UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/ X //X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended October 28, 2007November 2, 2008
or
/ //_/ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________________________ to ___________________________
Commission file 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.)
560 Lexington Avenue, New York, New York 10022
---------------------------------------- --------------------------------------------------- -----
(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
------------------- -----------------------------------------
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 if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes /_/ No X
--- ---/X/
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes /_/ No X
--- ---/X/
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/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 ]/_/
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule
12b-2).or a smaller reporting company:
Large Accelerated Filer /_/ Accelerated Filer X/X/
Non-Accelerated Filer --- --- ---/_/ Smaller Reporting Company /_/
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes /_/ No X
--- ---/X/
The aggregate market value of the common stock held by non-affiliates of the
registrant was approximately $325$170 million, based on the closing price of $25.10$13.48
per share on the New York Stock Exchange on April 27, 200725, 2008 (the last business
day of the registrant's fiscal second quarter). Shares of common stock held
beneficially by executive officers and directors and their spouses and the
registrant's Savings Plan, have been excluded, without conceding that all such
persons or plans are "affiliates" of the registrant).
The number of shares of common stock outstanding as of January 4, 200823, 2009 was
23,480,103.20,842,806.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 20082009 Annual Meeting are
incorporated by reference into Part III of this Report.
TABLE OF CONTENTS
Page
PART I
Item 1. Business 2
Item 1A. Risk Factors 16
Item 1B. Unresolved Staff Comments 23
Item 2. Properties 24
Item 3. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of Security Holders 25
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 27
Item 6. Selected Financial Data 28
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 29
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 58
Item 8. Financial Statements and Supplementary Data 60
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 98
Item 9A. Controls and Procedures 98
Item 9B. Other Information 101
PART III
Item 10. Directors and Executive Officers and Corporate Governance 101
Item 11. Executive Compensation 101
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters 101
Item 13. Certain Relationships and Related Transactions, and Director
Independence 101
Item 14. Principal Accountant Fees and Services 101
PART IV
Item 15. Exhibits and Financial Statement Schedules 102
1Page
----
PART I
Item 1. Business 2
Item 1A. Risk Factors 13
Item 1B. Unresolved Staff Comments 20
Item 2. Properties 21
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 22
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 24
Item 6. Selected Financial Data 27
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 28
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 67
Item 8. Financial Statements and Supplementary Data 69
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 108
Item 9A. Controls and Procedures 108
Item 9B. Other Information 112
PART III
Item 10. Directors, Executive Officers and Corporate Governance 112
Item 11. Executive Compensation 112
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matter 112
Item 13. Certain Relationships and Related Transactions, and Director
Independence 112
Item 14. Principal Accountant Fees and Services 112
PART IV
Item 15. Exhibits and Financial Statement Schedules 113
-1-
PART I
ITEM 1. BUSINESS
General
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Volt Information Sciences, Inc. is a New York corporation, incorporated in 1957.
We sometimes refer to Volt Information Sciences, Inc. and its subsidiaries
collectively as "Volt" or the "Company," unless the context otherwise requires.
Volt operates in the following two businesses which have four operating
segments:
Staffing Services
- -----------------
(1) Staffing Services - This segment provides a broad range of employee
staffing services to a wide range of customers throughout North America,
and Europe and Asia/Pacific and has recently expanded operations in Asia/Pac.Latin
America. These services fall within three major functional areas:
o Staffing Solutions provides a full spectrum of managed staffing,
temporary/contract personnel employment, and workforce solutions. This
functional area is comprised of the Technical PlacementResources ("Technical")
division and the Administrative and Industrial ("A&I") division. The
employees and contractors on assignment are usually on the payroll of
the Company for the length of their assignment, but this functional
area also uses employees and subcontractors from other staffing
providers ("associate vendors") when necessary. This functional area
also provides direct placement services and, upon agreement withrequest from
customers, subject to contractual conditions, will allow the customer
to convert the temporary employees to permanentfull-time customer positions.employees
under negotiated terms. In addition, the Company's Recruitment Process
Outsourcing ("RPO") services deliver end-to-end recruitment and hiring
outsourced solutions to customers. The Technical division provides
skilled employees, such as computer and other Information Technology
("IT") specialties, engineering, design, scientificlife sciences and technical
support. The A&I division provides administrative, clerical,
accounting and financial, call center and light industrial personnel.
Employee assignmentsThe length of an employee's assignment in the Technical division usuallymay
be as short as a few weeks but in many cases can last from weeksfor six to
months, whiletwelve months. Assignments in the A&I division the assignments are generally shorter.shorter
than in the Technical division.
o E-Procurement Solutions provides global vendor neutralcompetitively bid human
capital acquisition and management solutions by combining web-based
tools and business process outsourcing services. The employees and
contractors on assignment are usually from associate vendor firms,
although at times Volt recruited employees and contractors may be
selected to fill some assignments, but in those cases Volt must
compete on an equal basis with other unaffiliated firms. The skill sets utilized in
this functional area closely match those of the Technical
assignments within the Staffing Solutions area. The Company
receives a fee for managing the process, and the revenue for such
services is recognized net of its associated costs. This functional
area, which is part of the Technical division, is comprised of the
ProcureStaff operation.
o Information Technology Solutions provides a wide range of services
including consulting, outsourcing and turnkey project management in
the productsoftware and hardware development, lifecycle, IT infrastructure services and
customer contact markets. This functional area offers higher margin
project-oriented services to its customers and assumes greater
responsibility for the finished product in contrast to the other areas within the segment. This
functional area, which is part of the Technical division, is comprised
of the VMC Consulting operation.
-2-
Telecommunications and Information Solutions
- --------------------------------------------
(2) Telephone Directory: This segment publishes independent telephone
directories and provides telephone directory production services,
database management and printing. Most of the revenues of this segment
are derived from the sales of telephone directory advertising for the
books it publishes. This segment is comprised of the DataNational
directory publishing operation, the Uruguay directory publishing and
printing operations, and other domestic directory production
locations.
(3) Telecommunications Services:Services - This segment provides a full spectrum of
turnkey telecommunications and related services solutions for commercial
and government sectors. It designs, engineers, constructs, installs and
maintains voice, data, video and video turnkey solutionsutility infrastructure for governmentpublic and
private sectors, encompassing engineering, construction, installationbusinesses, military and maintenance services. These services include outside plant engineering
and construction, central office network solutions, integrated
technologies, global solutions (structured cabling, field dispatch,
installation and repair, security access control and maintenance),
government solutions and wireless solutions. This segment is comprised
of the Construction and Engineering division and the Network
Enterprise Solutions division.
(4)agencies.
(3) Computer Systems:Systems - This segment provides directory and operator systems and
services primarily for the telecommunications industry and provides IT
maintenance services. The segment also sells information systems to its
customers and in addition, provides an Application Service Provider ("ASP") model which
also provides information services, including infrastructure and database
content, on a transactional fee basis. It also provides third-party IT and
data services to others. This segment is comprised of Volt Delta Resources,
LLC and its subsidiary Volt Delta International LSSiData(collectively "VoltDelta"),
LSSiDATA and the Maintech computer maintenance division.
(4) Printing and Other - This segment provides printing services and publishes
telephone directories in Uruguay. The telephone directory revenues of this
segment are derived from the sales of telephone directory advertising for
the books it publishes. The operations of this segment were part of the
Telephone Directory segment until the third quarter of fiscal 2008. In
September 2008, the Company sold the net assets of its DataNational and
Directory Systems divisions, whose operations for the current and
comparable periods have been reclassified to Discontinued Operations, with
the remainder of the segment being renamed Printing and Other.
-3-
Information as to Operating Segments
The following tables set forth the contribution of each operating segment to the
Company's consolidated sales and operating profit for each of the three fiscal
years in the period ended October 28, 2007,November 2, 2008, and those assets identifiable within
each segment at the end of each of those fiscal years. This information should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements in
Items 7 and 8, respectively, of this Report.
November October October
October2, 2008 28, 2007 29, 2006
30, 2005
---------- ---------- --------------------- ----------- -----------
NET SALES (In thousands)
Staffing Services:
Sales to unaffiliated customers
Staffing $1,916,621 $1,910,416 $1,759,683$ 1,982,072 $ 1,916,621 $ 1,910,416
Managed Services 1,278,399 1,212,915 1,109,315
1,157,168
---------- ---------- --------------------- ----------- -----------
Total gross sales 3,260,471 3,129,536 3,019,731 2,916,851
Less: Non-recourse Managed Services--Note 1 (1,222,972) (1,164,243) (1,052,682)
(1,121,196)
Intersegment sales 6,316 5,642 5,233
6,155
---------- ---------- --------------------- ----------- -----------
2,043,815 1,970,935 1,972,282
1,801,810
---------- ---------- ----------
Telephone Directory:
Sales to unaffiliated customers 80,775 79,351 82,298
Intersegment sales - - -
---------- ---------- ----------
80,775 79,351 82,298
---------- ---------- --------------------- ----------- -----------
Telecommunications Services:
Sales to unaffiliated customers 170,753 118,311 118,081
137,799
Intersegment sales 970 1,401 781
1,212
---------- ---------- --------------------- ----------- -----------
171,723 119,712 118,862
139,011
---------- ---------- --------------------- ----------- -----------
Computer Systems:
Sales to unaffiliated customers 202,167 188,703 173,972
161,867
Intersegment sales 10,488 10,611 13,958
11,252
---------- ---------- --------------------- ----------- -----------
212,655 199,314 187,930
173,119
---------- ---------- --------------------- ----------- -----------
Printing and Other:
Sales to unaffiliated customers 16,899 12,754 11,130
Intersegment sales -- 9 91
----------- ----------- -----------
16,899 12,763 11,221
----------- ----------- -----------
Elimination of intersegment sales (17,654) (19,972) (18,619)
---------- ---------- ----------(17,774) (17,663) (20,063)
----------- ----------- -----------
TOTAL NET SALES $2,353,082 $2,338,453 $2,177,619
========== ========== ==========$ 2,427,318 $ 2,285,061 $ 2,270,232
=========== =========== ===========
SEGMENT PROFIT (LOSS)
Staffing Services $53,598 $58,799 $31,179
Telephone Directory 17,059 15,828 14,895(1) $ 40,516 $ 53,598 $ 58,799
Telecommunications Services (22,641) 4,977 (1,168)
(2,429)
Computer Systems (1) (22,715) 31,676 28,447
35,801
---------- ---------- ----------Printing and Other 306 209 (2,103)
----------- ----------- -----------
Total segment (loss) profit 107,310 101,906 79,446(4,534) 90,460 83,975
General corporate expenses (39,770) (43,350) (38,839)
---------- ---------- ----------(36,114) (39,772) (43,349)
----------- ----------- -----------
TOTAL OPERATING (LOSS) PROFIT 67,540 58,556 40,607(40,648) 50,688 40,626
Interest income and other (expense) income, net (1,293) (4,663) (2,234)848 (890) (4,304)
Interest expense (7,624) (3,612) (1,819)
(1,825)
Foreign exchange lossgain (loss) 1,155 (421) (505)
(255)
---------- ---------- ----------
Income----------- ----------- -----------
(Loss) income from continuing operations before income taxes and
minority interest $62,214 $51,569 $36,293
========== ========== ==========($ 46,269) $ 45,765 $ 33,998
=========== =========== ===========
(1) In the fourth quarter of fiscal 2008, the Company recorded a goodwill
impairment charge of $4.9 million in the Staffing Service segment and $41.5
million in the Computer Systems segment.
-4-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
OPERATING SEGMENT DATA--Continued
October October October
28, 2007 29, 2006 30, 2005
---------- ---------- ----------
(In thousands)
IDENTIFIABLE ASSETS
Staffing Services $485,500 $457,204 $446,990
Telephone Directory 48,937 50,442 55,238
Telecommunications Services 75,532 38,800 53,173
Computer Systems 220,309 138,625 103,720
---------- ---------- ----------
830,278 685,071 659,121
Cash, investments and other corporate assets 9,873 14,050 29,591
---------- ---------- ----------
Total assets $840,151 $699,121 $688,712
========== ========== ==========
November October October
2, 2008 28, 2007 29, 2006
-------- -------- --------
(In thousands)
IDENTIFIABLE ASSETS
Staffing Services $455,618 $485,500 $457,204
Telecommunications Services 48,635 75,532 38,800
Computer Systems 189,669 220,309 138,625
Printing and Other 13,811 13,674 13,627
-------- -------- --------
707,733 795,015 648,256
Cash, investments and other corporate assets 218,046 9,873 14,050
Discontinued Operations -- 35,263 36,815
-------- -------- --------
TOTAL ASSETS $925,779 $840,151 $699,121
======== ======== ========
Note 1 Under certain contracts with customers, the Company manages the
customers' alternative staffing requirements, including transactions
between the customer and third partythird-party staffing vendors ("associate
vendors"). When payments to associate vendors are subject to receipt
of the customers' payment to the Company, the arrangements are
considered non-recourse against the Company and revenue, other than
management fees to the Company, is excluded from net sales.
Staffing Services Segment
- -------------------------
Volt's Staffing Services segment, through two divisions, the Technical PlacementResources
division and the Administrative and Industrial division, provides a broad
spectrum of services in three major functional areas: Staffing Solutions, IT
Solutions and E-Procurement Solutions, to a wide range of customers throughout
the world. The Technical PlacementResources division provides Staffing Solutions, IT
Solutions and E-Procurement Solutions, while the Administrative and Industrial
division provides Staffing Solutions.
Staffing Solutions
------------------
Volt markets a broad-based spectrum of staffing and workforce solutions,
such as managed services, direct placement services, temporary/contract
staffing and referred employee management, through more than 300 locations,
to a wide range of customers, from local companies to multinational
corporations. Volt's business offerings assist customers in managing
productivity, achieving process efficiencies and managing workforce spend.
Volt Workforce Solutions/Volt Services Group/Volt Technical Services/Volt
Europe/Volt Human Resources/Volt Asia EnterprisesEnterprises/Volt Workforce Solutions
Canada/Arctern/Advice (Staffing Solutions Group)
Staffing and other workforce solutions provided by this segment are
generally identified and branded throughout the United States as "Volt
Workforce Solutions," "Volt Services Group," and "Volt Technical
Resources," throughout Europe as "Volt Europe," throughout Canada as "Volt
Human Resources" andWorkforce Solutions Canada," in AsiaAsia/Pacific as "Volt Asia Enterprises"Enterprises," in
India as "Arctern" and in Latin America as "Advice" (collectively the
"Staffing Solutions Group"). Business offerings are provided to customers
in many industry segments and include temporary/contract employment and
referred employee management in a broad range of categories, including
accounting, finance, administrative, engineering, human resources,
information technology, life sciences, customer contact, manufacturing and
assembly, technical communications and media, technical and warehousing and fulfillment.
-5-
In addition, branch officesfield operations that have developed a specialty in one or
more of the above listed disciplines often use the name "Volt" followed by
their specialty disciplines to identify themselves, e.g. "Volt Computer
Services", "Volt Life
Sciences",Sciences," "Volt Accounting & Finance",Finance," "Volt Automotive Services," "Volt
Aerospace Services," "Volt Design and Technology Services" and "Volt
Aerospace Services.Professional Search." Other branch offices have adopted other names to
differentiate themselves from traditional temporary staffing when their
focus is more discipline-oriented.
-5-
The Staffing Solutions Group maintains a database of available workers to
match to employer assignments and competes in both to recruitthe recruitment of
available candidates and to attract customers to employ contingent workers.
Contingent workers are provided for varying periods of time to companies
and other organizations (including government agencies and non-profit
entities) in a broad range of industries that have a need for such
personnel, but are unable, or choose not to, engage certain personnel as
their own employees. Customers range from those that require one or two
contingent workers at a time to national accounts that require as many as
several thousand at one time.
Contingent workers are provided to meet specific customer requirements,
such as to complete a specific project (with employees typically being
retained until its completion), to enable customers to scale their
workforce according to business conditions, meet a particular need that has
arisen, substitute for regular employees during vacation or sick leave,
staff high turnover positions, fill in during the full-time hiring process
or during a hiring freeze and staff seasonal peaks, conversions, inventory
taking and offices that are downsizing. Many large organizations utilize
contingent labor as a strategic element of their overall workforce,
allowing them to more efficiently meet their fluctuating staffing
requirements. In certain instances, the Staffing Solutions Group also
provides management personnel to coordinate and manage special projects and
to supervise contingent workers.
Volt's Staffing Solutions also include managed services programs, sometimes
branded as "VoltSource""VoltSourcesm", which provide dedicated account management in an
on- or off-site capacity that fulfill customer workforce initiatives,
improve overall staffing process efficiencies, and manage associate vendor
relationships. Many of the Company's larger customers, particularly those
with national agreements, have contracted for managed services programs
under which the Company, in addition to itself providing staffing services,
performs various administrative functions depending on the program. These
include centralized order processing and procurement of other qualified
staffing providers as subcontractors, commonly referred to as "associate
vendors," to provide service in areas where the Company does not maintain
an office or cannot recruit sufficient qualified personnel and to supply
secondary source back-up recruiting or provide assistance in meeting the
customer's stated diversity and/or subcontracting goals. In othersome managed
services programs, requisitions are sent simultaneously to a number of
approved staffing firms, and Volt must compete for each placement. Other
features of managed services programs include 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 tailored to the customer's unique needs for single
source consolidated billing, reporting and payment. In most cases, Volt is
required to pay the associate vendor only after Volt receives payment from
its customer. Volt also acts as an associate vendor to other national
providers in their managed services programs to assist them in meeting
their obligations to their customers. The bidding process for these managed
service and national contracts is generally very competitive. The Staffing Solutions
Group has been successful in obtaining a number of large national contracts
that typically require on-site Volt representation and fulfillment at
multiple customer facilities. Many contracts are for a one
to threeone-to-three year
time period, at which time they are typically re-bid. Others are for
shorter periods or may be for the duration of a particular project or
subproject or a particular need that has arisen, which requires additional
or substitute personnel. Many of these contracts require considerable
start-up costs and may take from six to twelve months to reach anticipated
revenue levels and reaching those projected levels is dependent on the
customer's actual requirements at that time. The Staffing Solutions Group
maintains a group dedicated to the acquisition, implementation and service
of national accounts; however, there can be no assurance that Volt will be
able to retain accounts that it currently serves, or that Volt can obtain
additional national accounts on satisfactory terms.
-6-
The Staffing Solutions Group maintains centralized databases, containing
resumes of candidates from which it fills customers' job requirements.
Other candidates are referred by the customer itself for assignment as Volt
employees. Volt Europe and Volt AsiaVolt's foreign staffing operations maintain similar computerized
databases containing resumes of candidates from their geographic areas.
Higher skilled individuals employed by the Staffing Solutions Group are
frequently willing to relocate to fill assignments, while lesser skilled
employees are generally recruited and assigned locally. In addition to
maintaining proprietary Internetinternet recruiting sites, the segment has numerous
contracts with independent web-based job search companies.
-6-
Individuals hired by the Staffing Solutions Group typically become Volt
employees or contractors during the period of their assignment. When the
employer of record, Volt is responsible for the payment of wages, payroll
taxes, workers' compensation, and unemployment insurance and other benefits,
which may include paid sick days, holidays, vacations and medical insurance. Increases in payroll taxes and costs of workers' compensation
and unemployment insurance and other benefits have had and will continue to
have a significant effect on the Company's profitability, competitiveness
and financial performance.
The Staffing Solutions Group provides direct placement services as well. In
the United States, these services are provided through Volt Professional
Placement,Search, an employment search organization specializing in the recruitment
and direct hire of individuals, including information technology,
engineering, technical, accounting, finance and administrative support
disciplines. In addition, some customers will convert contingent staff to
permanent positions and the Company may receive a conversion fee.
Recruitment Process Outsourcing services, newly branded as "Momentum, a Volt
Information Sciences Company",Company," delivers end-to-end recruitment and hiring
outsourced solutions for customers, starting at the requisition process and
extending through sourcing, screening and onboarding of the customer's
employees.
The domestic and global staffing services industry is highly competitive.
The Company currently competes in major markets in North America, Europe,
and Asia with many global staffing companies, as well as many regional and
local competitors, to recruit and maintain a database of potential
employees and to obtain and service customers who require contingent
staffing and other workforce solutions.
Although the Staffing Solutions Group continues its efforts to increase its
customer base and to broaden its services, there is no assurance that its
present or future services will be competitive, that it will continue to
obtain new customers or renew or extend existing customer contracts or
develop new services or that its present services or new services will
continue to be successfully marketed.
Information Technology Solutions
--------------------------------
VMC Consulting
Information Technology Project Management Solutions, branded as VMC
Consulting, includes a varied portfolio of project-based professional
services, often utilizing contingent staff sourced by Volt Staffing
Solutions Group. With locations and customers in North America, Europe, and
Asia,Asia/Pacific, VMC's services are delivered via outsourcing and in-sourcing
models, whether onsite, offsite, onshore, near-shore,nearshore, offshore or hybrid
engagements. Projects include productsoftware and hardware development, IT
infrastructure supportservices and technical call center services.customer contact markets.
Offerings include electronic game testing, hardware and software testing,
technical communications, technical call center support, data center
management, enterprise technology implementation and integration and
corporate help desk services. Consulting, project management, and other
services currently are delivered to companies in the following industries:
consumer products, financial services, manufacturing, media/entertainment,
pharmaceuticals, software and technology.
Although VMC Consulting continues its efforts to increase its customer base
and to broaden its services, there is no assurance that its present or
future services will be competitive, that it will continue to obtain new
customers or renew or extend existing customer contracts or develop new
services or that its present services or new services will continue to be
successfully marketed.
-7-
E-Procurement Solutions
-----------------------
ProcureStaff
ProcureStaff, Ltd. offers vendor neutralcompetitive bid internet-based procurement and
spend management solutions for Global 1000 and other customers. At the core
of the ProcureStaff's service offerings is its Vendor Management System (VMS)
technology, business-to-business e-commerce applications that streamline
client and vendor functions while significantly reducing costs and the
risks of non-compliance with client policies.
-7-
ProcureStaff maintains significant international operations tailored toin compliance with local
country laws and market conditions and is aggressively seeking new global
customers and markets. ProcureStaff also automates and manages the
source-to-settle process (from identification of initial requirement
through payment for final deliverable) for resource-based services to
provide visibility and centralized control over all categories of
enterprise-wide service expenditures, including statement of work, project
work and deliverable based services. ProcureStaff provides this
source-to-settle process to its customers with web-based access, the
creation of project bid requests, requisition management, electronic
procurement, customer relationship management, vendorsupplier management, time
and expense keeping, consolidated invoicing,management, consolidated billing and supplier payment and
sophisticated on-line management reporting. Programreporting through its standard report package or its
customer ad hoc reporting tool. New program implementation imposes start up
costs on ProcureStaff which may take up to a year to recover. ProcureStaff
competes with other companies which provide similar vendor neutral
solutions, some of which are affiliated with competitive staffing
companies.
Although ProcureStaff continues its efforts to obtain new customers and to
develop and enhance its services and systems, there is no assurance that
its present or future services will be competitive, that it will continue
to obtain new customers or renew existing customer contracts or develop new
services or that present services or new services will continue to be
successfully marketed.
During the week ended October 28, 2007,November 2, 2008, the entire Staffing Services segment
provided approximately 36,000 (41,00037,000 (36,000 in 2006)2007) of its own temporary employees to
its customers, in addition to employees provided by associate vendors and other
contractors.
While the markets for the entire Staffing Services segment's services include a
broad range of industries throughout North America, Europe and Asia, general
economic conditions in specific geographic areas or industrial sectors affect
the profitability of the segment. The segment has also experienced margin
erosion caused by increased competition, electronic auctions and customers
leveraging their buying power by consolidating the number of vendors with which
they deal. While the segment has reduced workers compensation costs and is
committed to further efficiencies designed to increase profitability, there can
be no assurances that profitability will increase. In addition, this segment
could be adversely affected by changes in laws, regulations and government
policies, including the results of pending litigation and governmental activity
regarding the staffing services industry and related litigation expenses,
customers' attitudes toward outsourcing and temporary personnel, any decreases
in rates of unemployment in the future and higher wages sought by temporary
workers, especially those in certain technical fields often characterized by
labor shortages.
Through VMC, the segment has increased the number of higher margin
project-oriented services to its customers and thus assumed greater
responsibility for the finished product. The risks of unsuccessful performance,
including claims by customers and the potential for uncompensated rework and
other liabilities, are greater in VMC in contrast to traditional staffing
services. While the Company believes that VMC can successfully implement its
project-based contracts, there can be no assurance that such claims and costs of
rework will not increase.
The ability of the Staffing Services segment 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 varies from market to market and country to country.
In most areas there are few significant barriers to entry and no single provider
has a dominant share of the market. The staffing services market is highly
competitive and pricing pressure from customers and competitors continues to be
significant. Many of the contracts entered into by this segment are of a
relatively short duration, and awarded on the basis of competitive proposals
that are periodically re-bid by the customer. Under many of these contracts,
-8-
there is no assurance of any minimum amount of work that will actually be
available and the Company is frequently required to compete for each individual
placement; therefore these contracts do not give the assurance that long-term
contracts typically provide. Although the Company has been successful in
obtaining various short and long-term contracts in the past, in many instances
margins under these 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, or that revenues or
profitability from an expired contract will be replaced. Some of this segment's
national contracts are large, and the loss of any large contract could have a
significant negative effect on this segment's business unless, and until, the
business is replaced. The segment competes with many staffing firms, some of
which are larger and have substantially greater financial resources than Volt,
as well as with individuals seeking direct employment with the Company's
existing and potential customers.
Telephone Directory Segment
- ---------------------------
Volt's Telephone Directory segment publishes independent telephone directories
in the United States and publishes telephone directories in Uruguay; provides
telephone directory production, commercial printing, database management, sales
and marketing services; and licenses directory production and contract
management software systems to directory publishers and others. This segment
consists of DataNational, Directory Systems/Services and the Uruguay division.
DataNational
DataNational, Volt's independent telephone directory publisher, principally
publishes community-based directories, primarily in the mid-Atlantic and
southeastern portions of the United States. DataNational's community-based
directories provide consumers with information concerning businesses that
provide services within their local geographic area. The directories may
also include features that are unique to the community, such as school
information, maps and a calendar of events. All of the DataNational
directories are also available on the Internet at www.communitybook.info.
The division identifies markets where demographics and local shopping
patterns are favorable to the division's community-oriented product and
adjusts accordingly. During fiscal 2007 and fiscal 2006, the division
published 145 and 139, respectively, community, county and regional
directories. DataNational's principal competitors are regional telephone
companies, whose directories typically cover a much wider geographic area
than the DataNational directories, as well as other independent telephone
directory companies, which compete at the local level. DataNational's
revenues are generated from yellow page advertising sold in its
directories. The Company believes that advertisers are attracted to
DataNational's community directories because the directories enable them to
specifically target their local markets at a much lower cost than
directories covering larger markets. Some competitors are much larger than
DataNational and have greater financial resources to enable them to compete
aggressively in the same markets.
Directory Systems/Services
Directory Systems/Services develops and markets telephone directory systems
and services to directory publishers, using computer systems manufactured
by others, combined with proprietary software developed by the Company and
by third parties specifically for the division. These systems manage the
production and control of databases principally for directory and other
advertising media publishers and produce digitized display advertisements
and photocomposed pages, with integrated graphics, for both printed and
electronic yellow and white pages directories. These systems incorporate
"workflow management," by which ads are automatically routed between
workstations, increasing throughput and control, including management of
additions and deletions of listings. These systems are licensed to, and the
services are performed for, publishers and others worldwide, including the
segment's DataNational division.
Uruguay
In 2007, Volt's Uruguay division published yellow pages telephone
directories as an independent publisher. Revenues are generated from the
sale of yellow pages advertising.
In addition to the directory business, Volt's Uruguay division owns and
operates an advanced directory printing facility, which includes, among
other presses, a high speed, four-color, heat set printing press that is
used to print not only its own telephone directories, but also directories
for publishers in other South American countries. In addition, this
facility does commercial printing, including magazines and periodicals, for
various customers in Uruguay and elsewhere in South and Central America.
-9-
The Telephone Directory segment's ability to compete depends on its reputation,
technical capabilities, price, quality of service and ability to meet customer
requirements in a timely manner. The segment faces intense competition for all
of its services and products from other suppliers and from in-house facilities
of potential customers. Some of this segment's significant competitors are
companies that are larger and have substantially greater financial resources
than the Company. This segment's sales and profitability are highly dependent on
advertising revenue, which has been and continues to be affected by general and
local economic conditions.
Although economic conditions in Uruguay and neighboring countries are improving,
they continue to have a significant adverse impact on advertising and printing
revenue and operating profits of the Uruguay operation. The printing operations
are also facing intense competition from other suppliers in neighboring
countries.
Other than DataNational, a substantial portion of this segment's business is
obtained through submission of competitive proposals for contracts. These short
and long-term contracts are re-bid after expiration. 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 and customers, there can be no assurance that
contracts will be renewed or extended, that the segment can successfully obtain
new business and customers or that additional or replacement contracts will be
awarded to the Company on satisfactory terms. In addition, the segment's sales
and profitability are highly dependent on advertising revenue from
DataNational's directories, which could be affected by general economic
conditions.
Telecommunications Services Segment
- -----------------------------------
Volt's Telecommunications Services segment provides telecommunications and other
infrastructure services, including design, engineering, construction,
installation, maintenance and removal of telecommunications equipment for the
outside plant and central offices of telecommunications and cable companies, and
within end-user premises, in the United States. This segment also provides complete turnkey servicesinstalls
distribution piping for wireless telecommunications carrierspotable and wireless infrastructure suppliers,re-use water systems for municipalities,
provides limited distribution of products and provides some
non-telecommunications engineering, construction and constructioninstallation services for
other utilities.
The Telecommunications Services segment is a full-service provider of turnkey
solutions to the telecommunications, cable and other industries, as well as for
large corporations and governmental entities. In performing these services, the
segment employs the latest technologies, such as GPS mapping of facilities. The segment's services include:
o Engineering services, including feasibility studies, right-of-way
acquisition, network design and detailed engineering for copper, coaxial
and fiber infrastructure, carrier systems design, conduit design,
computer-aided design drafting, digitizing records, building industry
consultant engineering (BICSI), turnkey design, program management, air
pressure design and record verification.
o Construction services, including aerial, underground and other construction
services, using the Company's owned and leased vehicles and equipment.
These services include jack and bore, directional boring, trenching and
excavation, conduit and manhole systems, cable placement and splicing, pole
placement and wrecking, copper, coaxial and long- and short-haul fiber
optic cable installation, splicing, termination and testing, project
management and inspection services. In addition, this segment also installs
distribution piping for potable and re-use water systems for
municipalities.
o Enterprise infrastructure solutions, including structured cabling and
wiring and field installation and repair services involving the design,
engineering, installation and maintenance of various types of local and
wide-area networks, utilizing copper wiring, coaxial and fiber optics, for
voice, data and video, digital subscriber lines (DSL), security and access
control solutions and other broadband installation and maintenance services
to operating telephone companies, telecommunications equipment
manufacturers, cable companies and large end-users, in both the government
and private sectors.
-10-
o Central Office services, including engineering, furnishing, installing,
maintaining and removal of transmission systems, distribution frame
systems, AC/DC power systems, wiring and cabling, switch peripheral
systems, equipment assembly and system integration and controlled
environment structures, and other network support services, such as
grounding surveys and asset management.
o Wireless services, including complete turnkey solutions to fixed and mobile
wireless providers, equipment manufacturers, municipalities and enterprise
customers. This includes establishing or enhancing network infrastructure,
design, engineering and construction/installation services, site selection,
RF engineering, tower erection, antenna installation and inside cabling and
wiring services.
This segment also resells telecommunications equipment to customers. In
addition, this segment offers the added value of being able to provide total
management of multi-discipline projects because of its ability to integrate
efforts on a single project and to assume responsibility for programs that
require a single point of contact and uniform quality. The segment performs
these services on a project and/or contract personnel placement basis in the
outside plant, central offices, wireless sector and within end-user premises.
Customers include telephone operating companies, local exchange carriers,
wireless carriers, telecommunications equipment manufacturers, cable television
providers, electric, gas, water and water-services utilities, federal, state and
municipal government units and private industry.
This segment faces substantial competition with respect to all of its
telecommunications services from other suppliers and many customers provide the
same type of services as the segment, which means that the segment faces
competition from its own customers as well as from third parties. Construction
services have been, and could be in the future, adversely affected by weather
conditions, because much of the business is performed outdoors. Some of this
segment's significant competitors are larger and have substantially greater
financial resources than the Company. There are few significant barriers to
entry into certain of the markets in which the segment operates, and many
competitors are small, local companies that generally have lower overhead. The
Company'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. The Company 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 the Company's business in this segment is obtained through the
submission of competitive proposals for contracts that typically expire within
one to three years and upon expiration are re-bid and price is often an
important factor in the award of such agreements. Many of this segment's
long-term contracts contain cancellation provisions under which the customer can
cancel the contract, even if the segment is not in default under the contract.
Under many of these contracts, including master service contracts, there is no
assurance that any minimum amount of work will actually be available; therefore,
these contracts do not give the assurance that long-term contracts typically
provide. 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 and customers, 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 or that the Company can obtain new business
and customers. In addition, the results of the segment continue to be affected
by the decline in capital spending by telephone companies caused by the
consolidation within the segment's telecommunications industry wire-line
customer base and an increasing shift by consumers to wireless communications
and alternatives. This factor has also increased competition for available work,
pressuring pricing and gross margins throughout the segment.-8-
Computer Systems Segment
- ------------------------
Volt's Computer Systems segment provides customers worldwide with telephone
directory services, information services and other operator services systems,
and designs, develops, sells, leases and maintains computer-based directory
assistance services along with other database management and related services,
primarily to the telecommunications industry, through VoltDeltaVolt Delta Resources, LLC.
and its subsidiaries (collectively "VDR"). The segment also provides third partythird-party
IT and data services to others. This segment is comprised of three synergistic
business units: VoltDeltaVolt Delta Resources, ("VoltDelta"LLC and Volt Delta International
(collectively "VoltDelta"), LSSiDataLSSiDATA and Maintech.
-11-
VoltDelta
VoltDelta markets information services to telephone companies and
inter-exchange carriers worldwide. The unit sells information service
systems to its customers and in addition, provides an Application Service
Provider ("ASP") model which also provides information services, including
infrastructure and database content, on a transactional use fee basis.
VoltDelta has service agreements with major telecommunications carriers in
North America, South America, the Middle East and Europe.
To meet the needs of customers who desire to upgrade their operator
services capabilities by procuring 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 ASP
service is marketed as DirectoryExpress, which provides access to over 180140
million United States and Canadian business, residential and government
listings to directory assistance operators worldwide. Another ASP service
is Directory Assistance Automation ("DAA"), which is currently deployed by
major wireline and wireless carriers. VoltDelta owns and operates its own
proprietary systems and provides its customers access to a national
database sourced from listings obtained by VoltDelta from various telephone
companies and other independent sources. In addition, VoltDelta continues
to provide customers with new systems, as well as enhancements to existing
systems, equipment and software. The ASP model generally requires
significant capital expenditure before any revenue is realized, usually on
a transaction basis.
VoltDelta's InfoExpress suite of services includes iExpress, a service that
enables its transaction-based customers to offer, for example,
operator-assisted yellow pages, driving directions and location-based
information services. For consumers (the end-users), especially cellular
and PCS users, InfoExpress provides a more convenient and efficient level
of directory assistance service since, among other things, consumers may
obtain enhanced directory and yellow pages information without having to
know the correct area code or even the name of the business. Enhanced
information services are particularly attractive in the wireless market,
where there is no access to printed telephone directories. The unit's ASP
services are being delivered over the switched telephone and VoIP networks
to live operators, and recently, through DAA voice portals using speech
recognition technologies.
LSSiDataLSSiDATA
In September 2007, VDR acquired LSSi Corp. for $71.6 million and combined
it and VDR's DataServ division into LSSiData. The division's services utilize highly
accurateLSSiDATA(R). LSSiDATA utilizes consumer
and business databases to allow companies to improve their operations and
marketing capabilities. Working with VoltDeltaThis wholly-owned subsidiary of VDR provides
database services, data processing, listing verification, online and
otheroffline data aggregators, LSSiData'sintegration and aggregation solutions, to a variety of
companies across a broad spectrum of industries that include
telecommunications service providers, credit and collections companies, and
alternative directory assistance service providers. LSSiDATA's information
is updated daily and is substantially augmented with specialized
information uniqueuniquely designed to serve the non-telco enterprise customer. LSSiData integrates customer applications
access via XMLmarket. The
database under management covers the entire United States, Canada and other advanced technologies with its various databases.
LSSiDataover
20 countries in Europe. LSSiDATA has agreements with severalmany agents and
resellers to distribute its services into targeted industries.
In order to fulfill its commitments under its contracts, VoltDelta and
LSSiDataLSSiDATA are 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.
-9-
Maintech
Maintech, a division of VDR is an Independent Services Organization ("ISO")
providing managed IT service solutions to mid-size and large corporate
clients across the United States, including many of those who have
purchased systems from VoltDelta. Its service offerings are tailored to
mission-critical, multi-platform operating environments where standards of
system availability of 99+% are the norm. Maintech's target markets include
banking and brokerage, telecommunications, aerospace, healthcare and
manufacturing.
-12-
Clients may engage Maintech for an enterprise-wide single source IT
Outsourcing Solutions commitment that includes program management,
technology planning, transition management, Wintel/UNIX/Linux system
administration, network administration, Network Operations Center (NOC)
monitoring services,Remote Monitoring and Management
Services, hardware maintenance and LAN/WAN/Voice services. Clients may also
choose Maintech for any subset of services including support of large
Wintel/UNIX/Linux server farms and storage networks and corporate
Desktop/Deskside support. As an ISO, the demand for Maintech's single
source, vendor neutral, unbiased services profile is rapidly growing in an ITa
marketplace where infrastructure optimization via multiple OEM's
isIT Infrastructure cost management initiatives play a
prominent role in the norm.
This segment operates in a business environment which is highly competitive.
Somevendor selection process.
Printing and Other
- ------------------
On September 5, 2008, the Company sold the net assets of this segment's principal competitors are largerits directory systems
and have substantially
greater financial resources than the Company. This segment's results are highly
dependent on the volume of transactions which are processed by the segment under
existing contracts, the segment's ability to continue to secure comprehensive
listings from third parties, its ability to obtain additional customers for
these services and its continued abilityNorth American telephone directory publishing operations to
sell productsYellow Page Group. The transaction included the operations of Volt Directory
Systems and servicesDataNational, formerly part of the Telephone Directory segment, but
excluded the Uruguayan printing and telephone directory operations, which now
comprise this new segment, Printing and Other.
Volt's Printing and Other segment publishes yellow pages telephone directories
as an independent publisher in Uruguay and has signed a contract with the
Uruguayan telephone company to newpublish and existing customers. This segment's position in its market depends largely
upon its reputation, qualityprint the Official Yellow Pages and
print the Official White Pages. Revenues are generated from the sale of serviceyellow
pages advertising and ability to develop, maintain and
implement information systems on a cost competitive basis. Although the segment
continues its investment in research and development, there is no assurance that
this segment's present or future products will be competitive, thatprinting of 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 2007, while others were renewed and
new contracts were awardedwhite pages.
In addition to the segment. Other contracts are scheduleddirectory business, Volt's Uruguay division owns and operates
an advanced directory printing facility, which includes, among other presses, a
high-speed, four-color, heat set printing press that is used to expireprint its own
telephone directories, as well as directories for publishers in 2008 through 2011. Many of this segment's long-term contracts contain
cancellation provisions under which the customer can cancel the contract, even
if the segment is not in default under the contract; therefore, these contracts
do not give the assurances that long-term contracts typically provide. 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
and customers, 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 or that new business and customers can be
obtained.other South
American countries. In addition, the segment has recently experienced a reductionthis facility does commercial printing,
including magazines and periodicals, for various customers in transaction volume due to lower access to directory assistance by wire-line
carrier customers. This trend may continue.
In December 2005, VDR purchased from Nortel Networks its 24% minority interestUruguay and
elsewhere in VDR. Under the terms of the agreement, VDR was required to pay Nortel
Networks approximately $56.4 million for its minority interest in VDR,South and a
cash distribution of approximately $5.4 million. Under the terms of the
agreement, VDR paid $25.0 million on December 29, 2005 and paid the remaining
$36.8 million in February 2006.
In December 2005, VDR purchased varetis Solutions GmbH, headquartered in Munich,
Germany. Varetis Solutions added technology in the area of wireless and
wire-line database management, directory assistance/inquiry automation, and
wireless handset information delivery to the segment's significant technology
portfolio. It also added products that the segment can now sell to VoltDelta's
North American market. The combined entity, operating as Volt Delta
International, now allows VDR to better focus on the evolving global market for
directory information systems and services.
In September 2007, VDR acquired LSSi Corp. ("LSSi") for $70.0 million and
combined it and VDR's DataServ division into LSSiData. Sales and pre-tax income
of LSSi approximated $28 million and $5.0 million, respectively, for the twelve
months prior to the acquisition. Although VDR expects there to be operational
efficiencies of approximately $8 million to $10 million on an annual basis by
eliminating duplicative data procurement and processing costs, the segment will
incur a charge to earnings in fiscal 2008 of between $2.5 and $3.0 million. The
acquisition is expected to become accretive to earnings in the second quarter of
fiscal year 2008. The combination of Volt Delta's application development,
integration and hosting expertise and LSSi's highly efficient data processing
will allow Volt Delta to serve a broader base of customers by aggregating the
most current and accurate business and consumer information possible.
Substantially all of the merger consideration was attributable to intangible
assets, including goodwill.
Although VDR was successful during fiscal year 2007 in obtaining new customers
for these services, including major telephone companies serving the long
distance and cellular markets, and LSSiData expanded its customer base and
achieved significant revenue growth, there can be no assurance that they will
continue to be successful in marketing these services to additional customers,
or that the customers' volume and pricing of transactions will be at a level
sufficient to enable the segment to maintain the current level of profitability.
-13-
Central America.
Research, Development and Engineering
- -------------------------------------
During fiscal years 2008, 2007 2006 and 2005,2006, the Company expended approximately $0.2
million, $0.6 million $2.7 million and $1.1$2.7 million, respectively, on research, development
and engineering for product and service development and improvement,
substantially all of which is Company sponsored, and none of which was
capitalized. The major portion of research and development expenditures was
incurred by the Computer Systems segment.
In addition, the Company's software technology personnel are involved in the
development and acquisition of internal-use software to be used in its
Enterprise Resource Planning System and software used in its operating systems.
In fiscal 2008, 2007 2006 and 2005,2006, expenditures for internal-use software were $18.7$17.6
million, $18.7$20.3 million and $21.1$18.7 million, respectively, of which $3.3$3.0 million,
$3.2 million and $4.1 million and $4.4 million were capitalized.
-10-
Intellectual Property
- ---------------------
"Volt" is a registered trademark of the Company under a number of registrations.
The Company also 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 the business of
any segment.
Volt, Volt Workforce Solutions, Volt Services Group, Volt Technical Services,
Volt Europe, Volt Human Resources, Volt Asia Enterprises, Volt Computer
Services, Volt Life Sciences, Volt Accounting & Finance, Volt Automotive
Services, Volt Aerospace Services, VoltSource, Volt Temporary Services, Volt
Design and Technical Services, Volt Professional Search, Volt Technical and
Creative Communication, Volt Technical Resources, ProcureStaff, PS Partner
Solutions, VMC Consulting, DataNational, VoltDelta, Volt Delta International, DirectDA,
Maintech, LSSiDATA, Volt Telecommunications Group, Volt Telecom Group and VIS
are registered and/or common law trademarks and service marks owned by the
Company.
Customers
- ---------
In fiscal 2007,2008, the TelecommunicationsStaffing Services segment's sales to two customers accounted
for approximately 33%,12% and 15%10% of the total sales of that segment; the
Telecommunication Services segment's sales to three customers accounted for
approximately 52%, 12% and 11% of the total sales of that segment; and the
Computer Systems segment's sales to two customers accounted for approximately
25%19% and 17% of the total sales of that segment and the Staffing Services
segment's sales to one customer accounted for approximately 13%15% of the total sales of that segment. In fiscal 2007,2008, the sales to
seven operating units of one customer, Microsoft Corporation, accounted for
11%approximately 10% of the Company's consolidated net sales of $2.4 billion and 7%6%
of the Company's consolidated gross billings of $3.5$3.7 billion under a number of
different contracts. The difference between net sales and gross billings is the
Company's associate vendor costs, which are excluded from sales due to the
Company's relationship with the customers and the Company's associate vendors,
who have agreed to be paid subject to receipt of the customers' payment to the
Company. Revenue for these services is recognized net of associated vendor costs
in the period the services are rendered. The Company believes that gross billing
is a meaningful measure, which reflects actual volume by the customers.
The loss of one or more of these customers, unless the business is replaced by
the Company or the segment, could result in an adverse effect on the results for
the Company or that segment's business.
In fiscal 2007, the Staffing Services segment's sales to one customer accounted
for approximately 13% of the total sales of that segment; the Telecommunications
Services segment's sales to two customers accounted for approximately 33% and
15% of the total sales of that segment; and the Computer Systems segment's sales
to two customers accounted for approximately 25% and 17% of the total sales of
that segment. In fiscal 2007, the sales to seven operating units of one
customer, Microsoft Corporation, accounted for 11% of the Company's consolidated
net sales of $2.3 billion and 7% of the Company's consolidated gross billings of
$3.5 billion under a number of different contracts.
In fiscal 2006, the Staffing Services segment's sales to one customer accounted
for approximately 13% of the total sales of that segment; the Telecommunications
Services segment's sales to three customers accounted for approximately 24%, 22%
and 18% of the total sales of that segment; and the Computer Systems segment's
sales to two customers accounted for approximately 25% and 14% of the total sales of that segment and the
Staffing Services segment's sales to one customer accounted for approximately
13% of the total
sales of that segment. In fiscal 2006, the sales to seven operating units of one
customer, Microsoft Corporation, accounted for 11% of the Company's consolidated
net sales of $2.3 billion and 7% of the Company's consolidated gross billings of
$3.4 billion under a number of different
contracts.
In fiscal 2005, the Telecommunications Services segment's sales to two customers
accounted for approximately 30% and 14% of the total sales of that segment; the
Computer Systems segment's sales to two customers accounted for approximately
31% and 13% of the total sales of that segment; and the Staffing Services
segment's sales to one customer accounted for approximately 13% of the total
sales of that segment. In fiscal 2005, the sales to seven operating units of one
customer, Microsoft Corporation, accounted for 11% of the Company's consolidated
net sales of $2.2 billion and 7% of the Company's consolidated gross billings of
$3.3 billion under a number of different contracts.
-14-
Seasonality
- -----------
Historically, the Company's results of operations have been lowest in its first
fiscal quarter as a result of reduced requirements for the Staffing Services
segment's personnel due to the Thanksgiving, Christmas and New Year holidays as
well as certain customer facilities closing for one to two weeks. In addition,
the Telephone Directory segment's DataNational division publishes more
directories during the second half of the fiscal year. During the
third and fourth quarter of the fiscal year, the Staffing Services segment
benefits from a reduction of payroll taxes in its Technical Placement division and increased use of Administrative and Industrialthe Company's
services during the summer vacation period.
-11-
Employees
- ---------
During the week ended October 28, 2007,November 2, 2008, Volt employed approximately 43,00042,000
persons, including approximately 36,00037,000 persons who were on temporary assignment
for the Staffing Services segment. Volt is a party to twoone collective bargaining
agreements,agreement, which covercovers a small number of its employees.employees, and some of its foreign
employees have rights under agreements with local work councils. The Company
believes that its relations with its employees are satisfactory.
Certain services rendered by Volt's operating segments require highly trained
personnel in specialized fields, some of whom are currently in short supply and,
while the Company currently has a sufficient number of such 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
operation of their services without significantly higher costs.
Regulation
- ----------
Some states in the United States and most foreign countries license and regulate
temporary service firms, employment agencies and construction companies. In
connection with foreign sales by the Telephone Directory and Computer Systems segments,segment, the Company is
subject to export controls, including restrictions on the export of certain
technologies. With respect to countries in which the Company's Telephone Directory and Computer Systems
segmentssegment presently sellsells certain of theirits current products, the sale of theirits 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 or developed products subject to restriction, 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.
Access to Company Information
- -----------------------------
The Company electronically files its Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those
reports with the Securities and Exchange Commission ("SEC"). These and other SEC
filings by the Company are available to the public over the Internetinternet at the
SEC's website at http://www.sec.gov and at the Company's website at
http://www.volt.com in the Investor Relations/Corporate Governance section, as
soon as reasonably practicable after they are electronically filed with the SEC.
Copies of the Company's Code of Business Conduct and Ethics and other
significant corporate documents (the Corporate Governance Guidelines, Governance
Committee Charter, Audit Committee Charter, Compensation Committee Charter,
Financial Code Of Ethics, Whistleblower Policy, Foreign Corrupt Practices Act
Policy, Insider Trading Policy and Addition to Volt Insider Trading Policy, and
the Electronic Communication Policy) are also available at the Company's website
in the Investor Relations/Corporate Governance section. Copies are also
available without charge upon request to Volt Information Sciences, Inc., 560
Lexington Avenue, New York, New York 10022, 212-704-2400, Attention: Shareholder
Relations.
Pursuant to Section 303A.12(a) of the Rules of the NYSE, a company's annual
report to its shareholders must disclose that the previous year's ss.12(a) CEO
Certification was submitted to the NYSE. As required, the Company's ss.12(a) CEO
Certification for the previous year was submitted to the NYSE on April 25, 2007,May 22, 2008,
and certifies that the CEO was not aware of any violation by the Company of
NYSE's Corporate Governance listing standards.
-15--12-
ITEM 1A. RISK FACTORS
Forward-Looking Statements
- --------------------------
This report and other reports and statements issued by the Company and its
officers from time to time contain certain "forward-looking statements." Words
such as "may," "will," "should," "likely," "could," "seek," "believe," "expect,"
"plan," "anticipate," "estimate," "project," "intend," "strategy," "design to,"
and similar expressions are intended to identify forward-looking statements
about the Company's future plans, objectives, performance, intentions and
expectations. These forward-looking statements are subject to a number of known
and unknown risks and uncertainties including, but are not limited to, those set
forth below under "Factors That May Affect Future Results." Such risks and
uncertainties could cause the Company's actual results, performance and
achievements to differ materially from those described in or implied by the
forward-looking statements. Accordingly, readers should not place undue reliance
on any forward-looking statements made by or on behalf of the Company. The
Company does not assume any obligation to update any forward-looking statements
after the date they are made.
FACTORS THAT MAY AFFECT FUTURE RESULTS
THE COMPANY'S BUSINESS IS DEPENDENT UPON GENERAL ECONOMIC COMPETITIVE AND OTHER BUSINESS
CONDITIONS INCLUDING THE UNITED STATES AND EUROPEAN ECONOMIES AND OTHER GENERAL CONDITIONS, SUCH AS CUSTOMERS' OUTSOURCING ACTIVITIES TO OTHER
COUNTRIESCONDITIONS.
The demand for the Company's services in all segments, both domestically and in
its foreign operations, is dependent upon general economic conditions. The
Company's business tends to suffer during economic downturns.downturns, such as the
current recession. The recent slowing of the economy couldhas already adversely
affectaffected the Company's revenue and operating profit. Current economic conditions have also
increasedprofit and the riskcontinuation of athe
current recession which, if it occurs, could further adversely affect the Company's revenues and
operating profit. While the Company attempts to manage its costs, including its
personnel, in relation to its business volumes, these efforts may not be
successful and the timing of these efforts and associated costs may adversely
affect the Company's results.
In the Staffing Services segment, the weakened economy results in decreased
demand for temporary and permanent personnel. When economic activity slows down,
many of the Company's customers reduce their use of temporary employees before
undertaking layoffs of their regular employees resulting in decreased demand for
contingent workers. A number of customers have already announced reduction in
workforce including contingent labor. There is also less need for contingent
workers by all customers and potential customers, who are less inclined to add
to their costs. Since employees are also reluctant to risk changing employers,
there are fewer openings available and therefore reduced activity in permanent
placements as well. In addition, while in many fields there are ample applicants
for available positions, variations in the rate of unemployment and higher wages
sought by temporary workers in certain technical fields which still experience
labor shortages could affect the Company's ability to meet its customers'
demands in these fields and adversely affect the Company's profit margins. The
volume of business in some of the Company's managed services programs may be
reduced, rendering it uneconomical to continue the program. In addition, the
services of large numbers of associate vendors are required in some managed
services program; the current recession may cause some of these associate
vendors to reduce or discontinue operations, which may adversely affect the
Company's ability to manage these programs.
