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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
November 3, 2000
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.)
560 Lexington Avenue, New York, New York 10022
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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:
Title of each class Name of each exchange on which registered
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Common Stock, $.10 par value New York Stock Exchange, Inc.
- ---------------------------------- -----------------------------
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 |_|
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. |_|
The aggregate market value of the common stock held by non-affiliates of the
Registrant as of January 12, 2001 (based on the closing price on the New York
Stock Exchange on that date) was approximately $166 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, without conceding that all such persons or plans are "affiliates" of the
Registrant).
The number of shares of common stock outstanding as of January 12, 2001 was
15,209,365.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 2001 Annual Meeting are
incorporated by reference into Part III of this Report.
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, Volt has five operating segments:
o 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, referred employee management services, employment
outsourcing services, employee leasing services and Information Technology
("IT") services, to a wide range of customers.
o 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, licenses 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 design, engineering, outside plant construction,
system installation, maintenance and removals and distribution of
telecommunications products to the outside plants and central offices of
telecommunications and cable companies and within their customers'
premises and for large corporations requiring telecommunications services.
(4) Computer Systems - This segment provides directory assistance
outsourcing services, both traditional and enhanced, to wireline and
wireless telecommunications companies; provides directory assistance
content to internet sites; 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.
o PREPRESS PUBLISHING SYSTEMS
(5) Electronic Publication and Typesetting Systems - This segment, through
Autologic Information International, Inc., the Company's 59% owned
publicly-held subsidiary and its subsidiaries (collectively, "aii"),
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.
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 November 3, 2000, 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
November October October
3, 2000 29, 1999 30, 1998
----------- ----------- -----------
(Dollars in thousands)
NET SALES
Staffing Services:
Traditional Staffing $ 1,379,110 $ 1,215,630 $ 1,032,849
Managed Services 724,632 771,541 429,655
----------- ----------- -----------
Total gross sales 2,103,742 1,987,171 1,462,504
Less Non-recourse Managed Services (433,212) (285,197) (154,280)
Intersegment sales 11,285 5,323 5,953
----------- ----------- -----------
1,681,815 1,707,297 1,314,177
----------- ----------- -----------
Telephone Directory:
Sales to unaffiliated customers 97,499 98,128 92,456
Intersegment sales 243 221 1,842
----------- ----------- -----------
97,742 98,349 94,298
----------- ----------- -----------
Telecommunications Services:
Sales to unaffiliated customers 292,680 185,263 166,383
Intersegment sales 3,433 2,444 2,373
----------- ----------- -----------
296,113 187,707 168,756
----------- ----------- -----------
Computer Systems:
Sales to unaffiliated customers 59,555 83,320 54,312
Intersegment sales 3,544 617 142
----------- ----------- -----------
63,099 83,937 54,454
----------- ----------- -----------
Electronic Publication and Typesetting Systems:
Sales to unaffiliated customers 80,916 72,460 87,220
Intersegment sales 100 197 396
----------- ----------- -----------
81,016 72,657 87,616
----------- ----------- -----------
Elimination of intersegment sales (18,605) (8,802) (10,706)
----------- ----------- -----------
Total net sales $ 2,201,180 $ 2,141,145 $ 1,708,595
=========== =========== ===========
SEGMENT PROFIT (LOSS)
Staffing Services $ 55,543 $ 43,824 $ 33,481
Telephone Directory (3,244) 7,342 5,121
Telecommunications Services 19,783 14,122 11,868
Computer Systems 4,741 3,203 (2,169)
Electronic Publication and Typesetting Systems (416) (5,155) 3,119
----------- ----------- -----------
Total segment profit 76,407 63,336 51,420
General corporate expenses (15,939) (13,674) (12,106)
----------- ----------- -----------
TOTAL OPERATING PROFIT 60,468 49,662 39,314
Interest and other income - net 540 2,000 2,116
Gain on sale of joint venture 2,049 500
Interest expense (10,489) (8,326) (5,712)
Foreign exchange gain (loss) - net 358 (720) (391)
----------- ----------- -----------
Income before income taxes and minority interests $ 50,877 $ 44,665 $ 35,827
=========== =========== ===========
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VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
OPERATING SEGMENT DATA--Continued
November October October
3, 2000 29, 1999 30, 1998
-------- -------- --------
(Dollars in thousands)
IDENTIFIABLE ASSETS
Staffing Services $359,903 $300,852 $209,355
Telephone Directory 80,852 83,427 70,638
Telecommunications Services 150,248 99,070 62,480
Computer Systems 29,083 32,050 32,748
Electronic Publication and Typesetting Systems 44,795 46,768 53,476
-------- -------- --------
664,881 562,167 428,697
Cash, investments and other corporate assets 79,947 56,162 40,629
-------- -------- --------
Total assets $744,828 $618,329 $469,326
======== ======== ========
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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:
o general economic, competitive and other business conditions, including the
effects of any downturn in the U.S. economy
o continued financial strength of the Company's customers, some of which
have announced unfavorable financial results and lowered financial
expectations for the near term
o 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
o material changes in demand from larger customers, including those with
which the Company has national contracts
o the effect of litigation by temporary employees against temporary help
companies and the customers with whom they do business
o any decrease in the rate of unemployment and higher wages sought by
temporary workers, especially those in certain technical fields
particularly characterized by labor shortages, which could affect the
Company's ability to meet its customers' demands and the Company's profit
margins
o changes in customer attitudes toward use of outsourcing and temporary
personnel
o the Company's ability to recruit qualified employees to satisfy customer
requirements for the Company's staffing services
o the Company's ability to meet competition in its highly competitive
markets with minimal impact on margins
o intense price competition and pressure on margins
o the Company's ability to maintain superior technological capability
o 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
o the Company's performance on contracts
o the Company's ability to achieve customer acceptance of its products and
systems in markets characterized by rapidly changing technology and
frequent new product introductions
o risks inherent in new product introductions, such as start-up delays, cost
overruns and uncertainty of customer acceptance
o the timing of customer acceptances of systems
o the Company's dependence on third parties for some product components
o changes in laws, regulations and government policies
o the degree and effects of inclement weather
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o the Company's ability to attract and retain certain classifications of
technologically qualified personnel for its own use, particularly in the
areas of research and development and customer service
These and certain other factors are discussed in this Report for the fiscal year
ended November 3, 2000, 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 341 branch and on-site offices
on client premises located throughout the United States, Canada, Puerto Rico and
Europe, a broad range of employee staffing services to a wide range of
customers. Offerings include administrative, light industrial and financial,
technical personnel placement, and other alternative staffing services,
employment and direct hire personnel placement services, referred employee
management 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.
Staffing services, including the managed staffing programs provided by this
segment, are generally identified and marketed throughout the United States and
Puerto Rico as "Volt Services Group," throughout Europe as "Volt Europe" and
throughout Canada as "Volt Human Resources". The segment's professional employer
services are identified and marketed in the United States under the name "Shaw &
Shaw." The segment also performs a wide range of IT services in the form of
project based work in which the Company assumes greater responsibility for the
finished product than in the traditional temporary staffing relationship,
including software testing and software development, systems development,
consulting, maintenance and technical support services; these services are
generally identified and marketed throughout the United States under the name
"VMC Consulting" and in the United Kingdom and continental Europe under the name
"Volt Europe Solutions".
Volt Services Group/Volt Europe/Volt Human Resources
Volt Services Group, Volt Europe and Volt Human Resources (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
referred employee management services and outsourcing services, as well as
assuming full responsibility for staffing, supervision and the management
of discrete projects which are staffed by Volt managers and supervisors
and temporary workers.
The Staffing Services Group also 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
regular 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. In addition, the Staffing
Services Group provides management personnel to coordinate and/or manage
special projects and to supervise temporary employees.
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
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and technical support services, contract engineering services and
temporary help in administrative, clerical, office automation, accounting,
bookkeeping and other financial classifications, call center, 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. In
addition to traditional alternative staffing, many of Volt's larger
customers, particularly those with national agreements, have contracted
for managed services programs under which Volt, in addition to itself
providing staffing services, performs various administrative functions,
which include centralized and coordinated order processing and procurement
of other qualified staffing providers, referred to as "Associate Vendors"
both for service in remote areas, as well as supplying secondary source
back-up recruiting. Other features of such programs include a customized
and consolidated billing to the customer for all of Volt's and associate
vendors' services, and detailed management reports on staffing usage and
costs. Some managed services programs are often tailored to the customer's
unique needs for ultimate single source consolidated billing, reporting
and payment. In most cases, Volt is expected to pay the associate vendors
only after Volt receives payment from its customer. 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 usually competes with
other major temporary staffing firms for these contracts. 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. Such contracts 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. In
December 2000, the Company introduced its ProcureStaff subsidiary, which
will provide one form of managed services by means of a web based, vendor
neutral, procurement and management solution for alternative staffing. At
the core of the ProcureStaff model is a business-to-business e-commerce
procurement application, streamlining client and vendor functions with
increased efficiencies while significantly reducing costs.
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 and engineering industries, as well as to government
agencies and universities. 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.
Volt Services Group maintains computerized nationwide resume databases,
containing resumes of computer professionals, engineers and other
technical, professional and scientific candidates, from which
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it fills customer job requirements. Volt Europe 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 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 some users of temporary
services, including some customers of the Company, by certain temporary
employees assigned to the customers, and a few have been threatened or
commenced against providers of temporary services, in one instance against
the Company and other temporary agencies. In general, these lawsuits claim
that certain 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. provides 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 payroll administration, human resource management, legal and
regulatory compliance, comprehensive benefits, including retirement plans,
workers' compensation insurance, loss control and risk management. Shaw &
Shaw utilizes the purchasing power of the Company, and thus provides its
clients with a competitive benefits package including workers'
compensation, relieving its clients 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 high technology
companies, retail, convenience markets, country clubs, building
contractors, petroleum, manufacturing, grocery, maintenance, janitorial
and banking. Sales generated by Shaw & Shaw in fiscal 2000 represented
1.5% of the Staffing Services segment's total sales.
