<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For The Three Months Ended January 29, 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 March 5,
1999 was 15,025,356.
<PAGE> 2
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income -
Three Months Ended January 29, 1999 and January 30, 1998 3
Condensed Consolidated Balance Sheets - January 29, 1999
and October 30, 1998 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended January 29, 1999 and January 30, 1998 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Qualitative and Quantitative Disclosures about Market Risk 20
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURE 22
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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>
Three Months Ended
-----------------------------
January January
29, 1999 30, 1998
-------- --------
(Dollars in thousands, except per share data)
<S> <C> <C>
NET SALES:
Sales of services $ 471,178 $ 343,580
Sales of products 18,744 17,935
------------ ------------
489,922 361,515
------------ ------------
COSTS AND EXPENSES:
Cost of sales
Services 451,759 325,233
Products 11,253 10,106
Selling and administrative 15,432 13,271
Research, development and engineering 2,392 2,967
Depreciation and amortization 5,707 5,029
------------ ------------
486,543 356,606
------------ ------------
OPERATING PROFIT 3,379 4,909
OTHER INCOME (EXPENSE):
Interest income 560 761
Other (expense) income - net (78) 28
Gain on sale of joint venture--Note E 1,272
Foreign exchange loss - net (129) (453)
Interest expense (2,026) (1,374)
------------ ------------
Income before income taxes and minority interests 2,978 3,871
Income tax provision (669) (1,541)
Minority interests in net loss of consolidated subsidiaries 253 255
------------ ------------
NET INCOME $ 2,562 $ 2,585
============ ============
Per Share Data
--------------
Net income per share - Basic and Diluted $ 0.17 $ 0.17
============ ============
Weighted average number of shares - Basic--Note F 15,011,508 14,892,105
============ ============
Weighted average number of shares - Diluted--Note F 15,169,955 15,379,647
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 4
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
January October
ASSETS 29, 1999 30, 1998 (a)
--------- ---------
(Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 26,584 $ 31,625
Short-term investments 1,406 1,099
Trade accounts receivable less allowances of $6,376 (1999) and $5,822 (1998) 281,291 286,655
Inventories--Note B 42,568 38,997
Deferred income taxes 8,090 8,065
Prepaid expenses and other assets 9,373 7,005
--------- ---------
TOTAL CURRENT ASSETS 369,312 373,446
Investment in securities 814 1,489
Property, plant and equipment less allowances for depreciation and amortization
of $52,684 (1999) and $51,134 (1998)--Note C 66,315 67,564
Deferred income taxes and other assets 8,210 7,190
Intangible assets-net of accumulated amortization of $13,719 (1999)
and $12,553 (1998)--Note G 54,362 19,637
--------- ---------
$ 499,013 $ 469,326
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks--Note C $ 33,656 $ 4,128
Current portion of long-term debt--Note C 1,399 1,399
Accounts payable 85,172 91,377
Accrued wages and commissions 38,286 39,457
Other accruals 31,179 28,044
Customer advances and other liabilities 28,682 23,480
Income taxes 3,900 6,725
--------- ---------
TOTAL CURRENT LIABILITIES 222,274 194,610
LONG-TERM DEBT--Note C 53,823 54,048
MINORITY INTERESTS 19,193 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
15,025,116 shares (1999) and 15,006,164 shares (1998) 1,503 1,501
Paid-in capital 37,551 37,127
Retained earnings 164,820 162,258
Accumulated other comprehensive income (loss) (151) 336
--------- ---------
203,723 201,222
--------- ---------
$ 499,013 $ 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>
Three Months Ended
-------------------
January January
29, 1999 30, 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
CASH PROVIDED BY (APPLIED TO) OPERATING ACTIVITIES
Net income $ 2,562 $ 2,585
Adjustments to reconcile net income to cash provided by (applied to)
operating activities
Depreciation and amortization 5,707 5,029
Gain on sale of joint venture (1,272)
Minority interests (253) (255)
Accounts receivable provisions 1,305 645
(Gain) loss on foreign currency translation (106) 3
Deferred income tax (benefit) provision (311) 31
Other 38 22
Changes in operating assets and liabilities:
Decrease in accounts receivable 13,005 4,472
Increase in inventories (3,574) (162)
(Increase) decrease in prepaid expenses and other current assets (1,272) 579
Decrease (increase) in other assets 170 (2,926)
Decrease in accounts payable (12,305) (18,232)
Increase in accrued expenses 704 1,815
Increase in customer advances and other liabilities 6,380 5,563
