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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     For the fiscal year ended October 31, 2010

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     For the transition period from          to         .

 

 

Commission File Number: 001-09232

 

 

VOLT INFORMATION SCIENCES, INC.

(Exact name of registrant as specified in its charter)

 

New York   13-5658129
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer Identification No.)
1065 Avenue of Americas, New York, New York   10018
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code:

(212) 704-2400

Securities Registered Pursuant to Section 12(b) of the Act:

 

Title of each class   Name of each exchange on which registered
None   None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, $.10 Par Value

(Title of class)

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes      No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes      No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes      No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes      No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨   Accelerated filer x   Non-accelerated filer ¨   Smaller reporting company ¨
    (Do not check if a smaller reporting company)  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes      No x

As of April 27, 2012, there were 20,812,800 shares of common stock outstanding. The aggregate market value of the voting and non-voting common stock held by non-affiliates as of April 27, 2012 was $78,144,000, calculated by using the closing price of the common stock on such date on the over-the-counter market of $7.10.

As of February 28, 2013, there were 20,882,796 shares of common stock outstanding.

 

 

 


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VOLT INFORMATION SCIENCES, INC.

ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED OCTOBER 31, 2010

TABLE OF CONTENTS

 

          Page

EXPLANATORY NOTE

   1

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

   2

PART I

     

ITEM 1

   Business    3

ITEM 1A.

   Risk Factors    10

ITEM 1B.

   Unresolved Staff Comments    19

ITEM 2.

   Properties    19

ITEM 3.

   Legal Proceedings    20

ITEM 4.

   Mine Safety Disclosures    20

PART II

     

ITEM 5.

  

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

   21

ITEM 6.

   Selected Financial Data    23

ITEM 7.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    24

ITEM 7A.

   Quantitative and Qualitative Disclosures About Market Risk    59

ITEM 8.

   Financial Statements and Supplementary Data    60

ITEM 9.

   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure    60

ITEM 9A.

   Controls and Procedures    60

ITEM 9B.

   Other Information    66

PART III

     

ITEM 10.

   Directors, Executive Officers and Corporate Governance    67

ITEM 11.

   Executive Compensation    70

ITEM 12.

  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

   86

ITEM 13.

   Certain Relationships and Related Transactions, and Director Independence    90

ITEM 14.

   Principal Accounting Fees and Services    91

PART IV

     

ITEM 15.

   Exhibits, Financial Statement Schedules    92

Signatures

      96


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EXPLANATORY NOTE

This is the first periodic report filed by Volt Information Sciences, Inc. (the “Company” or “Volt”) covering periods after May 3, 2009. Readers should be aware that several aspects of this report differ from other annual reports. First, this report is for each of the fiscal years ended November 1, 2009 and October 31, 2010 and is in lieu of filing separate reports for each of those years. Second, we are restating certain items and making other corrective adjustments to certain of our previously filed historical financial statements and related information. The 2008 Consolidated Financial Statements included in this report have been restated from the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year-ended November 2, 2008 (the “Restatement”). The Restatement corrects accounting errors related to recognition of revenue and related customer costs primarily in our Computer Systems and Staffing Services segments, employment taxes and benefits, intangible assets, timing and recording of various accruals and income taxes. These matters and the Restatement are more fully described in Note 2 to our Consolidated Financial Statements included in this report. Finally, although this report relates to the three years ended October 31, 2010, certain information is presented as of the time this report is being filed, rather than as of October 31, 2010. In particular, except as expressly stated, the information in Item 1. Business, Item 1A. Risk Factors, Item 2. Properties and Item 3. Legal Proceedings, as well as information about prices of our common stock and dividends in Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, is presented as of the time this report is being filed or as close to the time this report is filed as is practicable. Our business and financial condition at the date this report is filed is very different from what our business and financial condition were at October 31, 2010.

As a result of an inquiry received from the United States Securities and Exchange Commission (“SEC”) on July 17, 2009 and review of the accounting for the related transactions, as well as the Restatement, which included, among other things, an internal investigation by independent counsel engaged by the Company’s Board of Directors, we have been unable to timely file our annual and quarterly reports with the SEC for periods ended from August 2, 2009 through the current period. We continued to file current reports on Form 8-K related to announcements of certain limited quarterly financial and other information during fiscal 2009 through 2012.

We have not amended, and do not intend to amend, our Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for fiscal 2008 or any prior periods affected by the Restatement. The financial statements and related financial information in those reports should not be relied on. Instead, any material adjustments for these periods have been recorded as adjustments to accumulated retained earnings, additional paid-in-capital and accumulated other comprehensive income as of October 28, 2007 in the Consolidated Financial Statements. Information regarding these adjustments is included in Note 2, Restatement of Previously Issued Financial Statements and Other Significant Events, to our Consolidated Financial Statements. All amounts referenced in this report for prior periods and prior period comparisons reflect the effects of the Restatement. We also do not intend to file the Quarterly Reports on Form 10-Q for the quarter ended August 2, 2009 or any of the quarters for the fiscal year ended October 31, 2010, or an Annual Report on Form 10-K for the year ended November 1, 2009, although we have included certain disclosures for those periods in this report. This report does not contain selected financial data for the Company’s fiscal years ended October 29, 2006 and October 28, 2007 as required by SEC Regulation S-K Item 301 as the necessary documentation and personnel from such periods are not available. Accordingly, this report is deficient as it does not meet all requirements of a Form 10-K.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. You should not place undue reliance on these statements. These forward-looking statements include statements that reflect the current views of our senior management with respect to our financial performance and future events with respect to our business and our industry in general. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, the following:

 

   

the circumstances resulting in the restatement of our financial statements and the material weaknesses in our internal control over financial reporting and in our disclosure controls and procedures;

 

   

the fact that we are not presently current with the filing requirements of the SEC with respect to our periodic reports;

 

   

the delisting of our common stock and our ability to successfully regain a listing on a national securities exchange;

 

   

our ability to comply with the financial ratios and covenants in our credit agreements;

 

   

our Staffing Services segment is in a very competitive industry with few significant barriers to entry;

 

   

off-shoring by companies to which we supply temporary employees adversely affects our revenue;

 

   

our project related businesses are subject to project delays, unanticipated costs and cancellations;

 

   

many of our contracts either provide no minimum purchase requirements, are cancellable during the term, or both;

 

   

our Computer Systems segment is highly dependent on our customers’ call volume;

 

   

we rely extensively on our information technology systems and are vulnerable to damage and interruption;

 

   

our business may be negatively affected if we are not able to keep pace with rapid changes in technology;

 

   

the loss of any key customers would adversely impact our business;

 

   

we are dependent upon our key personnel and upon our ability to attract and retain technologically qualified personnel;

 

   

new and increased government regulation, employment costs or taxes could have a material adverse effect on our business, especially for our contingent staffing business;

 

   

the outcome of any future litigation or regulatory proceedings, including those related to the restatement of our consolidated financial statements; and

 

   

changes in general economic conditions.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report, including under the caption Risk Factors in Item 1A of this report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate.

 

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PART I

ITEM 1. BUSINESS

Volt Information Sciences, Inc. ( the “Company” or “Volt”) is a leading international provider of staffing services, contact center computer systems, telecommunications services and other information solutions. Operating through an international network of servicing locations we fulfill accounting, finance, administrative, engineering, human resources, information technology, life sciences, customer care, manufacturing and assembly, warehousing and fulfillment, technical communications and media workforce requirements of our customers for temporary and contingent personnel, managed services programs and personnel recruitment services. Contact center computer systems are primarily directory assistance, operator services, call centers and database management. Telecommunication services include the design, engineering, construction, installation and maintenance of voice, data, video and utility infrastructure. Other information solutions include IT managed services and maintenance, and telephone directory publishing and printing. The Company was incorporated in New York in 1957. Unless the context otherwise requires, throughout this report, the words “Volt,” “the Company,” “we,” “us” and “our” refer to Volt Information Sciences, Inc. and its consolidated subsidiaries.

Geographic Regions and Segments:

Volt operates 192 offices globally with employees in every U.S. state, with approximately 90% of revenues generated in the United States. Principal non-U.S. markets include Canada, the United Kingdom, Germany and Uruguay. For financial information concerning our domestic and international operations and segment reporting, see Note 22, Segment Disclosures, to our Consolidated Financial Statements included in this report.

Volt’s businesses operate in four reportable segments: Staffing Services, Computer Systems, Telecommunications Services and Other. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses each of these segments. As part of the Restatement, the Computer Systems segment has been modified to exclude a reporting unit that did not meet the criteria for inclusion in the Computer Systems segment. That reporting unit is now included in the Other segment category. Our operating segments have been determined in accordance with our internal management structure, which is based on operating activities. We evaluate performance based upon several factors, of which the primary financial measure is segment operating profit. We believe operating profit provides management and investors a measure to analyze operating performance of each business segment against historical and competitors’ data, although historical results, including operating profit, may not be indicative of future results as operating profit is highly contingent on many factors, including the state of the economy, competitive conditions and customer preferences.

We allocate all costs to the segments except for certain corporate-wide general and administrative costs, intangible asset and goodwill impairment charges, and fees related to the restatement of our financial statements and associated investigations. These allocations are included in the calculation of each segment’s operating profit. The following is a brief description of the reportable segments and the predominant source of their revenues.

Staffing Services

This segment provides staffing solutions and consulting services. Staffing solutions services are provided through a network of approximately 160 locations providing a broad spectrum of contingent staffing, master staffing vendor contracting and management, direct placement and other employment services and workforce solutions. Contingent staff are provided to customers in a broad range of occupations including accounting, finance, administrative, engineering, human resources, information technology, life sciences, customer care, manufacturing and assembly, warehousing and fulfillment, technical communications and media. Contingent staffing is provided for varying periods of time to companies and other organizations (including government agencies), and our clients range from smaller retail accounts that may require ten or fewer contingent workers at a time to national accounts that require as many as several thousand contingent workers at one time. Our national accounts typically enter into longer term procurement agreements with us resulting in lower direct margins as compared to our retail accounts.

 

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Contingent staff are provided to meet specific client requirements such as enabling clients to scale their workforce according to business conditions, meet a particular need that has arisen, complete a specific project (with workers typically being retained until project completion), secure the services of a worker who can provide niche skills on an as-needed basis, substitute for regular employees during vacation or other temporary absences, staff high turnover positions, or to meet seasonal peaks in staffing needs. Many large organizations utilize a contingent workforce as a strategic element of their overall workforce, allowing them to more efficiently meet their fluctuating staffing requirements. In certain instances, we provide management personnel at the customer’s location to coordinate and manage special projects or to supervise contingent workers.

Contingent staff are recruited through proprietary internet recruiting sites and independent web-based job search companies through which we build proprietary databases of candidates from which we can fulfill specific current and future customer needs. Contingent workers become our employees during the period of their assignment and we are responsible for the payment of wages, payroll taxes, workers’ compensation insurance, unemployment insurance and other benefits. Customers will sometimes hire the contingent workers as their own employees after a period of time, for which we may receive a fee.

We also provide recruitment and direct placement services of individuals in the information technology, engineering, technical, accounting, finance and administrative support disciplines. We primarily perform these searches on a contingency basis; thus, fees are only earned if our clients ultimately hire the candidates.

For some customers we provide master staffing vendor services under which we are primarily responsible for managing a customer’s contingent workforce program. Our responsibilities for these programs usually include, if we are unable to fill a particular position, procurement of contingent workers from other qualified staffing providers as subcontractors. In most cases, we are only required to pay subcontractors after we receive payment from our customer.

We also provide managed service programs (“MSPs”), a comprehensive service for customers with large contingent workforces in which we manage the procurement and on-boarding of contingent workers and a broad range of specialized solutions that includes managing suppliers and providing sourcing and recruiting support, supplier performance measurement, consolidated customer billing, supplier payment and analysis and benchmarking of spend demographics and rates. The workforce placed on assignment through our MSPs is usually provided by third party staffing providers (“associate vendors”) or through our staffing solutions services. In most cases, we are only required to pay associate vendors after we receive payment from our customer. We also act as a subcontractor or associate vendor to other national providers in their managed services programs to assist them in meeting their obligations to their customers.

We provide MSPs through the use of vendor management system software (“VMS”) using either our proprietary systems or systems licensed from various other providers. Our proprietary VMS software, Consol and HRP, are also offered for licensing to non-MSP customers to support the recruiting process for workers and the sourcing of professional services, improvement of spend management, supplier management, time and expense processing and billing, and compliance with customer hiring policies.

Our technology consulting and outsourcing services and solutions provide flexible and scalable quality assurance, development and integration activities, and customer care solutions including end-user and technical, sales and retention support for customers in the gaming, consumer products and technology industries. Consulting projects include the full lifecycle of software application development and hardware testing, technical documentation, technical communications, electronic game testing, IT infrastructure outsource services, customer call center solutions, data center management, enterprise technology implementation and integration and corporate help desk services. Services are currently delivered to companies in the consumer products, financial services, manufacturing, media/entertainment, pharmaceuticals, software and technology industries.

In the second quarter of fiscal 2009 and in fiscal 2010, we restructured the operations of our staffing solutions services to reduce redundancies and achieve efficiencies in response to a decrease in revenue of the business and ongoing economic uncertainty. These changes included office consolidations and the reduction of in-house staff.

 

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Computer Systems

Our Computer Systems segment provides customers worldwide with operator services, information services, computer hardware and software, hosted OnDemand contact center service solutions and database services.

This includes design, integration and development of highly reliable and scalable directory assistance systems which we market to telephone companies and inter-exchange carriers worldwide. These services include traditional directory assistance (known in the United States as 411 service), as well as directory assistance enhanced services, such as reverse number lookup, weather, sports scores, and travel directions, together with Short Message Services (“SMS”) messaging features and directory assistance automated services. We both license systems to our customers and also provide an Application Service Provider (“ASP”) model in which we host and manage the equipment.

We created our OnDemand business focused on delivering state-of-the-art call center and voice self-service solutions with Software as a Service (“SaaS”) performance and efficiency. OnDemand’s core technology is a combination of proprietary and third-party technology that is designed to allow organizations to consolidate the management of multiple contact centers and remote agents within a unified framework of skills-based call routing with elements of personalization and universal queue management.

We also use our directory assistance residential and business databases covering the entire United States, Canada and some European countries to allow companies to improve their operations and marketing capabilities by providing database services, data processing, listing verification and online and offline data integration solutions. With the development of smartphones and cloud-based applications, the Company has begun to aggregate data from other sources, including wireless and Voice over Internet Protocol (“VoIP”) networks, and is making such information available on a real-time basis.

Telecommunications Services

Our Telecommunications Services segment is a provider of infrastructure solutions to the telecommunications and cable industries and their utilities, as well as to large corporations and governmental entities throughout the United States. This segment designs, engineers, constructs, installs and maintains voice, data, video and utility infrastructure for its customers.

The segment provides services related to buried and aerial transmission lines for telecommunications and cable companies including jack and bore, directional boring, trenching and excavation, installation and maintenance, conduit and manhole systems, cable placement and splicing, pole placement and wrecking, copper, coaxial and fiber optic cable installation, splicing, termination and testing, project management and inspection services.

In addition, we provide a wide range of services for telephone and telecommunications lines and equipment located within cable and telephone company offices. These services include furnishing, installing, maintaining and removing transmission systems, distribution frame systems, AC/DC power systems, wiring and cabling, switch peripheral systems, equipment assembly and system integration and controlled environment structures. We also install structured cabling and wiring and provide maintenance of various types of local and wide-area networks utilizing copper wiring, coaxial and fiber optics, for voice, data and video, security and access control solutions and other broadband installation services to large end-users in both the government and private sectors.

In late 2010, the Company decided to focus on projects with lower risk profiles and exit certain unprofitable businesses. The transition included a directional strategy shift from certain capital intensive projects that required specialized equipment and towards making additional investments in business development and providing services associated with the security industry. The Telecommunications Services segment’s dispositions were not sufficiently material to require presentation as a discontinued operation in the Company’s Consolidated Financial Statements included in this report.

 

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Other Segment

Our Other reportable segment consists of our computer maintenance business and our telephone directory publishing and printing business.

The computer maintenance business of Volt operates as an independent services organization (“ISO”) providing cost-effective, customized service solutions as an alternative to those offered by original equipment manufacturers (“OEMs”). We deliver IT infrastructure services to clients across the United States and in select locations globally. Those services include hardware maintenance and computer/network operations support in large data centers for multinational clients, as well as managing large-scale corporate technology refresh programs. We sell our services directly to corporate clients as well as in partnership with data center and network product OEMs. We also have selling relationships with a network of value added resellers. Our target industries include financial, telecommunications, aerospace, healthcare and manufacturing.

The telephone directory publishing and printing business publishes telephone directories in Uruguay under contract with the Uruguayan telephone company, which includes the sale of yellow pages and web portal advertising and the printing of the white pages. This business also owns and operates an advanced printing facility in Uruguay, which prints the Uruguay telephone directories, as well as directories for other publishers in other countries. In addition, this facility does commercial printing, including books, magazines, periodicals and advertising material, for various customers in South America.

Discontinued Operations

On September 5, 2008, the Company sold the net assets of its directory systems and services and North American publishing operations to Yellow Page Group. These operations were historically part of the Company’s Other segment.

For further information about discontinued operations, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 18, Sale of Business, to our Consolidated Financial Statements included in this report.

Business Strategy

We believe we are positioned for growth, building upon our brands and strong client relationships. Our vision is to be a preeminent provider of business solutions with a commitment to innovative products, services and solutions. Key elements of our strategy include the following:

Capture Additional Market Share Across our Portfolio of Services

While we have a leading market presence in a number of the markets we serve, most of our markets still have numerous competitors of varying size. We believe that scale and service capabilities become increasingly important as complexity grows within our customers’ organizations.

Expand Margins and Profitability

We are focused on driving profitable growth and have multiple initiatives to increase our profit margins, including expanding margins and reducing operating expenses. We are pursuing the following margin improvement initiatives along with promoting a culture of disciplined execution to further expand our gross margins:

 

   

increasing the percentage of our revenue represented by higher-margin specialty services and web-based applications;

 

   

generating staffing placement efficiency improvements through process standardization and diagnostic tools;

 

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achieving greater economies of scale thus reducing general and administrative expense as a percentage of revenues;

 

   

further sales channel development and productivity improvements;

 

   

renegotiating or exiting arrangements with unprofitable customers, product lines and services; and

 

   

achieving cost savings from restructuring activities including exiting facilities and reducing the workforce or relocating positions to lower cost geographies.

We expect these initiatives to achieve increased gross margins and reduced operating expenses as a percentage of revenues, thus driving increased profit margins.

Continue to Invest in and Expand our Sales Capabilities to Enter New Markets and Better Penetrate Existing Markets.

Our flexible go-to-market strategy allows us to reach customers across industries and around the globe while allowing them to interact with Volt businesses in a way that fits their organization. We intend to continue investing in our direct sales force to optimize their market focus, improve segmentation and enter new geographies. We also plan to utilize our sales force to grow the middle market and local customer account business, which often times can yield higher direct margins, with the intention of improving profitability.

