<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/ X / Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the fiscal year ended October 29, 1999
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from
__________________________________ to ______________________
Commission File Number: 1-9232
VOLT INFORMATION SCIENCES, INC.
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(Exact name of registrant as specified in its charter)
New York 13-5658129
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1221 Avenue of the Americas, New York, New York 10020-1579
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 704-2400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $.10 par value New York Stock Exchange, Inc.
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Securities registered pursuant to Section 12(g) of the Act:
None
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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 (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the common stock held by non-affiliates of the
Registrant as of January 13, 2000 (based on the closing price on the New York
Stock Exchange on that date) was approximately $160 million (based on the number
of shares outstanding on that date, exclusive of all shares held beneficially by
executive officers and directors and their spouses and the Registrant's Savings
Plan and Employee Stock Ownership Plan, without conceding that all such persons
or plans are "affiliates" of the Registrant).
The number of shares of common stock outstanding as of January 13, 2000 was
15,063,405.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 2000 Annual Meeting are
incorporated by reference into Part III of this Report.
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PART I
ITEM 1. BUSINESS
GENERAL
Volt Information Sciences, Inc., is a New York corporation, incorporated in
1957. We sometimes refer to Volt and its subsidiaries collectively as "Volt"
or the "Company", unless the context otherwise requires. Volt operates in
the following three businesses, and, since Volt's Telecommunications and
Information Solutions business contains three segments, we have five
operating segments:
- STAFFING SERVICES
(1) Staffing Services - This segment provides a broad range of employee
staffing services, including temporary help, technical personnel
placement, and other alternative staffing services, employment and
direct hire placement services, payrolling services, employment
outsourcing services, employee leasing services and Information
Technology ("IT") services, to a wide range of customers.
- TELECOMMUNICATIONS AND INFORMATION SOLUTIONS
(2) Telephone Directory - This segment publishes independent telephone
directories, provides telephone directory production, commercial
printing, database management, sales and marketing services, licensing
of directory production and contract management software systems to
directory publishers and others; and provides services, principally
computer-based projects, to public utilities and financial institutions.
(3) Telecommunications Services - This segment provides
telecommunications services, including engineering, design,
construction, installation, maintenance, removals and distribution of
telecommunications products to the outside plants and central offices of
telecommunications and cable companies, and within end-user premises.
(4) Computer Systems - This segment provides directory assistance
outsourcing services and designs, develops, integrates, markets, sells
and maintains computer-based directory assistance systems and other
database management and telecommunications systems for the
telecommunications industry; and provides third party IT services to
others.
- PREPRESS PUBLISHING SYSTEMS
(5) Electronic Publication and Typesetting Systems - This segment
designs, develops, manufactures, integrates, markets, sells and services
computerized imagesetting and publication systems equipment and software
principally to the newspaper publishing industry, niche portions of the
commercial printing industry and other organizations having internal
publishing facilities, through Autologic Information International,
Inc., the Company's 59% owned publicly-held subsidiary and its
subsidiaries (collectively, "aii").
INFORMATION AS TO OPERATING SEGMENTS
The following tables set forth the contribution of each operating segment to the
Company's consolidated sales and operating profit for each of the three fiscal
years in the period ended October 29, 1999, and those assets identifiable within
each segment at the end of each of those years (see Note K of Notes to
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations):
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VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
OPERATING SEGMENT DATA
<TABLE>
<CAPTION>
October October October
29, 1999 30, 1998 31, 1997
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
NET SALES:
Staffing Services:
Sales to unaffiliated customers $ 1,701,974 $ 1,308,224 $ 1,015,579
Intersegment sales 5,323 5,953 5,218
----------- ----------- -----------
1,707,297 1,314,177 1,020,797
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Telephone Directory:
Sales to unaffiliated customers 98,128 92,456 97,599
Intersegment sales 221 1,842 1,376
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98,349 94,298 98,975
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Telecommunications Services:
Sales to unaffiliated customers 185,263 166,383 143,360
Intersegment sales 2,444 2,373 2,811
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187,707 168,756 146,171
----------- ----------- -----------
Computer Systems:
Sales to unaffiliated customers 83,320 54,312 60,738
Intersegment sales 617 142 89
----------- ----------- -----------
83,937 54,454 60,827
----------- ----------- -----------
Electronic Publication and Typesetting Systems:
Sales to unaffiliated customers 72,460 87,220 84,197
Intersegment sales 197 396 429
----------- ----------- -----------
72,657 87,616 84,626
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Elimination of intersegment sales (8,802) (10,706) (9,923)
----------- ----------- -----------
Total Net Sales $ 2,141,145 $ 1,708,595 $ 1,401,473
=========== =========== ===========
SEGMENT PROFIT (LOSS)
Staffing Services $ 43,824 $ 33,481 $ 30,761
Telephone Directory 7,342 5,121 8,931
Telecommunications Services 14,122 11,868 18,722
Computer Systems 3,203 (2,169) 197
Electronic Publication and Typesetting Systems (5,155) 3,119 1,521
Eliminations (12)
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Total segment profit 63,336 51,420 60,120
General corporate expenses (13,674) (12,106) (10,811)
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TOTAL OPERATING PROFIT 49,662 39,314 49,309
Interest and other income - net 2,033 2,116 2,089
Loss on securities (3,000)
Gain on sale of joint ventures 2,049 500 12,807
Interest expense (8,326) (5,712) (5,656)
Foreign exchange (loss) gain - net (720) (391) 52
----------- ----------- -----------
Income before income taxes, equity in joint venture earnings
and minority interests $ 44,698 $ 35,827 $ 55,601
=========== =========== ===========
</TABLE>
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VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
OPERATING SEGMENT DATA--Continued
<TABLE>
<CAPTION>
October October October
29, 1999 30, 1998 31, 1997
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Staffing Services $300,852 $209,355 $155,818
Telephone Directory 83,427 70,638 49,708
Telecommunications Services 99,070 62,480 58,393
Computer Systems 32,050 32,748 32,013
Electronic Publication and Typesetting Systems 46,768 53,476 55,305
-------- -------- --------
562,167 428,697 351,237
Cash, investments and other corporate assets 56,162 40,629 67,485
-------- -------- --------
Total assets $618,329 $469,326 $418,722
======== ======== ========
</TABLE>
Note: The presentation of fiscal years 1998 and 1997 has been reclassified to
conform with the current year's presentation.
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FORWARD-LOOKING STATEMENTS DISCLOSURE
In order to keep the Company's shareholders and investors informed of the
Company's future plans and objectives, this Report 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 shareholders 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
- - decreasing rates of unemployment and higher wages sought by temporary
workers, especially those in certain technical fields particularly
characterized by labor shortages
- - changes in customer attitudes toward outsourcing and temporary personnel
- - 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
- - the Company's ability to 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 and uncertainty of customer acceptance
- - the Company's 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
- - the 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
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These and certain other factors are discussed in this annual report for the
fiscal year ended October 29, 1999, and from time to time in the Company's other
reports hereafter filed with the Securities and Exchange Commission.
STAFFING SERVICES SEGMENT
Volt's Staffing Services segment provides, from 328 branch and on-site offices
located throughout the United States and Europe, a broad range of employee
staffing services, including temporary help, technical personnel placement, and
other alternative staffing services, employment and direct hire personnel
placement services, payrolling services, employment outsourcing services,
professional employer services, and specifically tailored recruitment services
and a range of information technology ("IT") services, including IT contract
consultants, systems development consulting, maintenance and technical support
services, to a wide range of customers. Except for professional employer
services, which are marketed under the name "Shaw & Shaw", the remainder of this
segment's services are generally identified and marketed throughout the United
States as "Volt Services Group". In December 1998, Volt acquired Gatton
Computing Group Limited and its subsidiaries (now referred to as "Gatton Volt
Group"), a provider of IT contractor resourcing and consulting services and IT
managed services in the United Kingdom and continental Europe. The purchase
price was approximately $35 million of cash. Headquartered near London, England,
the Gatton Volt Group offers IT services through three main operating divisions
which provide temporary IT contract consultants, specifically tailored
recruitment services, and a range of IT services, including systems development,
consulting, maintenance and technical support services. The Gatton Volt Group
reported revenues in fiscal 1999 of $77.3 million.
VOLT SERVICES GROUP/GATTON VOLT GROUP
Volt Services Group and Gatton Volt Group (the "Staffing Services Group")
are single-source providers of all levels of temporary staffing, offering
to their customers an extensive range of alternative employment services.
As a full-service supplier, they also provide payrolling and outsourcing
services, as well as assuming full responsibility for staffing,
supervision and the management of discrete projects which are staffed by
temporary workers.
The Staffing Services Group provides professional, computer, engineering,
design, scientific and technical support personnel, as well as IT
services, IT contract consultants and specifically tailored recruitment
services, and a range of IT services, including systems development
consulting, maintenance and technical support services, contract
engineering services and temporary help in administrative, clerical,
office automation, accounting, telemarketing, industrial and other job
classifications, for varying periods of time (both short and long-term) to
companies and other organizations (including government agencies) in a
broad range of industries which have a need for such personnel, but are
unable, or do not choose to engage that type of personnel as their own
employees. Customers range from those that require one or two temporary
employees to national accounts that require as many as several thousand
temporary employees at one time.
The Staffing Services Group has been successful in obtaining a number of
large national contracts which typically require on-site Volt
representation and involve servicing numerous customer facilities. Many of
Volt's larger customers, particularly those with national agreements, have
managed services programs under which Volt, in addition to providing
staffing services, performs administrative
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functions associated with a customer's alternative staffing requirements
and provides customized invoicing and management reports. These managed
services include the coordination, processing and payment of staffing
service subcontractors ("associate vendors") and other subcontractors for
ultimate single source consolidated billing to the customers. Volt also
acts as an associate vendor to other national providers to assist them in
meeting their obligations to their customers. Employees assigned to a
customer under a national account range from light industrial workers to
high-level engineers and information technology professionals. The bidding
process for national accounts is very competitive and Volt is usually in
competition with other major temporary staffing firms. Many contracts are
for a one to three year time period, at which time they are typically
rebid. Others are for shorter periods and may be for the duration of a
particular project or subproject or a particular need that has arisen
which requires additional or substitute personnel and expire upon
completion of the project or when the particular need ends. Contracts with
national accounts typically require considerable start-up costs and
usually take from six months up to two years to reach anticipated revenue
levels. This segment maintains a group dedicated to the acquisition,
implementation and service of national accounts; however, there can be no
assurance that Volt will maintain accounts that it currently serves, nor
that it can obtain additional national accounts on satisfactory terms.
The Staffing Services Group provides personnel to companies throughout a
broad spectrum of industries, including the computer, electronics,
manufacturing, aerospace, defense, telecommunications, utility, power
(including certain nuclear and fossil fuel power plants), transportation,
petrochemical, chemical, retail, finance, banking, insurance,
architectural, engineering and other industries, as well as to government
agencies and universities. Volt Services Group, through its Volt
Accounting Specialists division, provides specialized temporary personnel
in accounting, bookkeeping and other financial classifications. In
addition, branch offices that have developed a specialty in one or more
disciplines often use the name "Volt" followed by their specialty
disciplines to identify themselves. Other branch offices have adopted
other names to differentiate themselves from traditional temporary
staffing when their focus is more project oriented.
The Staffing Services Group furnishes temporary employees to meet various
customer requirements, such as assigning employees to a specific project
or subproject (which employees are typically retained until its
completion) or to meet a particular need that has arisen, substituting for
permanent employees during vacation or sick leave, staffing high turnover
positions, filling in during the full-time hiring process or during a
hiring freeze, and staffing seasonal peaks, special projects, conversions,
inventories and offices that are downsizing. The Staffing Services Group
also provides management personnel to coordinate and/or manage special
projects and to supervise temporary employees.
Volt Services Group maintains computerized nationwide resume databases,
containing resumes of computer professionals, engineers and other
technical, professional and scientific candidates, from which it fills
customer job requirements. The Gatton Volt Group maintains similar
computerized resume databases containing resumes of United Kingdom and
continental Europe candidates. In addition to maintaining its proprietary
internet recruiting sites, the segment has numerous contracts with
independent job search web site companies. The individuals employed by
both groups are frequently willing to relocate to fulfill assignments.
Lesser skilled employees are generally recruited and assigned locally, and
resumes for these employees are maintained in computerized databases at
branch offices.
Employees hired by the Staffing Services Group become Volt employees
during the period of their assignment, which ranges from as little as one
day to several years. As the employer of record, Volt is
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responsible for the payment of salaries, payroll taxes, workers'
compensation and unemployment insurance and other benefits, which may
include paid sick days, holidays and vacations and medical insurance.
Class action lawsuits have been instituted in the United States against
users of temporary services, including some customers of the Company, by
certain temporary employees assigned to such customers, and a few have
been commenced against providers of temporary services, in one instance
against the Company and other temporary agencies. In general, these
lawsuits claim that the temporary employees should be classified as the
customers' employees and are entitled to participate in certain of the
customer's benefit programs. Volt does not know what effect the resolution
of these cases will have on the industry in general, nor upon this
segment's business.
Volt Services Group also has created a dedicated group, called Volt
Professional Placement, to serve as an employment search organization
specializing in the recruitment and direct hire placement of individuals
in professional, information technology, technical, accounting and
finance, and administrative support disciplines. In order to support this
service, Volt has staffed many of its branch offices with one specialized
direct hire placement recruiter. Since the direct placement recruiters
operate within Volt's existing nationwide branch system, the Company has
not experienced significant start-up costs associated with this service.
Customers of this service are both customers of temporary services and
others.
SHAW & SHAW
Shaw & Shaw, Inc. specializes in professional employer services, known as
"employee leasing". Shaw & Shaw shares the employer responsibilities with
its client companies, typically serving as the administrative employer of
record for either the entire full-time workforce or for a specific
department or division of the client company. Services provided by Shaw &
Shaw include complete human resource management, legal and regulatory
compliance, comprehensive health benefits, retirement plans
administration, workers' compensation insurance, loss control and risk
management and payroll administration. Shaw & Shaw utilizes the purchasing
power of the Company which enables it to provide its customers with cost
savings in health care and workers' compensation insurance under its
fully-insured plans, as well as labor administration, relieving such
customers of the administrative responsibilities involved in maintaining
employees.
Shaw & Shaw provides and markets its services to large and small client
companies in a broad spectrum of industries, such as retail, convenience
markets, country clubs, restaurants, building contractors, petroleum,
manufacturing, grocery, home care, maintenance, janitorial, banking and
high tech companies.
During the week ended October 29, 1999, the entire segment provided
approximately 34,000 employees and 6,000 subcontractors and associate vendor
employees to its customers.
While the markets for the segment's services include a broad range of industries
throughout the United States and Europe, general economic conditions in specific
geographic areas or industrial sectors have in the past, had, and could in the
future, have an effect on the profitability of this segment. In addition, this
segment could be adversely affected by changes in laws, regulations and
government policies, including the results of pending litigation involving the
staffing services industry, and related litigation expenses, customers'
attitudes toward outsourcing and temporary personnel, as well as decreasing
rates of unemployment and higher wages sought by temporary workers, especially
those in certain technical fields particularly characterized by labor shortages.
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Some of this segment's national contracts are large, and the loss of any large
contract could have a significantly negative effect on this segment's business
unless, and until, the business is replaced. Downward pressure on this segment's
operating margins has occurred over the past several years due to a trend in the
industry for large customers to consolidate their use of alternative workers to
single source providers. This has resulted in a decrease in gross margin
percentage due to higher associate vendor usage, a substantial portion of which
is billed without a mark-up, and lower margins on the increasing business with
its large, national, managed service accounts. Overhead costs have increased due
to start-up costs incurred in connection with the opening of new temporary
personnel or commercial placement offices to service national accounts, related
infrastructure costs as additional regional and area management is required to
support expansion and higher recruiting costs in a contracting labor market. At
the same time, the Company has closed underperforming offices. While the
Staffing Services segment has seen a flattening of the commercial staffing
business from some of its major customers, sales of the Commercial & Light
Industrial division increased by 8% compared to last year's fourth quarter. In
addition, operating margins of this division increased in the fourth quarter of
fiscal 1999 compared with the 1998 fourth quarter due to higher gross margins
and lower overhead costs expressed as a percentage of sales. However, there can
be no assurances that this improvement will continue.
The segment competes with many technical service, temporary personnel, other
alternative staffing firms, and permanent placement firms, some of which are
larger than Volt, as well as with individuals seeking direct employment with the
Company's existing and potential customers.
The ability of Volt to compete successfully for customers depends on its
reputation, pricing and quality of service provided and its ability to engage,
in a timely manner, personnel meeting customer requirements. Competition is
intense and many of the contracts entered into by this segment are of a
relatively short duration, and awarded on the basis of competitive proposals
which are periodically rebid by the customer. Although Volt has historically
been successful in obtaining various short and long-term contracts in the past,
with concomitant increases in revenues, in many instances margins under such
contracts have decreased. There can be no assurance that existing contracts will
be renewed on satisfactory terms or that additional or replacement contracts
will be awarded to the Company, nor that revenues from an expired contract will
be immediately replaced.