Increases in workers' compensation and health costs and unemployment insurance,
other payroll taxes, business taxes and other employee related expenses will
also adversely impact profit margins.
In addition, in the past few years major United States companies, many of which
are customers of the Company, have increasingly outsourced business to foreign
countries with lower labor rates, less costly employee benefit requirements and
fewer regulations than in the United States. There has been and could be a
further adverse effect on the Company if customers and potential customers
continue to move manufacturing and servicing operations off-shore, reducing
their need for temporary and permanent workers within the United States. It is
also important for the Company to diversify its pool of available temporary
personnel to offer greater support to the service sector of the economy and
other businesses that have more difficulty in moving off-shore, as well as
expanding its retailregional and local customer base which generally affords higher
margin opportunities, which the Company may not be able to do successfully.
-13-
In the Information Technology Solutions portion of the Staffing Services
segment, the Company may assume project responsibility and/or provide a
deliverable, which carry potentially greater liabilities than other businesses
within this segment.
Customer use of the Company's Telecommunications Services segment is similarly
affected by the weakened economy in that some of the Company's customers curtail
capital expenditures and some reduce their use of outside services in order to
provide work to their in-house departments or to control costs. Actions by major
long-distance telephone companies to reduce marketing of local residential
service and consolidation in the telecommunications industry could also
negatively impact both sales and margins of the segment.
In addition, the Company has been and may be adversely affected if it competes
from the Company's United States basedStates-based operations against competitors based in
lower-cost countries. Although the Company has begun to expandexpanded its operations to serve
existing customers in suchsome foreign countries, and has established subsidiaries
in some foreign countries, there can be no assurance that this effort will be
successful or that the Company can successfully compete with competitors based
overseas or who have well-established foreign operations. The Company's
international expansion further subjects the Company to additional risks and
challenges that could harm its business and profitability.
The Company's business strategy is focused on serving large corporate customers
through high volume global service agreements. While the Company's strategy is
intended to increase the Company's revenue and operating profit from our major
corporate customers, the strategy also exposes the Company to increased risks
arising from the possible loss of major customer accounts. The loss of one or
more of these customers, or material changes in their demand for the Company's
products and services, unless the business is replaced by the Company or the
segment, could result in an adverse effect on the results for the Company or
that segment's business. In addition, some customers are in industries that have
experienced adverse business and financial conditions in recent years. The
deterioration of the financial condition or business prospects of these
customers has reduced, and could further reduce, their need for temporary
employment services and other services, and result in a significant decrease in
the revenue and operating profit the Company derives from these customers. Other
customers in the Staffing Services segment are Vendor Management System ("VMS")
providers who coordinate the provision of temporary services to their own
customers using internet-enabled, often web-based, applications that act as a
mechanism for business to manage and procure contingent and other staffing
services. These VMS providers typically manage programs with total volumes far
in excess of the VMS' own worth, but they still assume all payment obligations
to their customers' suppliers, such as the Company. The deterioration of the
financial condition or business prospects of these VMS customers has reduced,
and could further reduce, their need for temporary employment services and other
services, and result in a significant decrease in the revenue and operating
profit the Company derives from these customers. In addition, these customers,
including the VMS providers, also present greater credit risks.
Inrisks and, although the
Staffing Services segment,Company continues to evaluate their credit, some of these customers have in the
past, and could in the future, default on their obligations to the Company.
The Company relies on access to various financial markets, primarily the
asset-backed commercial paper market and the commercial bank loan market, as a
weakened economy results in decreased demandsource of liquidity for temporary and permanent personnel. When economic activity slows down, many
-16-
working capital requirements not satisfied by cash flows
from operations or as a source of foreign exchange risk mitigation. Although the
Company has significant cash reserves resulting from the recent sale of the Company's customers reduce their usenet
assets of temporary employees before they
reduce the numberDataNational and Directory Services divisions, market disruptions
have increased the cost of their regular employees. There is less need for contingent
workers by all potential customers, who are less inclined to add to their costs.
Since employees are reluctant to risk changing employers, there are fewer
openingsborrowing and reduced activity in permanent placements as well. In addition,
while in many fields there are ample applicants for available positions,
variations in the rate of unemployment and higher wages sought by temporary
workers in certain technical fields with labor shortages could adversely affect the Company's
ability to meet its customers' demands in these fields and adversely
affect the Company's profit margins. Fluctuations in workers' compensation costs
and unemployment insurance, other payroll taxes and business taxes will also
impact profit margins.
While the markets for the entire Staffing Services segment's services include a
broad range of industries throughout North America, Europe and Asia, general
economic conditions in specific geographic areasaccess one or industry sectors affect the
profitability of the segment. The segment has also experienced margin erosion
caused by increased competition, electronic auctions and customers leveraging
their buying power by consolidating the number of vendors with whom they deal.
The segment is committed to further efficiencies designed to increase
profitability, however, there can be no assurances that profitability will
increase. In addition, this segment could be adversely affected by changes in
laws, regulations and government policies, as well as the results of pending
litigation and related litigation expenses and governmental activity regarding
the staffing services industry, customers' attitudes toward outsourcing and
temporary/contract personnel and any decreases in rates of unemployment in the
future and higher wages sought by temporary/contract workers, especially those
in certain technical fields often characterized by labor shortages.
Customer use of the Company's telecommunications services is similarly affected
by a weakened economy in that some of the Company's customers reduce their use
of outside services in order to provide work to their in-house departments.
Actions by major long-distance telephone companies to reduce marketing of local
residential service and consolidation in the telecommunications industry could
also negatively impact both sales and margins of the segment.
MANY OF THE COMPANY'S CONTRACTS EITHER PROVIDE NO MINIMUM PURCHASE REQUIREMENTS
OR ARE CANCELABLE DURING THE TERM, OR BOTH
In all segments, many of the Company's contracts, even those whose duration
spans a number of years, provide no assurance of any minimum amount of work that
will actually be available under the contract; under these contracts the Company
must still compete for each individual placement or project. Most staffing
services contracts are not sole source, so the segment must compete for each
placement at the customer. Similarly, many telecommunications master contracts
require competition in order to obtain each individual work project. In
addition, many of the Company's long-term contracts contain cancellation
provisions under which the customer can cancel the contract, even ifmore financial markets. If the Company is not in default underable to
access capital at competitive rates, the contract. Therefore, these contracts do not give the
assurances that long-term contracts often provide.
THE COMPANY'S STAFFING SERVICES BUSINESS AND ITS OTHER SEGMENTS SUBJECT IT TO
EMPLOYMENT-RELATED AND OTHER CLAIMS
The Company's staffing services business employs individuals on a temporary
basis and places them in a customer's workplace. The Company's ability to control the customer workplace is often limited, and the Company risks incurring
liability to its employees for injury (which results in increased workers'
compensation costs) or other harm that they suffer at the customer's workplace.
Increases in workers' compensation costs adversely affect the Company's
competitive position and its ability to retain business and obtain new business.
Risks relating to these activities include:
o claims of misconduct or negligence on the part of the Company's
employees;
o claims by the Company's employees of discrimination or harassment
directed at them, including claims relating to actions of the
Company's customers;
o claims related to the employment of undocumented or unlicensed
personnel;
o payment of workers' compensation claims and other similar claims;
o violations of wage and hour requirements;
o retroactive entitlement to employee benefits;
o errors and omissions of the Company's employees, particularly in the
case of professionals; and
-17-
o claims by the Company's customers relating to the Company's employees'
misuse of customers' proprietary information, misappropriation of
funds, other criminal activity or torts or other similar claims.
Additionally, the Company risks liability to its customers for the actions of
the Company's employees that may result in harm to the Company's customers. Such
actions may be the result of negligence or misconduct on the part of the
Company's temporary employees. In many cases, the Company must indemnify its
customers for the acts of the Company's employees, and certain customers have
negotiated increases in the scope of such indemnification agreements. These same
factors apply to all ofimplement the Company's
business units, although the riskplans may be reduced where the Company itself controls the employees and/adversely affected. Similarly, market disruptions may
delay or the workplace.
Nevertheless, the risk is present in all segments.
There has been litigation in the United States by temporary workers against
users and providers of temporary services claiming that temporary workers are
entitled to various rights given to traditional employees, that certain
temporary employees should be classified as the customers' employees and are
entitled to participate in certain of the customers' benefit programs, andprevent customers from timely payment for violations of applicable labor codes. The Company does not know the effect, if
any, the resolution of these cases will have on the industry or upon the
Staffing Solutions Group's business, but adverse decisions may adversely affect
the business of the Staffing Services segment.
The Company retains the risk of loss, up to certain limits, for claims related
to workers' compensation, general liability, automobile liability and employee
group health. Should a greater number of claims occur compared to the Company's
estimates, or should the dollar amount of the actual claims exceed the amount
the Company has anticipated, the recorded liability may not be sufficient, and
the Company could incur substantial additional unanticipated charges. Although
the Company has not historically suffered significantly from such claims, other
than increases in workers' compensation costs, there can be no assurance that
future claims will not adversely affect the Company. The Company may also incur
fines or other losses and negative publicity with respect to any litigation in
which it becomes involved. Although the Company maintains insurance for many
such actions, there can be no assurance that its insurance will cover future
actions or that the Company will continue to be able to obtain such insurance on
acceptable terms, if at all.
NEW AND INCREASED GOVERNMENT REGULATION COULD HAVE A MATERIAL ADVERSE EFFECT ON
THE COMPANY'S BUSINESS, ESPECIALLY ITS CONTINGENT STAFFING BUSINESS.
Certain of the Company's businesses are subject to licensing and regulation in
many states and certain foreign jurisdictions. Although the Company has not had
any difficulty complying with these requirements in the past, there can be no
assurance that the Company will continue to be able to do so, or that the cost
of compliance will not become material. Additionally, the jurisdictions in which
we do or intend to do business may:
o create new or additional regulations that prohibit or restrict the
types of services that we currently provide;
o impose new or additional employee benefit requirements, thereby
increasing costs that may not be able to be passed on to customers or
which would cause customers to reduce their use of the Company's
services, especially in its staffing services segment, which would
adversely impact the Company's ability to conduct its business;
o require the Company to obtain additional licenses to provide its
services; or
o increase taxes (especially payroll and other employment related taxes)
or enact new or different taxes payable by the providers or users of
services such as those offered by the Company, thereby increasing
costs, some of which may not be able to be passed on to customers or
which would cause customers to reduce their use of the Company's
services, especially in its Staffing Services segment, which would
adversely impact the Company's ability to conduct its business.
In the Company's European markets, temporary services are more heavily regulated
than in the United States and litigation and governmental activity (at European
Union and national levels) directed at the way the industry does business is
also being conducted or considered. Volt does not know the effect, if any, the
outcome of governmental activity will have on the industry in general or upon
the Staffing Solutions Group's business.
In addition, certain private and governmental entities have focused on the
contingent staffing industry in particular and, as well as their potential to
impose additional requirements and costs, they and their supporters could cause
changes in customers' attitudes toward the use of outsourcing and temporary
personnel in general. This could have an adverse effect on the Company's
contingent staffing business.
-18-
THE COMPANY MAY EXPERIENCE BUSINESS INTERRUPTIONS THAT COULD HAVE AN ADVERSE
EFFECT ON ITS OPERATIONS
The Company could be negatively affected by natural disasters, fire, power loss,
telecommunications failures, hardware or software malfunctions and break-downs,
computer viruses or similar events. Although the Company has disaster recovery
plans in place, it may not be able to adequately execute these plans in a timely
fashion. If the Company's critical information systems fail or are otherwise
unavailable, this could temporarily impact the Company's ability to pay
employees, bill customers, service customers, maintain billing and payroll
records reliably and pay taxes, which could adversely affect its revenue,
operating expenses, and financial condition. A prolonged outage could seriously
impact the Company's ability to service customers or hire temporary workers and
could seriously threaten the organization.
IMPROPER DISCLOSURE OF EMPLOYEE AND CUSTOMER DATA COULD RESULT IN LIABILITY AND
HARM THE COMPANY'S REPUTATION
The Company's business involves the use, storage and transmission of information
about its employees, its customers and employees of its customers. The Company
and its third-party service providers have established policies and procedures
to help protect the security and privacy of this information. It is possible
that the Company's security controls over personal and customer data and other
practices that the Company and its third-party service providers follow may not
prevent the improper access to or disclosure of personally identifiable and
customer information. Such disclosure could harm the Company's reputation and
subject the Company to liability under its contracts and laws that protect
personal and customer data, resulting in increased costs or loss of revenue.
Further, data privacy is subject to frequently changing rules and regulations,
which sometimes conflict among the various jurisdictions and countries in which
the Company providesour services. The Company's failure to adhere to or
successfully implement processes in response to changing regulatory requirements
in this area could result in legal liability or impairment to the Company's
reputation in the marketplace.
THE COMPANY IS DEPENDENT UPON ITS KEY PERSONNEL
The Company's operations are dependent on the continued efforts of its officers
and executive management. In addition, the Company is dependent on the
performance and productivity of its local managers and field personnel. The
Company's ability to attract and retain business is significantly affected by
local relationships and the quality of service rendered. The loss of those key
officers and members of management who have acquired significant experience in
the Company's businesses may cause a significant disruption to our business.
Moreover, the loss of the Company's key managers and field personnel may
jeopardize existing client relationships with businesses that continue to use
the Company's services based upon past relationships with these local managers
and field personnel. The loss of such key personnel could have a material
adverse effect on the Company's operation, because it may result in our
inability to establish and maintain client relationships and otherwise operate
our business.
THE COMPANY IS DEPENDENT UPON ITS ABILITY TO ATTRACT AND RETAIN CERTAIN
TECHNOLOGICALLY QUALIFIED PERSONNEL
The Company's future success is dependent upon its ability to attract and retain
certain classifications of technologically qualified personnel for its own use,
particularly in the areas of research and development, implementation and
upgrading of internal systems, as well as in its staffing services segment. The
availability of such personnel is dependent upon a number of economic and
demographic conditions. The Company may in the future find it difficult or more
costly to hire such personnel in the face of competition from other companies.
-19-
THE INDUSTRIES IN WHICH THE COMPANY DOES BUSINESS ARE VERY COMPETITIVECOMPETITIVE.
The Company, in all segments, has experienced intense price competition and
pressure on margins and lower markups for renewals of customers' contracts than
previously obtained. While the Company has and will continue its efforts to take
action to meet competition in its highly competitive markets, there can be no
assurance that the Company will be able to do so without impacting margins.
-14-
The Company, in certain businesses in all segments, must obtain or produce
products and systems, principally in the IT environment, to satisfy customer
requirements and to remain competitive. While the Company has been able to do so
in the past, there can be no assurance that in the future the Company will be
able to foresee changes and to identify, develop and commercialize innovative
and competitive products and systems in a timely and cost effective manner and
to achieve customer acceptance of its products and systems in markets
characterized by rapidly changing technology and frequent new product
introductions. Although the Company continues its investment in research and
development, there is no assurance that this segment'sits present or future products and
systems will be competitive, that the segmentit will continue to develop new products and
systems or that present products and systems or new products and systems can be
successfully marketed. In addition, the Company's products and systems are
subject to risks inherent in new product introductions, such as start-up delays,
cost overruns and uncertainty of customer acceptance, the Company's dependence
on third parties for some product components and in certain technical fields
with labor shortages, the Company's ability to hire and retain such specialized
employees, all of which could adversely affect the Company's ability to meet its
customers' demands in these fields and the Company's profit margins.
In addition to these general statements, the following information applies to
the specific segments identified below.
The Company's Staffing Services segment is in a very competitive industry with
few significant barriers to entry. There are manyThe worldwide temporary service firms instaffing industry is
competitive and highly fragmented. In the United States, approximately 40
competitors operate nationally, and Europe,approximately 6,000 smaller companies
compete in varying degrees at local levels, many with only one or a few offices
that service only a small market. On the other hand, someSome of this segment's principal competitors
are larger and have substantially greater financial resources than the Company and service the
multi-national accounts whose business the Company also solicits. Accordingly,
these competitors may be better able than the Company to attract and retain
qualified personnel and may be able to offer their customers more favorable
pricing terms than the Company. Furthermore, inAs the staffing
industry contingenteconomy begins to slow down, customers
tend to reduce their use of temporary and contract workers are provided to customers and most customers are
more protectivebefore undertaking
layoffs of their full-time workforceown employees resulting in decreased demand for contingent
workers. In addition, some of the segment's customers, generally larger
entities, are mandated or otherwise motivated to utilize small or minority-owned
companies rather than contingent workers.publicly held corporations such as the Company and have
re-directed their business activities with this segment.
The results of the Company's Computer Systems segment are highly dependent on
the volume of directory assistance calls to this segment's customers which are
processed by the segment under existing contracts, the segment's ability to
continue to secure comprehensive listings from others at acceptable pricing, its
ability to obtain additional customers for these services and its continued
ability to sell products and services to new and existing customers. The volume
of transactions with this segment's customers and the revenues received by the
Company are subject to reduction as consumers utilize free listings offered by
alternative sources, including listings available on the Internetinternet, and from
consolidation in the telecommunications industry. The reliability of the
Company's products and services is dependent upon the integrity of the data in
its databases. A failure in the integrity of its database could harm the Company
by exposing it to customer or third-party claims or by causing a loss of
customer confidence in the Company's products and services. 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.
The Company's Telecommunications Services segment faces substantial competition
with respect to all of its telecommunications services from other suppliers and
from in-house capabilities of present and potential customers. Since many
customers provide the same type of services as the segment, the segment faces
competition from its own customers and potential customers as well as from third
parties. The Telecommunications Services segment performs much of its services
outdoors, and its business can be adversely affected by inclement weather. In
addition, the segment accounts for certain projects using
percentage-of-completion; therefore variations of actual results from its
estimates may reduce ourthe segment's profitability. The segment's profitability is
also reduced if the actual cost to complete a project exceeds its estimates.
Some of this segment's significant competitors are larger and have substantially
greater financial resources than the Company. There are relatively few
significant barriers to entry into certain of the markets in which the segment
operates, and many competitors are small, local companies that generally have
lower overhead. The Company'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, as well as the economic health
of the telecom industry.
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.
-20--15-
Additionally, in all segments, the degree and timing of customer acceptance of
systems and of obtaining new contracts and the rate of renewals of existing
contracts, as well as customers' utilization of the Company's services, could
adversely affect the Company's businesses.
THE COMPANY MUST COMPLETE THE INTEGRATIONMANY OF LSSi CORP. INTO THE COMPANY'S COMPUTER SYSTEMS SEGMENTCONTRACTS EITHER PROVIDE NO MINIMUM PURCHASE REQUIREMENTS
OR ARE CANCELABLE DURING THE TERM, OR BOTH.
In September 2007, VDR acquired LSSi Corp. and combined it and VDR's DataServ
division into LSSiData. Together with its subsidiaries, VDR is reported asall segments, many of the Company's Computer Systems segment.contracts, even those whose duration
spans a number of years, provide no assurance of any minimum amount of work that
will actually be available under the contract; under these contracts the Company
must still compete for each individual placement or project. Most staffing
services contracts are not sole source, so the segment must compete for each
placement at the customer. Similarly, many telecommunications master contracts
require competition in order to obtain each individual work project. In
addition, many of the Company's long-term contracts contain cancellation
provisions under which the customer can cancel the contract, even if the Company
is not in default under the contract. Therefore, these contracts do not give the
assurances that long-term contracts often provide and create uncertainty with
respect to the factors described
elsewhere herein,revenues and earnings the Company may recognize with respect to
its customer contracts.
THE COMPANY'S STAFFING SERVICES BUSINESS AND ITS OTHER SEGMENTS SUBJECT IT TO
EMPLOYMENT-RELATED AND OTHER CLAIMS AND LOSSES THAT COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
The Company's staffing services business employs individuals on a temporary
basis and places them in a customer's workplace. The Company's ability to
control the customer workplace is often limited, and the Company risks incurring
liability to its employees for injury (which results in increased workers'
compensation costs) or other harm that they suffer at the customer's workplace.
Increases in workers' compensation costs adversely affect the Company's
competitive position and its ability to retain business and obtain new business.
Risks relating to these activities include:
o violations of wage and hour requirements and other applicable labor
codes which govern the relationship between employers and employees;
o claims by the Company's employees of discrimination or harassment
directed at them, including claims relating to actions of the
Company's customers;
o claims by contingent workers for retroactive entitlement to employee
benefits;
o claims of misconduct or negligence on the part of the Company's
employees;
o claims related to the employment of undocumented or unlicensed
personnel;
o the retention of the risk of loss, up to certain limits, for claims
related to workers' compensation, general liability, automobile
liability and employee group health;
o errors and omissions of the Company's employees, particularly in the
case of professionals; and
o claims by the Company's customers relating to the Company's employees'
misuse of customers' proprietary information, misappropriation of
funds, other criminal activity or torts or other similar claims.
Additionally, the Company risks liability to its customers for the actions of
the Company's employees that may result in harm to the Company's customers. Such
actions may be the result of negligence or misconduct on the part of the
Company's temporary employees, including misappropriation of funds, damage to
customer facilities due to negligence of temporary employees, criminal activity
and other similar claims. In many cases, the Company must indemnify its
customers for the acts of the Company's employees, and certain customers have
negotiated increases in the scope of such indemnification agreements. The
Company may also incur fines and other losses or negative publicity with respect
to these problems. In addition, these claims may give rise to litigation, which
could be time-consuming and expensive. There can be no assurance that the
corporate policies in place to help reduce the Company's exposure to these risks
will be effective or that the Company will not experience losses as a result of
these risks. There also can also be no assurance that the insurance policies the
Company has purchased to insure against certain risks will be adequate or that
insurance coverage will remain available on reasonable terms or be sufficient in
amount or scope of coverage. These same factors apply to all of the Company's
business units, although the risk may be reduced where the Company itself
controls the employees and/or the workplace. Nevertheless, the risk is present
in all segments.
-16-
The Company is subject to certain legal proceedings, as well as demands, claims
and threatened litigation that arise in the normal course of our business. A
quarterly review is performed of each significant matter to assess any potential
financial exposure. If the potential loss from any claim or legal proceeding is
considered probable and the amount can be reasonably estimated, a liability and
an expense are recorded for the estimated loss. Significant judgment is required
in both the determination of probability and the determination of whether an
exposure is reasonably estimable. Any accruals are based on the best information
available at the time. As additional information becomes available, a
reassessment is performed of the potential liability related to any pending
claims and litigation and may revise the Company's estimates. Potential legal
liabilities and the revision of estimates of potential legal liabilities could
have a material adverse impact on the results of the Company's operations.
NEW AND INCREASED GOVERNMENT REGULATION COULD HAVE A MATERIAL ADVERSE EFFECT ON
THE COMPANY'S BUSINESS, ESPECIALLY ITS CONTINGENT STAFFING BUSINESS.
Certain of the Company's businesses are subject to licensing and regulation in
thismany states and certain foreign jurisdictions. Although the Company has not had
any difficulty complying with these requirements in the past, there can be no
assurance that the Company will continue to be able to do so, or that the cost
of compliance will not become material. Additionally, the jurisdictions in which
the Company does or intend to do business may:
o create new or additional regulations that prohibit or restrict the types of
services that the Company currently provides;
o impose new or additional employee costs, including benefit requirements,
thereby increasing the Company's costs that may not be able to be passed on
to customers or which would cause customers to reduce their use of the
Company's services, especially in its staffing services segment, are dependent uponwhich
would adversely impact the Company's ability to successfully integrate LSSi Corp. into VDRconduct its business;
o require the Company to obtain additional licenses to provide its services;
or
o increase taxes (especially payroll and other employment related taxes) or
enact new or different taxes payable by the providers or users of services
such as those offered by the Company, thereby increasing the Company's
costs, some of which may not be able to achieve
operational efficienciesbe passed on to customers or which
would cause customers to reduce their use of the Company's services,
especially in its Staffing Services segment, which would adversely impact
the Company's ability to conduct its business.
In the Company's foreign markets, temporary services are more heavily regulated
than in the United States and savings, upon which that transaction was
predicated, with minimal interference withlitigation and governmental activity (at European
Union and national levels) directed at the segment's business. If VDR fails
to achieve these efficiencies and savings, thereway the industry does business is
also being conducted or considered. The Company does not know the riskeffect
governmental activity will have on the industry in general or upon the Staffing
Solutions Group's business.
In addition, certain private and governmental entities have focused on the
contingent staffing industry in particular and, as well as their potential to
impose additional requirements and costs, they and their supporters could cause
changes in customers' attitudes toward the use of outsourcing and temporary
personnel in general. This could have an adverse effect on the Company's
contingent staffing business.
THE COMPANY MAY EXPERIENCE BUSINESS INTERRUPTIONS THAT COULD HAVE AN ADVERSE
EFFECT ON ITS OPERATIONS.
The Company could be negatively affected by natural disasters, fire, power loss,
telecommunications failures, hardware or software malfunctions and break-downs,
computer viruses or similar events. Although the Company has disaster recovery
plans in place, it may not be able to adequately execute these plans in a timely
fashion. If the Company's critical information systems fail or are otherwise
unavailable, this could temporarily impact the Company's ability to pay
employees, bill customers, service customers, maintain billing and payroll
records reliably and pay taxes, which could adversely affect its revenue,
operating expenses, and financial condition. A prolonged outage could seriously
impact the Company's ability to service customers or hire temporary workers and
could seriously threaten the organization.
-17-
IMPROPER DISCLOSURE OF EMPLOYEE AND CUSTOMER DATA COULD RESULT IN LIABILITY AND
HARM THE COMPANY'S REPUTATION.
The Company's business involves the use, storage and transmission of information
about its employees, its customers and employees of its customers and third
parties. The Company and its third-party service providers have established
policies and procedures to help protect the security and privacy of this
information. It is possible that the goodwillCompany's security controls over personal,
consumer and customer data and other practices that the Company and its
third-party service providers follow may not prevent the improper access to or
disclosure of identifiable personal, consumer and customer information. Such
disclosure could harm the Company's reputation and subject the Company to
liability under its contracts and laws that protect personal, consumer and
customer data, resulting in increased costs or loss of revenue.
THE COMPANY IS DEPENDENT UPON ITS KEY PERSONNEL.
The Company's operations are dependent on the continued efforts of its officers
and executive management. In addition, the Company is dependent on the
performance and productivity of its local managers and field personnel. The
Company's ability to attract and retain business is significantly affected by
local relationships and the quality of service rendered. The loss of those key
officers and members of management who have acquired significant experience in
the Company's businesses may cause a significant disruption to the Company's
business. Moreover, the loss of the Company's key managers and field personnel
may jeopardize existing client relationships with businesses that continue to
use the Company's services based upon past relationships with these local
managers and field personnel. The loss of such key personnel could have a
material adverse effect on the Company's operation, because it may result in the
Company's inability to establish and maintain client relationships and otherwise
operate our business.
THE COMPANY IS DEPENDENT UPON ITS ABILITY TO ATTRACT AND RETAIN CERTAIN
QUALIFIED PERSONNEL.
The Company's future success is dependent upon its ability to attract and retain
certain classifications of technologically qualified personnel for its own use,
particularly in the areas of research and development, implementation and
upgrading of internal systems, as well as in its staffing services segment. The
availability of such personnel is dependent upon a number of economic and
demographic conditions. The Company may in the future find it difficult or more
costly to hire such personnel in the face of competition from other companies.
WHEN THE COMPANY MAKES ACQUISITIONS, IT MAY NOT BE ABLE TO SUCCESSFULLY
INTEGRATE THEM OR ATTAIN THE ANTICIPATED BENEFITS.
If the Company is unsuccessful in integrating its acquisitions, or if
integration is more difficult than anticipated, the Company may experience
disruptions that could have a material adverse effect on its business. In
addition, the Company may not realize all of the anticipated benefits from its
acquisitions, which could result in an impairment of goodwill or other
intangible assets acquired in such transaction would be
subject to impairment.assets.
THE COMPANY MUST STAY IN COMPLIANCE WITH ITS SECURITIZATION PROGRAM AND OTHER
LOAN AGREEMENTSAGREEMENTS.
The Company is required to maintain a sufficient credit ratingcertain covenants to enable it to continue
its securitization program and maintain its existing credit rating in order to
avoid any increase in fees under other credit agreements. In addition, the
Company must also comply with the financial and other covenants applicable under
the various agreements and other borrowing instruments.
-18-
IF THE COMPANY FAILS TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS OR
DISCOVERS MATERIAL WEAKNESSES IN ITS INTERNAL CONTROLS OVER FINANCIAL REPORTING,
IT MAY NOT BE ABLE TO REPORT ITS FINANCIAL RESULTS ACCURATELY OR TIMELY OR
DETECT FRAUD, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS BUSINESS.
An effective internal control environment is necessary for the Company to
produce reliable financial reports and is an important part of its effort to
prevent financial fraud. The Company obtained a waiver of one covenant but was in compliance with all
other such requirements atis required to periodically evaluate the
endeffectiveness of the fiscal yeardesign and believes it will
remainoperation of its internal controls over
financial reporting. Based on these evaluations, the Company may conclude that
enhancements, modifications or changes to internal controls are necessary or
desirable. In the Company's evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures as of November 2,
2008, management concluded that, as of their evaluation, the Company's
disclosure controls and procedures (as defined in compliance throughoutExchange Act Rule 13a-15(e))
are ineffective because of the next twelve months, there can be no
assurance that will beeffect of a material weakness in the case or that waiversCompany's
system of internal controls at one of the Company's subsidiaries. The Company's
management reviewed and evaluated the design of the control procedures and is
taking actions to remediate the reported material weakness.
While management evaluates the effectiveness of the Company's internal controls
on a regular basis, these controls may not always be required.
VOLATILE FINANCIAL MARKETS COULD RESTRICT THE COMPANY'S ABILITY TO ACCESS
CAPITAL AND INCREASE OUR FINANCING COSTS
The Company relieseffective. There are
inherent limitations on accessthe effectiveness of internal controls, including
collusion, management override, and failure in human judgment. In addition,
control procedures are designed to capital markets as a source of liquidity for
capital requirements not satisfied by cash flows from operations.reduce rather than eliminate business risks.
If the Company is not ablefails to access capital at competitive rates, the ability to implementmaintain an effective system of internal controls, or if
management or the Company's business plansindependent registered public accounting firm
discovers material weaknesses in the Company's internal controls, it may be
adversely affected. Market disruptionsunable to produce reliable financial reports or prevent fraud, which could have
a downgradematerial adverse effect on the Company's business. In addition, the Company
may be subject to sanctions or investigation by regulatory authorities, such as
the Securities Exchange Commission or the New York Stock Exchange. Any such
actions could result in an adverse reaction in the financial markets due to a
loss of confidence in the reliability of the Company's credit rating may increasefinancial statements,
which could cause the costmarket price of borrowingits common stock to decline or adversely affectlimit the
Company's abilityaccess to access one or more financial markets.
REGULATORY CHALLENGES TO THE COMPANY'S TAX FILING POSITIONS COULD RESULT IN
ADDITIONAL TAXES
When the financial statements are prepared, the Company estimates its income
taxes based on the various jurisdictions in which business is conducted.
Liabilities for anticipated tax audit issues in the United States and other tax
jurisdictions are based on estimates of whether, and the extent to which,
additional taxes will be due. The recognition of these provisions for income
taxes is recorded in the period in which it is determined that such taxes are
due. Significant judgment is required in determining the Company's worldwide
income tax provision.
-21-
THE COMPANY MUST STAY IN COMPLIANCE WITH THE SARBANES-OXLEY ACT
The Company believes it is in compliance with the Sarbanes-Oxley Act of 2002.
The cost of compliance has adversely affected the Company's operating results
and costs of continued compliance with such Act will affect the Company's
operating results in the future. While the Company expects to continue to be in
compliance with such Act, there can be no assurance that it will be able to do
so.capital.
THE COMPANY'S PRINCIPAL SHAREHOLDERS OWN A SIGNIFICANT PERCENTAGE OF THE COMPANY
AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER THE COMPANY AND THEIR
INTERESTS MAY DIFFER FROM THOSE OF OTHER SHAREHOLDERSSHAREHOLDERS.
As of December 31, 2007,2008, the Company's principal shareholders, who are related
family members, controlled in excess of 41%42 % of the Company's outstanding common
stock. Accordingly, these shareholders, areif they act together (as to which no
assumption can be made) would be able to control the composition of the
Company's board of directors and many other matters requiring shareholder
approval and willcould continue to have significant influence over the Company's
affairs. This concentration of ownership also could have the effect of delaying
or preventing a change in control of the Company or otherwise discouraging a
potential acquireracquiror from attempting to obtain control of the Company.
NEW YORK LAW AND THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS CONTAIN
PROVISIONS THAT COULD MAKE THE TAKEOVER OF THE COMPANY MORE DIFFICULTDIFFICULT.
Certain provisions of New York law and the Company's articles of incorporation
and bylaws could have the effect of delaying or preventing a third-party from
acquiring the Company, even if a change in control would be beneficial to the
Company's shareholders. These provisions of the Company's articles of
incorporation and bylaws include:
o providing for a classified board of directors with staggered, two-year
terms;
o permitting removal of directors only for cause;
o providing that vacancies on the board of directors will be filled by
the remaining directors then in office; and
o requiring advance notice for shareholder proposals and director
nominees.
The Company's board of directors could choose not to negotiate with a potential
acquirer that it did not believe was in the Company's strategic interests. If an
acquirer is discouraged from offering to acquire the Company or prevented from
successfully completing a hostile acquisition by these or other measures, the
Company's shareholders could lose the opportunity to sell their shares at a
favorable price.
-19-
THE COMPANY'S STOCK PRICE COULD BE EXTREMELY VOLATILE AND, AS A RESULT,
INVESTORS MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE PRICE THEY PAID
FOR THEMTHEM.
The Company's stock price has in the past, and could in the future, fluctuate as
a result of a variety of factors, including those factors previously discussed,
many of which are beyond the Company's control. Among the factors that could
affect the Company's stock price are:
o relatively low float of the Company's common stock caused, among other
reasons, by the holdings of the Company's principal shareholders and
members of their families;
o the Company's failure to meet the expectations of the investment
community and changes in investment community recommendations or
estimates of the Company's future results of operations;
o industry trends and the business success of the Company's customers;
o loss of a key customer;
o fluctuations in the Company's results of operations;
o strategic moves by the Company's competitors, such as product
announcements or acquisitions;
o regulatory developments, including compliance with the Sarbanes-Oxley
Act of 2002;
o litigation;
o general economic conditions such as the current recession;
o general market conditions; and
o other domestic and international macroeconomic factors unrelated to
the Company's performance.
-22-
The stock market has experienced and may in the future experience extreme
volatility that has often been unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Company's common stock.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted. If a
securities class action suit is filed against the Company, it would incur
substantial legal fees and management's attention and resources would be
diverted from operating its business in order to respond to the litigation.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
-23--20-
ITEM 2. PROPERTIES
The Company occupies approximately 44,000 square feet of space at 560 Lexington
Avenue, New York, New York under leases that expire in 2009. The facility serves
as the Company's 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:
Approximate Sq. Ft. If Leased, Year of
Location Business Segment Leased Or Owned Lease Expiration
- -------- ---------------- ------------------- --------------------------------- ----------------
Orange, West Region Headquarters 200,000 Owned (1)
California Accounting Center
Staffing Services
Computer Systems
El Segundo, Staffing Services 20,000 Owned
California
San Diego, Staffing Services 20,000 Owned
California
Montevideo, Telephone DirectoryPrinting and Other 80,000 Owned
Uruguay
Blue Bell, Telephone DirectoryComputer Systems 55,000 (2) 2012
Pennsylvania Computer Systems
Redmond, Staffing Services 66,000 2010
Washington 27,000 2009
Wallington, Computer Systems 32,000 20082012
New Jersey
Rochester, Computer Systems 39,000 200850,500 2018
New York 50,500 2018
Toronto, Staffing Services 81,000 2010
Canada
Munich, Computer Systems 36,000 2009
Germany
(1) See Note F of Notes to Consolidated Financial Statements for information
regarding a term loan secured by a deed of trust on this property.
(2) 42,600 sq. ft. in this facility is subleased to the purchaser of the
Company's former Telephone Directory Division.
The Company leases space in approximately 250235 other facilities worldwide
(excluding month-to-month rentals), each of which consists of less than 20,000
square feet. These leases expire at various times from 20082009 until 2018.
At times, the Company leases space to others in the buildings that it owns or
leases, if it does not require the space for its own business. The Company
believes that its facilities are adequate for its presently anticipated uses and
that it is not dependent upon any individually leased premises.
-24--21-
For additional information pertaining to lease commitments, see Note O of Notes
to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
From time to time, theThe Company is a party to certain claims and legal proceedings which arise from time to
time in the ordinary course of business. There are noIt is not possible to predict the
outcome of these claims or legal
proceedings now pending against the Company or its subsidiaries, which, in the
opinionand proceedings; however, they may consume substantial
amounts of management, would have a material adverse effect on the Company's consolidated financial positionand managerial resources and might result in
adverse publicity, regardless of the outcome. No proceeding or resultsproceedings
presenting in large degree the same legal and factual issues involve a claim
exceeding the threshold in Item 1.03 of operations.Regulation S-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-25--22-
EXECUTIVE OFFICERS
------------------
STEVEN A. SHAW, 48,49, has been President and Chief Executive Officer of the
Company since March 2006 and Chief Operating Officer of the Company since March
2005. He served as Co-Chief Executive Officer of the Company from September 2005
to March 2006, as Executive Vice President of the Company from March 2005 to
March 2006 and as Senior Vice President of the Company from November 2000 to
March 2005. He has been employed by the Company in executive capacities since
November 1995.
JEROME SHAW, 81,82, a founder of the Company, has been Executive Vice President and
Secretary of the Company since its inception in 1957 and has been employed in
executive capacities by the Company and its predecessors since 1950.
JACK EGAN, 58,59, has been Senior Vice President and Principal Financial Officer of
the Company since April 2006. Prior thereto he served as Vice President -
Corporate Accounting and Principal Accounting Officer since January 1992. He has
been employed in executive capacities by the Company since 1979.
HOWARD B. WEINREICH, 65,66, has been General Counsel of the Company since September
1985 and a Senior Vice President of the Company since May 2001. He has been
employed in executive capacities by the Company since 1981.
LUDWIG M. GUARINO, 56,57, has been Senior Vice President of the Company since April
2006 and Treasurer of the Company since January 1994. He has been employed in
executive capacities by the Company since 1976.
THOMAS DALEY, 53,54, has been Senior Vice President of the Company since March 2001
and has been employed in executive capacities by the Company since 1980.
DANIEL G. HALLIHAN, 59,60, has been Vice President - Accounting Operations since
January 1992 and has been employed in executive capacities by the Company since
1986.
RONALD KOCHMAN, 48,49, has been Vice President of the Company since March 2005 and
has been employed by the Company in executive capacities in its financial
departments since 1987.
LOUISE ROSS, 59,60, has been Vice President - Human Resources of the Company since
September 2006 and has been employed by the Company in executive capacities in
its human resource departments since 1993.
Steven A. Shaw is the son of Jerome Shaw. Deborah Shaw, a director of the
Company, is the cousin of Steven A. Shaw. Bruce G. Goodman, a director of the
Company, is the husband of Deborah Shaw's sister. Deborah Shaw and her sister
are co-executors of the Estate of William Shaw. William Shaw was Jerome Shaw's
brother and a founder of the Company, and was President and Co-Chief Executive
Officer of the Company at the time of his death in March 2006. There are no
other family relationships among the executive officers or directors of the
Company.
-26--23-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
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, during the Company's two fiscal years
ended October 28, 2007:
2007 2006
-------------------------------- --------------------------------November 2, 2008:
2008 2007
------------------------ -----------------------
Fiscal Period High Low High Low
- ------------- ----- ---- ----- ----
First Quarter $18.40 $12.10 $42.12 $25.98 $16.73 $12.03
Second Quarter 19.70 13.48 38.59 25.10 21.63 15.90
Third Quarter 14.96 11.21 26.29 16.32 32.32 18.70
Fourth Quarter 15.17 5.42 19.48 14.19 29.65 22.10
As of January 4, 2008,9, 2009, there were approximately 319310 holders of record of the
Company's common stock, exclusive of shareholders whose shares were held by
brokerage firms, depositories and other institutional firms in "street name" for
their customers.
Cash dividends have not been paid during the reported periods. TheOne of the
Company's credit agreement containsagreements contain financial covenants, one of which limits
cash dividends, capital stock purchases and redemptions by the Company in any
one fiscal year to 50% of the prior year's consolidated net income, as defined.
The amount available for cash dividends, capital stock purchases and redemptions
under this covenant, at October 29, 2007November 3, 2008 was $19.7$32.1 million.
On December 19, 2006, the Board of Directors approved a three-for-two split of
the Company's common stock, in the form of a 50% stock dividend which was paid
January 26, 2007 to record holders as of January 15, 2007.
The following table sets forth certain information, as at October 28, 2007,November 2, 2008, with
respect to the Company's equity compensation plans:
Number of securities to be Weighted-average Number of securities
issued upon exercise of exercise price of remaining available for
outstanding options, outstanding options, future issuance under
Plan Category warrants and rights warrants and rights equity compensation plans
------------- ------------------- ------------------- -------------------------
Equity compensation plans approved
by security holders
1995 Non-Qualified Stock Option Plan 118,66574,115 (a) $14.97 -$12.87 -- (a)
2006 Incentive Stock Plan 3,000 $27.01 1,497,000332,280 $13.32 1,167,720
Equity compensation plans not
- - -
approved by security holders ---------- -- --
------- ---------
Total 121,665 $15.27 1,497,000
========406,395 $13.16 1,167,720
======= =========
(a) The Company's 1995 Non-Qualified Stock Option Plan terminated on May 16,
2005 except for options previously granted under the plan.
-24-
Shareholder Return Performance Graph
The Company's Common Stock has been listed on the New York Stock Exchange since
May 7, 1997. The following graph compares the cumulative total shareholder
return to holders of the Company's Common Stock with (a) the New York Stock
Exchange Stock Market Index and (b) securities of companies traded on the New
York Stock Exchange having market capitalizations that are within 5% of the
market capitalization of the Company's Common Stock as at the end of the
Company's latest fiscal year-end (this peer group has been historically selected
by the Company because the Company has operated in five, four since the sale of
Autologic, diverse business segments). The comparison assumes $100 was invested
on November 2, 2003 in the Company's Common Stock and in each of the comparison
groups, and assumes reinvestment of dividends (the Company paid no dividends
during the periods):
[SEE SUPPLEMENTAL PDF FOR CHART]
COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
COMPANIES, PEER GROUPS AND BROAD MARKETS
- --------------------------------- ----------- ------------ ----------- ------------- ------------ -----------
2003 2004 2005 2006 2007 2008
---- ---- ---- ---- ---- ----
VOLT INFORMATION SCIENCES, INC. $100.00 $166.00 $106.57 $223.54 $139.39 $65.54
PEER GROUP INDEX $100.00 $101.80 $105.89 $116.51 $105.45 $58.59
NEW YORK STOCK EXCHANGE INDEX $100.00 $111.54 $124.89 $147.45 $178.05 $114.04
- --------------------------------- ----------- ------------ ----------- ------------- ------------ -----------
-27--25-
Issuer Purchases of Equity Securities
Total Number of Shares
Purchased as Part of Maximum Number of Shares that
Period Total Number of Average Price Publicly Announced Plan May Yet Be Purchased Under the
Shares Purchased Paid per Share or Program Plan or Program
- ------------------------------- ----------------- ----------------- ------------------------- --------------------------------
July 28, 2008 -
August 24, 2008 - - - 1,500,000
August 25, 2008 -
September 21, 2008 255,637 $10.84 255,637 1,244,363
September 22, 2008 -
November 2, 2008 903,098 $8.75 903,098 341,265
--------- ----------
Total 1,158,735 1,158,735
========= =========
On June 2, 2008, the Company's Board of Directors authorized the repurchase of
up to one million five hundred thousand (1,500,000) shares of the Company's
common stock from time to time in open market or private transactions at the
Company's discretion, subject to market conditions and other factors. The timing
and exact number of shares purchased will be at the Company's discretion and
will depend on market conditions and is subject to institutional approval for
purchases in excess of $32.1 million in fiscal year 2009 under the terms of the
Company's credit agreements.
No information of the type called for by Items 701 and 703 of Regulation S-K (relating
to unregistered sales of equity securities by the Company and
purchases of equity securities by the Company and affiliated
purchasers) is required to be included in this Form 10-K.
-26-
ITEM 6. SELECTED FINANCIAL DATA
Year Ended (Notes 1 and 2)
----------------------------------------------------------------------------------------------------------------------------------------------
November October October October October
November2,2008 28, 2007 29, 2006 30, 2005 31, 2004
2, 2003
---------- ---------- ---------- ---------- --------------------- ----------- ----------- ----------- -----------
(In thousands, except per share data)
Net Sales $2,353,082 $2,338,453 $2,177,619 $1,924,777 $1,609,491
========== ========== ========== ========== ==========
Income$ 2,427,318 $ 2,285,061 $ 2,270,232 $ 2,110,571 $ 1,862,164
=========== =========== =========== =========== ===========
(Loss) income from continuing operations--Noteoperations--
Note 3 $39,332 $30,650 $17,040 $24,196 $4,205($ 34,271) $ 29,542 $ 20,074 $ 8,021 $ 17,339
Discontinued operations--Note 4 - - - 9,520 -
---------- ---------- ---------- ---------- ----------and 5 98,485 9,790 10,576 9,019 16,377
----------- ----------- ----------- ----------- -----------
Net income $39,332 $30,650 $17,040 $33,716 $4,205
========== ========== ========== ========== ==========$ 64,214 $ 39,332 $ 30,650 $ 17,040 $ 33,716
=========== =========== =========== =========== ===========
Per Share Data
- --------------
Basic:
Income(Loss) income from continuing operations $1.71 $1.32 $0.74 $1.06 $0.19($ 1.56) $ 1.29 $ 0.86 $ 0.35 $ 0.76
Discontinued operations - - - 0.41 -
---------- ---------- ---------- ---------- ----------4.48 0.42 0.46 0.39 0.71
----------- ----------- ----------- ----------- -----------
Net income $1.71 $1.32 $0.74 $1.47 $0.19
========== ========== ========== ========== ==========$ 2.92 $ 1.71 $ 1.32 $ 0.74 $ 1.47
=========== =========== =========== =========== ===========
Weighted average number of shares 21,982 22,935 23,227 22,980 22,851
22,827
========== ========== ========== ========== ===================== =========== =========== =========== ===========
Diluted:
Income(Loss) income from continuing operations $1.71 $1.31 $0.74 $1.05 $0.19($ 1.56) $ 1.29 $ 0.86 $ 0.35 $ 0.75
Discontinued operations - - - 0.41 -
---------- ---------- ---------- ---------- ----------4.48 0.42 0.45 0.39 0.71
----------- ----------- ----------- ----------- -----------
Net income $1.71 $1.31 $0.74 $1.46 $0.19
========== ========== ========== ========== ==========$ 2.92 $ 1.71 $ 1.31 $ 0.74 $ 1.46
=========== =========== =========== =========== ===========
Weighted average number of shares 21,982 22,985 23,388 23,126 23,031
22,838
========== ========== ========== ========== ===================== =========== =========== =========== ===========
Total assets $840,151 $699,121 $688,712 $690,036 $540,483
========== ========== ========== ========== ==========$ 925,779 $ 840,151 $ 699,121 $ 688,712 $ 690,036
=========== =========== =========== =========== ===========
Long-term debt, net of current portion $12,316 $12,827 $13,297 $15,588 $14,098
========== ========== ========== ========== ==========$ 12,082 $ 12,316 $ 12,827 $ 13,297 $ 15,588
=========== =========== =========== =========== ===========
Note 1 -- Fiscal years 20032004 through 2007 consisted of 52 weeks and fiscal year
2008 consisted of 53 weeks.
Note 2 -- Cash dividends were not paid during the five-year period ended
October
28, 2007.November 2, 2008.
Note 3 -- Fiscal 2004 included a gain from the sale of real estate of $3.3
million ($2.0 million, net of taxes, or $0.09 per share).
Note 4 -- Fiscal 2008 included a net gain of $93.0 million, or $4.23 per
share, from discontinued operations resulting from the Company's sale
of the net assets of its DataNational and Directories Systems and
Services divisions. The results of operations for these divisions have
been reclassified to discontinued operations for fiscal years 2008
through 2004.
Note 5 -- Fiscal 2004 included a gain from discontinued operations of $9.5
million (net of taxes of $4.6 million), or $0.41 per share, from the
sale of real estate previously leased to the Company's former 59%
owned subsidiary, Autologic International, Inc.
("Autologic").
-28--27-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEWOrganization of Information
- -----------------------------------
Management's discussion and analysis of financial condition and results of
operations ("MD&A") is provided as a supplement to our consolidated financial
statements and notes thereto included in Item 8 of this Form 10-K and to provide
an understanding of our consolidated results of operations, financial condition
and changes in financial condition. Our MD&A is organized as follows:
o Critical Accounting Policies - This section discusses those accounting
policies that are considered to be both important to our financial
condition and results of operations and require us to exercise
subjective or complex judgments in their application.
o Executive Overview - This section provides a general description of
our business segments and provides a brief overview of the results of
operations during the accounting period.
o Results of Operations - This section provides our analysis of the line
items on our summary of operating results by segment for the current
and comparative accounting periods on both a company-wide and segment
basis. The analysis is in both a tabular and narrative format.
o Liquidity and Capital Resources - This section provides an analysis of
our liquidity and cash flows, as well as our discussion of our
commitments, securitization program and credit lines.
o Critical Accounting Policies - This section discusses those accounting
policies that are considered to be both important to our financial
condition and results of operations and require us to exercise
subjective or complex judgments in their application.
o New Accounting Pronouncements - This section includes a discussion of
recently published accounting authoritative literature that may have
an impact on our historical or prospective results of operations or
financial condition.
o Related Person Transactions - This section describes any business
relationships, or transaction or series of similar transactions
between the Company and its directors, executive officers,
shareholders (with a 5% or greater interest in the Company), or any
entity in which an executive officerany such person has more than a 10% equity ownership
interest, as well as members of the immediate families of any of the
foregoing persons during the fiscal years 20062007 and 2007.2008. Excluded from
the transactions are employment compensation and directors' fees.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
Management's discussion and analysis of its financial position and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates, judgments, assumptions and valuations that affect
the reported amounts of assets, liabilities, revenues and expenses and related
disclosures. Future reported results of operations could be impacted if the
Company's estimates, judgments, assumptions or valuations made in earlier
periods prove to be different from actual outcomes. Management believes the
critical accounting policies and areas that require the most significant
estimates, judgments, assumptions or valuations used in the preparation of the
Company's financial statements are as follows:
Revenue Recognition - The Company derives its revenues from several sources. The
revenue recognition methods, which are consistent with those prescribed in Staff
Accounting Bulletin 104 ("SAB 104"), "Revenue Recognition in Financial
Statements," are described below in more detail for the significant types of
revenue within each of its segments. Revenue is generally recognized when
persuasive evidence of an arrangement exists, we have delivered the product or
performed the service, the fee is fixed and determinable and collectibility is
probable. The determination of whether and when some of the criteria below have
been satisfied sometimes involves assumptions and judgments that can have a
significant impact on the timing and amount of revenue we report.
-29-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Continued
CRITICAL ACCOUNTING POLICIES--Continued
- ----------------------------
Staffing Services:
Staffing: Sales are derived from the Company's Staffing Solutions Group
supplying its own temporary personnel to its customers, for which the
Company assumes the risk of acceptability of its employees to its
customers, and has credit risk for collecting its billings after it has
paid its employees. The Company reflects revenues for these services on a
gross basis in the period the services are rendered. In fiscal 2007, this
revenue comprised approximately 76% of the net consolidated sales.
Managed Services: Sales are generated by the Company's E-Procurement
Solutions subsidiary, ProcureStaff, for which the Company receives an
administrative fee for arranging for, billing for and collecting the
billings related to staffing companies ("associate vendors") who have
supplied personnel to the Company's customers. The administrative fee is
either charged to the customer or subtracted from the Company's payment to
the associate vendor. The customer is typically responsible for assessing
the work of the associate vendor, and has responsibility for the
acceptability of its personnel, and in most instances the customer and
associate vendor have agreed that the Company does not pay the associate
vendor until the customer pays the Company. Based upon the revenue
recognition principles in Emerging Issues Task Force ("EITF") 99-19,
"Reporting Revenue Gross as a Principal versus Net as an Agent," revenue
for these services, where the customer and the associate vendor have agreed
that the Company is not at risk for payment, is recognized net of
associated costs in the period the services are rendered. In addition,
sales for certain contracts generated by the Company's Staffing Solutions
Group's managed services operations have similar attributes. In fiscal
2007, this revenue comprised approximately 2% of net consolidated sales.
