##### 



SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   Form 10-Q    x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 28, 2004
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _______________ to _____________ Commission file number 001-13956 VENTURI PARTNERS, INC.   Delaware
(State or other jurisdiction of
incorporation or organization)
    
    7363
(Primary Standard
Industrial Classification
Code number)
    
    56-1930691
(I.R.S. employer

identification number)
 Five LakePointe Plaza
2709 Water Ridge Parkway, 2nd Floor
Charlotte, North Carolina 28217
(Address, including zip code, of
Registrants principal executive offices)   (704) 442-5100     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 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 [X] No
[   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes [   ] No
[X] As of May 7, 2004, 6,089,938 shares of the registrants Common Stock, $.01
par value, were outstanding.




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VENTURI PARTNERS, INC.
TABLE OF CONTENTS PART I
- FINANCIAL INFORMATION PageItem 1.
    
    Financial Statements (unaudited)Unaudited Consolidated Statements of Operations
    
    
    3Unaudited Consolidated Balance Sheets
    
    
    4Unaudited Consolidated Statements of Shareholders Equity
    
    
    5Unaudited Consolidated Statements of Cash Flows
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    21
 PART II - OTHER INFORMATION PageItem 6.
    
    Exhibits and Reports on Form 8-K
    
    
    22Signatures
    
    
    
    
    23Exhibit Index
    
    
    
    
    24
 2




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##### 



ITEM 1. FINANCIAL STATEMENTS Venturi Partners, Inc. and Subsidiaries 
 Unaudited Consolidated Statements of Operations
 For the Periods Ended March 28, 2004 and March 30, 2003
(in thousands, except per share data)
 Three months endedMarch 28,
    
    March 30,2004
    
    2003Revenues
    
    $
    129,256
    
    
    $
    120,715Direct costs of services
    
    
    103,114
    
    
    
    95,640Gross profit
    
    
    26,142
    
    
    
    25,075Operating expenses:Selling, general and administrative
    
    
    24,120
    
    
    
    25,371Depreciation and amortization
    
    
    1,082
    
    
    
    1,412Restructuring and rationalization charges
    
    
    
    
    
    
    99Stock option compensation
    
    
    913
    
    
    
    Operating income (loss)
    
    
    27
    
    
    
    (1,807
    )Interest expense
    
    
    191
    
    
    
    4,392Gain (loss) on financial restructuring, net
    
    
    
    
    
    
    (1,501
    )Income (loss) before income taxes
    
    
    (164
    )
    
    
    (7,700
    )Provision (benefit) for income taxes
    
    
    (24
    )
    
    
    Net loss
    
    $
    (140
    )
    
    $
    (7,700
    )Basic and diluted earnings per common share
    
    $
    (0.02
    )
    
    $
    (7.16
    )Weighted average basic and diluted common
shares outstanding
    
    
    6,090
    
    
    
    1,075
 The accompanying notes are an integral part of these statements. 3




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##### 



Venturi Partners, Inc. and Subsidiaries 
 Unaudited Consolidated Balance Sheets
 March 28, 2004 and December 28, 2003
(in thousands, except per share data)
 March 28,
    
    December 28,2004
    
    2003AssetsCurrent Assets:Cash and cash equivalents
    
    $
    2,947
    
    
    $
    508Accounts receivable, net of allowance for doubtful accounts of
$3,456 and $3,487 in 2004 and 2003, respectively
    
    
    77,200
    
    
    
    75,702Prepaid expenses and other current assets
    
    
    4,421
    
    
    
    4,527Recoverable income taxes
    
    
    
    
    
    
    35Total current assets
    
    
    84,568
    
    
    
    80,772Property and equipment, net
    
    
    8,269
    
    
    
    9,271Goodwill
    
    
    103,532
    
    
    
    103,532Other assets
    
    
    772
    
    
    
    785Total assets
    
    $
    197,141
    
    
    $
    194,360Liabilities and Shareholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    185
    
    
    $
    370Accounts payable
    
    
    10,572
    
    
    
    15,471Accrued wages, benefits and other
    
    
    47,206
    
    
    
    39,737Total current liabilities
    
    
    57,963
    
    
    
    55,578Long-term debt -Convertible subordinated notes
    
    
    5,339
    
    
    
    5,339Revolving credit facility (including $4,277 and $5,264 of deferred
gain on debt forgiveness in 2004 and 2003, respectively)
    
    
    55,277
    
    
    
    55,264Other long-term liabilities
    
    
    13,108
    
    
    
    13,498Total liabilities
    
    
    131,687
    
    
    
    129,679Commitments and contingenciesShareholders equity:Preferred stock, $.01 par value; shares authorized 5,000;
no shares issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; shares authorized 95,000;
6,090 shares issued and outstanding
    
    
    61
    
    
    
    61Additional paid-in capital
    
    
    297,194
    
    
    
    296,281Retained earnings (accumulated deficit)
    
    
    (231,801
    )
    
    
    (231,661
    )Total shareholders equity
    
    
    65,454
    
    
    
    64,681Total liabilities and shareholders equity
    
    $
    197,141
    
    
    $
    194,360
 The accompanying notes are an integral part of these balance sheets. 4




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##### 



Venturi Partners, Inc. and Subsidiaries 
 Unaudited Consolidated Statements of Shareholders Equity
 For the Period Ended March 28, 2004
(in thousands)
 RetainedAdditional
    
    EarningsCommon Stock
    
    Paid-In
    
    (AccumulatedShares
    
    Amount
    
    Capital
    
    Deficit)
    
    TotalBalance, December 28, 2003
    
    
    6,090
    
    
    $
    61
    
    
    $
    296,281
    
    
    ($
    231,661
    )
    
    $
    64,681Stock option compensation
    
    
    
    
    
    
    
    
    
    
    913
    
    
    
    
    
    
    
    913Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (140
    )
    
    
    (140
    )Balance, March 28, 2004
    
    
    6,090
    
    
    $
    61
    
    
    $
    297,194
    
    
    ($
    231,801
    )
    
    $
    65,454
 The accompanying notes are an integral part of these statements. 5




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Venturi Partners, Inc. and Subsidiaries 
 Unaudited Consolidated Statements of Cash Flows
 For the Three Months Ended March 28, 2004 and March 30, 2003
(in thousands)
 Three months endedMarch 28,
    
    March 30,2004
    
    2003Cash flows from operating activities:Net loss
    
    $
    (140
    )
    
    $
    (7,700
    )Adjustments to reconcile net loss to net cash provided
by operating activities:Depreciation and amortization
    
