<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended JULY 12, 1997
Commission file number 0-24990
WESTERN STAFF SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-1266151
(State or other jurisdiction (I.R.S.employer
of incorporation or organization) identification number)
301 LENNON LANE
WALNUT CREEK, CALIFORNIA 94598-2453
(510) 930-5300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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 X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
CLASS OUTSTANDING AT AUGUST 26, 1997
-------------------- ------------------------------
Common Stock, $.01 par value 10,261,032 shares
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
July 12, 1997 and November 2, 1996 3
Condensed Consolidated Statements of Operations -
12 and 36 weeks ended July 12, 1997 and July 6, 1996 4
Condensed Consolidated Statements of Cash Flows -
36 weeks ended July 12, 1997 and July 6, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
PART l. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTERN STAFF SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 12, NOVEMBER 2,
1997 1996
---------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assests: $ 5,048 $ 2,849
Cash and cash equivalents
Trade accounts receivable, less allowance for doubtful
accounts of $987 and $769 78,801 74,721
Due from licensees 6,160 3,565
Deferred income taxes 1,352 1,918
Other current assets 5,276 4,075
---------- ----------
Total current assets 96,637 87,128
Property, plant and equipment, net 19,523 18,854
Intangible assets, net 16,925 13,437
Other assets 1,755 1,361
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$ 134,840 $ 120,780
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 18,200 $ 8,800
Current portion of loans payable 697 1,420
Current portion of note payable to related party 973 973
Accounts payable and accrued expenses 39,655 38,434
Income taxes payable 3,206 3,019
Distributions payable to stockholders 2,500
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Total current liabilities 62,731 55,146
Loans payable 8,492 1,658
Note payable to related party 972 1,945
Deferred income taxes 1,208 3,847
Other long-term liabilities 8,988 8,932
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Total liabilities 82,391 71,528
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Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, $.01 par value; authorized and unissued: 1,000 shares
Common stock, $.01 par value; authorized: 25,000 shares;
issued: 10,338 shares 103 103
Additional paid-in-capital 29,068 29,068
Retained earnings 23,981 19,527
Cumulative currency translation 168 554
---------- ----------
53,320 49,252
Less treasury stock at cost, 87 shares at July 12, 1997 871
---------- ----------
Total stockholders' equity 52,449 49,252
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$ 134,840 $ 120,780
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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WESTERN STAFF SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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<TABLE>
<CAPTION>
12 WEEKS ENDED 36 WEEKS ENDED
------------------------- -------------------------
JULY 12, JULY 6, JULY 12, JULY 6,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales of services $ 131,004 $ 104,494 $ 372,136 $ 297,859
License fees 488 487 1,287 2,087
---------- ---------- ---------- ----------
Total sales of services and license fees 131,492 104,981 373,423 299,946
Costs of services 103,451 82,240 295,389 234,553
---------- ---------- ---------- ----------
Gross profit 28,041 22,741 78,034 65,393
Franchise agents' share of gross profit 4,867 4,252 13,848 12,151
Selling and administrative expenses 18,071 14,429 51,972 42,019
Depreciation and amortization 1,413 1,086 3,997 2,935
---------- ---------- ---------- ----------
Operating income 3,690 2,974 8,217 8,288
Interest expense 425 162 1,036 924
Interest income (90) (94) (308) (192)
---------- ---------- ---------- ----------
Income before income taxes 3,355 2,906 7,489 7,556
Provision for income taxes 1,372 8,137 3,026 8,401
---------- ---------- ---------- ----------
Net income (loss) $ 1,983 $ (5,231) $ 4,463 $ (845)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per common share $ 0.19 $ 0.43
---------- ----------
---------- ----------
Weighted average common shares outstanding 10,251 10,290
---------- ----------
---------- ----------
PRO FORMA DATA (NOTE 2)
Income before income taxes $ 2,906 $ 7,556
Provision for income taxes 1,133 2,913
---------- ----------
Net income $ 1,773 $ 4,643
---------- ----------
---------- ----------
Net income per common share $ 0.18 $ 0.50
---------- ----------
---------- ----------
Weighted average common shares outstanding 9,999 9,225
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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WESTERN STAFF SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
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<TABLE>
<CAPTION>
36 WEEKS ENDED
---------------------------------
JULY 12, JULY 6,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 4,463 $ (845)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation 3,095 2,449
Amortization of intangible assets 902 486
Provision for losses on doubtful accounts 780 356
Deferred income taxes (2,058) 2,505
Changes in assets and liabilities:
Trade accounts receivable (5,272) (2,223)
Due from licensees (2,595) 2,746
Other assets (1,537) (197)
Accounts payable and accrued expenses 1,573 (3,919)
Income taxes payable 24 5,156
Other long-term liabilities 56 (14)
----------- ----------
Net cash from operating activities (569) 6,500
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for purchases of fixed assets (3,841) (4,430)
Payments for intangibles and other investments (4,586) (3,821)
Other, net 76 223
----------- ----------
Net cash from investing activities (8,351) (8,028)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit
agreements 9,400 (12,600)
Principal payments on loans payable (1,089) (2,002)
Proceeds from issuance of loans payable 7,200
Repayment of note to related party (973) (1,495)
Proceeds from issuance of common stock 19,530
Proceeds from sale of treasury stock 87
Purchase of treasury stock (966)
Distributions to stockholders (2,500)
----------- ----------
Net cash from financing activities 11,159 3,433
----------- ----------
Effect of exchange rate on cash (40) 1
----------- ----------
Net change in cash and cash equivalents 2,199 1,906
Cash and cash equivalents at beginning of period 2,849 3,014
----------- ----------
Cash and cash equivalents at end of period $ 5,048 $ 4,920
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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WESTERN STAFF SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Western
Staff Services, Inc. (the Parent) and its domestic and foreign subsidiaries
(together, the Company), as of and for the 12 and 36 week periods ended
July 12, 1997 and July 6, 1996 are unaudited. Material intercompany
accounts and transactions have been eliminated.
Prior to the Company's initial public offering completed May 3, 1996 (the
Offering), the principal stockholder of the Parent owned minority interests
in each of the Parent's foreign and domestic subsidiaries and also owned
Kontorservice, Inc. (Norwegian Branch), a temporary personnel services
company doing business in Norway. Concurrent with the Offering, the
Company issued 202,857 shares valued at $2,840 to the Company's principal
stockholder in exchange for the contribution of each of his minority
interests and the capital stock of the Norwegian Branch. Based on common
control and management, these minority interests and the Norwegian Branch
have been combined with the Company's financial statements for the July 6,
1996 periods in a manner similar to a pooling of interests.
The condensed consolidated financial statements, in the opinion of
management, reflect all adjustments, which are of a normal recurring
nature, necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented.
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but which is not required for interim reporting purposes, has
been condensed or omitted. The accompanying condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended November 2, 1996.