Decrease in income taxes payable (4,200) (942)
-------- --------
NET CASH PROVIDED BY (APPLIED TO) OPERATING ACTIVITIES 6,578 (1,773)
-------- --------
</TABLE>
-5-
<PAGE> 6
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)--Continued
<TABLE>
<CAPTION>
Three Months Ended
January January
29, 1999 30, 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
CASH PROVIDED BY (APPLIED TO) INVESTING ACTIVITIES
Sales of investments 961
Maturities of investments 105
Purchases of investments (1,260) (106)
Acquisitions (37,974) (801)
Proceeds from disposals of property, plant and equipment 71 136
Purchases of property, plant and equipment (2,987) (5,279)
Other (34)
-------- --------
NET CASH APPLIED TO INVESTING ACTIVITIES (41,223) (5,945)
-------- --------
CASH PROVIDED BY (APPLIED TO) FINANCING ACTIVITIES
Payment of long-term debt (225) (775)
Exercise of stock options 16 172
Increase in notes payable to banks 29,599 1,141
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 29,390 538
-------- --------
Effect of exchange rate changes on cash 214 64
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,041) (7,116)
Cash and cash equivalents, beginning of period 31,625 54,234
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26,584 $ 47,118
======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the period:
Interest expense $ 1,094 $ 480
Income taxes, net of refunds $ 3,805 $ 2,552
</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 January 29, 1999 and consolidated
results of operations and consolidated cash flows for the three months ended
January 29, 1999 and January 30, 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 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>
January October
29, 1999 30, 1998
------- -------
(Dollars in thousands)
<S> <C> <C>
Services:
Accumulated unbilled costs on:
Service contracts $30,296 $27,579
Long-term contracts 108
------- -------
30,296 27,687
------- -------
Products:
Materials 5,816 5,671
Work-in-process 3,029 2,713
Service parts 1,464 1,819
Finished goods 1,963 1,107
------- -------
12,272 11,310
------- -------
Total $42,568 $38,997
======= =======
</TABLE>
The cumulative amounts billed, principally under long-term contracts, at January
29, 1999 and October 30, 1998, of $9.5 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 Financing Arrangements
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January October
29, 1999 30, 1998
------- -------
(Dollars in thousands)
<S> <C> <C>
7.92% Senior Notes (a) $50,000 $50,000
Term loan (b) 3,975 4,200
Notes payable (c) 1,247 1,247
------- -------
55,222 55,447
Less amounts due within one year 1,399 1,399
------- -------
Total long-term debt $53,823 $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 January 29, 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 January 29, 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 January 29, 1999 - $14.1 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 (4.83% at January 29, 1999) plus
0.25%, through September 15, 2001.
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 January 29, 1999 to maintain consolidated net worth of $140.3
million), and certain limitations on the extent to which the Company and its
subsidiaries may incur additional indebtedness, liens and sale of assets. There
were $30 million in outstanding borrowings under the Agreement at January 29,
1999 (see Note G).
-8-
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note D--Stockholders' Equity
Changes in the major components of stockholders' equity for the three months
ended January 29, 1999 are as follows:
<TABLE>
<CAPTION>
Common Paid-In Retained
Stock Capital Earnings
-------- -------- --------
<S> <C> <C> <C>
Balance at October 30, 1998 $ 1,501 $ 37,127 $162,258
Net income for the three months 2,562
Contribution of 18,172 shares to ESOP 2 408
Stock options exercised - 780 shares 16
-------- -------- --------
Balance at January 29, 1999 $ 1,503 $ 37,551 $164,820
======== ======== ========
</TABLE>
The accumulated other comprehensive income (loss) consists of a cumulative
unrealized foreign currency translation adjustment of ($190,000) and ($114,000)
at January 29, 1999 and October 30, 1998, respectively, and an unrealized gain
in marketable securities of $39,000 and $450,000 at January 29, 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>
Three Months Ended
--------------------
January January
29, 1999 30, 1998
------- -------
<S> <C> <C>
Net income $ 2,562 $ 2,585
Foreign currency translation adjustments - net (76) 71
Unrealized losses on marketable securities - net (411)
------- -------
Total comprehensive income $ 2,075 $ 2,656
======= =======
</TABLE>
Note E--Gain on Sale of Joint Venture
In the first quarter of 1999, the Company recognized $1,272,000 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.