    
    1,082
    
    
    
    1,412Amortization of deferred gain on financial restructuring, net
    
    
    (987
    )
    
    
    Stock option compensation
    
    
    913
    
    
    
    (Gain) loss on financial restructuring, net
    
    
    
    
    
    
    1,501Deferred income taxes
    
    
    (24
    )
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (1,498
    )
    
    
    7,673Recoverable income taxes
    
    
    35
    
    
    
    719Accounts payable and accrued liabilities
    
    
    2,242
    
    
    
    (4,228
    )Other, net
    
    
    81
    
    
    
    690Net cash provided by operating activities
    
    
    1,704
    
    
    
    67Cash flows from investing activities:Purchase of property and equipment, net
    
    
    (80
    )
    
    
    (430
    )Net cash used in investing activities
    
    
    (80
    )
    
    
    (430
    )Cash flows from financing activities:Repayments under credit facility
    
    
    (9,900
    )
    
    
    Borrowings under credit facility
    
    
    10,900
    
    
    
    Credit facility amendment fees
    
    
    
    
    
    
    (570
    )Repayments of other debt, net
    
    
    (185
    )
    
    
    (352
    )Net cash provided by (used in) financing activities
    
    
    815
    
    
    
    (922
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,439
    
    
    
    (1,285
    )Cash and cash equivalents at beginning of period
    
    
    508
    
    
    
    22,623Cash and cash equivalents at end of period
    
    $
    2,947
    
    
    $
    21,338Supplemental cash flow information:Cash payments during the period for Interest
    
    $
    1,247
    
    
    $
    5,043Income taxes
    
    
    2
    
    
    
    
 The accompanying notes are an integral part of these statements. 6




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Venturi Partners, Inc. and Subsidiaries 
 Notes to Unaudited Consolidated
 Financial Statements
(dollars in thousands, except per share data)
  (1)
    
    General The unaudited consolidated financial statements included herein have been
prepared in accordance with the instructions to Form 10-Q and do not include
all the information and footnotes required by generally accepted accounting
principles; however, they do include all adjustments of a normal recurring
nature that, in the opinion of management, are necessary to present fairly the
results of operations of Venturi Partners, Inc. and its subsidiaries
(collectively, the Company) for the interim periods presented. These interim
financial statements should be read in conjunction with the Companys audited
consolidated financial statements and related notes included in the Companys
Annual Report on Form 10-K for the year ended December 28, 2003. The results
of operations for the interim periods presented are not necessarily indicative
of the results to be expected for the entire year. Certain amounts in prior periods have been reclassified to conform to the
2004 presentation, including reclassifying professional fees paid in connection
with the Companys recently completed financial restructuring (See Note 2,
Comprehensive Financial Restructuring) from restructuring and rationalization
charges to gain (loss) on financial restructuring, net. (2) Comprehensive Financial Restructuring On April 14, 2003, the Company completed a comprehensive financial
restructuring with its senior lenders and the holders of $109,661 outstanding
principal amount of its 5.75% Convertible Subordinated Notes due 2004 (the
5.75% Notes) in which it issued shares of the Companys common stock and
Series B preferred stock to the participating noteholders in exchange for their
5.75% Notes (the Exchange Transaction). In the Exchange Transaction, the
participating noteholders in the aggregate received $3,153 in cash and
5,015,349 shares of common stock (after conversion of the Series B preferred
stock issued in the Exchange Transaction), which represented approximately 82%
of the Companys outstanding capital stock immediately after the Exchange
Transaction. The Companys existing shareholders retained ownership of their
outstanding 1,075,248 shares of common stock, which represented approximately
18% of the outstanding capital stock. To facilitate the closing of the Exchange Transaction and also to provide
for the terms on which the existing senior lenders would continue to finance
the Companys working capital needs, the Company and its existing senior
lenders also executed definitive loan agreements that provided for certain
amendments and maturity date extensions to the Companys senior revolving
credit facility (the Credit Facility) and eliminated the Equity Appreciation
Right (the EAR) then held by the senior lenders (the Senior Debt
Restructuring). The Senior Debt Restructuring provided for the forgiveness of
indebtedness in the amount of $10,300. As a result of the Exchange Transaction
and the Senior Debt Restructuring, the Company used substantially all of its
cash on hand, after payment of transaction expenses, to repay $37,985 of its
outstanding credit facility and eliminated an additional $119,961 of its
outstanding indebtedness, which resulted in substantial reductions in the
Companys interest expense. No provision for income taxes was recorded in 2003
since the gain from financial restructuring was not subject to income tax. The Credit Facility provides for a $70,700 revolving line of credit due
November 1, 2004 and may be extended for an additional six-month period through
May 1, 2005, assuming the Company is in compliance with its covenants.
Availability of borrowings under the Credit Facility is subject to a borrowing
base calculated as specified percentages of the Companys eligible accounts
receivable (as defined) in the aggregate. The Credit Facilitys financial
covenants include monthly maintenance of cumulative EBITDA levels and an
interest and subordinated indebtedness coverage ratio (both as defined in the
amended 7




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agreement). The Credit Facility also contains restrictions on the
payment of cash dividends on the Companys
capital stock and places additional limitations on share repurchases,
acquisitions and capital expenditures. Finally, to replace the EAR previously
included as part of the Credit Facility, the Company issued common stock
purchase warrants to the lenders under the Credit Facility entitling them to
purchase a total of 768,997 shares of common stock, or 10% of the outstanding
common stock on a fully diluted basis as of the closing date of the financial
restructuring. The Company engaged an independent valuation firm to assist in
the determination of the fair value of these warrants and recorded $1,538 as
additional shareholders equity with a corresponding reduction in the related
outstanding senior debt. These warrants are exercisable in whole or part over
a 10-year period at an exercise price of $7.8025 per share, which was based on
an assumed equity valuation for the Company of $60,000. The exercise price for
these warrants exceeded the estimated fair value of the underlying equity at
the issuance date. Interest rates payable under the Credit Facility are set at
prime plus 425 basis points through June 2004 with increases during each
six-month period thereafter through May 1, 2005. The Company entered into an agreement with each of the former noteholders
participating in the Exchange Transaction and each of its senior lenders to
provide them with registration rights with respect to the shares of common
stock issued in the financial restructuring and the shares of common stock
issuable upon exercise of the warrants, as applicable.  (3)
    