The Company's fiscal year is a fifty-two or fifty-three week period ending
the Saturday nearest the end of October. For interim reporting purposes,
the first three fiscal quarters comprise twelve weeks each while the fourth
fiscal quarter consists of sixteen or seventeen weeks. The results of
operations for the 12 and 36 week periods ended July 12, 1997 are not
necessarily indicative of the results to be expected for the full fiscal
year or for any future period.
Certain amounts in the July 6, 1996 financial statements have been
reclassified to conform to the presentation adopted for July 12, 1997.
2. PRO FORMA NET INCOME AND PRO FORMA NET INCOME PER COMMON SHARE
On April 30, 1996, and in conjunction with the Offering, the Company
elected to terminate its S corporation status. In connection with the
termination, the Company was required by the Internal Revenue Service Code
to change its method of accounting for income tax
6
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WESTERN STAFF SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
reporting purposes from the cash basis to the accrual basis. Pro forma net
income per common share represents income before income taxes after a pro
forma provision for federal and state income taxes as if the Company had
been subject to federal and state income taxation as a C corporation during
the 12 and 36 week periods ended July 6, 1996 divided by the pro forma
weighted average shares of common stock outstanding during the period.
Concurrent with the Offering, the Company effected a 1,542.01 for 1 stock
split. The pro forma weighted average shares outstanding for the 12 and 36
weeks ended July 6, 1996 give effect to the common stock split and the
additional shares issued to the principal stockholder (Note 1). Historical
net income per share is not presented in view of prior period S corporation
status.
3. STOCKHOLDERS' EQUITY
During the second quarter of fiscal 1997, the Company repurchased 100,000
shares of common stock on the open market for aggregate cash consideration
of $966. The repurchased shares may be used for reissuance under the
Company's stock option and employee stock purchase plans. During the
second quarter of fiscal 1997, 12,582 shares were reissued under the
employee stock purchase plan with aggregate cash proceeds of $87. When
treasury shares are reissued, any excess of the acquisition cost of the
shares over the proceeds from reissuance is charged to retained earnings.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128).
SFAS 128 establishes new standards for computing and disclosing earnings
per share (EPS). SFAS 128 is effective for both interim and annual periods
ending after December 15, 1997. Earlier application is not permitted.
SFAS 128, when adopted, will require the Company to replace its traditional
EPS disclosures with a dual presentation of "Basic" and "Diluted" EPS and
to restate all prior period EPS data presented. Consistent with the
required adoption period, the Company intends to adopt SFAS 128 effective
with the issuance of its quarterly report on Form 10-Q for the fiscal
quarter ended January 24, 1998. However, if SFAS 128 had been in effect
for the quarter ended July 12, 1997, basic and diluted EPS would be the
same as the EPS and pro forma EPS presented in the Company's Condensed
Consolidated Statements of Operations on page 4 for all periods presented.
4. COMMITMENTS AND CONTINGENCIES
The Company is subject to claims and other actions arising in the ordinary
course of business. Some of these claims and actions have resulted in
lawsuits in which the Company is a defendant. Management believes that the
ultimate obligations, if any, which may result from unfavorable outcomes of
such lawsuits will not have a material adverse effect on the financial
position, results of operations or cash flows of the Company and that such
obligations, if any, would be adequately covered by insurance.
7
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WESTERN STAFF SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
5. SUBSEQUENT EVENTS
During the fourth quarter of fiscal 1997, the Company repurchased 19,000
shares of common stock on the open market for aggregate cash consideration
of $213. The repurchased shares may be used for reissuance under the
Company's stock option and employee stock purchase plans. During the
fourth quarter of fiscal 1997, 29,334 shares were reissued under the
employee stock purchase plan with aggregate cash proceeds of $206.
8
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WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion is intended to assist in the understanding and
assessment of significant changes and trends related to the results of
operations and financial condition of Western Staff Services, Inc., together
with its consolidated subsidiaries. This discussion and analysis should be read
in conjunction with the Company's Condensed Consolidated Financial Statements
and Notes thereto included herein and with the Consolidated Financial Statements
and Notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended November 2, 1996.
In addition to historical information, management's discussion and analysis
includes certain forward-looking statements regarding events and financial
trends which may affect the Company's future operating results and financial
position. These forward-looking statements include but are not limited to
statements regarding gross margins, workers' compensation costs, selling and
administrative expenses, interest expense, capital expenditures, capital
resources and management information systems. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The forward-looking statements included herein are also subject to a number of
other risks and uncertainties that could cause the Company's actual results and
financial position to differ materially from those anticipated in the
forward-looking statements. Such risks and uncertainties include, but are not
limited to: demand for the Company's services, the competition within its
markets, the loss of a principal customer and the Company's ability to increase
the productivity of its existing offices, to control costs and to expand
operations. Due to the foregoing factors, it is possible that in some future
period the Company's results of operations may be below the expectations of
public market analysts and investors. In addition, the Company's results of
operations have historically been subject to quarterly and seasonal
fluctuations, with demand for temporary staffing historically highest in the
fourth fiscal quarter, due largely to the planning cycles of many of the
Company's customers, and typically lower in the first fiscal quarter, due, in
part, to national holidays as well as to plant shutdowns during and after the
holiday season. These and other risks and uncertainties related to the
Company's business are described in detail in the "Business" section of the
Company's Annual Report on Form 10-K for the fiscal year ended November 2, 1996.
OVERVIEW
The Company provides traditional temporary staffing services to businesses,
government agencies and health care organizations in regional and local markets
in the United States and selected international markets. The Company operates
over 390 offices in the United States, Australia, Denmark, New Zealand, Norway
and the United Kingdom.
9
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WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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The general level of economic activity significantly affects the demand for
temporary personnel. As economic activity has slowed, the use of temporary
employees often has been curtailed before permanent employees have been laid
off. In addition, an economic downturn may adversely affect the demand for
temporary personnel and may have a material adverse effect on the Company's
business, results of operations and financial condition. As economic activity
has increased, temporary employees often have been added to the work force
before permanent employees have been hired. During these periods of increased
economic activity and generally higher levels of employment, the competition
among temporary staffing firms for qualified temporary personnel is intense.
Further, the Company may face increased competitive pricing pressures during
such periods. There can be no assurance that during these periods the Company
will be able to recruit the temporary personnel necessary to fill its customers'
job orders or that such pricing pressures will not adversely affect the
Company's business, results of operations and financial condition.
RESULTS OF OPERATIONS
FISCAL QUARTER ENDED JULY 12, 1997 COMPARED TO FISCAL QUARTER ENDED JULY 6, 1996
SALES OF SERVICES AND LICENSE FEES. Sales of services increased $26.5 million
or 25.4% for the fiscal quarter ended July 12, 1997 as compared to the fiscal
quarter ended July 6, 1996. The increase resulted from a 20.0% increase in
billed hours and a 4.6% increase in average billing rates per hour. The billed
hours increase results from a combination of growth within existing offices, the
addition of new offices and the acquisition of one of the Company's licensees
during the third quarter of fiscal 1996 and the conversion of the licensee's
office to Company-owned. Approximately $5.4 million of the sales increase in the
1997 fiscal quarter is the result of the licensee acquisition. Sales of services
for the third quarter of fiscal 1997 increased 25.7%, 31.4% and 13.7%,
respectively, for the Company's domestic business services, international
business services and medical services, as compared to the third quarter of
fiscal 1996.