Retain, Recruit and Develop Talent Globally.

We are focused on developing a workforce that has both exceptional technical capabilities and the leadership skills that are required to support our growth. Our strategy is to be a leader in the markets we serve, which will be achieved by developing new workforce capabilities and a committed, diverse executive team with the highest level of ethics and integrity.

Customers

The Company serves multinational, national and local clients with an emphasis on the technology, telecommunication and financial industries. The Company had no single customer that accounted for more than 10% of consolidated net revenue in the fiscal years 2009 and 2010. In fiscal year 2008, a single customer accounted for approximately 11% of consolidated net revenue. Our top 10 clients represented approximately 30%, 40% and 46% of our fiscal 2010, 2009 and 2008 revenue, respectively. The loss of one or more of these customers, unless the business is replaced, could have an adverse effect on the results of operations of Volt.

For the fiscal years ended October 31, 2010, November 1, 2009 and November 2, 2008, 92.1%, 92.4% and 92.8% of our revenue, respectively, were from customers in the United States.

Competition

The markets for the Company’s staffing services are highly competitive. There are few barriers to entry, so new entrants frequently appear, resulting in considerable market fragmentation. In the United States, approximately 100 competitors operate nationally, some of whom are larger and have greater resources than we do, and countless smaller companies compete in varying degrees at local levels.

Several similar staffing companies compete with our Staffing Services segment on a global basis. Our direct staffing competitors include Adecco N.A., Allegis Group, CDI Corp, Insperity, Inc., Kelly Services, Inc., Manpower, Inc., Randstad Holding N.V., and Robert Half International.

Our Computer Systems business is experiencing technology shifts in directory assistance in which consumers increasingly obtain information from alternative sources (primarily on-line sources using devices such as smartphones and computers) instead of traditional contact over telephone lines. Our specialized directory assistance technology and proprietary listings databases provide us with financial synergies in our directory

 

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assistance services, but we do not have the same degree of synergies in other call center applications of our technology, and so we face a broader range of competitors. Additionally, the change in how consumers obtain data is increasingly moving to on-line access from numerous platforms including mobile devices where competitors face relatively fewer barriers to entry than in our traditional directory assistance services.

Our Telecommunications Services business has competition from a wide range of contractors, many of which have greater resources and breadth of experience. Successfully competing in this market requires us to focus on those areas where we believe our expertise and capability is greater than our competitors and where we can deliver services with a cost structure that will permit us to achieve acceptable margins.

Our computer maintenance business has been under significant competitive pressure as many of our customers have reduced their IT budgets. We compete with large system integration firms as well as other traditional hardware providers that are increasingly offering services to support their products. Many of our competitors are able to offer a wide range of global services, and some of our competitors benefit from significant brand recognition.

In addition, we compete with numerous smaller local companies in the various geographic markets in which we operate. Companies in our industries compete on price, service quality, new capabilities and technologies, client attraction methods, and speed of completing assignments.

Research, Development and Engineering

We have project experience and expertise across multiple technologies and have made significant investments in research, development and engineering to keep abreast of the latest technology developments. The experience gained from particular projects and research, development and engineering efforts in each business we operate is utilized across all services in those businesses. As a result, we are able to react to customers’ needs quickly and efficiently. We believe that our ability to work with new technologies allows us to foster long-term relationships by having the skill set to continually address the needs of both existing and new customers. The majority of research and development expenditures are incurred by the Computer Systems segment.

Intellectual Property

VOLT is the principal registered trademark for our brand in the United States. A VOLT INFORMATION SCIENCES COMPANY, VOLT & DESIGN, DATASERV, DIRECTDA, DIRECTORY ONE, DIRECTORY EXPRESS, FNCS & DESIGN, LSSI, LSSIDATA, MAINTECH, NETS, PROCURESTAFF, PROCURESTAFF GETTING THE WORLD BACK TO BUSINESS & DESIGN, VOLTDELTA, VOLTDELTA & DESIGN and VOLTSOURCE are other registered trademarks in the United States. The Company also owns and uses common law trademarks and service marks.

We also own copyrights and patents and license technology from many providers. We rely on a combination of intellectual property rights in the United States and abroad to protect our brand and proprietary technology.

Seasonality

Our staffing service revenue and operating profits are usually lowest in our first fiscal quarter due to the Thanksgiving, Christmas and New Year holidays, as well as certain customer facilities closing during the holidays for one to two weeks. During the third and fourth quarter of the fiscal year, the Staffing Services segment benefits from a reduction of payroll taxes when the annual tax contributions for higher salaried employees have been met, and customers increase the use of our administrative and industrial labor during the summer vacation period. Our other services do not face significant seasonality impacts.

Employees

As of January 27, 2013, Volt employed approximately 36,000 persons, including approximately 31,600 persons who were on contingent staffing assignments for the Staffing Services segment. Those persons on contingent staffing assignments are on our payroll for the length of their assignment.

 

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We are focused on developing a workforce that has both exceptional technical capabilities and the leadership skills that are required to support our growth. Our strategy is to be a leader in the markets we serve which will be achieved by developing new workforce capabilities and a committed, diverse executive team with the highest level of ethics and integrity.

Volt is a party to one collective bargaining agreement, which covers a small number of our employees. Some of our employees outside the United States have rights under agreements with local work councils. We believe that our relations with our employees are satisfactory. While claims and legal actions related to staffing matters arise on a routine basis, we believe they are inherent in maintaining a large contingent workforce.

Regulation

Some states in the United States and certain foreign countries license and regulate temporary service firms and employment agencies. In connection with some foreign sales by certain segments, we are subject to export controls, including restrictions on the export of certain technologies. The sale of certain hardware and software by our Computer Systems segment in certain countries is permitted pursuant to a general export license. When we sell to countries designated by the United States as sensitive or develop products subject to restriction, sales would be subject to more restrictive export regulations. Compliance with applicable present federal, state and local environmental laws and regulations has not had, and we believe that compliance with those laws and regulations in the future will not have, a material effect on our earnings, capital expenditures or competitive position.

Access to Our Information

We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports with the SEC. These and other SEC reports filed by us are available to the public at the SEC’s website at www.sec.gov and in the Investor & Governance section at our website at www.volt.com, as soon as reasonably practicable after filing with the SEC.

Copies of our Code of Business Conduct and Ethics and other significant corporate documents (our Corporate Governance Guidelines, Governance Committee Charter, Audit Committee Charter, Compensation Committee Charter, Executive Committee Charter, Financial Code of Ethics, Whistleblower Policy, Foreign Corrupt Practices Act Policy, Insider Trading Policy and Electronic Communication Policy) are also available in the Investor & Governance section at our website. Copies are also available without charge upon request to Volt Information Sciences, Inc., 1065 Avenue of the Americas, New York, NY 10018, Attention: Shareholder Relations, or by calling us at (212) 704-2400.

 

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ITEM 1A. RISK FACTORS

Risk Factors

You should carefully consider the following risks along with the other information contained in this report. The following risks could materially adversely affect our business and, as a result, our financial condition, results of operations, and the market price of our common stock. Other risks and uncertainties not known to us or that we currently do not recognize as material also could materially adversely affect our business and, as a result, our financial condition, results of operations, and the market price of our common stock.

Risks Related to the Restatement and Other Accounting Issues

We have identified various material weaknesses in our internal control over financial reporting which have materially adversely affected our ability to timely and accurately report our results of operations and financial condition. These material weaknesses have not been fully remediated as of the filing date of this report.

As a result of the circumstances which gave rise to the Restatement, we have concluded that, as of October 31, 2010, we had material weaknesses in our internal control over financial reporting and that, as a result, our disclosure controls and procedures and our internal controls over financial reporting were not effective at such date. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

We are in the process of implementing efforts to remediate the identified material weaknesses. Our efforts have been and will continue to be time consuming and expensive. We cannot give any assurance as to when we will complete our efforts to fully remediate these material weaknesses.

Any failure to effectively implement our remediation plan, or any difficulties we encounter during implementation, could result in additional material weaknesses or in material misstatements in our financial statements. These misstatements could result in a future restatement of our financial statements, could cause us to fail to meet our reporting obligations, or could cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.

The Restatement and related investigations have been time consuming and expensive and have had a material adverse effect on our financial condition, results of operations and cash flows.

We have devoted substantial resources to the completion of the Restatement. As a result of these efforts, as of January 27, 2013, we have incurred approximately $137 million in fees and expenses, primarily for additional audit, financial, legal consulting and related costs. We expect to continue to incur significant additional fees and expenses until we are in compliance with our SEC reporting requirements and have remediated the existing material weaknesses in our internal control over financial reporting. These costs, as well as the substantial management time devoted to address these issues, have had, and could continue to have, a material adverse effect on our financial condition, results of operations and cash flows.

Although we recently settled an ongoing investigation by the SEC, we may be the subject of litigation relating to the Restatement, which could adversely affect our business and results of operations.

As previously reported, the Company was the subject of a non-public investigation by the SEC related to the Company’s accounting practices that led to the restatement. In November 2010, the Company issued a press release and Form 8-K disclosing the existence of the SEC investigation.

The Company cooperated with the SEC in its ongoing investigation and engaged in discussions toward a resolution of the SEC’s concerns. On January 10, 2013, the SEC filed a settled enforcement action against the Company in the United States District Court for the Southern District of New York, relating to the accounting

 

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practices subject to its investigation. Without admitting or denying the allegations of the Complaint, the Company consented to the issuance of a final judgment enjoining the Company from violating Section 17(a) of the Securities Act of 1933 (“Securities Act”), Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 (“Exchange Act”) and SEC Rules 10b-5, 12b-20, 13a-1 and 13a-11. The settled action did not require the payment of any monetary penalty and sought no relief beyond the entry of a permanent injunction. The SEC’s litigation release on the matter noted the Company’s cooperation with its investigation and the Company’s remedial measures, which are described in Item 9A of this report. The settlement was approved by the United States District Court for the Southern District of New York on January 18, 2013.

Although the Company has settled this matter with the SEC, additional regulatory inquiries may also be commenced. In addition, we may in the future be subject to additional litigation by investors, employees, or other parties, or other proceedings or actions arising in relation to the restatement of our historical interim financial statements or the accounting matters that were addressed in the SEC investigation or related matters. Litigation and any regulatory proceeding or action may be time consuming, expensive and distracting from the conduct of our business. In the event that there is an adverse ruling in any legal or regulatory proceeding or action, we may be required to make payments to third parties that could have a material adverse effect on our business, financial condition, and results of operations. Furthermore, regardless of the merits of any claim, legal proceedings may result in substantial legal expense and could also result in the diversion of time and attention by our management.

Our insurance coverage may not fully cover any costs and expenses related to this potential litigation. In addition, we indemnify our officers, directors and certain employees for certain events or occurrences while the employee, officer or director is, or was, serving at our request in such capacity, as permitted under New York law. We have paid and continue to pay legal counsel fees incurred by our present and former directors, officers and employees who are involved with the SEC inquiry, the Restatement, and related review by the Board of Directors. Each of these individuals is required to repay us for such fees if he or she is ultimately found not to be entitled to indemnification. We currently hold insurance policies for the benefit of our current and former directors and officers, although our insurance coverage may not be sufficient in some or all of these matters. Furthermore, the insurers may seek to deny or limit coverage in some or all of these matters, in which case we may have to self-fund all or a substantial portion of our indemnification obligations.

Our failure to comply timely with SEC reporting obligations may have an adverse effect on our business.

As a result of our failure to comply timely with SEC reporting obligations, we are subject to a number of restrictions regarding the registration of our common stock under federal securities laws. Until such time as we have regained compliance with our SEC reporting obligations and meet certain other conditions, we will be unable to use shorter and less costly filings, such as Registration Statements on Form S-3 and Form S-8. Being required to use the Registration Statement Form S-1 is likely to be more costly and time-consuming. These restrictions may reduce our access to capital markets, which may adversely affect our business.

Risks Relating to the Economy and our Industry

Our business is adversely affected by current economic and other business conditions.

The world economy has been experiencing a prolonged economic downturn characterized by high unemployment, limited availability of credit and decreased consumer and business spending. In the past our business has suffered during such downturns, and our business has similarly suffered during the recent downturn.

A weakened economy in which unemployment levels are relatively high may result in decreased demand for temporary and permanent personnel, which adversely impacts our Staffing Services segment. When economic activity slows, many of our customers reduce their use of contingent workers before undertaking layoffs of their own employees, resulting in decreased demand for contingent workers. Decreased demand and higher unemployment levels result in lower levels of pay rate increases and increased pressure on our markup of staffing service rates and direct margins. Since employees are also reluctant to risk changing employers, there are fewer

 

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openings available and, therefore, reduced activity in permanent placements. In recent years, many of our customers have significantly reduced their workforce, including their use of contingent labor. The continuation of the current business climate is likely to continue to adversely affect our business.

In all of our business segments, we have experienced competition and pressure on price, margins and markups for renewals of customers’ contracts than previously obtained. In addition, some customers and large vendors have sought to impose more onerous contractual terms on us. While we have taken, and will continue to take, action to meet competition in our highly competitive markets and negotiate reasonable contracts, there can be no assurance that we will be able to do so without impacting revenue or margins. While we attempt to manage our costs in relation to our business volumes, these efforts may not be successful, and the timing of these efforts and associated earnings charges may adversely affect our business.

Our Staffing Services segment is in a very competitive industry with few significant barriers to entry.

Our Staffing Services segment is in a very competitive industry with few significant barriers to entry. The worldwide contingent staffing industry is also highly fragmented. In the United States, approximately 100 competitors operate nationally and approximately 6,000 smaller companies compete in varying degrees at local levels, many of which have just one or a few offices that only service a small market. Some of our principal competitors in this segment are larger and have greater financial resources than us and service multi-national accounts, which is business we also solicit. These competitors may be better able than we are to attract and retain qualified personnel, to offer more favorable pricing and terms, and otherwise attract and retain the business that we seek. In addition, some of the segment’s customers, generally larger companies, are mandated or otherwise motivated to utilize the services of small or minority-owned companies rather than publicly held corporations, such as Volt, and have redirected substantial amounts of their staffing business to those companies. We also face the risk that certain of our current and prospective customers may decide to provide similar services internally.

There has been a significant increase in the number of customers consolidating their staffing services purchases with a single provider or a small number of providers. This trend to consolidate purchases has, in some cases, made it more difficult for us to obtain or retain customers. Additionally, pricing pressures have intensified as customers have continued to competitively bid new contracts. This trend is expected to continue for the foreseeable future. As a result, we cannot assure you that we will not encounter increased competition and lower margins in the future.

One of the effects of the increase in the number of customers consolidating their staffing service purchases is an increase in the use of managed service providers. Managed service providers coordinate the provision of temporary services to their customers using internet-enabled applications (often supplied by others) that act as a mechanism for businesses to manage and procure contingent and other staffing services. However, some of these managed service providers assume all payment obligations to their customers’ suppliers, such as Volt. These managed service providers may present greater credit risks than the end-customer and some of these customers have in the past, and could in the future, default on their obligations to us, adversely impacting our business.

The bidding process for these national contracts is very competitive. Our Staffing Services segment has been successful in obtaining a number of large national contracts that typically require on-site Volt representation and fulfillment at multiple customer facilities. Many contracts are for a one-to-three year time period, at which time they typically are re-bid. Others are for shorter periods or may be for the duration of a particular project or need that has arisen, which requires additional or substitute personnel. Many of these contracts require considerable start-up costs and may take an extended amount of time to reach anticipated revenue levels that are dependent on the customer’s actual requirements at that time. It also takes an extended period of time to recover these start-up costs. Our Staffing Services segment maintains a group dedicated to the acquisition, implementation and service of national accounts; however, there can be no assurance that we will be able to retain accounts that we currently serve, or that we can obtain additional accounts on satisfactory terms.

 

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Off-shoring by companies to which we supply temporary employees adversely affects our revenue.

In recent years, United States companies, some of which are customers of Volt, increasingly have outsourced manufacturing and service operations to foreign countries with lower labor rates, less costly employee benefit requirements and fewer regulations than in the United States. This outsourcing reduces their need for temporary and permanent workers in the United States. We continue to expand our global pool of resources to offer greater support to the service sector of the economy and other businesses that have more difficulty in moving operations to foreign countries, as well as expanding our regional and local customer base that generally affords higher margin opportunities. We may not be successful in these efforts.

In addition, we have been, and may continue to be, adversely affected if we compete from our United States-based operations against competitors based in lower-cost countries. Although we have expanded our operations in a few foreign countries to serve existing customers, and have established subsidiaries in some foreign countries, there can be no assurance that this effort will be successful or that we can successfully compete with competitors based overseas or who have more well-established foreign operations. Our international expansion further subjects us to additional risks and challenges caused by the effect of foreign laws and regulations that could harm our business and profitability, as well as exposure from the risk of currency fluctuation as the values of foreign currencies fluctuates against the dollar.

Risks Related to our Capital Structure and Finances

Our credit agreement contains restrictive covenants.

Our credit facility requires us to maintain minimum unrestricted cash or availability under our accounts receivable securitization program of $15,000,000. Our existing credit facility includes restrictive covenants which limit our ability to, among other things, change our lines of business and engage in consolidations, mergers, liquidations, or dissolutions. These covenants could limit our ability to react to market conditions or to otherwise engage in transactions that might be considered beneficial to us.

Risks Related to our Particular Customers and the Projects on which We Work

Our project related businesses are subject to project delays, unanticipated costs and cancellations that may result in additional costs to us, reductions in revenues or the payment of liquidated damages.

In all of our business segments, we, in some circumstances, guarantee certain results of a project, such as project completion by a scheduled date, the achievement of certain acceptance, performance testing levels, results and other performance requirements. Failure to meet those criteria could result in additional costs or penalties, including liquidated damages, which could exceed our projected profit. Many projects involve engineering, procurement and construction phases that may occur over extended time periods, sometimes over several years. We may encounter difficulties in designing or engineering, delays in receiving designs or materials provided by our customers or a third-parties, delays in equipment and material delivery, schedule changes, delays from our customers’ failure to timely obtain rights required to perform or complete a project, weather-related delays and other factors, some of which are beyond our control, that could impact our ability to complete projects in accordance with the original delivery schedules. In addition, we may contract with third-party subcontractors to assist us with the completion of contracts. Any delay or failure by subcontractors in the satisfactory completion of their portion of projects may result in delays in the overall progress of projects or may cause us to incur additional costs, or both. Delays and additional costs may be substantial, we may not be able to recover all of these costs and our revenues and operating profits could be significantly reduced. We also may be required to invest significant working capital to fund cost overruns. Delays or cancellations also may impact our reputation or relationships with customers, adversely affecting our ability to secure new contracts.

At times, project contracts may require customers or other parties to provide the specifications, design, engineering information, equipment or materials to be used on a project. In some cases, the project schedule or the design, engineering information, equipment or materials may be deficient or delivered later than required by

 

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the project schedule. In addition, our customers may change or delay various elements of a project after commencement, resulting in additional direct or indirect costs.