In December 1999, the Company completed its purchase of the Wired Services and
Professional Staffing divisions of two Lucent Technologies subsidiaries. The
Wired Services division installs cable, wire and small telecommunications
systems for businesses, and the Professional Staffing division provides
technical, management and administrative personnel for temporary assignments.
The two divisions employ 970 employees. The Company paid cash for inventory and
equipment with limited additional consideration due based on future sales of the
Wired Services division. The amounts are not considered material to the Company.
TELEPHONE DIRECTORY SEGMENT
Volt's Telephone Directory segment publishes independent telephone directories,
provides telephone directory computerized pre-press production, commercial
printing, database management, sales and marketing services, licensing of
directory production and contract management software systems to directory
publishers and others and provides various computer based services to public
utilities and financial institutions. This segment's business is in a state of
transition from a concentration on production and systems used in the production
of phone directories to the publishing of telephone directories. This segment
consists of DataNational, Directory Systems/Services, the Uruguay division and
VIEWtech.
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DATANATIONAL
DataNational, Volt's independent telephone directory publisher, publishes
principally community-based directories in various states, primarily in
the mid-Atlantic and Southeastern portions of the United States.
DataNational's revenues are generated from yellow page advertising sold in
these directories. DataNational offers community-based directories that
provide consumers with information concerning businesses that provide
services within their local geographic area. The directories also include
features that are unique to the community, such as school information,
maps and a calendar of events. DataNational's principal competition is
regional telephone companies, whose directories typically cover a much
wider geographic area than the locations for which DataNational publishes
directories. Advertisers are attracted to DataNational's community
directory because it enables them to specifically target their local
markets at a much lower cost.
The division identifies new markets where demographics and local shopping
patterns are favorable to the division's community-oriented product and
expands accordingly. During fiscal 1999, the division added eight new
directories through acquisitions and internal growth, bringing the total
community county and regional directories to 137.
DIRECTORY SYSTEMS/SERVICES
Directory Systems/Services markets to directory publishers, and utilizes
computer systems which combine equipment manufactured by aii and others
with software developed by the Company and by third parties specifically
for the division, as well as third-party off-the-shelf software, under
various short and long-term contracts. The division integrates and
maintains these systems, which manage the production and control of
databases, principally for directory and other advertising media
publishers. These computer systems produce digitized display
advertisements and photocomposed pages, with integrated graphics for
yellow and white pages directories, as well as CD/ROM directories. The
systems incorporate "workflow management", by which ads are automatically
routed between workstations, increasing through-put and control. These
systems are licensed to, and the services are performed for, publishers
and others worldwide.
Commencing in 1999, Directory Systems/Services has published The National
Toll-Free Directory Shoppers Guide and The National Toll-Free Business
Buyers Guide, which provides toll-free numbers for consumers and
businesses, respectively. These directories were acquired from AT&T Corp.
for whom Volt had been providing pre-press production and billing services
related to the acquired directories.
A substantial portion of its business is obtained through submission of
competitive proposals for contracts that typically expire in one to three
years and are then rebid. A number of contracts expired in 1999. Other
contracts are scheduled to expire through 2001. While the Company has
historically secured new contracts and believes it can secure renewals
and/or extensions of some of these contracts, some of which are material
to this segment, and obtain new business, there can be no assurance that
contracts will be renewed or extended, or that additional or replacement
contracts will be awarded to the Company on satisfactory terms.
Directory Systems/Services faces intense competition for all of its
services and products from other suppliers and from in-house facilities of
potential customers. Some of this division's significant
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competitors are companies which are larger and have substantially greater
financial resources than Volt.
URUGUAY
Volt's Uruguay division is the official publisher of white and yellow
pages telephone directories for Antel, the government-owned telephone
company in Uruguay, under a contract with Antel originally entered into in
1983 and subsequently extended through 2006. Revenues are generated from
yellow pages advertising.
In addition to the directory business, the division owns and operates a
printing plant that prints its own telephone directories, prints
directories for other publishers in Argentina, Brazil and other South
American countries and does commercial printing, including daily and
weekly newspapers, magazines and periodicals for various customers in
Uruguay and elsewhere in South and Central America.
This division has recently installed a new, state of the art, high speed,
four color heat set printing press in order to service its expanding
customer base, becoming one of the most advanced printing facilities in
South America.
VOLT VIEWTECH
VIEWtech services the energy and water utility industry providing
conservation, metering, and customer services, and provides outsourced
billing and internet-based customer services using utility billing
software operating on Microsoft's platforms. VIEWtech was the first
outsourcing company to join the Environmental Protection Agency's Energy
Star Billing Program, which prescribes innovative designs in utility bill
presentation. VIEWtech also contracts with major energy utilities for
HomeVIEW internet services, which provides energy usage and energy-related
home improvement payback analysis, and provides automatic meter reading
("AMR") installation services for utilities and AMR manufacturers.
VIEWtech, as a specialty lender, originates and services Fannie Mae-backed
energy efficiency financing, contracting with major utilities to sponsor
and provide marketing support for this financing. The loans are
immediately resold to Fannie MAE.
Volt's ability to compete in its Telephone Directory segment depends upon its
reputation, technical capabilities, price, quality of service and ability to
meet customer requirements in a timely manner. Volt believes that its
competitive position in this segment's areas of operations is augmented by its
ability to draw upon the expertise and resources of its other segments.
Although Volt continues its investment in research and development, there is no
assurance that this segment's present or future products will be competitive,
that the segment will continue to develop new products or that present products
or new products will continue to be successfully marketed.
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TELECOMMUNICATIONS SERVICES SEGMENT
Volt's Telecommunications Services segment provides telecommunications and other
services, including engineering, design, construction, installation,
maintenance, removals and distribution of telecommunications products to the
outside plants and central offices of telecommunications and cable companies,
and within end user premises. This segment consists of the Volt
Telecommunications Group/Voltelcon and Advanced Technology Services divisions.
VOLT TELECOMMUNICATIONS GROUP/VOLTELCON
Volt Telecommunications Group/Voltelcon is a nationwide full-service
provider of telecommunications services, including engineering, design,
construction, installation, maintenance, removals and distribution of
telecommunications products. It performs these services on a project
and/or contract personnel placement basis in the outside plant and central
office, and within end-user premises, for telephone operating companies,
interexchange carriers, local exchange carriers, wireless carriers,
telecommunications equipment manufacturers, cable television, electric,
gas, water and sewerage utilities, federal, state and local government
units and private industry.
The Construction group provides both aerial and underground construction
services, using its own vehicles and high production equipment. These
services include jack and bore, directional boring, excavation for conduit
and manhole systems, cable placement and splicing, pole placement and
wrecking, copper, coaxial and long and short haul fiber optic cable
installation, splicing, termination and testing, project management and
inspection services. It also provides similar design and construction
services to other companies requiring these services. Because much of this
business is performed outdoors, operations have been, and could in the
future, be adversely affected by weather conditions.
The Engineering group offers a wide range of outside plant engineering
services including right of way acquisition, network design for copper,
coaxial and fiber systems, carrier systems design, conduit design,
computer aided design drafting, digitizing records, building industry
consultant engineering, turnkey design and construction and air pressure
design and record verification.
The Business Systems group provides systems integration, cabling and
wiring services and telephone equipment installation. This involves the
engineering, design, installation and management of many types of local
and wide area networks, via copper and fiber, for voice, data and video.
This division also provides installation and maintenance services to
operating telephone companies, long distance carriers and
telecommunications equipment manufacturers, and distributes and resells
telecommunications equipment.
The Central Office group is a provider of telecommunications services,
including central office engineering, furnishing, installation and removal
of transmission systems, distribution frame systems, AC/DC power systems,
wiring and cabling, switch peripheral systems, pre- and post-
conditioning, equipment assembly and system integration and controlled
environment structures.
ADVANCED TECHNOLOGY SERVICES
Volt's Advanced Technology Services was established in 1994 to meet the
challenges of the "Information Superhighway" and the merging of voice,
data and video services to telephony,
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<PAGE> 13
broadband and other providers of information system services, such as
telephone companies, interexchange carriers, government and private
industry. During 1999, ATS continued to expand its offerings in wireless
technology, computer-telephony integration and high speed data services to
support its clients. ATS' newest program is the full scale deployment of
the DSL service center as a 24/7 inbound operation; as high speed internet
service continues to roll out across the nation, ATS clients can now
receive installation help from Volt whenever it is needed.
This division also accommodates clients in the telecommunications industry
who require a full range of services from multiple Volt business segments,
such as human resources, equipment, vehicles, systems analysis, network
integration, software development and turnkey applications.
Both divisions of this segment offer partial or complete turnkey services to
cellular and Personal Communications Services (PCS) license holders to establish
or enhance their network infrastructure. These services include radio frequency
engineering, site evaluations and acquisition, network engineering and equipment
specifications, logistic support, site construction, testing and integration
into the network, outside plant engineering and construction services and
central office engineering, furnishing and installation to integrate the license
holders' wireless networks into the national telecommunications network.
This segment also offers the added value of being able to provide total
management of multi-discipline projects because of its ability to integrate the
efforts of all of its groups on a single project. In addition, the segment is
also responsible for turnkey programs performed nationwide which require a
single point of contact and uniform quality.
This segment faces substantial competition with respect to all of its
telecommunications services from other suppliers and from in-house capabilities
of potential customers. Competition in this segment remains intense. Some of
this segment's significant competitors are larger and have substantially greater
financial resources than Volt. Other competitors are small, local companies,
that generally have lower overhead.
Volt's ability to compete in this segment depends upon its reputation, technical
capabilities, pricing, quality of service and ability to meet customer
requirements in a timely manner. Volt believes that its competitive position in
this segment is augmented by its ability to draw upon the expertise and
resources of other Volt segments.
A substantial portion of Volt's business in this segment is obtained through
submission of competitive proposals for contracts that typically expire in one
to three years and are then rebid. Some of this segment's contracts expired in
1999 and others will expire in 2000 through 2002. While the Company believes it
can secure renewals and/or extensions of some of these contracts, some of which
are material to this segment, and obtain new business, there can be no assurance
that contracts will be renewed or extended or that additional or replacement
contracts will be awarded to the Company on satisfactory terms.
COMPUTER SYSTEMS SEGMENT
The Computer Systems segment provides directory assistance services and designs,
develops, sells, leases and maintains computer-based directory assistance and
other database management and telecommunications systems and related services
for the telecommunications industry, and provides third party IT services to
others. This segment is comprised of two business units: VoltDelta Resources
("VoltDelta") and Maintech.
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<PAGE> 14
VOLTDELTA RESOURCES
VoltDelta markets information services solutions to telephone companies
and interexchange carriers worldwide. VoltDelta is transitioning its
business from the sale of systems to a business unit that outsources its
information services infrastructure to its customers. To meet the needs of
customers who desire to upgrade their operator services capabilities by
procuring outside services as an alternative to making a capital
investment, the unit has deployed and is marketing enhanced directory
assistance and other information service capabilities as a
transaction-based outsourcing service. This service is marketed as
DirectoryExpress, with the unit owning and operating its own proprietary
Delta Operator Services System ("DOSS") and providing access to a national
database sourced from listings of the Regional Bell Operating Companies
and other independent sources.
As an adjunct to DirectoryExpress, VoltDelta's InfoExpress service permits
its transaction-based customers to offer operator assisted yellow pages,
directional and other enhanced directory assistance capabilities. These
are designed to provide directory assistance operators worldwide access to
over 130 million United States business, residential and government
listings. For consumers (the end-users), especially cellular and PCS
users, DirectoryExpress is expected to provide a more convenient and
efficient level of directory assistance service since, among other things,
consumers may obtain enhanced directory and yellow pages information
without having to know the correct area code. Enhanced information
services are particularly attractive in the wireless market where there is
no access to printed telephone directories. Access to VoltDelta's suite of
database services is available over Wireless Access Protocol and via the
internet.
Although VoltDelta has been successful during 1999 in signing up new
customers for these services, including several major telephone companies
in the long distance and cellular markets, there can be no assurance that
it will continue to be successful in marketing this service to additional
customers nor that the customers' volume of transactions will be at a
level to enable the segment to maintain profitability.
During 1996, VoltDelta Europe ("VDE"), the unit's European operations
based in the United Kingdom, was awarded a contract by KPN (the
Netherlands telephone company) for VDE's Operator and Agent Services
Integration System ("OASiS"), which offers operator services providers
with open access to multiple information-based databases. The system has
been deployed and is operational in Holland. Enhanced capabilities have
recently been added to the system. Final acceptance of this system was
received in fiscal 1999 and, since VoltDelta uses the completed contract
method of accounting, recognition of the revenue from this contract
occurred at that time. VDE is currently marketing OASiS to other European
telecom providers.
In order to fulfill its commitments under its contracts, VoltDelta is
required to develop advanced computer software programs and purchase
substantial amounts of computer equipment, as well as licensed data
content, from several suppliers. Most of the equipment and data content
required for these contracts is purchased as needed and is readily
available from a number of suppliers.
MAINTECH
Maintech provides IT services for PC and UNIX workstations and servers,
and most popular LAN/WAN architectures. The services include design,
installation, warranty, maintenance, network monitoring and management,
Help Desk and project management. Supported products include
-14-
<PAGE> 15
Compaq, Dell, Hewlett Packard, SUN, IBM, Cisco, Bay Networks, Microsoft,
Novell, Cabletron and other current technologies.
Maintech focuses on corporate enterprise-wide opportunities in the
telecommunications, banking and brokerage, research and development, and
pharmaceutical markets. In keeping with its mission to deliver a full
scope of IT services in these demanding markets, Maintech made continuing
investments in certification of its engineering staff, and made strong
capital commitments to state-of-the-art network diagnostic tools. In
addition to outside sales, Maintech provides its services across the
business units of Volt. It plays an important role in designing, deploying
and maintaining Volt's corporate WAN, including providing Help Desk
services to over 4,000 Volt users.
To bolster its WAN capabilities, Maintech acquired MC(2), Inc. in April
1999. The acquisition of MC(2), Inc. adds ten years of WAN design and
support experience, and many high-level vendor certifications, including
Novell Platinum Partner and Cisco Premium Provider.
The business environment in which this segment operates is highly competitive.
Some of this segment's principal competitors are larger than Volt and have
substantially greater financial resources. This segment's position in its market
depends largely upon its reputation, quality of service and ability to develop,
maintain and implement information systems on a cost competitive basis. Although
Volt continues its investment in research and development, there is no assurance
that this segment's present or future products will be competitive, that the
segment will continue to develop new products or that present products or new
products can be successfully marketed.
Some of this segment's contracts expired in 1999, while others were renewed and
new contracts were awarded to the Company. Other contracts are scheduled to
expire in 2000 through 2008. While the Company believes it can secure renewals
and/or extensions of some of these contracts, some of which are material to this
segment, and obtain new business, there can be no assurance that contracts will
be renewed or extended or that additional or replacement contracts will be
awarded to the Company on satisfactory terms.
ELECTRONIC PUBLICATION AND TYPESETTING SYSTEMS SEGMENT
This segment is composed of Volt's 59% owned publically held subsidiary and its
subsidiaries Autologic Information International, Inc. ("aii"). aii designs,
develops, manufactures, integrates, markets, sells and services computerized
imagesetting and publication systems equipment and software that automate the
various prepress production steps in the publishing process. aii's products are
primarily marketed and sold to the newspaper publishing industry, niche portions
of the commercial printing industry and other organizations having internal
publishing facilities. aii has traditionally focused its efforts on high-volume
and deadline-driven customers.
In general, aii's systems consist of computers, laser-based, and computer-based
products used for scanning images, storing and retrieving computerized text and
images and controlling output of those elements to various output devices, such
as laser imaging systems, proofers, platemakers and document distribution
systems. The imaging devices manufactured and sold by aii are the 3850 film
recorder and 3850 Computer-to-Plate
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<PAGE> 16
imager. aii also manufactures and delivers a variety of hardware and software
interface products that enable different computers and other products to
communicate and distribute documents efficiently and other non-core products. To
meet the specific requirements of aii's customers, aii's products can be
integrated into complete systems, integrated with a customer's existing products
(whether previously purchased from aii or from another vendor) or sold and used
individually as "stand alone" units.
aii's systems are available in a variety of hardware and software configurations
on a broad base of computer hardware platforms. This allows them to be
configured to meet the individual needs of its customers in the prepress
industry. This includes publishers of newspapers, telephone directories,
magazines, books, directories, catalogues, yearbooks, print advertising, checks,
and other quality graphic art printed products. To satisfy this diverse customer
base, aii offers systems providing different speed, page size and output quality
requirements. These systems can output either to film, photographic paper (both
of which are then used to make printing press plates) or to the printing press
plates themselves.
Sales made outside the United States by aii subsidiaries, of products
manufactured or assembled in the United States, together with export sales by
aii directly to unaffiliated foreign customers, amounted to $26.3 million in
fiscal 1999, $33.4 million in fiscal 1998 and $38.4 million in fiscal 1997.
aii operates in a highly competitive marketplace and its principal customer
market, the newspaper publishing industry, is itself facing intense competition
from other advertising media. Newspapers have, in the past, experienced
significant downturns during recessions. Accordingly, in the past, both
Autologic and Triple-I were adversely affected by general economic recessions in
the United States and in other countries where aii's products are sold. Economic
problems are currently being experienced in a number of aii's foreign markets.
