<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 11, 1998
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
(925) 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 21, 1998
---------- ------------------------------------
Common Stock, $.01 par value 15,839,406 shares
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
July 11, 1998 and November 1, 1997 3
Condensed Consolidated Statements of Operations -
12 and 36 weeks ended July 11, 1998 and July 12, 1997 4
Condensed Consolidated Statements of Cash Flows -
36 weeks ended July 11, 1998 and July 12, 1997 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 20
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
<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 11 NOVEMBER 1,
1998 1997
-------------------- -------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,321 $ 4,796
Trade accounts receivable, less allowance for doubtful
accounts of $959 and $879 99,002 96,502
Due from licensees 8,145 6,825
Deferred income taxes 3,114 2,511
Other current assets 3,565 3,421
-------------------- -------------------
Total current assets 121,147 114,055
Property, plant and equipment, net 21,439 19,583
Deferred income taxes 2,556 143
Intangible assets, net 26,807 19,181
Other assets 2,850 1,568
-------------------- -------------------
$ 174,799 $ 154,530
-------------------- -------------------
-------------------- -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 3,000 $ 19,700
Current portion of loans payable 3,651 625
Current portion of note payable to related party 972 973
Accounts payable and accrued expenses 43,888 42,787
Income taxes payable 4,025 4,786
----------------- -------------------
Total current liabilities 55,536 68,871
Loans payable 45,742 16,659
Note payable to related party 972
Deferred income taxes 494
Other long-term liabilities 10,256 10,238
-------------------- -------------------
Total liabilities 111,534 97,234
-------------------- -------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized and unissued: 1,000 shares
Common stock, $.01 par value; authorized: 25,000 shares; issued:
15,527 shares at July 11, 1998 and 15,507 at November 1, 1997 155 103
Additional paid-in-capital 29,430 29,073
Retained earnings 37,081 28,994
Cumulative currency translation (1,021) (89)
-------------------- -------------------
65,645 58,081
Less treasury stock at cost, 130 shares at July 11, 1998 and 114 shares
at November 1, 1997 2,380 785
-------------------- -------------------
Total stockholders' equity 63,265 57,296
-------------------- -------------------
$ 174,799 $ 154,530
-------------------- -------------------
-------------------- -------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
WESTERN STAFF SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
12 WEEKS ENDED 36 WEEKS ENDED
-------------------------------------- ---------------------------------------
JULY 11, JULY 12, JULY 11, JULY 12,
1998 1997 1998 1997
-------------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Sales of services $ 148,271 $ 131,004 $ 431,001 $ 372,136
License fees 754 488 1,744 1,287
----------------- ----------------- ------------------ ------------------
Total sales of services and license fees 149,025 131,492 432,745 373,423
Costs of services 115,251 103,451 335,831 295,389
----------------- ----------------- ------------------ ------------------
Gross profit 33,774 28,041 96,914 78,034
Franchise agents' share of gross profit 4,760 4,867 14,420 13,848
Selling and administrative expenses 21,277 18,071 62,190 51,972
Depreciation and amortization 1,837 1,413 5,010 3,997
----------------- ----------------- ------------------ ------------------
Operating income 5,900 3,690 15,294 8,217
Interest expense 744 425 2,079 1,036
Interest income (100) (90) (267) (308)
----------------- ----------------- ------------------ ------------------
Income before income taxes 5,256 3,355 13,482 7,489
Provision for income taxes 2,103 1,372 5,393 3,026
----------------- ----------------- ------------------ ------------------
Net income $ 3,153 $ 1,983 $ 8,089 $ 4,463
----------------- ----------------- ------------------ ------------------
----------------- ----------------- ------------------ ------------------
Basic earnings per share $ 0.20 $ 0.13 $ 0.52 $ 0.29
----------------- ----------------- ------------------ ------------------
----------------- ----------------- ------------------ ------------------
Diluted earnings per share $ 0.20 $ 0.13 $ 0.52 $ 0.29
----------------- ----------------- ------------------ ------------------
----------------- ----------------- ------------------ ------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
WESTERN STAFF SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
36 WEEKS ENDED
-------------------------------------------------
JULY 11, JULY 12,
1998 1997
------------------ -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,089 $ 4,463
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 3,700 3,095
Amortization of intangible assets 1,310 902
Provision for losses on doubtful accounts 564 780
Deferred income taxes (3,417) (2,058)
Other non-cash charges 153
Changes in assets and liabilities:
Trade accounts receivable (3,875) (5,272)
Due from licensees (1,320) (2,595)
Other assets (649) (1,537)
Accounts payable and accrued expenses 1,291 1,573
Income taxes payable (822) 24
Other long-term liabilities 18 56
------------------- -------------------
Net cash from operating activities 5,042 (569)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for purchases of fixed assets (5,917) (3,841)
Payments for intangibles and other investments (8,251) (4,586)
Other, net (372) 76
------------------- -------------------
Net cash from investing activities (14,540) (8,351)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) borrowings under line of credit agreements (16,700) 9,400
Principal payments on loans payable (19,791) (1,089)
Proceeds from issuance of loans payable 50,900 7,200
Repayment of note to related party (973) (973)
Issuance of common stock under stock option/purchase plans 1,455 87
Repurchase of common stock (2,794) (966)
Distributions to stockholders (2,500)
------------------- -------------------
Net cash from financing activities 12,097 11,159
------------------- -------------------
Effect of exchange rate on cash (74) (40)
------------------- -------------------
Net change in cash and cash equivalents 2,525 2,199
Cash and cash equivalents at beginning of period 4,796 2,849
------------------- -------------------
Cash and cash equivalents at end of period $ 7,321 $ 5,048
------------------- -------------------
------------------- -------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Western
Staff Services, Inc. and its domestic and foreign subsidiaries
(together, the Company), as of and for the 12 and 36 week periods ended
July 11, 1998 and July 12, 1997 are unaudited. Material intercompany
accounts and transactions have been eliminated.
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 1, 1997.
The Company's fiscal year is a 52 or 53 week period ending the Saturday
nearest the end of October. For interim reporting purposes, the first
three fiscal quarters comprise 12 weeks each while the fourth fiscal
quarter consists of 16 or 17 weeks. The results of operations for the 12
and 36 week periods ended July 11, 1998 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 12, 1997 financial statements have been
reclassified to conform to the presentation adopted for July 11, 1998.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
6
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
12 WEEKS ENDED 36 WEEKS ENDED
---------------------------------- ----------------------------------
JULY 11, JULY 12, JULY 11, JULY 12,
1998 1997 1998 1997
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Net income $ 3,153 $ 1,983 $ 8,089 $ 4,463
--------------- --------------- --------------- ---------------
Denominator for basic earnings per share -
weighted average shares 15,498 15,376 15,454 15,435
Effect of dilutive securities:
Stock options 295 1 234 2
--------------- --------------- --------------- ---------------
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversions 15,793 15,377 15,688 15,437
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Basic earnings per share $ 0.20 $ 0.13 $ 0.52 $ 0.29
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Diluted earnings per share $ 0.20 $ 0.13 $ 0.52 $ 0.29
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Anti-dilutive weighted shares excluded from diluted
earnings per share 618 3 625
-
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
On May 7, 1998, the Board of Directors declared a three-for-two common
stock split effected in the form of a stock dividend payable on May 29,
1998 to shareholders of record at the close of business on May 18, 1998.
All share and per share data in the condensed consolidated financial
statements have been retroactively adjusted for the stock split.
Anti-dilutive weighted shares represent options to purchase shares of
common stock which were outstanding but were not included in the
computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares
during the period, and therefore the effect would be antidilutive.