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.
-9-
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
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 two months since the acquisition
are sales of $12.8 million and an operating profit of $410,000, net of $283,000
for amortization of goodwill. The assets acquired, excluding intangibles,
consisted principally of accounts receivable sold on a nonrecourse basis
pursuant to a factoring agreement. Such receivables, which amounted to $10.0
million at January 29, 1999, are net of advances from the factor of $7.3
million. The Company borrowed $35.0 million under its revolving Credit Agreement
to finance this acquisition. This acquisition, along with two toll-free
directories acquired in October 1998, resulted in an increase in intangible
assets of $36.0 million.
During the first quarter of fiscal year 1998, the Company acquired
community-based telephone directories, principally in Georgia, for $1.7 million,
which included consideration of approximately $900,000, based on a percentage of
estimated revenues to be collected through April 1999.
Note H--Industry Segments
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 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 industry segment for the three months ended January 29, 1999 and
January 30, 1998 included on page 11 of this report are an integral part of
these financial statements.
During the three months ended January 29, 1999, consolidated assets increased by
$29.7 million, primarily as a result of the Gatton acquisition by the Company's
Staffing Services segment (see Note G).
-10-
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 29, 1999 COMPARED
TO THE THREE MONTHS ENDED JANUARY 30, 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 Three Months Ended
--------------------------
January January
29, 1999 30, 1998
--------- ---------
Net Sales (Dollars in thousands)
- ---------
<S> <C> <C>
Staffing Services:
Sales to unaffiliated customers $ 386,488 $ 268,272
Intersegment sales 799 1,342
--------- ---------
387,287 269,614
--------- ---------
Telephone Directory:
Sales to unaffiliated customers 18,345 16,992
Intersegment sales 25 395
--------- ---------
18,370 17,387
--------- ---------
Telecommunications Services:
Sales to unaffiliated customers 35,678 41,873
Intersegment sales 324 564
--------- ---------
36,002 42,437
--------- ---------
Computer Systems:
Sales to unaffiliated customers 30,667 16,443
Intersegment sales 7 38
--------- ---------
30,674 16,481
--------- ---------
Electronic Publication and Typesetting Systems:
Sales to unaffiliated customers 18,744 17,935
Intersegment sales 52 107
--------- ---------
18,796 18,042
--------- ---------
Elimination of intersegment sales (1,207) (2,446)
--------- ---------
Total Net Sales $ 489,922 $ 361,515
========= =========
Segment Operating Profit (Loss):
- --------------------------------
Staffing Services $ 5,918 $ 4,817
Telephone Directory (1,333) (1,024)
Telecommunications Services 1,129 3,794
Computer Systems 1,449 172
Electronic Publication and Typesetting Systems (411) (31)
--------- ---------
Total Segment Operating Profit 6,752 7,728
General corporate expenses (3,373) (2,819)
--------- ---------
Total Operating Profit 3,379 4,909
Gain on sale of joint venture 1,272
Interest and other income - net 482 789
Interest expense (2,026) (1,374)
Foreign exchange loss - net (129) (453)
--------- ---------
Income Before Income Taxes and Minority Interests $ 2,978 $ 3,871
========= =========
</TABLE>
-11-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED JANUARY 29, 1999 COMPARED
TO THE THREE MONTHS ENDED JANUARY 30, 1998 --Continued
Forward-Looking Statements Disclosure
In order to keep our 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,
among other things, 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; 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.
-12-
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED JANUARY 29, 1999 COMPARED
TO THE THREE MONTHS ENDED JANUARY 30, 1998 --Continued
Results of Operations - Summary
In the three-month period of fiscal 1999, net sales increased by $128.4
million, or 36%, to $489.9 million from the comparable period in fiscal 1998.
The increase in 1999 net sales resulted primarily from a $117.7 million
increase in sales by the Staffing Services segment, a substantial portion of
which was increased managed service revenue, and a $14.2 million increase in
sales by the Computer Systems segment, partially offset by a $6.4 million
decrease in sales by the Telecommunications Services segment.