In addition, newspapers have been seeking to reduce costs and expenditures to
offset intense competition for advertising revenues among newspapers, other
printed publications and electronic media and the reduced readership of the
smaller number of newspapers, especially in the United States. In the latter
part of calendar year 1999, some newspapers suspended capital expenditures due
to Year 2000 issues. All of these factors have resulted in reductions in
equipment purchases by aii's traditional customers, adversely affecting aii's
performance, and there can be no assurances that this segment will return to
profitability in the near-term.
aii's position in its markets depends largely upon its reputation, the quality,
design and pricing of its products, its ability to maintain high-level
technological capabilities, foresee market changes and continue to identify,
develop and commercialize innovative and competitive products and systems, and
to improve the timeliness of its deliveries and the quality of its field
service. Technological advancements, standard systems based architecture (which
allows customers to assemble standardized component products themselves from
several different sources) and general market conditions have increased price
competition. A number of firms, some of which have substantially greater
financial resources than aii, manufacture prepress products competing with aii's
prepress products. Some of these competitors sell their products as complete
prepress systems, for which aii has no competing systems. Other competitors
grant significant price discounts for products which compete with aii's products
in order to promote sales of consumable products for which aii has no competing
product. Although aii continues to invest in research and development, there is
no assurance that aii's present or future products will be competitive, that aii
will continue to develop new products or that present products or new products
will be successfully marketed.
As a result of this increasing competition, as well as changing patterns of
customer purchasing that have produced an industry-wide trend toward the
purchase of open systems, the industry, including aii, has experienced pressure
on profit margins on sales of equipment and software, which is likely to
continue. Gross
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<PAGE> 17
profit margins on customer services have likewise been under considerable
pressure in recent years. In addition, since aii's products are more software
oriented, aii offers more maintenance services through remote data transfer,
rather than on-site, which reduces revenues. To counter this pattern, aii is
striving to reduce costs while designing and marketing cost justifiable products
for its customers.
JOINT VENTURE
In fiscal 1998, Volt and TELUS Advertising Services, a wholly owned subsidiary
of TELUS Corporation, formed a joint venture for the publishing of community
telephone directories. The two partners have each committed $25 million for the
acquisition, start-up and operation of a business engaged in the publication of
community telephone directories in the western half of the United States. During
1999, the joint venture had acquired eleven directories in Texas, with a total
contribution of $1.3 million by Volt.
For further information concerning the Company's operations and joint ventures,
see Management's Discussion and Analysis of Financial Condition and Results of
Operations.
RESEARCH, DEVELOPMENT AND ENGINEERING
During fiscal years 1999, 1998 and 1997, the Company expended approximately
$11.3 million, $11.1 million and $14.3 million, respectively, on research,
development and engineering, all of which is Company sponsored. The major
portion of research and development expenditures were incurred by the Electronic
Publication and Typesetting Systems and the Computer Systems segments. The
increase in expenditures in fiscal year 1999 was due to an increase in product
development in the Electronic Publication and Typesetting Systems segment, which
was substantially offset by a decrease in the other segments.
INTELLECTUAL PROPERTY
"Volt" is a registered trademark of the Company. The Company holds a number of
other trademarks and patents related to certain of its products and services;
however, it does not believe that any of these are material to the Company's
business or that of any segment. The Company is also a licensee of technology
from many of its suppliers, none of which individually is considered material to
the Company's business or that of its segments.
CUSTOMERS
In fiscal 1999, the Staffing Services segment's sales to two customers,
including substantial associate vendor pass-through sales, represented
approximately 18% and 11%, respectively of the total sales of that segment; the
Telecommunications Services segment's sales to two customers each represented
approximately 13% of the total sales of that segment; and the Computer Systems
segment's sales to one customer represented approximately 34% of the total sales
of that segment. One customer represented 14% of the Company's consolidated
sales in fiscal 1999 and 11% of the Company's consolidated sales in 1998. In the
event that there was a loss of one or more of these customers, and unless the
business is replaced by that segment, there could be an adverse effect on the
results for that segment's business, although the Company does not believe that
there would be a material adverse effect on the Company taken as a whole.
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<PAGE> 18
SEASONALITY
Historically, the Company's results of operations have been lowest in its first
fiscal quarter as a result of reduced requirements for its staffing services
personnel due to the holiday season. The Uruguay division of theTelephone
Directory segment produces a major portion of its revenues and most of its
profits in the Company's fourth fiscal quarter, and the revenues and profits of
that segment's DataNational division are lower in the Company's first fiscal
quarter, due to the seasonality of its directory closing schedule. Sales by aii
are generally lower in the months of November and December due to the holiday
season, which is a peak publishing period when customers are reluctant to
install and test new equipment and during 1999 were further impacted by concerns
about Year 2000 issues.
EMPLOYEES
During the week ended October 29, 1999, Volt employed approximately 40,000
persons, including approximately 34,000 persons who were on temporary assignment
for the Staffing Services segment.
Volt is a party to two collective bargaining agreements which cover a small
number of employees.
Certain services rendered by Volt's Electronic Publication and Typesetting
Systems, Telephone Directory and Computer Systems segments require highly
trained technical personnel in specialized fields, some of whom are currently in
short supply and, while the Company currently has a sufficient number of such
technical personnel in its employ, there can be no assurance that in the future
these segments can continue to employ sufficient technical personnel necessary
for the successful conduct of their services.
The Company currently believes that its relations with its employees are
satisfactory.
REGULATION
The Company's business is not subject to specific industry government
regulations. In connection with foreign sales, the Company is subject to export
controls, including restrictions on the export of certain technologies. At the
present time, and with respect to the countries in which the Company's
Electronic Publication and Typesetting Systems, Telephone Directory and Computer
Systems segments currently sell most of their products, the sale of their
current products, both hardware and software, are permitted pursuant to a
general export license. If the Company began selling to countries designated by
the United States as sensitive, those sales would be subject to more restrictive
export regulations.
Compliance with applicable present federal, state and local environmental laws
and regulations has not had, and the Company believes that compliance with those
laws and regulations in the future will not have, a material effect on the
Company's earnings, capital expenditures or competitive position.
See also Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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<PAGE> 19
ITEM 2. PROPERTIES
At the end of January 2000, the Company will relocate its Corporate Headquarters
from 44,000 square feet at 1221 Avenue of the Americas, New York, New York into
a 38,000 square foot space at 560 Lexington Ave., New York, New York under a
lease which expires in 2007. The new facility will continue to serve as the
headquarters of the Company's Computer Systems segment and serve as a base for
certain operations of the Company's Staffing Services segment. The following
table sets forth certain information as to each of the Company's other major
facilities:
<TABLE>
<CAPTION>
Sq. Ft.
Leased If Leased,
or Year of Lease
Location Business Segment Owned Expiration
- -------- ---------------- ----- ----------
<S> <C> <C> <C>
Anaheim, Telephone Directory 39,000 owned *
California Computer Systems
Telecommunications Services
El Segundo, Staffing Services 20,000 owned
California Telecommunications Services
Orange, West Region Headquarters 200,000 owned *
California Accounting Center
Staffing Services
Telephone Directory
Computer Systems
San Diego, Staffing Services 20,000 owned
California
Thousand Oaks, Electronic Publication and 134,000 owned
California Typesetting Systems
Norcross, Electronic Publication and 13,000 2000
Georgia Typesetting Systems
Staffing Services
Telecommunications Services
Indianapolis, Telephone Directory 16,000 2000
Indiana Technical Services and
Temporary Personnel
Westbury, Corporate MIS 12,000 2004
New York
</TABLE>
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<PAGE> 20
ITEM 2. PROPERTIES--Continued
<TABLE>
<CAPTION>
Sq. Ft.
Leased If Leased,
or Year of Lease
Location Business Segment Owned Expiration
- -------- ---------------- ----- ----------
<S> <C> <C> <C>
Wallington, Computer Systems 32,000 2003
New Jersey
Blue Bell, Telephone Directory 52,000 2001
Pennsylvania
Montevideo, Telephone Directory 96,000 2001
Uruguay
Chantilly, Telephone Directory 24,000 2000
Virginia Computer Systems
Staffing Services
Redmond, Staffing Services 21,000 2001
Washington
Sunbury on Thames, Computer Systems 14,000 2007
England
</TABLE>
* See Note E of Notes to Consolidated Financial Statements for information
regarding a term loan secured by these properties.
In addition, the Company leases space in approximately 260 other facilities
worldwide (excluding month-to-month rentals), each of which consists of less
than 10,000 square feet. These leases expire at various times from 2000 until
2011.
At times, the Company leases space to others in the buildings which it owns or
leases, if it does not then require the space for its own business.
The Company believes that its facilities are adequate for its presently
anticipated requirements and that it is not dependent upon any individually
leased premises.
For additional information pertaining to lease commitments, see Note O of Notes
to Consolidated Financial Statements.
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<PAGE> 21
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Executive Officers
WILLIAM SHAW, 75, a founder of the Company, has been President and Chairman of
the Board of the Company since its inception and has been employed in executive
capacities by the Company and its predecessors since 1950.
JEROME SHAW, 73, a founder of the Company, has been Executive Vice President and
Secretary of the Company since its inception and has been employed in executive
capacities by the Company and its predecessors since 1950.
IRWIN B. ROBINS, 65, has been a Senior Vice President of the Company since
September 1985 and has been employed in executive capacities by the Company
since 1980.
JAMES J. GROBERG, 71, has been a Senior Vice President and Principal Financial
Officer of the Company since September 1985 and was also employed in executive
capacities by the Company from 1973 to 1981.
STEVEN A. SHAW, 40, has been a Vice President of the Company since April 1997
and has been employed by the Company in various capacities since November 1995.
For more than five years prior thereto, he controlled and operated a number of
privately-held telecommunication services companies.
HOWARD B. WEINREICH, 57, has been General Counsel of the Company since September
1985 and has been employed in executive capacities by the Company since 1981.
JACK EGAN, 50, has been Vice President - Corporate Accounting and Principal
Accounting Officer since January 1992 and has been employed in executive
capacities by the Company since 1979.
DANIEL G. HALLIHAN, 51, has been Vice President - Accounting Operations since
January 1992 and has been employed in executive capacities by the Company since
1986.
LUDWIG M. GUARINO, 48, has been Treasurer of the Company since January 1994 and
has been employed in executive capacities by the Company since 1976.
William Shaw and Jerome Shaw are brothers. Steven A. Shaw is the son of Jerome
Shaw. There are no other family relationships among the executive officers or
directors of the Company.
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<PAGE> 22
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange (NYSE
Symbol-VOL). The following table sets forth the high and low prices of Volt's
common stock, as reported by the NYSE:
<TABLE>
<CAPTION>
1999 1998
----------------------- ----------------------
Fiscal Period High Low High Low
- ------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $26-1/2 $21-1/4 $70-1/4 $38-3/4
Second Quarter 24-3/4 15-1/2 58-1/4 29-7/8
Third Quarter 24-1/2 16-13/16 34-3/16 26-1/16
Fourth Quarter 26-7/8 19-3/8 29 15-5/16
</TABLE>
The approximate number of record holders of the Company's common stock at
January 11, 2000 was 486.
Cash dividends have not been paid during the reported periods. The Company has
agreements, which contain financial covenants, one of which requires the Company
to maintain a consolidated net worth of $154.8 million, increasing by 50% of
consolidated net income for each completed fiscal year after fiscal 1999 (see
Note E of Notes to Consolidated Financial Statements). Therefore, the amount
available for dividends at October 29, 1999 was $75.2 million.
On January 4, 1999, the Company contributed 18,172 shares of its common stock to
its Employee Stock Ownership Plan and Trust as its contribution to that Plan for
the year ended October 30, 1998. The shares contributed were valued at $22-9/16,
their market value on that date. The plan covers all employees of the Company
who have completed one year of service for a participating employer. Employees
make no contributions. The Company believes the exemption from registration
afforded by Section 2(3) is available to this contribution.
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<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended (Notes 1 and 3)
--------------------------------------------------------------------------------
October October October November November
29, 1999 30, 1998 31, 1997 1, 1996 3, 1995
-------- -------- --------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net Sales $2,141,145 $1,708,595 $1,401,473 $1,048,558 $907,307
========== ========== ========== ========== ========
Income before extraordinary item $28,959 (A) $20,903 (A) $39,850 (B) $22,435 (C & D) $16,386 (D)
Extraordinary item - loss on redemption of
debt, net of income taxes--Note 2 (87) (62)
------- ------- ------- ------- -------
Net income $28,959 $20,903 $39,850 $22,348 $16,324
======= ======= ======= ======= =======
Per Share Data
Basic:
Income before extraordinary item $1.93 $1.40 $2.71 $1.54 $1.13
===== ===== ===== ===== =====
Weighted average number of shares 15,023,046 14,917,846 14,707,055 14,527,157 14,451,501
========== ========== ========== ========== ==========
Diluted:
Income before extraordinary item $1.91 $1.37 $2.62 $1.52 $1.12
===== ===== ===== ===== =====
Weighted average number of shares 15,152,612 15,253,665 15,182,240 14,799,665 14,672,711
========== ========== ========== ========== ==========
Total assets $618,329 $469,326 $418,722 $337,144 $264,011
Long-term debt, net of current portion $45,728 $54,048 $55,447 $57,395 $28,819
</TABLE>
Note 1--Fiscal years 1996 through 1999 were comprised of 52 weeks, while fiscal
year 1995 was comprised of 53 weeks.
Note 2--The fiscal years 1996 and 1995 extraordinary losses were due to the
early redemption ($22.9 million in 1996 and $10.0 million in 1995) of
debentures.
Note 3--Cash dividends have not been paid during the five-year period ended
October 29, 1999.
(A) In fiscal 1999, the Company recognized $2.0 million, or $0.13 per share
($500,000 or $0.03 per share in fiscal 1998) 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 1999, the venture repaid substantially all of its obligations.
(B) The results for the fiscal year ended October 31, 1997 included a gain of
$12.8 million ($7.9 million, net of taxes, or $0.52 per share) on the sale
of the Company's interest in an Australian joint venture and a loss of $3.0
million ($1.8 million, net of taxes, or $0.12 per share) on the write-down
of investments.
(C) The results for the fiscal year ended November 1, 1996 included gains
aggregating $2.6 million ($1.6 million, net of taxes, or $0.11 per share)
as a result of an agreement to pay a premium to an insurance carrier to
close out prior years' retrospective insurance policies at an amount less
than related liabilities for workers' compensation insurance previously
provided by the Company and a $52,000 gain on the sale of securities.
In October 1996, the Internal Revenue Service concluded its examination of
the Company's tax returns for fiscal years 1989 through 1993. As a result
of the examination, $1.4 million ($0.09 per share) and $723,000
($443,000, net of taxes, or $0.03 per share) were included as a tax benefit
and interest income, respectively, for the fiscal year ended November 1,
1996.
(D) In January 1996, the Company merged its wholly-owned subsidiary, Autologic
Incorporated and related foreign subsidiaries with Information
International, Inc. ("Triple-I"), resulting in the formation of "aii", a
new publicly traded company. The results of Triple-I are included in net
income since the date of acquisition.
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<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information which appears below relates to prior periods. The results of
operations for those 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 discussion should be read in conjunction with the Operating
Segment Data in Item 1 of this Report and the Consolidated Financial Statements
and Notes thereto which appear in Item 8 of this Report.
Fiscal Year 1999 Compared to Fiscal Year 1998
Results of Operations - Summary
Net sales in fiscal 1999 increased by $432.6 million, or 25%, to $2.1 billion in
fiscal 1999. This increase resulted primarily from an increase in sales to
unaffiliated customers by the Staffing Services segment of $393.8 million, the
Computer Systems segment of $29.0 million, the Telecommunications Services
segment of $18.9 million and the Telephone Directory segment of $5.7 million,
which was partially offset by a decrease in sales to unaffiliated customers by
the Electronic Publication and Typesetting Systems segment of $14.8 million.
The Company's income before income taxes, equity in joint venture earnings and
minority interests increased by $8.9 million, or 25%, to $44.7 million in 1999.
The operating profit of the Company's segments increased by $11.9 million, or
23%, to $63.3 million in 1999. While the Staffing Services segment, the Computer
Systems segment, the Telecommunications Services segment and the Telephone
Directory segment increased their operating profits, an operating loss in the
Electronic Publication and Typesetting Systems segment partially offset these
improvements.
Consolidated results include recognition of a previously deferred gain on the
sale of a joint venture of $2.0 million in 1999 and $500,000 in 1998 (see Note G
of Notes to Consolidated Financial Statements of this Report).
Net income in fiscal 1999 was $29.0 million, compared to net income of $20.9
million in 1998.
Results of Operations - Segments
The Company's consolidated segment profit was $63.3 million in fiscal 1999,
compared to $51.4 million in fiscal 1998 (see Operating Segment Data in Item 1
of this Report and Note K of Notes to Consolidated Financial Statements in Item
8 of this Report).
Sales of the Staffing Services segment increased by $393.1 million, or 30%, to
$1.7 billion in 1999. Managed service revenue increased 74%, traditional
staffing revenues increased 18% and the segment's operating profit increased by
$10.3 million, or 31%, to $43.8 million, compared with $33.5 million in 1998.
