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Executives

Ron Kochman – Head of IR and VP

Jack Egan – SVP & CFO

Steven Shaw – President & CEO

Analysts

Josh Vogel – Sidoti & Company

Volt Information Sciences, Inc. (VOL) Q4 2008 Earnings Call Transcript January 30, 2009 11:00 AM ET

Operator

Good morning and welcome to the Volt Information Sciences Incorporated fourth quarter 2008 earnings conference. At this time, all participants are in a listen-only mode. After the presentation we will conduct a question-and-answer session. (Operator instructions) Today's conference call is being recorded. Now I will turn the meeting over to Mr. Ron Kochman, Head of Investor Relations and Vice President of Volt Information Sciences Incorporated. Sir, you may begin.

Ron Kochman

Thank you. Good morning. I’m Ron Kochman, Head of Investor Relations and Vice President of Volt Information Sciences, Inc. I would like to welcome you to Volt’s fiscal 2008 fourth quarter investment community conference call. In a moment, Jack Egan, Senior Vice President and Chief Financial Officer, will be reviewing our quarterly financials and then Steven Shaw, our President and Chief Executive Officer, will be providing additional commentary.

Before officially starting the discussion of our results, I’d like to read to you our standard corporate disclaimer. Statements in this conference call and associated webcast concerning future results, performance, expectations or intentions are forward-looking statements.

Actual results, performance or developments may differ materially from forward-looking statements as a result of known or unknown risks, uncertainties and other factors, including those identified in the company’s filings with the Securities and Exchange Commission, press releases and other public communications. Volt Information Sciences, Inc. undertakes no obligation to update any information presented in this discussion.

Now I’d like to turn the call over to Jack Egan, Senior Vice President and Chief Financial Officer for Volt Information Sciences. Jack?

Jack Egan

Thank you, Ron, and good morning. For the fourth quarter of fiscal 2008 that ended November 2, the company reported net income of $70.1 million or $3.24 per share compared to a net income of $23.1 million or $1.03 per share in the previous year’s comparable quarter. The results for the fourth quarter of fiscal 2008 included net of taxes $93 million or $4.30 per share related to the sale of Directory Systems and DataNational businesses, which are classified as discontinued operations.

We also took a goodwill impairment charge of $46.4 million or net of taxes $35 million or $1.62 per share. In addition, the 2008 fiscal fourth quarter consisted of 14 weeks compared to 13 weeks in fiscal 2007. Excluding the non-recurring impairment charge, the company’s fourth quarter 2008 net income from continuing operations, a non-GAAP measure, was $11.7 million or $0.55 compared to $19.2 million, net of taxes, or $0.86 per share, in the fourth quarter of 2007.

For the quarter sales increased approximately $46 million or 7.6%, although most of this increase is attributable to the additional week included in the quarter with a $56 million or 11% increase in staffing more than offsetting lower sales in both the Computer Systems and Telecommunications Services segments. Cost of sales increased by $60 million or 11% to $600 million, while SG&A increased by $300,000 to $24.8 million for the fourth quarter. Finally, quarterly depreciation and amortization spend decreased by $2.1 million compared to the previous year to $7.1 million this year.

I’d now like to turn the conference call over to Steven Shaw, President and Chief Executive Officer of Volt Information Sciences, for further explanation and his insights into the factors that affected the quarter and his review of operations.

Steven Shaw

Thank you, Jack and Ron, and good morning. I’d like to depart from our usual conference call format where I discuss the detailed results of the individual business units. Our fourth quarter ended November 2, and as we are all painfully aware, the financial and business markets experienced a rigorous corruption towards the end of the October. We are now in what the Federal Reserve refers to as a severe recession.

One estimate I saw stated that the decline in the United States stock market has destroyed over $7 trillion in market value over the last few months. The drop in the financial sector has caused quite a few companies, including ours, that have their market capitalization drop below their book or fair value. When this occurs, an organization is required to test the goodwill on their books for impairment, per the accounting rules.

After discussion with our outside auditors and in light of the current state of the equity market, general economic conditions, and the projected cash flows for our individual businesses, the company has taken a $46.4 million non-cash charge for impairment in both our Computer Systems and Staffing Services segments combined.

Although Volt does not give future earnings estimates or guidance, I would like to have a brief discussion on the economy and on how the Staffing business is traditionally affected during an economic downturn. The unemployment rate is approximately 7.2%, the highest rate in 16 years. In 2008, 2.4 million jobs were lost compared to the 1.1 million jobs that were created in 2007.

One of the major reasons why companies utilize temporary staffing is to give them the flexibility to manage their employee base during periods of economic uncertainty. As a result, we would expect both revenue and profitability of the Staffing Services group to be negatively impacted during any initial contraction and any ongoing period of high unemployment.

According to the Bureau of Labor Statistics, temporary staffing as a percentage of overall employment in the United States is at its lowest rate since 1996. Volt has been able to increase our market share and hold our revenue relatively steady, while total industry revenue has been declining over the past 12 months. Recently, a few of our major clients in the Staffing segment have announced that they intend to have significant layoff of both permanent and contingent workers.

While we do not know the exact percentage of our workforce that will be affected, we too expect to be impacted by the lower volumes. We are operating in a very difficult environment, which increases the needs to remain flexible and be able to respond to changing economic conditions. In these times, it is extremely important to manage cash with a laser focus on the balance sheet. We are and will continue to manage to minimize our spending through targeted reductions and consolidating facilities while not sacrificing revenue or important client relationships.

