UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For The Three Months Ended February 2, 2003
Or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________________ to ____________________
Commission File No. 1-9232
VOLT INFORMATION SCIENCES, INC.
(Exact name of registrant as specified in its charter)
New York 13-5658129
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes |X| No |_|
Indicate by check mark whether Registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act). Yes |X| No |_|
The number of shares of the Registrant's common stock, $.10 par value,
outstanding as of March 14, 2003 was 15,217,415.
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three Months Ended February 2, 2003 and February 3, 2002 3
Condensed Consolidated Balance Sheets -
February 2, 2003 and November 3, 2002 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended February 2, 2003 and February 3, 2002 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 28
Item 4. Controls and Procedures 28
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURE 29
CERTIFICATIONS BY PRINCIPAL EXECUTIVE AND FINANCIAL OFFICERS 30
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
-----------------------------
February 2, February 3,
2003 2002(a)
----------- -----------
(In thousands, except per share amounts)
NET SALES $358,243 $338,753
COSTS AND EXPENSES:
Cost of sales 341,714 326,975
Selling and administrative 15,946 15,428
Depreciation and amortization 5,743 5,509
--------- ---------
363,403 347,912
--------- ---------
OPERATING LOSS (5,160) (9,159)
OTHER INCOME (EXPENSE):
Interest income 182 198
Other expense-net--Note B (556) (318)
Foreign exchange gain (loss)-net--Note J 85 (13)
Interest expense (643) (1,823)
--------- ---------
Loss from continuing operations before income taxes (6,092) (11,115)
Income tax benefit 2,289 4,392
--------- ---------
Loss from continuing operations before items shown below (3,803) (6,723)
Discontinued operations--Note H 4,310
Cumulative effect of a change in accounting--Note K:
Goodwill impairment (31,927)
--------- ---------
NET LOSS ($3,803) ($34,340)
========= =========
Per Share Data
--------------
Basic and Diluted:
Loss from continuing operations ($0.25) ($0.44)
Gain from discontinued operations 0.28
Cumulative effect of a change in accounting (2.10)
--------- ---------
Net loss per share ($0.25) ($2.26)
========= =========
Weighted average number of shares--Note G 15,217 15,216
========= =========
(a) Pursuant to the Company's adoption of SFAS No. 142, results for the three
months ended February 3, 2002 have been restated to give effect to the
cumulative effect of a change in accounting related to goodwill
impairment, the determination of which was finalized during the second
quarter of fiscal 2002 (see Notes A and K).
See accompanying notes to condensed consolidated financial statements.
3
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
February 2, November 3,
2003 2002(a)
----------- -----------
(Unaudited)
ASSETS (Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents, including restricted cash of $15,308 (2003) and
$11,458 (2002)--Note J $ 60,722 $ 43,620
Short-term investments 3,522 3,754
Trade accounts receivable less allowances of $10,268 (2003) and
$10,994 (2002)--Note B 265,710 300,670
Inventories--Note C 28,693 29,690
Recoverable income taxes 8,576 6,552
Deferred income taxes 8,327 8,343
Prepaid expenses and other assets 15,044 15,212
--------- ---------
TOTAL CURRENT ASSETS 390,594 407,841
Property, plant and equipment less allowances for depreciation and amortization
of $93,340 (2003) and $87,769 (2002)--Note E 87,736 89,294
Deposits and other assets 3,157 3,380
Intangible assets-less accumulated amortization of $1,288 (2003) and
$1,258 (2002)--Note K 9,045 9,075
--------- ---------
TOTAL ASSETS $ 490,532 $ 509,590
========= =========
CURRENT LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks--Note D $ 2,738 $ 2,424
Current portion of long-term debt--Note E 1,529 1,524
Accounts payable 136,629 154,054
Accrued wages and commissions 35,899 39,529
Accrued taxes other than income taxes 14,956 18,525
Accrued interest and other accruals 9,558 8,276
Customer advances and other liabilities 26,859 19,009
--------- ---------
TOTAL CURRENT LIABILITIES 228,168 243,341
Long-term debt--Note E 14,409 14,469
Deferred income taxes 14,687 14,743
STOCKHOLDERS' EQUITY--Notes B, E and F
Preferred stock, par value $1.00; Authorized--500,000 shares; issued--none
Common stock, par value $.10; Authorized--30,000,000 shares; issued--
15,217,415 shares 1,522 1,522
Paid-in capital 41,036 41,036
Retained earnings 191,159 194,962
Accumulated comprehensive loss (449) (483)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 233,268 237,037
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 490,532 $ 509,590
========= =========
(a) The balance sheet at November 3, 2002 has been derived from the audited
financial statements at that date.
See accompanying notes to condensed consolidated financial statements.
4
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
---------------------------
February 2, February 3,
2003 2002
----------- -----------
(In thousands)
CASH PROVIDED BY (APPLIED TO) OPERATING ACTIVITIES
Net loss ($3,803) ($34,340)
Adjustments to reconcile net loss to cash provided by operating activities:
Discontinued operations (4,310)
Cumulative effect of a change in accounting-goodwill impairment (a) 31,927
Depreciation and amortization 5,743 5,509
Equity in net loss of joint venture 273
Accounts receivable provisions 839 1,833
(Gain) loss on foreign currency translation (1) 22
Deferred income tax (benefit) provision (71) 203
Other (2) 39
Changes in operating assets and liabilities:
Decrease in accounts receivable 34,720 55,965
Decrease in inventories 997 1,983
Decrease (increase) in prepaid expenses and other current assets 464 (3,572)
Decrease other assets 67 865
Decrease in accounts payable (17,856) (12,910)
Decrease in accrued expenses (5,916) (13,242)
Increase in customer advances and other liabilities 7,747 6,980
Decrease in income taxes payable (2,024) (5,980)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,904 31,245
-------- --------
5
VOLT INFORMATION SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)--Continued
Three Months Ended
---------------------------
February 2, February 3,
2003 2002
----------- -----------
(In thousands)
CASH PROVIDED BY (APPLIED TO) INVESTING ACTIVITIES
Sales of investments $364 $387
Purchases of investments (226) (232)
Proceeds from disposals of property, plant and equipment 124 93
Purchases of property, plant and equipment (4,210) (2,995)
Proceeds from sale of subsidiary 24,233
Other 3 (191)
-------- --------
NET CASH (APPLIED TO) PROVIDED BY INVESTING ACTIVITIES (3,945) 21,295
-------- --------
CASH (APPLIED TO) PROVIDED BY FINANCING ACTIVITIES
Payment of long-term debt (55) (77)
Increase (decrease) in notes payable to banks 337 (49,623)
-------- --------
NET CASH PROVIDED BY (APPLIED TO) FINANCING ACTIVITIES 282 (49,700)
-------- --------
Effect of exchange rate changes on cash (139) (265)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 17,102 2,575
Cash and cash equivalents, including restricted cash, beginning of period 43,620 18,474
-------- --------
CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED CASH, END OF PERIOD $60,722 $21,049
======== ========
SUPPLEMENTAL INFORMATION
Cash paid during the period:
Interest expense $526 $1,514
Income taxes, net of refunds ($194) $1,384
(a) Pursuant to the Company's adoption of SFAS No. 142, cash flows for the
three months ended February 3, 2002 have been restated to give effect to
the cumulative effect of a change in accounting related to goodwill
impairment, the determination of which was finalized during the second
quarter of fiscal 2002 (see Notes A and K).