Approximately $209.4 million, or 53%, of the segment's 1999 sales increase was
due to pass-through costs primarily related to the use of associate vendors and
subcontractors to service large national managed service contracts, which
increased from $282.1 million in 1998 to $491.5 million in 1999. Approximately
$104.3 million, including $77.3 million generated by sales from a newly acquired
subsidiary, of the segment's increase was from business
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<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Continued
Fiscal Year 1999 Compared to Fiscal Year 1998--Continued
Results of Operations - Segments--Continued
with new customers. The remaining sales increase of $79.4 million was from
existing customers. The increase in the segment's operating profit was due to
the increase in sales and includes $2.6 million (net of $1.9 million of
amortization of goodwill) from the acquired business. As a percentage of sales,
operating margins increased slightly from 2.5% to 2.6%. Lower overhead costs
expressed as a percentage of sales were offset, in part, by a decrease in gross
margin of 0.4 percentage points due to the higher associate vendor usage in
managed service contracts 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
49% to $29.9 million. Sales of the Commercial and Light Industrial division,
which specializes in temporary placements, were slightly higher than in the
prior period and its operating profit increased by 4% to $13.9 million. The
Company continues to evaluate its Commercial and Light Industrial branch
offices, and has closed several under-performing offices. An insignificant loss
of revenue is expected from these closings, as alternative offices are serving
their markets. Additional cost containment efforts for the division are focused
on reducing overhead costs, primarily through decreasing labor costs. While the
Staffing Services segment has seen a flattening of the Commercial Staffing
business from some of its customers, sales of the Commercial & Light Industrial
division increased by 8% compared to last year's fourth quarter. In addition,
operating margins of this division increased in the fourth quarter of fiscal
1999 compared with the 1998 fourth quarter due to higher gross margins and lower
overhead costs expressed as a percentage of sales. However, there can be no
assurances that this improvement will continue. Some of the segment's customers
are large, and the loss of any large contract could have a negative effect on
this segment's business unless, and until, the business is replaced. Although
the markets for the segment's services include a broad range of industries
throughout the United States, general economic difficulties in specific
geographic areas or industrial sectors have in the past, and could in the
future, affect the profitability of this segment.
The Telephone Directory segment's sales increased by $4.1 million, or 4%, to
$98.3 million in fiscal 1999 and its operating profit increased by $2.2 million,
or 43%, to $7.3 million in fiscal 1999. The sales increase was due to increased
independent directory publishing sales of $18.9 million, which included
publication of two newly acquired toll-free directories. These increases were
partially offset by decreased production sales which included the absence of
sales under two contracts that expired in the second half of fiscal 1998, and
which had accounted for approximately 14% of the segment's sales in fiscal 1998.
Although the segment's gross margin decreased by 2.5 percentage points due to
the expiration of these production contracts and lower gross margins on the
newly acquired directories, a 6% reduction in overhead and the increased sales
resulted in the increase in operating profit. 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, except for one contract that expires in 2006. While management
believes it can secure renewals and/or extensions of some of these contracts,
some of which are material to this segment, and obtain new business, there can
be no assurance that contracts will be
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<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Continued
Fiscal Year 1999 Compared to Fiscal Year 1998--Continued
Results of Operations - Segments--Continued
renewed or extended, or that additional or replacement contracts will be awarded
to the segment on satisfactory terms.
The Telecommunications Services segment's sales increased by $19.0 million, or
11%, to $187.7 million in fiscal 1999 and its operating profit increased by $2.3
million, or 19%, to $14.1 million in fiscal 1999. The increases in this segment
were the result of increased business from several major customers. The sales
increase was due to a 73% increase in the Advanced Technology Services division,
a 51% increase in the Central Office division and a 12% increase in the Business
Systems division. These increases were partially offset by a 10% decrease in the
Construction division, which represented 42% of the segment's sales, due to the
expiration of two contracts, one in 1998 and the other in 1999. High margin
cross-connect box and long-haul fiber optic construction work, partially offset
by the expiration of the construction contracts, enabled the segment to increase
its gross margin by 0.7 percentage points in fiscal 1999. Operating profit
increased due to this increase in sales and gross margin, partially offset by a
12% increase in overhead. A substantial portion of the business in this segment
is obtained through submission of competitive proposals for contracts that
typically expire in one to three years and are rebid. Some of these contracts
expired in 1999, while others were renewed and new contracts were awarded to the
segment. Other contracts are scheduled to expire through 2002. While management
believes it can secure renewals and/or extensions of some of these contracts,
some of which are material to this segment, and obtain new business, there can
be no assurance that contracts will be renewed or extended or that additional or
replacement contracts will be awarded to the Company on satisfactory terms.
The Computer Systems segment's sales increased by $29.5 million, or 54%, to
$83.9 million in fiscal 1999 and its operating profit was $3.2 million compared
to a loss of $2.2 million 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 in fiscal 1999, which was accounted for under
the completed contract method of accounting, and increased transaction volume of
its outsourced directory assistance services. These increases, in addition to
sales from a newly acquired network solutions company, were partially offset by
a reduction in system upgrade sales and decreased support and maintenance
revenue due to the expiration of a large contract. This segment's results are
highly dependent on the volume of directory assistance calls to the segment's
customers for directory outsourcing under existing contracts, its ability to
obtain additional customers for these services and on its continued ability to
sell products to new and existing customers.
The Electronic Publication and Typesetting Systems segment's sales decreased by
$15.0 million, or 17%, to $72.7 million in fiscal 1999 and it incurred an
operating loss of $5.2 million compared with an operating profit of $3.1 million
in fiscal 1998. The fiscal 1999 sales decrease resulted primarily from a
decrease in domestic and international sales of systems and equipment of $13.2
million resulting from a decline in demand partially due to the postponement of
capital expenditures by newspapers due to their Year 2000 issues, adverse
business conditions in some of the segment's foreign markets and lower sales of
some of the segment's non-core products. Operating results decreased due to
lower sales, a 3.7 percentage point decrease in gross margins and a
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<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Continued
Fiscal Year 1999 Compared to Fiscal Year 1998--Continued
Results of Operations - Segments--Continued
12% increase in research, development and engineering expenditures due to higher
costs associated with the roll-out of the segment's new wide versions of its
Computer-to-Plate and film recorder products. The markets in which the segment
competes are subject to rapidly changing technology, with sales in fiscal years
1999 and 1998 of equipment introduced within the three years prior to the
applicable year comprising approximately 85% and 88%, respectively, of equipment
sales. There can be no assurances that this segment will return to profitability
in the near term.
Results of Operations - Other
Total selling and administrative expenses increased by $14.1 million, or 23%, to
$76.2 million in fiscal 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 and to support increased sales levels. These expenses expressed as a
percentage of sales were 3.6% in both fiscal 1999 and fiscal 1998. General
corporate expenses, included above, increased by 13% to $13.7 million in 1999.
Research, development and engineering expenses increased to $11.3 million from
$11.1 million in 1998. An increase in the Electronic Publication and Typesetting
Systems segment was substantially offset by reductions in other segments.
Depreciation and amortization increased by $3.3 million, or 16%, to $24.1
million in fiscal 1999. The 1999 increase was primarily attributable to
amortization of intangibles, which resulted from acquisitions made in 1999 and
1998 (see Notes I and K of Notes to Consolidated Financial Statements).
Interest income decreased by $648,000, or 26%, to $1.8 million in fiscal 1999,
primarily due to a decrease in funds available for investment.
In fiscal 1999, the Company recognized a gain of $2.0 million (compared to
$500,000 in 1998), which is the balance 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 1998 and1999, the
venture repaid substantially all of its obligations.
Other income increased to $212,000 in fiscal 1999 compared to a loss of $353,000
in 1998. In fiscal 1998, other income was reduced by $650,000 due to a
non-recurring charge for professional fees in connection with a terminated
transaction.
The foreign exchange loss in fiscal 1999 was $720,000 compared to $391,000 in
1998. The losses were due to unfavorable currency movements in the European
currency markets. To reduce the potential adverse impact
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<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Continued
Fiscal Year 1999 Compared to Fiscal Year 1998--Continued
Results of Operations - Other--Continued
from foreign currency changes on the Company's foreign currency receivables,
sales and firm commitments, foreign currency options are purchased, generally,
on the last day of each quarter.
Interest expense increased by $2.6 million, or 46%, to $8.3 million in 1999. The
increase is the result of the Company borrowing under its revolving Credit
Agreement to finance the acquisition of The Gatton Volt Group and to support the
increased working capital requirements of the Company, interest incurred by The
Gatton Volt Group to provide working capital, and higher interest rates and
financing costs incurred by the Company's Uruguay division where borrowings
serve to hedge receivables against a loss in value due to the strengthening of
the U.S. dollar against the Uruguayan currency.
The Company's effective tax rate was reduced to 40% in fiscal 1999 from 42% in
1998. The lower effective tax rate in 1999 resulted from the non-taxable gain on
the sale of a Brazilian joint venture.
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<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Continued
Fiscal Year 1998 Compared to Fiscal Year 1997
Results of Operations - Summary
Net sales in fiscal 1998 increased by $307.1 million, or 22%, to $1.7 billion
from $1.4 billion in fiscal 1997. The increase in sales to unaffiliated
customers in 1998 was primarily attributable to increases in the Staffing
Services segment of $292.6 million.
The Company's income before income taxes, equity in joint venture earnings and
minority interests decreased by $19.8 million, or 36%, in 1998 to $35.8 million.
The 1997 results included a pretax gain of $12.8 million on the sale of the
Company's interest in an Australian joint venture, partially offset by a $3.0
million pretax charge to earnings to fully reserve an investment in a
PCS/wireless company. Segment profit decreased by $8.7 million, or 14%, to $51.4
million in fiscal 1998. The decrease in segment profit in 1998 was from the
Telecommunications Services segment, with a decrease of $6.9 million, the
Computer Systems segment, with a decrease of $2.4 million, and the Telephone
Directory segment, with a decrease of $3.8 million. These were partially offset
by increases in the operating profits of the Staffing Services segment, with an
increase of $2.7 million, and the Electronic Publication and Typesetting Systems
segment, with an increase of $1.6 million.
Consolidated fiscal 1997 results included earnings of $6.8 million from the
Company's Australian and Brazilian joint ventures, both of which were sold in
fiscal 1997.
Net income in fiscal 1998 and 1997 was $20.9 million and $39.9 million,
respectively.
Results of Operations - Segments
The Company's consolidated segment profit was $51.4 million in fiscal 1998,
compared to $60.1 million in fiscal 1997 (see Operating Segment Data in Item 1
of this Report and Note K of Notes to Consolidated Financial Statements in Item
8 of this Report).
The Staffing Services segment's sales increased by $293.4 million, or 29%, in
fiscal 1998 to $1.3 billion. The segment's profit increased by $2.7 million, or
9%, to $33.5 million in fiscal 1998. Approximately $127.7 million, or 44%, of
the segment's 1998 sales increase was due to pass-through costs, primarily
related to the use of associate vendors and subcontractors to service large
national managed service contracts, which increased from $154.4 million to
$282.1 million in 1998. In fiscal 1998, approximately $39.7 million of the
segment's sales increase resulted from business with new customers. The
remaining increase of $126.0 million was with existing customers. The increase
in the segment's operating profit was due to the increase in sales volume,
partially offset by a decrease in gross margin of approximately 0.8 percentage
points and higher overhead costs. The decrease in gross margin percentage was
due to the higher associate vendor usage, a substantial portion of which was
billed without a mark-up, and lower margins on the increasing business with
large national managed service accounts. Downward pressure on this segment's
margins have occurred over the past several years due to a trend in the industry
for large customers to consolidate their use of contingent workers to single
source providers.
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<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Continued
Fiscal Year 1998 Compared to Fiscal Year 1997--Continued
Results of Operations - Segments--Continued
The Telephone Directory segment's sales decreased by $4.7 million, or 5%, to
$94.3 million in fiscal 1998. Segment profit decreased by $3.8 million, or 43%,
to $5.1 million. The sales decrease was due to decreased production revenue of
9%, decreased sales of conservation services to utilities of 46% and decreased
system sales of 57%, offset, in large part, by increased independent directory
sales of 35%. The decreased production revenue and sales of systems used in
production was due to the expiration in June 1998 of a contract with one
customer, which accounted for 11% of the segment's sales in 1998, and the
absence of significant systems contracts as the segment transitions its emphasis
from providing production services and systems to the publishing of telephone
directories. The decrease of conservation services sales was primarily due to
the phase-out of several large contracts with customers, which no longer require
the segment's services. The increase of independent directory sales was
primarily attributable to thirty-three new directories published in fiscal 1998,
a substantial portion of which were acquired in fiscal 1997 and fiscal 1998. The
decrease in segment profit in fiscal 1998 was due to the expiration of the
production contract, which accounted for 32% of the segment's operating profit
in 1998, lower high-margin systems sales, and increased selling and
administrative costs to support the growth of independent directory sales,
discussed above, as well as anticipated future growth. The effects of the higher
costs were partially offset by the increase in independent directory sales.
The Telecommunications Services segment's sales increased by $22.6 million, or
16%, to $168.8 million in 1998. This segment's profit decreased by $6.9 million,
or 37%, in fiscal 1998 to $11.9 million. The sales increase was due to a 112%
increase in the Central Office group and a 64% increase in the Business Systems
group. Operating results decreased due to a 3.5 percentage point decrease in
gross margins and higher overhead costs. The decrease in gross margin percentage
was due to increased sales volume of lower-margin business system services and a
shift toward lower-margin projects in construction services as customers favored
fixed-price and competitively-bid awards. The increased overhead costs were the
result of increased sales growth and the geographic expansion of this segment.
The Computer Systems segment's sales decreased by $6.4 million, or 10%, to $54.5
million in fiscal 1998. The segment incurred a loss in fiscal 1998 of $2.2
million, compared to a profit of $197,000 in fiscal 1997. The decrease in sales
was due to lower system enhancement sales. The segment loss was due to the
reduction, in fiscal 1998, of high-margin system enhancement sales which
benefited operating profit in fiscal 1997, as well as continued start-up costs
related to the transition of providing customers with transaction-based
outsourcing services.
The Electronic Publication and Typesetting Systems segment's sales increased by
$3.0 million, or 4%, to $87.6 million in fiscal 1998. The segment profit in
fiscal 1998 was $3.1 million, compared to a profit of $1.5 million in fiscal
1997. The increase in sales resulted from a $4.0 million increase in sales of
systems and equipment offset in part by a decrease of $1.0 million in customer
service sales. The increased sales of systems and equipment were due to
increased demand and customer purchases to replace older equipment. The increase
in segment profit was primarily the result of the increased sales. The markets
in which the segment competes are subjected to rapidly
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<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Continued
Fiscal Year 1998 Compared to Fiscal Year 1997--Continued
Results of Operations - Segments--Continued
changing technology, with sales in fiscal years 1998 and 1997 of equipment
introduced within the three years prior to the applicable fiscal year comprising
approximately 88% and 86%, respectively, of equipment sales.
Results of Operations - Other
Total selling and administrative expenses increased $8.1 million, or 15%, to
$62.1 million in fiscal 1998 to support the increased sales levels. These
expenses expressed as a percentage of sales were 3.6% in fiscal 1998 and 3.8% in
fiscal 1997. General corporate expenses, included above, increased by 12% to
$12.1 million in 1998.
Research, development and engineering expenses decreased by $3.2 million, or
22%, to $11.1 million in 1998. The decrease in fiscal 1998 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 $274,000, or 1%, to $20.8 million in
1998. The fiscal 1998 increase was attributable to amortization of intangibles
due to acquisitions made in fiscal 1997 and fiscal 1998 (see Notes G and K of
Notes to Consolidated Financial Statements).
Interest income increased by $780,000, or 46%, in fiscal 1998 primarily as a
result of increased funds invested due to cash received from the sale of the
Company's Australian joint venture at the end of fiscal 1997.
Other income (expense) decreased by $753,000 in fiscal 1998, primarily due to a
non-recurring charge of $650,000 for professional fees in connection with a
terminated transaction.
The Company's equity in net income of its joint ventures was $6.8 million in
fiscal 1997. In September 1997, the Company sold its interest in its Australian
joint venture resulting in a pretax gain of $12.8 million. In January 1997, the
Company sold its 50% interest in its Brazilian joint venture. In connection with
that sale, the Company continued to grant credit and guarantee the venture's
obligation with respect to certain import financing, principally for the
printing of telephone directories by the Company's Uruguay division and,
therefore, had deferred the gain on the sale. During fiscal 1998, the venture
repaid certain of its obligations and, accordingly, $500,000 of the previously
deferred gain was recognized in fiscal 1998.
The foreign exchange loss in fiscal 1998 was $391,000, compared to a gain in
1997 of $52,000. The loss in fiscal 1998 was due to unfavorable, and the gain in
fiscal 1997 was due to favorable, currency movements in the European currency
market. To minimize the potential adverse impact on the Company's foreign
currency receivables and sales when the dollar strengthens against foreign
currencies, foreign currency options and forward contracts are purchased.
