Exhibit 99.1
Westaff Reports Fiscal 2003 Second Quarter Results
WALNUT CREEK, CA, Wednesday, May 28, 2003 — Westaff, Inc. (NASDAQ: WSTF), a leading provider of temporary light industrial, clerical/administrative and call center staff, today reported financial results for its second fiscal quarter, which ended April 19, 2003.
Revenues for the second quarter increased from $109.7 million in fiscal 2002 to $116.4 million in fiscal 2003, an increase of 6.2%. The Company’s continued focus on sales and growth initiatives, coupled with favorable exchange rates, contributed to the revenue increase. Revenue increased 3.6% for domestic operations and 19.4% for international operations. Excluding the effect of exchange rate fluctuations, international revenues increased 3.8% for the quarter.
“I am pleased with the overall increase in revenues for the quarter,” said Westaff President and CEO Dwight S. Pedersen. “We are continuing to focus on improving sales and gross margins by aggressively marketing our Trak products and direct hire programs and by targeting select national accounts.”
Gross margin declined from 18.8% in the second quarter of fiscal 2002 to 17.0% in the second quarter of fiscal 2003. This decline was due largely to the highly competitive pricing environment within the temporary staffing industry as well as increased costs, primarily for workers’ compensation, state unemployment insurance benefits and general liability claims. As a result of unfavorable trends in claims development, primarily for policy years 1998 and 1999, the Company recorded $750,000 in additional charges for workers’ compensation and general liability claims in the second quarter of fiscal 2003.
Selling and administrative expenses for the second quarter of fiscal 2003 were $17.2 million compared to $16.9 million in the fiscal 2002 quarter. The increase is due
to the higher exchange rates for international operations noted above. As a percentage of revenues, selling and administrative expenses were down from 15.4% in the fiscal 2002 quarter to 14.8% in fiscal 2003.
The Company reported an operating loss from continuing operations of $2.3 million for the second quarter of fiscal 2003. The loss compares to a $1.1 million operating loss from continuing operations for the corresponding fiscal 2002 quarter. The fiscal 2003 loss reflects the effects of lower gross margins and increases in selling and administrative expenses.
“The most recent monthly trends have shown a softening in economic activity, which is impacting our sales,” Mr. Pedersen said. “These trends, coupled with a reduction in sales for some high volume, low margin government business, are expected to result in a year over year sales decline for the third quarter of fiscal 2003.
“In light of the soft economy, we are continuing our efforts to identify cost reductions where appropriate,” he said. “We recently initiated a restructuring of our field organization designed to streamline reporting, strengthen our geographic sales team and reduce costs. We are continuing to closely monitor field office performance and are closing or consolidating offices where warranted.
“I am also very pleased to report that we have successfully completed beta testing of our new proprietary front-office system, which we fully developed in-house,” he added. “The results from the six beta test offices indicate significant improvements in productivity, functionality and accuracy in information processing. We plan to start an aggressive roll-out of the system in early June and anticipate completing conversion of well over half of our domestic offices by the end of the fiscal year.”
For the first 24 weeks of 2003, revenues increased $17.6 million or 8.1% over the same period in fiscal 2002. The Company reported an operating loss from continuing operations of $2.5 million as compared to an operating loss of $5.4 million for the first 24 weeks of fiscal 2002. Included in the fiscal 2002 loss were restructuring charges of $1.9 million.
As a result of the Company’s adoption of SFAS No. 142 “Goodwill and Other Intangible Assets,” and in accordance with its provisions, the Company performed a transitional evaluation for impairment of its recorded goodwill. The evaluation resulted in an impairment loss of $670,000 that was identified for the goodwill associated with the Company’s Australian operations. Pursuant to SFAS No. 142, this transitional
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impairment charge was recognized as of the beginning of fiscal 2003 as a cumulative effect of a change in accounting principle and resulted in a restatement of the Company’s net loss for the first fiscal quarter ended January 25, 2003. The effect of the change was to increase the net loss for the quarter by $670,000, or $0.04 per share.
As of the end of the second quarter of fiscal 2003, the Company was not in compliance with certain financial covenants within its revolving credit facility. The Company is currently working with its lenders on a Second Amendment to its Multicurrency Credit Agreement to obtain waivers of certain EBITDA covenant violations, reset financial covenants going forward and increase borrowing reserves and expects to complete this process promptly.
Westaff provides staffing services and employment opportunities for businesses in global markets. Westaff annually employs approximately 150,000 people and services more than 15,000 clients from 290 offices located throughout the U.S., the United Kingdom, Australia, New Zealand, Norway and Denmark. For more information, please visit our Web site at www.westaff.com.
This press release contains forward-looking statements as defined in the Securities Exchange Act of 1934, and is subject to the safe harbors created by law. Forward-looking statements contained herein include, but are not limited to, the statements of Mr. Pedersen regarding sales, margins and costs and the prospects for fiscal 2003. The forward-looking statements contained herein involve a number of assumptions, risks and uncertainties. Actual results of future events could differ materially from estimates. Among the factors affecting future operating results are: compliance with debt covenants, liquidity, possible adverse effects of fluctuations in the general economy, reliance on executive management, uncertain ability to continue and manage growth, control by a significant shareholder, reliance on management information systems, risks related to international operations, variability of employee-related costs including workers’ compensation liabilities, risks related to customers, variability of operating results and the seasonality of the business cycle, ability to attract and retain the services of qualified temporary personnel, a highly competitive market, reliance on field management, employer liability risks and risks related to franchise agent and licensed operations.