See accompanying notes to condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note A--Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and Article 10 of
Regulation S-X and, therefore, do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the
Company's consolidated financial position at February 2, 2003 and consolidated
results of operations and consolidated cash flows for the three months ended
February 2, 2003 and February 3, 2002. Pursuant to the Company's adoption of
Statement of Financial Accounting Standards ("SFAS") No. 142, the results of
operations and cash flows for the three months ended February 3, 2002 have been
restated to give effect to the cumulative effect of a change in accounting
related to goodwill impairment, the determination of which was finalized during
the second quarter of fiscal 2002 (see Note K). Operating results for interim
periods are not indicative of the results that may be expected for the fiscal
year.
These statements should be read in conjunction with the financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended November 3, 2002. The accounting policies used in preparing these
financial statements are the same as those described in that Report. The
Company's fiscal year ends on the Sunday nearest October 31.
Note B--Securitization Program
Effective April 15, 2002, the Company entered into a $100.0 million, three-year
accounts receivable securitization program ("Securitization Program"). Under the
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"). Volt Funding, in turn, sells
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
acquires from the Company (subject to a maximum purchase by TRFCO in the
aggregate of $100.0 million). The Company retains the servicing responsibility
for the accounts receivable. At February 3, 2003, TRFCO had purchased from Volt
Funding a participation interest of $60.0 million out of a pool of approximately
$144.4 million of receivables.
The 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 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 Securitization Program is designed to enable receivables sold by the Company
to 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 Volt Funding, to satisfy the Company's creditors (subject also, as described
in Note E, to the security interest that the Company has granted in the common
stock of Volt Funding in favor of the lenders under the Company's new Credit
Facility). TRFCO has no recourse to the Company (beyond its interest in the pool
of receivables owned by Volt Funding) for any of the sold receivables.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note B--Securitization Program--Continued
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.
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. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." At the time a participation interest in the
receivables is sold, the receivable representing that interest is removed from
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 on
TRFCO's commercial paper, are charged to the consolidated statement of
operations.
The Company incurred charges of $0.4 million in the first quarter of fiscal
2003, which are included in Other Expense on the condensed consolidated
statement of operations. The equivalent cost of funds in the Securitization
Program was 2.2% per annum. 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 values.
At February 2, 2003 and November 3, 2002, the Company's carrying retained
interest in a revolving pool of receivables of approximately $144.4 million and
$168.2 million, respectively, net of a service fee liability, was approximately
$84.3 million and $108.1 million, respectively. The outstanding balance of the
undivided interest sold to TRFCO was $60.0 million at February 2, 2003 and
November 3, 2002. Accordingly, the trade accounts receivable included on the
February 2, 2003 and November 3, 2002 condensed consolidated balance sheets have
been reduced to reflect the $60.0 million participation interest sold.
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. The Company's most recent long-term debt rating
was "BBB-" with a neutral rating outlook.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" to provide new guidance with respect to the
consolidation of all previously unconsolidated entities, including special
purpose entities. The Company has no unconsolidated subsidiaries. Therefore the
adoption of the interpretation, required in fiscal 2003, had no impact on the
Company's consolidated financial position or results of operations.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note C--Inventories
Inventories of accumulated unbilled costs and materials by segment are as
follows:
February 2, November 3,
2003 2002
----------- -----------
(In thousands)
Staffing Services $ 32
Telephone Directory $11,573 11,355
Telecommunications Services 13,453 14,394
Computer Systems 3,667 3,909
------- -------
Total $28,693 $29,690
======= =======
The cumulative amounts billed under contracts at February 2, 2003 and November
3, 2002 of $5.0 million and $2.1 million, respectively, are credited against the
related costs in inventory.
Note D--Short-Term Borrowings
At February 2, 2003, the Company had total outstanding bank borrowings of $2.7
million under credit lines with domestic and foreign banks, that expire at
various times during fiscal 2003 unless renewed, and that provide for borrowings
and letters of credit up to an aggregate of $10.9 million. Borrowings in foreign
currencies provide a hedge against devaluation in foreign currency denominated
assets.
Note E--Long-Term Debt
Long-term debt consists of the following:
February 2, November 3,
2003 2002
----------- -----------
(In thousands)
Term loan (a) $14,755 $14,810
Notes payable (b) 1,183 1,183
------- -------
15,938 15,993
Less amounts due within one year 1,529 1,524
------- -------
Total long-term debt $14,409 $14,469
======= =======
(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. 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 land and buildings (carrying
amount at February 2, 2003, $11.4 million). The obligation is guaranteed
by the Company.
(b) On February 9, 1999, the Company entered into a $5.6 million installment
payment agreement to finance the purchase and support of an Enterprise
Resource Planning system for internal use as an accounting and back office
system, which has been capitalized and is being amortized over a five to
seven year period. The agreement provides for interest, calculated at 6%,
and principal payments in five equal annual installments of $1.3 million,
which began in February 1999. The final payment was made in February 2003.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note E--Long-Term Debt--Continued
Effective April 15, 2002, the Company entered into a $40.0 million, two-year,
secured, syndicated, revolving credit agreement ("Credit Agreement") which
established a 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 to $25.0 million in the
aggregate. The administrative agent arranger for the secured Credit Facility is
JP Morgan Chase Bank. The other banks participating in the Credit Facility are
Mellon Bank, NA, Wells Fargo, N. A. and Lloyds TSB Bank PLC. Borrowings and
letters of credit under the Credit Facility are limited to a specified borrowing
base, which is based upon the level of specified receivables, generally at the
end of the fiscal month preceding a borrowing. At February 2, 2003, the
borrowing base was approximately $31.7 million. Borrowings under the Credit
Facility are to bear interest at various rate options selected by the Company at
the time of each borrowing, certain of which options are based on a leverage
ratio, as defined (as is the facility fee). Additionally, interest and the
facility fees can be increased or decreased upon a change in the Company's
long-term debt rating provided by a nationally recognized rating agency. Based
upon the Company's leverage ratio and debt rating at February 2, 2003, if a
three-month LIBO rate was the interest rate option selected by the Company,
borrowings would have borne interest at the rate of 2.8% per annum. At February
2, 2003, the facility fee was 0.5% per annum.
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, of $220.0 million (the
Company's consolidated tangible net worth as of February 2, 2003 was $225.5
million); limits cash dividends and capital stock repurchases and redemptions by
the Company in any one fiscal year to 25% of consolidated net income, as
defined, for the prior fiscal year; requires the Company to maintain a ratio of
EBIT, as defined, to interest expense, as defined, of 1.25 to 1.0 for the twelve
months ending as of the last day of each fiscal quarter. As a result of the loss
sustained by the Company in fiscal 2002, the Company is currently restricted
from paying dividends, and making stock repurchases and stock redemptions. 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, and loans
that may be made by the Company and its subsidiaries. The Company received a
waiver of the interest coverage covenant relating to its fiscal quarter ended
February 2, 2003 contained in the Credit Agreement since the ratio of EBIT, as
defined, to interest expense, as defined, was .96 to 1.0 for the twelve months
ended February 2, 2003. At February 2, 2003, the Company was in compliance with
all other covenants in the Credit Agreement and believes it will be in
compliance with all covenants through at least the remainder of fiscal 2003.