    Stock Options The Company has adopted Statement of Financial Accounting Standards No.
148, Accounting for Stock-Based Compensation  Transition and Disclosure.
The Company plans to continue using the intrinsic-value method of accounting
for stock-based awards granted to employees and, accordingly, does not
currently recognize compensation expense for its stock-based awards to
employees in the Consolidated Statements of Operations, except primarily for
the variable options described below. In March 2000, the FASB issued Financial Accounting Interpretation No. 44
(FIN 44), Accounting for Certain Transactions involving Stock Compensation,
an interpretation of APB Opinion No. 25, Accounting for Stock Issued to
Employees. FIN 44 requires that stock options issued within six months of the
cancellation date of prior options be accounted for as variable stock options.
Because most of the options granted by the Company under the 2003 Equity
Incentive Plan prior to December 28, 2003 were granted within six months from
the date that options granted to the same recipients under the 1995 Stock
Option Plan were cancelled, these new stock options are subject to variable
accounting until they are exercised, forfeited or expire unexercised. The following disclosures are presented to reflect the Companys pro forma
net income (loss) for the periods ended March 28, 2004 and March 30, 2003 as if
the Company had applied the fair value recognition provision of FASB Statement
No. 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation. In preparing these disclosures, the Company has determined the
value of all stock options granted under the 1995 Stock Option Plan, which was
terminated, and the Companys 2003 Equity Plan, in each case using the
Black-Scholes model. No material stock options were granted in the first three months of 2004
or 2003. For the stock options previously granted, and had compensation
expense been determined consistent with the fair value method and amortized
over the vesting period, the Companys net income (loss) would have reflected
the following pro forma amounts: 8




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Three Months EndedMarch 28,
    
    March 30,2004
    
    2003Net loss, as reported
    
    $
    (140
    )
    
    $
    (7,700
    )Add: Stock option compensation included in reported net income
    
    
    913
    
    
    
    Deduct: Stock option compensation determined using a fair value
based method for all awards
    
    
    (285
    )
    
    
    (83
    )Tax effect
    
    
    (251
    )
    
    
    Pro forma net income (loss)
    
    $
    237
    
    
    $
    (7,783
    )Basic and diluted earnings per share, as reported
    
    $
    (0.02
    )
    
    $
    (7.16
    )Pro forma basic and diluted earnings per share
    
    $
    0.04
    
    
    $
    (7.16
    )
  (4)
    
    Restructuring and Rationalization Charges During the years 2001 through 2003, the Company implemented a plan to
restructure and rationalize certain operations. In the first quarter of 2003,
the Company recorded charges totaling $99, primarily related to employee
severance costs. Following is a summary of the accrued liability for cash restructuring and
rationalization charges for the three months ended March 28, 2004: Employee
    
    LeaseSeverance
    
    Costs
    
    TotalAccrued liability at December 28, 2003
    
    $
    26
    
    
    $
    4,733
    
    
    $
    4,759Cash payments
    
    
    (20
    )
    
    
    (525
    )
    
    
    (545
    )Accrued liability at March 28, 2004
    
    $
    6
    
    
    $
    4,208
    
    
    $
    4,214
 Of the remaining accrued liability at March 28, 2004, the Company expects
to pay approximately $1,602 over the next 12 months and the balance, primarily
lease payments, over the following six years.  (5)
    
    Goodwill and Other Intangible Assets The Company completed its annual impairment assessment in the fourth
quarter of 2003 and determined there was no further impairment. In order to
assess the fair value of its goodwill, the Company engaged an independent
valuation firm to assist in determining the fair value. The fair value of each
of the Companys two reporting units was calculated as of December 28, 2003 on
an enterprise value basis using the market multiple and discounted cash flow
approaches. Under the market multiple approach, market ratios and performance
fundamentals relating to similar public companies stock prices or enterprise
values were applied to the reporting units to determine their enterprise value.
Under the discounted cash flow approach, the indicated enterprise value was
determined using the present value of the projected future cash flows to be
generated considering appropriate discount rates. The discount rates used in
the calculation reflected all associated risks of realizing the projected
future cash flows. Certain of the valuation assumptions were based on
managements expectations for future performance of the Technology Services and
Staffing Services reporting units. These assumptions include the expected time
frame of technology spending and broader economic recoveries as well as future
growth rates in the Technology Services and Staffing Services businesses. A
relatively high discount rate of 16-17% was utilized in the discounted cash
flow valuation 9




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approach due principally to the inherent uncertainties
associated with these assumptions. There have been no events or changes in
operations in the first quarter of 2004 that would indicate the Companys
goodwill has become impaired, and therefore, the Company expects to perform its
next impairment analysis in the fourth quarter of 2004.  (6)
    
    Long-term Debt Long-term debt consisted of the following at March 28, 2004 and December
28, 2003: March 28,
    
    December 28,2004
    
    20035.75% Notes due July 2004
    
    $
    5,339
    
    
    $
    5,339Revolving credit facility
    
    
    51,000
    
    
    
    50,000Deferred gain on financial restructuring, net
    
    
    4,277
    
    
    
    5,264Other
    
    
    185
    
    
    
    37060,801
    
    
    
    60,973Less current portion
    
    
    185
    
    
    
    370$
    60,616
    
    
    $
    60,603
 The 5.75% Notes are due July 2004. Interest on the 5.75% Notes is payable
semi-annually. The 5.75% Notes are subordinated to all present and future
senior indebtedness of the Company (as defined), including indebtedness under
the Credit Facility. As a result of the completion of the Companys financial restructuring and
the execution of amendments and maturity date extensions, the Credit Facility
provides for a $70,700 revolving line of credit due November 1, 2004 and may be
extended through May 1, 2005 subject to specified conditions. The Company
believes it will satisfy the requirements for extension through May 1, 2005;
therefore, the outstanding balance under the Credit Facility, which was $51,000
at March 28, 2004, was classified as long-term in the consolidated balance
sheet. In addition, the Company intends to repay the 5.75% Notes with
borrowings under its Credit Facility and, therefore, has classified the 5.75%
Notes as long-term at March 28, 2004. The Companys ability to continue operating is largely dependent upon its
ability to maintain compliance with the financial covenants of the Credit
Facility. The financial covenants include a cumulative monthly EBITDA
requirement and a monthly interest and subordinated indebtedness coverage ratio
(both as defined). The amended Credit Facility defines consolidated EBITDA as
consolidated net income before interest expense, income taxes, depreciation and
amortization, non-cash impairment charges, restructuring and rationalization
charges, professional fees relating to the debt restructuring and non-cash
compensation expense for the stock options. For 2003 and the first quarter of
2004, the Company exceeded the level of earnings required in these covenants.
Based on the Companys fiscal 2004 projections, which reflect slightly
improving economic conditions, management believes the Company will be able to
maintain compliance with the financial covenants for the next twelve months.
The Company also believes that the operating trends in the first quarter of
2004 support the key assumptions in its operating plan. However, there can be
no assurance that the economy or the Company will perform as expected or that
further economic declines will not adversely impact the Companys results of
operations or its ability to comply with the financial covenants. In addition,
the interest coverage ratio changes from an interest coverage ratio to a
stricter interest and subordinated indebtedness coverage ratio on May 31, 2004.
While the Company believes financial results in 2004 will be better than 2003
results, in the event that economic conditions weaken and/or the Companys 2004
results fall below 2003 levels, the Company may not meet these financial
covenants. The Company believes it will be in compliance with its financial
covenants, however, there can be no assurance that the Company will be able to
satisfy this stricter financial covenant. If the Company does violate future
covenants, it would seek waivers and amendments from its lenders, but can give
no assurance that any such waivers and amendments would be available at all or
on acceptable terms. If the Company were unable to obtain a waiver 10