Under these circumstances, we generally attempt to negotiate with the customer with respect to the amount of additional time required and the compensation to be paid to us. We are subject to the risk that we may be unable to obtain, through negotiation, arbitration, litigation or otherwise, adequate amounts to compensate us for the additional work or expenses incurred by us due to customer-requested change orders or failure by the customer to timely deliver items, such as engineering or design drawings, specifications, or materials required to be provided by the customer. Litigation, arbitration or mediation of claims for compensation may be lengthy and costly, and it is often difficult to predict when and for how much the claims will be resolved. A failure to obtain adequate compensation for these matters could adversely affect our results of operations and cash flow.

Delays and additional costs may be substantial, we may not be able to recover all of these costs and our revenues and operating profits could be significantly reduced. We also may be required to invest significant working capital to fund cost overruns. Delays or cancellations also may impact our reputation or relationships with customers, adversely affecting our ability to secure new contracts.

Many of our contracts either provide no minimum purchase requirements, are cancellable during the term, or both.

In our Staffing Services segment, most contracts are not sole source, and many of our contracts, even those with multi-year terms, provide no assurance of any minimum amount of revenue. Under many of these contracts we still must compete for each individual placement or project. Similarly, in our Telecommunications segment many master contracts require competition in order to obtain each individual work project. In addition, many of our long-term contracts contain cancellation provisions under which the customer can cancel the contract at any time or on relatively short notice, even if we are not in default under the contract. Therefore, these contracts do not provide the assurances that typical long-term contracts often provide and are inherently uncertain with respect to the revenues and earnings we may recognize with respect to our customer contracts. Additionally, in all our business segments, the degree and timing of customer acceptance of systems and of obtaining new contracts and the rate of renewals of existing contracts, as well as customers’ utilization of our services, could adversely affect our financial statements with respect to the revenues and earnings we may recognize with respect to our customer contracts.

Our Computer Systems segment is highly dependent on our customers’ call volume.

The results of our Computer Systems segment are highly dependent on the volume of directory assistance calls to this segment’s customers that are processed by the segment under existing contracts, the segment’s ability to continue to secure comprehensive listings from others at acceptable pricing, and our continued ability to sell products and services to new and existing customers. The volume of transactions with this segment’s customers and the revenues received by us has been, and may continue to be, reduced as consumers utilize free listings offered by alternative sources, including listings available on the internet, and from consolidation in the telecommunications industry. Revenue earned under many of our contracts in this segment is variable based on the volumes processed, while our costs of meeting the contractual service levels are not. Decreases in volumes that we are not able to offset with lowered costs could adversely affect our results of operations and cash flows.

We rely extensively on our information technology systems and are vulnerable to damage and interruption.

We rely on our information technology systems and infrastructure to process transactions, summarize results, and manage our business, including maintaining client information. Our information technology systems are potentially vulnerable to outages and deliberate intrusion. Likewise, data security incidents and breaches by employees and others with or without permitted access to our systems pose a risk that sensitive data may be exposed to unauthorized persons or to the public. Additionally, we utilize third parties, including cloud providers, to store, transfer and process data. While we have taken measures to protect our data and information technology systems, there can be no assurance that our efforts will prevent outages or security breaches in our systems that

 

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could adversely affect our results of operations and cash flows, as well as our business reputation. Disclosure of sensitive information could subject us to liability under our contracts and laws that protect personal, consumer and customer data, resulting in penalties, fines, increased costs or loss of revenue.

Our business may be negatively affected if we are not able to keep pace with rapid changes in technology.

We must obtain or produce products and systems, principally in the information technology environment, to satisfy customer requirements and to remain competitive. To do so, we must make significant investments to deploy, maintain and upgrade advanced computer software and purchase substantial amounts of computer equipment. These investments, beyond requiring significant capital, also entail large technological obsolescence risk and require specialized talent to operate. There can be no assurance that in the future we will be able to foresee changes and to identify, develop and commercialize innovative and competitive products, systems and services in a timely and cost effective manner and to achieve customer acceptance of our products, systems and services in markets characterized by rapidly changing technology and frequent new product introductions.

The loss of any key customers would adversely impact our business.

We historically have derived significant revenue from large corporate customers. The Company had no single customer that accounted for more than 10% of consolidated net revenue in the fiscal years 2009 and 2010. In fiscal year 2008, a single customer accounted for approximately 11% of consolidated net revenue. Our top 10 clients represented approximately 30%, 40% and 46% of our fiscal 2010, 2009 and 2008 revenue, respectively. The loss of one or more of these customers, or material changes in their demand for our products and services, could adversely affect our results of operations.

We are dependent upon our key personnel.

Our operations are dependent on the continued efforts of our senior management. In addition, we are dependent on the performance and productivity of our local managers and field personnel. Our ability to attract and retain business is significantly affected by local relationships and the quality of service rendered. The loss of those key personnel and members of management with significant experience in our industry may cause a significant disruption to our business. Moreover, the loss of key managers and field personnel may jeopardize existing client relationships with businesses that continue to use our services based upon relationships with these managers and field personnel.

We are dependent upon our ability to attract and retain technologically qualified personnel.

Our operations are dependent upon our ability to attract and retain technologically qualified personnel, particularly in the areas of research and development, implementation and upgrading of internal systems, as well as for temporary assignments to customers of our Staffing Services segment. The availability of such personnel is dependent upon a number of economic and demographic conditions. We may in the future find it difficult or more costly to hire such personnel in the face of competition from other companies.

In addition, while in many fields there are ample applicants for available positions, variations in the rate of unemployment and higher wages sought by temporary workers in certain technical fields that continue to experience labor shortages could affect our ability to meet our customers’ demands in these fields and adversely affect our results of operations.

Risks Related to Legal Compliance and Litigation

We are subject to employment–related and other claims and losses that could have a material adverse effect on our business.

Our Staffing Services segment employs or engages individuals on a temporary basis and places them in a customer’s workplace. Our ability to control the customer’s workplace is limited, and we risk incurring liability to our employees for injury (which can result in increased workers’ compensation costs) or other harm that they

 

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suffer at the customer’s workplace. Increases in workers’ compensation costs can adversely affect our competitive position and our ability to retain business and obtain new business. Other risks specifically related to our Staffing Services segment include:

 

   

claims that we have violated wage and hour requirements that govern the relationship between employers and employees;

   

claims of discrimination or harassment by us or our customers;

   

claims for retroactive entitlement to employee benefits;

   

claims of misconduct or negligence on the part of our employees;

   

claims related to the employment of undocumented or unlicensed personnel;

   

claims related to workers’ compensation, general liability, automobile liability and employee group health insurance;

   

errors and omissions by our employees and contingent workers, particularly in the case of professionals;

   

claims related to our employees’ misuse of customers’ proprietary information, misappropriation of funds, other criminal activity or torts or other similar claims; and

   

claims relating to the misclassification of independent contractors.

Additionally, we risk liability to our customers for the actions or inactions of our employees that may result in harm to our customers. Such actions may be the result of negligence or misconduct on the part of our employees, damage to customer facilities due to negligence, criminal activity and other similar claims. In many cases, we must indemnify our customers for the acts of our employees, and certain customers have negotiated increases in the scope of such indemnification agreements. We also may incur fines, penalties and other losses that are not covered by insurance or negative publicity with respect to these matters. There can be no assurance that the corporate policies in place to help reduce our exposure to these risks will be effective or that we will not experience losses as a result of these risks. These same factors apply to all of our business units, although the risk may be reduced where we control the employees and/or the workplace.

We are subject to expenses and losses relating to legal proceedings.

From time to time we are subject to legal proceedings, as well as claims and threatened litigation that arise in the normal course of our business. If the potential loss from any claim or legal proceeding is considered probable and the amount of the loss can be reasonably estimated, a liability and an expense are recorded for the estimated loss. Significant judgment is required in both the determination of probability and the determination of whether an exposure is reasonably estimable. Accruals are based on the best information available at the time. As additional information becomes available, a reassessment is performed of the potential liability related to pending claims and litigation and may revise our estimates. Potential legal liabilities and the revision of estimates of potential legal liabilities as well as the legal expenses of such matters could have a material adverse impact on our business.

New and increased government regulation, employment costs or taxes could have a material adverse effect on our business, especially for our contingent staffing business.

Certain of our businesses are subject to licensing and regulation in some states and most foreign jurisdictions. There can be no assurance that we will continue to be able to comply with these requirements, or that the cost of compliance will not become material. Additionally, the jurisdictions in which we do or intend to do business may:

 

   

create new or additional regulations that prohibit or restrict the types of services that we currently provide;

   

impose new or additional employment costs that we may not be able to be pass on to customers or that would cause customers to reduce their use of our services, especially in our Staffing Services segment, which would adversely impact our business;

 

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require us to obtain additional licenses; and

   

increase taxes (especially payroll and other employment-related taxes) or enact new or different taxes payable by the providers or users of services such as those offered by us, thereby increasing our costs, some of which we may not be able to be pass on to customers or which would cause customers to reduce their use of our services especially in our Staffing Services segment, which would adversely impact our ability to conduct our business.

In some of our foreign markets, temporary services are more heavily regulated than in the United States. Litigation and regulatory activity (in the European Union and certain countries) is being directed at the way the staffing industry generally does business. In addition to imposing additional requirements and costs, this regulatory activity could cause changes in customers’ attitudes regarding the use of outsourcing and temporary personnel in general, which could have an adverse effect on our contingent staffing business.

Insurance has limits and exclusions and we retain risk.

We maintain insurance policies for various exposures including, but not limited to, general liability, auto liability, workers compensation and employer’s liability, directors’ and officers’ insurance, professional liability, employment practices, loss to real and personal property, business interruption, fiduciary and other management liability. Insurance products are purchased both as required by law and to minimize the risk that unknown events have a material impact on our operations. However, insurance has limitations in that certain events may not be covered (either uninsurable, subject to high deductibles or exceeding the limits purchased). Even when appropriate insurance is purchased, certain events may have a material impact of a nature that cannot be fully compensated through insurance.

Risks Related to Our Common Stock

Our common stock was delisted from the New York Stock Exchange and is not listed on any other national securities exchange.

Trading in the Company’s common stock on the New York Stock Exchange (“NYSE”) was suspended on January 26, 2011. The Company’s common stock was delisted from the NYSE on May 30, 2011. On January 27, 2011, the Company’s common stock began trading under the symbol “VISI” through the facilities of the OTC Markets Group, Inc.

We can provide no assurance that we will be able to relist our common stock on a national securities exchange or that the stock will continue being traded on the OTC marketplace. The trading of our common stock on the OTC marketplace rather than the NYSE may negatively impact the trading price of our common stock and the levels of liquidity available to our stockholders.

Risks of trading in an over-the-counter market.

Securities traded in the over-the-counter market generally have significantly less liquidity than securities traded on a national securities exchange due to factors such as the reduced number of investors that will consider investing in the securities, the reduced number of market makers in the securities, and the reduced number of securities analysts that follow such securities. As a result, holders of our common stock may find it difficult to resell their shares at prices quoted in the market or at all. Furthermore, because of the limited market and generally low volume of trading in our common stock that could occur, the share price of our common stock could be more likely to be affected by broad market fluctuations, general market conditions, fluctuations in our operating results, changes in the market’s perception of our business, and announcements made by us, our competitors, parties with whom we have business relationships or third parties. The lack of liquidity in our common stock may also make it difficult for us to issue additional securities for financing or other purposes, or to otherwise arrange for any financing we may need in the future.

 

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Our stock price could be volatile and, as a result, investors may not be able to resell their shares at or above the price they paid for them.

Our stock price has in the past, and could in the future, fluctuate as a result of a variety of factors, including those factors previously discussed and the following, many of which are beyond our control:

 

   

the restatement of our financial statements;

   

fluctuations in our results of operations;

   

our failure to meet the expectations of the investment community and changes in investment community view points or estimates of our future results of operations;

   

industry trends and the business success of our customers;

   

loss of one or more key customers;

   

strategic moves by our competitors, such as product or service announcements or acquisitions;

   

regulatory developments;

   

litigation;

   

general economic conditions, such as the current recession;

   

general market conditions; and

   

other domestic and international macroeconomic factors unrelated to our performance.

The stock market has experienced, and may in the future experience, volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may also adversely affect the market price of our common stock.

Our principal shareholders own a significant percentage of our common stock and will be able to exercise significant influence over Volt. Their interests may differ from those of other shareholders.

As of February 28, 2013, our principal shareholders, who are related family members, controlled approximately 36% of our outstanding common stock. Accordingly, these shareholders, if they vote in the same manner, would effectively be able to control the composition of our board of directors and many other matters requiring shareholder approval and would continue to have significant influence over our affairs, and the interests of our principal shareholders may not align with those of our other shareholders.

Furthermore, the provisions of the New York Business Corporation Law, to which we are subject, requires the affirmative vote of the holders of two-thirds of all of our outstanding shares entitled to vote in order to adopt a plan of merger or consolidation between us and another entity and to approve a sale, lease, exchange or other disposition of all or substantially all of our assets not made in our usual and regular course of business. Accordingly, our principal shareholders, acting alone, could prevent the approval of such transactions even if such transactions are in the best interests of our other shareholders.

New York law and our Articles of Incorporation and Bylaws contain provisions that could make the takeover of Volt more difficult.

Certain provisions of New York law and our articles of incorporation and by-laws could have the effect of delaying or preventing a third party from acquiring Volt, even if a change in control would be beneficial to our shareholders. These provisions of our articles of incorporation and bylaws include:

 

   

providing for a classified board of directors with directors having staggered, two-year terms;

   

permitting removal of directors only for cause;

   

providing that vacancies on the board of directors will be filled by the remaining directors then in office; and

   

requiring advance notice for shareholder proposals and director nominees.

In addition to the voting power of our principal shareholders discussed above, our board of directors could choose not to negotiate with a potential acquirer that it did not believe was in our strategic interests. If an

acquirer is discouraged from offering to acquire Volt or prevented from successfully completing an acquisition by these or other measures, our shareholders could lose the opportunity to sell their shares at a more favorable price.

 

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our corporate headquarters are located in approximately 18,700 square feet at 1065 Avenue of the Americas, New York, New York under a lease that expires in 2015. A summary of our principal leased and owned properties (those exceeding 20,000 square feet) that are currently in use is set forth below:

United States

 

Location

 

Business Segment/Purpose

 

Own/Lease

 

Lease Expiration

  Approximate
Square Feet

Orange County, California

  West Region Headquarters   Own (1)   -   220,000

El Segundo, California

  Staffing Services   Own (2)   -   24,000

San Diego, California

  Staffing Services   Own   -   18,000

Redmond, Washington

  Staffing Services   Lease   Between 2013 and 2015   86,000

Rochester, New York

  Computer Systems   Lease   2018   51,000

San Antonio, Texas

  Telecommunications Services   Lease   2015   36,000

Wallington, New Jersey

  Computer Systems   Lease   2015   32,000

 

 

(1) See Note 12 in our Consolidated Financial Statements for information regarding a term loan secured by a deed of trust on this property. We sublease approximately 39,000 square feet of these premises to an unaffiliated third party for a term through October 31, 2015, with the tenant having two additional 60 month lease renewal options and certain rights of early termination.

(2) On July 31, 2012, the Company sold the building located in El Segundo, California for $5.1 million in cash, net of related expenses.

International

 

Location

 

Business Segment/Purpose

 

Own/Lease

 

Lease Expiration

  Approximate
Square Feet

Montevideo, Uruguay

  Other   Own   -   93,000

Bangalore, India

  Other   Lease   2015   30,000

We lease space in approximately 139 other facilities worldwide, excluding month-to-month leases, each of which consists of less than 20,000 square feet. These leases expire at various times from 2013 until 2018.

At times, we lease space to others in the buildings that we own or lease if we do not require the space for our own business. We believe that our facilities are adequate for our presently anticipated uses and that we are not dependent upon any individually leased premises.

For additional information pertaining to lease commitments, see Note 20, Commitments and Contingencies, to our Consolidated Financial Statements included in this report.

 

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ITEM 3. LEGAL PROCEEDINGS

SEC Civil Action

As previously reported, Volt was the subject of a non-public investigation by the SEC related to our accounting practices that led to the restatement. In November 2010, we issued a press release and filed a Form 8-K disclosing the existence of the SEC investigation.

On January 10, 2013, Volt announced that it had reached an agreement with the Securities and Exchange Commission to settle allegations arising from the investigation that Volt violated Section 17(a) of the Securities Act, and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, and 13a-11. We did not admit to or deny the allegations and consented, along with a former officer of one of the Company’s subsidiaries, to a judgment requiring compliance with Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and SEC Rules 10b-5, 12b-20, 13a-1 and 13a-11. Under the terms of the agreement, which was approved by the United States District Court for the Southern District of New York on January 18, 2013, Volt was not required to pay any monetary penalty.

Also arising from the investigation, the Securities and Exchange Commission filed a civil injunctive complaint on January 10, 2013, against Jack Egan, Volt’s former Chief Financial Officer, in the United States District Court for the Southern District of New York. The Commission alleges that Egan participated in a scheme in violation of Section 17(a) of the Securities Act; Sections 10(b) and 13(b)(5) of the Exchange Act; and Exchange Act Rules 10b-5, 13b2-1, 13b2-2, and 13a-14 to materially overstate revenue causing our net income for our fourth quarter and fiscal year ended October 28, 2007, to be materially overstated and to mislead our external auditors. The Commission seeks that Egan be permanently enjoined, be ordered to pay a civil money penalty, and be prohibited from acting as an officer or director.

Other Legal Proceedings

From time to time, the Company is subject to claims in legal proceedings arising in the ordinary course of its business, including those related to payroll related matters and various employment related matters. All litigation pending against the Company relates to matters that have arisen in the ordinary course of business and the Company believes that it will not have a materially adverse effect on its consolidated financial condition or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASERS OF EQUITY SECURITIES

Until January 26, 2011, our common stock was listed on the NYSE under the symbol “VOL”. Since then, it has traded in the over-the-counter market under the symbol “VISI.” The following table sets forth, for the periods indicated, the high and low sales prices (for periods during which our common stock was traded on the NYSE, ending with the four quarter of 2010) or the high and low bid quotations (for periods during which our common stock was traded on the over-the-counter market starting with the first quarter of 2011) for our common stock for the years ended October 28, 2012, October 30, 2011, October 31, 2010, November 1, 2009, and November 2, 2008. The over-the-counter market bid quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Fiscal Period

  

 

   First Quarter      Second Quarter      Third Quarter      Fourth Quarter  
2013    High    $ 7.81         -             -             -       
   Low    $ 6.20         -             -             -       
2012    High    $ 7.00       $ 7.19       $ 7.35       $ 7.14   
   Low    $ 5.45       $ 5.89       $ 6.57       $ 6.23   
2011    High    $ 9.49       $ 10.75       $ 10.80       $ 9.15   
   Low    $ 5.92       $ 6.65       $ 9.10       $ 6.00   
2010    High    $ 11.94       $ 13.36       $ 13.50       $ 9.21   
   Low    $ 7.55       $ 8.80       $ 7.09       $ 6.16   
2009    High    $ 9.25       $ 9.24       $ 8.13       $ 13.63   
   Low    $ 4.07       $ 5.24       $ 5.85       $ 7.82   
2008    High    $ 18.99       $ 19.76       $ 15.51       $ 15.86   
   Low    $ 12.05       $ 12.75       $ 10.83       $ 5.00   

Cash dividends have not been paid for the five years ended October 28, 2012 and through the date of this report. One of our credit agreements contains a covenant that limits cash dividends, capital stock purchases and redemptions in any one fiscal year to 50% of our prior year’s consolidated net income, as defined. There are no amounts available for cash dividends, capital stock purchases and redemptions under this covenant at October 28, 2012.