3. FINANCING ARRANGEMENTS
On May 20, 1998, the Company executed private placements of 10-year
senior secured notes totaling $30.0 million payable in equal annual
installments beginning in the year 2002. Proceeds from the notes were
used to repay outstanding borrowings under the Company's revolving
credit agreement of $22.6 million, with the remainder to be used for
working capital and general corporate purposes.
4. ACQUISITIONS
On June 2, 1998, the Company filed a Form S-4 shelf registration
statement with the Securities and Exchange Commission registering
1,500 shares of its $.01 par value
7
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
common stock which may be offered in the future in connection with the
Company's ongoing acquisition program, of which approximately 1,100
shares remain available for issuance. On July 13, 1998, the Company
completed an acquisition of substantially all of the assets of The
Personnel Connection, Inc. Consideration for the acquisition consisted
of cash and common stock.
5. 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 business, financial position, results of operations or
cash flows of the Company and that such obligations, if any, would be
adequately covered by insurance.
8
<PAGE>
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 1, 1997.
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, income taxes, capital
expenditures, capital resources, management information systems, Year 2000
issues and medical operations. 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, to
expand operations and the availability of sufficient personnel. 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 1, 1997.
OVERVIEW
The Company provides temporary staffing services primarily in suburban and
rural markets ("secondary markets"), as well as in the downtown areas of
major urban centers ("primary markets"), in the United States and selected
international markets. Through its network of Company-owned, franchise agent
and licensed offices, the Company offers a wide range of temporary staffing
solutions, including replacement, supplemental and on-site programs to
businesses and government agencies. The Company has over 50 years of
experience in the
9
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
staffing industry and operates through over 425 offices in 44 states, the
District of Columbia, Guam and five foreign countries.
The Company differentiates itself from other large temporary staffing
companies by focusing, through its business services division, on recruiting
and placing essential support personnel in secondary markets. Essential
support personnel often fill clerical, light industrial and light technical
positions such as word processing, data entry, reception, customer
service/telemarketing, warehouse labor, manufacturing, assembly and lab
assistance. These assignments can support either core or non-core functions
of the customer's business, but are always "essential" to daily operations.
The Company also provides, through its medical services division, qualified
personnel to serve home care and institutional staffing needs.
Demand for the Company's staffing services is significantly affected by the
general level of economic activity and unemployment in the United States and
the countries in which the Company operates. Companies use temporary staffing
services to manage personnel costs and staffing needs. When economic activity
increases, temporary employees are often added before full-time employees are
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. 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 in which case the
Company's business, results of operations, cash flows or financial condition
may be adversely affected. As economic activity slows, many companies reduce
their utilization of temporary employees before releasing full-time
employees. In addition, the Company may experience less demand for its
services and more competitive pricing pressure during periods of economic
downturn. Therefore, any significant economic downturn could have a material
adverse effect on the Company's business, results of operations, cash flows
or financial condition.
RESULTS OF OPERATIONS
FISCAL QUARTER ENDED JULY 11, 1998 COMPARED TO FISCAL QUARTER ENDED JULY 12,
1997
SALES OF SERVICES AND LICENSE FEES. Sales of services increased $17.3
million, or 13.2%, for the fiscal quarter ended July 11, 1998 as compared to
the fiscal quarter ended July 12, 1997. The increase resulted from a 6.7%
increase in billed hours and a 3.8% increase in average billing rates per
hour. Billed hours increased primarily due to increased demand for the
Company's services in existing offices, the impact of acquisitions and new
office openings. Same store sales increased approximately 10.0% for the third
quarter of fiscal 1998 as compared to the third quarter of fiscal 1997.
Acquisitions accounted for approximately $10.0 million of the increase in
sales of services. Sales of services for the third quarter of fiscal 1998
increased 12.1%, 3.2% and 41.3%, respectively, for the Company's domestic
business services, international business services and medical services, as
compared to the third quarter of fiscal 1997. Excluding the effect of foreign
currency rate fluctuations, sales of services increased 17.5% for
international
10
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
business services. The increase in average billing rates reflects the ongoing
effects of the Company's gross profit improvement program, changes in the
Company's overall business mix and inflationary factors.
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
increased $266,000, or 54.5%, for the fiscal quarter ended July 11, 1998 as
compared to the fiscal quarter ended July 12, 1997. During the period from
July 13, 1997 to July 11, 1998, eight franchise agents converted to the
license program and two licensees purchased the Company's interest in their
licenses and became independent such that they are no longer affiliated with
the Company.
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 $11.8 million, or 11.4%, for the fiscal quarter ended July 11, 1998
as compared to the fiscal quarter ended July 12, 1997. Gross margin increased
from 21.3% in the third quarter of fiscal 1997 to 22.7% in the third quarter
of fiscal 1998, primarily due to the Company's gross profit improvement
program implemented during the first quarter of fiscal 1997, higher relative
sales for medical services (which typically generate higher gross margin),
and lower workers' compensation and unemployment insurance costs as a
percentage of sales of services and license fees. During the first quarter of
fiscal 1997 the Company initiated a nationwide program designed to maximize
gross margin by increasing prices to select customers and focusing on higher
margin business. Primarily as a result of this program, the Company generated
progressively higher gross margin throughout fiscal 1997. Gross margin
increased from 20.4% in the first quarter of fiscal 1997 to 21.0%, 21.3%, and
22.1% for the second, third and fourth quarters, respectively, of fiscal
1997. Gross margin dropped slightly to 22.0% for the first quarter of fiscal
1998 as compared to the fourth quarter of fiscal 1997 due to increased
holiday pay and seasonal factors, however, gross margin once again increased
to 22.5% and 22.7% for the second and third quarters, respectively, of fiscal
1998. The Company will continue with its efforts to improve gross margin
where feasible; however, there can be no assurance that the Company will be
successful in either increasing or maintaining gross margin.
Workers' compensation costs were 3.2% of payroll for the fiscal quarter ended
July 11, 1998 and 3.8% for the fiscal quarter ended July 12, 1997. These
costs may vary depending upon the mix of business between clerical staffing,
light industrial staffing and medical services staffing. During the third
quarter of fiscal 1998, the Company evaluated the loss development trends and
historical accruals for policy years 1994, 1995 and 1997 as well as the
preliminary trends for policy year 1998. As a result of improvements in loss
development trends for these years, during the third quarter of fiscal 1998,
the Company reduced its current accrual rates related to workers'
compensation costs. The Company currently estimates that the accrual rates
for workers' compensation costs will be in the range of 3.0% to 3.3% of
direct labor for the remainder of fiscal 1998. These rates will be evaluated
again at the end of the fiscal year. There can be no assurance that the
Company's programs to control workers' compensation expenses will be
11
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
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 gross profit generated by the franchise
agents' operation. Franchise agents' share of gross profit decreased
$107,000, or 2.2%, for the fiscal quarter ended July 11, 1998 as compared to
the fiscal quarter ended July 12, 1997. As a percentage of sales of services
and license fees, franchise agents' share of gross profit declined from 3.7%
during the third quarter of fiscal 1997 to 3.2% for the third quarter of
fiscal 1998. This decrease is primarily the result of a decrease in the
proportion of sales and gross profit attributable to franchise agent offices
as compared to Company-owned.
SELLING AND ADMINISTRATIVE EXPENSES (INCLUDING DEPRECIATION AND
AMORTIZATION). Selling and administrative expenses increased $3.6 million, or
18.6%, for the third quarter of fiscal 1998 as compared to the same period
for fiscal 1997. As a percentage of sales of services and license fees,
selling and administrative expenses increased from 14.8% for the fiscal 1997
quarter to 15.5% for the fiscal 1998 quarter. The increase in selling and
administrative expenses as a percentage of sales of services and license fees
was primarily due to higher incentive compensation costs, a higher proportion
of business generated through Company-owned offices as compared to franchise
agent offices, and higher amortization costs resulting from increased
acquisition activity. The Company's incentive compensation plans are directed
towards increasing gross profit and operating income. These incentive costs
increased during the third quarter of fiscal 1998 as a direct result of the
significant increases in both gross profit and operating income for the third
quarter of fiscal 1998 as compared to the third quarter of fiscal 1997. The
relative volume of franchise business also affects the overall selling and
administrative costs. As the proportion of franchise sales and gross profit
declines relative to total sales, franchise agents' share of gross profit
declines as a percentage of sales of services and license fees, and selling
and administrative costs tend to increase as a percentage of sales of
services and license fees.
