<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 April 30, 1999
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 4,
1999 was 15,025,356.
<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 - Six Months
and Three Months Ended April 30, 1999 and May 1, 1998 3
Condensed Consolidated Balance Sheets - April 30, 1999
and October 30, 1998 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended April 30, 1999 and May 1, 1998 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Qualitative and Quantitative Disclosures about Market Risk 23
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURE 26
</TABLE>
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<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
------------------------------- -------------------------------
April 30, May 1, April 30, May 1,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
NET SALES:<S> <C> <C> <C> <C>
Sales of services $ 983,948 $ 733,712 $ 512,770 $ 390,132
Sales of products 38,247 40,386 19,503 22,451
----------- ----------- ----------- -----------
1,022,195 774,098 532,273 412,583
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales
Services 934,408 692,643 482,649 367,410
Products 23,035 23,731 11,782 13,625
Selling and administrative 34,187 27,656 18,755 14,385
Research, development and engineering 5,051 6,504 2,659 3,537
Depreciation and amortization 11,690 10,122 5,983 5,093
----------- ----------- ----------- -----------
1,008,371 760,656 521,828 404,050
----------- ----------- ----------- -----------
OPERATING PROFIT 13,824 13,442 10,445 8,533
OTHER INCOME (EXPENSE):
Interest income 946 1,315 386 554
Other income - net 69 118 147 90
Gain on sale of joint venture--Note E 1,272
Foreign exchange loss - net (208) (657) (79) (204)
Interest expense (4,105) (2,787) (2,079) (1,413)
----------- ----------- ----------- -----------
Income before income taxes and minority interests 11,798 11,431 8,820 7,560
Income tax provision (4,130) (4,734) (3,461) (3,193)
Minority interests in net loss (income)
of consolidated subsidiaries 572 207 319 (48)
----------- ----------- ----------- -----------
NET INCOME $ 8,240 $ 6,904 $ 5,678 $ 4,319
=========== =========== =========== ===========
Per Share Data
--------------
Basic:
Net income per share $ 0.55 $ 0.46 $ 0.38 $ 0.29
=========== =========== =========== ===========
Weighted average number of shares--Note F 15,018,426 14,902,093 15,025,345 14,912,082
=========== =========== =========== ===========
Diluted:
Net income per share $ 0.54 $ 0.45 $ 0.38 $ 0.28
=========== =========== =========== ===========
Weighted average number of shares--Note F 15,129,750 15,362,239 15,089,546 15,344,831
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
-3-
<PAGE> 4
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
April 30, October 30,
1999 1998 (a)
--------- ---------
ASSETS (Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 23,731 $ 31,625
Short-term investments 1,878 1,099
Trade accounts receivable less allowances of $6,310 (1999) and $5,822 (1998) 298,288 286,655
Inventories--Note B 48,302 38,997
Deferred income taxes 8,336 8,065
Prepaid expenses and other assets 10,382 7,005
--------- ---------
TOTAL CURRENT ASSETS 390,917 373,446
Investment in joint venture--Note E 1,324
Investment in securities 448 1,489
Property, plant and equipment less allowances for depreciation and amortization
of $56,058 (1999) and $51,134 (1998)--Note C 72,965 67,564
Deferred income taxes and other assets 10,597 7,190
Intangible assets-net of accumulated amortization of $15,305 (1999) and
$12,553 (1998)--Note G 53,902 19,637
--------- ---------
$ 530,153 $ 469,326
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks--Note C $ 46,307 $ 4,128
Current portion of long-term debt--Note C 2,654 1,399
Accounts payable 97,671 91,377
Accrued wages and commissions 39,941 39,457
Other accruals 26,955 28,044
Customer advances and other liabilities 26,787 23,480
Income taxes 5,333 6,725
--------- ---------
TOTAL CURRENT LIABILITIES 245,648 194,610
LONG-TERM DEBT--Note C 56,493 54,048
MINORITY INTERESTS 18,871 19,446
STOCKHOLDERS' EQUITY--Notes C and D
Preferred stock, par value $1.00; Authorized--500,000 shares; issued--none
Common stock, par value $.10; Authorized--30,000,000 shares; issued and
outstanding--15,025,356 shares (1999) and 15,006,164 shares (1998) 1,503 1,501
Paid-in capital 37,556 37,127
Retained earnings 170,498 162,258
Accumulated other comprehensive (loss) income (416) 336
--------- ---------
209,141 201,222
--------- ---------
$ 530,153 $ 469,326
========= =========
</TABLE>
(a) The Balance Sheet at October 30, 1998 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
-------------------------
April 30, May 1,
1999 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
CASH PROVIDED BY (APPLIED TO) OPERATING ACTIVITIES
Net income $ 8,240 $ 6,904
Adjustments to reconcile net income to cash provided by (applied to)
operating activities:
Depreciation and amortization 11,690 10,122
Gain on sale of joint venture (1,272)
Minority interests (572) (207)
Accounts receivable provisions 1,990 1,293
(Gain) loss on foreign currency translation (166) 127
Deferred income tax (benefit) provision (695) 1,282
Other 111 50
Changes in operating assets and liabilities:
Increase in accounts receivable (3,863) (23,994)
Increase in inventories (9,236) (2,272)
Increase in prepaid expenses and other current assets (2,904) (1,249)
Decrease (increase) in other assets 81 (3,154)
(Decrease) increase in accounts payable (52) 1,102
(Decrease) increase in accrued expenses (1,932) 1,255
Increase in customer advances and other liabilities 4,465 6,212
Decrease in income taxes payable (2,485) (7,442)
-------- --------
NET CASH PROVIDED BY (APPLIED TO) OPERATING ACTIVITIES 3,400 (9,971)
-------- --------
</TABLE>
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<PAGE> 6
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)--Continued
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
April 30, May 1,
1999 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
CASH PROVIDED BY (APPLIED TO) INVESTING ACTIVITIES
Sales of investments 2,408
Maturities of investments 211
Purchases of investments (3,101) (214)
Investment in joint venture (1,330)
Acquisitions (38,751) (1,980)
Proceeds from disposals of property, plant and equipment 145 338
Purchases of property, plant and equipment (12,231) (15,586)
Other (230) (10)
-------- --------
NET CASH APPLIED TO INVESTING ACTIVITIES (53,090) (17,241)
-------- --------
CASH PROVIDED BY (APPLIED TO) FINANCING ACTIVITIES
Payment of long-term debt (699) (1,250)
Exercise of stock options 21 686
Increase (decrease) in notes payable to banks 42,027 (1,207)
-------- --------
NET CASH PROVIDED BY (APPLIED TO) FINANCING ACTIVITIES 41,349 (1,771)
-------- --------
Effect of exchange rate changes on cash 447 (75)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,894) (29,058)
Cash and cash equivalents, beginning of period 31,625 54,234
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 23,731 $ 25,176
======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the period:
Interest, including $58 capitalized in 1999 $ 4,150 $ 2,946
Income taxes, net of refunds $ 6,216 $ 10,553
Obligation incurred in connection with the purchase and support of
an Enterprise Resource Planning System $ 4,334
</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
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the
Company's consolidated financial position at April 30, 1999, consolidated
results of operations for the six and three months ended April 30, 1999 and May
1, 1998 and consolidated cash flows for the six months ended April 30, 1999 and
May 1, 1998. Operating results for interim periods are not necessarily
indicative of the results that may be expected for the fiscal year.