The Company has not borrowed under the Credit Facility since its inception in
April 2002 and no borrowings are presently anticipated in the second quarter of
fiscal 2003. 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. Six subsidiaries of the Company are
guarantors of all loans made to the Company or to subsidiary borrowers under the
Credit Facility. At February 2, 2003, four of those guarantors have pledged
approximately $44.1 million of accounts receivable, other than those in the
Securitization Program, as collateral security for their guarantee obligations.
Under certain circumstances, other subsidiaries of the Company also may be
required to become guarantors under the Credit Facility. The Company has pledged
all of the stock of Volt Funding (see Note B) as collateral security for the
Company's obligations under the Credit Facility.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note F--Stockholders' Equity
Changes in the major components of stockholders' equity for the three months
ended February 2, 2003 are as follows:
Common Paid-In Retained
Stock Capital Earnings
------ ------- ---------
(In thousands)
Balance at November 3, 2002 $1,522 $41,036 $ 194,962
Net loss for the three months (3,803)
------ ------- ---------
Balance at February 2, 2003 $1,522 $41,036 $ 191,159
====== ======= =========
Another component of stockholders' equity, the accumulated other comprehensive
loss, consists of cumulative unrealized foreign currency translation losses, net
of taxes, of $451,000 and $490,000 at February 2, 2003 and November 3, 2002,
respectively, and an unrealized gain, net of taxes, of $2,000 and $7,000 in
marketable securities at February 2, 2003 and November 3, 2002, respectively.
Changes in these items, net of income taxes, are included in the calculation of
comprehensive loss as follows:
Three Months Ended
---------------------------
February 2, February 3,
2003 2002(1)
----------- -----------
(In thousands)
Net loss ($3,803) ($34,340)
Foreign currency translation adjustments-net 39 (14)
Unrealized (loss) gain on marketable securities-net (5) 28
------- --------
Total comprehensive loss ($3,769) ($34,326)
======= ========
(1) See Notes A and K for information concerning the restatement of the
Company's results for the three months ended February 3, 2002.
Note G--Per Share Data
In calculating basic earnings per share, the dilutive effect of stock options
are excluded. Diluted earnings per share are computed on the basis of the
weighted average number of shares of common stock outstanding and the assumed
exercise of dilutive outstanding stock options based on the treasury stock
method.
Three Months Ended
----------------------------
February 2, February 3,
2003 2002
----------- -----------
Denominator for basic and diluted earnings per share -
Weighted average number of shares 15,217,415 15,215,665
Due to a pre-tax loss in the first quarters of fiscal 2003 and 2002, none of the
outstanding options to purchase 563,623 and 571,201 shares, respectively, of the
Company's common stock were included in the computation of diluted earnings per
share because the effect of inclusion would have been antidilutive.
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note H--Sale and Acquisitions of Subsidiaries and Businesses
On November 30, 2001, the Company's 59% owned publicly-held subsidiary,
Autologic Information International, Inc. ("Autologic"), that comprised the
Company's Electronic Publication and Typesetting segment, was acquired by Agfa
Corporation through a tender offer for all of Autologic's outstanding shares and
a subsequent merger. The Company received $24.2 million for its shares. The
Company's gain on the sale of $4.5 million, including a tax benefit of $1.7
million (resulting from a taxable loss versus a gain for financial purposes), is
reflected in the Company's first quarter of fiscal 2002. The results of
operations of Autologic have been classified as discontinued.
The following results related to Autologic are included in discontinued
operations (through the sale and disposal date of November 30, 2001) for the
quarter ended February 3, 2002:
Three Months Ended
February 3, 2002
------------------
(In thousands)
Revenue $3,296
=======
Loss before taxes and minority interest ($488)
Income tax benefit 153
Minority interest 138
-------
Loss from operations (197)
-------
Gain on disposal before tax benefit 2,761
Income tax benefit 1,746
-------
Gain on disposal 4,507
-------
Gain from discontinued operations $4,310
=======
Note I--Segment Disclosures
Financial data concerning the Company's sales and segment operating profit
(loss) by reportable operating segment for the three months ended February 2,
2003 and February 3, 2002, included on page 17 of this Report, is an integral
part of these condensed consolidated financial statements. During the three
months ended February 2, 2003, consolidated assets decreased by $19.1 million
primarily due to a decrease in receivables of the Staffing Services and
Telecommunications Services segments partially offset by an increase in cash and
cash equivalents due to reduced working capital requirements of the Company.
Note J--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
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note J--Derivative Financial Instruments--Continued
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 February 2, 2003, the Company had outstanding
foreign currency option and forward contracts in the aggregate notional amount
equivalent to $9.0 million, which approximated its net investment in foreign
operations and is accounted for as a hedge under SFAS No. 52.
Included in cash and cash equivalents at February 2, 2003 and November 3, 2002
was approximately $15.3 million and $11.5 million, respectively, restricted to
cover obligations that were reflected in accounts payable at that date. These
amounts primarily relate to certain contracts with customers in which the
Company manages the customers' alternative staffing requirements, including the
payment of associate vendors.
Note K--Goodwill
As of the beginning of fiscal 2002, the Company adopted SFAS No. 142, "Goodwill
and Other Intangible Assets." Under the new rules, goodwill and other
intangibles with indefinite lives are no longer amortized, but are subject to
testing, annually and whenever events or changes in circumstances indicate that
their carrying amounts may not be recoverable, using fair value methodology. The
Company engaged independent valuation firms to assist in the determination of
impairment, which may have existed in the $39.8 million of goodwill recorded at
the beginning of fiscal 2002. The result of testing goodwill, upon adoption of
SFAS No. 142, resulted in a non-cash charge of $31.9 million, which is reported
under the caption "Cumulative Effect of a Change in Accounting" in fiscal 2002.
The Company's annual impairment tests on the remaining goodwill of $9.0 million
are expected to be computed during the second quarter of fiscal 2003.
The fiscal 2002 impairment charge in the Staffing Services segment relates to
the Company's European Technical Placement division and the Commercial and Light
Industrial division, which had been adversely affected by the economic declines
in Europe and the United States, respectively. Both divisions had incurred
losses in fiscal 2001. Accordingly, an impairment charge of $23.9 million
(including $2.6 million, the total carrying amount of goodwill for the
Commercial and Light Industrial division as of November 5, 2001) was recognized.
The fiscal 2002 impairment charge in the Company's Telephone Directory business
related to its independent telephone directory publishing division ($6.9
million) of that segment, and the Company's then owned 50% interest in the
westVista joint venture ($1.1 million), which also published independent
directories. Due to the fact that some of the directories purchased had not
performed as well as projected and in some cases had incurred losses, an
impairment charge of $8.0 million was recognized.
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--Continued
Note L--Stock Options
The Company has elected to follow 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. Had
compensation cost for these plans been determined at the grant dates for awards
under the alternative accounting method provided for in SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure - an
Amendment of FASB Statement No. 123," net income and earnings per share, on a
pro forma basis, would have been:
Three Months Ended
-----------------------------
February 2, February 3,
2003 2002(1)
----------- -----------
Pro forma net (loss) income (in thousands) ($3,857) ($34,437)
Pro forma net (loss) income per share-basic and diluted ($0.25) ($2.26)
(1) See Notes A and K for information concerning the restatement of the
Company's results for the three months ended February 3, 2002.