Selling and administrative expenses are also impacted by the Company's
management information systems. In the third quarter of fiscal 1998, the
Company finalized its long-term strategic plan for its next generation
management information and support systems. This plan calls for a phased
migration from the Company's existing systems to the new enterprise-wide
systems over a 24 month period. Capital expenditures under the plan are
expected to approximate $10.0 million including costs of hardware, software
and internal and external costs associated with the implementation of the
project. The Company estimates it will incur $5.0 million of such capital
expenditures during fiscal 1998 and $5.0 million during fiscal 1999.
The initial phase will be to replace the Company's back-office financial
reporting systems and should be completed by the end of the first quarter of
fiscal 1999. Since the Company's existing back-office financial reporting
systems are fully depreciated, the implementation of the new back
office-systems will result in increased depreciation expenses starting in the
first or second quarter
12
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
of fiscal 1999. The second phase will be implementation and roll-out of a
new branch office integrated search and retrieval and remote data capture
module. The initial pilot for this front-end system is expected to be
completed during the first quarter of fiscal 1999, with roll-out to all
domestic business services offices estimated to take approximately 18 months.
Concurrent with the development of the new front-end system, the Company
intends to begin implementation and roll-out of a wide area network (WAN)
which will allow enhanced communication and data transmission capabilities
among the field and corporate offices. The actual roll-out of the network to
the field offices is planned to be completed over an approximate 18 month
period. As the individual branch offices are converted to the new integrated
front-office system and network, the Company expects to incur increased
training and depreciation costs. Furthermore, as each office is connected to
the WAN, the Company will incur increased telecommunication costs. The
Company expects to realize productivity gains as a result of the enhanced
communication capabilities and features of the front-end systems which may
offset the incremental costs from the system; however, there can be no
assurance that such productivity gains or cost savings will be realized.
The final phase of the new systems will be the implementation of new payroll,
billing and activities management systems integrating both branch office
systems and back-office financial systems. In connection with this plan, the
Company has reduced the estimated useful life of its existing payroll/billing
system to conform to the replacement schedule; however, the incremental
additional depreciation as a result of the reduced system life is immaterial
to the Company's results of operations. The Company anticipates completion of
this project late in fiscal 1999 with a phased roll-out to offices over a 12
month period. As this final phase is implemented, the Company expects to
incur additional expenses for training and depreciation. In addition, during
the roll-out period, the Company will be required to operate the old
payroll/billing systems and new integrated systems concurrently, which will
result in higher administrative expenses.
The Company believes that the new enterprise-wide systems will provide
significant operating efficiencies for both field and corporate office
personnel. However, there can be no assurance that the Company will meet
anticipated completion dates for system replacements and enhancements
consisting of next generation management information and support systems,
that such replacements and enhancements will be completed in a cost-effective
manner or that such replacements and enhancements will support the Company's
future growth or provide significant gains in efficiency and productivity.
The failure of the replacements and enhancements to meet these expected goals
could result in increased system costs and could have a material adverse
effect on the Company's business, results of operations, cash flows or
financial condition.
INTEREST EXPENSE. Interest expense increased $319,000, or 75.1%, for the
fiscal quarter ended July 11, 1998 as compared to the fiscal quarter ended
July 12, 1997, reflecting higher average borrowings outstanding during the
fiscal 1998 quarter required to support the Company's internal growth and
acquisitions. As a result of increased borrowings required to support the
Company's growth, including additional acquisitions and working capital
needs, the Company
13
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
anticipates higher interest expense for the remainder of fiscal 1998 as
compared to the same period in fiscal 1997.
PROVISION FOR INCOME TAXES. The provision for income taxes for the third
quarter of fiscal 1998 was $2.1 million as compared to $1.4 million for the
third quarter of fiscal 1997. This increase was due primarily to the increase
in income before income taxes of $1.9 million. The effective income tax rate
for each of the fiscal quarters ended July 11, 1998 and July 12, 1997 was
40.0%. The Company currently estimates that the effective income tax rate for
fiscal 1998 will be approximately 40.0%.
36 WEEKS ENDED JULY 11, 1998 COMPARED TO 36 WEEKS ENDED JULY 12, 1997
SALES OF SERVICES AND LICENSE FEES. Sales of services increased $58.9
million, or 15.8%, for the 36 weeks ended July 11, 1998 as compared to the
same period in fiscal 1997. The increase resulted from a 10.3% increase in
billed hours and a 2.7% increase in average billing rates per hour. Billed
hours increased primarily due to increased demand for the Company's services
in existing offices, the impact of acquisitions and new office openings. Same
store sales increased approximately 11.1% for the 36 weeks ended July 11,
1998 as compared to the same period in fiscal 1997. Acquisitions accounted
for approximately $25.9 million of the increase in sales of services. Sales
of services for the 36 weeks ended July 11, 1998 increased 14.6%, 5.4% and
45.8%, respectively, for the Company's domestic business services,
international business services and medical services, as compared to the same
period in fiscal 1997. Excluding the effect of foreign currency rate
fluctuations, sales of services increased 17.7% for international business
services. The increase in average billing rates reflects the ongoing effects
of the Company's gross profit improvement program, changes in the Company's
overall business mix and inflationary factors.
License fees increased $457,000, or 35.5%, for the 36 weeks ended July 11,
1998 as compared to the same period in fiscal 1997, primarily due to the same
factors as noted above for the third quarter of fiscal 1998.
COSTS OF SERVICES. Costs of services increased $40.4 million, or 13.7% for
the 36 weeks ended July 11, 1998 as compared same period in fiscal 1997.
Gross margin increased from 20.9% in the fiscal 1997 period to 22.4% for the
same period of fiscal 1998, primarily due to the same factors as noted above
for the third quarter of fiscal 1998.
FRANCHISE AGENTS' SHARE OF GROSS PROFIT. Franchise agents' share of gross
profit increased $572,000, or 4.1%, for the 36 weeks ended July 11, 1998 as
compared to the same period in fiscal 1997. As a percentage of sales of
services and license fees, franchise agents' share of gross profit declined
from 3.7% during the 36 weeks ended July 12, 1997 to 3.3% for the same period
in fiscal 1998. This decrease is primarily the result of a decrease in the
proportion of sales and gross profits for franchise offices as compared to
Company-owned offices.
14
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WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
SELLING AND ADMINISTRATIVE EXPENSES (INCLUDING DEPRECIATION AND
AMORTIZATION). Selling and administrative expenses increased $11.2 million,
or 20.0%, for the 36 weeks ended July 11, 1998 as compared to the same period
for fiscal 1997. As a percentage of sales of services and license fees,
selling and administrative expenses increased from 15.0% for the fiscal 1997
period to 15.5% for the fiscal 1998 period due to the same factors as noted
above for the third quarter of fiscal 1998.
INTEREST EXPENSE. Interest expense increased $1.0 million, or 100.7%, for the
36 weeks ended July 11, 1998 as compared to the same period in fiscal 1997,
reflecting higher average borrowings outstanding during the fiscal 1998
period required to support the Company's internal growth and acquisitions.