Outsourced Projects: Sales are derived from the Company's Information
Technology Solutions operation providing outsource services for customers
in the form of project work, for which the Company is responsible for
deliverables, in accordance with American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 81-1, "Accounting for
Performance of Construction-Type Contracts". The Company's employees
perform the services and the Company has credit risk for collecting its
billings. Revenue for these services is recognized on a gross basis in the
period the services are rendered when on a time and material basis; when
the Company is responsible for project completion, revenue is recognized
when the project is complete and the customer has approved the work. In
fiscal 2007, this revenue comprised approximately 5% of net consolidated
sales.
Telephone Directory:
Directory Publishing: Sales are derived from the Company's sales of
telephone directory advertising for books it publishes as an independent
publisher in the United States and Uruguay. The Company's employees perform
the services and the Company has credit risk for collecting its billings.
Revenue for these services is recognized on a gross basis in the period the
books are delivered. In fiscal 2007, this revenue comprised approximately
3% of net consolidated sales.
Ad Production and Other: Sales are generated when the Company performs
design, production and printing services, and database management for other
publishers' telephone directories. The Company's employees perform the
services and the Company has credit risk for collecting its billings.
Revenue for these services is recognized on a gross basis in the period the
Company has completed its production work and upon customer acceptance. In
fiscal 2007, this revenue comprised approximately 1% of net consolidated
sales.
-30-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Continued
CRITICAL ACCOUNTING POLICIES--Continued
- ----------------------------
Telecommunications Services:
Construction: Sales are derived from the Company supplying aerial and
underground construction services. The Company's employees perform the
services, and the Company takes title to all inventory, and has credit risk
for collecting its billings. The Company relies upon the principles in SOP
No. 81-1, using the completed-contract method, to recognize revenue on a
gross basis upon customer acceptance of the project, or by the use of the
percentage-of-completion method, when applicable. In fiscal 2007, this
revenue comprised approximately 3% of net consolidated sales.
Non-Construction: Sales are derived from the Company performing design,
engineering and business systems integrations work. The Company's employees
perform the services and the Company has credit risk for collecting its
billings. Revenue for these services is recognized on a gross basis in the
period in which services are performed, and, if applicable, any completed
units are delivered and accepted by the customer. In fiscal 2007, this
revenue comprised approximately 2% of net consolidated sales.
Computer Systems:
Database Access: Sales are derived from the Company granting access to its
proprietary telephone listing databases to telephone companies,
inter-exchange carriers and non-telco enterprise customers. The Company
uses its own databases and has credit risk for collecting its billings. The
Company recognizes revenue on a gross basis in the period in which the
customers access the Company's databases. In fiscal 2007, this revenue
comprised approximately 2% of net consolidated sales.
IT Maintenance: Sales are derived from the Company providing hardware
maintenance services to the general business community, including customers
who have our systems, on a time and material basis or a contract basis. The
Company uses its own employees and inventory in the performance of the
services, and has credit risk for collecting its billings. Revenue for
these services is recognized on a gross basis in the period in which the
services are performed, contingent upon customer acceptance when on a time
and material basis, or over the life of the contract, as applicable. In
fiscal 2007, this revenue comprised approximately 2% of net consolidated
sales.
Telephone Systems: Sales are derived from the Company providing telephone
operator services-related systems and enhancements to existing systems,
equipment and software to customers. The Company uses its own employees and
has credit risk for collecting its billings. The Company relies upon the
principles in SOP 97-2, "Software Revenue Recognition" and EITF 00-21,
"Revenue Arrangements with Multiple Deliverables" to recognize revenue on a
gross basis upon customer acceptance of each part of the system based upon
its fair value or by the use of the percentage-of-completion method when
applicable. In fiscal 2007, this revenue comprised approximately 4% of net
consolidated sales.
For those contracts accounted for under SOP No. 81-1, the Company records
provisions for estimated losses on contracts when losses become evident.
Accumulated unbilled costs on contracts are carried in inventory at the lower of
actual cost or estimated realizable value.
-31-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Continued
CRITICAL ACCOUNTING POLICIES--Continued
- ----------------------------
Allowance for Uncollectible Accounts - The establishment of an allowance
requires the use of judgment and assumptions regarding potential losses on
receivable balances. Allowances for accounts receivable are maintained based
upon historical payment patterns, aging of accounts receivable and actual
write-off history. The Company also makes judgments about the creditworthiness
of significant customers based upon ongoing credit evaluations, and might assess
current economic trends that might impact the level of credit losses in the
future. However, since a reliable prediction of future changes in the financial
stability of customers is not possible, the Company cannot guarantee that
allowances will continue to be adequate. If actual credit losses are
significantly higher or lower than the allowance established, it would require a
related charge or credit to earnings.
Goodwill and Indefinite-Lived Intangible Assets - Under Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets,"
goodwill and indefinite-lived intangible assets are subject to annual impairment
testing using fair value methodologies. The Company performs its annual
impairment testing during its second fiscal quarter, or more frequently if
indicators of impairment arise. The timing of the impairment test may result in
charges to earnings in the second fiscal quarter that could not have been
reasonably foreseen in prior periods. The testing process includes the
comparison of the Company's business units' multiples of sales and EBITDA to
those multiples of its business units' competitors. Although it is believed the
assumptions and estimates made in the past have been reasonable and appropriate,
different assumptions and estimates could materially impact financial results.
Long-Lived Assets - Property, plant and equipment are recorded at cost, and
depreciation and amortization are provided on the straight-line or accelerated
methods at rates calculated to allocate the cost of the assets over their period
of use. Intangible assets, other than goodwill and indefinite-lived intangible
assets, and property, plant and equipment are reviewed for impairment in
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." Under SFAS No. 144, these assets are tested for
recoverability whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable. Circumstances which could trigger a
review include, but are not limited to: significant decreases in the market
price of the asset; significant adverse changes in the business climate or legal
factors; the accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of the asset; current
period cash flow or operating losses combined with a history of losses or a
forecast of continuing losses associated with the use of the asset; and a
current expectation that the asset will more likely than not be sold or disposed
of significantly before the end of its estimated useful life. Recoverability is
assessed based on the carrying amount of the asset and the sum of the
undiscounted cash flows expected to result from the use and the eventual
disposal of the asset or asset group. An impairment loss is recognized when the
carrying amount exceeds the estimated fair value of the asset or asset group.
The impairment loss is measured as the amount by which the carrying amount
exceeds fair value.
Capitalized Software - The Company's software technology personnel are involved
in the development and acquisition of internal-use software to be used in its
Enterprise Resource Planning system and software used in its operating segments,
some of which are customer accessible. The Company accounts for the
capitalization of software in accordance with AICPA Statement of Position No.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Subsequent to the preliminary project planning and approval
stage, all appropriate costs are capitalized until the point at which the
software is ready for its intended use. Subsequent to the software being used in
operations, the capitalized costs are transferred from costs-in-process to
completed property, plant and equipment, and are accounted for as such. All
post-implementation costs, such as maintenance, training and minor upgrades that
do not result in additional functionality, are expensed as incurred.
-32-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Continued
CRITICAL ACCOUNTING POLICIES--Continued
- ----------------------------
The capitalization process involves judgment as to what types of projects and
tasks are capitalizable. Although the Company believes the decisions made in the
past concerning the accounting treatment of these software costs have been
reasonable and appropriate, different decisions could materially impact
financial results.
Income Taxes - Estimates of Effective Tax Rates, Deferred Taxes and Valuation
Allowance - When the financial statements are prepared, the Company estimates
its income taxes based on the various jurisdictions in which business is
conducted. Significant judgment is required in determining the Company's
worldwide income tax provision. Liabilities for anticipated tax audit issues in
the United States and other tax jurisdictions are based on estimates of whether,
and the extent to which, additional taxes will be due. The recognition of these
provisions for income taxes is recorded in the period in which it is determined
that such taxes are due. If in a later period it is determined that payment of
this additional amount is unnecessary, a reversal of the liability is
recognized. As a result, the ongoing assessments of the probable outcomes of the
audit issues and related tax positions require judgment and can materially
increase or decrease the effective tax rate and materially affect the Company's
operating results. This also requires the Company to estimate its current tax
exposure and to assess temporary differences that result from differing
treatments of certain items for tax and accounting purposes. These differences
result in deferred tax assets and liabilities, which are reflected on the
balance sheet. The Company must then assess the likelihood that its deferred tax
assets will be realized. To the extent it is believed that realization is not
likely, a valuation allowance is established. When a valuation allowance is
increased or decreased, a corresponding tax expense or benefit is recorded in
the statement of operations.
The deferred tax asset at October 28, 2007 was $17.8 million, net of the
valuation allowance of $1.5 million. The valuation allowance was recorded to
reflect uncertainties about whether the Company will be able to utilize some of
its deferred tax assets (consisting primarily of foreign net operating loss
carryforwards) before they expire. The valuation allowance is based on estimates
of taxable income for the applicable jurisdictions and the period over which the
deferred tax assets will be realizable.
Securitization Program - The Company accounts for the securitization of accounts
receivable in accordance with SFAS No. 156, "Accounting for Transfers and
Servicing of Financial Assets an amendment of SFAS No. 140." At the time a
participation interest in the receivables is sold, that interest is removed from
the consolidated balance sheet. The outstanding balance of the undivided
interest sold to Three Rivers Funding Corporation ("TRFCO"), an asset backed
commercial paper conduit sponsored by Mellon Bank, N.A., was $120 million at
October 28, 2007 and $110 million at October 29, 2006, respectively.
Accordingly, the trade receivables included on the October 28, 2007 and October
29, 2006 balance sheets have been reduced to reflect the participation interest
sold. TRFCO has no recourse to the Company (beyond its interest in the pool of
receivables owned by Volt Funding, a wholly-owned special purpose subsidiary of
the Company) for any of the sold receivables.
-33-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Continued
CRITICAL ACCOUNTING POLICIES--Continued
- ----------------------------
Primary Casualty Insurance Program - The Company is insured with highly rated
insurance companies under a program that provides primary workers' compensation,
employer's liability, general liability and automobile liability insurance under
a loss sensitive program. In certain mandated states, the Company purchases
workers' compensation insurance through participation in state funds, and the
experience-rated premiums in these state plans relieve the Company of any
additional liability. In the loss sensitive program, initial premium accruals
are established based upon the underlying exposure, such as the amount and type
of labor utilized, number of vehicles, etc. The Company establishes accruals
utilizing actuarial methods to estimate the future cash payments that will be
made to satisfy the claims, including an allowance for incurred-but-not-reported
claims. This process also includes establishing loss development factors, based
on the historical claims experience of the Company and the industry, and
applying those factors to current claims information to derive an estimate of
the Company's ultimate premium liability. In preparing the estimates, the
Company considers the nature and severity of the claims, analyses provided by
third party actuaries, as well as current legal, economic and regulatory
factors. The insurance policies have various premium rating plans that establish
the ultimate premium to be paid. Adjustments to premiums are based upon the
level of claims incurred at a future date up to three years after the end of the
respective policy year. For each policy year, management evaluates the accrual
and the underlying assumptions, regularly throughout the year and makes
adjustments as needed. The ultimate premium cost may be greater or less than the
established accrual. While management believes that the recorded amounts are
adequate, there can be no assurances that changes to management's estimates will
not occur due to limitations inherent in the estimation process. In the event it
is determined that a smaller or larger accrual is appropriate, the Company would
record a credit or a charge to cost of services in the period in which such
determination is made.
In fiscal 2007 and 2006, as a result of its review of its insurance accruals,
the Company reduced cost of sales by approximately $9.0 million and $11.1
million, respectively, to reduce its workers' compensation accruals due to its
working closely with customers to better manage workers' compensation costs, and
to the improved regulatory environment within several states. The Company is
anticipating a slight increase to workers' compensation costs during fiscal 2008
and thereafter. The Company also reduced cost of sales by approximately $1.0
million and $4.8 million, respectively, to recognize a reduction in general
liability insurance costs as a result of retrospective adjustments related to
the Company's positive claims experience.
Medical Insurance Program - The Company is self-insured for the majority of its
medical benefit programs. The Company remains insured for a portion of its
medical program (primarily HMOs) as well as the entire dental program. The
Company provides the self-insured medical benefits through an arrangement with a
third party administrator. However, the liability for the self-insured benefits
is limited by the purchase of stop loss insurance. The contributed and withheld
funds and related liabilities for the self-insured program together with unpaid
premiums for the insured programs are held in a 501(c)9 employee welfare benefit
trust. These amounts, other than the current provisions, do not appear on the
balance sheet of the Company. In order to establish the self-insurance reserves,
the Company utilized actuarial estimates of expected losses based on statistical
analyses of historical data. The provision for future payments is initially
adjusted by the enrollment levels in the various plans. Periodically, the
resulting liabilities are monitored and adjusted as warranted by changing
circumstances. Should the amount of claims occurring exceed what was estimated
or medical costs increase beyond what was expected, liabilities might not be
sufficient, and additional expense may be recorded by the Company.
-34--28-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
EXECUTIVE OVERVIEWExecutive Overview
- ------------------
Volt Information Sciences, Inc. ("Volt") is a leading national provider of
staffing services and telecommunications and information solutions with a
material portion of its revenue coming from Fortune 100 customers. The Company
operates in four segments and the management discussion and analysis addresses
each. A brief description of these segments and the predominant source of their
sales follow:follows:
Staffing Services: This segment is divided into three major functional
areas and operates through a network of over 300 domestic and foreign branch offices.
o Staffing Solutions provides a full spectrum of managed staffing,
temporary/contract personnel employment, and workforce solutions. This
functional area is comprised of the Technical PlacementResources ("Technical")
division and the Administrative and Industrial ("A&I") division. The
employees and contractors on assignment are usually on the payroll of
the Company for the length of their assignment but thisand are then eligible
to be re-assigned to another customer. This functional area also uses
employees and subcontractors from other staffing providers ("associate
vendors") when necessary. This functional area also provides direct
placement services and, upon requestsrequest from customers, subject to
contractual conditions, will allow the customer to convert the
temporary employees to permanentfull-time customer positions.employees, under negotiated
terms. In addition, the Company's Recruitment Process Outsourcing
("RPO") services deliver end-to-end recruitment and hiring outsourced
solutions to customers. The Technical division provides skilled
employees, such as computer and other IT specialties, engineering,
design, scientificlife sciences and technical support. The A&I division provides
administrative, clerical, office automation, accounting and financial,
call center and light industrial personnel. EmployeeThe length of an
employee's assignments in the Technical division assignments usuallymay be as short as a
few weeks but in many cases can last from weeksfor six to months,
whiletwelve months.
Assignments in the A&I division the assignments are generally shorter.shorter than in the
Technical division.
o E-Procurement Solutions provides global vendor neutralcompetitively bid human
capital acquisition and management solutions by combining web-based
tools and business process outsourcing services. The employees and
contractors on assignment are usually from associate vendor firms,
although at times, Volt recruited contractors may be selected to fill
some assignments, but in those cases Volt competes on an equal basis
with other unaffiliated firms. The skill sets utilized in this functional
area closely match those of the Technical assignments within the
Staffing Solutions area. The Company receives a fee for managing
the process, and the revenue for such services is recognized net of
its associated costs. This functional area, which is part of the
Technical division, is comprised of the ProcureStaff operation.
o Information Technology Solutions provides a wide range of services
including consulting, outsourcing and turnkey project management in
the productsoftware and hardware development, lifecycle, IT infrastructure services and
customer contact markets.
Offerings include electronic game testing, hardware and software
testing, technical communications, technical call center support, data
center management, enterprise technology implementation and
integration and corporate help desk services. This functional area offers higher margin
project-oriented services to its customers and assumes greater
responsibility for the finished product in contrast to the other areas within the segment. This
functional area, which is part of the Technical division, is comprised
of the VMC Consulting operation.
-35--29-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
EXECUTIVE OVERVIEW--ContinuedExecutive Overview--Continued
- ------------------
Telephone Directory: This segment publishes independent telephone
directories and provides telephone directory production services, database
management and printing. Most of the revenues of this segment are derived
from the sales of telephone directory advertising for the books it
publishes. This segment is comprised of the DataNational directory
publishing operation, the Uruguay directory publishing and printing
operations, and other domestic directory production locations.
Telecommunications Services: This segment provides a full spectrum of
turnkey telecommunications and related services solutions for commercial
and government sectors. It designs, engineers, constructs, installs and
maintains voice, data, video and video turnkey solutionsutility infrastructure for governmentpublic and
private sectors,
encompassing engineering, construction, installationbusinesses, military and maintenance
services. These services include outside plant engineering and
construction, central office network solutions, integrated technologies,
global solutions (structured cabling, field dispatch, installation and
repair, security access control and maintenance), government solutions and
wireless solutions.agencies. This segment is comprised of the Constructionalso
installs distribution piping for potable and Engineering division and the Network Enterprise Solutions division.re-use water systems for
municipalities.
Computer Systems: This segment provides directory and operator systems and
services primarily for the telecommunications industry and provides IT
maintenance services. The segment also sells information service systems to
its customers and, in addition, provides an Application Service Provider
("ASP") model which also provides information services, including
infrastructure and database content, on a transactional fee basis. It also
provides third-party IT and data services to others. This segment is
comprised of Volt Delta Resources,VoltDelta, Volt Delta International, LSSiDataLSSiDATA and the Maintech
computer maintenance division.
Printing and Other: This segment provides printing services and publishes
telephone directories in Uruguay. The telephone directory revenues of this
segment are derived from the sales of telephone directory advertising for
the books it publishes. The operations of this segment were part of the
Telephone Directory segment until the current quarter. In September 2008,
the Company sold the net assets of its DataNational and Directory Systems
divisions, whose operations for the current and prior fiscal years have
been reclassified to Discontinued Operations in these financial statements,
with the remainder of the segment being renamed Printing and Other.
The Company's operating segments have been determined in accordance with the
Company's internal management structure, which is based on operating activities.
The Company evaluates performance based upon several factors, of which the
primary financial measure is segment operating profit. The Company defines
operating profit as pre-tax income, before general corporate expenses, interest
income and expense, and other non-operating income and expense items. Operating profit provides
management, investors and equity analysts a measure to analyze operating
performance of each business segment against historical and competitors' data,
although historical results, including operating profit, may not be indicative
of future results, as operating profit is highly contingent on many factors,
including the state of the economy and customer preferences.
This report includes information extracted from consolidated financial
information that is not required by Generally Accepted Accounting Principles
("GAAP") to be presented in the financial statements. Certain of this
information is considered "non-GAAP financial measures" as defined by SEC rules.
Some of these measures are as follows:
Gross profit for a segment is comprised of its total net sales less direct
costs.
Segment or division operating profit is comprised of segment or division gross
profit less its overhead, selling and administrative costs and depreciation, and
has limitations as an analytical tool. It should not be considered in isolation
or as a substitute for analysis of the Company's results as reported under GAAP.
Some of these limitations are due to the omission of: (a) general corporate
expenses; (b) interest income earned by the Company on excess cash generated by
its segments; (c) interest expended on corporate debt necessary to finance the
segments' operations and capital expenditures; and (d) interest and fees related
to sales of interests in accounts receivable. Because of these limitations,
segment or division operating profit (loss) should only be used on a
supplemental basis combined with GAAP results when evaluating the Company's
performance.
-30-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Executive Overview--Continued
- ------------------
Overhead is comprised of indirect costs required to support each segment's
operations, and is included in cost of sales in the statements of operations,
along with selling and administrative and depreciation expenses, which are
reflected separately in the statements of operations.
General corporate expenses are comprised of the Company's shared service
centers, and include, among other items, enterprise resource planning, human
resource, corporate accounting and finance, treasury, legal and executive
functions. In order to leverage the Company's infrastructure, these functions
are operated under a centralized management platform, providing support services
throughout the organization. The costs of these functions are included within
general corporate expenses as they are not directly allocable to a specific
segment.
Several historical seasonal factors usually affect the sales and profits of the
Company. The Staffing Services segment's sales and operating profit are always
lowest in the Company's first fiscal quarter due to the Thanksgiving, Christmas
and New Year holidays, as well as certain customer facilities closing for one to
two weeks. During the third and fourth quarters of the fiscal year, this segment
benefits from a reduction of payroll taxes when the annual tax contributions for
higher salaried employees have been met, and customers increase the use of the
Company's administrative and industrial labor during the summer vacation period.
In addition,Due to the Telephone Directory segment's DataNational division publishes
more directoriesfact that the Company's fiscal year-end is the last Sunday closest to
the end of October, periodically its fiscal year is comprised of 53 weeks.
Fiscal year 2008 was comprised of 53 weeks.
The demand for the Company's services in all segments, both domestically and in
its foreign operations, is dependent upon general economic conditions. The
Company's business tends to suffer during economic downturns, such as the
current recession. The slowing of the economy during the second halffourth quarter of
fiscal 2008 has adversely affected the fiscal year.Company's revenue and operating profit.
In fiscal 2007,2008, the Company's consolidated net sales totaled $2.4 billion and
its
consolidated segment operating profitloss totaled $107.3 million, both figures
representing historical records for the Company.$4.5 million. The explanations by
segment for fiscal 2008 are detailed below.
-36-Staffing Services: The Staffing Services segment's net sales for fiscal 2008
increased by $72.9 million, or 4%, from the prior year. Since the sales for this
segment are substantially related to the number of weeks in the fiscal period,
approximately half of the sales increase was related to the extra week in the
fiscal year. The operating profit for fiscal 2008 decreased by $13.1 million, or
24%, from fiscal 2007. The decrease in operating profit in fiscal 2008 was due
to a goodwill impairment charge of $4.9 million in fiscal 2008, a decrease in
gross margin percentage and an increase in overhead, partially offset by the
increase in net sales.
Telecommunications Services: The Telecommunications Services segment's sales
increased by $52.0 million, or 43%, from the 2007 fiscal year, however, the
operating results decreased by $27.6 million. The decrease in operating results
for fiscal 2008 was due to a decrease in gross margin percentage and increased
overhead costs. In late January 2008, the Company learned that it may not be
reimbursed for certain costs estimated and recorded under an installation
contract and the increase in operating loss for the year was primarily due to
the losses estimated and recorded on this contract. The increase in overhead was
predominantly due to increased indirect labor and equipment costs related to
this contract. The Company continues to negotiate with the customer in order for
it to be reimbursed for disputed billings under this contract. The installation
work on this contract is complete.
-31-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
EXECUTIVE OVERVIEW--ContinuedExecutive Overview--Continued
- ------------------
In the Staffing Services segment, sales and operating profits were negatively
impacted by a decrease in the use of contingent staffing in the A&I division.
Operating profits of the segment for fiscal 2007 were lower than in fiscal 2006
by $5.2 million due to a 9% decrease in A&I sales and an increase in segment
overhead costs in dollars and as a percentage of sales, partially offset by an
improvement in gross margin percentages in A&I due to a combined decrease of 1.1
percentage points in payroll tax costs and workers' compensation costs. The
workers' compensation cost for the current fiscal year was lower than that of
the prior year by approximately $5.7 million due to the segment working closely
with customers to better manage workers' compensation costs and the improved
regulatory environment within several states.
The Telephone Directory segment sales and operating profits increased in fiscal
2007 from the prior fiscal year, with operating profits reaching an historical
high for the segment. The $1.3 million increase in operating profit was due to
the sales increase and the increase in gross percentages due to the mix of
telephone directories delivered in the year.
In the Telecommunications Services segment, sales increased slightly in fiscal
2007 from the fiscal 2006 year. Operating results improved by $6.2 million, as
the segment recorded its first operating profit in six years due to the ramping
up of a major fiber optic contract in the latter half of fiscal 2007. The gross
margin percentages improved in fiscal 2007 due to the mix of jobs completed
during the period. Overhead costs decreased in dollars and as a percentage of
sales.Computer Systems: The Computer Systems segment's sales andincreased by $13.4
million, or 7%, from the 2007 fiscal year, while its operating profits increasedresults decreased
by $54.4 million, or 172%, in fiscal 20072008. The decrease in operating results in
fiscal 2008 was due to a goodwill impairment charge of $41.5 million in fiscal
2008, the increased overhead costs as a result of the acquisition of LSSi, which
included $1.5 million of severance costs and increased amortization of
intangible costs related to the acquisition.
Printing and Other: On September 5, 2008, the Company sold the net assets of its
directory systems and services and North American telephone directory publishing
operations to Yellow Page Group ("YPG"). The net purchase price of $179.3
million was paid in cash at closing. The transaction included the operations of
Volt Directory Systems and DataNational, formerly part of the Telephone
Directory segment, but excluded the Uruguayan printing and telephone directory
operations, which now comprises this new segment. The results of operations of
Volt Directory Systems and DataNational have been classified as discontinued and
the prior period results have been reclassified. The Printing and Other
segment's sales increased by $4.1 million from the prior2007 fiscal year, with segment sales reaching an historical high.
Gross margin percentagesand its
operating profit increased by $0.1 million in fiscal 2007 due to2008, despite a decrease in
the mix of the various
revenue components, and overhead costs increased in dollars and as a percentage
of sales.gross margin percentage.
The Company has focused, and will continue to focus, on aggressively increasing
its market share while attempting to maintain margins in order to increase
profits. Despite an increase in costs to solidify and expand their presence in
their respective markets, the segments have emphasized cost containment
measures, along with improved credit and collections procedures designed to
improve the Company's cash flow.
RESULTS OF OPERATIONSConsolidated Results of Operations
- -------------------------------------------------------
The information that 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 period. 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.
In fiscal 2008, consolidated net sales increased by $142.3 million, or 6%, to
approximately $2.4 billion, from the prior fiscal year. The increase in the
sales for the fiscal year was comprised of increases in Staffing Services of
$72.9 million, Telecommunications Services of $52.0 million, Computer Systems of
$13.4 million, and Printing and Other of $4.1 million.
Cost of sales increased by $182.0 million, or 9%, to $2.3 billion, and was 94%
of sales, in fiscal 2008, as compared to 92% of sales in fiscal 2007. The
increase in the cost of sales percentage was primarily due to the losses
sustained in the Telecommunications segment in fiscal 2008.
Selling and administrative costs increased by $2.3 million, or 3%, in fiscal
2008 from fiscal 2007, and was 3.8% of sales, as compared to 3.9% in fiscal
2007.
Depreciation and amortization increased by $1.5 million, or 4%, in fiscal 2008
from fiscal 2007, and remained at 1.6% of sales. The increase in depreciation
and amortization in the current year compared to fiscal 2007 was attributable to
increases in amortization of intangibles in the Computer Systems segment due to
acquisitions in fiscal 2007, along with additions of fixed assets in the
Computer Systems, Staffing Services and the Telecommunications Services
segments, partially offset by a reduction in amortization of the corporate
enterprise resource planning system.
-32-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2008 (53 WEEKS) COMPARED TO FISCAL 2007 (52 WEEKS)
Consolidated Results of Operations--Continued
- ----------------------------------
Impairment and restructuring charges totaled $47.9 million in fiscal 2008. Based
upon indicators of impairment in the fourth quarter of fiscal 2008, which
included a significant decrease in market capitalization, a decline in recent
operating results, and a decline in the Company's business outlook primarily due
to the macroeconomic environment, the Company performed an interim impairment
test as of November 2, 2008. The Company completed step one of the impairment
analysis and concluded that, as of November 2, 2008, the fair value of the
Computer Systems and Staffing Services segments were below their respective
carrying values including goodwill. Step two of the impairment test was
initiated but, due to the time consuming nature, has not been completed. The
Company recorded estimates of impairment in the amount of $41.5 million and $4.9
million, in the Computer Systems and Staffing Services segments, respectively as
of November 2, 2008. The Company expects to complete the step two analyses in
time for the first quarter Form 10-Q filing. The Company recorded no impairment
charges in fiscal 2007 or 2006. The restructuring charge of $1.5 million in the
Computer Systems segment was due to the reduction of foreign and domestic
personnel as a result of the acquisition and integration of LSSi.
The Company reported an operating loss of $40.7 million in the current year, as
compared to an operating profit of $50.7 million in fiscal 2007 due to a
decrease in segment operating profit of $95.0 million, or 105%, partially offset
by a decrease of $3.6 million, or 9%, in general corporate expenses. The
decrease in segment operating results, after taking into the effect the
write-down of goodwill, was primarily attributable to the decreased operating
results of the Computer Systems segment of $54.4 million, the Telecommunications
Services segment of $27.6 million and the Staffing Services segment of $13.1
million.
Interest income decreased by $1.4 million, or 23%, in the current year from
fiscal 2007 due to lower interest rates and a reduction in premium deposits held
by insurance companies.
Other expense decreased by $3.1 million, or 44%, in the current year from fiscal
2007 due to an amended securitization program which resulted in a reduction in
securitization fees and an increase in interest expense.
Interest expense increased by $4.0 million, or 111%, in the current year from
fiscal 2007 due to additional borrowings used to fund the 2007 acquisitions and
the aforementioned amended securitization program.
The income from continuing operations before income taxes decreased by $92.1
million, or 201%, from fiscal 2007 due to the aforementioned factors.
The Company's effective tax benefit on its financial reporting pre-tax loss from
continuing operations was 25.7% in fiscal 2008 compared to an effective tax
provision rate of 35.5% on its financial reporting pre-tax income in fiscal
2007.
Income from discontinued operations for fiscal 2008 totaled $98.5 million (net
of income taxes of $67.1 million) compared to $9.8 million (net of income taxes
of $6.7 million) in fiscal 2007. The increase was due to the gain on the sale of
the discontinued operation in fiscal 2008.
The net income in fiscal 2008 was $64.2 million compared to a net income of
$39.3 million in fiscal 2007.
-33-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2008 (53 WEEKS) COMPARED TO FISCAL 2007 (52 WEEKS)--Continued
Results of Operations by Segment
- --------------------------------
The following two tables reconcile the operating profit by segment to the
consolidated statements of operations for the fiscal year ended November 2, 2008
and October 28, 2007:
Twelve Months Ended November 2, 2008
------------------------------------
(Dollars in Millions)
Staffing Telecommunications Computer Printing Corporate &
Total Services Services Systems and Other Eliminations
---------- ---------- -------- -------- ------- -------
Net sales $ 2,427.3 $ 2,043.8 $ 171.7 $ 212.7 $ 16.9 ($ 17.8)
Direct costs 1,930.5 1,707.1 133.3 96.9 11.0 (17.8)
Overhead 359.7 234.1 57.9 67.7 -- --
---------- ---------- -------- -------- ------- -------
Cost of sales 2,290.2 1,941.2 191.2 164.6 11.0 (17.8)
Selling & administrative 91.3 43.2 0.5 8.9 4.9 33.8
Impairment and restructuring
costs 47.9 4.9 -- 43.0 -- --
Depreciation 38.6 14.0 2.6 18.9 0.7 2.4
---------- ---------- -------- -------- ------- -------
Operating (loss) profit (40.7) 40.5 (22.6) (22.7) 0.3 (36.2)
Interest income 4.8 -- -- -- -- 4.8
Other expense, net (4.0) -- -- -- -- (4.0)
Foreign exchange 1.2 -- -- -- -- 1.2
Interest expense (7.6) -- -- -- -- (7.6)
---------- ---------- -------- -------- ------- -------
(Loss) income from continuing
operations before minority
interest and income taxes ($ 46.3) $ 40.5 ($ 22.6) ($ 22.7) $ 0.3 ($ 41.8)
========== ========== ======== ======== ======= =======
-34-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2008 (53 WEEKS) COMPARED TO FISCAL 2007 (52 WEEKS)--Continued
Results of Operations by Segment--Continued
- --------------------------------
Twelve Months Ended October 28, 2007
------------------------------------
(Dollars in Millions)
Staffing Telecommunications Computer Printing Corporate &
Total Services Services Systems and Other Eliminations
---------- ---------- -------- -------- ------- -------
Net sales $ 2,285.0 $ 1,970.9 $ 119.7 $ 199.3 $ 12.8 ($ 17.7)
Direct costs 1,810.3 1,641.0 88.6 90.8 7.6 (17.7)
Overhead 297.9 221.2 23.8 52.9 -- --
---------- ---------- -------- -------- ------- -------
Cost of sales 2,108.2 1,862.2 112.4 143.7 7.6 (17.7)
Selling & administrative 89.0 42.4 0.4 7.6 4.2 34.4
Depreciation 37.1 12.7 1.9 16.3 0.8 5.4
---------- ---------- -------- -------- ------- -------
Operating profit (loss) 50.7 53.6 5.0 31.7 0.2 (39.8)
Interest income 6.2 -- -- -- -- 6.2
Other expense, net (7.1) -- -- -- -- (7.1)
Foreign exchange (0.4) -- -- -- -- (0.4)
Interest expense (3.6) -- -- -- -- (3.6)
---------- ---------- -------- -------- ------- -------
Income (loss) from continuing
operations before minority
interest and income taxes $ 45.8 $ 53.6 $ 5.0 $ 31.7 $ 0.2 ($ 44.7)
========== ========== ======== ======== ======= =======
Staffing Services
- -----------------
Year Ended
----------
November 2, 2008 October 28, 2007
---------------- ----------------
% of % of Favorable Favorable
Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales Change % Change
------- ----- ------- ----- ------ --------
- --------------------------------------- ---------------- ---------- --------------- ---------- ------------------ -----------------
Gross Staffing Sales $1,988.4 $1,922.3 $66.1 3.4%
- --------------------------------------- ---------------- ---------- --------------- ---------- ------------------ -----------------
Managed Service Sales (Gross) $1,278.4 $1,212.9 $65.5 5.4%
- --------------------------------------- ---------------- ---------- --------------- ---------- ------------------ -----------------
Net Sales * $2,043.8 $1,970.9 $72.9 3.7%
- --------------------------------------- ---------------- ---------- --------------- ---------- ------------------ -----------------
Direct Costs $1,707.1 83.5% $1,641.0 83.3% ($66.1) (4.1%)
- --------------------------------------- ---------------- ---------- --------------- ---------- ------------------ -----------------
Gross Profit $336.7 16.5% $329.9 16.7% $6.8 2.0%
- --------------------------------------- ---------------- ---------- --------------- ---------- ------------------ -----------------
Overhead $234.1 11.5% $221.2 11.2% ($12.9) (5.8%)
- --------------------------------------- ---------------- ---------- --------------- ---------- ------------------ -----------------
Selling & Administrative $43.2 2.1% $42.4 2.2% ($0.8) (1.9%)
- --------------------------------------- ---------------- ---------- --------------- ---------- ------------------ -----------------
Impairment & Restructuring $4.9 0.2% - - ($4.9) -
- --------------------------------------- ---------------- ---------- --------------- ---------- ------------------ -----------------
Depreciation & Amortization $14.0 0.7% $12.7 0.6% ($1.3) (10.4%)
- --------------------------------------- ---------------- ---------- --------------- ---------- ------------------ -----------------
Segment Operating Profit $40.5 2.0% $53.6 2.7% ($13.1) (24.4%)
- --------------------------------------- ---------------- ---------- --------------- ---------- ------------------ -----------------
* Net Sales includes the gross margin on managed service sales.
-35-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2008 (53 WEEKS) COMPARED TO FISCAL 2007 (52 WEEKS)--Continued
Staffing Services--Continued
- -----------------
The increase in net sales of the Staffing Services segment in fiscal 2008 from
the prior year was comprised of a $80.3 million, or 6%, increase in net
Technical sales, partially offset by a decrease of $7.4 million, or 1%, in net
A&I sales. Foreign generated net sales for the current year accounted for 7% of
total Staffing Services net sales, compared to 6% in fiscal 2007. Foreign sales
increased by 23% from the prior year, and on a constant currency basis, foreign
sales increased by 22% from fiscal 2007.
The decrease in the segment's operating profit was comprised of a decrease of
$15.2 million in the Technical division, partially offset by an increase of $2.1
million in the A&I division. The segment's gross margin percentage decrease was
comprised of a reduction of 0.3 percentage points in the Technical division and
0.1 percentage points in the A&I division. The overhead percentages increased by
0.5 percentage points in the Technical division and decreased by 0.2 percentage
points in A&I.
Year Ended
----------
November 2, 2008 October 28, 2007
---------------- ----------------
Technical Resources % of % of Favorable Favorable
Division Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales Change % Change
------- ----- ------- ----- ------ --------
- -------------------------------------- ----------------- ---------- --------------- ---------- ------------------ -----------------
Gross Sales $2,621.9 $2,480.9 $141.0 5.7%
- -------------------------------------- ----------------- ---------- --------------- ---------- ------------------ -----------------
Net Sales * $1,425.5 $1,345.2 $80.3 6.0%
- -------------------------------------- ----------------- ---------- --------------- ---------- ------------------ -----------------
Direct Costs $1,192.1 83.6% $1,120.1 83.3% ($72.0) (6.5%)
- -------------------------------------- ----------------- ---------- --------------- ---------- ------------------ -----------------
Gross Profit $233.4 16.4% $225.1 16.7% $8.3 3.7%
- -------------------------------------- ----------------- ---------- --------------- ---------- ------------------ -----------------
Overhead $153.6 10.8% $138.6 10.3% ($15.0) (10.9%)
- -------------------------------------- ----------------- ---------- --------------- ---------- ------------------ -----------------
Selling & Administrative $31.3 2.2% $29.4 2.2% ($1.9) (6.5%)
- -------------------------------------- ----------------- ---------- --------------- ---------- ------------------ -----------------
Impairment & Restructuring $4.9 0.3% - - ($4.9) -
- -------------------------------------- ----------------- ---------- --------------- ---------- ------------------ -----------------
Depreciation & Amortization $11.5 0.8% $9.8 0.7% ($1.7) (16.2%)
- -------------------------------------- ----------------- ---------- --------------- ---------- ------------------ -----------------
Division Operating Profit $32.1 2.3% $47.3 3.5% ($15.2) (32.2%)
- -------------------------------------- ----------------- ---------- --------------- ---------- ------------------ -----------------
* Net Sales includes the gross margin on managed service sales.
The Technical division's increase in gross sales in fiscal 2008 from the prior
year included increases of approximately $26 million of sales to new customers,
or customers with substantial increased business, as well as $124 million
attributable to net increases in sales to continuing customers. This was
partially offset by sales decreases of approximately $9 million from customers
whose business with the Company either ceased or was substantially lower than in
fiscal 2007. The division's increase in net sales in the current year as
compared to the prior year was comprised of a $64.0 million, or 5%, increase in
traditional alternative staffing, a $9.1 million, or 7%, increase in higher
margin VMC Consulting project management and consulting sales, and a $7.2
million, or 17%, increase in net managed service associate vendor sales.
Included in the increase in traditional alternative staffing sales for the year
was a 23% increase in permanent placement and RPO sales.
-36-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2008 (53 WEEKS) COMPARED TO FISCAL 2007 (52 WEEKS)--Continued
Results of Operations by Segment--Continued
- --------------------------------
Staffing Services--Continued
- -----------------
The decrease in the operating profit was the result of an impairment charge, the
decrease in the gross margin percentage, the increase in overhead in dollars and
as a percentage of net sales, partially offset by the increase in net sales.
Based upon indicators of impairment in the fourth quarter of fiscal 2008, which
included a significant decrease in market capitalization, a decline in recent
operating results, and a decline in the Company's business outlook primarily due
to the macroeconomic environment, the Company performed an interim impairment
test at of November 2, 2008. The Company completed step one of the impairment
analysis and concluded that, as of November 2, 2008, the fair value of the
Staffing Services segment was below their carrying value including goodwill.
Step two of the impairment test was initiated but, due to the time consuming
nature, has not been completed. The Company recorded an estimate of impairment
in the amount of $4.9 million as of November 2, 2008. The Company expects to
complete the step two analyses in time for the first quarter Form 10-Q filing.
The Company recorded no impairment charges in fiscal 2007 or 2006. The decrease
in gross margins was primarily due to VMC Consulting, with losses on two large
projects offset by the completion in early fiscal 2008 of a project that was
highly profitable in fiscal 2007. The segment's decreased gross margins were
partially offset by an increase in higher margin permanent placement sales.
The increase in overhead percentage in fiscal 2008 was a result of an average
increase in overhead staff levels of 5%, including VMC startup costs for new
projects, and costs related to new foreign operations, partially offset by a
reduction of $2.0 million in health insurance costs due to improved claims
experience.
Year Ended
----------
November 2, 2008 October 28, 2007
---------------- ----------------
Administrative & % of % of Favorable Favorable
Industrial Division Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales Change % Change
------- ----- ------- ----- ------ --------
- -------------------------------------- ----------------- ----------- --------------- ------------ ------------------ --------------
Gross Sales $644.9 $654.3 ($9.4) (1.5%)
- -------------------------------------- ----------------- ----------- --------------- ------------ ------------------ --------------
Net Sales * $618.3 $625.7 ($7.4) (1.1%)
- -------------------------------------- ----------------- ----------- --------------- ------------ ------------------ --------------
Direct Costs $515.0 83.3% $520.9 83.2% $5.9 1.2%
- -------------------------------------- ----------------- ----------- --------------- ------------ ------------------ --------------
Gross Profit $103.3 16.7% $104.8 16.8% ($1.5) (1.4%)
- -------------------------------------- ----------------- ----------- --------------- ------------ ------------------ --------------
Overhead $80.5 13.0% $82.6 13.2% $2.1 2.6%
- -------------------------------------- ----------------- ----------- --------------- ------------ ------------------ --------------
Selling & Administrative $11.9 1.9% $13.0 2.1% $1.1 8.9%
- -------------------------------------- ----------------- ----------- --------------- ------------ ------------------ --------------
Depreciation & Amortization $2.5 0.4% $2.9 0.5% $0.4 9.6%
- -------------------------------------- ----------------- ----------- --------------- ------------ ------------------ --------------
Division Operating Profit $8.4 1.4% $6.3 1.0% $2.1 34.3%
- -------------------------------------- ----------------- ----------- --------------- ------------ ------------------ --------------
* Net Sales includes the gross margin on managed service sales.
The A&I division's decrease in gross sales in fiscal 2008 from the prior year
included a decline of approximately $17 million of sales to customers whose
business with the Company either ceased or was substantially reduced in the
current year, as well as $26 million attributable to net decreases in sales to
continuing customers. This was partially offset by growth of $33 million from
new customers, or customers whose business with the Company in the prior year
was substantially below the current year's volume.
-37-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2008 (53 WEEKS) COMPARED TO FISCAL 2007 (52 WEEKS)--Continued
Results of Operations by Segment--Continued
- --------------------------------
Staffing Services--Continued
- -----------------
The increase in operating profit was the result of the decrease in overhead and
selling and administrative costs in dollars and as a percentage of sales,
partially offset by the decrease in net sales. The gross margin remained
approximately the same, with a reduction of 0.3 percentage points in workers'
compensation costs as a percentage of direct labor resulting from improvements
in claims experience and the regulatory environment in several states, a 0.3
percentage point reduction in payroll taxes as a percentage of direct labor,
offset by a decrease in permanent placement and RPO sales. The decrease in
overhead costs was primarily due to a reduction in commissions related to the
decrease in permanent placement sales. The division is focused on reducing
overhead costs to compensate for lower sales. In fiscal 2008, the division
closed underperforming branches, and in the last fiscal year, overhead staff
levels have been reduced by an average of 3%.
Although the markets for the segment's services include a broad range of
industries throughout North America, Europe, Asia/Pacific and Latin America,
general economic difficulties in specific geographic areas or industrial sectors
have in the past and could in the future affect the profitability of the
segment. Much of the segment's business is obtained through submission of
competitive proposals for staffing services and other contracts which are
frequently re-bid after expiration. Many of this segment's long-term contracts
contain cancellation provisions under which the customer can cancel the
contract, even if the segment is not in default under the contract, and
generally do not provide for a minimum amount of work to be awarded to the
segment. While the Company has historically secured new contracts and believes
it can secure renewals and/or extensions of most 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.
Telecommunications Services
- ---------------------------
Year Ended
----------
November 2, 2008 October 28, 2007
---------------- ----------------
% of % of Favorable Favorable
Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales Change % Change
------- ----- ------- ----- ------ --------
- ----------------------------------- ---------------- -------------- -------------- ------------ ------------------- ---------------
Net Sales $171.7 $119.7 $52.0 43.4%
- ----------------------------------- ---------------- -------------- -------------- ------------ ------------------- ---------------
Direct Costs $133.3 77.6% $88.6 74.0% ($44.7) (50.4%)
- ----------------------------------- ---------------- -------------- -------------- ------------ ------------------- ---------------
Gross Profit $38.4 22.4% $31.1 26.0% $7.3 23.4%
- ----------------------------------- ---------------- -------------- -------------- ------------ ------------------- ---------------
Overhead $57.9 33.8% $23.8 19.9% ($34.1) (143.9%)
- ----------------------------------- ---------------- -------------- -------------- ------------ ------------------- ---------------
Selling & Administrative $0.5 0.3% $0.4 0.3% ($0.1) (35.5%)
- ----------------------------------- ---------------- -------------- -------------- ------------ ------------------- ---------------
Depreciation & Amortization $2.6 1.5% $1.9 1.6% ($0.7) (31.2%)
- ----------------------------------- ---------------- -------------- -------------- ------------ ------------------- ---------------
Segment Operating (Loss) Profit ($22.6) (13.2%) $5.0 4.2% ($27.6) (554.9%)
- ----------------------------------- ---------------- -------------- -------------- ------------ ------------------- ---------------
The Telecommunications Services segment's sales increase in fiscal 2008 from the
prior year was comprised of an increase of $54.1 million, or 73%, in the
Construction and Engineering division, partially offset by a decrease of $2.1
million, or 5%, in the non-construction divisions. The sales increase in the
Construction and Engineering division in the current year was due to a large
on-going fiber optic contract which ramped up in the
-38-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2008 (53 WEEKS) COMPARED TO FISCAL 2007 (52 WEEKS)
Results of Operations by Segment--Continued
- --------------------------------
Telecommunications Services-- Continued
- ---------------------------
latter half of fiscal 2007 and the recognition of revenue in fiscal 2008 for
several large utility and government contracts accounted for using the
percentage-of-completion method of accounting. The sales decrease in the
non-construction divisions was primarily due to net reduced volumes with
existing customers. The segment's sales backlog at the end of fiscal 2008
approximated $33 million, as compared to a backlog of approximately $84 million
at the end of fiscal 2007.
The decreased operating results for fiscal 2008 were due to the decreased gross
margin percentage and the increase in overhead in dollars and as a percentage of
sales. In late January 2008, the Company learned that it may not be reimbursed
for certain costs estimated and recorded under an installation contract and the
reduction in gross margin for fiscal 2008 is primarily due to the estimated
losses projected on this contract. The installation work on this contract is
complete. The Company continues to negotiate with the customer to be reimbursed
for disputed billings under the contract. The increased overhead for fiscal 2008
was incurred to support the increased sales volume and the additional costs
required to be expended on the aforementioned contract to substantially complete
the work and resolve open issues with the customer. The Company also accrued
costs related to a number of purported class actions brought by current and
former employees working in California alleging various violations of California
law.
A substantial portion of the business in this segment is obtained through the
submission of competitive proposals for contracts, which typically are completed
within one to three years. Many of this segment's master contracts contain
cancellation provisions under which the customer can cancel the contract, even
if the segment is not in default under the contract, and generally do not
provide for a minimum amount of work to be awarded to the segment. While the
Company believes it can secure renewals and/or extensions 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.
Computer Systems
- ----------------
Year Ended
----------
November 2, 2008 October 28, 2007
---------------- ----------------
% of % of Favorable Favorable
Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales Change % Change
------- ----- ------- ----- ------ --------
- ---------------------------------- ---------------- ------------- -------------- ------------ ------------------ -----------------
Sales (Net) $212.7 $199.3 $13.4 6.7%
- ---------------------------------- ---------------- ------------- -------------- ------------ ------------------ -----------------
Direct Costs $96.9 45.5% $90.8 45.6% ($6.1) (6.7%)
- ---------------------------------- ---------------- ------------- -------------- ------------ ------------------ -----------------
Gross Profit $115.8 54.5% $108.5 54.4% $7.3 6.7%
- ---------------------------------- ---------------- ------------- -------------- ------------ ------------------ -----------------
Overhead $67.7 31.9% $52.9 26.5% ($14.8) (28.0%)
- ---------------------------------- ---------------- ------------- -------------- ------------ ------------------ -----------------
Selling & Administrative $8.9 4.2% $7.6 3.8% ($1.3) (17.3%)
- ---------------------------------- ---------------- ------------- -------------- ------------ ------------------ -----------------
Impairment & Restructuring $43.0 20.2% - - ($43.0) -
- ---------------------------------- ---------------- ------------- -------------- ------------ ------------------ -----------------
Depreciation & Amortization $18.9 8.9% $16.3 8.2% ($2.6) (15.8%)
- ---------------------------------- ---------------- ------------- -------------- ------------ ------------------ -----------------
Segment Operating (Loss) Profit ($22.7) (10.7%) $31.7 15.9% ($54.4) (171.7%)
- ---------------------------------- ---------------- ------------- -------------- ------------ ------------------ -----------------
-39-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2008 (53 WEEKS) COMPARED TO FISCAL 2007 (52 WEEKS)--Continued
Results of Operations by Segment--Continued
- --------------------------------
Computer Systems--Continued
- ----------------
The Computer Systems segment's sales increase in fiscal 2008 from the prior year
was comprised of increases of $11.0 million, or 19%, in the Maintech division's
IT maintenance sales, $10.1 million, or 17%, in the database access transaction
fee revenue, including ASP directory assistance, partially offset by a decrease
in projects and other sales of $7.7 million, or 9%. The increase in transaction
fee revenue for fiscal 2008 included $21.3 million from the LSSi operations
(enterprise data transactions) acquired in September 2007. The remaining
transaction fee revenue from telco and non-telco customers reflected a decrease
from existing customers of $11.2 million, or 20%, from the prior fiscal year.
This decrease was primarily due to a reduction of such services to a major
customer as the customer agreement transitions to a fixed monthly fee model from
a variable transaction-based pricing model. The $8 million reduction in non-LSSi
sales in fiscal 2008 from the prior fiscal year included decreases of
approximately $12 million of sales from customers whose business with the
Company either ceased or was substantially lower than in fiscal 2007, as well as
$4 million attributable to net decreases in sales to continuing customers. This
was partially offset by sales increases of approximately $8 million to new
customers, or customers with substantial increased business.
The segment's decreased operating results were due to the impairment and
restructuring charges, the increase in overhead, selling and administrative
expenses and depreciation and amortization in dollars and as a percentage of
sales, partially offset by the increase in sales. Based upon indicators of
impairment in the fourth quarter of fiscal 2008, which included a significant
decrease in market capitalization, a decline in recent operating results, and a
decline in the Company's business outlook primarily due to the macroeconomic
environment, the Company performed an interim impairment test as of November 2,
2008. The Company completed step one of the impairment analysis and concluded
that, as of November 2, 2008, the fair value of the Computer Systems segment was
below their respective carrying value including goodwill. Step two of the
impairment test was initiated but, due to the time consuming nature, has not
been completed. The Company recorded an estimate of impairment in the amount of
$41.5 million as of November 2, 2008. The Company expects to complete the step
two analyses in time for the first quarter Form 10-Q filing. The Company
recorded no impairment charges in fiscal 2007 or 2006. The restructuring charge
of $1.5 million in the Computer Systems segment was due to the reduction of
foreign and domestic personnel as a result of the acquisition and integration of
LSSi. The increased overhead and selling and administrative expenses included a
$10.1 million increase due to the inclusion in the current period of the LSSi
operations for a full year. The increased depreciation and amortization was due
to the amortization of intangibles related to the LSSi acquisition.
This segment's results are highly dependent on the volume of calls to the
segment's customers that are processed by the segment under existing contracts
with telephone companies, the segment's ability to continue to secure
comprehensive telephone listings from others, its ability to obtain additional
customers for these services, its continued ability to sell products and
services to new and existing customers and consumer demands for its customers'
services.