14
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements Disclosure
This Report and other reports and statements issued by the Company and its
officers, from time-to-time, contain certain statements concerning the Company's
future plans, objectives, performance, intentions and expectations. When used in
this report, words such as "may," "should," "could," "seek," "believe,"
"expect," "anticipate," "estimate," "project," "strategy," "intend," "likely,"
and similar expressions are intended to identify forward-looking statements
about the Company's future plans, objectives, performance, intentions and
expectations. Although the Company believes that its assumptions are reasonable,
these forward-looking statements are subject to a number of known and unknown
risks and uncertainties that could cause the Company's actual results,
performance and achievements to differ materially from those described or
implied in the forward-looking statements. These risks and uncertainties
include, but are not limited to:
o general economic, competitive and other business conditions, including the
effects of weakened domestic and international economies
o the uncertainty of the world political situation, including the possible
effects of military action and terrorism
o continued financial strength of the Company's customers, some of which
have experienced layoffs, unfavorable financial results, investigations by
government agencies and lowered financial expectations for the near term
o the degree and timing of obtaining new contracts and the rate of renewals
of existing contracts, as well as customers' degree of utilization of the
Company's services
o material changes in demand from larger customers, including those with
which the Company has national contracts
o the effect of litigation by temporary employees, and government activity
regarding, temporary help companies and the customers with which they do
business
o variations in the rate of unemployment and higher wages sought by
temporary workers, in certain technical fields particularly characterized
by labor shortages, which could affect the Company's ability to meet its
customers' demands and the Company's profit margins
o changes in customer attitudes toward the use of outsourcing and temporary
personnel
o the adverse effect of customers and potential customers involving
manufacturing offshore, reducing their need for temporary workers
o the need for the Company to diversify its available temporary personnel to
offer greater support to the service sector of the economy
o the Company's ability to attract and retain certain classifications of
technologically qualified personnel for its own use, particularly in the
areas of research and development, implementation and upgrading of
internal systems
o the Company's ability to meet competition in highly competitive markets
with minimal impact on margins
o the Company's ability to achieve customer acceptance of its products and
systems in markets characterized by rapidly changing technology and
frequent new product introductions
o the Company's ability to foresee changes and to identify, develop and
commercialize innovative and competitive products and systems in a timely
and cost effective manner
o risks inherent in new product introductions, such as start-up delays, cost
overruns and uncertainty of customer acceptance
o the timing of customer acceptances of systems
o the Company's dependence on third parties for some product components
o changes in laws, regulations and government policies, including increased
taxes which, because of economic and competitive conditions may not be
able to be passed on to the customer
o the degree and effects of inclement weather
o the Company's ability to maintain a sufficient credit rating to enable it
to continue its securitization program
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Forward-Looking Statements Disclosure--Continued
o the Company's ability to maintain its existing credit rating in order to
avoid any increase in interest rates and any increase in fees under its
revolving credit facility, as well as its ability to comply with the
financial and other covenants applicable under its credit facility and
other borrowing instruments
These and certain other factors are discussed in the Company's Annual Report on
Form 10-K for the fiscal year ended November 3, 2002 and, from time-to-time, in
the Company's other reports filed with the Securities and Exchange Commission.
Critical Accounting Policies
Management's discussion and analysis of its financial position and results of
operations are based upon the Company's condensed 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 wrong. 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 recognizes revenue as services are rendered,
products are shipped, or directories are published. Within the Company's
operating segments, these services include the billing of labor, material and
directory assistance transactions as they are provided. In addition, the Company
may provide services under long-term contracts. Revenue and costs applicable to
long-term contracts, including those providing for software customization or
modification, are recognized under the completed contract method, upon customer
acceptances, in accordance with the AICPA Statement of Positions No. 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts" and No. 97-2, "Software Revenue Recognition" and related
interpretations and amendments. 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.
The Company, through its Shaw & Shaw subsidiary, provides professional employer
organizational services ("PEO") to certain customers. The customer using these
services generally transfers its entire work force or employees of a specific
department or division to the Company. PEO revenue represented less than 2% of
the Company's consolidated sales in the first quarters of fiscal 2003 and 2002.
The Company's PEO services include payroll administration, human resource
management, consulting on employee legal and regulatory compliance, providing
comprehensive benefits, including retirement plans, workers' compensation
coverage, loss control and risk management and certain other services. The
customer has control over the day-to-day job duties of the employees. PEO
revenues consist of the amounts charged to the customer by the Company for the
employee's gross pay, the employer's share of related payroll taxes, workers'
compensation and charges for certain other services provided by the Company, and
a negotiated percentage markup of the employee's gross wages. Based on its
analysis of Emerging Issues Task Force ("EITF") 99-19, "Reporting Revenue Gross
as a Principal Versus Net as an Agent," the Company believes that it provides
its PEO services as a principal and, therefore recognizes all amounts billed to
its customers as gross revenues. PEO services revenues in the first
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Critical Accounting Policies--Continued
quarter of fiscal 2003, and 2002 aggregated approximately $7.0 million and $5.7
million, respectively. The direct expenses borne by the Company are included in
cost of sales. On January 27, 2003, the Company received a comment from the
staff of the Securities and Exchange Commission ("SEC") questioning the
Company's revenue recognition policy for Shaw & Shaw. The Company understands
that its policy is in accordance with the generally prevailing practice in the
PEO industry and responded to the comment. The staff of the SEC advised the
Company that it believes the appropriate presentation should be to report the
Company's PEO revenue net of gross payroll cost. The Company has not been able
to resolve this comment to date. If the Company were deemed to be an agent in
its PEO activities, the Company could be required to record its PEO revenues net
of gross payroll costs component of its services; however, in such an event,
there would be no effect on the Company's net income.
Under certain other contracts with customers, the Company manages the customers'
alternative staffing requirements, including transactions between the customer
and other staffing vendors ("associate vendors"). When payments to associate
vendors are subject to receipt of the customers' payment to the Company and the
Company does not bear credit responsibility, the arrangements are considered
non-recourse against the Company and the revenue, other than management fees
payable to the Company, is excluded from sales.
Allowance for Uncollectable Accounts - The establishment of an allowance
requires the use of judgment and assumptions regarding potential losses on
receivable balances. Allowances for doubtful accounts receivable are maintained
based upon historical payment patterns, aging of accounts receivable and actual
write-off history. The Company believes that its allowances are adequate;
however, changes in the financial condition of customers could have an effect on
the allowance balance required and a related charge or credit to earnings.
Long-Lived Assets - As of the beginning of fiscal 2002, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets." Under these new rules, goodwill and other intangibles
with indefinite lives are no longer amortized, but are subject to annual testing
using fair value methodology. An impairment charge is recognized for the amount,
if any, by which the carrying value of an intangible asset exceeds its fair
value. The Company engaged independent valuation firms, which primarily used
comparable multiples of revenue and EBITDA and other valuation methods to assist
the Company in the determination of the fair value of the reporting units
measured. An impairment charge of $31.9 million was recognized for the amount by
which the carrying value of goodwill exceeded its implied fair value as of the
beginning of fiscal 2002. Intangible assets with finite, measurable lives
continue to be amortized over their respective useful lives.
