publication and Typesetting Systems 38,010 42,381 19,916 25,834
Equity in net income (loss) of joint ventures 3,600 (1,783) 948 174
Gain on sale of interest in subsidiaries 3,666
Interest and other income - net 777 466 291 378
Elimination of intersegment revenues (3,991) (2,010) (2,103) (910)
--------- --------- --------- ---------
$ 638,880 $ 479,364 $ 346,942 $ 252,754
========= ========= ========= =========
Income from Continuing Operations Before
Minority Interests and Income Taxes:
Operating Profit (Loss):
Technical Services and Temporary Personnel $ 11,530 $ 13,150 $ 7,380 $ 7,706
Telephone Directory 858 (1,570) 1,539 (560)
Telecommunications Services 8,326 3,728 4,962 2,367
Computer Systems 1,181 3,397 283 1,259
Electronic Publication and Typesetting Systems (616) (1,180) 410 1,230
Elimination (12) 2
--------- --------- --------- ---------
Total Operating Profit 21,267 17,527 14,574 12,002
Equity in net income (loss) of joint ventures 3,600 (1,783) 948 174
Gain on sale of interest in subsidiaries 3,666
Interest and other income - net 777 466 291 378
General corporate expenses (5,148) (4,808) (2,624) (2,313)
Interest expense (2,922) (2,360) (1,427) (1,205)
Foreign exchange gain (loss) - net 179 (277) (116) (137)
--------- --------- --------- ---------
Income from Continuing Operations Before
Minority Interests and Income Taxes $ 17,753 $ 12,431 $ 11,646 $ 8,899
========= ========= ========= =========
</TABLE>
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
SIX MONTHS ENDED MAY 2, 1997 COMPARED
TO THE SIX MONTHS ENDED MAY 3, 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 other known and unknown risks, including
general economic, competitive and other business conditions, that 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 are discussed in the Company's Annual Report on Form 10-K for the year
ended November 1, 1996 and may be discussed in reports thereafter filed with the
Securities and Exchange Commission, including this Report.
Results of Operations - Summary
In the six-month period of fiscal 1997, revenues increased by $159,516,000, or
33%, from fiscal 1996, as sales increased by $157,488,000, or 33%. Revenues in
1997 included the Company's portion of joint venture earnings of $3,600,000,
compared with a loss in 1996 of $1,783,000. 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 $136,552,000 increase in sales of the Technical Services and Temporary
Personnel segment, a $20,781,000 increase in sales of the Telecommunications
Services segment and a $6,616,000 increase in sales of the Telephone Directory
segment, partially offset by a $4,371,000 decrease in sales of the Electronic
Publication and Typesetting Systems segment.
The Company's 1997 pretax income from continuing operations before minority
interests increased by $5,322,000, or 43% to $17,753,000. The 1997 income
included an increase of $5,383,000 in the Company's portion of joint venture
earnings while the 1996 income included the $3,666,000 non-recurring pretax gain
discussed above. The operating profit of the Company's segments increased by
$3,740,000, or 21%, to $21,267,000 in 1997. The principal increases in the
segments' operating profit were from the Telecommunications Services segment,
with an increase of $4,598,000, or 123%, to $8,326,000 and the Telephone
Directory segment with an improvement of $2,428,000, to a profit of $858,000.
The improvements in operating profit were partially offset by decreases in the
Computer Systems segment of $2,216,000, or 65%, to $1,181,000 and decreases in
the Technical Services and Temporary Personnel segment of $1,620,000, or 12%, to
$11,530,000.
The net income in the six months of 1997 was $12,056,000, compared to net income
of $7,198,000 in the six months of 1996.