We have also implemented programs to reduce our indirect costs, including eliminating 2008 bonuses for executive management. Given the recent completion of the sale of the assets of our North American Directory Services and DataNational publishing units during the fourth quarter, our balance sheet has never been stronger and should provide us with not only the liquidity needed in this tight credit market, but the capital that would allow us to take advantage of strategic market opportunities should they arise.

We ended the year with over $120 million of unrestricted cash, which will leave us with more than $65 million after the 2008 tax payments are made. As we previously announced in January, we amended our securitization program and reduced its size from 200 million to 175 million in anticipation of lower future borrowing requirements and to eliminate unnecessary interest charges.

This is a difficult time, and we are preparing for what may be a prolonged downturn. Volt's competent leadership team continues to deploy strategies to minimize short-term risks, while striving to achieve solid, long-term, and lasting shareholder value.

And on that note, I’d like to open the conference call up to questions. Catherine, we are ready for questions.

Question-and-Answer Session

Operator

Thank you, sir. And the first question is from Josh Vogel. Your line is open.

Josh Vogel – Sidoti & Company

Hi, good morning everyone. Thanks for taking my questions.

Jack Egan

Good morning, Josh.

Steven Shaw

Good morning.

Josh Vogel – Sidoti & Company

My first question is – I know last year in Q4 you took about – I think it was about a $4 million benefit from the reversal of the workers comp accrual. And I was wondering if a similar type of benefit hit up this past quarter.

Steven Shaw

Josh, the only benefit was principally in the technical piece of the staffing business, where it’s probably a number of about $2 million and not $4 million this year – last year.

Josh Vogel – Sidoti & Company

And besides the extra week, I was still pretty pleased with what I saw in the technical placement division. I was wondering, at least through the end of October, did that – did the strength in that business exceed your expectations too? I was just curious how the state of that market was hanging in there.

Steven Shaw

I think we're very pleased with how the year ended. We had some new contracts during the year that ramped up and that were basically at full revenue in the fourth quarter.

Josh Vogel – Sidoti & Company

Okay. I mean, obviously, Steve, you just hit up on the economic climate. Obviously it has deteriorated significantly since the quarter closed. Here we are, actually, today I believe your Q1 is closing today. I was just – wanted to maybe get a feel of – if you had any sort of monthly trends in the Staffing business for November through January?

Jack Egan

Yes. We don’t forecast or give guidance. But again, our results and our trends aren’t going to be materially different than what the rest of the industry is experiencing.

Josh Vogel – Sidoti & Company

Okay. And Steve, you actually just mentioned about eliminating bonuses for executive management in ’08. Could you guys maybe quantify how much that will save you?

Steven Shaw

It’s a good question. Maybe – the executive at corporate, their bonuses that I've eliminated is probably somewhere between $400,000 to $500,000.

Josh Vogel – Sidoti & Company

Okay. And are you guys going to maybe look at other headcount reductions if volumes do start declining significantly in staffing?

Steven Shaw

So what we’ve done in past recessions and what’s important for longevity of the organization is to right-size the company to mirror the business activity with our costs. And we will take appropriate actions to make sure that the company is viable and continues to be a solid organization.

Josh Vogel – Sidoti & Company

Okay. All right. Let me shift gears for a second here. Do you have any updates on the disputed construction contract? I know there is always talk of possible recapture there. I was wondering what the status was.

Steven Shaw

We still are continuing to negotiate with the customer, and we do anticipate some collecting.

Josh Vogel – Sidoti & Company

You do anticipate getting something back?

Steven Shaw

Yes.

Josh Vogel – Sidoti & Company

Okay. Do you have any idea – would it be 50% –?

Steven Shaw

We are not certain yet.

Josh Vogel – Sidoti & Company

Okay. And just lastly really here is, obviously your balance sheet is much stronger post telephone directory sale. And I was wondering if you could maybe just go over what your priorities would be here with uses of cash in terms of either buying back stock or paying down debt, or possibly acquisition?

Steven Shaw

I think the first priority is to continue to maintain a very strong balance sheet, given that we’re not sure exactly how the economy will change going forward. So I think we want to stay in a very strong financial position going forward. It doesn’t mean we won’t take advantage of opportunities as they present themselves. But we’re very happy with the position that we’re in at the moment.

Josh Vogel – Sidoti & Company

Okay. So how much was left on your buyback program?

Jack Egan

That’s approximately 341,000 shares.

Josh Vogel – Sidoti & Company

Okay. Okay. And actually, Jack, do you just have the cost of goods sold, SG&A and D&A?

Jack Egan

Sure. The cost of sales is – it increased by $60 million to $600 million. SG&A increased by $24.8 million – it increased by $300,000 to $24.8 million.

Josh Vogel – Sidoti & Company

To $24.8 million? Okay.

Jack Egan

And depreciation and amortization decreased by $2.1 million to $7.1 million this year.

Josh Vogel – Sidoti & Company

Okay. What was that decrease?

Jack Egan

Our ERP system is now fully amortized, something we installed about seven years ago.

Josh Vogel – Sidoti & Company

Okay. So going forward, we should expect G&A to be around $7 million?

Jack Egan

Yes, that’s probably a good number.

Josh Vogel – Sidoti & Company

Okay, great. Thank you very much.

Jack Egan

Thank you.

Operator

(Operator instructions)

Steven Shaw

If there are no other questions, we’d like to thank you all for joining us on our quarterly conference call. And we look forward to speaking with you on our next conference call. Thank you very much.

Operator

That does conclude today’s conference call. Thank you for joining. And you may disconnect at this time.

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