-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, jQZfjwQiKl3U7ca8l4UQExNSEb57DSf5NboyuR9XXXV4DCtqwfGR7jaFDW7oljV1 vvlrANUygGdHtk8n8Me5qQ== 0000950123-95-001185.txt : 19950501 0000950123-95-001185.hdr.sgml : 19950501 ACCESSION NUMBER: 0000950123-95-001185 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941028 FILED AS OF DATE: 19950428 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VOLT INFORMATION SCIENCES INC CENTRAL INDEX KEY: 0000103872 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 135658129 STATE OF INCORPORATION: NY FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-09232 FILM NUMBER: 95532856 BUSINESS ADDRESS: STREET 1: 1221 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2127042400 MAIL ADDRESS: STREET 1: 1133 6TH AVENUE STREET 2: 24H FLOOR CITY: NEW YORK STATE: NY ZIP: 10036 FORMER COMPANY: FORMER CONFORMED NAME: VOLT TECHNICAL CORP DATE OF NAME CHANGE: 19680913 10-K405/A 1 AMENDED FORM 10-K405 - VOLT INFORMATION SCIENCES 1 FORM 10-K/A 2 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 (Fee Required) For the fiscal year ended October 28, 1994 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. ---------------------------------------------------------------- (Exact name of registrant as specified in its charter) New York 13-5658129 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1221 Avenue of the Americas, New York, New York 10020 - ----------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 704-2400 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ 12-3/8% Senior Subordinated Debentures, Philadelphia Stock Exchange due July 1, 1998 Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value ---------------------------- (Title of Class) 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. / X / ----- The aggregate market value of the common stock held by non-affiliates of the Registrant as of January 20, 1995 (based on the closing price on the NASDAQ National Market on that date) was approximately $64,000,000 (based on the number of shares outstanding on that date exclusive of all shares held beneficially by executive officers and directors and their spouses and the Registrant's Savings Plan and Employee Stock Ownership Plan, without conceding that all such persons or plans are "affiliates" of the Registrant). The number of shares of common stock outstanding as of January 20, 1995 was 4,803,026. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement for its 1995 Annual Meeting are incorporated by reference into Part III of this Report. 2 PART I ITEM 1. BUSINESS General Volt Information Sciences, Inc., a New York corporation, incorporated in 1957, and its subsidiaries (collectively "Volt" or the "Company", unless the context otherwise requires) operate in the following industry segments: (1) Technical Services and Temporary Personnel - This segment provides technical and temporary personnel services to industry and government; (2) Electronic Publication and Typesetting Systems - This segment designs, develops, manufactures, markets and services computerized imagesetting and publication systems and equipment; (3) Telephone Directory - This segment provides telephone directory services, data base management, licensing of directory systems and publication of telephone directories; (4) Engineering and Construction - This segment provides inside and outside plant and business communication engineering, construction, installation and other support services for the telecommunications industry; and (5) Computer Systems - This segment designs, programs, sells, leases and maintains customized computer information systems and related services and provides services to public utilities emphasizing computer based projects. In addition, the Company is a party to a joint venture with Telstra Corporation Ltd., the Australian government-owned telephone company and others which commenced operations in July 1991, for the marketing, selling and compilation functions of yellow pages directories throughout Australia. In July 1994, the Company entered into a long-term joint venture agreement to publish the official White Pages, Yellow Pages and Street Guides for Rio de Janeiro by acquiring an interest in Telelistas Editora Ltda., a Brazilian Company which has a contract to publish Rio's telephone directories on behalf of TELERJ, the government-owned telephone company. The Company was also a party to a joint venture with a subsidiary of Pacific Bell Directory which produced the directory ads and camera ready pages of Pacific Bell Directory's yellow and white page directories published and distributed in California and Nevada. Effective February 28, 1994, the Company sold its 50% interest to its joint venture partner. Information As To Industry Segments The following tables set forth the relative contribution of each industry segment to the Company's consolidated sales and operating profit (loss) for each of the three fiscal years in the period ended October 28, 1994, and those assets identifiable within each segment at the end of each of those years (see Notes J and L of "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations)": -2- 3 VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES INDUSTRY SEGMENT DATA
October October October 28, 1994 29, 1993 30, 1992 ---------- ---------- ---------- (Dollars in thousands) SALES Technical Services and Temporary Personnel: Sales to unaffiliated customers $433,443 $340,301 $320,591 Intersegment sales 1,067 1,304 796 -------- -------- -------- 434,510 341,605 321,387 -------- -------- -------- Electronic Publication and Typesetting Systems: Sales to unaffiliated customers 64,659 57,081 56,608 Intersegment sales 664 2,259 878 -------- -------- -------- 65,323 59,340 57,486 -------- -------- -------- Telephone Directory: Sales to unaffiliated customers 72,319 76,924 68,764 Intersegment sales 1,836 2,020 2,231 -------- -------- -------- 74,155 78,944 70,995 -------- -------- -------- Engineering and Construction: Sales to unaffiliated customers 51,391 46,417 36,111 Intersegment sales 1,285 1,056 197 -------- -------- -------- 52,676 47,473 36,308 -------- -------- -------- Computer Systems: Sales to unaffiliated customers 99,059 (a) 37,385 38,612 Intersegment sales 76 196 212 -------- -------- -------- 99,135 37,581 38,824 -------- -------- -------- Eliminations of intersegment sales (4,928) (6,835) (4,314) -------- -------- -------- Total sales $720,871 $558,108 $520,686 ======== ======== ======== OPERATING PROFIT (LOSS) Technical Services and Temporary Personnel $ 16,337 $ 7,360 $ 5,955 (b) Electronic Publication and Typesetting Systems 1,334 2,040 1,054 Telephone Directory 6,695 8,153 6,544 (b) Engineering and Construction 792 (1,128) (2,885) Computer Systems (2,168) (8,549) (a) 2,043 Eliminations (8) (310) (346) -------- -------- -------- Total operating profit 22,982 7,566 12,365 Interest and other income (expense) - net 790 2,125 3,074 Equity in net income of joint ventures 3,055 4,940 6,807 Gain on sale of joint venture 9,770 General corporate expenses (9,263) (8,769) (9,031) Interest expense (7,468) (11,078) (11,569) Foreign exchange gain (loss)-net (39) (378) 129 -------- -------- -------- Income (loss) before income taxes, extraordinary item and cumulative effect of a change in accounting $ 19,827 $ (5,594) $ 1,775 ======== ======== ========