PROVISION FOR INCOME TAXES. The provision for income taxes for the 36 weeks
ended July 11, 1998 was $5.4 million as compared to $3.0 million for the
comparable fiscal 1997 period. This increase was due primarily to the
increase in income before income taxes of $6.0 million. The effective income
tax rate for each of the 36 week periods of 1998 and 1997 was 40.0%.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations through cash generated
by operating activities and through various forms of debt and equity
financings and bank lines of credit. The Company's principal use of cash is
for financing of accounts receivable, particularly during periods of growth
and, in recent years, for acquisitions. Temporary personnel are generally
paid on a weekly basis while payments from customers are generally received
30 to 60 days after billing for business services and 60 to 120 days after
billing for medical services. 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. Accordingly,
short-term borrowings used to finance accounts receivable generally follow a
similar seasonal pattern.
Net cash provided from (used by) operating activities was $5.0 million and
($569,000) for the 36 weeks ended July 11, 1998 and July 12, 1997,
respectively. The increase in cash flows from operating activities is
primarily due to higher net income and higher depreciation and amortization
during the fiscal 1998 period. The Company is continuing to focus efforts on
collection of accounts receivable to reduce the overall days outstanding,
particularly for Medicare reimbursements. The Company has implemented a
number of procedures and incentive programs for both corporate and field
staff designed to reduce the average number of days outstanding. However,
there can be no assurance that these programs will be effective in improving
the cash flow related to Company receivables.
Cash used for capital expenditures, which are generally for software,
computers and peripherals, and office furniture and equipment, totaled $5.9
million for the 36 weeks ended July 11, 1998 and $3.8 million for the 36
weeks ended July 12, 1997. The increase in capital expenditures during the
1998 period is associated with initial payments for the Company's next
generation
15
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WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
management information and support systems. Capital expenditures for these
systems are expected to approximate $10.0 million including costs of
hardware, software and internal and external costs associated with
implementation of the project. The Company currently estimates it will incur
$5.0 million of such capital expenditures during fiscal 1998 and $5.0 million
during fiscal 1999.
During the 36 week periods ended July 11, 1998 and July 12, 1997, cash
outflows for new acquisitions and for contingent payments under existing
acquisitions totaled $8.3 million and $4.6 million, respectively. Payments of
$146,000 and $2.1 million related to acquisitions are due for the remainder
of fiscal 1998 and for fiscal 1999, respectively, with additional
consideration contingent on sales, gross profit or pre-tax income of the
acquired businesses in future periods.
During the 36 week periods ended July 11, 1998 and July 12, 1997, the Company
increased total borrowings by a net $13.4 million and $14.5 million,
respectively, primarily to support the Company's growth and to fund
acquisitions and capital expenditures. Distributions to stockholders totaled
$2.5 million in the fiscal 1997 period representing the remaining
undistributed S corporation earnings of the Company. The Company does not
anticipate declaring or paying any cash dividends on its common stock in the
foreseeable future.
During the 36 weeks ended July 11, 1998 and July 12, 1997, the Company
repurchased 163,500 and 150,000 shares of common stock, respectively, on the
open market for aggregate cash consideration of $2.8 million and $1.0
million, respectively. During the 36 weeks ended July 11, 1998, 147,783
shares were reissued and 20,120 new shares were issued under the employee
stock option and purchase plans with aggregate cash proceeds of $1.5 million.
On May 20, 1998, the Company executed private placements of 10-year senior
secured notes totaling $30.0 million payable in equal annual installments
beginning in the year 2002. Proceeds from the notes were used to repay
outstanding borrowings under the Company's revolving credit agreement of
$22.6 million, with the remainder to be used for working capital and general
corporate purposes.
The Company also has senior secured credit facilities for up to $108.0
million consisting of a $90.0 million, five-year revolving credit agreement
and an $18.0 million six-year term loan for working capital needs and general
corporate purposes, including capital expenditures and acquisitions. Direct
advances under the revolving credit agreement are limited by outstanding
irrevocable standby letters of credit up to a maximum amount of $20.0
million. Total advances are also limited under formulas based on earnings
before interest, taxes depreciation and amortization and total debt to total
capitalization. The credit facility contains covenants which, among other
things, require the Company to maintain certain financial ratios and
generally
16
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
restrict, limit or, in certain circumstances, prohibit the Company with
respect to capital expenditures, disposition of assets, incurrence of debt,
mergers and acquisitions, loans to affiliates and purchases of investments.
As of July 11, 1998, the Company had $10.0 million in outstanding letters of
credit, had borrowed $3.0 million under the revolving agreement and had $22.1
million available under the formula based revolving credit agreement.
The Company believes that cash 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.
MEDICAL OPERATIONS
As a provider of home care services, the Company is subject to changing
federal and state regulations relating to the licensing and certification of
its offices and the sale and delivery of its services. Changes in the law and
regulations as well as new interpretations enforced by the relevant
regulatory agencies could have a material adverse effect on the Company's
business, results of operations, cash flows or financial condition.
On August 5, 1997, President Clinton signed into law the Balanced Budget Act
of 1997 (Budget Act), resulting in significant changes to cost based
reimbursement for Medicare services provided by home health care providers
including the reduction of cost limits. Home health agencies will be
reimbursed the lowest of: (1) actual costs of operating the agency's Medicare
services; (2) a reduced aggregate cost per visit rate; or (3) an aggregate
per beneficiary limit.
The Budget Act requires the Health Care Financing Administration of the U.S.
Department of Health and Human Services (HCFA) to implement a Prospective
Payment System (PPS) for fiscal years beginning on or after October 1, 1999
to replace this cost-based system. The PPS will pay home health agencies a
fixed amount for services rendered without regard to their costs. There can
be no assurance that such prospective payment rates will cover the costs
incurred by the Company to provide Medicare home health care services.
The impact of these changes on the Company will be to reduce the amount of
costs that will be reimbursable, pursuant to the Medicare program, effective
November 2, 1997. To address the potential impact of these reimbursement
reductions, the Company is assessing the effectiveness of its patient care
services and is developing strategies to increase efficiency in providing
care to patients. In addition, the Company is reviewing its expenditures for
operating costs and general and administrative expenses in an effort to
ensure that its costs will be within the amounts that may be reimbursable
under the new regulations. The Company currently estimates that the potential
effect of the new regulations will not be material to the Company's results
of operations for fiscal 1998. However, because the Company cannot presently
determine the actual number of patients that will be serviced, the severity
of their illnesses or the extent of its ability to reduce general or
administrative expenses, there can be no assurance that the ultimate
adjustments to
17
<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
revenue as a result of the new regulations will not have a material adverse
effect on the business, results of operations, cash flows or financial
condition of the Company.
YEAR 2000
The Company is in the process of implementing a comprehensive plan to address
the Year 2000 issue, particularly with respect to its mission critical
systems. Mission critical systems are those whose failure poses a risk of
disruption to the Company's ability to provide employment to its temporary
employees and temporary staffing services to its customers. The Year 2000
issue is the result of computer programs being written using two digits
rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations. The Company's plan includes three phases; (i) a complete
inventory and evaluation of all mission critical systems including both
information technology (IT) systems and non-IT systems such as hardware
containing embedded technology, for Year 2000 compliance; (ii) modification
or replacement of hardware and software affected by the Year 2000 issue; and
(iii) testing of the modified systems and formulation of a contingency plan
in the event non-compliant systems are not in place prior to January 1, 2000.
The Company is using both internal and external resources to assess its
systems, develop and implement its plan.