VMC Consulting/Volt Europe Solutions
VMC Consulting Corporation ("VMC"), based in Redmond, Washington and Volt
Europe Solutions, based in Redhill, England, provide customized software
consulting services and information
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technology solutions to organizations worldwide. They offer a
comprehensive range of IT consulting services, mainly project based work
and technical support, in which the Company assumes greater responsibility
for the finished product than in the traditional temporary staffing
relationship. The organization's services include software testing and
software development, systems development, consulting, maintenance and
technical support services; web development and testing, information
technology services, and technical communications. State-of-the-art
technology solutions are delivered to clients on a project basis, either
in Volt's premises or at the client's location. In November 2000, Volt
Integrated Solutions Group began offering similar type project services
based in Colorado.
During the week ended November 3, 2000, the entire segment provided
approximately 32,000 employees and 5,000 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.
As indicated above, the Company has increased the number of its offices that
also offer more project-oriented services to its customers.
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. 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. As the segment increases the amount of project-oriented work it
performs for customers, the risks of unsuccessful performance, including claims
by customers, uncompensated rework and other liabilities increase. While the
Company believes that it will successfully implement these project-based
contracts, there can be no assurance that the Company will be able to do so, nor
that it can continue to obtain such contracts on a satisfactory basis or
continue delivering quality results that satisfy its 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.
Telephone Directory Segment
Volt's Telephone Directory segment publishes independent telephone directories;
provides telephone directory production, commercial printing, database
management, sales and marketing services, licenses 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 has transitioned from a
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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.
DataNational
DataNational, Volt's independent telephone directory publisher,
principally publishes 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, as well as other independent telephone directory companies,
which compete on the local level. Advertisers are attracted to
DataNational's community directory because it enables them to specifically
target their local markets at a much lower cost.
During fiscal year 2000, DataNational had significantly higher
expenditures for various strategic investments in new and existing markets
and a restructuring of the division, designed to increase future
advertising revenue and enhance the long-term value and profits of its
independent yellow page publishing business. The investments and
restructuring were the principal reason that the Telephone Directory
segment sustained an operating loss of $3.2 million in fiscal 2000
compared to an operating profit of $7.3 million in fiscal 1999.
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 2000, the division published 128
community, county and regional directories.
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.
Directory Systems/Services also publishes The National Toll-Free Directory
Shoppers Guide and The National Toll-Free Business Buyers Guide, which
provide toll-free numbers for consumers and businesses, respectively.
A substantial portion of its business is obtained through submission of
competitive proposals for contracts. These short and long-term contracts
are re-bid after expiration. One contract expired in
-10-
2000, while other contracts are scheduled to expire through 2005. 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 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 one
of the most advanced printing facilities in South America, which includes
a high speed, four color, heat set printing press that is used to print
its own telephone directories. It also prints directories for other
publishers in Argentina, Brazil and other South American countries and
does commercial printing, including daily and weekly newspapers and
magazines and periodicals for various customers in Uruguay and elsewhere
in South and Central America.
Volt VIEWtech
Volt VIEWtech services the energy and water utility industry, providing
energy and water conservation based customer service. VIEWtech is one of
the oldest and most experienced lenders and servicers for the Fannie Mae
Energy Loan program, which provides low interest and energy efficient home
improvement financing under major utility and EPA Energy Star sponsorship.
These loans are immediately resold, after closing, to Fannie Mae. VIEWtech
was the first outsourcing company to join the Environmental Protection
Agency's Star Billing Program, which prescribes innovative designs in
utility bill presentation and is developing a web-enabled billing system.
VIEWtech also contracts with major energy utilities for HomeVIEW(TM) and
WaterVIEW(TM) internet-based customer services, which provide energy and
water usage and energy-related home improvement payback analysis.
Volt's ability to compete in its Telephone Directory segment depends on 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 services will be competitive,
that the segment will continue to develop new services or that present services
or new service will continue to be successfully marketed.
Telecommunications Services Segment
Volt's Telecommunications Services segment provides telecommunications and other
services, including design, engineering, outside plant construction,
installation, and maintenance, removals and distribution of
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telecommunications products to the outside plants and central offices of
telecommunications and cable companies, and within end user premises. This
segment consists of Volt Telecommunications Group, Voltelcon and the Advanced
Technology Services ("ATS") divisions.
This segment is an international, full-service provider of turnkey solutions to
the telecommunications, cable and related industries, as well as for large
corporations. Volt provides services, including:
The Construction services include both aerial and underground construction
services, using their own vehicles and equipment, including jack and bore,
directional boring, excavation for conduit and manhole systems, cable
replacement 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. Because much of
the business is performed outdoors, operations have been, and could in the
future, be adversely affected by the weather conditions.
The Engineering services include feasibility studies, 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, program
management, air pressure design and record verification.
The Business Systems Integration services include structured cabling and
wiring services and field installation and repair services, involving the
design, engineering, installation and management of many types of local
and wide area networks, via copper and fiber, for voice, data and video,
including installation and maintenance services, to operating telephone
companies, long distance carriers and telecommunications equipment
manufacturers, and distribution and resale of telecommunications
equipment.
The Central Office services include central office engineering,
furnishings, 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, and
miscellaneous services, such as grounding surveys and asset management.
The Wireless services include partial or complete turnkey services to
cellular and Personal Communication Services (PCS) license holders to
establish or enhance their network infrastructure, including design,
engineering and construction/installation services to the fixed and mobile
wireless industry, including site selection, RF engineering, tower
erection, antenna installation and inside cabling and wiring services. In
performing these services, the segment employs the latest technologies,
such as GPS mapping of facilities.
Telecommunications Management Services in the eastern part of the United
States and ATS in the western part, perform internal recruiting and
staffing services for the segment, as well as the recruiting, screening
and placing of telecom personnel for Volt's portfolio of customers.
Volt also installs digital subscriber lines and accommodates clients in the
telecommunications industry who require a full range of services from multiple
Volt business segments, such as human resources, systems analysis, network
integration, software development and turnkey applications.
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 (global solutions) programs which require a single
point of contact and uniform quality.
-12-
The segment performs these services on a project and/or contract personnel
placement basis in the outside plant and central office, and within end-user
premises. Customers include telephone operating companies, interexchange
carriers, long distance carriers, local exchange carriers, wireless carriers,
telecommunications equipment manufacturers, cable television, electric, gas,
water and water-services utilities, federal, state and municipal government
units and private industry, some of which are fortune 500 companies. During
fiscal year 2000, the Company began offering some of these services in Europe
though wholly owned European subsidiaries.
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 portion of Volt's business in this segment is obtained through submission of
competitive proposals for contracts that typically expire within one to three
years and are then re-bid. 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.
VoltDelta
VoltDelta markets information services solutions to telephone companies
and interexchange carriers worldwide. VoltDelta is transitioning its
business from the sale of systems to an Application Service Provider
("ASP") model. VoltDelta now provides information services, including
infrastructure and database content. 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 ASP service,
charging a fee per transaction. One such service is marketed as
DirectoryExpress, with VoltDelta 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
("RBOCs") and other independent sources. In addition, VoltDelta continues
to provide customers with new systems, enhancements to existing systems,
equipment and software.
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 160 million United States and Canadian business, residential and
government listings. For consumers (the end-users), especially cellular
and PCS users, InfoExpress provides a more convenient and efficient level
-13-
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. VoltDelta's ASP services, are being delivered to
live operators over Wireless Access Protocol (WAP), via the Internet and
more recently, through voice portals using speech recognition.
VoltDelta has service agreements with major telecommunication carriers,
including RBOCs, in the domestic United States. Similar services are also
provided to major telecommunication providers in the United Kingdom,
Belgium, Holland and Italy, through its wholly-owned European subsidiary,
VoltDelta Europe.
Although VoltDelta has been successful during fiscal year 2000 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 these
services to additional customers, nor that the customer's volume of
transactions will be at a level sufficient to enable the segment to
maintain profitability.
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 license 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 managed system and network services to four principal
markets: Telecommunications, Banking & Brokerage, Research & Development,
and Aerospace. Maintech's service portfolio includes LAN/WAN design,
installation and support; System & Network Monitoring and Management
Services - Network Operations Center (NOC); Technology Refresh Programs;
Application Hosting; and Hardware Maintenance Services. Maintech provides
these services on a 24 x 7 x 365 basis, with on-site or two-hour response,
across the United States.
LAN/WAN and NOC services are directed from Maintech's NOCs in Orange,
California and Warren, New Jersey. Both NOCs are staffed with network
design and support engineers holding certifications from Cisco, Nortel,
Novell, Intel and other network product manufacturers. The NOCs employ
state-of-the-art diagnostic, monitoring and management software, including
HP Open View, Nortel Optivity, Compaq Insight Manager, Cisco Works 2000
and Concord, among others.
Technology Refresh, Hardware Maintenance and Application Hosting programs
are directed from Maintech's headquarters in Wallington, New Jersey.
Hardware Maintenance is Maintech's core competency around which all other
services have evolved. Maintech's business focus for Hardware Maintenance
and Technology Refresh is clients with mission critical, enterprise-wide
PC/UNIX-based server opportunities. Typical Hardware Maintenance
opportunities include Wall Street trading desks, electronic funds transfer
systems, and microchip design laboratories. Maintech's largest Technology
Refresh contract encompasses complete desktop upgrades for more than
32,000 users at five sites across the U.S.
Maintech's latest service offering is Application Hosting. Its Wallington
facility meets the toughest industry standards for site security and
survivability including natural gas-fired electric generator, 24
-14-
hour battery back up, multi-vendor long distance carriers, and remote
environmental and security monitoring. In addition to hosting VoltDelta's
ASP applications, Maintech also hosts applications and provides system and
network support for several Research and Development clients.