Property, plant and equipment is recorded at cost, and depreciation and
amortization are provided on the straight-line and accelerated methods at rates
calculated to depreciate the cost of the assets over their estimated lives.
Intangible assets, other than goodwill, 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 annually and whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable. The
fair values of the assets are based upon Company estimates of the discounted
cash flows that are expected to result from the use and eventual disposition of
the assets or that amount that would be realized from an immediate sale. An
impairment charge is recognized for the amount, if any, by which the carrying
value of an asset exceeds its fair value. No impairment charge was recognized in
the first quarter of fiscal 2003 as no events or circumstances indicated the
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Critical Accounting Policies--Continued
existence of impairment. Although the Company believes its estimates are
appropriate, the fair value measurements of the Company's long-lived assets
could be affected by using different estimates and assumptions in these
valuation techniques.
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.
Securitization Program - The Company accounts for the securitization of accounts
receivables in accordance with SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." At the time a
participation interest in the receivables is sold, that interest is removed from
the condensed consolidated balance sheet. On April 15, 2002, under a new
securitization program, the Company, through a special purpose subsidiary, sold
a participation interest of $50.0 million out of an initial pool of
approximately $162.0 million of receivables. In August 2002, the participation
interest sold increased to $60.0 million and remained at that level as of
February 2, 2003. Accordingly, the trade receivables included in the February 2,
2003 balance sheet have been reduced to reflect the $60.0 million participation
interest sold and no debt was recorded.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED FEBRUARY 2, 2003 COMPARED
TO THE THREE MONTHS ENDED FEBRUARY 3, 2002
The information, which appears below, relates to current and prior periods, the
results of operations for which periods are not indicative of the results which
may be expected for any subsequent periods.
Three Months Ended
----------------------------
February 2, February 3,
2003 2002
----------- -----------
(In thousands)
Net Sales:
Staffing Services
Traditional Staffing $287,294 $265,157
Managed Services 235,935 119,452
--------- ---------
Total Gross Sales 523,229 384,609
Less: Non-recourse Managed Services (221,045) (106,766)
--------- ---------
Net Staffing Services Sales 302,184 277,843
Telephone Directory 12,471 10,624
Telecommunications Services 25,857 33,070
Computer Systems 20,374 21,517
Elimination of intersegment sales (2,643) (4,301)
--------- ---------
Total Net Sales $358,243 $338,753
========= =========
Segment Operating Profit (Loss):
Staffing Services ($1,346) ($2,328)
Telephone Directory (202) (366)
Telecommunications Services (163) (2,966)
Computer Systems 2,392 2,111
--------- ---------
Total Segment Operating Profit (Loss) 681 (3,549)
General corporate expenses (5,841) (5,610)
--------- ---------
Total Operating Loss (5,160) (9,159)
Interest and other income (374) (120)
Foreign exchange gain (loss)-net 85 (13)
Interest expense (643) (1,823)
--------- ---------
Loss from Continuing Operations Before Income Taxes ($6,092) ($11,115)
========= =========
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED FEBRUARY 2, 2003 COMPARED
TO THE THREE MONTHS ENDED FEBRUARY 3, 2002--Continued
Results of Operations - Summary
In the first quarter of fiscal 2003, consolidated net sales increased by $19.5
million, or 6%, to $358.2 million from the comparable period in fiscal 2002. The
increase in fiscal 2003 net sales resulted primarily from a sales increase of
$24.3 million in the Staffing Services segment, partially offset by a sales
decrease of $7.2 million in the Telecommunications Services segment.
The Company's first quarter fiscal 2003 loss from continuing operations before
income taxes was $6.1 million, compared to $11.1 million in fiscal 2002. The
Company's segments accounted for $4.2 million of the $5.0 million improvement in
results from continuing operations before income taxes. The Company's operating
segments reported an operating profit of $0.7 million in the first quarter of
fiscal 2003 compared to an operating loss of $3.5 million in the comparable
quarter in fiscal 2002. Contributing to the improvement was a $2.8 million
decrease in the operating loss of the Telecommunications Services segment and a
$1.0 million decrease in the operating loss of the Staffing Services segment.
The Company incurred a net loss of $3.8 million and $34.3 million in the first
three months of fiscal 2003 and 2002, respectively. The 2002 first fiscal
quarter included a non-cash charge of $31.9 million for impairment of goodwill
and a $4.3 million net gain from discontinued operations.
The first quarter results historically are the lowest of the Company's fiscal
year due to reduced customer staffing requirements, the temporary closing of
some customer facilities during the holiday season and the publishing schedule
of the Telephone Directory segment. Also, the operating results for the quarter
were adversely affected by the present economic conditions, particularly in the
telecommunications and high tech industries, which account for the major portion
of the Company's revenues.
Several of the Company's large customers in these industries have implemented
widespread layoffs and, especially in the telecommunications industry, have
significantly reduced expenditures. These factors materially adversely affected
the results of the Company's Staffing Services and Telecommunications Services
segments. To counteract these factors and strengthen the Company's future
results, the Company has continued its cost containment programs and reorganized
its Telecommunications Services segment, which have mitigated some of the
above-mentioned negative effects of the economy.
Results of Operations - By Segment
Staffing Services
Sales of the Staffing Services segment increased by $24.3 million, or 9%, to
$302.2 million in the first quarter of fiscal 2003, and the segment reported an
operating loss of $1.3 million, compared to an operating loss of $2.3 million in
the comparable quarter of fiscal 2002. The sales increase was primarily from
traditional staffing in the Commercial and Light Industrial division. This
division sustained a loss of $3.1 million on sales of $120.0 million during the
quarter, compared to an operating loss of $4.3 million on sales of $93.7 million
for the first quarter of fiscal 2002. The decrease in operating loss was the
result of the sales increase with only a slight increase in the dollar amount of
overhead, partially offset by a decrease in gross margin of 2.2 percentage
points, due to increased
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED FEBRUARY 2, 2003 COMPARED
TO THE THREE MONTHS ENDED FEBRUARY 3, 2002--Continued
Results of Operations - By Segment--Continued
Staffing Services--Continued
competition, electronic auctions and customers leveraging their buying power by
consolidating the number of vendors with whom they deal.
Operating profit of the Technical Placement division was $1.8 million on net
sales of $182.2 million for the first quarter of fiscal 2003, compared to an
operating profit of $2.0 million on net sales of $184.1 million for the first
quarter of fiscal 2002. The 1% decrease in net sales was due to lower recruited
business, principally in Europe, partially offset by increased VMC Consulting
project management and consulting revenue. Gross sales in the division increased
38%, from $311.9 million in the first quarter of fiscal 2002 to $431.6 million
in the first quarter of fiscal 2003 due to new ProcureStaff accounts. However,
substantially all of ProcureStaff sales are deducted in arriving at net sales
due to the use of associate vendors who have agreed to be paid subject to the
receipt of the customers' payment to the Company. The decrease in operating
profit for the quarter was due to the 1% decrease in net sales, accompanied by a
7% increase in overhead costs. ProcureStaff sustained an operating loss in the
first quarter of fiscal 2003, due to overhead costs incurred in the
implementation of several new accounts. However, VMC Consulting reported a
significant increase in operating profit due to its increased revenue.