On March 15, 2013, the last sale price of our common stock reported on the over-the-counter market was $8.32. On that date there were approximately 290 holders of record of our common stock, exclusive of stockholders whose shares were held by brokerage firms, depositories and other institutional firms in “street name” for their customers.

 

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Issuer Purchases of Equity Securities

On June 2, 2008, our Board of Directors authorized the repurchase of up to 1,500,000 shares of our common stock from time to time in open market or private transactions at management’s discretion, subject to market conditions and other factors. The timing and exact number of shares purchased will depend on market conditions and is subject to institutional approval for purchases in excess of $32.1 million in fiscal year 2009 under the terms of our credit agreements. There were no repurchases in fiscal 2010, 2011, 2012 or 2013 or in the periods during 2008 or 2009 not presented in the table below.

Our purchases of our common stock from July 28, 2008 to January 27, 2013 were as follows:

 

Period

   Total
Number
of Shares
Purchased
     Average
Price
Paid per
Share
     Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plan or
Program
     Maximum
Number of
Shares that
May yet be
Purchased
Under Plan
or Program
 

July 28, 2008 - August 24, 2008

     -         -         -         1,500,000   

August 25, 2008 - September 21, 2008

     255,637       $ 10.84         255,637         1,244,363   

September 22, 2008 - November 2, 2008

     903,098       $ 8.75         903,098         341,265   

June 28, 2009 - August 2, 2009

     32,010       $ 7.08         32,010         309,255   
  

 

 

       

 

 

    

Total

     1,190,745            1,190,745      
  

 

 

       

 

 

    

Other Events

We maintain a 401(k) retirement savings plan that is available to substantially all of our regular U.S. employees. The plan contains as an investment alternative an “Employer Stock Fund” that invests in our common stock and, until February 17, 2011, the plan allowed participants to allocate some or all of their account balances to interests in the Employer Stock Fund. In February 2011, we informed the participants in the 401(k) plan that they would no longer be allowed to allocate their account balance to the Employer Stock Fund because the Company had not been filing periodic reports with the Securities and Exchange Commission.

The Volt Information Sciences, Inc. common stock held in the Employer Stock Fund was not purchased from the Company; rather, the plan trustee accumulated the plan contributions that were directed to the Employer Stock Fund and purchased shares of our common stock in open market transactions. Nevertheless, because we sponsor the plan, we may be required to register certain transactions in the plan related to shares of our common stock, and we filed registration statements on Form S-8 with respect to shares offered and sold through the Employer Stock Fund.

Purchases of shares for the Employer Stock Fund made from approximately September 15, 2009 through February 17, 2011 (the date as of which participants were no longer allowed to allocate their account balances to the Employer Stock Fund) occurred when we were not filing periodic reports with the Securities and Exchange Commission on a current basis. Consequently, our registration statements on Form S-8 may not have been available to cover these offers and sales to plan participants to the extent registration may have been required. During this period, the participants purchased through the Employer Stock Fund approximately 161,000 shares of our common stock.

 

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data reflects the results of operations and balance sheet data for the fiscal years ended October 31, 2010, November 1, 2009 and November 2, 2008. The data below should be read in conjunction with, and is qualified by reference to, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Company’s Consolidated Financial Statements and notes thereto. The financial information presented may not be indicative of our future performance.

The following selected consolidated financial data for 2008 has been restated to reflect adjustments from matters discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 2, Restatement of Previously Issued Financial Statements and Other Significant Events, to our Consolidated Financial Statements included elsewhere in this report. Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to our Consolidated Financial Statements for further discussion of the restatement adjustments.

 

For the years ended,

(in thousands, except per share data)

   October 31, 2010     November 1, 2009     November 2, 2008
(as restated)
 
     52 weeks     52 weeks     53 weeks  

Revenue

      

Staffing services revenue

   $ 1,732,348      $ 1,717,255      $ 2,376,396   

Other revenue

     224,064        246,754        349,642   
  

 

 

   

 

 

   

 

 

 

Net revenue

     1,956,412        1,964,009        2,726,038   

Direct cost of staffing services revenue

     1,479,562        1,458,720        2,012,977   

Cost of other revenue

     191,730        230,031        340,131   

Selling, administrative and other operating costs

     281,102        288,404        358,406   

Amortization of purchased intangible assets

     1,434        1,435        10,520   

Restructuring costs

     3,149        10,739        1,504   

Impairment of purchased intangibles and goodwill

     -            -            135,232   

Fees related to restatement and associated investigations

     29,158        924        -       
  

 

 

   

 

 

   

 

 

 

Operating loss

     (29,723     (26,244     (132,732

Loss from continuing operations

     (96,375     (26,244     (111,042

Income from discontinued operations, net of taxes

     -            -            99,325   
  

 

 

   

 

 

   

 

 

 

Net loss

     (96,375     (26,244     (11,717

Per Share Data:

      

Basic and diluted: Loss from continuing operations

     (4.63     (1.26     (5.05
Years ended,    October 31, 2010     November 1, 2009     November 2, 2008
(as restated)
 
     52 weeks     52 weeks     53 weeks  

Cash and cash equivalents

   $ 51,084      $ 118,765      $ 120,929   

Working capital

     127,011        201,449        195,526   

Total assets

     599,124        658,343        816,805   

Long-term debt, current portion

     652        601        553   

Long-term debt, excluding current portion

     10,509        11,161        11,762   

Total stockholders’ equity

     140,137        237,285        261,853   

Note 1 - Cash dividends were not paid during the above periods.

      

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Restatement of Previously Issued Financial Statements

As a result of the initial findings of a review of certain technical accounting standards associated with revenue recognition related to its Computer System segment, on December 23, 2009 the Company announced its financial statements as of and for the fiscal years ended November 2, 2008 and October 28, 2007 included in the Company’s Annual Reports on Form 10-K and the Company’s consolidated financial statements for the quarterly periods through May 3, 2009 included in the Company’s Quarterly Reports on Form 10-Q should no longer be relied upon and would be restated (the “Restatement”).

On May 11, 2010, the Company announced that as part of the restatement process it was also performing an overall review of its consolidated financial statements to determine whether any additional adjustments were necessary beyond those identified in the Computer Systems segment. Subsequently, the Company announced that it had determined that additional adjustments beyond those identified for the Computer Systems segment were necessary.

The adjustments required to correct the errors in the consolidated financial statements as a result of completing the restatement process are described in Note 2 to our Consolidated Financial Statements included in this report.

Executive Summary

The demand for our services in all segments, both domestically and in our foreign operations, is dependent upon general economic conditions. Our business suffers during economic downturns. Since late fiscal 2008, the slowing of the economy adversely affected our revenue. Our 2009 and 2010 revenues were lower than our revenue in the pre-2008 periods.

Several historical seasonal factors usually affect the revenue and profits of the Company. The Staffing Services segment’s revenue and operating profit are usually lowest in our first fiscal quarter due to the Thanksgiving, Christmas and New Year holidays, as well as certain customer facilities closing during the holidays for one to two weeks. During the third and fourth quarters of the fiscal year, this segment benefits from a reduction of payroll taxes when the annual tax contributions for higher salaried employees have been met, and customers increase the use of our administrative and industrial labor during the summer vacation period.

Our Computer Systems segment has seen a slight increase through 2010 in the volume of transactions primarily from an increase in the volume of directory assistance calls, although at lower transaction pricing. However, this volume trend is reversing in the two-year period subsequent to 2010. The volume of transactions is expected to decline in subsequent periods as consumers increasingly utilize free listings offered by alternative sources, including listings available on the Internet, and from consolidation in the telecommunications industry. Our Telecommunications segment achieved improvement after shifting focus to projects with less risk and exiting unprofitable business. In fiscal 2010, the Telecommunications segment continued its focus on winding down the unprofitable business which resulted in reductions in both revenue and cost of other revenue. Our Other segment IT maintenance revenue continues to increase at a modest rate.

Our fiscal year ends on the Sunday nearest October 31. As a result, most fiscal years contain 52 weeks, and a 53rd week is added every five or six years. The 2010 and 2009 fiscal years each consisted of 52 weeks. In 2008, we had an additional week of results (53rd week).

 

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Consolidated Results of Operations and Financial Highlights (Fiscal 2010 vs. Fiscal 2009):

 

     Year ended,      2010 vs. 2009 Change  
(in millions)    October 31, 2010     November 1, 2009      Amount     %  
     (52 Weeks)     (52 Weeks)               

Revenue

         

Staffing services revenue

   $ 1,732.3      $ 1,717.3       $ 15.0        1

Other revenue

     224.1        246.7         (22.6     -9
  

 

 

   

 

 

    

 

 

   

 

 

 

Net revenue

     1,956.4        1,964.0         (7.6     0

Direct cost of staffing services revenue

     1,479.6        1,458.7         20.9        1

Cost of other revenue

     191.7        230.1         (38.4     -17

Selling, administrative and other operating costs

     281.1        288.4         (7.3     -3

Amortization of purchased intangible assets

     1.4        1.4         -          -     

Restructuring costs

     3.1        10.7         (7.6     -71

Fees related to restatement and associated investigations

     29.2        0.9         28.3        >100
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating loss

     (29.7     (26.2      (3.5     13

Other income (expenses)

     (4.1     (3.5      (0.6     17

Income tax provision (benefit)

     62.6        (3.5      66.1        <-100
  

 

 

   

 

 

    

 

 

   

 

 

 

Net loss

   $ (96.4   $ (26.2    $ (70.2     >100
  

 

 

   

 

 

    

 

 

   

 

 

 

Net Revenue: Consolidated net revenue decreased $7.6 million, or 0.4%, to $1,956.4 million in fiscal 2010 from $1,964.0 million in fiscal 2009. The decrease in our revenue for fiscal 2010 was a result of a reduction in outside plant engineering (“OSP”) and certain other services in our Telecommunications Services segment of $35.4 million. The overall decrease was partially offset by increases in our Staffing Services segment where revenue increased $15.0 million from fiscal 2009 followed by increases in our Computer Systems segment of $11.8 million and our Other segment of $1.0 million in revenue.

Direct Cost of Staffing Services Revenue: Direct cost of staffing services revenue increased $20.9 million, or 1%, to $1,479.6 million in fiscal 2010 from $1,458.7 million in fiscal 2009. This increase is consistent with the revenue increase in the Staffing Services segment as noted above.

Cost of Other Revenue: Cost of other revenue decreased $38.4 million, or 17%, to $191.7 million in fiscal 2010 from $230.1 million in fiscal 2009. This decrease is primarily a result of the closure of offices in Canada and reduced construction activity in the Telecommunications segment, as well as lower recognition of previously deferred costs in the Computer Services segment.

Selling, Administrative and Other Operating Costs: Selling, administrative and other operating costs decreased $7.3 million, or 3%, to $281.1 million in fiscal 2010 from $288.4 million in fiscal 2009. This decrease was primarily a result of cost savings in fiscal 2010 from the restructuring initiative undertaken beginning in 2009 as discussed below.

Amortization of Purchased Intangible Assets: Amortization of purchased intangible assets remained constant at $1.4 million in fiscal 2010 and 2009.

Restructuring Costs: Restructuring costs decreased approximately $7.6 million, or 71%, to $3.1 million in fiscal 2010 from $10.7 million in fiscal 2009. In fiscal 2009, the Staffing Services and Computer Systems segments implemented a series of cost reduction initiatives, including the closing of offices and staff reductions to improve operating efficiencies. As a result, we recorded restructuring costs of $3.1 million in fiscal 2010 and $10.7 million in fiscal 2009 which consisted of severance paid and charges recorded for rent on leases that were exited. As the majority of cost reduction initiatives took place in fiscal 2009, we incurred lower restructuring costs in fiscal 2010.

Fees Related to Restatement and Associated Investigations: Fees related to the restatement and associated investigations amounted to $29.2 million and $0.9 million in fiscal 2010 and fiscal 2009, respectively, and were comprised primarily of legal, consulting and accounting expenses. The increased costs were a result of the

 

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increased level of effort in fiscal 2010 as the restatement and associated investigations began in the latter portion of fiscal 2009.

Operating Loss: Our operating loss of $29.7 million in fiscal 2010, increased as compared to an operating loss of $26.2 million in fiscal 2009. The increase was primarily a result of increases in restatement and related investigations fees of $28.3 million and incremental operating losses in the Telecommunications and Other segments. These increases were offset by improved margins in the Computer Systems segment and a $7.6 million reduction in restructuring expenses.

Other Income (Expenses): Other expense increased $0.6 million to $4.1 million in fiscal 2010 from $3.5 million in fiscal 2009. The more significant portion of this net expense represents fees related to the accounts receivable securitization program which have remained consistent. In fiscal 2010, we recorded lower outside rental income of $0.3 million, as compared to fiscal 2009, from a Company owned building. Additionally, there was a $1.4 million decrease in foreign currency gains primarily driven by our foreign currency denominated short-term borrowings. In fiscal 2009, we recorded $0.9 million of other income which represented a settlement of a pre-acquisition claim arising from an acquisition in 2007.

Income Tax Provision: Income tax provision increased by $66.1 million to $62.6 million in expense for fiscal 2010, from a benefit of $3.5 million in fiscal 2009. In fiscal 2010, we recorded $4.6 million of current income tax benefit and $67.3 million of deferred income tax expense as compared to $5.5 million of current income tax benefit and $2.0 million of deferred income tax benefit in fiscal 2009. The increase in income tax provision is primarily the result of the significant valuation allowance we established in fiscal 2010.

Results of Operations by Segment (Fiscal 2010 vs. Fiscal 2009)

 

    Year ended October 31, 2010         Year ended November 1, 2009  
(in millions)   Total     Staffing
Services
    Computer
Systems
    Tele-
Communi
cations
    Other         Total     Staffing
Services
    Computer
Systems
    Tele-
Communi
cations
    Other  

Net Revenue

  $ 1,956.4        1,732.3        101.8        47.1        75.2        $ 1,964.0        1,717.3        90.0        82.5        74.2   

Expenses

                     

Direct cost of staffing services revenue

    1,479.6        1,479.6        -          -          -            1,458.7        1,458.7        -          -          -     

Cost of other revenue

    191.7        -          76.7        52.8        62.2          230.1        -          87.9        85.4        56.7   

Selling, administrative and other operating costs

    271.1        232.7        21.5        2.8        14.1          279.9        241.5        22.5        3.5        12.5   

Amortization of purchased intangible assets

    1.4        0.1        0.9        -          0.4          1.4        0.1        0.9        -          0.4   

Restructuring costs

    3.1        1.3        1.8        -          -            10.7        8.6        2.1        -          -     
 

 

 

     

 

 

 

Segment operating income (loss)

    9.5        18.7        1.0        (8.5     (1.7       (16.8     8.3        (23.4     (6.4     4.7   

Corporate general and administrative

    10.0                  8.5           

Fees related to restatement and associated investigations

    29.2                  0.9           
 

 

 

             

 

 

         

Operating loss

  $ (29.7             $ (26.2        
 

 

 

             

 

 

         

Staffing Services

Net Revenue: The Staffing Services segment’s net revenue increased $15.0 million, or 1%, to $1,732.3 million in fiscal 2010 from $1,717.3 million in fiscal 2009. An increase in demand accounts for the majority of our revenue growth and resulted in an increase of over 5.7 million in contingent staffing hours or a 12.1% increase in such hours while our average billing rates for this business decreased 5.6% from fiscal 2009. On average, approximately 29,000 U.S. staffing employees were on assignment throughout the year, compared to approximately 26,900 in fiscal 2009.

Direct Cost of Staffing Services Revenue: The segment’s direct cost of staffing services revenue increased $20.9 million, or 1%, to $1,479.6 million in fiscal 2010 from $1,458.7 million in fiscal 2009. This increase is primarily attributable to the revenue increase as a result of increased staffing hours described above. Direct costs of staffing services revenue of the segment increased to 85.4% in fiscal 2010 from 84.9% in fiscal 2009.

Selling, Administrative and Other Operating Costs: The segment’s selling, administrative and other operating costs decreased $8.8 million, or 3%, to $232.7 million in fiscal 2010 from $241.5 million in fiscal 2009. We

 

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began to realize cost savings in fiscal 2010 as a result of the restructuring initiatives that began in fiscal 2009. The average selling, administrative and other operating headcount was reduced by approximately 19% from the average headcount in fiscal 2009. We also had lower rent, utilities and depreciation as a result of exiting certain leases in fiscal 2009.

Restructuring Costs: The segment’s restructuring charges decreased $7.3 million, or 85%, to $1.3 million in fiscal 2010 from $8.6 million in fiscal 2009. In fiscal 2010, the Staffing Services segment incurred restructuring costs of $1.3 million for severance paid and charges recorded for rent on leases that were terminated. The segment incurred $8.6 million of restructuring costs in fiscal 2009 as a result of the elimination of employee positions and closure of 65 offices.

Segment Operating Profit: The segment’s operating profit increased $10.4 million to an operating profit of $18.7 million in fiscal 2010 from an operating profit of $8.3 million in fiscal 2009. The increase is primarily attributable to higher net revenue of $15.0 million resulting from higher demands for staffing services coinciding with improvements in the economic conditions, lower restructuring costs of $7.3 million, and lower selling, administrative and other operating costs of $8.8 million. These decreases were partially offset by an increase in direct cost of staffing services revenue of $20.9 million.

Computer Systems

Net Revenue: The segment’s net revenue increased by $11.8 million, or 13%, to $101.8 million in fiscal 2010 from $90.0 million in fiscal 2009. This increase primarily results from new systems that were accepted by certain significant customers in the second half of fiscal 2010 and the related recognition of revenue in the fiscal year.