The Company has completed a significant portion of its system inventory and
evaluation phase and expects to complete this process by the end of the
fourth quarter of fiscal 1998. To date the Company has identified one group
of non-compliant mission critical back-office systems that are currently
scheduled for replacement in the normal course of business. The Company
expects that these systems will be replaced with Year 2000 compliant systems
by the end of the first quarter of fiscal 1999. The Company has identified
one additional mission critical back-office system that is not fully Year
2000 compliant and is currently testing this system to determine the extent
of required modification. The Company expects to make modifications to this
system and complete testing of such modifications, along with modifying and
testing any other systems subsequently identified during the evaluation
phase, to bring its systems to full Year 2000 compliance by the end of the
second quarter of fiscal 1999. Although the Company does not expect that the
impact of the Year 2000 issue will be material in systems still under
evaluation, there can be no assurance that the Company will not discover Year
2000 issues in the course of its evaluation process that would have a
material adverse effect on the business, results of operations, cash flows or
financial condition of the Company. Furthermore, should the Company be
unsuccessful in taking corrective action to bring mission critical systems to
full Year 2000 compliance by the end of 1999, there would be a material
adverse effect on the business, results of operations, cash flows and
financial condition of the Company.
To date, the costs incurred by the Company with respect to Year 2000
compliance have not been material. Future anticipated costs will be difficult
to estimate until after the completion of the inventory and evaluation phase
of the project; however, the Company does not currently anticipate that such
costs will be material.
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<PAGE>
WESTERN STAFF SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
The Company has also begun to survey third-party suppliers and vendors,
including key financial institutions, for Year 2000 compliance. The Company
expects to complete this survey in the first quarter of fiscal 1999. At this
time the Company cannot estimate the effect that non-compliant systems at
these entities, if any, could have on the business, results of operations,
cash flows or financial condition of the Company, and there can be no
assurance that the impact, if any, will not be material.
EUROPEAN CURRENCY
Beginning in January 1999, a new currency called the "euro" is scheduled to
be introduced in certain European countries that are part of the Economic and
Monetary Union (EMU). During 2002, all EMU countries are expected to be
operating with the euro as their single currency. A significant amount of
uncertainty exists as to the effect the euro will have on the marketplace.
Additionally, all of the rules and regulations have not yet been defined and
finalized by the European Commission with regard to the euro currency.
Currently, the Company does not operate in any countries that are part of the
EMU; however, the Company operates in the United Kingdom and Denmark, which
may join the EMU at a future date. The Company is assessing the effect the
euro formation will have on its internal systems and the sales of its
services. The Company expects to take appropriate actions based on the
results of such assessment. The Company has not yet determined the costs of
addressing this issue and there can be no assurance that this issue and its
related costs will not have a material adverse effect on the Company's
business, results of operations, cash flows and financial condition.
SUBSEQUENT EVENT
In July 1998, the Company signed a letter of intent to sell its medical
services subsidiary subject to completion of due diligence. No definitive
acquisition agreement has been executed to date, and there can be no
assurance that the transaction will be successfully concluded.
19
<PAGE>
PART II. OTHER INFORMATION
- -------------------------------------------------------------------------------
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
Any stockholder proposal submitted with respect to the
Company's Annual Meeting of Stockholders, which proposal is
submitted outside the requirements of Rule 14a-8 under the
Securities Exchange Act of 1934, will be considered untimely
for purposes of Rule 14a-4 and Rule 14a-5 if notice thereof is
received by the Company after January 3, 1999.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.3.3 Employment Agreement between the Company and Michael K. Phippen
10.8.10 Second Amendment to Credit Agreement dated as of July 23, 1998
27.1 Financial Data Schedule
</TABLE>
- -----------------
(b) Reports on Form 8-K
No reports on Form 8-K were filed in or for the 36 week period
ended July 11, 1998.
20
<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 25, 1998 /Dirk A. Sodestrom/
----------------- --------------------------------------------
Date Dirk A. Sodestrom
Sr. Vice President and Controller
21
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement, effective January 1, 1999, is among Western Staff Services
(USA), Inc., a California corporation ("Western"), Western Staff Services, Inc.
("WSS"), a Delaware corporation, and Michael K. Phippen ("Phippen"). Western
and Phippen agree to the following terms and conditions of employment and WSS
and Phippen agree to the following grant of stock options.
1. Period of Employment.
(a) Basic Term. Western shall continue to employ Phippen to render services to
Western in the position and with the duties and responsibilities described in
Section 2 for the period (the "Period of Employment") commencing on the
effective date of this Agreement and ending upon the earlier of (i) December 31,
2003 (the "Term Date"), as, and to the extent, extended under Section 1(b); or
(ii) the date upon which the Period of Employment is terminated in accordance
with Section 4.
(b) Renewal. The parties agree that no later than the end of the fourth (4th)
year of this agreement, they will enter into discussions regarding possible
extension of the period of employment provided for herein. Nothing stated in
this Agreement or represented orally or in writing to either party shall create
an obligation to renew this Agreement.
2. Position and Responsibilities.
(a) Position. As of the effective date of this Agreement, Phippen accepts
employment with Western as its President and Chief Executive Officer and shall
perform all services appropriate to that position, as well as such other
services as may be reasonably required by Western's Board of Directors. Phippen
shall devote his best efforts and full-time attention to the performance of his
duties. Phippen shall be subject to the direction of Western, which shall
retain full control of the means and methods by which he performs the above
services and of the place(s) at which all services are rendered. Phippen shall
be expected to travel if necessary or advisable in order to meet the obligations
of his position.
(b) Other Activity. Except upon the prior written consent of Western, Phippen
(during the Period of Employment) shall not (i) accept any other employment; or
(ii) engage, directly or indirectly, in any other business, commercial, or
professional activity (whether or not pursued for pecuniary advantage) that is
or may be competitive with Western, that might create a conflict of interest
with Western, or that otherwise might interfere with the business of Western, or
any Affiliate. An "Affiliate" shall mean any person or entity that directly or
indirectly controls, is controlled by, or is under common control with Western.
3. Compensation and Benefits.
(a) Compensation. In consideration of the services to be rendered under this
Agreement, Western shall pay Phippen Three Hundred Seventy-Five Thousand Dollars
($375,000) per year, payable pursuant to the procedures regularly established,
and as they may be amended, by Western in its sole discretion, during the Period
of Employment. All compensation and comparable payments to be paid to Phippen
under this Agreement shall be less withholdings required by law.
1
<PAGE>
(b) Stock Options. On the first day of each of the four (4) fiscal years
commencing after October 30, 1999, Phippen shall receive a stock option for
One Hundred Thousand (100,000) shares of WSS common stock, provided that he
is employed by Western on the first day of the applicable fiscal year, as
follows: October 31, 1999, October 29, 2000, November 4, 2001 and November 3,
2002 for fiscal years 2000, 2001, 2002 and 2003 respectively. The exercise
price per share for each of these stock option grants shall be the average of
the fair market value per share of WSS common stock (Nasdaq National Market
closing price) on the first and last trading days of the fiscal year
completed immediately prior to the grant date of the option. Phippen's stock
options shall not be exercisable until two (2) years from the last day of the
fiscal year for which they were granted; provided, however, that in the event
Phippen's employment is terminated by Western without Cause pursuant to
Section 4(a), below, the vesting of each outstanding and issued stock option
referred to in this Section 3(b) shall accelerate and such stock options
shall be fully vested and exercisable with respect to all the shares subject
to such stock options in accordance with the terms of the written agreements
evidencing such stock options.
(c) Benefits. Phippen shall be entitled to vacation leave of four (4) weeks
per year, subject to Western's policies with respect to maximum annual accruals.
As Phippen becomes eligible, he shall have the right to participate in and to
receive benefits from all present and future benefit plans specified in
Western's policies and generally made available to similarly situated employees
of Western. The amount and extent of benefits to which Phippen is entitled
shall be governed by the specific benefit plan, as amended. Phippen also shall
be entitled to any benefits or compensation tied to termination as described in
Section 4.