The Company's 1999 pretax income before minority interests decreased by
$893,000, or 23%, to $3.0 million. The operating profit of the Company's
segments decreased by $976,000, or 13%, to $6.8 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 more than
offset these gains.
Consolidated 1999 results included a gain on the sale of a joint venture of $1.3
million (see Note E of Notes to Consolidated Financial Statements of this
Report).
Net income in the first three months of 1999 was $2.6 million, the same as in
the first three months of 1998.
Results of Operations - By Segment
Sales of the Staffing Services segment increased by $117.7 million, or 44%, to
$387.3 million in 1999 with traditional staffing revenues increasing by 16% and
managed service revenue more than tripling, and its operating profit increased
by $1.1 million, or 23%, to $5.9 million, compared with $4.8 million in 1998.
Approximately $79.6 million, or 68%, 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 $36.9
million to $116.5 million in 1999. Approximately $17.7 million of the increase
was from business with new customers, including $12.8 million of sales from a
newly acquired subsidiary, with the remaining increase of $20.4 million arising
from existing customers. The increase in the segment's operating profit was due
to the increase in sales volume, which was partially offset by a decrease in
gross margin of approximately 1.4 percentage points. The decrease in gross
margin percentage 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 increased by $983,000, or 6%, to $18.4
million in fiscal 1999. Its operating loss increased to $1.3 million in 1999
from a loss of $1.0 million in 1998. The sales increase was due to increased
independent directory publishing sales of $6.7 million which included
publication of two newly acquired toll-free directories, partially offset by
decreased production sales including the absence of sales under a contract that
expired June 1998, which accounted for approximately 20% of the segment's sales
in the first three months of fiscal 1998. The increase in the segment's loss in
fiscal 1999 was due to the expiration of the production contract, 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 expired in 1998, while others were renewed and new
contracts were awarded to the segment. Other contracts are scheduled to expire
through 2001.
-13-
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED JANUARY 29, 1999 COMPARED
TO THE THREE MONTHS ENDED JANUARY 30, 1998 --Continued
Results of Operations - By Segment--Continued
The Telecommunications Services segment's sales decreased by $6.4 million, or
15%, to $36.0 million in fiscal 1999 and its operating profit decreased by $2.7
million, or 70%, to $1.1 million in fiscal 1999 compared with $3.8 million in
1998. The sales decrease was due to a 28% decrease in the Construction division,
resulting from a delay in capital spending by customers on infrastructure,
partially offset by a 57% increase in the Central Office group. Operating profit
decreased due to a 4.3 percentage point decrease in the Business Systems group's
gross margins, the decrease in the Construction division's sales and a 17%
increase 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 $14.2 million, or 86%, to
$30.7 million in 1999 and its operating profit increased to $1.4 million from
$172,000 in 1998. The increase in sales and operating profit was due to the
recognition of the first, and most significant, phase of the installation of an
operator services system in Holland which was accounted for under the completed
contract method of accounting. Revenues and operating profit for this contract
were $19.0 million and $2.3 million, respectively, during the first quarter of
fiscal 1999. These increases were partially offset by a reduction in other
system upgrade sales. The segment anticipates additional revenue and operating
profit to be recognized during the remainder of fiscal 1999 on this contract.
The Electronic Publication and Typesetting Systems segment's sales increased by
$754,000, or 4%, to $18.8 million in 1999. However, its operating loss was
$411,000, compared with an operating loss of $31,000 in 1998. The fiscal 1998
sales increase resulted primarily from an increase in domestic sales of systems
and equipment. Operating results decreased due to a 3.3 percentage point
decrease in gross margins. Systems and equipment gross margins decreased by 6.4
percentage points due principally to the sale of a greater proportion of lower
margin products offset, in part, by an increase in customer service gross
margins of 2.4 percentage points due primarily to improved margins on spare part
sales. 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 89% of equipment sales.
-14-
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED JANUARY 29, 1999 COMPARED
TO THE THREE MONTHS ENDED JANUARY 30, 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 $2.2 million, or 16%, to $15.4
million in 1999 to support the increased sales levels. These expenses expressed
as a percentage of sales were 3.1% in 1999 and 3.7% in 1998.
Research, development and engineering decreased by $575,000, or 19%, to $2.4
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.
Depreciation and amortization increased by $678,000, or 13%, to $5.7 million in
1999. The 1999 increase was attributable to amortization of intangibles, due to
acquisitions made in 1999 and 1998.