License fees are charged to licensed offices based either on a percentage of
sales or of gross profit generated by the licensed offices. License fees for
the fiscal quarter ended July 12, 1997 were $488,000 as compared to $487,000 for
the fiscal quarter ended July 6, 1996. A reduction in fiscal quarter 1997 fees,
primarily as a result of the acquisition of one of the Company's licensees as
noted above, was offset by license fees generated as a result of the addition of
one new licensee and the conversion of three franchise agents to the license
program during the period from July 7, 1996 to July 12, 1997.
COSTS OF SERVICES. Costs of services include hourly wages of temporary
employees, employer payroll taxes, state unemployment and workers' compensation
insurance and other employee-related costs. Costs of services increased $21.2
million or 25.8% for the fiscal quarter ended July 12, 1997 as compared to the
fiscal quarter ended July 6, 1996. Gross margin decreased from 21.7% in the
third quarter of fiscal 1996 to 21.3% in the third quarter of fiscal 1997
primarily due to downward competitive pressures on margins, particularly within
the light industrial and
10
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WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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clerical segments in which the Company operates and higher workers' compensation
costs. As a result of increased competition within the temporary staffing
industry, the Company anticipated that there would be continued downward
pressure on margins throughout fiscal 1997 and beyond. In response to these
pressures, during the first quarter of fiscal 1997 the Company began
implementation of a nationwide program directed toward maximizing gross margins
by increasing prices on a national basis to select customers. Initial results
of the program are encouraging, with the third quarter of fiscal 1997 gross
margin of 21.3% showing an improvement over the first and second quarter fiscal
1997 gross margins of 20.4% and 21.0%, respectively. However, there can be no
assurance that this program will continue to be successful in either increasing
gross margins or eliminating any future gross margin declines.
A key component of the Company's costs of services is workers' compensation
costs. Workers' compensation costs were 3.8% of direct labor for the fiscal
1997 quarter as compared to 3.3% of direct labor for the fiscal 1996 quarter.
At the end of fiscal 1996 the Company analyzed the fiscal 1996 workers'
compensation claim activity noting an increase in the average severity of fiscal
1996 claims as compared to previous years which resulted in higher overall costs
for fiscal 1996. The Company, as a cautionary measure, increased its basic
workers' compensation accrual rates in fiscal 1997 by about 10%. In the first
quarter of fiscal 1997, the Company began to re-direct its risk management
resources towards more aggressive loss control programs as well as intensified
claim investigation techniques and settlement tactics for the current and
remaining open policy years. However, there can be no assurance that the
Company's programs to control workers' compensation expenses will be effective
or that loss development trends will not require a charge to costs of services
in future periods to increase workers' compensation accruals.
FRANCHISE AGENTS' SHARE OF GROSS PROFIT. Franchise agents' share of gross
profit represents the net distribution paid to franchise agents based either on
a percentage of sales or of the gross profit generated by the franchise agents'
operation. Franchise agents' share of gross profit increased $615,000 or 14.5%
for the fiscal quarter ended July 12, 1997 as compared to the fiscal quarter
ended July 6, 1996. This increase results from the addition of new offices,
acquisitions and increased demand in existing offices, partially offset by
franchise agents' conversions to Company-owned operations or the license
program. As a percentage of sales of services and license fees, franchise
agents' share of gross profit decreased to 3.7% for the fiscal 1997 quarter as
compared to 4.1% for the fiscal 1996 quarter, representing a change in the
relative sales mix of franchise agent versus Company-owned offices.
SELLING AND ADMINISTRATIVE EXPENSES (INCLUDING DEPRECIATION AND AMORTIZATION).
Selling and administrative expenses increased $4.0 million or 25.6% for the
third quarter of fiscal 1997 as compared to the same period for fiscal 1996. As
a percentage of sales of services and license fees, selling and administrative
expenses were 14.8% for both fiscal quarters. The Company is continuing to
monitor these expenses and anticipates that they will not grow as rapidly, on a
percentage basis, as sales during the balance of fiscal year 1997 as compared to
the first three quarters of fiscal 1997; however, there can be no assurance that
the Company will be able to
11
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WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS AND OPERATIONS
- --------------------------------------------------------------------------------
decrease or maintain the current ratio of selling and administrative expenses to
sales of services and license fees.
During the first quarter of fiscal 1995, the Company began to implement the
payroll and billing portion of the Company's new management information systems.
Due to the comprehensive scope of the new system, which affects all major
processing functions within the Company, and the need to operate both the old
and new systems during the conversion period, the Company incurred increased
expenses to administer and implement the new system. This resulted in higher
relative selling and administrative expenses beginning in fiscal 1995 and
continuing into fiscal 1997. The Company has completed the conversion of the
majority of its domestic business services processing sites to the payroll and
billing portion of the new system. There are two remaining groups of domestic
business services offices with custom front-end search and retrieval systems
that have yet to be converted. Their conversion has been postponed pending
completion of an integrated search and retrieval module within the existing
payroll and billing system. In addition to integrating a search and retrieval
function within the payroll and billing system, the Company is currently
streamlining the processing functions of the payroll and billing system and
developing new modules to enhance the capabilities of the system. The Company
is also in the process of upgrading to newer versions of its payroll software
and will be expanding its hardware capabilities. Further, the Company is in the
process of upgrading its remaining financial accounting and reporting systems
and will spend additional funds in fiscal 1997 and beyond to accomplish these
upgrades. In addition to the changes in the business services information
systems, the Company is continuing the process of converting its medical
services offices to a comprehensive clinical and financial accounting and
reporting package. As a result of the ongoing system enhancements being
implemented by the Company and the planned changes to the Company's financial
accounting and reporting systems, management anticipates higher selling and
administrative expenses relating to management information systems throughout
fiscal 1997. The Company believes that the planned system enhancements will
support anticipated revenue growth and will allow for operating efficiencies in
future years. However, there can be no assurance that the Company will meet its
anticipated completion dates for planned system enhancements or that such
enhancements will support the Company's actual future growth or provide
significant gains in efficiency. The failure of the enhancements to meet these
expected goals could result in increased system costs and have a material
adverse effect on the Company's business, results of operations and financial
condition.
INTEREST EXPENSE. Interest expense increased $263,000 for the fiscal quarter
ended July 12, 1997 as compared to the fiscal quarter ended July 6, 1996 as a
result of increased borrowings under the Company's term loan and revolving
credit facility. These borrowings are used both to fund on-going operations and
to effect acquisitions. The fiscal quarter 1996 interest level reflects
repayment of borrowings from a portion of the proceeds of the Company's May 3,
1996 initial public offering.