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of future
covenant violations, the lenders would be entitled to require immediate
repayment of all amounts outstanding under the Credit Facility. In the event
of a default, the Companys ongoing viability would be seriously threatened,
and it would be forced to evaluate a number of strategic alternatives,
including a further debt restructuring or other reorganization, the closure of
certain operating locations or the sale of certain or all of its assets in
order to continue to fund its operations. In the current economic environment,
management believes that any such sale of assets would be at depressed prices
that could be significantly lower than the net book value of assets sold and
might not be sufficient to satisfy the Companys liabilities. For the three months ended March 28, 2004, interest expense was $191,
which was net of amortization of deferred gain on financial restructuring of
$987. Interest rates payable under the Credit Facility are currently set at
prime plus 425 basis points through June 30, 2004. Four former noteholders, now significant shareholders, also are senior
lenders under the Credit Facility, and held 90% of the facility commitments as
of May 7, 2004.  (7)
    
    Earnings Per Share The following table reconciles net loss and weighted average shares
outstanding to the amounts used to calculate basic and diluted earnings per
share for each of the periods ended March 28, 2004 and March 30, 2003: Three Months EndedMarch 28,
    
    March 30,2004
    
    2003Basic and diluted earnings per share:Net loss
    
    $
    (140
    )
    
    $
    (7,700
    )Add: Interest expense on 5.75% Notes, net of tax
    
    
    
    
    
    
    Diluted loss
    
    $
    (140
    )
    
    $
    (7,700
    )Weighted average common shares outstanding
    
    
    6,089,938
    
    
    
    1,075,248Add: Dilutive stock options and warrants
    
    
    
    
    
    
    Add: Assumed conversion of 5.75% Notes
    
    
    
    
    
    
    Diluted weighted average common shares outstanding
    
    
    6,089,938
    
    
    
    1,075,248Basic and diluted earnings per share:
    
    $
    (0.02
    )
    
    $
    (7.16
    )
 Stock options to purchase 684,646 and 107,170 shares of Common Stock were
outstanding under the 2003 Equity Plan and the 1995 Stock Option Plan during
the quarters ended March 28, 2004 and March 30, 2003, respectively, but were
excluded from the computation of earnings per diluted share because their
effect was antidilutive. The conversion of the remaining outstanding 5.75%
Notes into 11,989 common shares was also excluded from the computation of
earnings per diluted share because its effect was antidilutive. The common
stock purchase warrants issued in 2003, which entitle the lenders under the
Credit Facility to purchase a total of 768,997 shares of common stock, were
also excluded from the computation of earnings per diluted shares because their
effect was antidilutive.  (8)
    
    Commitments and Contingencies The Company is involved in various legal actions and claims. In the
opinion of management, after considering appropriate legal advice, the future
resolutions of all actions and claims are not expected to have a material
adverse effect on the Companys consolidated financial position, results of
operations or cash flows. 11




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##### 



During the first quarter of 2004, the Company entered into a significant
new lease agreement for its Corporate offices with rent (approximately $257 per
year and escalating annually) commencing December 1, 2004 and ending December
31, 2014.  (9)
    
    Segment Information: The Company is organized in two segments: Technology Services and
Staffing Services. Technology Services provides technical staffing, training
and information technology consulting services and technology tools for human
capital management. Staffing Services provides temporary staffing services,
placement of full-time employees and on-site management of temporary employees.
The Company evaluates segment performance based on income from operations
before unallocated corporate expenses, restructuring and rationalization
charges, stock option compensation, amortization of goodwill and intangible
assets, interest expense, gain (loss) on financial restructuring, net and
income taxes. Because of the Companys substantial goodwill, management does
not consider total assets by segment an important management tool and,
accordingly, the Company does not report this information separately. The
table below presents segment information for Technology Services and Staffing
Services for the periods ended March 28, 2004 and March 30, 2003: Three Months EndedMarch 28,
    
    March 30,2004
    
    2003Total revenuesTechnology Services
    
    $
    67,477
    
    
    $
    60,559Staffing Services
    
    
    61,779
    
    
    
    60,156Total revenues
    
    
    129,256
    
    
    
    120,715Gross profitTechnology Services
    
    
    14,813
    
    
    
    13,386Staffing Services
    
    
    11,329
    
    
    
    11,689Total gross profit
    
    
    26,142
    
    
    
    25,075Operating incomeTechnology Services
    
    
    2,796
    
    
    
    1,232Staffing Services
    
    
    1,813
    
    
    
    1,028Total segment operating income, as defined
    
    
    4,609
    
    
    
    2,260Unallocated corporate expenses
    
    
    3,669
    
    
    
    3,880Restructuring and rationalization charges
    
    
    
    
    
    
    99Stock option compensation expense
    
    
    913
    
    
    
    Amortization of intangible assets
    
    
    
    
    
    
    88Interest expense
    
    
    191
    
    
    
    4,392Gain (loss) on financial restructuring, net
    
    
    
    
    
    
    (1,501
    )Loss before income taxes
    
    $
    (164
    )
    
    $
    (7,700
    )
 The following table sets forth identifiable assets by segment at March 28,
2004 and December 28, 2003: 12




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##### 



March 28,
    
    December 28,2004
    
    2003Accounts receivable, netTechnology services
    
    $
    52,586
    
    
    $
    49,849Staffing services
    
    
    24,614
    
    
    