-3- 4 VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES INDUSTRY SEGMENT DATA--Continued
October October October 28, 1994 29, 1993 30, 1992 ---------- ---------- ---------- (Dollars in thousands) IDENTIFIABLE ASSETS Technical Services and Temporary Personnel $ 40,230 (c) $ 30,248 (c) $ 51,756 Electronic Publication and Typesetting Systems 36,276 32,350 31,218 Telephone Directory 28,941 (c) 31,830 (c) 34,294 Engineering and Construction 21,836 19,547 13,745 Computer Systems 50,273 39,394 30,751 Eliminations of intersegment items (645) -------- -------- -------- 177,556 153,369 161,119 Cash, investments, joint ventures and other corporate assets 49,348 82,523 65,383 -------- -------- -------- Total assets $226,904 $235,892 $226,502 ======== ======== ========
(a) The results of operations for fiscal 1993 include a pretax charge of $6,400,000 for estimated costs in excess of anticipated revenues under contracts for two major directory systems. This represents the loss incurred on such contracts. The completed contract method of accounting was used for these contracts, and as a result, revenues and the related costs (other than those costs in excess of anticipated revenues recognized in 1993) are recognized in income in the year of acceptance by the customer. In fiscal 1994, the Company received customer acceptance under one of such contracts, which, because of the pretax charge in the previous year related to such contract, had no effect on the Company's earnings for 1994, although revenue (and costs) of $59,000,000 were recognized in 1994. (b) Operating results for fiscal 1992 include (i) a benefit of $1,070,000 from the recovery of a portion of prior years' state business taxes applicable to the Technical Services and Temporary Personnel segment and (ii) a pretax charge of $722,000 relating to a portion of a facility under lease until fiscal 1994, which is no longer being utilized by the Telephone Directory segment. (c) In fiscal 1993, the Company entered into a three-year revolving financing agreement (see Note C of Notes to Consolidated Financial Statements) under which it sold a $25,000,000 undivided interest in a certain pool of accounts receivable. As a result, the identifiable assets of the Technical Services and Temporary Personnel and the Telephone Directory segments were reduced by $23,000,000 and $2,000,000 in 1994, respectively and by $22,875,000 and $2,125,000 in 1993, respectively. -4- 5 Technical Services and Temporary Personnel Volt's Technical Services and Temporary Personnel segment provides, from approximately 135 offices located throughout the United States, technical and temporary personnel services to a wide range of customers. Volt Technical Services provides contract engineering services and professional, engineering, design, data processing, scientific and technical support personnel for varying periods of time 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 such personnel as their own employees. Volt Technical Services furnishes services to such industries as the telecommunications, computer, electronics, power (including certain nuclear and fossil fuel power plants), aerospace, defense, marine, petrochemical, chemical, architectural, engineering and transportation industries. Customers are located throughout the United States with a small portion of such services being performed outside the United States. Volt Technical Services maintains a computerized nationwide resume data base consisting of approximately 300,000 technical, professional, scientific, and other candidates from which it fills customer job requirements. These individuals become Volt Technical employees during the period of their assignment (which typically ranges from a few months to several years). As the employer of record, Volt Technical Services is responsible for the payment of salaries, payroll taxes, workers' compensation and unemployment insurance and benefit packages, which may include sick days, holiday and vacation pay and medical insurance. Volt Temporary Services provides temporary help in administrative, clerical, office automation, accounting, industrial and other job classifications to clients for short and long-term assignments. Volt Temporary Services provides clerks, typists, office automation personnel, secretaries, receptionists, sales promotion personnel, bank personnel, telemarketers, data entry clerks, inventory clerks, assemblers, warehousing personnel and other employees. Volt Temporary Services furnishes temporary employees to meet various client requests, such as substituting during vacation and 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 phasing down. It also provides management personnel to coordinate special projects, thus relieving a customer of the need to supervise temporary employees. Volt Accounting Specialists, a department of Volt Temporary Services, provides specialized temporary personnel in accounting, bookkeeping and other financial classifications. Volt Temporary Services provides personnel to companies throughout a broad spectrum of industries, including finance, banking, insurance, telecommunications, utility, petrochemical, computer, electronics, aerospace, defense, retailing, manufacturing, universities and government agencies. As in the case of technical services employees, Volt, as the employer of record, is responsible for the payment of salaries, payroll taxes, workers' compensation and unemployment insurance and benefit packages, which may include sick days, holiday and vacation pay and medical insurance. -5- 6 Beginning in fiscal 1994, a substantial portion of the Volt Temporary Services and Volt Technical Services offices have combined into Volt Services Group to satisfy customer requests for a single source provider of all levels of temporary help. This change also reflects the expanding range of services offered to customers and the focus on providing these expanded services as a full service supplier, including outsourcing services, as well as assuming full responsibility for staffing, supervision and even productivity of large projects. The consolidation of services under the umbrella of Volt Services Group also enables the segment to bid on certain contracts where customers insist on a single source provider which is