-40-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2008 (53 WEEKS) COMPARED TO FISCAL 2007 (52 WEEKS)--Continued
Results of Operations by Segment--Continued
- --------------------------------
Printing and Other--Continued
- ------------------
Printing and Other
- ------------------
Twelve Months Ended
-------------------
November 2, 2008 October 28, 2007
---------------- ----------------
% of % of Favorable Favorable
Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales Change % Change
------- ----- ------- ----- ------ --------
- ---------------------------------------------------------------------------------------------------------------------------------
Net Sales $16.9 $12.8 $4.1 32.4%
- ---------------------------------------------------------------------------------------------------------------------------------
Direct Costs $11.0 64.9% $7.6 59.6% ($3.4) (44.4%)
- ---------------------------------------------------------------------------------------------------------------------------------
Gross Profit $5.9 35.1% $5.2 40.4% $0.7 15.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Selling & Administrative $4.9 28.7% $4.2 32.8% ($0.7) (15.8%)
- ---------------------------------------------------------------------------------------------------------------------------------
Depreciation & Amortization $0.7 4.6% $0.8 6.0% $0.1 -
- ---------------------------------------------------------------------------------------------------------------------------------
Segment Operating Profit $0.3 1.8% $0.2 1.6% $0.1 46.4%
- ---------------------------------------------------------------------------------------------------------------------------------
On September 5, 2008, the Company sold the net assets of its directory systems
and services and North American telephone directory publishing operations to
Yellow Page Group. The net purchase price of $179.3 million was paid in cash at
closing.
The transaction included the operations of Volt Directory Systems and
DataNational, formerly part of the Telephone Directory segment, but excluded the
Uruguayan printing and telephone directory operations, which now comprise this
new segment, Printing and Other. The results of operations of Volt Directory
Systems and DataNational have been classified as discontinued operations, and
the prior period results have been reclassified.
The Printing and Other segment's sales increase in fiscal 2008 was comprised of
an increase of $4.6 million, or 61%, in printing sales, partially offset by a
decrease of $0.5, or 9%, in telephone directory publishing sales. The increase
in printing sales included $4.0 million of sales to new customers. The decrease
in telephone directory publishing sales was due to the timing of the delivery of
the directories.
The increase in the operating profit in fiscal 2008 was due to the sales
increase, the decrease in selling and administrative costs and depreciation as a
percentage of sales, partially offset by the decreased gross margin percentage.
The decrease in gross margin percentage was due to a reduction in the higher
margin directory sales and an increase in the less profitable printing sales as
compared to fiscal 2007.
-41-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2008 (53 WEEKS) COMPARED TO FISCAL 2007 (52 WEEKS)--Continued
Discontinued Operations
- -----------------------
Twelve Months Ended
-------------------
November 2, 2008 October 28, 2007
----------------- ----------------
% of % of Favorable Favorable
Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales Change % Change
------- ----- ------- ----- ------ --------
- ---------------------------------------------------------------------------------------------------------------------------------
Net Sales $54.1 $73.0 ($18.9) (25.9%)
- ---------------------------------------------------------------------------------------------------------------------------------
Direct Costs $25.4 46.9% $34.1 46.7% $8.7 25.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Gross Profit $28.7 53.1% $38.9 53.3% ($10.2) (26.2%)
- ---------------------------------------------------------------------------------------------------------------------------------
Overhead $5.9 10.9% $7.3 10.0% $1.4 19.2%
- ---------------------------------------------------------------------------------------------------------------------------------
Selling & Administrative $12.3 22.7% $13.5 18.6% $1.2 9.6%
- ---------------------------------------------------------------------------------------------------------------------------------
Depreciation & Amortization $1.0 1.9% $1.2 1.6% $0.2 16.7%
- ---------------------------------------------------------------------------------------------------------------------------------
Other Income ($0.3) (0.6%) ($0.4) (0.6%) $0.1 25.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Discontinued Segment Income $9.2 17.0% $16.5 22.5% ($7.3) (44.1%)
- ---------------------------------------------------------------------------------------------------------------------------------
Pretax Gain on Sale of
Discontinued Operations $156.4 -
- ---------------------------------------------------------------------------------------------------------------------------------
Income Tax Provision $67.1 $6.7
- ---------------------------------------------------------------------------------------------------------------------------------
Gain from Discontinued
Operations $98.5 $9.8
- ---------------------------------------------------------------------------------------------------------------------------------
As described above, with the sale of the Volt Directory Systems and DataNational
operations in September 2008, the results of their operations for the current
and comparable fiscal periods have been reclassified from their previously
reported Telephone Directory segment into Discontinued Operations. Their sales
and costs for the two periods have been reclassified in the Company's Statement
of Operations to Discontinued Operations. The gross components of their
operations are reflected in the table above.
The components of the sales decrease for fiscal 2008 from fiscal 2007 were
decreases of $15.0 million in the DataNational community telephone directory
publishing sales and $3.9 million in production and other sales.
The decrease in the segment's operating profit from the comparable twelve months
of fiscal 2007 was primarily the result of the sales decrease, partially offset
by decreases in overhead and selling and administrative costs.
-42-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2008 (53 WEEKS) COMPARED TO FISCAL 2007 (52 WEEKS)--Continued
General Corporate Expenses and Other Income (Expense)
- -----------------------------------------------------
Year Ended
----------
November 2, 2008 October 28, 2007
---------------- ----------------
% of % of Favorable Favorable
Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales Change % Change
------- ----- ------- ----- ------ --------
- -----------------------------------------------------------------------------------------------------------------------------
Selling & Administrative $33.8 1.4% $34.4 1.5% $0.6 2.1%
- -----------------------------------------------------------------------------------------------------------------------------
Depreciation & Amortization $2.4 0.1% $5.4 0.2% $3.0 55.4%
- -----------------------------------------------------------------------------------------------------------------------------
Interest Income $4.8 0.2% $6.2 0.3% ($1.4) (22.6%)
- -----------------------------------------------------------------------------------------------------------------------------
Other Expense ($4.0) (0.2%) ($7.1) (0.3%) $3.1 43.7%
- -----------------------------------------------------------------------------------------------------------------------------
Foreign Exchange Gain (Loss) $1.2 - ($0.4) - $1.6 374.3%
- -----------------------------------------------------------------------------------------------------------------------------
Interest Expense ($7.6) (0.3%) ($3.6) (0.2%) ($4.0) (111.1%)
- -----------------------------------------------------------------------------------------------------------------------------
The changes in other items affecting the results of operations for fiscal 2008
as compared to the prior year, discussed on a consolidated basis, were:
The decrease in selling and administrative expenses in fiscal 2008 from the
prior year was primarily the result of decreased labor costs, equipment rental
and communications costs, partially offset by increased consulting and
professional fees.
The decrease in depreciation and amortization for fiscal 2008 from the prior
year was due to portions of the corporate enterprise resource planning system
becoming fully amortized.
The decrease in interest income was due to lower interest rates and a reduction
in premium deposits held by insurance companies.
The decrease in other expense was primarily due to an amended securitization
program which resulted in a reduction in securitization fees and an increase in
interest expenses.
The foreign exchange gain in fiscal 2008 was primarily attributable to a gain
recognized on the exercise of a foreign exchange contract.
Interest expense increased due to additional borrowings used to fund 2007
acquisitions and the aforementioned amendment to the securitization program.
-43-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2007 COMPARED TO FISCAL 2006
RESULTS OF OPERATIONSConsolidated Results of Operations
- SUMMARY
- -----------------------------------------------------------------
In fiscal 2007, consolidated net sales increased by $14.6$14.8 million, or 1%, to
$2.4approximately $2.3 billion, from the prior fiscal 2006.year. The increase in the
sales for the fiscal 2007 net sales resulted
fromyear was comprised of increases in the Computer Systems segment of $11.4
million, the Telephone
Directory segmentPrinting and Other of $1.4$1.6 million and the Telecommunications Services segment of
$0.8 million, partially offset by a decrease in Staffing Services of $1.3
million.
Cost of sales decreased by $4.3 million, or 0.2%, to $2.1 billion, and was 92%
of sales, in fiscal 2007, as compared to 93% of sales in fiscal 2006.
Selling and administrative costs increased by $5.6 million, or 7%, in fiscal
2007 from fiscal 2006, and was 3.9% of sales, as compared to 3.7% in fiscal
2006.
Depreciation and amortization increased by $3.4 million, or 10%, in fiscal 2007
from fiscal 2006, and was 1.6% of sales, as compared to 1.5% in fiscal 2006. The
increase in depreciation and amortization in the current year compared to fiscal
2006 was attributable to increases in amortization of intangibles in the
Computer Systems segment due to acquisitions in fiscal 2006 and 2007, along with
additions of fixed assets in the Staffing Services and Computer Systems
segments.
The Company reported an operating profit of $50.7 million in the fiscal 2007, as
compared to $40.6 million in fiscal 2006 due to an increase in segment operating
profit of $6.6 million, or 8%, along with a decrease of $3.5 million, or 8%, in
general corporate expenses. The increase in segment operating profit was
primarily attributable to the improved operating results of the
Telecommunications Services segment of $1.4$6.2 million, the Computer Systems
segment of $3.3 million and the Printing and Other segment of $2.3 million,
partially offset by the decreased operating profit of the Staffing Services
segment of $5.2 million.
-37-Interest income increased by $3.0 million, or 96%, in fiscal 2007 due to higher
interest rates, as well as interest earned on premium deposits held by insurance
companies.
Other expense decreased by $0.4 million, or 5%, in the fiscal 2007 due to a
decrease in securitization fees due to a decrease in the amount of accounts
receivable sold under the Company's Securitization Program.
Interest expense increased by $1.8 million, or 99%, in fiscal 2007 due to
additional borrowings used to fund acquisitions.
Income from continuing operations before minority interest and income taxes for
fiscal 2007 totaled $45.8 million compared to $34.0 million in fiscal 2006.
The Company's effective tax rate on its financial reporting pre-tax income was
35.5% in fiscal 2007 compared to 38.0% in fiscal 2006.
The net income in fiscal 2007 was $39.3 million compared to $30.7 million in
fiscal 2006.
-44-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2007 COMPARED TO FISCAL 2006--Continued
RESULTS OF OPERATIONSResults of Operations by Segment
- SUMMARY--Continued
- ---------------------------------------------------------------
The net income for fiscal 2007 was $39.3 million compared to $30.7 million in
the prior fiscal year.
The Company's fiscal 2007 income before income taxes was $62.2 million compared
to $50.5 million in fiscal 2006.
The Company reported an operating profit of $67.5 million, an increase of $9.0
million, or 15%, from fiscal 2006, due to an increase in segment operating
profit of $5.4 million, or 5%, together with a decrease in general corporate
expenses of $3.6 million, or 8%. The increase in segment operating profit to
$107.3 million was attributable to increased operating profits of the
Telecommunications Services segment of $6.2 million, the Computer Systems
segment of $3.3 million, and the Telephone Directory segment of $1.3 million,
partially offset by a reduction infollowing two tables reconcile the operating profit by segment to the
consolidated statements of inoperations for the Staffing
Services segment of $5.2 million. The decrease in general corporate expenses was
primarily due to a one-time accrual of $1.2 million in fiscal 2006 for death
benefits related to two senior corporate executives, together with reductions
in professional feestwelve months ended October 28,
2007 and depreciation.
RESULTS OF OPERATIONS - BY SEGMENT
- ----------------------------------
STAFFING SERVICES
- -----------------October 29, 2006:
Twelve Months Ended October 28, 2007
------------------------------------
(Dollars in Millions)
Staffing Telecommunications Computer Printing Corporate &
Total Services Services Systems and Other Eliminations
-------- -------- ------- -------- ------- -------
Net sales $2,285.0 $1,970.9 $119.7 $199.3 $12.8 ($17.7)
Direct costs 1,810.3 1,641.0 88.6 90.8 7.6 (17.7)
Overhead 297.9 221.2 23.8 52.9 - -
-------- -------- ------- -------- ------- -------
Cost of sales 2,108.2 1,862.2 112.4 143.7 7.6 (17.7)
Selling & administrative 89.0 42.4 0.4 7.6 4.2 34.4
Depreciation 37.1 12.7 1.9 16.3 0.8 5.4
-------- -------- ------- -------- ------- -------
Operating profit (loss) 50.7 53.6 5.0 31.7 0.2 (39.8)
Interest income 6.2 - - - - 6.2
Other expense, net (7.1) - - - - (7.1)
Foreign exchange (0.4) - - - - (0.4)
Interest expense (3.6) - - - - (3.6)
-------- -------- ------- -------- ------- -------
Income (loss) from continuing
operations before minority
interest and income taxes $45.8 $53.6 $5.0 $31.7 $0.2 ($44.7)
======== ======== ======= ======== ======= =======
-45-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2007 COMPARED TO FISCAL 2006--Continued
Results of Operations by Segment
- --------------------------------
Twelve Months Ended October 29, 2006
------------------------------------
(Dollars in Millions)
Staffing Telecommunications Computer Printing Corporate &
Total Services Services Systems and Other Eliminations
------- -------- ------- ------- ------- --------
Net sales $2,270.2 $1,972.2 $118.9 $187.9 $11.2 ($20.0)
Direct costs 1,829.3 1,656.8 93.6 90.7 8.2 (20.0)
Overhead 283.2 208.0 24.7 49.8 0.7 -
------- -------- ------- ------- ------- --------
Cost of sales 2,112.5 1,864.8 118.3 140.5 8.9 (20.0)
Selling & administrative 83.4 36.6 0.3 5.7 3.7 37.1
Depreciation 33.7 12.0 1.5 13.3 0.7 6.2
------- -------- ------- ------- ------- --------
Operating profit (loss) 40.6 58.8 (1.2) 28.4 (2.1) (43.3)
Interest income 3.2 - - - - 3.2
Other expense, net (7.5) - - - - (7.5)
Foreign exchange (0.5) - - - - (0.5)
Interest expense (1.8) - - - - (1.8)
------- -------- ------- ------- ------- --------
Income (loss) from continuing
operations before
minority interest and
income taxes $34.0 $58.8 ($1.2) $28.4 ($2.1) ($49.9)
======= ======== ======= ======= ======= ========
Staffing Services
- -----------------
Year Ended
----------
October 28, 2007 October 29, 2006
---------------- ----------------
Staffing Services % of % of Favorable Favorable
- ------------------ Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales $ Change % Change
------- ----- ------- ----- ------ --------
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ------------- -------------- ---------- ------------------ ---------------
Gross Staffing Sales (Gross) $1,922.3 $1,915.7 $6.6 0.4%
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ------------- -------------- ---------- ------------------ ---------------
Managed Service Sales (Gross) $1,212.9 $1,109.3 $103.6 9.3%
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ------------- -------------- ---------- ------------------ ---------------
Net Sales (Net) * $1,970.9 $1,972.3$1,972.2 ($1.4)1.3) (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ------------- -------------- ---------- ------------------ ---------------
Direct Costs $1,641.0 83.3% $1,656.8 84.0% $15.8 1.0%
- ----------------------------------------- -------------- ------------- -------------- ---------- ------------------ ---------------
Gross Profit $326.7 16.6% $313.1 15.9% $13.6 4.3%$329.9 16.7% $315.4 16.0% $14.5 4.6%
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ------------- -------------- ---------- ------------------ ---------------
Overhead $273.1 13.9% $254.3 12.9%$221.2 11.2% $208.0 10.5% ($18.8) (7.4%13.2) (6.3%)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ------------- -------------- ---------- ------------------ ---------------
Selling & Administrative $42.4 2.2% $36.6 1.9% ($5.8) (15.9%)
- ----------------------------------------- -------------- ------------- -------------- ---------- ------------------ ---------------
Depreciation & Amortization $12.7 0.6% $12.0 0.6% ($0.7) (5.6%)
- ----------------------------------------- -------------- ------------- -------------- ---------- ------------------ ---------------
Segment Operating Profit $53.6 2.7% $58.8 3.0% ($5.2) (8.8%)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ------------- -------------- ---------- ------------------ ---------------
* Net Sales (Net) only includes the gross margin on managed service sales.
-46-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2007 COMPARED TO FISCAL 2006--Continued
Results of Operations by Segment-Continued
- --------------------------------
The decrease in net sales of the Staffing Services segment in the fiscal 2007 from
the prior year was comprised of a decrease of $63.5 million, or 9.2%9%, decrease in net A&I
sales, substantially offset by an increase of $62.1$62.2 million, or 4.8%5%, in net
Technical sales. Foreign generated net sales for the current year increased by
28% from the prior year, and accounted for 6% of total Staffing Services net
sales for the current year. On a constant currency basis, foreign sales
increased by 20% from fiscal 2006.
The decrease in operating profit was due to the increase in overhead in dollars
and as a percentage of sales, partially offset by the net sales increase, and
the increase in gross margin
percentage. The increased gross margin percentage was due to a 0.4 percentage
point reduction in workers' compensation costs as a percentage of direct labor
resulting from improvements in claims experience and the regulatory environment
in several states, a 0.5 percentage point reduction in payroll taxes as a
percentage of direct labor, and an increase in higher -38-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2007 COMPARED TO FISCAL 2006--Continued
RESULTS OF OPERATIONS - BY SEGMENT--Continued
- ----------------------------------
STAFFING SERVICES--Continued
- -----------------
margin permanent placement
and RPO business. In the current year,fiscal 2007, permanent placement and RPO sales represented
2% of the segment's net sales compared to 1% in the prior year. The increase in
overhead percentage was due to the slight
sales decline, a reduction of $4.2 million in fiscal 2006 in
general liability costs due to retrospective adjustments related to the
division's positive claims experience, along with the slight sales decline and
costs associated with the higher margin permanent placement and RPO sales.sales in
fiscal 2007. The segment is focused on reducing overhead costs to compensate for
lower sales.
Year Ended
----------
October 28, 2007 October 29, 2006
---------------- ----------------
Technical Placement
DivisionResources % of % of Favorable Favorable
- --------Division Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales $ Change % Change
------- ----- ------- ----- ------ --------
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ---------- ------------------ -----------------
Gross Sales (Gross) $2,480.9 $2,306.6 $174.3 7.6%
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ---------- ------------------ -----------------
Net Sales (Net) * $1,345.2 $1,283.1 $62.1$1,283.0 $62.2 4.8%
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ---------- ------------------ -----------------
Direct Costs $1,120.1 83.3% $1,073.2 83.6% ($46.9) (4.4%)
- ----------------------------------------- -------------- ---------- --------------- ---------- ------------------ -----------------
Gross Profit $221.9 16.5% $207.5 16.2% $14.4 6.9%$225.1 16.7% $209.8 16.4% $15.3 7.2%
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ---------- ------------------ -----------------
Overhead $174.6 13.0% $158.0 12.3%$138.6 10.3% $126.8 9.9% ($16.6) (10.5%11.8) (9.2%)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ---------- ------------------ -----------------
Selling & Administrative $29.4 2.2% $24.4 1.9% ($5.0) (20.5%)
- ----------------------------------------- -------------- ---------- --------------- ---------- ------------------ -----------------
Depreciation & Amortization $9.8 0.7% $9.1 0.7% ($0.7) (7.9%)
- ----------------------------------------- -------------- ---------- --------------- ---------- ------------------ -----------------
Division Operating Profit $47.3 3.5% $49.5 3.9% ($2.2) (4.5%)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ---------- ------------------ -----------------
* Net Sales (Net) only includes the gross margin on managed service sales.
The Technical division's increase in gross sales in fiscal 2007 from the prior
year included increases of approximately $81 million of sales to new customers,
or customers with substantial increased business, as well as $113 million
attributable to net increases in sales to continuing customers. This was
partially offset by sales decreases of approximately $20 million from customers
whose business with the Company either ceased or was substantially lower than in
fiscal 2006. The Technical division's increase in net sales in the current year
as compared to the prior year was comprised of a $58.7 million, or 5%, increase
in traditional alternative staffing and a $12.0$12.1 million, or 10%, increase in
higher margin VMC Consulting project management and consulting sales, partially
offset by a decrease of $8.6 million, or 17%, in net managed service associate
vendor sales.
-47-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2007 COMPARED TO FISCAL 2006--Continued
Results of Operations by Segment--Continued
- --------------------------------
Staffing Services--Continued
- -----------------
The decrease in the operating profit was the result of the increase in overhead
in dollars and as a percentage of net sales, partially offset by the increases
in net sales and gross margin. The increase in gross margin was due to the
increase in the higher margin project sales of VMC Consulting, a combined 0.5
percentage reduction in payroll taxes and workers' compensation costs as a
percentage of direct labor, together with an increase in higher margin permanent
placement and RPO business. The increase in overhead percentage in fiscal 2007
was a result of a reduction of $2.6 million in fiscal 2006 in general liability
insurance costs due to retrospective adjustments related to the division's
positive claims experience, the fiscal 2007 sales growth that was less than
expected, along with the costs associated with the higher margin permanent
placement and RPO sales.
-39-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2007 COMPARED TO FISCAL 2006--Continued
RESULTS OF OPERATIONS - BY SEGMENT--Continued
- ----------------------------------
STAFFING SERVICES--Continued
- -----------------sales in 2007.
Year Ended
----------
October 28, 2007 October 29, 2006
---------------- ----------------
Administrative & Industrial Division % of % of Favorable Favorable
- -------------------Industrial Division Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales $ Change % Change
------- ----- ------- ----- ------ --------
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ----------- ------------------- --------------
Gross Sales (Gross) $654.3 $718.4 ($64.1) (8.9%)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ----------- ------------------- --------------
Net Sales (Net) * $625.7 $689.2 ($63.5) (9.2%)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ----------- ------------------- --------------
Direct Costs $520.9 83.3% $583.6 84.7% $62.7 10.6%
- ----------------------------------------- -------------- ---------- --------------- ----------- ------------------- --------------
Gross Profit $104.8 16.7% $105.6 15.3% ($0.8) (0.7%)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ----------- ------------------- --------------
Overhead $98.5 15.7% $96.3 14.0%$82.6 13.2% $81.2 11.8% ($2.2) (2.3%1.4) (1.7%)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ----------- ------------------- --------------
Selling & Administrative $13.0 2.1% $12.2 1.8% ($0.8) (6.6%)
- ----------------------------------------- -------------- ---------- --------------- ----------- ------------------- --------------
Depreciation & Amortization $2.9 0.4% $2.9 0.4% - -
- ----------------------------------------- -------------- ---------- --------------- ----------- ------------------- --------------
Division Operating Profit $6.3 1.0% $9.3 1.3% ($3.0) (32.3%)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ----------- ------------------- --------------
* Net Sales (Net) only includes the gross margin on managed service sales.
The A&I division's decrease in gross sales in fiscal 2007 from the prior year
included a decline of approximately $40 million of sales to customers which the
Company either ceased or substantially reduced servicing in the current year, as
well as $45 million attributable to net decreases in sales to continuing
customers. This was partially offset by growth of $21 million from new
customers, or customers whose business with the Company in the prior year was
substantially below the current year's volume.
The decrease in operating profit was the result of the decrease in net sales and
the increase in overhead in dollars and as a percentage of sales, partially
offset by the increased gross margin percentage. The increase in gross margin
percentage was primarily due to a 0.6 percentage point reduction in workers'
compensation costs as a percentage of direct labor resulting from improvements
in claims experience and the regulatory environment in several states, a 0.5
percentage point reduction in payroll taxes as a percentage of direct labor,
together with an increase in higher margin permanent placement and RPO business.
The increase in overhead percentage for the year was due to a reduction of $1.6
million in general liability insurance costs in fiscal 2006 due to retrospective
adjustments to the division's positive claims experience, the fiscal 2007 sales
decrease without a corresponding reduction in overhead costs, along with
increases in overhead costs related to increases in high-margin permanent
placement and RPO sales. The division is focused on reducing overhead costs to
compensate for lower sales. In fiscal 2007, the division closed twelve
underperforming branches, and in the last nine months of the fiscal year,
overhead staff levels have been reduced by 7%. In each of the third and fourth
quarters, the overhead costs were lower than the comparable 2006 quarters and
the second quarter of fiscal 2007.
Although the markets for the segment's services include a broad range of
industries throughout the United States, Europe and Asia, general economic
difficulties in specific geographic areas or industrial sectors have in the past
and could in the future affect the profitability of the segment. Much of the
segment's business is obtained through submission of competitive proposals for
staffing services and other contracts which are frequently re-bid after
expiration. Many of this segment's long-term contracts contain cancellation
provisions under which the customer can cancel the contract, even if the segment
is not in default under the contract, and generally do not provide for a minimum
amount of work to be awarded to the segment. While the Company has historically
secured new contracts and believes it can secure renewals and/or extensions of
most of these
-40--48-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2007 COMPARED TO FISCAL 2006--Continued
RESULTS OF OPERATIONSResults of Operations by Segment--Continued
- BY SEGMENT--Continued--------------------------------
Telecommunications Services
- ----------------------------------
STAFFING SERVICES--Continued
- -----------------
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.
TELEPHONE DIRECTORY
- ----------------------------------------------
Year Ended
----------
October 28, 2007 October 29, 2006
---------------- ----------------
Telephone Directory % of % of Favorable Favorable
- ------------------- Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales $ Change % Change
------- ----- ------- ----- ------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
Sales (Net) $80.8 $79.4 $1.4 1.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit $43.4 53.7% $41.3 52.1% $2.1 4.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Overhead $26.3 32.6% $25.5 32.2% ($0.8) (3.0%)
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Profit $17.1 21.1% $15.8 19.9% $1.3 7.8%
- ------------------------------------------------------------------------------------------------------------------------------------
The components of the Telephone Directory segment's sales increase in fiscal
2007 from the prior year were increases of $1.5 million, or 14%, in printing and
telephone directory publishing sales in Uruguay, and $0.1 million in the
DataNational community telephone directory publishing sales, partially offset by
a decrease of $0.2 million, or 1%, in telephone production operation and other
sales. The sales increase in Uruguay was comprised of $3.4 million in publishing
sales, partially offset by a decrease of $1.9 million in printing sales. The
publishing sales increases by DataNational and in Uruguay are due to the timing
of the deliveries of their directories, and for DataNational, a net increase in
the number of books published. DataNational published 145 directories in the
current year, with 12 new directories published and 6 discontinued as compared
to the prior year. The decrease in printing sales in Uruguay was primarily
related to the loss of a large customer, partially offset by new business.
The segment's increased operating profit was primarily due to the sales
increase, along with the increase in the higher margin directory revenue in
Uruguay and a decrease in its less profitable printing sales, as compared to the
prior year, partially offset by an increase in overhead in dollars and as a
percentage of sales.
Other than the DataNational division, which accounted for 73% of the segment's
fiscal 2007 sales, the segment's business is obtained through submission of
competitive proposals for production and other contracts. These short and
long-term contracts are re-bid after expiration. Many of this segment's
long-term contracts contain cancellation provisions under which the customer can
cancel the contract, even if the segment is not in default under the contract
and generally do not provide for a minimum amount of work to be awarded to the
segment. While the Company has historically secured new contracts and believes
it can secure renewals and/or extensions of most 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. In
addition, this segment's sales and profitability are highly dependent on
advertising revenue from DataNational's directories, which could be affected by
general economic conditions.
-41-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2007 COMPARED TO FISCAL 2006--Continued
RESULTS OF OPERATIONS - BY SEGMENT--Continued
- ----------------------------------
TELECOMMUNICATIONS SERVICES
- ---------------------------
Year Ended
----------
October 28, 2007 October 29, 2006
---------------- ----------------
Telecommunications Services % of % of Favorable Favorable
- --------------------------- Net Net (Unfavorable) (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales $ Change % Change
------- ----- ------- ----- ------ --------
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- --------- --------------- ----------- ------------------- ---------------
Net Sales (Net) $119.7 $118.9 $0.8 0.7%
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- --------- --------------- ----------- ------------------- ---------------
Direct Costs $88.6 74.0% $93.6 78.7% $5.0 5.3%
- ----------------------------------------- -------------- --------- --------------- ----------- ------------------- ---------------
Gross Profit $31.1 26.0% $25.3 21.3% $5.8 22.8%
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- --------- --------------- ----------- ------------------- ---------------
Overhead $26.1 21.8% $26.5 22.3%$23.8 19.9% $24.7 20.8% $0.9 3.8%
- ----------------------------------------- -------------- --------- --------------- ----------- ------------------- ---------------
Selling & Administrative $0.4 1.4%0.3% $0.3 0.3% ($0.1) (17.2%)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- --------- --------------- ----------- ------------------- ---------------
Depreciation & Amortization $1.9 1.6% $1.5 1.2% ($0.4) (35.7%)
- ----------------------------------------- -------------- --------- --------------- ----------- ------------------- ---------------
Segment Operating Profit (Loss) $5.0 4.2% ($1.2) (1.0%) $6.2 526.1%
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- --------- --------------- ----------- ------------------- ---------------
The Telecommunications Services segment's slight sales increase in fiscal 2007
from the prior year was comprised of an increase of $4.4 million, or 6%, in the
Construction and Engineering division, partially offset by a decrease of $3.6
million, or 7%, in the Network Enterprise Solutions division.non-construction divisions. The sales increase in the
Construction and Engineering division in the current yearfiscal 2007 was due to a large on-going
fiber optic contract which ramped up in the latter half of fiscal 2007, revenue
recognized for a large utility project and a government construction project.
The sales decrease in the Network Enterprise Solutions
divisionnon-construction divisions was primarily due to net
reduced volumes with existing customers. The segment's sales backlog at the end
of fiscal 2007 approximated $93$84 million, as compared to a backlog of
approximately $56 million at the end of fiscal 2006.
The improvement in operating results was due to improved gross margins, the
slight increase in sales, and a reduction in overhead costs in dollars and as a
percentage of sales. The increased gross margin percentage was primarily due to
the mix of jobs completed in the current year as compared to the prior year,
specifically the higher margins recognized from the Construction and
Engineering's new fiber optic, utility and government jobs. The improvement in
margins was partially offset by an increase in workers' compensation costs of
approximately 2.3 percentage points as a percentage of direct labor as compared
to the prior year, even though the workers' compensation rates are still lower
than historical levels within this segment. The results of the segment continue
to be affected by the decline in capital spending by telephone companies caused
by the consolidation within the segment's telecommunications industry wire-line
customer base and an increasing shift by consumers to wireless communications
and alternatives. This factor has also increased competition for available work,
pressuring pricing and gross margins throughout the segment.
A substantial portion of the business in this segment is obtained through the
submission of competitive proposals for contracts, which typically are completed
within one to three years. Many of this segment's master contracts contain
cancellation provisions under which the customer can cancel the contract, even
if the segment is not in default under the contract, and generally do not
provide for a minimum amount of work to be awarded to the segment. While the
Company believes it can secure renewals and/or extensions 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.
-42--49-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2007 COMPARED TO FISCAL 2006
RESULTS OF OPERATIONSResults of Operations by Segments--Continued
- BY SEGMENT--Continued
- ----------------------------------
COMPUTER SYSTEMS---------------------------------
Computer Systems
- ----------------
Year Ended
----------
October 28, 2007 October 29, 2006
---------------- ----------------
Computer Systems % of % of Favorable Favorable
- ---------------- Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales $ Change % Change
------- ----- ------- ----- ------ --------
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ----------- ------------------- ---------------
Net Sales (Net) $199.3 $187.9 $11.4 6.1%
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ----------- ------------------- ---------------
Direct Costs $90.8 45.6% $90.7 48.3% ($0.1) (0.1%)
- ----------------------------------------- -------------- ---------- --------------- ----------- ------------------- ---------------
Gross Profit $108.5 54.4% $97.2 51.7% $11.3 11.6%
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ----------- ------------------- ---------------
Overhead $76.8 38.5% $68.8 36.6%$52.9 26.5% $49.8 26.5% ($8.0) (11.7%3.1) (6.3%)
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ----------- ------------------- ---------------
Selling & Administrative $7.6 3.8% $5.7 3.0% ($1.9) (33.7%)
- ----------------------------------------- -------------- ---------- --------------- ----------- ------------------- ---------------
Depreciation & Amortization $16.3 8.2% $13.3 7.1% ($3.0) (22.5%)
- ----------------------------------------- -------------- ---------- --------------- ----------- ------------------- ---------------
Segment Operating Profit $31.7 15.9% $28.4 15.1% $3.3 11.4%
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------- ---------- --------------- ----------- ------------------- ---------------
The Computer Systems segment's sales increase in fiscal 2007 from the prior year
was comprised of increases of $8.7 million, or 12%, in projects and other
revenue, $3.1 million, or 6%, in the Maintech division's IT maintenance sales,
partially offset by a decrease of $0.4 million, or 1%, in the database access
transaction fee revenue, including ASP directory assistance. The increase in
project and other revenue for the year included $2.4 million from the Varetis
Solutions operation acquired in December 2005. In addition, increased project
and other revenue was primarily derived from increased recognition in fiscal
2007 from two domestic customers totaling $11.9 million, partially offset by two
European projects recognized in the prior fiscal year totaling $4.4 million. The
revenue increase in Maintech included approximately $2 million from new
customers. The decrease in transaction fee revenue for the year was net of an
increase of $3.4 million related to the new LSSi Corp. ("LSSi") operation
acquired by merger in September 2007. Although the number of non-LSSiDatanon-LSSiDATA
database transactions from new and existing customers increased by approximately
16% for the current year from the prior year, selected unit price decreases
caused the non-LSSiDatanon-LSSiDATA transaction revenue to decline.
The increase in operating profit from the prior year was due to the sales
increase and the increase in gross margin percentage, partially offset by the
increase in overhead in dollars and as a percentage of sales.dollars. The increase in gross margins was due to the
completion of more profitable projects in the
current year,fiscal 2007, and the overhead increase
was primarily due to increased indirect labor, outside consultant costs, as well
as depreciation and amortization.
During the fourth quarter of fiscal 2007, Volt Delta Resources, LLC ("Volt
Delta"), the principal business unit of the Computer Systems segment, acquired
LSSi for $70.0$71.6 million and combined it and its DataServ division into LSSiData.LSSiDATA.
Sales and pre-tax income of LSSi approximated $28$28.0 million and $5.0 million,
respectively, for the twelve months prior to the acquisition.
Although Volt
Delta expects there to be operational efficiencies of approximately $8 million
to $10 million on an annual basis by eliminating duplicative data procurement
and processing costs, the segment will incur a charge to earnings in fiscal 2008
of between $2.5 and $3.0 million. The acquisition is expected to become
accretive to earnings in the second quarter of fiscal year 2008. The combination
of Volt Delta's application development, integration and hosting expertise and
LSSi's efficient data processing will allow Volt Delta to serve a broader base
of customers by aggregating the most current and accurate business and consumer
information possible. Substantially all of the merger consideration was
attributable to goodwill and other intangible assets.
-43--50-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2007 COMPARED TO FISCAL 2006--Continued
RESULTS OF OPERATIONSResults of Operations by Segment--Continued
- BY SEGMENT--Continued
- ----------------------------------
COMPUTER SYSTEMS--Continued--------------------------------
Computer Systems--Continued
- ----------------
During the first quarter of fiscal 2006, Volt Delta purchased from Nortel
Networks its 24% minority interest in Volt Delta for $62.0 million. During the
first fiscal quarter of 2006, Volt Delta also purchased Varetis Solutions GmbH
from varetis AG for $24.8 million. The acquisition provided Volt Delta with the
resources to focus on the evolving global market for directory information
systems and services. Varetis Solutions added technology in the area of wireless
and wireline database management, directory assistance/inquiry automation, and
wireless handset information delivery to Volt Delta's significant technology
portfolio.
This segment's results are highly dependent on the volume of calls to the
segment's customers that are processed by the segment under existing contracts
with telephone companies, the segment's ability to continue to secure
comprehensive telephone listings from others, its ability to obtain additional
customers for these services, its continued ability to sell productsPrinting and services to new and existing customers and consumer demands for its customers'
services.
RESULTS OF OPERATIONSOther
- OTHER
- -----------------------------------------------
Twelve Months Ended
-------------------
October 28, 2007 October 29, 2006
----------------- ----------------
% of % of Favorable Favorable
Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales Change % Change
------- ----- ------- ----- ------ --------
- ---------------------------------------------------------------------------------------------------------------------------------
Net Sales $12.8 $11.2 $1.6 13.8 %
- ---------------------------------------------------------------------------------------------------------------------------------
Direct Costs $7.6 59.6% $ 8.2 73.2% $0.6 6.6 %
- ---------------------------------------------------------------------------------------------------------------------------------
Gross Profit $5.2 40.4% $ 3.0 26.8% $2.2 68.3 %
- ---------------------------------------------------------------------------------------------------------------------------------
Overhead - - $0.7 6.3% $0.7 100.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Selling & Administrative $4.2 32.8% $ 3.7 33.0% ($0.5) (14.5%)
- ---------------------------------------------------------------------------------------------------------------------------------
Depreciation & Amortization $0.8 6.0% $ 0.7 6.3% ($0.1) (0.7%)
- ---------------------------------------------------------------------------------------------------------------------------------
Segment Operating Profit
(Loss) $0.2 1.6% ($2.1) (18.8%) $2.3 109.9%
- ---------------------------------------------------------------------------------------------------------------------------------
The Printing and Other segment's sales increased by $1.6 million from the
comparable period in fiscal 2006. The sales increase was comprised of an
increase $3.4 million, or 185%, in telephone directory publishing sales,
partially offset by a decrease of $1.8 million, or 20%, in printing sales. The
increase in publishing sales was due to the timing of the deliveries of the
Uruguayan directories. The decrease in the printing sales was primarily related
to the loss of a large customer, partially offset by new business.
The operating results improved by $2.3 million as compared to the comparable
period in fiscal 2006. The improvement was predominantly due to the increased
gross margin percentage, partially offset by an increase in selling and
administrative costs. The increase in gross margin percentage was due to the
increase of the higher margin publishing sales and a decrease in the less
profitable printing sales.
-51-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2007 COMPARED TO FISCAL 2006--Continued
Results of Operations by Segment--Continued
- --------------------------------
Discontinued Operations
- -----------------------
Twelve Months Ended
-------------------
October 28, 2007 October 29, 2006
----------------- ----------------
% of % of Favorable Favorable
Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales Change % Change
------- ----- ------- ----- ------ --------
- ---------------------------------------------------------------------------------------------------------------------------------
Net Sales $73.0 $73.2 ($0.2) (0.3%)
- ---------------------------------------------------------------------------------------------------------------------------------
Direct Costs $34.1 46.7% $33.6 45.9% ($0.5) (1.5%)
- ---------------------------------------------------------------------------------------------------------------------------------
Gross Profit $38.9 53.3% $39.6 54.1% ($0.7) (1.8 %)
- ---------------------------------------------------------------------------------------------------------------------------------
Overhead $7.3 10.0% $6.8 9.3% ($0.5) (8.3%)
- ---------------------------------------------------------------------------------------------------------------------------------
Selling & Administrative $13.5 18.6% $13.7 19.8% $0.2 1.6%
- ---------------------------------------------------------------------------------------------------------------------------------
Depreciation & Amortization $1.2 1.6% $1.1 1.5% ($0.1) (3.3%)
- ---------------------------------------------------------------------------------------------------------------------------------
Other Income ($0.4) (0.6%) ($0.4) (0.6%) - -
- ---------------------------------------------------------------------------------------------------------------------------------
Discontinued Segment Income $16.5 22.5% $17.6 22.9% ($1.1) (6.4%)
- ---------------------------------------------------------------------------------------------------------------------------------
Income Tax Provision $6.7 $7.0 $0.3 4.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Gain from Discontinued
Operations $9.8 $10.6 ($0.8) (7.4%)
- ---------------------------------------------------------------------------------------------------------------------------------
The components of the sales decrease for fiscal 2007 from the prior year were a
decrease of $0.3 million in the telephone production and other operation and an
increase of $0.1 million in DataNational community telephone directory
publishing sales. The increase in production and other sales was due to
increases with continuing customers. The publishing sales increase by
DataNational was due to the timing of the deliveries of their directories and a
net increase in the number of books published. DataNational published 145
directories in fiscal 2007, with 12 new directories published and 6 discontinued
as compared to the prior year.
The decrease in the segment's operating profit from the comparable twelve months
of fiscal 2006 was the result of the decrease in the gross margin percentage and
the increase in overhead in dollars and as a percentage of sales.
General Corporate Expenses and Other Income (Expense)
- -----------------------------------------------------
Year Ended
----------
October 28, 2007 October 29, 2006
---------------- ----------------
Other % of % of Favorable Favorable
- ----- Net Net (Unfavorable) $ (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales $ Change % Change
------- ----- ------- ----- ------ --------
--------
- -----------------------------------------------------------------------------------------------------------------------------
Selling & Administrative $102.6 4.4% $97.2 4.2% ($5.4) (5.6%)$34.4 1.5% $37.1 1.6% $2.7 7.5%
- -----------------------------------------------------------------------------------------------------------------------------
Depreciation & Amortization $38.2 1.6% $34.8 1.5% ($3.4) (9.7%)$5.4 0.2% $6.2 0.3% $0.8 14.2%
- -----------------------------------------------------------------------------------------------------------------------------
Interest Income $6.3$6.2 0.3% $3.2 0.1% $3.1$3.0 96.4%
- -----------------------------------------------------------------------------------------------------------------------------
Other Expense ($7.1) (0.3%) ($7.5) (0.3%) ($7.8) (0.3%) $0.3 3.8%$0.4 4.6%
- -----------------------------------------------------------------------------------------------------------------------------
Foreign Exchange Loss ($0.4) - ($0.5) - $0.1 16.6%
- -----------------------------------------------------------------------------------------------------------------------------
Interest Expense ($3.6) (0.2%) ($1.8) (0.1%) ($1.8) (98.6%)
- -----------------------------------------------------------------------------------------------------------------------------
-52-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2007 COMPARED TO FISCAL 2006--Continued
General Corporate Expenses and Other Income (Expense)--Continued
- -----------------------------------------------------
The changes in other items affecting the results of operations for fiscal 2007
as compared to the prior year, discussed on a consolidated basis, were:
The increasedecrease in selling and administrative expenses in fiscal 2007 from the
prior year was athe result of increased salaries and commissions, partially offset
by a one-time accrual of $1.2 million in fiscal 2006
for death benefits related to two senior corporate executives, togetheralong with
a reductiondecreased professional fees and communications costs in professional
fees.fiscal 2007.
The increasedecrease in depreciation and amortization forin fiscal 2007 from the prior year
was attributable to increases in fixed assets, primarily in the Computer
Systems and Staffing Services segments, as well as increased amortization of
intangibles in the Computer Systems segment due to fiscal 2006 and fiscal 2007
acquisitions.
-44-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2007 COMPARED TO FISCAL 2006--Continued
RESULTS OF OPERATIONS - OTHER--Continued
- -----------------------------portions of the corporate enterprise resource planning system
becoming fully amortized.
The increase in interest income was due to higher interest rates, as well as
interest earned on premium deposits held by insurance companies.
The decrease in other expense was primarily due to a decrease in securitization
fees due to a decrease in the amount of accounts receivable sold under the
Company's Securitization Program.
Interest expense increased due to additional borrowings used to fund
acquisitions.
The Company's effective tax rate on its financial reporting pre-tax income was
36.8% in fiscal 2007 compared to 38.6% in fiscal 2006. The decreased effective
tax rate in fiscal 2007 was due to lower taxes on foreign earnings, including
the use of previously reserved net operating loss tax benefits, partially offset
by higher state and local taxes.
-45--53-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2006 COMPARED TO FISCAL 2005
RESULTS OF OPERATIONS - SUMMARY
- -------------------------------
In fiscal 2006, consolidated net sales increased by $160.8 million, or 7%, to
$2.3 billion, from fiscal 2005. The increase in fiscal 2006 net sales resulted
from increases in Staffing Services of $170.5 millionLiquidity and Computer Systems of
$14.8 million, partially offset by decreases in Telecommunications Services of
$20.1 million and Telephone Directory of $2.9 million.
The net income for fiscal 2006 was $30.7 million compared to $17.0 million in
the prior fiscal year.
The Company's fiscal 2006 income from continuing operations before income taxes
was $50.5 million compared to $29.3 million in fiscal 2005. The Company's
operating segments reported an operating profit of $101.9 million in fiscal
2006, an increase of $22.5 million, or 28%, from the prior year. The change in
operating profit was due to the increased operating profits of the Staffing
Services segment of $27.6 million, and the Telephone Directory segment of $0.9
million, a decreased operating loss in the Telecommunications Services segment
of $1.3 million, partially offset by a reduction in the operating profit in the
Computer Systems segment of $7.4 million.
General corporate expenses increased by $4.5 million, or 12%, due to costs
incurred relating to compliance with the Sarbanes-Oxley Act, and a one-time
accrual of $1.2 million related to death benefits for two senior corporate
officers.
RESULTS OF OPERATIONS - BY SEGMENT
- ----------------------------------
STAFFING SERVICES
- ------------------
Year Ended
-----------
October 29, 2006 October 30, 2005
---------------- ----------------
Staffing Services % of % of Favorable Favorable
- ------------------ Net Net (Unfavorable) (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales $ Change % Change
------- ----- ------- ----- ------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
Staffing Sales (Gross) $1,915.7 $1,765.8 $149.9 8.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Managed Service Sales (Gross) $1,109.3 $1,157.2 ($47.9) (4.1%)
- -----------------------------------------------------------------------------------------------------------------------------------
Sales (Net) * $1,972.3 $1,801.8 $170.5 9.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Profit $313.1 15.9% $276.3 15.3% $36.8 13.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Overhead $254.3 12.9% $245.1 13.6% ($9.2) (3.8%)
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Profit $58.8 3.0% $31.2 1.7% $27.6 88.5%
- -----------------------------------------------------------------------------------------------------------------------------------
* Sales (Net) only includes the gross margin on managed service sales.
The sales increase of the Staffing Services segment in the fiscal 2006 from the
prior year was due to increased staffing business in both the Technical
Placement and the Administrative and Industrial divisions, despite a sales
decrease in the VMC Consulting business of the Technical Placement division.
The increase in the operating profit of the segment in fiscal 2006 was due to
increased profits in both the Technical Placement and Administrative and
Industrial divisions, partially offset by a decrease in the VMC Consulting
operation within the Technical Placement division.
-46-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2006 COMPARED TO FISCAL 2005--Continued
RESULTS OF OPERATIONS - BY SEGMENT--Continued
- ----------------------------------
STAFFING SERVICES--Continued
- -----------------
Year Ended
----------
October 29, 2006 October 30, 2005
---------------- ----------------
Technical Placement
Division % of % of Favorable Favorable
- -------- Net Net (Unfavorable) (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales $ Change % Change
------- ----- ------- ----- ------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
Sales (Gross) $2,306.6 $2,226.5 $80.1 3.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Sales (Net) * $1,283.1 $1,129.1 $154.0 13.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Profit $207.5 16.2% $188.8 16.7% $18.7 9.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Overhead $158.0 12.3% $152.3 13.5% ($5.7) (3.7%)
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Profit $49.5 3.9% $36.5 3.2% $13.0 35.8%
- -----------------------------------------------------------------------------------------------------------------------------------
* Sales (Net) only includes the gross margin on managed service sales.
The Technical Placement division's increase in net sales in fiscal 2006 from the
prior year was due to a $138.9 million, or 14.2%, sales increase in traditional
alternative staffing, an $18.7 million, or 56.9%, increase in net managed
service associate vendor sales, partially offset by a $3.6 million, or 3.1%,
decrease in VMC Consulting project management and consulting sales. The increase
in the operating profit was the result of the increase in sales and the decrease
in overhead as a percentage of net sales, partially offset by the decrease in
gross margin percentage. The decrease in gross margin percentage was due to
reduced markups within VMC Consulting, along with an increase in the workers'
compensation costs of $1.4 million resulting from negative claims experience
within the division, partially offset by increased higher margin direct
placement sales. The most significant factor in the reduction in overhead as a
percentage of sales was a reduction of $2.6 million in general liability
insurance costs within the division as a result of the division's positive
claims experience.
Year Ended
----------
October 29, 2006 October 30, 2005
---------------- ---------------
Administrative &
Industrial Division % of % of Favorable Favorable
- ------------------- Net Net (Unfavorable) (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales $ Change % Change
------- ----- ------- ----- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
Sales (Gross) $718.4 $696.5 $21.9 3.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Sales (Net) * $689.2 $672.7 $16.5 2.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit $105.6 15.3% $87.5 13.0% $18.1 20.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Overhead $96.3 14.0% $92.8 13.8% ($3.5) (3.8%)
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Profit (Loss) $9.3 1.3% ($5.3) (0.8%) $14.6 274.9%
- ------------------------------------------------------------------------------------------------------------------------------------
* Sales (Net) only includes the gross margin on managed service sales.
The Administrative and Industrial division's increase in gross sales in fiscal
2006 resulted from revenue from both new accounts and increased business from
existing accounts. The improved operating results were the result of the sales
increase, the increased gross margin percentage, partially offset by the slight
increase in overhead as a percentage of sales. The increase in gross margin
percentage was primarily due to a $10.4 million reduction in workers'
compensation costs resulting from improvements in claims experience and the
regulatory environment within several states, together with higher margin direct
placement sales and decreases in payroll taxes. The slight increase in overhead
percentage for the year was moderated by a reduction of $1.6 million in general
liability insurance costs due to the division's positive claims experience.
-47-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2006 COMPARED TO FISCAL 2005--Continued
RESULTS OF OPERATIONS - BY SEGMENT--Continued
- ----------------------------------
TELEPHONE DIRECTORY
- -------------------
Year Ended
-----------
October 29, 2006 October 30, 2005
---------------- ----------------
Telephone Directory % of % of Favorable Favorable
- ------------------- Net Net (Unfavorable) (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales $ Change % Change
------- ----- ------- ----- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
Sales (Net) $79.4 $82.3 ($2.9) (3.6%)
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit $41.3 52.1% $42.5 51.6% ($1.2) (2.6%)
- ------------------------------------------------------------------------------------------------------------------------------------
Overhead $25.5 32.2% $27.6 33.5% $2.1 7.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Profit $15.8 19.9% $14.9 18.1% $0.9 6.3%
- ------------------------------------------------------------------------------------------------------------------------------------
The components of the Telephone Directory segment's slight sales decrease for
fiscal 2006 from the prior year were a decrease of $1.5 million in the printing
and telephone directory publishing operation in Uruguay and a decrease of $1.5
million in telephone production and other sales, partially offset by an increase
in the DataNational community telephone directory publishing sales of $0.1
million. The sales variance in the telephone production operations and other
were predominantly due to the sale of the ViewTech division in the third quarter
of fiscal 2005. The sales decrease in Uruguay was comprised of a decrease of
$3.3 million in publishing sales, partially offset by an increase of $1.8
million in printing sales. The sales variances in telephone production
publishing at DataNational and Uruguay were due to the timing of the delivery of
their directories. The increase in the segment's operating profit from fiscal
2005 was the result of the decrease in overhead costs and the increase in the
gross margin percentage, partially offset by the decrease in sales. The decrease
in overhead costs was primarily due to the sale of the ViewTech division.
TELECOMMUNICATIONS SERVICES
- ----------------------------
Year Ended
------------
October 29, 2006 October 30, 2005
---------------- ----------------
Telecommunications Services % of % of Favorable Favorable
- --------------------------- Net Net (Unfavorable) (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales $ Change % Change
------- ----- ------- ----- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
Sales (Net) $118.9 $139.0 ($20.1) (14.5%)
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit $25.3 21.3% $25.0 18.0% $0.3 1.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Overhead $26.5 22.3% $27.4 19.7% $0.9 3.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Loss ($1.2) (1.0%) ($2.4) (1.7%) $1.2 51.9%
- ------------------------------------------------------------------------------------------------------------------------------------
The Telecommunications Services segment's sales decrease from the prior fiscal
year was due to decreases of $16.6 million, or 19%, in the Construction and
Engineering division and $3.5 million, or 7%, in the Network Enterprise
Solutions division. The sales decrease in the Construction and Engineering
division in fiscal 2006 was largely due to the customer acceptance and the
recognition in fiscal 2005 of a large construction job accounted for using the
completed-contract method. The sales decrease in the Network Enterprise
Solutions division was primarily due to the loss of a few customers resulting
from consolidations within the industry. The significant improvement in
-48-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2006 COMPARED TO FISCAL 2005--Continued
RESULTS OF OPERATIONS - BY SEGMENT--Continued
- ----------------------------------
TELECOMMUNICATIONS SERVICES--Continued
- ---------------------------
operating results was due to the increase in gross margins, partially offset by
the increase in overhead costs as a percentage of sales, along with the sales
decrease. The improvement in gross margins was primarily due to a $1.6 million
reduction in workers' compensation costs as a result of positive claims
experience and the legislative environment within several states, along with the
mix of jobs completed. Despite an emphasis on cost controls, the results of the
segment continue to be affected by the decline in capital spending by telephone
companies caused by the consolidation within the segment's telecommunications
industry wire-line customer base and an increasing shift by consumers to
wireless communications and alternatives. This factor has also increased
competition for available work, pressuring pricing and gross margins throughout
the segment.