These statements should be read in conjunction with the financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended October 30, 1998. The accounting policies used in preparing these
financial statements are the same as those described in that Report. The 1998
financial statements contained herein have been reclassified to conform with the
current year's presentation. The Company's fiscal year ends on the Friday
nearest October 31.
Note B--Inventories
Inventories consist of:
<TABLE>
<CAPTION>
April 30, October 30,
1999 1998
------- -------
(Dollars in thousands)
<S> <C> <C>
Services:
Accumulated unbilled costs on:
Service contracts $36,177 $27,579
Long-term contracts 108
------- -------
36,177 27,687
------- -------
Products:
Materials 5,743 5,671
Work-in-process 2,868 2,713
Service parts 1,346 1,819
Finished goods 2,168 1,107
------- -------
12,125 11,310
------- -------
Total $48,302 $38,997
======= =======
</TABLE>
The cumulative amounts billed, principally under service contracts at April 30,
1999 and long-term contracts at October 30, 1998, of $5.0 million and $25.7
million, respectively, are credited against the related costs in inventory.
Substantially all of the amounts billed have been collected.
- 7 -
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note C--Long-Term Debt and Financial Arrangements
Long-term debt consists of the following:
<TABLE>
<CAPTION>
April 30, October 30,
1999 1998
------- -------
(Dollars in thousands)
<S> <C> <C>
7.92% Senior Notes (a) $50,000 $50,000
Term loan (b) 3,750 4,200
Notes and other obligations payable (c) & (d) 5,397 1,247
------- -------
59,147 55,447
Less amounts due within one year 2,654 1,399
------- -------
Total long-term debt $56,493 $54,048
======= =======
</TABLE>
(a) On August 28, 1996, the Company issued $50.0 million of Senior Notes in a
private placement with institutional investors. The notes bear interest at 7.92%
per annum, payable semi-annually on February 28 and August 28, and provide for
amortization of principal in five equal annual installments beginning in August
2000. The notes were issued pursuant to Note Purchase Agreements, which contain
various affirmative and negative covenants. One such covenant requires the
Company to maintain a level of consolidated net worth which, under a formula,
was $123.6 million at April 30, 1999. However, the terms of the Company's
revolving Credit Agreement require the Company to maintain a consolidated net
worth of $140.3 million at April 30, 1999 (see below).
(b) In October 1994, the Company entered into a $10.0 million loan agreement
with Fleet Bank, which is secured by a deed of trust on land and buildings (book
value at April 30, 1999 - $13.9 million). The loan, which bears interest at
7.86% per annum, requires principal payments of $225,000 per quarter and a final
payment of $1.7 million in October 2001.
(c) A loan of $2.5 million from the Chase Manhattan Bank was made to a foreign
subsidiary on January 18, 1996 to finance the acquisition of a printing press.
The loan, guaranteed by the Company, is being repaid in semi-annual payments of
$249,000, plus interest calculated at LIBOR (4.88% at April 30, 1999) plus
0.25%, through March 15, 2001.
(d) On February 9, 1999, the Company entered into a $5.6 million Installment
Payment Agreement to purchase and maintain an Enterprise Resource Planning
System for internal use, which has been capitalized and will be amortized over a
seven year period. The Agreement provides for amortization of interest,
calculated at 6%, and principal in five equal annual installments of $1.3
million; the first payment was made in February 1999, with the final payment due
in February 2003.
In addition, on July 2, 1997, the Company entered into a $75.0 million,
three-year, syndicated, unsecured, revolving Credit Agreement ("Credit
Agreement") with a group of banks for which the Chase Manhattan Bank ("Chase")
and Fleet Bank, N.A. are serving as co-agents. In December 1998, the Company
amended and restated the Credit Agreement to extend it to January 2002.
Borrowings under the facility bear interest at various interest rates, with the
Company having the option to select the most favorable rate at the time of
borrowing. The Credit Agreement provides for, among other things, the
maintenance of various financial ratios and covenants, including a requirement
that the Company maintain consolidated net worth (as defined) of $110.0 million,
plus 50% of consolidated net income for each completed fiscal year (resulting in
a requirement at April 30, 1999 to maintain consolidated net worth of $140.3
million), and certain limitations on the extent to which the Company and its
- 8 -
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note C--Long-Term Debt and Financial Arrangements--Continued
subsidiaries may incur additional indebtedness, liens and sale of assets. There
were $36.4 million in outstanding borrowings under the Agreement at April 30,
1999 (see Note G).