(d) Expenses. Western shall reimburse Phippen for reasonable travel and other
business expenses incurred by Phippen in the performance of his duties, in
accordance with Western's policies, as they may be amended in Western's sole
discretion.
4. Termination of Employment.
(a) By Employer Not For Cause. At any time, Western may terminate Phippen for
any reason, without Cause (as defined in Paragraph 4(b) below), by providing
Phippen ninety (90) days' advance written notice. Western shall have the
option, in its complete discretion, to terminate Phippen at any time prior to
the end of such notice period, provided Western pays Phippen all compensation
due and owing through the last day actually worked, plus an amount equal to the
base salary Phippen would have earned through the balance of the above notice
period. In addition, if Phippen's employment is terminated pursuant to this
Section 4(a), he shall also be paid one half (1/2) of the salary payments
remaining under the term of this Agreement, up to a maximum payment of one (1)
year's salary. The salary payments provided for herein shall be paid on a
monthly basis over the twelve (12) month period following the termination date,
provided that if Phippen does not comply with the provisions of Section 5(c) of
this Agreement, Westerns' obligation to continue to make salary payments under
this section shall cease immediately. Thereafter, all of Western's obligations
under this Agreement shall cease.
(b) By Employer For Cause. At any time, and without prior notice, Western may
terminate Phippen for Cause (as defined below). Western shall pay Phippen all
compensation then due and owing; thereafter, all of Western's obligations under
this Agreement shall cease. Termination shall be for "Cause" if Phippen: (i)
acts in bad faith and to the detriment of Western; (ii) refuses or fails to act
in accordance with any Western policy or any specific direction or order of
Western; (iii) exhibits in regard to his employment unfitness or unavailability
for service, unsatisfactory performance, misconduct, dishonesty,
2
<PAGE>
habitual neglect, or incompetence; (iv) is convicted of a crime involving
dishonesty, breach of trust, or physical or emotional harm to any person; or (v)
breaches any material term of this Agreement.
(c) By Employee. At any time, Phippen may terminate his employment for any
reason by providing Western ninety (90) days' advance written notice. Western
shall have the option, in its complete discretion, to make Phippen's termination
effective at any time prior to the end of such notice period, provided Western
pays Phippen all compensation due and owing through the last day actually
worked, plus an amount equal to the base salary Phippen would have earned
through the balance of the above notice period, not to exceed ninety (90) days;
thereafter, all of Western's obligations under this Agreement shall cease.
(d) Change in Employer Status. To the extent permitted by law, Western, in its
sole discretion, may terminate the Period of Employment (in which case all of
Western's obligations under this Agreement shall cease after payment of all
compensation due and owing, such as accrued vacation, earned but unpaid salary,
and expense reimbursements, if any) upon any formal action of Western's Board of
Directors to terminate Western's existence or otherwise wind up its affairs, to
sell all or substantially all of its assets, or to merge with or into another
entity.
(e) Termination Obligations.
(i) Phippen agrees that all property, including, without limitation, all
equipment, tangible Proprietary Information (as defined below), documents,
books, records, reports, notes, contracts, lists, computer disks (and other
computer-generated files and data), and copies thereof, created on any medium
and furnished to, obtained by, or prepared by Phippen in the course of or
incident to his employment, belongs to Western and shall be returned promptly to
Western upon termination of the Period of Employment.
(ii) All benefits to which Phippen is otherwise entitled shall cease upon
Phippen's termination, unless explicitly continued either under this Agreement
or under any specific written policy or benefit plan of Western.
(iii) Upon termination of the Period of Employment, Phippen shall be deemed
to have resigned from all offices and directorships then held with Western or
any Affiliate.
(iv) The representations and warranties contained in this Agreement and
Phippen's obligations under this Section 4(e) on Termination Obligations and
Section 5 on Proprietary Information shall survive the termination of the Period
of Employment and the expiration of this Agreement.
(v) Following any termination of the Period of Employment, Phippen shall
fully cooperate with Western in all matters relating to the winding up of
pending work on behalf of Western and the orderly transfer of work to other
employees of Western. Phippen shall also cooperate in the defense of any action
brought by any third party against Western that relates in any way to Phippen's
alleged acts or omissions while employed by Western.
5. Proprietary Information.
(a) Defined. "Proprietary Information" is all information, confidential data,
trade secrets and any idea in whatever form, tangible or intangible, pertaining
in any manner to the business of Western, or any Affiliate, or its employees,
clients, consultants, or business associates, which was produced by any
3
<PAGE>
employee of Western in the course of his or her employment or otherwise produced
or acquired by or on behalf of Western, including, but not limited to customers'
and employees' names, addresses and telephone numbers, bill and pay rates,
employees' pay and skills, other statistical information, sales techniques,
methods of operation, advertising materials, forms and operating manuals. All
Proprietary Information not generally known outside of Western, and all
Proprietary Information so known only through improper means, shall be deemed
"Confidential Information." Phippen should consult any Western procedures
instituted to identify and protect certain types of Confidential Information,
which are considered by Western to be safeguards in addition to the protection
provided by this Agreement. Nothing contained in those procedures or in this
Agreement is intended to limit the effect of the other.
(b) General Restrictions on Use. During the Period of Employment, Phippen
shall use Proprietary Information, and shall disclose Confidential Information,
only for the benefit of Western and as is necessary to carry out his
responsibilities under this Agreement. Following termination, Phippen shall
neither, directly or indirectly, use any Proprietary Information nor disclose
any Confidential Information, except as expressly and specifically authorized in
writing by Western.
(c) Competitive Activity. Phippen acknowledges and agrees that the pursuit
of the activities forbidden by this subsection would necessarily involve the
use or disclosure of Confidential Information in breach of the preceding
subsections, but that proof of such a breach would be extremely difficult.
To forestall this disclosure, use, and breach, and in consideration of the
employment under this Agreement, Phippen agrees that for a period of one (1)
year after termination of the Period of Employment, he shall not, directly or
indirectly, (i) divert or attempt to divert from Western (or any Affiliate)
any temporary staffing or employment services business or any business of any
kind in which it is engaged; (ii) employ or recommend for employment, whether
as regular staff or as a temporary employee, any person employed by Western
(or any Affiliate); or (iii) engage in any business activity that is or may
be competitive with Western (or any Affiliate) in any district, territory,
state or country where Western conducts its business, unless Phippen can
prove that any action taken in contravention of this subsection was done
without the use in any way of Confidential Information.
(d) Interference with Business. In order to avoid disruption of Western's
business, Phippen agrees that for a period of one (1) year after termination
of the Period of Employment, he shall not, directly or indirectly, (i)
solicit or attempt to divert any customer of Western (or any Affiliate),
known to Phippen at any time during his employment by Western in any
capacity, to have been a customer of or serviced by Western before or during
the Period of Employment; or (ii) recruit or solicit for employment, whether
as regular staff or as a temporary employee, any person employed by Western
(or any Affiliate).
6. Arbitration.
(a) Arbitrable Claims. All disputes between Phippen (and his attorneys,
successors, and assigns) and Western (and its Affiliates, shareholders,
directors, officers, employees, agents, successors, attorneys, and assigns)
relating in any manner whatsoever to the employment or termination of Phippen,
including, without limitation, all disputes arising under this Agreement,
("Arbitrable Claims") shall be resolved by arbitration. All persons and
entities specified in the preceding sentence (other than Western and Phippen)
shall be considered third-party beneficiaries of the rights and obligations
created by this Section on Arbitration. Arbitrable Claims shall include, but
are not limited to, contract (express or implied) and tort claims of all kinds,
as well as all claims based on any federal, state, or local law, statute, or
regulation, excepting only claims under applicable workers' compensation law and
unemployment insurance claims. By way of example and not in limitation of the
foregoing, Arbitrable Claims shall include any claims
4
<PAGE>
arising under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Americans with Disabilities Act, and
the California Fair Employment and Housing Act, as well as any claims
asserting wrongful termination, harassment, breach of contract, breach of the
covenant of good faith and fair dealing, negligent or intentional infliction
of emotional distress, negligent or intentional misrepresentation, negligent
or intentional interference with contract or prospective economic advantage,
defamation, invasion of privacy, and claims related to disability.