a full-service organization. All remaining offices of Volt Temporary Services and Volt Technical Services expect to undergo the change to Volt Services Group during fiscal 1995. During the week ended October 28, 1994, this segment employed approximately 19,000 people in furnishing services. The segment is not dependent upon a single customer or a few customers, the loss of which might have a materially adverse effect upon its business. Although the markets for the segment's services include a broad range of industries throughout the United States, general economic difficulties in specific geographic areas or industrial sectors have in the past, and could in the future, affect the profitability of this segment. The segment competes with many technical service and temporary personnel firms, some of which are larger than Volt, as well as with individuals seeking direct employment. The ability of Volt to compete successfully for customers depends on its reputation, price and quality of service provided and its ability to engage, in a timely manner, personnel meeting customer requirements. Many of the contracts entered into by this segment are of relatively short duration and competition is intense. Many of the contracts under which the segment operates are awarded on the basis of competitive proposals. Although Volt has been successful in obtaining contracts in the past, there can be no assurance that Volt will receive additional or replacement contracts on satisfactory terms. Electronic Publication and Typesetting Systems Volt, through its 99%-owned subsidiary, Autologic, Incorporated ("Autologic"), designs, develops, manufactures, markets and services computerized imagesetting and publication systems equipment and software, primarily for the newspaper, publishing and commercial printing industries and for companies and other organizations having internal publishing facilities. Autologic's products are also utilized by certain of Volt's other segments. Foreign marketing and servicing are provided directly by Autologic, through foreign subsidiaries and branches, and by independent foreign distributors. During fiscal 1994, Autologic's sales revenues increased by 10%, reflecting significantly increased sales in the Australian and Latin American markets. These increased sales were the result of improved local economic conditions, increased sales and marketing efforts and competitive product offerings. Revenues from sales in the United States and Europe were up slightly during the year. Although the number of units were up significantly in all geographic areas, the sales mix included more lower-priced units. -6- 7 Increased sales revenues were also offset by declining prices and margins on equipment and service sales. Technological advancements, "open system" architecture and general market conditions have created a market where price competition is commonplace. As part of Autologic's program to increase its presence in the commercial publication market while retaining its position in the technologically advanced newspaper market, the US domestic sales force is being enlarged to focus on commercial accounts, the product line has been expanded to support large format (up to 34" x 44") multiple page imaging, direct-to-plate products have been introduced focused on commercial printers and publishers, and services have been augmented to address customer training, color system production and network installation. Autologic has successfully made the transition from selling principally proprietary systems to being an industry leader in PostScript imaging systems. (PostScript is a registered trademark of Adobe Systems Incorporated). Under original equipment manufacturer license agreements, Autologic designs, manufactures, sells and supports PostScript image systems which operate independently or in conjunction with Autologic's proprietary PIP products. The SoftPIP product line is completely PostScript Level 2-compliant and is known for high performance, image quality, and reliability in high volume production environments. In response to the rapidly changing open system environment which dominates the marketplace today, Autologic improved the performance and functional capabilities of its computer server products during fiscal 1994. Highlights include introduction of the APS-200 providing APS-100 capabilities on standard platforms with significantly improved system performance, integration of PostScript Level 2 features by the APS-200 OPI Server, support of mixed PC Windows and Apple Macintosh workstation environments, and expanded graphic data formats supported by the OPI Server. The Company has developed a library of more than 2,000 digitized typefaces, known as "fonts," which are stored on computer disks and licensed to purchasers of Autologic typesetters. These fonts are offered in PIP and PostScript formats, as well as for Autologic's earlier systems. CD-ROM-based PostScript fonts created by Autologic, using the Company's and other licensed typefaces, are also made available. The manufacture of Autologic-built subassemblies and all system assembly is performed in Autologic's facilities in Thousand Oaks, California. This segment purchases certain completed subassemblies and manufactures others. Most of the parts and subassemblies used in the production of this segment's products are purchased from numerous suppliers and are integrated into Autologic products. Autologic maintains a worldwide technical support and service organization which supports and services the full range of Autologic products. Technical support is headquartered in Thousand Oaks, California, with regional offices located throughout the United States, in London, England, and in Sydney, Australia. Wholly-owned subsidiaries operate in Australia, New Zealand, the United Kingdom, Germany, France, Spain, Sweden and Israel. Local distributors and agents sell and service Autologic products in the remainder of the worldwide markets and Autologic has recently expanded its network of distributors and agents with a view to increasing sales worldwide, especially in areas of emerging economic growth. -7- 8 Autologic's position in its markets depends largely upon its reputation, the quality, design and pricing of its products, the timeliness of its deliveries, and its field service. The markets in which the segment competes are marked by rapidly changing technology and, 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. The market for this segment's products is highly competitive and price competition is intense. A number of firms, some of which are substantially larger and have substantially greater financial resources than Volt, manufacture one or more products competing with one or more of the segment's products. Some of these competitors sell their products as