Maintech is responsible for the IT support of the more than 3,500 user
Volt internal corporate WAN, including design, installation and support.
Support services include Help Desk, E-Mail, Internet/Intranet services,
system and network administration and security, and NOC services. In
addition to Volt corporate and VoltDelta, Maintech also provides its full
range of IT services to other Volt operating units.
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 2000, while others were renewed and
new contracts were awarded to the Company. Other contracts are scheduled to
expire in 2001 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 publicly-held subsidiary, Autologic
Information International, Inc., and its subsidiaries ("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.
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 imager. aii also manufactures and sells 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. During fiscal year 2000,
aii completed development and began shipments of a new data storage product to
OEM customers.
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. Its customers include publishers of newspapers, telephone directories,
magazines, books, directories, catalogues, yearbooks, print advertising, checks,
and other quality graphic art printed products. To
-15-
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 $31.1 million in
fiscal 2000, $26.3 million in fiscal 1999 and $33.4 million in fiscal 1998.
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, aii was
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. 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 be able to attain and maintain 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 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. During fiscal 2000, the joint venture acquired seven
directories in the northwestern part of the United States, with a total
contribution by Volt of $2.6 million to the joint venture. As of November 3,
2000, the joint venture published a total of thirteen directories. Additional
acquisitions by the joint venture have been curtailed.
-16-
For further information concerning the Company's operations and joint ventures,
see Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7 of this Report.
Research, Development and Engineering
During fiscal years 2000, 1999 and 1998, the Company expended approximately $9.7
million, $11.3 million and $11.1 million, respectively, on research, development
and engineering, substantially all of which is Company sponsored. The major
portion of research and development expenditures was incurred by the Electronic
Publication and Typesetting Systems and the Computer Systems segments. The
decrease in fiscal 2000 was primarily due to a decrease in product and
development in the Electronic Publication and Typesetting segment as new
products were completed and introduced to customers.
Intellectual Property
"Volt" is a registered trademark of the Company under a number of registrations.
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
There were no customers with sales that represented over 10% of the Company's
consolidated sales in fiscal 2000, however, one customer represented 14% of the
Company's consolidated sales in fiscal 1999. In fiscal 2000, the Staffing
Services segment's sales to three customers, including substantial associate
vendor pass-through sales, each represented approximately 11% of the total sales
of that segment; the Telecommunications Services segment's sales to five
customers represented approximately 19%, 18%, 18%, 12% and 11%, respectively of
the total sales of that segment; and the Computer Systems segment's sales to two
customers represented approximately 25% and 10%, respectively of the total sales
of that segment. In the event that there was a loss of one or more of these
customers, and unless the business is replaced by the 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.
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 the Telephone
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 publishing 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 the first part of the fiscal year
2000 were further impacted by concerns about Year 2000 issues.
-17-
Employees
During the week ended November 3, 2000, Volt employed approximately 40,000
persons, including approximately 32,000 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 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 sell certain 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 in Item 7 of this Report.
-18-
ITEM 2. PROPERTIES
The Company occupies a 38,000 square foot space at 560 Lexington Avenue, New
York, New York, under a lease which expires in 2007. The facility serves as the
Corporate headquarters, the headquarters for the Company's Computer Systems
segment and 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:
Sq. Ft.
Leased If Leased,
Or Year of Lease
Location Business Segment Owned Expiration
- -------- ---------------- ----- ----------
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 2003
Georgia Typesetting Systems
Staffing Services
Telecommunications Services
Indianapolis, Telephone Directory 16,000 2003
Indiana Technical Services and
Temporary Personnel
Westbury, Corporate MIS 12,000 2004
New York
Wallington, Computer Systems 32,000 2003
New Jersey
-19-
ITEM 2. PROPERTIES--Continued
Sq. Ft.
Leased If Leased,
Or Year of Lease
Location Business Segment Owned Expiration
- -------- ---------------- ----- ----------
Blue Bell, Telephone Directory 52,000 2001
Pennsylvania
Montevideo, Telephone Directory 96,000 2001
Uruguay
Chantilly, Telephone Directory 11,000 2005
Virginia Computer Systems
Staffing Services
Redmond, Staffing Services 46,000 2010
Washington
Edison, Telecommunications Services 42,000 2005
New Jersey
Sunbury on Thames, Computer Systems 14,000 2007
England
Redhill, Staffing Services 12,000 2011
England
* 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 2001 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.
-20-
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Executive Officers
WILLIAM SHAW, 76, 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, 74, 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.
JAMES J. GROBERG, 72, 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, 41, has been a Senior Vice President of the Company since
November 2000 and a Vice President of the Company since April 1997 and has been
employed by the Company in various capacities since November 1995.
HOWARD B. WEINREICH, 58, has been General Counsel and Vice President of the
Company since September 1985 and has been employed in executive capacities by
the Company since 1981.
JACK EGAN, 51, 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, 52, has been Vice President - Accounting Operations since
January 1992 and has been employed in executive capacities by the Company since
1986.
LUDWIG M. GUARINO, 49, has been Treasurer of the Company since January 1994 and
has been employed in executive capacities by the Company since 1976.
NORMA J. KRAUS, 69, has been Vice President - Human Resources since March 1987
and has been employed in executive capacities by the Company since 1979.
William Shaw and Jerome Shaw are brothers. Steven A. Shaw is the son of Jerome
Shaw. Bruce G. Goodman, a director of the Company, is the son-in-law of William
Shaw. There are no other family relationships among the executive officers or
directors of the Company.
-21-
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:
2000 1999
------------------------ --------------------------
Fiscal Period High Low High Low
- ------------- -------- ------- ------- ---------
First Quarter $27-7/16 $18-7/8 $26-1/2 $21-1/4
Second Quarter 39-7/8 23-1/2 24-3/4 15-1/2
Third Quarter 38-1/8 28-7/8 24-1/2 16-13/16
Fourth Quarter 36-5/8 19-1/4 26-7/8 19-3/8
The approximate number of record holders of the Company's common stock at
January 12, 2000 was 458.
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 $170.3 million, increasing by 50% of
consolidated net income for each completed fiscal year after 2000 (see Note E of
Notes to Consolidated Financial Statements). Therefore, the amount available for
dividends at November 3, 2000 was $93.0 million.
On January 13, 2000, the Company contributed 24,939 shares of its common stock
to its Employee Stock Ownership Plan and Trust ("ESOP") as its contribution to
that Plan for the fiscal year ended October 29, 1999. The shares contributed
were valued at $22-3/8, their market value on that date. The Company believes
the exemption from registration afforded by Section 2(3) is available to this
contribution. The plan covers all eligible employees of the Company who have
completed one year of service for a participating employer. Employees make no
contributions. The plan was merged with the Company's Savings Plan during fiscal
2000.
-22-
ITEM 6. SELECTED FINANCIAL DATA
Year Ended (Notes 1 and 3)
---------------------------------------------------------------------------
November October October October November
3, 2000 29, 1999 30, 1998 31, 1997 1, 1996
------------ ------------ ------------ ------------ ------------
(Dollars in thousands, except per share data)
Net Sales $ 2,201,180 $ 2,141,145 $ 1,708,595 $ 1,401,473 $ 1,048,558
============ ============ ============ ============ ============
Income before extraordinary item $30,705 $ 28,959(A) $ 20,903(A) $ 39,850(B) $ 22,435(C)
Extraordinary item - loss on redemption of debt,
net of income taxes--Note 2 (87)
------------ ------------ ------------ ------------ ------------
Net income $ 30,705 $ 28,959 $ 20,903 $ 39,850 $ 22,348
============ ============ ============ ============ ============
Per Share Data
Basic:
Income before extraordinary item $ 2.03 $ 1.93 $ 1.40 $ 2.71 $ 1.54
============ ============ ============ ============ ============
Weighted average number of shares 15,139,483 15,023,046 14,917,846 14,707,055 14,527,157
============ ============ ============ ============ ============
Diluted:
Income before extraordinary item $ 2.00 $ 1.91 $ 1.37 $ 2.62 $ 1.52
============ ============ ============ ============ ============
Weighted average number of shares 15,315,957 15,152,612 15,253,665 15,182,240 14,799,665
============ ============ ============ ============ ============
Total assets $ 744,828 $ 618,329 $ 469,326 $ 418,722 $ 337,144
Long-term debt, net of current portion $ 32,297 $ 45,728 $ 54,048 $ 55,447 $ 57,395
Note 1--Fiscal years 1996 through 1999 were comprised of 52 weeks, while fiscal
year 2000 was comprised of 53 weeks.
Note 2--The fiscal year 1996 extraordinary loss was due to the early redemption
($22.9 million) of debentures.
Note 3--Cash dividends have not been paid during the five-year period ended
November 3, 2000.
(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 fiscal years 1998 and 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 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.
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.
-23-
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 2000 (53 weeks) Compared to Fiscal Year 1999 (52 weeks)
Results of Operations - Summary
Net sales in fiscal 2000 increased by $60.0 million, or 3%, to $2.2 billion in
fiscal 2000. The increase resulted primarily from an increase in sales to
unaffiliated customers by the Telecommunications Services segment of $107.4
million and by the Electronic Publication and Typesetting Systems segment of
$8.5 million, which were partially offset by decreases in sales for the other
three segments.
The Company's income before taxes and minority interests increased by $6.2
million, or 14%, to $50.9 million in fiscal 2000. The operating profit of the
Company's segments increased by $13.1 million, or 21%, to $76.4 million in
fiscal 2000. While the Staffing Services segment, the Telecommunications
Services segment, and the Computer Systems segment increased their operating
profits and the Electronic Publication and Typesetting Systems segment reduced
its operating loss, an operating loss in the Telephone Directory segment
partially offset these improvements.
Consolidated fiscal 1999 results included recognition of a previously deferred
gain on the sale of a joint venture of $2.0 million (see Note G of Notes to
Consolidated Financial Statements of this Report).