Note D--Stockholders' Equity
Changes in the major components of stockholders' equity for the six months ended
April 30, 1999 are as follows:
<TABLE>
<CAPTION>
Common Paid-In Retained
Stock Capital Earnings
----- ------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at October 30, 1998 $ 1,501 $ 37,127 $162,258
Net income for the six months 8,240
Issuance of 18,172 shares to ESOP 2 408
Stock options exercised - 1,020 shares 21
-------- -------- --------
Balance at April 30, 1999 $ 1,503 $ 37,556 $170,498
======== ======== ========
</TABLE>
The accumulated other comprehensive income (loss) consists of a cumulative
unrealized foreign currency translation adjustment of ($232,000) and ($114,000)
at April 30, 1999 and October 30, 1998, respectively, and an unrealized (loss)
gain in marketable securities of ($184,000) and $450,000 at April 30, 1999 and
October 30, 1998, respectively. Changes in these items, net of income taxes, are
included in the calculation of comprehensive income as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
----------------------- -----------------------
April 30, May 1, April 30, May 1,
1999 1998 1999 1998
------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income $ 8,240 $ 6,904 $ 5,678 $ 4,319
Foreign currency translation adjustments - net (118) 41 (42) (30)
Unrealized losses on marketable securities - net (634) (223)
------- ------- ------- -------
Total comprehensive income $ 7,488 $ 6,945 $ 5,413 $ 4,289
======= ======= ======= =======
</TABLE>
Note E--Joint Ventures
In the first quarter of 1999, the Company recognized $1.3 million of a
previously deferred $2.0 million gain on the sale in 1997 of its interest in a
Brazilian joint venture. In connection with the sale, the Company granted credit
with respect to the printing of telephone directories by the Company's Uruguayan
division. During the 1999 first quarter, the venture repaid certain of its
obligations. The balance of the deferred gain will be recognized as the
Uruguayan division collects its receivables from the venture.
- 9 -
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note E--Joint Ventures--Continued
The Company owns a 50% interest in westVista Advertising Services, a joint
venture with a subsidiary of TELUS Corporation. The venture was formed in fiscal
1998 for the acquisition or establishment and subsequent operation of one or
more businesses engaged in the publication of telephone directories in the
western United States. During the second quarter of 1999, the venture made its
first acquisition, purchasing eleven community Yellow Pages directories.
The following summarizes the financial information of the joint venture as of
April 30, 1999:
<TABLE>
<CAPTION>
Company's
Total Equity
----- ------
(Dollars in thousands)
<S> <C> <C>
Currents assets $ 684
Noncurrent assets 2,656
Current liabilities (692)
-------
Equity of joint venture $ 2,648 $ 1,324
======= =======
</TABLE>
Note F--Per Share Data
In calculating basic earnings per share the dilutive effect of stock options are
excluded. Diluted earnings per share are computed on the basis of the weighted
average number of shares of common stock outstanding and the assumed exercise of
dilutive outstanding stock options based on the treasury stock method.
Note G--Acquisitions
In December 1998, the Company acquired Gatton Computing Group Limited
("Gatton"), a provider of Information Technology ("IT") contractor resourcing
services and IT managed services in the United Kingdom and continental Europe.
The purchase price was $35.9 million in cash. Headquartered near London,
England, Gatton offers IT services through three main operating divisions which
provide temporary IT contract consultants and specifically tailored recruitment
services and a range of IT services, including systems development, maintenance
and technical support services.
Included in the results of operations for the five months since the acquisition
are sales of $34.2 million and an operating profit of $1.3 million, net of
$708,000 of amortization of goodwill. The assets acquired, excluding
intangibles, consisted principally of accounts receivable sold on a nonrecourse
basis pursuant to a factoring agreement. The Company borrowed under its
revolving Credit Agreement to finance this acquisition and to replace the
factoring agreement. This acquisition, along with two toll-free directories
acquired in October 1998, and a network solutions company acquired in April
1999, resulted in an increase in intangible assets of $37.0 million.
- 10 -
<PAGE> 11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note H--Segment Disclosures
Effective the beginning of fiscal 1999, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
(Statement 131). Statement 131 superseded FASB Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". Statement 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about material operating segments or
groups of operating segments in interim financial reports. Statement 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of Statement 131 did not
affect results of operations or financial position and, except for a minor
reclassification, did not affect the disclosure of segment information.
Operations by segment for the six and three months ended April 30, 1999 and May
1, 1998 included on page 12 of this report are an integral part of these
financial statements. Intersegment sales are not material to any segment.
During the six months ended April 30, 1999, consolidated assets increased by
$60.8 million, primarily as a result of the Gatton acquisition by the Company's
Staffing Services segment (see Note G).
- 11 -
<PAGE> 12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS AND THREE MONTHS ENDED APRIL 30, 1999 COMPARED
TO THE SIX MONTHS AND THREE MONTHS ENDED MAY 1, 1998
The information which appears below relates to current and prior periods, the
results of operations for which periods are not necessarily indicative of the
results which may be expected for any subsequent periods. Management has made no
predictions or estimates as to future operations and no inferences as to future
operations should be drawn.