12
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WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The Company anticipates higher interest expense levels for the remainder of
fiscal 1997 as a result of increased borrowing required to support the Company's
growth and working capital needs.
PROVISION FOR INCOME TAXES/PRO FORMA PROVISION FOR INCOME TAXES. On April 30,
1996 and in connection with the Company's initial public offering, the Company
elected to terminate its S corporation status. The pro forma provision for
income taxes reflects pro forma federal and state income taxes as if the Company
had been subject to federal and state income taxation as a C corporation during
each of the periods presented.
36 WEEK PERIOD ENDED JULY 12, 1997 COMPARED TO 36 WEEK PERIOD ENDED JULY 6, 1996
SALES OF SERVICES AND LICENSE FEES. Sales of services increased $74.3 million
or 24.9% for the 36 weeks ended July 12, 1997 as compared to the 36 weeks ended
July 6, 1996. The increase resulted from a 21.8% increase in billed hours and a
2.4% increase in average billing rates per hour. Billed hours increased
largely as a result of the acquisition of one of the Company's licensees as well
as increased demand in the Company's existing offices and the addition of new
offices. Approximately $21.8 million of the sales increase in the 1997 fiscal
period is the result of the licensee acquisition noted above. Sales of services
for the 36 week period ended July 12, 1997 increased 25.8%, 30.5% and 9.7%,
respectively, for the Company's domestic business services, international
business services and medical services, as compared to the 36 week period ended
July 6, 1996.
License fees decreased $800,000 or 38.3% for the 36 weeks ended July 12, 1997 as
compared to the 36 weeks ended July 6, 1996. License fees decreased
approximately $1.2 million due to the acquisition of one of the Company's
licensees as noted above. Approximately $470,000 of the license fees for the
fiscal 1996 period was associated with a major customer of one of the Company's
licensees. The contract with this licensee's customer was completed on December
31, 1995. These decreases were partially offset by new entrants to the license
program as noted in the discussion of the results of operations for the third
quarter of fiscal 1997.
COSTS OF SERVICES. Costs of services increased $60.8 million or 25.9% for the 36
week period ended July 12, 1997 as compared to the 36 week period ended July 6,
1996. Gross margin decreased from 21.8% in the fiscal 1996 period to 20.9% for
the same period of fiscal 1997 due to the same factors as noted above for the
third quarter of fiscal 1997.
FRANCHISE AGENTS' SHARE OF GROSS PROFIT. Franchise agents' share of gross profit
increased $1.7 million or 14.0% for the 36 weeks ended July 12, 1997 as compared
to the 36 weeks ended July 6, 1996. This increase resulted from an increase in
franchise agents' gross profits of 12.8% due to the addition of new offices,
acquisitions and increased demand in existing offices. As a percentage of sales
of services and license fees, franchise agents' share of gross profit decreased
13
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
to 3.7% for the fiscal 1997 period as compared to 4.1% for the same period of
fiscal 1996, representing a change in the relative sales mix of franchise agent
versus Company-owned offices.
SELLING AND ADMINISTRATIVE EXPENSES(INCLUDING DEPRECIATION AND AMORTIZATION).
Selling and administrative expenses increased $11.0 million or 24.5% for the 36
week period ended July 12, 1997 as compared to the same period for fiscal 1996.
As a percentage of sales of services and license fees, selling and
administrative expenses were 15.0% in both the fiscal 1997 and 1996 periods.
INTEREST EXPENSE. Interest expense increased $112,000 or 12.1% for the 36 weeks
ended July 12, 1997 as compared to the 36 weeks ended July 6, 1996 due to the
same factors as noted above for the third quarter of fiscal 1997.
PROVISION FOR INCOME TAXES/PRO FORMA PROVISION FOR INCOME TAXES. The provision
for income taxes for the 36 week period ended July 12, 1997 was $3.0 million as
compared to the pro forma provision for income taxes for the 36 week period
ended July 6, 1996 of $2.9 million. The effective income tax rate was 40.4% for
fiscal period 1997 as compared to a pro forma effective income tax rate of 38.6%
for the fiscal 1996 period.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations through cash generated by
operating activities and through various forms of external financing, including
term loans, mortgage financing and bank lines of credit. The principal use of
cash is for financing of accounts receivable, particularly during periods of
growth. Temporary personnel are generally paid on a weekly basis while payments
from customers are generally received 30 to 60 days after billing. As a result
of seasonal fluctuations, accounts receivable balances are historically higher
in the fourth fiscal quarter and are generally at their lowest during the first
fiscal quarter. Short-term borrowings used to finance accounts receivable
follow a similar seasonal pattern.
Net cash flows used by operating activities for the 36 week period ended July
12, 1997 were $569,000 as compared to cash flows provided by operating
activities of $6.5 million for the 36 week period ended July 6, 1996. The
decrease in cash flows is due to a combination of factors. Operating cash flows
were reduced by the Company's fiscal 1996 change in status from a nontaxable
entity to a taxable entity and the payments of federal and state income taxes
and timing differences arising from the change. Operating cash flows were
further reduced as a result of a reduction in cash flows from licensees,
primarily as a result of an increase in fiscal 1997 receivables from licensees.
Receivables from licensees increased due to the addition of new licensees and
the absence of cash flows related to the fiscal 1996 collection of outstanding
receivables from a major customer of one of the Company's licensees whose
contract was completed on December 31, 1995. Additionally, cash flows were
negatively impacted by higher levels of accounts receivable at July 12, 1997,
partially due to sales growth, but also due to an
14
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WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
increase in the overall aging of receivables. Partially offsetting these cash
flow reductions were increased accounts payable and accrued liabilities levels.
Cash used for capital expenditures, which are generally for software, computers
and peripherals, and office furniture and equipment, totaled $3.8 million for
the 36 weeks ended July 12, 1997 and $4.4 million for the 36 weeks ended July 6,
1996. The capital expenditures for the fiscal 1997 and fiscal 1996 periods
include expenditures of approximately $1.9 million and $1.7 million,
respectively, for the Company's management information systems, including
expenditures to provide additional search and retrieval capabilities, to
implement additional modules to streamline the processing functions, to upgrade
to a newer version of its payroll software and to expand its hardware
capabilities. Further, the Company is in the process of upgrading and
converting its medical and business services financial accounting and reporting
systems. It is anticipated that as a result of these ongoing system
enhancements, capital expenditure levels for fiscal 1997 will likely meet or
exceed those of fiscal 1996, and that the increased levels of spending for these
systems will continue into fiscal 1998. However, there can be no assurance that
the costs of the planned systems enhancements will not exceed anticipated costs
as a result of delays in implementation and transitional costs, which would
increase the Company's capital needs. Such increased costs could have a
material adverse effect on the Company's business, results of operations and
financial condition. The Company has no other significant commitments for
capital purchases.