COMPUTER SYSTEMS
- ----------------
Year Ended
----------
October 29, 2006 October 30, 2005
---------------- -----------------
Computer Systems % of % of Favorable Favorable
- ---------------- Net Net (Unfavorable) (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales $ Change % Change
------- ----- ------- ----- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
Sales (Net) $187.9 $173.1 $14.8 8.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit $97.2 51.7% $91.8 53.0% $5.4 5.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Overhead $68.8 36.6% $56.0 32.4% ($12.8) (22.7%)
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Profit $28.4 15.1% $35.8 20.7% ($7.4) (20.5%)
- ------------------------------------------------------------------------------------------------------------------------------------
The Computer Systems segment's sales increase in fiscal 2006 over the prior year
was primarily due to increases in the Maintech division's IT maintenance sales
of $9.4 million, or 21%, and $15.5 million of new business as a result of its
acquisition of Varetis Solutions in December 2005, partially offset by decreases
in the segment's database access transaction fee revenue, including ASP
directory assistance, of $5.8 million, or 9%, and product and other revenue
recognized of $4.3 million, or 7%. The decrease in the transaction fee revenue
was a result of a decreased number of transactions, partially offset by certain
transaction price increases. The decrease in operating profit from the prior
year was the result of the decreased gross margins, the increase in overhead
costs necessary to support its increase in sales, and the amortization of
intangible assets from acquisitions, partially offset by the sales increase.
During the first quarter of fiscal 2006, Volt Delta, the principal business unit
of the Computer Systems segment, purchased from Nortel Networks its 24% minority
interest in Volt Delta for $62.0 million. Nortel Networks had originally
purchased its 24% interest in August 2004, and under the terms of the original
purchase agreement, each party had a one year option to cause Nortel Networks to
sell and Volt Delta to buy the minority interest for an amount ranging from $25
million to $70 million. The Company purchased Nortel's minority interest prior
to this contract provision becoming effective. During the first quarter, Volt
Delta also purchased Varetis Solutions GmbH from varetis AG for $24.8 million.
The acquisition provided Volt Delta with the resources to focus on the evolving
global market for directory information systems and services. Varetis Solutions
added technology in the area of wireless and wireline database management,
directory assistance/inquiry automation, and wireless handset information
delivery to Volt Delta's significant technology portfolio.
-49-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
FISCAL 2006 COMPARED TO FISCAL 2005--Continued
RESULTS OF OPERATIONS - OTHER
- -----------------------------
Year Ended
----------
October 29, 2006 October 30, 2005
---------------- ----------------
Other % of % of Favorable Favorable
- ----- Net Net (Unfavorable) (Unfavorable)
(Dollars in Millions) Dollars Sales Dollars Sales $ Change % Change
------- ----- ------- ----- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------
Selling & Administrative $97.2 4.2% $92.9 4.3% ($4.3) (4.7%)
- -----------------------------------------------------------------------------------------------------------------------------
Depreciation & Amortization $34.8 1.5% $29.6 1.4% ($5.2) (17.7%)
- -----------------------------------------------------------------------------------------------------------------------------
Interest Income $3.2 0.1% $2.6 0.1% $0.6 20.3%
- -----------------------------------------------------------------------------------------------------------------------------
Other Expense ($7.8) (0.3%) ($4.9) (0.2%) ($2.9) (60.8%)
- -----------------------------------------------------------------------------------------------------------------------------
Foreign Exchange Loss ($0.5) - ($0.3) - ($0.2) (98.0%)
- -----------------------------------------------------------------------------------------------------------------------------
Interest Expense ($1.8) (0.1%) ($1.8) (0.1%) - -
- -----------------------------------------------------------------------------------------------------------------------------
Other items, discussed on a consolidated basis, affecting the results of
operations for the fiscal years were:
The increase in selling and administrative expenses in fiscal 2006 from the
prior year was a result of increased salaries, professional fees and a one-time
accrual of $1.2 million for death benefits related to two senior corporate
executives.
The increase in depreciation and amortization for fiscal 2006 from the prior
year was attributable to increases in fixed assets, primarily in the Computer
Systems and Staffing Services segments, as well as increased amortization of
intangibles in the Computer Systems segment due to fiscal 2006 acquisitions.
Interest income increased due to higher interest rates together with additional
funds available for investment.
The increase in other expense was primarily due to an increase in the amount of
accounts receivable sold under the Company's Securitization Program and an
increased average cost of funds rate.
The Company's effective tax rate on its financial reporting pre-tax income from
continuing operations was 38.6% in fiscal 2006 compared to 33.7% in fiscal 2005.
The increased effective tax rate in fiscal 2006 was due to lower general
business credits.
-50-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
LIQUIDITY AND CAPITAL RESOURCESCapital Resources
- -------------------------------
Cash and cash equivalents increased by $80.6 million to $120.9 million in fiscal
2008, increased by $1.9 million to $40.4$40.3 million in fiscal 2007 and decreased by
$23.5 million to $38.5$38.4 million in fiscal 2006 and increased
by $17.7 million to $62.0 million2006.
The cash used in operating activities in fiscal 2005.
The2008 was $69.2 million compared
to cash provided by operating activities of continuing operations in fiscal 2007
and 2006 was $49.1 million compared to $80.5$38.2 million and $45.1$69.3 million, respectively.
The cash provided by operating activities in fiscal years 20062008, exclusive of changes
in operating assets and 2005, respectively.liabilities, was $43.5 million, as the Company's net
income of $64.2 million included income from discontinued operations of $98.5
million and a deferred tax benefit of $12.3 million offset by non-cash charges
primarily for depreciation and amortization of $38.6 million, an impairment
charge of $46.4 million and accounts receivable provisions of $4.6 million. The
cash provided by operating activities in fiscal 2007, exclusive of changes in
operating assets and liabilities, was $71.9$59.3 million, as the Company's net income
of $39.3 million included non-cash charges primarily for depreciation and
amortization of $38.2$37.1 million and accounts receivable provisions of $2.0$0.4
million, partially offset by income from discontinued operations of $9.8 million
and a deferred income tax benefit of $7.7 million. The cash provided by
operating activities in fiscal 2006, exclusive of changes in operating assets
and liabilities, was $66.4$53.4 million, as the Company's net income of $30.7 million
included non-cash charges primarily for depreciation and amortization of $34.8$33.7
million, accounts receivable provisions of $4.0$2.7 million and income attributable
to the minority interest of $1.0 million, partially offset by income from
discontinued operations of $10.6 million and a deferred income tax benefit of
$4.3 million.
The cash provided by
operating activities in fiscal 2005, exclusive of changesChanges in operating assets and liabilities was $54.5in fiscal 2008 used $112.7 million
asof cash, net, principally due to a reduction in the Company's net incomeexpiring securitization
program of $17.0$120.0 million, included non-cash charges primarily for depreciation and amortizationdecreases in the level of $29.6accounts payable of $21.4
million, accounts receivable provisionsaccrued expenses of $3.8$7.7 million and a decrease in income attributable
to the minority interesttaxes payable
of $7.0$14.9 million partially offset by a deferred income
tax benefitdecrease of $3.0$25.3 million in inventory
primarily in the Telecommunications Services segment, a decrease in the level of
accounts receivable of $20.4 million in the Staffing Services, Computer Systems
and Telecommunications Services segments and decreases in prepaid insurance and
other assets of $5.6 million. Changes in operating assets and liabilities in
fiscal 2007 used $22.8$21.1 million of cash, net, principally due to increases in the
level of inventory of $32.2 million primarily in the Telecommunications Services
segment, increases in the level of accounts receivable of $29.4$28.1 million in the
Staffing Services, Computer Systems and Telecommunications Services segments,
increases in the level of inventory of $31.2 million
primarily in the Telecommunications Services segment and increases in prepaid insurance and other assets of $6.1$6.3 million, partially
offset by increases in the level in accounts payable of $27.0$26.2 million in the
Staffing Services and Telecommunications Services segments, proceeds from the
Securitization Program of $10.0 million, an increase in accrued expenses of $2.7$2.6
million and an increase in the level of deferred income and other liabilities of
$2.6$4.9 million. Changes in operating assets and liabilities in fiscal 2006
provided $14.1$15.9 million of cash, net, principally due to increases in the level
in accounts payable of $11.0$12.2 million, proceeds from the Securitization Program
of $10.0 million, decreases in the level of accounts receivable of $6.3$5.4 million
and inventory of $5.0$4.2 million and an increase in income tax liability of $2.5
million partially offset by increases in prepaid insurance and other assets of
$16.9 million and decreases in the level of deferred income and other
liabilities of $3.4$1.1 million.
InCash used in investing activities in fiscal 2005, changes in operating assets and
liabilities used $9.42008 was $28.6 million, of cash, net, principally
due to increases in the levelnet purchases of accounts receivable of $24.1 million, prepaid expensesproperty, plant and other assets
of $5.1equipment totaling $27.1 million
and inventoriesacquisitions of $1.1 million, decreases in the level of
deferred income and other liabilities of $5.2 million, income tax liability of
$2.5 million, and accounts payable of $1.5 million, partially offset by proceeds
from the Securitization Program of $30.0 million. Cash used in investing activities in fiscal
2007 was $103.0$102.0 million, principally due to acquisitions, primarily LSSi, of
$71.4$71.2 million and purchases of property, plant and equipment totaling $31.4$30.2
million. Cash used in investing activities in fiscal 2006 was $104.7$104.4 million,
principally due to acquisitions of $83.5 million and net purchases of property,
plant and equipment totaling $22.4$20.7 million.
In fiscal 2005, cash used in investing activities was $26.4 million,
principally due to purchases of property, plant and equipment totaling $28.5
million, partially offset by proceeds from the sale of other assets of $1.9
million.
-51--54-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
LIQUIDITY AND CAPITAL RESOURCES--ContinuedLiquidity and Capital Resources-Continued
- ------------------------------------------------------------------------
The cash provided by financing activities in fiscal 2008 of $4.2 million
primarily resulted from $50.0 million of borrowing under the amended
securitization program offset by a $26.6 million reduction in bank loans using
the funds received from the sale of the net assets of the DataNational and
Directory Services divisions and $18.8 million used for the purchase of treasury
shares. The cash provided by financing activities in fiscal 2007 of $56.2
million, primarily resulted from a $79.2 million increase in bank loans, the
majority of which was used to finance the LSSi acquisition, partially offset by
$23.0 million used for the purchase of treasury shares. The cash provided by
financing activities in fiscal 2006 of $0.9 million, primarily resulted from
employee exercises of stock options of $5.3 million offset by $2.4 million for
repayment of long-term debt and a $2.2 million decrease in bank loans.
In 2005, theThe cash usedprovided by discontinued operations in financing activities was $0.6fiscal 2008 of $178.3 million
primarily resultingresulted from a $1.4$171.3 million decrease in bank loans, partially offsetnet proceeds received from the sale of
the net assets of the DataNational and Directory Services divisions and $7.0
million provided by $1.2operating activities of the discontinued operations. In
fiscal 2007 and 2006, cash provided by operating activities of discontinued
operations were $10.9 million from employee
exercises of stock options.and $11.1 million, respectively.
Off-Balance Sheet Arrangements
- ------------------------------
The Company has no off-balance sheet financing arrangements as that term is used
in Item 303(a)(4) of Regulation S-K.
Commitments
- -----------
The Company has no material capital commitments. The following table summarizes
the Company's contractual cash obligations and other commercial commitments at
October 28, 2007:November 2, 2008:
Contractual Cash Obligations
- ----------------------------
Payments Due By Period
------------------------------------------------------------------------------------------------------------------------------
Less than 1- 3 3 - 5 After 5
Total 1 year years years years
-------- --------- -------- ------- ------ -------
(In thousands)
Term Loan $12,826 $510 $1,155 $1,360 $9,801$12,316 $554 $1,253 $1,476 $9,033
Note Payable from Acquisition 450 130 188 132
Securitization Program 50,000 50,000
Notes Payable to Banks 84,111 84,11157,532 57,532
-------- -------- ------- ------ -------
Total Debt (a) 96,937 84,621 1,155 1,360 9,801120,298 108,216 1,441 1,608 9,033
Accrued Insurance (b) 5,852 5,8527,467 7,467
Deferred Compensation (c) 6,422 6,4224,901 4,901
Operating Leases (d) 53,814 19,702 22,485 6,858 4,76954,860 19,057 22,397 7,415 5,991
-------- ----------------- ------- ------ -------
Total Contractual Cash Obligations $163,025 $116,597 $23,640 $8,218 $14,570$187,526 $139,641 $23,838 $9,023 $15,024
======== ================= ======= ====== =======
(a) Debt does not include interest.
(b) Includes $1.7$1.0 million for the Company's Primary Insurance Casualty
Programprimary insurance casualty
program and $4.1$6.5 million for the Company's Medical Insurance Program.medical insurance program.
See Note A of Notes to Consolidated Financial Statements.
(c) Includes $5.6$4.2 million for the Company's non-qualified deferred
compensation and supplemental savings plan and $0.8$0.7 million for the
Company's other deferred compensation plan. See Note M to Consolidated
Financial Statements.
(d) See Note O of Notes to Consolidated Financial Statements.
-52--55-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Commitments--Continued
- -----------
Other Contingent Commitments
- ----------------------------
Amount Available or Outstanding by
Commitment Expiration Period
-----------------------------
Amount Available or Outstanding by
Commitment Expiration Period
--------------------------------------------------------------
Less than 1-3 3-5
Total 1 year years years
-------- ---------
-------- -------- ------ -------
(In thousands)
Lines of Credit, available $2,770 $2,770
Revolving Credit Facility, available 33,706 $33,706
Delta Credit Facility, available 58,273 58,273
Securitization Program, available 150,000 150,000
Other 6,009 $6,009
Standby Letters of Credit, outstanding 93 3 - 90
-------- -------- ------ -------
Total Commercial Commitments $250,851 $211,046 $6,009 $33,796
======== ======== ====== =======
Credit Lines
- ------------
At November 2, 2008, the Company had credit facilities with various banks and
financial conduits which provided for borrowings and letters of credit of up to
an aggregate of $352.3 million, including the Company's $200.0 million five-year
accounts receivable Amended Securitization Program, $42.0 million five-year
unsecured revolving credit agreement ("Credit available $3,304 $3,304
Revolving Credit Facility, available 40,000 40,000
Agreement") and the Company's
wholly owned subsidiary, Volt Delta Resources, LLC's ("Volt Delta") $100.0
million secured, syndicated revolving credit agreement ("Delta Credit
Facility, available 21,754 $21,754
Securitization Program, available 80,000 80,000
Other 1,849 1,849
Standby LettersFacility").The Company had total outstanding borrowings of Credit, outstanding 501 501
-------- --------- --------
Total Commercial Commitments $147,408 $43,805 $103,603
======== ========= ========$107.5 million as of
November 2, 2008. Included in these borrowings were $22.5 million of foreign
currency borrowings which provide economic hedges against foreign denominated
net assets.
Amended Securitization Program
- ----------------------
The Company has a------------------------------
On June 3, 2008, the Company's $200.0 million accounts receivable securitization
program, ("which was due to expire within the next year, was transferred to a
multi-buyer program administered by PNC Bank. The Amended Securitization Program"), which expires in April 2009.Program
has a five-year term (subject to 364 day liquidity). Under the Amended
Securitization Program, receivables related to the United States operations of
the staffing solutions business of the Company and its subsidiaries are sold
from time-to-time by the Company to Volt Funding Corp., a wholly-owned
consolidated special purpose subsidiary of the Company ("Volt Funding"). Volt
Funding, in turn, sells
to Three Rivers Funding Corporation ("TRFCO"), an asset backedborrows from two commercial paper conduit sponsoredconduits (Market Street
Funding LLC, a PNC Bank affiliate, and Relationship Funding LLC), secured by Mellon Bank, N.A., an
undivided percentage ownership interest in the pool of receivables Volt Funding
acquires from the Company
(subject to a maximum purchase by TRFCO in the aggregate of $200.0 million).Company. The Company retains the servicing responsibility for
the accounts receivable.
At
October 28, 2007, TRFCO had purchased from Volt Funding a participation interest
of $120.0 million out of a pool of approximately $264.9 million of receivables.
The Amended Securitization Program is not an off-balance sheet arrangement as
Volt Funding is a 100%-owned owned consolidated subsidiary of the Company, withCompany. The
receivables and related borrowings remain on the balance sheet since Volt
Funding effectively retains control over the receivables, which are no longer
treated as sold assets. Accordingly, pledged receivables are included as trade
accounts receivable, only reduced to reflectnet, while the fair value of receivables actually sold.
The Company entered into this arrangementcorresponding borrowings are included as
it provided a low-cost alternative
to other forms of financing.
The Securitization Program is designed to enable receivables sold byshort-term borrowings on the Company
tocondensed consolidated balance sheet. At November
2, 2008, Volt Funding to constitute true sales of those receivables. As a result, the
receivables are available to satisfy Volt Funding's own obligations to its own
creditors before being available, through the Company's residual equity interest
in Volthad borrowed $31.2 million and $18.8 million from Market
Street Funding to satisfy the Company's creditors. TRFCO has no recourse to
the Company beyond its interest in the pool of receivables owned by Volt
Funding.
-53-and
-56-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Securitization Program--ContinuedCredit Lines--Continued
- ----------------------
In the event------------
Relationship Funding, respectively. At November 2, 2008, borrowings bear a
weighted-average interest rate of termination3.4% per annum, excluding a facility fee of
the Securitization Program, new purchases of a
participation interest in receivables by TRFCO would cease and collections
reflecting TRFCO's interest would revert to it. The Company believes TRFCO's
aggregate collection amounts should not exceed the pro rata interests sold.
There are no contingent liabilities or commitments associated with the
Securitization Program.
The Company accounts for the securitization of accounts receivable in accordance
with SFAS No. 156, "Accounting for Transfers and Servicing of Financial Assets
and an amendment of SFAS No. 140." At the time a participation interest in the
receivables is sold, the receivable representing that interest is removed from
the consolidated balance sheet (no debt is recorded) and the proceeds from the
sale are reflected as cash provided by operating activities. Losses and expenses
associated with the transactions, primarily related to discounts incurred by
TRFCO0.25% per annum paid on the issuanceentire facility and a program fee of its commercial paper, are charged to0.35% paid on
the consolidated
statement of operations.outstanding borrowings.
The Amended Securitization Program is subject to termination at TRFCO's option,by PNC Bank (with
the consent of the majority purchasers) under certain circumstances, including,
among other things, the default rate, as defined, on receivables exceeding a
specified threshold, or the rate of collections on receivables failing to meet a
specified threshold, the Company failing to
maintain a long-term debt rating of "B" or better or the equivalent thereof from
a nationally recognized rating organization or a default occurring and
continuing on indebtedness for borrowed money of at least $5.0 million.threshold. At October 28, 2007,November 2, 2008, the Company was in compliance with all
requirements of itsthe Amended Securitization Program.
Credit Lines
- ------------
At October 28, 2007,On January 7, 2009, the Company had credit lines with domesticAmended Securitization Program was further amended to
reduce the size of the facility from $200.0 million to $175.0 million and foreign
banks which provided for borrowingsto
extend the 364-day liquidity to January 6, 2010. The scheduled expiration of the
Amended Securitization Program was not amended, and letters of credit of up to an aggregate
of $149.2 million, including the Company's $40.0 million secured, syndicated
revolving credit agreement ("Credit Agreement") and the Company's wholly owned
subsidiary, Volt Delta Resources, LLC's ("Volt Delta") $100.0 million secured,
syndicated revolving credit agreement ("Delta Credit Facility") The Company had
total outstanding bank borrowings of $84.1 million. Included in these borrowings
were $5.9 million of foreign currency borrowings which provide a hedge against
devaluation in foreign denominated assets.remains 2013.
Credit Agreement
- ----------------
TheOn February 28, 2008, the Company entered into the Credit Agreement which expires in April 2008, established ato replace
the Company's then expiring $40.0 million secured credit agreement with an
unsecured credit facility ("Credit Facility") in favor of the Company and
designated subsidiaries, of which up to $15.0 million may be used for letters of
credit.
Borrowings by subsidiaries are limited tocredit and $25.0 million for borrowing in the aggregate.alternative currencies. At October 28, 2007, the Company had no outstanding borrowings againstNovember 2,
2008, $8.3 million was drawn on this facility. The administrative agent for the
Credit Facility is JPMorgan Chase
Bank of America, N.A. The other banks participating in the
Credit Facility are MellonJP Morgan Chase Bank, N.A., as syndicated agent, Wells Fargo
Bank, N.A., Lloyds TSBN.A.and HSBC Bank PLC and Bank of America,USA, N.A.
Borrowings under the Credit Agreement are to bear interest at various rate options
selected by the Company at the time of each borrowing. Certain rate options,
together with a facility fee, are based on a leverage ratio, as defined. Additionally, interest and the facility fees can be increased or
decreased upon a change in the rating of the facility as provided by a
nationally recognized rating agency. The Credit Agreement requires the
maintenance of specified accounts receivable collateral in excess of any
outstanding borrowings. Based
upon the Company's leverage ratio and debt rating
at October 28, 2007,November 2, 2008, if a three-month U.S.
Dollar LIBO rate were
-54-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Credit Agreement--Continued
- ---------------- the interest rate option selected by the Company,
borrowings would have borne interest at the rate of 6.2%4.5% per annum, excluding a
fee of 0.25%0.35% per annum paid on the entire facility.
The Credit Agreement provides for the maintenance of various financial ratios
and covenants, including, among other things, a requirement that the Company
maintain a consolidated tangible net worth, as defined; a limitation on cash
dividends, capital stock purchases and redemptions by the Company in any one
fiscal year to 50% of consolidated net income, as defined, for the prior fiscal
year; a
limitation on total funded debt to EBITDA of 3.0 to 1.0; and a requirement that
the Company maintain a minimum ratio of EBIT,EBITDA, as defined, to interest expense,
as defined, of 1.254.0 to 1.0 for the twelve months ended as of the last day of each
fiscal quarter. The Credit Agreement also imposes limitations on, among other
things, the incurrence of additional indebtedness, the incurrence of additional liens, sales of assets, the level of annual capital
expenditures, and the amount of investments, including business acquisitions and
investments in joint ventures,mergers, and loans that may be made by the Company andto its subsidiaries. The
Company obtained a waiver of one covenant but was in compliance with all other covenants in theat November 2, 2008.
-57-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Credit Agreement as of October 28,
2007.
The Company is liable on all loans made to it and all letters of credit issued
at its request, and is jointly and severally liable as to loans made to
subsidiary borrowers. However, unless also a guarantor of loans, a subsidiary
borrower is not liable with respect to loans made to the Company or letters of
credit issued at the request of the Company, or with regard to loans made to any
other subsidiary borrower. Five subsidiaries of the Company are guarantors of
all loans made to the Company or to subsidiary borrowers under the Credit
Facility. At October 28, 2007, four of those guarantors have pledged
approximately $60.6 million of accounts receivable, other than those in the
Securitization Program, as collateral for the guarantee obligations. Under
certain circumstances, other subsidiaries of the Company also may be required to
become guarantors under the Credit Facility.
On July 31, 2007, the Lenders consented to the acquisition of LSSi by VDR and
waived the application of certain provisions of the Company Credit Agreement to
the extent inconsistent with such consent.Lines--Continued
- ------------
Delta Credit Facility
- ---------------------
In December 2006, Volt Delta entered into the secured Delta Credit Facility,
which expires in December 2009, with Wells Fargo, N.A. as the administrative
agent and arranger, and as a lender thereunder. Wells Fargo and two of the other
three lenders under the Delta Credit Facility, Lloyds TSB Bank Plc., Bank of America, N.A. and
JPMorgan Chase, also participate in the Company's $40.0$42.0 million unsecured
revolving Credit Facility. Neither the Company nor Volt Delta guarantees each
other's facility but certain subsidiaries of each are guarantors of their
respective parent company's facility. The Delta Credit Facility allows for the
issuance of revolving loans and letters of credit in the aggregate of $100.0
million (increased from $70.0 million in
August 2007) with a sublimit of $10.0 million on the issuance of letters of credit.
At October 28, 2007, $78.2November 2, 2008, $41.7 million was drawn on this facility, the
majority of which was used to finance the acquisition of LSSi.facility. Certain interest
rate options, as well as the commitment fee, are based on a -55-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Delta Credit Facility--Continued
- ---------------------
leverage ratio, as
defined, which resets on a quarterly basis.quarterly. Based upon Volt Delta's leverage ratio at
the end of the third quarter of fiscal 2007,November 2, 2008, if a three-month U.S. Dollar LIBO rate were the interest rate
option selected by the Company, borrowings would have borne interest at the rate
of 5.0%3.0% per annum at
October 28, 2007.annum. Volt Delta also pays a commitment fee on the unused portion
of the Delta Credit Facility which varies based on Volt Delta's leverage ratio.
At October 28, 2007,November 2, 2008, the commitment fee was 0.2%0.3% per annum.
The Delta Credit Facility provides for the maintenance of various financial
ratios and covenants, including, among other things, a total debt to EBITDA
ratio, as defined, which cannot exceed 2.0 to 1.0 on the last day of any fiscal
quarter, a fixed charge coverage ratio, as defined, which cannot be less than
2.5 to 1.0 for the twelve months ended as of the last day of each fiscal quarter
and the maintenance of a consolidated net worth, as defined. The Delta Credit
Facility also imposes limitations on, among other things, incurrence of
additional indebtedness or liens, the amount of investments including business
acquisitions, creation of contingent obligations, sales of assets (including
sale leaseback transactions) and annual capital expenditures. At October 28 2007,November 2,
2008, Volt Delta was in compliance with all covenants outlined in the Delta Credit
Facility.
Summary
- -------
The Company believes that its current financial position, working capital,
future cash flows from operations, credit lines and accounts receivable Amended
Securitization Program will be sufficient to fund its presently contemplated
operations and satisfy its obligations through, at least, the next twelve
months.
NewCritical Accounting PronouncementsPolicies
- ----------------------------
Management's discussion and New Lawsanalysis of its financial position and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates, judgments, assumptions and valuations that affect
the reported amounts of assets, liabilities, revenues and expenses and related
disclosures. Future reported results of operations could be impacted if the
Company's estimates, judgments, assumptions or valuations made in earlier
periods prove to be Effectivedifferent from what actually occurs. Management believes the
critical accounting policies and areas that require the most significant
estimates, judgments, assumptions or valuations used in Fiscal 2008
- -------------------------------------------------------------------------
In July 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN 48") which
prescribes a recognition threshold and measurement attribute, as well as
criteria for subsequently recognizing, derecognizing and measuring uncertain tax
positions for financial statement purposes. FIN 48 also requires expanded
disclosure with respect to the uncertainty in income taxes assets and
liabilities. FIN 48 is effective for fiscal years beginning after December 15,
2006 and is required to be recognized as a change in accounting principle
through a cumulative-effect adjustment to retained earnings aspreparation of the
beginning
of the year of adoption. The Company is currently evaluating the impact of
adopting this statement.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This
statement defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. The statement is
effective forCompany's financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within that fiscal year. The Company is
currently evaluating the impact of adopting this statement.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FAS 115".
This statement permits entities to choose to measure many financial instruments
and certain other items at fair value. This statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007, including
interim periods within that fiscal year. The Company is currently evaluating the
impact of adopting this statement.
-56-are as follows:
-58-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Related Party TransactionsCritical Accounting Policies--Continued
- --------------------------
During fiscal 2007, 2006 and 2005, the Company paid or accrued $1.6 million,
$0.9 million and $0.8 million, respectively, to the law firms of which Lloyd
Frank, a director of the Company, is and was of counsel, for services rendered
to the Company and expenses reimbursed.
In October 2006, the Company purchased 300,000 shares of common stock from the
Estate of William Shaw, the former CEO, at a price of $26.50 per share, for a
total of $7,950,000. The Company intends to use these shares to fund awards
under the Volt Information Sciences, Inc. 2006 Incentive Stock Plan. The shares
were purchased at a price below the price at which the Company's common stock
was then being traded on the New York Stock Exchange (the low trade for the day
was $26.63 and the high trade was $27.23). The decision to make the purchase was
made by the Board of Directors which delegated the negotiation of the price to
senior management of the Company. The funds were transferred in November 2006.
The number of shares and price per share reflect the January 2007 three-for-two
stock split of the Company's common stock.
In fiscal 2006, the Company advanced $162,400 directly to the attorneys for Mr.
Thomas Daley, an executive officer of the Company ($95,800 of which had
previously been reported in the Company's proxy statement for its 2006 annual
meeting). In 2006, the Company also paid $336,100 for legal fees of the
independent counsel to the Audit Committee of the Company ($260,000 of which had
previously been reported in the Company's proxy statement for its 2006 annual
meeting).
From time-to-time the Company has employed, and will continue to employ,
relatives of executive officers, as well as relatives of other full time
employees for amounts less than specified in Item 404 of Regulation S-K. The
Company believes that it has always employed, and will continue to employ, those
individuals on the same terms that it employs unrelated individuals.
-57-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential economic loss that may result from adverse changes
in the fair value of financial instruments. The Company`s earnings, cash flows
and financial position are exposed to market risks relating to fluctuations in
interest rates and foreign currency exchange rates. The Company has cash and
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 borrowings and letters of credit, as well as a $200 million accounts
receivable securitization program to provide the Company with additional
liquidity to meet its short-term financing needs.
The interest rates on these borrowings and financing are variable and,
therefore, interest and other expense and interest income are affected by the
general level of U.S. and foreign interest rates. Based upon the current levels
of cash invested, notes payable to banks and utilization of the securitization
program, on a short-term basis, as noted below in the tables, a hypothetical
100-basis-point (1%) increase or decrease in interest rates would increase or
decrease its annual net interest expense and securitization costs by $1.4
million, respectively.
The Company has a term loan, as noted in the table below, which consists of
borrowings at fixed interest rates, and the Company's interest expense related
to these borrowings is not affected by changes in interest rates in the near
term. The fair value of the fixed rate term loan was approximately $13.5 million
at October 28, 2007. This fair value was calculated by applying the appropriate
fiscal year-end interest rate to the Company's present stream of loan payments.
The Company holds short-term investments in mutual funds for the Company's
deferred compensation plan. At October 28, 2007, the total market value of these
investments was $5.6 million, all of which are being held for the benefit of
participants in a non-qualified deferred compensation plan with no risk to the
Company.
The Company has a number of overseas subsidiaries and is, therefore, subject to
exposure from the risk of currency fluctuations as the value of foreign
currencies fluctuates against the dollar, which may impact reported earnings. As
of October 28, 2007, the total of the Company's net investment in foreign
operations was $21.9 million. The Company attempts to reduce these risks by
utilizing foreign currency option and exchange contracts, as well as borrowing
in foreign currencies, to hedge the adverse impact on foreign currency net
assets when the dollar strengthens against the related foreign currency. As of
October 28, 2007, the Company had no outstanding exchange contracts. The amount
of risk and the use of foreign exchange instruments described above are not
material to the Company's financial position or results of operations and the
Company does not use these instruments for trading or other speculative
purposes. Based upon the current levels of net foreign assets, a hypothetical
weakening of the U.S. dollar against these currencies at October 28, 2007 by 10%
would result in a pretax gain of $2.2 million related to these positions.
Similarly, a hypothetical strengthening of the U.S. dollar against these
currencies at October 28, 2007 by 10% would result in a pretax loss of $2.2
million related to these positions.
The tables below provide information about the Company's financial instruments
that are sensitive to either interest rates or exchange rates at October 28,
2007. For cash and debt obligations, the table presents principal cash flows and
related weighted average interest rates by expected maturity dates. The
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency.
-58-
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK--Continued
Interest Rate Market Risk Payments Due By Period as of October 28, 2007----------------------------
Revenue Recognition - ------------------------- ---------------------------------------------
Less than 1-3 3-5 After 5
Total 1 Year Years Years Years
-------- --------- ------ ------ -------
(Dollars in thousands of US$)
Cash and Cash Equivalents and Restricted Cash
- --------------------------------------------- $65,880 $65,880
Money Market and Cash Accounts
Weighted Average Interest Rate 4.66% 4.66%
-------- ---------
Total Cash, Cash Equivalents, and
Restricted Cash $65,880 $65,880
======== =========
Securitization Program
Accounts Receivable Securitization $120,000 $120,000
Finance Rate 5.72% 5.72%
-------- ---------
Securitization Program $120,000 $120,000
======== =========
Debt
Term Loan $12,826 $510 $1,155 $1,360 $9,801
Interest Rate 8.2% 8.2% 8.2% 8.2% 8.2%
Notes Payable to Banks 84,111 84,111
Weighted Average Interest Rate 6.27% 6.27% - - -
-------- --------- ------ ------ -------
Total Debt $96,937 $84,621 $1,155 $1,360 $9,801
======== ========= ====== ====== =======
-59-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ERNST & YOUNG LLP
5 Times Square
New York, New York 10036
212-773-3000
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Volt Information Sciences, Inc.
We have audited the accompanying consolidated balance sheets of Volt Information
Sciences, Inc. and subsidiaries as of October 28, 2007 and October 29, 2006, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended October 28, 2007. Our
audits also included the financial statement schedule listed in the Index at
Item 15(a)(2). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Volt Information
Sciences, Inc. and subsidiaries at October 28, 2007 and October 29, 2006, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended October 28, 2007, in conformity with U.S.
generally accepted accounting principles.
As discussed in Note K to the consolidated financial statements, on October 31,
2005, the Company adopted Statement of Financial Accounting Standards No.123(R),
"Share-Based Payment."
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Volt Information Sciences, Inc. and
subsidiaries' internal control over financial reporting as of October 28, 2007,
based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated January 10, 2008 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG
New York, New York
January 10, 2008
-60-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 28, October 29,
2007 2006
----------- ----------
ASSETS (Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $40,398 $38,481
Restricted cash 25,482 30,713
Short-term investments 5,624 4,709
Trade accounts receivable, net of allowances of $5,236 (2007) and $7,491 (2006) 417,115 390,799
Inventories 59,950 28,735
Deferred income taxes 9,629 9,167
Prepaid insurance and other assets 39,927 37,280
-------- --------
TOTAL CURRENT ASSETS 598,125 539,884
Property, plant and equipment, net 74,709 74,135
Insurance and other assets 6,648 2,247
Deferred income taxes 8,125 -
Goodwill 98,715 50,896
Other intangible assets, net 53,829 31,959
-------- --------
TOTAL ASSETS $840,151 $699,121
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $84,111 $4,639
Current portion of long-term debt 510 470
Accounts payable 214,799 190,431
Accrued wages and commissions 64,049 59,387
Accrued taxes other than income taxes 22,440 20,186
Accrued insurance and other accruals 32,715 29,241
Deferred income and other liabilities 33,785 37,519
Income taxes payable 4,822 3,626
------- -------
TOTAL CURRENT LIABILITIES 457,231 345,499
Accrued insurance - 4,760
Long-term debt 12,316 12,827
Deferred income taxes 18,025 10,787
Minority interest 43 -
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00; Authorized--500,000 shares; issued--none
Common stock, par value $.10; Authorized--120,000,000 shares (2007) and
30,000,000 shares (2006); issued--23,480,103 shares (2007) and 23,456,974 shares (2006) 2,348 2,346
Paid-in capital 50,740 50,203
Retained earnings 319,688 280,404
Accumulated other comprehensive income 2,660 245
-------- --------
375,436 333,198
Less treasury stock--1,048,966 shares (2007) and 300,000 shares (2006), at cost (22,900) (7,950)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 352,536 325,248
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $840,151 $699,121
======== ========
See Notes to Consolidated Financial Statements
-61-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
October 28, October 29, October 30,
2007 2006 2005
---------- ---------- ----------
(In thousands, except per share data)
NET SALES $2,353,082 $2,338,453 $2,177,619
COSTS AND EXPENSES:
Cost of sales 2,144,716 2,147,823 2,014,551
Selling and administrative 102,605 97,227 92,858
Depreciation and amortization 38,221 34,847 29,603
---------- ---------- ----------
2,285,542 2,279,897 2,137,012
---------- ---------- ----------
OPERATING PROFIT 67,540 58,556 40,607
OTHER INCOME (EXPENSE):
Interest income 6,256 3,185 2,648
Other expense, net (7,549) (7,848) (4,882)
Foreign exchange loss, net (421) (505) (255)
Interest expense (3,612) (1,819) (1,825)
--------- ---------- ---------
Income before minority interest and income taxes 62,214 51,569 36,293
Minority interest 6 (1,021) (7,024)
--------- ---------- ----------
Income before taxes 62,220 50,548 29,269
Income tax provision (22,888) (19,898) (12,229)
--------- ---------- ----------
NET INCOME $39,332 $30,650 $17,040
========= ========== ==========
Per Share Data
------------------------------------------
Net income - basic $1.71 $1.32 $0.74
======== ========== ========
Weighted average number of shares outstanding-basic 22,935 23,227 22,980
======== ========== ========
Net income - diluted $1.71 $1.31 $0.74
======== ========== ========
Weighted average number of shares outstanding-diluted 22,985 23,388 23,126
======== ========== ========
See Notes to Consolidated Financial Statements.
-62-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (LOSS)
Accumulated Other
Comprehensive Income
(loss)
------------------------
Unrealized
Common Stock Foreign Gain (Loss)
$.10 Par Value Currency On
------------------- Paid-In Retained Treasury Translation Marketable Comprehensive
Shares Amount Capital Earnings Stock Adjustment Securities Income (Loss)
---------- -------- ----------- ----------- --------- ------------ ----------- ---------------
(Dollars in thousands)
Balance at October 31,
2004 22,923,937 $2,292 $41,671 $232,714 - ($214) $36
Stock options exercised
- including a tax
benefit of $199 84,945 9 1,241
Unrealized foreign
currency translation
adjustment - net of
taxes of $80 186 $186
Unrealized gain on
marketable securities -
net of taxes of $16 25 25
Net income for the year 17,040 17,040
---------- -------- ------------ ---------- --------- ------------ ---------- ----------------
Balance at October 30,
2005 23,008,882 2,301 42,912 249,754 - (28) 61 $17,251
================
Stock options exercised
- including a tax
benefit of $1,912 448,092 45 7,217
Compensation expense -
stock options 74
Purchase of common stock
for treasury ($7,950)
Unrealized foreign
currency translation
adjustment - net of
taxes of $94 220 $220
Unrealized loss on
marketable securities -
net of taxes of $6 (8) (8)
Net income for the year 30,650 30,650
---------- -------- ------------ ---------- --------- ------------ ---------- ----------------
Balance at October 29,
2006 23,456,974 2,346 50,203 280,404 (7,950) 192 53 $30,862
================
Stock options exercised
- including a tax
benefit of $230 23,625 2 572
Compensation expense -
stock options 47
Purchase of common stock
for treasury (15,029)
Cash paid in lieu of
fractional shares (496) (18)
Issuance of restricted
stock (79) 79
Amortization of
restricted stock 15
Unrealized foreign
currency translation
adjustment - net of
taxes of $1,020 2,379 $2,379
Unrealized gain on
marketable securities -
net of taxes of $25 36 36
Change in fair value of
minority interest (48) (48)
Net income for the year 39,332 39,332
---------- -------- ------------ ---------- --------- ------------ ---------- ----------------
Balance at October 28,
2007 23,480,103 $2,348 $50,740 $319,688 ($22,900) $2,571 $89 $41,699
========== ======== ============ ========== ========= ============ ========== ================
There were no shares of preferred stock issued or outstanding in any of the
reported periods.
See Notes to Consolidated Financial Statements.
-63-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
-------------------------------------------
October 28, October 29, October 30,
2007 2006 2005
-------------- ------------- --------------
(In thousands)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income $39,332 $30,650 $17,040
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization 38,221 34,847 29,603
Accounts receivable provisions 1,974 4,003 3,838
Minority interest (6) 1,021 7,024
Loss (gain) on foreign currency translation 76 20 (16)
Loss (gain) on dispositions of fixed assets 25 342 (9)
Deferred income tax benefit (7,718) (4,345) (2,978)
Share-based compensation expense related to employee stock options 62 74 -
Excess tax benefits from share-based compensation (110) (194) -
Changes in operating assets and liabilities, net of assets acquired:
Trade accounts receivable (29,416) 6,300 (24,084)
Increase in securitization of accounts receivable 10,000 10,000 30,000
Inventories (31,215) 5,030 (1,082)
Prepaid insurance and other current assets (6,129) (16,907) (5,063)
Insurance and other long-term assets 87 (97) (520)
Accounts payable 26,996 11,048 (1,519)
Accrued expenses 2,679 (375) 478
Deferred income and other liabilities 2,613 (3,386) (5,193)
Income taxes 1,605 2,451 (2,451)
-------------- ------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 49,076 80,482 45,068
-------------- ------------- --------------
-64-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
Year Ended
------------------------------------------
October 28, October 29, October 30,
2007 2006 2005
-------------- ------------ --------------
(In thousands)
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Sales of investments 6,357 1,296 1,119
Purchases of investments (6,931) (1,491) (904)
Decrease (increase) in restricted cash 5,231 (4,582) 17,591
(Decrease) increase in payables related to restricted cash (5,231) 4,582 (17,591)
Acquisitions, net (71,401) (83,503) -
Proceeds from disposals of property, plant and equipment, net 352 1,348 1,885
Purchases of property, plant and equipment (31,406) (22,365) (28,511)
-------------- ------------ --------------
NET CASH USED IN INVESTING ACTIVITIES (103,029) (104,715) (26,411)
-------------- ------------ --------------
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
Payment of long-term debt (471) (2,433) (399)
Cash paid in lieu of fractional shares (18) - -
Exercises of stock options 344 5,335 1,247
Excess tax benefits from share-based compensation 110 194 -
Purchase of treasury shares (22,979) - -
Payment of notes payable-bank (271,289) (71,969) (84,750)
Proceeds from notes payable to bank 350,457 69,813 83,346
-------------- ------------ --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 56,154 940 (556)
-------------- ------------ --------------
Effect of exchange rate changes on cash (284) (214) (422)
-------------- ------------ --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,917 (23,507) 17,679
Cash and cash equivalents, beginning of year 38,481 61,988 44,309
-------------- ------------ --------------
CASH AND CASH EQUIVALENTS, CASH, END OF YEAR $40,398 $38,481 $61,988
============== ============ ==============
SUPPLEMENTAL INFORMATION
Cash paid during the year:
Interest expense $3,278 $1,788 $1,868
Income taxes $29,566 $22,090 $17,694
Non-cash financing activities:
Tendered common stock for stock option exercises $1,216
See Notes to Consolidated Financial Statements.
-65-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--Summary of Significant Accounting Policies
Business: The Company operates in two major businesses, Staffing Services and
Telecommunications and Information Solutions, consisting of four operating
segments: Staffing Services; Telephone Directory; Telecommunications Services
and Computer Systems. Fiscal Year: The Company's fiscal year ends on the Sunday
nearest October 31. The 2005 through 2007 fiscal years each consisted of 52
weeks.
Consolidation: The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany transactions have
been eliminated upon consolidation. The Company accounts for the securitization
of accounts receivable in accordance with Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 156,
"Accounting for Transfers and Servicing of Financial Assets an amendment of SFAS
No. 140."
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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: Prior to October 31, 2005, the Company elected to
follow Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock
Issued to Employees," to account for its Non-Qualified Stock Option Plan under
which 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.
Effective October 31, 2005, the Company adopted the fair-value recognition
provisions of SFAS No. 123R "Share Based Payment" and the Securities and
Exchange Commission Staff Accounting Bulletin No. 107 using the
modified-prospective transition method; therefore, prior periods have not been
restated. Compensation cost recognized for the years ended October 28, 2007 and
October 29, 2006 include compensation cost for all share-based payments granted
prior to, but not yet vested as of, October 31, 2005, based on the grant date
fair value estimated in accordance with the original provisions of SFAS No. 123.
Revenue Recognition: The Company derives its revenues from several sources. The
revenue recognition methods, which are consistent with those prescribed in Staff
Accounting Bulletin 104 ("SAB 104"), "Revenue Recognition in Financial
Statements," are described below in more detail for the significant types of
revenue within each of its segments. Revenue is generally recognized when
persuasive evidence of an arrangement exists, we have delivered the product or
performed the service, the fee is fixed and determinable and collectibility is
probable. The determination of whether and when some of the criteria below have
been satisfied sometimes involves assumptions and judgments that can have a
significant impact on the timing and amount of revenue we report.
Staffing Services:
Staffing: Sales are derived from the Company's Staffing Solutions Group
supplying its own temporary personnel to its customers, for which the
Company assumes the risk of acceptability of its employees to its
customers, and has credit risk for collecting its billings after it has
paid its employees. The Company reflects revenues for these services on a
gross basis in the period the services are rendered. In fiscal 2007,2008, this
revenue comprised approximately 76% of the Company's net consolidated
sales.
-66-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--Summary of Significant Accounting Policies--Continued
Revenue Recognition:--Continued
Managed Services: Sales are generated by the Company's E-Procurement
Solutions subsidiary, ProcureStaff, for which the Company receives an
administrative fee for arranging for, billing for and collecting the
billings related to staffing companies ("associate vendors") who have
supplied personnel to the Company's customers. The administrative fee is
either charged to the customer or subtracted from the CompanyCompany's payment to
the associate vendor. The customer is typically responsible for assessing
the work of the associate vendor, and has responsibility for the
acceptability of its personnel, and in most instances the customer and
associate vendor have agreed that the Company does not pay the associate
vendor until the customer pays the Company. Based upon the revenue
recognition principles prescribed in Emerging Issues Task Force ("EITF")
99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent,"
revenue for these services, where the customer and the associate vendor
have agreed that the Company is not at risk for payment, is recognized net
of associated costs in the period the services are rendered. In addition,
sales for certain contracts generated by the Company's Staffing Solutions
Group's managed services operations have similar attributes. In fiscal
2007,2008, this revenue comprised approximately 2% of the Company's net
consolidated sales.
Outsourced Projects: Sales are derived from the Company's Information
Technology Solutions operation providing outsource services for customersa customer
in the form of project work, for which the Company is responsible for
deliverables, in accordance with the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 81-1, "Accounting for
Performance of Construction-Type Contracts." The Company's employees
perform the services and the Company has credit risk for collecting its
billings. Revenue for these services is recognized on a gross basis in the
period the services are rendered when on a time and material basis;basis, and
when the Company is responsible for project completion, revenue is
recognized when the project is complete and the customer has approved the
work. In fiscal 2007,2008, this revenue comprised approximately 5%6% of the
Company's net consolidated sales.
Telephone Directory:
Directory Publishing: Sales are derived from the Company's sales of
telephone directory advertising for books it publishes as an independent
publisher in the United States and Uruguay. The Company's employees perform
the services and the Company has credit risk for collecting its billings.
Revenue for these services is recognized on a gross basis in the period the
books are delivered. In fiscal 2007, this revenue comprised approximately
3% of net consolidated sales.
Ad Production and Other: Sales are generated when the Company performs
design, production and printing services, and database management for other
publishers' telephone directories. The Company's employees perform the
services and the Company has credit risk for collecting its billings.
Revenue for these services is recognized on a gross basis in the period the
Company has completed its production work and upon customer acceptance. In
fiscal 2007, this revenue comprised approximately 1% of net consolidated
sales.
-67--59-
VOLT INFORMATION SCIENCES, INC.MANAGEMENT'S DISCUSSION AND SUBSIDIARIES
NOTES TO CONSOLIDATEDANALYSIS OF FINANCIAL STATEMENTS--Continued
NOTE A--Summary of SignificantCONDITION
AND RESULTS OF OPERATIONS--Continued
Critical Accounting Policies--Continued
Revenue Recognition:--Continued- ----------------------------
Telecommunications Services:
Construction: Sales are derived from the Company supplying aerial and
underground construction
services. The Company's employees perform the services, and the Company
takes title to all inventory, and has credit risk for collecting its
billings. The Company relies upon the principles in SOP No. 81-1, using the
completed-contract method, to recognize revenue on a gross basis upon
customer acceptance of the project or by the use of the
percentage-of-completion
method, when applicable. When using the percentage-of-completion method,
revenue is recognized based on the extent of progress towards completion of
the contract. For those contracts in which the customers approve the
progress of our work, the extent of progress towards completion is measured
based on the ratio of revenue approved-to-date to the total estimated
revenue at completion of the job. For those contracts in which the
customers do not approve the progress of our work, the extent of progress
towards completion is measured based on the ratio of direct labor
incurred-to-date to the total estimated direct labor at completion of the
contract. In fiscal 2007,2008, this revenue comprised approximately 3%5% of the
Company's net consolidated sales.
Non-Construction: Sales are derived from the Company performing design,
engineering and business systems integrations work. The Company's employees
perform the services and the Company has credit risk for collecting its
billings. Revenue for these services is recognized on a gross basis in the
period in which services are performed, and, if applicable, any completed
units are delivered and accepted by the customer. In fiscal 2007,2008, this
revenue comprised approximately 2% of the Company's net consolidated sales.
Computer Systems:
Database Access: Sales are derived from the Company granting access to its
proprietary telephone listing databases to telephone companies,
inter-exchange carriers and non-telco enterprise customers. The Company
uses its own databases and has credit risk for collecting its billings. The
Company recognizes revenue on a gross basis in the period in which the
customers access the Company's databases. In fiscal 2007,2008, this revenue
comprised approximately 3% of the Company's net consolidated sales.
IT Maintenance: Sales are derived from the Company providing hardware
maintenance services to the general business community, including customers
who have systems provided by the Company, on a time and material basis or a
contract basis. The Company uses its own employees and inventory in the
performance of the services, and has credit risk for collecting its
billings. Revenue for these services is recognized on a gross basis in the
period in which the services are performed, contingent upon customer
acceptance when on a time and material basis, or over the life of the
contract, as applicable. In fiscal 2008, this revenue comprised
approximately 2% of the Company's net consolidated sales.
Telephone Systems: Sales are derived from the Company providing telephone
operator services-related systems and enhancements to existing systems,
equipment and software to customers. The Company uses its own employees and
has credit risk for collecting its billings. The Company relies upon the
principles in SOP 97-2 "Software Revenue Recognition" and EITF 00-21,
"Revenue Arrangements with Multiple Deliverables" to recognize revenue on a
gross basis upon customer acceptance of each part of the system based upon
its fair value or by the use of the percentage-of-completion method, when
applicable. In fiscal 2008, this revenue comprised approximately 3% of the
Company's net consolidated sales.
-60-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Critical Accounting Policies--Continued
- ----------------------------
Printing and Other:
Printing: Sales are derived from the Company's sales of printing services
in Uruguay. The Company's employees perform the services and the Company
has credit risk for collecting its billings. Revenue for these services is
recognized on a gross basis in the period the printed documents have been
delivered. In fiscal 2008, this revenue comprised less than 1% of the
Company's net consolidated sales.
Other: Sales are derived from the Company's sales of telephone directory
advertising for books it publishes as an independent publisher in Uruguay.
The Company's employees perform the services and the Company has credit
risk for collecting its billings. Revenue for these services is recognized
on a gross basis in the period the books are printed and delivered. In
fiscal 2008, this revenue comprised approximately 1% of the Company's net
consolidated sales.
For those contracts accounted for under SOP 81-1, the Company records provisions
for estimated losses on contracts when losses become evident.
Accumulated unbilled costs on contracts are carried in inventory at the lower of
actual cost or estimated realizable value.
Allowance for Uncollectible Accounts - The establishment of an allowance
requires the use of judgment and assumptions regarding potential losses on
receivable balances. Allowances for accounts receivable are maintained based
upon historical payment patterns, aging of accounts receivable and actual
write-off history. The Company also makes judgments about the creditworthiness
of significant customers based upon ongoing credit evaluations, and might assess
current economic trends that might impact the level of credit losses in the
future. However, since a reliable prediction of future changes in the financial
stability of customers is not possible, the Company cannot guarantee that
allowances will continue to be adequate. If actual credit losses are
significantly higher or lower than the allowance established, it would require a
related charge or credit to earnings.