The following summarizes the Company's unaudited results of operations by
segment:
<TABLE>
<CAPTION>
For the Six Months Ended For the Three Months Ended
------------------------------- -------------------------------
April 30, May 1, April 30, May 1,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net Sales:
- ----------
Staffing Services $ 818,288 $ 585,141 $ 431,001 $ 315,527
Telephone Directory 35,366 38,989 16,996 21,602
Telecommunications Services 81,228 84,880 45,226 42,443
Computer Systems 51,994 29,683 21,320 13,202
Electronic Publication and Typesetting Systems 38,364 40,590 19,568 22,548
Elimination of intersegment sales (3,045) (5,185) (1,838) (2,739)
----------- ----------- ----------- -----------
Total Net Sales $ 1,022,195 $ 774,098 $ 532,273 $ 412,583
=========== =========== =========== ===========
Segment Operating Profit (Loss):
- --------------------------------
Staffing Services $ 16,236 $ 12,642 $ 10,318 $ 7,825
Telephone Directory (1,762) (619) (429) 405
Telecommunications Services 4,410 7,001 3,281 3,207
Computer Systems 3,123 (414) 1,674 (586)
Electronic Publication and Typesetting Systems (1,080) 732 (669) 763
----------- ----------- ----------- -----------
Total Segment Operating Profit 20,927 19,342 14,175 11,614
General corporate expenses (7,103) (5,900) (3,730) (3,081)
----------- ----------- ----------- -----------
Total Operating Profit 13,824 13,442 10,445 8,533
Interest and other income - net 1,015 1,433 533 644
Gain on sale of joint venture 1,272
Foreign exchange loss - net (208) (657) (79) (204)
Interest expense (4,105) (2,787) (2,079) (1,413)
----------- ----------- ----------- -----------
Income Before Income Taxes and Minority Interests $ 11,798 $ 11,431 $ 8,820 $ 7,560
=========== =========== =========== ===========
</TABLE>
- 12 -
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
SIX MONTHS AND THREE MONTHS ENDED APRIL 30, 1999 COMPARED
TO THE SIX MONTHS AND THREE MONTHS ENDED MAY 1, 1998--Continued
Forward-Looking Statements Disclosure
In order to keep the Company's stockholders and investors informed of the
Company's future plans and objectives, this Quarterly Report on Form 10-Q and
other reports and statements issued by the Company and its officers from
time-to-time contain, certain statements concerning the Company's future plans,
objectives, performance, intentions and expectations that are, or may be deemed
to be, "forward-looking statements". The Company's ability to do this has been
fostered by the Private Securities Litigation Reform Act of 1995, which provides
a "safe harbor" for forward-looking statements to encourage companies to provide
prospective information so long as those statements are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those discussed in the statement. The
Company believes that it is in the best interests of its stockholders to take
advantage of the "safe harbor" provisions of that Act.
Although the Company believes that its expectations are based on reasonable
assumptions, these forward-looking statements are subject to a number of known
and unknown risks and uncertainties that could cause the Company's actual
results, performance and achievements to differ materially from those described
or implied in the forward-looking statements. These risks and uncertainties
include, but are not limited to, general economic, competitive and other
business conditions; the degree and timing of obtaining new contracts and the
rate of renewals of existing contracts, as well as customers' degree of
utilization of the Company's services; material changes in demand from larger
customers, including those with which the Company has national contracts; the
effect of litigation by temporary employees against temporary help companies and
the customers with whom they do business; changes in customer attitudes toward
outsourcing; the Company's ability to recruit qualified employees to satisfy
customer requirements for the Company's staffing services; the Company's ability
to meet competition in its highly competitive markets with minimal impact on
margins; intense price competition and pressure on margins; the Company's
ability to maintain superior technological capability; the Company's ability to
foresee changes and to identify, develop and commercialize innovative and
competitive products and systems in a timely and cost effective manner, and
achieve customer acceptance of such products and systems in markets
characterized by rapidly changing technology and frequent new product
introductions; risks inherent in new product introductions, such as start-up
delays, cost overruns, uncertainty of customer acceptance, and dependence on
third parties for some product components; changes in laws, regulations and
government policies; the Company's performance on contracts; the degree and
effects of inclement weather; timing of customer acceptances of systems; and the
Company's ability to attract and retain certain classifications of
technologically qualified personnel, particularly in the areas of research and
development and customer service; the Company's ability to successfully and
timely complete its Year 2000 compliance programs, and the ability of certain of
its suppliers and customers to be Year 2000 compliant. These and certain other
factors are discussed in the Company's Annual Report on Form 10-K for the year
ended October 30, 1998 and may be discussed in reports hereafter filed with the
Securities and Exchange Commission, including this Report.
- 13 -
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
SIX MONTHS ENDED APRIL 30, 1999 COMPARED TO THE SIX MONTHS ENDED MAY 1, 1998
Results of Operations - Summary
In the six-month period of fiscal 1999, net sales increased from the comparable
period in fiscal 1998 by $248.1 million, or 32%, to $1.0 billion. The increase
in 1999 net sales resulted primarily from a $233.1 million increase in sales by
the Staffing Services segment, a substantial portion of which was increased
managed service revenue, and a $22.3 million increase in sales by the Computer
Systems segment, partially offset by decreases in the other three segments.
The Company's pretax income before minority interests increased by $367,000, or
3%, to $11.8 million in 1999. The operating profit of the Company's segments
increased by $1.6 million, or 8%, to $20.9 million in 1999. While the Staffing
Services segment and the Computer Systems segment increased their operating
profits, the decrease in results of the three other segments partially offset
these gains.
Consolidated 1999 results included a gain on the sale of a joint venture of a
$1.3 million (see Note E of Notes to Consolidated Financial Statements of this
Report).
Net income in the first six months of 1999 was $8.2 million, compared with net
income of $6.9 million in the first six months of 1998.
Results of Operations - By Segment
Sales of the Staffing Services segment increased by $233.1 million, or 40%, to
$818.3 million in 1999 with traditional staffing revenues increasing by 16% and
managed service revenue more than doubling, and the segment's operating profit
increased by $3.6 million, or 28%, to $16.2 million, compared with $12.6 million
in 1998. Approximately $154.4 million, or 66%, of the segment's 1999 sales
increase was due to pass-through costs primarily related to the use of associate
vendors to service large national managed service contracts, which increased
from $93.0 million in 1998 to $247.4 million in 1999. Approximately $46.9
million of the segment's increase was from business with new customers,
including $34.2 million of sales from a newly acquired subsidiary, with the
remaining increase of $31.8 arising from existing customers. The increase in the
segment's operating profit was due to the increase in sales. A decrease in gross
margin percentage of 1.3 percentage points was due to the higher associate
vendor usage in managed service contracts, which is billed at substantially
lower mark-ups than traditional recruited business.