As of October 31, 2010, November 1, 2009 and November 2, 2008, the Company had deferred revenue of $125.0 million, $123.0 million, and $90.4 million, which is presented net of related deferred costs of $23.8 million, $23.9 million and $18.0 million, respectively, associated with software system sales. The balance in deferred revenue and deferred costs as of October 31, 2010 will be recognized as accounting requirements are met. This recognition is expected to increase revenue, costs, and operating profit in each of the following fiscal years as follows:

 

(in millions)    Balance as of
October 31, 2010
     2011      2012      2013      2014      2015      Dependent Upon
Future Events
 

Expected recognition of Deferred

                    

Revenue, gross at October 31, 2010

   $ 125.0      $ 80.9      $ 28.3      $ 11.6      $ 3.0      $ 0.5      $ 0.7  

Expected recognition of Deferred costs that have been netted against Deferred Revenue, gross at October 31, 2010

   $ 23.8      $ 13.9      $ 6.2      $ 2.6      $ 0.6      $ 0.1      $ 0.3  

Operating profit

   $ 101.2      $ 67.0      $ 22.1      $ 9.0      $ 2.4      $ 0.3      $ 0.4  

Cost of Other Revenue: The segment’s cost of revenue decreased $11.2 million, or 13%, to $76.7 million in fiscal 2010 from $87.9 million in fiscal 2009. The decreased costs were a result of lower recognized deferred costs in fiscal 2010 compared to fiscal 2009.

Selling, Administrative and Other Operating Costs: The segment’s selling, administrative and other operating costs decreased $1.0 million, or 4%, to $21.5 million in fiscal 2010 from $22.5 million in fiscal 2009. The decrease is primarily attributable to continued cost savings from the restructuring initiative that occurred in 2010 and 2009.

Segment Operating Loss: The segment generated operating income of $1.0 million in fiscal 2010 compared to an operating loss of $23.4 million in fiscal 2009, an increase of $24.4 million. The improvement is attributable to the increase in revenues primarily due to system acceptances with certain significant customers and decreases in costs of revenue as noted above.

Telecommunications Services

Net Revenue: The Telecommunications Services segment’s net revenue decreased $35.4 million, or 43%, to $47.1 million in fiscal 2010 from $82.5 million in fiscal 2009. The decrease is primarily attributable to a decrease

 

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of $14.8 million in the OSP business, decrease in revenues of $17.0 million due to the termination of a large contract and closure of a division, decrease of $2.4 million from the closure of the Canada office, and a decrease of $1.2 million resulting from exiting the Enterprise Solutions division in fiscal 2008.

Cost of Other Revenue: The segment’s cost of other revenue decreased $32.6 million, or 38%, to $52.8 million in fiscal 2010 compared to $85.4 million in fiscal 2009. This decrease is primarily a result of the closure of the Central Office and Canada offices and the overall decrease in construction revenue. As a result of the revenue decline, the segment reduced overhead staff by approximately 34% in fiscal 2010 as compared to fiscal 2009, which accounted for a substantial portion of the decrease in costs of other revenue in fiscal 2010.

Selling, Administrative and Other Operating Costs: The segment’s selling, administrative and other operating costs decreased $0.7 million, or 20%, to $2.8 million in fiscal 2010 from $3.5 million in fiscal 2009. This decrease is consistent with the revenue decrease in the operating segment.

Segment Operating Loss: The segment’s operating loss increased $2.1 million, or 33%, to $8.5 million of operating loss in fiscal 2010 from $6.4 million operating loss in fiscal 2009. The increase in operating loss is primarily attributable to the reduction of revenue as noted above.

Other

Net Revenue: The Other segment’s net revenue increased $1.0 million, or 1%, to $75.2 million in fiscal 2010 from $74.2 million in fiscal 2009. The increase is primarily attributable to a net increase of $1.4 million in IT maintenance revenue primarily as a result of expanded business with existing customers, partially offset by a decrease in the printing and publishing business.

Cost of Other Revenue: The segment’s cost of other revenue increased $5.5 million, or 10%, to $62.2 million in fiscal 2010 from $56.7 million in fiscal 2009. The increase in cost of other revenue is due to a $1.4 million net increase in the IT maintenance business as a result of an increase in staff costs incurred to support new business, partially offset by a decrease in the printing and publishing business. The IT maintenance cost of other revenue increase is primarily a result of increased labor and fringe benefits and other direct costs associated with start up and servicing of new customers. The publishing and printing business decrease in cost of other revenue is consistent with the related decrease in revenue.

Selling, Administrative and Other Operating Costs: The segment’s selling, administrative and other operating costs increased $1.6 million, or 13%, to $14.1 million in fiscal 2010 from $12.5 million in fiscal 2009. The increase is primarily due to increases in employee salaries of $1.0 million in the printing and publishing business.

Segment Operating Profit: The segment’s operating profit decreased $6.4 million to operating loss of $1.7 million in fiscal 2010, from operating profit of $4.7 million in fiscal 2009. This decrease was predominantly a result of the increase in cost of other revenue of $5.6 million resulting from an increase in staff costs incurred to support business expansion.

 

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Consolidated Results of Operations and Financial Highlights (Q3 2010 YTD vs. Q3 2009 YTD)

 

     Nine months ended,     Q3 2010 YTD vs. Q3 2009 YTD  
         August 1, 2010             August 2, 2009             Amount                 %  
(in millions)    (39 weeks)     (39 weeks)              

Revenue

        

Staffing services revenue

   $                 1,249.3      $                 1,315.5      $ (66.2     -5%   

Other revenue

     153.0        183.2        (30.2     -16%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     1,402.3        1,498.7        (96.4     -6%   

Direct cost of staffing services revenue

     1,080.7        1,116.9        (36.2     -3%   

Cost of other revenue

     142.1        173.2        (31.1     -18%   

Selling, administrative and other operating costs

     209.5        218.9        (9.4     -4%   

Amortization of purchased intangible assets

     1.1        1.1        -          -     

Restructuring costs

     2.2        9.6        (7.4     -77%   

Fees related to restatement and associated investigations

     19.1        -                          19.1        0%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (52.4     (21.0     (31.4     >100%   

Other income (expenses)

     (1.7     (4.4     2.7        -61%   

Income tax provision (benefit)

     58.6        (3.1     61.7        <-100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     $ (112.7     $ (22.3     $ (90.4                     >100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Revenue: In the first nine months of fiscal 2010, consolidated net revenue decreased by $96.4 million, or 6%, to $1,402.3 million from the comparable period of fiscal 2009. The decrease resulted primarily from revenue decreases in Staffing Services of $66.2 million and Telecommunications Services of $27.2 million from the comparable period in fiscal 2009.

Direct Cost of Staffing Services Revenue: Direct costs of staffing revenue decreased $36.2 million, or 3%, to $1,080.7 million in the first nine months of fiscal 2010 from the comparable period of fiscal 2009. This decrease is consistent with the revenue decrease in the Staffing Services segment noted above.

Cost of Other Revenue: Cost of other revenue decreased by $31.1 million, or 18%, to $142.1 million in the first nine months of fiscal 2010 from the comparable period of fiscal 2009. This decrease is primarily a result of the closure of offices in Canada and reduced construction activity in the Telecommunications Services segment, as well as lower recognition of previously deferred costs in the Computer Services segment.

Selling, Administrative and Other Operating Costs: Selling and administrative costs decreased by $9.4 million, or 4%, in the first nine months of fiscal 2010 from the comparable period in fiscal 2009. This decrease was primarily a result of cost savings in fiscal 2010 from the restructuring initiative undertaken beginning in fiscal 2009 as discussed below.

Amortization of Purchased Intangible Assets: Amortization of purchased intangible assets remained constant at $1.1 million in the first nine months of fiscal 2010 and 2009.

Restructuring Costs: Restructuring costs decreased approximately $7.4 million, or 77%, in the first nine months of fiscal 2010 from the comparable period in fiscal 2009. In fiscal 2009, the Staffing Services and Computer Systems segments implemented a series of cost reduction initiatives, including the closing of offices and staff reductions to improve operating efficiencies.

Fees Related to Restatement and Associated Investigations: Fees related to the restatement and associated investigations amounted to $19.1 million in the first nine months of fiscal 2010 and were comprised primarily of legal, consulting and accounting expenses. The restatement and associated investigations began in the fourth quarter of fiscal 2009.

Operating Loss: Our operating losses were $52.4 million in the first nine months of fiscal 2010 and $21.0 million in the comparable period of fiscal 2009. This increase of $31.4 million was primarily due to the restatement expenses of $19.1 million, as well as increases in the Staffing Services, Other, and Telecommunications Services

 

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segments’ operating losses of $12.5 million, $0.5 million and $3.7 million, respectively. These losses were partially offset by an improvement in the Computer Systems segment operating results of $9.5 million.

Other Income (Expenses): Other income increased by $2.7 million, or 61%, in the first nine months of fiscal 2010 from the comparable period in fiscal 2009, resulting from a $3.3 million increase in foreign currency gains primarily driven by our foreign currency denominated short-term borrowings. This increase is partially offset by $0.9 million of other income recorded in fiscal 2009, which represented a settlement of a pre-acquisition claim arising from the purchase price of a subsidiary in 2007.

Income Tax Provision: Income tax provision increased by $61.7 million to $58.6 million in expense for the first nine months of fiscal 2010, from a benefit of $3.1 million in the same period in fiscal 2009. The increase in income tax provision is attributed to the significant valuation allowance we established in the second quarter of fiscal 2010.

Consolidated Results of Operations and Financial Highlights (Q3 2010 vs. Q3 2009)

 

     Three months ended,     Q3 2010 vs. Q3 2009  
     August 1, 2010     August 2, 2009         Amount             %  
(in millions)    (13 weeks)     (13 weeks)              

Revenue

        

Staffing services revenue

   $                 444.5      $                 403.8      $                 40.7        10%   

Other revenue

     47.4        61.0        (13.6     -22%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     491.9        464.8        27.1        6%   

Direct cost of staffing services revenue

     382.5        339.2        43.3        13%   

Cost of other revenue

     46.0        57.1        (11.1     -19%   

Selling, administrative and other operating costs

     69.7        64.9        4.8        7%   

Amortization of purchased intangible assets

     0.4        0.4        -          -     

Restructuring costs

     1.3        2.4        (1.1     -46%   

Fees related to restatement and associated investigations

     7.5        -          7.5        -     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (15.5     0.8        (16.3     <-100%   

Other income (expenses)

     (2.0     (3.7     1.7        -46%   

Income tax benefit

     (3.0     (0.1     (2.9     >100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     $ (14.5     $ (2.8     $ (11.7                     >100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Revenue: In the third quarter of fiscal 2010, consolidated net revenue increased by $27.1 million, or 6%, to $491.9 million, from the comparable period of fiscal 2009. The increase resulted primarily from a sales increase in Staffing Services of $40.7 million which was partially offset by decreases in Telecommunications Services of $10.6 million and Computer Systems of $4.1 million.

Direct Cost of Staffing Services Revenue: Direct costs of staffing services revenues increased by $43.3 million, or 13%, to $382.5 in the third quarter of fiscal 2010 from $339.2 in the comparable quarter of fiscal 2009. This increase is consistent with the net revenue increase in the Staffing Services segment as noted above.

Cost of Other Revenue: Cost of other revenue decreased by $11.1 million, or 19%, to $46.0 million in the third quarter of fiscal 2010 from the comparable period of fiscal 2009 primarily due to the closure of offices in Canada and reduced construction activity in the Telecommunications Services segment.

Selling, Administrative and Other Operating Costs: Selling and administrative costs increased by $4.8 million, or 7%, in the third quarter of fiscal 2010 from the comparable period in fiscal 2009 due to increased outside services and indirect labor.

Amortization of Purchased Intangible Assets: Amortization of purchased intangible assets remained constant at $0.4 million in the third quarter of fiscal 2010 and 2009.

Restructuring Costs: Restructuring costs decreased approximately $1.1 million in the third quarter of fiscal 2010 from the comparable period of fiscal 2009. In fiscal 2009, the Staffing Services and Computer Systems segments

 

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implemented a series of cost reduction initiatives, including the closing of offices and staff reductions to improve operating efficiencies.

Fees Related to Restatement and Associated Investigations: Fees related to the restatement and associated investigations amounted to $7.5 million in the third quarter of fiscal 2010 and were comprised primarily of legal, consulting and accounting expenses. The restatement and associated investigations began in the fourth quarter of fiscal 2009.

Operating Loss: Our operating loss of $15.5 million in the third quarter of fiscal 2010 increased, as compared to operating income of $0.8 million in the comparable period of fiscal 2009. This increase was primarily due to the restatement expenses of $7.5 million, and the segments reporting an increased operating loss of $8.3 million in the third quarter of fiscal 2010 as compared to the third quarter of fiscal 2009.

Results of Operations by Segment (Q3 2010 YTD vs. Q3 2009 YTD)

 

    Nine months ended August 1, 2010     Nine months ended August 2, 2009  
 

 

 

   

 

 

 
(in millions)   Total     Staffing
Services
    Computer
Systems
    Tele-
Communi
cations
    Other     Total     Staffing
Services
    Computer
Systems
    Tele-
Communi
cations
    Other  
 

 

 

   

 

 

 

Net Revenue

  $ 1,402.3        1,249.3        63.9        37.0        52.1      $ 1,498.7        1,315.5        66.0        64.2        53.0   

Expenses

                   

Direct cost of staffing services revenue

    1,080.7        1,080.7        -          -          -          1,116.9        1,116.9        -          -          -     

Cost of other revenue

    142.1        -          56.0        41.3        44.8        173.2        -          65.8        64.7        42.7   

Selling, administrative and other operating costs

    202.4        172.7        17.5        2.3        9.9        212.3        184.0        18.2        2.5        7.6   

Amortization of purchased intangible assets

    1.1        0.1        0.6        -          0.4        1.1        0.1        0.6        -          0.4   

Restructuring costs

    2.2        1.1        1.1        -          -          9.6        7.5        2.1        -          -     
 

 

 

   

 

 

 

Segment operating income (loss)

    (26.2     (5.4     (11.3     (6.7     (2.8     (14.4     7.1        (20.8     (3.0     2.3   

Corporate general and administrative

    7.1                6.6           

Fees related to restatement and associated investigations

    19.1                -             
 

 

 

           

 

 

         

Operating loss

    $ (52.4             $ (21.0        
 

 

 

           

 

 

         

Staffing Services: The Staffing Services segment’s net revenue for the first nine months and third quarter of fiscal 2010 decreased by $66.2 million and increased by $40.7 million, respectively, from the comparable periods of fiscal 2009. The operating results for these nine and three month periods decreased by $12.5 million and increased by $1.7 million, respectively, from the comparable fiscal 2009 periods.

Computer Systems: The Computer Systems segment’s net revenue decreased by $2.1 million and $4.1 million, respectively, in the first nine months and third quarter of fiscal 2010 from the comparable fiscal periods of fiscal 2009, and its operating loss decreased by $9.5 million and $0.6 million from the comparable fiscal 2009 periods. The changes in operating results in these nine and three month periods of fiscal 2010 were primarily due to decreased activity.

Telecommunications Services: The Telecommunications Services segment’s revenues decreased by $27.2 million and $10.6 million, respectively, from the first nine months and third quarter of fiscal 2009, and the operating losses increased by $3.7 million and decreased by $0.4 million, respectively, from the first nine months and third quarter of fiscal 2009, primarily due to the closure of the Central Office and Canada offices and the overall decrease in construction revenue.

Other: The Other segment’s revenues decreased by $0.9 million and increased by $1.1 million and the operating results declined by $5.1 million and $1.9 million for the respective first nine months and third quarter of fiscal 2009, primarily due increases in cost of other revenue and staff costs.

 

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Consolidated Results of Operations and Financial Highlights (Q2 2010 YTD vs. Q2 2009 YTD)

 

     Six months ended,     Q2 2010 YTD vs. Q2 2009 YTD  
         May 2, 2010             May 3, 2009             Amount                 %          
(in millions)    (26 weeks)     (26 weeks)              

Revenue

        

Staffing services revenue

   $ 804.8      $ 911.6      $ (106.8     -12%   

Other revenue

     105.5        122.3        (16.8     -14%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     910.3        1,033.9        (123.6     -12%   

Direct cost of staffing services revenue

     698.2        777.7        (79.5     -10%   

Cost of other revenue

     96.2        116.1        (19.9     -17%   

Selling, administrative and other operating costs

     139.6        154.1        (14.5     -9%   

Amortization of purchased intangible assets

     0.7        0.7        -          -     

Restructuring costs

     0.9        7.1        (6.2     -87%   

Fees related to restatement and associated investigations

     11.6        -          11.6        -     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (36.9     (21.8     (15.1     69%   

Other income (expenses)

     0.4        (0.7     1.1        <-100%   

Income tax provision (benefit)

     61.7        (3.0     64.7        <-100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     $                (98.2     $                (19.5     $                (78.7                     >100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Revenues: In the first six months of fiscal 2010, consolidated net revenues decreased by $123.6 million, or 12%, to approximately $910.3 million, from the comparable period of fiscal 2009. The decrease resulted primarily from revenue decreases in Staffing Services of $106.8 million and Telecommunications Services of $16.6 million from the comparable periods of fiscal 2009.

Direct Cost of Staffing Services Revenue: Direct costs of staffing services revenue decreased $79.5 million, or 10%, from the first six months of 2010 to the comparable period in 2009. This decrease is consistent with the net revenue decrease in the Staffing Services segment as noted above.

Cost of Other Revenue: Cost of other revenue decreased by $19.9 million, or 17%, to $96.2 million, in the six months of fiscal 2010 from the comparable period of fiscal 2009 primarily due to the closure of offices in Canada and reduced construction activity in the Telecommunications Services segment.

Selling, Administrative and Other Operating Costs: Selling and administrative costs decreased by $14.5 million, or 9%, to $139.6 million in the first six months of fiscal 2010 from $154.1 million in the comparable period in fiscal 2009. This decrease was primarily a result of cost savings in fiscal 2010 from the restructuring initiative undertaken beginning in fiscal 2009 as discussed below.

Amortization of Purchased Intangible Assets: Amortization of purchased intangible assets remained constant at $0.7 million in the first six months of fiscal 2010 and 2009.

Restructuring Costs: Restructuring costs decreased approximately $6.2 million in the first six months of fiscal 2010 from the prior comparable period. In fiscal 2009, the Staffing Services and Computer Systems segments implemented a series of cost reduction initiatives, including the closing of offices and staff reductions to improve operating efficiencies. As the majority of the cost reduction initiatives took place in fiscal 2009, we incurred lower restructuring costs in fiscal 2010.

Fees Related to Restatement and Associated Investigations: Fees related to the restatement and associated investigations amounted to $11.6 million in the first six months of fiscal 2010 and were comprised primarily of legal, consulting and accounting expenses. The restatement and associated investigations began in the fourth quarter of fiscal 2009.

Operating Loss: Our operating losses of $36.9 million in the first six months of fiscal 2010 increased as compared to an operating loss of $21.8 million in the comparable period of fiscal 2009. This increase was primarily due to the restatement expenses of $11.6 million, as well as declines in the Staffing Services, Telecommunications Services, and Other segments’ operating results of $5.5 million, $3.9 million and $3.3

 

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million, respectively. These losses were partially offset by an improvement in the Computer Systems segment operating results of $9.1 million.

Other Income (Expense): Other income increased by $1.1 million in the first six months of fiscal 2010 from the comparable period in fiscal 2009, resulting from a $1.2 million increase in foreign currency gains primarily driven by our foreign currency denominated short-term borrowings as well a net interest income of $0.6 million. These increases were partially offset by $0.9 million of other income recorded in fiscal 2009, which represented a settlement of a pre-acquisition claim arising from the purchase price of a subsidiary in 2007.