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<PAGE> 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Continued
Fiscal Year 1998 Compared to Fiscal Year 1997--Continued
Results of Operations - Other-- Continued
The Company's effective tax rate was increased to 42% in fiscal 1998 from 37% in
1997. The lower effective tax rate in 1997 resulted from increased profits from
foreign subsidiaries and joint ventures which were taxed at a lower rate.
Liquidity and Capital Resources
Cash and cash equivalents increased by $777,000 in 1999 to $32.4 million at the
end of the fiscal year.
Cash of $4.9 million was provided by operating activities in fiscal 1999.
Primary among the factors providing cash flows to operating activities in fiscal
1999 was the Company's net income of $29.0 million, augmented by $24.1 million
of depreciation and amortization, increases in accounts payable of $29.4 million
primarily due to an increased use of associate vendors by the Staffing Services
segment to service national accounts and an increase in accrued expenses of
$14.2 million. Among the principal applications of cash in operating activities
in fiscal 1999 was an increase in the level of accounts receivable of $73.5
million and inventory of $22.0 million due to increased sales with new and
existing customers.
The principal factors in cash applied to investing activities of $67.6 million
was the expenditure for acquisitions of $38.1 million (primarily $35.9 million
expended in connection with the acquisition of Gatton) and $26.7 million for
property, plant and equipment.
Financing activities provided $63.1 million of cash from the increase in bank
loans of $64.3 million borrowed principally to fund the acquisition and replace
the factoring agreement of Gatton and to support the increased working capital
requirements of the Company.
At October 29, 1999, the Company had $87.9 million of credit lines with banks,
of which $75.0 million is under a revolving credit agreement that is not
scheduled to expire until January 2002 and may, subject to meeting certain
conditions, be renewed. The Company had outstanding bank borrowings of $68.5
million at October 29, 1999 under these lines (see Note E in the Notes to
Consolidated Financial Statements). On November 29, 1999, the Company entered
into an additional revolving credit agreement which provides an additional $25.0
million credit line and expires on November 27, 2000.
The Company believes its current financial position, credit lines and future
cash flows will be sufficient to fund its presently contemplated operations and
satisfy its debt obligations.
The Company 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 have been made Year 2000 compliant. The
cost incurred through October 29, 1999 of this new system, including the
purchase and/or lease of software and hardware, three years of support and the
initial implementation phase is $16.3 million, a significant
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<PAGE> 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Continued
Liquidity and Capital Resources--Continued
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 Notes E and O in the Notes to Consolidated
Financial Statements). In addition to the above, the Company has a commitment of
$4.5 million for outside services to support the design, development and
implementation stages. The Company has no other material capital commitments.
The Effect of New Accounting Pronouncements
In June 1998, the FASB issued Statement 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). The provisions of SFAS No.
133 require companies to record all derivative instruments as assets or
liabilities, measured at fair value. In June 1999, the FASB issued Statement
137, which deferred the effective date of SFAS 133. The Company does not expect
that effects of adopting this new standard in fiscal 2001 will be material.
Year 2000 Compliance
The Year 2000 issues arose 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 have recognized "00" as the year 1900
rather than the year 2000, which could have resulted in major system failures or
miscalculations.
State of Readiness
The Company utilizes software and related technologies throughout its businesses
that was 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.
The Program involved 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 was segmented to cover both internal systems and company products
and a corporate policy was established that required all current products to be
Year 2000 compliant. Customers using older non-compliant products were notified
of the necessity to upgrade, if desired.
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<PAGE> 34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Continued
Year 2000 Compliance--Continued
The Company's ability to deliver services and products to its customers on a
timely basis has not been impacted by any problem arising as a result of the
Year 2000 issues. To date, the Company experienced no failures of any mission
critical applications, nor were there any reports of any significant
interruptions to the Company's business operations as a result of the failure of
its own computer systems or those of a third party. In addition, those systems
which have not yet been utilized since the start of the Year 2000 have been
tested, and no potential issues have been discovered. The Company continues to
deploy teams of technicians within its various businesses to monitor and resolve
minor Year 200 issues as they are found.
Costs of Addressing Year 2000 Issues
The Company's cost of Year 2000 remediation is estimated to be $6.2 million. The
actual and estimated costs following the end of the fiscal year are as follows:
<TABLE>
<CAPTION>
Costs through Estimated
October 29, 1999 Future Costs Total
---------------- ------------ -----
(Dollars in thousands)
<S> <C> <C> <C>
Internal Systems $3,500 $400 $3,900
Product Line 2,200 100 2,300
------ ---- ------
Total Costs $5,700 $500 $6,200
====== ==== ======
</TABLE>
These costs included identification, system correction and testing and were
expensed as incurred. The estimated future costs include the final testing and
upgrading or replacement of non critical hardware and applications, the
continued testing of certain critical systems in a production environment
following the fiscal year end, the completion and documentation of the Company's
contingency and zero day planning, together with the deployment of teams of
technicians at the Company's and certain customers' sites at the rollover to
Year 2000.
In addition to these costs, the Company has purchased 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 cost of these systems was $800,000, and has been
capitalized.
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<PAGE> 35
ITEM 7A - 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 $112.9 million. At October 29, 1999, the Company had borrowings totaling
$68.5 million under these agreements. The interest rates on these borrowings are
variable and therefore interest expense and interest income is affected by the
general level of U.S. and foreign interest rates. Increases in interest expense
resulting from an increase in interest rates could impact the Company's results
of operations.
The Company had long-term debt of $58.4 million at October 29, 1999 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
$2.8 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 whose financial statements are
translated using the accounting policies described in Note A of Notes to the
Consolidated Financial Statements. The Company is 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 October 29, 1999, the
Company had purchased foreign currency options in the aggregate notional amount
of $4.0 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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<PAGE> 36
ERNST & YOUNG LLP 787 Seventh Avenue Phone #: 212-773-3000
New York, New York 10019
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Volt Information Sciences, Inc.
We have audited the accompanying consolidated balance sheets of Volt Information
Sciences, Inc. and subsidiaries as of October 29, 1999 and October 30, 1998, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended October 29, 1999. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a)(2). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Volt
Information Sciences, Inc. and subsidiaries at October 29, 1999 and October 30,
1998, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended October 29, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Ernst & Young LLP
December 15, 1999
-36-
<PAGE> 37
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October October
29, 1999 30, 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents--Note A $ 32,402 $ 31,625
Short-term investments--Notes A and B 2,609 1,099
Trade accounts receivable less allowances of $7,941(1999) and
$5,822(1998)--Schedule II 364,461 286,655
Inventories--Notes A and C 61,116 38,997
Deferred income taxes--Notes A and F and Schedule II 6,874 8,065
Prepaid expenses and other assets 9,585 7,005
--------- --------
TOTAL CURRENT ASSETS 477,047 373,446
Investment in joint venture 1,297
Investment in securities--Notes A and B and Schedule II 162 1,489
Property, plant and equipment, net--Notes A, E and K 78,168 67,564
Deferred income taxes and other assets--Notes A and F 11,185 7,190
Intangible assets-net of accumulated amortization of $18,689 (1999) and
$12,553 (1998)--Notes A and I 50,470 19,637
--------- --------
$ 618,329 $469,326
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks--Note D and E $ 68,498 $ 4,128
Current portion of long-term debt--Note E 12,654 1,399
Accounts payable 127,781 91,377
Accrued wages and commissions 49,209 39,457
Accrued taxes other than income taxes 16,048 13,798
Accrued interest and other accruals 17,568 14,246
Customer advances and other liabilities 22,442 23,480
Income taxes--Notes A and F 11,146 6,725
--------- --------
TOTAL CURRENT LIABILITIES 325,346 194,610
LONG-TERM DEBT--Note E 45,728 54,048
MINORITY INTERESTS 17,259 19,446
STOCKHOLDERS' EQUITY--Notes A, B, E, J and L and Schedule II
Preferred stock, par value $1.00; Authorized--500,000 shares; issued--none
Common stock, par value $.10; Authorized--30,000,000 shares; issued--
15,032,446 (1999) and 15,006,164 shares (1998) 1,503 1,501
Paid-in capital 37,696 37,127
Retained earnings 191,217 162,258
Accumulated other comprehensive (loss) income (420) 336
--------- --------
229,996 201,222
COMMITMENTS--Note O --------- --------
$ 618,329 $469,326
========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
-37-
<PAGE> 38
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------
October October October
29, 1999 30, 1998 31, 1997
-------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
NET SALES:
Sales of services $ 2,068,684 $ 1,621,375 $ 1,317,276
Sales of products 72,461 87,220 84,197
----------- ----------- -----------
2,141,145 1,708,595 1,401,473
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales
Services 1,935,150 1,524,226 1,213,652
Products 44,744 51,145 49,709
Selling and administrative 76,201 62,066 54,008
Research, development and engineering 11,278 11,076 14,301
Depreciation and amortization 24,110 20,768 20,494
----------- ----------- -----------
2,091,483 1,669,281 1,352,164
----------- ----------- -----------
OPERATING PROFIT 49,662 39,314 49,309
OTHER INCOME (EXPENSE):
Interest income 1,821 2,469 1,689
Loss on securities (3,000)
Other income (expense) - net--Note L 212 (353) 400
Gain on sale of joint ventures-Note G 2,049 500 12,807
Foreign exchange (loss) gain - net (720) (391) 52
Interest expense (8,326) (5,712) (5,656)
----------- ----------- -----------
Income before items shown below 44,698 35,827 55,601
Income tax provision--Notes A and F (17,890) (14,856) (22,797)
Equity in net (loss) income of joint ventures--Note G (33) 6,824
Minority interests in net loss (income) of subsidiaries 2,184 (68) 222
----------- ----------- -----------
NET INCOME $ 28,959 $ 20,903 $ 39,850
=========== =========== ===========
Per Share Data
-------------------------------------------------
Basic:
Net income per share $ 1.93 $ 1.40 $ 2.71
=========== =========== ===========
Weighted average number of shares--Note H 15,023,046 14,917,846 14,707,055
=========== =========== ===========
Diluted:
Net income per share $ 1.91 $ 1.37 $ 2.62
=========== =========== ===========
Weighted average number of shares--Note H 15,152,612 15,253,665 15,182,240
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-38-
<PAGE> 39
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
$.10 Par Value
-------------------- Paid-In Retained
Shares Amount Capital Earnings
------ ------ ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at November 1, 1996 9,692,143 $969 $27,763 $101,505
Contribution to ESOP 12,423 1 499
Stock awards 1,000 29
Stock options exercised, including
related tax benefit of $2,878 253,530 25 7,096
Issuance of shares of common stock
resulting from a three-for-two
stock split in the form of a 50%
stock dividend 4,924,047 493 (493)
Unrealized foreign currency
translation adjustment-net of taxes of
$39
Unrealized loss on marketable securities -
net of taxes of $2
Net income for the year 39,850
---------- ----- ------ -------
Balance at October 31, 1997 14,883,143 1,488 34,894 141,355
Contribution to ESOP 13,381 1 698
Stock options exercised, including
related tax benefit of $640 109,640 12 1,535
Unrealized foreign currency
translation adjustment-net of taxes of
$49
Unrealized gain on marketable securities -
net of taxes of $289
Net income for the year 20,903
---------- ----- ------ -------
Balance at October 30, 1998 15,006,164 1,501 37,127 162,258
Contribution to ESOP 18,172 2 408
Stock options exercised, including
related tax benefit of $15 8,110 161
Unrealized foreign currency
translation adjustment-net of taxes of
$22
Unrealized loss on marketable securities -
net of taxes of $518
Net income for the year 28,959
---------- ------ ------- --------
Balance at October 29, 1999 15,032,446 $1,503 $37,696 $191,217
========== ====== ======= ========
Accumulated Other
Comprehensive Income
-----------------------------
Foreign Unrealized
Currency Gain (Loss) On
Translation Marketable Comprehensive
Adjustment Securities Income
---------- ---------- ------
(Dollars in thousands)
Balance at November 1, 1996 $(4) $4
Unrealized foreign currency
translation adjustment-net of taxes of
$39 (165) $(165)
Unrealized loss on marketable securities -
net of taxes of $2 (4) (4)
Net income for the year 39,850
---- ----- -------
Balance at October 31, 1997 (169) -- $39,681
=======
Unrealized foreign currency
translation adjustment-net of taxes of
$49 55 $55
Unrealized gain on marketable securities -
net of taxes of $289 450 450
Net income for the year 20,903
---- ----- -------
Balance at October 30, 1998 (114) 450 $21,408
=======
Unrealized foreign currency
translation adjustment-net of taxes of
$22 52 $52
Unrealized loss on marketable securities -
net of taxes of $518 (808) (808)
Net income for the year 28,959
---- ----- -------
Balance at October 29, 1999 $(62) $(358) $28,203
==== ===== =======
</TABLE>
There were no shares of preferred stock issued or outstanding.
See Notes to Consolidated Financial Statements.
-39-
<PAGE> 40
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------
October October October
29, 1999 30, 1998 31, 1997
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO) OPERATING
ACTIVITIES
Net income $28,959 $20,903 $39,850
Adjustments to reconcile net income to cash
provided by (applied to) operating activities:
Depreciation and amortization 24,110 20,768 20,494
Equity in net loss (income) of joint ventures 33 (6,824)
Distributions from joint ventures 4,814
Loss on securities 3,000
Gain on sale of joint ventures (2,049) (500) (12,807)
Accounts receivable provisions 5,548 3,401 3,046
Minority interests (2,184) 68 (222)
(Gain) loss on foreign currency translation (267) 72 39
Loss on dispositions of property, plant and equipment 51 85
Deferred income tax (benefit) expense (1,178) 1,352 1,120
Other 120 101 92
Changes in operating assets and liabilities:
Increase in accounts receivable (73,480) (63,175) (61,701)
Increase in inventories (22,039) (3,686) (4,631)
(Increase) decrease in prepaid expenses
and other current assets (1,528) 3,723 (1,371)
Decrease (increase) in other assets 773 (3,164) (597)
Increase in accounts payable 29,374 29,917 16,626
Increase (decrease) in accrued expenses 14,220 (1,755) 10,532
Increase in customer advances
and other liabilities 794 2,568 700
Increase (decrease) in income taxes payable 3,685 (3,927) 7,486
------- -------- ------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 4,942 6,751 19,646
------- ------- ------
CASH (APPLIED TO) PROVIDED BY
INVESTING ACTIVITIES
Maturities of investments 319 7,037
Sales of investments 4,445 5
Purchases of investments (5,793) (1,346) (6,428)
Investment in joint ventures (1,330) (157)
Proceeds from sale of joint ventures 32,732
Acquisitions (38,122) (6,771) (1,395)
Proceeds from disposals of property, plant and equipment 108 267 328
Purchases of property, plant and equipment (26,695) (22,400) (15,471)
Other (218) 18
------- ------- ------
NET CASH (APPLIED TO) PROVIDED BY
INVESTING ACTIVITIES (67,605) (29,908) 16,646
------- ------- ------
</TABLE>
-40-
<PAGE> 41
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------
October October October
29, 1999 30, 1998 31, 1997
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
FINANCING ACTIVITIES
Payment of long-term debt (1,399) (1,949) (1,949)
Exercises of stock options 161 1,547 7,150
Increase (decrease) in notes payable-banks 64,313 (17) (580)
------- ------- -------
NET CASH PROVIDED BY (APPLIED TO)
FINANCING ACTIVITIES 63,075 (419) 4,621
------- ------- -------
Effect of exchange rate changes on cash 365 967 44
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 777 (22,609) 40,957
Cash and cash equivalents, beginning of year 31,625 54,234 13,277
------- ------- -------
CASH AND CASH EQUIVALENTS,
END OF YEAR $32,402 $31,625 $54,234
======= ======= =======
SUPPLEMENTAL INFORMATION
Cash Paid During The Year:
Interest expense $8,365 $5,823 $5,563
Income taxes, net of refunds $14,632 $16,746 $11,375
Obligation incurred in connection with the
purchase and support of an Enterprise Resource
Planning System $4,334
</TABLE>
See Notes to Consolidated Financial Statements.
-41-
<PAGE> 42
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business: The Company operates in three major businesses, consisting of five
operating segments: Staffing Services; Telephone Directory; Telecommunications
Services; Computer Systems; and Electronic Publication and Typesetting Systems.
Fiscal Year: The Company's fiscal year consists of the 52 or 53 weeks ending on
the Friday nearest October 31. The 1999, 1998 and 1997 fiscal years were
comprised of 52 weeks.
Consolidation: The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany transactions have
been eliminated upon consolidation. The minority interest primarily represents
the 41% interest in Autologic Information International, Inc. ("aii") owned by
the public.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock-Based Compensation: The Company accounts for its stock-based compensation
arrangements under the provisions of APB Opinion 25, "Accounting for Stock
Issued to Employees" (see Note J).
Revenue Recognition: Sales are recorded when products are shipped and when
services are rendered. Revenues and costs applicable to long-term contracts,
including those providing for software customization or modification, are
recognized on the percentage-of-completion method, measured by work performed,
or the completed-contract method, as appropriate. Provisions for estimated
losses on contracts are recorded when losses become evident. Pass-through costs
are recognized as sales and cost of sales unless payments of these costs,
principally to associate vendors, are subject to receipt of the customers'
payment to the Company.
Cash Equivalents: Cash equivalents consist of investments in short-term, highly
liquid securities having an initial maturity of three months or less.