The Technical Placement division of the Staffing Services segment accounted for
substantially all of the sales increase and its operating profit increased by
72% to $12.0 million. Sales of the Commercial and Light Industrial division,
which specializes in temporary placements, were approximately the same as the
prior year, and operating profit decreased by 26% to $4.2 million. The Company
has initiated an evaluation of its commercial and light industrial branch
offices, and has closed or will close several under-performing offices. An
insignificant loss of revenue is expected from these closings, as alternative
offices will serve their markets. Additional cost containment efforts for the
division are focused on reducing overhead costs, primarily through decreasing
labor costs.
The Telephone Directory segment's sales decreased by $3.6 million, or 9%, to
$35.4 million in fiscal 1999. Its operating loss increased to $1.8 million in
1999 from a loss of $619,000 in 1998. The sales decrease was due to decreased
production sales including the absence of sales under two contracts that expired
in the second half of fiscal 1998, which accounted for approximately 22% of the
segment's sales in the first six months of fiscal 1998,
- 14 -
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
SIX MONTHS ENDED APRIL 30, 1999 COMPARED
TO THE SIX MONTHS ENDED MAY 1, 1998--Continued
Results of Operations - By Segment--Continued
partially offset by increased independent directory publishing sales of $6.9
million, which included publication of two newly acquired toll-free directories.
The increase in the segment's operating loss in fiscal 1999 was due to the
expiration of these production contracts, partially offset by increased
operating profit resulting from higher publishing sales. This segment's services
are rendered under various short and long-term contracts, some of which expire
in the ordinary course, while others are renewed and new contracts are awarded
to the segment from time to time. Existing contracts are scheduled to expire
through 2001.
The Telecommunications Services segment's sales decreased by $3.7 million, or
4%, to $81.2 million in fiscal 1999 and its operating profit decreased by $2.6
million, or 37%, to $4.4 million in fiscal 1999 from $7.0 million in 1998. The
sales decrease was due to a 16% decrease in the Construction division, resulting
from a delay in capital spending by customers on infrastructure, partially
offset by a 49% increase in the Central Office division. Operating profit
decreased due to the decrease in the Construction division's sales without an
accompanying decrease in overhead due to the difficulty in recruiting competent
technical staff which precluded a cutback in personnel during this period.
The Computer Systems segment's sales increased by $22.3 million, or 75%, to
$52.0 million in 1999 and its operating profit was $3.1 million compared to a
loss of $414,000 in 1998. The increase in sales and operating profit was due to
the customer acceptance and recognition of the installation of an operator
service system in Holland, which was accounted for under the completed contract
method of accounting, increased transaction volume of its outsourced directory
assistance services and increased support and maintenance revenue. These
increases were partially offset by a reduction in other system upgrade sales.
This segment's results on a quarter-to-quarter basis are highly dependent on the
requirements by customers for, and acceptance of, new directory assistance
systems and upgrades to existing systems, which occur periodically rather than
evenly.
The Electronic Publication and Typesetting Systems segment's sales decreased by
$2.2 million, or 5%, to $38.4 million in 1999, and it incurred an operating loss
of $1.1 million compared with an operating profit of $732,000 in 1998. The
fiscal 1999 sales decrease resulted primarily from a decrease in international
sales of systems and equipment. Operating results decreased due to lower sales
and a 1.7 percentage point decrease in gross margins, due primarily to the sale
of a greater proportion of sales of lower margin systems and equipment products
which experienced competitive pricing pressures. Operating expenses increased 2%
in fiscal 1999 due primarily to development costs associated with the segment's
new Computer-to-Plate product.
- 15 -
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
SIX MONTHS ENDED APRIL 30, 1999 COMPARED
TO THE SIX MONTHS ENDED MAY 1, 1998--Continued
Results of Operations - Other
Other items, discussed on a consolidated basis, affecting the results of
operations for the six-month periods were:
Selling and administrative expenses increased by $6.5 million, or 19%, to $34.2
million in 1999 as a result of acquisitions, the cost of Year 2000 remediation,
discussed below, the initial costs associated with the implementation of an
accounting and back office Enterprise Resource Planning System (ERP) and to
support the increased sales levels.
Research, development and engineering decreased by $1.5 million, or 22%, to $5.1
million in 1999. The decrease in 1999 was primarily due to a reduction in
product development in the Computer Systems segment as new products and services
were completed and introduced to new and existing customers partially offset by
increased development costs associated with the Electronic Publication and
Typesetting Systems segment's new Computer-to-Plate product.
Depreciation and amortization increased by $1.6 million, or 15%, to $11.7
million in 1999. The 1999 increase was attributable to amortization of
intangibles, due to acquisitions made in 1999 and 1998.
Interest income decreased by $369,000, or 28%, to $946,000 in 1999, primarily
due to a decrease of funds available for investment.
The foreign exchange loss in the six months of 1999 was $208,000 compared to
$657,000 in 1998. In 1998, a significant strengthening of the U.S. dollar
compared to other currencies resulted in the foreign exchange loss before the
Company's hedging program became effective which significantly reduced losses.
Interest expense increased by $1.3 million, or 47%, to $4.1 million in 1999. The
increase is the result of the Company borrowing under its revolving Credit
Agreement to finance the acquisition of Gatton Computing Group Limited,
"Gatton", interest incurred by Gatton on advances from its factor and higher
interest rates and financing costs incurred by the Company's Uruguayan division.
The Company's effective tax rate was reduced to 35% in 1999 from 41.4% in 1998.
The low effective tax rate in 1999 resulted from the non-taxable gain on the
sale of a Brazilian joint venture, increased profits from foreign subsidiaries
which are taxed at a lower rate and higher general business tax credits.
In the first quarter of 1999, the Company recognized $1.3 million of a
previously deferred gain on the sale in 1997 of its interest in a Brazilian
joint venture. In connection with the sale, the Company granted credit with
respect to the printing of telephone directories by the Company's Uruguayan
division. During the 1999 first quarter, the venture repaid certain of its
obligations. The balance of the deferred gain will be recognized as the
Uruguayan division collects its receivables from the venture.