    25,853Total accounts receivable, net
    
    $
    77,200
    
    
    $
    75,702
 13




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS INTRODUCTION The following discussion and analysis should be read in conjunction with
the Companys unaudited consolidated financial statements and related notes
appearing elsewhere in this report. Our fiscal year ends on the Sunday nearest
to December 31, and our fiscal quarters end on the Sunday nearest to the end of
each calendar quarter. FORWARD-LOOKING INFORMATION In addition to historical information, this report, including
Managements Discussion and Analysis of Financial Condition and Results of
Operations, contains certain statements that are forward-looking statements
regarding events and financial trends that may affect the Companys future
operating results or financial position. These statements may be identified by
words such as estimate, forecast, plan, intend, believe, should,
expect, anticipate, or variations or negatives thereof, or by similar or
comparable words or phrases. Forward-looking statements are subject to risks
and uncertainties that could cause actual results to differ materially from
those expected in such statements. These risks and uncertainties include, but
are not limited to, the following:  
    
    changes in levels of unemployment and other economic
conditions in the United States, or in particular regions or
industries;  
    
    changes or reductions in corporate information technology
spending levels;  
    
    our ability to maintain existing client relationships and
attract new clients in the context of changing economic or
competitive conditions;  
    
    the impact of competitive pressures, including any change in
the demand for our services, or our ability to maintain or improve
our operating margins;  
    
    a federal, state or local government audit of our income,
payroll or other tax returns and the risk that assessments for
additional taxes, penalties and interest could be levied against the
Company, which could affect our liquidity;  
    
    the entry of new competitors into the marketplace or
expansion by existing competitors;  
    
    the Companys success in attracting, training and retaining
qualified management personnel and other staff employees;  
    
    reductions in the supply of qualified candidates for
temporary employment or our ability to attract qualified candidates;  
    
    the possibility of the Company incurring liability for the
activities of our temporary employees or for events impacting our
temporary employees on clients premises;  
    
    the risk in an uncertain economic environment of increased
incidences of employment disputes, employment litigation and
workers compensation claims;  
    
    the risk that further cost cutting or restructuring
activities undertaken by the Company could cause an adverse impact
on certain of our operations;  
    
    further economic declines that could affect our liquidity or
ability to comply with our loan covenants;  
    
    the risks of defaults under the Companys credit agreements;  
    
    adverse changes in credit and capital markets conditions that
may affect our ability to obtain financing or refinancing on
favorable terms;  
    
    adverse changes to managements periodic estimates of future
cash flows that may affect our assessment of our ability to fully
recover our goodwill;  
    
    whether governments will impose additional regulations or
licensing requirements on staffing services businesses in particular
or on employer/employee relationships in general; and  
    
    other matters discussed in this report and the Companys
other SEC filings. 14




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##### 



Because long-term contracts are not a significant part of our business, future
results cannot be reliably predicted by considering past trends or
extrapolating past results. We undertake no obligation to update
forward-looking information contained in this report. THE COMPANY The Company is organized into two Divisions: the Technology Services
division (Technology Services), which provides information technology
staffing and consulting services in a range of computer-related disciplines and
technology tools for human capital management, and the Staffing Services
division (Staffing Services), which provides a variety of temporary office,
clerical, accounting and finance, light technical and light industrial staffing
services. Approximately 52% of the Companys first quarter 2004 revenues came
from Technology Services and 48% came from Staffing Services. Each of our business lines depends in large part on our ability to recruit
skillful people and put them to work on temporary assignments for our
customers, making our primary revenue drivers billable hours and hourly bill
rates. Although we employ fewer billable employees in Technology Services and
those employees tend to work on longer assignments at higher pay rates, in each
of our businesses we generate revenue primarily by billing our customers based
on pre-agreed bill rates for the number of hours that each of our associates
works on assignment. We describe the types of business that we do for our
customers as either retail or vendor-on-premise (VOP) business. Our retail
business includes our smaller accounts and involves more local relationship
building and selling. Our VOP business tends to be our larger accounts or
business with larger customers that may have needs in multiple cities. Most of
our billings are on a time and materials basis. We also provide permanent
placement services to certain of our customers primarily in Staffing Services,
which results in fee revenue to us generally based on a percentage of the
candidates first year salary. Directs costs of services are our actual costs related to our billable
employees and include the pay rate and payroll taxes, benefits and insurance
costs and other similar expenses. Gross margin is influenced by the
utilization rate for each billable employee, our business mix, seasonal trends
as we move through each calendar year and our ability to manage other
employment related costs, such as workers compensation costs. The Technology
Services business is affected by the timing of holidays and seasonal vacation
patterns, generally resulting in lower revenues and gross margins in the fourth
quarter of each year. The Staffing Services business is also subject to the
seasonal impact of summer and holiday employment trends. Typically, the
Staffing Services business is stronger in the second half of each calendar year
than in the first half. EXECUTIVE OVERVIEW Our revenue trends in the first quarter of 2004, especially in Technology
Services, provided some of the clearest evidence yet of the improving economy.
Despite normal seasonal influences, which resulted in a weak January in each of
our business lines, our revenues strengthened in February and March such that
the first quarter showed year-over-year and sequential increases in total
revenues. Technology Services grew its net billable headcount during the
quarter. Although significant increases in state unemployment insurance rates,
workers compensation costs and increased medical costs had unfavorable impacts
on profits in both divisions, our revenues and profits during the quarter were
higher than we expected, and the quarterly results have positioned the Company
well for the balance of the year. In April 2003, we completed a comprehensive financial restructuring in
which we converted $109.7 million of outstanding 5.75% Notes to equity and
refinanced our senior revolving credit facility. The credit facility, as
amended in connection with the financial restructuring, now provides for a
$70.7 million revolving line of credit due November 1, 2004, subject to a
maturity date extension through May 1, 2005. As the result of the debt
elimination produced by the restructuring and the accounting treatment
requiring the deferred gain related to the senior debt to be amortized into
interest over the term of our credit facility, we greatly reduced our interest
expense from $4.4 million in the first quarter of 2003 to $0.2 million for the
first quarter of 2004. In connection with the restructuring, we also effected
a 1-for-25 reverse stock split of 15