Results of Operations - By Segment
The Technical Services and Temporary Personnel segment's sales increased by
$136,552,000, or 42%, in 1997 to $462,474,000, while the segment's operating
profit decreased by $1,620,000, or 12%, to $11,530,000, compared with
$13,150,000 in 1996. Approximately $36,964,000, or 27%, 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
$29,045,000 was
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
SIX MONTHS ENDED MAY 2, 1997 COMPARED
TO THE SIX MONTHS ENDED MAY 3, 1996--Continued
Results of Operations - By Segment --Continued
from business with new customers. The remaining increase of $78,340,000 was with
existing customers, partially offset by a $7,797,000 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 the absence, in 1997, of a
non-recurring 1996 favorable $2,100,000 retrospective workers' compensation
insurance adjustment (see Note J of Notes to Condensed Consolidated Financial
Statements), higher overhead costs and a decrease in gross margin of
approximately 0.7 percentage points, partially offset by the increase in sales
volume. The decrease in gross margin percentage was due to higher subcontractor
usage billed without a mark-up, offset, in part, by lower workers' compensation
insurance premiums. The loss of the high margin customer discussed above
accounted for the remainder of the gross margin decline. 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. As
revenues from the new national accounts reach their anticipated levels in the
second half of fiscal 1997, operating profits are expected to increase.
The Telephone Directory segment's sales increased by $6,616,000, or 22%, to
$36,912,000 in fiscal 1997, and its operating profit was $858,000 in 1997
compared with an operating loss of $1,570,000 in 1996. The sales increase was
principally due to a $1,211,000 increase in telephone directory production
volume, a $1,251,000 increase in system sales and a $2,524,000 increase in
Uruguayan printing volume. The increased profitability in 1997 was due to the
higher sales volume and the absence, in 1997, of start-up and other
non-recurring 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 19% of the segment's revenues for the six months 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 $20,781,000, or
49%, to $63,323,000 in fiscal 1997 and its operating profit increased by
$4,598,000, or 123%, to $8,326,000 in fiscal 1997. The sales increase was due to
a 33% increase in the Construction division and a 71% increase in the Business
Systems division. The sales increases resulted from several factors, including
required upgrading of core telecommunications infrastructure by existing
customers, the demand for the segment's services in the wireless area, and the
continued emphasis of outsourcing by the major telecommunications providers.
Operating results improved due to the increased sales volume, favorable gross
margins on existing business resulting in a 4.0 percentage point increase in
gross margins, compared to fiscal 1996, and a slight decrease in overhead costs
as a percentage of sales.
The Computer Systems segment's sales decreased by $109,000 to $37,775,000 in
1997 and its operating profit was $1,181,000, compared with $3,397,000 in 1996.
The decrease in sales and operating profit was primarily due to decreased sales
and profits on conservation services to utilities
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
SIX MONTHS ENDED MAY 2, 1997 COMPARED
TO THE SIX MONTHS ENDED MAY 3, 1996--Continued
Results of Operations - By Segment --Continued
due to the phase-out under a large contract with a customer which no longer
requires the segment's services and decreased profit on customer acceptance of
Delta Operating Service Systems in 1997, compared to 1996. 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. 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 decreased by
$4,371,000, or 10%, to $38,010,000 in 1997, while the segment incurred an
operating loss of $616,000, as compared to a loss of $1,180,000 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
six months of 1996 reflect three months results of Autologic on a stand-alone
basis and three months of the merged operations, while results for fiscal 1997
reflect the merged operations. The fiscal 1997 sales decrease resulted from a
decrease in sales of systems and equipment, primarily in the European market,
partially offset by an increase of customer service sales in the domestic
market. The decrease in operating loss in 1997 was due to a 7.6 percentage point
improvement in gross margins, and the absence of a $700,000 restructuring charge
related to the mergers recorded in the first quarter of fiscal 1996, partially
offset by decreased sales volume, a 6.9 percentage point increase in total
operating expenses expended per sales dollar and charges of $1,068,000 for
amortization of intangibles resulting from the merger, compared to $534,000 in
1996. The operating expenses increased due to the development of additional new
products and expansion into new markets. 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 89% of
equipment sales.