- 16 -
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED APRIL 30, 1999 COMPARED TO THE THREE MONTHS ENDED MAY 1,
1998
Results of Operations - Summary
In the second quarter of fiscal 1999, net sales increased by $119.7 million, or
29%, to $532.3 million from the comparable period in fiscal 1998. The increase
in 1999 net sales resulted primarily from a $115.5 million increase in sales by
the Staffing Services segment, a substantial portion of which was increased
managed service revenue, and a $8.1 million increase in sales by the Computer
Systems segment, partially offset by a $4.6 million decrease in sales by the
Telephone Directory segment.
The Company's 1999 pretax income before minority interests increased by $1.3
million, or 17%, to $8.8 million. The operating profit of the Company's segments
increased by $2.6 million, or 22%, to $14.2 million in 1999. While the Staffing
Services segment and the Computer Systems segment increased their operating
profits, the decrease in results of the other three segments partially offset
these gains.
Net income in the three months of 1999 was $5.7 million, compared with net
income of $4.3 million in the three months of 1998.
Results of Operations - By Segment
Sales of the Staffing Services segment increased by $115.5 million, or 37%, to
$431.0 million in the second quarter of 1999 with traditional staffing revenues
increasing by 16% and managed service revenue more than doubling, and the
segment's operating profit increased by $2.5 million, or 32%, to $10.3 million,
compared with $7.8 million in 1998. Approximately $74.8 million, or 65%, of the
segment's 1999 sales increase was due to pass-through costs primarily related to
the use of associate vendors to service large national managed service
contracts, which increased from $56.1 million in 1998 to $130.9 million in 1999.
Approximately $27.4 million of the segment's increase was from business with new
customers, including $21.4 million of sales from a newly acquired subsidiary,
with the remaining increase of $13.3 million arising from existing customers.
The increase in the segment's operating profit was due to the increase in sales.
A decrease in gross margin percentage of 1.1 percentage points was due to the
higher associate vendor usage in managed service contracts, which is billed at
substantially lower mark-ups than traditional recruited business.
The Telephone Directory segment's sales decreased by $4.6 million, or 21%, to
$17.0 million in the second quarter of fiscal 1999. It incurred an operating
loss of $429,000 compared to an operating profit of $405,000 in the second
quarter of 1998. The sales decrease was due to decreased production sales
including the absence of sales under two contracts that expired in the second
half of fiscal 1998, which accounted for approximately 20% of the segment's
sales in the second quarter of fiscal 1998. The increase in the segment's loss
in fiscal 1999 was due primarily to the expiration of these production
contracts. This segment's services are rendered under various short and
long-term contracts, some of which expire in the ordinary course, while others
are renewed and new contracts are awarded to the segment from time to time.
Existing contracts are scheduled to expire through 2001.
- 17 -
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED APRIL 30, 1999 COMPARED
TO THE THREE MONTHS ENDED MAY 1, 1998--Continued
Results of Operations - By Segment--Continued
The Telecommunications Services segment's sales increased by $2.8 million, or
7%, to $45.2 million in the second quarter of fiscal 1999 and its operating
profit increased by $74,000, or 2%, to $3.3 million in fiscal 1999, from $3.2
million in 1998. The sales increase was due to a 41% increase in the Central
Office division and a 11% increase in the Business Systems division, partially
offset by a 5% decrease in the Construction division. Operating profit increased
due to the increase in sales and a 0.7 percentage point increase in gross
margins, partially offset by a 12% increase in overhead.
The Computer Systems segment's sales increased by $8.1 million, or 61%, to $21.3
million in the second quarter of 1999 and its operating profit was $1.6 million
compared to a loss of $586,000 in 1998. The increase in sales and operating
profit was due to the customer acceptance and recognition of the second phase of
the installation of an operator service system in Holland, which was accounted
for under the completed contract method of accounting, increased transaction
volumes of its outsourced directory assistance services and increased support
and maintenance revenue. These increases were partially offset by a reduction in
other system upgrade sales. This segment's results on a quarter to quarter basis
are highly dependent on the requirements by customers for, and acceptance of,
new directory assistance systems and upgrades to existing systems, which occur
periodically rather than evenly.
The Electronic Publication and Typesetting Systems segment's sales decreased by
$3.0 million, or 13%, to $19.6 million in the second quarter of 1999. It
incurred an operating loss of $669,000 in the second quarter of 1999 compared
with an operating profit of $763,000 in the second quarter of 1998. The fiscal
1999 sales decrease resulted primarily from a decrease in international sales of
systems and equipment. Operating results decreased due to lower sales and a 0.4
percentage point decrease in gross margins. Systems and equipment gross margins
increased by 1.8 percentage points due principally to the sale of a greater
proportion of higher margin products and customer service gross margins
decreased 2.2 percentage points due primarily to the loss of several high margin
contracts. Operating expenses increased by 3% in fiscal 1999 due primarily to
development costs associated with the segment's new Computer-to-Plate product.
The markets in which the segment competes are marked by rapidly changing
technology, with sales in fiscal 1999 of equipment introduced within the last
three years comprising approximately 92% of equipment sales.
- 18 -
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED APRIL 30, 1999 COMPARED
TO THE THREE MONTHS ENDED MAY 1, 1998--Continued
Results of Operations - Other
Other items, discussed on a consolidated basis, affecting the results of
operations for the three-month periods were:
Selling and administrative expenses increased by $4.4 million, or 30%, to $18.8
million in 1999 as a result of acquisitions, the costs of Year 2000 remediation,
the initial costs associated with the implementation of an ERP system and to
support the increased sales levels.
Research, development and engineering decreased by $878,000, or 25%, to $2.6
million in 1999. The decrease in 1999 was primarily due to a reduction in
product development in the Computer Systems segment as new products and services
were completed and introduced to new and existing customers partially offset by
increased development costs associated with the Electronic Publication and
Typesetting Systems segment's new Computer-to-Plate product.
Depreciation and amortization increased by $890,000, or 17%, to $6.0 million in
1989. The 1999 increase was attributable to amortization of intangibles, due to
acquisitions made in 1999 and 1998.
Interest income decreased by $168,000, or 30%, to $386,000 in 1999, primarily
due to a decrease of funds available for investment.