Forward-looking statements are based on the beliefs and assumptions of the Company’s management and on currently available information. The Company undertakes no responsibility to publicly update or revise any forward-looking statement. Additional information concerning the risks and uncertainties listed above, and other factors you may wish to consider, is contained in the Company’s filings with the Securities and Exchange Commission, including the Company’s most recent Form 10-K, Form 10-Q, Form 8-K and other filings.
ANALYSTS/INVESTORS CONTACT: | Dirk A. Sodestrom |
| Senior Vice President and |
| Chief Financial Officer |
| Telephone: 925/930-5300 |
| e-mail: dsodestrom@westaff.com |
| |
PRESS CONTACT: | Susan Marquez Owen |
| Public Relations Director |
| 925-952-2546, cell: 510-610-4845 |
| e-mail: sowen@westaff.com |
Financial table follows……..
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Westaff, Inc.
Unaudited Financial Highlights
(In thousands, except per share data)
| | Fiscal Quarter Ended | |
| | April 19, 2003 | | April 20, 2002 | |
Statements of Operations: | | | | | |
| | | | | |
Revenues | | $ | 116,442 | | $ | 109,676 | |
Costs of services | | 96,632 | | 89,049 | |
Gross profit | | 19,810 | | 20,627 | |
Gross margin | | 17.0 | % | 18.8 | % |
Franchise agents’ share of gross profit | | 3,562 | | 3,339 | |
Selling and administrative expenses | | 17,226 | | 16,851 | |
Depreciation and amortization | | 1,310 | | 1,577 | |
Operating loss from continuing operations | | (2,288 | ) | (1,140 | ) |
Interest expense | | 356 | | 669 | |
Interest income | | (49 | ) | (104 | ) |
Loss from continuing operations before income taxes | | (2,595 | ) | (1,705 | ) |
Provision (benefit) for income taxes | | 68 | | (3,101 | ) |
Net income (loss) | | $ | (2,663 | ) | $ | 1,396 | |
| | | | | |
Basic and diluted earnings (loss) per share: | | $ | (0.17 | ) | $ | 0.09 | |
| | | | | |
Weighted average common shares outstanding - basic | | 15,994 | | 15,945 | |
Weighted average common shares outstanding - diluted | | 15,994 | | 15,971 | |
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| | 24 Weeks Ended | |
| | April 19, 2003 | | April 20, 2002 | |
Statements of Operations: | | | | | |
| | | | | |
Revenues | | 234,275 | | 216,669 | |
Costs of services | | 194,095 | | 176,039 | |
Gross profit | | 40,180 | | 40,630 | |
Gross margin | | 17.2 | % | 18.8 | % |
Franchise agents’ share of gross profit | | 6,973 | | 6,468 | |
Selling and administrative expenses | | 33,114 | | 34,612 | |
Restructuring charges | | | | 1,896 | |
Depreciation and amortization | | 2,591 | | 3,094 | |
Operating loss from continuing operations | | (2,498 | ) | (5,440 | ) |
Interest expense | | 822 | | 1,136 | |
Interest income | | (101 | ) | (216 | ) |
Loss from continuing operations before income taxes and cumulative effect of change in accounting principle | | (3,219 | ) | (6,360 | ) |
Provision (benefit) for income taxes | | 109 | | (3,103 | ) |
Loss from continuing operations before cumulative effect of change in accounting principle | | (3,328 | ) | (3,257 | ) |
Income from discontinued operations | | 316 | | | |
Cumulative effect of change in accounting principle | | (670 | ) | | |
Net loss | | $ | (3,682 | ) | $ | (3,257 | ) |
| | | | | |
Basic and diluted earnings (loss) per share: | | | | | |
Continuing operations before cumulative effect of change in accounting principle | | $ | (0.21 | ) | $ | (0.20 | ) |
Discontinued operations | | $ | 0.02 | | $ | — | |
Cumulative effect of change in accounting principle | | $ | (0.04 | ) | $ | — | |
Net loss | | $ | (0.23 | ) | $ | (0.20 | ) |
| | | | | |
Weighted average common shares outstanding - basic and diluted | | 15,983 | | 15,929 | |
Balance Sheet Highlights: | | April 19, 2003 | | November 2, 2002 | |
| | | | | |
Current assets | | $ | 72,552 | | $ | 91,445 | |
Property and equipment, net | | 14,365 | | 15,778 | |
Goodwill, net | | 11,488 | | 12,034 | |
Other long-term assets | | 2,413 | | 2,698 | |
Total assets | | $ | 100,818 | | $ | 121,955 | |
| | | | | |
Current liabilities | | $ | 34,200 | | $ | 57,373 | |
Long term liabilities | | 30,773 | | 25,632 | |
Total liabilities | | 64,973 | | 83,005 | |
Stockholders’ equity | | 35,845 | | 38,950 | |
Total liabilities and stockholders’ equity | | $ | 100,818 | | $ | 121,955 | |
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