Goodwill and Indefinite-Lived Intangible Assets - Under Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets,"
goodwill and indefinite-lived intangible assets are subject to annual impairment
testing using fair value methodologies, which compare the fair value of each
reporting unit to its carrying value. The Company performs its annual impairment
testing during its second fiscal quarter, or more frequently if indicators of
impairment arise. The timing of the impairment test may result in charges to
earnings in a quarter that could not have been reasonably foreseen in prior
periods. The Company generally determines the fair value of a reporting unit
using the income approach, which is based on the present value of estimated
future cash flows, or the market approach, which compares the business unit's
multiples of sales and EBITDA to those multiples of its competitors. If the
carrying value of the reporting unit's net assets including goodwill exceeds the
fair value of the reporting unit, then the Company performs step two of the
impairment test which allocates the fair value of the reporting unit's assets
and liabilities in a manner similar to a purchase price allocation, with any
residual fair value being allocated to goodwill. If the carrying value of a
reporting unit's goodwill exceeds its implied fair value, then an impairment of
goodwill has occurred for such amount and is reported as a component of
operating income. If these estimates or their related assumptions used in the
impairment test change in the future as a result of changes in strategy and/or
market conditions, the Company may be required to record an impairment charge in
the future.
-61-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Critical Accounting Policies--Continued
- ----------------------------
Based upon indicators of impairment in the fourth quarter of fiscal 2008, which
included a significant decrease in market capitalization, a decline in recent
operating results, and a decline in the Company's business outlook primarily due
to the current macroeconomic environment, the Company performed an interim
impairment test as of November 2, 2008 on each of its four segments. The Company
completed step one of the impairment analysis and concluded that, as of November
2, 2008, the fair value of the Computer Systems and Staffing Services segments
were below their respective carrying values including goodwill. Step two of the
impairment test was initiated but, due to the time consuming nature, has not
been completed. The Company recorded estimates of impairment in the amount of
$41.5 million and $4.9 million, in the Computer Systems and Staffing Services
segments, respectively as of November 2, 2008 . The Company expects to complete
the step two analyses in time for the first quarter Form 10-Q filing.
The Company considered the income, market and cost approaches in arriving at our
indicators of value. The Company relied on the income and market approaches to
arrive at its valuation conclusion. The cost approach was viewed as the floor
for the value of the reporting units and was calculated based on the book value
of working capital. The income approach was given greater weight than the market
approach due to the lack of strongly comparable companies, the significant
fluctuations in the financial markets and the lack of recently comparable
transactions. The material assumptions used for the income approach were the
forecasted revenue growth by reporting unit as well as the discount rate and
long-term growth rate. The Company considered historical rates and current
market conditions when determining the discount and growth rates used in its
analyses. For the market approach the material assumptions were financial data
for comparable companies, adjusted for differences in size, diversification and
profitability. The Company also considered the control premium (which can be
defined as the difference between fair value and market price) and other
qualitative factors including its low float, concentrated ownership and limited
analyst coverage.
Long-Lived Assets - Property, plant and equipment are recorded at cost, and
depreciation and amortization are provided on the straight-line or accelerated
methods at rates calculated to allocate the cost of the assets over their period
of use. Intangible assets, other than goodwill and indefinite-lived intangible
assets, and property, plant and equipment are reviewed for impairment in
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." Under SFAS No. 144, these assets are tested for
recoverability whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable. Circumstances which could trigger a
review include, but are not limited to: significant decreases in the market
price of the asset; significant adverse changes in the business climate or legal
factors; the accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of the asset; current
period cash flow or operating losses combined with a history of losses or a
forecast of continuing losses associated with the use of the asset; and a
current expectation that the asset will more likely than not be sold or disposed
of significantly before the end of its estimated useful life. Recoverability is
assessed based on the carrying amount of the asset and the sum of the
undiscounted cash flows expected to result from the use and the eventual
disposal of the asset or asset group. An impairment loss is recognized when the
carrying amount exceeds the estimated fair value of the asset or asset group.
The impairment loss is measured as the amount by which the carrying amount
exceeds fair value.
-62-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Critical Accounting Policies--Continued
- ----------------------------
Capitalized Software - The Company's software technology personnel are involved
in the development and acquisition of internal-use software to be used in its
Enterprise Resource Planning system and software used in its operating segments,
some of which are customer accessible. The Company accounts for the
capitalization of software in accordance with SOP No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." Subsequent
to the preliminary project planning and approval stage, all appropriate costs
are capitalized until the point at which the software is ready for its intended
use. Subsequent to the software being used in operations, the capitalized costs
are transferred from costs-in-process to completed property, plant and
equipment, and are accounted for as such. All post-implementation costs, such as
maintenance, training and minor upgrades that do not result in additional
functionality, are expensed as incurred. The capitalization process involves
judgment as to what types of projects and tasks are capitalizable. Although the
Company believes the decisions made in the past concerning the accounting
treatment of these software costs have been reasonable and appropriate,
different decisions could materially impact financial results.
Income Taxes - Estimates of Effective Tax Rates, Deferred Taxes and Valuation
Allowance - When the financial statements are prepared, the Company estimates
its income taxes based on the various jurisdictions in which its business is
conducted. Significant judgment is required in determining the Company's
worldwide income tax provision. Liabilities for anticipated tax audit issues in
the United States and other tax jurisdictions are based on estimates of whether,
and the extent to which, additional taxes will be due. The recognition of these
provisions for income taxes is recorded in the period in which it is determined
that such taxes are due. If in a later period it is determined that payment of
this additional amount is unnecessary, a reversal of the liability is
recognized. As a result, the ongoing assessments of the probable outcomes of the
audit issues and related tax positions require judgment and can materially
increase or decrease the effective tax rate and materially affect the Company's
operating results. This also requires the Company to estimate its current tax
exposure and to assess temporary differences that result from differing
treatments of certain items for tax and accounting purposes. These differences
result in deferred tax assets and liabilities, which are reflected on the
balance sheet. The Company must then assess the likelihood that its deferred tax
assets will be realized. To the extent it believes that realization is not
likely, a valuation allowance is established. When a valuation allowance is
increased or decreased, a corresponding tax expense or benefit is recorded in
the statement of operations.
The deferred tax asset at November 2, 2008 was $26.8 million, net of the
valuation allowance of $4.0 million. The valuation allowance was recorded to
reflect uncertainties about whether the Company will be able to utilize some of
its deferred tax assets (consisting primarily of foreign net operating loss
carryforwards) before they expire. The valuation allowance is based on estimates
of taxable income for the applicable jurisdictions and the period over which the
deferred tax assets will be realizable.
Effective October 29, 2007, the Company adopted the provisions of FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 prescribes a
recognition threshold and a measurement attribute for the financial statement
recognition and measurement of tax positions taken or expected to be taken in a
tax return. For those benefits to be recognized, a tax position must be
more-likely-than-not to be sustained upon examination by taxing authorities.
There was no material impact on the Company's consolidated financial position
and results of operations as a result of the adoption of the provisions of FIN
48.
-63-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Critical Accounting Policies--Continued
- ----------------------------
Securitization Program - On June 3, 2008, the Company's $200.0 million accounts
receivable securitization program (the "Expiring Securitization Program") was
transferred to a multi-buyer program administered by PNC Bank (the "Amended
Securitization Program"). Prior to that date, under the Expiring Securitization
Program, receivables were sold from time-to-time by the Company to Volt Funding,
a wholly-owned consolidated special purpose subsidiary of the Company. Volt
Funding, in turn, sold to Three Rivers Funding Corporation ("TRFCO"), an asset
backed commercial paper conduit sponsored by Mellon Bank, N.A. and unaffiliated
with the Company, an undivided percentage ownership interest in the pool of
receivables Volt Funding acquired from the Company. The Company accounted for
the securitization of accounts receivable in accordance with SFAS No. 156,
"Accounting for Transfers and Servicing of Financial Assets, an amendment of
SFAS No. 140." At the time a participation interest in the receivables was sold,
the receivable representing that interest was removed from the condensed
consolidated balance sheet (no debt was recorded) and the proceeds from the sale
were reflected as cash provided by operating activities.
Under the Amended Securitization Program, the receivables and related borrowings
remain on the balance sheet since Volt Funding effectively retains control over
the receivables, which are no longer treated as sold assets. Accordingly,
pledged receivables are included as trade accounts receivable, net, while the
corresponding borrowings are included as short-term borrowings on the condensed
consolidated balance sheet.
Primary Casualty Insurance Program - The Company is insured with highly rated
insurance companies under a program that provides primary workers' compensation,
employer's liability, general liability and automobile liability insurance under
a loss sensitive program. In certain mandated states, the Company purchases
workers' compensation insurance through participation in state funds, and the
experience-rated premiums in these state plans relieve the Company of any
additional liability. In the loss sensitive program, initial premium accruals
are established based upon the underlying exposure, such as the amount and type
of labor utilized, number of vehicles, etc. The Company establishes accruals
utilizing actuarial methods to estimate the future cash payments that will be
made to satisfy the claims, including an allowance for incurred-but-not-reported
claims. This process also includes establishing loss development factors, based
on the historical claims experience of the Company and the industry, and
applying those factors to current claims information to derive an estimate of
the Company's ultimate premium liability. In preparing the estimates, the
Company considers the nature and severity of the claims, analyses provided by
third-party actuaries, as well as current legal, economic and regulatory
factors. The insurance policies have various premium rating plans that establish
the ultimate premium to be paid. Adjustments to premiums are based upon the
level of claims incurred at a future date up to three years after the end of the
respective policy year. For each policy year, management evaluates the accrual
and the underlying assumptions, regularly throughout the year and makes
adjustments as needed. The ultimate premium cost may be greater or less than the
established accrual. While management believes that the recorded amounts are
adequate, there can be no assurances that changes to management's estimates will
not occur due to limitations inherent in the estimation process. In the event it
is determined that a smaller or larger accrual is appropriate, the Company would
record a credit or a charge to cost of services in the period in which such
determination is made.
-64-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Critical Accounting Policies--Continued
- ----------------------------
Medical Insurance Program - The Company is self-insured for the majority of its
medical benefit programs. The Company remains insured for a portion of its
medical program (primarily HMOs) as well as the entire dental program. The
Company provides the self-insured medical benefits through an arrangement with a
third-party administrator. However, the liability for the self-insured benefits
is limited by the purchase of stop loss insurance. The contributed and withheld
funds and related liabilities for the self-insured program together with unpaid
premiums for the insured programs are held in a 501(c)9 employee welfare benefit
trust. These amounts, other than the current provisions, do not appear on the
balance sheet of the Company. In order to establish the self-insurance reserves,
the Company utilized actuarial estimates of expected losses based on statistical
analyses of historical data. The provision for future payments is initially
adjusted by the enrollment levels in the various plans. Periodically, the
resulting liabilities are monitored and adjusted as warranted by changing
circumstances. Should the amount of claims occurring exceed what was estimated
or medical costs increase beyond what was expected, liabilities might not be
sufficient, and additional expense may be recorded by the Company.
Legal Contingencies - The Company is subject to certain legal proceedings, as
well as demands, claims and threatened litigation that arise in the normal
course of the Company's business. A quarterly review is performed of each
significant matter to assess any potential financial exposure. If the potential
loss from any claim or legal proceeding is considered probable and the amount
can be reasonably estimated, a liability and an expense are recorded for the
estimated loss. Significant judgment is required in both the determination of
probability and the determination of whether an exposure is reasonably
estimable. Any accruals are based on the best information available at the time.
As additional information becomes available, a reassessment is performed of the
potential liability related to any pending claims and litigation and may revise
the Company's estimates. Potential legal liabilities and the revision of
estimates of potential legal liabilities could have a material adverse impact on
the Company's results of operations.
New Accounting Pronouncements to be Effective in Fiscal 2008
- ------------------------------------------------------------
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This
statement defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. The statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within that fiscal year. The Company is
currently evaluating the impact of adopting this statement.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FAS 115."
This statement permits entities to choose to measure many financial instruments
and certain other items at fair value. This statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007, including
interim periods within that fiscal year. The Company is currently evaluating the
impact of adopting this statement.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations." This statement amends the requirements for an acquirer's
recognition and measurement of the assets acquired and the liabilities assumed
in a business combination. This statement is effective for financial statements
issued for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2008 and should be applied prospectively for all
business combinations entered into after the adoption date. The impact of
adopting this statement is not material.
-65-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
New Accounting Pronouncements to be Effective in Fiscal 2008--Continued
- -----------------------------------------------------------------------
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB NO. 51." This statement
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. This statement is
effective for financial statements issued for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2008. The Company is
currently evaluating the impact of adopting this statement.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No. 133."
This statement requires enhanced disclosures about an entity's derivative and
hedging activities by explaining how and why derivatives are used by the entity,
how they are accounted for under Statement 133, and how derivatives affect the
entity's various financial statements. This statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early adoption encouraged.
In April 2008, the FASB issued FASB Staff Position ("FSP") No. 142-3,
"Determination of the Useful Life of Intangible Assets." This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, "Goodwill and Other Intangible Assets." This statement is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is prohibited. The
Company is currently evaluating the impact of adopting this statement.
Related Party Transactions
- --------------------------
During fiscal 2008, 2007 and 2006, the Company paid or accrued $1.7 million,
$1.6 million and $0.9 million, respectively, to the law firms of which Lloyd
Frank, a director of the Company, is and was of counsel, for services rendered
to the Company and expenses reimbursed. In addition, during fiscal 2008 the
Company paid $34,200 to Michael Shaw, Ph. D., a brother of Steven Shaw, the
Chief Executive Officer and director, for services rendered to the Company.
In October 2006, the Company purchased 300,000 shares of common stock from the
Estate of William Shaw, the former CEO, at a price of $26.50 per share, for a
total of $7,950,000. The funds were transferred in November 2006. The shares
were purchased at a price below the price at which the Company's common stock
was then being traded on the New York Stock Exchange (the low trade for the day
was $26.63 and the high trade was $27.23). The decision to make the purchase was
made by the Board of Directors which delegated the negotiation of the price to
senior management of the Company.
In fiscal 2006, the Company advanced $162,400 directly to the attorneys for Mr.
Thomas Daley, an executive officer of the Company. In 2006, the Company also
paid $336,100 for legal fees of the independent counsel to the Audit Committee
of the Board of Directors of the Company.
From time-to-time the Company has employed, and will continue to employ,
relatives of executive officers, as well as relatives of other full time
employees for amounts less than specified in Item 404 of Regulation S-K. The
Company believes that it has always employed, and will continue to employ, those
individuals on the same terms that it employs unrelated individuals.
-66-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential economic loss that may result from adverse changes
in the fair value of financial instruments. The Company`s earnings, cash flows
and financial position are exposed to market risks relating to fluctuations in
interest rates and foreign currency exchange rates. At November 2, 2008, the
Company had cash and cash equivalents on which interest income is earned at
variable rates. At November 2, 2008, the Company also had credit lines with
various domestic and foreign banks, which provide for borrowings and letters of
credit, as well as a $200 million accounts receivable securitization program to
provide the Company with additional liquidity to meet its short-term financing
needs.
The interest rates on these borrowings and financing are variable and,
therefore, interest and other expense and interest income are affected by the
general level of U.S. and foreign interest rates. Based upon the current levels
of cash invested, notes payable to banks and utilization of the securitization
program, on a short-term basis, as noted below in the tables, a hypothetical
100-basis-point (1%) increase or decrease in interest rates would increase or
decrease its annual net interest expense by $0.6 million, respectively.
The Company has a term loan, as noted in the table below, which consists of
borrowings at fixed interest rates, and the Company's interest expense related
to these borrowings is not affected by changes in interest rates in the near
term. The fair value of the fixed rate term loan was approximately $13.2 million
at November 2, 2008. This fair value was calculated by applying the appropriate
fiscal year-end interest rate to the Company's present stream of loan payments.
The Company holds short-term investments in mutual funds for the Company's
deferred compensation plan. At November 2, 2008, the total market value of these
investments was $4.2 million, all of which are being held for the benefit of
participants in a non-qualified deferred compensation plan with no risk to the
Company.
The Company has a number of overseas subsidiaries and is, therefore, subject to
exposure from the risk of currency fluctuations as the value of foreign
currencies fluctuates against the dollar, which may impact reported earnings. As
of November 2, 2008, the total of the Company's net investment in foreign
operations was $10.2 million. The Company attempts to reduce these risks by
utilizing foreign currency option and exchange contracts, as well as borrowing
in foreign currencies, to hedge the adverse impact on foreign currency net
assets when the dollar strengthens against the related foreign currency. As of
November 2, 2008, the Company had no outstanding exchange contracts. The amount
of risk and the use of foreign exchange instruments described above are not
material to the Company's financial position or results of operations and the
Company does not use these instruments for trading or other speculative
purposes. Based upon the current levels of net foreign assets, a hypothetical
weakening of the U.S. dollar against these currencies at November 2, 2008 by 10%
would result in a pretax gain of $1.0 million related to these positions.
Similarly, a hypothetical strengthening of the U.S. dollar against these
currencies at November 2, 2008 by 10% would result in a pretax loss of $1.0
million related to these positions.
The tables below provide information about the Company's financial instruments
that are sensitive to either interest rates or exchange rates at November 2,
2008. For cash and debt obligations, the table presents principal cash flows and
related weighted average interest rates by expected maturity dates. The
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency.
-67-
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK--Continued
Interest Rate Market Risk Payments Due By Period as of November 2, 2008
- ------------------------- ---------------------------------------------
Less than 1-3 3-5 After 5
Total 1 Year Years Years Years
------ ------- ------ ------ -----
(Dollars in thousands of US$)
Cash and Cash Equivalents and Restricted Cash
- ---------------------------------------------
Money Market and Cash Accounts $169,510 $169,510
Weighted Average Interest Rate 2.39% 2.39%
-------- --------
Total Cash, Cash Equivalents, and
Restricted Cash $169,510 $169,510
======== ========
Debt
- ----
Term Loan $ 12,316 $ 554 $ 1,253 $1,476 $ 9,033
Interest Rate 8.2% 8.2% 8.2% 8.2% 8.2%
Note Payable 450 130 188 132
Interest Rate 5.0% 5.0% 5.0% 5.0%
------- -------- ------- ------- -------
Total Long Term Debt $ 12,766 $ 684 $ 1,441 $1,608 $ 9,033
======== ======== ======= ====== =======
Short-term Borrowings $107,532 $107,532
Weighted Average Interest Rate 4.89% 4.89%
-------- --------
Total Debt $120,298 $108,216 $1,441 $1,608 $9,033
======== ======== ====== ====== ======
-68-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ERNST & YOUNG LLP
5 Times Square
New York, New York 10036
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Volt Information Sciences, Inc.
We have audited the accompanying consolidated balance sheets of Volt Information
Sciences, Inc. and subsidiaries as of November 2, 2008 and October 28, 2007, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended November 2, 2008. Our
audits also included the financial statement schedule listed in the Index at
Item 15(a)(2). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Volt Information
Sciences, Inc. and subsidiaries at November 2, 2008 and October 28, 2007, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended November 2, 2008 in conformity with U.S.
generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the Company
adopted FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes -
an Interpretation of FASB Statement 109" effective October 29, 2007.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Volt Information Sciences, Inc. and
subsidiaries' internal control over financial reporting as of November 2, 2008
based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 2, 2009 expressed an adverse opinion thereon.
/s/ ERNST & YOUNG
New York, New York
February 2, 2009
-69-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 2, October 28,
2008 2007
--------- --------
ASSETS (Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $120,929 $40,343
Restricted cash 48,581 25,482
Short-term investments 4,178 5,624
Trade accounts receivable, net of allowances of $5,328 (2008) and $3,749 (2007) 488,482 392,970
Inventories, net of allowances of $4,145 (2008) and $4,230 (2007) 29,025 54,414
Assets held for sale - 35,263
Deferred income taxes 9,685 9,629
Prepaid insurance and other assets 36,684 37,205
--------- --------
TOTAL CURRENT ASSETS 737,564 600,930
Property, plant and equipment, net 68,173 72,250
Prepaid insurance and other assets 1,276 6,604
Deferred income taxes 17,081 8,125
Goodwill 57,481 98,715
Other intangible assets, net 44,204 53,527
---------- ----------
TOTAL ASSETS $925,779 $840,151
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings, including current portion of long-term debt $108,216 $84,621
Accounts payable 215,265 212,355
Liabilities related to assets held for sale - 20,769
Accrued wages and commissions 50,918 62,777
Accrued taxes other than income taxes 22,227 22,276
Accrued insurance and other accruals 33,327 32,582
Deferred income and other liabilities 14,183 17,029
Income taxes payable 55,569 4,822
--------- ---------
TOTAL CURRENT LIABILITIES 499,705 457,231
Long-term debt, excluding current portion 12,082 12,316
Deferred income 3,360 -
Income taxes payable 937 -
Deferred income taxes 14,551 18,025
Minority interest 2,010 43
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00; Authorized--500,000 shares; issued--none
Common stock, par value $.10; Authorized 120,000,000 shares; issued
--23,498,103 shares (2008) and 23,480,103 shares (2007) 2,350 2,348
Paid-in capital 51,006 50,740
Retained earnings 381,832 319,688
Accumulated other comprehensive (loss) income (400) 2,660
----------- ----------
434,788 375,436
Less treasury stock--2,655,297 shares (2008) and 1,048,966 shares (2007), at cost (41,654) (22,900)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 393,134 352,536
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $925,779 $840,151
======== ========
See Notes to Consolidated Financial Statements
-70-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
November 2, October 28, October 29,
2008 2007 2006
----------- ----------- -----------
(In thousands, except per share data)
NET SALES $ 2,427,318 $ 2,285,061 $ 2,270,232
COSTS AND EXPENSES:
Cost of sales 2,290,183 2,108,261 2,112,442
Impairment and restructuring costs 47,904 -- --
Selling and administrative 91,243 89,045 83,434
Depreciation and amortization 38,636 37,067 33,730
----------- ----------- -----------
2,467,966 2,234,373 2,229,606
----------- ----------- -----------
OPERATING (LOSS) PROFIT (40,648) 50,688 40,626
OTHER INCOME (EXPENSE):
Interest income 4,842 6,256 3,185
Other expense, net (3,994) (7,146) (7,489)
Foreign exchange gain (loss), net 1,155 (421) (505)
Interest expense (7,624) (3,612) (1,819)
----------- ----------- -----------
(Loss) income from continuing operations before minority interest
and income taxes (46,269) 45,765 33,998
Minority interest 102 6 (1,021)
----------- ----------- -----------
(Loss) income from continuing operations before income taxes (46,167) 45,771 32,977
Income tax benefit (provision) 11,896 (16,229) (12,903)
----------- ----------- -----------
(Loss) income from continuing operations (34,271) 29,542 20,074
Discontinued operations, net of taxes 98,485 9,790 10,576
----------- ----------- -----------
NET INCOME $ 64,214 $ 39,332 $ 30,650
=========== =========== ===========
Per Share Data
-------------------------------------------------
Basic:
(Loss) income from continuing operations ($1.56) $1.29 $0.86
Discontinued operations 4.48 0.42 0.46
------ ------ ------
Net income per share $2.92 $1.71 $1.32
====== ====== ======
Diluted:
(Loss) income from continuing operations below ($1.56) $1.29 $0.86
Discontinued operations 4.48 0.42 0.45
------ ------- ------
Net income per share $2.92 $1.71 $1.31
====== ====== ======
Weighted average number of shares outstanding-basic 21,982 22,935 23,227
====== ====== ======
Weighted average number of shares outstanding-diluted 21,982 22,985 23,388
====== ====== ======
See Notes to Consolidated Financial Statements.
-71-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (LOSS)
Accumulated Other
Comprehensive Income (Loss)
--------------------------------
Common Stock Foreign Unrealized Gain
$.10 Par Value Currency (Loss) On
-------------------- Paid-In Retained Treasury Translation Marketable Comprehensive
Shares Amount Capital Earnings Stock Adjustment Securities Income (Loss)
---------- ------- ------- -------- ----- ---------- ---------- -------------
(Dollars in thousands)
Balance at October 30, 2005 23,008,882 $2,301 $42,912 $249,754 - ($28) $61
Stock options exercised -
including a tax benefit of
$1,912 448,092 45 7,217
Compensation expense - stock
options 74
Purchase of common stock for
treasury ($7,950)
Unrealized foreign currency
translation adjustment - net of
taxes of $94 220 $220
Unrealized loss on marketable
securities - net of taxes of $6 (8) (8)
Net income for the year 30,650 30,650
---------- ------ ------- -------- --------- ------ ----- -------
Balance at October 29, 2006 23,456,974 2,346 50,203 280,404 (7,950) 192 53 $30,862
=======
Stock options exercised -
including a tax benefit of $230 23,625 2 572
Compensation expense - stock
options 47
Purchase of common stock for
treasury (15,029)
Cash paid in lieu of fractional
shares (496) (18)
Issuance of restricted stock (79) 79
Amortization of restricted stock 15
Unrealized foreign currency
translation adjustment - net of
taxes of $1,020 2,379 $2,379
Unrealized gain on marketable
securities - net of taxes of $25 36 36
Change in fair value of minority
interest (48) (48)
Net income for the year 39,332 39,332
---------- ------ ------- -------- --------- ------ ----- -------
Balance at October 28, 2007 23,480,103 2,348 50,740 319,688 (22,900) 2,571 89 $41,699
=======
Stock options exercised -
including a tax benefit of $51 18,000 2 215
Compensation expense - stock
options 24
Purchase of common stock for
treasury (18,754)
Amortization of restricted stock 27
Unrealized foreign currency
translation adjustment - net of
taxes of $1,263 (2,948) ($2,948)
Unrealized loss on marketable
securities - net of taxes of $76 (112) (112)
Change in fair value of minority
interest (2,070) (2,070)
Net income for the year 64,214 64,214
---------- ------ ------- -------- --------- ------ ----- -------
Balance at November 2, 2008 23,498,103 $2,350 $51,006 $381,832 ($41,654) ($377) ($23) $59,084
========== ====== ======= ======== ========= ====== ===== =======
There were no shares of preferred stock issued or outstanding in any of the
reported periods.
See Notes to Consolidated Financial Statements.
-72-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
---------------------------------------------
November 2, October 28, October 29,
2008 2007 2006
--------- --------- ---------
(In thousands)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income $ 64,214 $ 39,332 $ 30,650
Discontinued operations, net of taxes (98,485) (9,790) (10,576)
--------- --------- ---------
Net (loss) income continuing operations (34,271) 29,542 20,074
Adjustments to reconcile net income to cash provided by operating
activities
Depreciation and amortization 38,636 37,067 33,730
Impairment of goodwill 46,400 -- --
Accounts receivable provisions 4,634 393 2,671
Minority interest (102) (6) 1,021
(Gain) loss on foreign currency translation (329) 76 20
Impairment charge - property, plant and equipment 809 -- --
Loss on dispositions of property, plant and equipment 53 25 342
Deferred income tax benefit (12,320) (7,718) (4,345)
Share-based compensation expense related to employee stock options 51 62 74
Excess tax benefits from share-based compensation (12) (110) (194)
Changes in operating assets and liabilities, net of assets acquired:
Accounts receivable 20,435 (28,109) 5,401
(Reduction) increase in securitization of accounts receivable (120,000) 10,000 10,000
Inventories 25,290 (32,222) 4,233
Prepaid insurance and other current assets 5,568 (6,252) (16,906)
Insurance and other long-term assets 118 65 (61)
Accounts payable (21,416) 26,222 12,239
Accrued expenses (7,703) 2,646 (344)
Deferred income and other liabilities (98) 4,911 (1,060)
Income taxes (14,934) 1,605 2,451
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (69,191) 38,197 69,346
--------- --------- ---------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Sales of investments 1,661 6,357 1,296
Purchases of investments (2,026) (6,931) (1,491)
(Increase) decrease in restricted cash (23,099) 5,231 (4,582)
Increase (decrease) in payables related to restricted cash 23,099 (5,231) 4,582
Acquisitions, net (1,074) (71,176) (83,503)
Proceeds from disposals of property, plant and equipment, net (315) 355 1,378
Purchases of property, plant and equipment (26,804) (30,579) (22,120)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (28,558) (101,974) (104,440)
--------- --------- ---------
-73-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
Year Ended
--------------------------------------------
November 2, October 28, October 29,
2008 2007 2006
--------- --------- ---------
(In thousands)
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
Payment of long-term debt (586) (471) (2,433)
Cash paid in lieu of fractional shares -- (18) --
Exercises of stock options 166 344 5,335
Excess tax benefits from share-based compensation 12 110 194
Purchase of treasury shares (18,754) (22,979) --
Payment of short term borrowings (194,859) (271,289) (71,969)
Proceeds from short term borrowings 218,267 350,457 69,813
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,246 56,154 940
--------- --------- ---------
Effect of exchange rate changes on cash (4,253) (284) (214)
--------- --------- ---------
CASH FLOWS FROM DISCONTINUED OPERATIONS
Operating activities from discontinued operations 7,044 10,878 11,136
Investing activities from discontinued operations 171,298 (1,054) (274)
--------- --------- ---------
CASH PROVIDED BY DISCONTINUED OPERATIONS 178,342 9,824 10,862
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM CONTINUING
OPERATIONS 80,586 1,917 (23,506)
Cash and cash equivalents, beginning of year 40,343 38,399 61,873
(Increase) decrease in discontinued operations cash
-- 27 32
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 120,929 $ 40,343 $ 38,399
========= ========= =========
SUPPLEMENTAL INFORMATION
Cash paid during the year:
Interest expense $ 8,019 $ 3,278 $ 1,788
Income taxes $ 17,573 $ 29,566 $ 22,090
Non-cash financing activities:
Tendered common stock for stock option exercises $ 1,216
See Notes to Consolidated Financial Statements.
-74-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--Summary of Significant Accounting Policies
Business: The Company operates in two major businesses, Staffing Services and
Telecommunications and Information Solutions, consisting of four operating
segments: Staffing Services; Computer Systems; Telecommunications Services and
Printing and Other.
Fiscal Year: The Company's fiscal year ends on the Sunday nearest October 31.
The 2006 through 2007 fiscal years each consisted of 52 weeks and the 2008
fiscal year consisted of 53 weeks.
Consolidation: The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany transactions have
been eliminated upon consolidation.
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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: Effective October 31, 2005, the Company adopted the
fair-value recognition provisions of Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 123R "Share
Based Payment," and the Securities and Exchange Commission Staff Accounting
Bulletin No. 107 using the modified-prospective transition method; therefore,
prior periods have not been restated. Compensation cost recognized for the three
years ended November 2, 2008 includes compensation cost for all share-based
payments granted prior to, but not yet vested as of, October 31, 2005, based on
the grant date fair value estimated in accordance with the original provisions
of SFAS No. 123.
Revenue Recognition: The Company derives its revenues from several sources. The
revenue recognition methods, which are consistent with those prescribed in Staff
Accounting Bulletin 104 ("SAB 104"), "Revenue Recognition in Financial
Statements," are described below in more detail for the significant types of
revenue within each segment. Revenue is generally recognized when persuasive
evidence of an arrangement exists, we have delivered the product or performed
the service, the fee is fixed and determinable and collectability is probable.
The determination of whether and when some of the criteria below have been
satisfied sometimes involves assumptions and judgments that can have a
significant impact on the timing and amount of revenue we report.
Staffing Services:
Staffing: Sales are derived from the Company's Staffing Solutions Group
supplying its own temporary personnel to its customers, for which the
Company assumes the risk of acceptability of its employees to its
customers, and has credit risk for collecting its billings after it has
paid its employees. The Company reflects revenues for these services on a
gross basis in the period the services are rendered. In fiscal 2008, this
revenue comprised approximately 76% of the Company's net consolidated
sales.
-75-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--Summary of Significant Accounting Policies--Continued
Revenue Recognition:--Continued
- --------------------
Managed Services: Sales are generated by the Company's E-Procurement
Solutions subsidiary, ProcureStaff, for which the Company receives an
administrative fee for arranging for, billing for and collecting the
billings related to staffing companies ("associate vendors") who have
supplied personnel to the Company's customers. The administrative fee is
either charged to the customer or subtracted from the Company's payment to
the associate vendor. The customer is typically responsible for assessing
the work of the associate vendor, and has responsibility for the
acceptability of its personnel, and in most instances the customer and
associate vendor have agreed that the Company does not pay the associate
vendor until the customer pays the Company. Based upon the revenue
recognition principles prescribed in Emerging Issues Task Force ("EITF")
99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent,"
revenue for these services, where the customer and the associate vendor
have agreed that the Company is not at risk for payment, is recognized net
of associated costs in the period the services are rendered. In addition,
sales for certain contracts generated by the Company's Staffing Solutions
Group's managed services operations have similar attributes. In fiscal
2008, this revenue comprised approximately 2% of the Company's net
consolidated sales.
Outsourced Projects: Sales are derived from the Company's Information
Technology Solutions operation providing outsource services for a customer
in the form of project work, for which the Company is responsible for
deliverables, in accordance with the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 81-1, "Accounting for
Performance of Construction-Type Contracts." The Company's employees
perform the services and the Company has credit risk for collecting its
billings. Revenue for these services is recognized on a gross basis in the
period the services are rendered when on a time and material basis, and
when the Company is responsible for project completion, revenue is
recognized when the project is complete and the customer has approved the
work. In fiscal 2008, this revenue comprised approximately 6% of the
Company's net consolidated sales.
Telecommunications Services:
Construction: Sales are derived from the Company supplying construction
services. The Company's employees perform the services, and the Company
takes title to all inventory, and has credit risk for collecting its
billings. The Company relies upon the principles in SOP 81-1, using the
completed-contract method, to recognize revenue on a gross basis upon
customer acceptance of the project or by the percentage-of-completion
method, when applicable. When using the percentage-of-completion method,
revenue is recognized based on the extent of progress towards completion of
the contract. For those contracts in which the customers approve the
progress of work, the extent of progress towards completion is measured
based on the ratio of revenue approved-to-date to the total estimated
revenue at completion of the job. For those contracts in which the
customers do not approve the progress of the work, the extent of progress
towards completion is measured based on the ratio of direct labor
incurred-to-date to the total estimated direct labor at completion of the
contract. In fiscal 2008, this revenue comprised approximately 5% of the
Company's net consolidated sales.
Non-Construction: Sales are derived from the Company performing design,
engineering and business systems integrations work. The Company's employees
perform the services and the Company has credit risk for collecting its
billings. Revenue for these services is recognized on a gross basis in the
period in which services are performed, and, if applicable, any completed
units are delivered and accepted by the customer. In fiscal 2008, this
revenue comprised approximately 2% of the Company's net consolidated sales.
-76-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--Summary of Significant Accounting Policies--Continued
Revenue Recognition:--Continued
- --------------------
Computer Systems:
Database Access: Sales are derived from the Company granting access to its
proprietary telephone listing databases to telephone companies,
inter-exchange carriers and non-telco enterprise customers. The Company
uses its own databases and has credit risk for collecting its billings. The
Company recognizes revenue on a gross basis in the period in which the
customers access the Company's databases. In fiscal 2008, this revenue
comprised approximately 3% of the Company's net consolidated sales.
IT Maintenance: Sales are derived from the Company providing hardware
maintenance services to the general business community, including customers
who have our systems, on a time and material basis or a contract basis. The
Company uses its own employees and inventory in the performance of the
services, and has credit risk for collecting its billings. Revenue for
these services is recognized on a gross basis in the period in which the
services are performed, contingent upon customer acceptance when on a time
and material basis, or over the life of the contract, as applicable. In
fiscal 2007,2008, this revenue comprised approximately 2% of the Company's net
consolidated sales.
Telephone Systems: Sales are derived from the Company providing telephone
operator services-related systems and enhancements to existing systems,
equipment and software to customers. The Company uses its own employees and
has credit risk for collecting its billings. The Company relies upon the
principles in SOP 97-2 "Software Revenue Recognition" and EITF 00-21,
"Revenue Arrangements with Multiple Deliverables" to recognize revenue on a
gross basis upon customer acceptance of each part of the system based upon
its fair value or by the use of the percentage-of-completion method, when
applicable. In fiscal 2007,2008, this revenue comprised approximately 4%3% of the
Company's net consolidated sales.
Printing and Other:
Printing: Sales are derived from the Company's sales of printing services
in Uruguay. The Company's employees perform the services and the Company
has credit risk for collecting its billings. Revenue for these services is
recognized on a gross basis in the period the printed documents have been
delivered. In fiscal 2008, this revenue comprised less than 1% of the
Company's net consolidated sales.
Other: Sales are derived from the Company's sales of telephone directory
advertising for books it publishes as an independent publisher in Uruguay.
The Company's employees perform the services and the Company has credit
risk for collecting its billings. Revenue for these services is recognized
on a gross basis in the period the books are printed and delivered. In
fiscal 2008, this revenue comprised approximately 1% of the Company's net
consolidated sales.
For those contracts accounted for under SOP No. 81-1, the Company records provisions
for estimated losses on contracts when losses become evident.
Accumulated unbilled costs on contracts are carried in inventory at the lower of
actual cost or estimated realizable value.
-77-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--Summary of Significant Accounting Policies--Continued
Cash Equivalents: Cash equivalents consist of investments in short-term, highly
liquid securities having an original maturity of three months or less.
-68-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--Summary of Significant Accounting Policies--Continued
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: Accumulated unbilled costs on contracts related to performing
services are carried at the lower of actual cost or realizable value.
Goodwill and Indefinite-Lived Intangible Assets: Under Statement of Financial
Accounting Standards ("SFAS")SFAS No. 142, "Goodwill
and Other Intangible Assets," goodwill and indefinite-lived intangible assets
are subject to annual impairment testing using fair value methodologies.methodologies, which
compare the fair value of each reporting unit to its carrying value. The Company
performs its annual impairment testing during its second fiscal quarter, or more
frequently if indicators of impairment arise. The timing of the impairment test
may result in charges to earnings in the second fiscala quarter that could not have been
reasonably foreseen in prior periods. The testing process includesCompany generally determines the comparisonfair
value of a reporting unit using the Company'sincome approach, which is based on the
present value of estimated future cash flows, or the market approach, which
compares the business units'unit's multiples of sales and EBITDA to those multiples
its competitors. If the carrying value of the reporting unit's net assets
including goodwill exceeds the fair value of the reporting unit, then the
Company performs step two of the impairment test which allocates the fair value
of the reporting unit's assets and liabilities in a manner similar to a purchase
price allocation, with any residual fair value being allocated to goodwill. If
the carrying value of a reporting unit's goodwill exceeds its business units' competitors. Although itimplied fair
value, then an impairment of goodwill has occurred for such amount, and is
believed thereported as a component of operating income. If these estimates or their related
assumptions and estimates madeused in the past have been reasonable and appropriate,
different assumptions and estimates could materially impact financial results.impairment test change in the future as a result of
changes in strategy and/or market conditions, the Company may be required to
record an impairment charge in the future.
Long-Lived Assets: Property, plant and equipment are recorded at cost, and
depreciation and amortization are provided on the straight-line or accelerated
methods at rates calculated to allocate the cost of the assets over their period
of use. Intangible assets, other than goodwill and indefinite-lived intangible
assets, and property, plant and equipment are reviewed for impairment in
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." Under SFAS No. 144, these assets are tested for
recoverability whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable. Circumstances which could trigger a
review include, but are not limited to: significant decreases in the market
price of the asset; significant adverse changes in the business climate or legal
factors; the accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of the asset; current
period cash flow or operating losses combined with a history of losses or a
forecast of continuing losses associated with the use of the asset; and a
current expectation that the asset will more likely than not be sold or disposed
of significantly before the end of its estimated useful life. Recoverability is
assessed based on the carrying amount of the asset and the sum of the
undiscounted cash flows expected to result from the use and the eventual
disposal of the asset or asset group. An impairment loss is recognized when the
carrying amount exceeds the estimated fair value of the asset or asset group.
The impairment loss is measured as the amount by which the carrying amount
exceeds fair value.
-69--78-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--Summary of Significant Accounting Policies--Continued
The weighted-average amortization period for other intangible assets in fiscal
2008, 2007 2006 and 20052006 was 8 years, 8 years and 15 years, respectively.years.
Fully depreciated assets are retained in property, plant and equipment and the
related accumulated depreciation accounts until they are removed from service.
In the case of disposals, assets and related depreciation are removed from the
accounts, and the net amounts less any proceeds from disposal, are included in
the statement of operations. Maintenance and repairs are expensed as incurred.
Property, plant and equipment is 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 the asset,
whichever is shorter
Software 3 to 7 years
Property, plant and equipment consisted of: October 28, October 29,
2007 2006
------------------- -------------------
(In thousands)
Land and buildings $25,142 $23,379
Machinery and equipment 154,019 138,122
Leasehold improvements 14,118 12,523
Software 84,220 76,487
------------------- -------------------
277,499 250,511
Less allowances for depreciation and amortization (202,790) (176,376)
------------------- -------------------
$74,709 $74,135
=================== ===================
Property, plant and equipment consisted of: November 2, October 28,
2008 2007
--------- ---------
(In thousands)
Land and buildings $ 25,393 $ 25,142
Machinery and equipment 160,930 154,020
Leasehold improvements 13,861 12,968
Software 87,375 79,854
--------- ---------
287,559 271,984
Less allowances for depreciation and amortization (219,386) (199,734)
--------- ---------
$ 68,173 $ 72,250
========= =========
A term loan is secured by a deed of trust on land and buildings with a carrying
amount at November 2, 2008 of $9.7 million. Unamortized capitalized software
costs were $15.5 million and $13.9 million at November 2, 2008 and October 28,
2007 of $10.2 million.2008, respectively.
Primary Casualty Insurance Program: The Company is insured with a highly rated
insurance company under a program that provides primary workers' compensation,
employer's liability, general liability and automobile liability insurance under
a loss sensitive program. In certain mandated states, the Company purchases
workers' compensation insurance through participation in state funds, and the
experience-rated premiums in these state plans relieve the Company of any
additional liability. In the loss sensitive program, initial premium accruals
are established based upon the underlying exposure, such as the amount and type
of labor utilized, number of vehicles, etc. The Company establishes accruals
utilizing actuarial methods to estimate the future cash payments that will be
made to satisfy the claims, including an allowance for incurred-but-not-reported
claims. This process also includes establishing loss development factors, based
on the historical claims experience of the Company and the industry, and
applying those factors to current claims information to derive an estimate of
the Company's ultimate premium liability. In preparing the estimates, the
Company considers the nature and severity of the claims, analyses provided by
third partythird-party actuaries, as well as current legal, economic and regulatory
factors. The insurance policies have various premium rating plans that establish
the ultimate premium to be paid. Adjustments to premiums are made based upon the
level of claims incurred at a future date up to three years after the end of the
respective policy period. For each policy year, management evaluates the
accrual, and the underlying assumptions, regularly throughout the year and makes
adjustments as needed. The ultimate premium cost may be greater or less than the
established accrual. -70-While management believes that the
-79-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--Summary of Significant Accounting Policies--Continued
Primary Insurance Casualty Program:--Continued
While management believes that the- -----------------------------------
recorded amounts are adequate, there can be no assurances that changes to
management's estimates will not occur due to limitations inherent in the
estimation process. In the event it is determined that a smaller or larger
accrual is appropriate, the Company would record a credit or a charge to cost of
sales in the period in which such determination is made.
At October 28, 2007,November 2, 2008, the Company's net prepaid for the outstanding policy years
was $26.0$23.1 million compared to $18.9$26.0 million at October 29, 2006.28, 2007.
Medical Insurance Program: The Company is self-insured for the majority of its
medical benefit programs. The Company remains insured for a portion of its
medical program (primarily HMOs) as well as the entire dental program. The
Company provides the self-insured medical benefits through an arrangement with a
third partythird-party administrator. However, the liability for the self-insured benefits
is limited by the purchase of stop loss insurance. The contributed and withheld
funds and related liabilities for the self-insured program together with unpaid
premiums for the insured programs are held in a 501(c)9 employee welfare benefit
trust. These amounts, other than the current provisions, do not appear on the
balance sheet of the Company. In order to establish the self-insurance reserves,
the Company utilized actuarial estimates of expected losses based on statistical
analyses of historical data. The provision for future payments is initially
adjusted by the enrollment levels in the various plans. Periodically, the
resulting liabilities are monitored and adjusted as warranted by changing
circumstances. Should the amount of claims occurring exceed what was estimated
or medical costs increase beyond what was expected, liabilities might not be
sufficient, and additional expense may be recorded by the Company.
Capitalized Software: The Company's software technology personnel are involved
in the development and acquisition of internal-use software to be used in its
Enterprise Resource Planning system and software used in its operating segments,
some of which are customer accessible. The Company accounts for the
capitalization of software in accordance with SOP No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." Subsequent
to the preliminary project planning and approval stage, all appropriate costs
are capitalized until the point at which the software is ready for its intended
use. Subsequent to the software being used in operations, the capitalized costs
are transferred from costs-in-process to completed property, plant and
equipment, and are accounted for as such. All post-implementation costs, such as
maintenance, training and minor upgrades that do not result in additional
functionality, are expensed as incurred. The capitalization process involves
judgment as to what types of projects and tasks are capitalizable.
AlthoughSecuritization Program: On June 3, 2008, the Company's $200.0 million accounts
receivable securitization program (the "Expiring Securitization Program") was
transferred to a multi-buyer program administered by PNC Bank. Prior to that
date, under the Expiring Securitization Program, receivables were sold from
time-to-time by the Company believesto Volt Funding Corp., a wholly-owned special
purpose subsidiary of the decisions madeCompany ("Volt Funding"). Volt Funding, in turn, sold
to Three Rivers Funding Corporation ("TRFCO"), an asset backed commercial paper
conduit sponsored by Mellon Bank, N.A. and unaffiliated with the Company, an
undivided percentage ownership interest in the past concerningpool of receivables Volt Funding
acquired from the accounting
treatment of these software costs have been reasonable and appropriate,
different decisions could materially impact financial results.
-71-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--Summary of Significant Accounting Policies--Continued
Securitization Program:Company. The Company accountsaccounted for the securitization of
accounts receivable in accordance with SFAS No. 156, "Accounting for Transfers
and Servicing of Financial Assets, an amendment of SFAS No. 140."140" ("SFAS 156").
-80-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--Summary of Significant Accounting Policies--Continued
Under the amended program, the receivables and related borrowings remain on the
balance sheet since Volt Funding effectively retains control over the
receivables, which are no longer treated as sold assets. These amounts recorded
approximate fair value. Accordingly, pledged receivables of $50.0 million are
included as trade accounts receivable, net, while the corresponding borrowings
are included as short-term borrowings on the condensed consolidated balance
sheet. At November 2, 2008, Volt Funding had borrowed $31.2 million and $18.8
million from Market Street Funding and Relationship Funding, respectively.
Under the Expiring Securitization Program, at the time a participation interest
in the receivables iswas sold, the receivable representing that interest iswas
removed from the condensed consolidated balance sheet.sheet (no debt was recorded) and
the proceeds from the sale were reflected as cash provided by operating
activities. The outstanding balance of the undivided interest sold to Three Rivers Funding Corporation ("TRFCO"), an asset backed
commercial paper conduit sponsored by Mellon Bank, N.A,TRFCO was
$120.0 million and
$110.0 million at October 28, 2007 and October 29, 2006, respectively.
Accordingly, the trade receivables included on the October 28, 2007 and October
29, 2006 balance sheets have been reduced to reflect the participation interest
sold. TRFCO has no recourse to the Company (beyond its interest in the pool of
receivables owned by Volt Funding Corp., a wholly-owned special purpose
subsidiary of the Company) for any of the sold receivables.2007.
Income Taxes: Estimates of Effective Tax Rates, Deferred Taxes and Valuation
Allowance - When the financial statements are prepared, the Company estimates
its income taxes based on the various jurisdictions in which its business is
conducted. Significant judgment is required in determining the Company's
worldwide income tax provision. Liabilities for anticipated tax audit issues in
the United States and other tax jurisdictions are based on estimates of whether,
and the extent to which, additional taxes will be due. The recognition of these
provisions for income taxes is recorded in the period in which it is determined
that such taxes are due. If in a later period it is determined that payment of
this additional amount is unnecessary, a reversal of the liability is
recognized. As a result, the ongoing assessments of the probable outcomes of the
audit issues and related tax positions require judgment and can materially
increase or decrease the effective tax rate and materially affect the Company's
operating results. This also requires the Company to estimate its current tax
exposure and to assess temporary differences that result from differing
treatments of certain items for tax and accounting purposes. These differences
result in deferred tax assets and liabilities, which are reflected on the
balance sheet. The Company must then assess the likelihood that its deferred tax
assets will be realized. To the extent it is believedbelieves that realization is not
likely, a valuation allowance is established. When a valuation allowance is
increased or decreased, a corresponding tax expense or benefit is recorded in
the statement of operations.
Effective October 29, 2007, the Company adopted the provisions of FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 prescribes a
recognition threshold and a measurement attribute for the financial statement
recognition and measurement of tax positions taken or expected to be taken in a
tax return. For those benefits to be recognized, a tax position must be
more-likely-than-not to be sustained upon examination by taxing authorities.
There was no material impact on the Company's consolidated financial position
and results of operations as a result of the adoption of the provisions of FIN
48.
Translation of Foreign Currencies: The U.S. dollar is the Company's functional
currency throughout the world, except for certain European and Canadian
subsidiaries. Where the U.S. dollara foreign currency transaction is used asdenominated in a currency
other than the functional currency foreignof the recording entity, adjustments to the
functional 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 foreign
subsidiaries whose functional currency is not the U.S. dollar.
-81-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--Summary of Significant Accounting Policies--Continued
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, if any,
of shares that 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.year.
Comprehensive Income: Comprehensive i ncomeincome 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 mark-to-market adjustments related to held-for-sale securities.
Stock Split: On December 19, 2006, the Company's Board of Directors authorized
and approved a three-for-two stock split in the form of a dividend on the
Company's common stock. Shares of common stock were distributed on January 26,
2007, to all stockholders of record as of January 15, 2007. Any fractional
shares resulting from the dividend were paid in cash. Information pertaining to
shares, earnings per share, common stock and paid-in capital has been adjusted
in the accompanying financial statements and footnotes to reflectgive retroactive
effect to the stock split.
-72-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--Summary of Significant Accounting Policies--Continued
Treasury Stock: In fiscal 2006, the Company began holding repurchased shares of
its common stock as treasury stock. The Company accounts for treasury stock
under the cost method and includes treasury stock as a component of
stockholders' equity. During fiscal 2008, the Company repurchased 1.6 million
shares of its common stock in the open market as treasury stock at a cost of
$18.8 million.
Derivatives and Hedging Activities: 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. The Company enters into
derivative financial instrument contracts only for hedging purposes and accounts
for them in accordance with SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities",Activities," as amended.
New Accounting Pronouncements:
In July 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN 48") which
prescribes a recognition threshold and measurement attribute,Legal Contingencies: The Company is subject to certain legal proceedings, as
well as criteriademands, claims and threatened litigation that arise in the normal
course of the Company's business. A quarterly review is performed of each
significant matter to assess any potential financial exposure. If the potential
loss from any claim or legal proceeding is considered probable and the amount
can be reasonably estimated, a liability and an expense are recorded for subsequently recognizing, derecognizing and measuring uncertain tax
positions for financial statement purposes. FIN 48 also requires expanded
disclosure with respect to the
uncertainty in income taxes assets and
liabilities. FIN 48 is effective for fiscal years beginning after December 15,
2006 andestimated loss. Significant judgment is required to be recognized asin both the determination of
probability and the determination of whether an exposure is reasonably
estimable. Any accruals are based on the best information available at the time.
As additional information becomes available, a change in accounting principle
through a cumulative-effect adjustment to retained earnings asreassessment is performed of the
beginningpotential liability related to any pending claims and litigation and may revise
the Company's estimates. Potential legal liabilities and the revision of
estimates of potential legal liabilities could have a material adverse impact on
the yearCompany's results of adoption. Theoperations. As of November 2, 2008, the Company is currently evaluating the impacthad
accrued costs related to a number of adopting this statement.purported class actions brought by current
and former employees working in California alleging various violations of
California law.
New Accounting Pronouncements:
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This
statement defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. The statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within that fiscal year. The Company is
currently evaluating the impact of adopting this statement.
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VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE A--Summary of Significant Accounting Policies--Continued
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FAS 115".115."
This statement permits entities to choose to measure many financial instruments
and certain other items at fair value. This statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007, including
interim periods within that fiscal year. The Company is currently evaluating the
impact of adopting this statement.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations." This statement amends the requirements for an acquirer's
recognition and measurement of the assets acquired and the liabilities assumed
in a business combination. This statement is effective for financial statements
issued for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2008 and should be applied prospectively for all
business combinations entered into after the adoption date. The impact of
adopting this statement is not material.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB NO. 51." This statement
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. This statement is
effective for financial statements issued for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2008. The Company is
currently evaluating the impact of adopting this statement.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No. 133."