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##### 



our common stock. All common stock share and
per share amounts contained in this report, including the number of shares of
common stock issued in connection with our financial restructuring, have
been restated to reflect this reverse stock split as if it had occurred at the
beginning of the periods presented. RESULTS OF OPERATIONS Quarter Ended March 28, 2004 Versus Quarter Ended March 30, 2003 Operating Results Total revenues increased 7.1%, to $129.3 million in the first quarter of
2004 from $120.7 million in the first quarter of 2003. Direct costs,
consisting of payroll and related expenses of consultants and temporary
workers, increased 7.8% to $103.1 million in the first quarter of 2004 on the
higher revenues. Gross profit increased 4.3% to $26.1 million primarily on the
higher revenues. Gross profit as a percentage of revenue decreased to 20.2% in
the first quarter of 2004 from 20.8% in the first quarter of 2003, primarily as
the result of higher state unemployment tax rates and increased workers
compensation and medical costs. Operating expenses, consisting of selling, general and administrative
expenses and depreciation and amortization expense, decreased 5.9% to $25.2
million in the first quarter of 2004 from $26.8 million in the first quarter of
2003. This decrease was primarily due to the Companys aggressive cost
management program, offset by increases in its state unemployment tax rates and
medical costs. As a percentage of revenues, selling, general and
administrative expenses decreased to 18.7% in the first quarter of 2004 from
21.0% in the first quarter of 2003. In addition, depreciation and amortization
expense decreased to 0.8% of revenues in the first quarter of 2004 from 1.2% in
the first quarter of 2003. Technology Services Division Technology Services revenues increased 11.4%, to $67.5 million in the
first quarter of 2004 from $60.6 million in the first quarter of 2003.
Technology Services billable consultants on assignment began to climb again
during 2003, and increased for the quarter from approximately 1,950 at year-end
2003 to approximately 1,980 at the end of the first quarter. The following
table summarizes the quarterly revenue and billable headcount (as of the end of
each period) for the Technology Services operations for the first quarter of
2004 and 2003 (revenues in thousands): 2004
    
    2003Q1
    
    Q1Revenues
    
    $
    67,477
    
    
    $
    60,559Billable headcount
    
    
    1,980
    
    
    
    1,830
 We are encouraged by the revenue trends in the second half of 2003 and
through the first quarter of 2004, but the Company cannot assure you that
Technology Services revenues will continue to increase as the broader economy
strengthens or other uncertainties subside. Gross margin percentage in Technology Services was 22.0% for the first
quarter of 2004, down 10 basis points from the first quarter of 2003, primarily
as a result of the higher state unemployment tax rates. We believe our gross
margins are stabilizing after several years of margin compression from customer
pressure on
bill rates and a market driven shift in mix of business away from higher
margin new systems development work. Operating income rose to $2.8 million, or
4.1% of revenues, for the Technology Services operations in the first quarter
of 2004 compared to $1.2 million, or 2.0% of revenues, in the first quarter of
2003, primarily due to our ongoing efforts to aggressively manage costs. 16




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##### 



Staffing Services Division Staffing Services revenues increased 2.7% to $61.8 million in the first
quarter of 2004 primarily due to improvement in the retail component of the
Companys temporary staffing business and permanent placement revenues, which
were partially offset by a decline in the Companys VOP business. Operating
income rose to $1.8 million, or 2.9% of revenues, for the Staffing Services
operations in the first quarter of 2004, up from $1.0 million, or 1.7% of
revenues, in the first quarter of 2003. Consistent with the historical
seasonal trends, our revenues and billable hours fell from fourth quarter 2003
levels, with a significant amount of this decline attributable to one large VOP
customer. The following table summarizes the quarterly revenues and billable
hours for the Staffing Services operations for the first quarter of 2004 and
2003 (in thousands): 2004
    
    2003Q1
    
    Q1Revenues
    
    $
    61,779
    
    
    $
    60,156Billable hours
    
    
    3,568
    
    
    
    3,574
 The change in business mix discussed above also impacts the divisions
gross margins, as the VOP business typically carries higher volume and lower
gross margins compared to the higher margin permanent placement business. The
following table summarizes the quarterly business mix for the Staffing Services
division for the first quarter of 2004 and the first quarter of 2003: 2004
    
    2003Q1
    
    Q1Retail
    
    
    64.4
    %
    
    
    60.6
    %VOP
    
    
    33.0
    %
    
    
    37.4
    %Permanent placement
    
    
    2.6
    %
    
    
    2.0
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 The Company expects to see moderate improvements in demand for its
commercial staffing services, including our retail and permanent placement
operations, for the remainder of 2004 if the predicted employment and economic
environment strengthen. Restructuring and Rationalization Charges During the years 2001 through 2003, the Company implemented a plan to
restructure and rationalize certain operations. In the first quarter of 2003,
the Company recorded charges totaling $0.1 million, primarily related to
employee severance costs. Following is a summary of the accrued liability for cash restructuring and
rationalization charges for the three months ended March 28, 2004 (in
thousands): Employee
    
    LeaseSeverance
    
    Costs
    
    TotalAccrued liability at December 28, 2003
    
    $
    26
    
    
    $
    4,733
    
    
    $
    4,759Cash payments
    
    
    (20
    )
    
    
    (525
    )
    
    
    (545
    )Accrued liability at March 28, 2004
    
    $
    6
    
    
    $
    4,208
    
    
    $
    4,214
 Of the remaining accrued liability at March 28, 2004, the Company expects
to pay approximately $1.6 million over the next 12 months and the balance,
primarily lease payments, over the following six years. 17




---



##### 



Stock Option Compensation Expense Stock option compensation expense represents the non-cash charge
associated with certain stock options that were issued within a six-month
period after cancellation of old stock options and subsequently are accounted
for as variable stock options under FASB Interpretation No. 44 (FIN 44),
Accounting for Certain Transactions involving Stock Compensation. We expect
to continue to record adjustments to income from stock option compensation in
future periods due to continued vesting of such stock options and any
subsequent changes in the price of our common stock. Interest Expense Interest expense decreased 95.7%, to $0.2 million in the first quarter of
2004 from $4.4 million in the first quarter of 2003, primarily as a result of
the comprehensive financial restructuring completed in April 2003. The
reported interest expense of $0.2 million for the first quarter of 2004 is net
of amortization of deferred gain on financial restructuring of $1.0 million.
The average interest rate on borrowings was 8.4% in the first quarter of 2004,
up 110 basis points from the first quarter of 2003. Gain (Loss) on Financial Restructuring, Net The gain on financial restructuring that resulted from the conversion of
$109.7 million of the Companys 5.75% Notes to equity is net of professional
fees incurred in connection with the financial restructuring. Fees incurred in
the first quarter of 2003 totaled $1.5 million, and all prior year costs were
previously classified in restructuring and rationalization charges. These
fees have been reclassified for all periods presented. Provision (Benefit) for Income Taxes The Company recorded a $0.02 million benefit for income taxes in the first
quarter of 2004. The effective tax benefit rate of 15% in the first quarter of
2004 was lower than the U.S. federal statutory rate of 35% primarily due to the
impact of non-deductible expenses and the provision of valuation allowances
against deferred income tax assets. Because of the changes in ownership of the
Company that occurred in connection with the financial restructuring on April
14, 2003, the utilization of net operating losses generated prior to that date
will not be available to offset future taxable income. The Company has deferred
tax assets relating to deductible temporary differences and NOL carryforwards
generated since April 14, 2003 which are fully reserved through a valuation
allowance to the extent they are not offset by deferred tax liabilities. No
benefit for income taxes was recorded in the first quarter of 2003 since the
realization of such tax benefits in the future is not reasonably assured. LIQUIDITY AND CAPITAL RESOURCES Overview While revenues in Technology Services and Staffing Services improved in
the first quarter of 2004, the Company has experienced declines in revenues
over the previous two years as the result of weak economic conditions. We
expect improvements in demand for our services to continue in 2004 in light of
the improving, but somewhat uncertain, economic climate. In light of these
expectations, we have continued our focus on aggressive management of expenses,
limiting capital expenditures to only the highest priority projects and
managing our accounts receivable very closely. As a result of the reduced need
for working capital and these priorities, our cash needs were lower in the
first quarter of 2004 than in prior years and should be only moderately higher
for the next 12 months. 18