Investments: The Company determines the appropriate classification of marketable
equity and debt securities at the time of purchase and re-evaluates its
designation as of each balance sheet date. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at amortized
cost. Marketable equity securities and debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value with the unrealized gains and losses, net
of tax, reported as a separate component of stockholders' equity. Losses
considered to be other than temporary are charged to earnings.
Inventories: Manufacturing inventories are priced at the lower of cost, on a
first-in, first-out basis, or market. Accumulated unbilled costs on contracts
related to performing services are carried at the lower of actual cost or
realizable value (see Note C).
-42-
<PAGE> 43
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Long-Lived Assets: The Company reviews for the impairment of long-lived assets
and certain identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. No such
impairment indicators have been identified by the Company. An impairment loss
would be recognized when estimated future cash flows expected to result from the
use of the asset and its eventual disposition are less than its carrying amount.
Property, Plant and Equipment: Depreciation and amortization are provided on the
straight-line and accelerated methods at rates calculated to write off the cost
of the assets over their estimated useful lives. Fully depreciated assets are
written off against their related allowance accounts. The assets are depreciated
over the following periods:
Buildings - 25 to 31-1/2 years
Machinery and equipment - 3 to 15 years
Leasehold improvements - length of lease or life of asset,
whichever is shorter
<TABLE>
<CAPTION>
October October
29, 1999 30, 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
Property, plant and equipment consist of:
Land and buildings $34,270 $33,868
Machinery and equipment 83,156 79,337
Leasehold improvements 6,326 5,493
Enterprise Resource Planning System 10,353
------- -------
134,105 118,698
Less allowances for depreciation and amortization 55,937 51,134
------- -------
$78,168 $67,564
======= =======
</TABLE>
A term loan is secured by a deed of trust on land and buildings with a book
value at October 29, 1999 of $13.7 million (see Note E).
Intangible Assets: Intangible assets principally consist of the unamortized
balances of the excess of cost over the fair value of the net assets of
companies or businesses acquired. The intangibles are being amortized using the
straight-line method, over five to twenty year periods with an average remaining
life of eight years.
Income Taxes: Income taxes are provided using the liability method (see Note F).
Foreign Exchange Contracts: Gains and losses on foreign currency option and
forward contracts designated as hedges of existing assets and liabilities and of
identifiable firm commitments are deferred and included in the measurement of
the related foreign currency transaction.
Translation of Foreign Currencies: The U.S. dollar is the Company's functional
currency throughout the world, except for the Company's Uruguayan operation and
certain European subsidiaries. Where the U.S. dollar is used as the functional
currency, and in Uruguay, which has a high inflation rate, foreign currency
gains and losses are
-43-
<PAGE> 44
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
included in operations. The translation adjustments recorded as a separate
component of stockholders' equity result from changes in exchange rates, due to
the European subsidiaries whose functional currency is not the U.S. dollar.
Earnings Per Share: Basic earnings per share is calculated by dividing net
earnings by the weighted-average number of common shares outstanding during the
period. The diluted earnings per share computation includes the effect of shares
which would be issuable upon the exercise of outstanding stock options, reduced
by the number of shares which are assumed to be purchased by the Company from
the resulting proceeds at the average market price during the period (see Note
H).
Comprehensive Income: In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130),
which was adopted by the Company beginning in the first quarter of fiscal 1999.
The provisions of SFAS No. 130 require companies to classify items of
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately or as part of a
reconciliation of net income in the consolidated financial statements.
Segment Reporting: In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131), which was adopted by the Company beginning
in the first quarter of fiscal 1999. Under the provisions of SFAS No. 131, a
public business enterprise must report financial and descriptive information
about its reportable segments. 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 (see Note
K).
Derivatives and Hedging Activities: In June 1998, the FASB issued Statement 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133).
The provisions of SFAS No. 133 require companies to record all derivative
instruments as assets or liabilities, measured at fair value. In June 1999, the
FASB issued Statement 137, which deferred the effective date of SFAS 133. The
Company does not expect that effects of adopting this new standard in fiscal
2001 will be material.
NOTE B--INVESTMENTS IN SECURITIES
At October 29, 1999, short-term investments consisted of $2.6 million ($1.1
million at October 30, 1998) invested in mutual funds for the Company's deferred
compensation plan (see Note M). Non-current investments at that date consisted
of a portfolio of equity securities with a cost of $750,000 and a market value
of approximately $162,000 (and $1.5 million at October 30, 1998). The gross
unrealized loss of $588,000 at October 29, 1999 (and unrealized gain of $739,000
at October 30, 1998) is included as a component of accumulated other
comprehensive (loss) income.
-44-
<PAGE> 45
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE C--INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
October October
29, 1999 30, 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
Services:
Accumulated unbilled costs on:
Service contracts $50,079 $27,579
Long-term contracts - 108
------- -------
50,079 27,687
------- -------
Products:
Materials 6,205 5,671
Work-in-process 1,910 2,713
Service parts 1,170 1,819
Finished goods 1,752 1,107
------- -------
11,037 11,310
------- -------
Total $61,116 $38,997
======= =======
</TABLE>
The cumulative amounts billed, principally under service contracts at October
29, 1999 and long-term contracts at October 30, 1998, of $2.5 million and $25.7
million, respectively, are credited against the related costs in inventory.
Substantially all of the amounts billed have been collected.
NOTE D--SHORT-TERM BORROWINGS
At October 29, 1999, the Company had credit lines with domestic and foreign
banks which provide for unsecured borrowings and letters of credit up to an
aggregate of $87.9 million, including $75.0 million under a revolving Credit
Agreement (see Note E). On November 29, 1999, the Company entered into an
additional $25.0 million, syndicated unsecured revolving credit agreement. At
October 29, 1999, the Company had bank borrowings under these credit lines of
$68.5 million ($4.1 million at October 30, 1998). The weighted average interest
rate of short-term borrowings at each year-end was 9% in 1999 and 32% in 1998.
The weighted average interest rate was high in fiscal 1998, when borrowings were
primarily by the Company's Uruguayan operation, whose interest rates reflected
the country's high inflation level.
NOTE E--LONG-TERM DEBT AND FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
Long-term debt consists of the following:
October October
29, 1999 30, 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
7.92% Senior Notes (a) $50,000 $50,000
7.86% Term loan (b) 3,300 4,200
Notes payable (c) & (d) 5,082 1,247
------- -------
58,382 55,447
Less amounts due within one year 12,654 1,399
------- -------
Total long-term debt $45,728 $54,048
======= =======
</TABLE>
-45-
<PAGE> 46
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE E--LONG-TERM DEBT AND FINANCING ARRANGEMENTS--Continued
(a) On August 28, 1996, the Company issued $50.0 million of Senior Notes in a
private placement to 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 covenant requires the Company to
maintain a level of consolidated net worth which, under the formula in the
agreements, was $138.1 million at October 29, 1999. However, the terms of the
Company's revolving Credit Agreement require the Company to maintain a
consolidated net worth of $154.8 million at October 29, 1999 (see below).
(b) In October 1994, the Company entered into a $10.0 million loan agreement
with Fleet Bank, N.A., which is secured by a deed of trust on land and buildings
(book value at October 29, 1999 - $13.7 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, with a balance of $748,000 at October 29, 1999, is guaranteed by the
Company, and is being repaid in semi-annual payments of $249,000, plus interest
calculated at LIBOR (5.41% at October 29, 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 finance the purchase and support of 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 interest,
calculated at 6%, and principal amortization 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.
Principal payments in each of the next five years on long-term debt outstanding
at October 29, 1999 amount to:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C> <C>
2000 $12,654
2001 13,769
2002 11,027
2003 10,932
2004 10,000
-------
$58,382
=======
</TABLE>
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 will 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 October 29, 1999 to
-46-
<PAGE> 47
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE E--LONG-TERM DEBT AND FINANCING ARRANGEMENTS--Continued
maintain consolidated net worth of $154.8 million. The Credit Agreement also
contains certain limitations on the extent to which the Company and its
subsidiaries may incur additional indebtedness, liens and sale of assets. There
were $61.8 million outstanding borrowings under the Credit Agreement at October
29, 1999.
On November 29, 1999, the Company entered into an additional $25 million,
syndicated unsecured revolving credit agreement with a group of banks and the
same co-agents and terms as the Credit Agreement. This agreement expires on
November 27, 2000.
NOTE F--INCOME TAXES
Deferred tax assets and liabilities are determined based on differences between
financial reporting and the tax bases of assets and liabilities and are measured
using enacted tax rates and laws that are expected to be in effect when the
differences are scheduled to reverse.
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------
October October October
29, 1999 30, 1998 31, 1997
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
The components of income before income taxes,
based on the location of operations, consist
of the following:
Domestic $38,686 $35,418 $40,848
Foreign 5,979 409 21,577
------- ------- -------
$44,665 $35,827 $62,425
======= ======= =======
The components of the income tax provision
include:
Current:
Federal (a) $13,254 $10,949 $12,260
Foreign 2,672 199 5,417
State and local 3,142 2,356 4,000
------- ------- -------
Total current 19,068 13,504 21,677
------- ------- -------
Deferred:
Federal (1,087) 1,769 660
Foreign (207) (467) 480
State and local 116 50 (20)
------- ------- -------
Total deferred (1,178) 1,352 1,120
------- ------- -------
Total income tax provision $17,890 $14,856 $22,797
======= ======= =======
</TABLE>
(a) Reduced in 1997 by $99,000 of foreign tax credit carryforwards and reduced
in 1999, 1998 and 1997 by benefits of $1,189,000, $1,009,000 and $481,000,
respectively, from general business credits.
-47-
<PAGE> 48
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE F--INCOME TAXES--Continued
The consolidated effective tax rates are different than the U.S. Federal
statutory rate. The differences result from the following:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------
October October October
29, 1999 30, 1998 31, 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State and local taxes, net of federal
tax benefit 4.9 4.4 4.2
Tax effect of foreign operations (1.6) (1.0) (5.0)
Goodwill amortization 2.6 3.1 1.3
General business credits (1.7) (1.8) (0.5)
Other - net 0.9 1.8 1.5
----- ----- -----
Effective tax rate 40.1% 41.5% 36.5%
===== ===== =====
</TABLE>
-48-
<PAGE> 49
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE F--INCOME TAXES--Continued
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and also include operating
loss and tax credit carryforwards. Significant components of the Company's
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
October October
29, 1999 30, 1998
-------- --------
(Dollars in thousands)
<S> <C> <C>
Deferred Tax Assets:
Allowance for doubtful accounts $2,986 $2,175
Inventory valuation 3,869 3,347
Domestic net operating loss carryforwards 3,345 2,604
Foreign tax credit carryforwards 802 606
Compensation accruals and deferrals 4,054 2,945
Warranty accruals 501 447
Foreign asset bases 1,152 944
Accelerated book depreciation 766
Other--net 583 306
------- -------
Total deferred tax assets 18,058 13,374
Valuation allowance for deferred tax assets 284 606
------- -------
Deferred tax assets, net of valuation allowance 17,774 12,768
------- -------
Deferred Tax Liabilities:
Software development costs 4,161
Earnings not currently taxable 4 5
Accounts receivable valuation 1,654 2,439
Accelerated tax depreciation 44
------- -------
Total deferred tax liabilities 5,819 2,488
------- -------
Net deferred tax assets $11,955 $10,280
======= =======
Balance sheet classification:
Current assets $6,874 $8,065
Noncurrent assets 5,081 2,215
------- -------
Net deferred tax assets $11,955 $10,280
======= =======
</TABLE>
-49-
<PAGE> 50
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE F--INCOME TAXES--Continued
As of October 29, 1999, for tax purposes, the Company had foreign tax credit
carryforwards of $802,000, which expire from 2000 through 2004. For financial
statement purposes, a valuation allowance of $284,000 has been recognized to
reduce the deferred tax asset related to these carryforwards. At October 29,
1999, net deferred tax assets include $3.3 million related to domestic net
operating loss carryforwards of the Company's 59% owned subsidiary, aii. The
carryforwards expire between 2009 and 2012. Although realization is not assured,
management believes it is more likely than not that all of the assets related to
such loss carryforwards will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced if estimates of future taxable
income during the carryforward period are reduced.
The valuation allowance decreased during fiscal 1999 by $322,000. There were no
changes in the valuation allowance during fiscal 1998.
Substantially all of the undistributed earnings of foreign subsidiaries of $7.2
million at October 29, 1999 are considered permanently invested and,
accordingly, no federal income taxes thereon have been provided. Should these
earnings be distributed, foreign tax credits would reduce the additional federal
income tax which would be payable. Availability of credits is subject to
limitations; accordingly, it is not practicable to estimate the amount of the
ultimate deferred tax liability, if any, on accumulated earnings.
NOTE G--JOINT VENTURES
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 fiscal 1999, the venture made its first
acquisition, purchasing eleven community Yellow Pages directories. In fiscal
1999, sales of the venture were $208,000 and the Company's portion of the loss
sustained was $33,000.
In the first quarter of 1997, the Company sold its 50% interest in Telelistas
Editora Ltda. ("Telelistas"), a Brazilian joint venture, which is the official
publisher of telephone directories in Rio de Janeiro for the government-owned
telephone company, and received $2.5 million in excess of its carrying value at
the date of sale. In connection with the sale, the Company continued to grant
credit to Telelistas and guarantee the venture's obligations with respect to
certain import financing, principally for the printing of telephone directories
by the Company's Uruguayan division. Therefore, the Company had deferred the
gain on the sale. In fiscal 1998, Telelistas repaid certain of these obligations
and the Company's guarantees were released. Accordingly, $500,000 of the gain on
the sale was recognized in fiscal 1998. During 1999 the venture repaid
substantially all of its remaining obligations; accordingly, the $2.0 million
balance of the deferred gain has been recognized in fiscal 1999.
In the fourth quarter of 1997, the Company sold its 12 1/2% interest in Pacific
Access Pty. Ltd., its Australian joint venture, resulting in a gain of $12.8
million. This joint venture was responsible throughout Australia for the
marketing, sales and compilation functions of all yellow pages directories of
Telstra, the Australian telephone company.
-50-
<PAGE> 51
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE G--JOINT VENTURES--Continued
In fiscal 1997, prior to their sale by the Company, the Company's then Brazilian
and Australian joint ventures reported net income of $33.1 million on sales of
$539.5 million. The Company's portion of profits earned by the ventures of $6.8
million is included in equity in net income of joint ventures.
NOTE H--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. The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------------
October 29, October 30, October 31,
1999 1998 1997
----------- ----------- -----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Numerator for basic and diluted earnings
per share - net income (A) $28,959 $20,903 $39,850
======= ======= =======
Denominator for basic earnings per share -
weighted average number of shares (B) 15,023,046 14,917,846 14,707,055
Effect of dilutive securities:
Employee stock options 129,566 335,819 475,185
---------- ---------- ----------
Denominator for diluted earnings per share -
adjusted weighted average number of shares (C) 15,152,612 15,253,665 15,182,240
========== ========== ==========
Basic net income per share - (A)/(B) $1.93 $1.40 $2.71
===== ===== =====
Diluted net income per share - (A)/(C) $1.91 $1.37 $2.62
===== ===== =====
</TABLE>
Options to purchase 115,460 and 126,400 shares of the Company's common stock
were outstanding at October 29, 1999 and October 30, 1998, respectively, but
were not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
shares and, therefore, the effect would be antidilutive.
NOTE I--ACQUISITION AND SALE OF SUBSIDIARIES AND BUSINESSES
During fiscal 1999, the Company acquired Gatton Computing Group Limited, now
referred to as Gatton Volt Group, 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 Volt Group offers IT services through three main
operating divisions which provide temporary IT contract consultants,
specifically tailored recruitment services and a range of IT services, including
systems development, consulting, maintenance and technical support services.
-51-
<PAGE> 52
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE I--ACQUISITION AND SALE OF SUBSIDIARIES AND BUSINESSES--Continued
Included in the Company's fiscal 1999 results of operations for the eleven
months following the acquisition are sales of $77.3 million and an operating
profit of $2.6 million, net of $1.9 million of amortization of goodwill. The
assets acquired, excluding intangibles, consisted principally of accounts
receivable, net of those sold on a nonrecourse basis under 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.
NOTE J--STOCK OPTION PLANS
The Non-Qualified Stock Option Plan adopted by the Company in fiscal 1980
terminated on June 30, 1990, except for options previously granted under the
plan. Unexercised options expire ten years after grant. Outstanding options at
October 29, 1999 were granted at 100% of the market price of the shares of
common stock on the date of grant and became exercisable cumulatively in
increments of 20% per year in each of the second through sixth years after date
of grant.
In May 1995, the Company adopted a new Non-Qualified Stock Option Plan, which
enabled the granting of options to acquire up to 1.2 million shares of common
stock to key employees and, as amended in January 1998, directors of the
Company. Option exercise prices may not be less than 100% of the market price of
the shares on the date the options are granted. The date each option becomes
exercisable and the term of each option, which may not exceed ten years, are at
the discretion of the Company. Currently outstanding options become fully vested
within one to five years after the date of grant. At October 29, 1999, options
to purchase 334,007 shares were vested and 387,415 (482,790 at October 30, 1998)
shares were available for future grants under the plan.