Results of Operations - Other
Other items, discussed on a consolidated basis, affecting the results of
operations for the six-month periods were:
Interest income decreased by $593,000, or 50%, in 1997, primarily due to the use
of excess funds to reduce sales of receivables under the Company's
securitization program.
Other income (expense) increased favorably by $904,000 in 1997 primarily due to
$796,000 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.
18
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
SIX MONTHS ENDED MAY 2, 1997 COMPARED
TO THE SIX MONTHS ENDED MAY 3, 1996--Continued
Results of Operations - Other--Continued
The Company's share of the net income of its joint ventures was $3,600,000 in
1997, compared to a loss of $1,783,000 in 1996. The improvement was due to an
increase in the Company's share of net income of its Brazilian and Australian
joint ventures. The Australian joint venture 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.
Research, development and engineering expenditures increased by $376,000, or 7%,
to $6,033,000 in 1997. The increase was due to additional product development by
the Computer Systems and the Electronic Publication and Typesetting Systems
segments, partially offset by a reduction of expenditures by the Telephone
Directories segment.
Depreciation and amortization increased by $2,398,000, or 31%, to $10,173,000 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 $179,000 in fiscal 1997 compared to a loss in 1996
of $277,000. 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 $562,000, or 24%, to $2,922,000 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,
in part, by the retirement of $22,855,000 of 12-3/8% Subordinated Debentures in
September 1996 using proceeds from the private placement.
The Company's effective tax rate was reduced to 34% in 1997 from 41% in 1996
principally due to the Company's share of the net income of its Brazilian joint
venture in fiscal 1997 which was offset against previous joint venture losses
for which no tax benefit had been recognized.
19
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED MAY 2, 1997 COMPARED
TO THE THREE MONTHS ENDED MAY 3, 1996
Results of Operations - Summary
In the three-month period of fiscal 1997, revenues increased by $94,188,000, or
37%, from fiscal 1996, as sales increased by $93,501,000, or 37%. Revenues in
1997 included the Company's portion of joint venture earnings of $948,000,
compared with $174,000 in 1996. The increase in 1997 sales resulted primarily
from a $81,659,000 increase in sales of the Technical Services and Temporary
Personnel segment, a $12,204,000 increase in sales of the Telecommunications
Services segment and a $5,291,000 increase in sales of the Telephone Directory
segment, partially offset by a $5,918,000 decrease in sales of the Electronic
Publication and Typesetting Systems segment.
The Company's 1997 pretax income from continuing operations before minority
interests increased by $2,747,000, or 31%, to $11,646,000. The 1997 income
included an increase of $774,000 in the Company's portion of joint venture
earnings. The operating profit of the Company's segments increased by
$2,572,000, or 21%, to $14,574,000 in 1997. The principal increases in the
segments' operating profit were from the Telecommunication Services segment,
with an increase of $2,595,000, or 110%, to $4,962,000 and the Telephone
Directory segment, with an improvement of $2,099,000 to a profit of $1,539,000.
The improvements in operating profit were partially offset by decreases in the
Computer Systems segment of $976,000, or 78%, to $283,000, and a decrease in the
Electronic Publication and Typesetting Systems segment of $820,000, or 67%, to
$410,000.
The net income in the three months of 1997 was $7,134,000, compared to net
income of $4,931,000 in the three months of 1996.
Results of Operations - By Segment
The Technical Services and Temporary Personnel segment's sales increased by
$81,659,000, or 48%, in 1997 to $251,882,000, while the segment's operating
profit decreased by $326,000, or 4%, to $7,380,000, compared with $7,706,000 in
1996. Approximately $21,716,000, or 27%, 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 $15,080,000 was
from business with new customers. The remaining increase of $44,863,000 was with
existing customers. The decrease in the segment's operating profit was due to
the absence, in 1997, of a non-recurring 1996 favorable $1,645,000 retrospective
workers' compensation insurance adjustment (see Note J of Notes to Condensed
Consolidated Financial Statements), higher overhead costs and a slight decrease
in gross margin of approximately 0.3 percentage points, partially offset by the
increase in sales volume. The decrease in gross margin percentage was due to
higher subcontractor usage billed without a mark-up, offset, in part, by lower
workers' compensation insurance premiums. 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. As revenues from
the national accounts reach their anticipated levels in the second half of
fiscal 1997, operating profits are expected to increase.