During the 36 weeks ended July 12, 1997 and July 6, 1996, cash outflows for new
acquisitions and for contingent payments under existing acquisitions totaled
$4.6 million and $3.8 million, respectively. Payments of approximately $2.8
million for the fiscal 1996 period were for the acquisition of the operations of
one of the Company's licensees and one of the Company's franchise agents.
Payments of $1.0 million related to acquisitions are due for both fiscal 1998
and fiscal 1999 with additional consideration contingent on either sales or
gross profits of the acquired businesses in future periods.
During the fiscal period ended July 12, 1997, the Company increased borrowings
by a net $14.5 million primarily to provide working capital to support the
Company's growth and operations and to fund acquisitions. Distributions to
stockholders totaled $2.5 million for the 36 week period ended July 12, 1997
representing the remaining undistributed S corporation earnings of the Company.
The Company does not anticipate declaring or paying any dividends on its common
stock in the foreseeable future.
The Company's credit facility provides for a secured revolving line of credit in
the amount of $40.0 million, with the maximum amount of direct advances limited
to $20.0 million and the maximum amount of irrevocable standby letters of credit
limited to $20.0 million. The facility also provides for a non-revolving line
of credit, to be used for acquisitions, converting on September 30, 1997 to a
six-year fully amortized term loan in an amount up to $21.8 million. As of July
12, 1997, the Company had $21.7 million available under its term loan and
revolving credit facility, consisting of $1.8 million available for direct
advances, $5.0 million for
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WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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irrevocable standby letters of credit and $14.9 million under the non-revolving
line of credit to be used for acquisitions.
During the second quarter of fiscal 1997 the Company repurchased 100,000 shares
of common stock on the open market for aggregate cash consideration of $966,000.
Additionally, during the fourth quarter of fiscal 1997 the Company repurchased
19,000 shares of common stock for aggregate cash consideration of $213,000. The
repurchased shares may be used for reissuance under the Company's stock option
and employee stock purchase plans. As of August 26, 1997, a total of 41,916
shares had been reissued under the employee stock purchase plan with aggregate
cash proceeds of $293,000. When treasury shares are reissued, any excess of the
acquisition cost of the shares over the proceeds from reissuance is charged to
retained earnings.
The Company's current credit facility expires on March 31, 1998 and the Company
is evaluating whether to renegotiate its credit facility and may also pursue
other available financing alternatives. The Company believes that cash provided
from operations and the Company's current borrowing capacity will be sufficient
to meet anticipated needs for working capital and capital expenditures at least
through the next twelve months.
16
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PART II. OTHER INFORMATION
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Item 1. LEGAL PROCEEDINGS
The Company is not currently a party to any litigation that
could have a material adverse effect on its business, results of
operations, financial position or cash flows. However, from time
to time the Company has been threatened with, or named as a
defendant in, lawsuits, including countersuits brought by former
franchise agents, and administrative claims and lawsuits brought
by employees or former employees.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.8.3 Third Amendment to Credit Agreement and Assumption Agreement
dated as of March 31, 1997.
27.1 Financial Data Schedule
- -------------------
(b) Reports on Form 8-K
No reports on Form 8-K were filed in or for the 36 week
period ended July 12, 1997.
17
<PAGE>
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.
WESTERN STAFF SERVICES, INC.
AUGUST 26, 1997 /s/ Paul A. Norberg
---------------- ----------------------------
Date Paul A. Norberg
Executive Vice President, Chief Financial
Officer and Director
18
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THIRD AMENDMENT TO CREDIT AGREEMENT
AND ASSUMPTION AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT AND ASSUMPTION AGREEMENT (the
"AMENDMENT AND ASSUMPTION"), dated as of March 31, 1997, is entered into by
and among WESTERN STAFF SERVICES, INC. (the "PARENT"), WESTERN STAFF SERVICES
(USA), INC. ("USA"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as agent of itself and the Banks (the "AGENT"), and the several financial
institutions party to the Credit Agreement (collectively, the "BANKS").
RECITALS
A. The Parent, the Banks, and the Agent are parties to a Credit Agreement
dated as of February 21, 1996, and amendments thereto dated as of June 9,
1996, and September 30, 1996 (collectively, the "CREDIT AGREEMENT") pursuant
to which the Agent and the Banks have extended certain credit facilities to
the Parent.
B. Parent has transferred to USA certain of Parent's assets and
liabilities, as more fully set forth in that certain Assignment of Contracts,
Warranties, Contract Rights and Intangible Assets and Transfer of Liabilities
Agreement entered into on December 30, 1996, between the Parent and USA, as
well as in that certain Assignment of Contracts, Warranties, Contract Rights
and Intangible Assets and Transfer of Liabilities Agreement entered into on
March 28, 1997, between the Parent and USA (collectively, the "ASSIGNMENT
AGREEMENT").
C. The Parent and USA have requested that the Banks: (1) agree to such
transfer of assets and liabilities to USA; (2) permit USA to become a party to
the Credit Agreement and succeed to all rights of the Parent and assume all
obligations of the Parent under the Credit Agreement; (3) release the Parent
from all of its liabilities and obligations to the Banks arising under or in
connection with the Credit Agreement; and (4) further amend the Credit
Agreement to reflect the foregoing.
D. The Banks are willing to grant the requests of the Parent and USA,
subject to the terms and conditions of this Amendment and Assumption.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings, if any, assigned to them in the Credit
Agreement.
2. CONSENT TO TRANSFER. The Banks hereby consent to
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the transfer by the Parent to USA of the Parent's assets and liabilities, as
set forth in the Assignment Agreement, notwithstanding any violation that
might otherwise occur under Sections 8.02 or 8.03 or any other provision of
the Credit Agreement as a result of such transfer.
3. ASSUMPTION BY USA. USA hereby covenants, promises and agrees (a) to
pay when due all sums now or hereafter owing under the Credit Agreement, in
the manner and in all respects as therein provided, (b) to perform each and
all the obligations provided in the Credit Agreement to be performed by Parent
at the time, in the manner and in all respects as therein provided, and (c)
to be bound by each and all the terms and provisions of the Credit Agreement
as though it had originally been made, executed and delivered by USA. All
references in the Credit Agreement to "Borrower" shall be deemed to refer to
"USA" except as otherwise provided in Section 5 below.
4. RELEASE OF PARENT. Parent is hereby released from further obligation
or liability to the Banks under or on account of the Credit Agreement except
to the extent of liabilities arising pursuant to the Guaranty and the
Guarantor Security Agreement required under Section 7(e) below.
5. AMENDMENTS TO CREDIT AGREEMENT.
(a) Section 1.01 of the Credit Agreement is amended by the addition
thereto of a new definition as follows:
"PARENT" means Western Staff Services, Inc., a Delaware
corporation.