-52-
<PAGE> 53
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE J--STOCK OPTION PLANS--Continued
All share and per share data are restated to reflect the May 1997 stock split.
Transactions involving outstanding stock options under these plans were:
<TABLE>
<CAPTION>
1980 Plan 1995 Plan
--------------------------------- --------------------------------
Number of Weighted Average Number of Weighted Average
Shares Exercise Price Shares Exercise Price
--------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Outstanding-November 1, 1996 315,000 $6.44 699,525 $18.58
Granted 6,850 35.98
Exercised (157,000) 8.88 (146,827) 18.11
Forfeited (32,520) 18.08
-------- --------
Outstanding-October 31, 1997 158,000 4.02 527,028 18.97
Granted 85,500 34.96
Exercised (77,000) 4.04 (32,640) 18.20
Forfeited (42,145) 26.64
-------- --------
Outstanding-October 30, 1998 81,000 4.00 537,743 20.96
Granted 119,950 20.32
Exercised (8,110) 18.08
Forfeited (24,575) 23.59
-------- --------
Outstanding-October 29, 1999 81,000 $4.00 625,008 $20.77
======== ========
</TABLE>
Price ranges of outstanding and exercisable options as of October 29, 1999 are
summarized below:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
--------------------------------------------------- --------------------------------
Average
Range of Number of Remaining Weighted Average Number of Weighted Average
Exercise Prices Shares Life (Years) Exercise Price Shares Exercise Price
- --------------- ------ ------------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
1980 Plan:
- ----------
$4.00 81,000 1 $4.00 81,000 $4.00
1995 Plan:
- ----------
$15.91-$19.69 446,183 7 $17.98 271,283 $18.08
$21.03-$40.03 176,125 8 $27.35 61,784 $27.25
$50.56-$59.81 2,700 8 $52.96 940 $51.94
</TABLE>
-53-
<PAGE> 54
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE J--STOCK OPTION PLANS--Continued
The Company has elected to follow APB Opinion 25, "Accounting for Stock Issued
to Employees", to account for its stock options. No compensation cost is
recognized because the option exercise price is equal to at least the market
price of the underlying stock on the date of grant. Had compensation cost for
these plans been determined at the grant dates for awards under the alternative
method provided for in SFAS 123, "Accounting and Disclosure for Stock Based
Compensation", pro forma net income and earnings per share would have been:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pro forma net income (in thousands) $28,141 $20,202 $37,703
Pro forma net income per share - basic $1.87 $1.35 $2.56
Pro forma net income per share - diluted $1.87 $1.34 $2.52
</TABLE>
The fair value of each option grant is estimated using the Multiple
Black-Scholes option pricing model, with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free
interest rates of 6.0%, 4.4% and 6.0%, expected volatility of .70, .63 and .72,
an expected life of the options of three years and no dividends. The weighted
average fair value of stock options granted during years ended 1999, 1998 and
1997 were $13.53, $21.26 and $24.45, respectively.
NOTE K--SEGMENT DISCLOSURES
Financial data concerning the Company's sales, segment profit (loss) and
identifiable assets by reportable operating segment for fiscal years 1999, 1998
and 1997 are presented in tables under Item 1 of the Report on Form 10-K and are
incorporated herein by reference.
Total sales include both sales to unaffiliated customers, as reported in the
Company's consolidated statements of income, and intersegment sales. Sales
between segments are generally priced at fair market value. The Company
evaluates performance based on segment profit or loss from operations before
general corporate expenses, interest income and other income, interest expense,
foreign exchange gains and losses, income taxes, equity income and minority
interests. The accounting policies of the reportable segments are the same as
those described in the summary of significant accounting policies. Therefore,
the Company's operating profit is the total segment profit less general
corporate expenses. Identifiable assets are those assets that are used in the
Company's operations in the particular operating segment. Corporate assets
consist principally of cash and cash equivalents, investments and an Enterprise
Resource Planning System (see Note O).
The Company operates in three major businesses which are primarily focused on
the markets it serves - staffing services, telecommunications and information
solutions, and prepress publishing systems. The Company's internal reporting
structure is based on the services and products provided to customers which
results in the following five reportable operating segments:
Staffing Services - This segment provides a broad range of employee staffing
services, including temporary help, technical personnel placement, and other
alternative staffing services, employment and direct hire placement services,
payrolling services, employment outsourcing services, employee leasing services
and Information Technology ("IT") services, to a wide range of customers. The
Staffing Services segment includes the Technical
-54-
<PAGE> 55
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE K--SEGMENT DISCLOSURES--Continued
Placement division and the Commercial and Light Industrial division which have
been aggregated due to similarities in services provided, customers served,
internal processes, margins and net cash flows. In certain instances, the two
divisions share common management, facilities and jointly service customer
contracts.
Telephone Directory - This segment publishes independent telephone directories,
provides telephone directory production, commercial printing, database
management, sales and marketing services, licensing of directory production and
contract management software systems to directory publishers and others; and
provides services, principally computer-based projects, to public utilities and
financial institutions.
Telecommunications Services - This segment provides telecommunications services,
including engineering, design, construction, installation, maintenance, removals
and distribution of telecommunications products to the outside plants and
central offices of telecommunications and cable companies, and within end-user
premises.
Computer Systems - This segment provides directory assistance outsourcing
services and designs, develops, integrates, markets, sells and maintains
computer-based directory assistance systems and other database management and
telecommunications systems for the telecommunications industry; and provides
third party IT services to others.
Electronic Publication and Typesetting Systems - This segment designs, develops,
manufactures, integrates, markets, sells and services computerized imagesetting
and publication systems equipment and software principally to the newspaper
publishing industry, niche portions of the commercial printing industry and
other organizations having internal publishing facilities, through Autologic
Information International, Inc., the Company's 59% owned publicly-held
subsidiary and its subsidiaries (collectively, "aii").
Sales to one customer of the Staffing Services segment represented 14% of
consolidated sales and 18% of sales of that segment in fiscal 1999. In the event
that there was a loss of this customer there would be an adverse effect on the
results for that segment's business, although the Company does not believe that
there would be a material adverse effect on the Company taken as a whole.
Sales to external customers and assets of the Company by geographic area are as
follows:
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------------
October October October
29, 1999 30, 1998 31, 1997
-------- -------- --------
(Dollars in thousands)
Sales
--------------------------------------------
<S> <C> <C> <C>
Domestic $1,979,811 $1,654,526 $1,342,249
International 161,334 54,069 59,224
---------- ---------- ----------
$2,141,145 $1,708,595 $1,401,473
========== ========== ==========
<CAPTION>
Assets
--------------------------------------------
<S> <C> <C> <C>
Domestic $532,820 $429,024 $390,849
International 85,509 40,302 27,873
-------- -------- --------
$618,329 $469,326 $418,722
======== ======== ========
</TABLE>
-55-
<PAGE> 56
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE K--SEGMENT DISCLOSURES--Continued
Capital expenditures and depreciation and amortization by the Company's
operating segments are as follows:
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------
October October October
29, 1999 30, 1998 31, 1997
-------- -------- --------
(Dollars in thousands)
Capital Expenditures
---------------------------------------------
<S> <C> <C> <C>
Staffing Services $4,596 $5,160 $4,494
Telephone Directory 2,681 7,957 2,285
Telecommunications Services 6,434 3,478 3,817
Computer Systems 1,999 3,857 2,316
Electronic Publication and Typesetting Systems 1,811 2,331 2,359
------- ------- -------
Total segments 17,521 22,783 15,271
Corporate 10,870 259 323
------- ------- -------
$28,391 $23,042 $15,594
======= ======= =======
<CAPTION>
Depreciation and Amortization (a)
---------------------------------------------
<S> <C> <C> <C>
Staffing Services $6,555 $3,536 $2,653
Telephone Directory 4,571 3,808 3,581
Telecommunications Services 3,772 3,727 3,321
Computer Systems 4,011 4,568 5,513
Electronic Publication and Typesetting Systems 4,750 4,705 4,770
------- ------- -------
Total segments 23,659 20,344 19,838
Corporate 451 424 656
------- ------- -------
$24,110 $20,768 $20,494
======= ======= =======
</TABLE>
(a) Includes depreciation and amortization of property, plant and equipment for
fiscal years 1999, 1998 and 1997 of $18.0 million, $17.6 million and $17.6
million, respectively.
-56-
<PAGE> 57
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE L--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
fiscal years ended October 29, 1999 and October 30, 1998. Each quarter contained
thirteen weeks.
<TABLE>
<CAPTION>
Fiscal 1999 Quarter
------------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $489,922 $532,273 $560,015 $558,935
======== ======== ======== ========
Gross profit $26,910 $37,842 $41,246 $55,253
======= ======= ======= =======
Net income $2,562(a) $5,678 $7,702(a) $13,017
====== ====== ====== =======
Net income per share - basic $0.17(a) $0.38 $0.51(a) $0.87
===== ===== ===== =====
Net income per share - diluted $0.17 $0.38 $0.51 $0.86
===== ===== ===== =====
Stock price (c):
High $26-1/2 $24-3/4 $24-1/2 $26-7/8
Low 21-1/4 15-1/2 16-13/16 19-3/8
<CAPTION>
Fiscal 1998 Quarter
------------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $361,515 $412,583 $431,779 $502,718
======== ======== ======== ========
Gross profit $26,176 $31,548 $33,289 $42,211
======= ======= ======= =======
Net income $2,585 $4,319 $4,826(a)(b) $9,173
====== ====== ====== ======
Net income per share - basic $0.17 $0.29 $0.32(a)(b) $0.61
===== ===== ===== =====
Net income per share - diluted $0.17 $0.28 $0.32 $0.61
===== ===== ===== =====
Stock price (c):
High $70-1/4 $58-1/4 $34-3/16 $29
Low 38-3/4 29-7/8 26-1/16 15-5/16
</TABLE>
(a) In connection with the sale in fiscal 1997 of its interest in a Brazilian
joint venture, the Company continued to grant credit to the joint venture
and guarantee the venture's obligations with respect to certain import
financing, principally for the printing of telephone directories by the
Company's Uruguayan division. During the 1998 third quarter, the venture
repaid certain of its obligations and satisfied the Company's guarantees.
Accordingly, $500,000 ($0.03 per share) of a previously deferred $2.5
million gain on the sale was recognized. During the first and third quarter
of fiscal 1999, the venture repaid substantially all of its remaining
obligations and the Company therefore recognized $1.2 million ($0.08 per
share) and $800,000 ($0.05 per share) in the first and third quarters,
respectively.
-57-
<PAGE> 58
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE L--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)--Continued
(b) Other income in the 1998 third quarter has been reduced by a non-recurring
charge of $650,000 ($0.03 per share) due to professional fees in connection
with a terminated transaction.
(c) The Company's common stock is traded on the New York Stock Exchange (NYSE
Symbol-VOL). The above stock prices are as reported by the NYSE.
Historically, the Company's results of operations have been lower in the first
fiscal quarter as a result of reduced requirements for its technical and
temporary personnel during the holiday season. The Company's Uruguayan operation
produces a major portion of its revenues and most of its profits in the
Company's fourth fiscal quarter, and the Company's independent directory
publisher's revenues and profits are lower in the Company's first fiscal quarter
due to the seasonality of its directory closing schedule. Sales by aii are
generally lower in the months of November and December due to the holiday
season, which is a peak publishing period when customers are reluctant to
install and test new equipment.
NOTE M--EMPLOYEE BENEFITS
The Company has a non-contributory Employee Stock Ownership Plan (ESOP), which
provides for open market or private purchases of Company common stock from
time-to-time, or contributions by the Company of unissued or treasury shares.
Discretionary contributions are made for all employees who have completed one
year of service for a participating employer. Vesting occurs at a rate of 25%
per year of service, commencing with the completion of three years of service.
Contributions of $558,000 in fiscal 1999, $410,000 in fiscal 1998 and $700,000
in fiscal 1997 were accrued and charged to compensation expense. Contributions
of previously unissued shares were made to the plan and are included in the
calculation of earnings per share.
The Company has savings plans which permit eligible employees to make
contributions on a pretax salary reduction basis in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. Through October 29,
1999, the Company did not match employee contributions.
The Company has a non-qualified deferred compensation and supplemental savings
plan which permits eligible employees to defer a portion of their income. This
plan consists solely of participant deferrals and earnings thereon, which are
reflected as a current liability under accrued wages and commissions.
NOTE N--FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily cash investments and accounts receivable. At October
29, 1999, the Company's cash investments were primarily in investment grade,
short-term instruments. Concentrations of credit risk with respect to the
Company's receivables are limited due to the large number of customers in the
Company's customer base, and their dispersion across different industries and
geographic areas.
-58-
<PAGE> 59
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE N--FINANCIAL INSTRUMENTS--Continued
The Company purchases foreign currency option contracts, generally having a
maturity of three to six months, to hedge the adverse impact on its foreign
currency receivables and sales when the dollar strengthens against the related
foreign currencies. Foreign exchange (gain) loss in the accompanying statements
of income include (1) any gain on option contracts, which are recognized in
income in the same period as losses on the hedged receivables and reduced dollar
amount of sales, and (2) the premium cost of such option contracts, which is
amortized over the contract period. At October 29, 1999, the Company had
purchased options, all of which expire in the first quarter of 2000, at a cost
of $81,000, to exchange various overseas currencies for U.S. dollars, in the
aggregate notional amount of $4.0 million. There were no unrealized gains or
losses on these contracts at such date. The counterparties to the currency
option contracts are major banks. Credit loss from counterparty nonperformance
is not anticipated.
The carrying amount of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and notes payable to banks
approximated their fair values as of October 29, 1999 and October 30, 1998 due
to the relatively short maturity of these instruments. The carrying value of
long-term debt, including the current portion, approximated its fair value as of
October 29, 1999 and October 30, 1998 based upon quoted market prices for same
or similar debt issues.
NOTE O -- COMMITMENTS
The future minimum rental commitments as of October 29, 1999 for all
noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
Fiscal Office
Year Total Space Equipment
- ---- ----- ----- ---------
(Dollars in thousands)
<S> <C> <C> <C>
2000 $15,559 $14,617 $942
2001 12,250 11,332 918
2002 7,357 6,813 544
2003 4,465 4,441 24
2004 2,733 2,726 7
Thereafter 6,112 6,112
------- ------- ------
$48,746 $46,041 $2,435
======= ======= ======
</TABLE>
Rental expense for all operating leases for fiscal years 1999, 1998 and 1997 was
$18.8 million, $16.3 million and $13.0 million, respectively. Many of the leases
also require the Company to pay or contribute to property taxes, insurance and
ordinary repairs and maintenance.
The Company has guaranteed the performance of subsidiaries under contracts. At
October 29, 1999, outstanding letters of credit of $3.2 million were issued by
banks in support of some of these guarantees. The letters of credit expire in
fiscal 2000, unless renewed. The Company believes that risk of loss relative to
these financial guarantees is remote.
-59-
<PAGE> 60
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE O -- COMMITMENTS--Continued
In December 1998, the Company entered into an agreement to purchase an
Enterprise Resource Planning system for internal use. The Company has incurred
$16.3 million to date for this new system. In addition, the Company has a
commitment of $4.5 million for outside services to support the design,
development and implementation stages.
In fiscal 1998, Volt and TELUS Advertising Services, a wholly owned subsidiary
of TELUS Corporation, formed a joint venture for the publishing of community
telephone directories. The two partners have each committed $25 million for the
acquisition, start-up and operation of a business engaged in the publication of
community telephone directories in the western half of the United States. During
1999, the joint venture had acquired eleven directroies in Texas, with a total
contribution of $1.3 million by Volt.
NOTE P--SUBSEQUENT EVENT
In December 1999, the Company completed its purchase of the Wired Services and
Professional Staffing divisions of two Lucent Technologies subsidiaries. The
Wired Services division installs cable, wire and small telecommunications
systems for businesses, and the Professional Staffing division provides
technical, management and administrative personnel for temporary assignments.
The two divisions employ 970 employees. The Company paid cash for inventory and
equipment with limited additional consideration due based on future sales of the
Wired Services division. The amounts are not considered material to the Company.
-60-
<PAGE> 61
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Part III (Items 10, 11, 12 and 13) of Form 10-K
(except information as to the Company's executive officers, which information
follows Item 4 in this Report) will be included in the Company's Proxy
Statement, which the Company intends to file within 120 days after the close of
its fiscal year ended October 29, 1999, and is hereby incorporated by reference
to such Proxy Statement.
-61-
<PAGE> 62
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
14(a)(1). Financial Statements
--------------------
The following consolidated financial statements of Volt Information
Sciences, Inc. and subsidiaries are included in Item 8:
Page
----
Consolidated Balance Sheets--October 29, 1999 and October 30, 1998 37
Consolidated Statements of Income--Years ended October 29, 1999,
October 30, 1998 and October 31, 1997 38
Consolidated Statements of Stockholders' Equity--Years ended
October 29, 1999, October 30, 1998 and October 31, 1997 39
Consolidated Statements of Cash Flows--Years ended
October 29, 1999, October 30, 1998 and October 31, 1997 40
Notes to Consolidated Financial Statements 42
14(a)(2). Financial Statement Schedules
-----------------------------
The following consolidated financial statement schedule of Volt
Information Sciences, Inc. and subsidiaries is included in response
to Item 14(d):
Schedule II--Valuation and qualifying accounts S-1
Other schedules (Nos. I, III, IV and V) for which provision is made
in the applicable accounting regulation of the Securities and
Exchange Commission are not required under the related instructions
or are not applicable and, therefore, have been omitted.