---



##### 



Prior to the comprehensive financial restructuring in April 2003, our
primary sources of cash were cash from operations and income tax refunds. As a
result of the completion of the financial restructuring and the related
execution of amendments and maturity date extensions to the Credit Facility,
the Companys sources of cash now also include available borrowings under the
Credit Facility. At March 28, 2004, we had $11.9 million of available
borrowings under the Credit Facility. Our principal uses of cash are to repay
debt, fund working capital and meet our diminished requirements for capital
expenditures. Additionally, the Company may use cash to fund a portion or all
of any acquisition expenditures, as described below. We believe, subject to
the conditions and contingencies described above in Forward-Looking
Information, that cash flow from operations, borrowings under our Credit
Facility and the proceeds of additional debt or equity offerings will be
adequate to meet our ongoing debt repayment objectives, diminished needs for
working capital and capital expenditures and any acquisition funding needs that
may arise. Now that our financial restructuring has been completed, we intend to
consider acquisition opportunities again in the ordinary course of our business
and believe that attractive acquisition opportunities could arise in the
staffing services sector as the economy improves. The Company intends to seek
additional capital as necessary to fund potential acquisitions through sources
that may include borrowings under the Credit Facility or additional debt or
equity offerings. Cash flow from operations, to the extent available, may also
be used to fund a portion of any acquisition expenditures. In connection with its financial restructuring, the Company used
substantially all of its cash on hand, after payment of transaction expenses,
to repay $38.0 million outstanding under its Credit Facility and eliminated an
additional $120.0 million of its outstanding indebtedness. These actions
resulted in substantial reductions in the Companys interest expense. The
Credit Facility, as amended in connection with the financial restructuring, now
provides for a $70.7 million revolving line of credit due November 1, 2004,
subject to a maturity date extension through May 1, 2005 if the Company is in
compliance with its covenants. The Company paid $0.4
million on April 30, 2004 to extend the Credit Facility from May 1, 2004
through November 1, 2004. Availability of borrowings under the Credit Facility
is subject to a borrowing base calculated as specified percentages of the
Companys eligible accounts receivable (as defined) in the aggregate. The
Credit Facilitys covenants include a requirement for monthly maintenance of
cumulative EBITDA levels and an interest and subordinated indebtedness coverage
ratio (both as defined in the amended agreement). The Credit Facility also
contains restrictions on the payment of cash dividends on the Companys capital
stock and places additional limitations on share repurchases, acquisitions and
capital expenditures. Interest rates payable under the Credit Facility are set
at prime plus 425 basis points through June 2004 with increases during each
six-month period through May 1, 2005. The Company is subject to periodic review by federal, state and local
taxing authorities in the ordinary course of business, and is currently engaged
in certain audits that may result in assessments for certain deficiencies. In
any of these cases or in other audits of our income, payroll or other tax
returns, the appropriate taxing authority could challenge certain tax positions
that we have taken and propose adjustments that could result in assessments for
additional taxes payable, together with penalties and interest. The Company
believes that its tax positions comply with applicable tax laws and we would
vigorously defend these positions if challenged. In addition, although the
Company believes that it has adequately accrued for any foreseeable payments
resulting from tax examinations, there can be no assurance that any such
additional taxes, penalties or interest payable would not have a material
effect on the Companys liquidity or financial condition. Quarter Ended March 28, 2004 Versus March 30, 2003 The following table summarizes our cash flow activity for the periods
ended March 28, 2004 and March 30, 2003 (in thousands): 19




---



##### 



Three months endedMarch 28,
    
    March 30,2004
    
    2003Net cash provided by operating activities
    
    $
    1,704
    
    
    $
    67Net cash used in investing activities
    
    
    (80
    )
    
    
    (430
    )Net cash provided by (used in) financing activities
    
    
    815
    
    
    