While the segment is committed to continued cost controls designed to increase
profitability for fiscal 2003, a return to substantially higher profit levels is
likely to depend on the timing and strength of a general economic recovery. The
Company expects that high unemployment and the need for state and local
governments to align their revenues with expenditures will result in pressures
on margins as jurisdictions increase payroll and various other taxes. Although
the markets for the segment's services include a broad range of industries
throughout the United States and Europe, 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.
Telephone Directory
The Telephone Directory segment's sales increased by $1.8 million, or 17%, to
$12.5 million in the fiscal 2003 first quarter, primarily in the DataNational
and domestic directory operations, partially offset by a reduction in sales in
Uruguay. The sales at DataNational increased by $3.7 million, or 193%, due to a
change in the publication schedule of its community directories, and the sales
in Uruguay decreased by $2.6 million, or 68%, due to lower printing revenue
related to the economic instability in Uruguay and its neighboring countries.
The segment currently has a high-margin production contract with a
telecommunications company, which accounted for 10% of the segment's revenue in
the first quarter of fiscal 2003, that will terminate towards the end of the
fiscal year. The segment cannot determine the amount of revenue it will receive
from the customer through the end of the contract or whether current revenue and
profits will be replaced through existing or new customers in the future. The
segment incurred an operating loss of $0.2 million in the first quarter of
fiscal 2003, compared to a loss of $0.4 million in the first quarter of fiscal
2002. The decrease in operating loss was primarily due to the sales increases,
partially offset by an increase in selling and overhead costs in DataNational to
support the higher sales level.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED FEBRUARY 2, 2003 COMPARED
TO THE THREE MONTHS ENDED FEBRUARY 3, 2002--Continued
Results of Operations - By Segment--Continued
Telecommunications Services
The Telecommunications Services segment's sales decreased by $7.2 million, or
22%, to $25.9 million in the first quarter of fiscal 2003 from the first quarter
of fiscal 2002. However, its operating loss was $0.2 million in fiscal 2003,
down from an operating loss of $3.0 million in fiscal 2002. The sales reduction
was due to the decline in expenditures by many of the companies in the segment's
telecommunications customer base. Through cost control initiatives, overhead has
been significantly reduced from the prior year's comparable quarter. During the
last half of fiscal 2002, the Company announced the reorganization of the
segment's operations and continues to reduce costs in an effort to permit the
segment to operate profitably at lower revenue levels without impairing its
ability to take advantage of opportunities when the telecommunications industry
stabilizes and customers' spending increases.
Computer Systems
The Computer Systems segment's sales decreased by $1.1 million, or 5%, to $20.4
million in fiscal 2003. However, its operating profit increased to $2.4 million
in fiscal 2003 from $2.1 million in fiscal 2002. The decrease in revenue in
fiscal 2003 was due to a $3.3 million reduction in project revenue recognized in
VoltDelta Europe, which recognized revenue of $4.2 million due to customer
acceptance in the first quarter of fiscal 2002 of an operator services switching
infrastructure project. This decrease in revenue was partially offset by the
growth of IT services provided by the segment's Maintech division, along with
the continued expansion of the segment's directory assistance business. The
segment's ASP operator service business handled 112 million transactions during
the first quarter of fiscal 2003, an increase of 17% over the fourth quarter of
fiscal 2002. The growth in operating profit from the comparable quarter in
fiscal 2002 was the result of an increase in gross margin, partially offset by
an increase in overhead costs.
Results of Operations - Other
Other items, discussed on a consolidated basis, affecting the results of
operations for the three-month periods were:
Selling and administrative expenses increased by $0.5 million, or 3%, to $15.9
million in fiscal 2003, although, expressed as a percentage of sales, selling
and administrative expenses were 4.5% in fiscal 2003, compared to 4.6% in fiscal
2002.
Depreciation and amortization increased by $0.2 million, or 4%, to $5.7 million
in fiscal 2003. The increase was due to an increase in fixed assets over last
year's comparable period.
Other expense increased by $0.3 million, or 75%, to $0.6 million in the first
quarter of fiscal 2003. The other expense in fiscal 2003 resulted primarily from
expenses related to the Company's Securitization Program, while the other
expense in fiscal 2002 resulted primarily from the Company's share of losses of
its joint venture, westVista Advertising Services, which was liquidated in
August 2002.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
THREE MONTHS ENDED FEBRUARY 2, 2003 COMPARED
TO THE THREE MONTHS ENDED FEBRUARY 3, 2002--Continued
Results of Operations - Other--Continued
Interest expense decreased by $1.2 million, or 65%, to $0.6 million in the first
quarter of fiscal 2003. The decrease was the result of the Company's early
repayment of the remaining $30.0 million of 7.92% Senior Notes in March 2002 in
contemplation of the lower cost accounts receivable Securitization Program. The
Securitization Program, the costs of which are reflected in other expense (see
above), also eliminated higher cost borrowings under the revolving credit
facility. The Company also benefited from significantly lower borrowing levels
in Uruguay.
The Company's effective tax benefit rate on its financial reporting pre-tax
losses was 37.6% in fiscal 2003, compared to 39.5% in fiscal 2002. The decreased
rate was attributable to higher 2003 foreign losses for which no tax benefit was
provided.
The consolidated results for the first quarter of fiscal 2002 also included a
net gain from discontinued operations of $4.3 million which was comprised of a
$4.5 million gain, including a tax benefit of $1.7 million, on the sale of the
Company's interest in the Company's former 59% owned publicly-owned subsidiary,
Autologic Information International, Inc. ("Autologic"), partially offset by a
loss from discontinued operations through the November 30, 2001 disposal date of
$0.2 million.
In accordance with SFAS No. 142, the Company performed the first of the required
impairment tests of goodwill and other intangible assets as of the beginning of
fiscal 2002. At that date, the Company's goodwill, related to prior
acquisitions, amounted to approximately $40.0 million. The Company's revaluation
under the new accounting rules was completed during the second quarter of 2002,
and a $31.9 million impairment write-down was taken, reflecting declines in the
market value of the acquisitions since they were purchased. The write-down was
reported as a Cumulative Effect of a Change in Accounting with the six months
results of 2002, and a restatement of the first quarter 2002 results from a loss
of $2.4 million to a loss $34.3 million as reflected in the financial
statements.
Liquidity and Capital Resources
Cash and cash equivalents, including restricted cash of $15.3 million and $11.5
million at February 2, 2003 and November 3, 2002, respectively, increased by
$17.1 million to $60.7 million in the three months ended February 2, 2003,
compared to an increase of $2.6 million in the comparable fiscal 2002 quarter.
Operating activities provided $20.9 million of cash in the first three months of
fiscal 2003 compared to $31.2 million in the first quarter of fiscal 2002.