complete systems, for some of which Autologic has no competing system. The Company holds several patents and trademarks related to this segment's products, but does not believe that these patents or trademarks are material to the segment. Export sales represented approximately 46% of Autologic's sales in fiscal 1994, 43% in fiscal 1993 and 46% in fiscal 1992. In the past, Autologic has been adversely affected by general economic recessions in the United States and in other countries where Autologic products are sold. In addition, a significant portion of Autologic's business is in the newspaper publishing industry, which has in the past, experienced significant revenue downturns during recessions. These downturns resulted in reductions in capital expenditures by that industry, adversely affecting Autologic's performance. Telephone Directory Volt's Telephone Directory segment, utilizing highly specialized proprietary automated systems which it developed for directory management and production, together with phototypesetting systems manufactured by Autologic, implements and maintains the database, produces digitized display advertisements and photocomposes pages with integrated graphics for yellow and white pages directories. These services are performed for a number of the regional telephone operating companies, independent directory publishers and others. Volt believes that it is a leading independent producer of yellow pages directories for telephone companies in the United States. The segment also provides directory management systems and various photocomposition services to a number of regional telephone and independent directory publishers, licenses production system software to directory publishers and provides commercial services, such as composition and data processing and database management services, to other customers. The Telephone Directory segment markets these proprietary directory management and production systems, customized to meet the needs of publishers who desire to perform their work in-house. The systems are marketed to publishers incorporating "workflow management" by which ads are automatically routed between workstations, increasing throughput and control. -8- 9 The segment separately markets workstations which are used to facilitate the creation of telephone directories. These include a graphics workstation (RAD-GRAF), containing Volt-developed software, that facilitates incorporating special graphic effects in the presentation of ads for merging text and graphics on a finished page. Another workstation is the Real-time Incolumn Display (RID) workstation, on-line electronic galley editors which allow last minute alterations and insertions of ads and listings, while displaying the composed results as they will appear on the finished page. Services are rendered under various short and long-term contracts and are performed primarily at facilities maintained by Volt in Blue Bell, Pennsylvania; Indianapolis, Indiana; Anaheim and San Diego, California; and, in one instance, at the customer's facility. The segment also produces, publishes and prints white pages and yellow pages directories, sells yellow pages advertising and performs commercial printing in Uruguay. In addition, Volt's DataNational division publishes community and university classified directories in the United States. Volt's Advanced Technologies, Research & Development division provides the services of researching and implementing new product lines and adopting new computer technology for internal office automation and business processing automation. It also provides consulting services and hardware and systems technical support for other segments of Volt. This segment faces intense competition with respect to all of these services and products from other suppliers and from in-house facilities of potential customers. Some of its significant competitors are companies which are larger and have substantially greater financial resources than Volt. This segment's sales to one customer represented approximately 23% of the total sales of this segment for the 1994 fiscal year. The loss of this customer, unless replaced, would have an adverse effect on this segment's business. Volt's ability to compete in its Telephone Directory segment depends upon its reputation, technical capabilities, price, quality of service and ability to meet customer requirements in a timely manner. Volt believes that its competitive position in this segment's areas of operations is augmented by its ability to draw upon the expertise and resources of its other segments. Certain of the services rendered by Volt's Telephone Directory segment require highly trained technical personnel, and there can be no assurance that the Company will continue to be able to employ sufficient technical personnel necessary for the successful conduct of such services. A substantial portion of Volt's business is obtained through submission of competitive proposals. While the segment has obtained various short and long-term contracts, margins under such contracts have decreased in many instances, certain contracts have expired and there can be no assurance that contracts will be renewed on satisfactory terms or that additional or replacement contracts will be awarded to the Company. -9- 10 Engineering and Construction Volt's Voltelcon division furnishes a wide range of telecommunications services, including engineering, construction, maintenance, installation, removals and distribution of telecommunications products. Its customers are telephone operating companies, interexchange carriers, alternative local transport carriers, telecommunications equipment manufacturers, cable television and electric power companies, government units and private entities. It performs these services primarily in the central office and outside plant and at end user premises. The market in which Voltelcon operates is highly competitive, often resulting in low margins. Volt's Advanced Technology Services division was established in 1994 to meet the critical challenges of the "Information Super Highway" and the evolutionary merging of voice, data and video services to telephony, broadband and other providers of information system services, such as telephone companies, interexchange carriers, government and private industry. This segment faces intense competition with respect to all of its telecommunications services from other suppliers and from in-house capabilities of potential customers. This segment experienced increased sales and realized a profit in fiscal 1994, as compared to an operating loss in fiscal 1993. Some of its significant competitors are larger and have substantially greater financial resources than Volt. Other competitors are small, local companies with lower overhead. This segment's