(b) Procedure. Arbitration of Arbitrable Claims shall be in accordance with
the National Rules for the Resolution of Employment Disputes of the American
Arbitration Association, as amended ("AAA Employment Rules"), as augmented in
this Agreement. Arbitration shall be initiated as provided by the AAA
Employment Rules, although the written notice to the other party initiating
arbitration shall also include a statement of the claim(s) asserted and the
facts upon which the claim(s) are based. Arbitration shall be final and binding
upon the parties and shall be the exclusive remedy for all Arbitrable Claims.
Either party may bring an action in court to compel arbitration under this
Agreement and to enforce an arbitration award. Otherwise, neither party shall
initiate or prosecute any lawsuit or administrative action in any way related to
any Arbitrable Claim. Notwithstanding the foregoing, either party may, at its
option, seek injunctive relief pursuant to section 1281.8 of the California Code
of Civil Procedure. All arbitration hearings under this Agreement shall be
conducted in San Francisco, California. The Federal Arbitration Act shall
govern the interpretation and enforcement of this Section 6. THE PARTIES HEREBY
WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS,
INCLUDING WITHOUT LIMITATION ANY RIGHT TO TRIAL BY JURY AS TO THE MAKING,
EXISTENCE, VALIDITY, OR ENFORCEABILITY OF THE AGREEMENT TO ARBITRATE.
(c) Arbitrator Selection and Authority. All disputes involving Arbitrable
Claims shall be decided by a single arbitrator. The arbitrator shall be
selected by mutual agreement of the parties within thirty (30) days of the
effective date of the notice initiating the arbitration. If the parties cannot
agree on an arbitrator, then the complaining party shall notify the AAA and
request selection of an arbitrator in accordance with the AAA Employment Rules.
The arbitrator shall have only such authority to award equitable relief,
damages, costs, and fees as a court would have for the particular claim(s)
asserted. The fees of the arbitrator shall be split between both parties
equally. The arbitrator shall have exclusive authority to resolve all
Arbitrable Claims, including, but not limited to, whether any particular claim
is arbitrable and whether all or any part of this Agreement is void or
unenforceable.
(d) Confidentiality. All proceedings and all documents prepared in connection
with any Arbitrable Claim shall be confidential and, unless otherwise required
by law, the subject matter thereof shall not be disclosed to any person other
than the parties to the proceedings, their counsel, witnesses and experts, the
arbitrator, and, if involved, the court and court staff. All documents filed
with the arbitrator or with a court shall be filed under seal. The parties
shall stipulate to all arbitration and court orders necessary to effectuate
fully the provisions of this subsection concerning confidentiality.
(e) Continuing Obligations. The rights and obligations of Phippen and Western
set forth in this Section on Arbitration shall survive the termination of
Phippen's employment and the expiration of this Agreement.
7. Integration. This Agreement is intended to be the final, complete, and
exclusive statement of the terms of Phippen's employment by Western. This
Agreement supersedes all other prior and contemporaneous agreements and
statements, whether written or oral, express or implied, pertaining in
5
<PAGE>
any manner to the employment of Phippen, except insofar as the Stock Option
Agreement between the parties provides for certain stock option benefits. This
Agreement may not be contradicted by evidence of any prior or contemporaneous
statements or agreements. To the extent that the practices, policies, or
procedures of Western, now or in the future, apply to Phippen and are
inconsistent with the terms of this Agreement, the provisions of this Agreement
shall control.
8. Amendments; Waivers. This Agreement may not be amended except by an
instrument in writing, signed by each of the parties. No failure to exercise
and no delay in exercising any right, remedy, or power under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, remedy, or power under this Agreement preclude any other or further
exercise thereof, or the exercise of any other right, remedy, or power provided
herein or by law or in equity.
9. Assignment; Successors and Assigns. Phippen agrees that he will not assign,
sell, transfer, delegate, or otherwise dispose of, whether voluntarily or
involuntarily, or by operation of law, any rights or obligations under this
Agreement. Any such purported assignment, transfer, or delegation shall be null
and void. Nothing in this Agreement shall prevent the consolidation of Western
with, or its merger into, any other entity, or the sale by Western of all or
substantially all of its assets, or the otherwise lawful assignment by Western
of any rights or obligations under this Agreement. Subject to the foregoing,
this Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective heirs, legal representatives, successors, and
permitted assigns, and shall not benefit any person or entity other than those
specifically enumerated in this Agreement.
10. Severability. If any provision of this Agreement, or its application to
any person, place, or circumstance, is held by an arbitrator or a court of
competent jurisdiction to be invalid, unenforceable, or void, such provision
shall be enforced to the greatest extent permitted by law, and the remainder of
this Agreement and such provision as applied to other persons, places, and
circumstances shall remain in full force and effect.
11. Attorneys' Fees. In any legal action, arbitration, or other proceeding
brought to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover reasonable attorneys' fees and costs.
12. Injunctive Relief. If Phippen breaches or threatens to breach any of the
covenants in Section 5 on Proprietary Information, the parties acknowledge and
agree that the damage or imminent damage to Western's business or its goodwill
would be irreparable and extremely difficult to estimate, making any remedy at
law or in damages inadequate. Accordingly, Western shall be entitled to
injunctive relief against Phippen in the event of any breach or threatened
breach of the above provisions by Phippen, in addition to any other relief
(including damages) available to Western under this Agreement or under law.
6
<PAGE>
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of California.
14. Interpretation. This Agreement shall be construed as a whole, according to
its fair meaning, and not in favor of or against any party. By way of example
and not in limitation, this Agreement shall not be construed in favor of the
party receiving a benefit nor against the party responsible for any particular
language in this Agreement. Captions are used for reference purposes only and
should be ignored in the interpretation of the Agreement.
15. Employee Acknowledgment. Phippen acknowledges that he has had the
opportunity to consult legal counsel in regard to this Agreement, that he has
read and understands this Agreement, that he is fully aware of its legal effect,
and that he has entered into it freely and voluntarily and based on his own
judgment and not on any representations or promises other than those contained
in this Agreement.
The parties have duly executed this Agreement as of the date first written
above.
/s/ Michael K. Phippen
- -----------------------------------
Michael K. Phippen
Western Staff Services (USA), Inc.
/s/ W. Robert Stover
- -----------------------------------
By: W. Robert Stover
Its: Chairman of the Board
and Chief Executive Officer
Western Staff Services, Inc.
/s/ W. Robert Stover
- -----------------------------------
By: W. Robert Stover
Its: Chairman of the Board
and Chief Executive Officer
7
<PAGE>
EXHIBIT 10.8.10
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "AMENDMENT"), dated as
of July 23, 1998, is entered into by and among WESTERN STAFF SERVICES (USA),
INC. ("WSS"), WESTERN MEDICAL SERVICES, INC. ("WMS" and together with WSS,
collectively, the "BORROWERS" and individually, a "BORROWER"), BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for itself and the Banks (the
"AGENT"), and the several financial institutions party to the Credit Agreement
(collectively, the "BANKS").
RECITALS
A. The Borrowers, Banks, and Agent are parties to a Credit Agreement
dated as of March 4, 1998, and an amendment thereto dated as of May 15, 1998
(collectively, the "CREDIT AGREEMENT") pursuant to which the Agent and the Banks
have extended certain credit facilities to the Borrowers.