Net income in fiscal 2000 was $30.7 million, compared to net income of $29.0
million in fiscal 1999.
Results of Operations - Segments
Sales of the Staffing Services segment decreased by $25.5 million, or 1%, while
its operating profit increased by $11.7 million, or 27%, to $55.5 million,
compared with $43.8 million in fiscal 1999. The sales decrease was caused by a
reduction in Managed Services revenue of $194.9 million, or 40%, due primarily
to an increase in the number of associate vendors who have agreed to be paid
subject to the receipt of the customers' payment to the Company, resulting in
the amounts associated with such revenue being excluded from sales, as well as a
reduction in the use of associate vendors by one of the Company's largest
Managed Services clients. These revenue decreases were offset, in part, by an
increase in sales of $169.4 million, or 14%, in traditional staffing business.
Operating margins rose from 2.6% to 3.3% for the entire segment and from 3.6% to
4.0% excluding Managed Services revenue. An increased mix of higher margin
recruited business in both the Technical and Commercial divisions of the segment
and strong growth in permanent placements contributed to higher margins and
higher operating profit for this segment. 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
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Continued
Fiscal Year 2000 Compared to Fiscal Year 1999--Continued
Results of Operations-Segments--Continued
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 decreased by $0.6 million, or 1%, to
$97.7 million in fiscal 2000. It incurred an operating loss of $3.2 million in
fiscal 2000, compared with an operating profit of $7.3 million in fiscal 1999.
The sales decrease was primarily due to decreases in the segment's Viewtech
division sales of $2.8 million, telephone production sales of $1.9 million and
printing sales in Uruguay of $1.1 million, substantially offset by an increase
in independent directory publishing sales of $5.0 million, which included the
publication of the segment's toll-free directory. The operating loss was the
result of significantly higher expenditures for various strategic investments in
new and existing markets and a restructuring of the segment designed to increase
future advertising revenue and enhance the long-term value and profits of its
independent yellow page publishing business. Additionally, the segment's
decreased sales and a charge of $0.8 million for a Viewtech customer receivable
deemed uncollectable due to a bankruptcy filing added to the operating loss.
While the Company believes that investments made and initiatives implemented
should enable the segment to return to historical profit levels, there can be no
assurances that this segment will return to profitability in the near term.
The Telecommunications Services segment's sales increased by $108.4 million, or
58%, to $296.1 million in fiscal 2000 compared to $187.7 million in fiscal 1999
and its operating profit increased by $5.7 million, or 40%, to $19.8 million in
fiscal 2000 compared to $14.1 million in fiscal 1999. All of the segment's
divisions reported significant increases in sales as a result of increased
revenues from long-haul fiber optic projects and cross-connect box projects, as
well as additional increased business from several major customers. The increase
in operating profit was the result of the increase in sales and a decrease in
overhead of 3.2 percentage points partially offset by a decrease in gross
margins of 4.4 percentage points, primarily due to amounts recorded for cost
overruns on one of the Business Systems division's projects, a settlement of
differences on "out-of-scope" billing on a project with another customer, the
completion of certain low-margin government contract work and integration costs
for the Lucent Wired Services Division acquired in late December 1999. A
substantial portion of the business in these segments is obtained through the
submission of competitive proposals for contracts that typically expire within
one year and are re-bid. 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 assurances 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 decreased by $20.8 million, or 25%, to
$63.1 million in fiscal 2000 while its operating profit increased by 48%, to
$4.7 million from $3.2 million in fiscal 1999. The sales decrease was primarily
due to the recognition in fiscal 1999 of revenues related to a contract for an
operator services system in Holland, which was accounted for under the completed
contract method of accounting. Revenues for this contract were $25.9 million.
The decrease in revenue was partially offset, and the operating profit was
increased, in fiscal 2000 by an increase in customer utilization of the
segment's transaction-based
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Continued
Fiscal Year 2000 Compared to Fiscal Year 1999--Continued
Results of Operations - Segments--Continued
DirectoryExpress/InfoExpress systems, which outsource the segment's directory
database to telephone companies, as well as increased workstation and software
sales. 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 increased by
$8.4 million, or 12%, to $81.0 million in fiscal 2000 and its operating loss
decreased by $4.7 million, or 92%, to $0.4 million. The increase in sales
resulted from higher domestic and international sales of systems and equipment,
primarily due to sales of the segment's new data storage products to domestic
OEM customers and sales of the segment's new wide Computer-to-Plate imagers to
Latin American and European customers. The decrease in operating loss was due to
the increase in sales, an increase in service and support gross margins of 9.2
percentage points due to lower spare parts and warranty costs, partially offset
by a decrease in systems and equipment gross margins of 4.8 percentage points
due to higher manufacturing costs and price discounting in response to
competition. Operating expenses decreased by $1.4 million due to a reduction in
product development costs as new products were completed, staff reductions and
other cost-containment measures. Included in each year are amortization charges
of $2.1 million related to goodwill which will be fully amortized at the end of
the first quarter of fiscal 2001. The markets in which the segment competes are
marked by rapidly changing technology, with sales in fiscal years 2000 and 2001
of equipment introduced within the last three years prior to the applicable
fiscal year comprising approximately 94% and 85%, respectively, of equipment
sales. Although cost reductions are being realized, there can be no assurances
that the segment will return to profitability within the near term.
Results of Operations - Other
Total selling and administrative expenses increased by $17.0 million, or 22%, to
$93.2 million in fiscal 2000 to support the increased sales activities of the
Telecommunications Services segment, initiatives taken by the Telephone
Directory segment, and costs associated with a new accounting and back office
Enterprise Resource Planning (ERP) system. These expenses, expressed as a
percentage of sales, were 4.2% in fiscal 2000 and 3.6% in fiscal 1999. General
corporate expenses, included above, increased by 17% to $15.9 million in fiscal
2000.
Research, development and engineering expenses decreased by $1.6 million, or
14%, to $9.7 million in fiscal 2000. The decrease in fiscal 2000 was primarily
due to a reduction in product development in the Electronic Publication and
Typesetting Systems segment as new products were completed and introduced to
customers.
Depreciation and amortization increased by $1.2 million, or 5%, to $25.3
million. The increase was attributable to amortization of intangibles due to
acquisitions made during fiscal 1999 and commencement of depreciation of the new
ERP system during fiscal 2000. (Depreciation of the system was $1.1 million in
fiscal 2000 and is expected to be approximately $4.5 million in fiscal 2001.)
-26-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Continued
Fiscal Year 2000 Compared to Fiscal Year 1999--Continued
Results of Operations-Other --Continued
Interest income decreased by $0.2 million, or 13%, to $1.6 million in fiscal
2000, primarily due to a decrease in funds available for investment.
The other loss of $1.0 million in fiscal 2000 was primarily due to an increase
in a variety of expenses, including the Company's share in the start-up losses
of its new joint venture, westVista Advertising Services.
In fiscal 1999, the Company recognized $2.0 million of a previously deferred
gain on the sale in fiscal 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 Uruguayan division. During fiscal 1999,
the venture repaid substantially all of the balance of its obligations.
The foreign exchange gain in fiscal 2000 was $0.4 million, compared to a loss of
$0.7 million in fiscal 1999, as a result of favorable currency movements in the
European markets. To reduce the potential adverse impact from foreign currency
changes on the Company's foreign receivables, sales and firm commitments,
foreign currency options are purchased during and generally settled on the last
day of each quarter.
Interest expense increased by $2.2 million, or 26%, to $10.5 million in fiscal
2000. The increase is the result of higher borrowing under the Company's
revolving credit agreements to finance the December 1998 acquisition of Volt
Europe and to support the increased working capital requirements of the Company
due primarily to a higher level of accounts receivable and, to a lesser extent,
higher interest rates. The Company is working to reduce the average days
outstanding of its receivables, but it expects that until it completes this
process, assuming no reduction in interest rates, interest expense will be
higher in fiscal 2001 periods compared to fiscal 2000 periods.
The Company's effective tax rate was 41.4% in fiscal 2000 compared to 40.1% in
fiscal 1999. The lower effective tax rate in fiscal 1999 resulted from the
non-taxable gain on the sale of a Brazilian joint venture.
-27-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Continued
Fiscal Year 1999 (52 weeks) Compared to Fiscal Year 1998 (52 weeks)
Results of Operations - Summary
Net sales 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 and minority interests increased by
$8.8 million, or 25%, to $44.7 million in fiscal 1999. The operating profit of
the Company's segments increased by $11.9 million, or 23%, to $63.3 million in
fiscal 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 fiscal 1999 and $0.5 million in
fiscal 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 fiscal 1998.
Results of Operations - Segments
Sales of the Staffing Services segment increased by $393.1 million, or 30%, to
$1.7 billion in fiscal 1999 and the segment's operating profit increased by
$10.3 million, or 31%, to $43.8 million, compared with $33.5 million in fiscal
1998. Managed Service revenue increased by $211.0 million, or 77%, to $486.3
million in fiscal 1999 and traditional staffing revenue increased by $182.2
million, or 18%, to $1.2 billion. Approximately $77.3 million of the traditional
staffing revenue increase was generated by sales from a subsidiary acquired in
fiscal 1999. The increase in the segment's operating profit was due to the
increase in sales and included $2.6 million (net of $1.9 million of amortization
of goodwill) from the acquired business. As a percentage of sales, operating
margins increased from 2.5% to 2.6% for the entire segment and from 3.2% to 3.6%
excluding Managed Services revenue. 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 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 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
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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
to increased independent directory publishing sales of $18.9 million, which
included the 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.
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 in fiscal
1998, due to the expiration of two contracts, one in fiscal 1998 and the other
in fiscal 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 improve its gross margin by 0.7 percentage
points in fiscal 1999. Operating profit increased due to the increases in sales
and gross margin, partially offset by a 12% increase in overhead.
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 fiscal 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.
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 to 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 12% increase
in research, development and engineering expenditures due to higher costs
associated with the rollout 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.