This statement requires enhanced disclosures about an entity's derivative and
hedging activities by explaining how and why derivatives are used by the entity,
how they are accounted for under Statement 133, and how derivatives affect the
entity's various financial statements. This statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early adoption encouraged.
In April 2008, the FASB issued FASB Staff Position ("FSP") No. 142-3,
"Determination of the Useful Life of Intangible Assets." This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, "Goodwill and Other Intangible Assets." This statement is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is prohibited. The
Company is currently evaluating the impact of adopting this statement.
NOTE B--Securitization Program
The Company has aOn June 3, 2008, the Company's $200.0 million accounts receivable securitization
program, ("which was due to expire within the next year, was transferred to a
multi-buyer program administered by PNC Bank (see Note E). Prior to that date,
under the Expiring Securitization Program, receivables related to the United
States operations of the staffing solutions business of the Company and its
subsidiaries were sold from time-to-time by the Company to Volt Funding, a
wholly-owned special purpose subsidiary of the Company. Volt Funding, in turn,
sold to TRFCO, an asset backed commercial paper conduit sponsored by Mellon
Bank, N.A. and unaffiliated with the Company, an undivided percentage ownership
interest in the pool of receivables Volt Funding acquired from the Company
(subject to a maximum purchase by TRFCO in the aggregate of $200.0 million). The
Company retained the servicing responsibility for the accounts receivable. The
Expiring Securitization Program was not an off-balance
-83-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE B--Securitization Program--Continued
sheet arrangement as Volt Funding is a 100% owned consolidated subsidiary of the
Company. Accounts receivable were only reduced to reflect the fair value of
receivables actually sold. The Company entered into this arrangement as it
provided a low-cost alternative to other financing.
The Expiring Securitization Program was designed to enable receivables sold by
the Company to Volt Funding to constitute true sales of those receivables. As a
result, the receivables were available to satisfy Volt Funding's own obligations
to its own creditors before being available, through the Company's residual
equity interest in Volt Funding, to satisfy the Company's creditors. TRFCO had
no recourse to the Company beyond its interest in the pool of receivables owned
by Volt Funding.
The Company accounted for the securitization of accounts receivable in
accordance with SFAS 156. At the time a participation interest in the
receivables was sold, the receivable representing that interest was removed from
the consolidated balance sheet (no debt was recorded) and the proceeds from the
sale were reflected as cash provided by operating activities. Losses and
expenses associated with the transactions, primarily related to discounts
incurred by TRFCO on the issuance of its commercial paper, were charged to the
consolidated statement of operations.
The Company incurred charges in connection with the sale of receivables under
the Expiring Securitization Program, of $2.8 million in the fiscal year ended
November 2, 2008 compared to $5.4 million and $6.7 million in the fiscal years
ended October 28, 2007 and October 29, 2006, respectively, which are included in
Other Expense in the consolidated statement of operations. The equivalent cost
of funds in the Expiring Securitization Program was 4.4%, 6.3% and 5.6% per
annum in the fiscal years 2008, 2007 and 2006, respectively.
At October 28, 2007, the Company's carrying retained interest in a revolving
pool of receivables was approximately $143.8 million, respectively, net of a
service fee liability, out of a total pool of approximately $264.9 million. The
outstanding balance of the undivided interest sold to TRFCO was $120.0 million
at October 28, 2007, respectively. Accordingly, the trade accounts receivable
included on the October 28, 2007 balance sheet were reduced to reflect the
participation interest sold of $120.0 million.
NOTE C--Short-Term Investments and Investments in Securities
At November 2, 2008 and October 28, 2007 short-term investments consisted of
$4.2 million and $5.6 million, respectively, invested in mutual funds for the
Company's deferred compensation plan (see Note M).
At November 2, 2008 and October 28, 2007, the Company had an available-for-sale
investment in equity securities of $63,000 and $249,000, respectively. The gross
unrealized losses of $39,000 and gains of $148,500 at November 2, 2008 and
October 28, 2007, respectively, were included as a component of accumulated
other comprehensive income (loss).
-84-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE D--Inventories
Inventories of accumulated unbilled costs, principally work in process, and
materials by segment are as follows:
November 2, October 28,
2008 2007
------- -------
(In thousands)
Telecommunications Services $16,874 $43,162
Computer Systems 8,090 7,138
Printing and Other 4,061 4,114
------- -------
Total $29,025 $54,414
======= =======
The cumulative amounts billed under service contracts at November 2, 2008 and
October 28, 2007 of $21.7 million and $13.9 million, respectively, are credited
against the related costs in inventory. In addition, inventory reserves at
November 2, 2008 and October 28, 2007 of $4.1 million and $4.2 million,
respectively, are credited against the related costs in the Telecommunications
Services segment's inventory.
NOTE E--Short-Term Borrowings
At November 2, 2008, the Company had credit facilities with various banks and
financial conduits which provided for borrowings and letters of credit of up to
an aggregate of $352.3 million, including the Company's $200.0 million five-year
accounts receivable securitization program (the "Amended Securitization
Program"), a $42.0 million five-year unsecured revolving credit agreement
("Credit Agreement") and the Company's wholly owned subsidiary, Volt Delta
Resources, LLC's ("Volt Delta") $100.0 million secured, syndicated revolving
credit agreement ("Delta Credit Facility"). The Company had total outstanding
short-term borrowings of $107.5 million as of November 2, 2008. Included in
these borrowings were $22.5 million of foreign currency borrowings which expires in April 2009.provide
economic hedges against foreign denominated net assets.
Amended Securitization Program
- ------------------------------
On June 3, 2008, the Company's $200.0 million accounts receivable securitization
program (see Note B), which was due to expire within the next year, was
transferred to a multi-buyer program administered by PNC Bank. The Amended
Securitization Program has a five-year term (subject to 364 day liquidity).
Under the Amended Securitization Program, receivables related to the United
States operations of the staffing solutions business of the Company and its
subsidiaries are sold from time-to-time by the Company to Volt Funding, Corp., a
wholly-owned special purpose subsidiary of the Company ("Volt Funding").Company. Volt Funding, in turn,
sells
to Three Rivers Funding Corporation ("TRFCO"), an asset backedborrows from two commercial paper conduit sponsoredconduits (Market Street Funding LLC, a PNC
Bank affiliate, and Relationship Funding LLC), secured by Mellon Bank, N.A. and unaffiliated with the Company, an undivided
percentage ownership interest in the pool of receivables Volt Funding acquires
from the Company (subject to a maximum purchase by TRFCO in the
aggregate of $200.0 million).Company. The Company retains the servicing responsibility for the
accounts receivable.
At October 28, 2007, TRFCO had purchased from Volt
Funding a participation interest of $120.0 million out of a pool of
approximately $264.9 million of receivables.
-73-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE B--Securitization Program--Continued
The Amended Securitization Program is not an off-balance sheet arrangement as
Volt Funding is a 100% owned consolidated subsidiary of the Company. Accounts
receivable are only reduced to reflectThe
receivables and related borrowings remain on the fair value of receivables actually
sold. The Company entered into this arrangement as it provided a low-cost
alternative to other financing.
The Securitization Program is designed to enable receivables sold by the Company
tobalance sheet since Volt
Funding to constitute true sales of those receivables. As a result,effectively retains control over the receivables, are available to satisfy Volt Funding's own obligations to its own
creditors before being available, through the Company's residual equity interest
in Volt Funding, to satisfy the Company's creditors. TRFCO has no recourse to
the Company beyond its interest in the pool of receivables owned by Volt
Funding.
In the event of termination of the Securitization Program, new purchases of a
participation interest in receivables by TRFCO would cease and collections
reflecting TRFCO's interest would revert to it. The Company believes TRFCO's
aggregate collection amounts should not exceed the pro rata interests sold.
Therewhich are no contingent liabilities or commitments associated with the
Securitization Program.longer
treated as sold assets. The Company accounts for the securitizationamounts recorded approximate fair value.
Accordingly, pledged receivables of $50.0 million are included as trade accounts
receivable, in accordance
with SFAS No. 156, "Accounting for Transfers and Servicing of Financial Assets,
an amendment of SFAS No. 140." Atnet, while the time a participation interest in the
receivables is sold, the receivable representing that interest is removed fromcorresponding borrowings are included as short-term
borrowings on the condensed consolidated balance sheet (no debt is recorded) and the proceeds
from the sale are reflected as cash provided by operating activities. Losses and
expenses associated with the transactions, primarily related to discounts
incurred by TRFCO on the issuance of its commercial paper, are charged to the
consolidated statement of operations.
The Company incurred charges in connection with the sale of receivables under
the Securitization Program, of $5.4 million in the fiscal year ended October 28,
2007 compared to $6.7sheet. At November 2, 2008,
Volt Funding had borrowed $31.2 million and $3.4$18.8 million in the fiscal years ended October
29, 2006 and October 30, 2005, respectively, which are included in Other Expense
on the consolidated statement of operations. The equivalent cost of funds in the
Securitization Program was 6.3%, 5.6% and 4.2% per annum in the fiscal years
2007, 2006 and 2005, respectively. The Company's carrying retained interest in
the receivables approximated fair value due to the relatively short-term nature
of the receivable collection period. In addition, the Company performed a
sensitivity analysis, changing various key assumptions, which also indicated the
retained interest in receivables approximated fair value.
At October 28, 2007 and October 29, 2006, the Company's carrying retained
interest in a revolving pool of receivables was approximately $143.8 million and
$164.2 million, respectively, net of a service fee liability, out of a total
pool of approximately $264.9 million and $275.2 million, respectively. The
outstanding balance of the undivided interest sold to TRFCO was $120.0 million
and $110.0 million at October 28, 2007 and October 29, 2006, respectively.
Accordingly, the trade accounts receivable included on the October 28, 2007 and
October 29, 2006 balance sheets were reduced to reflect the participation
interest sold of $120.0 million and $110.0 million, respectively.
-74-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE B--Securitization Program--Continued
The Securitization Program is subject to termination at TRFCO's option, under
certain circumstances, including the default rate, as defined, on receivables
exceeding a specified threshold, the rate of collections on receivables failing
to meet a specified threshold or the Company failing to maintain a long-term
debt rating of "B" or better, or the equivalent thereof, from
a nationally
recognized rating organization. At October 28, 2007, the Company was in
compliance with all requirements of the Securitization Program.
NOTE C--Short-Term Investments and Investments in Securities
At October 28, 2007 and October 29, 2006 short-term investments consisted of
$5.6 million and $4.7 million, respectively, invested in mutual funds for the
Company's deferred compensation plan (see Note M).
At October 28, 2007 and October 29, 2006, the Company had an available-for-sale
investment in equity securities of $249,000 and $188,000, respectively. The
gross unrealized gains of $148,500 and $87,500 at October 28, 2007 and October
29, 2006, respectively, were included as a component of accumulated other
comprehensive income (loss).
NOTE D--Inventories
Inventories of accumulated unbilled costs, principally work in process, and
materials by segment are as follows:
October 28, October 29,
2007 2006
---------------- ----------------
(In thousands)
Telephone Directory $9,650 $11,527
Telecommunications Services 43,162 12,606
Computer Systems 7,138 4,602
---------------- ----------------
Total $59,950 $28,735
================ ================
The cumulative amounts billed under service contracts at October 28, 2007 and
October 29, 2006 of $13.9 million and $10.9 million, respectively, are credited
against the related costs in inventory. In addition, inventory reserves at
October 28, 2007 and October 29, 2006 of $4.4 million and $4.5 million,
respectively, are credited against the related costs in inventory.
NOTE E--Short-Term Borrowings
At October 28, 2007, the Company had credit lines with domestic and foreign
banks which provided for borrowings and letters of credit of up to an aggregate
of $149.2 million, including the Company's $40.0 million secured, syndicated
revolving credit agreement ("Credit Agreement") and the Company's wholly owned
subsidiary, Volt Delta Resources, LLC's ("Volt Delta") $100.0 million (increased
from $70.0 million in August 2007) secured, syndicated revolving credit
agreement ("Delta Credit Facility"). The Company had total outstanding bank
borrowings of $84.1 million, the majority of which was used to finance the
acquisition of LSSi Corp. Included in these borrowings were $12.1 million of
foreign currency borrowings which provide a hedge against foreign denominated
net assets.
-75--85-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE E--Short-Term Borrowings--Continued
Market Street Funding and Relationship Funding, respectively. At November 2,
2008, borrowings bear a weighted-average interest rate of 3.4% per annum,
excluding a facility fee of 0.25% per annum paid on the entire facility and a
program fee of 0.35% paid on the outstanding borrowings.
The Amended Securitization Program is subject to termination by PNC Bank (with
the consent of the majority purchasers) under certain circumstances, including,
among other things, the default rate, as defined, on receivables exceeding a
specified threshold, or the rate of collections on receivables failing to meet a
specified threshold.
At November 2, 2008, the Company was in compliance with all requirements of the
Amended Securitization Program.
Credit Agreement
- ----------------
TheOn February 28, 2008, the Company entered into the Credit Agreement which expires in April 2008, established ato replace
the Company's then expiring $40.0 million secured credit agreement with an
unsecured credit facility ("Credit Facility") in favor of the Company and
designated subsidiaries, of which up to $15.0 million may be used for letters of
credit.
Borrowings by subsidiaries are limited tocredit and $25.0 million for borrowing in the aggregate.alternative currencies. At October 28, 2007, the Company had no borrowings againstNovember 2,
2008, $8.3 million was drawn on this facility. The administrative agent for the
Credit Facility is JPMorgan Chase Bank of America, N.A. The other banks participating in the
Credit Facility are MellonJP Morgan Chase Bank, N.A., as syndicated agent, Wells Fargo
Bank, N.A., Lloyds TSB and HSBC Bank PLC and Bank of America,USA, N.A.
Borrowings under the Credit Agreement are to bear interest at various rate options
selected by the Company at the time of each borrowing. Certain rate options,
together with a facility fee, are based on a leverage ratio, as defined. Additionally, interest and the facility fees can be increased or
decreased upon a change in the rating of the facility as provided by a
nationally recognized rating agency. The Credit Agreement requires the
maintenance of specified accounts receivable collateral in excess of any
outstanding borrowings. Based
upon the Company's leverage ratio and debt rating
at October 28, 2007,November 2, 2008, if a three-month U.S.
Dollar LIBO rate were the interest rate option selected by the Company,
borrowings would have borne interest at the rate of 6.2%4.5% per annum, excluding a
fee of 0.25%0.35% per annum paid on the entire facility.
The Credit Agreement provides for the maintenance of various financial ratios
and covenants, including, among other things, a requirement that the Company
maintain a consolidated tangible net worth, as defined; a limitation on cash
dividends, capital stock purchases and redemptions by the Company in any one
fiscal year to 50% of consolidated net income, as defined, for the prior fiscal
year;
a limitation on total funded debt to EBITDA of 3.0 to 1.0; and a requirement
that the Company maintain a minimum ratio of EBIT,EBITDA, as defined, to interest
expense, as defined, of 1.254.0 to 1.0 for the twelve months ended as of the last
day of each fiscal quarter. The Credit Agreement also imposes limitations on,
among other things, the incurrence of additional indebtedness, the incurrence of additional liens, sales of assets, the level of
annual capital expenditures, and the amount of investments, including business
acquisitions and investments in joint ventures,mergers, and loans that may be made by the Company andto its
subsidiaries. TheAt November 2, 2008, the Company obtained a waiver of one covenant but was in compliance with all
other covenants inrequirements of the Credit Agreement at October 28, 2007.
The Company is liable on all loans made to it and all letters of credit issued
at its request, and is jointly and severally liable as to loans made to
subsidiary borrowers. However, unless also a guarantor of loans, a subsidiary
borrower is not liable with respect to loans made to the Company or letters of
credit issued at the request of the Company, or with regard to loans made to any
other subsidiary borrower. Five subsidiaries of the Company are guarantors of
all loans made to the Company or to subsidiary borrowers under the Credit
Facility. At October 28, 2007, four of those guarantors have pledged
approximately $60.6 million of accounts receivable, other than those in the
Securitization Program, as collateral for the guarantee obligations. Under
certain circumstances, other subsidiaries of the Company also may be required to
become guarantors under the Credit Facility.Agreement.
Delta Credit Facility
- ---------------------
In December 2006, Volt Delta entered into the secured Delta Credit Facility,
which expires in December 2009, with Wells Fargo, N.A. as the administrative
agent and arranger, and as a lender thereunder. Wells Fargo and two of the other
three lenders under the Delta Credit Facility, Lloyds TSB Bank Plc., Bank of America, N.A. and
JPMorgan Chase, also participate in the Company's $40.0$42.0 million unsecured
revolving Credit Facility. Neither the Company nor Volt Delta guarantees each
other's facility but certain subsidiaries of each are guarantors of their
respective parent company's facility.
-76--86-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE E--Short-Term Borrowings--Continued
The Delta Credit Facility allows for the issuance of revolving loans and letters
of credit in the aggregate of $100.0 million (increased from $70.0 million in
August 2007) with a sublimit of $10.0 million on
the issuance of letters of credit. At October 28, 2007, $78.2November 2, 2008, $41.7 million was drawn
on this facility, the
majority of which was used to finance the acquisition of LSSi Corp.facility. Certain interest rate options, as well as the commitment fee,
are based on a leverage ratio, as defined, which resets quarterly. Based upon
Volt Delta's leverage ratio at the
end of the third quarter of fiscal 2007,November 2, 2008, if a three-month U.S. Dollar
LIBO rate were the interest rate option selected by the Company, borrowings
would have borne interest at the rate of 5.0%3.0% per annum at October 28, 2007.annum. Volt Delta also pays a
commitment fee on the unused portion of the Delta Credit Facility which varies
based on Volt Delta's leverage ratio. At October 28, 2007,November 2, 2008, the commitment fee
was 0.2%0.3% per annum.
The Delta Credit Facility provides for the maintenance of various financial
ratios and covenants, including, among other things, a total debt to EBITDA
ratio, as defined, which cannot exceed 2.0 to 1.0 on the last day of any fiscal
quarter, a fixed charge coverage ratio, as defined, which cannot be less than
2.5 to 1.0 for the twelve months ended as of the last day of each fiscal quarter
and the maintenance of a consolidated net worth, as defined. The Delta Credit
Facility also imposes limitations on, among other things, incurrence of
additional indebtedness or liens, the amount of investments including business
acquisitions, creation of contingent obligations, sales of assets (including
sale leaseback transactions) and annual capital expenditures. At October 28, 2007, Volt DeltaNovember 2,
2008, the Company was in compliance with all covenants inrequirements of the Delta Credit
Facility.
NOTE F--Long-Term Debt and Financing Arrangements
Long-term debt consists of the following:
November 2, October 28,
2008 2007
------- -------
(Dollars in thousands)
8.2% term loan (a) $12,316 $12,826
Note payable for an acquisition (b) 450 --
------- -------
12,766 12,826
Less amounts due within one year 684 510
------- -------
Total long-term debt $12,082 $12,316
======= =======
(a) In September 2001, a subsidiary of the Company entered into a $15.1 million
loan agreement with General Electric Capital Business Asset Funding
Corporation. Principal payments have reduced the loan to $12.8$12.3 million at
October 28, 2007.
The fair value of the loan was approximately $13.5 million at October 28, 2007.November 2, 2008. The 20-year loan, which bears interest at 8.2% per annum
and requires principal and interest payments of $0.4 million per quarter,
is secured by a deed of trust on certain land and buildings that had a
carrying amount at October 28, 2007November 2, 2008 of $10.2$9.7 million. The obligation is
guaranteed by the Company.
Principal(b) Represents the present value of a $0.6 million payment maturities on long-term debt outstandingdue in sixty monthly
installments, discounted at October 28, 2007
are:
Fiscal Year Amount
----------- ------
(In thousands)
2008 $510
2009 554
2010 601
2011 652
2012 708
Thereafter 9,801
-------
$12,826
=======
-77-5% per annum.
-87-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE F--Long-Term Debt and Financing Arrangements -Continued
Principal payment maturities on long-term debt outstanding at November 2, 2008
are:
Fiscal Year Amount
----------- ------
(In thousands)
2009 $684
2010 695
2011 746
2012 802
2013 806
Thereafter 9,033
-------
$12,766
=======
NOTE G--Income Taxes
The components of the Company's income (loss) from continuing operations
before income taxes and minority interest by location, and the related income
tax provision (benefit) are as follows:
Year Ended
-------------------------------------------
November 2, October 28, October 29,
2008 2007 2006
-------- -------- --------
(In thousands)
Year Ended
-------------------------------------
October 28, October 29, October 30,
2007 2006 2005
-------------------------------------
(In thousands)
The components of (loss) income from continuing
operations before minority interest and
income taxes, based on the location of operations,
consist of the following:
Domestic $63,473 $47,547 $30,318($32,401) $ 47,024 $ 29,976
Foreign (13,868) (1,259) 4,022
5,975
------------ ----------- ------------
$62,214 $51,569 $36,293
============ =========== ============-------- -------- --------
($46,269) $ 45,765 $ 33,998
======== ======== ========
The components of the income tax (benefit) provision include:
Current:
Federal (a) $20,199 $16,961 $9,880$ 958 $ 14,661 $ 11,054
Foreign 1,985 3,093 3,155 1,508
State and local 7,314 4,127 3,819
------------ ----------- ------------(260) 5,892 2,808
-------- -------- --------
Total current 30,606 24,243 15,207
------------ ----------- ------------2,683 23,646 17,017
-------- -------- --------
Deferred:
Federal (4,130) (2,521) (2,711)(11,058) (3,890) (2,332)
Foreign (2,391)(758) (2,392) (1,241) 201
State and local (1,197) (583) (468)
------------ ----------- ------------(2,763) (1,135) (541)
-------- -------- --------
Total deferred (7,718) (4,345) (2,978)
------------ ----------- ------------(14,579) (7,417) (4,114)
-------- -------- --------
Total income tax (benefit) provision $22,888 $19,898 $12,229
============ =========== ============($11,896) $ 16,229 $ 12,903
======== ======== ========
(a) Reduced in 2008, 2007 2006 and 20052006 by benefits of $3.1 million, $1.2 million
$0.7 million
and $1.4$0.7 million, respectively, from general business credits.
-88-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE G--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
----------------------------------------
October 28, October 29, October 30,
2007 2006 2005
------------ -------------- ------------
Statutory rate 35.0% 35.0% 35.0%
State and local taxes, net of federal
tax benefit 6.9 5.3 8.0
Tax effect of foreign operations (3.1) (0.4) -
Goodwill amortization - (3.9) (0.7)
General business credits (1.9) (1.5) (3.9)
Minority interest - (0.7) (7.5)
Deferred tax adjustments - 3.4 2.4
Other-net (0.1) 1.4 0.4
------------ -------------- ------------
Effective tax rate 36.8% 38.6% 33.7%
============ ============== ============
-78-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE G--Income Taxes--ContinuedYear Ended
---------------------------------------
November 2, October 28, October 29,
2008 2007 2006
------- ------- -------
Statutory rate (35.0%) 35.0% 35.0%
State and local taxes, net of federal
tax benefit (4.3) 7.4 5.6
Tax effect of foreign operations 9.5 (4.2) (0.7)
Goodwill amortization -- -- (5.9)
General business credits (3.3) (2.6) (2.3)
Minority interest -- -- (1.0)
Deferred tax adjustments -- -- 5.1
Goodwill impairment 5.7 -- --
FIN 48 adjustment 2.5 -- --
Other-net (0.8) (0.1) 2.2
------- ------- -------
Effective tax rate (25.7%) 35.5% 38.0%
======= ======= =======
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 foreign
operating loss carryforwards. Significant components of the Company's deferred
tax assets and liabilities are as follows:
October 28, October 29,
2007 2006
---------------- -------------
(In thousands)
Deferred Tax Assets:
Allowance for doubtful accounts $2,071 $2,822
Inventory valuation 1,748 1,785
Loss carryforwards 6,086 1,712
Goodwill 1,262 1,484
Accelerated book depreciation and amortization 589 -
Compensation accruals and deferrals 6,185 5,465
Warranty accruals 101 106
Rent expense 831 -
Other-net 407 840
---------------- -------------
Total deferred tax assets 19,280 14,214
Less valuation allowance for deferred tax assets 1,526 2,258
---------------- -------------
Deferred tax assets, net of valuation allowance 17,754 11,956
---------------- -------------
Deferred Tax Liabilities:
Software development costs 1,812 2,443
Deferred revenue 629 1,100
Accelerated book depreciation 306 4,236
Foreign translation adjustments 1,102 86
Intangible assets 14,721 5,711
Other-net 164 -
---------------- -------------
Total deferred tax liabilities 18,734 13,576
---------------- -------------
Net deferred tax liabilities ($980) ($1,620)
================ =============
Balance sheet classification:
Current assets $9,629 $9,167
Non-current assets 8,125 -
Current liabilities (709) -
Non-current liabilities (18,025) (10,787)
---------------- -------------
Net deferred tax liabilities ($980) ($1,620)
================ =============
-79--89-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE G--Income Taxes--Continued
AtNovember 2, October 28,
2008 2007
-------- --------
(In thousands)
Deferred Tax Assets:
Allowance for doubtful accounts $ 2,125 $ 2,071
Inventory valuation 1,716 1,748
Loss carryforwards 6,432 6,086
Goodwill 8,572 1,262
Accelerated book depreciation and amortization 3,161 589
Compensation accruals and deferrals 5,645 6,185
Warranty accruals 2 101
Rent expense 1,248 831
Foreign translation adjustments 161 --
Other-net 1,721 407
-------- --------
Total deferred tax assets 30,783 19,280
Less valuation allowance for deferred tax assets 4,005 1,526
-------- --------
Deferred tax assets, net of valuation allowance 26,778 17,754
-------- --------
Deferred Tax Liabilities:
Software development costs 1,062 1,812
Deferred revenue 471 629
Accelerated book depreciation 135 306
Foreign translation adjustments -- 1,102
Intangible assets 13,087 14,721
Other-net 299 164
-------- --------
Total deferred tax liabilities 15,054 18,734
-------- --------
Net deferred tax liabilities $ 11,724 ($ 980)
======== ========
Balance sheet classification:
Current assets $ 9,685 $ 9,629
Non-current assets 17,081 8,125
Current liabilities (491) (709)
Non-current liabilities (14,551) (18,025)
-------- --------
Net deferred tax liabilities $ 11,724 ($ 980)
======== ========
At November 2, 2008, the Company had domestic and foreign net operating loss
carryforwards of $6.1$20.7 million, which range in expiration date between November
2, 2008,1, 2009, and extend forward with no limitation to the carryforward period. For
financial statement purposes, a valuation allowance of $1.5$4.0 million has been
recognized due to the uncertainty of the realization of the foreign loss
carryforwards and other foreign deferred tax assets. The valuation allowance
decreasedincreased during 20072008 by $0.7$2.5 million, principally due to the release of a valuation allowance related to
the current and future utilization of net operating losses.increase in losses
in foreign subsidiaries.
Substantially all of the undistributed earnings of foreign subsidiaries of $16.8$15.5
million at October 28, 2007November 2, 2008 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 that 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.
On October 29, 2007, the Company adopted the provisions of FIN 48.
-90-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE G--Income Taxes--Continued
The following table sets forth the change in the accrual for uncertain tax
positions, excluding interest and penalties:
(In thousands)
Balance at October 29, 2007 $330
Additions for tax positions of prior years 1,461
Additions based on tax positions related to the current year 211
------
Balance at November 2, 2008 $2,002
======
Of the total unrecognized tax benefits at November 2, 2008 of $2.0 million,
approximately $1.5 million would affect the Company's effective income tax rate,
if and when recognized in future years.
The Company recognizes interest and penalties in its provision for income taxes.
Through November 2, 2008, the Company has recorded approximately $0.4 million of
interest and penalties.
The Company is subject to taxation in the US, various states and various foreign
jurisdictions. With few exceptions, the Company is generally no longer subject
to examination by the United States federal, state, local or non-U.S. income tax
authorities for years before fiscal 2004. The following describes the open tax
years, by major tax jurisdiction, as of November 2, 2008:
United States-Federal 2004-present
United States-State 2004-present
Canada 2003-present
Germany 2005-present
United Kingdom 2006-present
The Company does not presently anticipate such uncertain tax positions will
significantly increase or decrease in the next twelve months; however, actual
developments could differ from those currently expected.
NOTE H--Goodwill and Intangible Assets
Goodwill and intangibles with indefinite livesIndefinite-Lived Intangible Assets: Under SFAS 142, goodwill and
indefinite-lived intangible assets are subject to annual impairment testing
using fair value methodology. An impairment charge is recognized formethodologies, which compare the amount,
if any, by which the carryingfair value of goodwill or an indefinite-lived
intangible asset exceedseach reporting
unit to its estimated faircarrying value. The test for goodwill, which
is performed in the Company'sCompany performs its annual impairment testing
during its second fiscal quarter, primarily uses comparableor more frequently if indicators of impairment
arise. The timing of the impairment test may result in charges to earnings in a
quarter that could not have been reasonably foreseen in prior periods. The
Company generally determines the fair value of a reporting unit using the income
approach, which is based on the present value of estimated future cash flows, or
the market approach, which compares the business units' multiples of sales and
EBITDA and other valuation methods to assistthose multiples of those of its business units' competitors. If the
Company
incarrying value of the determination ofreporting unit's net assets including goodwill exceeds the
fair value of the reporting unit, then the Company performs step two of the
impairment test which allocates the fair value of the reporting unit's assets
and liabilities in a manner similar to a purchase price allocation, with any
residual fair value being allocated to goodwill. If the carrying value of a
reporting unit's goodwill exceeds its implied fair value, then an impairment of
goodwill has occurred for such amount, and is reported as a component of
operating income.
-91-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE H--Goodwill and Intangible Assets--Continued
Based upon indicators of impairment in the fourth quarter of fiscal 2008, which
included a significant decrease in market capitalization, a decline in recent
operating results, and a decline in the Company's business outlook primarily due
to the current macroeconomic environment, the Company performed an interim
impairment test as of November 2, 2008 on each of its four segments. The Company
completed step one of the impairment analysis and concluded that, as of November
2, 2008, the fair value of the Computer Systems and Staffing Services segments
were below their respective carrying values including goodwill. Step two of the
impairment test, as required in SFAS 142, was initiated but, due to the time
consuming nature, has not been completed. The Company recorded estimates of
impairment in the amount of $41.5 million and $4.9 million, in the Computer
Systems and Staffing Services segments, respectively as of November 2, 2008. The
Company expects to complete the step two analyses in time for the first quarter
Form 10-Q filing. The Company recorded no impairment charges in fiscal 2007 or
fiscal 2006.
The Company considered the income, market and cost approaches in arriving at our
indicators of value. The Company relied on the income and market approaches to
arrive at its valuation conclusion. The cost approach was viewed as the floor
for the value of the reporting units measured.and was calculated based on the book value
of working capital. The income approach was given greater weight than the market
approach due to the lack of strongly comparable companies, the significant
fluctuations in the financial markets and the lack of recently comparable
transactions. The material assumptions used for the income approach were the
forecasted revenue growth by reporting unit as well as the discount rate and
long-term growth rate. The Company considered historical rates and current
market conditions when determining the discount and growth rates used in its
analyses. For the market approach the material assumptions were financial data
for comparable companies, adjusted for differences in size, diversification and
profitability. The Company also considered the control premium (which can be
defined as the difference between fair value and market price) and other
qualitative factors including its low float, concentrated ownership and limited
analyst coverage.
Intangible assets, other than goodwill and indefinite-lived intangible assets,
are tested for recoverability whenever events or changes in circumstances
indicate that their carrying amounts may not be recoverable. An impairment loss
is recognized when the carrying amount exceeds the estimated fair value of the
asset or asset group. The impairment loss is measured as the amount by which the
carrying amount exceeds fair value.
Intangible assets are amortized over the following periods:
Customer relationships 5 to 10 years
Existing technology 7.9 to 8.5 years
Contract backlog 4 years
Reseller network 8 years
Non-compete agreements and trademarks 3 years
The following table represents the balance of intangible assets:
October 28, 2007 October 29, 2006
-------------------------------- -------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
---------------- --------------- ----------------- -------------
(In thousands)
Customer relationships $44,398 $5,138 $17,645 $2,890
Existing technology 13,164 3,090 13,164 1,466
Contract backlog 3,200 1,467 3,200 667
Trade name (a) 2,016 - 2,016 -
Reseller network 816 187 816 85
Non-compete agreements and trademarks 325 208 325 99
---------------- --------------- ----------------- -------------
Total $63,919 $10,090 $37,166 $5,207
================ =============== ================= =============
(a) Trade names have an indefinite life and are not amortized.
-80-Name 0 to 5 years
-92-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE H--Goodwill and Intangible Assets--Continued
In fiscal 2007,The following table represents the preliminary totalbalance of intangible assets acquired were $26.8
million for acquisition of businesses (see Note J). In fiscal 2006, the total
intangible assets acquired were $20.9 million.assets:
November 2, 2008 October 28, 2007
---------------- ----------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
------ ------------ ------ ------------
(In thousands)
Customer relationships $41,298 $9,862 $43,788 $4,830
Existing technology 13,164 4,714 13,164 3,090
Contract backlog 3,200 2,266 3,200 1,467
Trade name (a) 2,936 207 2,016 -
Reseller network 816 289 816 187
Non-compete agreements and trademarks 451 323 325 208
------- ------- ------- ------
Total $61,865 $17,661 $63,309 $9,782
======= ======= ======= ======
(a) Certain trade names have an indefinite life and are not amortized.
Amortization expense in fiscal 2008, 2007 and 2006 and 2005 was $4.9$7.9 million, $3.8$4.8
million and $1.1$3.7 million, respectively. In each of the succeeding five years,
the amount of amortization expense for other intangible assets is estimated to
be as follows:
Fiscal Year Amount
----------- ------
(In Millions)
2008 $8.2
2009 $8.1$7.8
2010 $7.4$7.2
2011 $7.2$7.0
2012 $7.2$7.0
2013 $6.7
The following table represents the change in the carrying amount of goodwill for
each segment during each fiscal year.
Carrying Carrying Carrying
Value Value Value
October Additions October Additions Impairment November
Segment 29, 2006 2007 28, 2007 2008 2008 2, 2008
- ------- -------- -------- -------- -------- -------- --------
(In thousands)
Carrying Value Additions Carrying Value Additions Carrying Value
Segment October 30, 2005 2006 October 29, 2006 2007 October 28, 2007
----------------- ---------------- --------- ---------------- --------- ----------------
(In thousands)
Staffing Services $8,340 $8,340 $1,388(b) $9,728$ 8,340 $ 1,388(a) $ 9,728 $ 1,211(a) ($4,900) $ 6,039
Computer Systems 24,283 18,273(a) 42,556 46,431(a,46,431(b,c) 88,987 ---------------- --------- ---------------- --------- ----------------3,955(c) (41,500) 51,442
-------- -------- -------- -------- -------- --------
Total $32,623 $18,273 $50,896 $47,819 $98,715
================ ========= ================ ========= ================
(a) Acquisition of Varetis Solutions and the minority interest in Delta.$ 50,896 $ 47,819 $ 98,715 $ 5,166 ($46,400) $ 57,481
======== ======== ======== ======== ======== ========
(a) Acquisition of outsourcing and services providers (see Note J)
(b) Acquisition of an outsourcing and services provider. (See Note J).
(c) Acquisition of LSSi Corp. (See Note J).
(b) Acquisition of Varetis Solutions and the minority interest in Delta (see
Note J).
(c) Acquisition of LSSi Corp (see Note J).
-93-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE H--Goodwill and Intangible Assets--Continued
NOTE I--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 2, October 28, October 29,
October 30,2008 2007 2006
2005
------------------ --------------- ----------------------- ------ ------
(In thousands)
Denominator for basic earnings per share -
Weighted average number of shares 21,982 22,935 23,227 22,980
Effect of dilutive securities:
Stock options -- 50 161
146
------------------ --------------- ----------------------- ------ ------
Denominator for diluted earnings per share -
Adjusted weighted average number of shares 21,982 22,985 23,388
23,126
================== =============== ======================= ====== ======
-81-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE I--Per Share Data--Continued
Options to purchase 205,645, 29,550 32,550 and 245,55032,550 shares of the Company's common
stock were outstanding at November 2, 2008, October 28, 2007 and October 29,
2006, and October 30,
2005, respectively, but were not included in the computation of diluted earnings
per share because the effect of inclusion would have been antidilutive.
NOTE J--AcquisitionJ-- Sale and Acquisitions of Businesses
On September 5, 2008, the Company sold the net assets of its directory systems
and services and North American publishing operations to Yellow Page Group for
cash proceeds of $179.3 million. The transaction included the net assets of Volt
Directory Systems and DataNational but excluded the Uruguayan operations, which
combined were historically reported as the Company's Telephone Directory
segment. The Company recorded a pre-tax gain of $156.4 million ($93.3 million
net of taxes) that is included in discontinued operations in the consolidated
statement of operations. In accordance with SFAS No. 144, the results of
operations of Volt Directory Systems and DataNational, have been classified as
discontinued, the prior period results have been reclassified and their assets
and liabilities included as separate line items on the Company's October 28,
2007 consolidated balance sheet.
The following summarizes the discontinued operations:
Fiscal Year Ended
---------------------------------------------
November 2, October 28, October 29,
2008 2007 2006
--------- --------- ---------
(In thousands)
Revenue $ 54,072 $ 73,004 $ 73,209
========= ========= =========
Income before items shown below $ 9,202 $ 16,449 $ 17,571
Gain on sale 156,372 -- --
--------- --------- ---------
Income before taxes 165,574 16,449 17,571
Income tax provision (67,089) (6,659) (6,995)
--------- --------- ---------
Income from discontinued operations $ 98,485 $ 9,790 $ 10,576
========= ========= =========
-94-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE J-- Sale and Acquisitions of Businesses --Continued
Volt Directory Systems and Services and DataNational's assets and liabilities
reclassified in the October 28, 2007 balance sheet include:
October 28,
2007
-------
(In thousands)
Cash $ 55
Accounts receivable 24,145
Inventory 5,536
Deferred taxes and other current assets 2,722
Property, plant and equipment, net 2,459
Intangible assets 302
Other non-current assets 44
-------
Assets held for sale $35,263
=======
Accounts payable $ 2,444
Accrued expenses 1,569
Customer advances and other liabilities 16,756
-------
Liabilities related to assets held for sale $20,769
=======
In March 2008, the Company acquired a staffing and consulting services provider
in South America for $1.6 million, which is expected to complement existing
services in the Staffing Services segment.
In September 2007, Volt Delta, the principal business unit of the Computer
Systems segment, acquired LSSi Corp. ("LSSi") by merger for $70.0$71.6 million and
combined it and its DataServ division into LSSiData. The combination of Volt
Delta's application development, integration and hosting expertise and LSSi's
highly efficient data processing will allow Volt Delta to serve a broader base
of customers by aggregating the most current and accurate business and consumer
information possible. Substantially all of the merger consideration was
attributable to goodwill and other intangible assets.
The Company is presently valuing the transaction to determine the final
allocation of the purchase price, which is subject to finalization of certain
adjustments, and is expected to be completed before the end of the fourth
quarter of fiscal 2008.
The assets and liabilities of LSSi areand the South American staffing and
consulting service provider were accounted for under the purchase method of
accounting at the date of acquisition at their fair values. The results of
operations have been included in the consolidated statement of operations since
thetheir respective acquisition date.dates.
-95-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE J-- Sale and Acquisitions of Businesses --Continued
The preliminary purchase price allocation of the fair value of assets acquired and
liabilities assumed of LSSi Corp. is as follows:
(In thousands)
Cash $679
Accounts receivable 5,836
Prepaid expenses and other assets 469
Property, plant and equipment 1,800
Goodwill 46,97350,928
Intangible assets 25,860
------24,070
--------
Total Assets 81,617
------83,782
--------
Accounts payable (1,119)
Other accrued expenses (3,912)
Other liabilities (144)
Deferred income tax (5,650)
---------(6,959)
--------
Total Liabilities (10,825)(12,134)
--------
Purchase price $70,792$71,648
=======
-82-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE J--Acquisition of Businesses--Continued
In September 2007, the Company purchased for $1.5 million an 80% interest in an
outsourcing and services provider that will complement existing services in the
Staffing Services segment. The Company and the 20%-owner have call and put
rights related to ownership in fiscal 2010. The Company estimated the fair value
of the call/put and recorded a liability of $48,000$2.0 million as of October 28, 2007.
In November 2006, the Company also purchased two directories for $0.2 million in
the Telephone Directory segment.2, 2008.
In December 2005, Volt Delta purchased from Nortel Networks its 24% minority
interest in Volt Delta. Under the terms of the agreement, Volt Delta was
required to pay Nortel Networks approximately $56.4 million for its minority
interest in Volt Delta, and an excess cash distribution of approximately $5.4
million. Under the terms of the agreement, Volt Delta paid $25.0 million on
December 29, 2005 and paid the remaining $36.8 million on February 15, 2006. The
transaction resulted in an increase in goodwill and intangible assets of
approximately $6.8 million and $5.7 million, respectively. In December 2005,
Volt Delta also acquired varetis AG's Varetis Solutions subsidiary for $24.8
million. The acquisition of Varetis Solutions provided Volt Delta with the
resources to focus on the evolving global market for directory information
systems and services. Varetis Solutions added technology in the area of wireless
and wireline database management, directory assistance/enquiry automation, and
wireless handset information delivery to Volt Delta's significant technology
portfolio.
The following unaudited pro forma information reflects the purchase from Nortel
Networks of its 24% minority interest in Volt Delta and combines the
consolidated results of operations of the Company with those of the LSSi and
Varetis Solutions businesses as if the transactions had occurred in November
2005. This pro forma financial information is presented for comparative purposes
only and is not necessarily indicative of the operating results that actually
would have occurred had the acquisitions been consummated at the beginning of
fiscal 2006. In addition, these results are not intended to be a projection of
future results.
Year Ended
---------------------------------------------------
October 28, October 29, October 30,
2007 2006 2005
------------------- ---------------- --------------
(In thousands, except per share amounts)
Net sales $2,378,238 $2,368,700 $2,222,518
=================== ================ ==============
Operating profit $67,122 $56,550 $38,943
=================== ================ ==============
Net income $40,212 $32,179 $20,544
=================== ================ ==============
Earnings per share
Basic $1.75 $1.39 $0.89
=================== ================ ==============
Diluted $1.75 $1.38 $0.89
=================== ================ ==============
-83--96-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE J-- Sale and Acquisitions of Businesses --Continued
Year Ended
-------------------------------
October 28, October 29,
2007 2006
----------- -------------
(In thousands, except per share amounts)
Net sales $ 2,310,217 $ 2,300,479
=========== =============
Operating profit $ 49,624 $ 38,620
=========== =============
Income from continuing operations $ 30,465 $ 21,603
Discontinued operations, net of taxes 9,790 10,576
----------- -------------
Net income $ 40,255 $ 32,179
=========== =============
Earnings per share
Basic:
Income from continuing operations $ 1.33 $ 0.93
=========== =============
Discontinued operations, net of taxes 0.43 0.46
=========== =============
Net income $ 1.76 $ 1.39
=========== =============
Diluted:
Income from continuing operations $ 1.32 $ 0.93
=========== =============
Discontinued operations, net of taxes 0.43 0.45
=========== =============
Net income $ 1.75 $ 1.38
=========== =============
NOTE K--Stock Option Plan
The Non-Qualified Option Plan adopted by the Company in fiscal 1995 terminated
on May 16, 2005 except for options previously granted under the plan.
Unexercised options expire ten years after grant. OuFtstandingOutstanding options at
October 28, 2007November 2, 2008 were granted at 100% of the market price on the date of grant
and become fully vested within one to five years after the grant date.
As a resultThe Company recorded compensation expense of adopting SFAS No. 123R, the Company's income before taxes$18,000, $47,000 and $74,000 for
the fiscal year ended November 2, 2008, October 28, 2007 and October 29, 2006,
is $47,000 and $74,000,
respectively, lower than it would have been if the Company had continued to
account for stock-based compensation under APB No. 25.respectively. Compensation expense is recognized in the selling and
administrative expenses in the Company's statement of operations on a
straight-line basis over the vesting periods. Basic and
dilutive net income per share for the fiscal year ended October 28, 2007 would
not have been different if the Company had not adopted SFAS No. 123R, compared
to the reported basic and dilutive net income per share of $1.71, respectively.
As of October 28, 2007,November 2, 2008, there was
$32,000$7,000 of total unrecognized compensation cost related to non-vested share-based
compensation arrangements under the 1995 Plan to be recognized over a weighted
average period of 0.8 years.
The intrinsic values of options exercised during the periods ended November 2,
2008 and October 28, 2007 and October 29, 2006 were $0.6$0.1 million and $4.8$0.6 million, respectively. The
total cash received from the exercise of stock options was $0.3$0.2 million and $5.3$0.3
million in the fiscal years ended November 2, 2008 and October 28, 2007, and October 29, 2006,
respectively, and is classified as financing cash flows in the statement of cash
flows. Prior to the adoption of SFAS 123R, the Company presented all tax benefit
deductions resulting from the exercise of stock options as operating cash flows.
SFAS 123R requires that cash flows from tax benefits attributable to tax
deductions in excess of the compensation cost recognized for those options
(excess tax benefits) be classified as financing cash flows. The actual tax
benefit realized from the exercise of stock options for the fiscal year ended
November 2, 2008 and October 28, 2007 was $0.1 million and $0.2 million.
The table below presents the pro forma effect on net loss and loss per share if
the Company had applied the fair value recognition provision to options granted
under the Company's stock option plan for the fiscal year ended October 30,
2005. For purposes of this pro forma disclosure, the value of the options
granted is estimated using the Black-Scholes option-pricing model and amortized
to expense over the options' vesting periods. If the Company had adopted the
fair value based method for the fiscal year ended October 30, 2005, additional
compensation expense of $164,000 would have been recognized in the statement of
operations.
Year Ended
----------
October 30, 2005
----------------
(In thousands, except per share data)
Net income as reported $17,040
Pro forma compensation expense, net of taxes (99)
---------
Pro forma net income $16,941
=========
Basic:
Net income as reported per share $0.74
Pro forma compensation expense, net of taxes per share -
--------
Pro forma net income per share $0.74
========
Diluted:
Net income as reported per share $0.74
Pro forma compensation expense, net of taxes per share (0.01)
--------
Pro forma net income per share $0.73
========
-84-million,
respectively.
-97-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE K--Stock Option Plan--Continued
Transactions involving outstanding stock options under the plan were:
Number of Weighted Average
Shares Exercise Price
----------------- ------------------
Outstanding - October 31, 2004 791,629 $13.85
Exercised (84,945) $12.33
Forfeited (45,338) $15.06
------------------
Outstanding - October 30, 2005 661,346 $13.96
Exercised (491,449) $13.33
Forfeited (16,920) $15.19
------------------
Outstanding - October 29, 2006 152,977 $15.85
Exercised (23,625) $14.58
Expired (10,687) $28.46
------------------
Outstanding - October 28, 2007 118,665 $14.97
==================
Number of Weighted Average
1995 Plan Shares Exercise Price
- --------- ------ --------------
Outstanding - October 30, 2005 661,346 $13.96
Exercised (491,449) $13.33
Forfeited (16,920) $15.19
--------
Outstanding - October 29, 2006 152,977 $15.85
Exercised (23,625) $14.58
Expired (10,687) $28.46
--------
Outstanding - October 28, 2007 118,665 $14.97
Exercised (18,000) $9.20
Expired (23,550) $25.96
Forfeited (3,000) $15.44
-------
Outstanding - November 2, 2008 74,115 $12.87
=======
Price ranges of outstanding and exercisable options for the 1995 Plan as of
October 28, 2007November 2, 2008 are summarized below:
Outstanding Options Exercisable Options
-------------------------------------------------------- ------------------------------------------------------------------------------------------- --------------------------------
Average
Range of Number Remaining Weighted Average Number Weighted Average
Exercise Prices of Shares Life (Years) Exercise Price of Shares Exercise Price
- ----------------- --------- ----------- ---------------- --------- --------------
$7.11 - $7.11 27,300 5.36 $7.11 17,700 $7.11
$8.28$12.08 18,450 4.09 $ 8.33 18,450 $ 8.33
$12.35 - $12.42 4,950 4.43 $12.36 4,950 $12.36
$12.54 - $12.54 29,100 3.68 $12.42 27,300 $12.4219,500 2.08 $12.54 19,500 $12.54
$12.90 - $15.44 31,215 3.87 $15.00 26,115 $14.91
$15.73$14.88 16,755 1.13 $14.64 16,755 $14.64
$14.98 - $23.71 10,500 4.47 $19.48 7,500 $19.41
$26.69 - $26.69 20,550 0.24 $26.69 20,550 $26.69$19.65 14,460 4.23 $17.19 11,910 $17.04
In April 2007, the shareholders of the Company approved the Volt Information
Sciences, Inc. 2006 Incentive Stock Plan ("2006 Plan"). The 2006 Plan permits
the grant of Incentive Stock Options, Non-Qualified Stock Options, Restricted
Stock and Restricted Stock Units to employees and non-employee directors of the
Company through September 6, 2016. The maximum aggregate number of shares that
may be issued pursuant to awards made under the 2006 Plan shall not exceed one
million five hundred thousand (1,500,000) shares.
There were 3,000 shares of restricted stock granted under the 2006 Plan (500
shares of restricted stock to each non-employee member of the Board of
Directors) on April 5, 2007. Compensation expense of $15,000$27,000 was recognized in
the selling and administrative
expenses in the Company's condensed consolidated statement of operations for the
fiscal year ended October 28, 2007. Compensation expense is
recognized2008 on a straight-line basis over the vesting period.period for grants
issued in fiscal 2007. As of October 28,
2007,November 2, 2008, there was $66,000$38,000 of total
unrecognized compensation cost related to non-vested share-based compensation
arrangements for these restricted sharesoptions to be recognized over a weighted average period
of 2.41.4 years.
-85--98-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE K--Stock Option Plan--Continued
On December 18, 2007, the Company granted to employees (i) 233,000 restricted
stock units and (ii) non-qualified stock options to purchase 152,996 shares of
the Company's common stock at $13.32 per share under the 2006 Plan. If certain
net income targets are met in fiscal years 2007 through 2011, the restricted
stock units begin to vest over a five-year period through 2016. Similarly, if
certain net income targets are met in fiscal years 2008 through 2012,
substantially all the stock options will vest over a four-year period and expire
on December 17, 2017. There was no compensation expense recognized on the grants
with certain targets. Compensation expense of $5,000 was recognized in cost of
sales in the Company's condensed consolidated statement of operations for fiscal
year 2008 for options without targets. As of November 2, 2008, there was $18,000
of unrecognized compensation costs related to non-vested share-based
compensation arrangements to be recognized over a weighted average period of 2.6
years
The fair value of each option grant is estimated using the Black-Scholes option
pricing model, with the following weighted-average assumptions used for grants
in year ended November 2, 2008: risk-free interest rates of 4.1%; expected
volatility of 0.47; an expected life of the options of ten years; and no
dividends. The weighted average fair value of stock options granted during this
period was $8.38.
Transactions involving outstanding vested awards under the 2006 Plan were:
Number of Weighted Average
Shares Grant Date Fair Value
------ ---------------------
Outstanding - October 28, 2007 3,000 $27.01
Awarded -
-----
Outstanding - November 2, 2008 3,000 $27.01
=====
Transactions involving outstanding non - vested awards under the 2006 Plan were:
Stock Options Stock Awards
Number of Weighted Average Number of Weighted Average
Shares Grant Date Fair Value ------------------------ ------------------------
Outstanding - October 29, 2006 - -
Awarded 3,000 $27.01
------------------------Shares Purchase Price
------ --------------------- ------ --------------
Outstanding - October 28, 2007 3,000 $27.01
========================- -
Awarded 152,996 $13.32 233,000 $13.32
Forfeited (21,466) $13.32 (35,250) $13.32
------- -------
Outstanding - November 2, 2008 131,530 $13.32 197,750 $13.32
======= =======
NOTE L--Segment Disclosures
Financial data concerningPrice ranges of outstanding and exercisable options for the Company's sales, segment profit (loss) and
identifiable assets by reportable operating segment for fiscal years 2007, 2006 and 2005Plan as of
November 2, 2008 are presented in tables below.
Total sales include both sales to unaffiliated customers, as reported in the
Company's consolidated statements of operations, and intersegment sales. Sales
between segments are generally priced at fair market value. The Company
evaluates performance based on segment profit or loss from operations before
general corporate expenses, interest income and other expense, interest expense,
foreign exchange gains and losses and income taxes.