20
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED MAY 2, 1997 COMPARED
TO THE THREE MONTHS ENDED MAY 3, 1996--Continued
Results of Operations - By Segment --Continued
The Telephone Directory segment's sales increased by $5,291,000, or 32%, to
$22,018,000 in fiscal 1997, and its operating profit was $1,539,000 in 1997
compared with an operating loss of $560,000 in 1996. The sales increase was
primarily due to a $475,000 increase in telephone directory production volume, a
$1,270,000 increase in system sales, a $463,000 increase in Uruguayan printing
volume and an increase in independent directory sales of $1,844,000. The
increase in independent directory sales is due to a large directory which was
published in the first quarter of 1996, but which was published in the second
quarter of fiscal 1997. The decrease in the operating loss in 1997 was due to
the higher volume discussed above and the absence, in 1997, of start-up and
other non-recurring costs incurred in 1996. As discussed above, this segment's
services are rendered under various short and long-term contracts.
The Telecommunications Services segment's sales increased by $12,204,000, or
53%, to $35,255,000 in fiscal 1997 and its operating profit increased by
$2,595,000, or 110%, to $4,962,000 in fiscal 1997. The sales increase was due to
a 33% increase in the Construction division and a 94% increase in the Business
Systems division. The sales increases resulted from several factors, including
required upgrading of core telecommunications infrastructure by existing
customers, the demand for the segment's services in the wireless area, and the
continued emphasis of outsourcing by the major telecommunications providers.
Operating results improved due to the increased sales volume, favorable gross
margins on existing business resulting in a 3.2 percentage point increase in
gross margins, compared to fiscal 1996, and a slight decrease in overhead costs
as a percentage of sales.
The Computer Systems segment's sales increased by $1,458,000, or 8%, to
$18,735,000 in 1997 and its operating profit was $283,000, compared with
$1,259,000 in 1996. The increase in sales was primarily due to an increase in
sales of Delta Operating Service Systems in 1997, compared to 1996, partially
offset by decreased sales on conservation services to utilities due to the
phase-out under a large contract with a customer which no longer requires the
segment's services. The decreased operating profit was primarily due to
decreased profits on conservation services. 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. 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 decreased by
$5,918,000, or 23%, to $19,916,000 in 1997, and its operating profit decreased
to $410,000, compared with $1,230,000 in 1996. The fiscal 1997 sales decrease
resulted primarily from a decrease in sales of systems and equipment and
customer service sales in the domestic and international markets due to a
general softness in the market and increased competition. The decrease in 1997
operating profit was due to the sales decrease, partially offset by a 3.7
percentage point increase in gross margins. Although operating expenses
decreased by $472,000, expressed as a percentage of sales, they increased by 6.3
percentage points. 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 87% of equipment sales.
21
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Continued
THREE MONTHS ENDED MAY 2, 1997 COMPARED
TO THE THREE MONTHS ENDED MAY 3, 1996--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 decreased by $300,000, or 52%, in 1997, primarily due to the
reduction of funds available for investment as excess funds were used to reduce
sales of receivables under the Company's securitization program.
Other income (expense) changed favorably by $213,000 in 1997 primarily due to
$482,000 of lower fees paid resulting from the reduced level of sales of
receivables under the Company's securitization program, partially offset by an
increase in sundry expenses.
The Company's share of the net income of its joint ventures was $948,000 in
1997, compared to $174,000 in 1996. The improvement was due to the absence,
in 1997, of the Company's share of net loss of its Brazilian joint venture,
partially offset by a slight decrease in the Company's share of the net income
of its Australian joint venture.
Research, development and engineering expenditures decreased by $629,000, or
17%, to $3,086,000 in 1997. The decrease was due to a decrease in product
development by the Telephone Directory and Electronic Publication and
Typesetting Systems segments.