Operating activities in the first quarter of fiscal 2003, exclusive of changes
in operating assets and liabilities, produced $2.7 million of cash, as the
Company's net loss of $3.8 million included non-cash charges primarily for
depreciation and amortization of $5.7 million and accounts receivable provisions
of $0.8 million. In the first quarter of fiscal 2002, operating activities,
exclusive of changes in operating assets and liabilities, produced $1.2 million
of cash, as the Company's net loss of $34.3 million included non-cash charges of
$31.9 million for goodwill impairment, depreciation and amortization of $5.5
million and accounts receivable provisions of $1.8 million, partially offset by
income from discontinued operations of $4.3 million.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Capital Resources--Continued
Changes in operating assets and liabilities produced $18.2 million of cash in
the first quarter of fiscal 2003, principally due to cash provided by decreases
in the levels of accounts receivable of $34.7 million and an increase of $7.7
million in customer advances, partially offset by $23.8 million of expenditures
to reduce the level of accounts payable and accrued expenses. In the first
quarter of fiscal 2002, changes in operating assets and liabilities produced
$30.1 million of cash, principally due to cash provided by decreases in the
levels of accounts receivable of $56.0 million and an increase of $7.0 million
in customer advances, partially offset by $26.2 million of expenditures to
reduce the level of accounts payable and accrued expenses.
The principal factor in the $3.9 million of cash applied to investing activities
in the first quarter of fiscal 2003 was expenditures of $4.2 million for
property, plant and equipment. In the first quarter of fiscal 2002, the
principal factor in the $21.3 million cash provided by investing activities was
proceeds from the sale of Autologic of $24.2 million, partially offset by $3.0
million expended for property, plant and equipment.
Cash provided by financing activities in the first quarter of fiscal 2003
resulted from an increase of $0.3 million in bank loans. Financing activities
used $49.6 million in the prior year's comparable period for the payment of bank
loans.
The Company believes that its current financial position, working capital,
future cash flows and credit lines are sufficient to fund its presently
contemplated operations and satisfy its debt obligations.
Commitments
In fiscal 2000, the Company began development of a new web-enabled front-end
system designed to improve efficiency and connectivity in the recruiting,
assignment, customer maintenance and other functions in the branch offices of
the Staffing Services segment. The total costs to develop and install this
system are currently anticipated to be approximately $16.0 million, of which
approximately $6.8 million has been incurred and capitalized to date. The
Company has no other material capital commitments.
There has been no material change through February 2, 2003 in the Company's
contractual cash obligations and other commercial commitments from that reported
in the Company's Annual Report on Form 10-K for the fiscal year ended November
3, 2002.
Credit Lines
At February 2, 2003, the Company had credit lines with domestic and foreign
banks that provide for borrowings and letters of credit up to an aggregate of
$50.9 million, including a $40.0 million credit facility (the "Credit Facility")
in favor of the Company and designated subsidiaries under a secured syndicated
revolving credit agreement (the "Credit Agreement").
The Credit Facility of $40.0 million, which expires in April 2004, includes a
$15.0 million letter of credit sub-facility. Borrowings by subsidiaries are
limited to $25.0 million in the aggregate. The administrative agent arranger for
the secured Credit Facility is JP Morgan Chase Bank. The other banks
participating in the Credit Facility are Mellon Bank, NA, Wells Fargo, NA and
Lloyds TSB Bank, PLC. This two-year Credit Facility, along with a three-year
accounts receivable Securitization Program (see below), replaced the Company's
$115.5 million credit agreement which was due to expire in September 2002.
Borrowings and letters of credit under
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Capital Resources--Continued
the Credit Facility are limited to a specified borrowing base, which is based
upon the level of specified receivables, generally at the end of the fiscal
month preceding a borrowing. At February 2, 2003, the borrowing base was
approximately $31.7 million. Borrowings under the Credit Facility are to bear
interest at various options selected by the Company at the time of each
borrowing, certain of which rate options are based on a leverage ratio, as
defined (as is the facility fee). Additionally, interest and the facility fees
can be increased or decreased upon a change in the Company's long-term debt
rating provided by a nationally recognized rating agency. Based upon the
Company's leverage ratio and debt rating at February 2, 2003, if a three-month
LIBO rate was the interest rate option selected by the Company, borrowings would
have borne interest at the rate of 2.8% per annum. At February 2, 2003, the
facility fee was 0.5% per annum.
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, of $220.0 million (the
Company's consolidated tangible net worth, as defined, as of February 2, 2003
was $225.5 million); limits cash dividends and capital stock repurchases and
redemptions by the Company in any one fiscal year to 25% of consolidated net
income, as defined, for the prior fiscal year; requires the Company to maintain
a ratio of EBIT, as defined, to interest expense, as defined, of 1.25 to 1.0 for
the twelve months ending as of the last day of each fiscal quarter. As a result
of the loss sustained by the Company in fiscal 2002, the Company is currently
restricted from paying dividends, and making stock repurchases and stock
redemptions. 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, and loans that may be made by the Company and its subsidiaries. The
Company received a waiver of the interest coverage covenant relating to its
fiscal quarter ended February 2, 2003 contained in the Credit Agreement since
the ratio of EBIT, as defined, to interest expense, as defined, was .96 to 1.0
for the twelve months ended February 2, 2003. At February 2, 2003, the Company
was in compliance with all other covenants in the Credit Agreement and believes
it will be in compliance with all covenants through at least the remainder of
fiscal 2003.
The Company has not borrowed under the Credit Facility since its inception in
April 2002 and no borrowings are presently anticipated in the second quarter of
fiscal 2003. 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. Six subsidiaries of the Company are
guarantors of all loans made to the Company or to subsidiary borrowers under the
Credit Facility. At February 2, 2003, four of those guarantors have pledged
approximately $44.1 million of accounts receivable, other than those in the
Securitization Program, as collateral security for their guarantee obligations.
Under certain circumstances, other subsidiaries of the Company also may be
required to become guarantors under the Credit Facility. The Company has pledged
all of the stock of its Volt Funding Corp. subsidiary (discussed below) as
collateral security for its own obligations under the Credit Facility.
Securitization Program
Effective April 15, 2002, the Company entered into a $100.0 million three-year
accounts receivable securitization program ("Securitization Program"). Under the
Securitization Program, receivables related to the
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Capital Resources--Continued
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"). Volt Funding, in turn, sells to Three Rivers Funding Corporation
("TRFCO"), an asset backed commercial paper conduit sponsored 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 $100.0 million). The Company retains the servicing responsibility
for the accounts receivable. On April 15, 2002, TRFCO initially purchased from
Volt Funding a participation interest of $50.0 million out of an initial pool of
approximately $162.0 million of receivables. Of the $50.0 million cash paid by
Volt Funding to the Company, $35.0 million was used to repay the entire
outstanding principal balance under the Company's former revolving credit
facility. At February 3, 2003, TRFCO had purchased from Volt Funding a
participation interest of $60.0 million out of a pool of approximately $144.4
million of receivables.
The Securitization Program is not an off-balance sheet arrangement as Volt
Funding is a 100% owned consolidated subsidiary of the Company, with accounts
receivable 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 forms of financing.
The Securitization Program is designed to enable receivables sold by the Company
to 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 Volt Funding, to satisfy the Company's creditors (subject also, as described
above, to the security interest that the Company has granted in the common stock
of Volt Funding in favor of the lenders under the Company's new Credit
Facility). TRFCO has no recourse to the Company (beyond its interest in the pool
of receivables owned by Volt Funding) for any of the sold receivables.
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.
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. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." 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 on TRFCO's
commercial paper, are charged to the consolidated statement of operations.