-29-
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
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, the initial costs associated with the implementation of the
Company's accounting and back office ERP 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 fiscal 1999.
Research, development and engineering expenses increased to $11.3 million from
$11.1 million in fiscal 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 fiscal 1999 increase was primarily attributable to
amortization of intangibles, which resulted from acquisitions made in fiscal
years 1999 and 1998 (see Notes I and K of Notes to Consolidated Financial
Statements).
Interest income decreased by $0.6 million, 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 $0.5
million in fiscal 1998), which is the balance of a previously deferred gain on
the sale in fiscal 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
fiscal years 1998 and 1999, the venture repaid substantially all of its
obligations.
Other income increased to $0.2 million in fiscal 1999 compared to a loss of $0.4
million in fiscal 1998. In fiscal 1998, other income was reduced by $0.6 million
due to a non-recurring charge for professional fees in connection with a
terminated transaction.
The foreign exchange loss in fiscal 1999 was $0.7 million, compared to $0.4
million in fiscal 1998. The losses were due to unfavorable currency movements in
the European currency markets. To reduce the potential adverse impact from
foreign currency changes on the Company's foreign currency receivables, sales
and firm commitments, foreign currency options are purchased.
Interest expense increased by $2.6 million, or 46%, to $8.3 million in fiscal
1999. The increase is the result of the Company borrowing under its revolving
credit agreement to finance the acquisition of Volt Europe and to support the
increased working capital requirements of the Company, interest incurred by Volt
Europe 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.
-30-
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
The Company's effective tax rate was reduced to 40.1% in fiscal 1999 from 41.5%
in fiscal 1998. The lower effective tax rate in fiscal 1999 resulted from the
non-taxable gain on the sale of a Brazilian joint venture.
Liquidity and Capital Resources
Cash and cash equivalents increased by $1.7 million in fiscal 2000 to $34.1
million at the end of the fiscal year.
Cash of $22.8 million was used by operating activities in fiscal 2000. Among the
principal applications of cash in operating activities in fiscal 2000 was an
increase in the level of accounts receivable of $95.9 million due to an increase
in average days outstanding and increased sales with new and existing customers,
as well as an increase in inventories of $13.9 million and prepaid expenses and
other assets of $8.7 million. Primary among the factors providing cash flows to
operating activities in fiscal 2000 was the Company's net income of $30.7
million, augmented by $25.3 million of depreciation and amortization, increases
in accounts payable of $21.9 million primarily due to a fourth quarter increase
in the use of associate vendors by the Staffing Services segment to service
national accounts, an accounts receivable provision for bad debts of $7.6
million, an increase in accrued expenses of $6.4 million and an increase in
customer advances and other liabilities of $3.8 million.
The principal factors in cash applied to investing activities of $42.7 million
were the expenditure of $38.6 million for property, plant and equipment and $2.8
million for investment in a joint venture.
Financing activities provided $66.4 million of cash from the increase in bank
loans of $76.4 million borrowed principally to support the investing activities,
increased working capital requirements of the Company and for the payment of
long-term debt of $12.7 million.
At November 3, 2000, the Company had $157.4 million of credit lines with banks,
of which $72.5 million is under a revolving credit agreement ("Multi-year
Revolver") that expires in January 2002, and $72.5 million is under a 364-day
revolving credit agreement ("364-day Revolver") expiring in August 2001. The
Company had outstanding bank borrowings of $144.1 million at November 3, 2000
under these lines (see Note D in the Notes to Consolidated Financial
Statements). The Company expects that the two revolving credit agreements will
be renewed.
In addition, the Company maintains uncommitted credit facilities with banks. At
December 31, 2000, such facilities amounted to $30 million, with $15 million
scheduled to expire on March 31, 2001 and $15 million in December 2001.
The Company believes its current financial position, working capital, credit
lines and future cash flows will be sufficient to fund its presently
contemplated operations and satisfy its debt obligations. However, the Company
intends to seek additional financing to further its ability to expand its
business. However, there can be no assurance that the Company will be able to
obtain such financing or the terms of financing that may be available.
-31-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Continued
Liquidity and Capital Resources--Continued
The Company is currently in the process of installing a back office system that
will provide enhanced financial, accounting, human resources, customer and
management reporting. The cost incurred through November 3, 2000 for this new
ERP system, including the purchase and/or lease of software and hardware, three
years of support and the initial implementation phase, was $31.0 million, a
significant portion of which has been capitalized and is being amortized over a
five to seven year period. A significant portion of this amount has been
financed over a three to four year period by vendors (see Note E in the Notes to
Condensed Consolidated Financial Statements).
In fiscal 2000, the Company began development of a new internet-based Front End
System designed to improve efficiency and connectivity in the recruiting,
assignment, customer maintenance, and other functions in the branch offices of
the Staffing Services segment. The total costs to develop and install this
system is anticipated to be approximately $16 million, of which $1.7 million has
been incurred to date. The Company has no other material capital commitments.
The Effect of New Accounting Pronouncements
In June 1998, the FASB issued Statement No. 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 No.
137, which deferred the effective date of SFAS No. 133. The Company does not
expect that effects of adopting this new standard in fiscal 2001 will be
material.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
provides guidance on the recognition, presentation and disclosure of revenues in
financial statements and requires adoption no later than the fourth quarter of
fiscal 2001. The Company has evaluated the impact of SAB 101 and the
interpretations thereunder and determined that it will not have a material
effect on the Company's consolidated financial position and results of
operations.
-32-
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 $157.4 million. At November 3, 2000, the Company had borrowings
totaling $144.1 million outstanding under these agreements. The interest rates
on these borrowings are variable and therefore interest expense and interest
income are affected by the general level of U.S. and foreign interest rates.
Increases in interest expense resulting from an increase in interest rates could
impact the Company's results of operations. For example, a 1% increase in
prevailing interest rates could cause interest expense to increase by $1.1
million. The Company's policy is to take actions that would mitigate such risk
when appropriate.
In March 2000, the Company entered into a series of interest rate swap
agreements which effectively converted $40.0 million of its $46.0 million of
long-term debt, through maturity, from fixed to floating rate debt. Therefore,
interest expense on the debt was affected by the general level of interest
rates. In December 2000, the Company terminated the swap agreements. The fair
value of the agreements at termination of $498,000 was paid to the Company and
will reduce the interest expense over the remaining term the notes are
outstanding.
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
$3.7 million; $3.6 million of these investments are held for the benefit of
participants in a non-qualified deferred compensation plan with no risk to the
Company.
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 November 3, 2000, the
Company had purchased foreign currency options in the aggregate notional amount
of $5.5 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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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 November 3, 2000 and October 29, 1999, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended November 3, 2000. 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 November 3, 2000 and October 29,
1999, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended November 3, 2000, 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 20, 2000
-34-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November October
3, 2000 29, 1999
--------- ---------
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents--Note A $ 34,099 $ 32,402
Short-term investments--Notes A and B 3,570 2,609
Trade accounts receivable less allowances of $8,952 (2000) and
$7,941 (1999)--Schedule II 448,812 364,461
Inventories--Notes A and C 75,729 61,116
Deferred income taxes--Notes A and F and Schedule II 12,563 11,035
Prepaid expenses and other assets 17,689 9,585
--------- ---------
TOTAL CURRENT ASSETS 592,462 481,208
Investment in joint venture --Note G 3,788 1,297
Investment in securities--Notes A and B and Schedule II 86 162
Property, plant and equipment, net --Notes A, E and K 96,325 78,168
Deferred income taxes--Notes A and F 920
Deposits and other assets 7,399 6,104
Intangible assets-net of accumulated amortization of $25,133 (2000) and
$18,689 (1999)--Notes A and I 44,768 50,470
--------- ---------
TOTAL ASSETS $ 744,828 $ 618,329
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks--Notes D and E $ 144,054 $ 68,498
Current portion of long-term debt--Note E 13,699 12,654
Accounts payable 148,341 127,781
Accrued wages and commissions 54,702 49,210
Accrued taxes other than income taxes 16,373 16,048
Accrued interest and other accruals 17,330 17,568
Customer advances and other liabilities 25,241 22,441
Income taxes--Notes A and F 8,809 11,146
--------- ---------
TOTAL CURRENT LIABILITIES 428,549 325,346
Long term debt- -Note E 32,297 45,728
Deferred income taxes--Notes A and F 4,495
Minority interests 16,132 17,259
STOCKHOLDERS' EQUITY --Notes A, B, D, 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--
15,208,015 shares (2000) and 15,032,446 shares (1999) 1,521 1,503
Paid-in capital 40,862 37,696
Retained earnings 221,922 191,217
Accumulated other comprehensive loss (950) (420)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 263,355 229,996
--------- ---------
COMMITMENTS --Note O
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 744,828 $ 618,329
========= =========
See Notes to Consolidated Financial Statements.
-35-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED
--------------------------------------------------
November October October
3, 2000 29, 1999 30, 1998
------------ ------------ ------------
(Dollars in thousands, except per share data)
NET SALES:
Sales of services $ 2,120,265 $ 2,068,684 $ 1,621,375
Sales of products 80,915 72,461 87,220
------------ ------------ ------------
2,201,180 2,141,145 1,708,595
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales
Services 1,962,738 1,935,150 1,524,226
Products 49,735 44,744 51,145
Selling and administrative 93,242 76,201 62,066
Research, development and engineering 9,727 11,278 11,076
Depreciation and amortization 25,270 24,110 20,768
------------ ------------ ------------
2,140,712 2,091,483 1,669,281
------------ ------------ ------------
OPERATING PROFIT 60,468 49,662 39,314
OTHER INCOME (EXPENSE):
Interest income 1,587 1,821 2,469
Other (loss) income - net--Note G (1,047) 179 (353)
Gain on sale of joint venture --Note G 2,049 500
Foreign exchange gain (loss) - net 358 (720) (391)
Interest expense (10,489) (8,326) (5,712)
------------ ------------ ------------
Income before income taxes and minority interests 50,877 44,665 35,827
Income tax provision--Notes A and F (21,087) (17,890) (14,856)
Minority interests in net loss (income) of subsidiaries 915 2,184 (68)
------------ ------------ ------------
NET INCOME $ 30,705 $ 28,959 $ 20,903
============ ============ ============
Per Share Data
--------------------------------------------------
Basic:
Net income per share $ 2.03 $ 1.93 $ 1.40
============ ============ ============
Weighted average number of shares--Note H 15,139,483 15,023,046 14,917,846
============ ============ ============
Diluted:
Net income per share $ 2.00 $ 1.91 $ 1.37
============ ============ ============
Weighted average number of shares--Note H 15,315,957 15,152,612 15,253,665
============ ============ ============
See Notes to Consolidated Financial Statements.