Income Tax Provision: Income tax provision increased by $64.7 million to $61.7 million in expense for first six months of fiscal 2010, from a benefit of $3.0 million in the same period in fiscal 2009. The increase in income tax provision is attributed to the significant valuation allowance we established in the second quarter of fiscal 2010.

Consolidated Results of Operations and Financial Highlights (Q2 2010 vs. Q2 2009)

 

     Three months ended,     Q2 2010 vs. Q2 2009  
         May 2, 2010             May 3, 2009             Amount                 %          
(in millions)    (13 weeks)     (13 weeks)              

Revenue

        

Staffing services revenue

   $ 421.4      $ 426.8      $ (5.4     -1%   

Other revenue

     48.2        57.1        (8.9     -16%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     469.6        483.9        (14.3     -3%   

Direct cost of staffing services revenue

     363.5        363.2        0.3        0%   

Cost of other revenue

     45.5        54.2        (8.7     -16%   

Selling, administrative and other operating costs

     70.1        74.2        (4.1     -6%   

Amortization of purchased intangible assets

     0.4        0.4        -          -     

Restructuring costs

     0.9        4.3        (3.4     -79%   

Fees related to restatement and associated investigations

     7.7        -          7.7        0%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (18.5     (12.4     (6.1     49%   

Other income (expenses)

     0.3        (2.2     2.5        <-100%   

Income tax provision (benefit)

     62.0        (2.0     64.0        <-100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     $                (80.2     $                (12.6     $                (67.6                     >100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Revenue: In the second quarter of fiscal 2010, consolidated net revenues decreased by $14.3 million, or 3%, to $469.6 million, from the comparable period of fiscal 2009. The significant changes from the comparable period of 2009 were a decrease of $7.9 million in Telecommunications Service segment revenue, and a decrease of $5.4 million in Staffing Services segment revenue.

Direct Costs of Staffing Services Revenues: Direct costs of staffing revenue increased $0.3 million, or 0%, from the prior comparable period. This increase is consistent with the net revenue increase in the Staffing Services segment noted above.

Cost of Other Revenues: Cost of other revenues decreased $8.7 million, or 16%, to $45.5 million in the second quarter of fiscal 2010 from $54.2 million in the comparable period of fiscal 2009 primarily due to the closure of offices in Canada and reduced construction activity in the Telecommunications Services segment.

Selling, Administrative and Other Operating Costs: Selling and administrative costs decreased by $4.1 million, or 6%, in the second quarter of fiscal 2010 to $70.1 million from the comparable period in fiscal 2009. This decrease was primarily a result of cost savings in fiscal 2010 from the restructuring initiative undertaken beginning in fiscal 2009 as discussed below.

Amortization of Purchased Intangible Assets: Amortization of purchased intangible assets remained constant at $0.4 million in the second quarter of fiscal 2010 and 2009.

Restructuring Costs: Restructuring costs decreased approximately $3.4 million, or 79%, to $0.9 million in the second quarter of fiscal 2010 from the comparable period in fiscal 2009. In fiscal 2009, the Staffing Services and

 

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Computer Systems segments implemented a series of cost reduction initiatives, including the closing of offices and staff reductions to improve operating efficiencies. As the majority of the cost reduction initiatives took place in fiscal 2009, we incurred lower restructuring costs in the second quarter of fiscal 2010.

Fees Related to Restatement and Associated Investigations: Fees related to the restatement and associated investigations amounted to $7.7 million in the second quarter of fiscal 2010 and were comprised primarily of legal, consulting and accounting expenses. The restatement and associated investigations began in the fourth quarter of fiscal 2009.

Other Income (Expenses): Other income (expenses) decreased by $2.5 million in the second quarter of fiscal 2010 from the comparable period in fiscal 2009 resulting from an increase in foreign currency gains primarily driven by our foreign currency denominated short-term borrowings.

Operating Loss: Our operating loss of $18.5 million in the second quarter of fiscal 2010, increased $6.1 million as compared to an operating loss of $12.4 million in the comparable period of fiscal 2009. The increase in segment operating losses was attributable to the restatement expenses of $7.7 million, and was partially offset by the segments reporting an increased operating income of $2.0 million in second quarter of fiscal 2010 as compared to the second quarter of fiscal 2009. The increase in segment operating income is attributable to $2.9 million of increases in the Staffing Services and Computer Systems segments, partially offset by decreases in the Company’s other segments.

Results of Operations by Segment (Q2 2010 YTD vs. Q2 2009 YTD)

 

    Six months ended May 2, 2010         Six months ended May 3, 2009  
(in millions)   Total     Staffing
Services
    Computer
Systems
    Tele-
Communi
cations
    Other         Total     Staffing
Services
    Computer
Systems
    Tele-
Communi
cations
    Other  

Net Revenue

    $ 910.3        804.8        42.9        27.4        35.2          $ 1,033.9        911.6        40.8        44.0        37.5   

Expenses

                     

Direct cost of staffing services revenue

    698.2        698.2        -          -          -            777.7        777.7        -          -          -     

Cost of other revenue

    96.2        -          36.8        30.1        29.3          116.1        -          44.1        42.7        29.3   

Selling, administrative and other operating costs

    135.0        113.8        12.7        1.5        7.0          149.4        130.1        11.8        1.7        5.8   

Amortization of purchased intangible assets

    0.7        0.1        0.4        -          0.2          0.7        0.1        0.4        -          0.2   

Restructuring costs

    0.9        0.9        -          -          -            7.1        6.4        0.7        -          -     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment operating income (loss)

    (20.7     (8.2     (7.1     (4.3     (1.1       (17.1     (2.7     (16.2     (0.4     2.2   

Corporate general and administrative

    4.6                  4.7           

Fees related to restatement and associated investigations

    11.6                  -             
 

 

 

             

 

 

         

Operating loss

    $ (36.9               $ (21.8        
 

 

 

             

 

 

         

Staffing Services: The Staffing Services segment’s net revenues for the six months of fiscal 2010 decreased by $106.8 million and decreased by $5.4 million for the second quarter of fiscal 2010, as compared to the comparable period of fiscal 2009. The operating loss for these six and three month periods increased by $5.5 million and $2.9 million, respectively, from the comparable fiscal 2009 periods. The decrease is a result of many of our customers reducing their use of contingent workers as a result of economic conditions.

Computer Systems: The Computer Systems segment’s revenues increased by $2.1 million in the six months of fiscal 2010 and increased by $0.8 million for the second quarter of fiscal 2010 from the comparable period of fiscal 2009, while its operating results for these six and three-month periods increased by $9.1 million and $2.9 million, respectively, from the comparable periods in fiscal 2009. The increase in operating results in the six months of fiscal 2010 was primarily due to higher amortization of previously deferred revenue and related costs.

Telecommunications Services: The Telecommunications Services segment’s revenues decreased by $16.6 million and $7.9 million from the respective first six months of fiscal 2009 and second quarter of fiscal 2009, and the operating results for these six and three-month periods decreased by $3.9 million and $1.9 million, respectively,

 

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from the comparable periods in fiscal 2009, primarily due to the closure of the Central Office and Canada offices and the overall decrease in construction revenue.

Other: The Other segment’s revenues for the first six months of fiscal 2010 and second quarter of fiscal 2010 decreased by $2.3 million and $0.3 million, respectively, from the six and three month periods of fiscal 2009, and its operating loss increased by $3.3 million and $1.8 million from the six and three month periods of fiscal 2009, respectively, primarily due an increase in cost of other revenue and an increase in staff costs.

Consolidated Results of Operations and Financial Highlights (Q1 2010 YTD vs. Q1 2009 YTD)

 

     Three months ended,     Q1 2010 vs. Q1 2009  
       January 31, 2010         February 1, 2009       Amount     %  
(in millions)    (13 weeks)     (13 weeks)              

Revenue

        

Staffing services revenue

   $ 383.3      $ 484.9      $ (101.6     -21%   

Other revenue

     57.4        65.0        (7.6     -12%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     440.7        549.9        (109.2     -20%   

Direct cost of staffing services revenue

     334.7        414.5        (79.8     -19%   

Cost of other revenue

     50.7        61.9        (11.2     -18%   

Selling, administrative and other operating costs

     69.4        79.7        (10.3     -13%   

Amortization of purchased intangible assets

     0.4        0.4        -          -     

Restructuring costs

     0.1        2.8        (2.7     -96%   

Fees related to restatement and associated investigations

     3.9        -          3.9        -     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (18.5     (9.4     (9.1     97%   

Other income (expenses)

     0.1        1.6        (1.5     -94%   

Income tax benefit

     (0.3     (0.9     (0.6     -67%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     $                (18.1     $                (6.9     $                (11.2                     >100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Revenue: In the first three months of fiscal 2010, consolidated net revenue decreased by $109.2 million, or 20%, to $440.7 million, from the comparable period of fiscal 2009. The decrease resulted primarily from revenue decreases in Staffing Services of $101.6 million and Telecommunications Services of $8.7 million.

Direct Costs of Staffing Services Revenue: Direct costs of staffing services revenue decreased $79.8 million, or 19%, over the prior year comparable period. This decrease is consistent with the net revenue decrease in the Staffing Services segment noted above.

Cost of Other Revenue: Cost of other revenue decreased by $11.2 million, or 18%, to $50.7 million in the three months of fiscal 2010 from the comparable period of fiscal 2009 due to the closure of offices in Canada and reduced construction activity in the Telecommunications Services segment.

Selling, Administrative and Other Operating Costs: Selling and administrative costs decreased by $10.3 million, or 13%, in the first three months of fiscal 2010 from the comparable period in fiscal 2009. This decrease was primarily a result of cost savings in fiscal 2010 from the restructuring initiative undertaken beginning in 2009 as discussed below.

Restructuring Costs: We incurred $0.1 million in restructuring costs in the first three months of fiscal 2010 compared to $2.8 million in the comparable period in fiscal 2009. In fiscal 2009, the Staffing Services and Computer Systems segments implemented a series of cost reduction initiatives, including the closing of offices and staff reductions to improve operating efficiencies.

Fees Related to Restatement and Associated Investigations: Fees related to the restatement and associated investigations amounted to $3.9 million in the first three months of fiscal 2010 and were comprised primarily of legal, consulting and accounting expenses. The restatement and associated investigations began in the fourth quarter of fiscal 2009.

Operating Loss: Our operating losses of $18.5 million in the first three months increased as compared to an operating loss of $9.4 million in the comparable period of fiscal 2009. This increase was primarily due to the

 

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restatement expenses of $3.9 million, as well as declines in the Staffing Services and Telecommunications Services segments’ operating results of $7.3 million and $2.0 million, respectively. These losses were partially offset by an improvement in the Computer Systems segment operating results of $6.2 million.

Other Income (Expense): Other income decreased by $1.5 million, or 94%, in the first three months of fiscal 2010 from the comparable period in fiscal 2009, resulting from a $1.2 million decrease in foreign currency gains primarily driven by our foreign currency denominated short-term borrowings, and by $0.9 million of other income recorded in fiscal 2009, which represented a settlement of a pre-acquisition claim arising from the purchase price of a subsidiary in 200. These decreases are partially offset by an increase in net interest income of $0.5 million.

Income Tax Provision: Income tax provision decreased by $0.6 million to $0.3 million of benefit for three months ended January 31, 2010, from a benefit of $0.9 million in the same fiscal period in 2009.

Results of Operations by Segment (Q1 2010 YTD vs. Q1 2009 YTD)

 

     Three months ended January 31, 2010     Three months ended February 1, 2009  
  

 

 

   

 

 

 
(in millions)    Total     Staffing
Services
    Computer
Systems
    Tele-
Communi
cations
    Other     Total     Staffing
Services
    Computer
Systems
    Tele-
Communi
cations
    Other  
  

 

 

   

 

 

 

Net Revenue

   $ 440.7        383.3        23.3        15.4        18.7      $ 549.9        484.9        20.4        24.1        20.5   

Expenses

                    

Direct cost of staffing services revenue

     334.7        334.7        -          -          -          414.5        414.5        -          -          -     

Cost of other revenue

     50.7        -          18.8        16.8        15.1        61.9        -          22.2        23.5        16.2   

Selling, administrative and other operating costs

     66.8        56.0        6.4        0.8        3.6        77.8        68.3        5.7        0.9        2.9   

Amortization of purchased intangible assets

     0.4        -          0.2        -          0.2        0.4        -          0.2        -          0.2   

Restructuring costs

     0.1        0.1        -          -          -          2.8        2.1        0.7        -          -     
  

 

 

   

 

 

 

Segment operating income (loss)

     (12.0     (7.5     (2.1     (2.2     (0.2     (7.5     (0.2     (8.3     (0.2     1.2   

Corporate general and administrative

     2.6                1.9           

Fees related to restatement and associated investigations

     3.9                -             
  

 

 

           

 

 

         

Operating loss

     $ (18.5             $ (9.4        
  

 

 

           

 

 

         

Staffing Services: The Staffing Services segment’s net revenue in the first three months of fiscal 2010 decreased by $101.6 million, or 21%, from the comparable period of fiscal 2009. The operating results decreased $7.3 million to a loss of $7.5 million in the first quarter of fiscal 2010 from the comparable period in fiscal 2009 primarily due to the decline in revenue and gross margins, partially offset by the reduction in selling, administrative and other operating costs representing the benefit of our fiscal 2009 cost reduction initiatives.

Computer Systems: The Computer Systems segment’s revenues increased by $2.9 million in the first three months of fiscal 2010 from the comparable fiscal period of fiscal 2009, while its operating loss decreased by $6.2 million from the comparable period in fiscal 2009. The increase in operating results in the first three months of fiscal 2010 was primarily due to higher amortization of previously deferred revenue and related costs.

Telecommunications Services: The Telecommunications Services segment’s revenue decreased by $8.7 million in the first three months of fiscal 2010 from the comparable period of fiscal 2009, and the operating loss increased by $2.0 million from the comparable periods in fiscal 2009, primarily due to the closure of the Central Office and Canada offices and the overall decrease in construction revenue.

Other: The Other segment’s revenues decreased by $1.8 million in the first three months of fiscal 2010 from the comparable period of fiscal 2009, and its operating income decreased by $1.4 million primarily due to an increase in cost of other revenue and an increase in staff costs.

 

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Consolidated Results of Operations and Financial Highlights (Fiscal 2009 vs. Fiscal 2008)

 

     Year ended,     2009 vs. 2008 Change  
     November 1, 2009         November 2, 2008             Amount             %  
(in millions)    (52 weeks)     (52 weeks)              

Revenue

        

Staffing services revenue

   $                 1,717.3      $                 2,376.4      $ (659.1     -28%   

Other revenue

     246.7        349.6        (102.9     -29%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     1,964.0        2,726.0        (762.0     -28%   

Direct cost of staffing services revenue

     1,458.7        2,013.0        (554.3     -28%   

Cost of other revenue

     230.1        340.1        (110.0     -32%   

Selling, administrative and other operating costs

     288.4        358.4        (70.0     -20%   

Amortization of purchased intangible assets

     1.4        10.5        (9.1     -87%   

Impairment of purchased intangibles and goodwill

     -          135.2        (135.2     -100%   

Restructuring costs

     10.7        1.5        9.2        >100%   

Fees related to restatement and associated investigations

     0.9        -          0.9        -     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (26.2     (132.7                     106.5        -80%   

Other income (expenses)

     (3.5     (2.8     (0.7     25%   

Income tax benefit

     (3.5     (24.5     21.0        -86%   

Income from discontinued operations, net of taxes

     -          99.3        (99.3     -100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     $ (26.2     $ (11.7     $ (14.5                     >100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Revenue: In fiscal 2009, our consolidated net revenues decreased $762.0 million, or 28%, to $1,964.0 million in fiscal 2009 from $2,726.0 million in fiscal 2008. The decrease in revenues for the fiscal year was comprised predominantly of decreases in the Staffing Services segment of $659.1 million, the Telecommunications segment of $88.2 million, and the Computer Systems of $13.3 million as a result of weak economic conditions in fiscal 2009.

Direct Cost of Staffing Services Revenue: Our direct cost of staffing services revenue decreased $554.3 million, or 28%, to $1,458.7 million in fiscal 2009 from $2,013.0 million in fiscal 2008. This decrease is primarily attributable to the decreases in revenue at the Staffing Services segment as noted above and is consistent with the decline in net revenue.

Cost of Other Revenue: Our cost of other revenue decreased $110.0 million, or 32%, to $230.1 million in fiscal 2009 from $340.1 million in fiscal 2008. This decrease is primarily attributable to the decreases in revenue in the Computer Systems and Telecommunications segments as noted above.

Selling, Administrative and Other Operating Costs: Our selling, administrative and other operating costs decreased $70.0 million, or 20%, to $288.4 million in fiscal 2009 from $358.4 million in fiscal 2008. We experienced an increase in overhead costs in fiscal 2008 as a result of an average increase in overhead staff levels of 5%, increases in project-based arrangement startup costs, and costs related to new foreign operations. These costs were partially reduced in fiscal 2009 by a reduction in revenue-related variable costs and initial partial year cost savings from the restructuring initiative discussed below.

Amortization of Purchased Intangible Assets: Amortization of purchased intangible assets decreased $9.1 million, or 87%, to $1.4 million in fiscal 2009 from $10.5 million in fiscal 2008. Purchased intangible assets consist primarily of customer relationships and technology. This decrease in amortization expense was attributable to certain purchased intangibles being impaired during fiscal year 2008, which resulted in lower amounts of amortization expense recognized in fiscal 2009 as compared to fiscal 2008.

Impairment of Purchased Intangibles and Goodwill: Impairment of purchased intangibles and goodwill decreased $135.2 million, or 100%, to $0.0 million in fiscal 2009 from $135.2 million in fiscal 2008. In fiscal 2008, the Company recorded an impairment of intangible assets and goodwill in the amount of $135.2 million of which $83.6 million related to goodwill for the Computer Systems segment, $39.2 million related to finite-lived intangible assets for the Computer Systems segment, $2.8 million related to goodwill for the Staffing Services

 

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segment, $1.5 million related to indefinite-lived intangible assets for the Computer Systems segment and $8.2 million related to goodwill for the Other Segment.

Restructuring Costs: Restructuring costs increased $9.2 million to $10.7 million in fiscal 2009 from $1.5 million in fiscal 2008. In fiscal 2009, as a result of declines in revenue, profits and the ongoing economic uncertainty, we initiated certain actions and recorded a pre-tax restructuring charge of approximately $10.7 million. The charge related to the elimination of employee positions and the closing of 65 facilities in the Staffing Services segment was $8.6 million. The charge for the elimination of employee positions in the Computer Systems segment was $2.1 million. In fiscal 2008, a restructuring charge of $1.5 million in the Computer Systems segment was recorded due to the reduction of foreign and domestic personnel as a result of the acquisition and integration of LSSi Corp.

Fees Related to Restatement and Associated Investigations: Fees related to the restatement and associated investigations amounted to $0.9 million in fiscal 2009 and were comprised primarily of legal, consulting and accounting expenses.