sales to each of two customers represented approximately 29% of the total sales of this segment for the 1994 fiscal year. The loss of either of these customers, unless replaced, might have an adverse effect on this segment's business. Volt's ability to compete in this segment depends upon its reputation, technical capabilities, price, quality of service and ability to meet customer requirements in a timely manner. Volt believes that its competitive position in this segment is augmented by its ability to draw upon the expertise and resources of other Volt segments. A substantial portion of the segment's business is obtained through submission of competitive proposals. While the segment has obtained various short-term contracts, margins have decreased in many instances. There can be no assurance that such contracts will be renewed on satisfactory terms or that additional or replacement contracts will be awarded to the Company. Computer Systems The Computer Systems segment is comprised of Volt Delta Resources and Volt Viewtech. Volt Delta Resources ("Volt Delta") is engaged in the design, programming, sale and/or lease, and maintenance of computer information systems and services, primarily for the telecommunications and utility industries. The main office of this segment is located in New York City and its principal research and development facility is located in Orange, California. Volt Delta operates as two business units: Information Systems and Maintech. -10- 11 During fiscal 1992, Volt Delta's Information Systems division brought to market its new generation directory assistance system, marketed as DOSS (Delta Operator Services System). The new generation system allows telecommunications customers to interface interactively with voice response units through the touch tone pad of their telephones and via limited voice recognition technology. These features provide new revenue sources to the telephone company from such applications as call completion, customized intercept and automated directory assistance. Although the basic DOSS system is offered to customers, typically each customer will require some special features, and in some instances, extensive customization. The DOSS system operates on Tandem Computer's NonStop fault tolerant platform, using Tandem's relational database technology, which allows telecommunications companies to significantly expand the content of their databases in support of enhanced information services, while continuing to achieve subsecond response using Volt Delta's Xm retrieval software. This software employs a process proprietary to Volt Delta. Although the physical implementation of this process has been patented by Volt Delta with the United States Patent Office, Volt Delta's competitors may be able to provide similar services to customers without infringing on such patent. In May 1991, Volt Delta entered into a contract with a major United States telephone company to provide a DOSS system. Delivery and installation at the customer's premises began during fiscal 1992 and continued during fiscal 1993 and 1994. System acceptance by this telephone company was obtained in the fourth quarter of fiscal 1994. During fiscal 1993, a pilot DOSS system was installed at a second telecommunications customer and is being used commercially. In fiscal 1994, a follow-up production system was delivered to that customer and is in the process of final acceptance testing. During 1993 and 1994, Volt Delta entered into additional contracts for DOSS and DOSS related functionality with other telecommunications customers, one of which is based in the United Kingdom, which are in various stages of implementation. Volt Delta's service division, Maintech, offers third party maintenance (TPM) and other services to customers who have purchased computers and peripherals from others, as well as those who have purchased or leased information systems, including DOSS, from Volt Delta. Maintech is headquartered in Wallington, New Jersey and provides TPM services on a national basis. Regional offices and spare parts inventory facilities are located in Wallington, New Jersey and Orange, California, with district service centers located throughout the country and, in some instances, at customers' facilities. Volt's Viewtech subsidiary provides energy and water conservation systems and services, including custom information systems. In recent years, Viewtech has expanded its traditional electric and gas utility markets to include water utilities and has made substantial upgrades to Viewtech's information system and energy audit software. Viewtech is headquartered in Orange, California, and operates through four regional offices, located in Boston, Massachusetts; Little Rock, Arkansas; Southfield, Michigan; and San Francisco, California, with project offices located throughout the country. -11- 12 In order to fulfill its commitments under its contracts, Volt Delta is required to develop advanced computer software programs and purchase substantial amounts of computer and related equipment manufactured by unaffiliated corporations. Much of the equipment required for these contracts is purchased as needed. Except for Tandem's computer equipment, equipment used by Volt Delta is readily available from a number of suppliers. This segment's sales to its two largest customers in fiscal 1994, under a number of different contracts, represented approximately 64% (which includes one-time revenues described in Note L of Notes to Consolidated Financial Statements) and 10%, respectively, of the segment's total revenues. Inability to sell additional major systems would have an adverse effect on this segment's business. The business environment in which this segment operates is highly competitive. Some of this segment's principal competitors are considerably larger than Volt and have substantially greater financial resources. This segment's position in its market depends largely upon its reputation, quality of services and ability to develop, maintain, and implement information systems on a cost competitive basis. These services require highly trained technical personnel, certain classifications of which are currently in short supply. There can be no assurance that this segment will be able to obtain additional contracts or additional orders under existing contracts, or that it will continue to be able to employ sufficient personnel necessary for the successful conduct of its business. Joint Ventures A subsidiary of the Company is a shareholder in Pacific Access Pty. Ltd. ("Pacific Access"), an international joint venture company in Australia. This venture, which commenced operations in July 1991, assumed responsibility throughout Australia for the marketing, sales and compilation functions of all yellow pages directories of Telstra