Exhibit 99.1
Westaff Reports Fiscal 2006 Fourth Quarter and Year End Results
WALNUT CREEK, CA, Thursday, January 4, 2007 — Westaff, Inc. (NASDAQ: WSTF), a leading provider of staffing services, today reported financial results for its fourth fiscal quarter and fiscal year, both of which ended October 28, 2006. Consistent with historical financial reporting, the Company’s fourth fiscal quarter for both fiscal 2006 and 2005 comprise sixteen weeks each while the first three quarters each comprise twelve weeks.
Fiscal 2006 revenues increased $2.1 million as compared to the prior year and gross profit increased $3.0 million. Gross margins continued the trend noted in the prior year, as it grew to 17.7%, from 17.3% in fiscal 2005 and 16.8% in fiscal 2004. Net income was $3.1 million or $0.19 per diluted share in fiscal 2006, as compared to $21.1 million or $1.29 per diluted share in the prior year. Fiscal 2005 net income included a $16.7 million deferred tax valuation allowance reversal and no similar tax benefit was expected or recorded in fiscal 2006.
President and CEO Trish Newman commented “fiscal 2006 represented a year of planned change for Westaff. The decision was made to implement a significant restructuring of the senior management team both at corporate headquarters and in branch operations. Although this impacted our profitability during the year due to severance and other costs, we did experience enhanced profitability from our domestic operations as compared to fiscal 2005. However, this was offset by decreased profitability from our international operations, particularly Australia. Management changes and other profit improvement measures were implemented during the latter part of the fiscal year in both Australia and the United Kingdom which are expected to deliver improved performance during fiscal 2007.”
The Company continued to strengthen its financial position during fiscal 2006. Working capital increased to $41.9 million at October 28, 2006, from $40.6 million at October 29, 2005. At fiscal year end, outstanding borrowings under our revolving credit facilities were 44% below the prior year end and the Company’s borrowing availability was $19.8 million.
The Company’s cash balance was 18% higher than the prior year as cash generated from operating activities throughout the year exceeded $13 million. Finally, earlier this week the Company completed an amendment to its credit facilities, which favorably revises future quarterly EBITDA covenant requirements, reduces interest rates upon achievement of certain profitability targets, reduces its ongoing reporting requirements and extends the maturity date to May 2009.
Fiscal Fourth Quarter Results
Revenue for the fourth quarter of fiscal 2006 was $196.9 million, or $4.1 million less than revenues in the fourth quarter of fiscal 2005. Despite this decrease, gross profit increased $0.9 million, and gross margin increased to 18.3%, from 17.5% in the fourth quarter of fiscal 2005. These increases are largely attributable to increased permanent placement revenues, as the Company continues to see a profitable return on its investment in this service line. Further, the Company experienced some changes in its business mix as well, including increases in clerical revenues and decreases in light industrial revenues, which serves to partially explain both the overall decrease in revenue as well as the overall increase in gross profit and gross margin. Income before income taxes increased 10.3%, while net income decreased $16.2 million, principally due to the $16.7 million deferred tax valuation allowance reversal recorded in the fourth quarter of fiscal 2005.
In the first quarter of fiscal 2007, the Company is experiencing some softening in domestic revenues as compared to the first quarter of fiscal 2006. However, gross margins continue to compare favorably to prior periods and the Company is also experiencing improvements in financial results from its international operations. Therefore, we believe there is a reasonable chance our first quarter net income for fiscal 2007 will demonstrate an improvement as compared to the first quarter of fiscal 2006.
Westaff will discuss these results on a conference call at 8:00 AM Pacific time on Friday, January 5, 2007. The call will be accessible by dialing 1-877-407-0782 domestically or +1-201-689-8567 internationally. Following the completion of the call, we will post it on our website at www.westaff.com, where it will be available for replay until January 5, 2008.
Westaff provides staffing services and employment opportunities for businesses in global markets. Westaff annually employs in excess of 125,000 people and services
more than 15,000 client accounts from more than 230 offices located throughout the United States, the United Kingdom, Australia and New Zealand. For more information, please visit our website 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. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. All forward–looking statements are qualified in their entirety by this cautionary statement. Forward-looking statements contained herein include, but are not limited to, the statements regarding revenue, gross margins, growth rates and the Company’s prospects for fiscal 2007. The forward-looking statements contained herein involve a number of assumptions, risks and uncertainties. Actual results could differ materially from estimates. Among the factors affecting future operating results are: an intensely price competitive market, variability of the amount of collateral that we are required to maintain to support our workers’ compensation obligation, the sufficiency of our workers’ compensation claims reserve, variability on our heavy working capital needs and our ability to borrow to meet those needs, our ability to borrow under our credit facilities and our compliance with the debt covenants, variability of employee-related costs, including workers’ compensation liabilities, our ability to collect on our accounts receivable, possible adverse effects of fluctuations in the general economy, variability of the cost of unemployment insurance for our temporary employees, risks related to franchise agent operations, risks related to international operations and fluctuating exchange rates, reliance on executive management and key personnel, our ability to attract and retain the services of qualified temporary personnel, the ability of our customers to terminate our service agreement on short notice, any difficulty with our information technology system, potential exposure to employment related claims, risks related to control by a significant shareholder, the volatility of the Company’s stock price, increased regulatory compliance costs and litigation and other claims. 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 Annual Report on Form 10-K for the year ended October 29, 2005 and Quarterly Report on Form 10-Q for the quarter ended July 8, 2006.
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 except as required by applicable laws and regulations.
ANALYSTS/INVESTORS CONTACT: | John P. Sanders |
| Senior Vice President and |
| Chief Financial Officer |
| Telephone: 925/930-5300 |
| e-mail: jsanders@westaff.com |
| |
PRESS CONTACT: | Linda Gaebler |
| Vice President Communications |
| Telephone: 925/930-5368 |
| e-mail: lgaebler@westaff.com |
Financial table follows……..