(b) The definitions of "Consolidated Current Assets", "Consolidated
Current Liabilities, "Consolidated Net Income", "Consolidated Tangible Net
Worth", "Consolidated Total Assets", "Consolidated Total Liabilities",
"Fixed Charge Coverage Ratio", and "Net Profit After Tax" in Section 1.01
of the Credit Agreement are amended by substituting "Parent" for "Borrower"
in each place where the latter term appears therein.
(c) The definitions of "ERISA Event", "Multiemployer Plan", and
"Pension Plan" in Section 1.01 are amended by adding the words "or the
Parent" immediately following "Borrower" in each place where the latter
term appears therein.
(d) The preamble to Article VI of the Credit Agreement is amended by
adding the following to the beginning thereof:
All representations and warranties set forth in this
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<PAGE>
Article VI shall be understood to mean the Parent in addition to, or in
lieu of, the Borrower, as the context may require.
(e) Subsections 7.01(a) and 7.01(b) are amended by substituting
"Parent" for "Borrower" in each place where the latter term appears therein.
Subsection 7.01(b) is further amended by substituting the words "the first,
second and third fiscal quarters of each fiscal year" for the words "each
fiscal quarter".
(f) Subsections 7.02(c) and 7.02(e) are amended by substituting
"Parent" for "Borrower" and "Parent's" for "Borrower's" in each place where
the latter terms appear therein.
(g) Subsections 7.03(b), 7.03(c), 7.03(d), 7.03(e), 7.03(f), and
7.03(j) are amended by adding the words "or the Parent" immediately
following "Borrower" in each place where the latter term appears therein.
(h) Subsection 7.03(g) is amended by substituting "Parent" for
"Borrower".
(i) The penultimate sentence of Section 7.03 is amended by adding the
words "or the Parent, as applicable," immediately following the word
"Borrower" in each place where the latter term appears therein.
(j) The preamble to Section 7.04 is amended by adding the words "and
the Parent" immediately following the word "Subsidiaries".
(k) The preamble to Section 7.07 is amended by adding the words "and
the Parent" immediately following the word "Subsidiaries".
(l) Section 7.08 is amended by adding the words "and the Parent"
immediately following the word "Subsidiaries".
(m) Section 7.09 is amended by adding the words "and the Parent"
immediately following the word "Subsidiaries" in each place where the
latter term appears therein.
(n) Subsections 7.10(a) and 7.10(b) are amended by adding the words
"and the Parent" immediately following the word "Subsidiaries" in each
place where the latter term appears therein.
(o) Subsection 7.13(b) is amended by adding the word "domestic"
immediately following the word "active".
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<PAGE>
(p) Subsections 7.15(a) and 7.15(b) are amended by adding the words
"and the Parent" immediately following the word "Subsidiaries" in each place
where the latter term appears therein.
(q) Section 7.16 is amended by adding the words "and the Parent"
immediately following the words "ERISA Affiliates".
(r) The preamble to Section 8.02 is amended by adding the words "or
the Parent" immediately following the word "Subsidiaries".
(s) The preamble to Section 8.03 is amended by adding the words "or
the Parent" immediately following the word "Subsidiaries".
(t) The preamble to Section 8.04 is amended by adding the words "or
the Parent" immediately following the word "Subsidiaries".
(u) The preamble to Section 8.05 is amended by adding the words "or
the Parent" immediately following the word "Subsidiaries".
(v) Section 8.06 is amended by adding the words "or the Parent"
immediately following the word "Subsidiaries" or the word "Subsidiary" in
each place where such latter terms appear therein.
(w) Section 8.07 is amended by adding the words "or the Parent"
immediately following the word "Subsidiaries".
(x) The preamble to Section 8.08 is amended by adding the words "or
the Parent" immediately following the word "Subsidiaries".
(y) Section 8.09 is amended by adding the words "or the Parent"
immediately following the word "Subsidiaries" in each place where such latter
term appears therein.
(z) Section 8.10 is amended by adding the words "or the Parent"
immediately following the word "ERISA Affiliate".
(aa) The preamble to Section 8.11 is amended by adding the words "or
the Parent" immediately following the word "Subsidiaries".
(bb) Subsection 8.11(b) is amended to read as follows in its entirety:
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<PAGE>
(b) Any Person or Business Unit so acquired (the "ACQUIREE")
shall have achieved a positive net pre-tax income (computed and
determined in accordance with GAAP, excluding, however, gains and
loss(es) attributable to extraordinary items and owner-related
compensation and other benefits) for the fiscal year preceding the date
of the Acquisition.
(cc) Subsection 8.11(c) is deleted in its entirety.
(dd) Section 8.12 is amended to read as follows in its entirety:
8.12 RESTRICTED PAYMENTS. The Borrower shall not, and shall not suffer
or permit any of its Subsidiaries or the Parent to, declare or make any
dividend payment or other distribution of assets, properties, cash,
rights, obligations or securities on account of any shares of any class
of its capital stock, or purchase, redeem or otherwise acquire for value
any shares of its capital stock or any warrants, rights or options to
acquire such shares, now or hereafter outstanding; except that:
(a) the Borrower, its Subsidiaries, and the Parent may declare
and make dividend payments or other distributions payable solely in their
common stock, and purchase, redeem or otherwise acquire shares of their
common stock or warrants or options to acquire any such shares with the
proceeds received from the substantially concurrent issue of new shares of
their common stock;
(b) the Borrower may declare and make cash dividend payments to
the Parent; and
(c) any wholly-owned Subsidiary of the Borrower may declare and
make dividend payments to the Borrower, whether in cash or in the form of
other Property of the Subsidiary.
(ee) Section 8.13 is amended by adding the words "and the Parent"
immediately following the word "Borrower".
(ff) Sections 8.14, 8.15, 8.16, 8.17 and 8.18 are amended by adding
the words "on a consolidated basis with the Parent" immediately following
the word "Borrower" in each place where such latter term appears therein.
(gg) Section 8.19 is amended by adding the words "or the Parent"
immediately following the word "Subsidiaries".
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<PAGE>
(hh) Section 8.20 is amended to read as follows in its entirety:
8.20 CHANGE IN STRUCTURE. Except as expressly permitted under Section
8.03, the Borrower shall not and shall not permit any of its Subsidiaries
or the Parent to, make any changes in its equity capital structure
(including in the terms of its outstanding stock), or amend its
certificate of incorporation or by-laws in any material respect.
(ii) Section 8.21 is amended by adding the words "or the Parent"
immediately following the word "Subsidiaries" in each place where such latter
terms appears therein.
(jj) Subsection 9.01(b) is amended by adding the words "or the Parent"
immediately following the word "Subsidiaries" in each place where such
latter term appears therein.
(kk) Subsection 9.01(c) is amended by deleting the clause beginning
with the words "PROVIDED, HOWEVER," and continuing through and including
the semicolon immediately preceding the word "or".
(ll) Subsection 9.01(e) is amended by adding the words "or the Parent"
immediately following the word "Subsidiaries".
(mm) Subsection 9.01(f) is amended by adding the words "or the Parent"
immediately following the words "Material Subsidiaries".