Operating Loss: Operating loss decreased $106.5 million, or 80%, to an operating loss of $26.2 million in fiscal 2009 from an operating loss of $132.7 million in fiscal 2008. Our consolidated operating loss improvement was primarily attributable to a lower goodwill impairment charge recorded in fiscal 2009 as compared to fiscal 2008, offset by $9.2 million of higher restructuring costs in 2009.

Other Income (Expenses): Other expense increased by $0.7 million, or 25%, to $3.5 million in fiscal 2009 from $2.8 million in fiscal 2008. In fiscal 2009, we recognized $1.2 million of foreign exchange losses, which were partially offset by other income of $0.9 million relating to the settlement of a contingent gain arising from the purchase of a subsidiary in 2007 and a pre-acquisition claim. Additionally, an amendment of the securitization program resulted in a reduction in securitization fees.

Income Tax Provision: Income tax benefit decreased by $21.0 million to $3.5 million in fiscal 2009 from $24.5 million in fiscal 2008. In fiscal 2009, we recorded $5.5 million of current income tax benefit and $2.0 million of deferred income tax expense as compared to $4.6 million of current income tax expense and $29.0 million of deferred income tax benefit in fiscal 2008. As a percentage of pre-tax income, the effective tax rate was 11.8% in fiscal 2009 and 18.1% in fiscal 2008, with a non-deductible goodwill impact being largely offset by state and local taxes.

Income From Discontinued Operations, Net of Taxes: Net income from discontinuing operations decreased by $99.3 million, or 100%, to nil recorded in fiscal 2009. This decrease is the result of our having no discontinued operations in fiscal 2009, compared to the sale of the net assets of its directory systems and services and North American publishing operations in fiscal 2008.

 

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Result of Operations by Segment (Fiscal 2009 vs. Fiscal 2008):

 

     Year ended November 1, 2009      Year ended November 2, 2008  
(in millions)    Total     Staffing
Services
     Computer
Systems
    Tele-
Communi
cations
    Other      Total     Staffing
Services
     Computer
Systems
    Tele-
Communi
cations
    Other  
  

 

 

    

 

 

 

Net Revenue

   $ 1,964.0        1,717.3         90.0        82.5        74.2       $ 2,726.0        2,376.4         103.3        170.7        75.6   

Expenses

                       

Direct cost of staffing services revenue

     1,458.7        1,458.7         -          -          -           2,013.0        2,013.0         -          -          -     

Cost of other revenue

     230.1        -           87.9        85.4        56.7         340.1        -           95.4        187.1        57.6   

Selling, administrative and other operating costs

     279.9        241.5         22.5        3.5        12.5         348.9        307.7         25.0        4.0        12.2   

Amortization of purchased intangible assets

     1.4        0.1         0.9        -          0.4         10.5        0.1         9.9        -          0.5   

Restructuring costs

     10.7        8.6         2.1        -          -           1.5        -           1.5        -          -     
  

 

 

    

 

 

 

Segment operating income (loss)

     (16.8     8.3         (23.4     (6.4     4.7         12.0        55.7         (28.6     (20.4     5.3   

Impairment of purchased intangibles and goodwill

     -          -           -          -          -           135.2        2.8         124.3        -          8.1   

Corporate general and administrative

     8.5                  9.5            

Fees related to restatement and associated investigations

     0.9                  -              
  

 

 

             

 

 

          

Operating loss

     $ (26.2               $ (132.7         
  

 

 

             

 

 

          

Staffing Services

Net Revenue: The Staffing Services segment’s net revenue decreased $659.1 million, or 28%, to $1,717.3 million in fiscal 2009 from $2,376.4 million in fiscal 2008. The decrease is primarily attributable to decreases in permanent placement, recruitment process outsourcing revenues and other service fees as a result of weaker economic conditions. Clients that use these services generally delayed new projects and restricted outside hiring as a cost reduction and cash preservation measure during this period. Many of the segment’s customers initiated layoffs, hiring freezes and reductions in contingent labor in fiscal 2009 which resulted in lower revenues.

Direct Cost of Staffing Services Revenue: The segment’s direct cost of staffing services revenue decreased $554.3 million, or 28%, to $1,458.7 million in fiscal 2009 from $2,013.0 million in fiscal 2008. The decrease is primarily attributable to the reduction in revenue and was a direct result of the factors affecting revenue as discussed above. Direct cost of staffing revenue as a percentage of total staffing services revenue increased by 0.2% to 84.9% in fiscal 2009 from 84.7% in fiscal 2008.

Selling, Administrative and Other Operating Costs: The segment’s selling, administrative and other operating costs decreased $66.2 million, or 22%, to $241.5 million in fiscal 2009 from $307.7 million in fiscal 2008. As a percentage of revenues, selling, administrative and other operating costs increased as the restructuring actions being phased in over the fiscal year did not keep pace with the revenue decreases.

Restructuring Costs: The segment incurred restructuring costs of $8.6 million in 2009, but did not in fiscal 2008. As a result of the decreased operating results, in fiscal 2009 the segment recorded $8.6 million in restructuring costs due to the elimination of employee positions from a series of cost cutting initiatives and the closing of 65 offices.

Segment Operating Profit: The segment’s operating profit decreased $47.4 million to an operating profit of $8.3 million in fiscal 2009 from $55.7 million of operating profit in fiscal 2008. The decrease is primarily a result of the significant revenue reduction that was not matched by expense reductions.

Computer Systems

Net Revenue: The Computer Systems segment’s net revenue decreased $13.3 million, or 13%, to $90.0 million in fiscal 2009 from $103.3 million in fiscal 2008. The decrease is a result of lower project and transaction fees. The

 

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decreases in project fees were attributable to decreased scopes of work for current customers. Transaction fees declined as a result of a reduction of services to a major customer that transitioned to a fixed monthly fee model, partially offset by an increase to another major customer that transitioned to a variable transaction-based fee model from a fixed monthly fee model.

Cost of Other Revenue: The segment’s cost of other revenue decreased $7.5 million, or 8%, to $87.9 million in fiscal 2009 from $95.4 million in fiscal 2008. This cost decrease is a result of the revenue decrease noted above.

Selling, Administrative and Other Operating Costs: The segment’s selling, administrative and other operating costs decreased $2.5 million, or 10%, to $22.5 million in fiscal 2009 from $25.0 million in fiscal 2008. Selling, administrative and other operating costs were reduced consistent with revenue.

Amortization of Purchased Intangible Assets: The segment’s amortization of purchased intangible assets decreased $9.0 million, or 91%, to $0.9 million in fiscal 2009 from $9.9 million in fiscal 2008. This year over year decrease is the result of an impairment charge recorded in 2008.

Segment Operating Loss: The segment’s operating loss decreased $5.2 million, or 18%, to an operating loss of $23.4 million in fiscal 2009 from an operating loss of $28.6 million in fiscal 2008. The decrease in operating loss is primarily attributable to lower net revenue combined with higher restructuring costs recorded in fiscal 2009 as compared to fiscal 2008.

Telecommunications

Net Revenue: The Telecommunications segment’s net revenue decreased $88.2 million, or 52%, to $82.5 million in fiscal 2009 from $170.7 million in fiscal 2008. During fiscal 2008, the Telecommunications segment recognized revenue on a large installation and construction contract in the construction and engineering division; there was no comparable contract in fiscal 2009. The segment also experienced additional declines in its non-construction division as a result of the loss of a large contract in fiscal 2009.

Cost of Other Revenue: The segment’s cost of other revenue decreased $101.7 million, or 54%, to $85.4 million in fiscal 2009 from $187.1 million in fiscal 2008. The decrease is primarily attributable to the reduction in revenue as noted above.

Selling, Administrative and Other Operating Costs: The segment’s selling, administrative and other operating costs decreased $0.5 million, or 13%, to $3.5 million in fiscal 2009 from $4.0 million in fiscal 2008. The decrease is primarily attributable to a decrease in overhead.

Segment Operating Loss: The segment’s operating loss decreased $14.0 million, or 69%, to an operating loss of $6.4 million in fiscal 2009 from an operating loss of $20.4 million in fiscal 2008. The improvement in operating results is primarily attributable to higher margins within the segment in fiscal 2009 as compared to 2008.

Other

Net Revenue: The Other segment’s net revenue decreased $1.4 million, or 2%, to $74.2 million in fiscal 2009 from $75.6 million in fiscal 2008. The decrease is primarily attributable to softening in the economy during fiscal 2009, as certain customers of the Uruguayan printing division delayed the timing of individual services. In addition, we experienced slight decreases in IT maintenance revenues year over year.

Cost of Other Revenue: The segment’s cost of other revenue decreased $0.9 million, or 2%, to $56.7 million in fiscal 2009 from $57.6 million in fiscal 2008. The decrease is consistent with the decrease in net revenue within the segment.

Selling, Administrative and Other Operating Costs: The segment’s selling, administrative and other operating costs increased $0.3 million, or 2%, to $12.5 million in fiscal 2009 from $12.2 million in fiscal 2008. The

 

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increase is a result of increased overhead costs for the segment and certain other business development costs incurred.

Segment Operating Profit: The segment’s operating profit remained decreased $0.6 million to $4.7 million in fiscal 2009 from $5.3 million in fiscal 2008.

Consolidated Results of Operations and Financial Highlights (Q3 2009 YTD vs. Q3 2008 YTD)

 

     Nine months ended,         Q3 2009 YTD vs. Q3 2008 YTD  
         August 2, 2009         July 27, 2008         Amount                 %  
(in millions)    (39 weeks)     (39 weeks)              

Revenue

        

Staffing services revenue

   $                 1,315.5      $                 1,719.2      $ (403.7     -23%   

Other revenue

     183.2        266.8        (83.6     -31%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     1,498.7        1,986.0        (487.3     -25%   

Direct cost of staffing services revenue

     1,116.9        1,488.1        (371.2     -25%   

Cost of other revenue

     173.2        268.3        (95.1     -35%   

Selling, administrative and other operating costs

     218.9        254.5        (35.6     -14%   

Amortization of purchased intangible assets

     1.1        8.2        (7.1     -87%   

Restructuring costs

     9.6        1.5        8.1                        >100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (21.0     (34.6                     13.6        -39%   

Other income (expenses)

     (4.4     (4.2     (0.2     5%   

Income tax benefit

     (3.1     (6.3     3.2        -51%   

Income from discontinued operations, net of taxes

     -          5.2        (5.2     -100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     $ (22.3     $ (27.3     $ 5.0        -18%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Revenues: In the first nine months of fiscal 2009, consolidated net revenues decreased by $487.3 million, or 25%, to $1,498.7 million, from the comparable period of fiscal 2008. The decrease resulted primarily from revenues decreases in Staffing Services of $403.7 million, Telecommunications Services of $68.4 million and Computer Systems of $16.1 million.

Direct Cost of Staffing Revenues: Direct cost of staffing revenues decreased $371.2 million, or 25%, to $1,116.9 million for the first nine months of fiscal 2009 from the comparable period of fiscal 2008. The decrease resulted from decreases in the staffing services segment. Direct cost of staffing revenues represented 84.9% of net staffing services revenues for the first nine months compared to 86.6% for the comparable period in 2008.

Cost of Other Revenue: Cost of revenues decreased by $95.1 million, or 35%, to $173.2 million, and was 94.5% of other revenues in the first nine months of fiscal 2009 as compared to 100.6% of other revenues in the comparable period of fiscal 2008. The decrease in the cost of revenues percentage was primarily due to certain charges taken in the first quarter of fiscal 2008 in the Telecommunications Services segment.

Selling, Administrative and Other Operating Costs: Selling and administrative costs decreased by $35.6 million, or 14%, in the first nine months of fiscal 2009 from the comparable period in fiscal 2008, and was 14.6% of revenues, as compared to 12.8% of revenues in the comparable period of fiscal 2008, primarily as a result of a reduction in revenue related variable costs and initial partial year cost savings from the restructuring initiaive.

Amortization of Purchased Intangible Assets: Amortization of purchased intangible assets decreased $7.1 million, or 87%, to $1.1 million in the first nine months of fiscal 2009 from $8.2 million in the comparable period in fiscal 2008. Purchased intangible assets consist primarily of customer relationships and technology. This decrease in amortization expense was attributable to certain purchased intangibles being impaired during fiscal year 2008, which resulted in lower amounts of amortization expense recognized in fiscal 2009 as compared to fiscal 2008.

Restructuring Costs: Restructuring costs increased approximately $8.1 million in the first nine months of fiscal 2009 from the comparable period in fiscal 2008. In fiscal 2009, the Staffing Services and Computer Systems

 

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segments implemented a series of cost reduction initiatives, including the closing of offices and staff reductions to improve operating efficiencies.

Operating Loss: The Company reported an operating loss of $21.0 million in the first nine months of fiscal 2009, as compared to an operating loss of $34.6 million in the comparable period of fiscal 2008. The decrease in operating loss was primarily attributable to the Telecommunications Services segment which had a $16.7 million improvement year-over-year.

Other Income (Expenses): Other expenses increased by $0.2 million, or 5%, in the first nine months of fiscal 2009 from the comparable period in fiscal 2008 due to an amended securitization program which resulted in a reduction in securitization fees and an increase in interest expense.

Discontinued Operation: Discontinued operations totaled $5.2 million (net of income taxes of $3.5 million) in the nine months of fiscal 2008.

Net Loss: The net loss in the nine months of fiscal 2009 was $22.3 million compared to a net loss of $27.3 million in the comparable period of fiscal 2008.

Consolidated Results of Operations and Financial Highlights (Q3 2009 vs. Q3 2008)

 

     Three months ended,     Q3 2009 vs. Q3 2008  
         August 2, 2009             July 27, 2008             Amount                 %  
(in millions)    (13 weeks)     (13 weeks)              

Revenue

        

Staffing services revenue

   $                 403.8      $                 570.5      $ (166.7     -29%   

Other revenue

     61.0        77.2        (16.2     -21%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     464.8        647.7        (182.9     -28%   

Direct cost of staffing services revenue

     339.2        485.8        (146.6     -30%   

Cost of other revenue

     57.1        81.5        (24.4     -30%   

Selling, administrative and other operating costs

     64.9        85.5        (20.6     -24%   

Amortization of purchased intangible assets

     0.4        2.8        (2.4     -86%   

Restructuring costs

     2.4        -          2.4        0%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     0.8        (7.9                       8.7                        <-100%   

Other income (expenses)

     (3.7     (2.2     (1.5     68%   

Income tax provision (benefit)

     (0.1     0.7        (0.8     <-100%   

Income from discontinued operations, net of taxes

     -          2.7        (2.7     -100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     $ (2.8     $ (8.1     $ 5.3        -65%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Revenues: In the third quarter of fiscal 2009, consolidated net revenues decreased by $182.9 million, or 28%, to $464.8 million, from the comparable quarter of fiscal 2008. The decrease in net revenue resulted primarily from decreases in Staffing Services of $166.7 million, and Telecommunications Services of $16.3 million.

Direct Cost of Staffing Services Revenue: Direct costs of staffing services revenue decreased $146.6 million for the third quarter of fiscal 2009 compared with the comparable period of fiscal 2008 attributable solely to the decrease in the staffing services segment. Direct costs of staffing service revenue was 84.0% of staffing services revenues for the third quarter of fiscal 2009 compared to 85.2% of net revenues for the comparable prior period.

Cost of Revenues: Cost of revenues decreased by $24.4 million, or 30%, to $57.1 million, and was 93.6% of other revenues in the third quarter of fiscal 2009 as compared to 105.6% the comparable quarter of fiscal 2008.

Selling, Administrative and Other Operating Costs: Selling and administrative costs decreased by $20.6 million, or 24%, in the third quarter of fiscal 2009 over the comparable period in fiscal 2008, and were 14.0% of revenues, as compared to 13.2% in the comparable 2008 period, primarily as a result of a reduction in revenue related variable costs and initial partial year cost savings from the restructuring initiative.

 

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Amortization of Purchased Intangible Assets: Amortization of purchased intangible assets decreased $2.4 million, or 86%, to $0.4 million in fiscal 2009 from $2.8 in fiscal 2008. Purchased intangible assets consist primarily of customer relationships and technology. This decrease in amortization expense was attributable to certain purchased intangibles being impaired during fiscal 2008, which resulted in lower amounts of amortization expense recognized in fiscal 2009 as compared to fiscal 2008.

Restructuring Charges: In the third quarter of fiscal 2009 the company-wide cost cutting initiatives and consolidation in Staffing Services segment resulted in restructuring charges in the current quarter of $2.4 million.

Operating Loss: The Company reported an operating income of $0.8 million in the third quarter of fiscal 2009, as compared to an operating loss of $7.9 million in the comparable period of fiscal 2008. This decrease in operating loss was due to the segments reporting an operating loss of $5.1 million compared to an operating loss of $5.9 million. The decrease in segment operating results was attributable to the decrease of $4.7 million the Computer Systems segment and an increase of $3.8 million in the Telecommunications Services segment, partially offset by decreases of $7.2 million in the Staffing Services segment and $0.6 million in the Other segment.

Other Income (Expenses): Other expense increased by $1.5 million, or 68%, in the third quarter of fiscal 2009 from the comparable period in fiscal 2008 due to an amended securitization program which resulted in a reduction in securitization fees and an increase in interest expense.

Net Loss: The Company reported a net loss in the third quarter of fiscal 2009 of $2.8 million compared to a net loss of $8.1 million in the comparable quarter of fiscal 2008.

Results of Operations by Segment (Q3 2009 YTD vs. Q3 2008 YTD)

 

    Nine months ended August 2, 2009     Nine months ended July 27, 2008  
(in millions)   Total     Staffing
Services
    Computer
Systems
    Tele-
Communi
cations
    Other     Total     Staffing
Services
    Computer
Systems
    Tele-
Communi
cations
    Other  
 

 

 

   

 

 

 

Net Revenue

  $ 1,498.7        1,315.5        66.0        64.2        53.0      $ 1,986.0        1,719.2        82.1        132.6        52.1   

Expenses

                   

Direct cost of staffing services revenue

    1,116.9        1,116.9        -          -          -          1,488.1        1,488.1        -          -          -     

Cost of other revenue

    173.2        -          65.8        64.7        42.7        268.3        -          75.7        149.2        43.4   

Selling, administrative and other operating costs

    212.3        184.0        18.2        2.5        7.6        248.4        224.3        14.8        3.0        6.2   

Amortization of purchased intangible assets

    1.1        0.1        0.6        -          0.4        8.2        0.1        8.1        -          -     

Restructuring costs

    9.6        7.5        2.1        -          -          1.5        -          1.5        -          -     
 

 

 

   

 

 

 

Segment operating income (loss)

    (14.4     7.1        (20.8     (3.0     2.3        (28.4     6.7        (18.1     (19.7     2.7   

Corporate general and administrative

    6.6                6.1           
 

 

 

           

 

 

         

Operating loss

    $ (21.0             $ (34.6        
 

 

 

           

 

 

         

Staffing Services: The Staffing Services segment’s net revenues for the first nine months and third quarter of fiscal 2009 decreased by $403.7 million and $166.7 million, respectively, from the comparable fiscal periods of 2008. The operating income for these nine and three month periods increased by $0.4 million and decreased by $0.5 million, respectively, from the comparable fiscal 2008 periods. The increase in operating results in the first nine months and third quarter of fiscal 2009 from the comparable fiscal 2008 periods was primarily due to a reduction in cost of staffing services in excess of the reduction in volume.