-36-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated Other
Comprehensive Income
-------------------------
Unrealized
Common Stock Foreign Gain
$.10 Par Value Currency (Loss) On Comprehen-
----------------- Paid-In Retained Translation Marketable sive
Shares Amount Capital Earnings Adjustment Securities Income
------ ------- ------- -------- ---------- ---------- ----------
(Dollars in thousands)
Balance at October 31, 1997 14,883,143 $1,488 $34,894 $141,355 $(169)
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 55 $55
Unrealized gain on marketable securities -
net of taxes of $289 $450 450
Net income for the year 20,903 20,903
---------- ------ ------- -------- ----- ----- -------
Balance at October 30, 1998 15,006,164 1,501 37,127 162,258 (114) 450 $21,408
=======
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 52 $52
Unrealized gain on marketable securities -
net of taxes of $518 (808) (808)
Net income for the year 28,959 28,959
---------- ------ ------- -------- ----- ----- -------
Balance at October 29, 1999 15,032,446 1,503 37,696 191,217 (62) (358) $28,203
=======
Contribution to ESOP 24,939 2 556
Stock options exercised, including
related tax benefit of $1,035 150,630 16 2,610
Unrealized foreign currency
translation adjustment-net of taxes of $209 (488) $(488)
Unrealized loss on marketable securities -
net of taxes of $35 (42) (42)
Net income for the year 30,705 30,705
---------- ------ ------- -------- ----- ----- -------
Balance at November 3, 2000 15,208,015 $1,521 $40,862 $221,922 $(550) $(400) $30,175
========== ====== ======= ======== ===== ===== =======
There were no shares of preferred stock issued or outstanding in any of the
reported periods.
See Notes to Consolidated Financial Statements.
-37-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
--------------------------------------
November October October
3,2000 29, 1999 30, 1998
-------- -------- --------
CASH PROVIDED BY (APPLIED TO) OPERATING (Dollars in thousands)
ACTIVITIES
Net income $ 30,705 $ 28,959 $ 20,903
Adjustments to reconcile net income to cash
provided by (applied to) operating activities:
Depreciation and amortization 25,270 24,110 20,768
Equity in net loss of joint ventures 302 33
Gain on sale of joint ventures (2,049) (500)
Accounts receivable provisions 7,624 5,548 3,401
Minority interests (915) (2,184) 68
(Gain) loss on foreign currency translation (407) (267) 72
Loss on dispositions of property, plant and equipment 49 51 85
Deferred income tax expense (benefit) 4,130 (1,178) 1,352
Other 117 120 101
Changes in operating assets and liabilities:
Increase in accounts receivable (95,925) (73,480) (63,175)
Increase in inventories (13,921) (22,039) (3,686)
(Increase) decrease in prepaid expenses
and other current assets (8,731) (1,528) 3,723
(Increase) decrease in other assets (822) 773 (3,164)
Increase in accounts payable 21,908 29,374 29,917
Increase (decrease) in accrued expenses 6,410 14,220 (1,755)
Increase in customer advances
and other liabilities 3,766 794 2,568
(Decrease) increase in income taxes payable (2,338) 3,685 (3,927)
-------- -------- --------
NET CASH (APPLIED TO) PROVIDED BY
OPERATING ACTIVITIES (22,778) 4,942 6,751
-------- -------- --------
CASH (APPLIED TO) PROVIDED BY
INVESTING ACTIVITIES
Maturities of investments 319
Sales of investments 12,062 4,445 5
Purchases of investments (13,177) (5,793) (1,346)
Investment in joint ventures (2,793) (1,330)
Acquisitions (1,779) (38,122) (6,771)
Proceeds from disposals of property, plant and equipment 1,684 108 267
Purchases of property, plant and equipment (38,573) (26,695) (22,400)
Other (160) (218) 18
-------- -------- --------
NET CASH APPLIED TO
INVESTING ACTIVITIES (42,736) (67,605) (29,908)
-------- -------- --------
-38-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
YEAR ENDED
--------------------------------------
November October October
3, 2000 29, 1999 30, 1998
-------- -------- --------
(Dollars in thousands)
CASH PROVIDED BY (APPLIED TO)
FINANCING ACTIVITIES
Payment of long-term debt (12,653) (1,399) (1,949)
Exercises of stock options 2,626 161 1,547
Increase (decrease) in notes payable-banks 76,436 64,313 (17)
-------- -------- --------
NET CASH PROVIDED BY (APPLIED TO)
FINANCING ACTIVITIES 66,409 63,075 (419)
-------- -------- --------
Effect of exchange rate changes on cash 802 365 967
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,697 777 (22,609)
Cash and cash equivalents, beginning of year 32,402 31,625 54,234
-------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 34,099 $ 32,402 $ 31,625
======== ======== ========
SUPPLEMENTAL INFORMATION
Cash Paid During The Year:
Interest expense, including $668 capitalized in 2000 $ 10,518 $ 8,365 $ 5,823
and $256 capitalized in 1999
Income taxes, net of refunds $ 18,260 $ 14,632 $ 16,746
Obligation incurred in connection with the purchase and
support of an Enterprise Resource Planning system $ 4,334
See Notes to Consolidated Financial Statements.
-39-
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 and 1998 fiscal years were comprised of
52 weeks. The 2000 fiscal year was comprised of 53 weeks (one additional week in
the fourth quarter). In 2001, the Company's fiscal year will end on Sunday,
November 4, 2001 and thereafter on the Sunday nearest October 31.
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. Associate vendor
costs are recognized as sales and cost of sales unless considered non-recourse
where payments of these amounts 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).
-40-
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
Enterprise Resource Planning system - 5 to 7 years
November October
3, 2000 29, 1999
-------- --------
(Dollars in thousands)
Property, plant and equipment consist of:
Land and buildings $ 35,378 $ 34,270
Machinery and equipment 91,218 83,156
Leasehold improvements 8,171 6,326
Enterprise Resource Planning system 25,548 10,353
-------- --------
160,315 134,105
Less allowances for depreciation and amortization 63,990 55,937
-------- --------
$ 96,325 $ 78,168
======== ========
A term loan is secured by a deed of trust on land and buildings with a carrying
amount at November 3, 2000 of $13.2 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 seven 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.
-41-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Translation of Foreign Currencies: The U.S. dollar is the Company's functional
currency throughout the world, except certain European subsidiaries. Where the
U.S. dollar is used as the functional currency, foreign currency gains and
losses are included in operations. The translation adjustments recorded as a
separate component of stockholders' equity result from changes in exchange
rates, affecting the reported assets and liabilities of 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: Comprehensive income is the net income of the Company
combined with other changes in stockholders' equity not involving ownership
interest changes. For the Company, such other changes include foreign currency
translation and market-to-market adjustments related to held-for-sale
securities.
Derivatives and Hedging Activities: In June 1998, the FASB issued Statement No.
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 No. 137, which deferred the effective date of SFAS No.
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 November 3, 2000, short-term investments consisted of $3.6 million ($2.6
million at October 29, 1999) 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 $86,000 ($162,000 at October 29, 1999). The gross unrealized
loss of $664,000 at November 3, 2000 ($588,000 at October 29, 1999) is included
as a component of accumulated other comprehensive (loss) income.
-42-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE C--INVENTORIES
Inventories consisted of:
November October
3, 2000 29, 1999
-------- --------
(Dollars in thousands)
Services:
Accumulated unbilled costs on
service contracts $64,585 $50,079
------- -------
Products:
Materials 7,583 6,205
Work-in-process 1,548 1,910
Service parts 928 1,170
Finished goods 1,085 1,752
------- -------
11,144 11,037
------- -------
Total $75,729 $61,116
======= =======
The cumulative amounts billed, principally under service contracts at November
3, 2000 and long-term contracts at October 29, 1999, of $9.3 million and $2.5
million, respectively, are credited against the related costs in inventory.
NOTE D--SHORT-TERM BORROWINGS
At November 3, 2000, the Company had credit lines with domestic and foreign
banks which provide for unsecured borrowings and letters of credit up to an
aggregate of $157.4 million, including $72.5 million under a three year,
syndicated, unsecured revolving credit agreement ("Multi-year Revolver") and an
additional $72.5 million syndicated unsecured revolving credit agreement
("364-day Revolver"). On August 17, 2000, the Company amended its Multi-year
Revolver and amended and restated its 364-day Revolver with a group of banks for
which The Chase Manhattan Bank and Fleet Bank, N.A. are serving as co-agents.
The $72.5 million Multi-year Revolver expires in January 2002 and the $72.5
million 364-day Revolver expires in August 2001. Borrowings under the two
revolvers bear interest at various interest rates, with the Company having the
option to select the most favorable rate at the time of borrowing. The revolvers
provide for, among other things, the maintenance of various financial ratios and
covenants, including a requirement that the Company maintain a consolidated net
worth, as defined, of $110.0 million, plus 50% of consolidated net income for
each completed fiscal year after fiscal 1997, resulting in a requirement at
November 3, 2000 to maintain consolidated net worth of $170.3 million. The
Credit Agreements also contain certain limitations on the extent to which the
Company and its subsidiaries may incur additional indebtedness, grant liens and
sell assets. The Company from time to time may also borrow under uncommitted
facilities from various banks. At November 3, 2000, the Company had total
outstanding bank borrowings of $144.1 million ($68.5 million at October 29,
1999) of which $138.3 million was borrowed under the two revolvers. The weighted
average interest rate of short-term borrowings at each year-end was 8% in fiscal
2000 and 9% in fiscal 1999.