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 two major businesses, which are primarily focused on the
markets they serve: staffing services and telecommunications and information
solutions. The Company's internal reporting structure is based on the services
and products provided to customers which results in the following four
reportable operating segments:
Staffing Servicessummarized below:
Outstanding Options Exercisable Options
---------------------------------------------------- --------------------------------
Average
Range of Number Remaining Weighted Average Number Weighted Average
Exercise Prices of Shares Life (Years) Exercise Price of Shares Exercise Price
- ----------------- --------- ----------- ---------------- --------- --------------
$13.32 131,530 9.12 $13.32 - -
This segment provides a broad range of employee staffing
services to a wide range of customers throughout North America and Europe and
has commenced operations in Asia. These services fall within three major
functional areas: Staffing Solutions, Information Technology Solutions and
E-Procurement Solutions. Staffing Solutions provides a full spectrum of managed
staffing and temporary/contract personnel employment and workforce solutions.
Information Technology Solutions provides a wide range of services, including
consulting, outsourcing, turnkey project management in the product development
lifecycle, IT and customer contact markets. E-Procurement Solutions provides
global vendor neutral human capital management solutions by combining web-based
tools and business process outsourcing services.
Telephone Directory - This segment publishes independent telephone directories
and provides telephone directory production services, database management and
printing.
-86-
-99-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE L--Segment Disclosures--Continued
Telecommunications Services - ThisDisclosures
The Company's operating segments have been determined in accordance with the
Company's internal management structure, which is based on operating activities.
The Company evaluates performance based upon several factors, of which the
primary financial measure is segment operating profit. Operating profit provides
management, investors and equity analysts a full spectrummeasure to analyze operating
performance of voice,each business segment against historical and competitors' data,
although historical results, including operating profit, may not be indicative
of future results, as operating profit is highly contingent on many factors,
including the state of the economy and video turnkey solutions for governmentcustomer preferences.
On September 5, 2008, the Company sold the net assets of its DataNational
and private sectors,
encompassing engineering, construction, installation and maintenance services.
These services include outside plant engineering and construction, central
office network solutions, integrated technologies, global solutions (structured
cabling, field dispatch, installation and repair, security access control and
maintenance), government solutions and wireless solutions.
ComputerDirectory Systems - This segment provides directory and operator systems and
services primarilydivisions, whose operations for the telecommunications industrycurrent and provides IT
maintenance services.comparable
periods have been reclassified to Discontinued Operations, with the remainder of
the segment being renamed Printing and Other. The operations of this segment
also sellswere part of the Telephone Directory segment until the current quarter.
This report includes information systemsextracted from consolidated financial
information that is not required by Generally Accepted Accounting Principles
("GAAP") to be presented in the financial statements. Certain of this
information is considered "non-GAAP financial measures" as defined by SEC rules.
Some of these measures are as follows:
Gross profit for a segment is comprised of its customerstotal net sales less direct
costs.
Segment operating profit (loss) is comprised of segment gross profit less
its overhead, selling and administrative costs and depreciation, and has
limitations as an analytical tool. It should not be considered in addition, provides an Application Service Provider model which
provides information services, including infrastructureisolation or
as a substitute for analysis of the Company's results as reported under GAAP.
Some of these limitations are due to the omission of: (a) general corporate
expenses; (b) interest income earned by the Company on excess cash generated by
its segments; (c) interest expended on corporate debt necessary to finance the
segments' operations and database content,capital expenditures; and (d) interest and fees related
to sales of interests in accounts receivable. Because of these limitations,
segment operating profit (loss) should only be used on a transactional fee basis. It also provides third-party ITsupplemental basis
combined with GAAP results when evaluating the Company's performance.
Overhead is comprised of indirect costs required to support each segment's
operations, and is included in cost of sales in the statements of operations,
along with selling and administrative and depreciation expenses, which are
reflected separately in the statements of operations.
General corporate expenses are comprised of the Company's shared service
centers, and include, among other items, enterprise resource planning, human
resource, corporate accounting and finance, treasury, legal and executive
functions. In order to leverage the Company's infrastructure, these functions
are operated under a centralized management platform, providing support services
throughout the organization. The costs of these functions are included within
general corporate expenses as they are not directly allocable to a specific
segment.
Financial data services to
others.
-87-concerning the Company's sales and segment operating profit
(loss) by reportable operating segment for the fiscal years ended November 2,
2008, October 28, 2007 and October 29, 2006 are summarized in the table below.
-100-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE L--Segment Disclosures--Continued
Sales, operating profit and identifiable assets by the Company's reportable
operating segment are as follows:
November October October
2, 2008 28, 2007 29, 2006
----------- ----------- -----------
NET SALES (In thousands)
October 28, October 29, October 30,
2007 2006 2005
--------------- -------------- -------------
Net Sales (In thousands)
Staffing Services:
Sales to unaffiliated customers
Staffing $1,916,621 $1,910,416 $1,759,683$ 1,982,072 $ 1,916,621 $ 1,910,416
Managed Services 1,278,399 1,212,915 1,109,315
1,157,168
--------------- -------------- ------------------------ ----------- -----------
Total gross sales 3,260,471 3,129,536 3,019,731
2,916,851
LessLess: Non-recourse Managed Services (1,222,972) (1,164,243) (1,052,682)
(1,121,196)
Intersegment sales 6,316 5,642 5,233
6,155
--------------- -------------- ------------------------ ----------- -----------
2,043,815 1,970,935 1,972,282
1,801,810
--------------- -------------- -------------
Telephone Directory:
Sales to unaffiliated customers 80,775 79,351 82,298
Intersegment sales - - -
--------------- -------------- -------------
80,775 79,351 82,298
--------------- -------------- ------------------------ ----------- -----------
Telecommunications Services:
Sales to unaffiliated customers 170,753 118,311 118,081
137,799
Intersegment sales 970 1,401 781
1,212
--------------- -------------- ------------------------ ----------- -----------
171,723 119,712 118,862
139,011
--------------- -------------- ------------------------ ----------- -----------
Computer Systems:
Sales to unaffiliated customers 202,167 188,703 173,972
161,867
Intersegment sales 10,488 10,611 13,958
11,252
--------------- -------------- ------------------------ ----------- -----------
212,655 199,314 187,930
173,119
--------------- -------------- ------------------------ ----------- -----------
Printing and Other:
Sales to unaffiliated customers 16,899 12,754 11,130
Intersegment sales -- 9 91
----------- ----------- -----------
16,899 12,763 11,221
----------- ----------- -----------
Elimination of intersegment sales (17,654) (19,972) (18,619)
--------------- -------------- -------------
Total Net Sales $2,353,082 $2,338,453 $2,177,619
=============== ============== =============
Segment Profit (Loss)(17,774) (17,663) (20,063)
----------- ----------- -----------
TOTAL NET SALES $ 2,427,318 $ 2,285,061 $ 2,270,232
=========== =========== ===========
SEGMENT PROFIT (LOSS)
Staffing Services $53,598 $58,799 $31,179
Telephone Directory 17,059 15,828 14,895$ 40,516 $ 53,598 $ 58,799
Telecommunications Services (22,641) 4,977 (1,168)
(2,429)
Computer Systems (22,715) 31,676 28,447
35,801
--------------- -------------- -------------Printing and Other 306 209 (2,103)
----------- ----------- -----------
Total segment (loss) profit 107,310 101,906 79,446(4,534) 90,460 83,975
General corporate expenses (39,770) (43,350) (38,839)
--------------- -------------- -------------
Total Operating Profit $67,540 $58,556 $40,607
=============== ============== =============(36,114) (39,772) (43,349)
----------- ----------- -----------
TOTAL OPERATING (LOSS) PROFIT (40,648) 50,688 40,626
Interest income and other (expense) income, net 848 (890) (4,304)
Interest expense (7,624) (3,612) (1,819)
Foreign exchange gain (loss) 1,155 (421) (505)
----------- ----------- -----------
(Loss) income from continuing operations before income taxes and
minority interest ($ 46,269) $ 45,765 $ 33,998
=========== =========== ===========
-88--101-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE L--Segment Disclosures--Continued
October 28, October 29,
2007 2006
--------------- -------------------
(In thousands)
Assets:
Staffing Services $485,500 $457,204
Telephone Directory 48,937 50,442
Telecommunications Services 75,532 38,800
Computer Systems 220,309 138,625
--------------- -------------------
830,278 685,071
Cash, investments and other corporate assets 9,873 14,050
--------------- -------------------
Total assets $840,151 $699,121
=============== ===================November 2, October 28,
2008 2007
-------- --------
(In thousands)
Assets:
Staffing Services $455,618 $485,500
Telecommunications Services 48,635 75,532
Computer Systems 189,669 220,309
Printing and Other 13,811 13,674
-------- --------
707,733 795,015
Cash, investments and other corporate assets 218,046 9,873
Discontinued Operations -- 35,263
-------- --------
Total assets $925,779 $840,151
======== ========
Sales to external customers and assets of the Company by geographic area are as
follows:
Year Ended
--------------------------------------------
November 2, October 28, October 29,
October 30,2008 2007 2006
2005
------------------------------------------------------ ---------- ----------
(In thousands)
Sales:
Domestic $2,195,060 $2,207,853 $2,058,661$2,236,255 $2,127,039 $2,139,632
International, principally Europe 191,063 158,022 130,600
118,958
--------------- -------------- -------------
$2,353,082 $2,338,453 $2,177,619
=============== ============== =============---------- ---------- ----------
$2,427,318 $2,285,061 $2,270,232
========== ========== ==========
Year Ended
---------------------------------------------------------
November 2, October 28,
October 29,2008 2007
2006
---------------------------------------- --------
(In thousands)
Assets:
Domestic $825,978 $712,649 $602,575
International, principally Europe 99,801 127,502
96,546
--------------- ------------------------ --------
$925,779 $840,151
$699,121
=============== ======================== ========
-102-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE L--Segment Disclosures--Continued
In fiscal 2007,2008, the TelecommunicationsStaffing Services segment's sales to two customers accounted
for approximately 33%12% and 15%10% of the total sales of that segment, the
Telecommunication Services segment's sales to three customers accounted for
approximately 52%, 12% and 11% of the total sales of that segment; and the
Computer Systems segment's sales to two customers accounted for approximately
25%19% and 17% of the total sales of that segment and the Staffing Services
segment's sales to one customer accounted for approximately 13%15% of the total sales of that segment. In fiscal 2007,2008, the sales to
seven operating units of one customer, Microsoft Corporation, accounted for 11%10%
of the Company's consolidated net sales of $2.4 billion and 7%6% of the Company's
consolidated gross billings of $3.5$3.7 billion under a number of different
contracts. The difference between net sales and gross billings is the Company's
associate vendor costs, which are excluded from sales due to the Company's
relationship with the customers and the Company's associate vendors, who have
agreed to
-89-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE L--Segment Disclosures--Continued be paid subject to receipt of the customers' payment to the Company.
Revenue for these services is recognized net of associated vendor costs in the
period the services are rendered. The Company believes that gross billing is a
meaningful measure, which reflects actual volume by the customers.
The loss of one or more of these customers, unless the business is replaced by
the Company or the segment, could result in an adverse effect on the results for
the Company or that segment's business.
In fiscal 2007, the Staffing Services segment's sales to one customer accounted
for approximately 13% of the total sales of that segment; the Telecommunications
Services segment's sales to two customers accounted for approximately 33% and
15% of the total sales of that segment; and the Computer Systems segment's sales
to two customers accounted for approximately 25% and 17% of the total sales of
that segment. In fiscal 2007, the sales to seven operating units of one
customer, Microsoft Corporation, accounted for 11% of the Company's consolidated
net sales of $2.3 billion and 7% of the Company's consolidated gross billings of
$3.5 billion under a number of different contracts.
In fiscal 2006, the Staffing Services segment's sales to one customer accounted
for approximately 13% of the total sales of that segment; the Telecommunications
Services segment's sales to three customers accounted for approximately 24%, 22%
and 18%, respectively, of the total sales of that segment; and the Computer Systems segment's
sales to two customers accounted for approximately 25% and 14%, respectively, of the total
sales of that segment; the Staffing Services segment's sales to one customer
accounted for approximately 13% of the total
sales of that segment. In fiscal 2006, the sales to seven operating units of one
customer, Microsoft Corporation, accounted for 11% of the Company's consolidated
net sales.
In fiscal 2005, the Telecommunications Services segment's sales to two customers
accounted for approximately 30% and 14%, respectively, of the total sales of that segment; the Computer Systems segment's sales to two customers accounted
for approximately 31%$2.3 billion and 13%, respectively, of the total sales of that segment;
the Staffing Services segment's sales to one customer accounted for
approximately 13% of the total sales of that segment. In fiscal 2005, the sales
to seven operating units of one customer, Microsoft Corporation, accounted for
11%7% of the Company's net sales.
The lossconsolidated gross billings of
one or more$3.3 billion under a number of these customers, unless the business is replaced by
the segment, could result in an adverse effect on the results of that segment's
business.different contracts.
-103-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE L--Segment Disclosures--Continued
Capital expenditures and depreciation and amortization by the Company's
operating segments are as follows:
Year Ended
---------------------------------------------------------
October 28, October 29, October 30,
2007 2006 2005
------------------ ----------------- ------------------
(In thousands)
Capital Expenditures:
Staffing Services $12,508 $10,513 $17,061
Telephone Directory 1,813 394 151
Telecommunications Services 3,351 1,781 2,973
Computer Systems 11,725 7,450 6,520
------------------ ----------------- ------------------
Total segments 29,397 20,138 26,705
Corporate 2,009 2,227 1,806
------------------ ----------------- ------------------
$31,406 $22,365 $28,511
================== ================= ==================
Depreciation and Amortization (a):
Staffing Services $12,719 $12,046 $10,399
Telephone Directory 1,919 1,886 1,848
Telecommunications Services 1,952 1,402 1,771
Computer Systems 16,310 13,309 9,840
------------------ ----------------- ------------------
Total segments 32,900 28,643 23,858
Corporate 5,321 6,204 5,745
------------------ ----------------- ------------------
$38,221 $34,847 $29,603
================== ================= ==================
Year Ended
--------------------------------------
November 2, October 28, October 29,
2008 2007 2006
------- ------- -------
(In thousands)
Capital Expenditures:
Staffing Services $ 9,100 $12,508 $10,513
Telecommunications Services 5,849 3,351 1,781
Computer Systems 12,065 11,725 7,450
Printing and Other 69 986 149
------- ------- -------
Total segments 27,083 28,570 19,893
Corporate 1,151 2,009 2,227
------- ------- -------
$28,234 $30,579 $22,120
======= ======= =======
Depreciation and Amortization (a):
Staffing Services $14,052 $12,732 $12,019
Telecommunications Services 2,558 1,950 1,438
Computer Systems 18,883 16,310 13,309
Printing and Other 770 754 760
------- ------- -------
Total segments 36,263 31,746 27,526
Corporate 2,373 5,321 6,204
------- ------- -------
$38,636 $37,067 $33,730
======= ======= =======
(a) Includes depreciation and amortization of property, plant and equipment for
fiscal years 2008, 2007 and 2006 and 2005 of $33.3$30.7 million, $31.0$32.3 million and $28.5$30.0
million, respectively, of which $11.6$8.6 million, $11.6 million and $11.3$11.6
million, respectively, relate to the depreciation of capitalized software.
-90-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE M--Employee Benefits
The Company has various savings plans that permit eligible employees to make
contributions on a pre-tax 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 permanent 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's matching contributions 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 $3.0 million, $2.0 million $1.8 million and $1.7$1.8 million
in fiscal 2008, fiscal 2007 and fiscal 2006, and fiscal 2005, respectively, were accrued and
charged to compensation expense.
The Company has a non-qualified deferred compensation and supplemental savings
plan, which permits eligible employees to defer a portion of their salary. This
plan consists solely of participant deferrals and earnings thereon, which are
reflected as a current liability under accrued wages and commissions. The
Company invests the assets of the plan in mutual funds based upon investment
preferences of the participants.
-104-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE N--Derivative Financial Instruments, Hedging and Restricted Cash
The Company enters into derivative financial instruments only for hedging
purposes. All derivative financial instruments, such as interest rate swap
contracts, foreign currency options and exchange contracts, are recognized in
the consolidated financial statements at fair value regardless of the purpose or
intent for holding the instrument. Changes in the fair value of derivative
financial instruments are either recognized periodically in income or in
stockholders' equity as a component of comprehensive income, depending on
whether the derivative financial instrument qualifies for hedge accounting, and
if so, whether it qualifies as a fair value hedge or cash flow hedge.
Generally, changes in fair values of derivatives accounted for as fair value
hedges are recorded in income along with the portions of the changes in the fair
values of the hedged items that relate to the hedged risks. Changes in fair
values of derivatives accounted for as cash flow hedges, to the extent they are
effective as hedges, are recorded in other comprehensive income, net of deferred
taxes. Changes in fair values of derivatives not qualifying as hedges are
reported in the results of operations. At October 28, 2007,November 2, 2008, the Company had no
outstanding foreign currency option contracts.
Restricted cash at November 2, 2008 and October 28, 2007 and October 29, 2006 included $25.5$48.6 million
and $30.7$25.5 million, respectively, to cover obligations that were reflected in
accounts payable at that date. These amounts primarily related to certain
contracts with customers, for whom the Company manages the customers'
alternative staffing requirements, including the payments to associate vendors.
-91-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE O--Leases
The future minimum rental commitments as of October 28, 2007November 2, 2008 for all
non-cancelable operating leases were as follows:
Fiscal Year Total Office Space Equipment
- --------------------- ------- ------------ ---------
(In thousands)
2008 $19,702 $19,565 $137
2009 14,132 14,082 50
2010 8,353 8,336 17
2011 4,477 4,477 -
2012 2,381 2,381 -
Thereafter 4,769 4,769 -
------- ------------ ---------
$53,814 $53,610 $204
======= ============ =========
Fiscal Year Total Office Space Equipment
----------- ----- ------------ ---------
(In thousands)
2009 $19,057 $18,779 $278
2010 13,532 13,341 191
2011 8,865 8,751 114
2012 5,192 5,136 56
2013 2,223 2,223 -
Thereafter 5,991 5,991 -
------- ------- ----
$54,860 $54,221 $639
======= ======= ====
Many of the leases also require the Company to pay and contribute to property
taxes, insurance and ordinary repairs and maintenance. The lease agreements
which expire at various dates though 2018 and may be subject in some cases to
renewal options, early termination options or escalation clauses.
Rental expense for all operating leases for fiscal years 2008, 2007 and 2006 and 2005 was
$31.8$28.4 million, $31.6$29.9 million and $29.9$29.7 million, respectively.
-105-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE P--Related Person Transactions
During fiscal 2008, 2007 2006 and 2005,2006, the Company paid or accrued $1.7 million,
$1.6 million $0.9 million and $0.8$0.9 million, respectively, to the law firms of which Lloyd
Frank, a director, of the Company, is and was of counsel, for services rendered to the Company and
expenses reimbursed. In addition, during fiscal 2008 the Company paid $34,200 to
Michael Shaw, Ph. D., a brother of Steven Shaw, the Chief Executive Officer and
director, for services rendered to the Company.
In October 2006, the Company purchased 300,000 shares of common stock from the
Estate of William Shaw, the former CEO of the Company, at a price of $26.50 per
share, for a total of $7,950,000. The funds were transferred in November 2006.
The Company intends to use these shares to fund awards under the Volt
Information Sciences, Inc. 2006 Incentive Stock Plan. The shares were purchased
at a price below the price at which the Company's common stock was then being
traded on the New York Stock Exchange (the low trade for the day was $26.63 and
the high trade was $27.23). The decision to make the purchase was made by the
Board of Directors, which delegated the negotiation of the purchase price to
senior management of the Company. The funds were transferred
in November 2006 and the transaction is complete.
In fiscal 2006, the Company advanced $162,400 directly to the attorneys for Mr.
Thomas Daley, an executive officer of the Company ($95,800 of which had
previously been reported in the Company's proxy statement for its 2006 annual
meeting).Company. In 2006, the Company also
paid $336,100 for legal fees of the independent counsel to the Audit Committee
of the Company ($260,000Board of which had
previously been reported inDirectors of the Company's proxy statement for its 2006 annual
meeting).
-92-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--ContinuedCompany.
NOTE Q--Subsequent Events
On December 18, 2007,January 7, 2009, the Company grantedAmended Securitization Program was further amended to
employees (i) 236,750 restricted
stock units and (ii) non-qualified stock options to purchase 154,496 sharesreduce the size of the Company's common stock at $13.32 per share.facility from $200.0 million to $175.0 million and to
extend the 364-day liquidity to January 6, 2010. The grants were made underscheduled expiration of the
Volt Information Sciences, Inc. 2006 Stock Incentive Plan. If certain net income
targets are met in fiscal years 2007 through 2011, the restricted stock units
begin to vest over a five-year period through 2016. Similarly, if net income
targets are met in fiscal years 2008 through 2012, substantially all the stock
options will vest over a four-year periodAmended Securitization Program was not amended, and expire on December 17, 2017.
In December, 2007 and through January 4, 2008, the Company purchased 353,596
shares of common stock on the open market at an average price of $18.14 per
share for a total of $6.4 million. The Company intends to use these treasury
shares to fund awards under the Volt Information Sciences, Inc. 2006 Stock
Incentive Plan and for other corporate purposes.
-93-remains 2013.
-106-
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
NOTE R--Quarterly Results of Operations (Unaudited)
The following is a summary of unaudited quarterly results of operations for the
fiscal years ended November 2, 2008 and October 28, 2007 and October 29, 2006.2007. Each quarter contained
thirteen weeks, except the fourth quarter of fiscal 2008 which contained
fourteen weeks.
Fiscal 2008 Quarter
----------------------------------------------------------
First Second Third Fourth
--------- --------- --------- ---------
(In thousands, except per share data)
Net sales $ 581,054 $ 605,087 $ 590,553 $ 650,624
========= ========= ========= =========
Gross profit $ 13,969 $ 36,853 $ 36,153 $ 50,160
========= ========= ========= =========
(Loss) income from continuing operations ($ 13,638) $ 1,301 $ 1,290 ($ 23,224)
Income from discontinued operations 430 2,069 2,665 93,321
--------- --------- --------- ---------
Net (loss) income ($ 13,208) $ 3,370 $ 3,955 $ 70,097
========= ========= ========= =========
(Loss) income per share
(Loss) income from continuing operations ($ 0.61) $ 0.06 $ 0.06 ($ 1.07)
Income from discontinued operations 0.02 0.09 0.12 4.31
--------- --------- --------- ---------
Net (loss) income ($ 0.59) $ 0.15 $ 0.18 $ 3.24
========= ========= ========= =========
Fiscal 2007 Quarter
-----------------------------------------------------------------------------------------------------------
First Second Third Fourth
--------- --------- --------- ---------
(In thousands, except per share data)
Net sales $548,799 $568,202 $610,465 $625,616$ 537,642 $ 552,333 $ 590,218 $ 604,868
========= ========= ========= =========
Gross profit $35,717 $46,701 $51,409 $74,539$ 31,569 $ 39,430 $ 41,844 $ 63,957
========= ========= ========= =========
(Loss) income from continuing operations ($ 126) $ 4,337 $ 6,137 $ 19,194
Income from discontinued operations 853 2,056 2,980 3,901
--------- --------- --------- ---------
Net income $727 $6,393 $9,117 $23,095$ 727 $ 6,393 $ 9,117 $ 23,095
========= ========= ========= =========
Net income-basic $0.03 $0.28 $0.40 $1.03
========= ========= ========= =========
Net income-diluted $0.03 $0.28 $0.40 $1.03
========= ========= ========= =========
Fiscal 2006 Quarter
-------------------------------------------------
First Second Third Fourth(Loss) income per share
(Loss) income from continuing operations ($ 0.01) $ 0.19 $ 0.27 $ 0.86
Income from discontinued operations 0.04 0.09 0.13 0.17
--------- --------- --------- ---------
(In thousands, except per share data)
Net sales $549,508 $593,811 $584,914 $610,220
========= ========= ========= =========
Gross profit $34,041 $49,438 $49,186 $57,965
========= ========= ========= =========
Net (loss) income ($377) $9,110 $8,353 $13,564
========= ========= ========= =========
Net (loss) income-basic $(0.02) $0.39 $0.36 $0.58
========= ========= ========= =========
Net (loss) income-diluted $(0.02) $0.39 $0.36 $0.57$ 0.03 $ 0.28 $ 0.40 $ 1.03
========= ========= ========= =========
Historically, the Company's results of operations have been lowest in its first
fiscal quarter as a result of reduced requirements for the Staffing Services
segment's personnel due to the Thanksgiving, Christmas and New Year holidays as
well as certain customer facilities closing for one to two weeks. In addition,
the Telephone DirectoryPrinting and Other segment's DataNational division publishes more
directories during the second half of the fiscal year. During the third and
fourth quarter of the fiscal year, the Staffing Services segment benefits from a
reduction of payroll taxes and increased use of Administrative and Industrial
services during the summer vacation period.
-94--107-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company's management, under the supervision and with the participation of
the Company's Chief Executive Officer and Chief Financial Officer, carried out
an evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of October 28, 2007November 2, 2008 (the "Evaluation").
Based uponon that evaluation and the Evaluation, the Company's Chief Executive Officer and Chief
Financial Officerevents described below, management concluded
that, as of their evaluation, the Company's disclosure controls and procedures
(as defined in Exchange Act Rule 13a-15(e)) arewere not effective because of the
effect of a material weakness in ensuringthe Company's system of internal controls,
based on criteria established in Internal Control--Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the
COSO criteria), at one of the Company's subsidiaries. Management concluded that
the subsidiary did not maintain effective policies and procedures to timely
review and evaluate the appropriate recognition of revenue related to sales
contracts with multiple deliverables. Additionally, management concluded that
the subsidiary did not timely and/or accurately review and monitor certain other
transactional control functions. These deficiencies resulted in multiple
adjustments which caused a reasonable possibility that a material informationmisstatement
of the Company's annual or interim financial statements will not be prevented or
detected on a timely basis.
Remediation Efforts Related to the Material Weakness in Internal Controls
The Company's management reviewed and is evaluating the design of the control
procedures relating to revenue recognition and other transactions, and is taking
the following actions to remediate the reported material weakness in internal
controls over financial reporting.
The Company including its consolidated
subsidiaries, iswill re-evaluate the accounting functions and related technical
expertise required. Changes will be made known to them by others within those entities as
appropriateinclude the technical abilities
needed in this subsidiary. In addition corporate oversight of this business unit
will be increased to allow timely decisions regarding required disclosure,
particularly duringreview and monitor certain complex and/or judgmental
accounting functions.
The Company's management has discussed this material weakness and initial
corrective actions and future plans with the periodAudit Committee and the Company's
Board of Directors. The Company expects to remediate the material weakness in
which this annual report was being prepared.the first half of fiscal 2009.
-108-
Management's Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining
adequate "internal control over financial reporting" (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)). Management evaluatesevaluated the effectiveness of the
Company's internal control over financial reporting using criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal - Integrated Framework Management, andCOSO criteria,
under the supervision and with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, and assessed the effectiveness of
the Company's internal control over financial reporting as of October 28, 2007 and concluded that it is effective.
TheNovember 2, 2008.
In management's assessment, the Company acquired LSSi Corp. ("LSSi") in September 2007, and has excluded
LSSi from its assessment of, and conclusion on, the effectiveness of the
Company'sdid not maintain effective internal
control over financial reporting. LSSi accounted for 10% and
21% of total and net assets, respectively,reporting, as of October 28, 2007 and less than
1%November 2, 2008, based on the COSO
criteria, because of both revenues and net income for the year then ended.effect of the material weakness described above.
The CompanyCompany's independent registered public accounting firm, Ernst & Young LLP,
has audited the effectiveness of the Company's internal control over financial
reporting and management's assessment of the effectiveness of such controls as of October 28, 2007,November 2, 2008, as stated in their report which is included
herein.
-98--109-
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Volt Information Sciences, Inc.
We have audited Volt Information Sciences, Inc. and subsidiaries' internal
control over financial reporting as of October 28, 2007,November 2, 2008, based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). Volt
Information Sciences Inc. and subsidiaries' management is responsible for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management's Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
As indicatedA material weakness is a deficiency, or combination of deficiencies, in the accompanying Management's Annual Report on Internal Control
Over Financial Reporting, management's assessment of and conclusion on the
effectiveness of internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company's annual or interim financial
statements will not be prevented or detected on a timely basis. The following
material weakness has been identified and included in management's assessment.
One of the Company's subsidiaries did not includemaintain effective policies and
procedures to timely review and evaluate the internal controlsappropriate recognition of LSSi Corp., which is includedrevenue
related to sales contracts with multiple deliverables. Additionally, the
subsidiary did not timely and/or accurately review and monitor certain other
transactional control functions. This material weakness was considered in
determining the 2007 consolidatednature, timing and extent of audit tests applied in our audit of
the Company's financial statements for the year ended November 2, 2008 and this
report does not affect our report dated February 2, 2009 on those financial
statements.
In our opinion, because of the material weakness described above on the
achievement of the objectives of the control criteria, Volt Information
Sciences, Inc. and subsidiaries and
constituted 10% and 21% of total and net assets, respectively, as of October 28,
2007 and less than 1% of both revenues and net income for the year then ended.
Our audit of internal control over financial reporting of Volt Information
Sciences, Inc. and subsidiaries also didhas not include an evaluation of the
internal control over financial reporting of LSSi Corp.
-99-
In our opinion, Volt Information Sciences, Inc. and subsidiaries maintained in
all material respects, effective internal control
over financial reporting as of October 28, 2007,November 2, 2008, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Volt Information Sciences, Inc. and subsidiaries as of October 28, 2007 and
October 29, 2006, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended October 28, 2007 and our report dated January 10, 2008 expressed an
unqualified opinion thereon.-110-
/s/ Ernst & Young LLP
New York, New York
January 10, 2008
-100-February 2, 2009
-111-
ITEM 9B. OTHER INFORMATION
None.
PART III
The information called for by Part III (Items 10, 11, 12, 13 and 14) of Form
10-K will be included in the Company's Proxy Statement for the Company's 20082009
Annual Meeting of Shareholders, which the Company intends to file within 120
days after the close of its fiscal year ended October 28, 2007November 2, 2008 and is hereby
incorporated by reference to such Proxy Statement, except that the information
as to the Company's executive officers which follows Item 4 in this Report and
the information as to the Company's equity compensation plans contained in the
last paragraph of Item
5 in this Report are incorporated by reference into Items 10 and 12,
respectively, of this Report.
-101--112-
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
15(a)(1). Financial Statements
The following consolidated financial statements of Volt Information
Sciences, Inc. and subsidiaries are included in Item 8 of this
Report:
Page
----
Consolidated Balance Sheets--October 28, 2007 and October 29, 2006 61
Consolidated Statements of Operations--Years ended October 28, 2007,
October 29, 2006 and October 30, 2005 62
Consolidated Statements of Stockholders' Equity--Years ended October 28, 2007,
October 29, 2006 and October 30, 2005 63
Consolidated Statements of Cash Flows--Years ended October 28, 2007,
October 29, 2006 and October 30, 2005 64
Notes to Consolidated Financial Statements 66PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
15(a)(1). Financial Statements
--------------------
The following consolidated financial statements of Volt Information
Sciences, Inc. and subsidiaries are included in Item 8 of this
Report:
Page
----
Consolidated Balance Sheets--November 2, 2008 and
October 28, 2007 70
Consolidated Statements of Operations--Years ended
November 2, 2008, October 28, 2007 and
October 29, 2006 71
Consolidated Statements of Stockholders' Equity--Years ended
November 2, 2008, October 28, 2007 and October 29, 2006 72
Consolidated Statements of Cash Flows--Years ended
November 2, 2008, October 28, 2007 and October 29, 2006 73
Notes to Consolidated Financial Statements 75
15(a)(2). Financial Statement Schedule
----------------------------
The following consolidated financial statement schedule
of Volt Information Sciences, Inc. and subsidiaries is included
in response to Item 15(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.
-102--113-
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 at
Beginning Costs and Other End of
of Period Expenses Accounts Deductions Period
--------- -------- -------- ---------- -------
(In thousands)
Year ended October 28, 2007
Deducted from asset accounts:
Allowance for uncollectable accounts $7,491 $1,974 $4,229(a,b) $5,236
Work in process inventory reserve 4,518 (92) 4,426
Allowance for deferred tax assets 2,258 732(c) 1,526
Unrealized gain on marketable
securities (87) $(61)(d) (148)
Year ended October 29, 2006
Deducted from asset accounts:
Allowance for uncollectable accounts $7,527 $4,003 $4,039(a,b) $7,491
Inventory reserve 2,864 1,654 4,518
Allowance for deferred tax assets 4,760 2,502(c) 2,258
Unrealized gain on marketable
securities (101) $14(d) (87)
Year ended October 30, 2005
Deducted from asset accounts:
Allowance for uncollectable accounts $10,210 $3,838 $6,521(a,b) $7,527
Work in process inventory reserve 157 2,707 2,864
Allowance for deferred tax assets 3,948 $812(c) 4,760
Unrealized gain on marketable
securities (60) (41)(d) (101)
(a) -- Includes write-off of uncollectable accounts.
(b) -- Includes foreign currency translation gain of $119 in 2007, loss of $7 in
2006 and gain of $91 in 2005, respectively.
(c) -- Charge or credit to income tax provision.
(d) -- Charge (credit) to stockholders' equity.
S-1
INDEX TO EXHIBITS
-----------------15(a)(3). Exhibits
Exhibit Description
- ------- -----------
2.1* Asset Purchase Agreement dated as of July 29, 2008 among YPG
Directories, LLC, YPG Systems, LLC and YPG Holdings Inc. and the
Company, DataNational, Inc. and DataNational Georgia, Inc.
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, File No. 1-9232).
3.2 Certificate of Amendment of the Certificate of Incorporation of the
Company, as filed with the Department of State of New York on April
10, 2007. (Exhibit 99.1 to the Company's Current Report on Form 8-K
dated April 11, 2007, File No. 1-9232).
3.3 By-Laws of the Company. (Exhibit 3.2 to the Company's Current Report
on Form 8-K dated December 26, 2007, File No. 1-9232).
4.1(a) Receivables Purchase Agreement, dated as of April 12, 2002 among
Volt Funding Corp., Three Rivers Funding Corporation and Volt
Information Sciences, Inc. (Exhibit 99.1(b) to the Company's
Current Report on Form 8-K dated April 22, 2002, File No. 1-9232).
4.1(b) Second Amendment to Receivables Purchase Agreement dated as of
March 31, 2004 among Volt Funding Corp., Three Rivers Funding
Corporation and Volt Information Sciences, Inc. (Exhibit 4.02 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
May 2, 2004, File No. 1-9232).
4.1(c) Third Amendment to Receivables Purchase Agreement dated as of
April 8, 2005 among Volt Funding Corp., Three Rivers Funding
Corporation and Volt Information Sciences, Inc. (Exhibit 99.1 to
the Company's Current Report on Form 8-K dated April 14, 2005,
File No. 1-9232).
4.1(d) Fourth Amendment to Receivables Purchase Agreement dated as of
January 17, 2006 among Volt Funding Corp., Three Rivers Funding
Corporation and Volt Information Sciences, Inc. (Exhibit 99.1 to
the Company's Current Report on Form 8-K dated February 6, 2006,
File No. 1-9232).
4.1(e) Fifth Amendment to Receivables Purchase Agreement dated as of June
6, 2006 among Volt Funding Corp., Three Rivers Funding Corporation
and Volt Information Sciences, Inc. (Exhibit 99.1 to the Company's
Current Report on Form 8-K dated June 12, 2006, File No. 1-9232).
4.1(f) Sixth Amendment to Receivables Purchase Agreement dated as of
August 18, 2006 among Volt Funding Corp., Three Rivers Funding
Corporation and Volt Information Sciences, Inc. (Exhibit 99.1 to
the Company's Current Report on Form 8-K dated September 5, 2006,
File No. 1-9232).
4.1(g) Second Amended and Restated Credit Agreement, dated as of April
11, 2005 among Volt Information Sciences, Inc. and Gatton Volt
Consulting Group Limited, the guarantors party thereto, the
lenders party thereto and JP Morgan Chase Bank, as administrative
agent. (Exhibit 99.1 to the Company's Current Report on Form 8-K
dated April 19, 2005, File No. 1-9232).
4.1(h) Consent and First Amendment to the Second Amended and Restated
Credit Agreement dated as of November 15, 2005, among Volt
Information Sciences, Inc. and Gatton Volt Consulting Group
Limited, the guarantors party thereto, the lenders party thereto
and J.P. Morgan Chase Bank, as administrative agent.
4.1(i) Consent and Second Amendment to the Second Amended and Restated
Credit Agreement dated as of December 27, 2005, among Volt
Information Sciences, Inc. and Gatton Volt Consulting Group
Limited, the guarantors party thereto, the lenders party thereto
and J.P. Morgan Chase Bank, as administrative agent (Exhibit 99.1
to the Company's Current Report on Form 8-K dated January 4, 2006,
File No. 1-9232).
-103-
Exhibit Description
- ------- -----------
4.1(j) Consent, dated as of July 31, 2007, to the Second Amended and
Restated Credit Agreement dated as of April 11, 2005. (Exhibit
4.1(n) to the Company's Current Report on Form 8-K dated August 3,
2007, File No. 1-9232).
4.1(k)* Waiver, dated as of December 18, 2007 to the Second Amended and
Restated Credit Agreement dated as of April 11, 2005.
4.1(l) Credit Agreement dated as of December 19, 2006 among Volt Delta
Resources, LLC, the lenders party thereto and Wells Fargo Bank N.A.,
as administrative agent (Exhibit 99.1 to the Company's Current Report
on Form 8-K dated December 22, 2006, File No. 1-9232).
4.1(m)4.1(b) Guarantee and Collateral Agreement dated as of December 19, 2006
made by each grantor thereto in favor of Wells Fargo Bank N.A., as
administrative agent for all lenders party to the Credit Agreement
(Exhibit 99.2 to the Company's Current Report on Form 8-K dated
December 22, 2006, File No. 1-9232).
4.1(n)4.1(c) Amendment No. 1, dated as of August 1, 2007, to the Credit
Agreement, dated as of December 19, 2006. (Exhibit 4.1(l) to the
Company's Current Report on Form 8-K dated August 3, 2007, File No.
1-9232).
4.1(o)4.1(d) Form of Revolving Notes under the Credit Agreement, dated as of
December 19, 2006. (Exhibit 4.1(n) to the Company's Current Report on
Form 8-K dated August 3, 2007, File No. 1-9232).
4.1(e) Credit Agreement, dated as of February 28, 2008, among Volt
Information Sciences, Inc., as the borrower, certain subsidiaries of
the borrower, as the guarantors party thereto, the lenders party
thereto, Bank of America, N.A., as administrative agent, swing line
lender and L/C issuer, and JPMorgan Chase Bank, as syndication agent.
(Exhibit 4.1(p) to the Company's Current Report on Form 8-K dated
March 5, 2008, File No. 1-9232).
4.1(f) Waiver, dated as of August 14, 2008, to the Credit Agreement dated
as of February 28, 2008. (Exhibit 4.1(q) to the Company's Current
Report on Form 8-K dated August 20, 2008, File No. 1-9232).
4.1(g) Amended and Restated Receivables Purchase Agreement dated June 3,
2008 among Volt Information Funding Corp., the various buyers and
buyer agents, the Company and PNC Bank as administrator for each buyer
group. (Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 27, 2008 File No. 1-9232).
4.1(h) Amendment No. 2 to the Amended and Restated Receivable Purchase
Agreement, dated as of January 7, 2009. among Volt Information Funding
Corp., the various buyers and buyer agents, the Company and PNC Bank
as administrator for each buyer group. (Exhibit 10.01 to the Company's
Current Report on Form 8-K dated January 13, 2009 File No. 1-9232).
4.1(i) Letter Agreement dated January 7, 2009 among PNC Bank, as
administrator and a buyer agent, Fifth Third Bank, as a buyer agent,
Volt Funding, as seller and the Company, individually and as servicer.
(Exhibit 10.01 to the Company's Current Report on Form 8-K dated
January 13, 2009 File No. 1-9232).
-114-
15(a)(3). Exhibits--Continued
Exhibit Description
- ------- -----------
10.1+ 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+ The Volt Information Sciences, Inc. 2006 Incentive Stock Plan.
(Exhibit A to the Company's Proxy Statement on Form 14-A dated
February 28, 2007, File No. 1-9232).
10.2(a)+ Form of Restricted Stock Agreement for Non-Employee Directors.
(Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended April 29, 2007, File No. 1-9232).
10.2(b)+ Form of Restricted Stock Unit Agreement (Option 1). (Exhibit 10.1
to the Company's Current Report on Form 8-K dated December 26, 2007,
File No. 1-9232).
10.2(c)+ Form of Restricted Stock Unit Agreement (Option 2). (Exhibit 10.2
to the Company's Current Report on Form 8-K dated December 26, 2007,
File No. 1-9232).
10.2(d)+ Form of Non-Qualified Stock Option Agreement. (Exhibit 10.3 to the
Company's Current Report on Form 8-K dated December 26, 2007, 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).
10.4(a)+ Employment Agreement entered into on or about August 25, 2004
between the Company and Thomas Daley (Exhibit 10.4(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended October 30, 2005,
File No. 1-9232).
-104-
Exhibit Description
- ------- -----------
10.4(b)+ Undertaking dated August 5, 2005 from Thomas Daley to the Company
(Exhibit 10.4(a) to the Company's Annual Report on Form 10-K for the
fiscal year ended October 30, 2005, File No. 1-9232).
10.4(c)+ Amendment No. 1 dated as of April 6, 2006, to the Employment
Agreement made and entered into on or about August 25, 2004 between
the Company and Thomas Daley (Exhibit 99.1 to the Company's Current
Report on Form 8-K dated April 10, 2006, File No. 1-9232)
10.4(d)+ Employment Agreement entered on March 16, 2006 between the Company
and Jack Egan (Exhibit 99.1 to the Company's Current Report on Form
8-K dated March 22, 2006, File No. 1-9232)
10.4(e)+ Employment Agreement entered on May 26, 2006 between the Company
and Ludwig M. Guarino (Exhibit 99.1 to the Company's Current Report on
Form 8-K dated May 31, 2006, File No. 1-9232)
10.5(a)+ Form of Indemnification Agreement (Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31, 2005,
File No. 1-9232).
10.5(b)+ Form of Indemnification Agreement (Exhibit 10.4(b) to the
Company's Annual Report on Form 10-K for the fiscal year ended October
29, 2006, File No. 1-9232).
14. Volt Information Sciences, Inc. and Subsidiaries Code of Ethical
Conduct for Financial Managers (Exhibit 14 to the Company's Annual
Report on Form 10-K for the fiscal year ended November 2, 2003, File
No. 1-9232).
-115-
15(a)(3). Exhibits--Continued
Exhibit Description
- ------- -----------
21.* Subsidiaries of the Registrant.
23.* Consent of Independent Registered Public Accounting Firm.
31.1* Certification of Principal Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Principal Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1* Certification of Principal Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2* Certification of Principal Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
+ 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.
-105--116-
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.
-106--117-
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/Steven A. Shaw
January 11, 200830, 2009 ------------------
Steven A. Shaw
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/Steven A. Shaw President, and January 30, 2009
- -------------------- Chief Executive Officer
Steven A. Shaw
/s/Jack Egan Senior Vice President January 30, 2009
- ------------------ (Principal Financial and
Jack Egan Accounting Officer)
/s/Lloyd Frank Director January 30, 2009
- --------------------
Lloyd Frank
/s/Theresa A. Havell Director January 30, 2009
- --------------------
Theresa A. Havell
/s/Mark N. Kaplan Director January 30, 2009
- --------------------
Mark N. Kaplan
/s/Bruce G. Goodman Director January 30, 2009
- --------------------
Bruce G. Goodman
/s/William H. Turner Director January 30, 2009
- --------------------
William H. Turner
/s/Deborah Shaw Director January 30, 2009
- --------------------
Deborah Shaw
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 at
Beginning Costs and Other End of
of Period Expenses Accounts Deductions Period
--------- -------- -------- ---------- ------
(In thousands)
Signature Title Date
- --------- ----- ----
/s/Steven A, Shaw President, and Chief Executive Officer January 11,
Year ended November 2, 2008
- ------------------------------
Steven A. Shaw
/s/Jack Egan Senior Vice President January 11, 2008
- ------------------------------ (Principal Financial Officer)
Jack Egan
/s/Lloyd Frank Director January 11, 2008
- ------------------------------
Lloyd Frank
/s/Theresa A. Havell Director January 11, 2008
- ------------------------------
Theresa A. Havell
/s/Mark N. Kaplan Director January 11, 2008
- ------------------------------
Mark N. Kaplan
/s/Bruce G. Goodman Director January 11, 2008
- ------------------------------
Bruce G. Goodman
/s/William H. Turner Director January 11, 2008
- ------------------------------
William H. Turner
/s/Deborah Shaw Director January 11, 2008
- ------------------------------
DeborahDeducted from asset accounts:
Allowance for uncollectible accounts $3,749 $4,634 $3,055 (a,b) $5,328
Work in process inventory reserve 4,230 (85) 4,145
Allowance for deferred tax assets 1,526 $2,479 (c) 4,005
Unrealized (gain) loss on marketable securities (148) 187 (d) 39
Year ended October 28, 2007
Deducted from asset accounts:
Allowance for uncollectible accounts $5,943 $393 $2,587 (a,b) $3,749
Work in process inventory reserve 4,327 (97) 4,230
Allowance for deferred tax assets 2,258 732 (c) 1,526
Unrealized gain on marketable securities (87) $(61)(d) (148)
Year ended October 29, 2006
Deducted from asset accounts:
Allowance for uncollectible accounts $5,654 $2,670 $2,381 (a,b) $5,943
Inventory reserve 2,506 1,821 4,327
Allowance for deferred tax assets 4,760 2,502 (c) 2,258
Unrealized (gain) loss gain on marketable securities (101) $14 (d) (87)
(a)--Includes write-off of uncollectible accounts.
(b)--Includes foreign currency translation (loss) gain of $(43) in 2008, $119 in
2007and ($7) in 2006, respectively.
(c)--Charge or credit to income tax provision.
(d)--Charge (credit) to stockholders' equity.
S-1
INDEX TO EXHIBITS
-----------------
Exhibit Description
- ------- -----------
2.1* Asset Purchase Agreement dated as of July 29, 2008 among YPG
Directories, LLC, YPG Systems, LLC and YPG Holdings Inc. and the
Company, DataNational, Inc. and DataNational Georgia, Inc.
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, File No. 1-9232).
3.2 Certificate of Amendment of the Certificate of Incorporation of the
Company, as filed with the Department of State of New York on April
10, 2007. (Exhibit 99.1 to the Company's Current Report on Form 8-K
dated April 11, 2007, File No. 1-9232).
3.3 By-Laws of the Company. (Exhibit 3.2 to the Company's Current Report
on Form 8-K dated December 26, 2007, File No. 1-9232).
4.1(a) Credit Agreement dated as of December 19, 2006 among Volt Delta
Resources, LLC, the lenders party thereto and Wells Fargo Bank N.A.,
as administrative agent (Exhibit 99.1 to the Company's Current Report
on Form 8-K dated December 22, 2006, File No. 1-9232).
4.1(b) Guarantee and Collateral Agreement dated as of December 19, 2006
made by each grantor thereto in favor of Wells Fargo Bank N.A., as
administrative agent for all lenders party to the Credit Agreement
(Exhibit 99.2 to the Company's Current Report on Form 8-K dated
December 22, 2006, File No. 1-9232).
4.1(c) Amendment No. 1, dated as of August 1, 2007, to the Credit
Agreement, dated as of December 19, 2006. (Exhibit 4.1(l) to the
Company's Current Report on Form 8-K dated August 3, 2007, File No.
1-9232).
4.1(d) Form of Revolving Notes under the Credit Agreement, dated as of
December 19, 2006. (Exhibit 4.1(n) to the Company's Current Report on
Form 8-K dated August 3, 2007, File No. 1-9232).
4.1(e) Credit Agreement, dated as of February 28, 2008, among Volt
Information Sciences, Inc., as the borrower, certain subsidiaries of
the borrower, as the guarantors party thereto, the lenders party
thereto, Bank of America, N.A., as administrative agent, swing line
lender and L/C issuer, and JPMorgan Chase Bank, as syndication agent.
(Exhibit 4.1(p) to the Company's Current Report on Form 8-K dated
March 5, 2008, File No. 1-9232).
4.1(f) Waiver, dated as of August 14, 2008, to the Credit Agreement dated
as of February 28, 2008. (Exhibit 4.1(q) to the Company's Current
Report on Form 8-K dated August 20, 2008, File No. 1-9232).
4.1(g) Amended and Restated Receivables Purchase Agreement dated June 3,
2008 among Volt Information Funding Corp., the various buyers and
buyer agents, the Company and PNC Bank as administrator for each buyer
group. (Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 27, 2008 File No. 1-9232).
4.1(h) Amendment No. 2 to the Amended and Restated Receivable Purchase
Agreement, dated as of January 7, 2009. among Volt Information Funding
Corp., the various buyers and buyer agents, the Company and PNC Bank
as administrator for each buyer group. (Exhibit 10.01 to the Company's
Current Report on Form 8-K dated January 13, 2009 File No. 1-9232).
4.1(i) Letter Agreement dated January 7, 2009 among PNC Bank, as
administrator and a buyer agent, Fifth Third Bank, as a buyer agent,
Volt Funding, as seller and the Company, individually and as servicer.
(Exhibit 10.01 to the Company's Current Report on Form 8-K dated
January 13, 2009 File No. 1-9232).
Exhibit Description
- ------- -----------
10.1+ 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+ The Volt Information Sciences, Inc. 2006 Incentive Stock Plan.
(Exhibit A to the Company's Proxy Statement on Form 14-A dated
February 28, 2007, File No. 1-9232).
10.2(a)+ Form of Restricted Stock Agreement for Non-Employee Directors.
(Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended April 29, 2007, File No. 1-9232).
10.2(b)+ Form of Restricted Stock Unit Agreement (Option 1). (Exhibit 10.1
to the Company's Current Report on Form 8-K dated December 26, 2007,
File No. 1-9232).
10.2(c)+ Form of Restricted Stock Unit Agreement (Option 2). (Exhibit 10.2
to the Company's Current Report on Form 8-K dated December 26, 2007,
File No. 1-9232).
10.2(d)+ Form of Non-Qualified Stock Option Agreement. (Exhibit 10.3 to the
Company's Current Report on Form 8-K dated December 26, 2007, File No.
1-9232).
10.3(a)+ Employment Agreement, dated as of May 1, 1987, between the Company
and Jerome Shaw
-107-(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).
10.4(a)+ Employment Agreement entered into on or about August 25, 2004
between the Company and Thomas Daley (Exhibit 10.4(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended October 30, 2005,
File No. 1-9232).
10.4(b)+ Undertaking dated August 5, 2005 from Thomas Daley to the Company
(Exhibit 10.4(a) to the Company's Annual Report on Form 10-K for the
fiscal year ended October 30, 2005, File No. 1-9232).
10.4(c)+ Amendment No. 1 dated as of April 6, 2006, to the Employment
Agreement made and entered into on or about August 25, 2004 between
the Company and Thomas Daley (Exhibit 99.1 to the Company's Current
Report on Form 8-K dated April 10, 2006, File No. 1-9232)
10.4(d)+ Employment Agreement entered on March 16, 2006 between the Company
and Jack Egan (Exhibit 99.1 to the Company's Current Report on Form
8-K dated March 22, 2006, File No. 1-9232)
10.4(e)+ Employment Agreement entered on May 26, 2006 between the Company
and Ludwig M. Guarino (Exhibit 99.1 to the Company's Current Report on
Form 8-K dated May 31, 2006, File No. 1-9232)
10.5(a)+ Form of Indemnification Agreement (Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31, 2005,
File No. 1-9232).
10.5(b)+ Form of Indemnification Agreement (Exhibit 10.4(b) to the
Company's Annual Report on Form 10-K for the fiscal year ended October
29, 2006, File No. 1-9232).
14. Volt Information Sciences, Inc. and Subsidiaries Code of Ethical
Conduct for Financial Managers (Exhibit 14 to the Company's Annual
Report on Form 10-K for the fiscal year ended November 2, 2003, File
No. 1-9232).
Exhibit Description
- ------- -----------
21.* Subsidiaries of the Registrant.
23.* Consent of Independent Registered Public Accounting Firm.
31.1* Certification of Principal Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Principal Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1* Certification of Principal Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2* Certification of Principal Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
+ 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.