The Securitization Program is subject to termination at TRFCO's option, under
certain circumstances, including, among other things, the default rate, as
defined, on receivables exceeding a specified threshold, 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. The
Company's most recent long-term debt rating was "BBB-" with a neutral rating
outlook.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--Continued
Liquidity and Capital Resources--Continued
Summary
The Company believes that its current financial position, working capital,
future cash flows from operations, credit lines and accounts receivable
Securitization Program are sufficient to fund its presently contemplated
operations through at least the remainder of fiscal 2003 and satisfy its debt
obligations.
New Accounting Pronouncements to be Effective in Fiscal 2003
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of SFAS No. 13,
and Technical Corrections" ("SFAS No. 145"). SFAS No. 145 updates, clarifies and
simplifies existing accounting pronouncements, by rescinding SFAS No. 4, which
required all gains and losses from the extinguishment of debt to be aggregated
and, if material, classified as an extraordinary item, net of related income tax
effect. As a result, the criteria in Accounting Principles Board Opinion No. 30
will now be used to classify those gains and losses. Additionally, SFAS No. 145
also makes technical corrections to existing pronouncements. While those
corrections are not substantive in nature, in some instances, they may change
accounting practice. The provisions of SFAS No. 145 that amend SFAS No. 13 were
adopted by the Company in its consolidated financial statements for the first
quarter of fiscal 2003. The adoption of SFAS No. 145 will not have a material
impact on the Company's consolidated financial position or results of
operations, but will require a future reclassification of the extraordinary item
arising from the March 2002 early payment of the Company's Senior Notes to other
income (expense) beginning in the second quarter of fiscal 2003.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred and nullifies Emerging Issues Task Force No. 94-3. The Company's
adoption of SFAS No. 146, at the beginning of fiscal 2003 does not have a
material impact on the Company's consolidated financial position or results of
operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment to FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide new guidance concerning the transition when a company
changes from the intrinsic value method to the fair value method of accounting
for employee stock-based compensation cost. As amended by SFAS No. 148, SFAS No.
123 will also require additional disclosure regarding such cost in annual
financial statements and in condensed interim financial statements. Certain
provisions of SFAS No. 148 are required to be adopted by the Company in its
condensed consolidated financial statements for the second quarter of fiscal
2003. The Company believes that the adoption of SFAS No. 148 will not have a
material impact on the Company's consolidated financial position or results of
operations.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" to provide new guidance with respect to the
consolidation of all previously unconsolidated entities, including special
purpose entities. The Company has no unconsolidated subsidiaries, therefore the
adoption of the interpretation, required in fiscal 2003, had no impact on the
Company's consolidated financial position or results of operations.
27
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk exposure in the following areas:
Interest Rate Market Risk
The Company has cash and cash equivalents ($60.7 million at February 2, 2003) on
which interest income is earned at variable rates. At February 2, 2003, the
Company had short-term borrowings totaling $2.7 million under credit lines with
various domestic and foreign banks and also had sold a participation interest of
$60.0 million in accounts receivable under the Securitization Program. The
interest rates on investments and borrowings and the cost of the Securitization
Program, which is based, in part, on prevailing interest rates in the commercial
paper market, are variable and, therefore, interest income, interest expense and
the cost of the Securitization Program are affected by the general level of U.S.
and foreign interest rates. Increases in interest rates would result in higher
interest expense and higher securitization costs that could be substantially
offset by an increase in interest income, depending upon the levels of cash and
cash equivalents, borrowings and financing under the Securitization Program. The
Company policy is to take actions that would mitigate risk when appropriate and
available.
The Company's long-term debt of $14.4 million at February 2, 2003 consists of
borrowings at fixed interest rates, and the Company's interest expense related
to these borrowings is not exposed to changes in interest rates in the near
term.
Equity Price Risk
The Company holds short-term investments in mutual funds for the Company's
deferred compensation plan. At February 2, 2003, the total market value of these
investments was $3.5 million, all of which were being held for the benefit of
participants in a non-qualified deferred compensation plan with no risk to the
Company.
Foreign Exchange Market Risk
The Company has a number of overseas subsidiaries and is, therefore, subject to
exposure from the risk of currency fluctuations as the value of foreign
currencies fluctuate against the dollar, which may impact reported earnings. The
Company attempts to reduce these risks by utilizing foreign currency contracts
and borrowings to hedge the adverse impact on foreign currency net assets when
the value of the dollar strengthens against the related foreign currency. At
February 2, 2003, the Company had entered into foreign currency options and
forward contracts in the aggregate notional amount of $9.0 million, which
approximately offset its exposure in foreign currencies at that date. The
Company does not believe that it is exposed to material foreign exchange market
risk.
ITEM 4 - CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer, the
Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14(c)
within 90 days of the filing date of this quarterly report. Based upon the
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are effective. There
were no significant changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of their evaluation.
28
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Description
--------------------------------------------------------------------------------
4.01 Letter, dated as of March 10, 2003, to the Company from the bank
lenders under the Credit Agreement, dated April 12, 2002, among the
Company, Gatton Volt Consulting Group Limited as borrowers, Volt
Delta Resources, Inc., Volt Information Sciences Funding, Inc., Volt
Directories S.A. Ltd., DataNational, Inc., Volt Telecommunications
Group, Inc. and DataNational of Georgia, Inc. as guarantors, the
lenders party thereto, and JP Morgan Chase Bank, as administrative
agent.
15.01 Letter from Ernst & Young LLP regarding Independent Accountants'
Review Report
15.02 Letter from Ernst & Young LLP regarding Rule 436(c) of the
Securities Act of 1933
99.01 Certification of Principal Executive Officer pursuant to 18 U.S.C
section 1350 as adopted pursuant to Section 906 of Sarbanes-Oxley
Act of 2002
99.02 Certification of Principal Financial Officer pursuant to 18 U.S.C.
section 1350 as adopted pursuant to Section 906 of Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter ended February 2, 2003
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VOLT INFORMATION SCIENCES, INC.
(Registrant)
BY: /s/ JACK EGAN
-------------------------------------
Date: March 17, 2003 JACK EGAN
Vice President - Corporate Accounting
(Principal Accounting Officer)
29
CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER
I, William Shaw, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Volt Information
Sciences, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
March 17, 2003 /s/ William Shaw
----------------------------
William Shaw
Chairman of the Board,
President and Principal
Executive Officer
30
CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER
I, James J. Groberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Volt Information
Sciences, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
March 17, 2003 /s/ James J. Groberg
----------------------------
James J. Groberg
Senior Vice President and
Principal Financial Officer
31
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
4.01 Letter, dated as of March 10, 2003, to the Company from the bank
lenders under the Credit Agreement, dated April 12, 2002, among the
Company, Gatton Volt Consulting Group Limited as borrowers, Volt
Delta Resources, Inc., Volt Information Sciences Funding, Inc., Volt
Directories S.A. Ltd., DataNational, Inc., Volt Telecommunications
Group, Inc. and DataNational of Georgia, Inc. as guarantors, the
lenders party thereto, and JP Morgan Chase Bank, as administrative
agent.
15.01 Letter from Ernst & Young LLP regarding Independent Accountants'
Review Report
15.02 Letter from Ernst & Young LLP regarding Rule 436(c) of the
Securities Act of 1933
99.01 Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.02 Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002