-43-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE E--LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt consists of the following:
November October
3, 2000 29, 1999
-------- --------
(Dollars in thousands)
7.92% Senior Notes (a) $40,000 $50,000
7.86% Term loan (b) 2,400 3,300
Notes payable (c) & (d) 3,596 5,082
------- -------
45,996 58,382
Less amounts due within one year 13,699 12,654
------- -------
Total long-term debt $32,297 $45,728
======= =======
(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 which began in
August 2000. In March 2000, the Company entered into a series of interest rate
swap agreements, which effectively converted these notes, through their
maturity, from fixed to floating rate debt. The swap rates are based on LIBOR,
reset quarterly and averaged 7.5% at November 3, 2000. In December 2000, the
Company terminated the swap agreements. The fair value of the agreements at
termination of $498,000 was paid to the Company and will reduce interest expense
over the remaining term the notes are outstanding. 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 $153.6
million at November 3, 2000. However, the terms of the Company's revolving
Credit Agreement require the Company to maintain a consolidated net worth of
$170.3 million at November 3, 2000 (see Note D).
(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
(carrying amount at November 3, 2000 - $13.2 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 $249,000 at November 3, 2000, is guaranteed by the
Company, and is being repaid in semi-annual payments of $249,000, plus interest
calculated at LIBOR (6.62% at November 3, 2000) 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 is being
amortized over a five to 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.
-44-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE E--LONG-TERM DEBT AND FINANCING ARRANGEMENTS--Continued
Principal payments in each of the next five years on long-term debt outstanding
at November 3, 2000 are:
Fiscal Year Amount
----------- ------
(Dollars in thousands)
2001 $13,699
2002 11,114
2003 11,183
2004 10,000
-------
$45,996
=======
NOTE F--INCOME TAXES
The components of the Company's income before income taxes and the related
income tax provision are, as follows:
Year Ended
--------------------------------------
November October October
3, 2000 29, 1999 30, 1998
-------- -------- --------
(Dollars in thousands)
The components of income before income taxes, based on the location of
operations, consist of the following:
Domestic $ 49,948 $ 38,686 $ 35,418
Foreign 929 5,979 409
-------- -------- --------
$ 50,877 $ 44,665 $ 35,827
======== ======== ========
The components of the income tax provision include:
Current:
Federal (a) $ 12,768 $ 13,254 $ 10,949
Foreign 1,074 2,672 199
State and local 3,115 3,142 2,356
-------- -------- --------
Total current 16,957 19,068 13,504
-------- -------- --------
Deferred:
Federal 3,542 (1,087) 1,769
Foreign (194) (207) (467)
State and local 782 116 50
-------- -------- --------
Total deferred 4,130 (1,178) 1,352
-------- -------- --------
Total income tax provision $ 21,087 $ 17,890 $ 14,856
======== ======== ========
(a) Reduced in 2000, 1999 and 1998 by benefits of $744,000, $1,189,000 and
$1,009,000, respectively, from general business credits.
-45-
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:
Year Ended
-------------------------------------------
November October October
3, 2000 29, 1999 30, 1998
--------- --------- ---------
Statutory rate 35.0% 35.0% 35.0%
State and local taxes, net of federal
tax benefit 5.0 4.9 4.4
Tax effect of foreign operations (0.4) (1.6) (1.0)
Goodwill amortization 2.0 2.6 3.1
General business credits (1.0) (1.7) (1.8)
Other - net 0.8 0.9 1.8
--------- --------- ---------
Effective tax rate 41.4% 40.1% 41.5%
========= ========= =========
-46-
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:
November October
3, 2000 29, 1999
-------- --------
(Dollars in thousands)
Deferred Tax Assets:
Allowance for doubtful accounts $ 3,491 $ 2,986
Inventory valuation 3,648 3,869
Domestic net operating loss carryforwards 2,847 3,345
Foreign tax credit carryforwards 724 802
Compensation accruals and deferrals 4,518 4,054
Warranty accruals 426 501
Foreign asset bases 1,347 1,152
Accelerated book depreciation 1,001 766
Other-net 1,181 583
------- -------
Total deferred tax assets 19,183 18,058
Valuation allowance for deferred tax assets 548 284
------- -------
Deferred tax assets, net of valuation allowance 18,635 17,774
------- -------
Deferred Tax Liabilities:
Software development costs 9,736 4,161
Earnings not currently taxable 4 4
Accounts receivable valuation 827 1,654
------- -------
Total deferred tax liabilities 10,567 5,819
------- -------
Net deferred tax assets $ 8,068 $11,955
======= =======
Balance sheet classification:
Current assets $12,563 $11,035
Noncurrent assets 920
Noncurrent liabilities 4,495
------- -------
Net deferred tax assets $ 8,068 $11,955
======= =======
-47-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE F--INCOME TAXES--Continued
As of November 3, 2000, for tax purposes, the Company had foreign tax credit
carryforwards of $724,000, which expire from 2001 through 2004. For financial
statement purposes, a valuation allowance of $548,000 has been recognized to
reduce the deferred tax asset related to these carryforwards. At November 3,
2000, net deferred tax assets include $2.8 million related to domestic net
operating loss carryforwards of the Company's 59% owned publicly-held
subsidiary, Autologic Information International Inc. ("aii"). The carryforwards
expire between 2009 and 2014. 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 increased during fiscal 2000 by $264,000 and decreased
by $322,000 in fiscal 1999.
Substantially all of the undistributed earnings of foreign subsidiaries of $6.9
million at November 3, 2000 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
2000, the venture acquired seven additional community Yellow Pages directories.
Additional acquisitions by the joint venture have been curtailed. In fiscal
2000, sales of the venture were $3.0 million and the Company's portion of the
loss sustained was $302,000.
In the first quarter of fiscal 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 fiscal 1999, the venture repaid substantially all of its remaining
obligations; accordingly, the $2.0 million balance of the deferred gain was
recognized in fiscal 1999.
-48-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE H--PER SHARE DATA
In calculating basic earnings per share, the effect of dilutive securities is
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.
Year Ended
------------------------------------------
November October October
3, 2000 29, 1999 30, 1998
---------- ---------- ----------
Denominator for basic earnings per share -
Weighted average number of shares 15,139,483 15,023,046 14,917,846
Effect of dilutive securities:
Employee stock options 176,474 129,566 335,819
---------- ---------- ----------
Denominator for diluted earnings per share -
Adjusted weighted average number of shares 15,315,957 15,152,612 15,253,665
========== ========== ==========
Options to purchase 50,750, 115,460 and 126,400 shares of the Company's common
stock were outstanding at November 3, 2000, 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.
NOTE I--ACQUISITION OF SUBSIDIARIES AND BUSINESSES
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 Company paid cash for inventory and equipment, with limited additional
consideration due based on future sales of the Wired Services division. The
amounts paid and payable are not considered material to the Company. This
acquisition, along with Belgium operations acquired by Volt Europe, resulted in
an increase in intangible assets of $727,000.
During fiscal 1999, the Company acquired Gatton Computing Group Limited, now
referred to as Volt Europe, 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, Volt Europe 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.
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.
-49-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued,
NOTE I--ACQUISITION OF SUBSIDIARIES AND BUSINESSES--Continued
The Company borrowed under its Multi-year Revolver 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. All outstanding options were exercised during fiscal 2000.
In May 1995, the Company adopted a new Non-Qualified Stock Option Plan, which
enables 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 term of each option, which
may not exceed ten years, and its exercisability are at the discretion of the
Company. Currently outstanding options become fully vested within one to five
years after the date of grant. At November 3, 2000, options to purchase 349,847
(334,007 at October 29, 1999) shares were vested and 361,443 (387,415 at October
29, 1999) shares were available for future grants under the plan.
Transactions involving outstanding stock options under these plans were:
1980 Plan 1995 Plan
---------------------------- -------------------------------
Number of Weighted Average Number of Weighted Average
Shares Exercise Price Shares Exercise Price
--------- ---------------- --------- ----------------
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
Granted 59,650 23.51
Exercised (81,000) 4.00 (69,630) 18.19
Forfeited (33,678) 25.02
-------- --------
Outstanding-November 3, 2000 - 581,350 $ 21.08
======== ========
-50-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE J--STOCK OPTION PLANS--Continued
Price ranges of outstanding and exercisable options as of November 3, 2000 are
summarized below:
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
- --------------- ------ ------------ -------------- ------ --------------
1995 Plan:
- ----------
$15.91-$18.08 342,373 6 $17.92 261,998 $18.05
$18.56-$23.06 127,877 9 $21.54 19,321 $21.35
$23.59-$40.03 108,400 7 $29.74 67,048 $28.38
$50.56-$59.81 2,700 7 $52.96 1,480 $52.31
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 No. 123, "Accounting and Disclosure for Stock Based
Compensation," pro forma net income and earnings per share would have been:
2000 1999 1998
------- ------- -------
Pro forma net income (in thousands) $30,089 $28,141 $20,202
Pro forma net income per share - basic $1.99 $1.87 $1.35
Pro forma net income per share - diluted $1.96 $1.87 $1.34
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 2000, 1999 and 1998, respectively: risk-free
interest rates of 5.9%, 6.0% and 4.4%, expected volatility of .61, .70 and .63,
an expected life of the options of five years and no dividends. The weighted
average fair value of stock options granted during years ended 2000, 1999 and
1998 were $16.29, $13.53 and $21.26, 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 2000, 1999
and 1998 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
-51-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE K--SEGMENT DISCLOSURES--Continued
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.