The foreign exchange loss in the second quarter of 1999 was $79,000 compared to
$204,000 in 1998. The losses in 1998 were 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 $666,000, or 47%, to $2.1 million in 1999. The
increase is the result of the Company borrowing under its revolving Credit
Agreement to finance the acquisition of Gatton, interest incurred by Gatton on
advances from its factor and higher interest rates and financing costs incurred
by the Company's Uruguayan division.
The Company's effective tax rate was reduced to 39% in 1999 from 42% in 1998 as
a result of increased profits from foreign subsidiaries which are taxed at a
lower rate and higher general business tax credits.
- 19 -
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Sources of Capital
Cash and cash equivalents decreased by $7.9 million to $23.7 million in the six
months ended April 30, 1999. Primary among the factors providing $3.4 million in
cash from operating activities in 1999 were the Company's net income of $8.2
million, augmented by $11.7 million of depreciation and amortization, and a $4.5
million increase in customer advances and other liabilities. The principal uses
of cash in operating activities for the six months ended April 30, 1999 were an
increase in the level of inventory of $9.2 million, accounts receivable of $3.9
million, prepaid expenses of $2.9 million and a decrease in income taxes payable
of $2.5 million.
The principal use of cash applied in investing activities of $53.1 million was
the expenditure for acquisitions of $38.8 million (primarily $35.9 million
expended in connection with the acquisition of Gatton), and $12.2 million for
property, plant and equipment.
Financing activities provided $41.3 million of cash from the increase in bank
loans of $42.0 million borrowed principally to fund the acquisition and replace
the factoring agreement of Gatton.
In addition to its cash and cash equivalents, at April 30, 1999, the Company has
a $75.0 million, three-year, syndicated, unsecured credit line with a group of
banks under a revolving Credit Agreement which extends to January 2002 of which
$36.4 million was outstanding at April 30, 1999 (see Note C in the Notes to
Condensed Consolidated Financial Statements).
The Company believes that its current financial position, working capital,
future cash flows and credit lines will be sufficient to fund its presently
contemplated operations and satisfy its debt obligations.
The Company has no material capital commitments. It is currently in the process
of installing an Enterprise Resource Planning System for internal use to satisfy
the Company's ongoing technology requirements, while the current systems are in
the process of being made Year 2000 compliant. The cost of this new system,
including the purchase and/or lease of software and hardware, three years of
support and the initial implementation phase was $12.4 million, a significant
portion of which has been capitalized and will be amortized over a seven year
period. A significant portion of this amount has been financed over a three to
four year period by vendors (see Note C in the Notes to Condensed Consolidated
Financial Statements). The project is now nearing the end of the solution
definition phase and the Company is assessing various alternative strategies for
the next phase of the implementation.
Year 2000 Compliance
The Year 2000 issues have arisen as a result of computer programs being written
using two digits rather than four to define the applicable year. Programs that
have time sensitive software may therefore recognize "00" as the year 1900
rather than the year 2000, which could result in major system failures or
miscalculations.
State of Readiness
The Company utilizes software and related technologies throughout its businesses
that will be affected by the Year 2000 issues. Volt's Enterprise-Wide Year 2000
Compliance Assurance Program (the "Program") was initiated during 1997, in order
that the Company's internal systems and products offered for sale would continue
to meet its internal needs and those of its customers.
- 20 -
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Year 2000 Compliance--Continued
The Program involves identifying, remediating and testing of all of its computer
equipment and software for Year 2000 compliance, including Information
Technology (IT) systems, as well as non-IT systems, such as communication
systems and other systems which may contain time sensitive technologies.
The Program, which had been divided into several phases, was segmented to cover
both internal systems and company products and a corporate policy was
established that requires all current products to be Year 2000 compliant.
Customers using older non-compliant products have been notified of the necessity
to upgrade, if desired.
The Program is now at an advanced stage. It is anticipated that by the end of
July 1999, most corrections will have been provided to systems which are
critical to the Company's business, in addition to the Company's other systems,
and will have been tested in a production environment. During the remainder of
1999, remaining corrections will be provided to critical systems, and other
systems will be tested and either updated or replaced as required, and further,
more exhaustive testing of certain critical systems, will be undertaken in a
simulated Year 2000 environment. The Company is confident that all Year 2000
remediation work will be completed by the end of the year.
The Company has been, and will continue to work with its major vendors and
service providers to ascertain that Year 2000 compliance is achieved. The
Company is not aware of any significant third party that has a compliance issue
which would materially impact the Company's results of operations, liquidity or
capital resources. However, the Company has no means to ensure that such third
parties will in fact be Year 2000 compliant, and the inability of third parties
to be compliant in a timely manner could have a material adverse impact on the
company. The effect of non-compliance by a third party is not determinable.
Based on ongoing assessments of current progress and future plans, the Company
believes that Year 2000 issues will not significantly affect its ability to
deliver services and products to its customers on a timely basis. No issues have
been encountered, nor are any anticipated, which would materially affect the
Company's ability to continue operations.
Costs of Addressing Year 2000 Issues
The Company's cost of Year 2000 remediation is estimated at $6.1 million through
the end of 1999. The actual and estimated future costs are as follows:
<TABLE>
<CAPTION>
Costs through Estimated
April 30, 1999 Future Costs Total
-------------- ------------ -----
(Dollars in thousands)
<S> <C> <C> <C>
Internal Systems $2,500 $1,400 $3,900
Product Line 1,700 500 2,200
------ ------ ------
Total Costs $4,200 $1,900 $6,100
====== ====== ======
</TABLE>
The above costs include the identification, system correction and testing and
are expensed as incurred. The estimated future costs include the testing and
upgrading or replacement of non critical hardware and applications, and the
continued testing of certain critical systems including software where
corrections have been made and the software returned to a production
environment.
- 21 -
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Year 2000 Compliance--Continued
In addition to the above, the Company has purchased and will purchase during the
remainder of 1999 new hardware and software which replaces older, non-compliant
systems. These systems were mostly required to meet the Company's increasing
information requirements, in addition to Year 2000 compliance. The estimated
cost of such systems is $800,000, and will be capitalized.