(nn) Subsection 9.01(g) is amended to read as follows in its entirety:
(g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Borrower or the Parent or any
Material Subsidiary of the Borrower, or any writ, judgment, warrant of
attachment, execution or similar process, is issued or levied against a
substantial part of the Borrower's or the Parent's or any such Material
Subsidiary's Properties, and any such proceeding or petition shall not be
stayed or dismissed, or such writ, judgment, warrant of attachment,
execution or similar process shall not be released, vacated or fully bonded
within sixty (60) days after commencement, filing or levy; (ii) the Borrower
or any of its Subsidiaries or the Parent admits the material allegations of
a petition against it in any Insolvency Proceeding, or an order for relief
(or similar order
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<PAGE>
under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii)
the Borrower or any of its Subsidiaries or the Parent acquiesces in the
appointment of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or agent therefor), or other similar Person for
itself or a substantial portion of its Property or business;
(oo) Subsection 9.01(h) is amended by adding the words "or the Parent"
immediately following the word "Borrower".
(pp) Subsections 9.01(i) 9.01(j), and 9.01(k) are amended by adding the
words "or the Parent" immediately following the word "Subsidiaries" in each
place where such latter term appears therein.
(qq) Subsection 9.01(l) is amended by adding the words "or the Parent"
immediately following the word "Borrower" in each place where such latter
term appears therein.
(rr) Subsection 9.01(m) is amended to read as follows in its entirety:
(m) OWNERSHIP. (i) The Parent ceases to own one hundred percent
(100%) of the issued and outstanding capital stock of the Borrower, or
(ii) any Person (other than W. Robert Stover or any trust or foundation
established by or controlled by W. Robert Stover) acquires in excess of
thirty percent (30%) of the issued and outstanding capital stock of the
Parent entitled to vote for the election of members of the Board of
Directors of the Parent, or the composition of the Board of Directors of
the Parent changes by more than thirty-three percent (33%) from the
composition existing as of the Closing Date; or
(ss) Schedule 6.19 to the Credit Agreement is replaced in its entirety
with Revised Schedule 6.19 attached hereto.
6. REPRESENTATIONS AND WARRANTIES. The Parent and USA hereby represent and
warrant to the Agent and the Banks as follows:
(a) No Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Parent and USA of
this Amendment and Assumption have been duly authorized by all necessary
corporate and other action and do not and will not require any registration
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<PAGE>
with, consent or approval of, notice to or action by, any Person (including
any Governmental Authority) in order to be effective and enforceable. The
Credit Agreement as amended by this Amendment and Assumption constitutes
the legal, valid and binding obligations of USA, enforceable against it in
accordance with its respective terms, without defense, counterclaim or offset.
(c) All representations and warranties contained in the Credit
Agreement as modified by this Amendment and Assumption are true and correct.
(d) Each of the Parent and USA is entering into this Amendment and
Assumption on the basis of its own investigation and for its own reasons,
without reliance upon the Agent and the Banks or any other Person.
7. EFFECTIVE DATE. This Amendment and Assumption will become effective as
of March 31, 1997 (the "EFFECTIVE DATE"), PROVIDED that the Agent shall have
received all of the following, in form and substance satisfactory to the
Agent and each Bank and in sufficient copies for each Bank:
(a) This Amendment and Assumption duly executed by the Parent, USA,
the Agent, the Issuing Bank and each of the Banks, together with a duly
executed Guarantor Acknowledgment and Consent in the form attached hereto.
(b) A Borrower Security Agreement duly executed by USA and including,
without limitation, a complete listing of all servicemarks, trademarks and
copyrights owned by USA.
(c) A copy of the recordation request submitted to the United States
Patent and Trademark Office with respect to each servicemark and trademark
assigned by the Parent to USA pursuant to the Assignment Agreement, and a
copy of the recordation request submitted to the United States Copyright
Office with respect to each copyright assigned by the Parent to USA pursuant
to the Assignment Agreement.
(d) Certified copies of the resolutions of the board of directors of
USA approving and authorizing the execution, delivery and performance by USA
of this Amendment and Assumption and the other Loan Documents to be delivered
hereunder.
(e) A Guaranty and a Guarantor Security Agreement duly executed by the
Parent and including, without limitation, a complete listing of all
servicemarks, trademarks and copyrights owned by the Parent.
(f) A Guaranty and a Guarantor Security Agreement
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<PAGE>
duly executed by Western Staff Services (Guam), Inc. ("WSS (GUAM)") and
Alternative Billing Services, Inc. ("ABS"), together with a UCC-1 financing
statement executed by WSS (Guam) and ABS to perfect the security interests
of the Agent for the benefit of the Banks, together with such evidence that
Agent may request to confirm that the Collateral owned by WSS (Guam) and ABS
is subject to no other Liens in favor of any Persons (other than Permitted
Liens).
(g) The articles or certificate of incorporation of WSS (Guam) and
ABS, certified by the Secretary of State (or similar, applicable Governmental
Authority) of the state of its incorporation, and the bylaws of WSS (Guam)
and ABS as in effect on the Effective Date, certified by its Secretary or
Assistant Secretary.
(h) Certified copies of the resolutions of the board of directors of
the Parent, WSS (Guam), and ABS approving the Guaranty and the Guarantor
Security Agreement to be delivered by each of them hereunder.
(i) A certificate of the Secretary or Assistant Secretary of USA, the
Parent, WSS (Guam), and ABS certifying the names and true signatures of the
officers of each entity authorized to execute, deliver and perform, as
applicable, this Amendment and Assumption, the Guaranty, and all other Loan
Documents to be delivered hereunder.
8. CONDITION SUBSEQUENT. By September 30, 1997, USA shall deliver to the
Agent the following:
(a) A copy of the United States Patent and Trademark Office Notice of
Recordation of Assignment with respect to each servicemark and trademark
assigned by the Parent to USA pursuant to the Assignment Agreement,
evidencing date, reel and frame number of recordation;
(b) A copy of the United States Patent and Trademark Office Notice of
Recordation of Assignment with respect to the re-assignment by USA to Parent
of servicemark nos. 1,009,578 and 1,942,774 (which were erroneously assigned
by the Parent to USA), evidencing date, reel and frame number of recordation;
(c) A copy of the United States Copyright Office Certificate of
Recordation with respect to each copyright assigned by the Parent to USA
pursuant to the Assignment Agreement, evidencing date, volume, and page of
recordation.
9. RESERVATION OF RIGHTS. USA acknowledges and agrees that the execution
and delivery by the Agent and the Banks of this Amendment and Assumption
shall not be deemed to create a
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course of dealing or otherwise obligate the Agent or the Banks to forbear or
execute similar amendments under the same or similar circumstances in the
future.
10. MISCELLANEOUS.
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and
effect and all references therein to such Credit Agreement shall henceforth
refer to the Credit Agreement as amended by this Amendment and Assumption.
This Amendment and Assumption shall be deemed incorporated into, and a part
of, the Credit Agreement.