The Company operates in three major businesses which are primarily focused on
the markets they serve: 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,
referred employee management 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 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, licenses 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 design, engineering, outside plant construction, system installation,
maintenance, removals and distribution of telecommunications products to the
outside plants and central offices of telecommunications and cable companies,
and within their customers' premises and large corporations requiring
telecommunications services.
Computer Systems - This segment provides directory assistance outsourcing
services, both traditional and enhanced, to wireline and wireless
telecommunications companies; provides directory assistance content to internet
sites; 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, through aii,
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.
-52-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE K--SEGMENT DISCLOSURES--Continued
Sales to external customers and assets of the Company by geographic area are as
follows:
Year Ended
------------------------------------------------
November October October
3, 2000 29, 1999 30, 1998
---------- ---------- ----------
(Dollars in thousands)
Sales:
Domestic $2,066,264 $1,979,811 $1,654,526
International 134,916 161,334 54,069
---------- ---------- ----------
$2,201,180 $2,141,145 $1,708,595
========== ========== ==========
Assets:
Domestic $ 640,202 $ 532,820 $ 429,024
International 104,626 85,509 40,302
---------- ---------- ----------
$ 744,828 $ 618,329 $ 469,326
========== ========== ==========
Capital expenditures and depreciation and amortization by the Company's
operating segments are as follows:
Year Ended
----------------------------------
November October October
3, 2000 29, 1999 30, 1998
-------- -------- --------
(Dollars in thousands)
Capital Expenditures:
Staffing Services $ 7,167 $ 4,596 $ 5,160
Telephone Directory 1,864 2,681 7,957
Telecommunications Services 6,511 6,434 3,478
Computer Systems 3,300 1,999 3,857
Electronic Publication and Typesetting Systems 1,550 1,811 2,331
------- ------- -------
Total segments 20,392 17,521 22,783
Corporate 18,468 10,870 259
------- ------- -------
$38,860 $28,391 $23,042
======= ======= =======
Depreciation and Amortization (a):
Staffing Services $ 7,942 $ 6,555 $ 3,536
Telephone Directory 3,560 4,571 3,808
Telecommunications Services 4,319 3,772 3,727
Computer Systems 3,164 4,011 4,568
Electronic Publication and Typesetting Systems 4,666 4,750 4,705
------- ------- -------
Total segments 23,651 23,659 20,344
Corporate 1,619 451 424
------- ------- -------
$25,270 $24,110 $20,768
======= ======= =======
(a) Includes depreciation and amortization of property, plant and equipment for
fiscal years 2000, 1999 and 1998 of $18.8 million, $18.0 million and $17.6
million, respectively.
-53-
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 November 3, 2000 and October 29, 1999. Each quarter contained
thirteen weeks, except for the fourth quarter of fiscal 2000 which contained
fourteen weeks.
Fiscal 2000 Quarter
------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
(Dollars in thousands, except per share data)
Net sales $500,115 $536,134 $537,220 $627,711
======== ======== ======== ========
Gross profit $33,874 $47,013 $50,233 $57,587
======= ======= ======= =======
Net income $3,618 $7,722 $9,830 $9,535
====== ====== ====== ======
Net income per share - basic $0.24 $0.51 $0.65 $0.63
===== ===== ===== =====
Net income per share - diluted $0.24 $0.50 $0.64 $0.62
===== ===== ===== =====
Fiscal 1999 Quarter
---------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
(Dollars in thousands, except per share data)
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
===== ===== ===== =====
(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 first and third quarters 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, of a previously deferred gain on the sale.
-54-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE L--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)--Continued
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 publishing 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 various 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. In January 2000, the
Company amended the savings plan for in-house employees to provide a Company
contribution in the form of a 50% match of the first 3% of salary contributed by
eligible participants. For participants with less than five years of service,
the Company matching contributions will vest at 20% per year over a five-year
period. Company contributions to the plan are made semi-annually. Under the
plan, the Company's contributions of $940,000 in fiscal 2000 were accrued and
charged to compensation expense.
In January 2000, the Company made its final contribution to its non-contributory
Employee Stock Ownership Plan (ESOP), merged the ESOP with its savings plan for
in house employees, and fully vested all ESOP accounts, within the savings plan,
regardless of years of service. Contributions of $558,000 in fiscal 1999 and
$410,000 in fiscal 1998 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 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 November
3, 2000, 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.
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 the option contracts, which is
amortized over the contract period. At November 3, 2000, the Company had
purchased options, all of which expire in the first quarter
-55-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE N--FINANCIAL INSTRUMENTS--Continued
of fiscal 2001, at a cost of $163,000, to exchange various overseas currencies
for U.S. dollars, in the aggregate notional amount of $5.5 million. There were
no unrealized gains or losses on these contracts at that date. The
counterparties to the currency option contracts are major banks. Credit loss
from counterparty nonperformance is not anticipated.
In March 2000, the Company entered into a series of interest rate swap
agreements, which effectively converted through their maturity, the $40.0
million 7.92% Senior Notes from fixed to floating rate debt. The swap rates are
based on LIBOR, reset quarterly and averaged 7.5% at November 3, 2000. In
December 2000, the Company terminated the swap agreements. The fair value of the
agreements at termination of $498,000 was paid to the Company and will reduce
interest expense over the remaining term the notes are outstanding.
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 November 3, 2000 and October 29, 1999 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
November 3, 2000 and October 29, 1999 based upon quoted market prices for same
or similar debt issues.
NOTE O--COMMITMENTS
The future minimum rental commitments as of November 3, 2000 for all
noncancellable operating leases are as follows:
Fiscal Year Total Office Space Equipment
----------- ------- ------------ ---------
(Dollars in thousands)
2001 $16,752 $15,656 $1,096
2002 12,524 11,890 634
2003 9,561 9,498 63
2004 6,927 6,891 36
2005 4,511 4,499 12
Thereafter 5,285 5,273 12
------- ------- ------
$55,560 $53,707 $1,853
======= ======= ======
Rental expense for all operating leases for fiscal years 2000, 1999 and 1998 was
$21.0 million, $18.8 million and $16.3 million, respectively. Many of the leases
also require the Company to pay or contribute to property taxes, insurance and
ordinary repairs and maintenance.
In fiscal 2000, the Company began development of a new internet-based Front End
System designed to improve efficiency and connectivity in the recruiting,
assignment, customer maintenance, and other functions in the branch offices of
the Staffing Services segment. The total costs to develop and install this
system is anticipated to be approximately $16 million, of which $1.7 million has
been incurred to date. The Company has no other material capital commitments.
-56-
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 November 3, 2000 and is hereby incorporated by reference
to such Proxy Statement.
-57-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
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--November 3, 2000 and
October 29, 1999 35
Consolidated Statements of Income--Years ended November
3, 2000, October 29, 1999 and October 30, 1998 36
Consolidated Statements of Stockholders' Equity--Years
ended November 3, 2000, October 29, 1999 and October 30, 1998 37
Consolidated Statements of Cash Flows--Years ended
November 3, 2000, October 29, 1999 and October 30, 1998 38
Notes to Consolidated Financial Statements 40
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.
-58-
14(a)(3). Exhibits
Exhibit Description
- ------- -----------
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)+ 1980 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)+ Employment 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 Employment 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).
-59-
14(a)(3). Exhibits--Continued
Exhibit Description
- ------- -----------
10.4(a)+ Employment 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 Employment 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 Employment 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 Employment 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 Employment 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.
- -----------------------------------------------------
+ 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.
-60-
14 (b). Reports on Form 8-K
No Reports on Form 8-K were filed during the fourth quarter of the year ended
November 3, 2000.
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.
-61-
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 26, 2001 ---------------------------------
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.
Signature Title Date
- --------- ----- ----
/s/William Shaw Chairman of the Board, January 26, 2001
- ---------------- President and Chief Executive
William Shaw Officer and Director
/s/James J. Groberg Senior Vice President (Principal January 26, 2001
- -------------------- Financial Officer and Director)
James J. Groberg
/s/Jack Egan Vice President, Corporate Accounting January 26, 2001
- ------------- (Principal Accounting Officer)
Jack Egan
/s/Jerome Shaw Director January 26, 2001
- ---------------
Jerome Shaw
/s/Steven A. Shaw Director January 26, 2001
- -----------------
Steven A. Shaw
- ----------------- Director
Irwin B. Robins
- ----------------- Director
Mark N. Kaplan
- ----------------- Director
Bruce G. Goodman
- ----------------- Director
William H. Turner
/s/Lloyd Frank Director January 26, 2001
- -------------------
Lloyd Frank
-62-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
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)
Year ended November 3, 2000:
Deducted from asset accounts:
Allowance for uncollectible accounts $7,941 $7,624 $6,613(1)(2) $8,952
Allowance for deferred tax assets 284 $342(3) 78(4) 548
Unrealized loss (gain) on marketable securities 587 77(5) 664
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(4) 284
Unrealized loss (gain) on marketable securities (739) 1,326(5) 587
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)(5) 3,000(7) (739)
(1)--Write-off of uncollectible accounts.
(2)--Includes a foreign currency translation (loss) gain of $(88) in 2000, $(11)
in 1999, and $13 in 1998, respectively.
(3)--Charge to income tax provision.
(4)--Principally, write-off of unutilized foreign tax credits.
(5)--Charge (credit) to stockholder's equity.
(6)--Pertains to the opening balance of a company acquired during fiscal year
1999.
(7)--Write-off of marketable securities.
S-1
INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
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)+ 1980 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)+ Employment 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).
Exhibit Description
- ------- -----------
10.3(b)+ Amendment dated January 3, 1989 to Employment 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)+ Employment 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 Employment 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 Employment 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 Employment 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 Employment 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,
1997, File No. 1-9232).
21.* Subsidiaries of the Registrant.
23.* Consent of Ernst & Young LLP.
- ----------------------------------------------------
+ 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.