Interest income decreased by $201,000, or 26%, to $560,000 in 1999, primarily
due to a decrease of funds available for investment.
The foreign exchange loss in the first quarter of 1999 was $129,000, compared to
$453,000 in 1998. In the first quarter of 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 avoided any
further losses.
Interest expense increased by $652,000, or 47%, to $2.0 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 22.5% in 1999 from 39.8% in
1998. The low effective tax rate in 1999 resulted from the non-taxable gain on
the sale of a Brazilian joint venture.
In the first quarter of 1999, the Company recognized $1,272,000 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.
-15-
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Sources of Capital
Cash and cash equivalents decreased by $5.0 million in 1999 to $26.6 million
primarily as a result of the use of cash for acquisitions. Operating activities
provided $6.6 million of cash flows in the three months of fiscal 1999. Primary
among the factors providing cash flows to operating activities in 1998 were the
Company's net income of $2.6 million, augmented by $5.7 million of depreciation
and amortization, a decrease in the level of accounts receivable of $13.0
million and an increase of $6.4 million in customer advances and other
liabilities. The principal use of cash in operating activities for the three
months ended January 29, 1999 was $12.3 million to reduce the level of accounts
payable.
The principal factor in the cash applied to investing activities of $41.2
million was the expenditure for acquisitions of $38.0 million of which $35.9
million was expended in connection with the acquisition of Gatton.
Financing activities provided $29.4 million of cash from the increase in bank
loans of $29.6 million borrowed principally to fund the acquisition of Gatton.
In addition to its cash and cash equivalents, at January 29, 1999, the Company
has a $75 million, three-year, syndicated, unsecured credit line with a group of
banks under a revolving Credit Agreement which extends to January 2002 (see Note
C in the Notes to Condensed Consolidated Financial Statements) of which $30
million was outstanding at January 29, 1999.
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, except for approximately $12.0
million to purchase and install an Enterprise Resource Planning System for
internal use. This system is being purchased to satisfy the Company's ongoing
information technology requirements. Current systems are in the process of
being made Year 2000 compliant. This sum includes the purchase price for the
system together with a support contract, certain computer hardware and initial
phase implementation consulting services. Financing over three to four year
periods for approximately 75% of this amount has been obtained from the
vendors. The total cost to purchase and install this system is anticipated to
be approximately $15 million, a substantial portion of which will be
capitalized and amortized over 7 years.
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 issues associated with the programming code in
existing systems as the Year 2000 approaches. 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.
-16-
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Year 2000 Compliance--Continued
The Program involves Volt employees and consultants identifying, remediating,
and testing all of its computer equipment and software for Year 2000 compliance.
For this purpose, computer equipment and software includes systems that are
commonly thought of as Information Technology ("IT") systems, as well as non IT
systems such as facility control systems, communication systems and other
similar systems which may contain embedded technologies which may be time
sensitive.
The Program required that the individual business units of the Company formally
develop a plan to ensure Year 2000 compliance. The Program was divided into the
following phases:
- Identification and inventory of all computer equipment and software
- Initial system assessment, including assessment of risk
- System corrections and implementation of corrections
- Testing of systems including any system's corrections and/or
replacement
The Program was segmented to cover both internal systems and company products.
The Company has established a policy which requires that all current products be
Year 2000 compliant and that new products are tested for Year 2000 compliance.
The testing of existing products is currently in progress, and that of new
products is ongoing. Users of older non-compliant products have been notified of
the requirement to upgrade, if required.
The Company has addressed the Year 2000 issue with the suppliers of systems on
which certain of the Company's systems rely, and with which significant
electronic commerce is conducted, and has requested verification that they will
be compliant on a timely basis. To that end, the Company has been and will
continue to work closely with those vendors 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 fashion could have a
material adverse impact on the Company. The effect of non-compliance by a third
party is not determinable.
The initial readiness target date established by the Program was December 31,
1998. Although this date was not met for every system, the Program is at an
advanced stage. The identification, inventory and the initial risk assessment
stages of the program have been completed, and those systems critical to the
Company's business have had corrections provided and have either been tested or
are in the process of being tested. It is presently anticipated that the entire
Program will have been completed by June 1999.
Based on ongoing assessments of current progress and future plans, the Company
believes that the Year 2000 date 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.