Corporation Ltd., the Australian Government-owned telephone company, under the terms of a twelve-year contract. Telstra Corporation Ltd. owns fifty percent of the voting common stock of Pacific Access, while subsidiaries of Volt, Southwestern Bell, Bell Canada and Edward H. O'Brien Industries each hold twelve and one-half percent. In July 1994, the Company acquired an interest, consisting of 50% of the common shares and 75% of the redeemable preferred shares and debt, in Telelistas Editora Ltda., a Brazilian company which has a long-term contract to publish the official White Pages, Yellow Pages and Street Guides for the City of Rio de Janeiro on behalf of TELERJ, the government-owned telephone company. Effective February 28, 1994, the Company sold its 50% interest in Pacific Volt Information Systems, a joint venture, for approximately $16,400,000, to its joint venture partner. The sale resulted in a gain of $9,770,000 ($5,760,000, net of income taxes, or $1.20 per share). Therefore, results of operations for the fiscal year 1994 includes only four months of income attributable to this joint venture. For further information concerning the Company's operations and joint ventures, see "Management's Discussion and Analysis of Financial Condition and Results of Operations". -12- 13 Research and Development During the Company's 1994, 1993, and 1992 fiscal years, the Company expended approximately $6,262,000, $5,830,000, and $5,694,000, respectively, on research and development, all of which is Company sponsored. The major portion of research and development expenditures are incurred in the Electronic Publication and Typesetting Systems segment, the Telephone Directory segment and the Computer Systems segment. Customers One customer represented more than 10% of the revenues for the year ended October 28, 1994. The customer accepted a major directory assistance system from the Computer Systems segment and used various services and products which, under the completed-contract method of accounting, represented 11% of the Company's consolidated revenues in fiscal 1994 (including one-time revenues described in Note L of Notes to Consolidated Financial Statements). Seasonality 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 due to the holiday season. In addition, Pacific Access (see "Joint Ventures" above) produces a major portion of its revenues and significantly all of its profits in the Company's second and third fiscal quarters. The Uruguayan telephone directory operation produces a major portion of its revenues and most of its profits in the Company's fourth fiscal quarter, and the DataNational telephone directory operation is adversely affected in the Company's first fiscal quarter due to the seasonality of its directory closing schedule. Employees During the week ended October 28, 1994, Volt employed approximately 23,000 persons, including approximately 19,000 persons who were on temporary assignment for the Technical Services and Temporary Personnel segment. Volt is a party to two collective bargaining agreements which cover a small number of employees. Volt believes that it has satisfactory relations with its employees. -13- 14 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 which periods are not necessarily indicative of the results which may be expected for any subsequent periods. The following discussion should be read in conjunction with the Industry Segment Data in Item 1 of this Report, the Selected Financial Data in Item 6 of this Report and the Consolidated Financial Statements and Notes thereto in Item 8 of this Report. Results of Operations - Summary Revenues in fiscal 1994 increased by $169,313,000, or 30%, from fiscal 1993 as sales increased by $162,763,000, or 29%. The increase in sales resulted primarily from additional revenues of $59,000,000 from the completion and recognition of a long-term contract in the Computer Systems segment and a $92,905,000 increase in sales in the Technical Services and Temporary Personnel segment. Revenues in fiscal 1993 increased by $34,606,000, or 7%, from fiscal 1992 as sales increased by $37,422,000, or 7%, partially offset by lower joint venture and other income. In fiscal 1994, the Company had income of $19,827,000 from operations before income taxes and extraordinary items, compared to a loss of $5,594,000 from operations before income taxes and a cumulative effect of a change in accounting in fiscal 1993, and income from operations before income taxes of $1,775,000 in fiscal 1992. The 1994 results include a $9,770,000 pretax gain on the sale of a joint venture. The principal increases in the segment income in 1994 were from Technical Services and Temporary Personnel, with an increase of $8,977,000, and Computer Systems, where losses were reduced by $6,381,000. The major reason for the loss in the Computer Systems segment in fiscal 1993 was the $6,400,000 pretax charge for non recoverable costs under two large contracts. The extraordinary item in fiscal 1994 was a loss of $271,000 due to the early redemption at par of $30,000,000 face value of the Company's 12-3/8% Subordinated Debentures. The cumulative effect of a change in accounting of $959,000 in fiscal 1993 was due to the Company adopting Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Net income in fiscal 1994 was $11,773,000, compared to a net loss in fiscal 1993 of $2,715,000 and net income of $1,091,000 in fiscal 1992. Results of Operations - By Segment The Company's consolidated operating profit was $22,982,000 in fiscal 1994, compared to $7,566,000 in fiscal 1993 and $12,365,000 in fiscal 1992. (See Industry Segment Data in Item 1 of this Report and Note J of Notes to Consolidated Financial Statements in Item 8 of this Report). -14- 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued The Technical Services and Temporary Personnel segment's sales increased by $92,905,000, or 27%, in fiscal 1994 to $434,510,000 and by $20,218,000, or 6%, in fiscal 1993 to $341,605,000. Operating profit of the segment increased by $8,977,000, or 122%, to $16,337,000 in fiscal 1994 and by $1,405,000, or 24%, to $7,360,000 in fiscal 1993. Approximately $60,000,000 of the segment's sales increase in 1994 was the result of business with new customers, with pre-existing customers accounting for the balance of the increase. The increase in sales in 1993 was primarily the result of placements with new customers. The operating profit increase in fiscal 1994 was due to the increased sales volume, along with slightly improved gross margins and a 9/10 of 1 percentage point reduction in the percentage of overhead expended per sales dollar. In fiscal 1993, the operating profit increase was due to the increased sales volume with improved gross margins, partially offset by the effect of a reversal, in fiscal 1992, of