</TABLE>
-62-
<PAGE> 63
<TABLE>
<S> <C>
14(a)(3). Exhibits
--------
Exhibit Description
- ------- -----------
2.1 Agreement and Plan of Merger dated as of October 5, 1995, as
amended on November 10, 1995 and December 7, 1995, among
Information International, Incorporated, Autologic, Inc., name
changed to Autologic Information International, Inc., and Volt
Information Sciences, Inc., Incorporated by Reference to
Appendix I to the Registration Statement on Form S-4 of
Autologic Information International, Inc., (File No.
33-99278).
3.1 Restated Certificate of Incorporation of the Company, as filed
with the Department of State of New York on January 29, 1997.
(Exhibit 3.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended November 1, 1996).
3.2 By-Laws of the Company. (Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 30,
1998, File No. 1-9232).
4.1 Amended and Restated Credit Agreement dated December 22, 1998
among the Company, The Chase Manhattan Bank, individually and
as Administrative Agent, Fleet Bank, N.A., individually and as
Co-Agent, Bank of America National Trust and Savings
Association, Mellon Bank, N.A., and Wells Fargo Bank, N.A.
(Exhibit 4.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 30, 1998, File No. 1-9232).
10.1(a)+ Non-Qualified Stock Option Incentive Plan as amended. (Exhibit
10.1(a) to the Company's Annual Report on Form 10-K for the
fiscal year ended November 1, 1996, File No. 1-9232).
10.1(b)+ 1995 Non-Qualified Stock Option Plan as amended. (Exhibit
10.1(b) to the Company's Annual Report on Form 10-K for the
fiscal year ended October 30, 1998, File No. 1-9232).
10.2(a)+ Employment Agreement dated as of May 1, 1987 between the
Company and William Shaw. (Exhibit 19.01 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 1,
1987, File No. 1-9232).
10.2(b)+ Amendment dated January 3, 1989 to Employment Agreement
between the Company and William Shaw. (Exhibit 19.01(b) to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 28, 1988, File No. 1-9232).
</TABLE>
-63-
<PAGE> 64
<TABLE>
<S> <C>
14(a)(3). Exhibits--Continued
- ----------- -------------------
Exhibit Description
- ------- -----------
10.3(a)+ Agreement dated as of May 1, 1987 between the Company and
Jerome Shaw (Exhibit 19.02 to the Company's Quarterly Report
on Form 10-Q for the quarter ended May 1, 1987, File No.
1-9232).
10.3(b)+ Amendment dated January 3, 1989 to Agreement between the
Company and Jerome Shaw (Exhibit 19.02(b) to the Company's
Annual Report on Form 10-K for the fiscal year ended October
28, 1988, File No. 1-9232).
10.4(a)+ Agreement dated as of May 1, 1987 between the Company and
Irwin B. Robins (Exhibit 19.03 to the Company's Quarterly
Report on Form 10-Q for the quarter ended May 1, 1987, File
No. 1-9232).
10.4(b)+ Amendment dated June 1, 1992 to Agreement between the Company
and Irwin B. Robins (Exhibit 10.04(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended October 30,
1992, File No. 1-9232).
10.4(c)+ Amendment dated April 28, 1994 to Agreement between the
Company and Irwin B. Robins (Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 29,
1994, File No. 1-9232).
10.4(d)+ Amendment dated April 30, 1996 to Agreement between the
Company and Irwin B. Robins (Exhibit 10.04(d) to the Company's
Annual Report on Form 10-K for the fiscal year ended October
31, 1997, File No. 1-9232).
10.4(e)+ Amendment dated April 30, 1998 to Agreement between the
Company and Irwin B. Robins (Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 1,
1998, File No. 1-9232).
21.* Subsidiaries of the Registrant.
23.* Consent of Ernst & Young LLP.
27.* Financial Data Schedule (filed with electronic version only).
</TABLE>
- -----------------------------------------------------
+ Management contract or compensation plan or arrangement.
* Filed herewith. All other exhibits are incorporated herein by reference to the
exhibit indicated in the parenthetical references.
-64-
<PAGE> 65
14 (b). Reports on Form 8-K
No Reports on Form 8-K were filed during the fourth quarter of the year ended
October 29, 1999. However, after the end of the fourth quarter, the Company
filed a Report on Form 8-K dated (date of earliest event reported) November 16,
1999, reporting under Item 5, Other Events, and Item 7, Financial Statements and
Exhibits. No financial statements were filed with that report.
UNDERTAKING
The Company hereby undertakes to furnish to the Securities and Exchange
Commission, upon request, all constituent instruments defining the rights of
holders of long-term debt of the Company and its consolidated subsidiaries not
filed herewith. Such instruments have not been filed since none are, nor are
being, registered under Section 12 of the Securities Exchange Act of 1934 and
the total amount of securities authorized under any such instruments does not
exceed 10% of the total assets of the Company and its subsidiaries on a
consolidated basis.
-65-
<PAGE> 66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
VOLT INFORMATION SCIENCES, INC.
Dated: New York, New York By: /s/ William Shaw
January 20, 2000 --------------------------------
William Shaw
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ William Shaw Chairman of the Board, January 20, 2000
- ----------------------- President and Chief Executive
William Shaw Officer and Director
/s/ James J. Groberg Senior Vice President January 20, 2000
- ----------------------- (Principal Financial
James J. Groberg Officer and Director)
/s/ Jack Egan Vice President, Corporate January 20, 2000
- ----------------------- Accounting (Principal
Jack Egan Accounting Officer)
/s/ Jerome Shaw Director January 20, 2000
- -----------------------
Jerome Shaw
/s/ Irwin B. Robins Director January 20, 2000
- -----------------------
Irwin B. Robins
/s/ Steven A. Shaw Director January 20, 2000
- -----------------------
Steven A. Shaw
Director
- -----------------------
Mark N. Kaplan
Director
- -----------------------
John R. Torell, III
Director
- -----------------------
William H. Turner
</TABLE>
<PAGE> 67
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- ------------------------ -------- --------
Additions
------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------- --------- -------- -------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Year ended October 29, 1999:
Deducted from asset accounts:
Allowance for uncollectible accounts $5,822 $5,548 $61(6) $3,490(1)(2) $7,941
Allowance for deferred tax assets 606 322(5) 284
Unrealized loss (gain) on marketable
securities (739) 1,327(3) 739 1,327
Year ended October 30, 1998:
Deducted from asset accounts:
Allowance for uncollectible accounts $5,067 $3,401 $2,646(1)(2) $5,822
Allowance for deferred tax assets 606 606
Unrealized loss (gain) on marketable
securities 3,000 $(739)(3) 3,000 (739)
Year ended October 31, 1997:
Deducted from asset accounts:
Allowance for uncollectible accounts $5,191 $3,046 $3,170(1)(2) $5,067
Allowance for deferred tax assets 1,252 $(99)(4) 547(5) 606
Unrealized loss (gain) on marketable
securities (7) 3,000 7 (3) 3,000
</TABLE>
(1)--Write-off of uncollectible accounts.
(2)--Includes a foreign currency translation (loss) gain of $(11) in 1999, $13
in 1998, and $64 in 1997, respectively.
(3)--Charge (credit) to stockholders' equity.
(4)--Credit to income tax provision.
(5)--Principally, write-off of unutilized foreign tax credits.
(6)--Pertains to the opening balance of a company during fiscal year 1999.
S-1
<PAGE> 68
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated as of October 5, 1995, as
amended on November 10, 1995 and December 7, 1995, among
Information International, Incorporated, Autologic, Inc., name
changed to Autologic Information International, Inc., and Volt
Information Sciences, Inc., Incorporated by Reference to
Appendix I to the Registration Statement on Form S-4 of
Autologic Information International, Inc., (File No.
33-99278).
3.1 Restated Certificate of Incorporation of the Company, as filed
with the Department of State of New York on January 29, 1997.
(Exhibit 3.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended November 1, 1996).
3.2 By-Laws of the Company. (Exhibit 3.2 to the Company's Annual
Report on Form 10-k for the fiscal year ended October 30,
1998, File No. 1-9232).
4.1 Amended and Restated Credit Agreement dated December 22, 1998
among the Company, The Chase Manhattan Bank, individually and
as Administrative Agent, Fleet Bank, N.A., individually and as
Co-Agent, Bank of America National Trust and Savings
Association, Mellon Bank, N.A., and Wells Fargo Bank, N.A.
(Exhibit 4.1 to the Company's Report on Form 10-K for the
fiscal year ended October 30, 1998, File No. 1-9232).
10.1(a)+ Non-Qualified Stock Option Incentive Plan as amended. (Exhibit
10.1(a) to the Company's Annual Report on Form 10-K for the
fiscal year ended November 1, 1996, File No. 1-9232).
10.1(b)+ 1995 Non-Qualified Stock Option Plan as amended. (Exhibit
10.1(b) to the Company's Annual Report on Form 10-K for the
fiscal year ended October 30, 1998, File No. 1-9232).
10.2(a)+ Employment Agreement dated as of May 1, 1987 between the
Company and William Shaw (Exhibit 19.01 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 1,
1987, File No. 1-9232).
10.2(b)+ Amendment dated January 3, 1989 to Employment Agreement
between the Company and William Shaw (Exhibit 19.01(b) to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 28, 1988, File No. 1-9232).
10.3(a)+ Agreement dated as of May 1, 1987 between the Company and
Jerome Shaw (Exhibit 19.02 to the Company's Quarterly Report
on Form 10-Q for the quarter ended May 1, 1987, File No.
1-9232).
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
10.3(b)+ Amendment dated January 3, 1989 to Agreement between the
Company and Jerome Shaw (Exhibit 19.02(b) to the Company's
Annual Report on Form 10-K for the fiscal year ended October
28, 1988, File No. 1-9232).
10.4(a)+ Agreement dated as of May 1, 1987 between the Company and
Irwin B. Robins (Exhibit 19.03 to the Company's Quarterly
Report on Form 10-Q for the quarter ended May 1, 1987, File
No. 1-9232).
10.4(b)+ Amendment dated June 1, 1992 to Agreement between the Company
and Irwin B. Robins. (Exhibit 10.04(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended October 30,
1992, File No. 1-9232).
10.4(c)+ Amendment dated April 28, 1994 to Agreement between the
Company and Irwin B. Robins. (Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 29,
1994, File No. 1-9232).
10.4(d)+ Amendment dated April 30, 1996 to Agreement between the
Company and Irwin B. Robins (Exhibit 10.04(d) to the Company's
Annual Report on Form 10-K for the fiscal year ended October
31, 1997, File No. 1-9232).
10.4(e)+ Amendment dated April 30, 1998 to Agreement between the
Company and Irwin B. Robins (Exhibit 10.01to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 1,
1998, 1997, File No. 1-9232).
21.* Subsidiaries of the Registrant.
23.* Consent of Ernst & Young LLP.
27.* Financial Data Schedule (filed with electronic version only).
</TABLE>
- -------------------------------------------
+ Management contract or compensation plan or arrangement.
* Filed herewith. All other exhibits are incorporated herein by reference
to the exhibit indicated in the parenthetical references.
<PAGE> 1
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT
The following is a list of the subsidiaries and joint ventures of Volt as of
January 14, 2000 (exclusive of certain subsidiaries which, if considered in the
aggregate, would not, as of October 29, 1999, constitute a significant
subsidiary within the meaning of Rule 1-02(v) of Regulation S-X). All of such
subsidiaries, to the extent they were active and owned by the Company during
fiscal 1999, are included as consolidated subsidiaries in the Registrant's
consolidated financial statements as of October 29, 1999.
<TABLE>
<CAPTION>
Jurisdiction
of
Name (1) Incorporation
- -------- -------------
<S> <C>
Volt Delta Resources, Inc. Nevada
Volt Delta Resources, Inc. Delaware
Jefferson-Adams Corporation New Jersey
Volt Temporary Services, Inc. Delaware
Volt Real Estate Corporation Delaware
VIS, Inc. Delaware
Volt-Autologic Directories S.A., Ltd. Delaware
Volt Holding Corp. Nevada
Volt Realty Two, Inc. Nevada
500 South Douglas Realty Corp. Delaware
14011 So. Normandie Ave. Realty Corp. Nevada
Volt Orangeca Real Estate Corp. Delaware
Volt Australia, Ltd. Delaware
Shaw & Shaw, Inc. Delaware
Volt Human Resources, Inc. Delaware
Volt ATRD Corp. Delaware
Sierra Technology Corporation California
Volt Opportunity Road Realty Corp. Delaware
Nuco II, Ltd. Delaware
Volt Management Corp. Delaware
Volt Technical Corp. Delaware
Fidelity National Credit Services Ltd. California
Nuco I, Ltd. Nevada
Volt Information Sciences Funding, Inc. Delaware
Volt Viewtech, Inc. Delaware
Volt Asia Enterprises, Ltd. Delaware
Volt STL Holdings, Inc. Delaware
DataNational of Georgia, Inc. Georgia
DataNational, Inc. Delaware
Volt Road Boring Corp. Florida
Volt Telecommunications Group, Inc. Delaware
Volt Publications, Inc. Delaware
Volt Maintech, LLC Delaware
Volt Gatton Holding, Inc. Delaware
Maintech, Incorporated Delaware
MC(2) Corporation New Jersey
</TABLE>
<PAGE> 2
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT--Continued
<TABLE>
<CAPTION>
Name (1) Jurisdiction of Incorporation
- -------- -----------------------------
<S> <C>
VMC Consulting Corporation Delaware
Volt Delta B.V. Netherlands
Volt Delta Europe, Limited United Kingdom
Gatton Volt Management, Ltd. United Kingdom
Tainol, S.A. Uruguay
Volt Human Resources (VHRI), Inc. Canada
Volt Services Group (Netherlands) B.V. Netherlands
Volt Jantec, Inc. (2) Delaware
Volt System I, J.V., Inc. (3) California
Volt Directory Marketing, Ltd. (4) Delaware
Autologic Information International, Inc. (5) Delaware
Autologic Information International, Ltd. (6) Nevada
Autologic Information International, A.B. (6) Sweden
Autologic Information International, Limited (6) United Kingdom
Autologic Information International Pty. Limited (6) Australia
Autologic Triple-I, Inc. (6) Canada
Autologic Information International, Ltd. (6) Israel
Xitron, Inc. (6) Michigan
Xitron Pty, Limited (6) Australia
Volt Europe Limited (formerly Gatton Volt
Computing Group Limited) United Kingdom
Gatton Computastaff (UK) Limited (7) United Kingdom
Gatton Volt Consulting Group Limited (7) United Kingdom
Gatton Volt Computastaff Limited (7) United Kingdom
Gatton Computing Group Trustees Limited (7) United Kingdom
Gatton Synthesis Limited (7) United Kingdom
Gatton Administration Services Limited (7) United Kingdom
Gatton Computer Services GmbH (7) Germany
Gatton Computer Services BV (7) Netherlands
westVista Advertising Services of Texas, LLC (8) Texas
</TABLE>
- ------------------------------------------------------------------
(1) - Except as noted, each named subsidiary is wholly owned, directly or
indirectly, by Volt Information Sciences, Inc., except that in the case of
certain foreign subsidiaries, qualifying shares may be registered in the name of
directors and/or other Volt subsidiaries.
(2) - 60% owned subsidiary.
(3) - 75% owned subsidiary.
(4) - 80% owned subsidiary.
(5) - 59% owned subsidiary.
(6) - Wholly owned by Autologic Information International, Inc.
(7) - Wholly owned by Volt Europe Limited.
(8) - 50% owned joint venture.
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to 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
December 15, 1999, with respect to the consolidated financial statements and
schedule of Volt Information Sciences, Inc. and subsidiaries included in the
Form 10K for the year ended October 29, 1999.
Ernst & Young LLP
New York, New York
January 25, 2000
EXHIBIT 23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-29-1999
<PERIOD-END> OCT-29-1999
<CASH> 32,402
<SECURITIES> 2,609
<RECEIVABLES> 372,402
<ALLOWANCES> 7,941
<INVENTORY> 61,116
<CURRENT-ASSETS> 477,047
<PP&E> 134,105
<DEPRECIATION> 55,937
<TOTAL-ASSETS> 618,329
<CURRENT-LIABILITIES> 325,346
<BONDS> 45,728
0
0
<COMMON> 1,503
<OTHER-SE> 228,493
<TOTAL-LIABILITY-AND-EQUITY> 618,329
<SALES> 72,461
<TOTAL-REVENUES> 2,141,145
<CGS> 44,744
<TOTAL-COSTS> 1,979,894
<OTHER-EXPENSES> 106,761
<LOSS-PROVISION> 5,548
<INTEREST-EXPENSE> 8,326
<INCOME-PRETAX> 44,665
<INCOME-TAX> 17,890
<INCOME-CONTINUING> 28,959
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,959
<EPS-BASIC> 1.93
<EPS-DILUTED> 1.91
</TABLE>