-17-
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Year 2000 Compliance--Continued
Costs of Addressing Year 2000 Issues
The Company's cost of Year 2000 remediation is estimated at $5.1 million through
the end of 1999. The actual and estimated future costs are as follows:
<TABLE>
<CAPTION>
Costs through Estimated
January 29, 1999 Future Costs Total
---------------- ------------ -----
(Dollars in thousands)
<S> <C> <C> <C>
Internal Systems $1,900 $ 900 $2,800
Product Line 1,500 800 2,300
------ ------ ------
Total Costs $3,400 $1,700 $5,100
====== ====== ======
</TABLE>
The above costs include the costs of identification, system corrections and
testing and are expensed as incurred. The estimated future costs include the
continued testing of all systems including the extensive testing of the software
where corrections have been made by external consultants and returned to the
Company. In addition to the above, the Company has also purchased and will
purchase during the remainder of 1999 new hardware and software which replaces
older non-compliant systems. These new systems were required to meet the
Company's increasing information requirements, in addition to the requirements
for Year 2000 compliance. The estimated costs of such systems is $900,000, and
will be capitalized.
Estimated costs to remedy Year 2000 issues have increased slightly during this
quarter, but the estimated cost of purchasing replacement hardware and software
has decreased, as it was determined that certain systems that were to be
replaced can in fact be made compliant.
Risks of the Company's Year 2000 Issues
The Company believes 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. In addition, disruption in the economy in general resulting from Year
2000 issues could also materially adversely impact the Company. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
However, all of the Company's internal systems and product lines have been
thoroughly reviewed and a substantial portion of the testing has been completed.
Corrections of systems which are more critical to the operations of the Company
were prioritized and the efforts were focused on these systems first.
-18-
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Year 2000 Compliance--Continued
The Company's Contingency Plans
Although the Company believes that both its internal systems and product lines
will be compliant in a timely manner, the Company is in the process of
developing contingency plans which it expects to be complete in the first half
of 1999. Such plans will include back up stand alone systems, methods not
relying on computers, and the identification and commitment of alternate
suppliers and vendors. Those business units supplying products dependent on time
sensitive computer systems will have teams of technicians available to assist
customers with any Year 2000 issues which are not revealed until after December
31, 1999. The Company does not anticipate that problems of this nature will be
significant due to thorough testing of its product line.
-19-
<PAGE> 20
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 $88 million. At January 29, 1999, the Company had borrowings totaling $33.7
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 $55.2 million at January 29, 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
$2.2 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 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 January 29,
1999, the Company had purchased foreign currency options in the aggregate
notional amount of $7.7 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.
-20-
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 6-- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
15.01 Letter from Ernst & Young LLP.
15.02 Letter from Ernst & Young LLP regarding interim financial information
27.01 Financial Data Schedule.
(b) Reports on Form 8-K:
The only Report on Form 8-K filed during the quarter ended January 29, 1999 was
a report dated December 2, 1998 (date of earliest event reported) reporting Item
5: Other Events and Item 7: Financial Statements and Exhibits. No financial
statements were filed with that Report.
-21-
<PAGE> 1
March 12, 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 March
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 January 29, 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 January 29, 1999, and
the related condensed consolidated statements of income and cash flows for the
three month periods ended January 29, 1999 and January 30, 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
March 2, 1999
Exhibit 15.02
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-29-1999
<PERIOD-END> JAN-29-1999
<CASH> 26,584
<SECURITIES> 1,406
<RECEIVABLES> 287,937
<ALLOWANCES> 6,646
<INVENTORY> 42,568
<CURRENT-ASSETS> 369,312
<PP&E> 118,999
<DEPRECIATION> 52,684
<TOTAL-ASSETS> 499,013
<CURRENT-LIABILITIES> 222,274
<BONDS> 53,823
0
0
<COMMON> 1,503
<OTHER-SE> 202,220
<TOTAL-LIABILITY-AND-EQUITY> 499,013
<SALES> 18,744
<TOTAL-REVENUES> 489,922
<CGS> 11,253
<TOTAL-COSTS> 463,012
<OTHER-EXPENSES> 22,355
<LOSS-PROVISION> 1,305
<INTEREST-EXPENSE> 2,026
<INCOME-PRETAX> 2,978
<INCOME-TAX> 669
<INCOME-CONTINUING> 2,562
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,562
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