B. The Borrowers have requested that the Banks agree to certain
amendments of the Credit Agreement.
C. The Banks are willing to amend the Credit Agreement, subject to
the terms and conditions of this Amendment.
AGREEMENT
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. AMENDMENTS TO CREDIT AGREEMENT.
(a) The definition of "AGGREGATE CONSIDERATION" in Section
1.01 of the Credit Agreement is amended to read as follows in its entirety:
"AGGREGATE CONSIDERATION" means the total of all cash
and other assets paid or to be paid by a Borrower or any other Loan Party for an
Acquisition, including the fair market value of Stock Consideration and the
amount of Acquisition Related Indebtedness related to such Acquisition.
(b) The following new defined term is added to Section 1.01
of the Credit Agreement:
"STOCK CONSIDERATION" means the portion of Aggregate
Consideration related to an Acquisition which is satisfied through delivery of
the capital stock of the Parent.
(c) Subsection 8.11(f) of the Credit Agreement is amended
to read as follows in its entirety:
(f) The Aggregate Consideration, on a cumulative
basis, for all Acquisitions consummated after November 3, 1997, shall not exceed
the amounts indicated as of the end of each fiscal year set forth below:
1
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR AGGREGATE CONSIDERATION
- ----------- -----------------------
<S> <C>
1998 $35,000,000, PLUS 100% of net cash proceeds from capital stock
issued by the Parent after 11/3/97, PLUS 100% of the fair market
value of all Stock Consideration related to Acquisitions
consummated after 11/3/97.
1999 $45,000,000, PLUS 100% of net cash proceeds from capital stock
issued by the Parent after 11/3/97, PLUS 100% of the fair market
value of all Stock Consideration related to Acquisitions
consummated after 11/3/97.
2000 $60,000,000, PLUS 100% of net cash proceeds from capital stock
issued by the Parent after 11/3/97, PLUS 100% of the fair market
value of all Stock Consideration related to Acquisitions
consummated after 11/3/97.
2001 $70,000,000, PLUS 100% of net cash proceeds from capital stock
issued by the Parent after 11/3/97, PLUS 100% of the fair market
value of all Stock Consideration related to Acquisitions
consummated after 11/3/97.
2002 $80,000,000, PLUS 100% of net cash proceeds from capital stock
issued by the Parent after 11/3/97, PLUS 100% of the fair market
value of all Stock Consideration related to Acquisitions
consummated after 11/3/97.
</TABLE>
3. REPRESENTATIONS AND WARRANTIES. The Borrowers each hereby
represent and warrant to the Agent and the Banks as follows:
(a) No Default or Event of Default has occurred and is
continuing.
(b) The execution, delivery and performance by the
Borrowers of this Amendment have been duly authorized by all necessary corporate
and other action and do not and will not require any registration 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 constitutes the legal, valid and binding obligations
of the Borrowers, enforceable against each of them in accordance with its
respective terms, without defense, counterclaim or offset.
(c) All representations and warranties of the Borrowers
contained in the Credit Agreement are true and correct.
(d) Each of the Borrowers is entering into this Amendment
on the basis of its own investigation and for its own reasons, without
2
<PAGE>
reliance upon the Agent and the Banks or any other Person.
4. EFFECTIVE DATE. This Amendment will become effective as of the
date that the Agent shall have received this Amendment duly executed by the
Borrowers, the Agent, the Issuing Bank and each of the Banks, together with a
duly executed Guarantor Acknowledgment and Consent in the form attached hereto.
5. RESERVATION OF RIGHTS. Each of the Borrowers acknowledges and
agrees that the execution and delivery by the Agent and the Banks of this
Amendment shall not be deemed to create a 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.
6. 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. This Amendment shall be deemed
incorporated into, and a part of, the Credit Agreement.
(b) This Amendment 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.
(c) This Amendment shall be governed by and construed in
accordance with the law of the State of California.
(d) This Amendment 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 or WMS
shall bind such Bank or the Borrower or WMS, 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, 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 supersedes all prior drafts and communications with
respect thereto. This Amendment 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 shall be
deemed prohibited by or invalid under any applicable law, such
provision shall be invalidated without affecting the remaining
provisions of this Amendment or the Credit Agreement, respectively.
(g) Each of the Borrowers covenants to pay to or reimburse
the Agent, 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,
3
<PAGE>
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 as of the date first above written.
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
WESTERN MEDICAL SERVICES, INC.
By /s/ Michael J. Nicholson
---------------------------------
Michael J. Nicholson
President, Chief Operating Officer
and Chief Financial Officer
By /s/ Cynthia L. Sloneker
---------------------------------
Cynthia L. Sloneker
Controller
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By /s/ David Price
---------------------------------
David Price
Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank and
as Issuing Bank
By /s/ Lisa M. Thomas
---------------------------------
Lisa M. Thomas
Vice President
COMERICA BANK-CALIFORNIA, as a Bank
By /s/ Scott T. Smith
---------------------------------
Scott T. Smith
Vice President
4
<PAGE>
SANWA BANK CALIFORNIA, as a Bank
By /s/ Karen S. Fluegge
---------------------------------
Karen Fluegge
Vice President
5
<PAGE>
GUARANTOR ACKNOWLEDGMENT
AND CONSENT
The undersigned, each a guarantor or third party pledgor with respect
to the Borrowers' 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 Borrowers of the foregoing Second Amendment to Credit
Agreement (the "AMENDMENT"), 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.)
WESTERN STAFF SERVICES, INC.
Dated: 7/23/98 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 MEDICAL SERVICES (NY), INC.
Dated: 7/23/98 By /s/ Michael J. Nicholson
---------------- ---------------------------------
Michael J. Nicholson
President, Chief Operating Officer,
and Chief Financial Officer
By /s/ Cynthia L. Sloneker
---------------------------------
Cynthia L. Sloneker
Controller
WESTERN TECHNICAL SERVICES, INC.
Dated: 7/23/98 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
6
<PAGE>
MEDIAWORLD INTERNATIONAL
Dated: 7/23/98 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 (GUAM), INC.
Dated: 7/23/98 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
ALTERNATIVE BILLING SERVICES, INC.
Dated: 7/23/98 By /s/ Michael J. Nicholson
---------------- ---------------------------------
Michael J. Nicholson
President, Chief Operating Officer,
and Chief Financial Officer
By /s/ Cynthia L. Sloneker
---------------------------------
Cynthia L. Sloneker
Controller
BEST TEMPORARIES, INC.
Dated: 7/23/98 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
7
<PAGE>
BEST TEMPORARIES FEDERAL SYSTEMS, INC.
Dated: 7/23/98 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
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF 7/11/98; THE CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE 36 WEEKS ENDED 7/11/98; AND THE CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE 36 WEEKS ENDED 7/11/98 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-02-1997
<PERIOD-END> JUL-11-1998
<CASH> 7,321
<SECURITIES> 0
<RECEIVABLES> 99,961
<ALLOWANCES> 959
<INVENTORY> 0
<CURRENT-ASSETS> 121,147
<PP&E> 43,005
<DEPRECIATION> 21,566
<TOTAL-ASSETS> 174,799
<CURRENT-LIABILITIES> 55,536
<BONDS> 0
0
0
<COMMON> 155
<OTHER-SE> 63,110
<TOTAL-LIABILITY-AND-EQUITY> 174,799
<SALES> 431,001
<TOTAL-REVENUES> 432,745
<CGS> 335,831
<TOTAL-COSTS> 417,451
<OTHER-EXPENSES> (267)
<LOSS-PROVISION> 564
<INTEREST-EXPENSE> 2,079
<INCOME-PRETAX> 13,482
<INCOME-TAX> 5,393
<INCOME-CONTINUING> 8,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,089
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