    (922
    )Net increase (decrease) in cash and cash equivalents
    
    $
    2,439
    
    
    $
    (1,285
    )
 For the three months ended March 28, 2004, cash provided by operating
activities was $1.7 million compared with $0.1 million in the first three
months of 2003. In the first quarter of 2004, cash was used for accounts
receivable due to increasing business activity levels, offset somewhat by a
reduction in days sales outstanding. In the aggregate, days sales
outstanding decreased to 47 days at March 28, 2004 from 51 days at December 28,
2003. Cash used in investing activities related to the Companys capital
spending and was $0.1 million in the first quarter of 2004 compared with $0.4
million during the first quarter of 2003. Cash provided
by financing activities was $0.8 million in the first quarter of 2004,
compared to cash used in financing activities of $0.9 million in the first
quarter of 2003. The Company had accrued restructuring and rationalization charges of $4.2
million at March 28, 2004 and expects to pay approximately $1.6 million of such
charges during the next 12 months and the balance, primarily lease payments,
over the following six years. In addition, we intend to repay the 5.75% Notes
with borrowings under our Credit Facility and as a result, have classified the
5.75% Notes as long-term at March 28, 2004. Debt Compliance The Companys ability to continue operating is largely dependent upon its
ability to maintain compliance with the financial covenants of the Credit
Facility. The financial covenants include a cumulative monthly EBITDA
requirement and a monthly interest and subordinated indebtedness coverage ratio
(both as defined). The amended Credit Facility defines consolidated EBITDA as
consolidated net income before interest expense, income taxes, depreciation and
amortization, non-cash impairment charges, restructuring and rationalization
charges, professional fees relating to the debt restructuring and non-cash
compensation expense for the stock options. For 2003 and the first quarter of
2004, the Company exceeded the level of earnings required in these covenants.
Based on the Companys fiscal 2004 projections, which reflect slightly
improving economic conditions, management believes the Company will be able to
maintain compliance with the financial covenants for the next twelve months.
The Company also believes that the operating trends in the first quarter of
2004 support the key assumptions in its operating plan. However, there can be
no assurance that the economy or the Company will perform as expected or that
further economic declines will not adversely impact the Companys results of
operations or its ability to comply with the financial covenants. In addition,
the interest coverage ratio changes from an interest coverage ratio to a
stricter interest and subordinated indebtedness coverage ratio on May 31, 2004.
While the Company believes financial results in 2004 will be better than 2003
results, in the event that economic conditions weaken and/or the Companys 2004
results fall below 2003 levels, the Company may not meet these financial
covenants. The Company believes it will be in compliance with its financial
covenants, however, there can be no assurance that the Company will be able to
satisfy this stricter financial covenant. If the Company does violate future
covenants, it would seek waivers and amendments from its lenders, but can give
no assurance that any such waivers and amendments would be available at all or
on acceptable terms. If the Company were unable to obtain a waiver of future
covenant violations, the lenders would be entitled to require immediate
repayment of all amounts outstanding under the Credit Facility. In the event
of a default, the Companys ongoing viability would be seriously threatened,
and it would be forced to evaluate a number of strategic alternatives,
including a further debt restructuring or other reorganization, the closure of
certain operating locations or the sale of certain or all of its assets in
order to continue to fund its operations. In the current economic environment,
management 20




---



##### 



believes that any such sale of assets would be at depressed prices
that could be significantly lower than the net book value of assets sold and
might not be sufficient to satisfy the Companys liabilities. The Companys common stock has traded since November 2002 on the Over the
Counter Bulletin Board (the OTC Bulletin Board). The restructuring agreement
for the Companys financial restructuring contemplates that the Company will
use its best efforts to procure a new stock exchange listing for its common
stock and we have recently applied to list our common stock on The NASDAQ
National Market. In the meantime the common stock will continue to trade on
the OTC Bulletin Board under the symbol VPTR.OB. As a result of the financial restructuring, the aggregate outstanding
principal amount of the 5.75% Notes was reduced to approximately $5.3 million.
As of March 28, 2004, the Company believes it was in compliance with the
indenture related to the 5.75% Notes. Failure to maintain or effect the
listing of the common stock on a national securities exchange or an established
automated over-the-counter trading market in the United States would constitute
a repurchase event under the 5.75% Notes and entitle each remaining noteholder
to demand repayment of its Notes in full. Under the terms of the Credit
Facility, the Company is prohibited from repaying any of the 5.75% Notes prior
to their scheduled maturity in July 2004. If the Company were unable to obtain
a waiver under the Credit Facility to permit repayment of any noteholder who
made such a demand following a
repurchase event, and were also unable to obtain waivers of such
repurchase event from each demanding noteholder, events of default could occur
under the 5.75% Notes and the Credit Facility. The noteholders could
accelerate the payment of all of the debt obligations evidenced by the
remaining outstanding 5.75% Notes, and the Credit Facility lenders could demand
repayment of the Credit Facility in full. CONTRACTUAL AND COMMERCIAL COMMITMENTS During the first quarter of 2004, the Company entered into a significant
new lease agreement for its Corporate offices with rent (approximately $0.3
million per year and escalating annually) commencing December 1, 2004 and
ending December 31, 2014. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our outstanding debt under the Credit Facility at March 28, 2004, was
$51.0 million. Interest on borrowings under that facility was based on the
prime rate plus a variable margin. Based on the outstanding balance at March
28, 2004, a change of 1% in the interest rate would cause a change in interest
expense of approximately $0.5 million on an annual basis. 
 ITEM 4. CONTROLS AND PROCEDURES Based on their evaluation as of the end of the period covered by this Form
10-Q, the Companys Chief Executive Officer and Chief Financial Officer have
concluded that the Companys disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
Exchange Act)) are effective to provide reasonable assurance that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms. There were no changes in the Companys internal controls over financial
reporting that occurred during the Companys first fiscal quarter that have
materially affected, or are reasonable likely to materially affect, the
Companys internal control over financial reporting. 21




---



##### 



PART
II - OTHER INFORMATION 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    Exhibits  The exhibits filed with or incorporated by
reference into this Form 10-Q are set forth in the Exhibit Index,
which immediately precedes the exhibits to this report.(b)
    
    Reports on Form 8-K  The Company furnished a report on Form
8-K on February 12, 2004, announcing the Companys financial results
for the quarter and year ended December 28, 2003. 22




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##### 



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. VENTURI PARTNERS, INC.(Registrant)Date: May 11, 2004
    
    By:
    
    /s/ Larry L. EnterlineLarry L. EnterlineChairman and Chief Executive OfficerDate: May 11, 2004
    
    By:
    
    /s/ James C. HuntJames C. HuntPresident and Chief Financial Officer
 23




---



##### 



EXHIBIT INDEX Filed or FurnishedHerewith(*), orIncorporated byReference fromExhibit
    
    
    
    Previous Exhibit
    
    Company Reg. No.Number
    
    Description
    
    Number
    
    or Report3.1
    
    Restated
Certificate of
Incorporation of
the Company
    
    
    99.2
    
    
    8-K filed 8/5/033.2
    
    Certificate of
Designation,
Preferences and
Rights of Series A
Junior
Participating
Preferred Stock
    
    
    99.6
    
    
    8-K filed 4/25/033.4
    
    Amended and
Restated Bylaws of
the Company
    
    
    99.7
    
    
    8-K filed 4/25/0331.1
    
    Rule
13a-14(a)/15d-14(a)
Certification of
Larry L. Enterline,
Chief Executive
Officer of the
Company
    
    
    *31.2
    
    Rule
13a-14(a)/15d-14(a)
Certification of
James C. Hunt,
Chief Financial
Officer of the
Company
    
    
    *32.1
    
    Section 1350
Certification of
Larry L. Enterline,
Chief Executive
Officer of the
Company
    
    
    *32.2
    
    Section 1350
Certification of
James C. Hunt,
Chief Financial
Officer of the
Company
    
    
    *
 24