Telecommunications Services: The Telecommunications Services segment’s revenues decreased by $68.4 million and $16.3 million, respectively, from the first nine months and third quarter of fiscal 2008; however, the operating results improved by $16.7 million from the nine month period and $3.8 million from the three-month period. The improved operating results for the nine-month period of fiscal 2009 were due to the absence of a $19.3 million reserve taken in the first quarter of fiscal 2008 for certain costs included in inventory related to work performed and for additional costs expected to be incurred to complete work under an installation contract.

Computer Systems: The Computer Systems segment’s revenues decreased by $16.1 million and increased by $1.2 million respectively, from the first nine months and third quarter of fiscal 2008, while its operating loss

 

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increased by $2.7 million and decreased by $4.7 million, respectively, in these nine and three month periods of fiscal 2009. The decrease in operating results in the nine month period of fiscal 2009 was primarily due to the revenues decreases, along with a restructuring charge of $2.1 million. The increase in operating results in the three-month period of fiscal 2009 was primarily due to a $1.2 million revenue increase, along with a $3.8 million reduction in costs of other revenue.

Other: The Other segment’s revenues increased $0.9 and decreased by $1.1 million from these nine and three month periods of fiscal 2008, respectively. Its operating income decreased $0.4 million and $0.1 million in the nine and three-month periods of fiscal 2009, respectively.

Consolidated Results of Operations and Financial Highlights (Q2 2009 YTD vs. Q2 2008 YTD)

 

    Six months ended,     Q2 2009 YTD vs. Q2 2008 YTD  
        May 3, 2009             April 27, 2008             Amount                 %          

(in millions)

    (26 weeks )      (26 weeks )     

Revenue

       

Staffing services revenue

  $ 911.6      $ 1,148.7      $ (237.1     -21%   

Other revenue

    122.3        189.6        (67.3     -35%   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

    1,033.9        1,338.3        (304.4     -23%   

Direct cost of staffing services revenue

    777.7        1,002.3        (224.6     -22%   

Cost of other revenue

    116.1        186.7        (70.6     -38%   

Selling, administrative and other operating costs

    154.1        168.9        (14.8     -9%   

Amortization of purchased intangible assets

    0.7        5.4        (4.7     -87%   

Restructuring costs

    7.1        1.5        5.6                        >100%   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

    (21.8     (26.6     4.8        -18%   

Other income (expenses)

    (0.7     (2.1     1.4        -67%   

Income tax benefit

    (3.0     (7.0     4.0        -57%   

Income from discontinued operations, net of taxes

    -          2.5        (2.5     -100%   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $                 (19.5)      $                 (19.2   $                 (0.3)        2%   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net Revenues: In the first six months of fiscal 2009, consolidated net revenues decreased by $304.4 million, or 23%, to approximately $1,033.9 million, from the comparable period of fiscal 2008. The decrease in the six months’ net revenues resulted primarily from decreases in Staffing Services of $237.1 million, Telecommunications Services of $52.1 million and Computer Systems of $17.3 million.

Direct Costs of Staffing Services Revenues: Direct costs of staffing services revenue for the first six months of fiscal 2009 decreased by $224.6 million, or 22%, from the prior comparable period attributable solely to the decrease in the staffing services segment, as explained below. Direct costs of staffing services revenue comprised 85.3% and 87.3% of staffing services revenues for the six months of fiscal 2009 and 2008, respectively.

Cost of Other Revenue: Cost of other revenue decreased by $70.6 million, or 38%, to $116.1 million, and was 94.9% of other revenues, in the first six months of fiscal 2009 as compared to 98.5% of other revenues in the comparable period of fiscal 2008. The decrease in the cost of revenues percentage was primarily due to certain charges taken in the first quarter of fiscal 2008 in the Telecommunications Services segment.

Selling, Administrative and Other Operating Costs: Selling and administrative costs decreased by $14.8 million, or 9%, in the first six months of fiscal 2009 from the comparable period in fiscal 2008, and was 14.9% of revenues, as compared to 12.6% of revenues in the comparable period of fiscal 2008 primarily as a result of a reduction in revenue related variable costs and initial partial year cost savings from the restructuring initiative.

Amortization of Purchased Intangible Assets: Amortization of purchased intangible assets decreased $4.7 million, or 87%, to $0.7 million in the first six months of fiscal 2009 from $5.4 million in the comparable period in fiscal 2008. Purchased intangible assets consist primarily of customer relationships and technology. This decrease in amortization expense was attributable to certain purchased intangibles being impaired during

 

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fiscal 2008, which resulted in lower amounts of amortization expense recognized in fiscal 2009 as compared to fiscal 2008.

Restructuring Charges: In the first six months of fiscal 2009, the company-wide cost cutting initiatives and consolidation in Staffing Services segment resulted in restructuring charges of $7.1 million.

Operating Loss: The Company reported an operating loss of $21.8 million in the first six months of fiscal 2009, as compared to $26.6 million in the comparable period of fiscal 2008. This decrease in operating loss was due to the segments reporting an operating loss of $17.1 million compared to an operating loss of $22.5 million in the six months of 2009 and 2008, respectively. The decrease in segment operating losses was attributable to improved operating results at the Telecommunications Services segment of $12.8 million, partially offset by an increase in the operating loss at the Computer Systems segment of $7.5 million.

Other Income (Expenses): Other expenses decreased $1.4 million, or 67%, to $0.7 million for the first six month period in fiscal 2009 compared to fiscal 2008.

Income Tax Benefit: Income tax benefit decreased by $4.0 million to a benefit of $3.0 million for the first six months of fiscal 2009, from a benefit of $7.0 million in the same period in fiscal 2008.

Net Loss: The net loss increased $0.3 million, or 2%, to $19.5 million compared to the comparable period of fiscal 2008.

Consolidated Results of Operations and Financial Highlights (Q2 2009 vs. Q2 2008)

 

     Three months ended,     Q2 2009 vs. Q2 2008  
         May 3, 2009             April 27, 2008             Amount                 %          
(in millions)    (13 weeks)     (13 weeks)              

Revenue

        

Staffing services revenue

   $ 426.8      $ 584.3      $ (157.5     -27%   

Other revenue

     57.1        89.8        (32.7     -36%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     483.9        674.1        (190.2     -28%   

Direct cost of staffing services revenue

     363.2        507.3        (144.1     -28%   

Cost of other revenue

     54.2        86.1        (31.9     -37%   

Selling, administrative and other operating costs

     74.2        87.4        (13.2     -15%   

Amortization of purchased intangible assets

     0.4        2.7        (2.3     -85%   

Restructuring costs

     4.3        -          4.3        100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (12.4     (9.4     (3.0     32%   

Other income (expenses)

     (2.2     (0.9     (1.3     >100%   

Income tax provision (benefit)

     (2.0     1.1        (3.1     <-100%   

Income from discontinued operations, net of taxes

     -          2.1        (2.1     -100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $                 (12.6   $                 (9.3     $                (3.3                     35%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Revenues: In the second quarter of fiscal 2009, consolidated net revenues decreased by $190.2 million, or 28%, to $483.9 million, from the comparable quarter of fiscal 2008. The decrease in second quarter’s net revenues resulted primarily from decreases in Staffing Services of $157.5 million, Telecommunications Services of $29.3 million and Computer Systems of $3.2 million.

Direct Costs of Staffing Services Revenues: Direct costs of staffing services revenues decreased $144.1 million, or 28%, from the second quarter of fiscal 2008 attributable solely to the staffing services segment as described below. Direct costs of staffing services revenues represented 85.1% of staffing services revenues for the three month period in 2009 and 86.8% for the same period in 2008.

Cost of Other Revenue: Cost of other revenue decreased by $31.9 million, or 37%, to $54.2 million, and represented 94.9% of other revenues in the second quarter of fiscal 2009 as compared to 95.9% in the second quarter of fiscal 2008.

 

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Selling, Administrative and Other Operating Costs: Selling and administrative costs decreased by $13.2 million, or 15%, in the second quarter of fiscal 2009 over the comparable period in fiscal 2008, and were 15.3% of revenues, as compared to 13.0% in the comparable prior 2008 period.

Restructuring Charges: In the second quarter of fiscal 2009 the company-wide cost cutting initiatives and consolidation in Staffing Services segment resulted in restructuring charges in the current quarter of $4.3 million.

Amortization of Purchased Intangible Assets: Amortization of purchased intangible assets decreased $2.3 million, or 85%, to $0.4 million in the second quarter of fiscal 2009 from $2.7 million in the comparable period in fiscal 2008. Purchased intangible assets consist primarily of customer relationships and technology. This decrease in amortization expense was attributable to certain purchased intangibles being impaired during fiscal 2008, which resulted in lower amounts of amortization expense recognized in fiscal 2009 as compared to fiscal 2008.

Operating Loss: The Company reported an operating loss of $12.4 million in the second quarter of fiscal 2009, as compared to an operating loss of $9.4 million in the comparable period of fiscal 2008. The increase in operating loss was attributable to the decreases in operating results of $2.9 million in the Staffing Services segment, $0.1 million in Computer Systems and $0.9 million in Telecommunications Services, partially offset by an increase of $0.2 million in Printing and Other. These segment results were partially offset by a decrease of $0.6 million or 8% in general corporate expenses.

Other Income (Expenses): Other expense decreased by $1.3 million, or 144%, in the current three months from the comparable period in fiscal 2008 due to an amended securitization program which resulted in a reduction in securitization fees and an increase in interest expense.

Income Tax Provision/Benefit: The Company’s effective tax benefit rate on its financial reporting pre-tax loss was 13.7% in the second quarter of fiscal 2009 compared to an effective tax provision rate of 10.7% on its financial reporting pre-tax income in the comparable period in fiscal 2008. The Company’s 2008 effective tax provision was primarily impacted by discontinued operations, foreign operations and the adoption of FIN 48.

Results of Operations by Segment (Q2 2009 YTD vs. Q2 2008 YTD)

 

    Six months ended May 3, 2009     Six months ended April 27, 2008  
(in millions)   Total     Staffing
Services
    Computer
Systems
    Tele-
Communi
cations
    Other     Total     Staffing
Services
    Computer
Systems
    Tele-
Communi
cations
    Other  

Net Revenue

  $ 1,033.9        911.6        40.8        44.0        37.5      $ 1,338.3        1,148.7        58.1        96.1        35.4   

Expenses

                   

Direct cost of staffing services revenue

    777.7        777.7        -          -          -          1,002.3        1,002.3        -          -          -     

Cost of other revenue

    116.1        -          44.1        42.7        29.3        186.7        -          50.1        107.3        29.3   

Selling, administrative and other operating costs

    149.4        130.1        11.8        1.7        5.8        164.9        148.9        9.8        2.0        4.2   

Amortization of purchased intangible assets

    0.7        0.1        0.4        -          0.2        5.4        0.1        5.3        -          -     

Restructuring costs

    7.1        6.4        0.7        -          -          1.5        -          1.5        -          -     
 

 

 

   

 

 

 

Segment operating income (loss)

    (17.1     (2.7     (16.2     (0.4     2.2        (22.5     (2.6     (8.7     (13.2     2.0   

Corporate general and administrative

    4.7                4.1           
 

 

 

           

 

 

         

Operating loss

    $ (21.8             $ (26.6        
 

 

 

           

 

 

         

Staffing Services: The Staffing Services segment’s net revenues for the first six months and second quarter of fiscal 2009 decreased by $237.1 million and $157.5 million, respectively, from the comparable fiscal periods of 2008. The operating loss for these six and three month periods increased by $0.1 million and $1.9 million, respectively, from the comparable fiscal 2008 periods. The increase in operating results in the first six months from the comparable fiscal 2008 period was primarily due to reductions in direct cost of staffing services revenue in the first fiscal quarter in 2009.

Telecommunications Services: The Telecommunications Services segment’s revenues decreased by $52.1 million and $29.3 million from the respective six and three month periods of fiscal 2008; however, the operating results

 

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improved by $12.8 million from the first six months of fiscal 2008 and decreased $1.0 million from the second quarter of fiscal 2008. The improved operating results for the first six months of fiscal 2009 were due to the absence of a $19.3 million reserve taken in the first quarter of fiscal 2008 for certain costs included in inventory related to work performed and for additional costs expected to be incurred to complete work under an installation contract. The decreased operating results for the current quarter were primarily due to the decrease in revenues.

Computer Systems: The Computer Systems segment’s revenues decreased by $17.3 million and $3.2 million, respectively, from the first six months and second quarter of fiscal 2008, while its operating loss increased by $7.5 million in the first six months of fiscal 2009 and remained constant in the second quarter of fiscal 2009. The decrease in operating results in the first six months of fiscal 2009 was primarily due to the revenues decreases.

Other: The Other segment’s revenues increased by $2.1 million from the first six months of fiscal 2008 and remained constant for the second quarter of 2009 compared to 2008, and its operating profit increased by $0.2 million and $0.3 million in these six and three month periods of fiscal 2009, respectively.

Consolidated Results of Operations and Financial Highlights (Q1 2009 YTD vs. Q1 2008 YTD)

 

     Three months ended,     Q1 2009 vs. Q1 2008  
       February 1, 2009         January 27, 2008           Amount                 %          
(in millions)    (13 weeks)     (13 weeks)              

Revenue

        

Staffing services revenue

   $ 484.9      $ 564.3      $ (79.4     -14%   

Other revenue

     65.0        100.0        (35.0     -35%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     549.9        664.3        (114.4     -17%   

Direct cost of staffing services revenue

     414.5        495.1        (80.6     -16%   

Cost of other revenue

     61.9        100.6        (38.7     -38%   

Selling, administrative and other operating costs

     79.7        81.6        (1.9     -2%   

Amortization of purchased intangible assets

     0.4        2.7        (2.3     -85%   

Restructuring costs

     2.8        1.5        1.3        87%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (9.4     (17.2     7.8        -45%   

Other income (expenses)

     1.6        (1.2     2.8        <-100%   

Income tax benefit

     (0.9     (8.1     7.2        -89%   

Income from discontinued operations, net of taxes

     -          0.4        (0.4     -100%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $                 (6.9   $                 (9.9   $                 3.0                        -30%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Revenues: In the first three months of fiscal 2009, consolidated net revenues decreased by $114.4 million, or 17%, to approximately $549.9 million, from the comparable period of fiscal 2008. The decrease resulted from decreases in Staffing Services of $79.4 million, Telecommunications Services of $22.8 million and Computer Systems of $14.1 million, partially offset by an increase in Other of $1.9 million.

Direct Costs of Staffing Services Revenue: Direct costs of staffing services revenue decreased $80.6 million, or 16%, compared to the first three months of fiscal 2008. The decrease was attributable solely to the staffing services segment, as described below. Direct costs of staffing services revenue were 85.4% and 87.7% of staffing services revenues for three months ended 2009 and 2008, respectively.

Cost of Other Revenue: Cost of other revenue decreased by $38.7 million, or 38%, to $61.9 million, and was 95.2% of other revenues, in the first three months of fiscal 2009 as compared to 100.6% of other revenues in the comparable period of fiscal 2008. The decrease in the cost of revenues percentage was primarily due to the $19.3 million loss reserve established in the first quarter of fiscal 2008 in the Telecommunication Services segment.

Selling, Administrative and Other Operating Costs: Selling and administrative costs decreased by $1.9 million, or 2%, in the first three months of fiscal 2009 from the comparable period in fiscal 2008, and was 14.5% of revenues, as compared to 13.2% of revenues in the comparable period of fiscal 2008. The increase as a percentage of revenues was due to the 17% reduction in revenues with no comparable reduction in costs.

Amortization of Purchased Intangible Assets: Amortization of purchased intangible assets decreased $2.3 million, or 85%, to $0.4 million in the first quarter of fiscal 2009 from $2.7 million in the comparable period in

 

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fiscal 2008. Purchased intangible assets consist primarily of customer relationships and technology. This decrease in amortization expense was attributable to certain purchased intangibles being impaired during fiscal 2008, which resulted in lower amounts of amortization expense recognized in fiscal 2009 as compared to fiscal 2008.

Restructuring Charges: Restructuring costs increased $1.3 million or 87% in fiscal 2009 due to company-wide cost cutting initiatives.

Operating Loss: The Company reported an operating loss of $9.4 million in the first three months of fiscal 2009, as compared to $17.2 million in the comparable period of fiscal 2008 due to a decrease in segment operating losses of $8.0 million, partially offset by an increase of $0.2 million in general corporate expenses. The decrease in segment operating losses was attributable to the decreased operating losses of the Telecommunications Services segment of $13.7 million and in the Staffing Services segment of $10.3 million, partially offset by decrease in the Computer Systems segment of $7.4 million.

Other Income (Expenses): Other expense decreased by $2.8 million, or greater than 100%, in the first three months of fiscal 2009 from the comparable period in fiscal 2008 due to an amended securitization program which resulted in a reduction in securitization fees and an increase in interest expense.

Income Tax Provision/Benefit: Income tax benefit decreased by $7.2 million from an income tax benefit of $8.1 million in the first three months of fiscal 2008 to income tax benefit of $0.9 million in the first three months of fiscal 2009. The primary reason for the fluctuation is pre-tax income and the impact of various permanent items.

Discontinued Operations: Discontinued operations totaled $0.4 million (net of income taxes of $0.3 million) in the three months of fiscal 2008.

Results of Operations by Segment (Q1 2009 YTD vs. Q1 2008 YTD)

 

    Three months ended February 1, 2009     Three months ended January 27, 2008  
(in millions)   Total     Staffing
Services
    Computer
Systems
    Tele-
Communi
cations
    Other     Total     Staffing
Services
    Computer
Systems
    Tele-
Communi
cations
    Other  

Net Revenue

  $ 549.9        484.9        20.4        24.1        20.5      $ 664.3        564.3        34.5        46.9        18.6   

Expenses

                   

Direct cost of staffing services revenue

    414.5        414.5        -          -          -          495.1        495.1        -          -          -     

Cost of other revenue

    61.9        -          22.2        23.5        16.2        100.6        -          25.5        59.9        15.2   

Selling, administrative and other operating costs

    77.8        68.3        5.7        0.9        2.9        79.9        71.2        5.8        0.9        2.0   

Amortization of purchased intangible assets

    0.4        -          0.2        -          0.2        2.7        -          2.7        -          -     

Restructuring costs

    2.8        2.1        0.7        -          -          1.5        -          1.5        -          -     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment operating income (loss)

    (7.5     (0.2     (8.3     (0.2     1.2        (15.5     (1.9     (0.9     (13.9     1.2   

Corporate general and administrative

    1.9                1.7