(b) This Amendment and Assumption shall be binding upon and inure to
the benefit of the parties hereto and thereto and their respective successors
and assigns. No third party beneficiaries are intended in connection with
this Amendment and Assumption.
(c) This Amendment and Assumption shall be governed by and construed
in accordance with the law of the State of California.
(d) This Amendment and Assumption may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
Each of the parties hereto understands and agrees that this document (and
any other document required herein) may be delivered by any party thereto
either in the form of an executed original or an executed original sent by
facsimile transmission to be followed promptly by mailing of a hard copy
original, and that receipt by the Agent of a facsimile transmitted document
purportedly bearing the signature of a Bank or the Borrower shall bind such
Bank or the Borrower, respectively, with the same force and effect as the
delivery of a hard copy original. Any failure by the Agent to receive the
hard copy executed original of such document shall not diminish the binding
effect of receipt of the facsimile transmitted executed original of such
document of the party whose hard copy page was not received by the Agent.
(e) This Amendment and Assumption, together with the Credit Agreement,
contains the entire and exclusive agreement of the parties hereto with
reference to the matters discussed herein and therein. This Amendment and
Assumption supersedes all prior drafts and communications with respect
thereto. This Amendment and Assumption may not be amended except in
accordance with the provisions of Section 11.01 of the Credit Agreement.
(f) If any term or provision of this Amendment
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and Assumption shall be deemed prohibited by or invalid under any
applicable law, such provision shall be invalidated without affecting the
remaining provisions of this Amendment and Assumption or the Credit
Agreement, respectively.
(g) USA covenants to pay to or reimburse the Agent and the Banks, upon
demand, for all costs and expenses (including allocated costs of in-house
counsel) incurred in connection with the development, preparation,
negotiation, execution and delivery of this Amendment and Assumption and the
Loan Documents required hereunder, including without limitation appraisal,
audit, search and filing fees incurred in connection therewith.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment and Assumption as of the date first above written.
WESTERN STAFF SERVICES, INC.
By /s/ Paul A. Norberg
---------------------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
---------------------------------------
Michael W. Ehresman
Vice President and Treasurer
WESTERN STAFF SERVICES (USA),
INC.
By /s/ Paul A. Norberg
---------------------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
---------------------------------------
Michael W. Ehresman
Vice President and Treasurer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Agent
By /s/
---------------------------------------
Leandro Balidoy
Vice President
-11-
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Bank and as Issuing Bank
By /s/
---------------------------------------
Lori Mazzera
Vice President
SANWA BANK CALIFORNIA, as a
Bank and as Co-Agent
By /s/
---------------------------------------
Karen S. Fluegge
Vice President
COMERICA BANK-CALIFORNIA, as a
Bank
By /s/
---------------------------------------
Lori S. Edwards
First Vice President and
Group Manager
-12-
<PAGE>
GUARANTOR ACKNOWLEDGMENT
AND CONSENT
------------------------
The undersigned, each a guarantor or third party pledgor with respect to
the Parent's obligations to the Agent and the Banks under the Credit
Agreement, each hereby (i) acknowledges and consents to the execution,
delivery and performance by the Parent and USA of the foregoing Third
Amendment to Credit Agreement and Assumption Agreement ("the AMENDMENT AND
ASSUMPTION"), and (ii) reaffirms and agrees that the respective guaranty,
third party pledge or security agreement to which the undersigned is party
and all other documents and agreements executed and delivered by the
undersigned to the Agent and the Banks in connection with the Credit
Agreement are in full force and effect, without defense, offset or
counterclaim. (Capitalized terms used herein have the meanings specified in
the Amendment and Assumption.)
WESTERN STAFF SERVICES (NY), INC.
Dated: March 31, 1997 By /s/ Paul A. Norberg
--------------- ------------------------------------
as of Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
------------------------------------
Michael w. Ehresman
Vice President and Treasurer
WESTERN TECHNICAL SERVICES, INC.
Dated: March 31, 1997 By /s/ Paul A. Norberg
--------------- ------------------------------------
as of Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
------------------------------------
Michael W. Ehresman
Vice President and Treasurer
-13-
<PAGE>
MEDIAWORLD INTERNATIONAL
Dated: March 31, 1997 By /s/ Paul A. Norberg
--------------- ------------------------------------
as of Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
------------------------------------
Michael W. Ehresman
Vice President and Treasurer
WESTERN PERMANENT SERVICES
AGENCY INC.
Dated: March 31, 1997 By /s/ Paul A. Norberg
--------------- ------------------------------------
as of Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
------------------------------------
Michael W. Ehresman
Vice President and Treasurer
-14-
<PAGE>
REVISED SCHEDULE 6.19
SUBSIDIARIES AND
EQUITY INVESTMENTS
ACTIVE DOMESTIC SUBSIDIARIES
Western Staff Services (USA), Inc.
Western Staff Services (NY), Inc.
Western Technical Services, Inc.
Western Permanent Services Agency, Inc.
MediaWorld International
Western Staff Services (Guam), Inc.
Alternative Billing Services, Inc.
INACTIVE DOMESTIC SUBSIDIARIES
Western Legal Services, Inc.
Western Television News, Inc.
FOREIGN SUBSIDIARIES
Australia:
Western Staff Services Pty. Ltd.
Western Personnel Services Pty. Ltd.
Western Temporary Services Pty. Ltd.
Denmark:
Western Service A/S
Aksten's Kontorservice "Vikar" ApS
New Zealand:
Western Staff Services (N.Z.) Limited
Norway:
Western Staff Services A/S
Kontorservice A/S
United Kingdom:
Western Staff Services (U.K.) Limited
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JULY 12, 1997; THE CONSENSED
CONSOLIDATED STATMENT OF OPERATIONS FOR THE 36 WEEKS ENDED JULY 12, 1997;
AND THE CONDSENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE 36 WEEKS
ENDED JULY 12, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> NOV-01-1997
<PERIOD-START> NOV-03-1996
<PERIOD-END> JUL-12-1997
<CASH> 5,048
<SECURITIES> 0
<RECEIVABLES> 79,788
<ALLOWANCES> 987
<INVENTORY> 0
<CURRENT-ASSETS> 96,637
<PP&E> 37,652
<DEPRECIATION> 18,129
<TOTAL-ASSETS> 134,840
<CURRENT-LIABILITIES> 62,731
<BONDS> 0
0
0
<COMMON> 103
<OTHER-SE> 52,346
<TOTAL-LIABILITY-AND-EQUITY> 134,840
<SALES> 372,136
<TOTAL-REVENUES> 373,423
<CGS> 295,389
<TOTAL-COSTS> 365,206
<OTHER-EXPENSES> (308)
<LOSS-PROVISION> 780
<INTEREST-EXPENSE> 1,036
<INCOME-PRETAX> 7,489
<INCOME-TAX> 3,026
<INCOME-CONTINUING> 4,463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,463
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