prior years' business tax expenses of $1,070,000. The Electronic Publication and Typesetting Systems segment's sales increased by $5,983,000, or 10%, to $65,323,000 in fiscal 1994 and increased by $1,854,000, or 3%, to $59,340,000 in fiscal 1993. The sales increases in fiscal 1994 and 1993 were primarily due to increased equipment sales in domestic and overseas markets (primarily, in 1994, in the Australian and Latin American markets). Despite the increase in sales, operating profits decreased by $706,000, or 35%, in fiscal 1994 to $1,334,000. The decrease was primarily due to a change in the product mix (a decrease in sales of some high margin products and an increase in sales of some low margin items which are in direct competition with other manufacturers) resulting in a reduction of 4 percentage points of gross margin. The decrease in gross margin was partially offset by an improvement of approximately 3 percentage points in overhead expended per sales dollar. The segment's operating profits increased by $986,000, or 94%, in fiscal 1993 to $2,040,000. The 1993 operating profit increase was due to the increased sales and a reduction in the percentage of overhead expended, partially offset by a slight decline in gross margins. The markets in which the segment competes are marked by rapidly changing technology, with sales in fiscal years 1994, 1993 and 1992 of equipment introduced within three years of each of the fiscal years comprising 84%, 65% and 66%, respectively, of equipment sales. The Telephone Directory segment's sales decreased by $4,789,000, or 6%, to $74,155,000 in fiscal 1994 and increased by $7,949,000, or 11%, to $78,944,000 in fiscal 1993. In fiscal 1994, the segment's operating profit decreased by $1,458,000, or 18%, to $6,695,000. In fiscal 1993, the segment's operating profit increased by $1,609,000, or 25%, to $8,153,000. The 1994 sales decline is primarily due to the absence in 1994 of revenue from the sale of two automated directory systems which occurred in 1993, and were not replaced by similar sales in fiscal 1994, partially offset by a 20% increase in publication sales of independent directories. The 1993 sales increase was primarily due to increases in the Uruguayan publication operation and the sales of the two automated directory management systems, while telephone directory production revenue declined by 3% due to the expiration in 1993 of certain contracts. The operating profit decline in 1994 was due to the absence of high margin automated directory system shipments made in 1993. Operating -15- 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued profit increased in fiscal 1993 due to the increased sales volume, sales of certain high margin automated directory system shipments and overhead cost reductions. This segment's services are rendered under various short and long-term contracts. A contract with a customer that generated $9 million in revenue in fiscal 1994 expires in early fiscal 1995 and will not be renewed. Other contracts expire in fiscal 1995 through 1997, and there can be no assurance that they will be renewed or replaced on similar terms. The Engineering and Construction segment's sales increased by $5,203,000, or 11%, to $52,676,000 in fiscal 1994 and by $11,165,000, or 31%, to $47,473,000 in fiscal 1993. In fiscal 1994, this segment had a profit of $792,000, compared to a loss of $1,128,000 in 1993 and a loss of $2,885,000 in 1992. The 1994 sales increase was due to a 75% increase in advanced technology services and installation services partially offset by a 4% decline in engineering revenue. The fiscal 1993 sales increase was due to increased construction and installation services offset by declines in engineering revenue. Operating results improved in fiscal 1994 and 1993 due to increased sales volume and improved gross margins. The Computer Systems segment's sales increased by $61,554,000, or 164%, to $99,135,000 in fiscal 1994 and decreased by $1,243,000, or 3%, to $37,581,000 in fiscal 1993. The segment's operating loss narrowed in 1994 by $6,381,000, or 75%, to $2,168,000 from $8,549,000 in 1993. The 1994 sales increase was due to customer acceptance which enabled the Company to recognize revenues of $64,500,000 on two major Delta Operator Service Systems (DOSS) and increased maintenance revenue. Operating profit improved in 1994, primarily due to the absence in 1994 of a $6,400,000 charge taken in 1993 for estimated costs in excess of anticipated revenues under one of these contracts and another contract. Under the completed contract method of accounting, revenues together with related costs equivalent to such revenues are recognized in income in the year of acceptance by the customer. In fiscal 1994, the Company received customer acceptance under one of such contracts, which, because of the pretax charge in the previous year, had no effect on the Company earnings for 1994, although revenue (and costs) of $59,000,000 were recognized in 1994. While sales from this contract are not recurring, as noted below, the Company has received other contracts. Other factors in the improved profitability of the segment in fiscal 1994 were the acceptance of a third contract and the increased maintenance revenues. During fiscal 1993, a pilot DOSS system was installed at another telecommunications customer and is now being used commercially by the customer. In fiscal 1994, a follow-up production system was delivered to that customer and is in the process of final acceptance testing. In fiscal years 1993 and 1994, the segment was awarded several additional contracts, two of which necessitated the opening of a new branch facility. Deliveries and installations under such contracts, which require significant customization, continue and customer acceptances are anticipated in fiscal years 1995 and 1996. Since sales under DOSS contracts are generally reported upon customer acceptance, acceptance in a particular year may affect the comparability of results with other years. Results of Operations - Other Other items, discussed on a consolidated basis, affecting results of operations were: Interest income decreased by $45,000, or 3%, in fiscal 1994 and by $171,000, or 11%, in fiscal 1993. The decrease in both years was primarily due to reduced funds available for investments in interest-bearing securities, (see "Liquidity and Capital Resources", below) and in 1993, lower prevailing interest rates. -16- 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued The Company's equity in the income of its joint ventures was $3,055,000 in 1994, a decrease of $1,885,000, or 38%, and $4,940,000 in 1993, a decrease of $1,867,000, or 27%. In February 1994, the Company sold for $16,400,000 its 50% interest in Pacific Volt Information Systems, a joint venture, which composed telephone directories