<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
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
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
July 11, 1998 (restated) and November 1, 1997 3
Condensed Consolidated Statements of Operations -
12 and 36 weeks ended July 11, 1998 (restated)
and July 12, 1997 4
Condensed Consolidated Statements of Cash Flows -
36 weeks ended July 11, 1998 (restated) 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>
AMENDED FILING OF FORM 10-Q FOR THE THIRD QUARTER ENDED JULY 11, 1998 AND
RESTATEMENT OF FINANCIAL STATEMENTS FOR THIS PERIOD
In connection with the preparation of the Company's audited financial statements
for its fiscal year ended October 31, 1998 and subsequent to the filing with the
Commission of its Quarterly Report on Form 10-Q for the third quarter ended July
11, 1998, the Company became aware of certain procedural and clerical errors
that occurred during the third quarter of fiscal 1998 in connection with the
calculation of interim estimated 1998 Medicare revenues for its medical
operations, which were subsequently treated as discontinued operations during
the fourth quarter of fiscal 1998. The Company has restated its financial
results for the third quarter of fiscal 1998. The effect of correcting these
errors by the restatement is to reduce net income for the third quarter of
fiscal 1998 by $565 or $.03 per basic share. This restatement has no effect on
the full fiscal 1998 results of operations as reported by the Company in the
fiscal 1998 fourth quarter press release of its financial results and has no
effect on results of continuing operations.
PART I. 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
AND RESTATED)
<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 98,061 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 120,206 114,055
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
-------------------- -------------------
$ 173,858 $ 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 3,649 4,786
----------------- -------------------
Total current liabilities 55,160 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 111,158 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 36,516 28,994
Cumulative currency translation (1,021) (89)
-------------------- -------------------
65,080 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 62,700 57,296
-------------------- -------------------
$ 173,858 $ 154,530
-------------------- -------------------
-------------------- -------------------
</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 11, JULY 12, JULY 11, JULY 12,
1998 1997 1998 1997
(RESTATED) (RESTATED)
-------------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Sales of services $ 147,330 $ 131,004 $ 430,060 $ 372,136
License fees 754 488 1,744 1,287
----------------- ----------------- ------------------ ------------------
Total sales of services and license fees 148,084 131,492 431,804 373,423
Costs of services 115,251 103,451 335,831 295,389
----------------- ----------------- ------------------ ------------------
Gross profit 32,833 28,041 95,973 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 4,959 3,690 14,353 8,217
Interest expense 744 425 2,079 1,036
Interest income (100) (90) (267) (308)
----------------- ----------------- ------------------ ------------------
Income before income taxes 4,315 3,355 12,541 7,489
Provision for income taxes 1,727 1,372 5,017 3,026
----------------- ----------------- ------------------ ------------------
Net income $ 2,588 $ 1,983 $ 7,524 $ 4,463
----------------- ----------------- ------------------ ------------------
----------------- ----------------- ------------------ ------------------
Basic earnings per share $ 0.17 $ 0.13 $ 0.49 $ 0.29
----------------- ----------------- ------------------ ------------------
----------------- ----------------- ------------------ ------------------
Diluted earnings per share $ 0.16 $ 0.13 $ 0.48 $ 0.29
----------------- ----------------- ------------------ ------------------
----------------- ----------------- ------------------ ------------------
</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 11, JULY 12,
1998 1997
(RESTATED)
------------------ -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,524 $ 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 (2,934) (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 (1,198) 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. RESTATEMENT OF INTERIM FINANCIAL STATEMENTS
In connection with the preparation of the Company's audited financial
statements for its fiscal year ended October 31, 1998 and subsequent to the
filing with the Commission of its Quarterly Report on Form 10-Q for the
third quarter ended July 11, 1998, the Company became aware of certain
procedural and clerical errors that occurred during the third quarter of
fiscal 1998 in connection with the calculation of interim estimated 1998
Medicare revenues for its medical operations, which were subsequently
treated as discontinued operations during the fourth quarter of fiscal
1998. The errors resulted in an overstatement of Medicare revenues and
accounts receivable for the third quarter of fiscal 1998 of $941, a
resulting overstatement of income taxes and income taxes payable of $376,
an overstatement of net income and stockholders' equity of $565 and an
overstatement of basic earnings per share of $0.03 and diluted earnings per
share of $0.04.
2. 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.
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
6
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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
(RESTATED) (RESTATED)
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Net income $ 2,588 $ 1,983 $ 7,524 $ 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 $ 0.17 $ 0.13 $ 0.49 $ 0.29
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Diluted earnings per share $ 0.16 $ 0.13 $ 0.48 $ 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.
4. 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.
5. 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
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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.
6. 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 $16.3
million, or 12.5%, 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 32.2%, 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
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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 22.2% 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 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 22.2% 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 15.6% 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
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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 $1.7 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 $1.0 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 $57.9
million, or 15.6%, 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
42.6%, 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 22.2% 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
<PAGE>
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 15.6% 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 $5.0 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 $5.1 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
<PAGE>
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. 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.
18
<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(1) Employment Agreement between the Company and Michael K. Phippen
10.8.10(1) Second Amendment to Credit Agreement dated as of July 23, 1998
27.1 Financial Data Schedule (Restated)
</TABLE>
- -----------------
(1) Incorporated by reference to exhibits of the Registrant's Form 10-Q for
the quarter ended July 11, 1998 filed on August 25, 1998.
(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.
January 29, 1999 /Paul A. Norberg/
----------------- --------------------------------------------
Date Paul A. Norberg
Executive Vice President and Chief
Financial Officer
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF 7/11/1998; THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE 36 WEEKS ENDED 7/11/1998; AND THE
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE 36 WEEKS ENDED 7/11/1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<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> 99,020
<ALLOWANCES> 959
<INVENTORY> 0
<CURRENT-ASSETS> 120,206
<PP&E> 43,005
<DEPRECIATION> 21,566
<TOTAL-ASSETS> 173,858
<CURRENT-LIABILITIES> 55,160
<BONDS> 0
0
0
<COMMON> 155
<OTHER-SE> 62,545
<TOTAL-LIABILITY-AND-EQUITY> 173,858
<SALES> 430,060
<TOTAL-REVENUES> 431,804
<CGS> 335,831
<TOTAL-COSTS> 417,451
<OTHER-EXPENSES> (267)
<LOSS-PROVISION> 564
<INTEREST-EXPENSE> 2,079
<INCOME-PRETAX> 12,541
<INCOME-TAX> 5,017
<INCOME-CONTINUING> 7,524
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,524
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.48
</TABLE>