The total estimated costs of the Year 2000 project have increased during the
quarter by $1 million. This has occurred as a result of increased charges from
outside contractors working on the project, and the decision to send a team of
technicians to every branch location to test, remediate, upgrade and/or all
hardware and third party software rather than have individual users test,
remediate and upgrade their own equipment.
Risks of the Company's Year 2000 Issues
The Company believes that it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Company has not yet
completed all necessary phases of the program. Failure to correct a material
Year 2000 issue could result in an interruption to, or a failure of, normal
business activities or operations. Such an interruption, or failure, could
materially adversely affect the Company's results of operations, liquidity and
financial condition. The amount of potential liability and lost revenue cannot
reasonably be estimated at this time.
However, the Company's critical internal systems and product lines were
prioritized and these systems have been thoroughly reviewed, tested and
corrections have either been provided or will be provided, where necessary.
Further testing in a simulated Year 2000 environment will be performed where
appropriate.
The Company's Contingency Plans
Although the Company believes that its internal systems and product lines will
be compliant on a timely manner, as part of the Program, the Company has
instructed its business units to develop contingency plans. Such plans, which
are currently being developed, will include back up stand alone systems, methods
not relying on computers, and the identification and commitment of alternate
suppliers. Those business units supplying products dependant on time sensitive
computer systems will have teams of technicians available to assist customers
with any issues which are not revealed until the Year 2000. The Company does not
anticipate that problems of this nature will be significant due to the thorough
testing of its product line.
- 22 -
<PAGE> 23
ITEM 3 - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk exposure in the following areas:
Interest Rate Market Risk
The Company has cash equivalents on which interest income is earned at variable
rates. The Company also has credit lines with various domestic and foreign banks
which provide for unsecured borrowings and letters of credit up to an aggregate
of $93 million. At April 30, 1999, the Company had borrowings totaling $46.3
million under these agreements. The interest rates on these borrowings are
variable and, therefore, interest expense and interest income are affected by
the general level of U.S. and foreign interest rates. Increases in interest
expense resulting from an increase in interest rates would be offset to some
extent by a corresponding increase in interest income from cash equivalents.
The Company's total long-term debt of $59.1 million at April 30, 1999 consists
substantially of borrowings at fixed interest rates, and the Company's interest
expense related to these borrowings is not exposed to changes in interest rates
in the near term.
Equity Price Risk
The Company holds short-term investments in mutual funds for the Company's
deferred compensation plan, and non-current investments consisting of a
portfolio of equity securities. The total market value of these investments is
$2.4 million and, based on this value, the Company does not believe that its
exposure to market risk from these investments is material.
Foreign Exchange Market Risk
The Company has a number of overseas subsidiaries, and is therefore subject to
exposure from the risk of currency fluctuations as the value of the foreign
currency fluctuates against the dollar, which may impact reported earnings. The
Company attempts to reduce these risks by borrowing funds in local currency to
reduce net assets and the exposure of these assets to currency fluctuations (but
which may result in higher interest costs), and by utilizing foreign currency
option contracts to hedge the adverse impact on foreign currency receivables and
sales when the dollar strengthens against the related foreign currency. At April
30, 1999, the Company had purchased foreign currency options in the aggregate
notional amount of $7.1 million, which approximated its exposure in foreign
currencies at that date. The Company does not believe that it is exposed to
material foreign exchange market risk.
- 23 -
<PAGE> 24
PART II - OTHER INFORMATION
ITEM 4-- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1999 Annual Meeting of Shareholders held on April 15, 1999,
shareholders:
(a) elected the following to serve as directors of the Company until the 2000
Annual Meeting of the Shareholders by the following votes:
<TABLE>
<CAPTION>
For Vote Withheld
--- -------------
<S> <C> <C>
Steven A. Shaw 14,179,941 194,475
William Shaw 14,183,755 190,661
Jerome Shaw 14,183,759 190,657
James J. Groberg 14,185,183 189,233
William H. Turner 14,185,573 188,843
</TABLE>
(b) ratified the action of the Board of Directors in appointing Ernst & Young
LLP as the Company's independent public accountants for the fiscal year ending
October 29, 1999 by the following vote:
For: 14,316,156 Against: 47,505 Abstain: 10,755
There were no broker non-votes on any of the matters voted upon.
- 24 -
<PAGE> 25
PART II - OTHER INFORMATION--Continued
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 (filed with electronic version only).
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter ended April 30, 1999.
- 25 -
<PAGE> 26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VOLT INFORMATION SCIENCES, INC.
(Registrant)
BY: /s/ JACK EGAN
----------------------------
Date: June 11, 1999 JACK EGAN
Vice President - Corporate Accounting
(Principal Accounting Officer)
- 26 -
<PAGE> 27
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
15.01 Letter from Ernst & Young LLP
15.02 Letter from Ernst & Young LLP regarding interim financial information.
27.01 Financial Data Schedule (filed with electronic version only).
</TABLE>
<PAGE> 1
June 11, 1999
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, Registration Statement No. 333-13369 on Form S-8 dated
October 3, 1996 and Registration Statement No. 333-45903 on Form S-8 dated
February 10, 1998 of Volt Information Sciences, Inc. of our report dated June 2,
1999, 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 April 30, 1999.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not 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
Exhibit 15.01
<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 April 30, 1999, and
the related condensed consolidated statements of income for the six and three
months periods ended April 30, 1999 and May 1, 1998, and the related condensed
consolidated statements of cash flows for the six month periods ended April 30,
1999 and May 1, 1998. 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 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 October 30, 1998, and the related consolidated statements of income and cash
flows for the year then ended, not presented herein; and in our report dated
December 15, 1998, 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 October 30, 1998, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Ernst & Young LLP
June 2, 1999
Exhibit 15.02
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<FISCAL-YEAR-END> OCT-29-1999
<PERIOD-END> APR-30-1999
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0
0
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