in California under a contract that was due to expire in 1996. The sale resulted in a pretax gain of $9,770,000. The results for the twelve months include only four months of income attributable to this joint venture, or $661,000, compared to $2,327,000 in 1993 and $3,824,000 in 1992. Profits of the joint venture were down 39% in 1993 due to reduced sales. The Company's share of the income of its Australian joint ventures declined in 1994 by 1%, and in 1993 by 12%, primarily due to an arrangement which ended in 1993 in which the Company's share of the joint venture's income exceeded its 12-1/2% ownership. The Australian venture produces a major portion of its revenues and significantly all of its profits in the Company's second and third fiscal quarters. Selling and administrative expenses increased by $2,967,000, or 7%, to $43,075,000 in 1994 and by $1,181,000, or 3%, to $40,108,000 in 1993 to support the 29% and 7% increases in sales in the two years. These expenses expressed as a percentage of sales were 6.0%, 7.2% and 7.5% for fiscal years 1994, 1993 and 1992, respectively. Research and development expenditures increased $432,000, or 7%, in 1994 and $136,000, or 2%, in 1993. The 1994 increase was comprised of a $1,545,000 increase in the Computer Systems segment, partially offset by decreases in the Telephone Directory and Electronic Publication and Typesetting Systems segments of $696,000 and $417,000, respectively. The 1993 increase was attributable to the Telephone Directory segment. Depreciation and amortization increased by $554,000, or 5%, to $10,745,000 in 1994 and decreased by $932,000, or 8%, to $10,191,000 in 1993. The 1994 increase is due to increased fixed asset expenditures in 1993 and 1994, while the 1993 decrease is due to reduced fixed asset expenditures in earlier years. Foreign exchange losses in fiscal year 1994 were lower than in 1993 due to increased stability of European currency markets in 1994. The gain in fiscal year 1992 was primarily attributable to bank debt denominated in Uruguayan currency which was highly volatile. Interest expense decreased by $3,610,000, or 33%, to $7,468,000 in 1994 and by $491,000, or 4%, to $11,078,000 in 1993. The decreases in 1994 and 1993 were due to reductions in the interest rate on a mortgage loan and to the repurchase of a portion of the Company's 12-3/8% Subordinated Debentures. The Company has established additional financing at lower costs through the sale of accounts receivable, proceeds from which were used to call and redeem $20,000,000 of debentures in November 1993. An additional $10,000,000 of debentures were redeemed in May 1994 using the proceeds from the sale of a 50%-owned joint venture. In fiscal 1994 and 1993, other income was reduced by charges of $1,557,000 and $849,000 respectively, for costs incurred in conjunction with the sale of accounts receivable. These costs partially offset the savings in interest expense (see Note C of Notes to Consolidated Financial Statements). See Note F of Notes to Consolidated Financial Statements for information concerning the Company's effective tax rates for fiscal 1992 through fiscal 1994. -17- 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued The cumulative effect of a change in accounting for income taxes of $959,000 in fiscal 1993 relates to the adoption by the Company of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", in the first quarter of 1993. Due to the uncertainty as to their future utilization, tax benefits have not been recognized for certain loss and credit carryforwards by establishing a valuation allowance which will be periodically evaluated. Liquidity and Capital Resources Cash and cash equivalents decreased by $24,032,000 in fiscal year 1994 to $17,049,000 and working capital increased by $750,000 in fiscal 1994 to $61,839,000 at October 28, 1994. Cash flows from operating activities contributed $14,513,000 to cash flows. Many factors, reflected in the accompanying Consolidated Statements of Cash Flows, affected the amount of cash flows from operating activities. Primary among the factors providing cash flows to operating activities in fiscal 1994 were the Company's net income of $11,773,000, a non-cash expense of $10,745,000 for depreciation and amortization, and increases in accrued expenses of $11,164,000 and customer advances of $4,928,000 due to the increased level of activities, with the balance being contributed by several items. Among the principal uses of cash in operating activities in fiscal 1994 were an increase in the level of accounts receivable of $27,226,000 due to the increased level of activity and a gain of $9,770,000 on the sale of a joint venture (the proceeds relating to which are included in investing activities). The principal factors in the application of $1,228,000 to investment activities were the purchase of property, plant and equipment for $14,916,000 and investment in joint ventures for $2,517,000, offset, in part, by the proceeds of $16,382,000 received from the sale of a joint venture. Cash of $36,348,000 was applied to financing activities. In November 1993, the Company redeemed $20,000,000 of its 12-3/8% Subordinated Debentures and, in May 1994, redeemed an additional $10,000,000 of the debentures which, together with previously redeemed and repurchased Debentures, has satisfied all future sinking fund requirements until the debentures mature in 1998. In addition, the Company repaid a $15,400,000 mortgage loan which was due in December 1994, refinancing that mortgage with a $10,000,000 five-year loan which is secured by a deed of trust on land and buildings. The Company believes that its current financial position, working capital and future cash flows will be sufficient to fund its presently contemplated operations and satisfy its debt obligations. The Company has no material capital commitments. The Company may determine, from time-to-time in the future, to buy additional shares of its common stock and/or debentures in the market or in privately negotiated transactions. In addition to its cash and cash equivalents, at October 28, 1994, the Company's investment portfolio included investments at a carrying value of $8,095,000. The Company also has a $7,000,000 credit line with a domestic bank under a revolving credit agreement which expires in November 1995, unless renewed. The Company has outstanding bank borrowings under that line of $4,925,000 at October 28, 1994. -18- 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed on its behalf by the undersigned, thereunto duly authorized. VOLT INFORMATION SCIENCES, INC. Dated: New York, New York April 28, 1995 /s/ Jack Egan ------------------------------------ Jack Egan Vice President, Corporate Accounting (Principal Accounting Officer) -19- -----END PRIVACY-ENHANCED MESSAGE-----