Depreciation and amortization increased by $757,000, or 17%, to $5,115,000 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.
Interest expense increased by $222,000, or 18%, to $1,427,000 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% Subordinated Debentures in September
1996.
22
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Sources of Capital
Cash and cash equivalents increased by $10,340,000 in 1997 to $23,617,000, and
working capital increased by $11,571,000 to $125,062,000. Operating activities
provided $940,000 of cash flows in the six months of fiscal 1997. Primary among
the factors providing cash flows to operating activities in 1997 were the
Company's net income of $12,056,000, augmented by $10,173,000 of depreciation
and amortization. Among the principal uses of cash in operating activities for
the six months ended May 2, 1997 were an increase in the level of accounts
receivable of $19,724,000, due to a $13,000,000 reduction in interests in
accounts receivable sold at May 2, 1997, compared to November 1, 1996 under
the Company's securitization program (see Note B in the Notes to Condensed
Consolidated Financial Statements).
The principal factor in the cash provided by investing activities of $4,474,000
were proceeds of $10,115,000 on the sale of the Brazilian joint venture and
$2,550,000 due to the deferral of the gain on the sale of the Brazilian joint
venture (see Note F in the Notes to Condensed Consolidated Financial
Statements), partially offset by expenditures for property, plant and equipment
of $7,603,000.
Financing activities provided $4,331,000 of cash from the exercise of employee
stock options of $3,553,000 and a net increase in borrowings of $778,000.
In addition to its cash and cash equivalents, at May 2, 1997, the Company's
short-term investment portfolio, primarily U.S. treasury notes and certificates
of deposit, had a carrying value of $2,103,000. 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 $4,298,000 at May 2, 1997. In addition, at May 2,
1997, the Company had the ability to sell up to $45,000,000 of interests 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."
23
<PAGE> 24
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:
No Reports on Form 8-K were filed during the second quarter of the year ended
May 2, 1997.
24
<PAGE> 25
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: June 12, 1997 JACK EGAN
Vice President - Corporate Accounting
(Principal Accounting Officer)
25
<PAGE> 26
EXHIBIT INDEX
Exhibit No. Description
15.01 Letter from Ernst & Young LLP
15.02 Letter from Ernst & Young LLP regarding interim
financial information.
27.01 Financial Data Schedule
<PAGE> 1
June 13, 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 June 3,
1997 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 May 2, 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
26
<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
To the Stockholders
Volt Information Sciences, Inc.
We have reviewed the accompanying unaudited condensed consolidated balance sheet
of Volt Information Sciences, Inc. and subsidiaries as of May 2, 1997, and the
related condensed consolidated statements of income for the six and three month
periods ended May 2, 1997 and May 3, 1996, and the related condensed
consolidated statements of cash flows for the six month periods ended May 2,
1997 and May 3, 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 these 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
June 3, 1997
27
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> MAY-02-1997
<CASH> 23,617
<SECURITIES> 2,103
<RECEIVABLES> 192,904
<ALLOWANCES> 5,252
<INVENTORY> 33,080
<CURRENT-ASSETS> 268,701
<PP&E> 107,042
<DEPRECIATION> 43,511
<TOTAL-ASSETS> 365,360
<CURRENT-LIABILITIES> 143,639
<BONDS> 56,146
0
0
<COMMON> 1,476
<OTHER-SE> 144,911
<TOTAL-LIABILITY-AND-EQUITY> 365,360
<SALES> 37,845
<TOTAL-REVENUES> 638,880
<CGS> 22,740
<TOTAL-COSTS> 577,306
<OTHER-EXPENSES> 39,340
<LOSS-PROVISION> 1,559
<INTEREST-EXPENSE> 2,922
<INCOME-PRETAX> 17,753
<INCOME-TAX> 6,119
<INCOME-CONTINUING> 12,175
<DISCONTINUED> (119)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,056
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
